Forest Service
Foreign-Trade Zones Board
International Trade Administration
National Institute of Standards and Technology
National Oceanic and Atmospheric Administration
National Telecommunications and Information Administration
Air Force Department
Engineers Corps
Navy Department
Federal Energy Regulatory Commission
Centers for Disease Control and Prevention
Children and Families Administration
Food and Drug Administration
Coast Guard
Federal Emergency Management Agency
Transportation Security Administration
U.S. Customs and Border Protection
Antitrust Division
Occupational Safety and Health Administration
Federal Aviation Administration
Federal Highway Administration
Federal Transit Administration
Maritime Administration
Pipeline and Hazardous Materials Safety Administration
Foreign Assets Control Office
Internal Revenue Service
Consult the Reader Aids section at the end of this issue for phone numbers, online resources, finding aids, and notice of recently enacted public laws.
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Office of Government Ethics.
Final rule.
The U.S. Office of Government Ethics (OGE) is issuing this final rule to revise the component designations of one agency for purposes of the one-year post-employment conflict of interest restriction for senior employees. Specifically, based on the recommendation of the Department of Health and Human Services, OGE is designating one new component in its regulations.
This rule is effective September 12, 2024.
Kimberly L. Sikora Panza, Senior Associate Counsel, U.S. Office of Government Ethics, 250 E Street SW, Suite 750, Washington, DC 20024-3249; Telephone: 202-482-9300; TTY: 800-877-8339; FAX: 202-482-9237.
The Director of OGE (Director) is authorized by 18 U.S.C. 207(h) to designate distinct and separate departmental or agency components in the executive branch for purposes of 18 U.S.C. 207(c), the one-year post-employment conflict of interest restriction for senior employees. Under 18 U.S.C. 207(h)(2), component designations do not apply to persons employed at a rate of pay specified in or fixed according to subchapter II of 5 U.S.C. chapter 53 (the Executive Schedule). Component designations are listed in appendix B to 5 CFR part 2641.
The representational bar of 18 U.S.C. 207(c) usually extends to the whole of any department or agency in which a former senior employee served in any capacity during the year prior to termination from a senior employee position. However, 18 U.S.C. 207(h) provides that whenever the Director “determines that an agency or bureau within a department or agency in the executive branch exercises functions which are distinct and separate from the remaining functions of the department or agency and that there exists no potential for use of undue influence or unfair advantage based on past Government service,” the Director shall by rule designate that agency or bureau as a separate component of that department or agency.
Pursuant to the procedures prescribed in 5 CFR 2641.302(e), the Department of Health and Human Services (HHS) requested that OGE amend its components listed in appendix B to part 2641. On May 28, 2024, OGE published a proposed rule in the
For the reasons stated in the preamble to the proposed rule, OGE is granting the request of HHS to amend its listing in appendix B to part 2641 to designate ASPR as a distinct and separate component of the agency for purposes of 18 U.S.C. 207(c). As indicated in 5 CFR 2641.302(f), a designation “shall be effective on the date the rule creating the designation is published in the
As Acting Director of the Office of Government Ethics, I certify under the Regulatory Flexibility Act (5 U.S.C. chapter 6) that this final rule will not have a significant economic impact on a substantial number of small entities because it affects only Federal departments and agencies and current and former Federal employees.
The Paperwork Reduction Act (44 U.S.C. chapter 35) does not apply to this final rule because it does not contain information collection requirements that require the approval of the Office of Management and Budget.
For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. chapter 25, subchapter II), this final rule will not significantly or uniquely affect small governments and will not result in increased expenditures by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more (as adjusted for inflation) in any one year.
The final rule is not a major rule as defined in 5 U.S.C. chapter 8, Congressional Review of Agency Rulemaking.
In promulgating this final rule, the Office of Government Ethics has adhered to the regulatory philosophy and the applicable principles of regulation set forth in Executive Order 12866, Regulatory Planning and Review (58 FR 51735, Oct. 4, 1993); Executive Order 13563, Improving Regulation and Regulatory Review (76 FR 3821, Jan. 21, 2011); and Executive Order 14094, Modernizing Regulatory Review (88 FR 21879, Apr. 11, 2023). Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select the regulatory approaches that maximize net benefits (including economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs
This rule has not been reviewed by the Office of Management and Budget under Executive Order 12866 because it is not a “significant” regulatory action for the purposes of that order.
As Acting Director of the Office of Government Ethics, I have reviewed this final rule in light of section 3 of Executive Order 12988, Civil Justice Reform, and certify that it meets the applicable standards provided therein.
The Office of Government Ethics has evaluated this final rule under the criteria set forth in Executive Order 13175 and determined that Tribal consultation is not required as this proposed rule has no substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.
Conflict of interests, Government employees.
Accordingly, for the reasons set forth in the preamble, the U.S. Office of Government Ethics is amending 5 CFR part 2641 as set forth below:
5 U.S.C. ch. 131; 18 U.S.C. 207; E.O. 12674, 54 FR 15159, 3 CFR, 1989 Comp., p. 215, as modified by E.O. 12731, 55 FR 42547, 3 CFR, 1990 Comp., p. 306.
Pursuant to the provisions of 18 U.S.C. 207(h), each of the following agencies is determined, for purposes of 18 U.S.C. 207(c), and 5 CFR 2641.204, to have within it distinct and separate components as set forth below. Except as otherwise indicated, all designations are effective as of January 1, 1991.
Bureau of the Census.
Bureau of Economic Analysis (effective June 26, 2020).
Bureau of Industry and Security (formerly Bureau of Export Administration) (effective January 28, 1992).
Economic Development Administration.
International Trade Administration.
Minority Business Development Agency (formerly listed as Minority Business Development Administration).
National Institute of Standards and Technology (effective March 6, 2008).
National Oceanic and Atmospheric Administration.
National Technical Information Service (effective March 6, 2008).
National Telecommunications and Information Administration.
United States Patent and Trademark Office (formerly Patent and Trademark Office).
Defense Advanced Research Projects Agency (DARPA) (effective April 6, 2021).
Department of the Air Force.
Department of the Army.
Department of the Navy.
Defense Information Systems Agency.
Defense Intelligence Agency.
Defense Logistics Agency.
Defense Threat Reduction Agency (effective February 5, 1999).
National Geospatial-Intelligence Agency (formerly National Imagery and Mapping Agency) (effective May 16, 1997).
National Reconnaissance Office (effective January 30, 2003).
National Security Agency.
Federal Energy Regulatory Commission.
Administration for Children and Families (effective January 28, 1992).
Administration for Community Living (effective December 4, 2014).
Administration for Strategic Preparedness and Response (effective September 12, 2024).
Agency for Healthcare Research and Quality (formerly Agency for Health Care Policy and Research) (effective May 16, 1997).
Agency for Toxic Substances and Disease Registry (effective May 16, 1997).
Centers for Disease Control and Prevention (effective May 16, 1997).
Centers for Medicare and Medicaid Services (formerly Health Care Financing Administration).
Food and Drug Administration.
Health Resources and Services Administration (effective May 16, 1997).
Indian Health Service (effective May 16, 1997).
National Institutes of Health (effective May 16, 1997).
Substance Abuse and Mental Health Services Administration (effective May 16, 1997).
Bureau of Indian Affairs (effective January 28, 1992).
Bureau of Land Management (effective January 28, 1992).
Bureau of Reclamation (effective January 28, 1992).
National Park Service (effective January 28, 1992).
Office of Surface Mining Reclamation and Enforcement (effective January 28, 1992).
U.S. Fish and Wildlife Service (effective January 28, 1992).
U.S. Geological Survey (effective January 28, 1992).
Antitrust Division.
Bureau of Alcohol, Tobacco, Firearms and Explosives (effective November 23, 2004).
Bureau of Prisons (including Federal Prison Industries, Inc.).
Civil Division.
Civil Rights Division.
Community Relations Service.
Criminal Division.
Drug Enforcement Administration.
Environment and Natural Resources Division.
Executive Office for United States Attorneys
Executive Office for United States Trustees
Federal Bureau of Investigation.
Foreign Claims Settlement Commission.
Independent Counsel appointed by the Attorney General.
Office of Justice Programs.
Office of the Pardon Attorney (effective January 28, 1992).
Offices of the United States Attorney (each of 94 offices).
Offices of the United States Trustee (each of 21 offices).
Office on Violence Against Women
Tax Division.
United States Marshals Service (effective May 16, 1997).
United States Parole Commission.
Bureau of Labor Statistics.
Employee Benefits Security Administration (formerly Pension and Welfare Benefits Administration) (effective May 16, 1997).
Employment and Training Administration.
Mine Safety and Health Administration.
Occupational Safety and Health Administration.
Office of Disability Employment Policy (effective January 30, 2003).
Office of Federal Contract Compliance Programs (effective December 29, 2016).
Office of Labor Management Standards (effective December 29, 2016).
Office of Workers' Compensation Programs (effective December 29, 2016).
Pension Benefit Guaranty Corporation (effective May 25, 2011).
Veterans' Employment and Training Service (effective June 26, 2020).
Wage and Hour Division (effective December 29, 2016).
Foreign Service Grievance Board.
Federal Aviation Administration.
Federal Highway Administration.
Federal Motor Carrier Safety Administration (effective January 30, 2003).
Federal Railroad Administration.
Federal Transit Administration.
Maritime Administration.
National Highway Traffic Safety Administration.
Pipeline and Hazardous Materials Safety Administration (effective December 29, 2016).
Saint Lawrence Seaway Development Corporation.
Alcohol and Tobacco Tax and Trade Bureau (effective November 23, 2004).
Bureau of Engraving and Printing.
Bureau of the Fiscal Service (effective December 4, 2014).
Comptroller of the Currency.
Financial Crimes Enforcement Network (FinCEN) (effective January 30, 2003).
Internal Revenue Service.
United States Mint (formerly listed as Bureau of the Mint).
U.S. Small Business Administration.
Notice of availability of white paper on revised size standards methodology.
The U.S. Small Business Administration (SBA or Agency) advises the public that it has revised its size standards methodology white paper, entitled “SBA's Size Standards Methodology (June 2024)” (the Revised Methodology or Methodology), explaining how it establishes, reviews, or revises small business size standards. SBA will apply the Revised Methodology to the forthcoming third five-year review of size standards required by the Small Business Jobs Act of 2010. On December 11, 2023, SBA published a notification seeking comments on proposed revisions to its Methodology. This notification describes major changes to the Methodology and their impacts on size standards, followed by a discussion of the comments SBA received on the proposed revisions to the Methodology and Agency's responses.
September 12, 2024.
The 2024 Revised Methodology is available on the SBA's website at
Khem R. Sharma, Chief, Office of Size Standards, (202) 205-7189, or
To determine eligibility for Federal small business assistance programs, SBA establishes small business size definitions (commonly referred to as “size standards”) for private sector industries in the United States. Under the Small Business Act (the Act), 15 U.S.C. 632(a) (Pub. L. 85-536, 67 Stat. 232, as amended), the SBA's Administrator (Administrator) has authority to establish size standards for Federal Government programs. SBA's existing size standards use two primary measures of business size: average annual receipts and average number of employees. Financial assets and refining capacity are used as size measures for a few specialized industries. In addition, the SBA's Small Business Investment Company (SBIC), 7(a), and Certified Development Company (CDC/504) Programs determine small business eligibility using either the industry-based size standards or tangible net worth and net income based alternative size standards. Presently, there are 102 different size standards, covering 978 industries and 14 subindustries, also known as “exceptions.” Of these, 505 are based on average annual receipts, 483 on number of employees (one of which also includes barrels per calendar day total refining capacity), and four on average assets.
The Small Business Jobs Act 2010 (Pub. L. 111-240, 124 Stat. 2504, Sept. 27, 2010) requires SBA to review, every five years, all size standards and make necessary adjustments to reflect market conditions. SBA completed the first five-year review of size standards under the Jobs Act in early 2016
The goal of SBA's size standards review is to determine whether its existing size standards reflect the current industry structure and Federal market conditions and revise them if the latest available data suggests that revisions are warranted. The Act requires that the size standard varies from industry to industry to the extent necessary to reflect the differing characteristics of the various industries. SBA evaluates the structure of each industry in terms of four economic characteristics or factors, namely average firm size, average assets size as a proxy of startup costs and entry barriers, the four-firm concentration ratio as a measure of industry competition, and size distribution of firms using the Gini coefficient (13 CFR 121.102(a)). Besides industry structure, SBA also examines the impact of an existing size standard as well as the potential impact of a revised size standard on small business participation in Federal contracting as an additional primary factor when establishing, reviewing, or modifying the size standards. SBA generally considers these five factors—average firm size, average assets size, four-firm concentration ratio, Gini coefficient, and small business participation in Federal
SBA also periodically adjusts all monetary based standards for inflation. In accordance with SBA's regulations (13CFR 121.102(c)) and rulemaking (67 FR 3041; January 23, 2002), an adjustment to size standards for inflation is made at least once every five years. In response to higher than normal rates of inflation, some past inflation adjustments have been made on more frequent intervals. For example, in response to ongoing higher than normal inflation, SBA issued an out-of-cycle inflation adjustment to monetary based size standards on November 17, 2022 (87 FR 69118). The SBA's Methodology also explains how it adjusts monetary based size standards for inflation. SBA also updates its size standards, every five years, to adopt the Office of Management and Budget's (OMB) quinquennial North American Industry Classification System (NAICS) revisions to its table of small business size standards. Effective October 1, 2022, SBA adopted the OMB's 2022 NAICS revisions (86 FR 72277; December 21, 2021) for its table of small business size standards (87 FR 59240; September 29, 2022). The Methodology also explains the SBA's procedures for adopting updated NAICS definitions for the table of size standards.
Section 3(a) of the Act provides the Administrator with authority to establish small business size standards for Federal Government programs. The Administrator has discretion to determine precisely how SBA should establish small business size standards. The Act and its legislative history highlight three important considerations for establishing size standards. First, as stated earlier, size standards should vary from industry to industry according to differences among industries. 15 U.S.C. 632(a)(3). Second, a firm that qualifies as small under the SBA's size standard shall not be dominant in its field of operation. 15 U.S.C. 632(a)(1). Third, pursuant to 15 U.S.C. 631(a), the policies of the Agency should assist small businesses as a means of encouraging and strengthening their competitiveness in the economy. These three considerations continue to form the basis for the SBA's methodology for establishing, reviewing, or revising small business size standards.
The 2024 Revised Methodology, available on the SBA's website at
SBA's 2024 Revised Methodology describes various changes and revisions to the 2019 Methodology and provides a detailed history of changes to SBA's Methodology for evaluating size standards over the years. In the past, including the first five-year review of size standards under the Jobs Act, to determine an overall size standard for each industry, SBA compared the characteristics of each industry with the average characteristics of a group of industries associated with an “anchor” size standard. For example, in the first five-year review of size standards, $7 million (now $9 million due to the inflation adjustments in 2014, 2019, and 2022) was considered the “anchor” for receipts-based size standards and 500 employees was considered the “anchor” for employee-based size standards. If the characteristics of a specific industry under review were similar to the average characteristics of industries in the anchor group, SBA generally adopted the anchor size standard for that industry. If the specific industry's characteristics were significantly higher or lower than those for the anchor group, SBA assigned a size standard that was higher or lower than the anchor.
In response to public comments received during the first five-year review of size standards concerning SBA's size standards methodology, section 3(a)(7) of the Act (which limits the SBA's ability to create common size standards by grouping related industries below the four-digit NAICS level), and its own review of the Methodology, in the 2019 Methodology, SBA replaced the “anchor” approach with the “percentile” approach, as the basis of evaluating industry factors (
In the 2024 Revised Methodology, SBA is maintaining the “percentile” approach as a basis of evaluating industry factors and deriving size standards for each industry factor for each industry; however, based on its review of the current methodology, SBA is adopting two major changes to its size standards methodology.
The first major change is to replace the current approach used to account for the Federal contracting factor with the disparity ratio approach. Under the 2019 Methodology, SBA defined the Federal contracting factor for each industry averaging $20 million or more in Federal contracts annually as the difference between the small business share of total contract obligations and the small business share of industry' receipts. If the small business share of an industry total receipts exceeds the small business share of total contract obligations by ten percentage points or more, all else being the same, SBA would increase that industry's current size standard by a certain amount depending on the amount of that difference. If that difference is less than ten percentage points, SBA considers that the current size standard is sufficient with respect to the Federal contracting factor.
Under the disparity ratio approach, SBA computes a disparity ratio as a
If an industry's disparity ratio is less than 0.8, SBA would assume that small businesses are either materially underrepresented (
The second proposed major change is to replace the 20th percentile and 80th percentile values of industry factors for evaluating size standards at subindustry levels (“exceptions”) currently calculated based on the Economic Census data with those calculated using the Federal Procurement Data System—Next Generation (FPDS-NG) and the System for Award Management (SAM) data.
SBA is adopting these changes in order to refine and improve its analysis of Federal contracting data used in the evaluation of industry size standards. These changes are also in response to public comments received during the second five-year review of size standards that pertained to Federal contracting trends generally. Although SBA did not specifically seek comments to the 2019 Methodology as part of the series of proposed rules issued to review size standards under the second five year review,
To determine how the above changes in the Methodology would affect size standards across various industries and sectors, SBA derived the new size standards for all industries averaging $20 million or more in Federal contract dollars annually (excluding Sectors 42 and 44-45) using the 2019 Methodology and the disparity ratio approach of defining the Federal contracting factor under the 2024 Methodology. Overall, the calculated size standards were quite similar between the two approaches when compared to the existing size standards, with size standards increasing for some industries and decreasing for others under both approaches.
SBA believes that using FPDS-NG and SAM data to obtain the 20th percentile and 80th percentile values of industry factors for evaluating size standards for the exceptions, instead of using the percentiles from the Economic Census, will promote consistency in its analysis of the exceptions by ensuring that the percentile values and factor values for each exception are in comparable terms. Specifically, SBA has found that for most industries, the average firm size of businesses participating in Federal contracting is generally larger than the average firm size of businesses represented in the Economic Census. There are also inconsistencies in data reporting between SAM/FPDS-NG data and the Economic Census, which SBA will address by adopting the revised approach. Thus, SBA believes that using FPDS-NG and SAM to obtain the percentile values of industry factors for the exceptions will better reflect the varying economic characteristics of the underlying industries. The full results of SBA's impact analysis as well as a detailed description of the major changes to SBA's evaluation of size standards are included in the 2024 Revised Methodology.
In the 2024 Revised Methodology, SBA is also updating the minimum and maximum size standard levels based on current minimum and maximum size standard levels. The minimum size standard generally reflects the size a small business should be to have adequate capabilities and resources to be able to compete for and perform Federal contracts. On the other hand, the maximum size standard represents the level above which businesses, if qualified as small, would cause significant competitive disadvantage to smaller small businesses when accessing Federal assistance. SBA will not generally propose or adopt a size standard that is either below the minimum or above the maximum level, even though the calculations might yield values below the minimum or above the maximum level.
With respect to receipts-based size standards, SBA is adopting $8 million and $47 million, respectively, as the minimum and maximum size standard levels (except for most agricultural industries in Subsectors 111 and 112). These levels reflect the current minimum and the current maximum of receipts-based size standards. As in the 2019 Methodology, the latest industry data from the 2017 Census of Agriculture suggests that $8 million minimum and $47 million maximum size standard levels would be too high for agricultural industries in Subsector 111 and Subsector 112. Accordingly, SBA is adopting $2.25 million and $5.5 million, respectively, as the minimum and maximum size standard levels for agricultural industries in Subsectors 111 and 112 (excluding NAICS 112112 and NAICS 112310). These levels represent the current minimum and current maximum levels of size standards in Subsectors 111 and 112 (excluding NAICS 112112 and NAICS 112310).
Regarding employee-based size standards for manufacturing and other industries that have employee-based size standards (excluding Wholesale and Retail Trade), SBA's 250-employee minimum and 1,500-employee maximum are the current minimum and maximum employee based size standards among those industries. For employee-based size standards for Wholesale Trade and Retail Trade industries, the minimum and maximum size standards levels are 50 employees and 250 employees, respectively.
SBA is also updating the percentile values, derived from the latest 2017 Economic Census and other industry data, used to evaluate the structure of each industry in terms of the four economic characteristics or factors, namely average firm size, average assets size, the four-firm concentration ratio, and the Gini coefficient. As explained in the 2024 Revised Methodology, SBA ranks industries by size standard types in terms of the four industry factors and in terms of the existing size standards, then computes the 20th percentile and 80th percentile values for both. SBA then evaluates each industry by comparing its value for each industry factor to the 20th percentile and 80th percentile values for the corresponding factor for industries under a particular type of size standard. The updated 20th percentile and 80th percentile values for the four factors for receipts-based and employee-based size standards are found in Table 5 and Table 6 of the 2024 Revised Methodology, respectively; the updated 20th percentile and 80th percentile values of size standards are found in Table 7.
On December 11, 2023, SBA published a notification in the
SBA received a total of 21 comments (including one received during the public forums on size standards), of which 19 were significant. Of these 19 comments, two represented SBA's administrative records of two public forums designed to update the public on the status of quinquennial reviews of size standards under the Jobs Act and seek feedback on SBA's Revised Methodology, which will be used to review and adjust size standards under the forthcoming third five-year review of size standards. Public comments are summarized below and are available on the Federal Government e-rulemaking portal at
SBA received four comments that expressed full support for its Revised Methodology. One commenter found the Revised Methodology to be a reasonable and consistent approach to establish, review, and modify size standards. The commenter appreciated the SBA efforts to incorporate the recent amendments to the Small Business Act and to address the public comments to the 2019 Methodology. Specifically, the commenter commended the SBA for making certain analytical improvements, such as adopting a percentile approach, assigning a separate size standard for each NAICS industry, lowering the threshold for the Federal contracting factor, and applying the 4-firm concentration ratio to all industries. The commenter believed that these changes would better reflect the current market conditions and ensure that the size standards are in accordance with the legislative guidelines. Overall, the commenter supported the Revised Methodology, and urged SBA to finalize and publish it as soon as possible. The commenter stated that the Revised Methodology will provide a fair and consistent definition of a small business and will enable SBA to fulfill its mission of assisting and promoting the small business community.
Another commenter, a service-disabled veteran-owned small business (SDVOSB), extended its full support for the SBA's proposed revisions to the Methodology. The commenter believed that proposed revisions are a significant step toward creating a more equitable, competitive, and dynamic small business landscape. SBA received two comments that also supported SBA's proposed revisions to the Methodology but did not provide any reasons for their support.
A women-owned small business advocacy group submitted a comment to the SBA Revised Methodology. The commenter neither opposed nor supported the proposed revisions to the Methodology. Similarly, an industry association circulated the Revised Methodology to its 400-plus members and solicited their feedback. The members' input neither supported nor opposed the overall Methodology but agreed with the SBA position on a number of policy issues and questions regarding the Methodology.
In absence of significant adverse comments against the Revised Methodology generally, SBA is adopting it as published for comments even though a couple of comments, as discussed below, objected using the FPDS-NG and SAM data to compute the 20th percentile and 80th percentile values of industry factors to evaluate the size standards at the subindustry levels, usually known as “exceptions.” One comment, also discussed below, opposed using the maximum size standards caps in calculating new size standards for each industry factor as well as in calculating the overall size standard for the industry. SBA did not receive any comment that objected to the adoption of the disparity ratio approach to account for small business participation in the Federal market.
SBA sought feedback on a number of specific policy issues and questions it faces regarding the Methodology for establishing, reviewing, and modifying size standards. A number of commenters specifically addressed these issues, as discussed below.
Three commenters addressed this issue. A commenter concurred with the SBA's position that size standards must be established above the entry-level size to ensure small businesses have the necessary resources and capabilities to be able to perform and meet Federal Government contracting requirements. Another commenter supported the SBA's approach to establishing size standards that reflect the current realities of industry-specific dynamics, including setting standards above entry-level business sizes. This approach ensures that businesses with a footprint slightly above the “entry level” can still access vital resources and opportunities, fostering growth and innovation within their respective fields, the commenter added. SBA received another comment
In the absence of adverse comments against establishing the size standard above the entry-level business size, SBA adopts its approach of setting size standards higher than the entry-level business size to enable small businesses to compete against others of their size and considerably larger businesses for Federal contracts set-aside for small businesses. It is important that small businesses can apply for and be eligible for the various SBA's contracting and business development programs that have additional requirements, such as a minimum number of years in business to qualify for its 8(a) Business Development Program. This precludes setting size standards at too low a level or at the entry-level size. Additionally, establishing size standards at the industry entry-level firm size would cause small businesses to outgrow their eligibility very quickly, thereby lacking sufficient cushion or experience to succeed outside of the small business market. Finally, size standards must be above the entry-level size to ensure that small businesses have necessary resources and capabilities to be able to bid on and perform Federal contracts.
SBA received three comments addressing this issue, with two supporting and one opposing the SBA's position. One commenter supported the introduction of a maximum size standard because it is beneficial for maintaining the integrity of small business programs. The commenter asserted that establishing a maximum size standard cap ensures that Federal small business programs remain accessible to businesses that genuinely need them while preventing larger entities from overshadowing the competitive landscape for true small businesses, including SDVOSBs. A maximum size standard would serve as a safeguard, ensuring that the small business benefit is preserved for those it is intended to support, the commenter added.
SBA received a comment from an industry association supporting the SBA's policy to continue maintaining the minimum and maximum levels for both receipts- and employee-based size standards. The commenter agreed with the SBA's position that, without the maximum caps as defined by the Revised Methodology, the calculated size standards would be extremely large for some industries, allowing very successful businesses with hundreds of millions in receipts or tens of thousands of employees to qualify as small for Federal assistance intended for small businesses.
SBA received a comment disagreeing with SBA's proposed maximum caps of $47 million for revenue-based size standards and 1,500 employees for employee-based size standards. The commenter explained that size standards would better reflect the economic characteristics of industries if there were no caps on size standards and instead SBA permitted its industry-specific analysis of the data to determine the appropriate size standard for the industry. If SBA feels caps are necessary, the commenter urged SBA to provide a sound economic analysis to justify the application of caps. The caps result in lower size standards than would otherwise be calculated, and the Methodology no longer aspires to find a true economically appropriate size standard, the commenter argued. The commenter asserted that arbitrary caps are inconsistent with the requirement that size standards vary from industry to industry according to differences among industries and SBA's polices of encouraging and strengthening competition in the economy. Because of the introduction of caps, SBA runs the risk of being perceived to favor the smallest small businesses at the expense of the larger small businesses, the commenter noted. The commenter urged SBA to let the data drive the results instead of policies.
SBA agrees with the industry association that, without the maximum caps, the calculated size standards would be extremely high, allowing, in some cases, extremely large companies with billions of dollars in revenues and tens of thousands of employees to qualify as small business. Capping calculated size standards at certain minimum and maximum levels is crucial for fulfilling the SBA's mission to serve and protect the interests of American small businesses and ensuring that Federal small business assistance goes to small businesses most in need of such assistance. For this reason, in the Revised Methodology, SBA retains its policy of capping the calculated receipts-based size standards at $47 million and calculated employee-based size standards at 1,500 employees. SBA has maintained its employee-based maximum size standard cap at the 1,500 employees despite the increased automation and resultant labor productivity growth. However, the receipts-based size standards have gradually increased over time due to inflationary adjustments, and the highest receipts-based size standard stands at $47 million today.
Four comments addressed this issue. SBA received a comment justifying the lack of SBA's adjustment to employee-based size standards for labor productivity growth and technical changes because it is difficult to measure and compare the productivity and technology levels across industries and over time.
Another comment argued that, without seeing a specific proposal, it is difficult to comment on whether SBA should consider adjusting employee-based size standards for labor productivity growth or increased automation. However, the commenter recommended proceeding cautiously, as small businesses might not have the necessary capital to take advantage of automation and robotics.
Another commenter argued that the rapid pace of technological advancement and its impact on labor productivity and automation necessitates adjustments to employee-based size standards and suggested that SBA incorporate considerations for labor productivity growth and automation into its Methodology. This adjustment would ensure that size standards remain relevant and that businesses utilizing technology to enhance productivity or automate processes are not unfairly classified as small due to efficiency gains, the commenter added.
SBA received a comment supporting the SBA's current approach of not adjusting employee-based size standards for labor productivity growth. By updating size standards every five years, those factors are already captured in SBA's analysis of the industry structure, the commenter added. The commenter argued that any separate adjustments
Of the four comments addressing this issue, three supported the SBA's current approach of not adjusting employee-based size standards for increased automation and labor productivity growth, even though the Agency adjusts monetary-based size standards for inflation. Just as firms in industries with monetary-based size standards may lose small business eligibility due to inflation, firms in industries with employee-based standards may gain eligibility due to improvement in labor productivity and technical change. There are three reasons for SBA for not adjusting employee-based size standards for productivity growth and technical change. First, there does not exist robust labor productivity growth data by 6-digit NAICS industry. Second, SBA agrees with one of the commenters supporting no labor productivity adjustment of employee-based size standards that the impact of changes in labor productivity are already reflected in the quinquennial Economic Census data that SBA uses to evaluate industry structure. Third, just as an adjustment to monetary-based size standards for inflation leads to increases in size standards, thereby allowing businesses to gain or maintain their small business status, an adjustment to employee-based size standards for labor productivity growth would lead to decreases in size standards, thereby causing currently small businesses to lose their small business status and eligibility for Federal small business assistance, which may run counter to the SBA's policy of not lowering size standards under distressed economic environment. For these reasons, in the Revised Methodology, SBA maintains its policy of not adjusting employee-based size standards for labor productivity growth.
Four comments addressed this issue. One commenter opposed lowering size standards arguing that many businesses have made investments based upon their ability to access small business set-aside markets and lowering size standards would unfairly penalize them.
Citing the ongoing decline in the number of small businesses participating in the Federal marketplace, one commenter opposed lowering size standards. The commenter argued that lowering size standards will not only exacerbate this situation but also harms small businesses and deprives agencies of increased competition and the experienced small business vendor base. Instead of lowering size standards, the commenter added, SBA should look into raising size standards, thereby allowing more small businesses to remain in the Federal market longer. The commenter asserted that raising size standards would both expand the small business industrial base for Federal agencies and extend the runway for these firms as they grow and have a chance to successfully graduate from their status as small businesses. The commenter maintained that, by lowering size standards, SBA will decrease the pool of eligible offerors under the Rule of Two, and thus lowering size standards would lead to fewer small business set-asides overall due to the reduced applicability of the Rule of Two.
An industry association recommended that SBA should not lower size standards. The association did not believe that lowering size standards would support the Administration's and SBA's goals to reverse a downward trajectory of fewer small businesses receiving Federal prime contracts. The association maintained that lowering size standards generally may further squeeze successful small businesses, limit returns on the Government's investments in small business growth and deprive agencies of increased competition. To support its argument, the commenter cited the Government Accountability Office (GAO) finding that only 22% of graduating businesses remain mid-size and only three percent of graduating businesses break through mid-size status to large. The commenter maintained that contracting trends also do not support lowering size standards as individual set-aside contracts have increased in value such that small businesses may be catapulted beyond their size standards, often in a single contract or task order. These small businesses face a tough situation: unable to remain qualified as “small,” they must survive in “full and open” competitions with larger companies.
A commenter representing the elevator industry believed that with increased inflation and raw materials costs, especially in construction-related industries with significant material outlays, broad-based lowering of size standards would be short-sighted and should not be enacted.
All four comments addressing this issue opposed lowering size standards, generally. SBA receives periodic comments from the public that its size standards are too high in certain industries or for certain types of Federal contracting opportunities. The comments generally concern the competitive edge that large small businesses have over the “truly small businesses” (a phrase heard frequently from commentators). On the other hand, SBA also receives comments from larger small businesses that their size standards are too small to qualify for Federal contracting opportunities and other Federal small business assistance. This has always been a challenging issue, one that SBA has had to deal with over the years. SBA's size standards appear too large to the smallest of small businesses while larger small businesses often request even higher size standards. SBA examines four industry factors (average firm size, average assets size as a proxy of startup costs and entry barriers, 4-firm concentration ratio, and Gini coefficient) and small business participation in Federal contracting to determine if the existing industry size standards need to be adjusted. SBA considers analytical results, impacts of new size standards on small businesses, public feedback on proposed size standards, and the prevailing market conditions to decide on whether the size standard should be raised, lowered, or retained at the current level. SBA may lower calculated size standards if they are found to have enabled a dominant firm to qualify as small.
Three comments addressed this issue. One commenter supported the SBA's policy of not lowering size standards during periods of fluctuating economic conditions. The commenter argued that businesses do better when there is certainty in the rules, thereby allowing them to plan for the future.
An industry association recommended that if SBA were to consider lowering size standards, such action should not be tied to the prevailing economic conditions. Rather, any such reduction should be based on an assessment of fluctuations in contracting that cannot be attributed to a single factor or economic period. It noted that the prevailing economic conditions are only one factor to consider and only represent a snapshot in time, instead of market understanding over time.
SBA received a comment applauding SBA's effort to review size standards on a five-year basis and to raise standards
Prior SBA policy has been to consider the prevailing economic environment when deciding on whether to revise size standards. In response to the distressed economic environment in the aftermath of the 2007-2009 Great Recession, in the first five-year review of size standards under the Jobs Act, SBA adopted a policy of not lowering size standards even though the data supported lowering them for some industries. Similarly, in response to the COVID-19 pandemic and its impacts on small businesses and the overall economy, during the second five-year review of size standards under the Jobs Act, SBA adopted a similar policy of not lowering any size standards even though the analytical results supported lowering them. SBA will continue to consider the prevailing economic conditions and their impacts on small businesses in revising size standards as a secondary factor in its analysis.
Four comments addressed this issue, all supporting the SBA's new disparity approach to account for Federal contracting trends. One commenter supported the new disparity ratio approach to evaluating small business participation in the Federal market, arguing that this new approach would better capture the entire spectrum of small business participation in Federal contracting. Another commenter also expressed strong support for the SBA's proposed adoption of the disparity ratio approach to account for small business participation in the Federal market. The commenter added that the proposed approach promises a more equitable and accurate reflection of small business participation in the Federal market, thereby making size standards that are more aligned with actual market participation and potential and enhancing ability of small businesses to secure Federal contracts. Another commenter also supported SBA's new disparity ratio approach to measure small businesses' share of Federal contracting in relation to the broader industry.
An industry association recommended that SBA use the disparity ratio approach where it might lead to increased participation from under-represented industries. The association members believed the disparity ratio approach might, in some industries where small businesses are not well represented as prime contractors, help draw more contractors into the Federal space by increasing size standards. The industry association's view is that power analyses should not be used because they do not consider the actual performance of small businesses.
Absent significant adverse comments, SBA is adopting the disparity ratio approach to measure the Federal contracting factor as proposed. In the previous Methodology, SBA only considered the small business share of Federal contract dollars relative to the small business share of total industry receipts. Under the disparity ratio approach, SBA is also considering the number of Federal contracts awarded to small businesses relative to their proportion in the population of firms that are ready, willing, and able to bid on and perform Federal contracts. Thus, the disparity ratio provides a more accurate representation of small business participation in the Federal market. Since only a very few industries were impacted by the power analyses, SBA has decided to not use the results from the power analyses, consistent with the industry association's recommendation.
Three comments addressed this issue, with one supporting the SBA's proposal and two opposing it. One commenter supported the use of FPDS-NG and SAM data for industry analysis for exception size standards. It makes sense that SBA should use the same consistent source of data throughout the analysis where possible, the commenter added.
Another commenter disagreed with the SBA's proposal to use FPDS-NG and SAM data to obtain the 20th percentile and 80th percentile values of industry factors for evaluating size standards for the NAICS exceptions. The commenter contended that the use of FPDS-NG and SAM data would limit the SBA's analysis to the subset of companies engaged in Federal contracting only. Many small businesses rely on these size standards for purposes other than Federal contracting, the commenter added. The commenter recommended continuing to use the Economic Census data to obtain the 20th percentile and 80th percentile values of industry factors for evaluating size standard exceptions.
Based on the input from its members, an industry association also recommended that SBA continue using Economic Census data because it captures firms not currently working in the Federal space and is therefore consistent with the intent of the Methodology. The association explained that if SBA were to rely on FPDS-NG and SAM data, the results would incorporate only a subset of firms working in a given industry that hold Federal contracts. Using Economic Census data paints a more accurate picture of firms operating in the various industries, in and out of Government, the commenter added.
The data from the Census Bureau's Economic Census tabulation are limited to the six-digit NAICS industry level and therefore do not provide information on economic characteristics of firms at the subindustry level. Thus, SBA uses the FPDS-NG and SAM data to derive the industry factors for exceptions. To be consistent, SBA is proposing to adopt the FPDS-NG and SAM data to obtain the 20th percentile and 80th percentile values of industry factors for evaluating size standards for the NAICS exceptions, instead of using the percentiles from the Economic Census. SBA believes that using the FPDS-NG and SAM data to obtain the 20th percentile and 80th percentile values of industry factors for evaluating size standards for the exceptions, instead of using the percentiles from the Economic Census, will promote
SBA received two comments addressing this issue, with both expressing support for the SBA's position of not varying the size standards from program to program. One commenter opposed size standards to vary from program to program because many small businesses participate in more than one SBA's program. The commenter argued that changing size standards from program to program would create substantial confusion.
An industry association recommended that, absent a clear benefit, size standards should not vary from program to program. The association believed that size standards need to be clearly understood by the acquisition community so that set-aside decisions and subcontracting goals can be realistically established. Adding additional sets of standards by program in addition to varying them from industry to industry would add multiple layers of complexity for small firms that may not have the resources to develop additional staff expertise in tracking the applicability of size standards for each program, especially for those involved in multiple programs, the commenter added.
Consistent with the above comments, for all industries except for Wholesale Trade and Retail Trade industries, where businesses for SBA's financial and other Federal non-procurement programs qualify under the industry-specific size standards and those for Federal procurement qualify under the 500-employee nonmanufacturer size standard, SBA retains its policy of maintaining the uniform size standard for both procurement and non-procurement programs. SBA had, in the 1980s, established different size standards for different programs. The result had been that some firms were small for some programs and large for others. Such size standards were very confusing to users and caused unnecessary and unwanted complexity in their application. The statutory guidance encourages an industry-by-industry analysis and not a program-by-program analysis when developing small business size definitions. While the characteristics and needs of a particular SBA's program may necessitate the deviation from the uniform size standards, the Agency will continue its general policy of favoring one set of size standards for all programs. For example, SBA has established 14 special size standards for specific activities (commonly referred to as “exceptions”) within certain industries for Federal procurement purposes. Additionally, for the SBA's SBIC, 7(a), and CDC/504 Programs, businesses can qualify either based on industry specific size standards for their primary industries or based on a tangible net worth and net income based alternative size standard.
Five comments addressed this issue, all opposing size standards varying geographically. One commenter asserted that size standards should apply nationally, not geographically, but did not provide reasons for its position. Another commenter also opposed geographically differing size standards. The commenter argued that the notion of geographically differing size standards is not reflective of the reality of the modern-day global economy, in which vendors and suppliers operate remotely and across multiple states and national boundaries. The commenter urged SBA to maintain uniform industry size standards across geographic regions.
An industry association recommended that size standards should apply nationally, rather than geographically. The association agreed with the SBA's position that application of Economic Census data to determine size standards geographically would be at a minimum cumbersome and time consuming, resulting in a complex set of size standards that would likely be unusable. The association maintained that adding in a geographic variable would complicate the application of size standards for the reasons provided. For example, if applied at place of delivery or at multiple locations of delivery, how would the size standards differentiate between sizes of companies performing on that task order or between subcontractors and contractors? Application of size standards geographically would create more confusion than opportunity, the commenter added.
A commenter representing the elevator industry believed that trying to segment size standards geographically would lead to a host of unintended consequences that would render the size standards impossible to effectively implement. The commenter asked how the size standards would be applied when a contractor is headquartered in one geographic region (such as a state) and performs contracts in others. Another commenter agreed with the SBA's position that varying size standards geographically would lead to undue complexity and the resulting confusion would render geographically based size standards unusable.
The statute defines a small business concern as the one which is independently owned and operated and which is not dominant in its field of operation (15 U.S.C. 632 (a)(1)). The statute does not exclude from the definition those small businesses that might dominate their fields of operations within a specific geographic area. Whether a firm is “not dominant in its field of operation” is made at the national level.
The statute requires SBA to ensure that the size standard varies from industry to industry to the extent necessary to reflect the differing characteristics of the various industries (15 U.S.C. 632(a)(3)). However, the statute does not require SBA to vary the size standard from geography to geography to account for geographical differences in industrial characteristics.
If SBA were to establish size standards that would vary geographically, SBA would need to identify a proper unit of geography. Should it be the region, state, county, or other basis? Whatever basis SBA were to choose, SBA likely would need to vary each of the 1,000-plus industry-based size standards by geography. This could result in tens or even hundreds of thousands of size standards using geography-industry pairs. The public would then face the immense burden of reviewing, commenting on, and complying with those size standards.
Another challenge with geographically varying size standards would be determining the applicable size standard when the vendor's location is different from the location of contract performance. Which size standard would be applicable in determining the small business status of the vendor? Should it be the size standard that applies to the area where the vendor is located, or should it be the size standard applicable to the location of contract performance? If vendor location, firms with multiple locations would either be subject to multiple size standards or a complex series to regulations to determine which location sets the size standard. If location of contract performance, firms would compete on an uneven basis because they would be subject to different size standards.
Geographically varying size standards may inappropriately influence entrepreneurs' decisions on selecting business location. If size standards varied geographically, entrepreneurs would tend to be encouraged to move from places with lower size standards to places with higher size standards to receive the benefits of higher size standards. This may lead to potential disparities in entrepreneurship and business development among geographic regions. This might inadvertently suppress economic development in already-distressed regions as firms seek optimal locations based on regulatory compliance rather than economic forces.
SBA determines the size standards based on special tabulations of business data from the Economic Census, which is compiled and reported nationally. The same level of details of Economic Census data is not available for smaller geographical units. SBA is required to set size standards that would exclude firms that are “dominant in their field of operation,” and that criteria is set nationally. As a result, in large part, the size standards are higher than they would be if the Agency were to look at smaller geographic areas because very few firms that are dominant locally are dominant nationally. Data limitations preclude an extensive analysis of businesses within specific industries on a geographical basis.
For the above reasons and commenter's views discussed above, SBA will continue to establish and apply the size standards at the national level, without considerations to geographical differences in industry characteristics.
Two comments addressed this issue. One commenter suggested that SBA should reconsider establishing a common size standard for closely-related NAICS codes, such as those under NAICS 5415, Computer Systems Design and Related Services. The commenter argued that, until the most recent revision, all 6-digit industries under NAICS 5415 had the same size standard because those NAICS codes are used interchangeably by agencies, resulting in confusion.
An elevator company suggested that SBA should consider irrefutable, publicly available data provided by industry participants and industry expertise in the context of determining the size standard for the elevator industry. With respect to the elevator industry, the commenter argued that elevator maintenance, repair and modernization companies are vastly different from elevator inspection companies, and it would be inappropriate to lump them into one category simply because they both relate to the elevator industry. The commenter argued that companies involved in maintenance, repair and modernization of elevators are dramatically different from those companies involved in inspection of elevators. Compared to the latter, the commenter noted, the former have significant barriers to entry and very high concentration of large companies that dominate the market. Elevator inspection companies, on the other hand, have very low barriers to entry, do not require licensed mechanics, and have dramatically lower revenue per employee, and higher competition within the industry, the commenter added. The commenter contended that equipment needed to perform elevator inspection contracts is less costly than that required to perform maintenance contracts.
The National Defense Authorization Act of Fiscal Year 2013 (NDAA 2013) (Pub. L. 112-239, section 1661, Jan. 2, 2013) amended the Small Business Act to prohibit SBA from limiting the number of size standards and to require SBA to assign specific size standards for each NAICS industry. This limits the SBA's ability to group NAICS industries to establish a common size standard. Additionally, according to section 3(a)(7) of the Small Business Act, SBA may establish or approve a single size standard for a grouping of 4-digit NAICS codes only the Agency makes publicly available, not later than the date on which such size standard is established or approved, a justification demonstrating that such size standard is appropriate for each individual industry classification included in the grouping. However, the results from the second 5-year review of the size standards under the Jobs Act (85 FR 72484; November 13, 2020) did not support the same size standard for all industries in NAICS 5415. For example, calculated size standards for those industries varied from $20.5 million for NAICS 541511, Custom Computer Programming Services, to $32.5 million for NAICS 541513, Computer Facilities Management Services.
With respect to the comment regarding the size standard for the elevator industry, SBA encourages the commenter to submit this information as comment to the proposed rule reviewing the monetary-based size standards the Agency will issue as part of the forthcoming third 5-year review of size standards under the Jobs Act. As indicated elsewhere in this document, any concerns regarding the size standard(s) for a specific industry or group of industries are beyond the scope of the Methodology.
One company operating in the elevator industry noted that the elevator maintenance-related industry, usually classified under NAICS 238290, Other Building Equipment Contractors, has a revenue-based size standard of $22 million, whereas elevator manufacturing industry, NAICS 333921, Elevator and Moving Stairway Manufacturing, has a size standard of 1,000 employees. The commenter argued that the $22 million revenue size standard is a significant barrier to growth of elevator maintenance companies. The SBA current size standards have unintentional consequences for the elevator industry in terms of limiting competition, the commenter noted. The commenter argued that the current size standards for elevator related work have allowed multi-national, multi-billion elevator companies to dominate the Federal market. Elevator maintenance contracts are performed by highly trained and compensated personnel using expensive and sophisticated equipment, which leads to higher contract prices, causing elevator maintenance companies to perform fewer contracts before they exceed the revenue-based size standard, the commenter added. Thus, the commenter recommended that SBA should consider using an employee-based size standard of 1,000 employees for the elevator maintenance industry as revenue is not the best indicator of business size.
With respect to the comment regarding the size standard for the elevator industry, SBA encourages the commenter to submit this information as comment to the proposed rule reviewing the monetary-based size standards the Agency will issue as part of the forthcoming third 5-year review of size standards. As indicated elsewhere in this document, any concerns regarding the size standard(s) for a specific industry or group of industries are beyond the scope of the Methodology. Moreover, for industries with significant subcontracting, such as construction-related industries, SBA uses receipts, not employees, as a measure of business size for size standards purposes.
One commenter supported the omission from the Revised Methodology of the effects of industry dynamics, such as entry and exit of firms, mergers and acquisitions, and changes in market structure, on the size standards because it is impractical and unnecessary to account for these factors in the Methodology. The commenter maintained that SBA reviews and adjusts the size standards periodically, at least once every five years, to reflect the changes in the industry characteristics and market conditions. Therefore, the size standards are not static or fixed, but dynamic and flexible, and they can accommodate the variations and fluctuations in the industry dynamics over time, the commenter noted.
Another commenter maintained that one factor that SBA should consider when establishing, reviewing, or revising its size standards is the impact of a reduction in size standards on the viability of small businesses. The commenter proposed making a reduced size standard become effective 180 days after publication of the final rule in the
A comment from the elevator industry believed SBA should consider non-biased, irrefutable, and publicly available information provided to it by industry participants to supplement SBA determination of the size standard within a given industry. The commenter maintained that, while the Economic Census data provides a directionally accurate snapshot of certain industries, it is not a 100% accurate representation of the underlying facts related to companies' sizes within that industry. Additionally, certain industries are not clearly represented within the NAICS manual at all, namely, the elevator industry, the commenter noted. The commenter recommended that SBA should create a new NAICS code for the elevator industry and establish a size standard of 1,000 employees, the same size standard that applies to the elevator manufacturing industry.
The commenter's statement that the Methodology omits the factors such as entry and exit of firms and mergers and acquisitions is not quite correct. As a proxy of startup costs and entry barriers, SBA evaluates the average assets size as one of the four industry factors when establishing, reviewing, and modifying size standards. Similarly, mergers and acquisitions may lead to affiliation, thereby affecting the calculation of business size for size standards purposes. As part of the regulatory impact analysis of the proposed and final rules, SBA is required to include a statement describing the impact of size standards changes (including decreases) on small businesses in terms of access to small business assistance. Similarly, as part of its decision on whether to revise a size standard, SBA examines, as a secondary factor, impacts of size standards changes on small business access to and eligibility for Federal assistance. In most cases, SBA allows the final rules to become effective 30 days from their publication in the
Four comments addressed this issue. One commenter agreed that the SBA's current approach to establishing or modifying small business size standards makes sense in the current economic environment and supported the SBA's policy of not lowering size standards during periods of fluctuating economic conditions.
Another commenter, a woman-owned small business (WOSB), operating under NAICS 236220, Commercial and Industrial Building Construction, expressed appreciation for revisions to size standards in response to the fluctuations in economic conditions due to the COVID-19 pandemic and believed that the Revised Methodology will provide further refinements to the considerations of industry factors and Federal market conditions.
An industry association asserted that the current approach is the most practical approach at this time. Establishing a different approach to small business size standards would be a complex challenge that should be undertaken with clear objectives and with sufficient time to conduct analyses and assess the potential results of alternative approaches, the commenter added.
A comment from the elevator company felt that the SBA's current approach does a very good job of accounting for inflation and other macroeconomic environment affecting small businesses. The periodic size standard increases to account for inflation have been handled expeditiously and been beneficial to all small businesses, the commenter added. However, the commenter felt the SBA should consider irrefutable publicly available information from industry participants relating to any given industry. SBA should consider such information to better support its effort to establish a correct size standard for an industry in question.
SBA agrees with the commenters that the Revised Methodology makes sense in the current economic environment. SBA will continue to consider the prevailing economic environment when deciding on whether the size standards should be revised or retained at the current levels. SBA is committed to complete the quinquennial reviews of size standards under the Jobs Act in a timely manner to ensure that size standards reflect current market conditions. Similarly, SBA is also committed to periodically assess the impacts of inflation on monetary-based size standards and make necessary adjustments.
SBA received three comments demanding that SBA provide the
Another commenter asked if it is possible for SBA to provide access to the data used in the calculations in the white paper. Without this data it is impossible to make an assessment if the Methodology determines fair and reasonable size standards, the commenter argued. The problem with the Methodology is that it appears to use data that is not available to the public, the commenter added. Without access to this data, it is difficult to compare the results of the Methodology, and perhaps have the ability to look for and point out problems or areas for improvement in the Methodology.
Another commenter requested that SBA provide a detailed analysis of how proposed changes, especially the adoption of the disparity ratio approach and the utilization of the FPDS-NG and SAM data, will affect small businesses across various industries, especially an assessment of potential impacts on small business participation in Federal contracting.
SBA has provided a summary of calculated industry size standards under the 2019 Methodology and the 2024 Revised Methodology in Table 15 under the Impacts of Changes Methodology Section of the Revised Methodology. Of 392 industries averaging $20 million or more in Federal contracting annually during fiscal years 2020-2022, based on the latest data available to SBA when the Revised Methodology was prepared, 159 or 40.5% of industries would see an increase to size standards under the 2019 Methodology, as compared to 169 or 43.1% of industries that would see an increase to size standards under the 2024 Revised Methodology. Similarly, 169 or 43.1% of industries under the 2019 Methodology and 167 or 42.6% of industries under the 2024 Revised Methodology would see a decrease to size standards. Sixty-four or 16.3% of industries under the 2019 Methodology and 56 or 14.3% of industries under the 2024 Revised Methodology would see no change to size standards. Thus, comparing the results from the 2019 Methodology and the 2024 Methodology, slightly more industries would see an increase to size standards under the 2024 Methodology and slightly more industries would see no change to size standards under the 2019 Methodology. Thus, overall, the changes to size standards as the result of the changes in the Methodology would have a very minimal impact on number of businesses that qualify as small. Excluding Sectors 42 and 44-45, 97.77% of businesses would qualify as small under the calculated size standards under both Methodologies. That figure is 97.78% under the current size standards.
One commenter, referring to the size standards for the general NAICS 237990, Other Heavy and Civil Engineering Construction, and the Dredging subindustry (or “exception”) under that industry, stated that there exists inconsistency between size standards for general NAICS industries and size standards at the subindustry levels or “exceptions,” especially when the size standard for a general NAICS industry is lower than the size standard for a subindustry or exception within that industry. The commenter contended that this could create confusion or unfairness for businesses that operate in both the NAICS industry and the subindustry or exception, or that compete with businesses that do, by allowing them to qualify as small under the exception but not small under the general NAICS industry. It may also affect the accuracy and consistency of the data and statistics that SBA and other agencies collect and report on the small business sector, the commenter argued. The commenter suggested that SBA provide a clear rationale and a consistent rule for handling the cases of inconsistency between the size standards for general NAICS industries and their corresponding subindustry or exception size standards.
The Small Business Act requires that size standards vary from industry to industry to reflect differing characteristics among the various industries. Thus, it is not uncommon for a firm operating in multiple industries to be small in some industries and other than small in others. That also applies to size standards for the general NAICS industry size standards and the size standards at the subindustry levels or exceptions. Except for the Dredging exception that has a lower size standard than that for the general NAICS 237990, usually size standards at the subindustry levels (“exceptions”) are larger than those for the general industries. Thus, it is not unusual for companies operating both under general NAICS industry and subindustry levels to be small under the exception size standards and other than small under the general NAICS size standards. It is logical for a firm to be other than small under the Dredging exception and to be small under the general NAICS 237990 because the characteristics of firms of that specific sublevel may be different from the characteristics of the firms that constitute the general level, of which there may be a much greater number. The subindustry categories are used solely for Federal procurement purposes and are not used by the Government to collect industry statistics.
One commenter stated that while the equations that SBA uses to calculate size standards, such as simple average, weighted average, linear transformation, and linear interpolation are simple and easy to implement, they may not capture the complexity and diversity of the industries and the market conditions.
1.
SBA does not face any problem of data availability and reliability in calculating the weighted average firm size. The Economic Census special tabulation that SBA receives from the U.S. Census Bureau to examine industry structure contains the results for weighted average, along with other measures (such as simple average firm size, 4-firm concentration ratio, Gini coefficient, etc.), calculated based on actual firm-specific data. SBA used the weighted average firm size as one of the factors to evaluate industry structure in both the first and second five-year reviews of size standards under the Jobs Act but did not receive any adverse comments or complaints from the public or industry participants citing its complexity or lack of transparency. Therefore, SBA will continue using the
2.
As maintained elsewhere, the special tabulation of the quinquennial Economic Census that SBA receives from the U.S. Census Bureau contains various measures of industry characteristics (
3.
The commenter recommended using a spline or nonlinear interpolation, instead of linear interpolation, to capture the potentially nonlinear relationships between industry factors and size standards. However, it contended that using a spline or a polynomial interpolation may introduce more uncertainty, complexity, inconsistency, variability, and instability in the results. We have found a linear interpolation to produce reasonable results that are more intuitive, more straightforward, and easier to explain to the stakeholders. Moreover, generally there is a positive correlation between industry factors and size standards.
One commenter supported the use of the GDP price index as the measure of inflation because it captures the overall changes in the prices of goods and services produced in the economy, which affect the costs and revenues of businesses in all industries. The commenter added that alternative measures of inflation, such as the Consumer Price Index (CPI) or the Producer Price Index (PPI), may not be suitable because they focus on specific segments of the economy, such as consumers or producers, and may not reflect the diversity and complexity of the business activities and transactions.
As part of the 2014 inflation adjustment (79 FR 33647; June 12, 2014), SBA reviewed various measures of inflation published by the Federal Government, including the GDP price index, the CPI, the PPI, the personal consumption expenditures (PCE) price index, and the unit labor cost for their appropriateness to use for adjusting monetary-based size standard for inflation. Based on that review, SBA determined that, being the most comprehensive measure of price movements for the overall economy, the GDP price index is the most appropriate measure of inflation for purposes of adjusting size standards for inflation. Historically, SBA has used the GDP price index for adjusting size standards for inflation.
One commenter stated that the application of the 4-firm concentration ratio to all industries is reasonable because it is a simple and widely used indicator of market structure and competition. It measures the share of the total industry revenue that is earned by the four largest firms in the industry, and it ranges from 0 to 100, where higher values indicate higher concentration and lower values indicate lower concentration. The 4-firm concentration ratio is also consistent with the SBA's statutory mandate to consider the degree of competition among businesses in an industry when setting the size standards.
Using the 4-firm concentration ratio SBA compares the degree of concentration within an industry to the degree of concentration of the other industries with the same measure of size standards. The 4-firm concentration ratio is widely used as a measure of industry concentration. Prior to the 2019 Methodology, SBA used the 4-firm concentration ratio only for the industries where its value was 40% or higher. Starting from the 2019 Methodology, SBA started using the 4-firm concentration ratio for all industries regardless of its magnitude. If a significantly higher share of economic activity within an industry is concentrated among the four largest firms compared to most other industries, all else being equal, SBA would set a size standard that is relatively higher than for most other industries. Conversely, if the market share of the four largest firms in an industry is appreciably lower than the similar share for most other industries, the industry will be assigned a size standard that is lower than those for most other industries.
Citing the information provided on page 56 of the Revised Methodology that under the disparity ratio approach, 167 or 42.6% of industries averaging $20 million or more in Federal contracting would see a decrease on size standards, one commenter asked SBA to clarify whether it intends to decrease size standards for some industries based on proposed changes in the Methodology.
The question of whether SBA would increase, decrease, or retain the size standards is beyond the scope of the
One commenter asked if SBA has calculated the impacts of its proposed changes in the Revised Methodology on the size standards for each of NAICS 6-digit level industries? If so, what is the projected impact on NAICS 541330, Exception 1, Military and Aerospace Equipment and Military Weapons, the commenter asked.
As discussed elsewhere in this document, SBA provided in Table 13 of the Revised Methodology a summary of impacts of proposed revisions to the Methodology on the size standards for 6-digit NAICS industries averaging $20 million or more in Federal contracting. SBA did not provide that information for the specific NAICS industries or subindustries because that would change when SBA updates the industry and Federal procurement data. The information on the changes in the size standard for a specific NAICS industry or subindustry would be provided in the proposed rules that Agency will publish in the near future as part of the third 5-year review of size standards under the Jobs Act.
One commenter noted that to perform complex Government contracts successfully, small business prime contractors must frequently subcontract significant portions of work to large businesses or other small businesses. The commenter argued that under the employee-based size standards, the number of subcontractor employees working on a contract is not counted as part of the small business prime contractor's employee total. However, under receipts-based size standards, the subcontractor's share of contract receipts is included in the small business prime contractor's total annual receipts despite the facts that these receipts, other than administrative costs, are not part of the prime contractor's annual revenue, the commenter added. Has the SBA considered making the two standards consistent with each other by excluding subcontractor annual receipts from a small business prime contractor's annual receipts total, the commenter asked.
According to 13 CFR 121.104, receipts for size standards purposes means all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Regarding the comment that SBA should modify its definition of receipts to allow for the exclusion of amounts paid to third-party subcontractors (usually referred to as “pass-throughs”), SBA disagrees. SBA does not allow for the exclusion of “pass-throughs” because they are part of the usual and customary costs of doing business. Accordingly, SBA considers “pass-throughs,” and other similar factors, as secondary factors when it establishes small business size standards. Specifically, the Economic Census data that SBA uses in its size standards analysis includes all revenues received by companies, including the values of their subcontracts. If the “pass-throughs” were allowed to be excluded from the calculation of receipts, SBA would also have to revise its methodology to establish a lower size standard to reflect the size of the industry without them. Thus, SBA does not believe it is reasonable to exclude these costs from the calculation of receipts.
A commenter stated that to successfully bid on and perform complex Government contracts small businesses must occasionally enter into joint venture agreements with other small businesses in the same industry. The current regulations and proposed modifications do not adequately address how the division of contract receipts among joint ventures should be used to calculate an individual company's annual receipts for purposes of small business size standards calculations, the commenter argued. The commenter noted that the current regulations also do not adequately address how receipts allocated to subcontractors should be apportioned in calculating the annual receipts of the small business joint ventures. Has the SBA considered amending its size standards methodology and regulations to address allocation of annual receipts, the commenter asked.
For size standards calculations, a concern must include in its receipts its proportionate share of joint venture receipts. Proportionate receipts do not include proceeds from transactions between the concern and its joint ventures (
Without providing any facts or analysis, a comment from an advocacy organization for WOSBs argued that SBA's current industry size standards do not incentivize small business growth. The commenter maintained that under the current size standards, small businesses face risk of losing their small business status if their revenue exceeds a certain threshold due to a single high revenue generating contract. The commenter cited a testimony from a WOSB to the February 6, 2023, House Small Business Committee Hearing on size standards, arguing that her business has been teetering on the edge of its small business size standard, which puts her in a difficult position as she plans the future of her business. She testified to the Committee that if she lost her small business size status, she would have to lay off at least 30% of her staff of 95 people, the commenter added. The commenter contended that businesses that lose their small business status may lose opportunities to win
While SBA recognizes challenges the larger small businesses close to exceeding size standards and mid-size firms that have already exceeded the size standards face in competing in the Federal market, deliberations of such issues are beyond the scope of the Revised Methodology. SBA notes that there will always be some businesses in the brink of exceeding the size standards regardless how high the size standards are. To address the concerns that midsized businesses face in the Federal market, SBA recently implemented the Congressional enactments to increase the averaging period for calculating annual receipts from 3 years to 5 years (Pub. L. 116-283) and averaging period for calculating the number of employees from 12 months to 24 months (Pub. L. 115-324). As advised elsewhere in this document, the commenters are advised to submit any concerns regarding the size standards for specific size standards when SBA issues for comment the proposed rule covering their industries.
Citing the lingering economic impacts from the COVID-19 pandemic and high post-pandemic inflation, a commenter proposed increasing the size standard for NAICS 236220, from the current $45 million in average receipts to $50 million. The commenter did not provide any industry analysis and facts supporting its proposal.
The latest industry and Federal contracting data that SBA used to prepare the proposed rule to review the size standards for industries in the construction sector (NAICS 23) under the Jobs Act supported a size standard of $25.5 million size standard for NAICS 236220 (85 FR 62239; October 2, 2020). Because of the SBA's policy of not lowering any size standard in light of the impacts of the COVID-19 pandemic on small businesses and the overall economy, in the final rule (87 FR 18607; March 31, 2022), SBA adopted the existing $39.5 million existing size standard, which was later increased to $45 million as part of inflationary adjustment in 2022 (87 FR 69118; November 17, 2022). As advised elsewhere in this document, the commenters are advised to submit any concerns regarding the size standards for specific industries when SBA issues for comment the proposed rule covering their industries.
Citing reasons such as the use of the qualifications-based selection process under the Brooks Act, which is said to be dominated by the largest firms, the high degree of concentration of the Federal market share among the top 10 largest companies, and the Federal Government's increasing reliance on limited competition contract vehicles (such as IDIQs and GWACs) to procure engineering services, the commenter recommended increasing the size standards for NAICS 541330 to $39.5 million in average annual revenue. The commenter attached its comment it submitted to the proposed rule published as part of the second 5-year review of size standards under the Jobs Act and its March 27, 2021, letter to the SBA's Administrator urging the Agency to establish a $39.5 million size standard for NAICS 541330.
As part of the second 5-year review of size standards under the Jobs Act, based on the latest available industry and Federal procurement data, SBA had proposed increasing the size standard for NAICS 541330 from $16.5 million to $22.5 million as part of the second 5-year review of size standards (85 FR 72584; November 13, 2020). Based on the considerations of public comments and industry data, SBA adopted $22.5 million in the final rule (87 FR 18665; March 31, 2022), which SBA increased to $25.5 million as part of adjustment of monetary based size standards for inflation in 2022 (87 FR 69118; November 17, 2022). The concerns regarding the size standards for specific industries are beyond the scope of the Revised Methodology. The Methodology merely provides an analytical framework for reviewing existing and calculating new size standards. SBA's actual decisions to change or modify size standards are implemented through rulemakings. SBA encourages the commenters to submit their concerns regarding the size standards for specific industries, including any relevant data and analysis, by commenting on the forthcoming proposed rules reviewing size standards for those industries.
SBA received a comment from a small business concern operating under NAICS 336611 that currently has a size standard for 1,300 employees. The commenter stated that the ship building and repairing market is dominated by very large companies with tens of thousands of employees that receive funds from the Federal Government, enabling them to improve their facilities and equipment and to make ship building more efficient. Large businesses leverage these same efficiencies when competing against small businesses, creating an unfair competitive advantage, the commenter contended. The commenter asserted that with the size standard of 1,300 employees, the industry is currently very competitive. Large businesses constantly lobby the Federal Government to increase their market share at the expense of the market share of small businesses that lack resources and constituent base for lobbying, the commenter added. A business with 1,300 employees would have revenue in the range of $300 million, which is certainly not a small business in the ship repair industry, the commenter argued. The commenter, based on above factors, urged that SBA should not increase the size standard for NAICS 336611 beyond 1,300 employees, as doing so would enable large businesses to compete against small businesses as small businesses.
The latest industry and Federal procurement data that was available for SBA to review the size standard for Manufacturing industries as part of the second 5-year review of size standards under the Jobs Act supported a size standard of 1,300 employees for NAICS 336611, an increase from 1,250 employees (87 FR 24752; April 26, 2022). Accordingly, in the final rule, SBA adopted 1,300 employees as the size standard for NAICS 336611 (88 FR 9970; February 15, 2023). As stated elsewhere, the concerns regarding the size standards for specific industries are beyond the scope of the Revised Methodology. The Methodology merely provides an analytical framework for reviewing existing and calculating new size standards. SBA's actual decisions to change or modify size standards are implemented through rulemakings. SBA encourages the commenters to submit their concerns regarding the size standards for specific industries, including any relevant data and
A commenter stated that the ERS exception, first established in 1994 (59 FR 47236; September 15, 1994), is fundamentally different from most other exceptions. The commenter contended that all exceptions—except the ERS exception and the exceptions to Research and Development (R&D) NAICS codes—are derived from subsets of the primary NAICS industry from which the subindustry or exception originates. While the size standards for exceptions to R&D NAICS codes are derived by aligning the corresponding manufacturing size standards, the ERS exception, unlike all other exceptions, is not derived from the subset of the primary NAICS 562910, the commenter added. The commenter argued that such uniqueness of the ERS exception comes from the original formulation of the ERS industry, as reflected in Footnote 14 of the SBA's table of size standards which recognizes that no single industry dominates the scope of the ERS work. The commenter contended that the ERS exception is a superindustry instead of a subindustry. Some firms competing in ERS may designate the base NAICS 562910 as their primary industry, but others may not, the commenter noted.
The commenter expressed concerns about the SBA's approach to creating the ERS industry by trimming the largest ERS awardees whose primary activity is unrelated to ERS. The commenter expressed the opinion that excluding such firms is arbitrary and nonsensical within the meaning of Footnote 14. The commenter proposed to identity a primary industry for each ERS awardee and to exclude those which do not align with industries that SBA used to formulate the ERS industry originally. If this proposed solution is not acceptable to SBA and if SBA still decides to remove large companies form the dataset in future rulemakings, the commenter recommended that SBA provide a list of the specific firms removed from the dataset. This approach would provide greater transparency and would allow industry participants to comment on whether the removed companies were or were not significant players in the ERS market, the commenter argued. The commenter further argued that removing large companies, unknown to the public, from SBA's dataset, without providing opportunity for industry feedback on the propriety of specific exclusions, introduces opacity and arbitrariness that ultimately undermines the credibility of SBA's Methodology. The industry cannot provide meaningful comment as to whether an excluded firm is an ERS competitor if the SBA is not transparent and does not identify the excluded firms, the commenter argued.
The commenter argued that large competitors in the ERS industry have a serious advantage over smaller businesses in terms of winning and executing work, even where only a small portion of their total revenue comes from ERS work. Large firms enjoy economies of scale that would give them a tremendous competitive advantage over a small business making roughly similar revenue. The commenter explained that many ERS awards are qualifications based, meaning that the company must demonstrate it has a superior performance history and workforce when considering the qualifications sought in the request for proposal. A large company with a more diverse performance history can leverage the relevant qualifications to win work.
The commenter maintained that to the extent competitions are instead based on price criteria, a large business performing a comparatively small amount of ERS work also has a disproportionate advantage over smaller companies. The commenter argued that a large company with a comparatively small ERS portfolio can spread the same ERS workload across a much larger workforce, using a more favorable labor mix, achieving greater labor utilization, and driving down indirect costs. These advantages have a direct impact on pricing, the commenter noted. Moreover, the large business can take advantage of greater corporate resources to hire, train, and deploy labor, further disadvantaging small businesses who must consider the total headcount impact of hiring to perform management and overhead tasks, the commenter added.
Excluding the largest businesses from the sample will have a deleterious effect on the viability of small businesses in the ERS industry, the commenter stated. The commented noted that SBA's size standards provide small businesses a protected marketplace in which to grow and prepare for future open competition. However, setting size standards at an artificially low threshold prematurely thrusts successful ERS small businesses into the same marketplace occupied by their largest competitors. This will cause graduating ERS small businesses to suffer unequal and inferior protection when compared to other graduating small businesses. This outcome would appear to be inconsistent with the statutory goal of the SBA to grow small businesses into the American marketplace.
SBA does not agree with the commenter that SBA has kept the size standard for the ERS exception artificially low. Between 2016 and 2023, the ERS size standard has doubled to 1,000 employees. Despite the majority of comments opposing any increase to the ERS size standard, in 2016, SBA increased it from 500 employees to 750 employees, as part of the first 5-year review of size standards under the Jobs Act (81 FR 4436; January 26, 2016). Again, despite the majority of comments opposing any increase to the ERS size standard, in 2023, SBA increased the ERS size standard from 750 employees to 1,000 employees, as part of the second 5-year review of size standards (88 FR 9970; February 15, 2023).
Without trimming the largest companies for which the ERS contract awards account for a minimal share of their total revenues, SBA is concerned that the data might result in a very high size standard that might hurt smaller ERS companies that need Federal assistance the most. Just as graduating midsized companies have a hard time competing on unrestricted Federal contracts with large companies with vast resources and an extensive performance history, smaller small ERS firms also face a competitive disadvantage in competing with larger, more experienced small businesses for set-aside Federal contracts.
As stated elsewhere, the industry data in the quinquennial Economic Census tabulations that SBA receives from the Census Bureau are limited to the 6-digit NAICS industry. Thus, the industry data in the special tabulation does not allow for the evaluation of the size standards at the subindustry levels or exceptions. Accordingly, SBA utilizes the FPDS-NG and SAM data to calculate industry factors at the subindustry levels. The results from the FPDS-NG/SAM data are then compared with industry benchmarks (such as 20th percentile and 80th percentile values of industry factors) from the Economic Census tabulation to compute the new size standards for the exceptions. In the Economic Census tabulation, the industry data are tallied by a primary NAICS industry. Thus, to make the FPDS-NG/SAM results consistent with the results from the Economic Census, SBA trims the firms, from both ends of the distribution, for which a specific exception under review is not their primary industry. Going forward, in the Revised Methodology, SBA will base the
Recognizing that, by definition, the ERS exception includes activities from multiple industries, a new footnote (Footnote 54) has been added to the Revised Methodology, stating that to evaluate the ERS size standard SBA will identify identify firms receiving contracts in the various NAICS industries under the PSCs that correspond to the ERS exception.
A commenter argued that there is no NAICS code that specifically applies to the elevator industry. In absence of a separate NAICS code for the elevator industry, the commenter provided a list of NAICS codes that Federal contracting officers use to classify elevator maintenance, repair, and modernization contracts:
For an elevator modernization/construction contract, the commenter contended that contracting officers typically use either NAICS 238290 or NAICS 236220. Under this scenario, an elevator company can be awarded a modernization project as a small business under NAICS 236220 but would be unable to bid, as a small business, on the maintenance contract under NAICS 238290 because they are considered too “large” under that NAICS industry. The commenter argued that the fact that all elevator companies perform both modernization and maintenance tasks, but are deemed small enough to perform one, but too large to perform the other, is an oversight that should be corrected.
The commenter maintained that every elevator company in the country performs elevator maintenance, repair, modernization, and construction, and recommended that SBA lump all these activities together and create a unique NAICS code for the elevator industry and establish an employee-based size standard of 1,000 employees. With an elevator-specific NAICS code, there would be no guesswork by contracting officers in choosing an appropriate NAICS code for elevator maintenance, repair, modernization and construction work, the commenter noted. Due to the lack of a single NAICS code representing the elevator industry, the commenter noted that elevator-related contracts (maintenance and modernization) are generally awarded to general contractors, who subsequently subcontract that work out to multi-national, multi-billion, foreign-owned conglomerates operating in the elevator industry. As much as 70-80% of contract value is performed by those conglomerates, the commenter argued.
The commenter proposed that SBA consider, in addition to the Economic Census data, publicly available alternative industry data and industry expertise in determining the size standard for the elevator industry. Based on the industry data the commenter has access to, the commenter provided estimates of various industry factors that SBA evaluates in establishing and reviewing size standards, including the 4-firm concentration ratio (70%) and Gini coefficient (0.90), arguing that these factors support a much higher size standard for the elevator industry. They also noted that generally the elevator industry has significant barriers to entry and higher average firm size due to industry dominance by the largest four firms. The companies that exceed the current size standard of the elevator-related industries cannot compete under full and open competition against the largest competitors that are more than 200 times larger than a small elevator company, the commenter argued.
As stated elsewhere in this document, the Small Business Act requires the size standards to vary from industry to industry to the extent necessary to reflect the differing characteristics among the various industries. When a company operates in closely related multiple industries (such as NAICS 236220 and NAICS 239290), it is not uncommon for it to be considered small in some industries and other than small (“large”) in others. A good example is a company operating both in NAICS 541310, Architectural Services, and in NAICS 541330, Engineering Services. NAICS 541310 has a size standard of $12.5 million and NAICS 541330 has a size standard of $25.5 million. Accordingly, the same company may qualify as small under NAICS 541330 but not under NAICS 541310. Thus, the issue of the elevator industry is not unique.
The SBA regulations allow small business general prime contractors to subcontract up to 85% of the value of work, excluding the cost of materials, to companies that are not similarly situated entities (
SBA's regulations in 13 CFR 21.406(b) require contracting officers to designate an appropriate NAICS code (along with applicable size standard) that best describes the principal purpose of the product or service being acquired. If it is believed that the contracting officer's NAICS code designation or size standard is not appropriate, SBA's regulations in 13 CFR 121.1102 allow the interested parties to appeal that NAICS code designation with the SBA's Office of Hearings and Appeal (OHA). Procedures for appealing a NAICS code or size standard designation are set forth in 13 CFR 121.1103.
Regarding the commenter's suggestion that SBA create a new NAICS code representing the elevator industry, SBA does not have authority to create or modify a NAICS code. In collaboration with the Statistical Agencies of the United States, Canada, and Mexico, every five years, the Economic Classification Policy Committee (ECPC) within the Office of Budget and Management (OMB) creates new NAICS codes or revise the existing codes. Any comment or supporting documentation for creating a new NAICS code for the elevator industry should be directed to the ECPC's comment and notice process for the quinquennial NAICS revisions.
With respect to the suggestion to establish a 1,000-employee size standard for the new NAICS code for the elevator industry, historically SBA has been using receipts, not employees, as a measure of business size for construction-related industries. In industries where subcontracting is high, such as construction-related industries, SBA prefers to use receipts as a measure of size standards. When a prime contractor subcontracts out a portion of a contract, the value of contract being subcontracted out is counted toward prime's receipts, but subcontractor's
The Small Business Act limits the SBA's ability to establish a common size standard for related industries, such as elevator maintenance, repair, modernization, and construction industries. The statute permits establishing a common size standard by grouping all industries within the NAICS 4-digit level provided that the data supports the same size standard for each of those industries in the group, which is not the case for industries related to elevator maintenance, repair, modernization, and construction.
As stated elsewhere in this document, the concerns regarding the size standards for specific industries are beyond the scope of the Revised Methodology. The Methodology merely provides an analytical framework for reviewing existing and calculating new size standards. SBA's actual decisions to change or modify size standards are implemented through rulemakings. SBA encourages the commenter to submit their concerns regarding the size standards for specific industries, including any relevant industry data and analysis, by commenting on the forthcoming proposed rules reviewing size standards for their industries.
An advocacy organization for small and mid-size companies submitted as comment the testimonies of two information technology value added resellers (ITVAR) firms provided to the House Small Business Committee Hearing on size standards, held on February 6, 2024.
The commenters maintained that small business ITVARs play an important role in meeting the Government IT procurement needs in three ways: (1) obtaining IT equipment and supporting services from a single source; (2) acquiring multiple multivendor IT products from a single acquisition; and (3) customizing computer hardware or software. They pointed out that ITVARs provide cost-effective IT solutions to the Government by serving as an intermediary between the Government and creators of IT hardware and software, usually known as the original equipment manufacturers (OEMs). Besides selling the IT hardware and software, ITVARs also provide the Government with beneficial value-added services, including, but not limited to, configuration consulting and design, systems integration, installation of multi-vendor computer equipment, customization of hardware or software, training, product technical support, maintenance, and end user support, they added. The commenters have identified the following challenges small business ITVARs face in the Federal marketplace and potential solutions to address them. These are summarized below even though these issues are outside the scope of the Revised Methodology.
1.
The commenters explained that, in 2003, SBA created a new subindustry category or “exception” for ITVARs under NAICS 541519, Other Computer and Related Services, with a size standard of 150 employees (68 FR 74833; December 29, 2003).
The changing landscape with respect to IT procurements is not necessarily bad for the ITVAR contractors or the Government. With introduction of category management, strategic sourcing, and other initiatives in the Federal market, the changing Federal procurement landscape has touched most sectors and industries with a significant Federal spend. The changing IT landscape of the Federal market has led to improvement and modernization of how agencies purchase IT goods and services, resulting in creation of value, efficiency, and innovation of procurement activities, while reducing risks and costs. By adopting current best practices, agencies can secure cost savings and improve quality of products and services being acquired. SBA small business rules and regulations are intended to serve the interests of small businesses that need Federal assistance the most.
2.
Footnote 18 requires an ITVAR classified under NAICS 541519 to provide multivendor hardware and software along with significant value-added services, the commenters asserted. They stated that Footnote 18 provides that an IT procurement classified under the ITVAR exception and its 150-employee size standard must consist of at least 15% and not more than 50% of these value-added services, as measured by the total contract price. However, much of the value-added services provided by ITVARs occur prior to contract award and/or are built into existing pricing and not separately charged, commenters contended. Commenters asserted that, under the current rule, measuring the percent of value-added services as compared to the total contract price, the 15-50% value-added requirement is unrealistic and will increase the costs to the Government. They argued that ITVARs generally do not charge separately for value-added services whose costs are incorporated into the company's overhead costs. As such, the value-added services often do not account for 15% of the total contract price, they noted.
Footnote 18 provides that if the contract consists of less than 15% of value-added services, then it must be classified under a manufacturing NAICS industry. If the contract consists of more than 50% of value-added services, then it must be classified under the NAICS industry that best describes the predominate service of the procurement. If it is believed that the NAICS code contracting officers designate to a solicitation is not correct, SBA regulations in 13 CFR 121.1102 allow the interested parties to appeal the contracting officer's decision to SBA's Office of Hearings and Appeal (OHA).
3.
The commenters noted that, under Footnote 18, an ITVAR contractor must comply with the NMR. They stated that this is a change to the regulation SBA made in 2016 (81 FR 4436; January 26, 2016). Prior to this, an ITVAR contractor was not subject to the NMR, they argued. The commenters maintained that specific to supply contracts, the NMR allows a small business to supply products it did not manufacture if certain requirements are met, including that the supplied products were manufactured by another small business. They stated that small businesses may supply products manufactured by any size business if the SBA grants a waiver of the NMR. In most cases, the Government requires the ITVARs to provide computer hardware and software manufactured or produced from large OEMs, they argued. Thus, applying the NMR to procurements of IT products presents several challenges for small business ITVARs and, in many cases, is inconsistent with what agencies specifically require in their solicitations, they contended. The commenters argued that while class waivers exist for some hardware, currently, there are no class waivers for software products. Thus, a small business ITVAR cannot participate in opportunities involving the purchase of commercial software manufactured by large businesses even where the Government specifically requires such software, they reasoned. Rather, small businesses can participate in such opportunities only when the contracting officer requests an individual waiver, the commenters claimed. Notably, it is not mandatory for the contracting officer to request an individual waiver, they noted. They contended that, in most cases, the contracting officer will choose not to seek a waiver, even if the acquisition is set up as a small business set-aside for product for which there is no small business manufacturer. They declared that this practice flies in the face of established rules and sets up unwary ITVAR contractors to violate the NMR (and, potentially, the False Claims Act) simply for following the requirements set forth by the Government.
If a small business set-aside IT procurement classified under the ITVAR exception includes products for which there are no small businesses manufacturing the product being acquired, SBA regulations in 13 CFR 121.406(b)(5) allow the contracting officers, and in some cases the public, to request a waiver of the NMR from SBA. There are two types of waivers of the NMR: class waivers and individual waivers. SBA grants a class waiver only upon its determination that no small business manufacturer or processor of the product or class of products is available to participate in the Federal procurement market. SBA issues an individual waiver if the Agency determines that no small business manufacturer or processor reasonably can be expected to offer a product meeting the specifications (including period for performance) required by a particular solicitation.
4.
The comments stated that the Government uses the NAICS codes to identify the purpose of a procurement and to identify the size standard a business must meet to qualify as small for that procurement. When issuing solicitations, contracting officers must designate a single NAICS code that best describes the principal purpose of the product or service being acquired, they attested. They argued that, often, an IT procurement may be a mixed procurement, involving both products and services. However, the contracting officer still must assign a single NAICS code according to the component that accounts for the greatest percentage of contract value, they asserted. The commenters argued that this causes problems for ITVARs that provide both products and services. ITVARS offer computer hardware or software and/or services that reasonably can be classified either under a supply or a service NAICS code, they declared. They argued that the existing NAICS codes are not appropriate for small business ITVARs. Establishments that primarily provide services are classified under a service NAICS code, they added. The commenters maintained that small business ITVARs primarily provide computer hardware, software, and related products (supplies) along with some services that cannot be classified under the service NAICS codes. Likewise, the supply codes cover establishments that manufacture a specific product, they argued. Commenters contended that since products ITVARs provide often are manufactured by other companies, small business ITVARs do not fit neatly under the supply NAICS codes either.
SBA's regulations in 13 CFR 121.402(b) require contracting officers to designate an appropriate NAICS code that best describes the principal purpose of the product or service being acquired. If it is believed that the contracting officer's NAICS code designation is not appropriate, SBA's regulations in 13 CFR 121.1103 allow the interested parties to appeal that NAICS code designation to the SBA's Office of Hearings and Appeal (OHA). As stated elsewhere in this document, the nonmanufacturer rule allows contractors to supply products that they did not manufacture or produce.
Recognizing that the ITVAR exception has led to misuse, inconsistency, and confusion with respect to designation of NAICS codes for ITVAR solicitations by contracting officers, in 2014, as part of the first 5-year review of size standards under the Jobs Act (79 FR 53646; September 10, 2014), SBA proposed eliminating the ITVAR exception (and Footnote 18) to address those issues. By definition, ITVAR contracts account for 15-50% of value-added services and 50-85% of computer hardware and software (supplies). Thus, by definition, the ITVAR exception is for contracts that are primarily for supplies, with some services. As stated in the 2014 proposed rule, if the ITVAR exception is eliminated, all ITVAR contracts would be reclassified under the employee-based size standard for the manufacturing industries or under the 500-employee NMR size standard. IT procurements with more than 50% of services will be appropriately classified under services NAICS codes. However, in response to overwhelming comments against eliminating the ITVAR exception, in the final rule, SBA retained the ITVAR exception along with 150 employees, but subjected the supply component of the ITVA contracts to manufacturing requirements
5.
With changes in IT procurement landscape, the burden placed on ITVARs has increased drastically as well, the commenters explained. They argued that numerous employees are needed for compliance. ITVARs are required to obtain a wider breadth of knowledge with multiple OEMs than an IT service company would, they contended. They claimed that small business ITVARs are not exempt from these requirements from the Government nor from the OEMs. They held that to stay under the 150-employee size standard, small business ITVARs must sacrifice hiring at the expense of obtaining and maintaining Government mandated certifications, or forgo obtaining required certifications with the OEMs, which hurts the portfolio of products they are able to offer and also negatively affects their pricing discounts and profitability. With an increased focus on secure supply chain and numerous certification requirements (such as International Organization for Standardization (ISO) certifications, cybersecurity maturity model certification (CMMC), supply chain risk management, ITAR, security clearances, affirmative action and others), ITVARs must now hire employees to manage compliance, the commenters contended. They argued that OEM partners also require ITVARs to hold advanced certifications to be authorized to sell their products. Government customers also require advanced OEM certifications to bid on certain procurements, they added. It is often difficult for small business ITVARs to navigate these issues particularly, where the Government has set aside a procurement based on an inappropriate NAICS code, the commenters noted.
Maintaining compliance is not unique to delivering IT goods and services to Government agencies under the ITVAR exception. Contractors providing goods and services in other industries are also required to ensure that they comply with applicable existing law and regulations. Larger small businesses are likely to maintain in-house specialized workforce dedicated to carry out compliance work, while smaller small business are likely to hire external consultants and attorneys. Achieving compliance with regulations, law and other requirements would reduce the ITVAR contractors' risks of violating law and facing fines, debarment, or other penalties. Compliance with applicable law and regulations would also provide confidence to the Federal clients, thereby increasing the likelihood of wining Federal contracts. Requirements for increased knowledge, qualifications/certifications, and capabilities to participate in the delivery of IT products can not only enhance the quality of IT goods and services being procured by the Government by ensuring that they meet its specifications and standards, but also enhance contractors' ability to meet Government needs.
6.
The commenters stated that there is increased consolidation and acquisitions in the ITVAR industry. It is common for ITVARs, once they exceed 150 employees, to sell their businesses, they argued. The commenters contended that these ITVARs, who usually have years of experience in Government contracting and proven capabilities, are purchased by larger industry competitors or private equity firms. There has been a mass exodus of firms from the industry once they exceed the size standard, they asserted. They argued that this hurts the Federal agencies as they lose small businesses and qualified suppliers who are often replaced with less qualified and less capable suppliers. The unicorn in the ITVAR industry has become those companies with between 151 employees and 500 employees, they noted. They claimed that to go from successfully competing as a small business to competing with large companies, like CDW and IBM, is an improbable endeavor for a small ITVAR. The result is an erosion of the supplier base that has valuably served the Government, the commenters argued. Not only does the Government suffer under this scenario, but so do the employees and the communities where these businesses are located as the acquiring companies or private equity firms are headquartered in larger metropolitan areas, the commenters contended. They pointed out that increasing the employee size limit to 500 employees would insure there are ample small businesses that are qualified to meet the increasing demands of today's Government customers.
The commentary that small businesses, once they exceed their size standards, are acquired by large corporations or private equity firms is not unique to ITVAR firms. SBA frequently receives such concerns from businesses in other industries as well. SBA believes that such concerns would remain regardless of how high the size standards are. For example, SBA's recent increases to size standards have not alleviated these concerns. SBA increased 604 size standards under the first 5-year review of size standards and 436 size standards under the second 5-year review of size standards. Additionally, SBA has periodically increased its monetary-based size standards for inflation. SBA also has increased the averaging periods for calculating annual receipts for size standards from 3 years to 5 years and for calculating the average number of employees for size standards from 12 months to 24 months, thereby extending the runway for small businesses to successfully transition from small business to mid-size or large business status in the Federal marketplace. With respect to the commenter's suggestion to increase the ITVAR size standard to 500 employees, SBA will review that size standard as part of the forthcoming third 5-year review of size standards under the Jobs Act and determine if it needs to be revised. The commenters are advised to submit their comments when SBA issues a proposed rule with the results of its analysis.
7.
The commenters maintained that, for both supplies and services, the limitations on subcontracting rule (“LOSR”) requires that a small business not subcontract more than 50% of the prime contract amount to businesses that are not “similarly situated.” In contracts for mixed procurements (
In accordance with SBA's regulations in 13 CFR 125.6(a)(2), procurements of supplies from a nonmanufacturer of such supplies are exempt from the
8.
The commenters contended that the Government regularly issues solicitations under inappropriate NAICS codes, thereby inviting small business ITVARs to violate the Small Business Act and exposing them to risk of fines, debarment, or other penalties. There is little compliance oversight by the Government with respect to NAICS codes, they claimed. Rather, the onus has shifted to small business ITVARs to use scarce time and resources to police Government agencies via NAICS code protests, the commenters stated. They held that relying on protests to check this frequent misuse is unrealistic, costly, and unfair for small business ITVARs. Another issue facing small business ITVARs is misapplication of the ITVAR code, for example, as when the contract includes services that account for less than 15% of the total contract price, the commenters argued. They mentioned that, in this situation, small business ITVARs can choose to bid, knowing they will not provide value-added services that account for 15-50% of the total contract price as required by the ITVAR exception, and thus potentially setting themselves up for an allegation that they have violated the law or made a false certification. Or, the small business can forgo the opportunity altogether, while less risk-averse competitors are awarded the work, the commenters argued. Where a small business ITVAR contractor is not compliant with the SBA regulations, it is susceptible to size protests, potential suspension or debarment, or False Claims Act liability, they pointed out. Thus, simply by submitting a proposal where the business cannot comply with the NMR, or with the 15-50% service requirement under the ITVAR exception, a small business contractor could potentially expose itself to False Claims Act liability, suspension or debarment, a size protest by a competitor, contract termination, and loss of business, the commenters declared.
Pursuant to SBA's regulations in 13 CFR 121.402(b), Federal agencies are required to select a single NAICS code for an acquisition that best describes the principal purpose of the service or product being acquired. If businesses believe that the NAICS code selected by the contracting officer for the contract is inappropriate, pursuant to 13 CFR 121.1103, they can file a NAICS code appeal with the SBA's Office of Hearings and Appeals (OHA). However, because contractors do not have affirmative responsibility for ensuring that the NAICS code selected by a contracting officer is appropriate, they are not liable for bidding on or performing solicitations for which the NAICS code selected by the contracting officer is inappropriate. The determination on whether an ITVAR contract meets the 15-50% service requirement is made prior to the award and does not become the terms and conditions of the contract. Accordingly, small business ITVAR contractors may not be liable even though value-added services account for less than 15% or more than 50% of the contract value. However, when the NMR requirement falls under the terms and conditions of the contract, small ITVARs are bound to comply with the NMR unless there is a waiver.
9.
The commenters maintained that, in 2016, SBA promulgated a new rule relating to NAICS 513210, Software Publishers, providing that unmodified, commercially available software supplied in procurements under that NAICS code is an item of supply rather than a service, thus subjecting these items to the NMR (81 FR 34243; May 31, 2016). The commenters stated that, for this, the SBA created a new footnote (Footnote 15), which explains that NAICS 513210 is the proper NAICS code to use when the Government is purchasing COTS (“commercial-of-the-shelf”) software, which is eligible for a waiver of the NMR. The Characterization of COTS software as a product subject to the NMR presents the added complication of seemingly conflicting size standards applicable to these procurements, the commenters reasoned. NAICS 513210, a services code, has a revenue-based size standard of $47 million, while a company may also qualify as small under the NMR based on a size standard of 500 employees, they noted.
The commenters pointed out that one consequence of changing the classification for COTS software to a supply was that the NMR then became applicable to procurements for this type of software, and waivers then could be sought. The 2016 rule amended the SBA's regulations that SBA may grant an individual waiver for the procurement of software, provided that the software meets certain conditions, the commenters noted. The commenters held that individual waivers may be requested by contracting officers and the public can request that SBA issue class waivers for software items. However, they argued that, in practice, contracting officers have been reluctant to request a contract specific waiver, and, to date, no class waivers for software have been granted.
Commenters contended that a class waiver for the Footnote 15 portion of NAICS 513210 would be appropriate for resolving many of the issues facing small business ITVARs for four reasons: (1) the COTS software procured under NAICS 513210 is overwhelmingly manufactured by large businesses that it obviates the purpose of the NMR; (2) the small business set-asides are almost universally in violation of the NMR; (3) these violations are almost forced by the Government's dual need for both large business software and small business credit, leading to improper solicitations; and (4) this situation invites small businesses to expose themselves to the risk of misrepresenting their size status.
The commenters pointed out that the Government regularly posts solicitations for acquisitions of COTS software manufactured by large businesses that are classified under NAICS 513210 and set-aside for small businesses. The NMR applies to these solicitations unless the contracting officer has obtained a waiver from SBA, the commenters argued. If a waiver is granted, the solicitation can be set-aside for small businesses, and the small business awardee can provide an end-product made by any size manufacturer, they added. In practice, waivers are rarely obtained, the commenters argued. They asserted that if the solicitations do not include a waiver of the NMR, any small business awardee must provide an end-product made by a small business manufacturer. In many instances, this is not possible because the Government often specifically requests items manufactured exclusively by large businesses, or because certain products are not manufactured by small businesses, the commenters argued. They contended that, without a waiver, any small business awardee that provides the required COTS software (manufactured by a large business) under a set-aside is violating the Small Business Act, opening itself to liability
SBA grants a class waiver of the NMR for a class of products or supplies only upon the determination that no small business manufacturer or producer is available in the Federal market for such products or supplies. The procedures for requesting and granting class waivers are contained in 13 CFR 121.1204. Any interested person, business, association, or Federal agency may submit a request for a waiver for a particular class of products. Requests should be addressed to the Director, Office of Government Contracting, Small Business Administration, 409 3rd Street SW, Washington, DC 20416. Requests for a waiver of a class of products should include a statement of the class of products to be waived, the applicable NAICS code, and detailed information on the efforts made to identify small business manufacturers or processors for the class of products. If SBA decides that there are small business manufacturers or processors in the Federal procurement market, it will deny the request for waiver, issue notice of the denial, and provide the names, addresses, and telephone numbers of the sources found. If SBA does not initially confirm the existence of small business manufacturers or processors in the Federal market, it will: (i) publish notices in the Commerce Business Daily and the
The commenters declared that the current system for classifying and executing procurements involving ITVARs has serious flaws that should be addressed. They stated that any comprehensive solution must: (1) create a new industry by recognizing what ITVARs actually do (
1.
The commenters pointed out that, while there are a number of possible solutions, the most viable and sensical solution is to create a new NAICS code that accurately captures the core competency of the ITVAR, accompanied by creation of an appropriate SBA size standard and elimination of the ITVAR exception at Footnote 18. They contended that the new code should focus on the ITVAR's role as a consultant that provides pre-sales engineering and subject matter expertise on a variety of software and hardware products. Ideally, the Economic Classification Policy Committee (ECPC) within OMB will create a new, stand-alone NAICS code for ITVARs, they noted. Once established, the SBA should then revise its current size standard accordingly and eliminate Footnote 18 under NAICS 541519, the commenters added.
In 2014, because of inconsistencies, confusion and misuse surrounding the application of NAICS codes for ITVAR contracts, SBA proposed to eliminate the ITVAR exception, along with its 150-employee size standard and the accompanying footnote (Footnote 18) under NAICS 541519 (79 FR 53646; September 10, 2014). SBA received a total of 168 comments, of which 163 opposed the SBA's proposal. In response, SBA retained the 150-employee size standard and Footnote 18, while subjecting the supplies component of an ITVAR contract to the manufacturing performance requirements and the NMR.
Any documentation and information in support of the creation of a new NAICS for the ITVAR industry should be directed to the ECPC within OMB. As stated elsewhere in this document, in collaboration with Statistical Agencies from the U.S., Mexico and Canada, the ECPC, every 5 years, creates new NAICS codes or revises the existing ones. The NAICS website has established a factsheet regarding the time schedules for the 2027 NAICS revisions.
2.
The commenters contended that the SBA's size standard for the new NAICS code must not include a service requirement that is based on a percent of the total contract price, but it should be based on value-added services provided by a typical ITVAR. The commenters noted that the current ITVAR 15-50% services requirement ignores the reality in following ways: (1) the fixed cost of the component far exceeds the cost of the services and implementation of equipment, and (2) the provided services generally are not separately billed. The commenters stated that ITVARs provide valuable services to the Government, but the costs of those services are included in overhead costs, covered by narrow margins on the IT products, and not separately charged. Therefore, the current requirement that services account for 15-50% of the total contract price is unattainable and should be eliminated under the new size standard, the commenters argued.
The 15-50% service requirement provides that if the contract consists of less than 15% of value-added services, then it must be classified under a manufacturing NAICS industry. If the contract consists of more than 50% of value-added services, then it must be classified under the NAICS industry that best describes the predominate service of the procurement. SBA is concerned that eliminating the 15-50% requirement would lead the contracting officers to improperly apply the ITVAR exception, instead of the manufacturing NAICS code, to IT procurements where the value-added services account for less than 15% of the contract value. Similarly, the elimination of the 15-50% requirement would encourage the contracting officers to use the ITVAR exception, at the expense of small business services firms, for IT acquisitions that account for more than 50% of value-added services.
3.
As soon as practicable, after the new NAICS code is established, SBA should revise its size standard to account for the new NAICS code and institute an appropriate employee-based size standard, the commenters argued. Recognizing that ITVARs typically operate on low margins even though their annual receipts may be high, the size standard should be based on employee count rather than annual revenue, the commenters reasoned. The commenters attested that a reasonable
It should be noted that SBA proposed a 500-employee size standard when it first created the ITVAR exception (67 FR 48419; July 24, 2002). As discussed in detail in the final rule (68 FR 74833; December 29, 2003), of a total of 291 comments received, 276 or 95% of comments opposed the proposed 500-employee size standard for the ITVAR exception in support of a smaller size standard. Commenters argued that businesses with 500 employees are not small in the ITVAR industry, and that smaller IT businesses are not competitive against businesses with hundreds of employees. The commenters contented that, under the proposed 500-employee size standard, Federal agencies are more likely to award ITVAR contracts to the larger small businesses at the expense of much smaller businesses. Several comments considered a 500-employee ITVAR firm to be dominant in this field, and therefore does not meet the Small Business Act's statutory definition of a small business which excludes dominant businesses as small. Finally, the commenters argued that a vast majority of firms engaged in the ITVAR industry are much smaller than 500 employees. Commenters to the 2014 proposed rule (79 FR 53646; September 10, 2014) that proposed eliminating the ITVAR exception (along with Footnote 18) validated the above concerns.
4.
With respect to qualifying as a small business under the new NAICS code, SBA should acknowledge that the NMR is explicitly inapplicable, the commenters argued. Because ITVARs, by definition, do not manufacture the products they resell, it is nonsensical to require them to comply with the NMR—particularly where solicitations overwhelmingly seek COTS items manufactured by large businesses, the commenters held. They maintained that both the ITVAR code (NAICS 541519, Footnote 18) and the COTS code (NAICS 513210, Footnote 15) require compliance with the NMR, but allow for waivers of the NMR. Rather than eliminating the NMR with respect to procurements using these codes, SBA opted to put the onus on agencies to seek waivers, they noted. In practice, this has not been a viable solution, as shown by how ineffective and underutilized the waiver has been to date, the commenter argued. Contracting officers have been reluctant to request contract specific waivers and, to date, no class waivers for software have been granted, they added.
Considering the rapid pace of development in the IT industry, SBA believes that it is not unreasonable to assume that there will be new products purchased by the Federal Government using the ITVAR exception in the future that will be manufactured by small businesses. Thus, by eliminating the NMR for the ITVAR exception, SBA could disadvantage small firms who are currently offering, or plan to offer products to the Government. SBA also believes it would be inconsistent with the intent of the Small Business Act if ITVAR resellers could provide the supplies produced primarily by large OEMs, or other large manufacturers, without the NMR. SBA is concerned that without the compliance with the NMR, the ITVAR exception may allow small business ITVARs to simply serve as “pass throughs” for large OEMs and other large manufacturers. While SBA recognizes that the NMR may work better for some products than for others, it strongly believes that the rule must apply to all supply contracts equally. Thus, like all other products and supplies, the nonmanufacturer rule must also apply to IT products, including those purchased through the ITVAR exception.
5.
The commenters stated that a separate work-around involves obtaining waivers. One way to allow small businesses to supply software manufactured by large corporations is to secure an individual waiver issued for a vehicle that covers a full array of IT orders of a Government department, the commenters contended. They noted that, in 2020, the Department of Homeland Security (DHS) obtained an individual waiver from SBA for all the products and services to be procured under the FirstSource III. Under FirstSource III, any commercial IT product would be available, including products manufactured by large companies, they added. The commenters pointed out that, notably, FirstSource III will have two NAICS codes, NAICS 541519 (ITVAR) and NAICS 513210 (Software Publishers). To resolve the NMR issues, DHS is pursuing an individual contract level NMR waiver for FirstSource III, the commenters added. If SBA approves the wavier, there would be no need for individual waivers for each order under FirstSource III, the commenters reasoned. They attested that DHS's attempt to secure a blanket waiver for the FirstSource III contract signals the Government's recognition of the need to change the rules to adapt to the evolving IT landscape. The commenters argued that a broader change is warranted for other types of IT procurements, particularly for those involving small business ITVARs.
As explained above, SBA's regulations in 13 CFR 121.1204(a) allow Federal agencies to request for class waivers of the NMR from SBA if they, based on market research, demonstrate that there are not small businesses that manufacture or produce a class of IT hardware and software. For example, in 2020, SBA granted a class waiver of the NMR for commercially available off-the-shelf laptops and tablet computers under NAICS 334111, Electronic Computer Manufacturing (85 FR 13692; March 9, 2020). Procedures for requesting individual waivers are laid out in 13 CFR 121.1204(b). SBA has granted several individual waivers for the COTS software under NAICS 513210 and computer hardware and software under NAICS 541519.
As mandated by section 1344 of the Jobs Act, SBA is required to hold not less than two public forums during its quinquennial review of size standards. SBA held two virtual public forums on size standards to update the public on the status of the ongoing five-year reviews of size standards under the Jobs Act and to consider public feedback on changes contained in the Revised Methodology. The two virtual public forums were held on January 23, 2024, and on January 25, 2024. Over the course of the two days, of 44 total participants, SBA received testimony from one commenter, mostly relating to the SBA's approach to evaluating the size standard for the ERS exception under NAICS 562910, Remediation Services. The comment received during the virtual public forums is included in the count of comments above.
The comment expressed general support for the SBA's Revised Methodology and its data-driven approach to size standards. The commenter argued, unlike other `exceptions” that are NAICS subindustry categories, the ERS exception is a superindustry category, because it consists of activities from several different NAICS industries. The commenter expressed concern over SBA's approach to creating the ERS industry by trimming the largest environmental companies for which the ERS work is not a primary source of their total revenues. The commenter
As discussed above, SBA proposed two changes to the Methodology: (1) adoption of the disparity ratio approach to account for the small business participation in the Federal market; and (2) use of the FPDS-NG and SAM data to calculate the 20th percentile and 80th percentile values of industry factors to evaluate the size standards at the subindustry levels, usually known as “exceptions.”
SBA received four comments supporting the adoption of the disparity ratio approach to measure small business participation in the Federal market. SBA received three comments addressing the second issue, with one supporting the SBA's proposal to use FPDS-NG and SAM data to derive the 20th percentile and 80th percentile values of industry factors to evaluate exception size standards and two opposing it. As stated elsewhere, the data from the Census Bureau's Economic Census tabulation are limited to the six-digit NAICS industry level and therefore do not provide information on economic characteristics of firms at the subindustry level. Thus, SBA uses the FPDS-NG and SAM data to derive the industry factors for exceptions. Therefore, to be consistent, SBA is adopting FPDS-NG and SAM data to obtain the 20th percentile and 80th percentile values of industry factors for evaluating size standards for the NAICS exceptions, instead of using the percentiles from the Economic Census. As such, SBA is adopting both proposed changes in the Revised Methodology.
Several commenters submitted comments pertaining to size standards for specific industries, including the ITVAR exception to NAICS 541519, the ERS exception to 562910, Software Publishers (NAICS 513210), and a few other industries. Comments pertaining to specific size standards are beyond the scope of the Methodology. Those commenters have been advised to submit their comments when SBA issues proposed rules as part of the third 5-year review of size standards under the Small Business Jobs Act of 2010.
Federal Aviation Administration (FAA), DOT.
Final rule.
This action establishes Class E airspace at Langtry, TX. The FAA is proposing this action to support new public instrument procedures.
Effective date 0901 UTC, December 26, 2024. The Director of the Federal Register approves this incorporation by reference action under 1 CFR part 51, subject to the annual revision of FAA Order JO 7400.11 and publication of conforming amendments.
A copy of the Notice of Proposed Rulemaking (NPRM), all comments received, this final rule, and all background material may be viewed online at
FAA Order JO 7400.11H, Airspace Designations and Reporting Points, and subsequent amendments can be viewed online at
Raul Garza Jr., Federal Aviation Administration, Operations Support Group, Central Service Center, 10101 Hillwood Parkway, Fort Worth, TX 76177; telephone (817) 222-5874.
The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of the airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it establishes Class E airspace extending upward from 700 feet above the surface at 4M Ranch Airfield, Langtry, TX, to support instrument flight rule operations at this airport.
The FAA published an NPRM for Docket No. FAA 2024-1556 in the
Class E airspace designations are published in paragraph 6005 of FAA Order JO 7400.11, Airspace Designations and Reporting Points, which is incorporated by reference in 14 CFR 71.1 on an annual basis. This document amends the current version of that order, FAA Order JO 7400.11H, dated August 11, 2023 and effective September 15, 2023. FAA Order JO 7400.11H is publicly available as listed in the
FAA Order JO 7400.11H lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.
This action amends 14 CFR part 71 by establishing Class E airspace upward from 700 feet above the surface within a 7.3-mile radius of 4M Ranch Airfield, Langtry, TX.
This action supports new instrument procedures.
The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore: (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that only affects air traffic procedures and air navigation, it is certified that this rule, when promulgated, does not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
The FAA has determined that this action qualifies for categorical exclusion under the National Environmental Policy Act in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures,” paragraph 5-6.5.a. This airspace action is not expected to cause any potentially significant environmental impacts, and no extraordinary circumstances exist that warrant preparation of an environmental assessment.
Airspace, Incorporation by reference, Navigation (air).
In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:
49 U.S.C. 106(f), 106(g), 40103, 40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959-1963 Comp., p.389.
That airspace extending upward from 700 feet above the surface within a 7.3-mile radius of the 4M Ranch Airfield.
Coast Guard, DHS.
Notification of enforcement of regulation.
The Coast Guard will enforce a safety zone for the Mexican Independence Day fireworks display on the Delaware River on September 15, 2024, to provide for the safety of life on navigable waterways during this event. Our regulation for marine events within the Fifth Coast Guard District identifies the regulated area for this event in Philadelphia, PA. During the enforcement periods, the operator of any vessel in the regulated area must comply with directions from the Patrol Commander or any Official Patrol displaying a Coast Guard ensign.
The regulation at 33 CFR 165.506, for Philadelphia, PA, will be enforced for the location identified in entry 10 of table 1 to paragraph (h)(1) from 7:45 p.m. through 8:30 p.m. on September 15, 2024.
If you have questions about this notice of enforcement, you may call or email Petty Officer Jonathan Lougheed, U.S. Coast Guard, Sector Delaware Bay, Waterways Management Division, telephone: 215-271-4814, email:
The Coast Guard will enforce a safety zone in 33 CFR 165.506 Entry No. 10 for the Delaware River adjacent to Penn's Landing regulated area from 7:45 p.m. to 8:30 p.m. on September 15, 2024. This action is necessary to ensure safety of life on the navigable waters of the United States immediately prior to, during, and immediately after fireworks displays. Our regulation for safety zones of fireworks displays within the Fifth Coast Guard District, table 1 to paragraph (h)(1) to 33 CFR 165.506, entry 10 specifies the location of the regulated area as all waters of the Delaware River adjacent to Penn's Landing, Philadelphia, PA, within a 300-yard radius of the fireworks barge position. On September 15, 2024 the approximate position will be 39°56′53.8″ N, 75°08′17.4″ W. During the enforcement period, as reflected in § 165.506(d), vessels may not enter, remain in, or transit through the safety zone unless authorized by the Captain of the Port or designated Coast Guard patrol personnel on-scene.
In addition to this notification of enforcement in the
Coast Guard, DHS.
Temporary interim rule and request for comments.
The Coast Guard is establishing a temporary safety zone for all navigable waters of the Kentucky River extending from mile marker (MM) 65.5 to MM 66 near Frankfort, KY. This safety zone is needed to protect life, vessels, and the marine environment
This rule is effective without actual notice from September 12, 2024 through December 6, 2024. For the purposes of enforcement, actual notice will be used from September 7, 2024 until September 12, 2024. If the COTP determines that the safety zone is no longer needed, they may end enforcement earlier through local notice. Comments and related material must be received by the Coast Guard on or before October 15, 2024.
To view documents mentioned in this preamble as being available in the docket, go to
If you have questions about this rule, call or email Petty Officer Bryan Crane, Sector Ohio Valley Waterways Division, U.S. Coast Guard; telephone 502-779-5400, email
The Coast Guard is issuing this interim temporary rule under the authority in 5 U.S.C. 553(b)(B). This statutory provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” The Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because it is impracticable and contrary to the public interest. On August 5, 2024, a 50-foot section of concrete walkway from the Broadway Bridge near MM 65.5 fell into the river, and continues to deteriorate, causing a hazard to navigation. The safety zone must be established quickly to protect people and vessels from the concerns of further falling debris. Insufficient time exists to provide a reasonable comment period and then consider those comments before issuing the rule. This safety zone may include closures or navigation restrictions and requirements that are vital to maintaining safe navigation on the Kentucky River during response efforts and the hazards of falling debris. Therefore, delaying the effective date for this emergency safety zone to complete the NPRM process would also be contrary to the public interest as it would delay the safety measures vital to safe navigation.
Also, under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the
Although this regulation is published as an interim rule without prior notice, public comment is nevertheless desirable to ensure that the regulation is both workable and reasonable. Accordingly, persons wishing to comment may do so by submitting written comments to the office listed under
The Coast Guard is issuing this temporary interim rule under authority in 46 U.S.C. 70034 (previously 33 U.S.C. 1231). The Captain of the Port Sector Ohio Valley (COTP) has determined that potential hazards associated with falling debris from the Broadway Bridge, as is currently occurring, along with repairs and potential demolition activities beginning immediately, will be a safety concern for anyone within MM 65.5 to MM 66 on the Kentucky River. This rule is needed to protect personnel, vessels, and the marine environment in the navigable waters within the safety zone while the threat of continued falling debris exists and repairs or demolition activities exist.
This temporary interim rule establishes a safety zone for all navigable waters on the Kentucky River from Mile Marker (MM) 65.5 through MM 66, extending the entire width of the Kentucky River. Transit into and through this area is prohibited for all traffic beginning September 7, 2024 and will continue through December 6, 2024. The duration of the zone is intended to protect personnel, vessels, and the marine environment in these navigable waters while the threat of continued falling debris exists and repairs or demolition activities exist. The COTP will terminate the enforcement of this safety zone before December 6, 2024 if the bridge has been demolished or there is no longer a hazard. Entry into this safety zone is prohibited unless specifically authorized by the COTP or their designated representative. A designated representative is a commissioned, warrant, or petty officer of the U.S. Coast Guard assigned to units under the operational control of USCG Sector Ohio Valley.
The Coast Guard will notify the public and local mariners of this safety zone through appropriate means, which may include, but are not limited to, publication in the
Requests for entry will be considered and reviewed on a case-by-case basis. The COTP may be contacted by telephone at 502-779-5422 or can be reached by VHF-FM channel 16. Persons and vessels permitted to enter this safety zone must transit at their slowest safe speed and comply with all lawful directions issued by the COTP or the designated representative.
We developed this rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders, and we discuss First Amendment rights of protestors.
Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. This rule has not been designated a “significant regulatory action,” under section 3(f) of Executive Order 12866, as amended by Executive Order 14094 (Modernizing Regulatory Review). Accordingly, this rule has not been reviewed by the Office of Management and Budget (OMB).
This regulatory action determination is based on the size, location, and
The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.
While some owners or operators of vessels intending to transit the safety zone may be small entities, for the reasons stated in section V.A above, this rule will not have a significant economic impact on a substantial number of small entities.
Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please call or email the person listed in the
Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.
This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).
A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.
Also, this rule does not have Tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or Tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
We have analyzed this rule under Department of Homeland Security Directive 023-01, Rev. 1, associated implementing instructions, and Environmental Planning COMDTINST 5090.1 (series), which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves This rule involves a safety zone lasting 24 hours a day for 90 days that will prohibit entry within a half mile stretch of the Kentucky River. It is categorically excluded from further review under paragraph L60a of Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 1. A Record of Environmental Consideration supporting this determination is available in the docket. For instructions on locating the docket, see the
The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to call or email the person listed in the
We view public participation as essential to effective rulemaking and will consider all comments and material received during the comment period. Your comment can help shape the outcome of this rulemaking. If you submit a comment, please include the docket number for this rulemaking, indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation.
Submitting comments. We encourage you to submit comments through the Federal Decision Making Portal at
Viewing material in the docket. To view documents mentioned in this rule as being available in the docket, find the docket as described in the previous paragraph, and then select “Supporting & Related Material” in the Document Type column. Public comments will also be placed in our online docket and can be viewed by following instructions on the
Personal information. We accept anonymous comments. Comments we post to
Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Security measures, Waterways.
For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:
46 U.S.C. 70034, 70051, 70124; 33 CFR 1.05-1, 6.04-1, 6.04-6, and 160.5; Department of Homeland Security Delegation No. 00170.1, Revision No. 01.3.
(a)
(b)
(2) Vessels requiring entry into this safety zone must request permission from the COTP or a designated representative. To seek entry into the safety zone, contact the COTP or the COTP's representative by telephone at 502-779-5422 or on VHF-FM channel 16.
(3) Persons and vessels permitted to enter this safety zone must transit at their slowest safe speed and comply with all lawful directions issued by the COTP or the designated representative.
(c)
Coast Guard, DHS.
Notification of enforcement of regulation.
The Coast Guard will enforce a safety zone for the Cooper Foundation Gala fireworks display on the Delaware River on September 27, 2024, to provide for the safety of life on navigable waterways during this event. Our regulation for marine events within the Fifth Coast Guard District identifies the regulated area for this event in Philadelphia, PA. During the enforcement period, the operator of any vessel in the regulated area must comply with directions from the Patrol Commander or any Official Patrol displaying a Coast Guard ensign.
The regulations in 33 CFR 165.506, for Philadelphia, PA, will be enforced for the location identified in entry 10 of table 1 to paragraph (h)(1) from 8:30 p.m. through 9 p.m. on September 27, 2024.
If you have questions about this notice of enforcement, you may call or email Petty Officer Jonathan Lougheed, U.S. Coast Guard, Sector Delaware Bay, Waterways Management Division, telephone: 215-271-4814, email:
The Coast Guard will enforce a safety zone for the Delaware River, Philadelphia, PA safety zone from 8:30 p.m. to 9 p.m. on September 27, 2024. This action is necessary to ensure safety of life on the navigable waters of the United States immediately prior to, during, and immediately after fireworks displays. Our regulation for safety zones of fireworks displays within the Fifth Coast Guard District, table 1 to paragraph (h)(1) to 33 CFR 165.506, entry 10 specifies the location of the regulated area as all waters of the Delaware River adjacent to Penn's Landing, Philadelphia, PA, within a 500-feet radius of the fireworks barge position. On September 27, 2024, the approximate position will be 39°56′53.65″ N, 75°08′03.43″ W. During the enforcement period, as reflected in § 165.506(d), vessels may not enter, remain in, or transit through the safety zone unless authorized by the Captain of the Port or designated Coast Guard patrol personnel on-scene.
In addition to this notification of enforcement in the
Environmental Protection Agency (EPA).
Correcting amendments.
The Environmental Protection Agency (EPA) is making two corrections to the final action that appeared in the
Effective September 12, 2024.
Mr. Andrew Bouchard, Sector Policies and
This is the second set of corrections made to the published final action 89 FR 42932 (May 16, 2024) (“Final Action”). The first set of corrections was published in the
Environmental protection, Administrative practice and procedure, Air pollution control, Incorporation by reference, Intergovernmental relations, Reporting and recordkeeping requirements.
For the reasons stated in the preamble, the EPA amends title 40, chapter I, part 60 of the Code of Federal Regulations by making the following correcting amendments:
42 U.S.C. 7401
(e) * * *
(1) The equipment is in VOC service only during startup and shutdown, excluding startup and shutdown between batches of the same campaign for a batch process.
(2) The equipment is in VOC service only during process malfunctions or other emergencies.
(3) The equipment is backup equipment that is in VOC service only when the primary equipment is out of service.
Transportation Security Administration (TSA), Department of Homeland Security (DHS).
Notice of proposed rulemaking (NPRM).
This proposed rule would ensure that Federal agencies have appropriate flexibility to implement the card-based enforcement provisions of the REAL ID regulations after the May 7, 2025, enforcement deadline by explicitly permitting agencies to implement card-based enforcement in phases. This rulemaking proposes that agencies may implement the card-based enforcement provisions through a phased enforcement plan if they determine it is appropriate upon consideration of relevant factors including security, operational feasibility, and public impact. The proposed rule would also require agencies to coordinate their plans with DHS, make the plans publicly available, and achieve full enforcement by May 5, 2027.
Interested persons are invited to submit comments on or before October 15, 2024.
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George Petersen, Senior Program Manager, REAL ID Program, Enrollment Services and Vetting Programs, Transportation Security Administration, 6595 Springfield Center Drive, Springfield, VA 20598; telephone: (571) 227-2215; email:
Please do not submit comments to these addresses.
DHS invites interested persons to participate in this NPRM by submitting written comments, including relevant data. Comments that will provide the most assistance to DHS will reference a specific portion of this proposed rule, explain the reason for any suggestion or recommended change, and include data, information, or authority that supports such suggestion or recommended change.
DHS will review all comments received on this proposed rule, but may choose not to post off-topic, inappropriate, or duplicative comments. To submit a comment:
• Go to
• All submissions received must include the agency name and docket number for this rulemaking.
• Comments posted to
Secure driver's licenses and identification documents are a vital component of our national security framework. The REAL ID Act,
Pursuant to the current REAL ID regulations, after REAL ID card-based enforcement begins on May 7, 2025, Federal agencies may only accept State-issued driver's licenses and identification cards (DL/IDs) for official purposes, as defined in the REAL ID Act and regulation, if that DL/ID is issued in accordance with REAL ID requirements by a REAL ID-compliant State.
DHS believes this surge could overwhelm States and result in backlogs and delays in REAL ID issuance. In light of this, DHS anticipates that a significant number of individuals seeking to use their DL/ID for a REAL ID official purposes on and after May 7, 2025, may not have a compliant DL/ID. DHS recognizes that this could result in a situation where individuals are unable to present a compliant DL/ID to access a Federal facility or board a federally regulated commercial aircraft on a large scale. For some agencies, this scenario may raise serious concerns related to security, agency operations, and potential impact to the public. While these concerns are especially acute in an airport security environment, DHS anticipates that other Federal agencies that operate facilities visited frequently by the general public
DHS believes that this approach will be more effective at achieving full enforcement than further extensions of the enforcement deadline. By demonstrating that the government is preparing for and planning to begin enforcement, the proposed rule reiterates for the public that REAL ID card-based enforcement will start on May 7, 2025, and provides an opportunity for States and the public to prepare for full enforcement. After May 7, 2025, when agencies begin full enforcement or implement a phased enforcement plan, as appropriate, the public will be further incentivized to obtain a REAL ID as they anticipate consequences for presenting a non-compliant DL/ID. At the same time, the proposed rule is intended to allow a transition to full enforcement that mitigates the potential negative impact to agencies and the public if full enforcement began immediately on the card-based enforcement date. Given the current percentage of REAL ID-compliant DL/IDs that have been issued (as a percentage of all DL/IDs), the challenges many States are experiencing as they seek to increase adoption of compliant DL/ID, and the resulting concerns of Federal agencies, the proposed rule would provide important flexibility to agencies to ensure a smooth transition to card-based enforcement. The proposed rule balances the increased security benefits of beginning card-based enforcement with an understanding of the significant risks that some Federal agencies may experience as a result of the transition to full enforcement.
Under current regulations, Federal agencies may not accept non-compliant DL/IDs for REAL ID official purposes when card-based enforcement is required on May 7, 2025. While Federal agencies would still be required to commence REAL ID card-based enforcement on May 7, 2025, this proposed rule would provide agencies, for a period of up to 2 years, flexibility to determine that a phased approach to card-based enforcement is appropriate after considering relevant factors including security, operational feasibility, and impact to the public offered by their agency. The proposed rule seeks to provide an enforcement approach that allows agencies to maximize security gains in contexts where a swift transition to full enforcement poses little risk, while minimizing the risks in contexts where large numbers of individuals seeking to use noncompliant DL/IDs raises serious concerns.
To ensure that agencies' phased enforcement plans consistently and appropriately advance the objectives of the REAL ID regulations, this proposed rule would require agencies to coordinate their phased enforcement plans with DHS and begin full enforcement no later than May 5, 2027. To ensure transparency and public visibility, the proposed rule would require agencies that use a phased enforcement plan to make their plan publicly available on their web page and require DHS to make publicly available a list of agencies that have coordinated phased enforcement plans with DHS. Finally, the proposed rule's preamble provides guidance to Federal agencies on types of phased enforcement plans that agencies may consider.
All but one of the September 11, 2001, terrorist hijackers acquired some form of identification document, some by fraud, and used these forms of identification to assist them in boarding commercial flights, renting cars, and other necessary activities leading up to the attacks.
The REAL ID Act of 2005 (the REAL ID Act) addressed the 9/11 Commission's recommendation that the Federal Government “set standards for the issuance of . . . sources of identification, such as drivers licenses.”
On January 29, 2008, DHS published a final rule implementing the REAL ID Act's requirements.
In addition to compliant licenses and identification cards, States may issue noncompliant licenses and identification cards, which will not be acceptable by Federal agencies for official purposes after the card-based deadline, to individuals who are unable or unwilling to present the documents and information necessary to obtain a REAL ID-compliant license or card. These noncompliant licenses and cards must (1) clearly state that the card is not acceptable for official purposes, and (2) have a unique design or color indicator that clearly distinguishes them from compliant licenses and identification cards.
Since its enactment in 2005, DHS has worked with the States to implement the requirements of the REAL ID Act. DHS has provided funding, technical assistance, outreach, and engagement. DHS has awarded over $263 million in grant funding to assist in enhancements to drivers' license security programs.
Considering the impact of the COVID-19 pandemic on State and local government operations and the desire to reduce further spread by encouraging continued social distancing, DHS extended the card-based enforcement deadline three times during the pandemic. In April 2020, DHS issued a final rule extending the REAL ID card-based enforcement date for 1 year until October 1, 2021;
The U.S. has 56 different jurisdictions that issue DL/IDs and are subject to REAL ID requirements, including the 50 States, the District of Columbia, and the territories of Puerto Rico, U.S. Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, and American Samoa. All but five States offer their residents the option to obtain a noncompliant DL/ID for various reasons including State privacy requirements, implementation costs to the State and residents, and to provide the opportunity to obtain a DL/ID to residents who may not be able to obtain a REAL ID-compliant DL/ID.
Based on REAL ID data compiled by compliant licensing jurisdictions, as of January 2024, DHS estimates that compliant States, territories, and the District of Columbia have issued approximately 162 million REAL ID-compliant DL/ID, which represent approximately 56 percent of the population possessing a State-issued DL/ID.
There are a number of factors that impact the REAL ID adoption rate in any given State resulting in significant variability in adoption rates from State to State. These factors include: (1) the date a State became REAL ID certified and began issuing REAL ID-compliant DL/IDs, (2) whether the State offers a noncompliant DL/ID, (3) the number of legacy cards (DL/IDs issued before a State became REAL ID certified) still in circulation, (4) the validity period of DL/IDs issued by a State, (5) the disruption to Department of Motor Vehicles (DMV) operations and ability to provide services during the COVID-19 pandemic, and (6) State resource constraints, including budgetary and staffing constraints.
Generally, States that have become REAL ID certified more recently are more likely to have a lower REAL ID adoption rate than States that were certified earlier, as their populations have had less time to obtain a REAL ID-compliant DL/ID. While some licensing jurisdictions have been issuing REAL ID-compliant cards for many years and have high adoption rates, nearly half (27) of the jurisdictions have only been certified since 2018. States that issue cards with longer validity periods generally have lower adoption rates than States that issue cards with shorter validity periods, as it takes longer for legacy cards to cycle through their validity period. REAL ID adoption rates are also influenced by whether a State offers its population the option to receive a noncompliant card. There are many reasons States choose to offer residents the option to obtain a noncompliant card when an individual's DL/ID is due for renewal, including the ability to meet eligibility requirements for a compliant DL/ID, potential greater monetary and time costs associated with obtaining a compliant DL/ID, and the convenience of renewing a legacy or existing noncompliant DL/ID online instead of travelling in person to the DMV (this became particularly relevant during the extended COVID-19 pandemic). In States that offer noncompliant cards, a substantial number of individuals choose to obtain a noncompliant card, rather than a compliant DL/ID, when they seek to renew an existing legacy or noncompliant DL/ID. DHS understands that individuals may choose to obtain a noncompliant card for a number of reasons including lower monetary costs, reduced time burden of collecting necessary documents, and avoiding in-person visits to physical DMV locations.
As a result of the COVID-19 pandemic, most State licensing agencies were forced to close branches or operate at a reduced capacity for extended periods of time, limiting the ability of their residents to obtain REAL ID-compliant DL/IDs. The impact of pandemic-related mitigation measures on REAL ID adoption was accentuated by two additional factors. First, 27 jurisdictions were certified between 2018 and 2022, meaning they had very little or no time to issue REAL ID-compliant DL/IDs prior to the mitigation measures implemented during the pandemic. As a result, these States had only issued a relatively low number of REAL ID-compliant DL/IDs when adoption rates started falling during, and continuing after, the pandemic. The combination of low numbers of compliant DL/IDs issued pre-pandemic and the decreased rate of adoption during the pandemic suggests that the current number of compliant DL/IDs issued in these States is unlikely to be significantly higher than the pre-pandemic number. Second, REAL ID-compliant DL/IDs cannot be issued without the physical presence of the applicant, but during the pandemic many States extended license expiration dates and offered individuals the ability to obtain noncompliant DL/IDs without an in-person visit to the DMV (through an online or mail process, for example). To avoid visiting the DMV many individuals who might have otherwise obtained a REAL ID likely chose to obtain a noncompliant card instead.
DHS observed widespread decreases in REAL ID adoption rates coupled with significant increases in noncompliant card issuance rates during, and immediately after, the pandemic. This trend resulted in reduced adoption rates. Prior to the pandemic, the national REAL ID adoption rate was approximately 2.5 percent per month, however, this rate dropped to less than 0.5 percent in April and May of 2020. As of January 2024, the national adoption rate has not reached its pre-pandemic level and continues to stand at approximately 0.56 percent per month. As detailed in the regulatory analyses (section
The significant increase in the issuance of noncompliant cards to individuals renewing existing noncompliant and legacy DL/IDs will also likely continue to depress adoption rates for several years. All States provide their residents with the opportunity to obtain a REAL ID-compliant DL/ID when their current DL/ID comes up for renewal or if they are seeking their first driver's license in the State. Depending on the State, DL/IDs may be valid anywhere from 3 to 8 years. Because REAL ID adoption has been strongly tied to the renewal cycle and period of validity of existing DL/IDs, DHS expected adoption rates to rise as residents in States with long validity periods needed to renew their DL/IDs. However, the significant increase in issuance of noncompliant DL/IDs during the pandemic in States where this option was offered as a less burdensome alternative for individuals to renew their DL/IDs disrupted this expected effect, as a substantial number of individuals chose to obtain a noncompliant DL/ID rather than a compliant DL/ID. The impact of the pandemic is then two-fold; it not only drove down adoption rates by limiting opportunities for individuals to obtain a compliant DL/ID, but also delayed the strongest catalyst for REAL ID adoption, the renewal of a legacy DL/ID. As a result, many individuals have been issued noncompliant DL/IDs with full validity periods, and thus would not be incentivized to obtain a REAL ID based upon renewal until their noncompliant DL/ID expires, which depending on the State validity period could be years away.
DHS believes that beginning card-based enforcement on May 7, 2025, is the most effective path to achieve full implementation of the REAL ID Act and regulations. The requirements of the REAL ID Act and regulations provide significant security benefits by improving the accuracy of identity verification processes.
Today, the REAL ID adoption rate continues to remain well below the pre-pandemic rate. DHS recognizes that without a significant increase in the adoption rate leading up to the May 7, 2025, deadline millions of noncompliant cards will still be in circulation on that date. Even assuming a substantial increase in the adoption rate, it is difficult to predict the number of people who will seek to use non-
DHS also acknowledges the possible risks to Federal agencies and public impact should a significant number of individuals seek to use non-REAL ID-compliant DL/IDs for REAL ID official purposes when enforcement begins. In some cases, this may impact how agencies provide certain services or conduct business with the public. If many individuals seek to use noncompliant DL/IDs at the same location, this could result in significant backlogs at access points to Federal facilities and TSA security checkpoints with the potential to result in significant negative downstream outcomes and poor customer experience. In TSA's example, if a large number of individuals arrived at an airport security checkpoint with noncompliant DL/IDs,
Given that approximately 56 percent of DL/IDs in circulation are REAL ID-compliant as of January 2024 and the low current adoption rates, there is a real possibility of disruptions like those described above that could occur if all agencies begin full enforcement on May 7, 2025. Using the compounded monthly growth rate for the last 12 months (0.56 percent), DHS estimates that 61.2 percent of REAL IDs, relative to all DL/IDs in circulation, would be REAL ID-compliant.
Recognizing these challenges and the uncertainty in the number of individuals Federal agencies may encounter who do not have a REAL ID or other acceptable identification on May 7, 2025, Federal agencies would benefit from added flexibility to implement enforcement of the REAL ID regulations in a manner that takes into account relevant factors including security, operational feasibility, and public impact. This proposed rule would permit agencies to make a determination that phased enforcement is appropriate, in consideration of these factors. The rulemaking would allow individual agencies to use their own expertise to structure enforcement plans in such a manner that will lead to successful enforcement of the REAL ID regulations while mitigating potential risks of immediately transitioning to full enforcement on May 7, 2025.
The ability to implement the card-based requirements under a phased approach after the deadline, for a two-year period, would allow Federal agencies to start card-based enforcement in a manner that reduces potential disruption to operations, reduces negative public impact, and supports a smooth transition to full card-based enforcement and the increased security benefits of REAL ID. For example, agencies would have the ability to begin enforcement by issuing warning notices or through progressive consequences if they determine that those measures would most effectively mitigate the risks of an immediate transition to full enforcement. Without this flexibility, and especially if the adoption rate remains low leading up to May 7, 2025, DHS believes Federal agencies could face a serious risk of operational disruption, negative public impact, and potential security vulnerabilities.
Further, implementation of card-based enforcement through a phased approach is consistent with DHS' approach to State-based enforcement.
DHS' approach to State-based enforcement demonstrated that phased enforcement can be effective in achieving compliance with REAL ID requirements. This proposed rule would provide Federal agencies the flexibility to determine whether a phased plan to implement the REAL ID card-based enforcement requirements beginning on May 7, 2025, is appropriate for its particular circumstances. Such flexibility would allow agencies to begin card-based enforcement as part of measured, responsible, and achievable plan leading to full enforcement of the REAL ID regulations.
Additionally, permitting agencies to begin enforcement using a phased approach may facilitate increased adoption of REAL ID-compliant DL/IDs. It would allow agencies to reiterate that further extensions of the May 7, 2025, enforcement deadline are unlikely by demonstrating that the government is planning and preparing to begin enforcement. DHS anticipates that agencies announcing concrete plans for commencing enforcement on May 7, 2025, could likely incentivize individuals to obtain a REAL ID-
This proposed rule also recognizes that individual Federal agencies are in the best position to determine how to ensure successful implementation of the REAL ID requirements within their operational context. In making a determination of whether phased enforcement instead of an immediate transition to full enforcement is appropriate, agencies must, at a minimum, consider three relevant factors that will inform their decision. DHS identified the three factors it believes are most likely to impact efficient and successful implementation of card-based enforcement: security, operational feasibility, and public impact.
In considering security, agencies should weigh both the security benefits that card-based enforcement provides as well as potential security vulnerabilities that an immediate transition to full enforcement might create. For many agencies, DHS anticipates that the increased security provided by card-based enforcement weigh in favor of an immediate transition to full enforcement. However, in certain contexts, an immediate transition to full enforcement may result in security vulnerabilities. For example, no longer accepting noncompliant DL/IDs may lead to long lines and crowding at access points to Federal facilities or airport security checkpoints
Regarding operational feasibility, agencies should consider any implications that transitioning to full enforcement may have on their ability to continue effectively carrying out operations in support of their mission. DHS anticipates that in many cases, immediately transitioning to full enforcement would have little to no impact on agencies' ability to execute their missions and would enhance security. Agencies may have limited interactions with the public that necessitate members of the public seeking to access Federal facilities that require proof of identity for entry. In cases where agencies currently interact with members of the public at such facilities, agencies may be able to easily adjust the manner in which they interact with the public or provide a service to alleviate the need for individuals to use their DL/ID for a REAL ID official purpose. For example, agencies may be able to hold meetings in facilities that do not require the presentation of identification documents or hold virtual meetings. For certain agencies whose missions include operations requiring frequent use of identification documents for a REAL ID official purpose, an immediate transition to full enforcement may challenge an agency's ability to effectively carry out its mission if a significant number of individuals seek to use noncompliant DL/IDs after the May 7, 2025, deadline. For these agencies, implementing card-based enforcement through a phased approach would allow the opportunity to observe changes in the number of noncompliant cards they encounter after the deadline and transition to full enforcement in a manner that ensures continuity of operations.
Finally, agencies should assess whether an immediate transition to full enforcement would negatively impact the public and the provision of services to the public. The requirements of the REAL ID Act and regulation apply only in contexts where individuals must present an identification document to Federal agencies for REAL ID official purposes.
In addition to these factors, agencies may consider other factors they deem relevant and necessary to make their determination. Agencies' consideration of all relevant factors will be informed by changes in the adoption rate leading up to the card-based enforcement deadline. Certain factors may be given more or less weight depending on the number of REAL ID noncompliant DL/IDs agencies are likely to encounter on and after the deadline. For agencies that determine that beginning full card-based enforcement on May 7, 2025, would not pose significant risks after considering security, operational feasibility, public impact, and other relevant factors, the proposed rule maintains the current regulatory default of an immediate transition to full enforcement. Agencies that determine that commencing full card-based enforcement on May 7, 2025, is not appropriate after considering the relevant factors, may utilize a phased approach that would allow them to facilitate continued secure and orderly operations and minimize impacts to the public while implementing enforcement phases that lead to full REAL ID enforcement. This flexibility would allow these agencies to maintain operational efficiency; reduce security risks born from long lines, incidents, and distractions caused by additional identity verification procedures or turning away individuals who do not have acceptable identification; decrease potential public backlash to security personnel enforcing REAL ID; and limit potential negative impacts to the public.
Should an agency determine that phased enforcement is appropriate, DHS
In order to ensure that agencies' enforcement plans appropriately advance the objectives of the REAL ID regulations and maintain consistent progress towards full enforcement, the plans must be coordinated with DHS. The REAL ID Act charges DHS with authority to implement the Act's requirements.
DHS acknowledges the potential for some confusion resulting from the possibility of various agencies implementing different phased enforcement plans. This proposed rule seeks to mitigate that potential confusion by (1) requiring agencies using a phased approach to make their plan publicly available on their web page, and (2) requiring DHS to post a list of agencies that have coordinated phased enforcement plans with DHS on the DHS REAL ID web page
The proposed rule also would require that any agency that chooses to implement card-based enforcement under a phased approach must fully enforce the card-based requirements no later than May 5, 2027. On and after that date, agencies may not accept noncompliant marked DL/IDs or legacy DL/IDs for official purposes. As mentioned above, DHS anticipates that shortly before, and as REAL ID card-based enforcement begins on May 7, 2025, individuals' urgency to obtain a compliant DL/ID will likely increase as they realize that they will need a compliant DL/ID when they seek to use their DL/ID for REAL ID official purposes. In States with low adoption rates, large numbers of individuals may rapidly seek to obtain REAL ID-compliant DL/IDs. This potential rapid increase in demand may challenge the capacity of licensing jurisdictions and may create backlogs in issuance of REAL ID-compliant cards. The two-year window during which agencies may implement enforcement in phases is designed, in part, to provide States sufficient additional time to meet increases in demand for REAL ID-compliant cards. Agencies who decide to use a phased enforcement plan may choose to implement plans that reach full enforcement in less than 2 years, but all phased plans must conclude, reaching full card-based enforcement, no later than May 5, 2027.
DHS chose a two-year period during which agencies may implement phased enforcement plans to balance delay in fully realizing the security benefits of REAL ID with allowing sufficient time for Federal agencies to encourage greater adoption rates and limit negative enforcement impacts, where appropriate, and for States to meet the increased demand as individuals seek to obtain compliant DL/IDs. DHS also considered phased enforcement periods of one, three, four, or five years' duration. DHS chose 2 years as it believes this time period provides sufficient opportunity for individuals to obtain a compliant DL/IDs, while maintaining an impending need (incentive) to do so, and for States to process them (
DHS did not select 1 year because DHS believes this timeframe would not provide enough time for the anticipated effects of the enforcement deadline and phased enforcement plans to be realized and reflected in adoption rates. Many individuals may only seek to use their DL/ID for official purposes once or twice a year (for example, boarding a commercial flight to travel for a holiday or vacation). In a one-year phased enforcement period, individuals who learn of the need to obtain a REAL ID-compliant DL/ID towards the end of that one-year period—possibly through a warning notice as part of an agency's phased enforcement plan—may not have sufficient time to obtain a compliant DL/ID before full enforcement begins. Additionally, if increased demand for compliant DL/IDs leading up to and right after the deadline results in backlogs at State DMVs, DHS believes 1 year may not be sufficient time for States to make any necessary adjustments to process potential backlogs. Although a one-year phased enforcement period would provide a shorter delay in obtaining the full security benefits of REAL ID as described in the 2008 rule,
DHS did not select three, four, or five years because DHS believes a time period longer than 2 years would further delay the security benefits of REAL ID and is unlikely to provide the same incentive for individuals to obtain a complaint DL/ID. DHS believes that 2 years after the card-based enforcement deadline is a sufficient amount of time for individuals to obtain and States to provide REAL ID-compliant DL/IDs to any eligible individual who seeks to obtain one. DHS believes that allowing more time for phased enforcement beyond 2 years is unlikely to offer a meaningful additional opportunity for individuals and States to take necessary action and could further delay the security benefits of REAL ID. Additionally, allowing for phased enforcement for more than 2 years may discourage individuals and States from prioritizing necessary action.
Finally, to avoid any confusion about the ability of Federal agencies to continue to accept noncompliant marked DL/IDs issued under § 37.71, the proposed rule would clarify that Federal agencies may continue to accept these licenses past May 7, 2025, if they are doing so pursuant to an enforcement plan coordinated with DHS. Although some agencies may accept noncompliant marked DL/IDs for official purposes as part of a phased enforcement plan, other agencies may choose not to accept noncompliant marked DL/IDs as part of their phased enforcement plan, may determine that phased enforcement is not appropriate, or currently do not accept noncompliant marked DL/IDs for official purposes.
As an alternative to the approach this rule proposes, DHS also considered further extending the REAL ID card-based enforcement deadline to allow for more time for the adoption rate to increase. However, DHS believes that maintaining the deadline of May 7, 2025, while providing agencies the flexibility to make a determination that phased enforcement is appropriate will allow for a faster and smoother transition to full card-based enforcement than another extension of the deadline.
DHS prefers the approach proposed in this rule rather than an extension for several reasons. First, by maintaining the current deadline, agencies that do not determine that phased enforcement is appropriate will immediately transition to full card-based enforcement on May 7, 2025. This allows the security benefits of REAL ID to be fully realized in contexts where full enforcement poses little risk of creating other security risks, interfering with operational feasibility, or disrupting public services. If the deadline is extended, agencies that could immediately transition to full enforcement are unlikely to do so before the new deadline, delaying security benefits that would otherwise be available. DHS expects that a significant number of agencies will begin full enforcement on the deadline because doing so is appropriate within their operational context.
Second, DHS believes that the approach provided by this rulemaking is likely to have a positive impact on the REAL ID adoption rate, but that an extension would not incentivize an increase in demand for REAL ID-compliant DL/IDs. Because of the history of extensions related to REAL ID enforcement, DHS expects that there is some confusion, lack of awareness, and apathy associated with the May 7, 2025, deadline. Given the prior history, DHS believes that the public may continue to expect that additional extensions are likely and not feel urgency to obtain a REAL ID until DHS demonstrates that another extension is unlikely. Further, since the most recent extension in March 2023, DHS has observed the rate of growth in adoption of compliant DL/IDs remains very low (0.56 percent).
Instead, DHS expects that allowing agencies to enforce the May 7, 2025, deadline through a phased approach will incentivize increased demand for REAL IDs in at least two ways. First, it will incentivize increased adoption rates as the deadline approaches. In part due to concerns related to low adoption rates, DHS has previously extended the card-based deadline several months before the enforcement date, limiting the effect of urgency to obtain a compliant DL/ID related to the deadline. As the deadline approaches, and DHS does not issue an extension, DHS expects individuals that were otherwise relying on another extension to obtain a compliant DL/ID.
Second, DHS expects individuals who may not be aware of the deadline to be incentivized to obtain a compliant DL/ID when they experience the consequences of enforcement. During the phased enforcement period individuals will experience varying levels of consequences including warning notices and progressive enforcement (as part of a phased enforcement plan), or full enforcement (where agencies transition to full enforcement on the deadline). These consequences will incentivize individuals who experience them to obtain a REAL ID. Further, because the individuals who most frequently use their DL/ID for REAL ID purposes will be the most likely to experience consequences, DHS expects that phased enforcement will especially incentivize increased adoption amongst this population. This will in turn lessen the likelihood of disruption when agencies transition to full enforcement because the individuals who most often use State-issued DL/IDs for REAL ID official purposes will have been motivated to obtain a REAL ID during the phased enforcement period. Additionally, individuals may share their experience with personal contacts, potentially incentivizing others to obtain a compliant DL/ID. DHS expects that as awareness that REAL ID is being enforced becomes widespread, individuals who intend to use their DL/ID for official purposes will be motivated to obtain a compliant DL/ID.
This proposed rule represents one aspect of DHS' broad approach towards transitioning to enforcement of the REAL ID requirements on May 7, 2025. Although this proposed rulemaking is critical to providing agencies with the necessary flexibility to ensure a smooth transition to full card-based enforcement, DHS is engaged in a number of efforts to improve adoption rates. This layered approach includes heavy engagement with States that have low REAL ID adoption rates, a public advertising campaign raising awareness of upcoming REAL ID enforcement and the benefits of obtaining a
Under this proposed rule, agencies would have broad discretion to determine the structure of their phased enforcement plan so long as they comply with the requirements in the rule to:
(1) Make a determination that a phased enforcement plan is appropriate in consideration of relevant factors including security, operational feasibility, and public impact;
(2) Coordinate the phased enforcement plan with DHS;
(3) Make the phased enforcement plan publicly available on the agency's web page; and
(4) Achieve full enforcement of the carb-based REAL ID requirements no later than May 5, 2027.
The required coordination with DHS will provide DHS with visibility on government-wide implementation of REAL ID as well as allow DHS to serve in liaison role between agencies where there may be overlapping equities. During the coordination process, DHS seek to provide agencies guidance on how best to use their phased plan to transition to full enforcement. DHS may offer feedback or suggestions related to an agency's plan during this process. However, as long as agencies comply with the proposed requirements in this rule, they would have broad discretion to structure their plans.
As guidance to Federal agencies and to promote consistency, DHS provides the below discussion and examples of enforcement models as options agencies may consider if they determine that a phased approach to REAL ID card-based enforcement on May 7, 2025, is appropriate. DHS anticipates that informed compliance would be the enforcement model best suited for most agencies that determine phased enforcement is appropriate. Federal agencies that do not make a determination that phased enforcement is appropriate and do not coordinate a phased enforcement plan with DHS must begin full card-based enforcement on May 7, 2025. Under full card-based enforcement, Federal agencies may only accept a State-issued DL/ID for official purposes if that DL/ID is issued in accordance with REAL ID requirements by a REAL ID-compliant State.
DHS has previously utilized an informed compliance model to balance the need to begin enforcement of an identity verification-related mandate while minimizing the impact of enforcement on commerce. DHS effectively employed Informed Compliance as an enforcement mechanism for 6 months after it began enforcing the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU).
1. The agency would collect personally identifiable information (PII), including name, DL/ID State, and DL/ID number, as well as other information necessary to identify and communicate reliably with the individual. This PII would need to be collected, maintained, and used in accordance with all applicable Federal guidelines and requirements related to collection of PII. This may require agencies to obtain an Office of Management and Budget (OMB)-approved Paperwork Reduction Act (PRA) information collection and prepare a Privacy Impact Analysis, System of Record Notice, and other documentation for collection, storage, and use of PII.
2. The individual would attest that the PII provided is theirs and accurate.
3. The agency would need to be able to demonstrate that they delivered a notification of noncompliance to the individual (
4. The agency would need to obtain the individual's acknowledgement of receipt of the noncompliance notification at the time the individual presents the noncompliant DL/ID.
5. The agency would need to develop a system to track the number of instances the individual presented a noncompliant DL/ID and no other acceptable ID (violations).
6. The agency would need to determine a limit on the number of times an individual may be authorized access after presenting a noncompliant DL/ID and no other acceptable form of identification.
7. The agency would need to define an appropriate period of time (in days/weeks) during which the individual may continue to use a noncompliant DL/ID for purposes of accessing the agency, after which the applicant would be given another notification of noncompliance if they again presented a noncompliant DL/ID (in other words, how long individuals may continue to use their noncompliant DL/ID on the same “strike” before incurring a subsequent “strike”).
Agencies would need to choose an appropriate time period during which individuals can continue to use the noncompliant DL/ID without it being treated as an additional instance of noncompliance (“strike”). Agencies should choose a time period appropriate to their operations. For agencies where the identity verification for official purposes is rare or isolated, it may be appropriate to treat each time an individual presents a noncompliant DL/ID as an instance of noncompliance. However, DHS believes that in certain cases individuals may need to use their DL/ID for a REAL ID official purpose for multiple instances within a short period of time (
Agencies employing an Informed Compliance with Limitations model should provide individuals who present a noncompliant DL/ID with specific notice whenever an instance is being counted towards that individual's limit. The notice should reference the agency's overall policy and how the particular instance would affect the individual in the future. Agencies may choose to adopt different nomenclature for initial and subsequent instances of an individual presenting a noncompliant DL/ID. DHS recommends that the language and consequences of subsequent notifications under this model should progress in seriousness. For example, assume an agency chooses to permit access on the first two instances of noncompliance and deny access on the third (and any subsequent instance). Agencies may choose to refer to the notice issued to an individual presenting a noncompliant card for the first time as a “warning” and a notice issued on a subsequent instance counting against that individual's limit as “counseling.” Upon the third instance, the individual would be issued a “final” notification that their State-issued DL/ID is noncompliant and can no longer be used for the REAL ID official purpose. The Federal agency would deny access to the individual at that time and on all future instances unless the individual obtains a REAL ID or presents an alternative, acceptable form of identification.
DHS acknowledges that an Informed Compliance with Limitations enforcement plan would likely demand significant agency resources. DHS expects many agencies to begin full enforcement on the May 7, 2025, deadline. Of the agencies that do determine a phased approach is appropriate, DHS expects most will use a simple plan that provides a time-limited warning period (
Although DHS believes the models discussed above are likely to be the most common and effective, they are not exclusive. Agencies may develop plans based on other models. However, all phased enforcement plans, whether based on the above models or a different model must be coordinated with DHS and must conclude, and agencies must fully enforce REAL ID card-based requirements, no later than May 5, 2027. For agencies that make a determination that phased enforcement is appropriate, the same factors that they considered to make that determination should inform their determination of how to structure their plan.
Finally, although REAL ID adoption rates should inform agencies when developing their enforcement plans, agencies' plans should be consistent across all States and territories. In other words, agencies should have a consistent national policy and individuals should not be subject to different consequences based on the adoption rate of a particular jurisdiction. To reduce the potential for confusion, ensure fair and equitable treatment of residents of all States, and ensure operational consistency, agencies that have operations or facilities spanning multiple States and territories should have one plan for all their facilities. Agencies' plans may make distinctions based on the types of facilities they operate (
DHS acknowledges that some agencies may maintain offices in or conduct operations out of leased facilities or multi-tenant facilities where the agency does not have direct control over the access control policies of the facility. Agencies leasing space in their facilities to other agencies and lead tenants as part of facility security
The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501
Changes to Federal regulations must undergo several economic analyses. First, Executive Order (E.O.) 12866 of October 4, 1993(Regulatory Planning and Review),
Under the requirements of E.O. 12866, as amended by E.O. 14094, agencies must assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). These requirements were supplemented by E.O. 13563, which emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.
DHS summarizes the findings:
• In accordance with E.O. 12866, the Office of Management and Budget (OMB) has designated this rulemaking a “significant regulatory action” as defined under section 3(f) of E.O. 12866, as amended by E.O. 14094 but not significant under section 3(f)(1). Accordingly, the proposed rule has been reviewed by OMB.
• The Secretary, pursuant to 5 U.S.C. 605(b), certifies that the proposed rule would not have a significant economic impact on a substantial number of small entities. The proposed rule would only be applicable to Federal Government agencies, who under the RFA are not considered small entities.
• This proposed rule is not likely to result in the expenditure by State, local, or Tribal governments, in the aggregate, or by the private sector, of $100 million ($183 million in 2023 dollars) or more annually (adjusted for inflation) such that a written statement would not be required under UMRA.
The OMB A-4 Accounting Statement presents the annualized costs and benefits, as well as the qualitative benefits of the proposed rule.
In January 2008, DHS published the Minimum Standards for Driver's Licenses and Identification Cards Acceptable by Federal Agencies for Official Purposes Final Rule to implement the requirements of the Act. Since the publication of the original Final Rule, DHS extended the original compliance date multiple times in response to challenges in REAL ID adoption, including but not limited to, the COVID-19 pandemic. In accordance with the Final Rule published in March 2023, Federal agencies are required to commence card-based enforcement on May 7, 2025, at which point Federal agencies may not accept for official purposes a license or identification card issued by a State unless that license or card was issued in accordance with the REAL ID standards by a REAL ID- compliant jurisdiction.
DHS does not intend to extend the card-based enforcement deadline further and intends to commence enforcement of the REAL ID card-based requirements on May 7, 2025. However, based on current adoption rates of REAL ID-compliant DL/IDs and the projected number of compliant DL/IDs in circulation by the card-based enforcement date (discussed in the succeeding section), DHS believes this proposed rulemaking is necessary to provide flexibility to mitigate potential risks related to security, operational feasibility, and public impact.
Without the flexibility the proposed rule permits, agencies may be faced with serious concerns that immediate implementation of full enforcement may create including security vulnerabilities, operational challenges, and disruption of government services. For instance, there could be cases where an agency needs to conduct work with a subject-matter expert or specialist that does not have REAL ID-compliant identification and is therefore unable to access the Federal facility. Barring a phased enforcement plan, the agency may need to come up with alternate accommodations, which could include holding meetings or presentations offsite or standing up a virtual option. These options may result in additional costs that would otherwise not be incurred if the agency was operating under a phased enforcement plan. Additionally, absent a phased enforcement plan, individuals without a REAL ID-compliant DL/ID or acceptable alternative would be unable to board federally regulated aircraft upon card-based enforcement. This represents a large use case for REAL ID. These individuals would not be able to use their noncompliant DL/ID to access the security checkpoint which could result in backlogs and other negative outcomes on travel (
Federal agencies that determine an immediate transition to full enforcement would raise concerns related to security, operational feasibility, or negatively impact the public, would benefit from phased enforcement, and would be able to implement a phased enforcement plan, coordinated with DHS, to provide a smoother transition to full card-based enforcement.
TSA requests comments on the assumptions and estimates presented within this economic impact analysis. Comments that will provide the most assistance to TSA will reference a specific portion of this proposed rule, explain the reason for any suggestion or recommended change, and include data, information, or authority that supports such suggestion or recommended change.
The baseline represents DHS' best assessment of what the world would be like absent this regulatory action.
In January 2008, DHS published the Minimum Standards for Driver's Licenses and Identification Cards Acceptable by Federal Agencies for Official Purposes Final Rule to implement the requirements of the REAL ID Act of 2005.
Absent this regulatory action, beginning on that date, all Federal agencies would be prohibited from accepting non-REAL ID-compliant State-issued DL/IDs for REAL ID official purposes.
DHS estimates that by the card-based enforcement date, approximately between 61 and 66 percent of all State-issued DL/IDs would be REAL ID-compliant based on adoption data provided by States, to DHS, through January 2024.
As a result, approximately between 34 percent and 39 percent of DL/IDs in circulation would be non-compliant (either legacy or non-compliant marked DL/IDs). Individuals with non-REAL ID-compliant DL/IDs would not be permitted to use those DL/IDs to access Federal facilities nationwide, including the security checkpoint at airports, unless they are able to present an approved alternate form of identification such as a passport.
Prior to the onset of the COVID-19 pandemic in the United States in October 2019, DHS estimated that approximately 33 percent, or 90.9 million of the 274.8 million DL/IDs in circulation, were REAL ID-compliant.
However, individual State compliance includes a wider range of rates. Table 2 presents REAL ID compliance over time based on the 56 licensing jurisdictions percentage of REAL IDs issued relative to the total number of IDs in circulation for each jurisdiction. As shown in the table, State compliance rates have generally increased over time. For instance, the number of licensing jurisdictions where the percentage of REAL IDs, relative to all DL/IDs in circulation, is greater than 75 percent has increased from eight jurisdictions in October 2019 to 17 in January 2024. Similarly, the number of licensing jurisdictions where the percentage of REAL IDs, relative to all DL/IDs in circulation, is less than 25 percent has decreased from 31 in October 2019 to 9 in January 2024.
DHS began receiving monthly data on the number of REAL IDs for each of the 56 licensing jurisdictions in October 2019 (and has monthly data through early 2024). Using this data, DHS calculates the growth, or increase, in number of REAL IDs month over month, relative to the total number of DL/IDs in circulation. Using the historic adoption data, DHS calculates CMGRs which represents growth over various intervals of time. In subsequent sections, DHS uses CMGRs to forecast REAL ID compliance.
In the first 6 months that DHS began to receive monthly data, between October 2019 and March 2020, the CMGR of REAL IDs was approximately 2.5 percent. Between April and May of 2020, the CMGR of REAL IDs had decreased to 0.5 percent. The CMGR later increased to approximately 2.0 percent between June 2020 and October 2020. Over the next 3 years, the CMGR of REAL IDs was 1.3 percent between October 2020 and September 2021, 0.9 percent between October 2021 and September 2022, and 0.8 percent between October 2022 and September 2023. Over the 12-month period, between January 2023 and January 2024, the national CMGR for the adoption of REAL IDs was 0.56 percent.
DHS leverages monthly data received from the 56 licensing jurisdictions to estimate the total number of DL/IDs in future months. The report provides DHS with the total number of DL/IDs in circulation, including the proportions of REAL-ID compliant, “legacy” cards, and non-compliant cards. Based on the January 2024 data from the licensing jurisdictions, there were 287,321,596 DL/IDs in circulation.
DHS uses this value as a starting overall DL/ID population. Next, DHS leverages the U.S. Census Bureau's Monthly Population Estimates for the United States to estimate the total U.S. population and proportion with a DL/ID. DHS first estimates the total population using Census Bureau annual population data to calculate a compound annual growth rate (CAGR) of 0.60 percent in the U.S. population from 2012 to 2022.
Last, DHS divides the total number of DL/IDs by the total population. As of January 2024, 85.5 percent of the population held a driver's license or identification card.
If full card-based enforcement, absent phased enforcement, were to take place on May 7, 2025, DHS assumes that the adoption of REAL ID-compliant DL/IDs would spike leading up to, and continuing for a period of time past, the card-based enforcement date as individuals, who may otherwise have held off on acquiring a REAL ID-compliant DL/IDs, would take steps to ensure they would not be turned away from Federal facilities where a REAL ID would be required for official purposes.
DHS assumes such a spike would be similar to a 23 percent increase that the Department of State experienced after
As aforementioned, in January 2024, 56.42 percent or 162.1 million of the 287.3 total IDs in circulation are REAL ID-compliant. Based on the data range of January 2023 through January 2024, DHS expects that through April 2024, the 0.56 percent CMGR for the adoption of REAL IDs to remain unchanged,
Following the card-based enforcement date, DHS expects the spike to remain in place for approximately 4 to 5 months as individuals work to secure appointments with their local DMV.
To forecast beyond October 2025, under the status quo of full enforcement beginning May 2025, DHS assumes a 50-percent decrease of the initial spike in the adoption of REAL IDs between October 2025 and October 2026 but requests public comment on the duration and level of decrease in the months following card-based enforcement.
DHS assumes that once the percentage of REAL IDs, relative to all DL/IDs in circulation reach a natural adoption threshold or equilibrium
In subsequent sections, DHS refers to the 75 percent assumption as the 75 percent threshold. The threshold represents an assumed natural point where REAL ID adoption would slow and essentially not grow in proportion as all those willing to get a REAL ID have done so. While DHS assumed this value to be approximately 75 percent, the actual rate could be higher or lower.
To estimate the percentage of REAL ID-compliant DL/IDs by the card-based enforcement date, May 7, 2025, DHS uses the 0.56 percent CMGR estimated from January 2023 to January 2024.
The aforementioned methodology assumes that the next 16 months would be similar to the trends seen over the last year.
Using the aforementioned CMGRs, 0.56 percent and 1.03 percent, DHS estimates that approximately 61 percent (lower-end of forecast) and 66 (upper-end of forecast) of all DL/IDs in circulation by May 2025 would be REAL ID-compliant, respectively. Table 3 reflects the forecasted number of REAL IDs using the two CMGR described in this section.
As shown in table 3, under both the 0.56 percent CMGR and the 1.03 percent CMGR, the forecasted percentage of REAL IDs relative to all DL/IDs in circulation for May 2025, 61.2 percent and 66.0 percent, respectively, falls below the 2008 assumption that 75 percent of all holders would seek to obtain a REAL ID. In table 4, DHS illustrates the breakdown of how many DL/IDs would need to be REAL ID-compliant by the card-based enforcement date to meet the 75 percent threshold. Applying the 75 percent assumption from the 2008 Rule results in approximately 217.2 million of the 289.6 million IDs in circulation, in May 2025, would be REAL ID-compliant. As shown, in addition to the 25 percent of DL/IDs in circulation that DHS assumes would be non-compliant, an additional 40.0 million and 26.2 million DL/IDs that would have been assumed to be REAL ID-compliant, respectively, would not be able to be used for official purposes beginning May 7, 2025.
Next, DHS estimates the CMGR needed to reach the 75 percent of REAL ID-compliant licenses and identification cards by the card-based enforcement date using the January 2024 national compliance rate for REAL ID of 56 percent. In the sixteen months between January 2024 and May 2025, the average monthly CMGR for the adoption of REAL ID would need to increase to 1.85 percent.
Next, DHS uses two scenarios to forecast the national compliance rate following the card-based enforcement date. First, DHS assumes the 61.2 percent and 66.0 percent REAL ID adoption trends presented in table 3 remain unchanged after the start of card-based enforcement. Under this scenario, two years after card-based enforcement, in May 2027, which is when phased approach plans would need to commence full enforcement by, the national REAL ID rate would be 69.1 percent and 83.4 percent.
Following the card-based enforcement date, DHS expects a change in the rate of adoption. Phased enforcement plans could result in REAL ID compliance being spread over time compared to continued increases in compliance if full card-based enforcement went into effect across all agencies. Phased enforcement may also incentivize some portion of the public to obtain a REAL ID as DHS begins card-based enforcement in May 2025 without further extensions and as non-compliant DL/ID holders attempt to use non-compliant identification for official purposes during the period of phased enforcement. For this second scenario, DHS uses the midpoint of the two CMGRs (0.56 percent and 1.03 percent) used to estimate the national REAL ID rate in May 2025 to estimate the national REAL ID rate after the card-based enforcement date. Using this methodology, DHS calculates a 0.79 percent CMGR which would likely capture a balance between potential high and low adoption rates for REAL IDs.
Table 5 describes the proportion of all DL/IDs that are REAL ID-compliant under the baseline scenario and phased enforcement at 6-month intervals leading up to, and after, the card-based enforcement date. In the baseline scenario, as discussed in section IV.B.2.d.3, DHS assumes a spike in REAL ID compliance in the year leading up to the card-based enforcement date (1.61 percent CMGR). DHS then assumes a reduction in the CMGR to 0.91 percent from October 2025 to October 2026 and to 0.47 percent after October 2026. This accounts for anticipated increases leading up to and through enforcement including natural adoption prior to a deadline, additional informational campaigns, and increased incentives for those without REAL ID compliant DL/IDs that would be denied when using non-compliant DL/IDs for official purposes.
DHS also presents two phased enforcement scenarios that each include a lower and upper bound range, as discussed in section IV.B.2.d.4. Under the first phased enforcement scenario, DHS assumes trend growth rates remain the same before and after the card-based enforcement date (0.56 percent CMGR for the lower bound estimate, 1.03 percent CMGR for the upper bound estimate). This scenario assumes no change in identified trends leading up or after enforcement where the lower value represents current adoption rates (unchanged) and the higher value accounts for enforcement and phased enforcement impacts on adoption rates. Under the second phased enforcement scenario, DHS assumes the 0.56 percent CMGR for the lower bound estimate and 1.03 percent CMGR for the upper bound estimate up to the card-based enforcement date. After the card-based enforcement date, DHS assumes a change in the CMGR to 0.79 percent, the midpoint of the lower bound and upper bound trend rates to represent possible changes in behavior post enforcement date. Specifically, that in the lower end, more individuals will get REAL DL/IDs and on the higher end, less will seek REAL DL/IDs. However, DHS acknowledges there is a level of uncertainty with such adoption rates and seeks public comment on anticipated adoption and compliance rate impacts.
The baseline and phased enforcement scenarios present different trade-offs. Under the baseline scenario, the REAL ID compliance rate grows and increases more quickly as a result of more rapid surges in adoption. Such a surge in application for REAL IDs, may lead to potential backlogs at State DMVs and provide individuals reduced options after the enforcement date (
Under a phased approach, DHS forecasts a slower adoption of REAL ID, as compared to the baseline, with compliance increases being spread over the two-year phased enforcement period. This approach provides individuals more time to obtain a REAL compliant DL/ID and allows individuals who possess non-compliant DL/IDs to use such DL/IDs for official purposes while also creating opportunities for enforcement mechanisms (
DHS notes that differences in compliance rates between the baseline and scenarios could have large impacts. For example, TSA screens approximately 2.5 million passengers a day.
Under the REAL ID Act and regulations, on and after the card-based enforcement date, Federal agencies are prohibited from accepting non-REAL ID-compliant DL/IDs for official purposes. The rulemaking would allow Federal agencies to implement the card-based enforcement requirement of the REAL ID Act and regulations under a phased approach if the agency determines a significant security or operational risk, or if public services offered by the agency would be impacted with full enforcement. Federal agencies that opt to do so must coordinate a plan with DHS. After coordination of a plan with DHS, a Federal agency may continue to accept non-REAL ID-compliant licenses and IDs on and after May 7, 2025, as part of a phased enforcement plan. To ensure that agencies' enforcement plans appropriately advance the objectives of the REAL ID regulations, this proposed rule would require agencies' plans to include measures for full card-based enforcement by May 5, 2027.
Based on agency information in the
First, each Federal agency has the authority to set its own minimum security access requirements and, if desired, can decide not to accept noncompliant marked cards before the card-based enforcement date. For example, the U.S. Department of Defense (DoD) finalized an update to its DoD-wide installation security policy and is in the process of no longer accepting noncompliant marked cards across all of its facilities and installations.
Each facility makes a risk-based decision to determine if a form of identification is needed for entry, and if so, which forms would be accepted. For instance, an agency may require identification as part of their overall security strategy including, but not limited to, checking the individual against a checklist, or to verify that the individual is on an invitation or approved visitors list. If an agency only requires an individual to present a form of identification solely to record the individual's presence as opposed to for screening and access purposes, the requirements under the REAL ID Act of 2005 would not apply.
There are agencies that do not typically require forms of identification for official purposes or only experience of low volume of such interactions. A key factor in an agency's consideration may be the number of individuals that enter, or pass through, the Federal facility in a given day. For some Federal agencies, access to certain areas of the facility is presently granted without the
In Fall 2023 and the first quarter of 2024, DHS began hosting monthly stakeholder engagement sessions with Federal agencies. During these sessions, DHS briefed agencies regarding the card-based enforcement date and the proposed rulemaking to allow agencies the option for a phased approach if they determine such a plan is appropriate. Through hosting the sessions, DHS was able to establish a greater understanding, across the Government, on which agencies may consider a phased approach based on security, operational, or public impact risks associated with full enforcement. For instance, some agencies noted that they would follow guidance put forth by their cabinet-level department. Of the sample of agencies invited, approximately 63 percent attended one or more stakeholder meetings. Based on feedback from agencies and recurring attendance over months, DHS assumes that 50 percent of agencies that attended one or more meetings would pursue a phased enforcement plan.
Based on these three factors, DHS assumes that of the 434 Federal agencies, 96 percent would not submit a phased enforcement plan. As such, these agencies would join the Department of Defense and begin full card-based enforcement on May 7, 2025. While individuals would need to present a REAL-ID compliant identification or an approved alternate identification for official purposes from that date forth; based on engagements with DHS subject matter experts (SMEs) and Federal agencies, the vast majority of agencies do not handle a significant volume, on a daily basis, of individuals required to present REAL ID for official Federal purposes.
DHS assumes that the remaining 4 percent of Federal agencies would develop and coordinate phased enforcement plans with DHS. The majority of such plans are anticipated to represent a low-to-medium use case (
TSA Checkpoint Travel Numbers (Current Year Versus Prior Year(s)/Same Weekday).
The following summarizes the estimated costs of the proposed rule over a 2-year period of analysis. Specifically, impacts are evaluated between 2024 and 2025 to align with agency efforts to develop a phased enforcement plan prior to the current card-based enforcement date.
Federal agencies would incur costs to familiarize themselves with the proposed rule, assess whether to implement a phased enforcement plan, and if so, develop a plan. DHS, as the agency administering the REAL ID program, would incur costs to coordinate with Federal agencies that voluntarily implement a phased enforcement plan.
DHS estimates the labor-related costs for DHS and other Federal agencies. First, DHS uses the GS, step 3 wage scale for the Washington DC metro area to represent the annual wage for each GS level.
DHS then multiplies annual wages for each GS level and SES by a compensation factor that represents fully loaded compensation rates. The compensation factor is the sum of all annual compensation which includes wages and internal DHS data on awards, bonuses, personnel benefits, and transit benefits, divided by the annual wage.
DHS calculates a compensation rate per hour by dividing the annual fully loaded compensation rates by 2,087, which represents the number of annual work hours.
DHS would incur costs related to coordinating with Federal agencies on their phased enforcement plans to address any potential concerns ahead of the REAL ID card-based enforcement date. This includes the cost to develop guidance for agencies on phased enforcement and time to review and coordinate with agencies on their plans. Furthermore, DHS must publish the list of agencies that have coordinated phased enforcement plans.
DHS would develop guidance to inform Federal agencies that they may implement REAL ID card-based enforcement using a phased approach, how to do so, and the level of coordination necessary with DHS. DHS consulted with internal SMEs who estimate a range to develop guidance between 60 to 100 hours. DHS uses the midpoint of this range, 80 hours, to calculate the cost to develop guidance. DHS assumes this time would be split between GS-13, GS-14, and GS-15 employees, with a respective burden of 45 percent, 45 percent, and 10 percent. DHS calculates a weighted average guidance development compensation rate of $86.64 per hour by summing the product of the compensation rates and the proportion of burdens for the respective groups of employees contributing to the efforts.
DHS coordination would also include reviewing phased enforcement plans to ensure compliance with the REAL ID Act and regulations (but would not include approval of plans). DHS consulted with internal SMEs who estimate a range to coordinate and review plans between 8 and 24 hours per plan.
DHS would also incur costs to make publicly available a list of agencies that have coordinated phased enforcement plans with DHS. DHS assumes it would publish the list of agencies on a web page on DHS's REAL ID website in year two of the analysis, just prior to the card-based enforcement date. DHS SMEs estimate it would take 16 hours to create, review, approve, and publish content on its existing REAL ID website. DHS assumes this time would be split between GS-13 and GS-14 employees, with a respective burden of 50 percent and 50 percent. DHS estimates a weighted average publishing compensation of $84.37 per hour by summing the product of the compensation rates and the proportion of burdens for the respective groups of employees contributing to the efforts.
DHS estimates the 2-year total cost for phased enforcement coordination to be $0.033 million undiscounted and $0.031 million discounted at 2 percent. Table 7 describes the total costs of the proposed rule to DHS.
All Federal agencies would need to familiarize themselves with the proposed rule and phased enforcement concept and determine if a phased enforcement plan is necessary. DHS assumes at least one attorney and one manager at the GS-14 and GS-15 levels within each agency would review the proposed rule. DHS estimates that each person reviewing the rulemaking would spend an average of 1.1 hours.
Brysbaert, Marc. “How many words do we read per minute? A review and meta-analysis of reading rate.” Journal of Memory and Language, Aug. 2019.
In addition to familiarization, all Federal agencies would need to determine if based on their specific environment, developing and coordinating a phased enforcement plan is necessary. DHS SMEs estimate Federal agencies would spend, on average, between 10 to 40 hours to make a determination. DHS uses the midpoint of the range, 25 hours, to calculate the cost to make a determination. DHS assumes this time would be split between a GS-15 and SES, with a respective burden of 50 percent and 50 percent. DHS calculates a weighted average plan determination compensation of $110.43 per hour by summing the product of the compensation rates and the proportion of burdens for the respective groups of employees contributing to the efforts.
Federal agencies that develop phased enforcement plans would incur costs to develop and coordinate their respective plans with DHS. DHS assumes plan development and coordination would also include preparing briefing materials for the public and updating the agency's website to inform the public of the phased enforcement plan and policies. DHS SMEs estimate Federal agencies would spend, on average, between 150 and 300 hours to develop plans. DHS uses the midpoint of the range, 225 hours, to calculate the cost to develop plans. DHS assumes this time would be split between GS-14, GS-15, and SES employees, with a respective burden of 45 percent, 45 percent, and 10 percent. DHS estimates a weighted average plan development compensation of $100.64 per hour by summing the product of the compensation rates and the proportion of burdens for the respective groups of employees contributing to the efforts.
Table 8 presents the total Federal cost estimates over the 2-year period of analysis which equates to $1.70 million undiscounted and $1.67 million discounted at 2 percent.
The proposed rule would also include non-quantified impacts and costs to affected entities. Such impacts are difficult to quantify largely due to a high degree of uncertainty. One such impact is the delay of benefits from the original rule by implementing the card-based enforcement requirement of the REAL ID rule in a phased manner. Full security benefits associated with the REAL ID rule would not be realized, as a result of agencies implementing a phased approach, until full enforcement occurs. As the benefits associated with the 2008 rule are difficult to quantify, so too is the quantification of their delay.
Federal agencies that voluntarily implement card-based enforcement in a phased approach would incur costs related to plan implementation. However, DHS assumes there would be a high degree of variability among such plans, and agencies would have discretion to determine what aspects to include in a phased enforcement plan. Nonetheless, Federal agencies would likely incur costs related to training necessary personnel on the processes and procedures of phased enforcement plans. Federal agencies would also likely incur costs to inform the public or appropriate stakeholders impacted about the new identity verification procedures related to the agencies' phased enforcement plans (
Table 9 presents the two-year total cost of the phased enforcement proposed rule. DHS estimates the total cost of the proposed rule to be $1.73 million undiscounted and $1.70 million discounted at 2 percent.
Phased enforcement provides Federal agencies the flexibility on how to start enforcing REAL ID card-based enforcement requirements in a manner that may reduce operational disruption, security risk, and public impact. This is especially relevant for Federal agencies that process large numbers of individuals and require identification for access purposes. Phased enforcement provides Federal agencies more time to implement strategies to engage stakeholders and encourage REAL ID adoption. It can also provide time for agencies to develop alternative means to ensure continued operations for services or activities that require use of REAL ID for official purposes. Allowance of a phased approach would not unnecessarily delay REAL ID enforcement for those Federal agencies ready to fully implement while also allowing more time for those Federal agencies who they themselves, or their stakeholders, would benefit from more time to implement.
Phased Enforcement of the card-based requirement would provide the public more time to obtain REAL-ID compliant DL/IDs. This may mitigate a potential backlog of applications for States with
A higher proportion of individuals with compliant identification also reduces potential queuing and associated delays. For example, if an individual presents valid, non-REAL ID-compliant identification at an access point, security or screening workforce may require additional time to confirm the individual's identity, and/or explain the requirements of REAL ID and thus delay the individual, or not provide the individual access.
Finally, any benefits to individuals or States associated with procuring a noncompliant card would be extended to those impacted through the phase-in period of card-based enforcement to the extent the agencies such individuals interact with for official purposes determine to implement card-based enforcement through a phased approach, in place of full and immediate enforcement on May 7, 2025; however, the security benefits associated with full enforcement would also be delayed.
DHS considered one alternative in addition to the baseline scenario and the proposed rule.
In the no action baseline scenario (Alternative 1), full card-based enforcement would begin in May 2025 without further extensions of the enforcement date or a phased approach to enforcement.
In the baseline scenario, absent phased enforcement, DHS forecasts that by May 2025, approximately 70 percent of all State-issued DL/IDs would be REAL ID-compliant. Full card-based enforcement when a significant percentage of the population could present non-compliant identification may increase operational risks to Federal agencies; especially agencies that process a large number of individuals per day.
The additional time required to adjudicate transactions involving the presentation of non-compliant identification could lead to delays including accessing Federal facilities and federally regulated commercial aircraft, which could impact both individuals with non-compliant identification and individuals waiting in queues, increasing their time burden and associated opportunity costs. These delays could have a significant effect on the travel industry, with individuals unable to present compliant identification at TSA checkpoints being denied access, or individuals caught in long queues, that may result in canceling, postponing, or adjusting travel plans and incurring associated costs. This may include making alternative travel arrangements whose substitution may include less efficient modes of transportation (
While nationwide, approximately 56.4 percent of all DL/IDs are REAL ID-compliant as of January 2024, there is a wide distribution of compliance across States with some lagging well behind the national average. Implementation of full card-based enforcement in May 2025 may lead to a surge in REAL ID applications and visits to the Department of Motor Vehicles, especially in those States with lower levels of REAL ID adoption. As a result, States may incur additional costs to resolve such potential surges in applications, including, but not limited to, operating longer hours, hiring more workers, and providing overtime pay for employees. Surges in applications could also lead to additional costs for individuals, including increased processing times to obtain a REAL ID and increased waiting times at the Department of Motor Vehicles.
For example, in 2007, DHS and the Department of State implemented the WHTI rule.
Implementing full card-based REAL ID enforcement would allow for the full realization of the benefits of the REAL ID rule without further delay. Specifically, DHS believes the primary benefit of REAL ID enforcement, as discussed in the 2008 rule, would be a potential increase to U.S. national security by reducing the vulnerability to criminal or terrorist activity of Federal buildings, nuclear facilities, and aircraft. An additional possible benefit of the
DHS rejects Alternative 1, however, as it limits the flexibility Federal agencies can use to implement REAL ID card-based enforcement. The potential for large numbers of individuals presenting non-REAL ID-compliant identification as a means to verify identity to access Federal facilities could cause operational risks to Federal agencies; especially those that process large numbers of individuals (
In this alternative, DHS would issue a rule to extend the card-based enforcement date from May 7, 2025, to some date between one and two years later (Alternative 2). Alternative 2 is distinct from the proposed rule because it extends the card-based enforcement date for all Federal agencies and does not specifically include an option to implement card-based enforcement through a phased approach. Under Alternative 2, Federal agencies would be prohibited from accepting noncompliant cards by a new date.
While Alternative 2 would afford the public more time to obtain REAL ID-compliant identification, implementing Alternative 2 would potentially allow those without REAL ID-compliant DL/ID to prolong obtaining such document. REAL ID adoption rates may continue to decrease further then they have over the last 12 months. Issuing another extension may send a signal to individuals and industry that full implementation of REAL ID is delayed indefinitely and that additional extensions continue to be real possibilities thereby not providing sufficient encouragement or incentive for the public to obtain REAL IDs.
This alternative would also delay the security benefits associated with the REAL ID rule across all Federal agencies until the extended card-based enforcement date.
Under the Alternative 2, DHS and Federal agencies would be able to avoid the quantifiable and unquantifiable costs related to the proposed rule. For Federal agencies, this includes phased enforcement plan development and implementation. Alternative 2 also shares some of the same benefits as the proposed rule. For example, extending the card-based enforcement date would provide the public more time to obtain a REAL ID and may mitigate a potential backlog of applications for States with lower compliance rates (or may simply further put off the issue without a real solution). States may be able to avoid costs related to measures to alleviate backlogs in applications for a period of time. The alternative would help Federal agencies that process large numbers of individuals avoid operational disruption in May 2025 because agencies would be able to continue to accept valid and unexpired non-REAL ID-compliant identification.
DHS does not prefer Alternative 2. Since 2020, DHS has extended the card-based enforcement date on three occasions and by nearly 5 years. DHS believes the vast majority of Federal agencies would be ready to fully enforce the card-based deadline on May 7, 2025. Another extension may give the public and industry the impression that REAL ID would continue to be delayed and not enforced in the near future. Thus, the proposed rule maintains the effective date for those Federal agencies able to implement yet also provides flexibilities for those who would benefit from additional time.
The RFA of 1980 requires agencies to consider the potential impact of regulations on small businesses, small government jurisdictions, and small organizations during the development of their rules.
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and Tribal governments and the private sector. Under section 202 of the UMRA, DHS generally must prepare a written Statement, including a cost-benefit analysis, for proposed and final rules with “federal mandates” that may result in expenditures by State, local, and Tribal governments in the aggregate or by the private sector of $100 million or more (adjusted for inflation) in any one year.
Before DHS promulgates a rule for which a written statement is required, section 205 of the UMRA generally requires TSA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective, or least burdensome alternative that achieves the objectives of the rulemaking. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows DHS to adopt an alternative other than the least costly, most cost-effective, or least burdensome alternative if the proposed or final rule provides an explanation why that alternative was not adopted. Before DHS establishes any regulatory requirements that may significantly or uniquely affect small governments, including Tribal governments, it must develop under section 203 of the UMRA a small government agency plan. The plan must provide for notifying potentially affected small governments, enabling officials of affected small governments to have meaningful and timely input in the development of DHS regulatory proposals with significant Federal intergovernmental mandates, and informing, educating, and advising small governments on compliance with the regulatory requirements.
When adjusted for inflation, the threshold for expenditures becomes $183 million in 2023 dollars. DHS has determined that this proposed rule does not contain a Federal mandate that may result in expenditures that exceed that amount either for State, local, and Tribal governments in the aggregate in any one year thus a written statement would not be required under UMRA. DHS will publish a final analysis, including its response to public comments, when it publishes a final rule.
A rule has federalism implications under E.O. 13132, “Federalism” (64 FR 43255, Aug. 10, 1999), if it has a substantial direct effect on State governments, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. DHS has analyzed this proposed rule under E.O. 13132 and has determined that although this rulemaking may indirectly affect the States, it does not impose
This proposed rule does not have tribal implications under E.O. 13175, “Consultation and Coordination with Indian Tribal Governments,” because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.
DHS reviews actions to determine whether National Environmental Policy Act (NEPA) applies to them and, if so, what degree of analysis is required. DHS Directive 023-01 Rev. 01 (Directive) and Instruction Manual 023-01-001-01 Rev. 01 (Instruction Manual) establishes the procedures that DHS and its components use to comply with NEPA and the Council on Environmental Quality (CEQ) regulations for implementing NEPA, 40 CFR parts 1500 through 1508.
The CEQ regulations allow Federal agencies to establish, with CEQ review and concurrence, categories of actions (“categorical exclusions”) which experience has shown do not individually or cumulatively have a significant effect on the human environment and, therefore, do not require an environmental assessment or environmental impact statement. 40 CFR 1507.3(b)(2)(ii), 1508.4. For an action to be categorically excluded, it must satisfy each of the following three conditions: (1) the entire action clearly fits within one or more of the categorical exclusions; (2) the action is not a piece of a larger action; and (3) no extraordinary circumstances exist that create the potential for a significant environmental effect. Instruction Manual section V.B(2)(a)-(c).
The clarification and notice provided by this proposed rule fits within categorical exclusion A3(d) “Promulgation of rules...that interpret or amend an existing regulation without changing its environmental effect.” Instruction Manual, appendix A, table 1. Furthermore, the proposed rule is not part of a larger action and presents no extraordinary circumstances creating the potential for significant environmental impacts. Therefore, the proposed rule is categorically excluded from further NEPA review.
The energy impact of this rulemaking has been assessed in accordance with the Energy Policy and Conservation Act (EPCA), Public Law 94-163, as amended (42 U.S.C. 6362). DHS has determined that this rulemaking would not be a major regulatory action under the provisions of the EPCA.
Document security, Driver's licenses, Identification cards, Motor vehicle administrations, Physical security.
For the reasons set forth above, the Department of Homeland Security proposes to amend 6 CFR part 37 as follows:
49 U.S.C. 30301 note; 6 U.S.C. 111, 112.
(b) Except as provided in paragraph (d) of this section, on or after May 7, 2025, Federal agencies shall not accept a driver's license or identification card for official purposes from any individual unless such license or card is a REAL ID-compliant driver's license or identification card issued by a State that has been determined by DHS to be in full compliance as defined under this subpart.
(c) Through the end of May 6, 2025, Federal agencies may accept for official purposes a driver's license or identification card issued under § 37.71. Except as provided in paragraph (d) of this section, on or after May 7, 2025, Federal agencies shall not accept for official purposes a driver's license or identification card issued under § 37.71.
(d) Federal agencies may implement the requirements of paragraphs (b) and (c) of this section through a phased enforcement plan if the agency determines phased implementation is appropriate. Federal agencies that implement phased enforcement plans authorized by this paragraph (d) must:
(1) Make a determination that a phased enforcement plan is appropriate in consideration of relevant factors including security, operational feasibility, and public impact;
(2) Coordinate the phased enforcement plan with DHS;
(3) Make the phased enforcement plan publicly available on the agency's web page; and
(4) Achieve full enforcement of the requirements of paragraphs (b) and (c) of this section no later than May 5, 2027.
(e) DHS will make publicly available a list of agencies that have coordinated phased enforcement plans with DHS pursuant to paragraph (d) of this section.
Take notice that, on August 9, 2024, the Alliance for Tribal Clean Energy, pursuant to Rule 207(a)(4) of the Federal Energy Regulatory Commission's (Commission) Rules of Practice and Procedure, filed a petition requesting that the Commission conduct an expedited rulemaking to revise the
The Commission strongly encourages electronic submission of comments in lieu of paper using the “eFiling” link at
In addition to publishing the full text of this document in the
Any person that wishes to comment in this proceeding must file comments in accordance with Rule 211 of the Commission's Rules of Practice and Procedure, 18 CFR 385.211. Comments will be considered by the Commission in determining the appropriate action to be taken. Comments must be filed on or before the comment date.
The Commission's Office of Public Participation (OPP) supports meaningful public engagement and participation in Commission proceedings. OPP can help members of the public, including landowners, environmental justice communities, tribal members and others, access publicly available information and navigate Commission processes. For public inquiries and assistance with making filings, comments, or requests for rehearing, the public is encouraged to contact OPP at (202) 502-6595 or
Department of Veterans Affairs.
Supplemental notice of proposed rulemaking.
The Department of Veterans Affairs (VA) is issuing a supplemental notice of proposed rulemaking (SNPRM) that proposes to add a diagnostic code (DC) for constrictive bronchiolitis (or obliterative bronchiolitis) (CB) to the regulations that govern the respiratory system.
Comments must be received on or before October 15, 2024.
Comments must be submitted through
Rodney Grimm and Terence Koontzy, Regulations Analysts, VASRD Regulations Staff (218A), Compensation Service (21C), Department of Veterans Affairs, 810 Vermont Avenue NW, Washington, DC 20420, (202) 461-9700. (This is not a toll-free telephone number.)
On February 15, 2022, VA published a proposed rulemaking in the
On August 10, 2022, the Sergeant First Class Heath Robinson Honoring our Promise to Address Comprehensive Toxics (PACT) Act, Public Law 117-168, was signed into law to improve access to VA benefits and health care for Veterans who were exposed to toxic substances during their military service. This action occurred after VA published its proposed rule to update § 4.97. Section 406 of the PACT Act added 38 U.S.C 1120 to establish presumptive service connection for diseases related to exposure to burn pit and other toxins. Among the respiratory conditions included within section 406, CB is the only condition without its own DC within the VA Schedule for Rating Disabilities (VASRD). Therefore, VA is proposing in this SNPRM to add DC 6605 for CB. The CB addition is the only proposal of this SNPRM, and VA is seeking public comment on this issue only.
At present, VA does not have a specific DC for CB. When VA encounters disabilities not listed in the VASRD, VA rates them analogously to a listed condition that is closely related (similar anatomical location, impacted functionality, and/or symptomology) in accordance with 38 CFR 4.20. Thus, VA currently evaluates CB under one of the closely related respiratory conditions
VA currently uses pulmonary function test (PFTs) as the primary evaluative criteria for many of the respiratory conditions found under § 4.97 because medical researchers suggest that “[PFTs] are the cornerstone for evaluating respiratory impairment.”
To be clear, this SNPRM does not change VA's proposal for the General Rating Formula; it simply adds for CB a DC that would use the General Rating Formula. To reiterate, VA is seeking comments on the CB issue only, to include whether the proposed General Rating Formula for Respiratory Conditions is appropriate for evaluating CB.
Executive Order 12866 (Regulatory Planning and Review) directs agencies to assess the costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, and other advantages; distributive impacts; and equity). Executive Order 13563 (Improving Regulation and Regulatory Review) emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. Executive Order 14094 (Executive Order on Modernizing Regulatory Review) supplements and reaffirms the principles, structures, and definitions governing contemporary regulatory review established in Executive Order 12866 of September 30, 1993 (Regulatory Planning and Review), and Executive Order 13563 of January 18, 2011 (Improving Regulation and Regulatory Review). The Office of Information and Regulatory Affairs has determined that this rulemaking is a significant regulatory action under Executive Order 12866, as amended by Executive Order 14094. The Regulatory Impact Analysis associated with this rulemaking can be found as a supporting document at
The added DC contained in this SNPRM would not have a significant economic impact on a substantial number of small entities because only VA officials process and assign DCs for Veterans. On this basis, the Secretary hereby certifies that this SNPRM would not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act (5 U.S.C. 601-612). Therefore, pursuant to 5 U.S.C. 605(b), the initial and final regulatory flexibility analysis requirements of 5 U.S.C. 603 and 604 do not apply.
The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. This SNPRM would have no such effect on State, local, and tribal governments, or on the private sector.
This SNPRM contains no provisions constituting a collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521).
The Assistance Listing numbers and titles for this proposed rule are 64.104, Pension for Non-Service-Connected Disability for Veterans; 64.109, Veterans Compensation for Service-Connected Disability; and 64.110, Veterans Dependency and Indemnity Compensation for Service-Connected Death.
Disability benefits, Pensions, Veterans.
Denis McDonough, Secretary of Veterans Affairs, approved and signed this document on September 5, 2024, and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs.
For the reasons stated in the preamble, VA proposes to amend 38 CFR part 4 as set forth below:
38 U.S.C. 1155, unless otherwise noted.
(c)
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing to approve a portion of a State Implementation Plan (SIP) revision submitted by the Tennessee Department of Environment and Conservation (TDEC) on behalf of Shelby County Health Department (SCHD) Pollution Control Section on March 2, 2022, in response to a finding of substantial inadequacy and SIP call published on June 12, 2015, regarding provisions in the Shelby County portion of the Tennessee SIP related to excess emissions during startup, shutdown, and malfunction (SSM) events. The revision contains amended air codes of Shelby County and the following municipalities within Shelby County: Town of Arlington, City of Bartlett, Town of Collierville, City of Germantown, City of Lakeland, City of Memphis, and Town of Millington (referred to hereinafter as the “included municipalities”). The SIP revision also contains other changes to the affected Chapter that are unrelated to the SIP call but of which Shelby County and the included municipalities are also requesting incorporation into the Shelby County portion of the Tennessee SIP. EPA is proposing to approve the portions of the SIP revision that correct certain deficiencies identified in the June 12, 2015, SSM SIP call and that are in accordance with the requirements for SIP provisions under the Clean Air Act (CAA or Act).
Comments must be received on or before October 3, 2024.
Submit your comments, identified by Docket ID No. EPA-R4-OAR-2023-0361 at
Estelle Bae, Air Permits Section, Air Planning and Implementation Branch, Air and Radiation Division, U.S. Environmental Protection Agency, Region 4, 61 Forsyth Street SW, Atlanta, Georgia 30303-8960. Ms. Bae can be reached by telephone at (404) 562-9143 or via electronic mail at
Table of Contents
On May 31, 1972, EPA issued a rulemaking which initially recognized SCHD's Air Pollution Control Section as a local agency for air pollution control and originally approved the Memphis and Shelby County Code into the Tennessee SIP. On June 15, 1989, EPA approved portions of SCHD's July 7, 1986, SIP revision to revise and update several provisions in the Shelby County portion of the Tennessee SIP, which includes the incorporation by reference of Tennessee's June 18, 1980, state-effective version of Tennessee Air Pollution Control Regulations (TAPCR) Chapter 1200-3-20, titled “Limits on Emissions due to Malfunctions, Startups, and Shutdowns,” into City of Memphis Air Code Section 9-12-24 (formerly Section 16-87).
In this notice of proposed rulemaking (NPRM), EPA is proposing to approve a portion of the SIP revision dated March 1, 2022, which was transmitted by TDEC to EPA on March 2, 2022, to revise the Shelby County portion of the Tennessee SIP. See below for more details on the portions of the March 2, 2022, SIP revision that EPA is not acting on in this NPRM. SCHD is requesting that EPA incorporate into the Shelby County portion of the Tennessee SIP portions of the version of TAPCR Chapter 1200-3-20, titled “Limits on Emissions Due to Malfunctions, Startups, and Shutdowns” as effective on December 5, 2018.
The revisions to City of Memphis Air Code Section 9-12-24 incorporate the changes that are responsive to the 2015 SSM SIP Action and correspond to changes approved by EPA into the Tennessee SIP on June 23, 2023.
To be consistent with Tennessee's approach with respect to its SIP-called provisions, SCHD withdrew certain portions of its March 2, 2022, SIP revision—specifically, the SCHD provisions with respect to which (1) EPA had determined the corresponding Tennessee provisions did not correct the deficiencies, (2) EPA had proposed to disapprove the corresponding Tennessee provisions in the April 6, 2023, NPRM, or (3) EPA's proposed approval of the corresponding Tennessee provisions had received adverse comments during the public comment period for the April 6, 2023, NPRM. In particular, the changes to the March 2, 2022, SIP revision that SCHD has withdrawn include the changes to TAPCR Section 1200-3-20-.03, titled “Notice Required When Malfunction Occurs,” and TAPCR Section 1200-3-20-.06, “Report Required Upon the Issuance of a Notice of Violation,” paragraph (1) and paragraph (4). The letter withdrawing these provisions is provided in the docket for this NPRM.
On June 12, 2015, pursuant to CAA section 110(k)(5), EPA finalized “State Implementation Plans: Response to Petition for Rulemaking; Restatement and Update of EPA's SSM Policy Applicable to SIPs; Findings of Substantial Inadequacy; and SIP Calls to Amend Provisions Applying to Excess Emissions During Periods of Startup, Shutdown and Malfunction,” hereinafter referred to as the “2015 SSM SIP Action.”
On March 2, 2022, SCHD submitted a SIP revision in response to the 2015 SIP call requesting EPA approval of the adoption by reference of TAPCR Chapter 1200-3-20, as effective on December 5, 2018, into City of Memphis Air Code Section 9-12-24. The version of TAPCR Chapter 1200-3-20 of which SCHD is requesting incorporation into the SIP includes revisions that were submitted by the State in response to the 2015 SSM SIP Action along with other revisions that were not subject to the SIP call but had been approved into the Tennessee SIP in prior rulemakings. The March 2, 2022, SIP revision was deemed complete on July 21, 2023. A copy of the letter containing this completeness determination is provided in the docket for this NPRM.
On March 1, 2024, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) issued a decision in
In the 2015 SSM SIP Action, with regard to the Shelby County portion of the Tennessee SIP, EPA determined that City of Memphis Air Code Section 9-12-24
With regard to the State portion of the Tennessee SIP, EPA determined in the 2015 SSM SIP Action that two provisions in TAPCR Chapter 1200-3-20—Sections 1200-3-20-.07(1) and 1200-3-20-.07(3)—were substantially inadequate to satisfy CAA requirements and issued a SIP call for these provisions.
On March 2, 2022, TDEC submitted a SIP revision on behalf of SCHD in response to the SIP call issued in the 2015 SSM SIP Action and requested that EPA replace the existing City of Memphis Air Code Section 16-87 (since renumbered to Section 9-12-24) in the Shelby County portion of the Tennessee SIP with the version of Section 9-12-24 that adopts by reference TAPCR Chapter 1200-3-20, as effective December 5, 2018. The March 2, 2022, revision contains changes that are responsive to the 2015 SSM SIP Action and other revisions approved into TAPCR Chapter 1200-3-20 of the Tennessee SIP since its last adoption into the City of Memphis Air Code. EPA's rationale for proposing to approve each revision is described in more detail in section II of this document.
EPA's last approval into the Shelby County portion of the Tennessee SIP of the adoption of TAPCR Chapter 1200-3-20 into the City of Memphis Air Code Section 16-87 (since renumbered to Section 9-12-24) was completed on June 15, 1989, with a local effective date of June 18, 1986.
SCHD has excluded certain parts of the adoption by reference of TAPCR Chapter 1200-3-20 from its request for EPA approval of City of Memphis Air Code Section 9-12-24 into the SIP. The February 22, 2022, version of City of Memphis Air Code Section 9-12-24, through which the City of Memphis adopts by reference TAPCR Chapter 1200-3-20, does not exclude Section 1200-3-20-.06(5), which lists various types of sources and corresponding “de minimis” emission levels below which no notice of violation(s) of certain pollutant limits will be automatically issued and SSM exemptions may apply. However, in the March 2, 2022, SIP revision, SCHD requests that Section 1200-3-20-.06(5) not be incorporated into the Shelby County portion of the Tennessee SIP. In addition, on June 30, 2023, EPA received a request submitted by TDEC, on behalf of SCHD, to withdraw the portion of its submission making changes to TAPCR Section 1200-3-20-.03, new TAPCR Section 1200-3-20-.06(1), and new TAPCR Section 1200-3-20-.06(4), as submitted in the March 2, 2022, SIP revision.
SCHD's March 2, 2022, SIP revision adopts by reference portions of the December 5, 2018, state-effective version of TAPCR Chapter 1200-3-20, which includes TAPCR Section 1200-3-20-01. Changes to City of Memphis Air Code Section 9-12-24 with respect to TAPCR Section 1200-3-20-01 are consistent with TDEC's January 20, 2023, SIP revision, which EPA approved
The March 2, 2022, SIP revision to the adoption by reference under City of Memphis Air Code Section 9-12-24 of TAPCR Section 1200-3-20-02 contains substantive changes that are not responsive to the 2015 SIP call but that either strengthen or do not alter the stringency of the Shelby County portion of the Tennessee SIP and are otherwise consistent with the CAA. Existing paragraph (1) of the SIP-approved version of the adoption by reference of TAPCR Section 1200-3-20-02 under City of Memphis Air Code Section 9-12-24, “Reasonable Measures Required,” provides, in part, that for sources that are in or are significantly affecting a nonattainment area, “failures that are caused by poor maintenance, careless operation or any other preventable upset condition or preventable equipment breakdown shall not be considered malfunctions, and shall be considered in violation of the emission standard exceeded and this rule.” The revision removes the statement that such equipment failures “shall be considered in violation of the emission standard exceeded and this rule.” This revision simply eliminates unnecessary language indicating that a source which experiences an equipment failure is automatically in violation of applicable emission standards and the City of Memphis Air Code provision. This change is appropriate because an instance of equipment failure does not always result in an exceedance of an emission standard.
In addition, SCHD is requesting removal of a portion of this provision that limits the regulation to “sources identified in Tennessee Rule 1200-3-19, or by a permit condition or an order issued by the Board or by the Technical Secretary as being in or significantly affecting a nonattainment area.” The effect of removing this language would be to expand the applicability of the adoption by reference of TAPCR Section 1200-3-20-02 under City of Memphis Air Code Section 9-12-24 so that the regulation would now apply to all air contaminant sources instead of sources that are in or significantly affecting a nonattainment area only.
These changes do not provide an exemption for any applicable emission standards, nor do they modify any applicable requirements for air contaminant sources. With these changes, all applicable emission standards will continue to apply during all times. EPA is proposing to approve these changes to the adoption by reference of TAPCR Section 1200-3-20-02 under City of Memphis Air Code Section 9-12-24 in the Shelby County portion of the Tennessee SIP because they are consistent with the CAA.
The changes that SCHD is requesting to this provision through the adoption of TAPCR Section 1200-3-20-04, “Logs and Reports,” as effective December 5, 2018, are not responsive to the 2015 SSM SIP Action. They include the removal of the existing text of paragraph (2) from the original March 21, 1979, SIP-approved version of the adoption by reference of TAPCR Section 1200-3-20-04 under City of Memphis Air Code Section 9-12-24 and replacement of the removed paragraph with the word “Reserved.” EPA approved Tennessee's revision to this regulation in 2016.
In its March 2, 2022, SIP revision, SCHD requests the removal of the adoption by reference of TAPCR Section 1200-3-20-06, “Scheduled Maintenance,” from City of Memphis Air Code Section 9-12-24, as approved in the Shelby County portion of the Tennessee SIP. Although this provision was not SIP-called in the 2015 SSM SIP Action, TAPCR Section 1200-3-20-06 specifies reporting requirements for any shutdown of air pollution control equipment for necessary scheduled maintenance that will result in excess emissions. Specifically, this regulation requires notification within 24 hours of planned maintenance of air pollution control equipment unless the maintenance is routine, in which case the notifications may be made on an annual basis.
Section 110(l) of the CAA provides that EPA shall not approve a revision to a plan if the revision would interfere with any applicable requirement concerning attainment and reasonable further progress, or any other applicable requirement of the CAA. EPA proposes to approve the removal of this regulation in its entirety because the removal is not expected to cause any increase in emissions. This revision does not remove a prohibition on excess emissions or any specific requirements to minimize those emissions and thus is not a relaxation of a control requirement. Furthermore, as Tennessee noted in its corresponding SIP revision,
EPA also notes that a requirement for sources to identify and report any anticipated excess emissions event resulting from control equipment undergoing scheduled maintenance is not a CAA-required element of SIPs. The Shelby County portion of the Tennessee SIP contains other reporting requirements that include the reporting of actual excess emissions events once such events have occurred.
Due to the requested deletion of the adoption by reference of TAPCR Section 1200-3-20-06, “Scheduled Maintenance,” as discussed above, SCHD is requesting the renumbering of the existing adoption by reference of TAPCR Section 1200-3-20-07, “Report Required Upon The Issuance of a Notice of Violation,” to TAPCR Section 1200-3-20-06 under City of Memphis Air Code Section 3-9 in the Shelby County portion of the Tennessee SIP. Shelby County's March 2, 2022, SIP revision also requests that EPA approve the adoption by reference of Tennessee's changes to several paragraphs within this regulation, some of which are responsive to the 2015 SIP call. Some of the other changes include regulatory revisions that became state-effective prior to the changes made in response to the 2015 SSM SIP Action.
The changes to this section that are not in response to the 2015 SSM SIP Action include the renumbering of the adoption by reference of TAPCR Section 1200-3-20-07, “Report Required Upon the Issuance of a Notice of Violation,” to 1200-3-20-06, consistent with the removal of the current SIP-approved version of the adoption by reference of Section 1200-3-20-06, “Scheduled Maintenance,” under City of Memphis Air Code Section 3-9. Shelby County also revises the regulation by splitting the requirements of paragraph .07(1) into two paragraphs, now renumbered as .06(1) and .06(2). The text from current SIP-approved paragraph .07(1) that has been moved to new paragraph .06(1) has been revised to, among other things, improve clarity and ensure consistency with other Tennessee regulations that have been adopted by reference into the City of Memphis Air Code and with the terms defined in City of Memphis Air Code Section 9-12-1 which adopts by reference TAPCR Chapter 1200-3-2, “Definitions.” The revised text also updates internal references to the regulations.
The text from current SIP-approved paragraph .07(1) that has been moved to new paragraph .06(2) has been revised to, among other things, update the citation in the provision to reflect the renumbering of the adoption by reference of TAPCR Section 1200-3-20-.07(2) to 1200-3-20-.06(3).
In a letter dated June 29, 2023, SCHD withdrew several changes submitted in the March 2, 2022, SIP revision that SCHD had determined may not be approvable into the Shelby County portion of the Tennessee SIP based on EPA's proposed partial disapproval of Tennessee's SIP call response,
EPA is proposing to approve SCHD's revisions to the adoption by reference of new TAPCR Section 1200-3-20-.06(2) (former TAPCR Section 1200-3-20-.07(1), now renumbered to .06(2)), which include removing the language which States that the report detailing the circumstances of the excess emissions will be used “to assist the Technical Secretary in deciding whether to excuse or proceed upon the violation.” By removing this phrase, the provision will no longer appear to provide an impermissible discretionary exemption from SIP emission limits. In addition, the adoption by reference of new TAPCR Section 1200-3-20-.06(2) includes minor updates to the wording for clarification purposes. By removing the ambiguous language in TAPCR Section 1200-3-20-.06(2) that EPA SIP-called as an impermissible discretionary exemption, SCHD has addressed the specific deficiencies that EPA identified in the 2015 SSM SIP Action with respect to the adoption by reference of TAPCR Section 1200-3-20-.06(2).
EPA is also proposing to approve SCHD's revisions to the adoption by reference of new TAPCR Section 1200-3-20-.06(3) (former Section 1200-3-20-.07(2), now renumbered to .06(3)), which describes the contents of the report required to be submitted to the State when a notice of violation is issued. The only changes made to this paragraph are minor wording and punctuation changes.
Next, SCHD submitted revisions to the adoption by reference of new TAPCR Section 1200-3-20-.06(4) (former Section 1200-3-20-.07(3)), including wording changes, in the March 2, 2022, SIP revision. However, due to an adverse comment EPA received during the public comment period for the April 6, 2023, NPRM, regarding Tennessee's revisions to this provision, SCHD withdrew from EPA's consideration the adoption by reference of TAPCR Section 1200-3-20-.06(4).
The March 2, 2022, SIP revision also includes the adoption by reference of TAPCR Section 1200-3-20-.06(5), which lists various types of sources and “de minimis” emission levels, below which no notice of violation(s) of certain pollutant limits will be automatically issued and SSM exemptions may apply. However, as part of the March 2, 2022, SIP revision, SCHD requested that paragraph (5) not be incorporated into the Shelby County
In paragraph .06(6), which was not SIP-called, the following statement has been added: “No emission during periods of malfunction, start-up, or shutdown that is in excess of the standards in Division 1200-03 or any permit issued thereto shall be allowed which can be proved to cause or contribute to any violations of the Ambient Air Quality Standards contained in TAPCR Chapter 1200-3-3 or the National Ambient Air Quality Standards.” As revised, this paragraph simply notes that excess emissions during periods of SSM which are known to cause or contribute to violations of ambient air quality standards are not allowed. EPA notes that, while this provision does not convey an inaccurate concept, in light of the D.C. Circuit decision, EPA is continuing its longstanding interpretation that emission limits in the SIP, whether intended to provide for attainment and maintenance of the national ambient air quality standards (NAAQS) or otherwise, must be continuous. Any excess emissions that would violate an applicable SIP emission limitation are not allowed, regardless of whether they can be proved to cause or contribute to violations of any ambient air quality standards, and regardless of whether they occur during periods of SSM. With Shelby County's changes to the adoption by reference of TAPCR Chapter 1200-3-20, there are no specific exemptions from applicable SIP emission limitations in this Chapter.
For the reasons described in this Section II.E, EPA is proposing to approve SCHD's March 2, 2022, SIP revision to City of Memphis Air Code Section 9-12-24, which incorporates by reference the portions of TAPCR Section 1200-3-20-.06, as renumbered from 1200-3-20-.07, that have not been withdrawn in the letter dated June 29, 2023. Specifically, with respect to the adoption by reference of new TAPCR Section 1200-3-20-.06, EPA is proposing to approve: the re-numbering of this provision from TAPCR Section 1200-3-20-.07 to TAPCR Section 1200-3-20-.06, splitting former TAPCR Section 1200-3-20-.07, paragraph (1), into paragraphs (1) and (2); and the textual revisions to new TAPCR Section 1200-3-20-.06, paragraphs (2), (3), and (6). The portions of the March 2, 2022, SIP revision that SCHD has withdrawn from EPA's consideration as a SIP revision include the adoption by reference of TAPCR Section 1200-3-20-.06, paragraphs (1) and (4) (SCHD's June 29, 2023, letter withdrawing these provisions is included in the docket for this proposed rulemaking.) and (5) (SCHD requests in its March 2, 2022, SIP revision that this provision not be incorporated into the Shelby County portion of the Tennessee SIP). As noted above in this Section II.E, SCHD plans to reevaluate and resubmit at a later date a revised version of these provisions. The withdrawal of these provisions from EPA's consideration is relevant to EPA's previous finding of failure to submit for those SIP-called provisions. The finding of failure to submit for Shelby County will continue to remain in effect and will be considered in a separate action.
EPA is proposing to approve Shelby County's request to incorporate the non-substantive changes to the code that adopt by reference TAPCR Sections 1200-3-20-.07 and 1200-3-20-.08. Additionally, EPA is proposing to approve Shelby County's request to incorporate the adoption by reference of TAPCR Section 1200-3-20-.09, as renumbered from 1200-3-20-.10, which includes other minor edits to assign a number to the provision now included as paragraph .09(1) and to include parentheses around existing text in this provision. EPA is proposing to approve these revisions.
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations.
EPA is not reopening the 2015 SSM SIP Action nor soliciting comment on the rationale for issuing the 2015 SIP call to Shelby County or the 2022 finding of failure to submit in response to the 2015 SIP call for Shelby County. EPA is taking comment on whether the proposed revisions to the Shelby County portion of the Tennessee SIP are consistent with CAA requirements and whether these changes remedy the substantial inadequacies in the specific Tennessee SIP provisions identified in the 2015 SSM SIP Action.
In this document, EPA is proposing to include in a final rule regulatory text that includes incorporation by reference.
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations.
• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 14094 (88 FR 21879, April 11, 2023);
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it approves a State program;
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001); and
• Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA.
In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian Tribe has demonstrated that a Tribe has jurisdiction. In those areas of Indian country, the rule does not have Tribal implications and will not impose substantial direct costs on Tribal governments or preempt Tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).
Executive Order 12898 (Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations, 59 FR 7629, February 16, 1994) directs Federal agencies to identify and address “disproportionately high and adverse human health or environmental effects” of their actions on minority populations and low-income populations to the greatest extent practicable and permitted by law. EPA defines environmental justice (EJ) as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.” EPA further defines the term fair treatment to mean that “no group of people should bear a disproportionate burden of environmental harms and risks, including those resulting from the negative environmental consequences of industrial, governmental, and commercial operations or programs and policies.”
The air agency did not evaluate EJ considerations as part of its SIP submittal; the CAA and applicable implementing regulations neither prohibit nor require such an evaluation. EPA did not perform an EJ analysis and did not consider EJ in this proposed action. Due to the nature of the action being proposed here, this proposed action is expected to have a neutral to positive impact on the air quality of the affected area. Consideration of EJ is not required as part of this proposed action, and there is no information in the record inconsistent with the stated goal of E.O. 12898 of achieving EJ for communities with EJ concerns.
Environmental protection, Air pollution control, Carbon monoxide, Incorporation by reference, Intergovernmental relations, Lead, Nitrogen dioxide, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur oxides, Volatile organic compounds.
42 U.S.C. 7401
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing to approve a State Implementation Plan (SIP) revision submitted by the North Carolina Division of Air Quality (NCDAQ) on behalf of the Forsyth County Office of Environmental Assistance and Protection (FCEAP or Forsyth County) on November 28, 2022. The revision was submitted in response to a finding of substantial inadequacy and SIP call published on June 12, 2015, concerning excess emissions during startup, shutdown, and malfunction (SSM) events, and is intended to correct deficiencies in the Forsyth County portion of the North Carolina SIP identified by EPA in the SIP call. EPA is proposing to approve the SIP revision in accordance with requirements for SIP provisions under the Clean Air Act (CAA or Act). In addition, EPA is proposing to approve minor and administrative changes to certain regulatory provisions that have been revised by the local agency since EPA's last approval of those provisions.
Comments must be received on or before October 3, 2024.
Submit your comments, identified by Docket ID No. EPA-R04-OAR-2023-0466 at
Faith Goddard, Multi-Air Pollutant Coordination Section, Air Planning and Implementation Branch, Air and Radiation Division, U.S. Environmental Protection Agency, Region 4, 61 Forsyth Street SW, Atlanta, Georgia 30303-8960. The telephone number is (404) 562-8757. Ms. Goddard can also be reached via electronic mail at
On June 12, 2015, pursuant to CAA section 110(k)(5), EPA finalized “State Implementation Plans: Response to Petition for Rulemaking; Restatement and Update of EPA's SSM Policy Applicable to SIPs; Findings of Substantial Inadequacy; and SIP Calls To Amend Provisions Applying to Excess Emissions During Periods of Startup, Shutdown and Malfunction,” hereinafter referred to as the “2015 SSM SIP Action.”
In the 2015 SSM SIP Action, EPA determined that Forsyth County Air Quality Control Ordinance and Technical Code Subchapter 3D, Section .0500, Rule 3D .0535,
On January 12, 2022, pursuant to CAA section 110(k)(1), EPA finalized “Findings of Failure To Submit State Implementation Plan Revisions in Response to the 2015 Findings of Substantial Inadequacy and SIP Calls To Amend Provisions Applying to Excess Emissions During Periods of Startup, Shutdown, and Malfunction,” hereinafter referred to as the “2022 Findings of Failure to Submit.”
On November 28, 2022, in response to the 2015 SSM SIP Action and the 2022 Findings of Failure to Submit, NCDAQ submitted on behalf of FCEAP a revision to the Forsyth County portion of the North Carolina SIP. In its submittal, Forsyth County requests that EPA revise the Forsyth County portion of the North Carolina SIP by removing the substantive text of Rule 3D .0535(c) and (g) and adding language clarifying that paragraphs (c) and (g) are not included in EPA's SIP-approved version of Rule 3D .0535 in the Forsyth County portion of the North Carolina SIP. Forsyth County also includes in the submittal minor and non-substantive administrative amendments to the remaining Rule 3D .0535 regulatory provisions, as revised since EPA's last approval on February 17, 2000.
On March 1, 2024, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) issued a decision in
Forsyth County requests that EPA remove the substantive text of Rule 3D .0535(c) and (g) from the Forsyth County portion of the North Carolina SIP and add language clarifying that Rule 3D .0535(c) and (g) are not included in the Forsyth County portion of the North Carolina SIP. Removing the substantive text of Rule 3D .0535(c) and (g) from the SIP would mean that emission limits incorporated into the Forsyth County portion of the North Carolina SIP would apply at all times, including periods of SSM. If removed from the Forsyth County portion of the North Carolina SIP, the substantive text of Rule 3D .0535(c) and (g) will apply to Forsyth County in its exercise of enforcement authority for local-law purposes only. These provisions would remain enforceable as local-only provisions, and language would be added to clarify that Rule 3D .0535(c) and (g) are not included in the Forsyth County portion of the North Carolina SIP. Because the substantive text of Rule 3D .0535(c) and (g) would not be part of the Forsyth County portion of the North Carolina SIP, citizens and EPA could seek injunctive relief or civil penalties for
Minor and non-substantive administrative amendments to Rule 3D .0535 have been adopted by Forsyth County since EPA's last approval on February 17, 2000,
Regarding Rule 3D .0535(e), Forsyth County revises malfunction abatement plan requirements by removing an obsolete sentence that reads, “The owner or operator of any electric utility boiler unit required to have a malfunction abatement plan shall submit a malfunction abatement plan to the Director within 60 days of the effective date of this Rule.” The existing subsequent sentence requires “any other source” required to have a malfunction abatement plan to submit that plan within six months of the Director's requirement to do so. Forsyth County revises Rule 3D .0535(e) such that it now States that “any source” required to have a malfunction abatement plan must submit that plan within six months of the Director's requirement to do so. Because Rule 3D .0535(d) still requires submission of malfunction abatement plans within 60 days for sources other than electric utility boilers, only the submission timeframe for electric utility boilers has increased, and EPA anticipates no associated impact on air quality.
Forsyth County also revises the timeframe within which amendments can be submitted to remedy malfunction abatement plan deficiencies. The revised provision states that, if a malfunction abatement plan does not carry out objectives described in Rule 3D .0535(d) and is therefore disapproved, an amendment that corrects the deficiencies identified must be submitted “within 30 days of receipt of the Director's notification of disapproval,” whereas the existing provision requires a satisfactory amendment to be submitted “within a time prescribed by the Director.” EPA proposes to approve Forsyth County's changes to Rule 3D .0535(e) concerning malfunction abatement plan requirements because the November 28, 2022, SIP revision is consistent with CAA requirements and removes a sentence requiring the submission of an electric utility boiler unit malfunction abatement plan by an expired deadline and replaces an undefined timeframe for correcting the malfunction abatement plan to be prescribed by a local official with a definite timeframe of thirty days. Regarding the revised timeframe within which amendments can be submitted to remedy malfunction abatement plan deficiencies, EPA finds the revised provision to be more stringent.
Regarding Rule 3D .0535(f), Forsyth County updates a corrective measures notification requirement. The revised provision states that, “after” measures correcting excess emissions lasting more than four hours resulting from “a malfunction, a breakdown of process or control equipment or any other abnormal conditions” have been accomplished, the source owner or operator must notify a local official, whereas the existing provision requires the owner or operator to notify a local official “immediately when . . . corrective measures have been accomplished.” Rule 3D .0535(f)'s initial notification requirements at (f)(1) remain unchanged, as do its ultimate reporting requirements at (f)(3).
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations.
In this document, EPA is proposing to include in a final EPA rule regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, and as discussed in sections I through III of this preamble, EPA is proposing to incorporate by reference Forsyth County Air Quality Control Ordinance and Technical Code Subchapter 3D, Section .0500, Rule 3D .0535,
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve State choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves State law as meeting Federal requirements and does not impose additional requirements beyond those imposed by State law. For that reason, this proposed action:
• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 14094 (88 FR 21879, April 11, 2023);
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it approves a State program;
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001); and
• Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA.
In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian Tribe has demonstrated that a Tribe has jurisdiction. In those areas of Indian country, the rule does not have Tribal implications and will not impose substantial direct costs on Tribal governments or preempt Tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).
Executive Order 12898 (Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations, 59 FR 7629, February 16, 1994) directs Federal agencies to identify and address “disproportionately high and adverse human health or environmental effects” of their actions on minority populations and low-income populations to the greatest extent practicable and permitted by law. EPA defines environmental justice (EJ) as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.” EPA further defines the term fair treatment to mean that “no group of people should bear a disproportionate burden of environmental harms and risks, including those resulting from the negative environmental consequences of industrial, governmental, and commercial operations or programs and policies.”
The FCEAP did not evaluate EJ considerations as part of its SIP submittal; the CAA and applicable implementing regulations neither prohibit nor require such an evaluation. EPA did not perform an EJ analysis and did not consider EJ in this proposed action. Due to the nature of the proposed action being taken here, this proposed action is expected to have a neutral to positive impact on the air quality of the affected area. Consideration of EJ is not required as part of this proposed action, and there is no information in the record inconsistent with the stated goal of E.O. 12898 of achieving environmental justice for communities with EJ concerns.
Environmental protection, Air pollution control, Carbon monoxide, Incorporation by reference, Intergovernmental relations, Lead, Nitrogen dioxide, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur oxides, Volatile organic compounds.
42 U.S.C. 7401
Office of the Assistant Secretary for Health (OASH) and Health Resources and Services Administration (HRSA), Department of Health and Human Services (HHS).
Notice of proposed rulemaking.
The Department of Health and Human Services (HHS) proposes to amend the regulations implementing the National Organ Transplant Act of 1984, as amended (NOTA), to remove clinical research and institutional review board (IRB) requirements (“research and IRB requirements”) for transplantation of kidney and livers from donors with human immunodeficiency virus (HIV) to recipients with HIV. As allowed by the HIV Organ Policy Equity (HOPE) Act, the Secretary of HHS proposes to determine that participation in such clinical research should no longer be a requirement for transplantation of HIV positive kidneys and livers from donors with HIV to recipients with HIV. This proposed rule serves as publication of the Secretary's proposed determination and proposes to amend the regulations to reflect this determination. Consistent with NOTA and current regulatory requirements, the Secretary's proposed determination and the proposed corresponding regulatory revision, if finalized, will necessitate that the Organ Procurement and Transplantation Network (OPTN) adopt and use standards of quality concerning kidneys and livers from donors with HIV, as
Comments on this notice of proposed rulemaking should be received no later than October 15, 2024.
You may send comments, identified by Document ID HRSA-2024-0001, to the Federal eRulemaking Portal:
In accordance with 5 U.S.C. 553(b)(4), a summary of this rulemaking may be found in the docket for this rulemaking at
Frank Holloman, Director, Division of Transplantation, Health Systems Bureau, HRSA, 5600 Fishers Lane, Room 08W63, Rockville, MD 20857; by email at
All interested parties are invited to participate in this rulemaking by submitting written comments and supportive data that should be considered. HHS also invites comments that relate to the economic, legal, environmental, or federalism effects that might result from this proposed rule. Comments that will provide the most assistance to HHS in finalizing the rule will reference a specific portion of the proposed rule, explain the reason for any recommended change, and include data, information, or authority that supports such recommended change.
Within HHS, HRSA is responsible for overseeing the operation of the nation's OPTN, including assisting in the equitable allocation of donor organs for transplantation. 42 U.S.C. 274(b)(2)(D). The allocation of organs is guided by the OPTN in accordance with NOTA and with the HHS regulations governing the operation of the OPTN in 42 Code of Federal Regulations (CFR) part 121. The OPTN is also charged with developing policies on many subjects related to organ donation and transplantation, which include establishing standards of quality pertaining to organs procured for use in transplantation. 42 U.S.C. 274(b)(2)(E). In addition to ensuring the efficient and effective allocation of donor organs through the OPTN, HHS supports efforts to increase the number of transplants performed in the United States.
In 1988, NOTA was amended to prohibit the transplantation of organs from donors with HIV, referring to HIV as the etiologic agent for acquired immunodeficiency virus or AIDS. Until 1997, a total of 32 kidney transplants were performed in recipients with HIV, all with organs from donors without HIV.
The enactment of the HOPE Act in 2013, Public Law 113-51, amended NOTA to eliminate the prohibition in the United States on transplantation of organs from persons with HIV, allowing transplantation of these organs if certain requirements are satisfied. Under the HOPE Act, organs from donors with HIV may be transplanted only in recipients living with HIV prior to receiving such an organ. 42 U.S.C. 274(b)(3)(A). Further, the HOPE Act requires that transplants of HIV-positive organs occur only in recipients with HIV who are participating in IRB-approved research protocols that adhere to certain criteria, standards, and regulations. 42 U.S.C. 274(b)(3)(B)(i). However, the Secretary may lift the research and IRB requirements if the Secretary has determined that participation in such clinical research, as a requirement for such transplants, is no longer warranted. 42 U.S.C. 274(b)(3)(B)(ii).
The HOPE Act outlines the process by which the Secretary may make such a determination under 42 U.S.C. 274(b)(3)(B)(ii). Specifically, the Secretary must routinely review the results of clinical research, in conjunction with the OPTN, to determine whether the results warrant revision of the OPTN standards of quality regarding organs from donors with HIV. If the Secretary determines that those standards of quality should be revised, the Secretary must direct the OPTN to revise the standards. 42 U.S.C. 274f-5(c)(2). The Secretary is also required to revise the regulatory provision implementing the HOPE Act, 42 CFR 121.6, upon determining that revisions to the OPTN standards of quality are warranted. 42 U.S.C. 274f-5(c)(3).
HRSA published a final rule implementing the HOPE Act on May 8, 2015. 80 FR 26464.
The HOPE Act also directs the Secretary to develop and publish criteria for the conduct of research relating to transplantation of organs from donors with HIV into persons who
In general, the NIH Research Criteria include safeguards designed to protect both donors and recipients, as well as healthcare providers at Organ Procurement Organizations (OPOs), and transplant centers. Specifically, and in addition to the requirements in established OPTN transplant policies, donors with HIV must not have evidence of opportunistic infections and recipients must have a stable CD4+ T-cell count and established HIV suppression and control on effective ART. The study team must describe the anticipated effective HIV treatment plan and ART regimen for patients receiving an organ with a potentially different HIV strain. Antiretroviral drugs suppress viral replication; however, HIV may develop resistance to a specific drug necessitating a different medication regimen to maintain effectiveness.
Publication of both the final rule implementing the HOPE Act and the NIH Research Criteria necessitated that the OPTN update its standards of quality for HIV-positive organ transplants and coordinate related OPTN policies. On November 21, 2015, the OPTN published an open variance (an experimental policy that tests methods of improving organ allocation) providing standards for transplant hospitals conducting HOPE Act transplants.
As stated above, the HOPE Act requires that the Secretary, in conjunction with the OPTN, periodically review the results of scientific research to determine whether the results warrant revision to the OPTN standards of quality with respect to organs from donors with HIV and the safety of transplanting an organ from a donor with a particular strain of HIV into a recipient with a different strain of HIV. 42 U.S.C. 274f-5(c)(1). This review allows the Secretary to determine if the safety and efficacy of HOPE Act transplants are comparable to non-HOPE Act transplants and, if warranted, to further determine whether such transplants should be conducted outside of a research setting.
In 2018, the OPTN initiated a review of research results and data relevant to HOPE Act transplants, forming a working group for this purpose.
The OPTN used three primary sources of data to assess HOPE Act transplants, each of which contributed to the recommendation the OPTN provided to the Secretary: (1) the research results of two NIH-funded pilot studies evaluating HOPE Act kidney transplants and liver transplants, and the progress of two ongoing NIH-funded clinical trials evaluating HOPE Act kidney transplants and liver transplants, (2) the research results of an older clinical trial analyzing safety and efficacy of kidney transplants in a small cohort of transplant recipients with HIV, and (3) OPTN data on the outcomes of all HOPE Act transplants.
A multicenter pilot study funded by NIH was launched in 2016 to determine safety and efficacy of HOPE Act kidney transplants. The HOPE In Action Consortium of 14 transplant centers conducting HOPE Act kidney transplants which participated in the pilot study found that there were no major differences between HOPE Act transplants of a kidney from a donor with HIV to a recipient with HIV and non-HOPE Act kidney transplants from a donor without HIV to a recipient with HIV.
A separate pilot study funded by NIH and conducted by HOPE In Action Consortium participants compared HOPE Act transplants of a liver from a donor with HIV to a recipient with HIV and non-HOPE Act liver transplants from a donor without HIV to a recipient with HIV, and found that there were no differences in one-year graft survival, rejections, HIV breakthrough or severe adverse events. While the recipients of HOPE Act liver transplants presented with more opportunistic infections, infectious hospitalizations, and cancer, compared to non-HOPE Act liver transplants, the investigators determined that these findings warrant further investigation and perhaps consideration of additional donor and recipient infection and malignancy monitoring. In general, the investigators concluded that the transplant outcomes were more favorable compared to historical data on liver transplantation in recipients with HIV, who are known to experience higher rates of opportunistic infections and other complications. In addition, it was noted that co-infections are more common among both donors and recipients with HIV and confound the results. (Results of non-HOPE Act transplants have confirmed that recipients with both HIV and a co-infection have lower survival rates. Therefore, the presence of co-infections could independently impact survival and other variables measured by studies on HOPE Act transplants.) This pilot study was the first multicenter prospective study reporting results of U.S. transplants of livers from donors with HIV to recipients with HIV and comparing outcomes according to donor HIV status in order to assess attributable risk. The investigators recognized as a limitation that the pilot study was relatively small (45 transplants), and noted that the observed increases among HOPE Act liver transplant recipients in mortality, cytomegalovirus (CMV) viremia, infectious hospitalizations, and cancer. However, they note that these results should be considered in light of the relatively high rate of mortality for recipients awaiting liver transplant. For these patients, the benefit of undergoing a HOPE Act liver transplant may outweigh the risks of living with HIV and end stage liver disease.
Two NIH-funded studies on kidney and liver HOPE Act transplants are ongoing. The NIH-funded U01 HOPE Act kidney transplant clinical trial is designed to analyze rejection and long-term outcomes of kidney transplantation for recipients with HIV. The study will compare outcomes of 100 HOPE Act kidney transplant recipients to 100 kidney transplant recipients with HIV who received an HIV-negative organ at 15 transplant centers, adding to the cohort accrued from the pilot studies discussed in the immediately preceding section of this preamble.
Both U01 clinical trials have reached their target enrollments and now in phases of final data analysis (kidney) and patient follow-up (liver). The final results are not yet published.
Prior to the initiation of the pilot studies and clinical trials discussed previously, a clinical trial examined outcomes of 150 kidney transplants in recipients with HIV conducted between November 2003 and June 2009. The investigators found both recipient and graft survival rates were high with no important increases in complications associated with HIV.
Data from HOPE Act transplants is compiled by the OPTN on a quarterly basis, including waitlist registrations and counts of HOPE Act transplants, and is routinely reviewed. Prior to issuing its recommendation to the Secretary, the OPTN reviewed data on over 300 patients included in the HOPE
Based on the assessment of the above-described research results and data, in 2021 the OPTN recommended to the Secretary that the research and IRB requirements of the HOPE Act be removed for all organs.
Following the OPTN's review of research results and data relevant to HOPE Act transplants and its recommendation to the Secretary, additional research has since been published providing more evidence for the safety of organ transplantation from donors with HIV to recipients with HIV. In general, safety and outcomes of kidney and liver HOPE Act transplants is well established with over 468 HOPE Act kidney and liver transplants conducted to date.
One prospective study published in 2022, examined 92 HOPE Act donors contributing 177 organs, which included 131 kidneys and 46 livers, to understand the characteristics of donors with HIV in terms of clinical, immunologic, and virologic profiles to ensure the safety of transplantation. Of these donors, 58 were donors with HIV and 34 were donors without HIV. For those donors with known HIV infection, 90 percent received ART treatment. The study concluded that although drug resistant mutations (DRMs) were common, DRMs that could compromise the effectiveness of certain ART were rare, reassuring the safety of using donor organs with HIV in recipients with HIV. Further, the study also found that there were no major differences comorbidities between recipient groups that received an organ from a donor with HIV compared to those that received an organ from a donor without HIV.
In a March 2024 analysis of the impact of the HOPE Act on access to kidney transplantation for recipients with HIV, the authors found 70 percent of HOPE Act recipients received a kidney transplant during the 4.5 year study period versus 43 percent of non-HOPE Act transplant candidates at the same center.
In addition to providing important evidence for the survival benefit of organ transplantation for recipients with HIV, the HOPE in Action Consortium has also published on the positive outcomes of living HOPE Act kidney donors. In a case series of three transplants, investigators reported that two of the three donors developed adverse events, but findings suggested these were medically managed and that HIV RNA copies and CD4+ T-cell counts were stable at two to four years post-transplant.
There is significantly less data on non-kidney and non-liver HOPE Act transplants. Since 2019, when the OPTN's HOPE Act policy was expanded to include all solid organs, only three heart transplant programs have received approval to perform HOPE Act transplants. To date, just one heart transplant has been conducted (dual organ: heart-kidney).
Following the OPTN recommendation to the Secretary in 2021, the HHS Advisory Committee on Blood and Tissue Safety and Availability (ACBTSA) formed a Working Group to evaluate the recommendation from the OPTN. After analyzing the OPTN recommendation, and receiving presentations on data on HOPE Act kidney and liver transplants, and relevant research results on heart transplants and lung transplants in recipients with HIV, the ACBTSA HOPE Act working group recommended to the full committee that the Secretary
The ACBTSA subsequently recommended that the Secretary act to lift the statutory research and IRB requirements for all HOPE Act transplants and at the same time recommended that the Secretary direct the OPTN to adopt, for HOPE Act transplants of organs other than kidneys and livers, organ-specific policies imposing additional requirements for the conduct of these transplants, including collecting safety and outcomes data for transplant candidates and recipients of such transplants through an IRB-approved research protocol.
These recommendations were later approved by the HHS Blood, Organ, and Tissue Senior Executive Council (BOTSEC), an advisory forum for senior leadership from HHS entities involved in blood, organ, and tissue safety and availability.
Upon review of the OPTN, ACBTSA and BOTSEC recommendations, and in consideration of the results of relevant scientific research, the Secretary believes that the research and IRB requirements for kidney and liver HOPE Act transplants are no longer warranted.
The Secretary has been informed by the research results described in this preamble from pilot studies, clinical trials, and case reports, as well as OPTN outcomes data on all HOPE Act transplants and additional data. Studies of kidney and liver HOPE Act transplants have demonstrated survival benefit for transplant recipients with HIV, compared to non-HOPE Act transplants, with few adverse consequences.
The outcomes of HOPE Act transplants are considered in light of the limitations of organ transplantation generally: that too few organs are available for the thousands of patients awaiting transplants. The pretransplant mortality rate for adults awaiting a kidney transplant varies substantially across the country. The average is 5.4 deaths per 100 person years, but it is reported to be as high as 7.5 deaths per 100 person years as of the most recent OPTN/SRTR Annual Data Report.
It is well established that pretransplant kidney mortality rates among candidates with HIV are higher than those without HIV. In one study analyzing survival benefit of HIV-positive kidney transplantation (
Research has demonstrated that recipients with HIV may reduce the time on the kidney waitlist significantly if they are willing to accept a HOPE Act transplant. As previously mentioned, one 2023 study found that median wait time for a HOPE Act transplant was 10.8 months compared to 60.8 months—a 3.3-fold higher rate of kidney transplant compared to non-HOPE Act transplants.
Significant progress has been made in the reduction of pretransplant mortality for liver transplant candidates over the past decade. Rates have declined from a high of 17.9 deaths per 100 person years in 2014 to 12.3 deaths per 100 person years in 2022.
It is also hypothesized that the expansion of kidney and liver HOPE Act transplantation will also help to reduce stigma and health disparities associated with HIV. Stigma and physician reluctance to counsel potential transplant candidates with HIV on the benefits of organ transplantation may contribute to the lower than projected counts of HOPE Act transplants to date.
The Secretary also believes that the current research and IRB requirements should be maintained for HOPE Act transplants of all other organs, in light of the lack of data on outcomes for HOPE Act organ transplants other than kidney or liver transplants. At the time the ACBTSA developed its recommendations, no HOPE Act transplants outside of kidneys, livers, and one dual heart-kidney transplant had been performed, and data on heart, lung, pancreas, islet, intestine, or other organ transplants from donors with HIV to recipients with HIV that were conducted outside the U.S. is limited.
The HOPE Act requires that, for the statutory research and IRB requirements to be lifted for HOPE Act transplants, the Secretary must determine that participation in such clinical research, as a requirement for these transplants, is no longer warranted. 42 U.S.C. 274 (b)(3)(B)(ii). In the absence of research results and robust outcomes data
The Secretary acknowledges that the OPTN has argued that any research and IRB requirements serve as a barrier to access for HOPE Act transplant candidates and may perpetuate inequities in HOPE Act transplant programs.
Currently, only a limited number of centers can perform HOPE Act transplants, because there are specific requirements stipulated by the NIH Research Criteria for such transplant centers. These requirements include expertise in HIV infection management, minimum organ-specific transplant team experience of five transplants of organs from donors without HIV to recipients with HIV over four years and an independent advocate for both recipients with HIV and prospective living donors with HIV. The requirements for centers conducting HOPE Act transplants have been subject to critique and have been viewed as a barrier to participation in HOPE Act transplant programs, which may impact equity and access to organ transplantation throughout the United States.
Other factors, such as systemic racism, perpetuate long-standing inequalities and inequities in health care access including organ transplantation. People who identify as Black or African American are four times more likely to develop ESRD compared to non-Hispanic White people but are less likely to receive a kidney transplant.
Separate from organ transplantation, HIV disproportionately affects people of some racial and ethnic groups in the United States, such as Black or African American and Hispanic or Latino populations. Prevalence rates suggest these communities have higher rates of HIV compared to White populations. For example, according to the Centers for Disease Control and Prevention's (CDC) HIV Surveillance Supplemental Report, 2023, people who identified as Black or African American represented 12.4 percent of the population but 40.2 percent of those with diagnosed HIV in 2021.
In addition to racial and ethnic diversity, gay, bisexual, and other men who have sex with men (MSM) are the most affected group of people with HIV, accounting for 66 percent of new infections in 2021 even though they only compose 2 percent of the population.
In light of all of these considerations, HHS expects that this proposed rule, if finalized, will assist in improving access to kidney and liver transplants for recipients with HIV. This anticipated positive result is consistent with the Department's commitment to diversity, equity, and inclusion.
Further, this proposed rule to remove research and IRB requirements for kidney and liver HOPE Act transplants would, if finalized, expand access to organ transplantation for all patients, regardless of their HIV status. When eligible for transplant, a person with HIV is added to the waiting list. That patient may elect to receive an organ from a donor with HIV, as a HOPE Act transplant, should it become available, or may choose to wait for an organ from a donor who did not have HIV. If the patient with HIV chooses the HOPE Act
As of February 16, 2024, more than 103,000 men, women, and children were on the national organ transplant waiting list.
According to the National Institute of Diabetes and Digestive and Kidney Diseases (NIDDK), more than 1 in 7 adults in the U.S. are affected by kidney disease.
In addition, thousands of Americans suffer from conditions requiring liver transplant. In 2023, more than 10,660 liver transplants were carried out with organs from both living and deceased donors, setting an all-time record.
As such, HHS believes regulatory changes designed to increase the number of organs available for donation, such as those proposed in this rule, could mitigate these outcomes. HHS is committed to reducing the number of persons on the organ transplant waiting list by increasing the number of organs made available for transplantation.
The HOPE Act provides the Secretary with the discretion to determine what research criteria should apply to HOPE Act transplants. 42 U.S.C. 274f-5(a). If this proposed rule is finalized, HHS anticipates that NIH will, in consultation with HRSA and the OPTN, and including the input of other relevant Federal stakeholders, revise and publish updated Research Criteria in the
Further, HHS recognizes it will be appropriate to update the NIH Research Criteria to reflect advances in research in the time since HOPE Act transplants began. The research criteria should reflect the current needs of various entities involved in HOPE Act transplants in consideration of input from transplant centers, transplant surgeons, OPOs, HIV clinicians, donors, recipients, HIV advocates, the OPTN, and individuals affected by the HOPE Act.
Should this proposed rule be finalized, the Secretary must direct the OPTN to update its policies to clarify that HOPE Act kidney and liver transplants may be conducted in a way consistent with the statutory requirements at 42 U.S.C. 274, and that ensures the revisions to the policies will not reduce the safety of organ transplantation. 42 U.S.C. 274f-5(c)(2); 42 CFR 121.6(b)(3). Through this NPRM, HHS specifically seeks public comment on the nature and content of the Secretary's direction to the OPTN, including the level of specificity in the direction and the extent of the OPTN's discretion in developing the revised policies; what factors should be considered in assessing whether the revised policies are consistent with 42 U.S.C. 274; and what factors should be considered in assessing whether the revisions to the OPTN policies will not reduce the safety of organ transplantation. HHS further welcomes comment on any other aspects relating to the Secretary's direction to the OPTN to revise its standards of quality as required by the HOPE Act.
HHS expects that the OPTN would solicit public comment on a proposed revision to relevant OPTN policies, and update the OPTN policies containing standards of quality with respect to kidneys and livers from donors with HIV, within 15 months from the publication of a final rule.
The Secretary has reviewed the recommendations of the OPTN, the ACBTSA, and the BOTSEC on implementation of the HOPE Act, and the results of research on HOPE Act transplants conducted to date as well as results of other relevant research on organ transplants in recipients with HIV. Pursuant to his authority under the HOPE Act, 42 U.S.C. 274(b)(3)(B)(ii), and consistent with the implementing regulations at 42 CFR 121.6, the Secretary proposes to determine that participation in clinical research, and
Through this NPRM, HHS specifically seeks public comment on the Secretary's proposed determination that participation in clinical research, and application of the statutory research and IRB requirements, as a requirement for transplants of kidneys and livers from persons with HIV, is no longer warranted.
Consistent with the Secretary's proposed determination under the HOPE Act, this proposed rule, if finalized, will revise § 121.6 of the HHS regulations governing the OPTN to reflect the removal of the statutory research and IRB requirements for kidney and liver HOPE Act transplants.
HHS proposes to revise § 121.6(b)(1)(ii)(B) to reflect the Secretary's proposed determination that participation in clinical research is no longer warranted for the following categories of transplants:
(1) Transplant of a donor kidney with HIV; and
(2) Transplant of a donor liver with HIV.
In implementation, this proposal, if approved, would mean that HOPE Act kidney and liver transplants will no longer be conducted as research, and instead will be conducted in accordance with newly adopted OPTN policies regarding kidneys and livers from donors with HIV.
HHS is aware that previous language used in enacting and implementing the HOPE Act contained vocabulary and phrases that some people find stigmatizing—namely, references to “infected with HIV” when the regulatory language encompasses both living and deceased donors with HIV, or recipients with HIV. For the references to both living and deceased donors with HIV, HHS proposes to revise all current references in § 121.6(b) from “individuals infected with human immunodeficiency virus (HIV)” and “individuals infected with HIV” to “donors with HIV” or, when discussing organs donated, “donor organs with HIV.” Further, HHS proposes to revise the current reference in § 121.6(b)(1)(i) describing the allowable recipients of HOPE Act transplants from individuals who are “infected with HIV before receiving such organ(s)” to instead refer to individuals who are “living with HIV before receiving such organ(s).” This is consistent with the Centers for Disease Control and Prevention's (CDC) Stigma Language Guide.
HHS is proposing these new regulatory references to “donors with HIV” and “living with HIV” with the intent to be respectful, and not to change the group of people referenced in the current § 121.6.
HHS is publishing this proposed rule with a 30-day public comment period, as multiple opportunities for public input on the matters addressed through this rulemaking already have been provided. HHS has been collecting public commentary on the HOPE Act since the OPTN provided its HOPE Act recommendations to Secretary Becerra in October 2021. ACBTSA heard a summary of the OPTN's consideration of the HOPE Act soon after its December 1, 2021 public meeting. Following this presentation, ACBTSA formed a working group to develop a recommendation regarding the HOPE Act. During the ACBTSA's November 17, 2022 public meeting, ACBTSA received written public comment on its proposed recommendations to the Secretary regarding removing the research and IRB requirements for kidney and liver HOPE Act transplantations.
HHS has actively engaged transplant surgeons, researchers, advocates, donors, and recipients involved in organ transplantation in the course of drafting a recommendation to the Secretary. The Department has reviewed dozens of comments received in response to discussions held by the ACBTSA, the BOTSEC and the Presidential Advisory Council on HIV/AIDS (PACHA).
Given the multiple committees and policy mechanisms employed for discussion of potential changes to requirements for HOPE Act transplants, previous efforts to gather public commentary and the considerable public health impact this proposed policy may have on those in need of organ transplantation, HHS believes the 30-day public comment period is sufficient and most expedient.
This proposed rule, if finalized, would not impose any additional information collection burden under the Paperwork Reduction Act and does not contain any information collection requirements beyond those already imposed by current regulations, which have been approved by the Office of Management and Budget. The current data collection requirements in the OPTN final rule approved by the OMB under the Paperwork Reduction Act of 1995 are assigned control numbers OMB No. 0915-0157 (for organ donors, candidates, and recipients) and OMB No. 0915-0184 (for OPTN membership application data).
We have examined the impacts of the proposed rule under Executive Order 12866, Executive Order 13563, Executive Order 14094, the Regulatory Flexibility Act (5 U.S.C. 601-612), the Congressional Review Act (5 U.S.C. 801, Pub. L. 104-121), and the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).
Executive Orders 12866, 13563, and 14094 direct us to assess all benefits, costs, and transfers of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). Rules are “significant” under Executive Order 12866 section 3(f)(1) (as amended by Executive Order 14094) if they have an annual effect on the economy of $200 million or more (adjusted every 3 years
The Regulatory Flexibility Act requires us to analyze regulatory options that would minimize any significant impact of a rule on small entities. Because the impacts are small relative to the number of organ transplants performed annually, and because the costs are small relative to the average payroll of firms in the smallest enterprise size category, we propose to certify that the proposed rule will not have a significant economic impact on a substantial number of small entities.
The Unfunded Mandates Reform Act of 1995 (UMRA) generally requires that each agency conduct a cost-benefit analysis, identify and consider a reasonable number of regulatory alternatives, and select the least costly, most cost-effective, or least burdensome alternative that achieves the objectives of the rule before promulgating any proposed or final rule that includes a Federal mandate that may result in expenditures of more than $100 million (adjusted for inflation) in at least one year by State, local, and Tribal governments, or by the private sector. Each agency must also seek input from State, local, and Tribal governments.
This proposed rule would, if finalized, remove the current research and institutional review board (IRB) requirements for transplants of human immunodeficiency virus (HIV)-positive kidneys and livers. This would result in impacts related to changes in the number of kidney and liver transplants performed annually. We monetize benefits associated with increases in life expectancy for organ transplant recipients and, for kidney transplant recipients, benefits associated with improved quality of life and time savings from fewer kidney dialysis visits. We monetize costs from medical expenditures associated with organ transplantation; for kidney transplants, we report impacts that are net of medical expenditures associated with kidney dialysis. We also monetize costs associated with organ transplant centers reading and understanding the rule, reviewing policies and procedures, and training staff. We report the shift in expenditures associated with kidney dialysis to expenditures associated with kidney transplantation separately as transfers. We estimate that the annualized benefits over a 10-year time horizon covering 2025 through 2034 would range from $561 million to $1.26 billion at a 2 percent discount rate, with a primary estimate of $900 million. The annualized costs would range from $134 million to $174 million, with a primary estimate of $154 million. The annualized transfers would range from $24 million to $39 million, with a primary estimate of $31 million.
We have developed a comprehensive preliminary economic analysis of impacts that assesses the impacts of the proposed rule, which is available in the docket for this proposed rule Document ID HRSA-2024-0001.
Health care, Hospitals, Transplant centers, Organ transplantation, Reporting and recordkeeping requirements.
Accordingly, by the authority vested in me as the Secretary of Health and Human Services, and for the reasons set forth in the preamble, 42 CFR part 121 is proposed to be amended as follows:
Sections 215, 371-77, and 377E of the PHS Act (42 U.S.C. 216, 273-274d, 274f-5); sections 1102, 1106, 1138 and 1871 of the Social Security Act (42 U.S.C. 1302, 1306, 1320b-8, and 1395hh); section 301 of the National Organ Transplant Act, as amended (42 U.S.C. 274e); and E.O. 13879, 84 FR 33817.
(b)
(i) Are living with HIV before receiving such organ(s); and
(ii)(A) Are participating in clinical research approved by an institutional review board, as defined in 45 CFR part 46, under the research criteria published by the Secretary under subsection (a) of section 377E of the Public Health Service Act, as amended; or
(B) The Secretary has published, through appropriate procedures, a determination under section 377E(c) of the Public Health Service Act, as amended, that participation in such clinical research, as a requirement for transplants of donor organs with HIV, is no longer warranted. The Secretary has determined that participation in such clinical research is no longer warranted for the following categories of transplants:
(
(
(2) Except as provided in paragraph (b)(3) of this section, the OPTN shall adopt and use standards of quality with respect to donor organs with HIV to the extent the Secretary determines necessary to allow the conduct of research in accordance with the criteria described in paragraph (b)(1)(ii)(A) of this section.
(3) If the Secretary has determined under paragraph (b)(1)(ii)(B) of this section that participation in clinical research is no longer warranted as a requirement for transplants of donor organs with HIV, the OPTN shall adopt and use standards of quality with respect to donor organs with HIV as directed by the Secretary, consistent with 42 U.S.C. 274, and in a way that ensures the changes will not reduce the safety of organ transplantation.
Federal Communications Commission.
Proposed rule.
In this document, the Federal Communications Commission (Commission) proposes and seeks comment on procedural measures that would require Robocall Mitigation Database filers to take additional steps to ensure the accuracy of submitted information, potential technical solutions for validating data, accountability measures to ensure and improve the overall quality of submissions in the Robocall Mitigation Database, and generally invites comment on any other procedural steps the Commission could require to increase the effectiveness of the Robocall Mitigation Database as a compliance and consumer protection tool.
Comments are due on or before October 15, 2024, and reply comments are due on or before November 12, 2024.
Pursuant to §§ 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419, interested parties may file comments and reply comments on or before the dates indicated above. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS).
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• Filings can be sent by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission.
• Hand-delivered or messenger-delivered paper filings for the Commission's Secretary are accepted between 8 a.m. and 4 p.m. by the FCC's mailing contractor at 9050 Junction Drive, Annapolis Junction, MD 20701. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes and boxes must be disposed of before entering the building.
• Commercial courier deliveries (any deliveries not by the U.S. Postal Service) must be sent to 9050 Junction Drive, Annapolis Junction, MD 20701.
• Filings sent by U.S. Postal Service First-Class Mail, Priority Mail, and Priority Mail Express must be sent to 45 L Street NE, Washington, DC 20554.
For further information about the Notice of Proposed Rulemaking (
This is a summary of the Commission's
Illegal robocalls cause billions of dollars in consumer fraud, not to mention the losses suffered by consumers due to lost time and attention, and diminished confidence in the Nation's telephone network. In 2023, the Commission received approximately 96,500 complaints concerning unwanted calls, including illegal robocalls—more than any other issue. Protecting Americans from illegal robocalls remains the Commission's top consumer protection priority. With the NPRM we launch a proceeding to explore new initiatives intended to increase consumer protection, reduce unwanted calls, and increase accountability of non-compliant providers.
This initiative follows a series of Commission actions on multiple fronts to stem the tide of robocalls using every tool at our disposal. One such tool is the Robocall Mitigation Database (RMD or Database), a public database established by the Commission in 2021 to facilitate the implementation of our STIR/SHAKEN and robocall mitigation rules. Consistent with the Commission's efforts to expand both STIR/SHAKEN implementation and robocall mitigation requirements in recent years,
Given the importance of the Robocall Mitigation Database, we launch this proceeding to examine ways to ensure and improve the overall quality of submissions based on the collective experience of all stakeholders over the last three years. Specifically, we propose and seek comment on procedural measures that the Commission could adopt to promote the highest level of diligence when providers submit required information to the Robocall Mitigation Database, and technical solutions that the Commission could use to identify data discrepancies in filings—and require them to be corrected—before they are accepted by the system. At this time, we are not proposing or seeking comment on additional content requirements for Robocall Mitigation Database filings. The Commission adopted significant additional content requirements in March 2023 and required all providers to submit Robocall Mitigation Database filings that complied with those additional requirements by February 26, 2024. Those filings are currently under review. We propose and seek comment on measures to increase accountability for providers that submit inaccurate and false information to the Robocall Mitigation Database or fail to update their filings when the information they contain changes, as required by the Commission's rules. Lastly, we generally invite comment on any other procedural steps the Commission could require to increase the effectiveness of the Robocall Mitigation Database as a compliance and consumer protection tool.
The Commission created the Robocall Mitigation Database in 2021 to effectuate provisions of the TRACED Act, which directed the Commission to require voice service providers to implement the STIR/SHAKEN caller ID authentication framework on their IP-based voice networks by June 30, 2021, subject to certain extensions due to undue hardship or reliance on non-IP infrastructure. The TRACED Act included two provisions for extension of the June 30, 2021, implementation deadline. First, it permitted the Commission to extend the compliance date for a reasonable period of time “upon a public finding of undue hardship,” and second, it directed the Commission to grant an extension to those providers that “materially rel[y]” on non-IP infrastructure. First, it permitted the Commission to extend the compliance date for a reasonable period of time “upon a public finding of undue hardship,” and second, it directed the Commission to grant an extension to those providers that “materially rel[y]” on non-IP infrastructure. Pursuant to these provisions, in 2020 the Commission granted three categorical STIR/SHAKEN implementation extensions on the basis of undue hardship to: (1) small voice service providers with 100,000 or fewer voice subscriber lines; (2) voice service providers unable to obtain the SPC “token” necessary to participate in STIR/SHAKEN; and (3) services scheduled for section 214
Since 2021, the Commission has worked to expand the scope of providers required to implement STIR/SHAKEN and comply with robocall mitigation requirements, and thus, the providers required to submit certifications and robocall mitigation plans in the Robocall Mitigation Database. Today, all providers carrying or processing voice traffic—voice service providers, gateway providers, and non-gateway intermediate providers—are required to file certifications and robocall mitigation plans in the Robocall Mitigation Database. The consequences for not doing so, or for filing certifications and robocall mitigation plans that do not comply with the Commission's rules, are severe. They may include the imposition of a Commission forfeiture and/or the removal of a deficient filing from the Database. The latter remedy effectively precludes the provider from operating as a provider of voice services in the United States, as the Commission's rules prohibit intermediate and terminating providers from accepting traffic directly from any provider that does not appear in the Database. This prohibition, which denies “a service provider access to the regulated U.S. voice network if [the Commission] determines that the service provider's . . . robocall mitigation practices are inadequate,” recognizes the importance of the information submitted to the Robocall Mitigation Database and its role as a tool for enforcement and industry self-regulation.
To start a filing in the Robocall Mitigation Database, providers must first obtain a business-type FCC Registration Number (FRN) via the FCC's Commission Registration System (CORES) and an FCC username and password. CORES is the system the FCC uses to facilitate the assignment of FRNs to all persons and entities seeking to do business with the Commission. An FRN is a unique 10-digit number assigned to a business or individual registering with the Commission that is used to identify the registrant's business dealings with the agency. Providers establish a CORES account and FRN to submit a new filing or manage existing filings in the Robocall Mitigation Database. Once a provider's FRN is selected in the Database, the entity name and business address associated with that FRN are automatically populated in the Robocall Mitigation Database certification form. These fields of the certification form are “read only” and may not be changed without changing the associated data in CORES.
To complete the remainder of the Robocall Mitigation Database certification form, providers must manually enter additional information, including:
• Whether the provider has fully, partially, or not implemented the STIR/SHAKEN authentication framework in the IP portions of its network;
• Confirmation that all of the calls that it originates on its network are subject to a robocall mitigation program consistent with § 64.6305(a), (b), and/or (c);
• Confirmation that any prior Robocall Mitigation Database submission has not been removed by Commission action and that the provider has not been prohibited from filing in the Robocall Mitigation Database by the Commission;
• Any other business name(s) currently in use by the provider;
• All business names previously used by the provider;
• Whether the provider is a foreign voice service provider;
• The name, title, department, business address, telephone number, and email address of one person within the company responsible for addressing robocall mitigation-related issues;
• The provider's role(s) in the call path;
• Whether the provider is eligible for any STIR/SHAKEN implementation extensions or exemptions;
• Information regarding the provider's principals, affiliates, subsidiaries, and parent companies;
• Information on any recent enforcement actions concerning illegal robocalls; and
• The provider's Operating Company Number (OCN), if it has one.
Once the certification is complete, providers must then upload a PDF file containing the written description of their robocall mitigation programs. Providers that wish to designate a portion of their robocall mitigation program filing as confidential may upload both confidential (
The Commission has not otherwise mandated that providers include specific measures in their mitigation plans, finding that providers require “flexibility in determining which measures to use to mitigate illegal calls on their networks.” At the same time, the Commission directed that providers must comply with the practices specified in their robocall mitigation plans and that their robocall mitigation programs will be deemed deficient if the provider knowingly or through negligence carries or processes calls (for intermediate providers) or originates (for voice service providers) unlawful robocall campaigns. Further, a robocall mitigation plan will be deemed facially deficient if it does not provide any information about the specific reasonable steps that the provider is taking to mitigate illegal robocalls. For example, robocall mitigation plans that only include a generalized statement that a robocall mitigation plan is in place or merely recite the Commission's rules for robocall mitigation will be deemed facially deficient. Providers that submit deficient robocall mitigation plans to the Robocall Mitigation Database and fail to cure those deficiencies are referred to the Commission's Enforcement Bureau for investigation and potential removal from the Database, after which all downstream providers will be prohibited from carrying their traffic.
Providers are required to submit Robocall Mitigation Database certifications and robocall mitigation plans pursuant to deadlines set and announced by the Commission. Providers are also required to update their submissions within 10 business days of any changes to required content. For instance, if the contact information provided for the individual within the company responsible for robocall mitigation efforts has changed since the provider submitted its certification and robocall mitigation plan to the Robocall Mitigation Database, the provider is required to update its submission to include the current contact information within 10 business days of that change.
All Robocall Mitigation Database submissions are filed via a portal accessible on the Commission's website at
The Robocall Mitigation Database is a critical tool in the Commission's efforts to ensure compliance with its STIR/SHAKEN and robocall mitigation rules and protect the public from the harms caused by illegal robocalling campaigns. Many stakeholders outside of the Commission also depend on the information in the Robocall Mitigation Database to make important decisions that directly impact consumers. Downstream providers use the information in the Database to determine whether they are permitted to carry traffic on their networks, and other consumer protection and enforcement bodies use the information to pursue their own investigations into suspected illegal robocalling activities under applicable laws. Information submitted to the Robocall Mitigation Database by providers must be accurate and complete, and the Commission's requirements for filing in the Database and related accountability measures must promote accuracy, thoroughness, and continued diligence.
A review of filings in the Robocall Mitigation Database indicates that, among some providers, diligence is lacking. We have identified deficiencies ranging from failures to provide accurate contact information to failing to submit robocall mitigation plans that in any way describe reasonable robocall mitigation practices. While the Commission has acted to support the integrity of Robocall Mitigation Database information by removing deficient filings through enforcement actions and remains committed to doing so, there may be ways that the Commission could incentivize providers to avoid submitting deficient filings to the Database in the first instance through additional procedural steps, accountability measures, and technical validation solutions. In addition to improving the overall quality of submissions to the Robocall Mitigation Database, such measures may also deter bad actors that wish to evade our rules by deliberately submitting false or misleading information to the Database in an effort to ensure the traffic they send is carried by downstream providers.
We initiate this proceeding to propose and seek comment on additional procedural and accountability measures for the Robocall Mitigation Database to make it as effective as possible for the providers and government entities that use it, and thus the consumers it was instituted to protect. Specifically, we:
• Propose to amend the Commission's rules to require providers to update information they have submitted to CORES within 10 business days of any changes to ensure that the business name and address information automatically populated into Robocall Mitigation Database submissions from that system is current;
• Propose to require multi-factor authentication each time a provider accesses the Robocall Mitigation Database;
• Seek comment on requiring providers to obtain a unique Personal Identification Number (PIN) that must be provided before the Robocall Mitigation Database will accept a submission;
• Seek comment on requiring providers to remit a filing fee for submissions to the Robocall Mitigation Database;
• Seek comment on technical solutions that will scan Robocall Mitigation Database submissions, flag data discrepancies, and require providers to resolve such discrepancies before the submission is accepted by the filing system;
• Propose base and maximum forfeiture amounts for submitting inaccurate or false information to the Robocall Mitigation Database, or failing to update information that has changed within 10 business days, as required by the Commission's rules;
• Propose to authorize downstream providers to permissively block traffic from Robocall Mitigation Database filers
• Seek comment on additional procedural steps the Commission could require to encourage providers to submit accurate and complete information to the Robocall Mitigation Database and CORES and keep that information current.
We estimate that the gains—including reduced fraud, avoided aggravation, and enhanced consumer confidence—should far exceed any added compliance burdens. We seek comment on the costs and benefits of our proposals outlined below.
In this section, we seek comment on procedural and technical measures to improve the overall quality of Robocall Mitigation Database submissions in order to make the Database more effective for all stakeholders who use it. First, we seek comment on any additional steps filers should be required to affirmatively take to ensure the accuracy of information submitted to the Robocall Mitigation Database, and to ensure that such information remains accurate and up-to-date over time. Second, we seek comment on any technical solutions that the Commission could deploy to validate data in submissions and flag discrepancies before they are accepted by the Robocall Mitigation Database.
We seek comment on whether the Commission should adopt additional procedural steps for Robocall Mitigation Database filings to improve and ensure the accuracy of information contained in the Robocall Mitigation Database. We believe that there is ample information in the Commission's rules, orders, public notices, filing instructions, and other materials to advise providers on
We therefore propose to require all entities and individuals that register in CORES to update any information required by the system within 10 business days of any changes, as is currently required for filings in the Robocall Mitigation Database. We seek comment on the benefits and burdens of this proposal. We believe a requirement to update contact information promptly would not impose any significant costs on CORES users, which are already obligated to keep their information current under § 1.8002, and that any incidental burdens are easily outweighed by the significant interests of the Commission and other stakeholders in obtaining accurate identifying information from the Commission's databases. This is particularly true given that other Commission databases beyond the Robocall Mitigation Database similarly make use of contact information imported directly from CORES. We seek comment on this view. Are there nevertheless any countervailing burdens that the Commission should consider in weighing this proposal? How should the Commission enforce such a requirement, if it were adopted? Should this proposed deadline apply to all entities registering for an FRN, or only those that must file in the Robocall Mitigation Database? Since Robocall Mitigation Database filers must obtain a business-type FRN in order to submit a certification, should we apply this requirement only to business-type FRNs, rather than individual FRNs? Are there reasons a longer duration of time may be necessary for individual FRN holders? Are there alternative proposals the Commission should consider to ensure the accuracy of information submitted to CORES, and by extension, other FCC databases that make use of information imported from CORES?
We therefore seek comment on whether we should require the signing officer to submit additional information and certifications to obtain a PIN that must be used to submit an Robocall Mitigation Database certification. Specifically, we seek comment on requiring the officer to complete a form, separate from the filing in the Robocall Mitigation Database and prior to certification thereto can be submitted, that collects: (1) A non-P.O. box street address and telephone number for the location of the office where the officer does business, and a direct business email address for the officer; (2) a business address, telephone number, and email address for the provider's registered agent for service of process in the District of Columbia (or a certification that such an agent is not required by § 1.47(h) of the Commission's rules); and (3) certifications, under penalty of perjury pursuant to § 1.16 of the Commission's rules, that the officer:
• Is authorized to submit the PIN form, Robocall Mitigation Database certification, and robocall mitigation plan on behalf of the provider;
• Has personally reviewed the provider's Robocall Mitigation Database certification and robocall mitigation plan and verifies that the information provided in both is true and accurate;
• Verifies that the information in the PIN form is true and accurate;
• Understands that the provider is required to update the information submitted to the Robocall Mitigation Database within 10 business days of any changes, and that failure to do so could result in the provider's filing being removed from the Robocall Mitigation Database and additional penalties permitted under law, including a forfeiture as discussed in section B.1 below; and
• Understands that any false statements on the PIN form and in the Robocall Mitigation Database submissions can be punished by fine or forfeiture under the Communications Act, 47 U.S.C. 502, 503(b), and removal of the provider's filing from the Robocall Mitigation Database.
By direct business email address, we mean a business email address associated with the officer individually and used by them to conduct business in their official capacity, rather than a general email inbox, such as “
We tentatively conclude that we have authority to adopt this information collection under the provisions of the Communications Act cited herein. We seek comment on this tentative conclusion and on whether requiring the submission of this information to obtain a PIN to file in the Robocall Mitigation Database will improve the accuracy of the information in the Database. In particular, we seek comment on whether such a system would dissuade inaccurate or inadequately reviewed filings, or filings by bad actors by: (1) increasing direct accountability by an officer for reviewing, understanding, and verifying the contents of a provider's filing; and (2) providing additional direct contact information that can be used in enforcement actions if the business information imported from CORES or robocall mitigation contact information submitted to the Robocall Mitigation Database is inaccurate or becomes out of date. We seek comment on the scope of this information collection and whether it is sufficient to achieve these objectives. Should we collect additional or different information and certifications, and if so, what? To the extent necessary, the Commission will make necessary changes to the applicable System of Records under the Privacy Act. Is there information that we could also collect to verify that the person completing the form is, in fact, an officer of a legitimate provider? Should we require that all filers, even those not required to under § 1.47(h) of the Commission's rules, have a registered agent in the District of Columbia and report that information via this separate PIN form? We believe that doing so would aid in Commission investigations into bad actors that should be removed from the Database and for purposes of service of process. We seek comment on whether and how such a requirement would facilitate these or other goals.
We seek comment on the benefits and burdens of such an information collection, and on any alternative approaches. What are the burdens and potential consequences of collecting this information? How could we mitigate these burdens? Are there, for example, confidentiality or privacy issues with collection of this information? Because the information that we propose to collect is about individuals in their official or business capacities, we expect that this information is low sensitivity, reducing the privacy risk associated with this proposed collection. We also anticipate that, relative to other Commission programs that collect personally identifiable information (PII) and/or Privacy Act records, fewer individuals, who generally are not members of vulnerable populations, will be required to submit this low-sensitivity information to the database, further reducing the privacy risk. We seek comment on this analysis. We also note that our proposed requirement, discussed above, that filers update their information in CORES will help ensure the accuracy, relevance, timeliness, and completeness of the PII and/or records that we are proposing to collect. Additionally, under the Federal Information Security Modernization Act of 2014 (FISMA), any information system that we would use to collect information and provide PINs would need to have applicable privacy and security controls to ensure the confidentiality, integrity, and availability of such information. We therefore tentatively conclude that the overall privacy risk associated with this collection of information would be low.
We seek comment on the method by which the Commission could collect this information and generate the PIN for use by the officer when submitting an Robocall Mitigation Database filing. We expect that this information collection would require the use of a platform accessed via the Commission's website that would allow the officer to complete a digital form and then generate the PIN. We seek comment on any such platforms or other PIN-generating solutions that are currently in use, including any that are currently employed by other Federal agencies. Are there other procedural issues we should consider? For example, should a provider be required to submit a new PIN form within 10 business days if the officer leaves the company or any information on the form changes? Should we require providers to obtain a PIN each time they revise their filing (
We also seek comment on whether to require all providers that have already filed in the Robocall Mitigation Database to submit the separate form we propose above as a prerequisite to obtaining a PIN, so that the Commission has the same information on file for all providers in the Database. We also seek comment on any procedural steps that would guard against bad actors submitting false information to obtain a PIN. Finally, we seek comment on delegating authority to the Wireline Competition Bureau, in consultation with the Office of the Managing Director, to take the steps necessary to implement any system for collecting the information required to generate and provide Robocall Mitigation Database filers with a PIN, to publish instructions for providers on how to use the system, and to establish additional filing requirements needed to achieve the objectives of the system.
We tentatively conclude that submissions to the Robocall Mitigation Database are “applications” within the meaning of the RAY BAUM's Act. The Commission has broadly construed the term “applications” to apply to a wide range of submissions for which filing fees are required, including tariff filings containing the rates, terms, and conditions of certain services provided by telecommunications providers. Following a period of public notice, a tariff filing is deemed accepted unless the Commission takes action, which can include suspension or rejection of the tariff filing by staff. We believe this process is analogous to Robocall Mitigation Database filings, which are accepted upon submission but may be subject to further action by the Commission, including removal from the Robocall Mitigation Database for failure to cure any identified deficiencies. Additionally, the application fee proposed here in some ways mirrors the fee charged for filing formal complaints and pole attachment complaints. In calculating the fee for such complaints, the Commission noted that staff must still review the complaint after its receipt “for general conformance with the Commission's complaint rules to determine if it is accepted for adjudication.” In response to a commenter's argument that the fee for formal complaints should be lower, the Commission explained that the fee being assessed also covers “the costs of adjudicating such complaints.” Thus, even after a complaint is filed and “a letter to the parties [is sent] indicating that the filing has been accepted or rejected,” Commission staff—like here—must still engage in a lengthy review process thereafter that involves “significant work” in order to adjudicate,
Further, the Commission's review of Robocall Mitigation Database submissions requires a significant investment of labor hours that continues to increase. The original requirement for voice service providers to file certifications and robocall mitigation plans in the Robocall Mitigation Database resulted in more than 2,600 submissions. As noted above, the Commission has since expanded the scope of providers required to file in the Database and the information that must be filed. As a result, there are currently approximately 9,000 filings in the Robocall Mitigation Database, each
Each of those submissions must be reviewed by Commission staff to determine if they comply with the requirements of the Commission's caller ID authentication and robocall mitigation rules. This compliance review process requires significant staff resources, including analysts to review each filing, attorneys to perform compliance assessments, and a supervisory attorney to oversee the process and coordinate the referral of any deficient filings to the Enforcement Bureau. We estimate that this process involves $100 per filing in costs. The Bureau estimates that each filing will require 40 minutes of analyst review at the GS-12 level; 20 minutes of attorney review at the GS-14 level; and 15 minutes of attorney supervisory review at the GS-15 level. The estimated total labor costs (including 20% overhead) for the analyst review (GS-12, step 5) of each filing is $43 (0.66 hours * $64.64 = $43). The estimated labor costs (including 20% overhead) for the attorney review (GS-14, step 5) for each filing is $32.95 (0.33 hours * $98.84 = $32.95). The estimated total labor costs (including 20% overhead) for the attorney supervisory review (GS-15, step 5) for each filing is $26.71 (0.25 hours * $106.85 = $26.71). The total labor costs per filing review is $102.66 ($43 + $32.95 + $26.71). Salary data is sourced from the Office of Personnel Management and include overhead costs based on 2,087 annual hours. Based on these hourly rates and the estimated time for processing each filing, the Bureau proposes that the filing fee is $100 per filing, and we seek comment on this determination. We therefore propose to add “Robocall Mitigation Database Certification” as a service requiring an application fee in § 1.1105 of the Commission's rules, and to set that application fee based on this cost estimate. We seek comment on whether it is appropriate for the Commission to assess an application fee for Robocall Mitigation Database submissions based on these costs, and if not, the scope of costs that should serve as the basis for the fee, if any. In so doing, we remind commenters that our section 8 authority is distinct from the Commission's authority with respect to other collections. In particular, the Commission is required by Congress to assess and collect as an offsetting collection regulatory fees each year in an amount that can reasonably be expected to equal the amount of the Commission's Salaries and Expenses (S&E) annual appropriation. The Commission is also directed by Congress to recover, as an offsetting collection, against auction proceeds costs incurred, subject to an annual cap, in developing and implementing our section 309(j) spectrum auctions program. Both such collections are deposited with the U.S. Treasury and credited to the Commission's account. For more information about the Commission's collections and budgetary authority, the Commission's annual financial statement and budget estimates for Congress provide helpful material. Application fees collected by the Commission are deposited in the general fund of the U.S. Treasury. Thus, while the determination of the fee amount will be based on cost, the collected fees are not used to fund Commission activities. In crafting comments, we ask that commenters explain whether their proposals are supported by the statute.
In addition, although not a basis for proposing a fee for Robocall Mitigation Database filings, we believe that requiring providers to submit a fee may have collateral public interest benefits, including (1) discouraging filings by bad actors by requiring them to use a traceable payment method; and (2) incentivizing better filings by requiring entities to incur a nominal expense upon filing or refiling, should they be removed from the Database for noncompliance. We seek comment on these beliefs.
We seek comment on when the Commission should collect the fee. Should they be collected only with initial filings or also when filings are updated, given that Commission staff will need to re-review the updated filings? We note that currently, there is no requirement that providers refile in the Database, outside of a change in the underlying information contained in the filing, or a change in the Commission's Robocall Mitigation Database filing requirements necessitating providers to resubmit their filings. Should the fee be collected from existing filers, and if so, under what circumstances—
We seek comment on technological and marketplace innovations that the Commission could employ to validate data entered into Robocall Mitigation Database filings and require filers to take a more proactive role in ensuring that accurate and complete information is submitted to the Database in the first instance. Specifically, we seek comment on software and other technical solutions that would cross-reference addresses and other contact details submitted by filers against other data sources and flag actual or potential discrepancies for filers to resolve. What tools could be used to cross-reference data entered into Robocall Mitigation Database certifications against reliable external sources and flag discrepancies, such as confirming the validity of address information submitted to the RMD against a United States Postal Service (USPS) database? For example, the USPS offers several web-based tools including an API for “Address Validation/Standardization.” How do the tools work and how have they been integrated into systems to prompt users to confirm the validity of the
We seek comment on whether the Commission should prevent a filing from being submitted to the Robocall Mitigation Database if any technical validation tools employed flag a data discrepancy and the filer fails to resolve that discrepancy. For example, if the Commission were to employ a technical solution for verifying all or part of an address, and the provider does not or cannot submit an address that can be validated by the solution, should the filing be provisionally rejected until the provider finds a way to resolve the discrepancy? Or, should the filing be accepted by the system but flagged as an internal warning to the Commission that the filing should be prioritized for compliance review and enforcement? Is there a middle ground that would allow the system to hold the filing containing the unvalidated address while the provider seeks to resolve the discrepancy through other means with Commission staff,
We propose to establish a separate base forfeiture amount for submitting false or inaccurate information to the Robocall Mitigation Database. In the
For either proposal, should we consider each instance of false or inaccurate information a single violation or a continuing violation for each day the false information remains in the Robocall Mitigation Database? Are there particular aggravating or mitigating factors we should take into consideration when determining the amount of a forfeiture penalty? Or are the aggravating and mitigating factors set forth in our rules sufficient? Should we use the same maximum forfeiture regardless of whether the violator is a common carrier or not? Currently, common carriers may be assessed a maximum forfeiture of $2,449,575 for a continuing violation, while entities not explicitly mentioned in section 503 of the Communications Act may only be assessed a maximum forfeiture of $183,718 for a continuing violation. In the
Finally, we propose to find that we can impose a forfeiture on filers that fail to update information that has changed in the Robocall Mitigation Database within 10 business days. All filers in the Robocall Mitigation Database are required to update their filings within 10 business days if any information they are required to submit has changed. We propose a base forfeiture of $1,000 for failure to update information within 10 business days. We propose treating it as a continuing violation for every day the inaccurate information remains in the Robocall Mitigation Database, with a maximum forfeiture of $24,496 for each day of the continuing violation up to the statutory maximum of $183,718. We seek comment on these proposals. Should we establish separate base and maximum forfeiture amounts for failing to update a filing within 10 business days? Should the violation be a single violation or a continuing violation for each day the non-updated information remains in the Robocall Mitigation Database? If it is a continuing violation, what should the maximum forfeiture for the continuing violation be?
We next propose to authorize downstream providers to permissively block traffic by Robocall Mitigation Database filers that have been given notice that their robocall mitigation plans are facially deficient and that fail
The Commission's rules currently require downstream providers to refuse traffic from providers that are not in the Robocall Mitigation Database. This means that when a provider is removed from the Database, it is effectively precluded from operating as a provider of voice services in the United States. For this reason, the Commission has recognized that removal of Robocall Mitigation Database submissions has severe consequences and is arguably equivalent to revoking a license, and thus has adopted notice and opportunity to cure procedures before removal of filings from the Robocall Mitigation Database consistent with the Administrative Procedure Act (APA). For most filing deficiencies, the Commission follows a three-step process for removal, whereby:
(1) the Wireline Competition Bureau contacts the provider, notifying it that its filing is deficient, explaining the nature of the deficiency, and providing 14 days for the provider to cure the deficiency; (2) if the provider fails to rectify the deficiency, the Enforcement Bureau releases an order concluding that a provider's filing is deficient based on the available evidence and directing the provider to explain, within 14 days, `why the Enforcement Bureau should not remove the Company's certification from the Robocall Mitigation Database' and giving the provider a further opportunity to cure the deficiencies in its filing; and (3) if the provider fails to rectify the deficiency or provide a sufficient explanation why its filing is not deficient within that 14-day period, the Enforcement Bureau releases an order removing the provider from the Robocall Mitigation Database.
In the
We seek comment on whether the Commission should adopt additional measures to protect consumers where submissions to the Robocall Mitigation Database demonstrate willful violations of the Commission's rules. Specifically, we propose to allow downstream providers to permissively block traffic from providers that have submitted facially deficient robocall mitigation plans beginning 48 hours after the agency issues the notice of facial deficiency and continuing until either the deficiency is cured or the provider's certification is removed from the Robocall Mitigation Database, which would trigger the mandatory blocking requirement. We propose to do so through a three step process: (1) a notice would be issued to the provider that its robocall mitigation plan is facially deficient because it fails to describe the specific reasonable steps that the provider is taking to avoid carrying and transmitting illegal robocalls; (2) the provider would be allowed 48 hours to cure this facial deficiency by uploading a robocall mitigation plan that sufficiently describes its mitigation practices; and (3) if it fails to do so, the Wireline Competition Bureau would apply a flag to the facially deficient filing in the Robocall Mitigation Database to inform other providers that they may permissively block traffic from that provider after providing notice to the Commission that they intend to do so.
We view this process to be similar to that authorized when the Commission sends cease-and-desist letters pursuant to § 64.1200(k)(4) of our rules, which states that a provider may, without liability, block voice calls or traffic from an originating or intermediate provider that has been notified by the Commission but fails to take steps to mitigate or prevent its network from being used to originate illegal calls. Under this rule, a provider must, prior to initiating blocking, provide the Commission with notice and a brief summary of the basis for its determination that the originating or intermediate provider has met one of these two conditions for blocking.
In the context of the Robocall Mitigation Database, the flag applied to the filing would constitute notice that the provider has failed to remedy a facial deficiency in its filing within 48 hours and that downstream providers may block traffic from that provider if they submit a notice to the Commission that they intend to do so for the reason stated in the notice. We believe that there are equivalencies between the context in which the Commission issues cease-and-desist letters pursuant to § 64.1200(k)(4) of the Commission's rules and a willful failure to submit the required description of a provider's robocall mitigation practices in the Robocall Mitigation Plan. We seek comment on this belief. In the former, the Enforcement Bureau has found evidence that the provider has originated or transmitted illegal robocalls (
We seek comment on this view and whether applying the three-step process for permissive blocking proposed above in the context of facially deficient Robocall Mitigation Database filings is warranted. Are there considerations that apply when the Commission issues cease-and-desist letters pursuant to § 64.1200(k)(4) of the Commission's rules that do not apply in the context of the Robocall Mitigation Database? For instance, is it significant that in the context of § 64.1200(k)(4) cease-and-desist letters, the Enforcement Bureau has evidence that illegal robocalls have actually been transmitted, whereas here, the evidence would be that the provider has willfully failed to describe the reasonable steps it is taking to mitigate illegal traffic? If commenters argue that is not a sufficient showing to authorize permissive blocking from a provider that has willfully violated the Commission's robocall mitigation rules, what showing would be sufficient to authorize permissive blocking, if any?
Is 48 hours an appropriate amount of time to allow a provider with a facially deficient plan to cure the deficiency to avoid permissive blocking, or should more or less time be allowed prior to opening the window for permissive blocking? Should the new rule include a safe harbor from liability under the Communications Act or the Commission's rules for providers that engage in permissive blocking under this new rule if they notify the Commission that they intend to do so, as under § 64.1200(k)(4)? What information should be included in a notice to the Commission that a provider intends to permissively block traffic from another provider? Should
What are the risks to legitimate providers, and their customers, of authorizing permissive blocking in the context of facially deficient robocall mitigation plans submitted to the Robocall Mitigation Database, and do those risks outweigh the public interest benefits of enabling providers to decline traffic from providers that have demonstrated a willful disregard for their duty to mitigate illegal robocalls without penalty under our rules? What are the costs of authorizing permissive blocking in this context, and do the public interest benefits outweigh those costs? To the extent commenters argue that the risks and costs of the proposed permissive blocking process are high, is there a way to modify the process to minimize those risks and costs, or to otherwise improve it in a manner that appropriately balances the public interest objective of protecting consumers from illegal traffic against potential burdens to legitimate providers? We invite comment on these or any other points the Commission should consider when assessing the merits of our permissive blocking proposal.
We propose to adopt the foregoing obligations in part pursuant to the legal authority relied upon by the Commission in prior caller ID authentication and call blocking orders. We propose to rely upon sections 201(b), 202(a), and 251(e) of the Act, the Truth in Caller ID Act, and section 4 of the TRACED Act to authorize downstream providers to permissively block traffic by facially deficient Robocall Mitigation Database filers that have failed to correct those deficiencies within 48 hours after notice, and to require corporate officers to obtain a PIN before filing in the Robocall Mitigation Database.
We propose to rely on sections 501, 502, and 503 of the Act to establish forfeiture amounts for submitting inaccurate or false certification data to the Robocall Mitigation Database. We propose to rely on our authority under section 8 of the Act to add Robocall Mitigation Database filings to the Commission's Schedule of Application Fees. We believe the Commission has ample authority to adopt the foregoing obligations related to the Robocall Mitigation Database, as well as any related administrative enhancements pertaining to CORES. We seek comment on this view and whether there are any alternative sources of authority that we should consider.
As required by the Regulatory Flexibility Act of 1980, as amended (RFA), the Federal Communications Commission (Commission) has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on a substantial number of small entities from the policies and rules proposed in the
In order to continue the Commission's work of protecting American consumers from illegal calls, the
The proposed action is authorized pursuant to sections 4(i), 4(j), 201, 202, 217, 227, 227b, 251(e), and 303(r) of the Communications Act of 1934, as amended; 47 U.S.C. 154(i), 154(j), 201, 202, 217, 227, 227b, 251(e), and 303(r).
The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small-business concern” under the Small Business Act. A “small-business concern” is one which: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA.
Next, the type of small entity described as a “small organization” is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” The Internal Revenue Service (IRS) uses a revenue benchmark of $50,000 or less to delineate its annual electronic filing requirements for small exempt organizations. Nationwide, for tax year 2022, there were approximately 530,109 small exempt organizations in the U.S. reporting revenues of $50,000 or less according to the registration and tax data for exempt organizations available from the IRS.
Finally, the small entity described as a “small governmental jurisdiction” is defined generally as “governments of cities, counties, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” U.S. Census Bureau data from the 2022 Census of Governments indicate there were 90,837 local governmental jurisdictions consisting of general purpose governments and special purpose governments in the United States. Of this number, there were 36,845 general purpose governments (county, municipal, and town or township) with populations of less than 50,000 and 11,879 special purpose governments (independent school districts) with enrollment populations of less than 50,000. Accordingly, based on the 2022 U.S. Census of Governments data, we estimate that at least 48,724 entities fall into the category of “small governmental jurisdictions.”
The SBA small business size standard for Wired Telecommunications Carriers classifies firms having 1,500 or fewer employees as small. U.S. Census Bureau data for 2017 show that there were 3,054 firms that operated in this industry for the entire year. Of this number, 2,964 firms operated with fewer than 250 employees. Additionally, based on Commission data in the 2022 Universal Service Monitoring Report, as of December 31, 2021, there were 4,590 providers that reported they were engaged in the provision of fixed local services. Of these providers, the Commission estimates that 4,146 providers have 1,500 or fewer employees. Consequently, using the SBA's small business size standard, most of these providers can be considered small entities.
In the
With respect to the RMD, the
With regard to our enforcement of these proposed rules, the
The
We anticipate the information we receive in comments including where requested, cost and benefit analyses, will help the Commission identify and evaluate relevant compliance matters for small entities, including compliance costs and other burdens that may result from the proposals and inquiries we make in the
The RFA requires an agency to describe any significant alternatives that could minimize impacts to small entities that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) the establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance and reporting requirements under the rules for such small entities; (3) the use of performance rather than design standards; and (4) an exemption from coverage of the rule, or any part thereof, for such small entities.
The
In proposing to establish the statutory maximum as the base forfeiture amount for submitting false or inaccurate information to the RMD, the
In proposing to allow downstream providers to permissively block traffic from providers that have submitted facially deficient robocall mitigation plans, instead of instances where the Commission must make a qualitative judgement, the
None.
Federal Communications Commission.
Forest Service, USDA.
Notice of a modified system of records.
In accordance with the Privacy Act of 1974, and Office of Management and Budget Circular No. A-108 Federal Agency Responsibilities for Review, Reporting, and Publication, the U.S. Department of Agriculture (USDA or Department) is issuing a public notice of its intent to modify the current system of records titled “Department of Agriculture, Forest Service, FS-33 Law Enforcement and Investigative Records.” This system allows Law Enforcement and Investigations to record all criminal and civil investigations that take place or are related to crimes committed on National Forest System lands, which includes verified violations of criminal statutes and Forest Service (Agency) policy, as well as situations that may result in civil claims for or against the government. This information helps the Agency meet its objective of contributing to the safety of law enforcement officers, Forest Service employees, and national forest visitors.
This notice is applicable upon publication, subject to a 30-day period in which to comment on the routine uses described below. Comments must be submitted by October 15, 2024.
Comments, identified by docket number FS-2021-0002, may be submitted via one of the following methods:
1.
2.
3.
For general questions please contact U.S. Department of Agriculture, Forest Service, Law Enforcement and Investigations Staff, 1400 Independence Avenue SW (Mail Stop 1140), Washington, DC 20250; phone 703-605-4730, email
The purposes for changes to this system of records are:
1. To provide the procedures that allow individuals to gain access to their information maintained in this system of records notice as outlined in section 6 (Notice) and section 7 (Access, Redress, and Correction) of the Law Enforcement Investigations Reporting System (LEIRS), formerly known as Law Enforcement Investigations Management Attainment Record System (LEIMARS), and Law Enforcement Investigation (LEI) Vault Privacy Impact Assessments. LEIRS is the system of record for the LEI information technologies (IT) portfolio, which is comprised of LEIRS, the LEI Vault, and any later acquisitions that fall within the LEI IT portfolio for these purposes.
2. To reflect changes in practice and policy that affect the personally identifiable information (PII) maintained in this system of records. The LEIRS database is not accessible by the public. The information is shared on a need-to-know basis with law enforcement partners and the Federal, State, and local court systems. Information such as statistical crime analysis, including the number of incidents and cases, but excluding PII, is shared with Congress and other agencies on a need-to-know basis. This change to the routine uses section is intended to also meet the requirements of Executive Order 14074 to “include within the policies developed pursuant to subsection (a)(i) of this section protocols for expedited public release of BWC [body-worn camera] video footage following incidents involving serious bodily injury or deaths in custody, which shall be consistent with applicable law, including 7 CFR, 5 U.S.C., and the Privacy Act of 1974, and shall take into account the need to promote transparency and accountability, the duty to protect the privacy rights of persons depicted in the footage, and any need to protect ongoing law enforcement operations.”
The intended effect of these changes is to show individuals their PII information is secure within the LEI IT portfolio.
The Forest Service proposes to modify a system of records, entitled “USDA/FS-33 Law Enforcement and Investigative Records” that will be used to maintain records of activities conducted by the Agency pursuant to its mission and responsibilities.
The Forest Service LEIRS application is primarily a criminal database and is used to collect information concerning criminal incidents; it is also used to document incidents that may be non-criminal in nature, primarily pertaining to civil cases that may result in a claim for or against the government. LEI Vault contains visual imagery and audio recordings of law enforcement and investigation events and interviews conducted.
Consistent with the USDA's information sharing mission, information stored within the components of LEIRS may be shared with other USDA components, as well as appropriate Federal, State, local, tribal, foreign, or international government agencies. This sharing will only take place after the USDA determines the receiving component or agency has a need to know the information to carry out national security, law enforcement, immigration, intelligence, or other functions consistent with the routine uses set forth in this system of records notice.
The Privacy Act embodies fair information principles in a statutory
The Privacy Act of 1974, as amended (5 U.S.C. 552a), requires agencies to publish in the
USDA/FS-33 Law Enforcement and Investigative Records is the title given to the Law Enforcement Investigations IT (LEI IT) portfolio, consisting of the Law Enforcement Investigations Reporting System (LEIRS) and Law Enforcement Investigation (LEI) Vault.
Unclassified.
LEIRS is a FedRAMP recognized centralized cloud-based database and is hosted within the Tyler Federal cloud-based hosting environment, which is housed within an Equinix provided data center physically located at 44470 Chilum Place, DC3—Bldg. 1, in Ashburn, VA.
LEI Vault is hosted in a FedRAMP recognized cloud-based environment hosted in Microsoft Azure. The address of the third-party service provider is Microsoft, 1 Microsoft Way, Redmond, WA 98052-6399.
The Director, Law Enforcement and Investigations, U.S. Department of Agriculture, Forest Service, 1400 Independence Avenue SW (Mail Stop 1140), Washington, DC 20250.
LEIRS is a national database used by USDA Forest Service Law Enforcement and Investigations, consisting of approximately 600 to 700 users dispersed throughout the nine Forest Service regions. The information is collected to document all criminal and civil investigations that take place or are related to crimes committed on National Forest System lands.
LEI Vault is the USDA-Forest Service implementation of technology to meet the data storage requirements that support the Law Enforcement and Investigations Directorate fielding of body-worn cameras. Body-worn cameras are widely used by law enforcement agencies in the United States. They are worn principally by sworn officers in the performance of duties that require open and direct contact with the public. Body-worn cameras are cameras with a microphone and internal data storage. They allow audio-video footage, known as digital media evidence, to be stored and analyzed with compatible software. Cameras are typically designed to be located on an officer's chest or head but may also be configured to deploy with a weapon or to be triggered when a weapon is deployed.
The LEI Vault and the underlying, supporting Axon Evidence(dot)com systems are not used by, nor are they available for access by the public. LEI Vault leverages the FedRAMP-accredited cloud resources provided by Axon Evidence(dot)com to store and manage law enforcement officers' digital evidence (such as camera footage and audio recordings of interviews) and to provide a central management console for associated products and devices. All data originate with and is consumed by authorized USDA Forest Service LEI personnel and staff. All data is subject to the USDA Forest Service LEI organization policies in place to govern this data, to include privacy and organization-level security.
LEIRS is primarily a criminal and civil investigation database and is used to collect information concerning criminal incidents that includes the PII related to suspects, witnesses, and victims in addition to information pertaining to the investigation of criminal activity. LEIRS collects the following information: first name, last name, middle initial, date of birth, home or mailing address, work address, driver's license, fishing license, hunting license, military issued ID, school issued ID, social security ID, state issued ID, height, weight, race, sex, hair color, eye color, adult/juvenile, and occupation, handwriting or an image of the signature. LEIRS is also used to document incidents that may be non-criminal in the nature, primarily pertaining to civil cases which may result in a claim for or against the government.
LEI Vault consists of video and audio evidence gathered by federal officers while in direct contact with subjects. The footage is not searchable by keyword.
In addition to those disclosures generally permitted under 5 U.S.C. 552a(b) of the Privacy Act, routine uses are defined as disclosures where information is routinely shared whether internally or externally. Below are routine uses applicable to Law Enforcement and Investigative Records:
A. Sharing information with the Department of Justice when (a) USDA or any component thereof, (b) any employee of USDA in his or her official capacity where the Department of Justice has agreed to represent the employee, or (c) the United States Government is a party to litigation or has an interest in such litigation, and, by careful review, USDA determines that the records are both relevant and necessary to the litigation and the use of such records by the Department of Justice is therefore deemed by USDA to be for a purpose that is compatible with the purpose for which USDA collected the records.
B. Sharing information with a congressional office in response to an inquiry from that congressional office made at the written request of the individual to whom the record pertains.
C. Sharing information with the National Archives and Records Administration or other Federal Government agencies pursuant to records management inspections being conducted under the authority of 44 U.S.C. 2904 and 2906.
D. Sharing information with an agency, organization, or individual for the purpose of performing audit or oversight operations as authorized by law but only such information as is necessary and relevant to such audit or oversight function.
E. Sharing information with appropriate agencies, entities, and persons when (1) the USDA suspects or has confirmed that the security or confidentiality of information in the system of records has been compromised; (2) the USDA has determined that as a result of the suspected or confirmed breach, there is a risk of harm to individuals, the USDA (including its information systems, programs, and operations), the Federal Government, or national security; and (3) the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in
F. Sharing information when a record on its face, or in conjunction with other records, indicates a violation or potential violation of law, whether civil, criminal, or regulatory in nature, and whether arising by general statute or particular program statute, or by regulation, rule, or order issued pursuant thereto, disclosure may be made to the appropriate agency, whether Federal, foreign, State, local, or tribal, or other public authority responsible for enforcing, investigating, or prosecuting such violation or charged with enforcing or implementing the statute, or rule, regulation, or order issued pursuant thereto, if the information disclosed is relevant to any enforcement, regulatory, investigative, or prosecutorial responsibility of the receiving entity. Referral to the appropriate agency, whether Federal, State, local, or foreign, charged with the responsibility of investigating or prosecuting violation of law, or of enforcing or implementing a statute, rule, regulation, or order issued pursuant thereto, of any record within the system when information available indicates a violation or potential violation of law, whether civil, criminal, or regulatory in nature.
G. Sharing information with another Federal agency or Federal entity when information from this system of records is reasonably necessary to assist the recipient agency or entity in (a) responding to a suspected or confirmed breach, or (b) preventing, minimizing, or remedying the risk of harm to individuals, the recipient agency or entity (including its information systems, programs, and operations), the Federal Government, or national security, resulting from a suspected or confirmed breach.
H. Sharing information with a court or adjudicative body in a proceeding when (a) the USDA or any component thereof, (b) any employee of the USDA in his or her official capacity, or (c) any employee of the USDA in his or her individual capacity where the USDA has agreed to represent the employee or the United States Government, is a party to litigation or has an interest in such litigation, and by careful review, the USDA determines that the records are both relevant and necessary to the litigation and the use of such records is therefore deemed by the USDA to be for a purpose that is compatible with the purpose for which the USDA collected the records.
I. Sharing information with the news media and the public, with the approval of the Director of Law Enforcement and Investigations in consultation with the Chief Privacy Officer and the Office of the General Counsel, in support of law enforcement activities, including obtaining public assistance with identifying and locating criminal suspects and lost or missing individuals, and providing the public with alerts about dangerous individuals, unless the Chief Privacy Officer determines that release of the specific information in the context of a particular case would constitute a clearly unwarranted invasion of personal privacy.
J. Sharing information with the news media and the public, with the approval of the Director of Law Enforcement and Investigations in consultation with the Chief Privacy Officer and the Office of the General Counsel, of body-worn camera video footage following incidents involving serious bodily injury or death occurring while an individual is in the custody of a law enforcement officer, when a legitimate public interest exists in the disclosure of the information; when disclosure is necessary to preserve confidence in the integrity of the USDA; and when disclosure is necessary to demonstrate the accountability of the USDA's law enforcement officers, employees, or individuals covered by the system, unless the Chief Privacy Officer determines that release of the body-worn camera video footage in the context of a particular case would constitute a clearly unwarranted invasion of personal privacy. The public release of such video footage will be consistent with applicable law, including the Privacy Act of 1974, and shall take into account the duty to protect the privacy rights of the persons depicted in the footage and any need to protect ongoing law enforcement operations. The release will also comply with all applicable Department and Agency regulations and policies.
LEIRS contains information about individuals that is recorded on a violation notice. Individuals who receive a violation notice are provided with a copy at the time of the incident. The notification provides a copy of all recorded information to individuals.
Information to individuals is provided via:
• LEIRS Privacy Impact Analysis on the Department Privacy Impact Analysis website at
• The
• Forest Service-specific system of records notices are also published on the Forest Service website at
• Forms associated with Privacy Act systems are approved through the Office of Management and Budget under the Paperwork Reduction Act (also cited in the
Any individual may request general information regarding this system of records or information as to whether the system contains records pertaining to him or her. All inquiries pertaining to this system should be in writing, must name the system of records as set forth in the system notice, and must contain the individual's name, telephone number, address, and email address (see specific instructions above).
Forest Service, USDA.
Notice
The Bridger-Teton National Forest is proposing to establish a special recreation permit and special recreation permit fees along the Congressionally designated Wild and Scenic Snake River. Proposed special recreation permit fees would be used for operation, maintenance, and improvements to prevent degradation, enhance recreation opportunities, and preserve the outstandingly remarkable values described in the comprehensive river management plan for the Snake River. An analysis of nearby specialized recreation uses with similar amenities and services shows the proposed special recreation permit fees that would be charged are reasonable and typical of similar specialized recreation uses in the area.
If approved, the proposed special recreation permit and proposed special recreation permit fees would be established no earlier than six months following the publication of this notice in the
Bridger-Teton National Forest, Attention: Recreation Fees, 340 North Cache, P.O. Box 1888, Jackson, WY 83001.
Shannon Connolly, Forest Recreation Program Manager, (406) 544-4734 or
The Federal Lands Recreation Enhancement Act (16 U.S.C. 6803(b)) requires the Forest Service to publish a six-month advance notice in the
A proposed special recreation permit would be required and a proposed special recreation permit fee would be charged of $5 per vehicle per day, $40 per vehicle per year, $20 per additional vehicle per year, $3 per outfitted customer, or $3 per noncommercial group member along the Snake River. Expenditures of special recreation permit fees collected would enhance recreation opportunities, improve customer service, and address maintenance needs along the Snake River.
Forest Service, Agriculture (USDA).
Notice of newspapers of record.
This notice lists the newspapers that will be used by the ranger districts, national forests and grasslands, and regional office of the Rocky Mountain Region to publish legal notices. The intended effect of this action is to inform interested members of the public which newspapers the Forest Service will use to publish notices of proposed actions and notices of decision. This will provide the public with constructive notice of Forest Service proposals and decisions, provide information on the procedures to comment, object or appeal, and establish the date that the Forest Service will use to determine if comments or appeals/objections were timely.
Publication of legal notices in the listed newspapers will begin on the date of this publication and continue until further notice.
Scarlett Vallaire, Regional Administrative Review Coordinator, Rocky Mountain Region, 1617 Cole Blvd., Bldg. 17, Lakewood, CO 80401.
Scarlett Vallaire, Regional Administrative Review Coordinator, by phone at 801-989-6605 or by email at
The administrative procedures at 36 Code of Federal Regulations (CFR) parts 214, 218, and 219 require the Forest Service to publish notices in a newspaper of general circulation. The content of the notices is specified in 36 CFR parts 214, 218, and 219. In general, the notices will identify: the decision or project, by title or subject matter; the name and title of the official making the decision; how to obtain additional information; and where and how to file comments or appeals/objections. The date the notice is published will be used to establish the official date for the beginning of the comment or appeal/objection period. The newspapers to be used are as follows:
Regional Forester decisions affecting National Forests in Colorado, Kansas, Nebraska and those portions of South Dakota and Wyoming within the Rocky Mountain Region:
Forest Supervisor decisions:
Canyon Lakes District Ranger decisions:
Pawnee District Ranger decisions:
Boulder District Ranger decisions:
Clear Creek District Ranger decisions:
Sulphur District Ranger decisions:
Forest Supervisor and District Ranger decisions:
Forest Supervisor decisions:
Bearlodge District Ranger decisions:
Mystic District Ranger decisions:
Hell Canyon District Ranger decisions:
Northern Hills District Ranger decisions:
Forest Supervisor decisions:
Grand Valley District Ranger decisions:
Paonia District Ranger decisions:
Gunnison District Ranger decisions:
Norwood District Ranger decisions:
Ouray District Ranger decisions:
Forest Supervisor decisions:
Laramie District Ranger decisions:
Douglas District Ranger decisions:
Brush Creek-Hayden District Ranger decisions:
District Ranger decisions for Hahns Peak-Bears Ears and Yampa:
Parks District Ranger decisions:
Forest Supervisor decisions:
Bessey District/Charles E. Bessey Tree Nursery District Ranger decisions:
Pine Ridge District Ranger decisions:
District Ranger decisions for Samuel R. McKelvie National Forest:
District Ranger decisions for Fall River and Wall Districts, Buffalo Gap National Grassland:
District Ranger decisions for Fort Pierre National Grassland:
Forest Supervisor decisions:
San Carlos District Ranger decisions:
Comanche District-Carrizo Unit District Ranger decisions:
Comanche District-Timpas Unit District Ranger decisions:
Cimarron District Ranger decisions:
South Platte District Ranger decisions:
Leadville District Ranger decisions:
Salida District Ranger decisions:
South Park District Ranger decisions:
Pikes Peak District Ranger decisions:
Forest Supervisor and District Ranger decisions:
Forest Supervisor decisions:
Columbine District Ranger decisions:
Pagosa District Ranger decisions:
Dolores District Ranger decisions:
Forest Supervisor decisions:
Clarks Fork District Ranger decisions:
Wapiti and Greybull Districts Ranger decisions:
Wind River District Ranger decisions:
Washakie District Ranger decisions:
Forest Supervisor decisions:
Aspen-Sopris District Ranger decisions:
Blanco District Ranger decisions:
Dillon District Ranger decisions:
Eagle-Holy Cross District Ranger decisions:
Rifle District Ranger decisions:
On May 10, 2024, BMW Manufacturing Company, LLC submitted a notification of proposed production activity to the FTZ Board for its facility within Subzone 38A, in Spartanburg, South Carolina.
The notification was processed in accordance with the regulations of the FTZ Board (15 CFR part 400), including notice in the
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that countervailable subsidies were provided to producers and exporters of certain metal lockers and parts thereof (metal lockers) from the People's Republic of China (China). The period of review (POR) is January 1, 2022, through December 31, 2022. In addition, Commerce, intends to rescind this review with respect to four companies. Interested parties are invited to comment on these preliminary results.
Applicable September 12, 2024.
Laura Delgado, AD/CVD Operations, Office III, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-1468.
On October 18, 2023, based on timely requests for review, Commerce initiated this administrative review of the countervailing duty order on metal lockers from China.
For a complete description of the events that followed the initiation of this review,
The product covered by the
It is Commerce's practice to rescind an administrative review of a countervailing duty order, pursuant to 19 CFR 351.213(d)(3), when there are no reviewable entries of subject merchandise during the POR for which liquidation is suspended.
According to the CBP import data on the record, there are four companies subject to this review that did not have reviewable entries of subject merchandise during the POR for which liquidation is suspended: Kunshan Dongchu Precision Machinery Co., Ltd.; Pingchu Chenda Storage Office Co., Ltd.; Tianjin Jia Mei Metal Furniture Ltd.; and Zhejiang Xingyi Metal Products Co., Ltd. Accordingly, in the absence of reviewable, suspended entries of subject merchandise during the POR, we intend to rescind this administrative review with respect to these four companies, in accordance with 19 CFR 351.213(d)(3).
Commerce is conducting this administrative review in accordance with 751(a)(1)(A) of the Tariff Act of 1930, as amended (the Act). For each of the subsidy programs found countervailable, Commerce preliminarily determines that there is a subsidy,
The Act and Commerce's regulations do not address the establishment of a rate to apply to companies not selected for individual examination when Commerce limits its examination in an administrative review pursuant to section 777A(e)(2) of the Act. However, Commerce normally determines the rates for non-selected companies in reviews in a manner that is consistent with section 705(c)(5) of the Act, which provides instructions for calculating the all-others rate in an investigation. Section 777A(e)(2) of the Act provides that “the individual countervailable subsidy rates determined under subparagraph (A) shall be used to determine the all-others rate under section 705(c)(5) {of the Act}.” Section 705(c)(5)(A) of the Act states that for companies not investigated, in general, we will determine an all-others rate by weight averaging the countervailable subsidy rates established for each of the companies individually investigated, excluding zero and
Accordingly, to determine the rate for companies not selected for individual examination, Commerce's practice is to weight average the net subsidy rates for the selected mandatory respondents, excluding rates that are zero,
As a result of this review, we preliminarily determine the following net countervailable subsidy rates exist for the POR, January 1, 2022, through December 31, 2022:
Commerce intends to disclose its calculations and analysis performed to interested parties for these preliminary results within five days of any public announcement or, if there is no public announcement, within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
Pursuant to 19 CFR 351.309(c), interested parties may submit case briefs to Commerce no later than 30 days after the date of publication of this notice. Rebuttal briefs, limited to issues raised in the case briefs, may be filed not later than five days after the date for filing case briefs.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their briefs that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS by 5:00 p.m. Eastern Time within 30 days after the date of publication of this notice. Requests should contain: (1) the party's name, address, and telephone number; (2) the number of participants; and (3) a list of issues to be discussed. Oral presentations at the hearing will be limited to issues raised in the briefs. If a request for a hearing is made, Commerce will inform parties of the scheduled date for the hearing.
Consistent with section 751(a)(1) of the Act and 19 CFR 351.212(b)(2), upon issuance of the final results, Commerce shall determine, and U.S. Customs and Border Protection (CBP) shall assess, countervailing duties on all appropriate entries covered by this review. For the companies for which we intend to rescind this review, upon issuance of the final rescission, Commerce will instruct CBP to assess CVDs on all appropriate entries at a rate equal to the cash deposit of estimated CVDs required at the time of entry, or withdrawal from warehouse, for consumption, during the period January 1, 2022, through December 31, 2022. Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this review in the
Pursuant to section 751(a)(2)(C) of the Act, Commerce intends to instruct CBP to collect cash deposits of estimated countervailing duties in the amount indicated above with regard to shipments of subject merchandise entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of this review. For all non-reviewed firms, we will instruct CBP to continue to collect cash deposits of estimated countervailing duties at the most recent company-specific or all-others rate applicable to the company, as appropriate. These cash deposit instructions, when imposed, shall remain in effect until further notice.
We are issuing and publishing these preliminary results in accordance with sections 751(a)(1) and 777(i)(1) of the Act, and 19 CFR 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
As a result of these expedited sunset reviews, the U.S. Department of Commerce (Commerce) finds that revocation of the antidumping duty (AD) orders on glycine from India, Japan, and Thailand would be likely to lead to the continuation or recurrence of dumping at the levels indicated in the “Final Results of Sunset Reviews” section of this notice.
Applicable September 12, 2024.
Brian Smith, AD/CVD Operations, Office VIII, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-1766.
On June 21, 2019, Commerce published in the
On May 13, 2024, Commerce received notices of intent to participate in these reviews from Deer Park Glycine, LLC of Deer Park, Texas, which is a subsidiary of GEO Specialty Chemicals, Inc., and Chattem Chemicals, Inc. of Chattanooga, Tennessee (collectively, the domestic interested parties), within the deadline specified in 19 CFR 351.218(d)(1)).
On June 21, 2024, Commerce notified the U.S. International Trade Commission that it did not receive substantive responses from any respondent interested parties.
On July 22, 2024, Commerce tolled certain deadlines in these administrative proceedings by seven days.
The products covered by these
A complete discussion of all issues raised in these sunset reviews is contained in the accompanying Issues and Decision Memorandum.
Pursuant to sections 751(c)(1) and 752(c)(1) and (3) of the Act, Commerce determines that revocation of the
This notice serves as the only reminder to interested parties subject to an administrative protective order (APO) of their responsibility concerning the return/destruction or conversion to judicial protective order of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a). Timely notification of the return or destruction of APO materials or conversion to judicial protective order is hereby requested. Failure to comply with the regulations and terms of an APO is a violation which is subject to sanction.
We are issuing and publishing these final results in accordance with sections 751(c), 752(c), and 777(i)(1) of the Act.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily finds that producers/exporters subject to this administrative review made sales of subject merchandise at less than normal value during the period of review (POR), August 1, 2022, through July 31, 2023. In addition, we are rescinding the administrative review with respect to one company. We invite interested parties to comment on these preliminary results.
Applicable September 12, 2024.
Maria Teresa Aymerich or Drew Jackson, AD/CVD Operations, Office IV, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington DC 20230; telephone: (202) 482-0499 or (202) 482-4406, respectively.
On August 1, 2018, Commerce published in the
On April 10, 2024, Commerce extended the preliminary results of this review to August 30, 2024.
A list of the topics discussed in the Preliminary Decision Memorandum is attached as the appendix to this notice. The Preliminary Decision Memorandum is a public document and is made available to the public via Enforcement and Compliance's Antidumping and Countervailing Duty Centralized Electronic Service System (ACCESS). ACCESS is available to registered users at
The products covered by this
Commerce is conducting this review in accordance with section 751 of the Tariff Act of 1930, as amended (the Act). Export price and constructed export price are calculated in accordance with section 772 of the Act. Normal value is calculated in accordance with section 773 of the Act. For a full description of the methodology underlying these preliminary results,
Pursuant to 19 CFR 351.213(d)(1), Commerce will rescind an administrative review, in whole or in part, if the party that requested a review withdraws its request within 90 days of the date of publication of the notice of initiation. The request for an administrative review of Plasoliva, S.L (Plasoliva) was withdrawn within 90 days of the date of publication of the
The Act and Commerce's regulations do not address the establishment of a rate to be applied to companies not selected for individual examination when Commerce limits its examination in an administrative review pursuant to section 777A(c)(2) of the Act. Generally, Commerce looks to section 735(c)(5) of the Act, which provides instructions for calculating the all-others rate in a market economy investigation, for guidance when calculating the rate for companies which were not selected for individual examination in an administrative review. Under section 735(c)(5)(A) of the Act, the all-others rate is normally “an amount equal to the weighted-average of the estimated weighted-average dumping margins established for exporters and producers individually investigated excluding any zero or
We preliminarily determine that the following estimated weighted-average dumping margins exist for the period August 1, 2022, through July 31, 2023:
We intend to disclose the calculations performed in connection with these preliminary results to interested parties within five days after public announcement of the preliminary results.
Pursuant to 19 CFR 351.309(c), interested parties may submit case briefs to Commerce no later than 30 days after the date of publication of this notice.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via Antidumping and Countervailing Duty Centralized Electronic Service System (ACCESS). Requests should contain: (1) the party's name, address, and telephone number; (2) the number of participants; and (3) a list of issues to be discussed. Issues raised in the hearing will be limited to those raised in the respective case briefs. An electronically filed hearing request must be received successfully in its entirety by Commerce's electronic records system, ACCESS, within 30 days after the date of publication of this notice. If a request for a hearing is made, Commerce intends to hold a hearing at a time and date to be determined.
Upon completion of the final results, Commerce shall determine, and the U.S. Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries covered by this review.
For entries of subject merchandise during the POR produced by either of the individually examined respondents for which they did not know that the merchandise was destined for the United States, we will instruct CBP to liquidate these entries at the all-others rate if there is no rate for the intermediate company(ies) involved in the transaction.
For the companies identified above that were not selected for individual examination, we will instruct CBP to liquidate entries at the rates established after the completion of the final results of review.
Because Commerce is rescinding this review with respect to Plasoliva, we will instruct CBP to assess antidumping duties on all appropriate entries of subject merchandise during the POR from this company at a rate equal to the cash deposit rate for estimated antidumping duties that was required at the time of entry, or withdrawal from warehouse, for consumption, in accordance with 19 CFR 351.212(c)(1)(i). Commerce intends to issue its rescission instructions to CBP no earlier than 35 days after the date of publication of this notice in the
Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this review in the
The following cash deposit requirements for estimated antidumping duties will be effective upon publication in the
Unless extended, Commerce intends to issue the final results of this administrative review, including the results of its analysis of the issues raised
This notice serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping and/or countervailing duties prior to liquidation of the relevant entries during this POR. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping and/or countervailing duties occurred and the subsequent assessment of double antidumping duties, and/or an increase in the amount of antidumping duties by the amount of countervailing duties.
These preliminary results and notice are issued and published in accordance with sections 751(a)(1) and 777(i) of the Act, 19 CFR 351.213(d)(4), 19 CFR 351.213(h) and 19 CFR 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily finds that certain producers/exporters of producers and exporters of ripe olives from Spain received countervailable subsidies during the period of review (POR), January 1, 2022, through December 31, 2022. In addition, Commerce is rescinding the review, in part, with respect to three companies. Interested parties are invited to comment on these preliminary results.
Applicable September 12, 2024.
Dusten Hom or Theodore Pearson, AD/CVD Operations, Office I, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-5075 or (202) 482-2631, respectively.
On August 1, 2018, Commerce published in the
For a complete description of the events that followed the initiation of this investigation,
The products covered by the
Commerce is conducting this administrative review in accordance with section 751(a)(1)(A) of the Tariff Act of 1930, as amended (the Act). For each subsidy program found countervailable, we preliminarily find that there is a subsidy (
Pursuant to 19 CFR 351.213(d)(1), Commerce will rescind an administrative review, in whole or in part, if the parties that requested a review withdraw the request within 90 days of the date of publication of the notice of initiation. Commerce received timely filed withdrawal requests with respect to one company, Plasoliva, S.L (Plasoliva), pursuant to 19 CFR 351.213(d)(1).
Additionally, Commerce's practice is to rescind an administrative review of a countervailing duty order, pursuant to 19 CFR 351.213(d)(3), when there are no reviewable entries of subject merchandise during the POR for which liquidation is suspended.
On February 8, 2024, we issued a memorandum notifying parties of our intent to rescind this administrative review with respect to: (1) Aceitunera del Norte de Cáceres, S.Coop.Ltda. de 2° Grado; and (2) Alimentary Group DCoop S.Coop. And.
Commerce preliminary determines that the following net countervailable subsidy rates exist for the period January 1, 2022, through December 31, 2022:
We intend to disclose the calculations performed for these preliminary results to interested parties within five days after the date of publication of this notice.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS. Requests should contain: (1) the party's name, address, and telephone number; (2) the number of participants; and (3) a list of issues to be discussed. Issues raised in the hearing will be limited to those raised in the respective case briefs. An electronically filed hearing request must be received successfully in its entirety by Commerce's electronic records system, ACCESS, by 5 p.m. Eastern Time within 30 days after the date of publication of this notice.
Unless extended, we intend to issue the final results of this administrative review, which will include the results of our analysis of the issues raised in the case briefs, within 120 days of publication of these preliminary results in the
In accordance with section 751(a)(2)(C) of the Act and 19 CFR 351.221(b)(4)(i), we preliminarily determined subsidy rates in the amounts shown above for the producers/exporters shown above. Upon completion of the administrative review, consistent with section 751(a)(1) of the Act and 19 CFR 351.212(b)(2), Commerce shall determine, and CBP shall assess, countervailing duties on all appropriate entries covered by this review. We intend to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this review in the
For the companies for which this review is rescinded with these preliminary results, we will instruct CBP to assess countervailing duties on all appropriate entries at a rate equal to the cash deposit of estimated countervailing duties required at the time of entry, or withdrawal from warehouse, for consumption, during the period January 1, 2022, through December 31, 2022, in accordance with 19 CFR 351.212(c)(l)(i). Commerce intends to issue appropriate assessment instructions to CBP no earlier than 35 days after the date of publication of this notice in the
In accordance with section 751(a)(2)(C) of the Act, Commerce also intends upon publication of the final results, to instruct U.S. Customs and Border Protection (CBP) to collect cash deposits of the estimated countervailing duties in the amounts calculated in the final results of this review for the respective companies listed above with regard to shipments of subject merchandise entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of this review. If the rate
For all non-reviewed firms, CBP will continue to collect cash deposits of estimated countervailing duties at the all-others rate or the most recent company-specific rate applicable to the company, as appropriate. These cash deposit requirements, when imposed, shall remain in effect until further notice.
These preliminary results of review are issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act and 19 CFR 351.213 and 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) received scope ruling applications, requesting that scope inquiries be conducted to determine whether identified products are covered by the scope of antidumping duty (AD) and/or countervailing duty (CVD) orders and that Commerce issue scope rulings pursuant to those inquiries. In accordance with Commerce's regulations, we are notifying the public of the filing of the scope ruling applications listed below in the month of July 2024.
Applicable September 12, 2024.
Terri Monroe, AD/CVD Operations, Customs Liaison Unit, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230, telephone: (202) 482-1384.
In accordance with 19 CFR 351.225(d)(3), we are notifying the public of the following scope ruling applications related to AD and CVD orders and findings filed in or around the month of June 2024. This notification includes, for each scope application: (1) identification of the AD and/or CVD orders at issue (19 CFR 351.225(c)(1)); (2) concise public descriptions of the products at issue, including the physical characteristics (including chemical, dimensional and technical characteristics) of the products (19 CFR 351.225(c)(2)(ii)); (3) the countries where the products are produced and the countries from where the products are exported (19 CFR 351.225(c)(2)(i)(B)); (4) the full names of the applicants; and (5) the dates that the scope applications were filed with Commerce and the name of the ACCESS scope segment where the scope applications can be found.
Ceramic Tile from the People's Republic of China (China) (A-570-108/C-570-109); Ornamental roof tiles, components, decorations and board brick (Ornamental Roof Tiles);
Magnesium Metal from China (A-570-896); Magnesium Alloy Chips;
Certain Steel Racks and Parts thereof from China (A-570-088/C-570-089); Steel Pods with or without additional support (Steel Pods);
Boltless Steel Shelving Units Prepackaged for Sale from China (A-570-018/C-570-019); Steel Pods with or without additional support (Steel Pods);
Forged Steel Fittings from Italy (A-475-839); PFT Hub and Cap System (Hub and Cap);
This list of scope ruling applications is not an identification of scope inquiries that have been initiated. In accordance with 19 CFR 351.225(d)(1), if Commerce has not rejected a scope ruling application nor initiated the scope inquiry within 30 days after the filing of the application, the application will be deemed accepted and a scope inquiry will be deemed initiated the following day—day 31.
In accordance with 19 CFR 351.225(m)(2), if there are companion AD and CVD orders covering the same merchandise from the same country of origin, the scope inquiry will be conducted on the record of the AD proceeding. Further, please note that pursuant to 19 CFR 351.225(m)(1), Commerce may either apply a scope ruling to all products from the same country with the same relevant physical characteristics, (including chemical, dimensional, and technical characteristics) as the product at issue, on a country-wide basis, regardless of the producer, exporter, or importer of those products, or on a company-specific basis.
For further information on procedures for filing information with Commerce through ACCESS and participating in scope inquiries, please refer to the Filing Instructions section of the Scope Ruling Application Guide, at
Please note that this notice of scope ruling applications filed in AD and CVD proceedings may be published before any potential initiation, or after the initiation, of a given scope inquiry based on a scope ruling application identified in this notice. Therefore, please refer to the case segment on ACCESS to determine whether a scope ruling application has been accepted or rejected and whether a scope inquiry has been initiated.
Interested parties who wish to be served scope ruling applications for a particular AD or CVD order may file a request to be included on the annual inquiry service list during the anniversary month of the publication of the AD or CVD order in accordance with 19 CFR 351.225(n) and Commerce's procedures.
Interested parties are invited to comment on the completeness of this monthly list of scope ruling applications received by Commerce. Any comments should be submitted to James Maeder, Deputy Assistant Secretary for AD/CVD Operations, Enforcement and Compliance, International Trade Administration, via email to
This notice of scope ruling applications filed in AD and CVD proceedings is published in accordance with 19 CFR 351.225(d)(3).
Office of Planning, Research, and Evaluation, Administration for Children and Families, U.S. Department of Health and Human Services.
Request for public comments.
As part of the Understanding and Expanding the Reach of Home Visiting (HV-REACH) project, the Administration for Children and Families (ACF) within the U.S. Department of Health and Human Services is proposing to collect qualitative data to understand the features of centralized, coordinated, or collaborative intake systems used by seven purposively selected sites that refer families to early childhood home visiting (ECHV) programs.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
The goals of the study are to understand (1) the features, strengths,
We will conduct virtual or in person site visits in seven sites, where a site is defined as including a centralized intake organization(s) and one or two associated home visiting programs. We will collect documentation related to:
• outreach, enrollment, screening, and referrals processes and pathways, and data about the defining characteristics of centralized intake systems;
• local contexts and community needs;
• communication processes and feedback loops with families and programs;
• successes and challenges of the system and opportunities for improvement or technical assistance;
• home visiting program staff and family perceptions of centralized intake;
• implementation of centralized intake;
• staff and family experiences with outreach and enrollment processes using centralized intake; and
• staff and family background characteristics.
Findings will highlight opportunities for program improvement efforts, technical assistance, or changes to centralized intake system processes. We will disseminate findings in a report, research briefs, and presentations or briefings.
The Department of Commerce will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, on or after the date of publication of this notice. We invite the general public and other Federal agencies to comment on proposed, and continuing information collections, which helps us assess the impact of our information collection requirements and minimize the public's reporting burden. Public comments were previously requested via the
This information collection request may be viewed at
Written comments and recommendations for the proposed information collection should be submitted within 30 days of the publication of this notice on the following website:
The Department of Commerce will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, on or after the date of publication of this notice. We invite the general public and other Federal agencies to comment on proposed, and continuing information collections, which helps us assess the impact of our information collection requirements and minimize the public's reporting burden. Public comments were previously requested via the
1. Expand the scope from New England, Mid-Atlantic, South Atlantic, and Gulf of Mexico commercial fisheries to Puerto Rico, U.S. Virgin Islands, West Coast, and Pacific Islands commercial fisheries;
2. Change the title from “Socio-Economic Survey of Hired Captains and Crew in New England, Mid-Atlantic, South Atlantic and Gulf of Mexico Commercial Fisheries” to “Social and-Economic Survey of Hired Captains and Crew in Commercial Fisheries”;
a. Replace the survey instrument that OMB approved in 2021, which included some region-specific questions, with region-specific survey instruments that NMFS produced by eliminating the few irrelevant questions for each region, adding a few region-specific questions, rewording a few questions to make them region specific, and giving each survey a region-specific name.
Under the revised information collection, the Northeast Fisheries Science Center (NEFSC) will conduct the survey for the New England and Mid-Atlantic fisheries; the Southeast Fisheries Science Center (SEFSC) will conduct the survey for the South Atlantic, Gulf of Mexico, Puerto Rico, and the U.S. Virgin Islands fisheries; the Northwest Fisheries Science Center (NWFSC) and the Southwest Fisheries Science Center (SWFSC) will jointly conduct the survey for the West Coast fisheries; and the Pacific Islands Fisheries Science Center (PIFSC) will conduct the survey for the Pacific Islands fisheries. Each Fisheries Science Center will conduct a social and economic survey of hired captains and crew once in the following three years for its commercial fisheries.
The Fisheries Science Centers seek to conduct surveys to provide for the ongoing collection of social and economic data related to the fishing industries in those states. The purpose of this survey is to assess and track over time the social and economic conditions of commercial fishing crews and hired captains for which little is known. This survey will provide data on social and economic impacts for this population and the changes in fisheries because of regulatory changes. Data to be collected include demographic information on crew, individual and community well-being, fishing practices, job satisfaction, job opportunities, and attitudes toward fisheries management. The National Environmental Policy Act (NEPA) and Magnuson-Stevens Conservation and Management Act (MSA) both contain requirements for considering the social and economic impacts of fishery management decisions. There is a need to understand how such fishery management policies and programs will affect the social and economic characteristics of those involved in the commercial fishing industry. To help meet these requirements of NEPA and MSA, the Fisheries Science Centers will collect data on an ongoing basis to track how the social and economic characteristics of fisheries are changing over time and the impact of fishery management policies and programs implemented for the New England, Mid-Atlantic, South Atlantic, Gulf of Mexico, Puerto Rico, U.S. Virgin Islands, West Coast, and Pacific Islands commercial fisheries.
This information collection request may be viewed at
Written comments and recommendations for the proposed information collection should be submitted within 30 days of the publication of this notice on the following website
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public meeting.
The Pacific Fishery Management Council's (Pacific Council) Ad-hoc Sacramento River Fall Chinook (SRFC) Workgroup will hold a two-day online meeting in October 2024.
The online meeting will be held on Wednesday, October 2, 2024 and Thursday, October 3, 2024, daily from 9 a.m. until 3 p.m., Pacific time, or when business for the day concludes.
This meeting will be held online. Specific meeting information, including directions on how to join the meeting and system requirements will be provided in the meeting announcement on the Pacific Council's website (see
Angela Forristall, Staff Officer, Pacific Council; telephone: (503) 820-2419.
The primary purpose of the meetings is to address guidance received from the Pacific Council at their June 2024 meeting. The Workgroup will likely focus on finalizing their report that considers new or updated tools for SRFC management for the Pacific Council's November 2024 meeting. If applicable, the Workgroup may also discuss 2024 Salmon Methodology Review topics relevant to their tasking. Additional discussions may include, but are not limited to, future meetings, workload planning, and upcoming Council agenda items.
Although non-emergency issues not contained in the meeting agenda may be discussed, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically listed in this document and any issues arising after publication of this document that require emergency action under section 305(c) of the Magnuson-Stevens Fishery Conservation and Management Act, provided the public has been notified of the intent to take final action to address the emergency.
Requests for sign language interpretation or other auxiliary aids should be directed to Mr. Kris Kleinschmidt (
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of a public online meeting.
The Groundfish Subcommittee of the Pacific Fishery Management Council's (Pacific Council) Scientific and Statistical Committee (SSC) will convene an online meeting to review the suitability of fish age estimates developed using Fourier Transformed Near-Infrared Spectroscopy (FT-NIRS) for inclusion in groundfish stock assessments. The methodology review meeting is open to the public.
The groundfish methodology review online meeting will be held Tuesday, October 1, 2024 and Wednesday October 2, 2024, daily from 8 a.m. until noon (Pacific daylight time) or until business for the day has been completed.
The groundfish methodology review will be conducted as an online meeting. Specific meeting information, including the agenda and directions on how to join the meeting and system requirements, will be provided in the workshop announcement on the Pacific Council's website (see
Marlene A. Bellman, Staff Officer, Pacific Council; telephone: (503) 820-2414, email:
The purpose of the groundfish methodology review meeting is aimed at evaluating FT-NIRS to provide a reliable alternative to traditional ageing. Proponents plan to explore and document the variability in estimated relationships between traditional age reads and spectral data across major categorical dimensions. In addition, the review may evaluate the effect that replacing large blocks of traditional ages in assessments with FT-NIRS ages has on important assessment metrics. Evaluation of the benefits of including additional variables and the costs/implications for use of the age data in estimating other relationships, such as growth, will be explored, as time permits. This review is planned in preparation for the 2025 groundfish stock assessment cycle. The results of
No management actions will be decided by the meeting participants. The participants' role will be development of recommendations and reports for consideration by the SSC and the Pacific Council at a future Council meeting.
Although nonemergency issues not contained in the meeting agenda may be discussed, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under Section 305(c) of the Magnuson-Stevens Fishery Conservation and Management Act, provided the public has been notified of the intent of the workshop participants to take final action to address the emergency.
Requests for sign language interpretation or other auxiliary aids should be directed to Mr. Kris Kleinschmidt (
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; receipt of application for a permit modification.
Notice is hereby given that the University of Georgia, Warnell School of Forestry and Natural Resources, 180 E Green Street, Athens, GA 30602 (Nate Nibbelink, Ph.D., Responsible Party) has requested a modification to scientific research Permit No. 23096-01.
Written comments must be received on or before October 15, 2024.
The modification request and related documents are available for review by selecting “Records Open for Public Comment” from the Features box on the Applications and Permits for Protected Species (APPS) home page,
Written comments on this application should be submitted via email to
Those individuals requesting a public hearing should submit a written request via email to
Malcolm Mohead or Erin Markin, Ph.D., (301) 427-8401.
The subject modification to Permit No. 23096-01, issued on November 20, 2023 (88 FR 85880, December 11, 2023), is requested under the authority of the Endangered Species Act of 1973, as amended (16 U.S.C. 1531
Permit No. 23096-01 authorizes the permit holder to: quantify population dynamics and seasonal habitat of Atlantic and shortnose sturgeon in Georgia and Florida river systems and estuaries [
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of a public meeting.
The South Atlantic Fishery Management Council (Council) will hold a meeting of its Executive Committee via webinar to discuss the Council budget and workplan.
The meeting will be held on Monday, September 30, 2024, from 10 a.m. until 12 p.m.
The meeting will be held via webinar. Webinar registration is required. Details are included in the
Kim Iverson, Public Information Officer, SAFMC; phone: (843) 302-8440 or toll free: (866) SAFMC-10; fax: (843) 769-4520; email:
Meeting information, including the webinar registration link, online public comment form, agenda, and briefing book materials will be posted on the Council's website at:
At this meeting, the Council's Executive Committee will review the 2024 Council budget status, planned activities for 2024, and the draft 2025
Although non-emergency issues not contained in this agenda may come before this group for discussion, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically identified in this notice and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Fishery Conservation and Management Act, provided the public has been notified of the Council's intent to take final action to address the emergency.
The meeting is physically accessible to people with disabilities. Requests for auxiliary aids should be directed to the Council office (see
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; public meeting.
The Mid-Atlantic Fishery Management Council will hold a workshop to create a focused discussion on how aspects of alternative 5 from the Atlantic Surfclam and Ocean Quahog Species Separation Requirements Amendment would be implemented by the Council and NOAA Fisheries.
The meeting will be held from 1 p.m. Wednesday, October 2, 2024 through 3 p.m. Thursday, October 3, 2024. For agenda details, see
The meeting will be held at the Philadelphia Marriott Downtown, 1201 Market Street, Philadelphia, PA 19107; telephone: (215) 625-6763. The meeting will be partially streamed by webinar for portions of the agenda that are held in plenary. Connection information will be posted to the calendar prior to the meeting at
Christopher M. Moore, Ph.D., Executive Director, Mid-Atlantic Fishery Management Council, telephone: (302) 526-5255.
The Mid-Atlantic Fishery Management Council will hold a workshop from 1 p.m. Wednesday, October 2 through 3 p.m. Thursday, October 3, 2024, to create a focused discussion on how aspects of alternative 5 from the Atlantic Surfclam and Ocean Quahog Species Separation Requirements Amendment would be implemented by the Council and NOAA Fisheries. Alternative 5 is one of 6 alternatives in the Amendment under consideration by the Council to address the issues of mixed catches occurring in the Atlantic surfclam and ocean quahog individual transferable quota fisheries. Meeting materials will be posted to
The meeting is physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to Shelley Spedden at the Council Office, (302) 526-5251, at least 5 days prior to the meeting date.
National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public meeting.
The Space Weather Advisory Group (SWAG) will meet for one and a half days on September 25-26, 2024.
The meeting is scheduled as follows: September 25, 2024, from 1 p.m. to 5 p.m. Eastern Daylight Time (EDT) and September 26, 2024, from 9 a.m. to 5 p.m. EDT.
The public meeting will be a hybrid event with the SWAG and invited guests convening “in person” at the Eisenhower Executive Office Building, 1650 17th Street NW, Washington, DC, and any public participants attending virtually via Webinar. For details on how to register for the webinar, please visit
Amy Macpherson, National Weather Service, NOAA, 7220 NW 101st Terrace, Kansas City, MO 64153; 816-287-1344 or
Pursuant to the Promoting Research and Observations of Space Weather to Improve the Forecasting of Tomorrow (PROSWIFT) Act, 51 U.S.C. 60601
The SWAG is directed to advise the SWORM on the following: facilitating advances in the space weather enterprise of the United States; improving the ability of the United States to prepare for, mitigate, respond to, and recover from space weather phenomena; enabling the coordination and facilitation of research to operations and operations to research, as described in section 60604(d) of title 51, United States Code; and developing and implementing the integrated strategy under 51 U.S.C. 60601(c), including subsequent updates and reevaluations. The SWAG shall also conduct a comprehensive survey of the needs of users of space weather products to
The meeting will be open to the public. During the meeting, the SWAG will discuss the PROSWIFT Act, 51 U.S.C. 60601
The meeting will be held over one and a half days and will be conducted in a hybrid manner (for meeting details see
This event is accessible to individuals with disabilities. For all other special accommodation requests, please contact
This webinar is a SWAG public meeting and will be recorded and transcribed. Public comments directed to the SWAG members and SWAG related topics are encouraged. If you have a public comment, you acknowledge you will be recorded and are aware you can opt out of the meeting. Participation in the meeting constitutes consent to the recording. Both the meeting minutes and presentations will be posted to the SWAG website (
For other written public comments, please email
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public online meeting.
The Pacific Fishery Management Council's (Pacific Council) Ad-Hoc Klamath River Fall Chinook Workgroup will hold an online meeting.
The online meeting will be held Tuesday, October 1, 2024, from 9 a.m. until 3 p.m. Pacific time, or until business for the day concludes.
This meeting will be held online. Specific meeting information, including directions on how to join and system requirements will be provided in the meeting announcement on the Pacific Council's website (see
Angela Forristall, Staff Officer, Pacific Council; telephone: (503) 820-2419.
The primary purpose of the meeting, is to discuss and further develop interim management measures, or a management framework, intended to address the response of Klamath River fall Chinook to the dynamic nature of the Klamath River environment and the available habitat immediately following dam removal, and post-dam removal until the natural environment is stabilized and the salmon population is more predictable. Additional discussions may include, but are not limited to, future meetings, workload planning, and upcoming items on the upcoming Pacific Council meeting agenda.
Although non-emergency issues not contained in the meeting agenda may be discussed, those issues may not be the subject of formal action during this meeting. Action will be restricted to those issues specifically listed in this document and any issues arising after publication of this document that require emergency action under section 305(c) of the Magnuson-Stevens Fishery Conservation and Management Act, provided the public has been notified of the intent to take final action to address the emergency.
Requests for sign language interpretation or other auxiliary aids should be directed to Mr. Kris Kleinschmidt (
Office of Oceanic and Atmospheric Research (OAR), National Oceanic and Atmospheric Administration (NOAA), Department of Commerce (DOC).
Notice of public meeting.
This notice sets forth the schedule and proposed agenda of a forthcoming meeting of the National Sea Grant Advisory Board (Board), a Federal Advisory Committee. Board members will discuss and provide advice on the National Sea Grant College Program (Sea Grant) in the areas of program evaluation, strategic planning, education and extension, science and technology programs, and other matters as described in the agenda found on the Sea Grant website. For more information on this Federal Advisory Committee please visit the Federal Advisory Committee database:
The announced meeting is scheduled for Monday October 28, 2024 from 3 p.m.-5 p.m. (EST).
The meeting will be held virtually only. For more information and for virtual access see below in the
For any questions concerning the meeting, please contact Ms. Donna Brown, National Sea Grant College Program. Email:
The Board, which consists of a balanced representation from academia, industry, state government and citizens groups, was established in 1976 by section 209 of the Sea Grant Improvement Act (Pub. L. 94-461, 33 U.S.C. 1128). The Board advises the Secretary of Commerce and the Director of the National Sea Grant College Program with respect to operations under the Act, and such other matters as the Secretary refers to them for review and advice.
National Telecommunications and Information Administration (NTIA), U.S. Department of Commerce.
Notice, request for public comments.
The National Telecommunications and Information Administration (NTIA) is seeking comments and recommendations regarding the project entitled, “Local Estimates of internet Adoption” (Project LEIA). Project LEIA is a new joint project of NTIA and the United States Census Bureau (Census Bureau) to develop model-based estimates of internet adoption for smaller populations than would typically be possible using survey data alone. We request input about potential uses of these estimates. We are also seeking suggestions for potential future improvements to the initial experimental model, as well as what additional sub-state geographies, small populations, indicators, or methods should be considered as future directions for Project LEIA.
Interested persons are invited to submit comments on or before October 15, 2024.
All electronic public comments on this action, identified by
Please direct questions regarding this Request for Comment to Rafi Goldberg, Senior Policy Advisor, Digital Equity, NTIA, 1401 Constitution Avenue NW, Suite 4725, Washington, DC 20230, at (202) 482-4375 or
For thirty years, NTIA and the Census Bureau have partnered to produce valuable data on computer and internet use in the United States. These data enable policymakers, researchers, and advocates to better understand challenges to achieving digital equity and other internet policy issues. The most enduring example of this is the NTIA internet Use Survey, which is administered as a supplement to the Census Bureau's Current Population Survey. The most recent edition of this survey was fielded in November 2023.
While these data products have enabled a great deal of important research and policy analysis, some significant gaps remain in our
Last year, NTIA and the Census Bureau began an experimental project to study the feasibility of—and ultimately to produce—estimates of internet adoption for small, sub-state areas during a single year to address this knowledge gap and better serve the policymaking process. Using techniques that have been successfully employed in other data products,
For this first phase of Project LEIA, the Census Bureau team produced an experimental model to estimate the proportion of households in each U.S. county that subscribed to wired internet service in 2022.
As we prepare to continue this important collaboration with the Census Bureau, NTIA invites all suggestions for improvements to the initial experimental model. We also welcome suggestions about how to prioritize future expansion of Project LEIA's scope. The following questions serve as a non-exhaustive guide to some of the issues commenters may wish to address:
1. Should NTIA be aware of any potential applications where Project LEIA could make a particularly substantial contribution to policy research or development? Would any future work on Project LEIA help improve or expand these contributions?
2. In the feasibility report,
3. While the current experimental model only produces estimates at the county level, the same principles can potentially be applied for other small geographies and populations. During the next phase of Project LEIA, NTIA and the Census Bureau intend to experiment with creating census tract-level estimates. Are there other small geographies or populations for which model-based estimates of internet adoption might be beneficial? What relevant data sources at that level could be considered to help generate these estimates?
4. In this first phase, we decided to analyze the percentage of households subscribed to wired internet services. We did this because (a) the variable is useful for policymaking and (b) sufficient data were available to accurately fit a model. However, this is not the only metric that possibly could be modeled through future work. In addition to considering other variables from the ACS questions on computer and internet use, we are also interested in applying small area modeling to more detailed questions from the NTIA internet Use Survey. What metrics from either survey could we prioritize for future work under Project LEIA?
5. Is there anything else NTIA should take into consideration when contemplating the further development of Project LEIA?
Per 45 CFR chapter XXI 2102.3, the next meeting of the U.S. Commission of Fine Arts is scheduled for September 19, 2024, at 9:00 a.m. and will be held via online videoconference. Items of discussion may include buildings, infrastructure, parks, memorials, and public art.
Draft agendas, the link to register for the online public meeting, and additional information regarding the Commission are available on our website:
Department of the Air Force, Department of Defense (DoD).
60-Day information collection notice.
In compliance with the
Consideration will be given to all comments received by November 12, 2024.
You may submit comments, identified by docket number and title, by any of the following methods:
To request more information on this proposed information collection or to obtain a copy of the proposal and associated collection instruments, please write to RAF Mildenhall Integrated Resilience Office, Unit 4890 Box 210 APO AE 09459-500, Charity Rose, 314-238-2163.
Office of the Under Secretary of Defense for Personnel and Readiness (OUSD (P&R)), Department of Defense (DoD).
30-Day information collection notice.
The DoD has submitted to the Office of Management and Budget (OMB) for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act.
Consideration will be given to all comments received by October 15, 2024.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Reginald Lucas, (571) 372-7574,
You may also submit comments and recommendations, identified by Docket ID number and title, by the following method:
•
Requests for copies of the information collection proposal should be sent to Mr. Lucas at
Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(1) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives with attached Transmittal 23-06, Policy Justification, and Sensitivity of Technology.
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Funding Source: National Funds
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* As defined in Section 47(6) of the Arms Export Control Act.
The Government of Romania has requested to buy an additional ninety-five (95) Heavy Gun Carriers Joint Light Tactical Vehicles (JLTVs). This amendment will push the current case above the MDE and total case value notification thresholds and thus requires notification of the entire case. The original FMS case, valued at $43.73 million, included thirty-four (34) Heavy Gun Carriers JLTVs. Therefore, this notification is for a total of one hundred twenty-nine (129) M1278A1 Heavy Gun Carriers Joint Light Tactical Vehicles. Also included are VRC-104 radio kits; VRC-114 radio kits; baseline integration kits; basic issue items; Defense Advanced GPS Receivers (DAGRs); DAGR integration kits; network switch ports; exportable power kits; silent watch energy storages; power expansion kits; RF7800i intercom kits; combat bumper kits; winch kits; flat tow kits; run flat kits; spare tire kits; commander supply display units; improved turret drive systems; M1114 turret ring hatches; 2-year contractor spare parts package; technical assistance; total package fielding; technical publications/manuals; and other related elements of logistics and program support. The total estimated cost is $104.0 million.
This proposed sale will support the foreign policy goals and national security objectives of the United States by improving the security of a NATO Ally that is a force for political stability and economic progress in Europe.
The proposed sale will improve Romania's capability to meet current and future threats by providing a credible force that is capable of deterring adversaries and enhance its participation in NATO operations. Romania will have no difficulty absorbing this equipment into its armed forces.
The proposed sale of this equipment and support will not alter the basic military balance in the region.
The principal contractors will be Oshkosh Corporation, Oshkosh, WI, and Oshkosh Defense, LLC, Oshkosh, WI. There are no known offset agreements proposed in connection with this potential sale.
Implementation of this sale will not require the assignment of any U.S. Government or contractor representatives to Romania.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
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1. The Joint Light Tactical Vehicle (JLTV) program is a light tactical vehicle designed to replace the U.S. Military's aging High Mobility Multipurpose Wheeled Vehicle fleet. It was designed to close the existing gap in payload, performance, and protection to our adversaries during multi-domain operations. It has been an operationally optimal choice for the light tactical vehicle mission spectrum anywhere in the world. All JLTV mission variants include a strong balance of protection, maneuverability, speed, reliability, and combat support/combat service support capability that far surpasses any similar vehicle developed in its weight class today.
2. The JLTV is designed to be a system of systems. System of systems is a “set or arrangement of systems that results when independent and useful systems are integrated into a larger system that delivers unique capabilities. The Joint Light Tactical Vehicle allows material and equipment from authorized contractors or industrial facilities used by U.S. forces in tactical operations and managed by other Program Offices.
3. The JLTV has inherent armor built into the base vehicle. It is what the US Government (USG) calls A-Kit armor. This A-Kit Inherent armor provides both opaque and transparent armor solutions to provide a 360-degree azimuthal (
4. The highest level of classification of defense articles, components, and services included in this potential sale is SECRET.
5. If a technologically advanced adversary were to obtain knowledge of the hardware and software elements, the information could be used to develop countermeasures or equivalent systems which might reduce system effectiveness or be used in the development of a system with similar or advanced capabilities.
6. A determination has been made that the Government of Romania can provide substantially the same degree of
7. All defense articles and services listed in this transmittal are authorized for release and export to the Government of Romania.
Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(1) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives with attached Transmittal 23-11, Policy Justification, and Sensitivity of Technology.
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* As defined in Section 47(6) of the Arms Export Control Act.
The Government of Australia has requested to buy up to two hundred fifty-five (255) Javelin FGM-148F missiles (includes five (5) fly-to-buy missiles). Also included is U.S. technical assistance, consisting of Tactical Air Ground Missiles (TAGM) Project Office technical assistance and other related elements of logistical and program support. The estimated total cost is $60.18 million.
This proposed sale will support the foreign policy and national security objectives of the United States. Australia is one of our most important allies in the Western Pacific. The strategic location of this political and economic power contributes significantly to ensuring peace and economic stability in the region. It is vital to the U.S. national interest to assist our ally in developing and maintaining a strong and ready self-defense capability.
The proposed sale will improve the Australian Army's capability to meet current and future threats by maintaining and increasing its anti-armor capability. Australia will have no difficulty absorbing this equipment into its armed forces.
The proposed sale of this equipment and support will not alter the basic military balance in the region.
The prime U.S. contractor will be the Javelin Joint Venture between Lockheed Martin in Orlando, FL and Raytheon Missiles and Defense in Tucson, AZ. There are no known offset agreements proposed in connection with this potential sale.
Implementation of this proposed sale will not require the assignment of any U.S. Government or contractor representatives to Australia.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
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1. The Javelin Weapon System is a medium-range, man portable, shoulder-launched, fire and forget, anti-tank system for infantry, scouts, and combat engineers. It may also be mounted on a variety of platforms including vehicles, aircraft, and watercraft. The system weighs 49.5 pounds and has a maximum range in excess of 2,500 meters. They system is highly lethal against tanks and other systems with conventional and reactive armors. The system possesses a secondary capability against bunkers.
2. Javelin's key technical feature is the use of fire-and-forget technology which allows the gunner to fire and immediately relocate or take cover. Additional special features are the top attack and/or direct fire modes, an advanced tandem warhead and imaging infrared seeker, target lock-on before launch, and soft launch from enclosures or covered fighting positions. The Javelin missile also has a minimum smoke motor thus decreasing its detection on the battlefield.
3. The Javelin Weapon System is comprised of two major tactical components, which are a reusable Light Weight Command Launch Unit (LWCLU) and a round contained in a disposable launch tube assembly. The LWCLU has been identified as Major Defense Equipment (MDE). The LWCLU may also be used in a stand-alone mode for battlefield surveillance and target detection. The LWCLU's thermal sight is a 3rd generation Forward Looking Infrared (FLIR) sensor.
4. The missile is autonomously guided to the target using an imaging infrared seeker and adaptive correlation tracking algorithms. This allows the gunner to take cover or reload and engage another target after firing a missile. The missile has an advanced tandem warhead and can be used in either the top attack or direct fire modes (for target undercover). An onboard flight computer guides the missile to the selected target.
5. The highest level of classification of defense articles, components, and services included in this potential sale is SECRET.
6. If a technologically advanced adversary were to obtain knowledge of the specific hardware and software elements, the information could be used to develop countermeasures that might reduce weapon system effectiveness or be used in the development of a system with similar or advanced capabilities.
7. A determination has been made that Australia can provide substantially the same degree of protection for the sensitive technology being released as the U.S. Government. This sale is necessary in furtherance of the U.S. foreign policy and national security objectives outlined in the Policy Justification.
8. All defense articles and services listed in this transmittal have been authorized for release and export to Australia.
Federal Emergency Management Agency, Department of Homeland Security.
Notice.
Comments are requested on proposed flood hazard determinations, which may include additions or modifications of any Base Flood Elevation (BFE), base flood depth, Special Flood Hazard Area (SFHA) boundary or zone designation, or regulatory floodway on the Flood Insurance Rate Maps (FIRMs), and where applicable, in the supporting Flood Insurance Study (FIS) reports for the communities listed in the table below. The purpose of this notice is to seek general information and comment regarding the preliminary FIRM, and where applicable, the FIS report that the Federal Emergency Management Agency (FEMA) has provided to the affected communities. The FIRM and FIS report are the basis of the floodplain management measures that the community is required either to adopt or to show evidence of having in effect in order to qualify or remain qualified for participation in the National Flood Insurance Program (NFIP).
Comments are to be submitted on or before December 11, 2024.
The Preliminary FIRM, and where applicable, the FIS report for each community are available for inspection at both the online location
You may submit comments, identified by Docket No. FEMA-B-2456, to Rick Sacbibit, Chief, Engineering Services Branch, Federal Insurance and Mitigation Administration, FEMA, 400 C Street SW, Washington, DC 20472, (202) 646-7659, or (email)
Rick Sacbibit, Chief, Engineering Services Branch, Federal Insurance and
FEMA proposes to make flood hazard determinations for each community listed below, in accordance with section 110 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4104, and 44 CFR 67.4(a).
These proposed flood hazard determinations, together with the floodplain management criteria required by 44 CFR 60.3, are the minimum that are required. They should not be construed to mean that the community must change any existing ordinances that are more stringent in their floodplain management requirements. The community may at any time enact stricter requirements of its own or pursuant to policies established by other Federal, State, or regional entities. These flood hazard determinations are used to meet the floodplain management requirements of the NFIP.
The communities affected by the flood hazard determinations are provided in the tables below. Any request for reconsideration of the revised flood hazard information shown on the Preliminary FIRM and FIS report that satisfies the data requirements outlined in 44 CFR 67.6(b) is considered an appeal. Comments unrelated to the flood hazard determinations also will be considered before the FIRM and FIS report become effective.
Use of a Scientific Resolution Panel (SRP) is available to communities in support of the appeal resolution process. SRPs are independent panels of experts in hydrology, hydraulics, and other pertinent sciences established to review conflicting scientific and technical data and provide recommendations for resolution. Use of the SRP only may be exercised after FEMA and local communities have been engaged in a collaborative consultation process for at least 60 days without a mutually acceptable resolution of an appeal. Additional information regarding the SRP process can be found online at
The watersheds and/or communities affected are listed in the tables below. The Preliminary FIRM, and where applicable, FIS report for each community are available for inspection at both the online location
Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(1) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives with attached Transmittal 23-02, Policy Justification, and Sensitivity of Technology.
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* As defined in Section 47(6) of the Arms Export Control Act.
The Government of Australia has requested to buy up to two hundred (200) Tomahawk Block V All Up Rounds (AUR) (RGM-109E); and up to twenty (20) Tomahawk Block IV All Up Rounds (AUR) (RGM-109E). Also included is support for all three segments of Australia's Tomahawk Weapon System (TWS) to include the All-Up Round (AUR), the Tactical Tomahawk Weapon Control System (TTWCS) and the Theater Mission Planning Center (TMPC). The support consists of unscheduled missile maintenance; spares; procurement; training; in-service support; software; hardware; communication equipment; operational flight test; engineering and technical expertise to maintain the TWS capability; and other related elements of logistical and program support. The estimated total cost is $895 million.
This proposed sale will support the foreign policy and national security objectives of the United States. Australia is one of our most important allies in the Western Pacific. The strategic location of this political and economic power contributes significantly to ensuring peace and economic stability in the region. It is vital to the U.S. national interest to assist our ally in developing and maintaining a strong and ready self-defense capability.
The proposed sale will improve Australia's capability to interoperate with U.S. maritime forces and other allied forces as well as its ability to contribute to missions of mutual interest. By deploying the Tomahawk Weapon System, Australia will contribute to global readiness and enhance the capability of U.S. Forces operating alongside them globally. Australia will use the enhanced capability as a deterrent to regional threats and to strengthen its homeland defense. Australia will have no difficulty absorbing this equipment into its armed forces.
The proposed sale of this equipment and support will not alter the basic military balance in the region.
The prime U.S. contractor will be Raytheon Missiles and Defense, Tucson, AZ. There are no known offset agreements proposed in connection with this potential sale.
Implementation of this proposed sale will require multiple trips by U.S. Government representatives and contractor personnel to visit Australia on a temporary basis over the life of the case to support delivery and integration of items and to provide supply support management, inventory control, and equipment familiarization. Visits will also include program and technical reviews.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
(vii)
1. The Block IV/V All Up Round (AUR) consists of the RGM-109E Tomahawk cruise missile assembled in a canister for surface launch. Tomahawk Block IV/V capabilities include, increased system flexibility, improved system response times, improved lethality against an increased target set, improved accuracy, improved Anti-Jam GPS Receiver (AGR) with Selective Availability Anti-Spoofing Module (SAASM) capability, enhanced availability due to a 15-year maintenance interval and two-way communications between missile and Strike/Missile Controllers via Ultra High Frequency (UHF) Satellite Communications (SATCOM). The two-way communication capability, provided by the Satellite Data Link Terminal (SDLT) enables Mission Planners and the Strike/Missile Controller to issue in-flight missile retargeting commands, receive in-flight missile Health & Status (H&S) transmissions, obtain Battle Damage Indication (BDI) data and obtain single-frame Battle Damage Indication Imagery (BDII) using the onboard camera that is part of the Digital Scene Matching Area Correlator (DSMAC) Sensor Assembly (DSA).
2. The highest level of classification of defense articles, components, and services included in this potential sale is SECRET.
3. If a technologically advanced adversary were to obtain knowledge of the specific hardware and software elements, the information could be used to develop countermeasures that might reduce weapon system effectiveness or be used in the development of a system with similar or advanced capabilities.
4. A determination has been made that Australia can provide substantially the same degree of protection for the sensitive technology being released as the U.S. Government. This sale is necessary in furtherance of the U.S. foreign policy and national security objectives outlined in the Policy Justification.
5. All defense articles and services listed in this transmittal have been authorized for release and export to Australia.
Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(1) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives with attached Transmittal 23-14, Policy Justification, and Sensitivity of Technology.
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* As defined in Section 47(6) of the Arms Export Control Act.
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The Government of Japan has requested to buy five (5) E-2D Advanced Hawkeye (AHE) Airborne Early Warning and Control (AEW&C) aircraft; twelve (12) T56-A-427A engines (10 installed, 2 spares); six (6) Multifunction Information Distribution System Joint Tactical Radio System (MIDS JTRS) terminals (5 installed, 1 spare); five (5) APY-9 radars (installed); five (5) AN/AYK-27 Integrated Navigation Control and Display Systems (INCDS) (installed); twelve (12) LN-251 Embedded Global Positioning Systems/Inertial Navigation Systems (EGIs) with Embedded Airborne Selective Availability Anti-Spoofing Module (SAASM) or M-Code Receiver (10 installed, 2 spares); and six (6) ALQ-217 Electronic Support Measures Systems (5 installed, 1 spare). Also included are aircraft ancillary equipment; modifications; spare and repair parts; support equipment; publications and technical documentation; software; personal protective equipment; personnel training and training equipment; ferry services; U.S. Government and contractor logistics, engineering, and technical support services; and other related elements of logistics and program support. The estimated total program cost is $1.381 billion.
This proposed sale will support the foreign policy goals and national security objectives of the United States by improving the security of a major ally that is a force for political stability and economic progress in the Asia-Pacific region.
The proposed sale will improve Japan's ability to effectively provide homeland defense utilizing an AEW&C capability. Japan will use the E-2D AHE aircraft to provide AEW&C situational awareness of air and naval activity in the Pacific region and to augment its existing E-2C Hawkeye AEW&C fleet. Japan will have no difficulty absorbing this equipment into its armed forces.
The proposed sale of this equipment and support will not alter the basic military balance in the region.
The principal contractor will be Northrop Grumman Corporation Aerospace Systems, Melbourne, FL. There are no known offset agreements proposed in connection with this potential sale.
Implementation of this proposed sale will not require the assignment of any additional U.S. Government or contractor representatives to Japan. However, U.S. Government or contractor personnel in-country visits will be required, on a temporary basis, in conjunction with program technical and management oversight and support requirements.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
(vii)
1. The E-2D Advanced Hawkeye (AHE) Airborne Early Warning and Control (AEW&C) provides detection and surveillance of regional surface and aircraft platforms through the use of the APY-9 radar, APX-122A Identification Friend or Foe (IFF), and ALQ-217 Electronic Support Measures (ESM) systems. The E-2D AHE provides area surveillance and detection, air intercept control, air traffic control, search and rescue assistance, communication relay and automatic tactical data exchange.
2. The APY-9 radar is a mechanically rotated, electronically scanned array, which utilizes Space-Time Adaptive Processing (STAP) technology to provide 360-degree detection and surveillance in high clutter environments. It is able to provide simultaneous detection and surveillance of surface and air units.
3. The Multifunction Information Distribution System Joint Tactical Radio System (MIDS JTRS (5)) terminal provides enhanced Link 16 functionality, namely Concurrent Multi-netting with four channels (CMN-4) and Concurrent Contention Receive (CCR). CMN-4 is a Link 16 enhancement that increases the terminal capability from receiving only one Tactical Digital Information Link-J (TADIL-J) message packing structure per time slot to receive as many as four simultaneous message packing structures per time slot, each transmitted on a unique Link 16 net. CCR described the Link 16 terminal's ability to receive multiple messages in the same net within the same time slot.
4. The APX-122A IFF Interrogator and APX-123A IFF Transponder are identification systems designed for command and control. They provide the ability to distinguish friendly aircraft, vehicles, or forces, and to determine their bearing and range from the Interrogator.
5. The ALQ-217 Electronic Support Measure (ESM) system is used to detect,
6. The AN/AYK-27 Integrated Navigation Control and Display System serves as the network manager and the human machine interface for the E-2D navigation system.
7. The LN-251 Embedded Global Positioning Systems/Inertial Navigation Systems (EGIs) with embedded airborne Selective Availability Anti-Spoofing Module (SAASM) or M-Code Receiver (ASR) system provides position, navigation and timing information to the E-2D via the Global Positioning Satellite system and an inertial measuring unit.
8. The highest level of classification of defense articles, components, and services included in this potential sale is SECRET.
9. If a technologically advanced adversary were to obtain knowledge of the specific hardware and software elements, the information could be used to develop countermeasures that might reduce weapon system effectiveness or be used in the development of a system with similar or advanced capabilities.
10. A Special Security Agreement will be in place to provide additional security requirements for implementation by the Government of Japan to protect the advanced capabilities this aircraft provides. This sale is necessary in furtherance of the U.S. foreign policy and national security objectives outlined in the Policy Justification.
11. All defense articles and services listed in this transmittal have been authorized for release and export to the Government of Japan.
Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(1) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives with attached Transmittal 22-72, and Policy Justification.
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*As defined in Section 47(6) of the Arms Export Control Act.
The Government of Bahrain has requested to buy equipment and services to refurbish twenty-four (24) Excess Defense Article (EDA) AH-1W multi-role helicopters. Included are services to refurbish a full-motion Aircraft Procedures Trainer (APT), M272A1 missile launchers and spare T-700-GE-401 aircraft engines, spare parts, support, training, publications, and other related elements of logistics and program support. The estimated total cost is $350 million.
This proposed sale will support the foreign policy and national security objectives of the United States by helping to improve the security of a Major Non-NATO ally that is an important force for political stability and economic progress in the Middle East.
The proposed sale will improve Bahrain's capability to meet current and future threats by improving its ability to fulfill maritime patrol, close air support, and search and rescue missions. Bahrain will have no difficulty absorbing these defense articles and services into its armed forces.
The proposed sale of these services and support will not alter the basic military balance in the region.
The principal contractor will be Bell Corporation, Fort Worth, TX. There are no known offset agreements proposed in connection with this potential sale.
Implementation of this proposed sale will not require the assignment of any additional U.S. Government or contractor representatives to Bahrain.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(5)(C) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives with attached Transmittal 22-0U.
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Date: February 2, 2012
Implementing Agency: Air Force
Funding Source: Foreign Military Financing (FMF)
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On April 9, 2019, Congress was notified by Congressional certification transmittal number 19-0F, of an additional twenty-seven (27) AIM-9X-2 Sidewinder Block II Tactical Missiles and eighteen (18) AIM-9X-2 Captive Air Training Missiles (CATM). This notification also included twelve (12) AIM-9X Tactical Guidance Units and six (6) AIM-9X CATM Guidance Units. These changes increased the MDE value by $35 million, for a revised MDE value of $254 million. The total case value increased to $482 million.
This transmittal notifies the addition of the following MDE items: seven (7) F-16 F-100-PW-229 engines. The following non-MDE items are also included: additional follow-on support and sustainment services.
The estimated total value of the additional items is $86 million, increasing the total MDE value to $340 million. The total non-MDE value will remain $228 million. The revised estimated total case value will increase to $568 million.
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Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(5)(C) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives with attached Transmittal 22-0V.
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Date: January 29, 2010
Military Department: Army
Funding Source: National Funds
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This transmittal notifies the inclusion of the following MDE items: one hundred (100) PAC-3 Missile Segment Enhancement (MSE) missiles; and two (2) PAC-3 MSE test missiles. Also included are M903 Launcher modification kits; missile round trainers; and Post Deployment Build (PDB) 8.1 software upgrade. The estimated total value of these additional items is $882 million. These additions will not result in an increase to the total estimated MDE value of $1.57 billion. The total estimated case value will remain $2.81 billion.
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The PAC-3 Missile Segment Enhanced missile is a small, highly agile, kinetic kill interceptor for defense against tactical ballistic missiles, cruise missiles and air-breathing threats. The MSE variant of the PAC-3 missile represents the next generation in hit-to-kill interceptors and provides expanded battlespace against evolving threats. The PAC-3 MSE improves upon the original PAC-3 capability with a higher performance solid rocket motor, modified lethality enhancer, more responsible control surfaces, upgraded guidance software, and insensitive munitions improvements.
The highest level of classification of defense articles, components, and services included in this potential sale is SECRET.
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Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(5)(C) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives with attached Transmittal 23-0B.
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Date: October 29, 2019
Implementing Agency: Air Force
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On July 26, 2022, Congress was notified by Congressional certification transmittal number 22-0K of the possible sale, under Section 36(b)(5)(C) of the Arms Export Control Act, of one hundred three (103) AN/ALQ-250 Eagle Passive Active Warning Survivability System (EPAWSS) electronic warfare suites. The total cost of new MDE articles was $956 million. This did not increase the total net cost of MDE, which remained $2.4 billion. The total case value did not increase, remaining $4.5 billion.
This transmittal notifies the addition of the following MDE items: up to one (1) Instrumented Test Vehicle; two (2) JASSM AGM-158 Separation Test Vehicles; two (2) JASSM AGM-158 Jettison Test Vehicles; two (2) JASSM AGM-158 Captive Carry Flight Test Vehicles; two (2) AGM-158 Inert JASSMs; and one hundred three (103) Embedded Global Positioning System/Inertial Navigation System (GPS/INS) (EGI) devices with M-code technology. The total cost of new MDE articles is $41 million. The total net cost of MDE remains $2.4 billion. The total net cost of non-MDE remains $2.1 billion. The total case value remains $4.5 billion.
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The AGM-158B/B-2 Joint Air-to-Surface Standoff Missile with Extended Range (JASSM-ER) is a low-observable, highly survivable, subsonic cruise missile designed to penetrate next-generation air defense systems in route to target. The JASSM-ER is designed to kill hard, medium-hardened, soft and area-type targets. A turbo-fan engine and reconfigured fuel tanks provide added capacity. This potential sale will only include testing and training munitions.
a. The AGM-158/B-2 system capabilities include all the capabilities of the AGM-158/B. The AGM-158/B-2 configuration has different internal components to address multiple obsolescence issues as well as subcomponent updates to position for GPS M-Code and other potential upgrades.
b. The AGM-158 Instrumented Test Vehicle (ITV) is a flight certification vehicle equipped with an intelligent Test Instrumentation Kit (iTIK). The ITV collects airworthiness data to ensure safe separation of the munition from the aircraft.
c. The JASSM AGM-158 Separation Test Vehicle (STV), equipped with iTIK, collects separation data during airworthiness/flight certification.
d. The JASSM Jettison Test Vehicle (JTV) is used during the airworthiness data collection process to ensure safe jettison of the munition from the aircraft. It provides pilot captive-carry training with recording capability for post-release data analysis.
e. The JASSM AGM-158 Captive Carry Flight Test Vehicle, equipped with iTIK, has an inert warhead and fuze and an anti-jam GPS receiver. It is used solely for captive carry testing, conducted in the U.S.
f. The AGM-158 Inert JASSM, equipped with iTIK, has an inert warhead and fuze and an anti-jam GPS receiver. It is used for live launch testing, conducted in the U.S.
The M-Code capable Embedded Global Positioning System/Inertial Navigation System (GPS/INS) (EGI), with an embedded GPS Precise Positioning Service (PPS) Receiver Application Module-Standard Electronic Module (GRAM-S/M), is a self-contained navigation system that provides acceleration, velocity, position, attitude, platform azimuth, magnetic and true heading, altitude, body angular rates, time tags, and coordinated universal time (UTC) synchronized time. The embedded GRAM-S/M enables access to both the encrypted P(Y) and M-Code signals, providing protection against active spoofing attacks, enhanced military exclusivity, integrity, and anti-jam.
The highest level of classification of defense articles, components, and services included in this potential sale is SECRET.
(vii)
Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(1) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives with attached Transmittal 23-12, Policy Justification, and Sensitivity of Technology.
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Funding Sources: National Funds ($243.0 million)
Foreign Military Financing ($25.0 million)
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* As defined in Section 47(6) of the Arms Export Control Act.
The Government of Greece has requested to buy sixty-three (63) Assault Amphibious Vehicles, Personnel Variant (AAVP-7A1), nine (9) Assault Amphibious Vehicles, Command Variant (AAVC-7A1), four (4) Assault Amphibious Vehicles, Recovery Variant (AAVR-7A1), and sixty-three (63) 50-Caliber Machine Guns (Heavy Barrel). Also included are MK-19 Grenade Launchers, M36E T1 Thermal Sighting Systems (TSS), supply support (spare parts), support equipment (including special mission kits/tools/Enhanced Applique Kits (EAAK)), training, technical manuals (UNCLASSIFIED), technical data, U.S. Government and contractor engineering, technical support and assistance (including Contractor Engineering Technical Services (CETS)), Integrated Logistic Support (ILS) management services, parts obsolescence remediation, calibration services, transportation, Follow-on Support (FOS), Return, Repair and Reshipment of unserviceable repairable items/equipment, applicable software and apparel, and other related elements of logistics and program support. The estimated total cost is $268 million.
This proposed sale will support the foreign policy and national security objectives of the United States by helping to improve the security of a NATO ally, which is an important partner for political stability and economic progress in Europe.
This proposed sale will improve Greece's capability to meet current and future threats by providing an effective capability to protect maritime interests and infrastructure in support of its strategic location on NATO's southern flank. Greece contributes to NATO operations, as well as to counterterrorism and counter-piracy maritime efforts. Greece will have no difficulty absorbing these articles and services into its armed forces.
The proposed sale of this equipment and support will not alter the basic military balance in the region.
There is not a principal contractor associated with this potential sale. Consequently, there are no known offset agreements proposed in connection with this potential sale.
Implementation of this proposed sale will not require the assignment of U.S. Government personnel, but will require one (1) contractor representative, Full-Time Equivalent (FTE) position to Greece to deliver Assault Amphibious Vehicles, related equipment and support.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
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1. The mission of the Assault Amphibious Vehicle (AAV) is to maneuver surface assault elements of the landing force and their equipment from assault shipping during amphibious operations to inland objectives and to conduct mechanized operations and related combat support in subsequent operations ashore.
The AAV-7A1 Family of Vehicles includes the Personnel variant which carries troops in amphibious operations from ship to shore, through the surf zone and to inland objectives. The AAVP-7A1 provides protected transport for up to 25 combat-loaded personnel through all types of terrain. The Command Variant, AAVC-7A1, is an armored assault amphibious full-tracked landing vehicle. The vehicle provides a mobile task force communication center in amphibious operations from ship to shore through the surf zone to inland objectives. The Recovery Variant, AAVR-7A1, is an armored assault amphibious full-tracked vehicle. The vehicle is designed to recover similar or smaller sized vehicles. It also carries basic maintenance equipment to provide field support maintenance to vehicles in the field.
2. The highest level of classification of defense articles, components, and services included in this potential sale is SECRET.
3. If a technologically advanced adversary were to obtain knowledge of the hardware and software elements, the information could be used to develop countermeasures or equivalent systems which might reduce system effectiveness or be used in the development of a system with similar or advanced capabilities.
4. A determination has been made that Greece can provide substantially the same degree of protection for the sensitive technology being released as the U.S. Government. This sale is necessary in furtherance of the U.S. foreign policy and national security objectives outlined in the Policy Justification.
5. All defense articles and services listed in this transmittal have been
Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(1) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives with attached Transmittal 22-67, Policy Justification, and Sensitivity of Technology.
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* As defined in Section 47(6) of the Arms Export Control Act.
The Government of Finland has requested to buy three hundred fifty (350) FIM-92K Stinger Man Portable missiles; and five (5) Production Verification Flight Test (PVFT) FIM-92K Stinger Man Portable missiles. Also included is support equipment; production support, engineering, and technical services; transportation services; and other related elements of program and logistics support. The total estimated cost is $380 million.
This proposed sale will support the foreign policy and national security of the United States by improving the security of a trusted partner which is an important force for political stability and economic progress in Europe. It is vital to the U.S. national interest to assist Finland in developing and maintaining a strong and ready self-defense capability.
The proposed sale will improve Finland's defense and deterrence capabilities. Finland intends to use these defense articles and services to increase its national stock. This critical platform will bolster the land and air defense capabilities in Europe's northern flank, supporting the U.S. European Command's top priorities. Finland will have no difficulty absorbing this equipment into its armed forces.
The proposed sale of this equipment and support will not alter the basic military balance in the region.
The principal contractors will be Raytheon Missiles and Defense, Tucson, AZ and Lockheed Martin Corporation, Syracuse, NY. There are no known offset agreements in connection with this potential sale.
Implementation of this proposed sale will not require the assignment of U.S. Government or contractor representatives to Finland.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
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1. The Stinger missile is a lightweight, self-contained air defense system that can be rapidly deployed by ground troops. Its seeker and guidance systems enables the weapon to acquire, track and engage a target with one shot.
2. The highest level of classification of defense articles, components, and services included in this potential sale is SECRET.
3. If a technologically advanced adversary were to obtain knowledge of the specific hardware and software elements, the information could be used to develop countermeasures that might reduce weapon system effectiveness or be used in the development of a system with similar or advanced capabilities.
4. A determination has been made that Finland can provide substantially the same degree of protection for the sensitive technology being released as the U.S. Government. This sale is necessary in furtherance of the U.S. foreign policy and national security objectives outlined in the Policy Justification.
5. All defense articles and services listed in this transmittal have been authorized for release and export to the Government of Finland.
Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(1) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives with attached Transmittal 22-64, Policy Justification, and Sensitivity of Technology.
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The Government of Finland has requested to buy forty (40) AIM 9X Block II tactical missiles; four (4) AIM 9X Block II tactical guidance units; and forty-eight (48) AGM-154 Joint Stand Off Weapons (JSOW). Also included are Dummy Air Training Missiles (DATM); Captive Air Training Missile (CATM); Captive Flight Vehicles (CFVs); Free Flight Vehicles (FFVs); containers; mission planning; integration support and testing; munitions storage security and training; weapon operational flight program software development; transportation; tools and test equipment; support equipment; spare and repair parts; publications and technical documentation; personnel training and training equipment; U.S. Government and contractor engineering and logistics support services; books and other publications; training; training aids and devices; space parts; support equipment; weapon system software support; U.S. Government and contractor engineering; technical and logistics support services; studies and surveys; missile technical assistance; other technical assistance; and other related elements of program and logistics support. The total estimated cost is $323.3 million.
This proposed sale will support the foreign policy and national security of the United States by improving the security of a trusted partner, which is an important force for political stability and economic progress in Europe. It is vital to the U.S. national interest to assist Finland in developing and maintaining a strong and ready self-defense capability.
The proposed sale will improve Finland's air-to-air and air-to-surface weapons capabilities and will positively impact U.S. relations with countries in the Nordic region. Finland intends to use these defense articles and services for its fighter aircraft fleet. Finland will have no difficulty absorbing this equipment into its armed forces.
The proposed sale of this equipment and support will not alter the basic military balance in the region.
The principal contractors will be Raytheon Missiles and Defense, Tucson, AZ. There are no known offset agreements proposed in connection with this potential sale.
Implementation of the proposed sale will require U.S. Government and contractor representatives to visit Finland on a temporary basis in conjunction with program technical oversight and support requirements, including program and technical reviews.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
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1. The AIM 9X Block II Tactical Missile is a datalink-enabled, launch and leave, air combat munition that uses passive Infrared (IR) energy to acquire and track enemy air targets. The AIM-9X Block II Sidewinder continues the evolution of the AIM-9 series of missiles.
2. The AGM-154 JSOW is a precision strike weapon with a 500-pound blast/fragmentation/penetrator warhead effective against fixed-point targets. It includes GPS/INS guidance, and an uncooled, long-wave imaging infrared seeker with autonomous target acquisition algorithms for precise targeting.
3. The highest level of classification of defense articles, components, and services included in this potential sale is SECRET.
4. If a technologically advanced adversary were to obtain knowledge of the specific hardware and software elements, the information could be used to develop countermeasures that might reduce weapon system effectiveness or be used in the development of a system with similar or advanced capabilities.
5. A determination has been made that Finland can provide substantially the same degree of protection for the sensitive technology being released as the U.S. Government. This sale is necessary in furtherance of the U.S. foreign policy and national security objectives outlined in the Policy Justification.
6. All defense articles and services listed in this transmittal have been authorized for release and export to the Government of Finland.
Office of the Chief Information Officer, Department of Defense (DoD).
Solicitation of applications.
The Secretary of Defense has determined the need for a Support Center (Center) for the University Consortium for Cybersecurity (UC2). The Center will provide, during a two-year term, administrative support for the academic research and engagement activities of UC2. To be eligible, interested institutions must have been designated as National Centers of Academic Excellence (NCAE) in cybersecurity for at least 24 months from the date of the publication of this notice and, further, must demonstrate an understanding of cybersecurity research, be eligible for access to classified material, and demonstrate commitment to the UC2 mission of a closer collaboration between academia and the DoD.
Consideration will be given to all applications received by October 15, 2024.
Dr. Gwyneth Sutherlin, 202-685-2080. The application shall include a cover page, labeled “PROPOSAL UC2 Support Center,” that includes the prospective proposer's administrative point of contact, to include a telephone number and email address. The application must be limited to three (3) pages, single-sided, and must include: a certificate of NCAE designation status for 24 months, a statement of experience and understanding with cybersecurity research, evidence of eligibility to access to classified material, a narrative description of potential contribution and support to UC2 mission, and a potential team and management plan. Reference and other citations are not required but may be included outside the three-page limit.
Documents must be submitted on 8.5 x 11-inch paper, single spaced, with 1-inch margins, in 12 point, Times New Roman font. The name of the institution must be in the header or footer.
Applications shall be addressed to: College of Information and Cyberspace, University of Consortium for Cybersecurity, Attn: Dr. Gwyneth Sutherlin, 300 Fifth Ave., Bldg. 62, Fort Lesley J. McNair, Washington, DC 20319-5066.
In accordance with Section 1505 of Public Law 117-263 (Dec. 23, 2022; 136 Stat. 2395), the Secretary shall require proposals be submitted by institutions designed as a National Center of Academic Excellence in Cybersecurity (NCAE-C).
The NCAE-C program is managed by the National Cryptologic School at the National Security Agency. U.S. Government partners include the Cybersecurity and Infrastructure Security Agency and the Federal Bureau of Investigation. Such designation was created to manage a collaborative cybersecurity educational program with community colleges, colleges, and universities that: (1) establishes standards for cybersecurity curriculum and academic excellence; (2) includes competency development among students and faculty; (3) values community outreach and leadership in professional development; (4) integrates cybersecurity practice within the institution across academic disciplines; and (5) actively engages in solutions to challenges facing cybersecurity education.
There are three types of designations:
The Cyber Defense (CAE-CD) Designation is awarded to regionally accredited academic institutions offering cybersecurity degrees and/or certificates at the associates, bachelors, and masters and doctoral levels.
The Cyber Research (CAE-R) designation is awarded to DoD schools, doctoral degree-producing military institutions, or regionally accredited, degree granting four-year institutions rated by the Carnegie Foundation Basic Classification system as either a Doctoral University—Highest Research Activity (R1), Doctoral University—Higher Research Activity (R2), or Doctoral University—Moderate Research Activity (R3).
The Cyber Operations (CAE-CO) program is a deeply technical, inter-disciplinary, higher education program firmly grounded in the computer science, computer engineering, and/or electrical engineering disciplines, with extensive opportunities for hands-on applications via labs and exercises.
More information can be found here:
An added requirement is the capability to be immediately eligible or current Facility Clearance (FCL) eligibility for access to classified information. As required by the Defense Counterintelligence and Security Agency (DCSA), entities (including companies and academic institutions) engaged in providing goods or services to the U.S. Government involving access to or creation of classified information may be granted an FCL. Mandated by the guidelines set forth in the National Industrial Security Program, DCSA processes, issues, and monitors the continued eligibility of entities for an FCL.
More information can be found here:
Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(1) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives with attached Transmittal 23-17, Policy Justification, and Sensitivity of Technology.
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The Government of the United Kingdom has requested to buy up to six hundred (600) Javelin FGM-148F missiles (includes twelve (12) fly-to-buy missiles). Also included is U.S. Government technical assistance and other related elements of logistics and program support. The total estimated cost is $125.13 million.
This proposed sale will support the foreign policy goals and national security objectives of the United States by improving the security of a NATO Ally that is a force for political stability and economic progress in Europe.
The proposed sale will improve the United Kingdom's capability to meet current and future threats. The United Kingdom will use the enhanced capability to build its long-term defense capacity to meet its national defense requirements. The United Kingdom will have no difficulty absorbing this equipment into its armed forces.
The proposed sale of this equipment and support will not alter the basic military balance in the region.
The prime contractors will be Raytheon/Lockheed Martin Javelin Joint Venture, Orlando, FL and Tucson, AZ. There are no known offset agreements in connection with this potential sale.
Implementation of this proposed sale will not require the assignment of U.S. Government or contractor representatives to the United Kingdom.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
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1. The Javelin Weapon System is a medium-range, man portable, shoulder-launched, fire and forget, anti-tank system for infantry, scouts, and combat engineers. It may also be mounted on a variety of platforms including vehicles, aircraft and watercraft. The system weighs 49.5 pounds and has a maximum range in excess of 2,500 meters. They system is highly lethal against tanks and other systems with conventional and reactive armors. The system possesses a secondary capability against bunkers.
2. Javelin's key technical feature is the use of fire-and-forget technology which allows the gunner to fire and immediately relocate or take cover. Additional special features are the top attack and/or direct fire modes, an advanced tandem warhead and imaging infrared seeker, target lock-on before launch, and soft launch from enclosures or covered fighting positions. The Javelin missile also has a minimum smoke motor thus decreasing its detection on the battlefield.
3. The Javelin Weapon System is comprised of two major tactical components, which are a reusable Light Weight Command Launch Unit (LWCLU) and a round contained in a disposable launch tube assembly. The LWCLU has been identified as Major Defense Equipment (MDE). The LWCLU incorporates an integrated day-night sight that provides a target engagement capability in adverse weather and countermeasure environments. The LWCLU may also be used in a stand-alone mode for battlefield surveillance and target detection. The LWCLU's thermal sight is a 3rd generation Forward Looking Infrared (FLIR) sensor. To facilitate initial loading and subsequent updating of software, all on-board missile software is uploaded via the LWCLU after mating and prior to launch.
4. The missile is autonomously guided to the target using an imaging infrared seeker and adaptive correlation tracking algorithms. This allows the gunner to take cover or reload and engage another target after firing a missile. The missile has an advanced tandem warhead and can be used in either the top attack or direct fire modes (for target undercover). An onboard flight computer guides the missile to the selected target.
5. The highest level of classification of defense articles, components, and services included in this potential sale is SECRET.
6. If a technologically advanced adversary obtains knowledge of the specific hardware and software elements, the information could be used to develop countermeasures or equivalent systems that might reduce weapon system effectiveness or be used in the development of a system with similar or advanced capabilities.
7. A determination has been made that the United Kingdom can provide substantially the same degree of protection for the sensitive technology being released as the U.S. Government. This proposed sale is necessary to further the U.S. foreign policy and national security objectives outlined in the Policy Justification.
8. All defense articles and services listed on this transmittal are authorized for release and export to the Government of the United Kingdom.
Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(1) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a
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* As defined in Section 47(6) of the Arms Export Control Act.
The Taipei Economic and Cultural Representative Office in the United States (TECRO) has requested to buy one hundred (100) AGM-88B High-Speed Anti-Radiation Missiles (HARM); twenty-three (23) HARM training missiles; two hundred (200) AIM-120C-8 Advanced Medium Range Air-to-Air Missiles (AMRAAM); four (4) AIM-120C-8 AMRAAM Guidance Sections; and twenty-six (26) LAU-129 multi-purpose launchers. Also included are LAU-118A missile launchers with Aircraft Launcher Interface Computer (ALIC); HARM missile containers; AIM-120 control sections and containers; AIM-120C Captive Air Training Missiles (CATM); dummy air training missiles (DATM), integration and test support and equipment; munitions support and support equipment; spare parts, consumables and accessories and repair and return support; classified software; maintenance and maintenance support; classified publications and technical documentation; U.S. Government and contractor engineering, technical and logistics support services, studies and surveys; and other related elements of logistical and program support. The estimated total cost is $619 million.
This proposed sale is consistent with U.S. law and policy as expressed in Public Law 96-8.
This proposed sale serves U.S. national, economic, and security interests by supporting the recipient's continuing efforts to modernize its armed forces and to maintain a credible defensive capability. The proposed sale will help improve the security of the recipient and assist in maintaining political stability, military balance, and economic progress in the region.
The proposed sale will contribute to the recipient's capability to provide for the defense of its airspace, regional security, and interoperability with the United States. The recipient will have no difficulty absorbing this equipment into its armed forces.
The proposed sale of this equipment and support will not alter the basic military balance in the region.
The principal contractors will be Raytheon Missiles and Defense, Tucson, AZ and Lockheed Martin Corporation, Bethesda, MD. The purchaser typically requests offsets. Any offset agreement would be defined in negotiations between the purchaser and the contractor(s).
Implementation of this proposed sale will not require the assignment of any additional U.S. Government or contractor representatives to recipient.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
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1. The AGM-88 High-speed Anti-Radiation Missile (HARM) is a tactical, supersonic air-to-surface missile designed to suppress or destroy enemy radar-equipped, surface-to-air missile radars, early warning radars, and radar-directed air defense artillery systems. This potential sale will include HARM training missiles.
2. The LAU-118 launcher provides the mechanical and electrical interface between the HARM missile and aircraft.
3. The AIM-120C-8 Advanced Medium Range Air-to-Air Missile (AMRAAM) is a supersonic, air-launched, aerial intercept, guided missile featuring digital technology and micro-miniature solid-state electronics. AMRAAM capabilities include look-down/shoot-down, multiple launches against multiple targets, resistance to electronic countermeasures, and interception of high- and low-flying and maneuvering targets. This potential sale will include Captive Air Training Missiles (CATM), as well as AMRAAM guidance section and control section spares.
4. The LAU-129 Guided Missile Launcher provides mechanical and electrical interface between the AIM-9 Sidewinder or AIM-120 AMRAAM missile and aircraft.
5. The highest level of classification of defense articles, components, and services included in this potential sale is SECRET.
6. If a technologically advanced adversary were to obtain knowledge of the specific hardware and software elements, the information could be used to develop countermeasures that might reduce weapon system effectiveness or be used in the development of a system with similar or advanced capabilities.
7. A determination has been made that the recipient can provide substantially the same degree of protection for the sensitive technology being released as the U.S. Government. This sale is necessary in furtherance of the U.S. foreign policy and national
8. All defense articles and services listed in this transmittal have been authorized for release and export to the recipient.
Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(1) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives with attached Transmittal 22-36, Policy Justification, and Sensitivity of Technology.
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Funding Source: National Funds
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The Government of Qatar has requested to buy ten (10) Fixed Site-Low, Slow, Small Unmanned Aircraft System Integrated Defeat System (FS-LIDS) System of Systems, to include: two hundred (200) Coyote Block 2 interceptors. Also included is the Counter Unmanned Electronic Warfare System (CUAEWS); Coyote launchers; Ku Band Multi-function Radio Frequency System (KuMRFS) radars; Forward Area Air Defense Command and Control (FAAD C2); Counter Unmanned Electronic Warfare Systems (CUAEWS); E.O./IR cameras; support and test equipment; integration and test support; spare and repair parts; communications equipment; software delivery and support; facilities and construction support; publications and technical documentation; personnel training and training equipment; U.S. Government and contractor engineering; technical and logistics support services; studies and surveys; maintenance services; and other related elements of logistical and program support. The total estimated program cost is $1 billion.
This proposed sale will support the foreign policy and national security objectives of the United States by helping to improve the security of a friendly country that continues to be an important force for political stability and economic progress in the Middle East.
The proposed sale will improve Qatar's capability to meet current and future threats by providing electronic and kinetic defeat capabilities against Unmanned Aircraft Systems. Qatar will have no difficulty absorbing these articles and/or services into its armed forces.
The proposed sale of this equipment and support will not alter the basic military balance in the region.
The principal contractors will be Raytheon, Huntsville AL; SRC, Huntsville, AL; and Northrop Grumman, Huntsville, AL. There are no known offset agreements proposed in connection with this potential sale.
Implementation of this proposed sale will require the assignment of five (5) additional U.S. Government and fifteen (15) U.S. contractor representatives to Qatar for a duration of five (5) years to support fielding, training, and sustainment activities.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
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1. The Fixed Site-Low, Slow, Small Unmanned Aircraft System Integrated Defeat System (FS-LIDS) is a Counter Unmanned Aircraft System of Systems. It provides defeat capabilities against Unmanned Aircraft vehicles.
2. The Counter Unmanned Electronic Warfare System (CUAEWS) is a Counter Unmanned Aircraft defeat system. It provides signal disruption and jamming of position, timing, navigation, command link and video downlink signals to/from the ground command station.
3. The Coyote Launcher is a high speed, highly maneuverable, semi-active guided airframe with a proximity blast fragmentation warhead. It provides a kinetic defeat capability against Counter Unmanned Aircraft threats.
4. The Coyote Interceptor is a Counter Unmanned Aircraft kinetic missile that provides kinetic defeat capabilities against Unmanned Aircraft vehicles.
5. The Ku Band Multi-function Radio Frequency System (KuMURFS) is a multi-function radar. It provides three-dimensional target location to provide situational awareness for command-and-control systems and guidance used by the Coyote Block-2 Interceptor.
6. The highest level of classification of defense articles, components, and services included in this potential sale is SECRET.
7. If a technologically advanced adversary were to obtain knowledge of the specific hardware and software elements, the information could be used to develop countermeasures that might reduce weapon system effectiveness or be used in the development of a system with similar or advanced capabilities.
8. A determination has been made that Qatar can provide substantially the same degree of protection for the sensitive technology being released as the U.S. Government. This sale is necessary in furtherance of the U.S. foreign policy and national security objectives outlined in the Policy Justification.
9. All defense articles and services listed in this transmittal have been authorized for release and export to the Government of Qatar.
Office of the Under Secretary of Defense for Personnel and Readiness (OUSD(P&R)), Department of Defense (DoD).
30-Day information collection notice.
The DoD has submitted to the Office of Management and Budget (OMB) for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act.
Consideration will be given to all comments received by October 15, 2024.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Reginald Lucas, (571) 372-7574,
You may also submit comments and recommendations, identified by Docket ID number and title, by the following method:
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Requests for copies of the information collection proposal should be sent to Mr. Lucas at
Defense Security Cooperation Agency, Department of Defense (DoD).
Arms sales notice.
The DoD is publishing the unclassified text of an arms sales notification.
Pamela Young at (703) 953-6092,
This 36(b)(1) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives with attached Transmittal 23-23, Policy Justification, and Sensitivity of Technology.
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*As defined in Section 47(6) of the Arms Export Control Act.
The Republic of Poland has requested to buy eight hundred (800) AGM-114R2 Hellfire missiles; and four (4) M36 Hellfire Captive Air Training Missiles (CATM). Also included is Tactical Aviation Ground Munition Program Office technical assistance; Security Assistance Management Directorate technical assistance; Joint Attack Munition Systems technical assistance; Classified and Unclassified publications; spare parts; repair and return; storage; and other related elements of logistics and program support. The total estimated cost is $150 million.
This proposed sale will support the foreign policy goals and national security objectives of the United States by improving the security of a NATO ally that is a force for political stability and economic progress in Europe.
The proposed sale will improve Poland's military goals of updating capability while further enhancing interoperability with the United States and other allies. Poland intends to use these defense articles and services to modernize its armed forces and expand its capability to strengthen its homeland defense and deter regional threats. Poland will have no difficulty absorbing this equipment into its armed forces.
The proposed sale of this equipment and support will not alter the basic military balance in the region.
The principal contractor will be Lockheed Martin Corporation, Orlando, FL. There are no known offset agreements proposed in connection with this potential sale.
Implementation of this proposed sale will not require the assignment of any additional U.S. Government or contractor representatives to Poland.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
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1. The Hellfire AGM-114R2 is a precision strike, semi-active laser-guided missile and is the principal air-to-ground weapon for the U.S. Army AH-64 Apache. The Hellfire R model incorporates a multi-purpose warhead with selectable effects appropriate for engagement of a wide range of targets including heavily or lightly armored targets, thin-skinned vehicles, urban structures, caves, and personnel.
2. The highest level of classification of defense articles, components, and services included in this potential sale is SECRET.
3. If a technologically advanced adversary were to obtain knowledge of the specific hardware and software elements, the information could be used to develop countermeasures that might reduce weapon system effectiveness or be used in the development of a system with similar or advanced capabilities.
4. A determination has been made that Poland can provide substantially the same degree of protection for the sensitive technology being released as the U.S. Government. This sale is necessary in furtherance of the U.S. foreign policy and national security objectives outlined in the Policy Justification.
5. All defense articles and services listed in this transmittal have been authorized for release and export to Poland.
Department of the Army, Corps of Engineers, DoD.
Notice; announcement of virtual public and Tribal meeting dates and solicitation of input.
Pursuant to the Executive order, “Revitalizing our Nation's Commitment to Environmental Justice for All”, the U.S. Army Corps of Engineers (Corps) is preparing its Environmental Justice Strategic Plan for the Civil Works programs. As part of that effort, the Corps is soliciting feedback on its Draft Environmental Justice Strategic Plan vision, goals, and objectives. The Corps is also soliciting input on priority actions and performance metrics that will be evaluated to advance the Draft Environmental Justice Strategic Plan vision, goals, and objectives. The Environmental Justice Strategic Plan will be a living document that is periodically updated, and comments will be therefore accepted any time at the email address listed below.
To be considered for this 2024 Environmental Justice Strategic Plan, written recommendations must be received on or before Tuesday, October 1st, 2024. The Corps will hold public virtual meetings on the following dates: September 17th and September 19th. In addition, the Corps will hold Tribal virtual meetings on the following dates: September 18th.
Tribal Nations may request consultation through October 15. Written comments from Tribal Nations will be accepted until October 22. Please refer to the
You may send written feedback, identified by Docket ID No.
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Jessica Ludy, Office of the Assistant Secretary of the Army for Civil Works at 1-415-732-9165 or by email at
Executive Order (E.O) 14096 directs Federal agencies to develop an Environmental Justice Strategic Plan that will, “set forth the agency's vision, goals, priority actions, and metrics to address and advance environmental justice and to fulfill the directives of [the E.O.], including through the identification of new staffing, policies, regulations, or guidance documents”, as well as “identify and address opportunities through regulations, policies, permits, or other means to improve accountability and compliance with any statute the agency administers that affects the health and environment of communities with environmental justice concerns (United States, Executive Office of the President, [Joseph Biden], Executive Order 14096: Revitalizing Our Nation's Commitment to Environmental Justice for All. Section 4. 26 April 2023).
When complete, the Draft Environmental Justice Strategic Plan will offer a vision to transform how the Corps works with communities in its Civil Works program. Overall, the Corps will integrate environmental justice principles into the foundational elements of the Corps Civil Works programs. This includes consideration of Federal Tribal trust responsibilities and any disproportionate impact on disadvantaged communities from Civil Works programs. This vision is reflected in the five goals and associated objectives outlined in this notice and include our People (the Corps workforce); our Projects, permits and other Corps work activities; our Partners (Tribes, communities, agencies, and other organizations with whom the Corps collaborates); our Processes (including the way the Corps conducts work activities and makes decisions); and our Policy (including the laws, authorities, and policies that require or inform Corps compliance). Public input received through this notice in the
It is the vision of the Corps to leverage our congressional authorities, our technical expertise, and our partnerships to ensure environmental justice principles and the Federal trust responsibility result in the Civil Works programs supporting
Recruit, retain, and train a workforce with the lived experience, expertise, and capacity to deliver the Corps mission in ways that advance environmental justice for all communities and protect our Federal trust responsibilities. Goal one will be accomplished through the following four objectives:
1. Consistent with merit system principles, develop a Corps workforce across all levels including junior staff and senior leaders, temporary and permanent staff, technical and operational staff that reflects the diversity of the American people. This includes targeted recruitment and outreach to people with lived experience of marginalization or environmental justice concerns and removing barriers to equal opportunity.
2. Foster a model workplace environment at the Corps where all employees are engaged, supported, heard, and empowered, with opportunities to learn, grow and excel during their career.
3. Provide workforce training and support for Corps staff to grow their environmental justice literacy and expertise, including how to incorporate environmental justice into the analysis of direct, indirect, and cumulative effects of proposed Federal actions or permits and to increase their understanding of Tribal sovereignty and the Federal trust responsibility.
4. Provide training and tools for staff on how to engage and communicate with Tribes and communities with environmental justice concerns in ways that foster mutual respect and trust, and in how to consider the information received during engagements in projects, decisions, and other Corps activities.
Goal two of the Strategic Plan is to strive to conduct all Corps work within its authorities in ways that reduce disproportionate environmental burdens including human health effects across the landscape and improve environmental, economic, and social conditions in places and with communities with environmental justice concerns. Goal two will be accomplished through the following three objectives:
1. Prioritize resources (staff, funding, outreach) to efforts that will bring significant benefits with no group bearing a disproportionate burden of environmental harms and risks, including health burdens, in communities with environmental justice concerns, including in U.S. territories and across Tribal Nations.
2. Integrate best practices in equitable community engagement
3. Evaluate relevant legal authorities to enhance the Corps ability to both identify impacts and implement alternative solutions or specific mitigation actions that will reduce adverse impacts on and increase benefits to communities with environmental justice concerns.
As part of a whole-of-government approach, goal three focuses on investing in building the trusted partnerships and collaboration needed to advance environmental justice across the nation. Goal three will be accomplished through the following three objectives:
1. Build, nurture, repair, or rebuild trusted relationships with Tribal Nations and all communities with environmental justice concerns to enhance their ability to receive benefits and to reduce burdens related to Corps activities. Work together with them to anticipate environmental justice concerns before they arise and integrate preferences into solutions.
2. Build strategic partnerships and increase project-based collaboration with other agencies and organizations who can help advance environmental justice. These organizations may have specialized expertise, unique authorities that compliment Corps authorities to create a more complete or equitable project, and or may have pre-existing relationships with local Tribes and communities, or insight into community needs.
3. Continue to participate in and leverage opportunities through interagency committees and working groups on relevant topics to exchange knowledge and advance environmental justice. Example topics include community-driven relocation, issues of homelessness, nature-based solutions, environmental justice-focused trainings, etc.
Goal four of the Strategic Plan is to refine Corps policy, processes, and decision making to reduce disparate environmental burden including adverse health effects, to increase access to the benefits of Corps work activities, and to remove barriers to participation in decision-making for Tribal Nations and all communities with environmental justice concerns. Goal four will be accomplished through the following two objectives:
1. Staff will review and recommend improvements to policy or guidance that could reduce disparate environmental burden, increase access to benefits of Corps Civil Works programs for communities, and make it easier for affected communities to participate in the Corps processes that affect their built and natural environment. Further, Environmental Justice and Tribal subject matter experts should review Corps policies and guidance updates to ensure that updates will not disproportionately affect communities with environmental justice concerns.
2. Review and modify planning, budgeting, procurement, contracting, and other processes and decisions to focus resources to the maximum extent possible in Tribal and other communities or places that have the most environmental burdens, that would be the most affected by a particular agency action or decision, or are most in need to advance environmental justice.
Goal five of the Strategic Plan is to institutionalize environmental justice and Federal trust principles across the Corps throughout all operations and establish accountability for decisionmakers and practitioners as they apply these principles across agency activities, in the Army Civil Works program. Goal five will be accomplished through the following three objectives:
1. Learn how environmental justice and Tribal trust issues intersect with every functional or work area at the Corps and use findings to update Policy and Process Guidance referenced in Goal four.
2. Develop a structure that ensures all employees can both learn and be held accountable for advancing environmental justice and upholding the Federal trust responsibilities.
3. Create a feedback mechanism to update Senior Leaders on progress and challenges to implementing environmental justice strategies.
You may access information on the Corps' Environmental Justice program, and information on the Environmental Justice Strategic Plan update at the Corps' environmental justice website at
The Corps poses a series of questions detailed in this notice for stakeholder input. These questions are only guideposts for comments. Input on all aspects of the Draft Environmental Justice Strategic Plan are welcome. Written input to the docket as well as verbal input during the virtual meetings are strongly encouraged. Verbal input received during the listening sessions will be considered equally to written comments.
1. Do the Draft Environmental Justice Strategic Plan vision, strategic goals, and objectives discussed in this notice address your interests and concerns about the advancement of environmental justice by the U.S. Army Corps of Engineers? Why or why not?
2. What actions should the U.S. Army Corps of Engineers undertake to advance environmental justice?
3. What performance measures or metrics should the U.S. Army Corps of Engineers establish to monitor progress towards advancing environmental justice?
The Corps will hold a series of public virtual meetings intended to solicit input to inform its preparation of the Draft Environmental Justice Strategic Plan. At the virtual meeting, a brief presentation will be provided to give an overview of the Draft Environmental Justice Strategic Plan Vision, Goals and Objectives. The rest of the time is for participants to provide input. The introductory presentation in each virtual meeting will be recorded and posted on the Army Civil Works website and on the Corps' Environmental Justice website
The Corps will hold 2 virtual meetings open to all stakeholders and an additional 1 virtual meeting specific for Tribal input. Registration information for the public and Tribal virtual meetings is included in this notice. Separate notification to Tribal leaders is also being provided.
Registration of members of the public who wish to attend the virtual meeting is required. Spots are limited and those unable to attend are encouraged to provide written comments to the docket which will be given equal consideration. Attendees will be asked to provide their name and contact information to include email address. Registration instructions can be found at
Persons or organizations wishing to provide verbal input during the meetings will be selected on a first-come, first-serve basis. Due to the expected number of participants, individuals will be asked to limit their spoken presentation to three minutes. Once the speaking slots are filled, participants may be placed on a standby list to speak or continue to register to listen to the input. Supporting materials and written feedback from those who do not have an opportunity to speak can be submitted to the docket as described above. The schedule for the 3 virtual meetings is as follows:
Department of the Army, U.S. Army Corps of Engineers, DoD.
Notice of limitation on claims for judicial review of actions by the U.S. Army Corps of Engineers (USACE).
USACE announces final agency action on the USACE authorization for the proposed construction and maintenance of the New England Wind Farm and New England Wind Project Phase I (New England Wind Phase I Project) offshore Massachusetts. USACE has issued a permit authorizing the construction and maintenance of the New England Wind Phase I Project under section 10 of the Rivers and Harbors Act of 1899 (RHA) and section 404 of the Clean Water Act (CWA). The New England Wind Phase I Project is a “covered project” under title 41 of the Fixing America's Surface Transportation Act.
A claim seeking judicial review of the USACE authorization of construction and maintenance of the New England Wind Phase I Project will be barred unless the claim is filed not later than two years after this notice's publication date. If the Federal law that allows for judicial review of the USACE authorization specifies a shorter time period for filing such a claim, then that shorter time period will apply.
Christine Jacek, 696 Virginia Road, Concord, Massachusetts 01742, 978-318-8026,
Notice is hereby given that USACE has taken final agency action on its authorization for the proposed New England Wind Phase I Project by issuing a permit authorizing construction and maintenance of the Project under section 10 of the RHA and section 404 of the CWA. A majority of the work will occur in the Atlantic Ocean within the Bureau of Ocean Energy Management (BOEM) Renewable Energy Lease Area OCS-A 0534, which is approximately eighteen (18) nautical miles (NM) south of Martha's Vineyard, Massachusetts. Export cable work would occur within a forty two (42) NM long offshore export cable corridor extending from the lease area, through the Muskeget Channel and Nantucket Sound with cable landfall at Craigville Beach, Barnstable, Massachusetts. The export cables would also cross the Centerville River in Barnstable, Massachusetts.
The work authorized under the USACE permit includes the construction and maintenance of a commercial-scale offshore wind facility within a 63,012 acre BOEM Renewable Energy Lease Area OCS-A 0534. The work includes: (1) the installation of up to sixty two (62) wind turbine generators (WTGs) and up to two (2) electrical service platforms (ESPs) with up to seventy four (74) acres associated scour protection for the structures, (2) the installation of approximately 133 NM of inter-array cables connecting the WTGs and inter-link cable connecting the ESPs to the WTGs with eleven (11) acres of associated scour protection for the cables, (3) the installation up to two (2) export transmission cables within a single forty two (42) NM offshore export cable corridor (OECC) with approximately 2.5 acres of cable scour protection on the outer continental shelf (OCS) and 21.5 acres of subtidal fills associated with cable scour protection and sand wave relocation activities. Each export transmission cable will have a 12 foot (ft.) wide disturbance zone associated with installation and an estimated disturbance area involving up to 75 acres of subtidal waters., (4) the refilling of two horizontal directional drilling (HDD) exit pits to be excavated for the HDD work associated with the shore to landfall work. Each HDD exit pit will be approximately 10,000 square feet (sq. ft.) in size with approximately 20,000 sq. ft. of total impacts associated with the discharge of excavated material back into the HDD pits, and (5) HDD installation of the transmission cables under the Centerville River.
The USACE's decision to issue a permit, and the laws under which the action was taken, are described in the New England Wind Project Final Environmental Impact Statement (FEIS) published in March 2024, in the joint Record of Decision (ROD) issued on April 1, 2024, and in other project records. The FEIS, ROD, and other documents can be viewed and downloaded from the BOEM project website at
Department of the Navy (DoN), Department of Defense (DoD).
Notice of Federal Advisory Committee meeting.
The DoD is publishing this notice to announce that the following Federal Advisory Committee meeting of the Department of the Navy Science and Technology Board (DoN S&T Board) will take place.
A partially closed meeting will be held on Thursday September 12, 2024 from 8 a.m. to 4 p.m. and an open session to the public from 8:15 a.m. to 9:15 a.m. (Eastern Daylight Time (EDT)).
The Closed session will be held at Naval Surface Warfare Center Carderock, Bethesda, Maryland. The open session may be accessed by videoconference. Information for accessing the videoconference will be provided after registering. (Pre-meeting registration is required. See guidance in
Ms. Barbara Biehn, Alternate Designated Federal Officer (ADFO), Office of the Assistant Secretary of the Navy (Research, Development & Acquisition), Navy Pentagon, Washington, DC 20350-1000, 703-614-1635,
This meeting is being held under the provisions of chapter 10 of title 5 U.S.C. (commonly known as the Federal Advisory Committee Act (FACA), the Government in the Sunshine Act of 1976 (5 U.S.C. 552b, as amended), title 41 of the Code of Federal Regulations (CFR), §§ 102-3.140 and 102-3.150, and covered by 5 U.S.C. 552b(c)(l). Due to circumstances beyond the control of the Designated Federal Officer, the Department of the Navy Science and Technology Board was unable to provide public notification required by 41 CFR 102-3.150(a) concerning its September 12, 2024, meeting. Accordingly, the Advisory Committee Management Officer for the Department of Defense, pursuant to 41 CFR 102-3.150(b), waives the 15-calendar day notification requirement.
Institute of Education Sciences (IES), Department of Education (ED).
Notice
In accordance with the Paperwork Reduction Act (PRA) of 1995, the Department is proposing a revision of a currently approved information collection request (ICR).
Interested persons are invited to submit comments on or before October 15, 2024.
Written comments and recommendations for proposed information collection requests should be submitted within 30 days of publication of this notice. Click on this link
For specific questions related to collection activities, please contact Carrie Clarady, (202) 245-6347.
The Department is especially interested in public comment addressing the following issues: (1) is this collection necessary to the proper functions of the Department; (2) will this information be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might the Department enhance the quality, utility, and clarity of the information to be collected; and (5) how might the Department minimize the burden of this collection on the respondents, including through the use of information technology. Please note that written comments received in response to this notice will be considered public records.
The request to conduct the first three national data collection rounds for the ECLS-K:2024 was approved in April 2023 (OMB# 1850-0750 v26). Revisions to procedures and materials for the first two rounds of data collection were submitted and approved in three subsequent revisions requests (OMB# 1850-0750 v27 was approved in July 2023; OMB# 1850-0750 v29 was approved in February 2024; and OMB#1850-0750 v30 was approved in July 2024). The ECLS-K:2024 fall kindergarten data collection was conducted August 2023-January 2024 and the spring kindergarten round was conducted March-July 2024. These two kindergarten data collections will be followed by a spring (March-July 2025) first-grade round. Each of these rounds of data collection involves advance school contacts, for example to conduct student sampling activities, collect teacher and school information, and locate families whose children may have moved schools. Future OMB packages are planned for the third-grade pilot test (March-July 2026), as well as for the future currently-planned round, that is the national spring (March-July 2027) third-grade round.
This current revision request (accompanied by 30 days of public comment) is to update study respondent materials, surveys, and website designs that will be used in the spring 2025 first-grade data collection activities. Many of the revisions in this package were based on analyses of the fall 2022 field test data (OMB# 1850-0750 v25) and experiences in the field from the national kindergarten rounds of collection, as well as additional discussions with design experts, all of which informed changes to the design of the surveys and assessments. Changes have been made to respondent materials to remove references to the fifth-grade round, as this collection is no longer planned. Revisions to the study instruments, the respondent materials, and websites are limited to changes to the spring first-grade materials. The current revision request contains updates to the school staff and parent survey instruments made as the specifications were programmed.
This revision request also contains the specifications for the Spanish and Mandarin translations of some parent materials. Finally, this request revises the race/ethnicity items in the web and hard-copy first-grade survey instruments in line with the new federal statistical standard released on 3/28/24 (Statistical Policy Directive No. 15: Standards for Maintaining, Collecting, and Presenting Federal Data on Race and Ethnicity (SPD 15)). The requested changes in this revision request reflect a slight increase in the cost to the federal government, but do not change the estimated respondent burden for conducting this study.
Department of Energy.
Notice of a modified system of records.
As required by the Privacy Act of 1974 and the Office of Management and Budget (OMB) Circulars A-108 and A-130, the Department of Energy (DOE or the Department) is publishing notice of a modification to an existing Privacy Act System of Records. DOE proposes to amend System of Records DOE-71,
This modified SORN will become applicable following the end of the public comment period on October 15, 2024 unless comments are received that result in a contrary determination.
Written comments should be sent to the DOE Desk Officer, Office of Information and Regulatory Affairs, Office of Management and Budget, New Executive Office Building, Room 10102, 735 17th Street NW, Washington, DC 20503 and to Ken Hunt, Chief Privacy Officer, U.S. Department of Energy, 1000 Independence Avenue SW, Rm. 8H-085, Washington, DC 20585, by facsimile at (202) 586-8151, or by email at
Ken Hunt, Chief Privacy Officer, U.S. Department of Energy, 1000 Independence Avenue SW, Rm. 8H-085, Washington, DC 20585 or by facsimile at (202) 586-8151, or by email at
On January 9, 2009, DOE published a Compilation of its Privacy Act Systems of Records, which included System of Records DOE-71,
DOE-71,
Unclassified.
Systems leveraging this SORN may exist in multiple locations. All systems storing records in a cloud-based server are required to use government-approved cloud services and follow National Institute of Standards and Technology (NIST) security and privacy standards for access and data retention. Records maintained in a government-approved cloud server are accessed through secure data centers in the continental United States.
U.S. Department of Energy, Office of Science, Consolidated Service Center, P.O. Box 2001, Oak Ridge, TN 37831.
Manager, U.S. Department of Energy, Office of Science, Consolidated Service Center, P.O. Box 2001, Oak Ridge, TN 37831.
42 U.S.C. 7101
Records in this system are maintained and used by the Department to provide a current record of radiation accidents; to identify specific populations for use in epidemiological and clinical studies; and to conduct medical surveillance during the lifetime of the registrants.
Those persons accidentally exposed to acute dose of ionizing radiation as defined by exposure dose criteria agreed to by DOE, including the National Nuclear Security Administration (NNSA) and the Nuclear Regulatory Commission (NRC), by an interagency agreement. The dose criteria established by this agreement include one or more of the following: Greater than or equal to 25 REM (Roentgen Equivalent in Man) to the whole body, active blood forming organs or gonads; greater than or equal to 600 REM to skin of the whole body or extremities; greater than or equal to 75 REM to other tissues or organs from an external source; and greater than or equal to
Official accident reports including reports of those accidents that have occurred within the jurisdiction of the NRC and have been transferred to the DOE for the Accident Registry according to the DOE/NRC agreement; names, addresses, Social Security numbers, unique identifiers for the Department employees and applicants for employment with the Department (
The individual, medical records, physicians, medical institutions, and reports of incident/accident/accident investigations from private and public sources, radiation dosimetry records, security clearance records, and employment records.
1. A record from this system may be disclosed as a routine use to a member of Congress submitting a request involving a constituent when the constituent has requested assistance from the member concerning the subject matter of the record. The member of Congress must provide a copy of the constituent's signed request for assistance.
2. A record from this system may be disclosed to contractor personnel, grantees, and cooperative agreement holders of components of the Department of Health and Human Services, including the National Institute for Occupational Safety and Health (NIOSH) and the National Center for Environmental Health of the Centers for Disease Control and Prevention, and the Agency for Toxic Substances and Disease Registry (ATSDR) to facilitate health hazard evaluations, epidemiological studies, or public health activities required by law pursuant to a Memoranda of Understanding between the Department and the Department of Health and Human Services or its components. Those provided information under this routine use are subject to the same limitations applicable to Department officers and employees under the Privacy Act.
3. A record from this system may be disclosed as a routine use to DOE contractors, grantees, participants in cooperative agreements, and collaborating researchers, or the employees of these parties, in performance of health studies or related health or environmental duties pursuant to their contracts, grants, and cooperating or collaborating research agreements; Federal, state, and local health and medical agencies or authorities; to subcontractors in order to determine a subject' s vital status or cause of death; to health care providers to verify a diagnosis or cause of death; or to third parties to obtain current addresses for participants in health-related studies, surveys and surveillances. Those provided information under this routine use are subject to the same limitations applicable to Department officers and employees under the Privacy Act.
4. A record from this system may be disclosed as a routine use for the
5. A record from this system may be disclosed as a routine use in court or administrative proceedings to the tribunals, counsel, other parties, witnesses, and the public (in publicly available pleadings, filings, or discussion in open court) when such disclosure: (1) is relevant to, and necessary for, the proceeding; (2) is compatible with the purpose for which the Department collected the records; and (3) the proceedings involve:
a. The Department, its predecessor agencies, current or former contractors of the Department, or other United States Government agencies and their components; or
b. A current or former employee of the Department and its predecessor agencies, current or former contractors of the Department, or other United States Government agencies and their components, who is acting in an official capacity, or in any individual capacity where the Department or other United States Government agency has agreed to represent the employee.
6. A record from this system may be disclosed as a routine use to the appropriate local, tribal, state, or Federal agency when records, alone or in conjunction with other information, indicate a violation or potential violation of law whether civil, criminal, or regulatory in nature, and whether arising by general statute or particular program pursuant thereto.
7. A record from this system may be disclosed to foreign governments or international organizations, in accordance with treaties, international conventions, or executive agreements.
8. A record from this system may be disclosed to the Department of Labor, the Department of Health and Human Services, their contractors, advisory boards, grantees, and cooperative agreement holders, pursuant to the Energy Employees Occupational Illness Compensation Program Act of 2000, to estimate radiation doses and other workplace exposures received by the Department of Energy and contractor employees. Those provided information under this routine use are subject to the same limitations applicable to the Department officers and employees under the Privacy Act.
9. A record from this system may be disclosed as a routine use to other state and Federal agencies or entities whose mission entails reviewing or managing workers' compensation claims or administering other benefits programs. Those provided information under this routine use are subject to the same limitations applicable to Department officers and employees under the Privacy Act.
10. A record from this system may be disclosed as a routine use to appropriate agencies, entities, and persons when: (1) the Department suspects or has confirmed that there has been a breach of the System of Records; (2) the Department has determined that as a result of the suspected or confirmed breach there is a risk of harm to individuals, DOE (including its information systems, programs, and operations), the Federal Government, or national security; and (3) the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the Department's efforts to respond to the suspected or confirmed breach or to prevent, minimize, or remedy such harm.
11. A record from this system may be disclosed as a routine use to another Federal agency or Federal entity, when the Department determines that information from this System of Records is reasonably necessary to assist the recipient agency or entity in: (1) responding to a suspected or confirmed breach; or (2) preventing, minimizing, or remedying the risk of harm to individuals, the recipient agency or entity (including its information systems, programs, and operations), the Federal Government, or national security, resulting from a suspected or confirmed breach.
Records may be stored as paper records, microfilm, or electronic media.
Records are retrieved by name or Social Security number.
Retention and disposition of these records are unscheduled. This requires the records to be retained as permanent until the National Archives and Records Administration approves a DOE Records Disposition Schedule.
Electronic records may be secured and maintained on a cloud-based software server and operating system that resides in the Federal Risk and Authorization Management Program (FedRAMP) and the Federal Information Security Modernization Act (FISMA) hosting environment. Data located in the cloud-based server is firewalled and encrypted at rest and in transit. The security mechanisms for handling data at rest and in transit are in accordance with DOE encryption standards. Records are protected from unauthorized access through the following appropriate safeguards:
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The Department follows the procedures outlined in 10 CFR 1008.4. Valid identification of the individual making the request is required before information will be processed, given, access granted, or a correction considered, to ensure that information is processed, given, corrected, or records
Any individual may submit a request to the System Manager and request a copy of any records relating to them. In accordance with 10 CFR 1008.11, any individual may appeal the denial of a request made by him or her for information about or for access to or correction or amendment of records. An appeal shall be filed within 90 calendar days after receipt of the denial. When an appeal is filed by mail, the postmark is conclusive as to timeliness. The appeal shall be in writing and must be signed by the individual. The words “PRIVACY ACT APPEAL” should appear in capital letters on the envelope and the letter. Appeals relating to DOE records shall be directed to the Director, Office of Hearings and Appeals (OHA), 1000 Independence Avenue SW, Washington, DC 20585.
In accordance with the DOE regulation implementing the Privacy Act, 10 CFR part 1008, a request by an individual to determine if a System of Records contains information about themselves should be directed to the U.S. Department of Energy, Headquarters, Privacy Act Officer. The request should include the requester's complete name and the time period for which records are sought.
None.
This SORN was last published in the
This document of the Department of Energy was signed on September 5, 2024, by Ann Dunkin, Senior Agency Official for Privacy, pursuant to delegated authority from the Secretary of Energy. That document with the original signature and date is maintained by DOE. For administrative purposes only, and in compliance with requirements of the Office of the Federal Register, the undersigned DOE Federal Register Liaison Officer has been authorized to sign and submit the document in electronic format for publication, as an official document of the Department of Energy. This administrative process in no way alters the legal effect of this document upon publication in the
Office of Critical and Emerging Technologies, Department of Energy.
Request for information (RFI).
The Department of Energy's Office of Critical and Emerging Technologies (CET) seeks public comment to inform how DOE and its 17 national laboratories can leverage existing assets to provide a national AI capability for the public interest.
Responses to the RFI are requested by November 11, 2024.
Interested parties may submit comments electronically to
Further questions may be addressed to Charles Yang through
This is an RFI issued by the U.S. Department of Energy's (DOE) Office of Critical and Emerging Technologies (CET). This RFI seeks public input to inform our ongoing work and DOE's proposed Frontiers in AI for Science, Security, and Technology (FASST) initiative,
DOE seeks input from:
FASST is DOE's proposed initiative to build the world's most powerful, integrated scientific AI systems. This initiative leverages DOE's demonstrated history of capability building for the U.S. government, as well as key enabling infrastructure already housed at the DOE's Office of Science and Applied Energy facilities, and facilities operated by National Nuclear Security Administration (NNSA), including:
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This RFI seeks public input to inform how DOE can partner with outside institutions and leverage its assets to implement and develop the roadmap for FASST, based on the four pillars of FASST: AI-ready data; Frontier-Scale AI Computing Infrastructure and Platforms; Safe, Secure, and Trustworthy AI Models and Systems; and AI Applications; as well as considerations for workforce and FASST governance.
(a) What kinds of data governance practices, risks, and opportunities should DOE take into consideration, particularly for open sourcing scientific corpuses to the community or interested parties?
(b) What types of scientific and energy data should DOE prioritize for large-scale tokenization?
(c) Are there partner organizations with relevant scientific or energy-related data that DOE should work with?
(d) What are additional data-related tools and technologies DOE should invest in to promote AI-ready data and fuel continued US leadership in AI?
(a) How can DOE ensure FASST investments support a competitive hardware ecosystem and maintain American leadership in AI compute, including through DOE's existing AI and high-performance-computing testbeds?
(b) How can DOE improve awareness of existing allocation processes for DOE's AI-capable supercomputers and AI testbeds for smaller companies and newer research teams?
(c) How can DOE continue to support development of energy-efficient AI hardware, algorithms, and platforms?
(d) How can DOE continue to support the development of AI hardware, algorithms, and platforms tailored for science and engineering applications in cases where the needs of those applications differ from the needs of commodity AI applications? How can DOE partner with other compute capability providers, including both on-premises and cloud solution providers, to support various hardware technologies and provide a portfolio of compute capabilities for its mission areas?
(a) How should DOE consider the benefits of open sourcing of scientific and applied energy AI models for the scientific community while fully addressing research security and other national-security concerns?
(b) How can DOE support investment and innovation in energy efficient AI model architectures and deployment, including potentially through prize-based competitions?
(c) What considerations should inform DOE's ongoing AI red-teaming and safety tests, particularly for Chemical, Biological, Radiological and Nuclear (CBRN) risks?
(a) What are application areas in science, applied energy, and national security that are primed for AI breakthroughs?
(b) How can DOE ensure foundation AI models are effectively developed to realize breakthrough applications, in partnership with industry, academia, and other agencies?
(a) DOE has an inventory of AI workforce training programs underway through our national labs.
(a) How can DOE effectively engage and partner with industry and civil society? What are convenings, organizational structures, and engagement mechanisms that DOE should consider for FASST?
(b) What role should public-private partnerships play in FASST? What problems or topics should be the focus of these partnerships?
Commenters are welcome to comment on any question. RFI responses shall include:
1. RFI title;
2. Name(s), phone number(s), and email address(es) for the principal point(s) of contact;
3. Institution or organization affiliation and postal address; and
4. Clear indication of the specific question(s) to which you are responding.
Responses to this RFI must be submitted electronically to
A response to this RFI will not be viewed as a binding commitment to develop or pursue the project or ideas discussed. DOE may engage in post-response conversations with interested parties.
Because information received in response to this RFI may be used to structure future programs and/or otherwise be made available to the public, respondents are strongly advised NOT to include any information in their responses that might be considered business sensitive, proprietary, or otherwise confidential.
Pursuant to 10 CFR 1004.11, any person submitting information that he or she believes to be confidential and exempt by law from public disclosure should submit via email two well-marked copies: one copy of the document marked “confidential” including all the information believed to be confidential, and one copy of the document marked “non-confidential” with the information believed to be confidential deleted. Failure to comply with these marking requirements may result in the disclosure of the unmarked information under the Freedom of Information Act or otherwise. The U.S. Government is not liable for the disclosure or use of unmarked information and may use or disclose such information for any purpose. If your response contains confidential, proprietary, or privileged information, you must include a cover sheet marked as follows identifying the specific pages containing confidential, proprietary, or privileged information:
Pages [list applicable pages] of this response may contain confidential, proprietary, or privileged information that is exempt from public disclosure. Such information shall be used or disclosed only for the purposes described in this RFI. The Government may use or disclose any information that is not appropriately marked or otherwise restricted, regardless of source.
In addition, (1) the header and footer of every page that contains confidential, proprietary, or privileged information must be marked as follows: “Contains, Confidential, Proprietary, or Privileged Information Exempt from Public Disclosure” and (2) every line and
This document of the Department of Energy was signed on September 6, 2024, by Helena Fu, Director, Office of Critical and Emerging Technologies, pursuant to delegated authority from the Secretary of Energy. That document with the original signature and date is maintained by DOE. For administrative purposes only, and in compliance with requirements of the Office of the Federal Register, the undersigned DOE Federal Register Liaison Officer has been authorized to sign and submit the document in electronic format for publication, as an official document of the Department of Energy. This administrative process in no way alters the legal effect of this document upon publication in the
Take notice that the following hydroelectric application has been filed with the Commission and is available for public inspection.
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The Commission strongly encourages electronic filing. Please file scoping comments and motions to intervene and protests using the Commission's eFiling system at
The Commission's Rules of Practice and Procedure require all intervenors filing documents with the Commission to serve a copy of that document on each person on the official service list for the project. Further, if an intervener files comments or documents with the Commission relating to the merits of an issue that may affect the responsibilities of a particular resource agency, they must also serve a copy of the document on that resource agency.
k. This application has been accepted for filing, but is not ready for environmental analysis at this time.
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BCH would draw 13,400 acre-feet of water from Seminoe Reservoir to initially fill the new upper reservoir and would need 672 acre-feet of water each year to replenish water lost through evaporation. BCH states it would either make contractual arrangements or potentially purchase an additional water right for the annual refill water. BCH states that generation would depend on grid conditions and market demands but that the project is designed to generate for up to approximately 10 hours each day at maximum generating capacity of 972 MW, or for longer durations at reduced generating output. In generating mode, the project would have an estimated maximum operating flow rate of 12,600 cubic feet per second (cfs) at maximum hydraulic capacity with all three turbine units operating. In pumping mode, the project would have an estimated maximum pumping flow rate of 10,500 cfs with all three pumps operating against an upper reservoir minimum operating elevation of 7,350 feet. The pumping capacity decreases to 8,298 cfs at the upper reservoir maximum operating elevation of 7,445 feet. The full pumping cycle to recharge the upper reservoir is estimated at approximately 14.6 hours and the maximum generation is 13 hours.
m. A copy of the application can be viewed on the Commission's website at
You may also register at
n. Anyone may submit a protest or a motion to intervene in accordance with the requirements of Rules of Practice and Procedure, 18 CFR 385.210, 385.211, and 385.214. In determining the appropriate action to take, the Commission will consider all protests filed, but only those who file a motion to intervene in accordance with the Commission's Rules may become a party to the proceeding. Any protests or motions to intervene must be received on or before the specified deadline date for the particular application.
When the application is ready for environmental analysis, the Commission will issue a public notice requesting comments, recommendations, terms and conditions, or prescriptions.
All filings must (1) bear in all capital letters the title “PROTEST” or “MOTION TO INTERVENE;” (2) set forth in the heading the name of the applicant and the project number of the application to which the filing responds; (3) furnish the name, address, and telephone number of the person protesting or intervening; and (4) otherwise comply with the requirements of 18 CFR 385.2001 through 385.2005. Agencies may obtain copies of the application directly from the applicant. A copy of any protest or motion to intervene must be served upon each representative of the applicant specified in the particular application.
o. The Commission's Office of Public Participation (OPP) supports meaningful public engagement and participation in Commission proceedings. OPP can help members of the public, including landowners, environmental justice communities, Tribal members and others, access publicly available information and navigate Commission processes. For public inquiries and assistance with making filings such as interventions, comments, or requests for rehearing, the public is encouraged to contact OPP at (202) 502-6595 or
p. The Commission's scoping process will help determine the required level of analysis and satisfy the National Environmental Policy Act (NEPA) scoping requirements, irrespective of whether the Commission issues an environmental assessment or an environmental impact statement.
In addition to written comments solicited by this notice, Commission staff will hold three public scoping meetings at the times and locations noted below. All interested individuals, resource agencies, Native American Tribes, and NGOs are invited to attend any of the meetings to assist Commission staff in identifying the scope of environmental issues that should be analyzed in the NEPA document. The times and locations of these meetings are as follows:
Scoping Document 1 (SD1), which outlines the subject areas to be addressed in the environmental document, was mailed to the individuals and entities on the Commission's mailing list. Copies of SD1 will be available at the scoping meetings, or may be viewed on the web at
BCH and Commission staff will conduct an environmental site review of the project beginning at 8:00 a.m. on Wednesday, September 25, 2024. All interested individuals, resource agencies, Native American Tribes, and NGOs are invited to attend the site review. Participants will initially meet in the lobby at the Hilton Garden Inn at 1150 N Poplar Street, Casper, Wyoming 82601 before traveling to the site. The applicant will provide a detailed site visit agenda that includes approximately 7 stops, and will take up to 8 hours to complete. Attendees are responsible for their own vehicle transport and should wear appropriate outdoor clothing. The existing road to the upper reservoir site is steep and rocky; therefore, attendees wishing to see the upper reservoir site should plan on driving their own 4x4, high clearance, off-road capable vehicle to access that particular site. Please contact Lars Dorr, Program Manager at rPlus at (858) 925-3743 or via email at
Individuals, NGOs, Native American Tribes, and agencies with environmental expertise and concerns are encouraged to attend the meetings and to assist the staff in defining and clarifying the issues to be addressed in the NEPA document. At the start of each meeting, Commission staff will provide a brief overview of the meeting format
Scoping comments will be recorded by the court reporter and become part of the public record for this proceeding. Transcripts will be publicly available on FERC's eLibrary system. If a significant number of people are interested in providing oral comments in the one-on-one settings, a time limit of 5 minutes may be implemented for each commentor.
It is important to note that the Commission provides equal consideration to all comments received, whether filed in writing or provided orally at a scoping session. Although there will not be a formal presentation, Commission staff will be available throughout the scoping session to answer your questions about the environmental review process. Representatives from BCH will also be present to answer project-specific questions.
q.
FERC is conducting the session to solicit your scoping comments. There will not be a formal presentation by Commission staff; however, FERC staff is available to answer questions about the environmental review process. The session format is as follows:
• Tickets are handed out on a “first come, first serve” basis starting at the time listed in the Notice.
• Individuals are called in ticket number order to provide oral comments to be transcribed by a court reporter for the public record.
• Time limits on oral comments may be enforced to ensure that all those wishing to comment have the opportunity to do so within the designated session time.
• Additional materials about FERC and the environmental review process are available at information stations at the session.
Session Conduct
Proper conduct will help the sessions maintain a respectful atmosphere for attendees to learn about the FERC Environmental Review Process and to be able to provide comments effectively.
• Loudspeakers, lighting, oversized visual aids, or other visual or audible disturbances are not permitted.
• Disruptive video and photographic equipment may not be used.
• Conversations should be kept to a reasonable volume. Attendees should be respectful of those providing oral comments to the court reporters.
• Recorded interviews are not permitted within the session space.
• FERC reserves the right end the session if disruptions interfere with the opportunity for individuals to provide oral comments or if there is a safety or security risk.
Environmental Protection Agency (EPA).
Notice of final order on petition.
The Environmental Protection Agency (EPA) Administrator signed an order dated May 24, 2024, granting in part and denying in part a petition dated January 30, 2024, from Center for Biological Diversity and WildEarth Guardians. The petition requested that the EPA object to a Clean Air Act (CAA) operating permit issued by the Colorado Department of Public Health and Environment (CDPHE) to Arch Coal, Inc. for its West Elk Coal Mine located in Gunnison County, Colorado.
Julia Witteman, EPA Region 8, telephone number: (303) 312-6156, email address:
The EPA received a petition from the Center for Biological Diversity and WildEarth Guardians dated January 30, 2024, requesting that the EPA object to the issuance of operating permit no. 20OPGU411, issued by CDPHE to Arch Coal, Inc. in Gunnison County Colorado. On December 8, 2023, the EPA Administrator issued an order granting in part and denying in part the petition. The order itself explains the basis for the EPA's decision.
Sections 307(b) and 505(b)(2) of the CAA provide that a petitioner may request judicial review of those portions of an order that deny issues in a petition. Any petition for review shall be filed in the United States Court of Appeals for the appropriate circuit no later than November 12, 2024.
Federal Communications Commission.
Notice and request for comments.
As part of its continuing effort to reduce paperwork burdens, and as required by the Paperwork Reduction Act (PRA) of 1995, the Federal Communications Commission (FCC or
Written PRA comments should be submitted on or before November 12, 2024. If you anticipate that you will be submitting comments, but find it difficult to do so within the period of time allowed by this notice, you should advise the contact listed below as soon as possible.
Direct all PRA comments to Nicole Ongele, FCC, via email
For additional information about the information collection, contact Nicole Ongele, (202) 418-2991.
Federal Communications Commission.
Federal Maritime Commission.
Notice of extension of time and request for comments.
The Federal Maritime Commission (Commission) has extended by 90 days the time for decision in its investigation into conditions created by the Government of Canada (Canada) in connection with regulation of ballast water management systems that may adversely affect the operation of United States carriers in the United States/Canada Great Lakes trade.
Submit comments on or before October 15, 2024.
You may submit comments, identified by Docket No. FMC-2024-0008, by the following method:
For questions regarding submitting comments or the treatment of any confidential information, contact David Eng, Secretary; Phone: (202) 523-5725; Email:
On May 22, 2024, the Federal Maritime Commission (Commission) initiated an investigation, pursuant to 46 U.S.C. 42302, of whether conditions created by the Government of Canada (Canada) in connection with regulation of ballast water management systems adversely affect the operation of United States carriers in the United States/Canada Great Lakes trade, in particular the carriers operating vessels that may become subject to regulation in September 2024, within the meaning of 46 U.S. Code, chapter 423 (Foreign Shipping Practices) (46 U.S.C. 42301-307). Having determined that the investigation would be enhanced by gathering and reviewing additional information, the Commission now extends by 90 days, from September 19, 2024, to December 18, 2024, the time for decision under 46 U.S.C. 42302(c).
On May 22, 2024, the Commission on its own motion initiated a Chapter 423 investigation into Canadian ballast water management regulation in the Great Lakes.
After the May 2024 Notice of Investigation, the investigation proceeded, and the FMC received 14 comments in June 2024. The Canadian government and those representing the interests of Canadian carriers, as well as those representing environmental interests, opposed the potential imposition of sanctions. On the other hand, those representing the interests of U.S. carriers and workers were supportive of such measures. At the same time Transport Canada, the responsible Canadian agency, established a procedure for seeking exemptions that became available to affected U.S. carriers in late July 2024, although the Commission understands that a comparable process had been available to Canadian carriers much earlier.
In light of the above, the Commission now extends the time for decision in its Chapter 423 investigation by 90 days, from the current deadline of September 19, 2024, to December 18, 2024, and it establishes a new comment period to gather more information on the apparent disparity between the exemption processes available to U.S. and Canadian carriers, including the difference in when the exemption procedures became available. In particular, the Commission seeks to gather and review more information about whether the exemption processes may have themselves led to adverse conditions in violation of 46 U.S.C. 42302(a), including information about developments occurring after the end of the initial comment period in June 2024. That will help the Commission continue to investigate whether the laws, rules, policies, or practices of Canada result in conditions that “adversely affect the operations of United States carriers in United States oceanborne trade” and that “do not exist for foreign carriers of [Canada] in the United States under the laws of the United States.” 46 U.S.C. 42302(a).
If the agency concludes that the standard of section 42302(a) is met, it is authorized to take certain actions to encourage remediation of those conditions.
As explained above, the Commission determined that the above situation meets the threshold requirements for consideration under the relevant statutory and regulatory authority, and in May 2024, it initiated a Chapter 423 investigation into whether the situation has created conditions that adversely affect the operations of United States carriers.
The Commission now finds that it would enhance its investigation to ask interested persons to submit written comments containing arguments, experiences, and/or data relevant to the options that have been available for carriers to seek an exemption from the Canadian ballast water management regulations going into effect in September 2024. In particular, the Commission seeks information about the extent to which such processes have differed based on whether the carrier is a U.S. carrier or a Canadian carrier, including but not limited to when the exemption processes became available for affected carriers in those categories; information that was unavailable when the last comment period closed in June 2024; and information about when specific carriers were granted or denied exemptions from the requirements at issue, as well as the basis for such decisions.
The Commission's jurisdiction under 46 U.S.C. 42302 is broad, and the agency welcomes comments not only from the Government of Canada, but also from container shipping interests, bulk cargo interests, vessel owners, individuals and groups with relevant information on commercial and environmental considerations, and anyone else with relevant information or perspectives on this matter.
As the Commission proceeds with this investigation, it may determine to request additional comment or gather information through other means as authorized under 46 U.S.C. 42303 and 46 CFR 555.5, 555.6.
By the Commission.
2 p.m., Thursday, September 19, 2024.
The United States Department of Labor Auditorium, Frances Perkins Building, 200 Constitution Avenue NW, Washington, DC 20210.
Open.
The Commission will hear oral argument in the matter of
Any person attending this oral argument who requires special accessibility features and/or auxiliary aids, such as sign language interpreters, must inform the Commission in advance of those needs. Subject to 29 CFR 2706.150(a)(3) and 2706.160(d).
Emogene Johnson (202) 434-9935/(202) 708-9300 for TDD Relay/1-800-877-8339 for toll free.
The companies listed in this notice have applied to the Board for approval, pursuant to the Bank Holding Company Act of 1956 (12 U.S.C. 1841
The public portions of the applications listed below, as well as other related filings required by the Board, if any, are available for immediate inspection at the Federal Reserve Bank(s) indicated below and at the offices of the Board of Governors. This information may also be obtained on an expedited basis, upon request, by contacting the appropriate Federal Reserve Bank and from the Board's Freedom of Information Office at
Comments received are subject to public disclosure. In general, comments received will be made available without change and will not be modified to remove personal or business information including confidential, contact, or other identifying information. Comments should not include any information such as confidential information that would not be appropriate for public disclosure.
Comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors, Ann E. Misback, Secretary of the Board, 20th Street and Constitution Avenue NW, Washington DC 20551-0001, not later than October 15, 2024.
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Board of Governors of the Federal Reserve System.
Office of Government-wide Policy (OGP); General Services Administration (GSA).
Notice; request for public comment.
This notice informs the public that the United States Federal Government is initiating the co-creation process for its 6th U.S. Open Government National Action Plan. The GSA is inviting input from a wide and diverse array of stakeholders from the public, private, advocacy, not-for-profit, and philanthropic sectors, including State, local, Tribal, and territorial governments. This Request for Information (RFI) aims to gather ideas, suggestions, and recommendations for commitments that could be included in the 6th U.S. Open Government National Action Plan.
Responses to this Request for Information should be received by Tuesday, November 12, 2024.
Submit comments in response to Notice “Docket GSA-GSA-2024-0016” by
• The name of the individual(s) or organization(s) responding.
• A brief description of the responding individual(s) or organization(s)'s mission and areas of experience and expertise.
• Optional—Contact information for questions and other follow-up on your response.
• RFI question(s), topic(s), and policy suggestions that your submission and materials address.
Please feel free to share this RFI with colleagues or others for feedback.
Alexis Masterson, U.S. Open Government Secretariat, Office of Government-wide Policy, by email at
The United States is a founding member of the Open Government Partnership (OGP), a voluntary, global alliance between governments and civil society to bolster democracy through openness, transparency, and public engagement. At the core of OGP is a belief in community-centered governance, and a pledge to transform the way the public sector serves and is accountable to its people. As a multi-tiered platform, OGP includes country-level and local government-level members, as well as thousands of civil society organization partners. OGP members are required to work and collaborate with civil society to create national or local action plans every two to three years, implement meaningful transparency and accountability commitments, publicly report on progress, and submit to independent monitoring and reporting. This RFI will provide input into the 6th U.S. Open Government National Action Plan the United States is developing under this initiative. You can access the previous U.S. Open Government National Action Plans in the resource section of the new U.S. Open Government Secretariat website at
The Open Government Secretariat, in collaboration with the White House
This RFI is intended to gather diverse ideas and suggestions for the U.S.'s 6th Open Government National Action Plan. Your input is crucial in shaping a plan that reflects the needs and priorities of the American people. In addition to, or as an alternative to, submitting written feedback in response to this RFI, you are invited to attend a virtual listening session hosted by GSA on Wednesday, October 9, 2024 from 2 p.m. to 4 p.m. ET. This on-the-record and recorded session offers an opportunity to gain further insight and provide live input. Registration is required. Please register for the event at
When submitting your ideas, please keep in mind that all potential commitments must align with the resource constraints of the U.S. government. This includes considerations such as budget, personnel, and the feasibility of implementation. Commitments included in the 6th U.S. Open Government National Action Plan will need to be specific, measurable, achievable, relevant, and time-bound (SMART).
Respondents are encouraged to structure their ideas around one of the 10 challenge themes in the Open Government Challenge, available at
The U.S. Open Government Secretariat values all contributions and will carefully review each submission based on the above criteria. GSA will review and consider the usability and applicability of each of the responses to this RFI in shaping the 6th U.S. Open Government National Action Plan. That being said, all RFI responses will be made available to the Open Government Federal Advisory Committee as input into their official recommendations to the commitments that should be included in the 6th U.S. Open Government National Action Plan. To help refine your proposals, respondents may wish to review previous U.S. Open Government National Action Plans (
You are invited to provide ideas for new topics and commitments that could be included in the 6th U.S. Open Government National Action Plan. Respondents do not need to respond to every question and may provide additional feedback for the U.S. Open Government Secretariat to consider in developing and implementing the 6th U.S. Open Government National Action Plan. Specifically, GSA is looking for:
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In accordance with the Paperwork Reduction Act of 1995, the Centers for Disease Control and Prevention (CDC) has submitted the information collection request titled “Generic Clearance for the Collection of Minimal Data Necessary for Case Data During an Emergency Response” to the Office of Management and Budget (OMB) for review and approval. CDC previously published a “Proposed Data Collection Submitted for Public Comment and Recommendations” notice on March 22, 2024 to obtain comments from the public and affected agencies. CDC received one comment related to the previous notice. This notice serves to allow an additional 30 days for public and affected agency comments.
CDC will accept all comments for this proposed information collection project. The Office of Management and Budget is particularly interested in comments that:
(a) Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
(b) Evaluate the accuracy of the agencies estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
(c) Enhance the quality, utility, and clarity of the information to be collected;
(d) Minimize the burden of the collection of information on those who are to respond, including, through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
(e) Assess information collection costs.
To request additional information on the proposed project or to obtain a copy of the information collection plan and instruments, call (404) 639-7570. Comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Generic Clearance for the Collection of Minimal Data Necessary for Case Data During an Emergency Response—New—Office of Public Health Data, Surveillance, and Technology (OPHDST), Centers for Disease Control and Prevention (CDC).
During a public health emergency response, state, tribal, local, and territorial (STLT) health departments and CDC need to exchange data on confirmed, probable, and suspected cases rapidly. Timely notifications of cases from STLT to CDC are critical to provide situational awareness at the federal level to support decision making, particularly for public health threats that escalate quickly and cross jurisdictions. To this end, collecting the minimum data necessary will provide standardization and consistency among technical approaches and Agency-wide processes. The harmonization across CDC programs and STLTs will reduce the burden on STLTs and healthcare providers from ad hoc requests for case data from CDC programs.
Section 319D of the Public Health Service Act (as amended Through Pub. L. 118-35, enacted January 19, 2024) states that CDC shall define the minimum data necessary as the Agency collaborates with STLTs and other partners to improve the appropriate near real-time electronic transmission of interoperable public health data for situational awareness and response to public health emergencies. In addition, the CDC Advisory Committee to the Director (ACD) recommends that CDC should establish the minimum data necessary for core data sources including case data to be transmitted to CDC from STLTs.
CDC requests a three-year approval for a new Generic Information Collection Request (ICR), Clearance for the Collection of Minimal Data Necessary for Case Data During an Emergency Response. This new ICR includes a request for approval for CDC to collect the minimum data necessary for confirmed, probable, and suspected cases of any disease or condition that is the subject of an emergency response. Data may be sent to CDC by STLT Health Departments through Data Collation and Integration for Public Health Event Response (DCIPHER) or other automated or non-automated mechanisms including but not limited to fax, email, secure file upload, and data entry to a secure website.
Data will be used for ongoing situational awareness and to monitor the occurrence and spread of the disease or condition. Other uses may include identifying populations or geographic areas at high risk; planning prevention and control programs and policies; and allocating resources appropriately. The data may also be used by CDC to obtain travel histories and other information to describe and manage outbreaks and conduct public health follow-up to minimize the spread of disease. The burden estimates include the time that states, territories, freely associated states, and cities will incur to submit confirmed, probable, and suspected case data for diseases or conditions that are the subject of an emergency response.
CDC requests OMB approval for an estimated 10,951 annualized burden hours for the 60 respondents. There is no cost to respondents other than their time to participate.
Office of the Under Secretary of Defense for Intelligence and Security (OUSD(I&S)), Department of Defense (DoD).
30-Day information collection notice.
The DoD has submitted to the Office of Management and Budget (OMB) for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act.
Consideration will be given to all comments received by October 15, 2024.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Reginald Lucas, (571) 372-7574,
E.O. 12829 was amended by E.O. 13691, adding the Secretary of Homeland Security as the fifth Cognizant Security Agency. Section 202 (d) of E.O. 12829 stipulates that the Secretary of Homeland Security may determine the eligibility for access to Classified National Security Information of contractors, licensees and grantees and their respective employees under a designated critical infrastructure protection program, including parties to agreements with such programs. The Secretary of Homeland Security also may inspect and monitor the contractors, grantees or licensees and facilities or may enter into written agreements with the Secretary of Defense, as Executive Agent or with the office of the Director of Intelligence/Director of Central Intelligence Agency to inspect and monitor these programs in whole or in part on behalf of the Secretary of Homeland Security. The specific requirements necessary to protect classified information released to private industry are found in NISPOM; found in DoDI 5220.31 “National Industrial Security Program (NISP),” which incorporates and cancels DoD Instruction 5220.22, “National Industrial Security Program,” March 18, 2011, as amended. The SF 328 incorporates its usage for the NISP portion of the Classified Critical Infrastructure Protection Program as stipulated under E.O. 12829, as amended by E.O. 13691. Revisions to the SF 328 will also incorporate its usage under the DoD's Innovation initiative through the DoD Enhanced Security Program (DESP), pursuant to section 951 of Public Law 114-328 (10 U.S.C. 1564 note). The DESP is a DoD only initiative and is not part of the NISP. Companies participating under the DESP do not require a DoD contract but are required to enter into a Memorandum of Agreement. Completion of the SF 328 and submission of supporting documentation (
Section 847 of the National Defense Authorization Act for Fiscal Year 2020 (Pub. L. 116-92), “Mitigating Risks Related to Foreign Ownership, Control, or Influence of Department of Defense Contractors or Subcontractors,” requires the Secretary for Defense to improve the process and procedures for the assessment and mitigation of risks related to FOCI of contractors and subcontractors doing business with the DoD, in conjunction with the Departments efforts to develop and implement an improved analytical framework for mitigating risk relating to ownership structure, as required by 10 U.S.C. 2509 and section 847 of Public Law 116-92. To fulfill the requirements of sec. 847, contractors and subcontractors must disclose to DCSA their beneficial ownership and whether they are under FOCI, and to update those disclosures when changes occur to information previously provided consistent with the requirements of the NISPOM. In addition, sec. 847 provides for the creation of other measures as necessary to be consistent with other relevant authorities, including the NISP.
The Small Business Innovation Research and Small Business Technology Transfer (SBIR/STTR) Extension Act of 2022, Public Law 117-183, section 4, “Foreign Risk Management” (DoD SBIR/STTR programs), requires the head of each Federal agency required to establish a SBIR or STTR program to implement a due diligence program to assess security risks presented by small business concerns seeking federal awards. These security risks includes, among other things, foreign interested-related risks. The DoD intends to utilize the SF 328 as the basis for information collection for DoD SBIR/STTR program participants to disclose their foreign interests, and to report any future changes, as appropriate. For DoD SBIR/STTR, the DoD will use this form to collect information to conduct a risk-based due diligence review and assess security risks presented by small business concerns seeking a federally funded award through the DoD SBIR/STTR programs. The submission will be required to be submitted as part of the SBIR/STTR solicitation package, and details concerning its submission will be included in the solicitation published to perspective submitters.
The use of the SF 328 will also be required by the forthcoming Cybersecurity Maturity Model Certification (CMMC) program, which is currently in the Rulemaking process under 32 CFR part 170. The CMMC program will require CMMC Level 2 Certification Assessments be conducted by a CMMC Third Party Assessment Organization (C3PAO), accredited by the DoD approved CMMC Accreditation Body (AB). To be accredited, the CMMC AB and all C3PAOs must receive a favorable adjudication and not be subject to a level of risk from Foreign Ownership, Control, or Influence (FOCI) as determined by the CMMC Program Management Office (PMO). DCSA will conduct the FOCI assessments for the CMMC AB and C3PAOs after they are nominated by the CMMC PMO.
The multiple authorized uses of this form will create uniformity among numerous authorities responsible for the vetting or review of companies or entities for foreign interest-related risks. In addition, it will establish more consistency among industry concerning their basic information submission requirements regarding foreign interest information.
The submission of the SF-328, and supporting documentation, may be done electronically through a government approved system of record.
You may also submit comments and recommendations, identified by Docket ID number and title, by the following method:
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Requests for copies of the information collection proposal should be sent to Mr. Lucas at
Food and Drug Administration, HHS.
Notice; establishment of a public docket; request for comments.
The Food and Drug Administration (FDA or Agency) is announcing the publication of a draft Strategy Document for public comment outlining specific actions FDA will take during fiscal years 2023-2027 to facilitate the use of innovative manufacturing technologies. As part of the Prescription Drug User Fee Act (PDUFA) Reauthorization Performance Goals and Procedures Fiscal Years 2023-2027 (PDUFA VII), FDA committed to advance the use and implementation of innovative manufacturing. In connection with this effort, on June 8, 2023, FDA participated in a public workshop on the use of innovative manufacturing technologies for products regulated by the Center for Drug Evaluation and Research (CDER) and the Center for Biologics Evaluation and Research (CBER), including barriers to their adoption. FDA also committed to issuing this draft Strategy Document for public comment. The actions described in the draft Strategy Document are based on lessons learned from FDA's experiences with submissions involving advanced manufacturing technologies as well as feedback from the workshop and other public input.
Either electronic or written comments on the draft Strategy Document must be submitted by November 12, 2024.
You may submit comments as follows. Please note that late, untimely filed comments will not be considered. The
Submit electronic comments in the following way:
•
• If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
Submit written/paper submissions as follows:
•
• For written/paper comments submitted to the Dockets Management Staff, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in “Instructions.”
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Elisa A. Nickum, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 75, Rm. 4521, Silver Spring, MD 20993, 301-796-4226,
Innovative manufacturing technologies—including but not limited to continuous manufacturing, distributed manufacturing, modern aseptic manufacturing equipment, and
Based on lessons learned from the Agency's experience with submissions involving advanced manufacturing, the topics discussed during the June 8, 2023, workshop, and other public input, FDA developed the draft Strategy Document on Innovative Manufacturing Technologies, which outlines the specific activities FDA intends to undertake to facilitate the use of innovative manufacturing technologies. Specifically, under the draft strategic plan FDA intends to undertake the following activities: continue to enhance the ETP and CATT as a mechanism to support innovation; implement the AMTDP in a manner that reflects feedback on eligibility criteria; continue to identify opportunities for international harmonization in support of advanced manufacturing; support and utilize ongoing initiatives for advanced manufacturing to address potential barriers; and support training in advanced manufacturing for FDA assessment staff.
The draft Strategy Document on Innovative Manufacturing Technologies is available on FDA's website for Completed PDUFA VII Deliverables (
Coast Guard, DHS.
Notice of public meeting.
A meeting will be held on September 19, 2024, to support public interest in the Coast Guard's Port Access Route Study (PARS) for the Approaches to the Port of Cape Canaveral and Vessel Transit Offshore Jacksonville, Daytona, and Canaveral, Florida. The Coast Guard will discuss the PARS notice of study that was published on April 17, 2024, and next steps for public engagement. This meeting is open to the public, and the Coast Guard invites those attending to bring additional comments that support the goals of the PARS.
If you have questions about this notice of public meeting or the PARS notice of study, call or email Lieutenant Meredith Overstreet, Seventh Coast Guard District (dpw), U.S. Coast Guard; telephone 206-815-5857, email
On April 17, 2024, the Coast Guard published a notice in the
To access the original notice of study, refer to docket number USCG-2023-0822 in the
This notice is published under the authority of 46 U.S.C. 70003(c)(1).
U.S. Customs and Border Protection (CBP), Department of Homeland Security.
60-Day notice and request for comments.
The Department of Homeland Security, U.S. Customs and Border Protection (CBP) will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (PRA). The information collection is published in the
Comments are encouraged and must be submitted (no later than November 12, 2024) to be assured of consideration.
Written comments and/or suggestions regarding the item(s) contained in this notice must include the OMB Control Number 1651-0041 in the subject line and the agency name. Please submit written comments and/or suggestions in English. Please use the following method to submit comments:
Requests for additional PRA information should be directed to Seth Renkema, Chief, Economic Impact Analysis Branch, U.S. Customs and Border Protection, Office of Trade, Regulations and Rulings, 90 K Street NE, 10th Floor, Washington, DC 20229-1177, Telephone number 202-325-0056 or via email
CBP invites the general public and other Federal agencies to comment on the proposed and/or continuing information collections pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
U.S. Customs and Border Protection (CBP), Department of Homeland Security.
60-Day notice and request for comments.
The Department of Homeland Security, U.S. Customs and Border Protection (CBP) will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (PRA). The information collection is published in the
Comments are encouraged and must be submitted (no later than November 12, 2024) to be assured of consideration.
Written comments and/or suggestions regarding the item(s) contained in this notice must include the OMB Control Number 1651-0030 in the subject line and the agency name. Please submit written comments and/or suggestions in English. Please use the following method to submit comments:
Requests for additional PRA information should be directed to Seth Renkema, Chief, Economic Impact Analysis Branch, U.S. Customs and Border Protection, Office of Trade, Regulations and Rulings, 90 K Street NE, 10th Floor, Washington, DC 20229-1177, Telephone number 202-325-0056 or via email
CBP invites the general public and other Federal agencies to comment on the proposed and/or continuing information collections pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
Federal Emergency Management Agency, Department of Homeland Security.
Notice.
New or modified Base (1-percent annual chance) Flood Elevations (BFEs), base flood depths, Special Flood Hazard Area (SFHA) boundaries or zone designations, and/or regulatory floodways (hereinafter
Each LOMR was finalized as in the table below.
Each LOMR is available for inspection at both the respective Community Map Repository address listed in the table below and online through the FEMA Map Service Center at
Rick Sacbibit, Chief, Engineering Services Branch, Federal Insurance and Mitigation Administration, FEMA, 400 C Street SW, Washington, DC 20472, (202) 646-7659, or (email)
The Federal Emergency Management Agency (FEMA) makes the final flood hazard determinations as shown in the LOMRs for each community listed in the table below. Notice of these modified flood hazard determinations has been published in newspapers of local circulation and 90 days have elapsed since that publication. The Deputy Associate Administrator for Insurance and Mitigation has resolved any appeals resulting from this notification.
The modified flood hazard determinations are made pursuant to section 206 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4105, and are in accordance with the National Flood Insurance Act of 1968, 42 U.S.C. 4001
The currently effective community number is shown and must be used for all new policies and renewals.
The new or modified flood hazard information is the basis for the floodplain management measures that the community is required either to adopt or to show evidence of being already in effect in order to remain qualified for participation in the National Flood Insurance Program (NFIP).
This new or modified flood hazard information, together with the floodplain management criteria required by 44 CFR 60.3, are the minimum that are required. They should not be construed to mean that the community must change any existing ordinances that are more stringent in their floodplain management requirements. The community may at any time enact stricter requirements of its own or pursuant to policies established by other Federal, State, or regional entities.
This new or modified flood hazard determinations are used to meet the floodplain management requirements of the NFIP. The changes in flood hazard determinations are in accordance with 44 CFR 65.4.
Interested lessees and owners of real property are encouraged to review the final flood hazard information available at the address cited below for each community or online through the FEMA Map Service Center at
International Trade Commission.
Notice.
Notice is hereby given that the U.S. International Trade Commission has determined not to review an initial determination (“ID”) (Order No. 23) of the presiding administrative law judge (“ALJ”) granting the complainant's unopposed motion to terminate the above-captioned investigation in its entirety based on withdrawal of the complaint. The investigation is terminated in its entirety.
Lynde Herzbach, Office of the General Counsel, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436, telephone (202) 205-3228. Copies of non-confidential documents filed in connection with this investigation may be viewed on the Commission's electronic docket (EDIS) at
On October 26, 2023, the Commission instituted this investigation under section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. 1337 (“section 337”), based on a complaint filed by Wangs Alliance Corporation d/b/a, WAC Lighting of Port Washington, New York (“Complainant”).
The Commission previously terminated the investigation as to claims 2 and 3 of the '854 patent, claims 6, 8, 9, 10, 12, 13, and 14 of the '345 patent, and all asserted claims of the '897 patent. Order No. 16 (Apr. 23, 2024),
On July 3, 2024, Complainant filed an unopposed motion to terminate the investigation in its entirety based on the parties' agreement, as detailed in footnote 1 of the motion, to withdraw the complaint. On August 5, 2024, pursuant to Order No. 22, Complainant filed a declaration confirming that the unopposed motion captures the entirety of the parties' agreements. Respondents did not file a response to the unopposed motion.
On August 14, 2024, the ALJ issued the subject ID (Order No. 23) granting Complainant's unopposed motion to terminate the investigation in its entirety. Order No. 23 (Aug. 14, 2024). The subject ID finds that Complainant meets the requirements of Commission Rule 210.21(a) (19 CFR 210.21(a)), and that there are no extraordinary circumstances that would prevent the requested partial termination of the investigation. The subject ID further finds that terminating this investigation will not be contrary to the public interest.
No party petitioned for review of the subject ID.
The Commission has determined not to review the subject ID (Order No. 23). The investigation is terminated in its entirety.
The Commission vote for this determination took place on September 9, 2024.
The authority for the Commission's determination is contained in section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), and in Part 210 of the Commission's Rules of Practice and Procedure (19 CFR part 210).
By order of the Commission.
International Trade Commission.
Notice.
Notice is hereby given that the U.S. International Trade Commission (“Commission”) has determined not to review an initial determination (“ID”) (Order No. 9) of the chief administrative law judge (“CALJ”) granting a joint motion to terminate the investigation based on a settlement agreement. The investigation is terminated in its entirety.
Edward S. Jou, Esq., Office of the General Counsel, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436, telephone (202) 205-3316. Copies of non-confidential documents filed in connection with this investigation may be viewed on the Commission's electronic docket (EDIS) at
The Commission instituted this investigation on May 20, 2024, based upon a complaint filed on behalf of GTUL LLC (“Complainant”) of Cedar Point, North Carolina. 89 FR 43873-74 (May 20, 2024). The complaint, as amended, alleges violations of section 337 based upon the importation into the United States, the sale for importation, and the sale within the United States after importation of certain firearm disassembly tongs by reason of infringement of certain claims of U.S. Patent No. 8,739,915. The Commission's
On July 18, 2024, Complainant and Respondents filed a joint motion (the “Motion”) to terminate the investigation on the basis of a confidential settlement agreement. On July 26, 2024, OUII filed a response noting that the Motion failed to comply with the Commission Rules requiring a public version of the settlement agreement. On July 29, 2024, the CALJ denied the Motion with leave to refile. Order No. 8 (July 29, 2024). On August 1, 2024 and August 2, 2024, Complainant and Respondents notified the CALJ that they no longer maintained that their settlement agreement was confidential.
On August 16, 2024, the CALJ issued the subject ID granting the Motion. The CALJ found that the Motion complied with the requirements of 19 CFR 210.21(b)(1). ID at 2. The CALJ also found that “any effect that terminating this investigation on the basis of settlement may have on the statutory public interest factors does not counsel against entry of the order.”
The Commission has determined not to review the subject ID. The investigation is hereby terminated in its entirety.
The Commission vote for this determination took place on September 9, 2024.
The authority for the Commission's determination is contained in section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), and in Part 210 of the Commission's Rules of Practice and Procedure (19 CFR part 210).
By order of the Commission.
Notice is hereby given that, on May 31, 2024, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, Honeywell International Inc., Tucson, AZ, has withdrawn as a party to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and NPSS intends to file additional written notifications disclosing all changes in membership.
On December 11, 2013, NPSS filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on January 4, 2024. A notice was published in the
Notice is hereby given that, on June 14, 2024, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and EMC
On January 11, 2024, EMC
Notice is hereby given that, on April 25, 2024, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and Subcutaneous Drug Development & Delivery Consortium, Inc. intends to file additional written notifications disclosing all changes in membership.
On October 26, 2020, Subcutaneous Drug Development & Delivery Consortium, Inc. filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on February 2, 2024. A notice was published in the
Notice is hereby given that, on May 6, 2024, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, 50 BMG Supply LLC, Canton, OH; ADA Technologies, Inc., Littleton, CO; Advanced American Technologies LLC, Oak Ridge, TN; Aerobotix, Inc.,
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and NAC intends to file additional written notifications disclosing all changes in membership.
On May 2, 2000, NAC filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on January 10, 2024. A notice was published in the
Notice is hereby given that, on June 13, 2024, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, ELCOM a.s., Ostrava, CZECH REPUBLIC, has withdrawn as a party to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and IVI Foundation intends to file additional written notifications disclosing all changes in membership.
On May 29, 2001, IVI Foundation filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on January 6, 2023. A notice was published in the
Notice is hereby given that, on June 13, 2024, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open and MLCommons intends to file additional written notifications disclosing all changes in membership.
On September 15, 2020, MLCommons filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on April 3, 2024. A notice was published in the
Notice is hereby given that, on June 26, 2024, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, FUTEK Advanced Sensor Technology, Inc., Irvine, CA; Panasonic Software Development Center Dalian Co., Ltd., Dalian, Liaoningsheng, TAIWAN; INGENIA-CAT, SL, Barcelona, SPAIN; SAMWON ACT Co., Ltd., Busan, SOUTH KOREA; Thermo Gamma-Metrics LLC, San Diego, CA; Packet Power, L.L.C., Minneapolis, MN; Shanghai Flexem Technology Co., Ltd., Shanghai, PEOPLE'S REPUBLIC OF CHINA; MIDAS TECHNOLOGY Co., Ltd., Osan-si, Gyeonggi-do, SOUTH KOREA; Power Electronics International, Inc., East Dundee, IL; IPDisplays, Allen, TX; and READY Robotics Corporation, Columbus, OH, have withdrawn as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and ODVA intends to file additional written notifications disclosing all changes in membership.
On June 21, 1995, ODVA filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on April 4, 2024. A
Notice of availability; request for comments.
The Department of Labor (DOL) is submitting this Employee Benefits Security Administration (EBSA)-sponsored information collection request (ICR) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (PRA). Public comments on the ICR are invited.
The OMB will consider all written comments that the agency receives on or before October 15, 2024.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Michael Howell by telephone at 202-693-6782, or by email at
Section 523(a) of the Retirement Income Security Act of 1974 (ERISA) requires the Department of Labor (Department), in consultation with the U.S. Treasury Department, to establish an online searchable database called the Retirement Savings Lost and Found (Lost and Found) no later than December 29, 2024. The Department has the sole responsibility for establishing and maintaining the Lost and Found. The Lost and Found online searchable database will enable individuals to locate benefits they are owed by providing them with contact information for their plan administrator, the designated trustee or issuer described in section 401(a)(31)(B) of the Internal Revenue Code of 1986 (Code), or the issuer of an annuity described in section 523(e)(3)(C) of ERISA.
Plan administrators have reported much of the information needed for the establishment of the Lost and Found to the Internal Revenue Service (IRS) on Form 8955-SSA (Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits) and its predecessor Schedule SSA to the Form 5500. However, citing concerns under section 6103 of the Internal Revenue Code (Code), IRS has determined it will not unconditionally authorize release of this data to the Department for the purpose of communicating either directly with participants and beneficiaries about retirement plans that may still owe them retirement benefits or indirectly through the Lost and Found online searchable database. Accordingly, the Department is proposing to request plan administrators to voluntarily furnish the information specified below directly to the Department. For additional substantive information about this ICR, see the related notice published in the
This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless the OMB approves it and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information that does not display a valid OMB Control Number.
DOL seeks PRA authorization for this information collection for three (3) years. OMB authorization for an ICR cannot be for more than three (3) years without renewal. The DOL notes that information collection requirements submitted to the OMB for existing ICRs receive a month-to-month extension while they undergo review.
Notice of availability; request for comments.
The Department of Labor (DOL) is submitting this Employment and Training Administration (ETA)-sponsored information collection request (ICR) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (PRA). Public comments on the ICR are invited.
The OMB will consider all written comments that the agency receives on or before October 15, 2024.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Michael Howell by telephone at 202-693-6782, or by email at
The application form and other information collection instruments are to be used by employers seeking to use non-immigrants (H-1B, H-1B1, E-3) in
Comments are invited on: (1) whether the collection of information is necessary for the proper performance of the functions of the Department, including whether the information will have practical utility; (2) the accuracy of the agency's estimates of the burden and cost of the collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility and clarity of the information collection; and (4) ways to minimize the burden of the collection of information on those who are to respond, including the use of automated collection techniques or other forms of information technology.
This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless the OMB approves it and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information that does not display a valid OMB Control Number.
DOL seeks PRA authorization for this information collection for three (3) years. OMB authorization for an ICR cannot be for more than three (3) years without renewal. The DOL notes that information collection requirements submitted to the OMB for existing ICRs receive a month-to-month extension while they undergo review.
Notice of availability; request for comments.
The Department of Labor (DOL) is submitting this Employee Benefits Security Administration (EBSA)-sponsored information collection request (ICR) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (PRA). Public comments on the ICR are invited.
The OMB will consider all written comments that the agency receives on or before October 15, 2024.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Michael Howell by telephone at 202-693-6782, or by email at
Section 1460 of the Small Business Job Protection Act of 1996 (Pub. L. 104-188) (SBJPA) amended ERISA by adding section 401(c). This section requires the Department to promulgate a regulation providing guidance, applicable only to insurance policies issued on or before December 31, 1998, to or for the benefit of employee benefit plans, to clarify the extent to which assets held in an insurer's general account under such contracts are “plan assets” within the meaning of ERISA, because the policies are not “guaranteed benefit policies” within the meaning of section 401(b) of ERISA. SBJPA further directed the Department to set standards for how insurers should manage the specified insurance policies (called Transition Policies). Pursuant to the authority and direction given under SBJPA, the Department promulgated a final rule on January 5, 2000 (65 FR 714) that is codified at 29 CFR 2550.401c-1.
Regulation section 29 CFR 2550.401(c)-1 imposes specific requirements on insurers that are parties to Transition Policies in order to ensure that the fiduciaries acting on behalf of plans have adequate information and understanding of how the Transition Policies work. This information collection requires that an insurer that issues and maintains a Transition Policy to or for the benefit of an employee benefit plan must disclose to the plan fiduciary, initially upon issuance of the policy and on an annual basis, to the extent that the policy is not a guaranteed benefit policy: (1) the methods by which income and expenses of the insurer's general account are allocated to the policy, the actual annual return to the plan, and other pertinent information; (2) the extent to which alternative arrangements supported by the assets of the insurer's separate accounts are available; (3) any rights under the policy to transfer funds to a separate account and the terms governing such right; and (4) the extent to which support by assets of the insurer's separate accounts might pose differing risks to the plan. For additional substantive information about this ICR, see the related notice published in the
Comments are invited on: (1) whether the collection of information is necessary for the proper performance of the functions of the Department, including whether the information will have practical utility; (2) the accuracy of the agency's estimates of the burden and cost of the collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility and clarity of the information collection; and (4) ways to minimize the burden of the collection of information on those who are to respond, including the use of automated collection techniques or other forms of information technology.
This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless the OMB approves it and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information that does not display a valid OMB Control Number.
DOL seeks PRA authorization for this information collection for three (3)
Occupational Safety and Health Administration (OSHA), Labor.
Notice.
In this notice, OSHA announces the final decision to expand the scope of recognition for TUV SUD America, Inc. as a Nationally Recognized Testing Laboratory (NRTL).
The expansion of the scope of recognition becomes effective on September 12, 2024.
Information regarding this notice is available from the following sources:
OSHA hereby gives notice of the expansion of the scope of recognition of TUV SUD America, Inc. (TUVAM), as a NRTL. TUVAM's expansion covers the addition of one recognized testing site to the NRTL scope of recognition.
OSHA's recognition of a NRTL signifies that the organization meets the requirements specified in 29 CFR 1910.7. Recognition is an acknowledgment that the organization can perform independent safety testing and certification of the specific products covered within its scope of recognition. Each NRTL's scope of recognition includes (1) the type of products the NRTL may test, with each type specified by its applicable test standard; and (2) the recognized site(s) that has/have the technical capability to perform the product-testing and product-certification activities for test standards within the NRTL's scope. Recognition is not a delegation or grant of government authority; however, recognition enables employers to use products approved by the NRTL to meet OSHA standards that require product testing and certification.
The agency processes an application by a NRTL for initial recognition and for an expansion or renewal of this recognition, following requirements in appendix A, 29 CFR 1910.7. This appendix requires that the agency publish two notices in the
TUVAM submitted an application to OSHA for expansion of the NRTL scope of recognition. The application, dated August 1, 2023 (OSHA-2007-0043-0061), requested the expansion of the NRTL scope of recognition to include one additional test site located at: 5945 Cabot Parkway, Suite 100, Alpharetta, Georgia 30005. OSHA staff performed an on-site review of TUVAM's testing facilities at TUVAM Alpharetta on November 14-15, 2023, in which assessors found some nonconformances with the requirements of 29 CFR 1910.7. TUVAM has addressed these issues sufficiently, and OSHA staff has preliminarily determined that OSHA should grant the expansion request to include this additional site.
OSHA published the preliminary notice announcing TUVAM's expansion application in the
To obtain or review copies of all public documents pertaining to the TUVAM expansion application, go to
OSHA staff examined TUVAM's expansion application, conducted a detailed on-site assessment, and examined other pertinent information. Based on review of this evidence, OSHA finds that TUVAM meets the requirements of 29 CFR 1910.7 for expansion of recognition, subject to the specified limitations and conditions. OSHA, therefore, is proceeding with this final notice to grant TUVAM's expanded scope of recognition. OSHA limits the expansion of TUVAM's recognition to include the site at Alpharetta, Georgia listed above. OSHA's recognition of the site limits TUVAM to performing product testing and certifications only to the test standards for which the site has the proper capability and programs, and for test standards in TUVAM's scope of recognition. This limitation is consistent with the recognition that OSHA grants to other NRTLs that operate multiple sites.
In addition to those conditions already required by 29 CFR 1910.7, TUVAM also must abide by the following conditions of the recognition:
1. TUVAM must inform OSHA as soon as possible, in writing, of any change of ownership, facilities, or key personnel, and of any major change in its operations as a NRTL, and provide details of the change(s);
2. TUVAM must meet all the terms of its recognition and comply with all OSHA policies pertaining to this recognition; and
3. TUVAM must continue to meet the requirements for recognition, including all previously published conditions on
OSHA hereby expands the NRTL scope of recognition for TUVAM to include one additional test site in Alpharetta, Georgia.
James S. Frederick, Deputy Assistant Secretary of Labor for Occupational Safety and Health, 200 Constitution Avenue NW, Washington, DC 20210, authorized the preparation of this notice. Accordingly, the agency is issuing this notice pursuant to 29 U.S.C. 657(g)(2), Secretary of Labor's Order No. 8-2020 (85 FR 58393; Sept. 18, 2020), and 29 CFR 1910.7.
Occupational Safety and Health Administration (OSHA), Labor.
Notice.
In this notice, OSHA announces the application of DEKRA Certification Inc., for expansion of the recognition as a Nationally Recognized Testing Laboratory (NRTL) and presents the agency's preliminary finding to grant the application.
Submit comments, information, and documents in response to this notice, or requests for an extension of time to make a submission, on or before September 27, 2024.
Comments may be submitted as follows:
Information regarding this notice is available from the following sources:
OSHA is providing notice that DEKRA Certification Inc. (DEKRA), is applying for expansion of the current recognition as a NRTL. DEKRA requests the addition of seventeen test standards to the NRTL scope of recognition.
OSHA's recognition of a NRTL signifies that the organization meets the requirements specified in 29 CFR 1910.7. Recognition is an acknowledgment that the organization can perform independent safety testing and certification of the specific products covered within the scope of recognition. Each NRTL's scope of recognition includes: (1) the type of products the NRTL may test, with each type specified by the applicable test standard; and (2) the recognized site(s) that has/have the technical capability to perform the product-testing and product-certification activities for test standards within the NRTL's scope. Recognition is not a delegation or grant of government authority; however, recognition enables employers to use products approved by the NRTL to meet OSHA standards that require product testing and certification.
The agency processes applications by a NRTL for initial recognition and for an expansion or renewal of this recognition, following requirements in appendix A to 29 CFR 1910.7. This appendix requires that the agency publish two notices in the
DEKRA currently has two facilities (sites) recognized by OSHA for product testing and certification, with the headquarters located at: DEKRA Certification Inc., 405 Glenn Drive, Suite 12, Sterling, Virginia 20164. A complete list of DEKRA's scope of recognition is available at
DEKRA submitted an application to OSHA for expansion of the NRTL scope of recognition on December 24, 2021 (OSHA-2019-0009-0007), requesting the addition of twenty-nine recognized testing standards. The application was amended on February 1, 2023 (OSHA-2019-0009-0008), removing eight standards from the original request, while adding an additional standard to the expansion application. The December 2021 expansion application was amended a second time on June 21, 2023 (OSHA-2019-0009-0009) to withdraw three standards from the December 2021 application. The December 2021 application was
Table 1, below, lists the appropriate test standards found in DEKRA's amended application for expansion for testing and certification of products under the NRTL Program.
DEKRA submitted an acceptable application for expansion of the scope of recognition. OSHA's review of the application files and pertinent documentation indicates that DEKRA has met the requirements prescribed by 29 CFR 1910.7 for expanding the recognition to include the addition of the seventeen test standards for NRTL testing and certification listed in Table 1. This preliminary finding does not constitute an interim or temporary approval of DEKRA's application.
OSHA seeks comment on this preliminary determination.
OSHA welcomes public comment as to whether DEKRA meets the requirements of 29 CFR 1910.7 for expansion of recognition as a NRTL. Comments should consist of pertinent written documents and exhibits.
Commenters needing more time to comment must submit a request in writing, stating the reasons for the request by the due date for comments. OSHA will limit any extension to 10 days unless the requester justifies a longer time period. OSHA may deny a request for an extension if it is not adequately justified.
To review copies of the exhibits identified in this notice, as well as comments submitted to the docket, contact the Docket Office, Occupational Safety and Health Administration, U.S. Department of Labor. These materials also are generally available online at
OSHA staff will review all comments to the docket submitted in a timely manner. After addressing the issues raised by these comments, staff will make a recommendation to the Assistant Secretary of Labor for Occupational Safety and Health on whether to grant DEKRA's amended application for expansion of the scope of recognition. The Assistant Secretary will make the final decision on granting the application. In making this decision, the Assistant Secretary may undertake other proceedings prescribed in appendix A to 29 CFR 1910.7.
OSHA will publish a public notice of the final decision in the
James S. Frederick, Deputy Assistant Secretary of Labor for Occupational Safety and Health, authorized the preparation of this notice. Accordingly, the agency is issuing this notice pursuant to 29 U.S.C. 657(g)(2), Secretary of Labor's Order No. 8-2020 (85 FR 58393, Sept. 18, 2020), and 29 CFR 1910.7.
Occupational Safety and Health Administration (OSHA), Labor.
Renewal of the NACOSH charter.
The Acting Secretary of Labor (Secretary) has renewed the charter for NACOSH.
The Secretary has renewed the NACOSH charter. The charter will expire on September 4, 2026.
Congress established NACOSH in section 7(a) of the Occupational Safety and Health Act of 1970 (OSH Act) (29 U.S.C. 651, 656) to advise, consult with, and make recommendations to the Secretary and the Secretary of Health and Human Services on matters relating to the administration of the OSH Act. NACOSH is a non-discretionary advisory committee of indefinite duration.
NACOSH operates in accordance with the Federal Advisory Committee Act (FACA) (5 U.S.C. 1001,
The new charter increases the estimated annual operational costs for NACOSH by approximately 3 percent (from $201,715.20 to $207,766.65).
The new NACOSH charter is available to read or download at
James S. Frederick, Deputy Assistant Secretary of Labor for Occupational Safety and Health, authorized the preparation of this notice under the authority granted by 29 U.S.C. 656; 5 U.S.C. 10; 29 CFR part 1912a; 41 CFR part 102-3; and Secretary of Labor's Order No. 8-2020 (85 FR 58393, Sept. 18, 2020).
Occupational Safety and Health Administration (OSHA), Labor.
Notice.
In this notice, OSHA announces the applications of Nemko North America, Inc. (NNA) for expansion of recognition as a Nationally Recognized Testing Laboratory (NRTL) and presents the agency's preliminary finding to grant the applications.
Submit comments, information, and documents in response to this notice, or requests for an extension of time to make a submission, on or before September 27, 2024.
Comments may be submitted as follows:
Information regarding this notice is available from the following sources:
OSHA is providing notice that Nemko North America, Inc. (NNA) is applying for expansion of the current recognition as a NRTL. NNA requests the addition of one recognized testing standard and one recognized testing site to the NRTL scope of recognition.
OSHA's recognition of a NRTL signifies that the organization meets the requirements specified in 29 CFR 1910.7. Recognition is an acknowledgment that the organization can perform independent safety testing and certification of the specific products covered within its scope of recognition. Each NRTL's scope of recognition includes (1) the type of products the NRTL may test, with each type specified by its applicable test standard; and (2) the recognized site(s) that has/have the technical capability to perform the product-testing and product-certification activities for test standards within the NRTL's scope. Recognition is not a delegation or grant of government authority; however, recognition enables employers to use products approved by the NRTL to meet OSHA standards that require product testing and certification.
The agency processes an application by a NRTL for initial recognition and for an expansion or renewal of this recognition, following requirements in appendix A, 29 CFR 1910.7. This appendix requires that the agency publish two notices in the
NNA currently has two facilities (sites) recognized by OSHA for product testing and certification, with its headquarters located at: Nemko North America, Inc., 2210 Faraday Avenue, Suite 150, Carlsbad, California 92008. A complete list of NNA's scope of recognition (including sites recognized by OSHA) is available at:
NNA submitted two applications to OSHA for expansion of the NRTL scope of recognition. The first application, dated September 1, 2023 (OSHA-2013-0016-0029), requested the expansion of the NRTL scope of recognition to include one additional test standard. The second application, dated November 27, 2023 (OSHA-2013-0016-0030), requested the expansion of the NRTL scope of recognition to include an additional recognized testing site located at: 5F, No. 413, Sec. 2, Tiding Blvd., Nei Hu Dist. 11493 Taipei City, Taiwan, R.O.C. OSHA staff performed an on-site review of NNA's testing facilities at NNA Taipei on March 4-5, 2024, in which assessors found some nonconformances with the requirements of 29 CFR 1910.7. NNA has addressed these issues sufficiently, and OSHA staff has preliminarily determined that OSHA should grant the application.
Table 1 below lists the appropriate test standard found in NNA's application for expansion for testing and certification of products under the NRTL Program.
NNA submitted acceptable applications for expansion of the NRTL scope of recognition. OSHA's review of the application files, and pertinent documentation, indicate that NNA can meet the requirements prescribed by 29 CFR 1910.7 for expanding their recognition to include the addition of one additional testing standard and one additional testing site for NRTL testing and certification. This preliminary finding does not constitute an interim or temporary approval of NNA's applications. OSHA seeks comment on this preliminary determination.
OSHA welcomes public comment as to whether NNA meets the requirements of 29 CFR 1910.7 for expansion of recognition as a NRTL. Comments should consist of pertinent written documents and exhibits.
Commenters needing more time to comment must submit a request in writing, stating the reasons for the request by the due date for comments. OSHA will limit any extension to 10 days unless the requester justifies a longer time period. OSHA may deny a request for an extension if it is not adequately justified.
To review copies of the exhibits identified in this notice, as well as comments submitted to the docket, contact the Docket Office, Occupational Safety and Health Administration, U.S. Department of Labor. These materials also are generally available online at
OSHA staff will review all comments to the docket submitted in a timely manner. After addressing the issues raised by these comments, staff will make a recommendation to the Assistant Secretary of Labor for Occupational Safety and Health on whether to grant NNA's applications for expansion of the scope of recognition. The Assistant Secretary will make the final decision on granting the applications. In making this decision, the Assistant Secretary may undertake other proceedings prescribed in Appendix A to 29 CFR 1910.7.
OSHA will publish a public notice of the final decision in the
James S. Frederick, Deputy Assistant Secretary of Labor for Occupational Safety and Health, 200 Constitution Avenue NW, Washington, DC 20210, authorized the preparation of this notice. Accordingly, the agency is issuing this notice pursuant to section 29 U.S.C. 657(g)(2), Secretary of Labor's Order No. 8-2020 (85 FR 58393; Sept. 18, 2020), and 29 CFR 1910.7.
Occupational Safety and Health Administration (OSHA), Labor.
Notice.
In this notice, OSHA announces the application of CSA Group & Testing Certification Inc., for expansion of the recognition as a Nationally Recognized Testing Laboratory (NRTL) and presents the agency's preliminary finding to grant the application.
Submit comments, information, and documents in response to this notice, or requests for an extension of time to make a submission, on or before September 27, 2024.
Comments may be submitted as follows:
Information regarding this notice is available from the following sources:
OSHA is providing notice that CSA Group Testing & Certification Inc. (CSA), is applying for expansion of the current recognition as a NRTL. CSA requests the addition of one test standard to the NRTL scope of recognition.
OSHA's recognition of a NRTL signifies that the organization meets the requirements specified in 29 CFR 1910.7. Recognition is an acknowledgment that the organization can perform independent safety testing and certification of the specific products covered within the scope of recognition. Each NRTL's scope of recognition includes: (1) the type of products the NRTL may test, with each type specified by the applicable test standard; and (2) the recognized site(s) that has/have the technical capability to perform the product-testing and product-certification activities for test standards within the NRTL's scope. Recognition is not a delegation or grant of government authority; however, recognition enables employers to use products approved by the NRTL to meet OSHA standards that require product testing and certification.
The agency processes applications by a NRTL for initial recognition and for an expansion or renewal of this recognition, following requirements in appendix A to 29 CFR 1910.7. This appendix requires that the agency publish two notices in the
CSA currently has twenty-two facilities (sites) recognized by OSHA for product testing and certification, with the headquarters located at: CSA Group Testing & Certification Inc., 178 Rexdale Boulevard, Etobicoke, Ontario, M9W 1R3, Canada. A complete list of CSA's scope of recognition is available at
CSA submitted an application to OSHA for expansion of the NRTL scope of recognition on May 3, 2024 (OSHA-2006-0042-0042), requesting the addition of one standard to the NRTL scope of recognition. OSHA staff performed a detailed analysis of the application packet and reviewed other pertinent information. OSHA did not perform an on-site review in response to this application. OSHA staff has preliminarily determined that OSHA should grant the application for test standard expansion.
Table 1, below, lists the appropriate test standard found in CSA's application for expansion for testing and certification of products under the NRTL Program.
CSA submitted an acceptable application for expansion of the scope of recognition. OSHA's review of the application files and pertinent documentation indicates that CSA has met the requirements prescribed by29 CFR 1910.7 for expanding the recognition to include the addition of the one test standard for NRTL testing and certification listed in Table 1. This preliminary finding does not constitute an interim or temporary approval of CSA's application.
OSHA seeks comment on this preliminary determination.
OSHA welcomes public comment as to whether CSA meets the requirements of 29 CFR 1910.7 for expansion of recognition as a NRTL. Comments should consist of pertinent written documents and exhibits.
Commenters needing more time to comment must submit a request in writing, stating the reasons for the request by the due date for comments. OSHA will limit any extension to 10 days unless the requester justifies a longer time period. OSHA may deny a request for an extension if it is not adequately justified.
To review copies of the exhibits identified in this notice, as well as comments submitted to the docket, contact the Docket Office, Occupational
OSHA staff will review all comments to the docket submitted in a timely manner. After addressing the issues raised by these comments, staff will make a recommendation to the Assistant Secretary of Labor for Occupational Safety and Health on whether to grant CSA's application for expansion of the scope of recognition. The Assistant Secretary will make the final decision on granting the application. In making this decision, the Assistant Secretary may undertake other proceedings prescribed in appendix A to 29 CFR 1910.7.
OSHA will publish a public notice of the final decision in the
James S. Frederick, Deputy Assistant Secretary of Labor for Occupational Safety and Health, authorized the preparation of this notice. Accordingly, the agency is issuing this notice pursuant to 29 U.S.C. 657(g)(2), Secretary of Labor's Order No. 8-2020 (85 FR 58393, Sept. 18, 2020), and29 CFR 1910.7.
Occupational Safety and Health Administration (OSHA), Labor.
Notice.
In this notice, OSHA announces the final decision to expand the scope of recognition for TUV Rheinland of North America, Inc., as a Nationally Recognized Testing Laboratory (NRTL).
The expansion of the scope of recognition becomes effective on September 12, 2024.
Information regarding this notice is available from the following sources:
OSHA hereby gives notice of the expansion of the scope of recognition of TUV Rheinland of North America, Inc. (TUVRNA), as a NRTL. TUVRNA's expansion covers the addition of two test standards to the NRTL scope of recognition.
OSHA's recognition of a NRTL signifies that the organization meets the requirements specified in 29 CFR 1910.7. Recognition is an acknowledgment that the organization can perform independent safety testing and certification of the specific products covered within the scope of recognition. Each NRTL's scope of recognition includes (1) the type of products the NRTL may test, with each type specified by the applicable test standard and (2) the recognized site(s) that has/have the technical capability to perform the product-testing and product-certification activities for test standards within the NRTL's scope. Recognition is not a delegation or grant of government authority; however, recognition enables employers to use products approved by the NRTL to meet OSHA standards that require product testing and certification.
The agency processes applications by NRTLs or applicant organizations for initial recognition, as well as for expansion or renewal of recognition, following requirements in appendix A to 29 CFR 1910.7. This appendix requires that the agency publish two notices in the
TUVRNA submitted an application, dated January 6, 2022 (OSHA-2007-0042-0077), to expand recognition as a NRTL to include two additional test standards. OSHA staff performed a detailed analysis of the application packet and reviewed other pertinent information. OSHA did not perform any on-site reviews in relation to this application.
OSHA published the preliminary notice announcing TUVRNA's expansion application in the
To review copies of all public documents pertaining to TUVRNA's application, go to
OSHA staff examined TUVRNA's expansion application, their capability to meet the requirements of the test standards, and other pertinent information. Based on its review of this evidence, OSHA finds that TUVRNA meets the requirements of 29 CFR 1910.7 for expansion of its recognition, subject to the limitations and conditions listed below. OSHA, therefore, is proceeding with this final notice to grant TUVRNA's scope of recognition. OSHA limits the expansion of TUVRNA's recognition to testing and certification of products for demonstration of conformance to the test standards shown below in table 1.
OSHA's recognition of any NRTL for a particular test standard is limited to equipment or materials for which OSHA standards require third-party testing and certification before using them in the workplace. Consequently, if a test standard also covers any products for which OSHA does not require such testing and certification, a NRTL's scope of recognition does not include these products.
Recognition is contingent on continued compliance with 29 CFR 1910.7, including but not limited to, abiding by the following conditions of recognition:
1. TUVRNA must inform OSHA as soon as possible, in writing, of any change of ownership, facilities, or key personnel, and of any major change in its operations as a NRTL, and provide details of the change(s);
2. TUVRNA must meet all the terms of its recognition and comply with all OSHA policies pertaining to this recognition; and
3. TUVRNA must continue to meet the requirements for recognition, including all previously published conditions on TUVRNA's scope of recognition, in all areas for which it has recognition.
OSHA hereby expands the scope of recognition of TUVRNA, subject to the limitations and conditions specified above.
James S. Frederick, Deputy Assistant Secretary of Labor for Occupational Safety and Health, 200 Constitution Avenue NW, Washington, DC 20210, authorized the preparation of this notice. Accordingly, the agency is issuing this notice pursuant to 29 U.S.C. 657(g)(2), Secretary of Labor's Order No. 8-2020 (85 FR 58393, September 18, 2020) and 29 CFR 1910.7.
Occupational Safety and Health Administration (OSHA), Labor.
Notice.
In this notice, OSHA announces the application of Bureau Veritas Consumer Product Services Inc., for expansion of the recognition as a Nationally Recognized Testing Laboratory (NRTL) and presents the agency's preliminary finding to grant the application.
Submit comments, information, and documents in response to this notice, or requests for an extension of time to make a submission, on or before September 27, 2024.
Comments may be submitted as follows:
Information regarding this notice is available from the following sources:
OSHA is providing notice that Bureau Veritas Consumer Product Services Inc. (BVCPS), is applying for expansion of the current recognition as a NRTL. BVCPS requests the addition of seven test standards to the NRTL scope of recognition.
OSHA's recognition of a NRTL signifies that the organization meets the requirements specified in 29 CFR 1910.7. Recognition is an acknowledgment that the organization can perform independent safety testing and certification of the specific products covered within the scope of recognition. Each NRTL's scope of recognition includes: (1) the type of products the NRTL may test, with each type specified by the applicable test standard; and (2) the recognized site(s) that has/have the
The agency processes applications by a NRTL for initial recognition and for an expansion or renewal of this recognition, following requirements in appendix A to 29 CFR 1910.7. This appendix requires that the agency publish two notices in the
BVCPS currently has three facilities (sites) recognized by OSHA for product testing and certification, with the headquarters located at: Bureau Veritas Consumer Product Services Inc., One Distribution Center, Suite #1, Littleton, Massachusetts 01460. A complete list of BVCPS's scope of recognition is available at
BVCPS submitted an application to OSHA for expansion of the NRTL scope of recognition on November 2, 2023 (OSHA-2009-0026-0089), requesting the addition of seven standards to the NRTL scope of recognition. OSHA staff performed a detailed analysis of the application packet and reviewed other pertinent information. OSHA did not perform an on-site review related to this application.
Table 1, below, lists the appropriate test standards found in BVCPS's application for expansion for testing and certification of products under the NRTL Program.
BVCPS submitted an acceptable application for expansion of the scope of recognition. OSHA's review of the application files and pertinent documentation indicates that BVCPS has met the requirements prescribed by 29 CFR 1910.7 for expanding the recognition to include the addition of the seven test standards for NRTL testing and certification listed in Table 1. This preliminary finding does not constitute an interim or temporary approval of BVCPS's application.
OSHA seeks comment on this preliminary determination.
OSHA welcomes public comment as to whether BVCPS meets the requirements of 29 CFR 1910.7 for expansion of recognition as a NRTL. Comments should consist of pertinent written documents and exhibits.
Commenters needing more time to comment must submit a request in writing, stating the reasons for the request by the due date for comments. OSHA will limit any extension to 10 days unless the requester justifies a longer time period. OSHA may deny a request for an extension if it is not adequately justified.
To review copies of the exhibits identified in this notice, as well as comments submitted to the docket, contact the Docket Office, Occupational Safety and Health Administration, U.S. Department of Labor. These materials also are generally available online at
OSHA staff will review all comments to the docket submitted in a timely manner. After addressing the issues raised by these comments, staff will make a recommendation to the Assistant Secretary of Labor for Occupational Safety and Health on whether to grant BVCPS's application for expansion of the scope of recognition. The Assistant Secretary will make the final decision on granting the application. In making this decision, the Assistant Secretary may undertake other proceedings prescribed in appendix A to 29 CFR 1910.7.
OSHA will publish a public notice of the final decision in the
James S. Frederick, Deputy Assistant Secretary of Labor for Occupational Safety and Health, authorized the preparation of this notice. Accordingly, the agency is issuing this notice pursuant to 29 U.S.C. 657(g)(2), Secretary of Labor's Order No. 8-2020 (85 FR 58393, Sept. 18, 2020), and 29 CFR 1910.7.
National Aeronautics and Space Administration (NASA).
Notice of membership of SES Performance Review Board.
The Civil Service Reform Act of 1978, Public Law 95-454 (Section 405) requires that appointments of individual members to the Performance Review Board (PRB) be published in the
The performance review function for the SES in NASA is being performed by the NASA PRB. The following individuals are serving on the Board:
National Science Foundation.
Notice of permit applications received.
The National Science Foundation (NSF) is required to publish a notice of permit applications received to conduct activities regulated under the Antarctic Conservation Act of 1978. NSF has published regulations under the Antarctic Conservation Act in the Code of Federal Regulations. This is the required notice of permit applications received.
Interested parties are invited to submit written data, comments, or views with respect to this permit application by October 15, 2024. This application may be inspected by interested parties at the Permit Office, address below.
Comments should be addressed to Permit Office, Office of Polar Programs, National Science Foundation, 2415 Eisenhower Avenue, Alexandria, Virginia 22314 or
Andrew Titmus, ACA Permit Officer, at the above address, 703-292-4479.
The National Science Foundation, as directed by the Antarctic Conservation Act of 1978 (Pub. L. 95-541, 45 CFR 671), as amended by the Antarctic Science, Tourism and Conservation Act of 1996, has developed regulations for the establishment of a permit system for various activities in Antarctica and designation of certain animals and certain geographic areas as requiring special protection. The regulations establish such a permit system to designate Antarctic Specially Protected Areas.
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National Science Foundation.
Notice of permit applications received.
The National Science Foundation (NSF) is required to publish a notice of permit applications received to conduct activities regulated under the Antarctic Conservation Act of 1978. NSF has published regulations under
Interested parties are invited to submit written data, comments, or views with respect to this permit application by October 15, 2024. This application may be inspected by interested parties at the Permit Office, address below.
Comments should be addressed to Permit Office, Office of Polar Programs, National Science Foundation, 2415 Eisenhower Avenue, Alexandria, Virginia 22314 or
Andrew Titmus, ACA Permit Officer, at the above address, 703-292-4479.
The National Science Foundation, as directed by the Antarctic Conservation Act of 1978 (Pub. L. 95-541, 45 CFR 670), as amended by the Antarctic Science, Tourism and Conservation Act of 1996, has developed regulations for the establishment of a permit system for various activities in Antarctica and designation of certain animals and certain geographic areas as requiring special protection. The regulations establish such a permit system to designate Antarctic Specially Protected Areas.
Nuclear Regulatory Commission.
Construction permit application; Notice of uncontested hearing.
The U.S. Nuclear Regulatory Commission (NRC or the Commission) will commence an uncontested hearing, in which the Commission will receive written evidence in the form of testimony and exhibits regarding the application from Kairos Power LLC (Kairos) for a construction permit (CP) to construct a non-power test reactor termed Hermes 2 in Oak Ridge, Tennessee.
The Commission may issue written questions to the parties (the NRC staff and the applicant) no later than September 26, 2024. For the full schedule for submitting documents in this hearing, see Sections V and VI of the
Please refer to Docket ID NRC-2023-0138 when contacting the NRC about the availability of information regarding this document. You may obtain publicly available information related to this document using any of the following methods:
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Wesley W. Held, Office of the Secretary, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, telephone: 301-287-3591; email:
The Commission hereby gives notice that, pursuant to Section 189a of the Atomic Energy Act (AEA) of 1954, as amended, it will commence an uncontested hearing, in which the Commission will receive written evidence in the form of testimony and exhibits regarding the application from Kairos for a CP to construct a non-power test reactor facility termed Hermes 2 in Oak Ridge, Tennessee.
Kairos's application was submitted by letter on July 14, 2023, Agencywide Documents Access and Management System (ADAMS) Accession No. ML23195A122.
The NRC staff's Environmental Assessment (including its Finding of No Significant Impact) and Safety Evaluation Report may be viewed at ADAMS Accession Nos. ML24240A034 and ML24200A115, respectively. This mandatory hearing will concern safety and environmental matters relating to the requested construction permit application, as more fully described below.
The Commission will conduct this hearing using written materials only. The schedule and process for submitting written materials to the Commission is detailed in Sections V and VI below. The parties to this proceeding are Kairos and the NRC staff.
The Commission is the presiding officer for this proceeding.
The matter at issue in this proceeding is whether the review of the Kairos Hermes 2 construction permit application by the Commission's staff has been adequate to support the findings found in title 10 of the
With respect to the construction permit: (1) whether the applicant has described the proposed design of the facility, including, but not limited to, the principal architectural and engineering criteria for the design, and has identified the major features or components incorporated therein for the protection of the health and safety of the public; (2) whether such further technical or design information as may be required to complete the safety analysis, and which can reasonably be left for later consideration, will be supplied in the final safety analysis report; (3) whether safety features or components, if any, which require research and development have been described by the applicant and the applicant has identified, and there will be conducted, a research and development program reasonably designed to resolve any safety questions associated with such features or components; (4) whether on the basis of the foregoing, there is reasonable assurance that (i) such safety questions will be satisfactorily resolved at or before the latest date stated in the application for completion of construction of the proposed facility, and (ii) taking into consideration the site criteria contained in 10 CFR part 100, the proposed facility can be constructed and operated at the proposed location without undue risk to the health and safety of the public; (5) whether there is reasonable assurance (i) that the construction of the facility will not endanger the health and safety of the public, and (ii) that construction activities can be conducted in compliance with the Commission's regulations; (6) whether the applicant is technically and financially qualified to engage in the proposed activities in accordance with the Commission's regulations in Chapter l of 10 CFR; (7) whether the issuance of a permit for the construction of the facility to the applicant will not, in the opinion of the Commission, be inimical to the common defense and security or to the health and safety of the public; and (8) whether the application meets the standards and requirements of the AEA and the Commission's regulations, and that notifications, if any, to other agencies or bodies have been duly made.
With respect to the construction permit: (1) determine whether the requirements of Sections 102(2)(A), (C), and (E) of NEPA and the applicable regulations in 10 CFR part 51 have been met; (2) independently consider the final balance among conflicting factors contained in the record of the proceeding with a view to determining the appropriate action to be taken; (3) determine, after weighing the environmental, economic, technical, and other benefits against environmental and other costs, and considering reasonable alternatives, whether the construction permit should be issued, denied, or appropriately conditioned to protect environmental values; and (4) determine whether the NEPA review conducted by the NRC staff has been adequate.
All documents to be filed by the parties as described below should be filed in accordance with the requirements of our E-filing rules at 10 CFR 2.304(g) and will be considered exhibits in this proceeding once filed.
No later than October 10, 2024, the NRC staff should E-file the following documents to add them to the docket for this hearing: (1) SECY-24-0075, which will serve as the NRC staff's primary written testimony in this hearing, (2) the construction permit application,
No later than September 26, 2024, the Commission may issue written questions to one or both of the parties (the NRC staff and the applicant). If such questions are issued, party testimony responding to such questions, and associated exhibits (if any), are due October 10, 2024, unless the Commission directs otherwise. The applicant may also file additional written testimony by October 10, 2024.
No later than September 20, 2024, any interested State, local government body, or Federally recognized Indian Tribe may file with the Commission a statement of any issues or questions that the State, local government body, or Indian Tribe wishes the Commission to give particular attention to as part of the uncontested hearing process. Such statement may be accompanied by any supporting documentation that the State, local government body, or Indian Tribe sees fit to provide. Any statements and supporting documentation (if any) received by the Commission using the agency's E-filing system
Many of the procedures and rights applicable to the inherently adversarial nature of NRC's contested hearing process are not available in this uncontested hearing. Participation in the NRC's contested hearing process is governed by 10 CFR 2.309 (for persons or entities, including a State, local government, or Indian Tribe seeking to file contentions of their own) and 10 CFR 2.315(c) (for an interested State, local government, or Federally recognized Indian Tribe seeking to participate with respect to contentions filed by others). Participation in this uncontested hearing does not affect the right of a State, a local government, or an Indian Tribe to participate in a separate contested hearing process.
For the Nuclear Regulatory Commission.
Postal Regulatory Commission.
Notice.
The Commission is noticing a recent Postal Service filing for the Commission's consideration concerning a negotiated service agreement. This notice informs the public of the filing, invites public comment, and takes other administrative steps.
Submit comments electronically via the Commission's Filing Online system at
David A. Trissell, General Counsel, at 202-789-6820.
The Commission gives notice that the Postal Service filed request(s) for the Commission to consider matters related to negotiated service agreement(s). The request(s) may propose the addition or removal of a negotiated service agreement from the Market Dominant or the Competitive product list, or the modification of an existing product currently appearing on the Market Dominant or the Competitive product list.
Section II identifies the docket number(s) associated with each Postal Service request, the title of each Postal Service request, the request's acceptance date, and the authority cited by the Postal Service for each request. For each request, the Commission appoints an officer of the Commission to represent the interests of the general public in the proceeding, pursuant to 39 U.S.C. 505 (Public Representative). Section II also establishes comment deadline(s) pertaining to each request.
The public portions of the Postal Service's request(s) can be accessed via the Commission's website (
The Commission invites comments on whether the Postal Service's request(s) in the captioned docket(s) are consistent with the policies of title 39. For request(s) that the Postal Service states concern Market Dominant product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3622, 39 U.S.C. 3642, 39 CFR part 3030, and 39 CFR part 3040, subpart B. For request(s) that the Postal Service states concern Competitive product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3632, 39 U.S.C. 3633, 39 U.S.C. 3642, 39 CFR part 3035, and 39 CFR part 3040, subpart B. Comment deadline(s) for each request appear in section II.
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This Notice will be published in the
Pursuant to Section 19(b)(1)
The Exchange proposes to amend the existing note in the Connectivity Fee Schedule (“Fee Schedule”) regarding cabinet and combined waitlists. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization 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 those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to amend the existing note in the Fee Schedule regarding cabinet and combined waitlists.
Shortly after the onset of the Covid-19 pandemic, the Exchange began experiencing unprecedented User
In 2021 and 2022, the Exchange expanded the amount of space and power available in the MDC by opening a new colocation hall (
The Exchange subsequently amended the Fee Schedule to provide an alternative procedure by which the Exchange can allocate power in the Mahwah Data Center via deposit-guaranteed orders from Users made within a 90-day “Ordering Window.”
The Exchange had a power and cabinet waitlist (“Combined Waitlist”) in place before the Ordering Window. The Exchange found that when the Combined Waitlist was in effect, approximately
In response, the Exchange proposes to amend Fee Schedule Colocation Note 7 (Cabinet and Combined Waitlists) (“Note 7”) to require that Users wanting to be placed on a waitlist must guarantee their order with a deposit.
To implement the change, Note 7(a), which sets forth the practices the Exchange follows for a Cabinet Waitlist, would be revised to provide that a User would be placed on the Cabinet Waitlist based on the date its finalized order is received, and that a User's order would be finalized when the Exchange receives (a) User's signed order form and (b) a deposit equal to two months' worth of the monthly recurring costs of the power requested for the cabinets ordered.
Note 7(b), which sets forth the practices the Exchange follows for a Combined Waitlist, similarly would be revised to provide that a User would be placed on the Combined Waitlist based on the date its finalized order for cabinets and/or additional power is received, and that a User's order would be finalized when the Exchange receives (a) User's signed order form and (b) a deposit equal to two months' worth of the monthly recurring costs of (i) the power requested for the cabinets
Note 7(a) and (b) would be revised to provide that:
• If a User changes the size of its order while it is on the Cabinet or Combined Waitlist, as the case may be, and any additional deposit is received by the Exchange, it will maintain its place, provided that the User may not increase the size of its order such that it would exceed the Cabinet Limits or Combined Limits, as applicable.
• If a User wishes to reduce the size of its order while it is on the Cabinet or Combined Waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after cabinets are, and/or the power is, delivered until the deposit is depleted.
• If the User removes its order from the Cabinet Waitlist or Combined Waitlist, its deposit will be returned.
• A User that is removed from the Cabinet or Combined Waitlist but subsequently submits a new finalized order for cabinets and/or additional power will be added back to the bottom of the waitlist.
• The deposit will be applied to the User's first and subsequent months' invoices after the cabinets are and/or additional power is delivered until the deposit is completely depleted.
The proposed changes would not apply differently to distinct types or sizes of market participants. Rather, they would apply to all Users equally. As is currently the case, the Fee Schedule would be applied uniformly to all Users. FIDS does not expect that the proposed rule change will result in new Users.
The proposed changes are not otherwise intended to address any other issues relating to co-location services and/or related fees, and the Exchange is not aware of any problems that customers would have in complying with the proposed change.
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,
The Exchange believes that the proposed change is reasonable because requiring Users to submit deposits with their orders in order to be placed on the waitlist would help avoid delays for Users further down the list, by encouraging Users to carefully assess their true power and cabinet needs and protecting against Users ordering more power or cabinets than they actually intend to purchase. Without firm, guaranteed commitments from waitlisted Users to purchase cabinets or power if made available, the Exchange runs the risk of overestimating waitlisted Users' true demand, creating delays for Users further down the list. The proposed deposit requirement would address this by discouraging waitlisted Users from submitting orders for more cabinets or power than they actually intend to purchase.
The proposed deposit requirement is reasonable because, on the one hand, it is not so onerous as to dissuade Users from submitting orders, and, on the other hand, it is not so trivial that it would fail to deter Users from submitting exaggerated orders. It is substantially similar to the deposit provision already required under the Ordering Window, and as such, the deposit requirement here would not be novel.
In addition, the Exchange believes that the proposed change is reasonable because the deposit is proportional to the size of the order, and not a fixed amount. As a result, smaller Users would not be disproportionately affected by the deposit requirement.
Under the proposed procedure, if a User wishes to reduce an order while on a waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after the cabinets are, or the power is, delivered until the deposit is completely depleted. The Exchange believes that this would remove impediments and perfect the mechanism of a free and open market and a national market system because a waitlisted User would be reimbursed for all of its deposit even if it reduces its order. This would remove any incentive a User otherwise might have to understate its needs for cabinets and/or power out of a concern that it would not be reimbursed for the full amount of its deposit.
The Exchange believes that the proposed change provides for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities and does not unfairly discriminate between customers, issuers, brokers, or dealers because it is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The proposed changes would apply equally to all types and sizes of market participants. All Users would receive equal notice of the deposit requirement through the proposed changes to Note 7, and the deposit requirement would be the same for all Users. Smaller Users with more modest power needs would not be disadvantaged by the proposed changes, as the deposit is proportional to the size of the order and not a fixed amount.
The proposed deposit requirement is equitable because, on the one hand, it is not so onerous as to dissuade Users from submitting orders, and, on the other hand, it is not so trivial that it would fail to deter Users from submitting exaggerated orders. It is
Under the proposed procedure, if a User wishes to reduce an order while on a waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after the cabinets are, or the power is, delivered until the deposit is completely depleted. The Exchange believes that this is equitable because a waitlisted User would be reimbursed for all of its deposit even if it reduces its order. This would remove any incentive a User otherwise might have to understate its needs for cabinets and/or power out of a concern that it would not be reimbursed for the full amount of its deposit.
For the reasons above, the proposed changes do not unfairly discriminate between or among market participants that are otherwise capable of satisfying any applicable co-location fees, requirements, terms, and conditions established from time to time by the Exchange.
For these reasons, the Exchange believes that the proposal is consistent with the Act.
The Exchange believes that the proposal will not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of Section 6(b)(8) of the Act.
The Exchange believes that the proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is designed to help avoid delays for waitlisted Users, by encouraging Users to carefully assess their true power and cabinet needs and protecting against Users ordering more power or cabinets than they actually intend to purchase. Without firm, guaranteed commitments from waitlisted Users to purchase cabinets or power if made available, the Exchange runs the risk of overestimating waitlisted Users' true demand, creating delays for Users further down the list. The proposed deposit requirement would address this by discouraging waitlisted Users from submitting orders for more cabinets or power than they actually intend to purchase, thereby facilitating a more equitable distribution of cabinets and power. Moreover, the Ordering Window already requires a deposit, and as such, the deposit requirement here would not be novel.
No written comments were solicited or received with respect to the proposed rule change.
The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B)
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
SR-NYSE-2024-49 on the subject line.
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On January 2, 2024, Financial Industry Regulatory Authority, Inc. (“FINRA”) filed with the Securities and Exchange Commission (the “Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On February 27, 2024, Fixed Income Clearing Corporation (“FICC”) filed with the Securities and Exchange Commission (“Commission”) proposed rule change SR-FICC-2024-003 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
On April 5, 2024, FICC filed Partial Amendment No. 1 to the proposed rule change to correct errors FICC discovered regarding the impact analysis filed as Exhibit 3 and discussed in the filing narrative, as well as correct a typo in the methodology formula in Exhibit 5b.
Section 19(b)(2) of the Exchange Act
The Commission is extending the period for Commission action on the Proposed Rule Change, as modified by Partial Amendment No. 1. The Commission finds that it is appropriate to designate a longer period within which to take action on the Proposed Rule Change so that the Commission has sufficient time to consider the issues raised by the Proposed Rule Change and to take action on the Proposed Rule Change. Accordingly, pursuant to Section 19(b)(2)(B)(ii)(II) of the Exchange Act,
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to amend the existing note in the Connectivity Fee Schedule (“Fee Schedule”) regarding cabinet and combined waitlists. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization 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 those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to amend the existing note in the Fee Schedule regarding cabinet and combined waitlists.
Shortly after the onset of the Covid-19 pandemic, the Exchange began experiencing unprecedented User
In 2021 and 2022, the Exchange expanded the amount of space and power available in the MDC by opening a new colocation hall (
The Exchange subsequently amended the Fee Schedule to provide an alternative procedure by which the Exchange can allocate power in the Mahwah Data Center via deposit-guaranteed orders from Users made within a 90-day “Ordering Window.”
The Exchange had a power and cabinet waitlist (“Combined Waitlist”) in place before the Ordering Window.
In response, the Exchange proposes to amend Fee Schedule Colocation Note 7 (Cabinet and Combined Waitlists) (“Note 7”) to require that Users wanting to be placed on a waitlist must guarantee their order with a deposit.
To implement the change, Note 7(a), which sets forth the practices the Exchange follows for a Cabinet Waitlist, would be revised to provide that a User would be placed on the Cabinet Waitlist based on the date its finalized order is received, and that a User's order would be finalized when the Exchange receives (a) User's signed order form and (b) a deposit equal to two months' worth of the monthly recurring costs of the power requested for the cabinets ordered.
Note 7(b), which sets forth the practices the Exchange follows for a Combined Waitlist, similarly would be revised to provide that a User would be placed on the Combined Waitlist based on the date its finalized order for cabinets and/or additional power is received, and that a User's order would be finalized when the Exchange receives (a) User's signed order form and (b) a deposit equal to two months' worth of the monthly recurring costs of (i) the power requested for the cabinets ordered and/or (ii) the additional power ordered.
Note 7(a) and (b) would be revised to provide that:
• If a User changes the size of its order while it is on the Cabinet or Combined Waitlist, as the case may be, and any additional deposit is received by the Exchange, it will maintain its place, provided that the User may not increase the size of its order such that it would exceed the Cabinet Limits or Combined Limits, as applicable.
• If a User wishes to reduce the size of its order while it is on the Cabinet or Combined Waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after cabinets are, and/or the power is, delivered until the deposit is depleted.
• If the User removes its order from the Cabinet Waitlist or Combined Waitlist, its deposit will be returned.
• A User that is removed from the Cabinet or Combined Waitlist but subsequently submits a new finalized order for cabinets and/or additional power will be added back to the bottom of the waitlist.
• The deposit will be applied to the User's first and subsequent months' invoices after the cabinets are and/or additional power is delivered until the deposit is completely depleted.
The proposed changes would not apply differently to distinct types or sizes of market participants. Rather, they would apply to all Users equally. As is currently the case, the Fee Schedule would be applied uniformly to all Users. FIDS does not expect that the proposed rule change will result in new Users.
The proposed changes are not otherwise intended to address any other issues relating to co-location services and/or related fees, and the Exchange is not aware of any problems that customers would have in complying with the proposed change.
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,
The Exchange believes that the proposed change is reasonable because requiring Users to submit deposits with their orders in order to be placed on the waitlist would help avoid delays for Users further down the list, by encouraging Users to carefully assess their true power and cabinet needs and protecting against Users ordering more power or cabinets than they actually intend to purchase. Without firm, guaranteed commitments from waitlisted Users to purchase cabinets or power if made available, the Exchange runs the risk of overestimating waitlisted Users' true demand, creating delays for Users further down the list. The proposed deposit requirement would address this by discouraging waitlisted Users from submitting orders for more cabinets or power than they actually intend to purchase.
The proposed deposit requirement is reasonable because, on the one hand, it is not so onerous as to dissuade Users from submitting orders, and, on the other hand, it is not so trivial that it would fail to deter Users from submitting exaggerated orders. It is substantially similar to the deposit provision already required under the Ordering Window, and as such, the
In addition, the Exchange believes that the proposed change is reasonable because the deposit is proportional to the size of the order, and not a fixed amount. As a result, smaller Users would not be disproportionately affected by the deposit requirement.
Under the proposed procedure, if a User wishes to reduce an order while on a waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after the cabinets are, or the power is, delivered until the deposit is completely depleted. The Exchange believes that this would remove impediments and perfect the mechanism of a free and open market and a national market system because a waitlisted User would be reimbursed for all of its deposit even if it reduces its order. This would remove any incentive a User otherwise might have to understate its needs for cabinets and/or power out of a concern that it would not be reimbursed for the full amount of its deposit.
The Exchange believes that the proposed change provides for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities and does not unfairly discriminate between customers, issuers, brokers, or dealers because it is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The proposed changes would apply equally to all types and sizes of market participants. All Users would receive equal notice of the deposit requirement through the proposed changes to Note 7, and the deposit requirement would be the same for all Users. Smaller Users with more modest power needs would not be disadvantaged by the proposed changes, as the deposit is proportional to the size of the order and not a fixed amount.
The proposed deposit requirement is equitable because, on the one hand, it is not so onerous as to dissuade Users from submitting orders, and, on the other hand, it is not so trivial that it would fail to deter Users from submitting exaggerated orders. It is substantially similar to the deposit provision already required under the Ordering Window, and as such, the deposit requirement here would not be novel.
Under the proposed procedure, if a User wishes to reduce an order while on a waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after the cabinets are, or the power is, delivered until the deposit is completely depleted. The Exchange believes that this is equitable because a waitlisted User would be reimbursed for all of its deposit even if it reduces its order. This would remove any incentive a User otherwise might have to understate its needs for cabinets and/or power out of a concern that it would not be reimbursed for the full amount of its deposit.
For the reasons above, the proposed changes do not unfairly discriminate between or among market participants that are otherwise capable of satisfying any applicable co-location fees, requirements, terms, and conditions established from time to time by the Exchange.
For these reasons, the Exchange believes that the proposal is consistent with the Act.
The Exchange believes that the proposal will not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of Section 6(b)(8) of the Act.
The Exchange believes that the proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is designed to help avoid delays for waitlisted Users, by encouraging Users to carefully assess their true power and cabinet needs and protecting against Users ordering more power or cabinets than they actually intend to purchase. Without firm, guaranteed commitments from waitlisted Users to purchase cabinets or power if made available, the Exchange runs the risk of overestimating waitlisted Users' true demand, creating delays for Users further down the list. The proposed deposit requirement would address this by discouraging waitlisted Users from submitting orders for more cabinets or power than they actually intend to purchase, thereby facilitating a more equitable distribution of cabinets and power. Moreover, the Ordering Window already requires a deposit, and as such, the deposit requirement here would not be novel.
No written comments were solicited or received with respect to the proposed rule change.
The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B)
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
Rule 23c-3 (17 CFR 270.23c-3) under the Investment Company Act of 1940 (15 U.S.C. 80a-1
A closed-end fund that relies on rule 23c-3 must send shareholders a notification that contains specified information each time the fund makes a repurchase offer (on a quarterly, semi-annual, or annual basis, or, for certain funds, on a discretionary basis not more often than every two years). The fund also must file copies of the shareholder notification with the Commission (electronically through the Commission's Electronic Data Gathering, Analysis, and Retrieval System (“EDGAR”)) on Form N-23c-3, a filing that provides certain information about the fund and the type of offer the fund is making.
The requirement that the fund send a notification to shareholders of each offer is intended to ensure that a fund provides material information to shareholders about the terms of each offer. The requirement that copies be sent to the Commission is intended to enable the Commission to monitor the fund's compliance with the notification requirement. The requirement that the shareholder notification be attached to Form N-23c-3 is intended to ensure that the fund provides basic information necessary for the Commission to process the notification and to monitor the fund's use of repurchase offers. The requirement that the fund describe its current policy on repurchase offers and the results of recent offers in the annual shareholder report is intended to provide shareholders current information about the fund's repurchase policies and its recent experience. The requirement that the board approve and review written procedures designed to maintain portfolio liquidity is intended to ensure that the fund has enough cash or liquid securities to meet its repurchase obligations, and that written procedures are available for review by shareholders and examination by the Commission. The requirement that the fund file advertisements and sales literature as if it were an open-end fund is intended to facilitate the review of these materials by the Commission or FINRA to prevent incomplete, inaccurate, or misleading disclosure
The Commission staff estimates that 80 funds make use of rule 23c-3 annually, including 14 funds that are relying upon rule 23c-3 for the first time. The Commission staff estimates that on average a fund spends 89 hours annually in complying with the requirements of the rule and Form N-23c-3, with funds relying upon rule 23c-3 for the first time incurring an additional one-time burden of 28 hours. The Commission therefore estimates the total annual hour burden of the rule's and form's paperwork requirements to be 7,512 hours. In addition to the burden hours, the Commission staff estimates that the average yearly cost to each fund that relies on rule 23c-3 to print and mail repurchase offers to shareholders is about $38,003.10. The Commission estimates total annual cost is therefore about $3,040,248.
Estimates of average burden hours and costs are made solely for purposes of the Paperwork Reduction Act and are not derived from a comprehensive or even representative survey or study of the costs of Commission rules and forms. Compliance with the collection of information requirements of the rule and form is mandatory only for those funds that rely on the rule to repurchase shares of the fund. The information provided to the Commission on Form N-23c-3 will not be kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number.
The public may view background documentation for this information collection at the following website:
Pursuant to Section 19(b)(1)
The Exchange proposes to amend the existing note in the Connectivity Fee Schedule (“Fee Schedule”) regarding cabinet and combined waitlists. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization 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 those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to amend the existing note in the Fee Schedule regarding cabinet and combined waitlists.
Shortly after the onset of the Covid-19 pandemic, the Exchange began experiencing unprecedented User
In 2021 and 2022, the Exchange expanded the amount of space and power available in the MDC by opening a new colocation hall (
The Exchange subsequently amended the Fee Schedule to provide an alternative procedure by which the Exchange can allocate power in the Mahwah Data Center via deposit-guaranteed orders from Users made within a 90-day “Ordering Window.”
The Exchange had a power and cabinet waitlist (“Combined Waitlist”) in place before the Ordering Window. The Exchange found that when the Combined Waitlist was in effect, approximately
In response, the Exchange proposes to amend Fee Schedule Colocation Note 7 (Cabinet and Combined Waitlists) (“Note 7”) to require that Users wanting to be placed on a waitlist must guarantee their order with a deposit.
To implement the change, Note 7(a), which sets forth the practices the Exchange follows for a Cabinet Waitlist, would be revised to provide that a User would be placed on the Cabinet Waitlist based on the date its finalized order is received, and that a User's order would be finalized when the Exchange receives (a) User's signed order form and (b) a deposit equal to two months' worth of the monthly recurring costs of the power requested for the cabinets ordered.
Note 7(b), which sets forth the practices the Exchange follows for a Combined Waitlist, similarly would be revised to provide that a User would be placed on the Combined Waitlist based on the date its finalized order for cabinets and/or additional power is received, and that a User's order would be finalized when the Exchange receives (a) User's signed order form and (b) a deposit equal to two months' worth of the monthly recurring costs of (i) the power requested for the cabinets ordered and/or (ii) the additional power ordered.
Note 7(a) and (b) would be revised to provide that:
• If a User changes the size of its order while it is on the Cabinet or Combined Waitlist, as the case may be, and any additional deposit is received by the Exchange, it will maintain its place, provided that the User may not increase the size of its order such that it would exceed the Cabinet Limits or Combined Limits, as applicable.
• If a User wishes to reduce the size of its order while it is on the Cabinet or Combined Waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after cabinets are, and/or the power is, delivered until the deposit is depleted.
• If the User removes its order from the Cabinet Waitlist or Combined Waitlist, its deposit will be returned.
• A User that is removed from the Cabinet or Combined Waitlist but subsequently submits a new finalized order for cabinets and/or additional power will be added back to the bottom of the waitlist.
• The deposit will be applied to the User's first and subsequent months' invoices after the cabinets are and/or additional power is delivered until the deposit is completely depleted.
The proposed changes would not apply differently to distinct types or sizes of market participants. Rather, they would apply to all Users equally. As is currently the case, the Fee Schedule would be applied uniformly to all Users. FIDS does not expect that the proposed rule change will result in new Users.
The proposed changes are not otherwise intended to address any other issues relating to co-location services and/or related fees, and the Exchange is not aware of any problems that customers would have in complying with the proposed change.
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,
The Exchange believes that the proposed change is reasonable because requiring Users to submit deposits with their orders in order to be placed on the waitlist would help avoid delays for Users further down the list, by encouraging Users to carefully assess their true power and cabinet needs and protecting against Users ordering more power or cabinets than they actually intend to purchase. Without firm,
The proposed deposit requirement is reasonable because, on the one hand, it is not so onerous as to dissuade Users from submitting orders, and, on the other hand, it is not so trivial that it would fail to deter Users from submitting exaggerated orders. It is substantially similar to the deposit provision already required under the Ordering Window, and as such, the deposit requirement here would not be novel.
In addition, the Exchange believes that the proposed change is reasonable because the deposit is proportional to the size of the order, and not a fixed amount. As a result, smaller Users would not be disproportionately affected by the deposit requirement.
Under the proposed procedure, if a User wishes to reduce an order while on a waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after the cabinets are, or the power is, delivered until the deposit is completely depleted. The Exchange believes that this would remove impediments and perfect the mechanism of a free and open market and a national market system because a waitlisted User would be reimbursed for all of its deposit even if it reduces its order. This would remove any incentive a User otherwise might have to understate its needs for cabinets and/or power out of a concern that it would not be reimbursed for the full amount of its deposit.
The Exchange believes that the proposed change provides for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities and does not unfairly discriminate between customers, issuers, brokers, or dealers because it is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The proposed changes would apply equally to all types and sizes of market participants. All Users would receive equal notice of the deposit requirement through the proposed changes to Note 7, and the deposit requirement would be the same for all Users. Smaller Users with more modest power needs would not be disadvantaged by the proposed changes, as the deposit is proportional to the size of the order and not a fixed amount.
The proposed deposit requirement is equitable because, on the one hand, it is not so onerous as to dissuade Users from submitting orders, and, on the other hand, it is not so trivial that it would fail to deter Users from submitting exaggerated orders. It is substantially similar to the deposit provision already required under the Ordering Window, and as such, the deposit requirement here would not be novel.
Under the proposed procedure, if a User wishes to reduce an order while on a waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after the cabinets are, or the power is, delivered until the deposit is completely depleted. The Exchange believes that this is equitable because a waitlisted User would be reimbursed for all of its deposit even if it reduces its order. This would remove any incentive a User otherwise might have to understate its needs for cabinets and/or power out of a concern that it would not be reimbursed for the full amount of its deposit.
For the reasons above, the proposed changes do not unfairly discriminate between or among market participants that are otherwise capable of satisfying any applicable co-location fees, requirements, terms, and conditions established from time to time by the Exchange.
For these reasons, the Exchange believes that the proposal is consistent with the Act.
The Exchange believes that the proposal will not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of Section 6(b)(8) of the Act.
The Exchange believes that the proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is designed to help avoid delays for waitlisted Users, by encouraging Users to carefully assess their true power and cabinet needs and protecting against Users ordering more power or cabinets than they actually intend to purchase. Without firm, guaranteed commitments from waitlisted Users to purchase cabinets or power if made available, the Exchange runs the risk of overestimating waitlisted Users' true demand, creating delays for Users further down the list. The proposed deposit requirement would address this by discouraging waitlisted Users from submitting orders for more cabinets or power than they actually intend to purchase, thereby facilitating a more equitable distribution of cabinets and power. Moreover, the Ordering Window already requires a deposit, and as such, the deposit requirement here would not be novel.
No written comments were solicited or received with respect to the proposed rule change.
The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B)
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (“PRA”) (44 U.S.C. 3501
Under the Rules, security-based swap data repositories (“SDRs”) are required to register with the Commission by filing a completed Form SDR (the filing of a completed Form SDR also constitutes an application for registration as a securities information processor (“SIP”)). SDRs are also required to abide by certain minimum standards set out in the Rules, including a requirement to update Form SDR, abide by certain duties and core principles, maintain data in accordance with the rules, keep systems in accordance with the Rules, keep records, provide reports to the Commission, maintain the privacy of security-based swaps (“SBSs”) data, make certain disclosures, and designate a Chief Compliance Officer. In addition, there are a number of collections of information contained in the Rules. The information collected pursuant to the Rules is necessary to carry out the mandates of the Dodd-Frank Act and help ensure an orderly and transparent market for SBSs.
Assuming a maximum of three SDRs, the Commission estimates that the total that the total burden for the Rules and Form SDR for all respondents is 127,505 hours annually and approximately 382,511 burden hours for all respondents over three years. In addition, the Commission estimates that the total cost of the Rules and Form SDR for all respondents is approximately $29,905,416 annually and approximately $89,716,248 for all respondents over three years.
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number.
The public may view background documentation for this information collection at the following website:
Pursuant to Section 19(b)(1)
The Exchange proposes to amend the existing note in the Connectivity Fee Schedule (“Fee Schedule”) regarding cabinet and combined waitlists. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization 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 those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to amend the existing note in the Fee Schedule regarding cabinet and combined waitlists.
Shortly after the onset of the Covid-19 pandemic, the Exchange began experiencing unprecedented User
In 2021 and 2022, the Exchange expanded the amount of space and power available in the MDC by opening a new colocation hall (
The Exchange subsequently amended the Fee Schedule to provide an alternative procedure by which the Exchange can allocate power in the Mahwah Data Center via deposit-guaranteed orders from Users made within a 90-day “Ordering Window.”
The Exchange had a power and cabinet waitlist (“Combined Waitlist”) in place before the Ordering Window. The Exchange found that when the Combined Waitlist was in effect, approximately
In response, the Exchange proposes to amend Fee Schedule Colocation Note 7 (Cabinet and Combined Waitlists) (“Note 7”) to require that Users wanting to be placed on a waitlist must guarantee their order with a deposit.
To implement the change, Note 7(a), which sets forth the practices the Exchange follows for a Cabinet Waitlist, would be revised to provide that a User would be placed on the Cabinet Waitlist based on the date its finalized order is received, and that a User's order would be finalized when the Exchange receives (a) User's signed order form and (b) a deposit equal to two months' worth of the monthly recurring costs of the
Note 7(b), which sets forth the practices the Exchange follows for a Combined Waitlist, similarly would be revised to provide that a User would be placed on the Combined Waitlist based on the date its finalized order for cabinets and/or additional power is received, and that a User's order would be finalized when the Exchange receives (a) User's signed order form and (b) a deposit equal to two months' worth of the monthly recurring costs of (i) the power requested for the cabinets ordered and/or (ii) the additional power ordered.
Note 7(a) and (b) would be revised to provide that:
• If a User changes the size of its order while it is on the Cabinet or Combined Waitlist, as the case may be, and any additional deposit is received by the Exchange, it will maintain its place, provided that the User may not increase the size of its order such that it would exceed the Cabinet Limits or Combined Limits, as applicable.
• If a User wishes to reduce the size of its order while it is on the Cabinet or Combined Waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after cabinets are, and/or the power is, delivered until the deposit is depleted.
• If the User removes its order from the Cabinet Waitlist or Combined Waitlist, its deposit will be returned.
• A User that is removed from the Cabinet or Combined Waitlist but subsequently submits a new finalized order for cabinets and/or additional power will be added back to the bottom of the waitlist.
• The deposit will be applied to the User's first and subsequent months' invoices after the cabinets are and/or additional power is delivered until the deposit is completely depleted.
The proposed changes would not apply differently to distinct types or sizes of market participants. Rather, they would apply to all Users equally. As is currently the case, the Fee Schedule would be applied uniformly to all Users. FIDS does not expect that the proposed rule change will result in new Users.
The proposed changes are not otherwise intended to address any other issues relating to co-location services and/or related fees, and the Exchange is not aware of any problems that customers would have in complying with the proposed change.
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,
The Exchange believes that the proposed change is reasonable because requiring Users to submit deposits with their orders in order to be placed on the waitlist would help avoid delays for Users further down the list, by encouraging Users to carefully assess their true power and cabinet needs and protecting against Users ordering more power or cabinets than they actually intend to purchase. Without firm, guaranteed commitments from waitlisted Users to purchase cabinets or power if made available, the Exchange runs the risk of overestimating waitlisted Users' true demand, creating delays for Users further down the list. The proposed deposit requirement would address this by discouraging waitlisted Users from submitting orders for more cabinets or power than they actually intend to purchase.
The proposed deposit requirement is reasonable because, on the one hand, it is not so onerous as to dissuade Users from submitting orders, and, on the other hand, it is not so trivial that it would fail to deter Users from submitting exaggerated orders. It is substantially similar to the deposit provision already required under the Ordering Window, and as such, the deposit requirement here would not be novel.
In addition, the Exchange believes that the proposed change is reasonable because the deposit is proportional to the size of the order, and not a fixed amount. As a result, smaller Users would not be disproportionately affected by the deposit requirement.
Under the proposed procedure, if a User wishes to reduce an order while on a waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after the cabinets are, or the power is, delivered until the deposit is completely depleted. The Exchange believes that this would remove impediments and perfect the mechanism of a free and open market and a national market system because a waitlisted User would be reimbursed for all of its deposit even if it reduces its order. This would remove any incentive a User otherwise might have to understate its needs for cabinets and/or power out of a concern that it would not be reimbursed for the full amount of its deposit.
The Exchange believes that the proposed change provides for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities and does not unfairly
The proposed deposit requirement is equitable because, on the one hand, it is not so onerous as to dissuade Users from submitting orders, and, on the other hand, it is not so trivial that it would fail to deter Users from submitting exaggerated orders. It is substantially similar to the deposit provision already required under the Ordering Window, and as such, the deposit requirement here would not be novel.
Under the proposed procedure, if a User wishes to reduce an order while on a waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after the cabinets are, or the power is, delivered until the deposit is completely depleted. The Exchange believes that this is equitable because a waitlisted User would be reimbursed for all of its deposit even if it reduces its order. This would remove any incentive a User otherwise might have to understate its needs for cabinets and/or power out of a concern that it would not be reimbursed for the full amount of its deposit.
For the reasons above, the proposed changes do not unfairly discriminate between or among market participants that are otherwise capable of satisfying any applicable co-location fees, requirements, terms, and conditions established from time to time by the Exchange.
For these reasons, the Exchange believes that the proposal is consistent with the Act.
The Exchange believes that the proposal will not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of Section 6(b)(8) of the Act.
The Exchange believes that the proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is designed to help avoid delays for waitlisted Users, by encouraging Users to carefully assess their true power and cabinet needs and protecting against Users ordering more power or cabinets than they actually intend to purchase. Without firm, guaranteed commitments from waitlisted Users to purchase cabinets or power if made available, the Exchange runs the risk of overestimating waitlisted Users' true demand, creating delays for Users further down the list. The proposed deposit requirement would address this by discouraging waitlisted Users from submitting orders for more cabinets or power than they actually intend to purchase, thereby facilitating a more equitable distribution of cabinets and power. Moreover, the Ordering Window already requires a deposit, and as such, the deposit requirement here would not be novel.
No written comments were solicited or received with respect to the proposed rule change.
The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B)
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
Cboe EDGX Exchange, Inc. (the “Exchange” or “EDGX Options”) proposes to amend its Fee Schedule. The text of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the Exchange's website (
In its filing with the Commission, the Exchange 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 IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
The Exchange proposes to amend its fee schedule for its equity options platform (“EDGX Options”) relating to logical connectivity fees.
By way of background, the Exchange offers a variety of logical ports, which provide users with the ability within the Exchange's System to accomplish a specific function through a connection, such as order entry, data receipt or access to information. The Exchange currently assesses, among other things, the following logical port connectivity fees on a monthly basis: $500 per port for Logical Ports;
The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the “Act”) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.
The Exchange believes the proposed fees are reasonable as they are the same, or even lower than, the amounts assessed by affiliated options exchanges for the same functionality (and which were similarly adopted via the rule filing process and filed with the Commission). The proposed fees are also in line with fees assessed by other exchanges, for analogous connections.
Additionally, the Exchange believes the proposed fee increase is reasonable in light of recent and anticipated connectivity-related upgrades and changes. The Exchange and its affiliated exchanges recently launched a multi-year initiative to improve Cboe Exchange Platform performance and capacity requirements, including for its U.S. options markets, to increase competitiveness, support growth and advance a consistent world class platform. The goal of the project, among other things, is to provide faster and more consistent order handling and matching performance for options, while ensuring quicker processing time and supporting increasing volumes. For example, the Exchange is currently performing order handler and matching engine hardware upgrades across its markets to advance this goal. The Exchange anticipates that upgrades to its matching engines may result in a latency reduction up to 40% to 50% on the Exchange and that upgrades to its order handlers may offer lower variability in the processing of message, which can reduce the time a message takes to get to the matching engine. The Exchange expended, and will continue to expend, resources to innovate and modernize technology so that it may benefit its Members and continue to compete among other options markets. The Exchange also notes that neither it—nor its options exchange affiliates—have passed through or offset current or projected costs associated with these upgrades. The ability to continue to innovate with technology and offer new products to market participants allows the Exchange to remain competitive in the options space which currently has 18 options markets and potential new entrants. The Exchange also notes market participants may continue to choose the method of connectivity based on their specific needs, and no broker-dealer is required to become a Member of, let alone connect directly to, the Exchange. There is also no regulatory requirement that any market participant connect to any one particular exchange. Market participants may voluntarily choose to become a member of one or more of a number of different exchanges, of which, the Exchange is but one choice. Additionally, any Exchange member that is dissatisfied with the proposal is free to choose not to be a member of the Exchange and send order flow to another exchange. Moreover, direct connectivity is not a requirement to participate on the Exchange. The Exchange also believes substitutable products and services are available to market participants, including, among other things, other options exchanges to which a market participant may connect in lieu of the Exchange and/or trading of any options product, such as within the Over-the-Counter (OTC) markets, which do not require connectivity to the Exchange. Indeed, there are currently 18 registered options exchanges that trade options (14 of which are not affiliated with Cboe), some of which have similar or lower connectivity fees.
As for market participants that determine to continue to maintain membership or to join the Exchange for business purposes, those business reasons presumably result in revenue capable of covering the proposed fee. Further, for such market participants that choose to connect to the Exchange, the Exchange believes the proposed fees continue to provide flexibility with respect to how to connect to the Exchange based on each market participants' respective business needs. For example, the amount and type of logical ports are determined by factors relevant and specific to each market participant, including its business model, costs of connectivity, how its business is segmented and allocated and volume of messages sent to the Exchange. Moreover, the Exchange notes that it does not have unlimited system capacity and the proposed fees are also designed to encourage market participants to be efficient with their respective logical port usage and discourage the purchasing of large amounts of superfluous ports. There is also no requirement that any market participant maintain a specific number of logical ports and a market participant may choose to maintain as many or as few of such ports as each deems appropriate. Further, market participants may reduce or discontinue use of these ports in response to the proposed fees. Indeed, when the Exchange last increased pricing for logical ports in 2018, the Exchange observed within the first two months that market participants did in fact reduce the number of logical ports they maintained. Particularly, Logical Port quantities were reduced by approximately 20%. The Exchange similarly saw a decline in logical port quantities after the current proposed rate change in January 2024. Specifically, as of May 2024, Logical Port quantities have been reduced by approximately 8% since the announcement of the proposed fee change. This demonstrates that market participants can and do choose to disconnect, or reduce, their connectivity from the Exchange, including in response to fee increases. The Exchange also does not assess any termination fee for a market participant to drop its connectivity or membership, nor is the Exchange aware of any other costs that
As noted above, there is no regulatory requirement that any market participant connect to any one options exchange, nor that any market participant connect at a particular connection speed or act in a particular capacity on the Exchange, or trade any particular product offered on an exchange. Moreover, membership is not a requirement to participate on the Exchange. Indeed, the Exchange is unaware of any one options exchange whose membership includes every registered broker-dealer. By way of example, while the Exchange has 51 members that trade options, Cboe BZX has 61 members that trade options, and Cboe C2 has 52 Trading Permit Holders (“TPHs”) (
The Exchange lastly notes that it is not required by the Exchange Act, nor any other rule or regulation, to undertake a cost-of-service or rate-making approach with respect to fee proposals. Moreover, Congress's intent in enacting the 1975 Amendments to the Act was to enable competition—rather than government order—to determine prices. The principal purpose of the amendments was to facilitate the creation of a national market system for the trading of securities. Congress intended that this “national market system evolve through the interplay of
The Exchange also believes that the proposed fee change is not unfairly discriminatory because it would be assessed uniformly across all market participants that purchase the respective logical ports. All Members have the option to select any connectivity option, and there is no differentiation among Members with regard to the fees charged for the services offered by the Exchange.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes the proposed fee change will not impact intramarket competition because it will apply to all similarly situated market participants equally (
The Exchange believes the proposed fees will not impact intermarket competition because they are also in line with, or even lower than some fees for similar connectivity on other exchanges, and therefore may stimulate intermarket competition by attracting additional firms to connect to the Exchange or at least should not deter interested participants from connecting directly to the Exchange. Further, if the changes proposed herein are unattractive to market participants, the Exchange can, and likely will, see a decline in usage of these ports as a result. The Exchange operates in a highly competitive market in which market participants can determine whether or not to connect directly to the Exchange based on the value received compared to the cost of doing so. Indeed, market participants have numerous alternative venues that they may participate on and direct their order flow, including 13 (soon to be 14) non-Cboe affiliated options markets, as well as off-exchange venues, where
The Exchange neither solicited nor received comments on the proposed rule change.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• 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-CboeEDGX-2024-055 and should be submitted on or before October 3, 2024.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On May 24, 2024, the Public Company Accounting Oversight Board (the “Board” or the “PCAOB”) filed with the Securities and Exchange Commission (the “Commission”), pursuant to Section 107(b)
The Amendments were published for comment in the
On May 13, 2024, the Board adopted the Amendments.
In the Notice of Filing of Proposed Rules, the PCAOB stated that it was proposing a new QC standard that it believes will lead registered public accounting firms to significantly improve their QC systems and thereby protect investors by facilitating the consistent preparation and issuance of informative, accurate, and independent audit reports.
According to the Board, QC 1000 provides a framework for a QC system that is grounded in the ongoing practice of proactively identifying and managing risks to audit quality, with a feedback loop from ongoing monitoring, an explicit focus on firm governance and leadership, firm culture, and individual accountability, and specific direction in a number of areas the current PCAOB standards do not address.
QC 1000 also requires an annual evaluation of the effectiveness of the QC system and reporting to the PCAOB on the QC system evaluation by the registered public accounting firm for any period in which it is required to implement and operate a QC system.
As noted above, firms are required to design and implement quality responses as part of the risk assessment process. Although QC 1000 requires firms to design and implement their own quality responses to respond to their particular assessed quality risks, QC 1000 also includes some specified quality responses, which are mandatory for the firms to which they apply.
For example, with respect to the governance and leadership component, QC 1000 includes a specified quality response that requires firms with larger PCAOB audit practices (firms that issue audit reports for more than 100 issuers in the prior calendar year) to adopt and implement an external quality control function (“EQCF”) that is composed of one or more persons who are not principals or employees of the firm and do not otherwise have a relationship with the firm that would interfere with the exercise of independent judgment with regard to matters related to the QC system.
The Board described the QC 1000 framework as having commonalities with other international and domestic standards for firm QC systems, though it goes beyond those requirements in some areas.
The Amendments also include expanding the auditor's responsibility to respond to deficiencies on completed engagements under an amended and retitled AS 2901,
The Amendments will be effective on December 15, 2025. The first annual evaluation period will cover the period beginning on the effective date of the standard (
The Commission continues to observe concerning indications that registered firms' QC systems are inadequate to ensure the high level of audit quality necessary for investor protection. Recent PCAOB inspection reports indicate that inspection deficiency rates are continuing to rise, with 46% of the engagements reviewed in 2023 having at least one Part I.A deficiency,
As noted above, in response to the Notice of Filing of Proposed Rules, to date the Commission has received over 20 comment letters from the public and one response to comments from the PCAOB.
Other commenters stated that the Commission should not approve the Amendments.
We have considered the information contained in the Notice of Filing of Proposed Rules and the PCAOB's response letter
The Amendments emphasize the importance of accountability and firm governance and a QC system that is proactive and responsive to risks. Replacing interim standards with permanent standards provides additional regulatory certainty that may have an incremental benefit of allowing audit firms to make long-term investments in their QC systems. Further, the Amendments will promote compliance by registered public accounting firms with applicable professional and legal requirements (including PCAOB auditing standards), which should help eliminate information asymmetries and expectation gaps for issuers, registered broker-dealers, and investors regarding whether audit firms are complying with such requirements. Improved compliance by registered public accounting firms with PCAOB auditing standards, among other professional and legal requirements, would result in improved financial reporting quality, which would further benefit investors.
In addition, the Amendments share a common framework with Other QC Standards that are widely implemented by auditing firms across the globe, with specific enhanced requirements for the U.S. regulatory environment, which allows firms to leverage costs already expended or that will be expended to comply with these standards. In addition to the overarching structure and the eight components being the same among QC 1000 and the Other Standards as noted above in Section II, the requirements within the components are also aligned. Specifically, the required quality objectives (
QC 1000 does go beyond the Other QC Standards in that it contains relatively more prescriptive requirements than the Other QC Standards.
As discussed above, QC 1000 includes a design-only requirement. The PCAOB stated in the Adopting Release that the design-only requirement may facilitate timely implementation and operation of a compliant QC system.
A number of commenters expressed concerns regarding the design-only requirement.
While we acknowledge the concerns raised by commenters, we find that the design-only requirement is consistent with the requirements of Title I of SOX and the rules and regulations issued thereunder and is necessary or appropriate in the public interest or for the protection of investors. Allowing registered firms to design their QC system only upon entering into an audit engagement would create a risk that registered firms could be unprepared to accept and perform engagements in compliance with applicable professional and legal requirements, which in turn risks a reduction in audit quality to the detriment of investors. For example, one component of a well-designed QC system is policies and procedures around the acceptance of an engagement. Without having designed a QC system in advance, such firms would not be in a position to ensure that their QC system is effective in order to evaluate and take on a new PCAOB engagement.
Below we discuss the views of commenters with respect to specific aspects of QC 1000's design-only requirement, as well as the Commission's findings regarding those matters.
We have considered comments on the statutory authority questions raised in Board Member Ho's statement as well as the PCAOB's response letter and find that the Board has the authority to require that all registered firms design a QC system that complies with QC 1000. The Supreme Court has stated that, in cases of statutory construction, a court's analysis begins with “the language of the statute” and “where the statutory language provides a clear answer, it ends there as well.”
Furthermore, we find the use of the term “every” in Section 103(a)(2)(B) significant, because it is the only place in SOX that uses that term. In other sections of SOX, such as Sections 101, 104 and 106, Congress used narrower language when it wanted to apply a particular regulation to a smaller universe of public accounting firms or registered public accounting firms.
As noted above, several commenters expressed concerns that the design-only requirement will increase the barriers to entry for small firms to take on audits of smaller issuers or registered broker-dealers and incentivize firms to de-register. Some commenters suggested the requirement be revised to require the system to address only elements of QC covered by the professional QC standards the firm is currently subject to for the type of engagements they currently perform (
We acknowledge concerns that the design-only requirement could create barriers to entry or otherwise impact the decision to either register, or remain registered, with the PCAOB for firms that do not perform PCAOB engagements, and as discussed more fully in Section III.C below, we have considered the overall competitive effects of the Amendments on the market for audit services. These concerns must be weighed against the investor protection benefits of the design-only requirement. In particular, as the Board noted in the Adopting Release, if a registered firm that has not led an engagement or played a substantial role on an engagement in the past anticipates the possibility of transitioning to performing engagements, the design-only requirement may facilitate timely implementation and operation of their QC 1000 compliant QC system.
We further considered the alternatives raised by commenters, including allowing for compliance with Other QC Standards, or delaying the effective date until firms accept an engagement under PCAOB standards. However, we do not believe that either of these alternatives sufficiently addresses the risks to investors of a firm entering into audit engagements with an issuer or registered broker-dealer without a QC system in place that provides reasonable assurance the firm could conduct the engagement in accordance with applicable professional and legal requirements. An audit firm's failure to conduct an engagement in accordance with applicable professional and legal standards undermines audit quality, puts at risk capital formation, and places investors and issuers at risk.
Further, there are reasons to believe that the design-only requirement will not be a significant barrier to entry or cause for smaller firms to deregister, primarily due to the expected costs to the majority of registered firms being substantially mitigated by investments made by those firms to comply with the Other QC Standards, which have already been adopted by the IAASB and AICPA and will be effective at or before the effective date of QC 1000. In the Adopting Release, the PCAOB stated that QC 1000 shares a basic structure and approach with the Other QC Standards, so designing for the incremental features unique to QC 1000 is not expected to be unduly burdensome for firms that are subject to either or both of those Other QC standards.
Furthermore, other factors may serve to mitigate any adverse competitive effects from the design-only requirement for smaller firms. For example, some registered firms currently participate in PCAOB engagements at a level below that of a “substantial role,” with the level of involvement varying, with some of those firms participating at a level approaching a “substantial role.”
As described above, QC 1000 includes a requirement for the small number of firms that issue audit reports for more than 100 issuers during the prior calendar year to implement an EQCF. Composed of one or more persons who are not principals or employees of the firm and do not otherwise have a commercial, familial or other relationship with the firm that would interfere with the exercise of independent judgment with regard to the matters related to the QC system, the EQCF is required to evaluate the significant judgments made and related conclusions reached by the firm when the firm is evaluating and reporting on the effectiveness of its QC system.
Some commenters stated that they specifically supported the EQCF role.
On the other hand, several commenters stated that they do not support the requirement to incorporate an EQCF within the QC system.
While we acknowledge the concerns raised by commenters about the EQCF requirement, the Commission finds that the EQCF role is consistent with the requirements of Title I of SOX and the rules and regulations issued thereunder and is necessary or appropriate in the public interest or for the protection of investors. We believe that an independent oversight function for the small number of firms subject to the requirement will enhance the effectiveness of a registered firm's QC system, ultimately leading to improvements in audit quality. In support of the EQCF requirement, one commenter pointed to the importance of independence to “high quality corporate governance in the United States” and stated that “as independence has been implemented, enhanced and monitored, it has led to investors relying to a greater extent on corporate boards.”
One commenter expressed doubts that the EQCF would improve audit quality or drive improvements in a firm's QC system given the PCAOB's view that the EQCF would only be considered a supervisory person if it had responsibility, ability, or authority to affect the conduct of associated persons.
Relatedly, we do not believe that imposing an independent QC monitor or independent QC consultant for a prescribed period of time as remedial relief in a PCAOB enforcement action would serve as a viable substitute for the EQCF requirement for the small number of firms subject to the requirement, as suggested by one commenter.
In addition to the overall benefits that an independent oversight function would provide, we find that the Board's approach to mandating this requirement in QC 1000 appropriately balances the need to enhance the effectiveness of registered firms' QC systems with an approach that provides flexibility in internal governance structures to minimize cost and disruption. As adopted by the Board, the EQCF requirement will provide significant flexibility for firms to design procedures that work best for their individual firm governance structure and requirements. QC 1000 does not specify where within the registered public accounting firm the EQCF must be housed or to whom the EQCF must report.
The Amendments also do not prescribe specific procedures to be followed by the EQCF and require only one EQCF activity.
Several commenters expressed the view that the EQCF requirement was not included in the Proposing Release and therefore was not properly exposed for public comment before being adopted by the Board.
As a threshold matter, we find that the public had a meaningful opportunity to comment on the Amendments both as they were being developed by the PCAOB and after they were filed with the Commission for approval. The PCAOB received and considered comments in connection with both the 2019 Concept Release and 2022 Proposing Release. The comment period for the Proposing Release was open for 75 days, but the PCAOB continued to accept comments up until its adoption of the Amendments. The PCAOB considered all comments it received. After the Amendments were filed with the Commission for approval, the Commission published a notice to solicit comment on the Amendments with comments due 21 days after the Notice of Filing of Proposed Rules was published in the
The Commission finds that the Board's process for approving the Amendments complied with all applicable requirements. Although the Board is not “an agency or establishment of the United States Government,”
As proposed, consistent with the Concept Release,
In response to the Proposing Release, commenters requested specificity regarding the function and scope of the responsibilities such an independent QC governance role would entail.
One commenter specifically stated that the change from an “oversight function for the audit practice” to an “oversight function for the QC system” was a significant change that was not adequately explained or proposed for public comment.
Moreover, many aspects of the Amendments related to the EQCF role remain unchanged from the proposal. For example, the EQCF requirement only applies to firms that issue audit reports with respect to more than 100 issuers during the prior calendar year.
Therefore, having considered the standard-setting process preceding the EQCF requirement, we find that the public had considerable opportunity to comment on the function and responsibilities of the EQCF role included in the Amendments as well as on the similar, but more broadly focused, independent oversight function in the Proposing Release, on which the EQCF is based. Moreover, we find the changes made to that role in the Adopting Release to be responsive to comments received by the PCAOB from a variety of stakeholders. We also agree with the Board that the only prescriptive requirement of the function—the requirement to evaluate the significant judgments made and the related conclusions reached by the firm when evaluating and reporting on the effectiveness of the firm's QC system
In addition, the public had the opportunity to provide comments to the Commission on the Amendments adopted by the PCAOB. One commenter stated that the “time-period for providing comments to the SEC” was “constrained.”
One commenter stated that it was concerned that the EQCF may not achieve the effectiveness and accountability that is necessary because of the flexibility provided to firms, and questioned whether a single person would be able to fulfill the EQCF's responsibilities inside the largest accounting firms.
Several commenters stated that the EQCF requirement conflicts with SOX Sections 104(g)(2) or 105(b)(5)(A)
SOX Section 104(g)(2) provides that “no portions of [a PCAOB] inspection report that deal with criticisms of or potential defects in the quality control systems of the firm under inspection
The Commission finds that the disclosure of information to the EQCF would not be a public disclosure under Section 104(g)(2) or inconsistent with the confidentiality protections provided by Section 105(b)(5)(A) because those serving in the EQCF role would be associated persons and therefore subject to the same confidentiality requirements as the firm's partners, employees, and other associated persons.
Like all associated persons, such independent contractors are part of the PCAOB inspection or investigation process, not strangers to it. They must cooperate with PCAOB inspections and investigations, comply with related PCAOB requests, and prepare inspection- or investigation-related documents for the PCAOB.
QC 1000 does not specify what information affected firms must share with the EQCF, giving firms flexibility in determining the responsibilities of the EQCF and what information is needed for the EQCF to fulfill its role, as long as the EQCF complies with the minimum requirement to evaluate all significant judgments made by the firm with respect to its QC system. Also, firms may enter other types of independent-contractor arrangements, including with individuals at an affiliated firm within a global network or personnel at shared services centers outside of the firm.
Although their status as associated persons could result in potential personal liability for individuals that take on the EQCF role, we believe this is appropriate given that the EQCF, like any other associated person, should exercise due professional care when fulfilling their responsibilities—responsibilities that, as we have explained above, serve an important investor protection role. We note that the significant flexibility afforded to firms under the Amendments to design procedures for the EQCF that work best for their individual firm governance structure may help to mitigate concerns that the attendant personal liability could discourage qualified individuals from taking on such a role.
Commenters also raised concerns about the potential liability exposure of the EQCF if the individual serving in that role was considered not only an associated person of the firm, but also a supervisory person. Under SOX Section 105(c)(6), the Board may impose sanctions on a “supervisory person” who “fail[s] reasonably to supervise an associated person” and “such associated person commits a violation” of a relevant law, rule, or standard.
Relatedly, several commenters raised concerns that potential liability under Section 105(c)(6) of SOX for the person or persons fulfilling the EQCF role could limit the pool of candidates for this role.
One commenter stated that firms that are close to or just above the annual 100-issuer audit report threshold may feel compelled to consider reducing their issuer count below this threshold to avoid the EQCF requirement and that such exits would undermine competition.
Some commenters raised questions about the Board's analogy of the EQCF to the Engagement Quality Reviewer (“EQR”).
The analogy the PCAOB drew between the EQCF and the EQR in the Adopting Release noted certain similarities between the two roles, but also identified important differences between the requirements for the roles, including that the EQCF is not required to provide concurring approval, as is required of an EQR.
Another commenter who addressed the PCAOB's comparison of the EQCF and EQR roles stated that, unlike the EQR who is governed by the requirements in the PCAOB's engagement quality review standard, the Amendments do not prescribe certain details regarding the EQCF's role and responsibilities.
With respect to the commenter's concerns about the lack of prescriptiveness of the EQCF requirement, the PCAOB explained its decision to provide firms with flexibility to design the EQCF role to fit their particular circumstances and firm governance structure in both the Adopting Release and the response letter.
To the extent that firms have questions about the implementation of the EQCF role, the PCAOB stated that it anticipates that, consistent with its historical practice, its staff will issue implementation guidance and will engage in other activities to support firms' implementation efforts.
Two commenters suggested that the EQCF is unnecessary because a firm's annual self-evaluation of its QC system, coupled with the PCAOB's annual inspections of that QC system, should suffice.
Some commenters stated the requirements for the EQCF are unclear (
Commenters expressed concerns that the costs arising from QC 1000 and certain of its requirements are not appropriately described and that a more rigorous economic analysis is necessary before the Amendments can be approved.
The PCAOB response letter addresses commenter feedback on its economic analysis.
As part of our assessment of the Amendments, we have considered the economic analysis conducted by the PCAOB in the Adopting Release as well as the comments received on this point and the additional information provided in the PCAOB response letter. Below we evaluate the PCAOB's analysis in order to reach our own conclusion about the economic implications of the Amendments. On many points, we find the PCAOB's analysis reasonable; however, where appropriate, we have expanded upon that analysis. Moreover, we have considered the specific concerns raised by commenters about the unintended consequences of the Amendments and, as discussed in more detail below, have concluded that the Amendments are unlikely to have a significant adverse effect on efficiency and competition within the market for audit services.
The PCAOB's economic analysis addresses the benefits and costs associated with the Amendments, including, but not limited to, the design requirement, which applies to all registered firms, and the EQCF requirement, which applies to a small number of firms. The PCAOB's analysis explains the expected benefits to investors and other financial statement users that will be realized by improving compliance with applicable professional and legal requirements and thereby improving financial reporting quality.
Below we examine the individual elements of the Board's economic analysis, including its consideration of the effects on efficiency, competition, and capital formation.
Consistent with best practice when conducting an economic analysis,
Several commenters on the Proposing Release suggested that some firms have already designed and implemented, or are in the process of designing and implementing, QC policies and procedures consistent with the requirements of Other QC Standards.
There are 1554 audit firms registered with the PCAOB as of August 2024.
Another 845 firms of the 1,554 firms registered with the PCAOB have not performed an engagement under PCAOB standards for an issuer or registered broker-dealer within the past year and thus would only be subject to the design-only requirement.
One commenter stated that the Board did not adequately consider the extent to which the Amendments could impact entities other than issuers and registered broker-dealers in its assessment of the Amendments' economic effects.
One commenter on the Proposing Release asserted that audit firms' financial incentives to operate too lean undermine audit quality.
We agree that the information submitted by the PCAOB demonstrates that these market failures exist in the market for audit services. Information asymmetries could create a risk that auditors may under-perform and gather insufficient audit evidence to support their opinion or may otherwise depart from applicable requirements unbeknownst to market participants who rely on financial statements. This risk could be exacerbated as auditors directly contract with issuers (through the audit committee), not investors and financial statement users. The principal-agent relationship between audit firms and issuers could exacerbate the risk that auditors may not be incentivized to gather sufficient audit evidence to support their opinion or otherwise depart from applicable requirements, potentially harming financial statement users or market participants generally.
Having established the regulatory baseline and need for regulatory action, the PCAOB's analysis then discusses the anticipated economic benefits of the Amendments. With respect to benefits, the Board states that the QC 1000 requirements provide substantial additional direction to firms regarding the design, implementation, and operation of their QC systems. The Board identifies three overarching beneficial features of these requirements. The first feature pertains to the mandate for a more integrated, proactive, and risk-based QC system. The second pertains to the enhancements to accountability within the firm to achieve the reasonable assurance objective. The third pertains to more precise language and more prescriptive requirements in several key areas.
We agree with the Board that the QC 1000 requirements will benefit investors and other financial statement users by improving compliance, including through PCAOB inspections and enforcement, with applicable professional and legal requirements via a more risk-based, accountable, and detailed QC standard.
The PCAOB's analysis also discusses the anticipated economic costs of the Amendments. The Board stated that it expects the QC 1000 requirements will result in direct and indirect costs to auditors and, potentially, indirect costs to the companies that they audit. The Board also noted that the extent of these costs will depend on the degree to which firms otherwise have QC systems in place designed to comply with Other QC Standards and the specific policies and procedures adopted by the firm. We agree that audit firms will incur compliance costs, both one-time implementation costs and ongoing operating costs (at the firm level and at the engagement level), associated with the QC 1000 requirements. To the extent that audit firms pass on these cost increases to their clients, these clients would incur indirect costs such as in the form of higher audit fees.
As the Adopting Release acknowledges, the Board received a number of comments stating there will be costs and challenges to implement and operate features of QC 1000 that are incremental to the systems firms have established to comply with Other QC Standards.
Similarly, the Commission received a number of comments about the potential costs of the Amendments.
We agree with the Board's assessment that there are costs to designing and implementing a QC system. As discussed above, as of August 2024, 845 firms of the 1,554 firms (
The Board also acknowledges that the Amendments could disproportionately affect smaller firms and cause some firms to exit the public company audit market or deter other firms from future entry. Entry deterrence could be exacerbated by the fact that being registered with the PCAOB will subject firms to certain QC requirements even if they do not perform engagements. Nevertheless, the Board states that it does not expect the effects on smaller firms to be significant.
We agree that implementation costs could be disproportionately greater for smaller audit firms than for larger audit firms. The cost of implementing QC 1000 depends in significant part on the degree to which auditors' existing QC systems already comply with QC 1000 requirements. PCAOB-registered, but not inspected, audit firms that decide to comply with the design portions of QC 1000 will incur the design costs. This could, as discussed above in Section III.A, place these firms in a better position to compete for work participating in audits of issuers or registered broker-dealers at a level below that of a “substantial role.” This could also position these firms to expand their business into audits of SEC-registered issuers and broker-dealers, but these firms would incur additional implementation and operation costs to do so. Alternatively, these firms could choose to avoid the design costs by withdrawing from PCAOB registration given that they are not required to be registered with the PCAOB; however, we note that this withdrawal would not impact these firms' eligibility to compete for work participating in audits of issuers or registered broker-dealers at a level below that of a “substantial role.” The impact of QC 1000 implementation and operation costs on an audit firm will also depend on the audit firm's ability to absorb those costs or pass them onto their clients (
The Commission also received several comments expressing concern that the EQCF requirement, in particular, would be costly or difficult to fulfill, especially for firms that audit between 100 and 500 issuers.
The PCAOB's economic analysis considered the economic implications of the EQCF requirement. The Board states that all U.S. GNFs indicate, as of the 2020 inspection cycle, they already have a governance structure that includes a non-employee, suggesting that, in contrast to commenters' assertions, the costs (as well as the benefits) of this requirement could be attenuated.
The Board has scaled the EQCF requirement to apply to only 13 of the PCAOB-registered firms, namely those that issued audit reports for more than 100 issuers as of 2023.
In addition, as discussed in Section III.B above, the Amendments provide firms with significant flexibility to implement the EQCF requirement in a manner that suits their particular needs and circumstances. For example, the Amendments do not prescribe specific qualifications for the EQCF. Aside from the responsibility of evaluating the significant judgments made and the related conclusions reached by the firm on the effectiveness of its QC system, firms can determine the appropriate scope, responsibilities, and qualifications for the EQCF based on their existing governance structures and the complexity of their QC systems. This flexibility will allow firms to integrate the EQCF into their current practices without the need for significant restructuring or additional resources, thereby minimizing the financial and operational burden of compliance. In addition, the flexibility of the QC 1000 standard will allow firms to focus on addressing their
Relatedly, some commenters noted that, because certain provisions of the Amendments, such as the EQCF requirement, have a 100-issuer threshold, this threshold could deter triennially inspected firms from accepting new public company audit engagements or cause firms to feel compelled to consider reducing their issuer count to avoid crossing the 100-issuer threshold.
Several commenters on the Proposing Release expressed the concern that competition in the audit market will be adversely impacted by the requirements.
We agree that the compliance costs associated with the QC 1000 requirements could lead some firms to exit the public company audit market, thereby lessening competition in that market. However, as discussed above, many firms already are, or will be, subject to comparable standards and are unlikely to incur costs so substantial that they exit the public company audit market. Moreover, as also described above, the Amendments are targeted so that the largest firms, which would be less likely to exit the market, are the ones likely to incur the most significant costs. These factors considerably lessen the potential adverse impact on competition in the audit market.
QC 1000 provides that a firm must report annually to the PCAOB on nonpublic Form QC, in accordance with the instructions to that form, the results of the evaluation of its QC system.
One commenter stated that they are concerned that the confidentiality protections of Section 105(b)(5)(A) of SOX related to information provided to the PCAOB through inspection does not appear to apply to information reported through Form QC and stated that the PCAOB's response to this issue in the Adopting Release appears to acknowledge that it cannot guarantee the confidentiality it promised under the proposed rule.
We believe these concerns are largely misplaced. Certain information contained within a Form QC may be subject to the protections of SOX Section 105(b)(5)(A), which addresses documents and information prepared or received by or specifically for the Board in connection with an inspection or investigation. Furthermore, in certain circumstances, remedial actions reported in Form QC may be subject to laws relating to the confidentiality of proprietary, personal, or other information, and in such a scenario, the Board, in accordance with SOX Section 102(e) would need to honor a firm's properly substantiated request for confidential treatment of such information.
In response to this commenter's suggestion that any information required by QC 1000 should be submitted by firms to the PCAOB only through the inspections process, we believe that the information provided by Form QC, which in some cases would be provided more frequently than firms are inspected, would provide important information that could inform improvements in the PCAOB's standard-setting, economic and risk analysis, and registration program—separate and apart from the benefits of the PCAOB's inspection program which is focused on audit engagements.
The Amendments require firms to evaluate their QC system annually as of September 30 and conclude whether any unremediated QC deficiencies exist as of that date.
Commenters raised concerns with the specified quality control evaluation date of September 30th, citing concerns including that a fixed evaluation date may misalign the assessment of quality with employee or partner compensation to the extent firms have established compensation cycles that do not align with the September 30th date, as well as concerns regarding the timing of the inspection cycle potentially limiting the firms' ability to fully assess the impact of inspections in their QC evaluation.
We agree with the PCAOB's conclusion that an evaluation date of September 30th would provide the audit firm with sufficient time to identify and potentially remediate QC deficiencies identified from the most recent calendar year-end engagements before the evaluation date. Given the ongoing nature of audits, which are driven by issuers' fiscal year-ends, firms' inspections cycles, and remediation activities, any fixed evaluation date will necessarily result in certain activities being split between QC evaluation years. The PCAOB's selected evaluation date of September 30 addressed the comments the PCAOB received on the proposal, as noted above, and we believe should provide time for a majority of inspections to be completed and considered in the same QC evaluation year. Moreover, including a specified evaluation date across firms provides for consistency and comparability of the firms' quality control reporting, which enhances the PCAOB's ability to assess and respond to firms' QC evaluations and thereby increases investor protection. We do not believe that firms that have already selected an evaluation date under Other QC standards would be required to perform two evaluations. First, QC 1000 allows firms to build on work already done, to the extent applicable, for the purpose of complying with the requirements of Other QC Standards. Second, firms are permitted to change their evaluation date under Other QC Standards so that the evaluation dates coincide.
As stated in the PCAOB's Adopting Release, QC 1000 and related amendments to auditing standards, rules, and forms will take effect on December 15, 2025.
Commenters expressed concerns that the effective date would not provide firms with sufficient time to implement the new standard,
The PCAOB response letter reaffirms the Board's view stated above that the effective date of December 31, 2025 strikes a reasonable balance between providing firms with sufficient time and promptly delivering the benefits to investors.
In our view, December 15, 2025, is a reasonable effective date for the Amendments. Commenters on the Proposing Release, which specified an effective date of December 31, 2024, suggested a variety of alternatives, including several that suggested December 31, 2025 or 12 to 18 months after SEC approval. The PCAOB took this feedback into consideration when it revised the effective date to December 15, 2025. Significantly, this date aligns with the implementation date of the AICPA's SQMS 1 QC standard, which will be required for all U.S. audit firms that issue reports under AICPA standards, and which shares a basic structure with QC 1000. As a consequence, aligning the effective date of QC 1000 with SQMS 1 may reduce implementation costs for U.S. firms that are required to implement both. With respect to the commenter's concerns about the effective date as it relates to the EQCF requirement, we note that the PCAOB considered the implementation requirements of the EQCF in determining the appropriate effective date for QC 1000.
One commenter raised concerns with the effective date specific to the EQCF requirement, stating that the approximately 18-month time period would not provide sufficient time to identify, vet, contract and onboard an EQCF.
The external oversight requirement was included in the standard that the PCAOB proposed for comment. While the PCAOB made some changes to the proposed requirement in response to commenters, such as providing additional specificity and clarity about the role, the changes made did not impact many of the fundamental requirements for the role such as the requirement for the individual or individuals filling the role to be able to exercise independent judgment with regard to matters related to the QC system, the requirement for one or more individuals to fill the role, and the significant flexibility provided to audit firms to design procedures that work best for their individual firm governance structure and requirements. We believe such changes should not have a significant impact on the timeline for firms to complete the hiring process for an EQCF, such that an extended effective date would be necessary (nor does the commenter explain why this would be so). We thus conclude the effective date as adopted is appropriate.
One commenter stated that the PCAOB's comment period for the Amendments was inadequate, or should have been reopened, in light of other Board proposals.
We acknowledge the importance of monitoring the implementation of the Amendments, prior and subsequent to their effective date. The PCAOB response letter states that the Board anticipates its staff will issue implementation guidance and will engage in other activities to support firms' implementation efforts.
Some commenters reiterated comments made on the Concept Release and Proposing Release, including: concerns regarding the requirement that only one person be assigned operational responsibility for the firm's compliance with ethics and independence requirements;
We acknowledge commenters concerns with these specific aspects of the Amendments and note that the PCAOB considered and addressed all of these matters in the Adopting Release.
One commenter stated that the PCAOB response letter “addresses and provides additional clarity” on several of the questions it raised in the comment letter it submitted to the Commission, and the commenter asked the Commission to clarify whether the PCAOB response letter “can be viewed as equally authoritative as the Final Standard and Adopting Release.”
Additionally, there were requests for clarification regarding the definitions of “applicable professional and legal requirements,”
In the Notice of Filing of Proposed Rules, the Board recommended that the Commission determine that the Amendments apply to audits of EGCs.
Section 103(a)(3)(C) further provides that “[a]ny additional rules” adopted by the PCAOB after April 5, 2012 do not apply to audits of EGCs “unless the Commission determines that the application of such additional requirements is necessary or appropriate in the public interest, after considering the protection of investors and whether the action will promote efficiency, competition, and capital formation.”
With respect to the Commission's determination of whether the Amendments will apply to audits of EGCs, the PCAOB provided data and analysis of EGCs identified by the Board's staff from public sources that sets forth its views as to why the Amendments should apply to audits of EGCs.
The Board states that the discussion of economic impacts of the QC 1000 requirements is generally applicable to the audits of EGCs. The benefits to financial reporting quality, including improved efficiency of capital allocation, lower cost of capital, and enhanced capital formation, are also pertinent to EGCs. The Board states that EGCs tend to be smaller and have a shorter SEC financial reporting history than the broader population of issuers. The Board cites to academic research that suggests that, for several reasons, smaller issuers tend to exhibit greater information asymmetry between management and investors. Also, PCAOB staff gathered information on Part I.A deficiencies for the audits of EGCs between 2013 and 2022, and these data suggest that Part I.A deficiencies are more common among audits of EGCs, raising questions about whether QC systems of firms that audit EGCs are effective in preventing audit deficiencies for these types of audit engagements. We agree that the benefits of the QC 1000 requirements are also relevant to EGCs.
The Board acknowledges that to the extent the compliance costs associated with the QC 1000 requirements lead some smaller audit firms, such as some NAFs, to exit the public company audit market, then EGCs could be adversely impacted. PCAOB staff analysis indicates that, compared to exchange-listed non-EGCs, exchange-listed EGCs are approximately 2.6 times as likely to be audited by an NAF.
The Board presents evidence that a large number of audit firms, including smaller audit firms, serve EGCs. PCAOB staff analysis indicates that, as of November 15, 2022, there were 3,031 companies that self-identified as EGCs and filed audited financial statements with the Commission between May 16, 2021, and November 15, 2022. Of the 263 registered firms that audited EGCs, 227 firms (or 86%) performed audits for both EGC and non-EGC issuers. Approximately 98% of EGCs were audited by these 227 firms. These data suggest that the impact on EGCs of any exit by some smaller audit firms, as a result of the requirements, would likely be limited. For this reason, we expect that any potential adverse impact on EGCs and their ability to be competitive in their product markets will be modest.
In addition, the Board sought public input on the application of the Amendments to the audits of EGCs. Those commenters that responded to the Board agreed the Amendments should apply to the audits of EGCs.
In addition, the Board stated that the benefits of the higher audit quality resulting from the Amendments may be more pertinent for EGCs than for non-EGCs, including improved efficiency of market capital allocation, lower cost of capital, and enhanced capital formation.
We agree with the Board's analysis and further emphasize the benefits discussed by the PCAOB, including higher audit quality leading to improved efficiency of capital allocation, lower cost of capital, and enhanced capital formation with respect to EGCs. As noted above, these improvements in the quality of the audit may be more pronounced on the audits of EGCs. While improvements in audit quality benefit all investors, such improvements may particularly benefit investors in
To the extent that an EGC's auditor's existing quality control standards do not meet the requirements under QC 1000 and the changes that auditors make to their quality control system impact the performance of audit engagements, this could lead to a spillover externality effect whereby EGCs themselves may have to incur additional costs. For example, an EGC could have to allocate more resources to its own internal control systems or to additional requests for more extensive or additional evidence from audit firms.
Accordingly, after considering the protection of investors and whether the action will promote efficiency, competition, and capital formation, we believe there is a sufficient basis to determine that applying the Amendments to the audits of EGCs is necessary or appropriate in the public interest.
The Commission has reviewed and considered the Amendments, the information submitted therewith by the PCAOB, the comment letters received, and the recommendation of the Commission's staff. The Commission concludes that the determinations made by the PCAOB as described in the Adopting Release are reasonable. Generally, the Amendments establish an integrated, risk-based quality control standard that can be applied by firms of varying sizes and complexities and that will lead registered public accounting firms to significantly improve their quality control systems, thereby improving audit quality and investor protection. Specifically, the Amendments make the following important changes, among others, to the existing quality control standards, which will advance the Board's investor protection mandate under SOX:
• Replace the current standards, which: (i) were developed by the AICPA, a professional organization for certified public accountants; (ii) were last updated in 1997; (iii) focus on evaluating firms' compliance with their own policies; (iv) do not require evaluation or reporting; and (v) do not contain express obligations for firms to perform any specific monitoring;
• Incorporate a risk-based approach to quality control, driving firms to proactively identify and manage the specific risks associated with their practices, along with a set of mandates, tailored to the size of the audit practice, which should assure that the quality control system is designed, implemented, and operated with an appropriate level of rigor;
• Emphasize the importance of accountability and firm governance through requirements around roles and responsibilities, assigning operational responsibility to individuals for particular aspects of the QC system, and the introduction of a certification by certain responsible individuals; and
• Create a framework for evaluation and reporting to the PCOAB which will be consistently applied across all firms operating a QC system under QC 1000.
Therefore, in connection with the PCAOB's filing and the Commission's review,
A. The Commission finds that the Amendments are consistent with the requirements of Title I of SOX and the rules and regulations thereunder and are necessary or appropriate in the public interest or for the protection of investors; and
B. Separately, the Commission finds that the application of the Amendments to the audits of EGCs is necessary or appropriate in the public interest, after considering the protection of investors and whether the action will promote efficiency, competition, and capital formation.
By the Commission.
Pursuant to Section 19(b)(1)
The Exchange proposes to amend the existing note in the Connectivity Fee Schedule (“Fee Schedule”) regarding cabinet and combined waitlists. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization 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 those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to amend the existing note in the Fee Schedule regarding cabinet and combined waitlists.
Shortly after the onset of the Covid-19 pandemic, the Exchange began experiencing unprecedented User
In 2021 and 2022, the Exchange expanded the amount of space and power available in the MDC by opening a new colocation hall (
The Exchange subsequently amended the Fee Schedule to provide an alternative procedure by which the Exchange can allocate power in the Mahwah Data Center via deposit-guaranteed orders from Users made within a 90-day “Ordering Window.”
The Exchange had a power and cabinet waitlist (“Combined Waitlist”) in place before the Ordering Window. The Exchange found that when the Combined Waitlist was in effect, approximately
In response, the Exchange proposes to amend Fee Schedule Colocation Note 7 (Cabinet and Combined Waitlists) (“Note 7”) to require that Users wanting to be placed on a waitlist must guarantee their order with a deposit.
To implement the change, Note 7(a), which sets forth the practices the Exchange follows for a Cabinet Waitlist, would be revised to provide that a User would be placed on the Cabinet Waitlist based on the date its finalized order is received, and that a User's order would be finalized when the Exchange receives (a) User's signed order form and (b) a deposit equal to two months' worth of the monthly recurring costs of the power requested for the cabinets ordered.
Note 7(b), which sets forth the practices the Exchange follows for a Combined Waitlist, similarly would be revised to provide that a User would be placed on the Combined Waitlist based
Note 7(a) and (b) would be revised to provide that:
• If a User changes the size of its order while it is on the Cabinet or Combined Waitlist, as the case may be, and any additional deposit is received by the Exchange, it will maintain its place, provided that the User may not increase the size of its order such that it would exceed the Cabinet Limits or Combined Limits, as applicable.
• If a User wishes to reduce the size of its order while it is on the Cabinet or Combined Waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after cabinets are, and/or the power is, delivered until the deposit is depleted.
• If the User removes its order from the Cabinet Waitlist or Combined Waitlist, its deposit will be returned.
• A User that is removed from the Cabinet or Combined Waitlist but subsequently submits a new finalized order for cabinets and/or additional power will be added back to the bottom of the waitlist.
• The deposit will be applied to the User's first and subsequent months' invoices after the cabinets are and/or additional power is delivered until the deposit is completely depleted.
The proposed changes would not apply differently to distinct types or sizes of market participants. Rather, they would apply to all Users equally. As is currently the case, the Fee Schedule would be applied uniformly to all Users. FIDS does not expect that the proposed rule change will result in new Users.
The proposed changes are not otherwise intended to address any other issues relating to co-location services and/or related fees, and the Exchange is not aware of any problems that customers would have in complying with the proposed change.
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,
The Exchange believes that the proposed change is reasonable because requiring Users to submit deposits with their orders in order to be placed on the waitlist would help avoid delays for Users further down the list, by encouraging Users to carefully assess their true power and cabinet needs and protecting against Users ordering more power or cabinets than they actually intend to purchase. Without firm, guaranteed commitments from waitlisted Users to purchase cabinets or power if made available, the Exchange runs the risk of overestimating waitlisted Users' true demand, creating delays for Users further down the list. The proposed deposit requirement would address this by discouraging waitlisted Users from submitting orders for more cabinets or power than they actually intend to purchase.
The proposed deposit requirement is reasonable because, on the one hand, it is not so onerous as to dissuade Users from submitting orders, and, on the other hand, it is not so trivial that it would fail to deter Users from submitting exaggerated orders. It is substantially similar to the deposit provision already required under the Ordering Window, and as such, the deposit requirement here would not be novel.
In addition, the Exchange believes that the proposed change is reasonable because the deposit is proportional to the size of the order, and not a fixed amount. As a result, smaller Users would not be disproportionately affected by the deposit requirement.
Under the proposed procedure, if a User wishes to reduce an order while on a waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after the cabinets are, or the power is, delivered until the deposit is completely depleted. The Exchange believes that this would remove impediments and perfect the mechanism of a free and open market and a national market system because a waitlisted User would be reimbursed for all of its deposit even if it reduces its order. This would remove any incentive a User otherwise might have to understate its needs for cabinets and/or power out of a concern that it would not be reimbursed for the full amount of its deposit.
The Exchange believes that the proposed change provides for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities and does not unfairly discriminate between customers, issuers, brokers, or dealers because it is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The proposed changes would apply equally to all types and sizes of market participants. All Users would receive equal notice of the deposit requirement through the proposed changes to Note 7, and the deposit requirement would be the same for all Users. Smaller Users with more modest power needs would not be disadvantaged by the proposed changes, as the deposit is proportional
The proposed deposit requirement is equitable because, on the one hand, it is not so onerous as to dissuade Users from submitting orders, and, on the other hand, it is not so trivial that it would fail to deter Users from submitting exaggerated orders. It is substantially similar to the deposit provision already required under the Ordering Window, and as such, the deposit requirement here would not be novel.
Under the proposed procedure, if a User wishes to reduce an order while on a waitlist, its deposit would not be reduced or returned, but rather would be applied against the User's first and subsequent months' invoices after the cabinets are, or the power is, delivered until the deposit is completely depleted. The Exchange believes that this is equitable because a waitlisted User would be reimbursed for all of its deposit even if it reduces its order. This would remove any incentive a User otherwise might have to understate its needs for cabinets and/or power out of a concern that it would not be reimbursed for the full amount of its deposit.
For the reasons above, the proposed changes do not unfairly discriminate between or among market participants that are otherwise capable of satisfying any applicable co-location fees, requirements, terms, and conditions established from time to time by the Exchange.
For these reasons, the Exchange believes that the proposal is consistent with the Act.
The Exchange believes that the proposal will not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of Section 6(b)(8) of the Act.
The Exchange believes that the proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is designed to help avoid delays for waitlisted Users, by encouraging Users to carefully assess their true power and cabinet needs and protecting against Users ordering more power or cabinets than they actually intend to purchase. Without firm, guaranteed commitments from waitlisted Users to purchase cabinets or power if made available, the Exchange runs the risk of overestimating waitlisted Users' true demand, creating delays for Users further down the list. The proposed deposit requirement would address this by discouraging waitlisted Users from submitting orders for more cabinets or power than they actually intend to purchase, thereby facilitating a more equitable distribution of cabinets and power. Moreover, the Ordering Window already requires a deposit, and as such, the deposit requirement here would not be novel.
No written comments were solicited or received with respect to the proposed rule change.
The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B)
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
The Social Security Administration (SSA) publishes a list of information collection packages requiring clearance by the Office of Management and Budget (OMB) in compliance with Public Law 104-13, the Paperwork Reduction Act of 1995, effective October 1, 1995. This notice includes revisions of OMB-approved information collections.
SSA is soliciting comments on the accuracy of the agency's burden estimate; the need for the information; its practical utility; ways to enhance its quality, utility, and clarity; and ways to minimize burden on respondents, including the use of automated collection techniques or other forms of information technology. Mail, email, or fax your comments and recommendations on the information collection(s) to the OMB Desk Officer and SSA Reports Clearance Officer at the following addresses or fax numbers.
(OMB) Office of Management and Budget, Attn: Desk Officer for SSA. You may submit your comments online through
(SSA) Social Security Administration, OLCA, Attn: Reports Clearance Director, Mail Stop 3253 Altmeyer, 6401 Security Blvd., Baltimore, MD 21235, Fax: 833-410-1631. Email address:
Please reference Docket ID Number [SSA-2024-0031] in your submitted response.
The information collections below are pending at SSA. SSA will submit them to OMB within 60 days from the date of this notice. To be sure we consider your comments, we must receive them no later than November 12, 2024. Individuals can obtain copies of the collection instruments by writing to the above email address.
1. Work Activity Report—Employee—20 CFR 404.1520(b), 404.1571-404.1576, 404.1584-404.1593, and 416.971-404.976—0960-0059. Section 223(d) of the Social Security Act (Act) defines the term “disability” as the inability to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment which one expects to result in death, or which lasted or is expected to last for a continuous period of not less than 12 months. Social Security Disability (SSDI) and Supplemental Security Income (SSI) applicants or recipients can become entitled to payments based on their inability to engage in SGA because of a physical or mental condition. SSA uses Form SSA-821-BK to obtain work information during the initial claims process; the continuing disability review process; post-adjudicative work issue actions; and for Supplemental Security Income (SSI) claims involving work issues. SSA reviews and evaluates the data to determine if the applicant or recipient meets the disability requirements of the law. The respondents are applicants or recipients of Title II Social Security Disability, and Title XVI SSI applicants.
2. Claimant's Medication—20 CFR 404.1512, 416.912—0960-0289. To receive Old Age Survivors and Disability Insurance (OASDI) and SSI payments, the relevant State Disability Determination Service (DDS) or field office (FO) must first adjudicate claimants' applications. If the DDS or FO denies an initial application, the claimants may request for reconsideration of the initial denial. At that time, the claimants may submit addition documentation to further justify their claims. If the DDS denies the claim at the reconsideration level, the claimant may then request a hearing before a judge. Before the hearing, SSA allows the claimant to submit additional evidence to support their claim. In addition, since judges must obtain information from the claimant to update and complete their medical record and to verify the accuracy of the information, SSA also sends the claimant Form HA-4632, Claimant's Medications, to request information from the claimant regarding the current medications they use. This information helps the judge overseeing the case to fully investigate: (1) the claimant's
3. Questionnaire for Children Claiming SSI Benefits—20 CFR 416.912(a)—0960-0499. Sections 1614 and 1631 of the Act allows SSA to determine the eligibility of an applicant's claim for SSI payments. Parents or legal guardians seeking to obtain or retain SSI eligibility for their children use Form SSA-3881-BK to provide SSA with the addresses of non-medical sources such as schools, counselors, agencies, organizations, or therapists who would have information about a child's functioning. SSA uses this information to help determine a child's claim or continuing eligibility for SSI. The respondents are the parents, guardians, or other caretakers of: (1) applicants who appeal SSI childhood disability decisions; or (2) recipients undergoing a continuing disability review.
4. Requests for Self-Employment Information, Employee Information, and Employer Information—20 CFR 422.120—0960-0508. When SSA cannot identify Form W-2 wage data for an individual, we place the data in an earnings suspense file and contact the individual (and certain instances the employer) to obtain the correct information. If the respondent furnishes the name and Social Security Number (SSN) information that agrees with SSA's records, or provides information that resolves the discrepancy, SSA adds the reported earnings to the respondent's Social Security record. We use Forms SSA-L2765, SSA-L3365, and SSA-L4002 for this purpose. The respondents are self-employed individuals and employees whose name and SSN information do not agree with their employer's and SSA's records.
5. Function Report—Child (Birth to 1st Birthday, Age 1 to 3rd Birthday, Age 3 to 6th Birthday, Age 6 to 12th Birthday, Age 12 to 18th Birthday)—20 CFR 416.912 and 416.924a(a)(2)—0960-0542. As part of SSA's disability determination process, we use Forms SSA-3375-BK through SSA-3379-BK to request information from a child's parent or guardian for children applying for SSI. The five different versions of the form contain questions about the child's day-to-day functioning appropriate to a particular age group; thus, respondents use only one version of the form for each child. The adjudicative team (disability examiners and medical or psychological consultants) of State disability determination services offices collect the information on the appropriate version of this form (in conjunction with medical and other evidence) to form a complete picture of the children's ability to function and their impairment-related limitations. The adjudicative team uses the completed profile to determine: (1) if each child's impairment(s) results in marked and severe functional limitations; and (2) whether each child is disabled. The respondents are parents and guardians of child applicants for SSI.
6. Representative Payee Report of Benefits and Dedicated Account—20 CFR 416.546, 416.635, 416.640, and 416.665—0960-0576. SSA requires representative payees (RPs) to manage the dedicated account in accordance with our rules, including using the funds for permitted expenditures and reporting on the use of funds. When the SSI recipient requires a dedicated account, SSA notifies the RP to inform them of the need to open the dedicated account and of the rules for managing a dedicated account, including the required submission of a written report accounting for the use of money paid to Social Security or Supplemental Security Income (SSI) recipients into the dedicated account. SSA allows the respondent to submit their own written report, or use Form SSA-6233, which simplifies the process for the respondents. SSA uses Form SSA-6233 to: (1) ensure the RPs use the payments for the recipient's current maintenance and personal needs and properly conserves the remainder; and (2) confirm the funds paid into the dedicated account are spent and saved in compliance with the law. Respondents are RPs for SSI and Social Security recipients.
7. Sheltered Workshop Wage Reporting—0960-0771. Sheltered workshops are private non-profit organizations or institutions that implement a recognized program of rehabilitation for handicapped workers or provide such workers with remunerative employment or other occupational rehabilitating activity of an educational or therapeutic nature. Sheltered workshops perform a service for their clients by reporting monthly wages directly to SSA. SSA uses the information these workshops provide to verify and post monthly wages to SSI recipient's records. Most workshops report monthly wage totals to their local SSA office, so we can adjust the client's SSI payment amount in a timely manner and prevent overpayments. Sheltered workshops are motivated to report wages voluntarily as a service to their clients. Respondents are sheltered workshops that report monthly wages for services performed in the workshop.
On July 10, 2024, notice was published in the
Reed Liriano, Program Coordinator, Office of the Legal Adviser, U.S. Department of State (telephone: 202-632-6471; email:
The foregoing determinations were made pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
Notice.
A determination has been made that three PRC entities, a PRC individual, and a Pakistani entity have engaged in activities that require the imposition of measures pursuant to the Arms Export Control Act, as amended, and the Export Administration Act of 1979, as amended.
September 12, 2024.
Pam Durham, Office of Missile, Biological, and Chemical Nonproliferation, Bureau of International Security and Nonproliferation, Department of State (202-647-4930). On import ban issues, Lauren Sun, Assistant Director for Regulatory Affairs, Department of the Treasury (202-622-4855). On U.S. Government procurement ban issues, Eric Moore, Office of the Procurement Executive, Department of State (703-875-4079). Email:
Pursuant to Section 73(a)(1) of the Arms Export Control Act [22 U.S.C. 2797b(a)(1)]; Section 11B(b)(1) of the Export Administration Act of 1979 [ (50 U.S.C. 4612(b)(1))], as carried out under Executive Order 13222 of August 17, 2001 (hereinafter cited as the “Export Administration Act of 1979”); [
Hubei Huachangda Intelligent Equipment Company (PRC Entity), and its sub-units and successors;
Innovative Equipment (Pakistan Entity), and its sub-units and successors;
Luo Dongmei [aka Steed Luo] (PRC national);
Universal Enterprise Limited [aka General Technology Limited, aka Beijing Luo Luo Tech Development Limited, aka Tiger Force Electronics, aka Foshan Nanhai Winhope Trade Company] (Hong Kong Entity), and its sub-units and successors;
Xi'an Longde Technology Development Company Limited [aka Lontek] (PRC Entity), and its sub-units and successors.
Accordingly, the following sanctions are being imposed on these entities for two years:
(A) Denial for at least two years of all new licenses for the transfer to the sanctioned entities of all Missile Technology Control Regime (MTCR) Annex Items (on both the U.S. Munitions List and Commerce Control List (CCL).
(B) Denial for at least two years of all United States Government contracts relating to MTCR Annex items with the sanctioned entities.
(C) A prohibition on all imports into the United States of products produced by the sanctioned entities for a period of not less than two years
With respect to items controlled pursuant to the ECRA of 2018, the above export sanction only applies to exports made pursuant to individual export licenses.
These measures shall be implemented by the responsible departments and agencies of the United States Government as provided in Executive Order 12851 of June 11, 1993.
Federal Aviation Administration (FAA), DOT.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995, FAA invites public comments about our intention to request the Office of Management and Budget (OMB) approval to renew an information collection. The
Written comments should be submitted by October 15, 2024.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Douglas DiFrancesco, (FAA), Flight Technologies and Procedures Division by email at:
Federal Highway Administration (FHWA), Department of Transportation (DOT).
Notice; request for information (RFI).
The FHWA, along with the Joint Office of Energy and Transportation (Joint Office), invites public comment on this request for information (RFI) regarding the Medium- and Heavy-Duty Electric Charging Technologies and Infrastructure Needs. This RFI seeks input in four areas to support medium and heavy-duty (MHD) battery electric vehicles (EV) (DOT vehicle classes 4 through 8) including: unique EV charger and station needs; vehicle charging patterns; MHD EV charger technology and standardization; and workforce, supply chain, and manufacturing to support charging of MHD battery EVs. The goal is to inform appropriate future Federal Government activities to support the development and deployment of EV chargers to support the anticipated needs of MHD EV original equipment manufacturers, fleet operators, drivers, charging station operators, and electric utilities. Comments should also address how to balance advances in technology with the need to expeditiously build out the national EV charging infrastructure, including support for MHD segments.
Responses to the RFI must be received by November 12, 2024. Late-filed comments will be considered to the extent practicable.
Interested persons are encouraged to submit comments using the Federal eRulemaking Portal at
Questions about this notice may be addressed to Suraiya Motsinger, FHWA Office of Natural Environment, via email at
For legal questions, please contact Dawn Horan, FHWA Office of Chief Counsel, via email at
A copy of this notice, all comments received on this notice, and all background material may be viewed online at
Vehicle manufacturers and operators are deploying MHD EVs at an increasing rate with a recent report citing the availability of over 160 models and over 17,500 zero emission trucks in operation—a nearly 10-fold increase from just 3 years ago.
The regulatory landscape governing MHD EVs (DOT vehicle classes 4 through 8) is evolving rapidly as well, driven in part by imperatives to reduce greenhouse gas emissions and criteria pollutants. Examples of such regulations include performance-based emission standards by the U.S. Environmental Protection Agency
Fleet operators, cognizant of the long-term sustainability and cost advantages offered by electric propulsion, are increasingly embracing EVs as viable alternatives to conventional diesel-powered vehicles. The momentum toward electrification is further propelled by corporate sustainability goals, regulatory compliance pressures, and the emergence of innovative business models that prioritize operational efficiency and environmental stewardship.
Increased adoption by fleets, the need to address the climate crisis, and the compelling total cost of EV ownership create a well-timed backdrop for federal investments in the Bipartisan Infrastructure Law
Stakeholders across the public and private sectors are mobilizing efforts to accelerate the expansion of charging infrastructure networks, enhance interoperability standards, and facilitate strategic investments in key infrastructure corridors. For example, the Joint Office of Energy and Transportation, in collaboration with the U.S. Department of Energy, Department of Transportation, and the Environmental Protection Agency, released in March of 2024 an all-of government National Zero-Emission Freight Corridor Strategy.
The charging requirements for MHD EVs vary widely, reflecting the diverse operational profiles and energy demands within this sector.
This RFI seeks input in four areas to support charging of MHD EVs: (1) unique EV charger and station needs; (2) vehicle charging patterns; (3) MHD EV charger technology and standardization; and (4) workforce, supply chain, and manufacturing. The information received from this RFI will inform government activities to support the development and deployment of EV chargers to meet the anticipated needs of MHD EV original equipment manufacturers, fleet operators, drivers, charging station operators, and electric utilities. This RFI also seeks to understand MHD EV charging as a whole, rather than through transportation and electricity-specific lenses. Increasing understanding and awareness across all relevant sectors is key to ensuring that electric MHD vehicle fleet operators and charging networks:
• Support a modern electric grid and create widespread benefits for fleet operators, communities, and all ratepayers; and
• Are served by energy regulatory environments and public policies that reflect the wide variety of vocational needs, use cases, and duty cycles for electric medium and heavy-duty buses and trucks.
Though hydrogen refueling can provide a zero-emission fuel option for commercial MHD vehicles, this RFI only seeks information on electric charging considerations for MHD EVs.
This RFI is not a Notice of Funding Opportunity (NOFO) or Funding Opportunity Announcement (FOA). Any information obtained as a result of this RFI is intended to be used by the Government on a non-attribution basis for planning and strategy development and may be shared with other Government agencies; this RFI does not constitute a formal solicitation for proposals or abstracts. Your response to this notice will be treated as information only. FHWA and the Joint Office will both review and consider all responses in formulating program strategies for the identified materials of interest that are the subject of this request. Neither FHWA nor the Joint Office will provide reimbursement for costs incurred in responding to this RFI. Respondents are advised that FHWA and the Joint Office are under no obligation to acknowledge receipt of the information received or provide feedback to respondents with respect to any information submitted under this RFI. Responses to this RFI do not bind FHWA or the Joint Office to any further actions related to this topic.
Confidential Business Information (CBI) is commercial or financial information that is both customarily and actually treated as private by its owner. Under the Freedom of Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public disclosure. If your comments responsive to this notice contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or
You may ask FHWA to give confidential treatment to information you give to the Agency by taking the following steps: (1) Mark each page of the original document submission containing CBI as “Confidential”; (2) send FHWA, along with the original document, a second copy of the original document with the CBI deleted; and (3) explain why the information you are submitting is CBI. FHWA will make its own determination about the confidential status of the information and treat it according to its determination. FHWA will protect confidential information complying with these requirements to the extent required under applicable law. If DOT receives a FOIA request for the information that the applicant has marked in accordance with this notice, DOT will follow the procedures described in its FOIA regulations at 49 CFR 7.29. Only information that is marked in accordance with this notice and ultimately determined to be exempt from disclosure under FOIA and 49 CFR 7.29 will not be released to a requester or placed in the public docket of this notice. Submissions containing CBI should be sent to: Suraiya Motsinger, FHWA, 1200 New Jersey Avenue SE, HICP-20, Washington, DC 20590 via mail, or
Confidential information collected in this RFI will also be shared with the Joint Office consistent with Congressional direction that the minimum standards and requirements for EV chargers be developed in coordination between DOT and DOE. The Joint Office will protect any such shared information in accordance with applicable DOE standards, as DOE serves as host for the Joint Office.
Federal employees are subject to the non-disclosure requirements of a criminal statute, the Trade Secrets Act, 18 U.S.C. 1905. The Government may seek the advice of qualified non-Federal personnel. The Government may also use non-Federal personnel to conduct routine, nondiscretionary administrative activities. The respondents, by submitting their response, consent to FHWA and the Joint Office providing their response to non-Federal parties. Non-Federal parties given access to responses must be subject to an appropriate obligation of confidentiality prior to being given the access. Submissions may be reviewed by support contractors and private consultants.
The following list of questions are of particular interest to FHWA and the Joint Office. Commenters are not required to answer every question and commenters should not view the list as a constraint on sharing additional information relevant to MHD EV charging technologies and infrastructure needs.
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Issued in Washington, DC under authority delegated in 49 CFR 1.81 and 1.83.
Federal Highway Administration (FHWA), Department of Transportation (DOT).
Notice of limitation on claims for judicial review of actions by FHWA.
This notice announces actions taken by the FHWA that are final. The action relates to the Central Puget Sound Regional Transit Authority (Sound Transit) plans to build and operate a light rail Operations and Maintenance Facility in its South Corridor (OMF South). The facility will meet Sound Transit's needs for an expanded fleet of light rail vehicles (LRVs) and will support the expansion of the Link light rail system. The Federal Transit Administration (FTA) project is located in the City of Federal Way in King County, in the State of Washington, and is adjacent to the Interstate 5 (I-5) right-of-way. Portions of OMF South will be accommodated within or will affect the I-5 right-of-way, which requires Federal Highway Administration (FHWA) approval.
A claim seeking judicial review of the Federal agency actions on the listed highway project will be barred unless the claim is filed on or before February 10, 2025. If the Federal law that authorizes judicial review of a claim provides a time period of less than 150 days for filing such claim, then that shorter time period still applies.
Lindsey Handel, Urban Engineer, Federal Highway Administration, 360-753-9480, or
Information about the NEPA Record of Decision and associated records are available from FHWA, FTA, and Sound Transit at the addresses provided above and can be found at:
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Federal Transit Administration (FTA), Department of Transportation (DOT).
Notice of funding opportunity (NOFO).
The Federal Transit Administration (FTA) announces the opportunity to apply for $3,250,723 in Fiscal Year (FY) 2024 Rural Transportation Assistance Program funds through a competitive cooperative agreement award. FTA is soliciting proposals under the agency's Formula Grants for Rural Areas Program to select an entity to administer a National Rural Transit Assistance Program (National RTAP). The National RTAP will carry out activities to design and implement training and technical assistance projects and other support services tailored to meet the specific needs of transit operators in rural areas, including tribal transit services. Primary activities will include the development of information and materials for use by local operators and State administering agencies and supporting research and technical assistance projects of national interest.
Complete proposals for the National RTAP must be submitted electronically through the
Instructions for applying can be found on FTA's website at
Heather Edmonds, FTA Office of Program Management at (202) 366-3748; Email
This Notice of Funding Opportunity (NOFO) supports FTA's strategic goals and objectives by promoting safe, affordable, accessible, and multimodal access to opportunities and services while reducing transportation-related disparities, adverse community impacts, and health effects. FTA is soliciting proposals for a cooperative agreement for a project of national scope under the Rural Transit Assistance Program (49 U.S.C. 5311(b)(3)), Assistance Listing 20.509. The Formula Grants for Rural Areas Program authorizes the Secretary of Transportation to carry out a Rural Transit Assistance Program (RTAP) in rural areas to enhance the delivery of public transportation services provided by State Departments of Transportation (DOTs) and operators of rural and tribal transit. Since 1979, FTA has provided grants to States under the Formula Grants for Rural Areas Program and its predecessor programs to establish and maintain transit systems in communities with populations of less than 50,000 individuals. Rural transit systems and community transit drivers, dispatchers, maintenance workers, managers, and board members need special skills and knowledge to provide quality service to their diverse customers across large, rural service areas. The National RTAP was created in 1997 to carry out projects of a national scope that provide transportation assistance in these areas.
The National RTAP provides for the development of information and materials for use by local operators, State DOTs and State funded transit agencies, and supports research and technical assistance projects of national interest. The FTA carries out the objectives of the National RTAP through a cooperative agreement that establishes and provides financial assistance for these activities. FTA selected the current recipient to administer the National RTAP in 2019. Consistent with the U.S. Department of Transportation's policy to maximize competition in discretionary awards, every five years the FTA competes the administration of the National RTAP.
FTA also supports assistance for local RTAP activities through funding apportionments to the States. The State RTAPs develop and implement training and technical assistance in conjunction with the State's administration of the Formula Grants for Rural Areas Program. The State RTAPs and the National RTAP complement each other, and both are funded under the Formula Grants for Rural Areas Program. The objectives of the National RTAP are:
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Since its inception, the National RTAP has developed and distributed training materials, provided technical assistance, generated reports, published best practices, produced scholarships, conducted research, and offered peer assistance with the goal of improved mobility for the millions of Americans living in rural communities. The National RTAP also has developed tools for use by rural transit providers in providing their service, and provided access to scholarship, research and training through sponsorship of and participation in conferences attended by a variety of constituents with interest in rural and tribal transit. For more information on the various programs and services provided by the National RTAP, visit the National RTAP website at
FTA is authorized to use two percent of funds appropriated for the Formula Grants for Rural Areas Program for research, technical assistance, training, and related support services in rural areas. Of this amount, not more than 15 percent can be used for the National RTAP, with the remaining amount apportioned to states for state RTAP activities. FTA intends to fund the National RTAP with $3,250,723 in Fiscal Year (FY) 2024 funds for the first year. This includes an additional $500,000 made available through the Consolidated Appropriations Act, 2024 for National RTAP programming specific to tribal transit. FTA may extend funding for this center for up to
This funding opportunity will be awarded under the terms of a cooperative agreement. This cooperative agreement will be managed from FTA's headquarters office. FTA will participate in activities by negotiating the final statement of work, attending review meetings, commenting on technical reports, maintaining frequent contact with the project manager, approving key decisions and activities, and redirecting project activities, as needed.
FTA will issue specific guidance to the awardee regarding pre-award authority at the time of selection. For more information about FTA's policy on pre-award authority, please see the most recent Apportionment Notice on FTA's website,
Eligible applicants are non-profit organizations with rural and tribal transportation experience that have the capacity to provide public transportation-related technical assistance and the ability to deliver a national technical assistance and training program. Individuals, for-profit entities, and Federal agencies are ineligible to apply for this funding.
There is no requirement for non-federal matching funds or cost sharing for this program.
Applications must be submitted electronically through
A complete proposal submission will consist of at least two files: (1) the Standard Form (SF) 424 Application for Federal Assistance (downloaded from
The application must include responses to all sections of the SF-424 Mandatory Form and all components of the narrative application document unless a section is indicated as optional. FTA will use the information in the narrative application document to determine applicant and project eligibility for the program and to evaluate the proposal against the selection criteria described in part E of this notice.
Applicants must fill in all fields unless stated otherwise on the SF-424 form and include all requested components of the narrative application document. If applicants copy information from another source, they should verify that the form and narrative application document have fully captured pasted text and that it has not truncated the text due to character limits built into the form. Applicants should use both the “Check Package for Errors” and the “Validate Form” buttons on all required fields in the SF-424.
The narrative application must contain the following components and adhere to the specified maximum lengths:
i. The methodology for addressing the project goals, objectives, activities, deliverables, milestones, timeline and intended outcomes for the National Rural Transit Assistance Program;
ii. The methodology to develop performance measures and track the outcomes and benefits of the National Rural Transit Assistance Program, including how applicant will assess success;
iii. The existing and future capacity of the organization to address the issues outlined in the proposal and the organization's ability to implement goals, objectives, activities, milestones, deliverables and intended outcomes;
iv. The applicants' understanding of rural and tribal transit needs; including knowledge and experience with identifying and addressing issues related to funding and operation of rural and tribal transit systems;
v. A detailed plan for communication, technical assistance, and outreach at the state and local levels;
vi. The applicant's experience with grant-making, developing performance measures, tracking performance measures and spending and communicating lessons learned and project benefits to stakeholders;
vii. A plan to work with stakeholders and build partnerships at the national level; including how the applicant will work with State and local partners and stakeholders to promote coordination of transportation services;
viii. Qualifications of lead staff, not to exceed one page per person, including: (1) Prior experience providing technical assistance, especially related to public transit in rural and tribal areas; (2) prior experience implementing the other tasks outlined in this solicitation; (3) staff members' knowledge of issues related to public transit in rural and tribal communities, (4) staff members' experience working directly with tribal entities; and (5) a biographical sketch for each lead staff member.
1. Hiring needed staff and setting up the center, including developing an interactive website that houses and delivering a library of tools, topics, articles, best practices for rural and tribal transit providers; acting as a clearinghouse for rural and tribal transit information; and facilitating outreach to
2. Developing an online fully functional National RTAP Help Desk that will enable email and phone technical assistance inquiries and responses on rural and tribal transit questions/topics; this system should be able to gather performance measures that track web-analytics, technical assistance requests, types of requests, and enable a quarterly report to FTA on what activities have been completed, how many people have received assistance; the cost of that assistance; and the satisfaction of those who sought assistance.
3. Developing a Scope of Work for National RTAP's first year of operations, including but not limited to:
○ A communications and outreach plan to promote the center, training and technical assistance products and relevant news through various channels (
○ Recommendations to FTA on a planning/pilot grant program that support partnerships and innovative transportation solutions to increase community access in rural and tribal areas.
○ A plan for how National RTAP will deliver training and technical assistance and recommendations to FTA on the data needs to help track and assess rural and tribal transit needs.
1. Providing technical assistance in a variety of ways to rural and tribal transit operators and support to State RTAP programs:
○ Operating a toll-free number and email to respond to inquiries from rural and tribal transit operators. Developing a system to track inquires and responses.
○ Developing and promoting written and electronic training materials that assist rural and tribal operators (
○ Maintaining a resource library of case studies, promising and best practices, videos, publications, webinars and other training materials.
2. Providing technical assistance to assist recipients, subrecipients, and potential future grantees with challenges around accessing FTA funding programs (
3. Coordinating with other organizations to build national connections to assist states and rural communities with transit system improvements.
4. Developing a community grant program that offers funding for planning and/or pilot projects to foster partnerships, coordination of services and increased transit access for rural and tribal communities.
5. Providing peer-to-peer meeting exchanges and collaboration opportunities, while expanding dialogue with rural and tribal transit partners and fostering relationships with other non-traditional partners.
6. Developing a feedback system that enables opportunities for improvement of the Center's customer service, programs, and processes.
7. Identifying performance measures, evaluating and reporting on National RTAP activities and outputs.
Each applicant is required to: (1) register in
Project proposals must be submitted electronically through
FTA urges applicants to submit proposals at least 72 hours prior to the due date to allow time to receive the validation messages and to correct any problems that may have caused a rejection notification.
Within 48 hours after submitting an electronic application, the applicant should receive two email messages from
Applicants are encouraged to begin the process of registration on the
This award is subject to the Governmentwide Uniform Administrative Requirements and Cost Principles (2 CFR part 200) and FTA Circular 5010.1. Capital expenses such as equipment purchases are not considered to be eligible costs unless they directly relate to the technical assistance being supported by FTA funds. Acceptable costs can include but are not limited to technology and start-up costs for information technology systems and website resources, subject
Funds awarded under this notice cannot be used to reimburse projects for otherwise eligible expenses incurred prior to FTA award of a Grant Agreement or Cooperative Agreement unless FTA has issued a “Letter of No Prejudice” for the project before the expenses are incurred. Allowable direct and indirect expenses must be consistent with the Governmentwide Uniform Administrative Requirements and Cost Principles (2 CFR part 200) and FTA Circular 5010.1.
FTA will evaluate proposals according to the following criteria:
a. Methodology for Achieving the Objectives of the National RTAP;
b. Qualifications and Experience of Staff and Key Personnel;
c. Communication, Technical Assistance, and Outreach Strategy;
d. Technical, Legal, and Financial Capacity;
e. Ability to Work with Stakeholders and Build Partnerships at the National Level; and
f. Plan to Evaluate the National RTAP activities.
The criteria are explained below:
FTA is seeking innovative and effective approaches and strategies to accomplish the project objectives. Proposals will be evaluated based on the proposed methodology for addressing the objectives of the National RTAP, as well as the capacity of the organization to address the issues outlined in the proposal. The proposal should clearly explain the objectives, activities, deliverables, milestones, timeline and intended outcomes for achieving the goals outlined in the scope for the first year, and how the organization intends to implement them.
The proposal should demonstrate that staff and key personnel have the appropriate skills and experience to carry out the activities. FTA will evaluate the qualifications and experience of the key staff detailed in the proposal for their: (1) Prior experience providing technical assistance, especially related to public transit in rural and tribal areas, (2) prior experience implementing the other tasks outlined in this solicitation, (3) knowledge of issues related to public transit in rural and tribal areas.
The proposal should demonstrate the ability to execute a technical assistance program with a national scope, as well as strategies for delivering targeted assistance to State, regional, and local stakeholders. Proposing organizations are encouraged to think innovatively about this technical assistance delivery. The proposal also should demonstrate the ability to carry out outreach, dissemination, and information management activities. These activities will include capturing and sharing useful and best practices in rural and tribal transportation operations, as well as supporting activities related to FTA's tribal transit program. The proposal should demonstrate innovative approaches, such as the use of communication that is accessible through social media and other information technologies, to accomplish effective stakeholder strategies that both manage and plan the engagement. Rural and tribal communities have unique needs, and the proposal should demonstrate effective strategies for providing technical assistance to address community needs, reflect engagement touchpoints and the ability to meaningfully engage with these communities to produce successful transportation outcomes.
The proposal must include an effective project management plan to administer and manage the National RTAP and must demonstrate that the applicant has the technical, legal, and financial capacity to carry out the plan. FTA will evaluate the applicant's:
1. Technical capacity to administer and manage the proposed activities;
2. Total budget and staffing; and
3. Evidence of understanding of the National RTAP mission and comprehensive technical approach to delivering the National RTAP.
The proposal should indicate a strong organizational capability to address the issues and activities outlined in the proposal. In addition, the proposal should indicate experience in managing and monitoring sub-recipients and contractors, if any are anticipated in the proposal. The recipient selected must be an eligible recipient for a cooperative agreement with FTA and able to sign the required certifications and assurances. The successful applicant must have no technical, legal or financial issues that would impact its eligibility and authority to apply for and accept FTA funds or carry out the award's scope of work.
The proposal must include a plan for effective and meaningful stakeholder engagement. The proposal will be evaluated based in the quality and effectiveness of the plan for engaging and supporting stakeholder engagement to drive the activities of the National RTAP.
FTA will evaluate the effectiveness of proposed performance measures and the plan for collecting and reporting on data related to the National RTAP's products activities, and outcomes.
A technical evaluation committee made up of FTA staff will screen each application for eligibility and evaluate proposals based on the published evaluation criteria outlined in this notice. FTA may request additional information from applicants to clarify information contained within the proposal. After consideration of the findings of the technical evaluation committee, the FTA Administrator will determine the final selection.
Prior to making an award, FTA is required to review and consider any information about the applicant that is in the Federal Awardee Performance and Integrity Information Systems (FAPIIS) accessible through
FTA will notify the successful organization by email or telephone of their status and the selection will be announced FTA's website. Following
The successful applicant will execute their cooperative agreement through TrAMS and adhere to the FTA grant requirements of the National RTAP Program. For more information, see FTA Circular 9040.1G: Formula Grants for Rural Areas: Program Guidance and Application Instructions, available here:
Selected recipients must comply with all Federal statutes, regulations, executive orders, directives, FTA circulars, and other Federal administrative requirements in carrying out project supported activities by this FTA award. In addition to these requirements, recipients of FTA funds are required to execute the most current Certifications and Assurances before entering into a grant or cooperative agreement.
Once selected for award, the recipient will be asked to outline a plan of action, a Statement of Work (SOW), in a format provided by FTA. The SOW includes estimated milestone dates and performance measures and goals for major activities and products which are SMART—specific, measurable, achievable, relevant, and timebound. Activities should be justified in terms of eligible program activities and proposals should clearly demonstrate the connection between the planned work and at least one of the specific program activities cited. The Statement of Work also should address supporting activities, such as plans for engaging participants and/or dissemination strategies for sharing the results, if such are critical to the success of the supported program.
The recipient will be required to assist FTA in evaluating the project and its outcomes. FTA will evaluate the project according to the metrics and goals approved in the Statement of Work for the project. FTA anticipates applying metrics, among others, that will demonstrate target audience usage and feedback on the services and resources of the center.
Recipients funded under this announcement will be required to gather and share all relevant and required data with FTA within appropriate and agreed-upon timelines, to support any project evaluations.
In Response to the White House Office of Science and Technology Policy memorandum, dated August 25, 2022, titled “Ensuring Free, Immediate, and Equitable Access to Federally Funded Research,” the Department is incorporating Public Access requirements into all funding awarded (
Recipients must remove all confidential business information (CBI) or personally identifiable information (PII) information before providing public access to any project data. All appropriate data are to be accessible to FTA and the public for a minimum of five years after the period of performance has expired. Recipients and sub-recipients must make available to FTA copies of all work developed in performance of a project funded under this announcement, including but not limited to software and data.
Recipients and sub-recipients may be asked, during the period of performance, to participate in information exchange meetings, webinars, or outreach events to support FTA's goal of advancing models of success and information that is helping to address human services transportation coordination.
Post-award reporting requirements include submission of Federal Financial Reports and Milestone Progress Reports in TrAMS on a quarterly basis. Documentation is required for payment. Additional reporting may be required specific to the National Rural Transportation Assistance Program.
As part of completing the annual certifications and assurances required of FTA recipients, a successful applicant must report on the suspension or debarment status of itself and its principals. If the award recipient's active grants, cooperative agreements, and procurement contracts from all Federal awarding agencies exceeds $10,000,000 for any period of time during the period of performance of an award made pursuant to this Notice, the recipient must comply with the Recipient integrity and Performance Matters reporting requirements described in Appendix XII to 2 CFR part 200.
The Federal Financial Accountability and Transparency Act (FFATA) requires data entry at the FFATA Sub Award Reporting System (
For further information concerning this notice, please contact the Technical Assistance program manager Heather Edmonds by phone at 202-366-3748, or by email at
To ensure that applicants receive accurate information about eligibility or the program, applicants are encouraged to contact FTA directly with questions, rather than through intermediaries or third parties.
For more information on FTA's Rural and Tribal Transit Resources, visit
For more information on FTA's Sponsored Technical Assistance Centers see
For information on the Rural Transportation Assistance Program, visit
Maritime Administration, Department of Transportation.
Notice.
The National Defense Authorization Act of 2018 (the Act) provided the Secretary of Transportation with the discretionary authority to designate qualified entities as Centers of Excellence (CoEs). CoE designations serve to assist the maritime industry in obtaining and maintaining the highest quality workforce. Upon the Secretary's approval, twenty-seven institutions were designated on May 19, 2021; thirty-two applicants were designated on February 22, 2024. The purpose of this notice is to solicit applications from qualified training entities for the next round of CoE designations. A Center of Excellence designation is valid for five years.
Applications, including all supporting information and documents, must be submitted by 8:00 p.m. E.T. on November 12, 2024.
A training entity seeking designation as a CoE may submit applications, including all supporting information and documents, by email to
Gerard Wall, Centers of Excellence for Domestic Maritime Workforce Training and Education (CoE) Program Manager, via electronic mail at
Section 3507 of the FY 2018 NDAA provided authority to the Secretary to designate qualified entities as CoEs. This authority is codified at 46 U.S.C. 51706. Following the enactment of the FY 2018 NDAA, MARAD developed a procedure to recommend to the Secretary the designation of eligible institutions as CoEs. Section 3532 of the FY 2023 NDAA, enacted on December 23, 2022, revised the criteria for CoE designations by amending the definition of “covered training entity.” MARAD revised its CoE designation procedure to conform to the amended CoE criteria in the FY 2023 NDAA.
46 U.S.C. 51706(c)(1)(B), provides that a “covered training entity” includes (i) a postsecondary educational institution; (ii) a postsecondary vocational institution; (iii) a public or private nonprofit entity that offers one or more other structured experiential learning training programs for United States maritime industry, including a program that is offered by a labor organization or conducted in partnership with a nonprofit organization or one or more employers in the United States maritime industry; (iv) an entity sponsoring a registered apprenticeship program; or (v) a maritime training center designated prior to the date of enactment of the FY 2023 NDAA. As reflected in the definition of “covered training entity” in the Key Terms section of this notice, to be eligible for CoE designation, an entity must meet one of the criteria under clauses (i) through (v) of 46 U.S.C.51706(C)(1)(B).
Qualified training entities seeking to be designated as CoEs should apply to MARAD. MARAD developed policy to provide interested parties with comprehensive agency guidance on how to apply for CoE designation and how the CoE program will be administered. Applications should include information to demonstrate that the applicant institution meets certain requirements, selection criteria, and qualitative attributes consistent with section 3532 of the FY 2023 NDAA.
The MARAD application procedure and program details are listed below and are also available to the public on its website at
Multiple
On March 06, 2020, MARAD published its final CoE designation policy in the
On July 19, 2022, MARAD issued a notice in the
On July 20, 2023, MARAD issued a notice in the
The purpose of this notice is to solicit applications from qualified training entities under the FY 2023 NDAA for the next round of CoE designation. A Center of Excellence designation is valid for five years.
To assist applicants to be designated as a CoE please find below MARAD's policy to include recommendations on how best to apply.
This policy describes the process through which MARAD will exercise its discretionary authority to designate CoEs in accordance with the FY 2023 NDAA.
The Secretary of Transportation, acting through the Maritime Administrator, may designate certain eligible and qualified training entities as CoEs. MARAD has developed the CoE Program to provide interested parties with comprehensive agency guidance on how best to apply for CoE designation. However, conformity with this CoE applicant guidance, except where explicit in the statute, is voluntary only. MARAD will review and consider all applications it receives and may contact applicants with questions to assist in reviewing their applications. The CoE Program is a voluntary program. Each training entity is free to decide whether it wishes to participate in the program and apply for a CoE designation. Applications should include information to demonstrate that the applicant institution meets certain criteria, designation requirements, and attributes consistent with 46 U.S.C. 51706.
The following list of key terms are either directly taken from the statute or have been developed by MARAD or from comments received from the public during our earlier notice and comment period. The list is intended to assist applicants by providing context and insight into the approval process. If you believe that your institution qualifies for CoE designee status under an alternate interpretation or by qualifications not otherwise clearly articulated in the statute, your application should include a cogent justification for any such alternative and it will be given due consideration during our review.
1. “Afloat career” is a term developed by MARAD to mean a career as a merchant mariner compensated for service aboard a vessel in the U.S. Maritime Industry.
2. “Ashore career” is a term developed by MARAD to mean a shore-based compensated occupation in the United States Maritime Industry.
3. “Covered training entity” means an entity that—
(A) is located in a State that borders on the—
(i) Gulf of Mexico,
(ii) Atlantic Ocean,
(iii) Long Island Sound,
(iv) Pacific Ocean,
(v) Great Lakes, or
(vi) Mississippi River System.
(B) is—
i. a postsecondary educational institution (as such term is defined in section 3(39) of the Carl D. Perkins Career and Technical Education Act of 2006 (20 U.S.C. 2302) with an established maritime training program as part of its curriculum.
ii. a postsecondary vocational institution (as such term is defined in section 102(c) of the Higher Education Act of 1965 (20 U.S.C. 1002(c) with an established maritime training program as part of its curriculum.
iii. a public or private nonprofit entity that offers one or more other structured experiential learning training programs for United States workers in the United States maritime industry, including a program that is offered by a labor organization or conducted in partnership with a nonprofit organization or one or more employers in the United States maritime industry.
iv. an entity sponsoring an apprenticeship program registered with the Office of Apprenticeship of the Employment and Training Administration of the Department of Labor or a State apprenticeship agency recognized by the Office of Apprenticeship pursuant to the Act of August 16, 1937 (commonly known as the `National Apprenticeship Act'; 50 Stat. 664, chapter 663; 29 U.S.C. 50; or
v. A maritime training center designated prior to the date of enactment of the FY 2023 NDAA.
(C) has a demonstrated record of success in maritime workforce training and education and
(D) has—
(i) not been subject to a disciplinary or adverse administrative action by Federal, State, or other regulatory bodies;
(ii) no unresolved nonconformities from administrative audits by regulatory bodies; and
(iii) not been subject to any adverse criminal action by a Federal, State, or local law enforcement authority.
4. “Mississippi River System” is interpreted by MARAD to mean the mostly riverine network of the United States which includes the Mississippi River, and all connecting waterways, natural tributaries and distributaries. The system includes the Arkansas, Illinois, Missouri, Ohio, Red, Allegheny, Tennessee, Wabash and Atchafalaya rivers. Important connecting waterways include the Illinois Waterway, the Tennessee-Tombigbee Waterway, and the Gulf Intracoastal Waterway.
5. “Postsecondary educational institution” means—
(A) an institution of higher education, as defined in 20 U.S.C. 1001, that provides not less than a 2-year program of instruction that is acceptable for credit toward a bachelor's degree.
(B) a tribally controlled college or university; or
(C) a nonprofit educational institution offering certificate or other skilled training programs at the postsecondary level.
6. “Postsecondary vocational institution” means a postsecondary vocational institution as defined in 20 U.S.C. 1002(c).
7. “State” is interpreted by MARAD to mean a State of the United States, the District of Columbia, Guam, Puerto Rico, the Virgin Islands, American Samoa, the Northern Mariana Islands, and any other territory or possession of the United States.
8. “Training program means a program that provides training services, as described in section 134(c)(3)(D) of the Workforce Innovation and Opportunity Act (Pub. L. 113-128; 29 U.S.C. 3174).
9. “United States maritime industry” (as such term is defined in 46 U.S.C 51706(c)(6) means the design, construction, repair, operation, manning, and supply of vessels in all segments of the maritime transportation system of the United States, including:
(A) the domestic and foreign trade;
(B) the coastal, offshore, and inland trade;
(C) non-commercial maritime activities, including—
(i) recreational boating; and
(ii) oceanographic and limnological research as described in 46 U.S.C 2101(24).
Participation in the CoE program is entirely voluntary for a covered training entity. A covered training entity is not required to seek a CoE designation. Under the statute, a covered training entity that provides training and education for the domestic maritime workforce may apply so long as it meets the following criteria:
a. The entity is located in a State that borders on at least one of the following bodies of water:
1. Gulf of Mexico,
2. Atlantic Ocean,
3. Long Island Sound,
4. Pacific Ocean,
5. Great Lakes, or
6. Mississippi River System.
b. The entity has a demonstrated record of success in maritime workforce training and education; and
c. The entity is:
1. A postsecondary educational institution; or
2. A postsecondary vocational institution; or
3. A public or private nonprofit entity that offers one or more other structured experiential learning training programs for United States workers in the United States maritime industry, including a program that is offered by a labor organization or conducted in partnership with a nonprofit organization or one or more employers in the United States maritime industry; or
4. An entity sponsoring an apprenticeship program registered with the Office of Apprenticeship of the Employment and Training Administration of the Department of Labor or a State apprenticeship agency recognized by the Office of Apprenticeship pursuant to the Act of August 16, 1937 (commonly known as the `National Apprenticeship Act'; 50 Stat. 664, chapter 663; 29 U.S.C. 50); or
5. A maritime training center designated prior to the date of enactment of the FY 2023 NDAA; or
6. A group of covered training entities that:
i. Consists only of members that meet the eligibility criteria at (1)(a), 1(b) and one of the eligibility criteria listed at(1)(c)(1) through (1)(c)(4), and the selection criteria under (2);
ii. Names a member of such group as a lead entity. The lead entity will serve as the primary point of contact with MARAD and will be responsible for all duties, including administrative, legal and financial, as related to the CoE designation. For example, the lead entity is responsible for submitting the CoE application, responding to any inquiries from MARAD, and coordinating and executing any cooperative agreements with MARAD; and
iii. Has a legally binding agreement signed by all members. That agreement must include the name of the group, which will receive the CoE designation if one is granted and list the lead entity and its responsibilities consistent with (ii) of this section.
I. Assuming no alternative qualifications are provided, MARAD will consider applicants eligible for designation if they can demonstrate compliance with all the following criteria:
a. The academic programs offered by the entity include:
1. One or more afloat career preparation tracks in the United States Maritime Industry, and/or
2. One or more ashore career preparation tracks in the United States Maritime Industry.
b. Applicant institutions offering afloat career and/or ashore career tracks have been accredited as follows:
1. A postsecondary educational institution must hold current accreditation of the institution from a Regional Accreditation Agency or a Nationally Recognized Agency on the list of Accrediting Agencies approved by the U.S. Department of Education.
2. A postsecondary vocational institution must hold current accreditation of the institution from a Regional Accreditation Agency or a Nationally Recognized Agency on the list of Accrediting Agencies approved by the U.S. Department of Education.
3. A public or private non-profit entity that offers one or more other structured experiential learning training programs for United States workers in the United States maritime industry, including a program that is offered by a labor organization or conducted in partnership with a nonprofit organization or one or more employers in the United States maritime industry—
ii. must have United States Coast Guard (USCG) approval of the mariner training program and mariner training courses offered by the institution, if applicable; or
iii. must hold current accreditation of the maritime training program offered by the institution from one or more of the following:
A. the State's Department of Education or equivalent State agency; or
B. employers in the United States maritime industry; or
C. other appropriate external review body which is specifically authorized to review and validate post-secondary education programs and is acceptable to MARAD.
4. An entity sponsoring a registered apprenticeship program must hold current accreditation from a State Apprenticeship Agency (SAA) in accordance with 29 CFR part 29.
5. A maritime training center designated prior to the date of enactment of the FY 2023 NDAA must hold current accreditation—
i.
ii. of the maritime training program offered by the institution from either:
A. the State Apprenticeship Agency (SAA) in accordance with 29 CFR part 29,
B. the State's Department of Education or equivalent State agency,
C. the United States Coast Guard (USCG), or
D. other appropriate external review body which is specifically authorized to review and validate post-secondary education programs and is acceptable to MARAD.
6. Each member of a Group must hold current accreditation according to each member's corresponding eligibility category and the accreditation requirements outlined above in (I)(b)(1-5).
c. As applicable, the applicant maintains USCG approval for the merchant mariner training program and/or merchant mariner training course(s) offered by the institution.
d. The applicant provides data and statistics to demonstrate record of success in maritime workforce training and education and institutional and/or program effectiveness. This should include, but is not limited to, recruitment data, past/current enrollment (trends), attrition rates, student program completion data, post-program job and placement statistics (to the extent available to the institution), and program effectiveness feedback from students, faculty, alumni, and other stakeholders.
e. As applicable, the applicant maintains authorization and/or endorsement of the program and/or course(s) by an applicable professional society or industry body (including, but not limited to Welding, Electrician, Electronics, Maritime Construction, Maritime Logistics, Maritime Systems, etc.) to issue industry accepted certifications that reflect professional recognition of the level of educational or technical skill achievement.
II. Additional factors to be considered include the following qualitative attributes fostered by the institution:
a. Supporting workforce needs of the local, state, or regional economy.
b. Building Science, Technology, Engineering, and Math (STEM) competencies of local/future workforce through maritime programs to meet emerging local, regional, and national economic interests.
c. Promoting diversity, equity, inclusion, and accessibility within the institution, including among the student body, faculty, and staff.
d. Offering a broad-based curriculum and stackable credentials where applicable.
e. Engaging and/or collaborating with the maritime industry including, but not limited to employers, associations, and other industry organizations or partners.
f. Engaging and/or collaborating with employer-led maritime training practices and programs through Sector Partnerships as authorized in the 2014 Workforce Innovation and Opportunity Act Section 3 (26).
g. Engaging and/or collaborating with local and regional maritime high schools or other high schools with maritime, maritime related, Career Technical Education (CTE) or STEM programs.
h. Engaging and/or collaborating with maritime academies as appropriate and other applicable institutions or organizations for advanced proficiency and higher education; and
i. Conducting other significant domestic maritime workforce development related activities.
MARAD will evaluate the applicant's supporting documentation and either approve or disapprove the request for designation. During the evaluation of the application and the supporting documentation, MARAD may request clarifications or additional information from the applicant. Upon approval, the Maritime Administrator or his/her designee will make a designation. MARAD will thereafter publish the CoE's name and contact information on its website.
a. MARAD will publish notifications in the
b. A qualified training entity seeking designation as a CoE may submit applications, including all supporting information and documents, by email to
MARAD will notify each applicant of the status of their designation request. During the evaluation period, MARAD may request clarification or additional information from the applicant.
Yes. CoE designation is valid for five years from the year in which the designation is made and is identified by designation year (
6. What should be included in my CoE Designation Application?
Example 1.
Example 2.
MARAD will host two (2) “Center of Excellence Application” sessions to provide guidance to prospective applicants on the content of this
All submitted documents should clearly reference the question number(s) and section(s) listed in this guidance and/or the statute.
1. Letter applying for CoE designation from the Chief Executive of the applicant institution.
2. Applicant contact information:
a. Legal name of applicant institution and address.
b. Chief executive's name, position title, address, phone number(s) and email.
c. Points of contact (POC) name(s), position titles, phone number(s), emails.
3. Indicate the category under which the applicant entity is claiming qualified for the CoE program:
i. 1(c)(1) Postsecondary Educational Institution; or
ii. 1(c)(2) Postsecondary Vocational Institution; or
iii. 1(c)(3) Public or private nonprofit entity that offers one or more other structured experiential learning training programs for United States workers in the United States maritime industry, including a program that is offered by a labor organization or conducted in partnership with a nonprofit organization or one or more employers in the United States maritime industry; or
iv. 1(c)(4) Entity sponsoring a registered apprenticeship program;
v. 1(c)(5) A maritime training center designated prior to the date of enactment of the FY 2023 NDAA; or
vi. 1(c)(6) A Group of covered training entities.
4. Submit the following supporting information and documents:
a. Charter, Articles of Incorporation, Certificate of Incorporation, or equivalent.
b. Certificate of Status (also known as Certificate of Existence or Certificate of Good Standing), a document issued by a state official (usually the Secretary of State), if applicable.
c. State authorization validation documents, if applicable.
d. Public or Non-Profit status certification.
e. Accreditation approval letter(s) from an accrediting agency(ies)
f. Approval letter from a State Apprenticeship Agency (SAA) in accordance with 29 CFR part 29, if applicable.
g. Approval letter from the State's Department of Education or equivalent State agency, if applicable.
h. Approval letter from the United States Coast Guard (USCG), if applicable.
i. ISO 9001 or other quality management certification, if applicable.
j. Data and statistics to demonstrate record of success in maritime workforce training and education and institutional effectiveness. This should include, but not be limited to, recruitment data, past/
5. Indicate the total number of afloat career preparation tracks and/or the total number of ashore career preparation tracks your institution offers in the United States Maritime Industry and submit the following supporting information:
a. Program summary;
b. A description of applicable courses offered (only relevant maritime related program-specific pages from the catalogue);
c. If applicable, letters of authorization and/or endorsement of the course/program and/or course(s) by an applicable professional society or industry body (including, but not limited to Welding, Electrician, Electronics, Maritime Construction, Maritime Logistics, Maritime Systems, etc.) to issue industry accepted certifications that reflect a professionally recognized level of educational or technical skill achievement; and
d. Any other relevant supporting documentation.
6. Applicant institutions offering afloat career and/or ashore career tracks should demonstrate that they have satisfied accreditation requirements, as set forth below:
a. Postsecondary educational institutions and postsecondary vocational institutions—
i. are accredited by a Regional Accreditation Agency or a Nationally Recognized Agency on the list of Accrediting Agencies approved by the U.S. Department of Education; and
ii. if applicable, the mariner training program and mariner training courses offered by the institution have USCG approval.
b. A public or private nonprofit entity that offers one or more other structured experiential learning training programs for United States workers in the United States maritime industry, including a program that is offered by a labor organization or conducted in partnership with a nonprofit organization or one or more employers in the United States maritime industry—
i. has United States Coast Guard (USCG) approval of the mariner training program and mariner training courses offered by the institution, if applicable; or
ii. hold current accreditation of the maritime training program offered by the institution from one or more of the following:
A. the State's Department of Education or equivalent State agency; or
B. employers in the United States maritime industry; or
C. other appropriate external review body which is specifically authorized to review and validate post-secondary education programs and is acceptable to MARAD.
c. An entity sponsoring a registered apprenticeship program holds current accreditation from a State Apprenticeship Agency (SAA) in accordance with 29 CFR part 29.
d. A maritime training center designated prior to the date of enactment of the FY 2023 NDAA must hold current accreditation—
i.
ii. of the maritime training program offered by the institution from either:
A. the State Apprenticeship Agency (SAA) in accordance with 29 CFR part 29,
B. the State's Department of Education or equivalent State agency,
C. the United States Coast Guard (USCG), or
D. other appropriate external review body which is specifically authorized to review and validate post-secondary education programs and is acceptable to MARAD.
e. Each member of a Group must hold current accreditation according to each member's corresponding eligibility category and the accreditation requirements outlined above in (6)(a-d).
7. All applicant institutions should submit a brief narrative statement for one or more qualitative attributes fostered by the institution to accomplish the following:
a. Support the workforce needs of the local, state, or regional economy;
b. Build the STEM (Science, Technology, Engineering, and Math) competencies of local/future workforce to meet emerging local, regional, and national economic interests;
c. Promote diversity, equity, inclusion, and accessibility within the institution, including among the student body, faculty, and staff;
d. Offer a broad-based curriculum and stackable credentials, where applicable;
e. Engage and/or collaborate with the maritime industry, including, but not limited to employers, associations, and other industry organizations or partners;
f. Engage and/or collaborate with employer-led maritime training practices and programs through Sector Partnerships as authorized in the 2014 Workforce Innovation and Opportunity Act Section 3(26);
g. Engage and/or collaborate with local and regional maritime high schools with maritime, maritime related, Career Technical Education (CTE) or STEM programs;
h. Engage and/or collaborate with maritime academies and other institutions or organizations for advanced proficiency and higher education; and
i. Conduct other significant domestic maritime workforce development related activities.
8. All applicant institutions may provide any relevant endorsements, awards, recognition, and significant accomplishments in support of their application.
The information collection requirements in the final CoE designation policy have been approved under information collection number 2133-0549 by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501,
By Order of the Maritime Administrator.
Maritime Administration, Department of Transportation (DOT).
Notice.
The Maritime Administration (MARAD) invites public comments on our intention to request the Office of Management and Budget (OMB) approval to renew an information collection in accordance with the Paperwork Reduction Act of 1995. The proposed collection OMB 2133-0025 (Automated Mutual-Assistance Vessel Rescue (AMVER) System) is used to maintain a current plot of U.S.-Flag and U.S.-owned vessels. Since the last renewal, there was an increase in the total respondents to this collection, which has resulted in more responses and higher burden hours. There are no other changes to this collection. We are required to publish this notice in the
Comments must be submitted on or before November 12, 2024.
You may submit comments identified by Docket No. MARAD-2024-0121 through one of the following methods:
•
•
Alex Sedlacek, 202-366-1031, Division of Sealift Operations and Emergency Response, Maritime Administration, U.S. Department of Transportation, 1200 New Jersey Ave. SE, Washington, DC 20590, Email:
By Order of the Maritime Administrator.
Pipeline and Hazardous Materials Safety Administration (PHMSA), DOT.
List of applications for modification of special permits.
In accordance with the procedures governing the application for, and the processing of, special permits from the Department of Transportation's Hazardous Material Regulations, notice is hereby given that the Office of Hazardous Materials Safety has received the application described herein.
Comments must be received on or before September 27, 2024.
Record Center, Pipeline and Hazardous Materials Safety Administration U.S. Department of Transportation Washington, DC 20590.
Comments should refer to the application number and be submitted in triplicate. If confirmation of receipt of comments is desired, include a self-addressed stamped postcard showing the special permit number.
Donald Burger, Chief, Office of Hazardous Materials Safety General Approvals and Permits Branch, Pipeline and Hazardous Materials Safety Administration, U.S. Department of Transportation, East Building, PHH-13, 1200 New Jersey Avenue Southeast, Washington, DC 20590-0001, (202) 366-4535.
Each mode of transportation for which a particular special permit is requested is indicated by a number in the “Nature of Application” portion of the table below as follows: 1—Motor vehicle, 2—Rail freight, 3—Cargo vessel, 4—Cargo aircraft only, 5—Passenger-carrying aircraft.
Copies of the applications are available for inspection in the Records Center, East Building, PHH-13, 1200 New Jersey Avenue Southeast, Washington DC or at
This notice of receipt of applications for special permit is published in accordance with part 107 of the Federal hazardous materials transportation law (49 U.S.C. 5117(b); 49 CFR 1.53(b)).
Pipeline and Hazardous Materials Safety Administration (PHMSA), DOT.
List of applications for special permits.
In accordance with the procedures governing the application for, and the processing of, special permits from the Department of Transportation's Hazardous Material Regulations, notice is hereby given that the Office of Hazardous Materials Safety has received the application described herein.
Comments must be received on or before October 15, 2024.
Record Center, Pipeline and Hazardous Materials Safety Administration, U.S. Department of Transportation, Washington, DC 20590.
Comments should refer to the application number and be submitted in triplicate. If confirmation of receipt of comments is desired, include a self-addressed stamped postcard showing the special permit number.
Donald Burger, Chief, Office of Hazardous Materials Safety General Approvals and Permits Branch, Pipeline and Hazardous Materials Safety Administration, U.S. Department of Transportation, East Building, PHH-13, 1200 New Jersey Avenue Southeast, Washington, DC 20590-0001, (202) 366-4535.
Each mode of transportation for which a particular special permit is requested is indicated by a number in the “Nature of Application” portion of the table below as follows: 1—Motor vehicle, 2—Rail freight, 3—Cargo vessel, 4—Cargo aircraft only, 5—Passenger-carrying aircraft.
Copies of the applications are available for inspection in the Records Center, East Building, PHH-13, 1200 New Jersey Avenue Southeast, Washington DC.
This notice of receipt of applications for special permit is published in accordance with part 107 of the Federal hazardous materials transportation law (49 U.S.C. 5117(b); 49 CFR 1.53(b)).
Pipeline and Hazardous Materials Safety Administration (PHMSA), DOT.
Notice of actions on special permit applications.
In accordance with the procedures governing the application for, and the processing of, special permits from the Department of Transportation's Hazardous Material Regulations, notice is hereby given that the Office of Hazardous Materials Safety has received the application described herein.
Comments must be received on or before October 15, 2024.
Record Center, Pipeline and Hazardous Materials Safety Administration, U.S. Department of Transportation, Washington, DC 20590.
Comments should refer to the application number and be submitted in triplicate. If confirmation of receipt of comments is desired, include a self-addressed stamped postcard showing the special permit number.
Donald Burger, Chief, Office of Hazardous Materials Safety General Approvals and Permits Branch, Pipeline and Hazardous Materials Safety Administration, U.S. Department of Transportation, East Building, PHH-13, 1200 New Jersey Avenue Southeast, Washington, DC 20590-0001, (202) 366-4535.
Copies of the applications are available for inspection in the Records Center, East Building, PHH-13, 1200 New Jersey Avenue Southeast, Washington DC.
This notice of receipt of applications for special permit is published in accordance with part 107 of the Federal hazardous materials transportation law (49 U.S.C. 5117(b); 49 CFR 1.53(b)).
Office of Foreign Assets Control, Treasury.
Notice and request for comments.
The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to comment on proposed or continuing information collections, as required by the Paperwork Reduction Act of 1995. Currently, the Office of Foreign Assets Control (OFAC) within the Department of the Treasury is soliciting comments concerning OFAC's information collection requirements contained within OFAC's Reporting, Procedures and Penalties Regulations, the Cuban Assets Control Regulations, the Iran Financial Sanctions Regulations, and the Hizballah Financial Sanctions Regulations.
Written comments must be submitted on or before November 12, 2024 to be assured of consideration.
You may submit comments by either of the following methods:
OFAC: Assistant Director for Licensing, 202-622-2480; Assistant Director for Regulatory Affairs, 202-622-4855; or Assistant Director for Compliance, 202-622-2490 or
In addition, OFAC seeks to consolidate within this information collection five separately approved information collections: OMB Numbers 1505-0167, 1505-0168, 1505-0243, 1505-0255, and 1505-0170. These information collections are relevant to 31 CFR 501.801, 515,572, 561.504, and 566.504. OFAC is also extending from five years to 10 years the recordkeeping requirements codified at 31 CFR 501.601, paragraph IV.B of appendix A to part 501, and 515.572 to align with the extended statute of limitations for civil and criminal violations of the International Emergency Economic Powers Act (IEEPA) or the Trading with the Enemy Act (TWEA).
The reports covered by this information collection will be reviewed by the U.S. Department of the Treasury and may be used for compliance, civil penalty, and enforcement purposes by the agency.
Comments submitted in response to this notice will be summarized and included in the request for OMB approval. All comments will become a matter of public record. Comments are invited on: (a) whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information has practical utility; (b) the accuracy of the agency's estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology; and (e) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services required to provide information.
Internal Revenue Service (IRS), Treasury.
Notice and request for comments.
The Internal Revenue Service, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995. The IRS is soliciting comments concerning Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts.
Written comments should be received on or before November 12, 2024 to be assured of consideration.
Direct all written comments to Andres Garcia, Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW, Washington, DC 20224, or by email to
Requests for additional information or copies of this collection should be directed to Jason Schoonmaker, (801) 620-2128, at Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW, Washington, DC 20224, or through the internet at
The IRS is currently seeking comments concerning the following information collection tools, reporting, and record-keeping requirements:
The following paragraph applies to all of the collections of information covered by this notice:
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.
Internal Revenue Service (IRS), Treasury.
Notice and request for comments.
The Internal Revenue Service, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995. The IRS is soliciting comments concerning Form 4684, Casualties and Thefts.
Written comments should be received on or before November 12, 2024 to be assured of consideration.
Direct all written comments to Andres Garcia, Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW, Washington, DC 20224, or by email to
Requests for additional information or copies of this collection should be directed to Jason Schoonmaker, (801) 620-2128, at Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW, Washington, DC 20224, or through the internet at
The IRS is currently seeking comments concerning the following information collection tools, reporting, and record-keeping requirements:
The following paragraph applies to all of the collections of information covered by this notice:
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of 1934 (the “Act”)
The Exchange proposes to establish fees for Industry Members
The text of the proposed rule change is available on the Exchange's website at
In its filing with the Commission, the Exchange 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 IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
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.
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).
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').”
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.
CAT LLC proposes to charge CEBBs and CEBSs (as described in more detail
The Exchange previously filed a fee filing to implement Historical CAT Assessment 1. On January 17, 2024, the SEC published this prior filing for Historical CAT Assessment 1, temporarily suspended the fee filing, and instituted proceedings to determine whether to approve or disapprove the fee filing.
Historical CAT Assessment 1 will be charged to each CEBB and CEBS for each applicable transaction in Eligible Securities.
(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.
The following fields of the Participant Technical Specifications indicate the CAT Executing Brokers for the transactions executed on an exchange.
In addition, the following fields of the Participant Technical Specifications would indicate the CAT Executing Brokers for the transactions executed otherwise than on an exchange.
The Operating
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 (
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.”
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.”
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 $124,290,730. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($41,430,243.33), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third ($41,430,243.33). 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.
ThePre-FAM Period
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, 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 [
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,”
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 (
FCAT was selected to assume the role of the successor Plan Processor. Prior to this selection, the Participants engaged in discussions with two prior Bidders
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.
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.
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;
• 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, the 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;
• 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.
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 originally adopted.
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 change 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.
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 $51,847,150 relate to technology provided by the Initial Plan Processor and the successor Plan Processor.
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.
From January 17, 2017 through January 30, 2019, the time in which the Thesys CAT was engaged for the CAT,
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.
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 the 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 (
• 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 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.
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 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 [
• 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 (
• 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.
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.
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.
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;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
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.
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.
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 (
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.
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”),
By the
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
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.
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 draft 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.
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.
CAT LLC did not incur costs related to change requests during FAM Period 1.
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 timestamps; (2) implementation fees; and (3) license fees.
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.
• 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.
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.
Although insurance was in effect during FAM Period 1, CAT LLC did not incur costs related to insurance during FAM Period 1.
• 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 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.
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 (
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”),
By the
(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.
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.
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.
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.
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.
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 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.
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.
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.
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.
• 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 (
• 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.
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.
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.
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.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
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”),
By the completion of FAM Period 3, CAT LLC was required to implement the following requirements with regard the CAT:
(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.
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.
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.
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.
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.
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.
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.
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.
• 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
• 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 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;
• Provided assistance with change requests;
• Provided guidance and regulatory support for litigation regarding the response to the 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.
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.
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 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.
The insurance costs of $1,582,714 represent the fees paid for insurance during 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.
The professional and administration costs of $595,923 represent the fees paid to Anchin and Grant Thornton for financial services during FAM Period 3.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
Historical CAT Costs 1 would not include three categories of CAT costs (“Excluded Costs”): (1) $14,749,362 of costs related to the termination of the relationship with the Initial Plan Processor; (2) $48,874,937, which are all CAT costs incurred from November 15, 2017 through November 15, 2018; and (3) $19,628,791, which are costs paid to the the Initial Plan Processor from November 16, 2018 through February 2019 when the relationship with the Initial Plan Processor was concluded. The Participants would remain responsible for 100% of these costs, which total $83,253,090. CAT LLC determined to exclude these Excluded Costs from Historical CAT Costs 1 because these costs relate to the delay in the start of reporting to the CAT and the conclusion of the relationship with the Initial Plan Processor.
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 the Initial Plan Processor, and the settlement costs related to the arbitration with the Initial Plan Processor. The Participants would remain responsible for 100% of these $14,749,362 in costs.
Second, Historical CAT Costs 1 would not include all CAT costs incurred from November 15, 2017 through November 15, 2018. CAT LLC determined to exclude all costs during 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.
The following provides additional detail regarding the Excluded Costs.
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.
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.
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.
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 (
• Assisted with cost and funding issues 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 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.
CAT LLC did not incur costs related to insurance during the period from November 15, 2017 through November 15, 2018.
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.
• 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.
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 engagment [
Third, Historical CAT Costs 1 would not include the $19,628,791 in costs paid to the Initial Plan Processor from November 16, 2018 through February 2019 when CAT LLC's relationship with the Initial Plan Processor concluded. CAT LLC determined that Historical CAT Costs 1 would not include any fees paid to the Initial Plan Processor after November 15, 2017,
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.
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.
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.
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.”
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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
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.
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.
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.
The CAT NMS Plan further states that “Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs.”
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.
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.”
To implement Historical CAT Assessment 1, a new section would be added to the Exchange's fee schedule for “Consolidated Audit Trail Funding Fees”, and it would include the proposed paragraphs described below.
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.
Accordingly, based on the factors discussed above, the Exchange proposes to add paragraph (a)(1) to the Consolidated Audit Trail Funding Fees section of its fee schedule. Proposed paragraph (a)(1) would state the following:
(A) Each CAT Executing Broker shall receive its first invoice for Historical CAT Assessment 1 in November 2024, which shall set forth the Historical CAT Assessment 1 fees calculated based on transactions in October 2024, and shall receive an invoice for Historical CAT Assessment 1 for each month thereafter in which Historical CAT Assessment 1 is in effect.
(B) 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 $0.000013 per executed equivalent share.
(C) Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (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.
(D) Each CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).
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.
The proposed language in paragraph (a)(1)(A) of the fee schedule 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 November 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 October 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 paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(1)(A) of the fee schedule 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 November 2024, invoices will be sent to CAT Executing Brokers each month thereafter while Historical CAT Assessment 1 is in effect.
Proposed paragraph (a)(1)(B) of the fee schedule would describe the invoices for Historical CAT Assessment 1. Proposed paragraph (a)(1)(B) of the fee schedule 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)(B) of the fee schedule 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 $0.000013 per executed equivalent share.”
Furthermore, proposed paragraph (a)(1)(C) of the fee schedule 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 $212,039,879.34 (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 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)(D) of the fee schedule 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 (b).”
Paragraph (b)(1) to the “Consolidated Audit Trail Funding Fees” section of its fee schedule describes the manner of payment of Industry Member CAT fees. Paragraph (b)(1) states that “[e]ach CAT Executing Broker shall pay its CAT fees as required pursuant to paragraph (a) each month to the Consolidated Audit Trail, LLC in the manner prescribed by the Consolidated Audit Trail, LLC.” The CAT NMS Plan requires the Operating Committee to establish a system for the collection of 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.
Accordingly, the Exchange previously has added this requirement to the Exchange's fee schedule. Specifically, paragraph (b)(2) of the fee schedule states:
Each CAT Executing Broker shall pay the CAT fees required pursuant to paragraph (a) within thirty 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
The requirements of paragraph (b)(2) would apply to Historical CAT Assessment 1.
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.
Such information would provide CEBBs and CEBSs with the ability to understand the details regarding the calculation of their Historical CAT Assessment.
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.”
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.
To assist Industry Members with compliance with the commencement of Historical CAT Assessment 1, CAT LLC has been making available to CAT Executing Brokers mock invoices prior to the commencement of Historical CAT Assessment 1. Specifically, CAT Executing Brokers have received mock invoices based on transaction data each month since November 2023. The mock invoices are in the same form as the actual, payable invoices, including both the relevant transaction data and the corresponding fee. However, no payments have been required in response to such mock invoices; they have been used solely to assist CAT Executing Brokers with the development of their processes for paying the CAT fees. Such data has provided 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.
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.”
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”
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.
Under the FAM Period 1 requirement of Initial Industry Member Core Equity and Options Reporting, Industry
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.' ”
• 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 (
• 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.
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.' ”
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).
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:
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,
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.
• “Production Go-Live for Equities 2a Intrafirm Linkage validations” was completed on 7/27/2020;
• “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.
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.
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 remain [
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:
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,
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,
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 (
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 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;
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
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 (
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.”
• “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.
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.
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.” The Exchange 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.
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.
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 remain [
As discussed above, CAT LLC has satisfied the Financial Accountability Milestones (“FAMs”) for Periods 1
CAT LLC does not believe that the exemptive relief relating to the reporting of electronic responses for quotes (“RFQs”) that are not immediately actionable (“NIA Electronic RFQ Responses”) affect the conclusion that FAMs 1 through 3 have been satisfied. The only reason CAT LLC pursued this relief is because certain Industry Members introduced concerns that NIA Electronic RFQ Responses could be considered “orders” reportable pursuant to Rule 613(j)(8) and some Industry Members were not prepared to report such orders to CAT. Thus, the relief was requested on behalf of Industry Members. CAT LLC itself has not taken any position on whether NIA Electronic RFQ Responses are “orders,” as the definition of “order” is an SEC rule and the trading processes for NIA Electronic RFQ Responses are the Industry Members', not those of the Participants or CAT LLC. Accordingly, CAT LLC stated in its letter that “Industry Members must determine whether trading interest falls within the definition of an `order' for CAT purposes. To the extent an NIA Electronic RFQ Response is not considered an `order” as defined in Rule 613(j)(8) and the CAT NMS Plan, it would not be reportable to CAT.”
Only “orders” as defined in SEC Rule 613(j)(8) are reportable to CAT. There is no agreement across the industry or among regulators as to whether NIA Electronic RFQ Responses are “orders” reportable to CAT. Certain Industry Members have raised the question as to whether NIA Electronic RFQ Responses are orders, but others have argued that they are not orders under Rule 613(j)(8).
As further discussed in the prior FIF letters, even if the Commission had the legal authority to require the reporting of NIA RFQ responses to CAT without an amendment to Rule 613, the Commission has not provided guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT. In subsequent discussions with industry members, Commission representatives have agreed that, prior to NIA RFQ responses being reportable to CAT, it would be necessary for the Commission to provide further guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT.
On May 20, 2024, the Commission granted CAT LLC's request for exemptive relief from certain CAT reporting requirements pertaining to NIA Electronic RFQ Responses to the extent such responses are considered “orders” reportable pursuant to Rule 613(j)(8).
When the Commission proposed the FAMs, the Participants expressed concern that, “by conditioning the ability of CAT LLC and the Participants to collect Post-Amendment Industry Member Fees on factors dependent on the efforts of Industry Members, the Commission's proposals inadvertently establish a perverse incentive for Industry Members to devote less than maximum efforts to comply with their obligations related to the CAT as they will pay less fees in such instances.”
CAT LLC does not believe that the Commission's May 19, 2023 order granting temporary exemptive relief relating to certain verbal floor activity and unstructured verbal and electronic upstairs activity (the “2023 Verbal Quotes Exemption”) affects the conclusion that FAMs 1 through 3 have been satisfied. The 2023 Verbal Quotes Exemption, which was issued on May 19, 2023, is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. The relevant exemption for this time period is the Commission's November 12, 2020 order, which granted relief for the same activity through July 31, 2023 (the “2020 Verbal Quotes Order”).
CAT LLC does not believe that the Commission's November 2, 2023 order granting relief from certain CAT NMS Plan requirements (the “November 2023 Order”) affects the conclusion that FAMs 1 through 3 have been satisfied. The November 2023 Order is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. As described in the November 2023 Order, the relevant exemptive orders for this time period were issued on December 16, 2020, which also states that “the Commission has determined that the Participants have sufficiently complied with the conditions set forth in the prior Orders and with the technical requirements for Quarterly Progress Reports set forth in section 6.6(c) of the CAT NMS Plan, including for purposes of determining compliance with any applicable Financial Accountability Milestones.”
CAT LLC also completed the requirements of FAM Period 2, including the required linkages, by December 31, 2020. Although Participant exchanges may report the Executing Broker to CAT differently in certain situations, these reporting differences are irrelevant for linkage purposes as the fields used for CAT Executing Broker are not used for linkage.
The CAT Funding Model approved by the Commission permits the recovery of reasonable costs in each of the categories of CAT costs sought to be recovered via Historical CAT Assessment 1.
CAT LLC believes that it is reasonable to seek recovery of costs incurred prior to when the CAT NMS Plan became effective in November 2016, such as legal and consulting fees incurred to create the CAT NMS Plan. Rule 613 specifically mandates that the CAT be created, implemented and maintained, and further provides that the CAT NMS Plan include a proposed allocation of estimated costs to fund the creation, implementation and maintenance of the CAT among the Participants (referred to as “plan sponsors”), and between the Participants and Industry Members (referred to as “members of the plan sponsors”).
Accordingly, the CAT NMS Plan specifically permits the recovery of costs, including legal and consulting costs, reasonably incurred prior to November 2016 in connection with the creation and implementation of the CAT.
Furthermore, the costs incurred to create and implement the CAT prior to the effective date of the CAT NMS Plan (“Pre-Formation Costs”) were reasonable both in scope and amount, in accordance with the requirements of Section 11.1(c) of the CAT NMS Plan. During the four-year period from 2012 to 2016, a total of $13,842,881 in Pre-Formation Costs were incurred. This is an average of approximately $3.5 million per year over this period. The Pre-Formation Costs fell into three categories: legal costs, consulting costs and public relations costs. This includes legal costs of $3,196,434; consulting costs of $10,589,273; and public relations costs of $57,174. The legal, consulting and public relations services were performed by WilmerHale, Deloitte and Peppercomm, respectively. The selection considerations and fees for these three firms are described in detail above and are described further below. The Pre-Formation Costs are direct costs of CAT, which have been funded entirely by the Participants through non-interest-bearing notes. The Pre-Formation Costs do not include the significant costs incurred by each of the
The Pre-Formation Costs are reasonable and appropriate as they reflect the extensive efforts that were necessary to create the CAT NMS Plan as mandated after the SEC's adoption of Rule 613. As described in more detail below, these efforts included, among other things, developing a plan for selecting the Plan Processor, soliciting and evaluating bids, engaging a diverse set of market participants and the SEC in the development of the Plan, interacting with the SEC in their oversight of the development of the Plan, and seeking appropriate exemptive relief to address areas of concern in Rule 613.
The Participants determined to utilize an RFP to ensure that potential alternative solutions for creating the Plan could be presented and considered, and that a detailed and meaningful cost-benefit analysis could be performed. The SEC supported the use of an RFP, and approved its use as it is described in extensive detail in the CAT NMS Plan.
In the context of the SEC's adoption of Rule 613, commenters urged the Commission to utilize an RFP process to assist in the planning and design of the NMS plan.
In this regard, several commenters suggested that the Commission undergo a RFP or request for information (“RFI”) process to create and implement a consolidated audit trail. Specifically, FIF urged the Commission to perform a RFP process “to determine the best technical solution for developing a consolidated audit trail.” FIF suggested that the Commission “should outline a set of goals and guiding principles they are striving to achieve as part of the adopted CAT filing and leave the determination of data elements and other technical requirements to [an] industry working group.” Similarly, Direct Edge suggested that Commission staff should form and engage in a working group to develop an RFP for publication by the Commission. DirectEdge explained that an RFP process would facilitate the identification of the costs and benefits of the audit trail, as well as the consideration of a wider range of technological solutions. Further, commenters, including Broadridge Financial Solutions, Inc., a technology provider, also requested more specific information about the audit trail system to better assess the Commission's initial cost estimates and to determine the best approach to the consolidated audit trail.
In response to these comments, the Commission modified Rule 613 to require the Participants to address certain important considerations regarding the features and details of the NMS plan and to extend the timeframe for submission of the CAT NMS Plan by the Participants from the 90 days as originally proposed to 270 days, in part, to accommodate a process that would address these considerations.
The SEC specifically recognized that the Participants planned to use an RFP when it approved the Selection Plan, and stated that the RFP was a reasonable approach.
On February 26, 2013, the Participants published an RFP soliciting bids from parties interested in serving as the plan processor for the CAT. Initially, 31 firms submitted intentions to bid. In the following months, the Participants engaged with potential bidders with respect to, among other things, the selection process, selection criteria, and potential bidders' questions and concerns. On March 21, 2014, the Participants received ten bids in response to the RFP.
On September 4, 2013, the Participants filed with the Commission a national market system plan to govern the process for Participant review of the bids submitted in response to the RFP, the procedures for evaluating the bids, and, ultimately, selection of the plan processor (the “Selection Plan”).
The Selection Plan divided the review and evaluation of bids, and the selection of the plan processor, into various stages. Specifically, pursuant to the Selection Plan, a selection committee reviewed all bids and determined which bids contained sufficient information to allow the Participants to meaningfully assess and evaluate the bids. The ten submitted bids were deemed “Qualified Bids,” and so passed to the next stage, in which each bidder presented its bids to the Participants on a confidential basis. On July 1, 2014, after conducting careful analysis and comparison of the bids, the Selection Committee voted and selected a shortlist of six eligible bidders. The Selection Committee determined which shortlisted bidders would be provided the opportunity to revise their bids. After the Selection Committee assessed and evaluated the revised bids, the Selection Committee selected the plan processor via two rounds of voting by the Participants, as described in the Selection Plan.
The Selection Plan established an Operating Committee responsible for
When it approved the CAT NMS Plan in 2016, the Commission reiterated its belief that the Selection Plan remains a “reasonable approach,” that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue”:
In approving the Selection Plan, the Commission stated that the Selection Plan is reasonably designed to achieve its objective of facilitating the development of the CAT NMS Plan and the selection of the Plan Processor. The Commission also found that the Selection Plan is reasonably designed to govern the process by which the SROs will formulate and submit the CAT NMS Plan, including the review, evaluation, and narrowing down of Bids in response to the RFP, and ultimately choosing the Plan Processor that will build, operate, and maintain the consolidated audit trail. The Commission believes that the process set out in the Selection Plan for selecting a Plan Processor remains a reasonable approach, which will facilitate the selection of Plan Processor through a fair, transparent and competitive process and that no modifications to the Selection Plan are required to meet the approval standard. . . . In response to the comment that offered support for a specific Bidder, the Commission agrees with the Participants that the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor and thus believes that the process set forth in the Selection Plan should be permitted to continue.
During the process of developing the CAT NMS Plan, the Participants engaged in extensive and meaningful dialogue with market participants and the SEC. To this end, the Participants created a website to update the public on the progress of the CAT NMS Plan, published a request for comment on multiple issues related to the Plan, held multiple public events to inform the industry of the progress of the CAT and to address inquiries, and formed, and later expanded, a DAG to solicit more input from a representative industry group.
The DAG included representatives of Participants and Industry Members and conducted meetings to discuss, among other things, technical and operational aspects the Participants were considering for the Plan. The Participants issued press releases soliciting participants for the DAG, and a wide spectrum of firms was deliberately chosen to provide insight from various industry segments affected by CAT. The DAG meetings included discussions of topics such as option market maker quote reporting, requirements for capturing Customer IDs, timestamps and clock synchronization, reporting requirements for order handling scenarios, costs and funding, error handling and corrections, and potential elimination of systems made redundant by the CAT. From the inception of the DAG through September 2014, the DAG participated in 36 meetings, as well as a variety of DAG subcommittee meetings.
Following multiple discussions between the Participants and both the DAG and the bidders, as well as among the Participants themselves, the Participants recognized that some provisions of Rule 613 would not permit certain solutions to be included in the Plan that the Participants, in coordination with the DAG, determined advisable to effectuate the most efficient and cost-effective CAT. Specifically, “the SROs reached the conclusion that additional flexibility in certain of the minimum requirements specified in Rule 613 would allow them to propose a more efficient and cost-effective approach without adversely affecting the reliability or accuracy of CAT Data, or its security and confidentiality.”
After reviewing the exemptive request, the Commission determined that it was appropriate in the public interest and consistent with the protection of investors to grant the requested exemptive relief.
[T]he Commission is persuaded to provide flexibility in the discrete areas discussed in the Exemption Request so that the alternative approaches can be included in the CAT NMS Plan and subject to notice and comment. Doing so could allow for more efficient and cost-effective approaches than otherwise would be permitted. The Commission at this stage is not deciding whether the proposed approaches detailed below are more efficient or effective than those in Rule 613. However, the Commission believes the proposed approaches should be within the permissible range of alternatives available to the SROs.
The Commission further stated that the requested exemptive relief is consistent with the protection of investors. The Commission noted that:
Doing so will provide the public an opportunity to consider and comment on whether these proposed alternative approaches would indeed be more efficient and cost-effective than those otherwise required by Rule 613, and whether such approaches would adversely affect the reliability or accuracy of CAT Data or otherwise undermine the goals of Rule 613. Moreover, if—as the SROs represent—efficiency gains and cost savings would result from including the proposed approaches in the CAT NMS Plan without adverse effects, then the resultant benefits could potentially flow to investors (
The Participants incorporated the exemptive relief into the proposed CAT NMS Plan, which was noticed for comment, and the Commission ultimately approved the CAT NMS Plan with the more efficient and cost-effective alternative approaches described in the exemptive relief. Accordingly, the Participants believe that the costs incurred in developing the exemptive request were critical to the creation of a better CAT than was
Rule 613(a)(1) under Regulation NMS required the Participants to jointly file the CAT NMS Plan on or before April 28, 2013, less than a year after the adoption of Rule 613. In recognition of the complexity of the project to create the CAT NMS Plan as well as industry interest in limiting or eliminating certain requirements of Rule 613 (
The SROs stated in their Request Letter that they do not believe that the 270-day time period provided for in Rule 613(a)(1) provides sufficient time for the development of the RFP, formulation and submission of bids, and review and evaluation of such bids. The SROs also stated that they believe additional time beyond the 270 days provided for in Rule 613(a)(1) is necessary in order to provide sufficient time for effective consultation with and input from the industry and the public on the proposed solution chosen by the SROs for the creation of the consolidated audit trail at the conclusion of the RFP process and the NMS plan itself.
In recognition of the need for additional time to refine the technical description of and requirements for the CAT and to allow for additional evaluation of the proposed cost and funding considerations, the SEC granted two extensions of this deadline.
This additional time to complete the RFP process should allow the SROs to engage in a more thoughtful and comprehensive process for the development of an NMS plan. In this regard, the Commission notes that the additional time to solicit comment from the industry and the public at certain key points in the development of the NMS plan could identify issues that can be resolved earlier in the development of the consolidated audit trail and prior to filing the NMS plan with the Commission.
Given the Commission's recognition of the reasonableness and value of the extension of the deadline to file the CAT NMS Plan, the Participants believe that the costs incurred in developing the extension request were important to the process of developing the CAT NMS Plan, and therefore should be recoverable as part of Historical CAT Assessment 1.
After extensive analyses and discussions with the DAG, bidders, market participants and the SEC staff, the Participants finalized the draft of the CAT NMS Plan and filed the CAT NMS Plan with the SEC on September 30, 2014. Following additional discussions, the Participants filed several amendments to the CAT NMS Plan during 2015 and 2016. With these additional changes, the SEC published the CAT NMS Plan for notice and comment in May 2016.
The Pre-Formation Costs include legal costs of $3,196,434. The legal services were performed by WilmerHale. The selection considerations and fees for WilmerHale were described in detail above. Prior to the creation of CAT LLC, WilmerHale was engaged to represent the consortium of SROs, not the individual Participants. For administrative purposes, FINRA agreed to receive such legal bills, although such costs were shared among the Participants. Therefore, the legal costs incurred with respect to WilmerHale do not include legal costs incurred by the individual Participants. These pre-formation legal costs are described in detail above and are further described below:
• 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 DAG;
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on the 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 (
• Drafted exemptive requests;
• Provided interpretations related to the CAT NMS Plan;
• Provided support with regard to discussions among the exchanges, FINRA and other third parties, such as Deloitte;
• Provided tax advice with regard to CAT's status as a tax-exempt organization; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The Pre-Formation Costs include consulting costs of $10,589,273. The consulting services were performed by Deloitte. The selection considerations and fees for Deloitte were described in detail above. Prior to the creation of CAT LLC, for administrative purposes, Deloitte was engaged by FINRA to provide consulting services related to CAT, but the costs were shared by the consortium of SROs per agreement. Therefore, the consulting costs incurred with respect to Deloitte do not include consulting costs incurred by the individual Participants. The pre-formation consulting costs include the following:
• Established and implemented program operations for the CAT project, including the program management 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 Participants' independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, reviewing technical requirements of other NMS plans, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• 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 (
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided support for industry outreach sessions, including with regard to program design and agenda development, program support and logistics and coordination; and
• Provided support in fact finding, drafting content and meeting coordination for WilmerHale with regard to the CAT and the development of the CAT NMS Plan.
Such Pre-Formation Costs did not include costs related to the Chair of the CAT NMS Plan Operating Committee, as the CAT NMS Plan had not yet been adopted.
The Pre-Formation Costs include public relations costs of $57,174. The public relations services were performed by Peppercomm. The selection considerations and fees for Peppercomm are described in detail above. The costs related to Peppercomm were shared among the SROs. Therefore, the public relations costs do not include public relations costs incurred by the individual Participants. The pre-formation public relations costs include services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs related to cloud hosting services as a part of Historical CAT Assessments. CAT LLC believes that the costs related to cloud hosting services described in detail above are reasonable and appropriate given the strict data processing timelines and storage requirements imposed by the Commission-approved CAT NMS Plan and should be recoverable as a part of Historical CAT Assessment 1.
CAT LLC believes that the costs for the cloud hosting services are reasonable, both in terms of the level of the fees paid by CAT LLC for cloud hosting services provided by AWS and the scope of the services performed by AWS for CAT LLC. CAT LLC believes that both the scope and amount of the costs for cloud hosting services are reasonable given the current requirements of the CAT NMS Plan adopted pursuant to Rule 613, including the strict data processing timeline, storage and other technical requirements under the Commission-approved CAT NMS Plan.
CAT LLC believes that the level of fees for the cloud hosting services is 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.
CAT LLC also believes that the scope of services provided by AWS for the CAT are appropriate given the current requirements of the Commission-approved CAT NMS Plan. As described above, the cloud hosting services costs reflect a variety of factors including, among other things:
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In addition, various requirements of the CAT NMS Plan adopted pursuant to Rule 613 contribute to the significant cloud hosting services costs, and that various Plan requirements could be amended or removed without affecting the regulatory purpose of the CAT. Indeed, CAT LLC has repeatedly sought exemptive relief and filed amendments to the CAT NMS Plan, and has even filed suit against the Commission, to seek to revise or eliminate certain costly requirements related to the CAT. However, despite these efforts, absent the Commission granting exemptive relief or approving cost savings amendments to the CAT NMS Plan, CAT LLC, the Participants and Industry Members are all required to comply with such requirements.
CAT is reasonably designed to efficiently and effectively utilize cloud computing and storage services, given the requirements of the Commission-approved CAT NMS Plan, including requirements related to security, operational reliance and quality assurance, and maintainability.
The Plan Processor uses state-of-the-art software that meets the strict security standards of the CAT NMS Plan. CAT utilizes a big data processing framework that is extensively used by large data processing companies, such as Apple, Meta, Netflix, IBM and Google. As such, it has substantial commercial support and support in the open-source community. It is also well suited for use with regard to iterative types of algorithms and query functions and analytics that the CAT requires, and it provides the heightened security necessary for the CAT.
The development and implementation of the design of CAT is not and has not been static. CAT LLC and the Plan Processor are always evaluating new innovations and service offerings from AWS and other providers to seek to maximize efficiency and cost avoidance while still satisfying the requirements of the CAT NMS Plan. These efforts have led to substantial savings to date. The cloud hosting costs for 2023 were less than the cloud hosting costs for 2022 by $8 million despite processing seven
When evaluating the design of the CAT, it must be kept in mind that the CAT is not a typical commercial technology project. The ability to make use of technology approaches that may lead to cost avoidance is also subject to the restrictive requirements of the CAT NMS Plan, such as processing timeframes, requirements for retention of data versions, query requirements, and security standards. Because such requirements are set forth in the CAT NMS Plan, any modification of such requirements are subject to the time-consuming process of amending the CAT NMS Plan or seeking an exemption from the relevant requirement. For example, CAT LLC recently has filed an amendment to address several of these expensive Plan requirements.
The CAT System also was designed to minimize the extent to which Industry Members would need to alter their systems to report to CAT. During the design process, Industry Member groups argued that it would make more sense financially for the CAT to accommodate differences in industry systems, than for all Industry Members to change their systems. Moreover, such design choices would facilitate consistency, uniformity and accuracy in reporting. Requiring the CAT to make such accommodations may increase CAT costs while accommodating CAT Reporters.
Based on the requirements in the CAT NMS Plan and/or in response to industry requests for functionality to be embedded with the Plan Processor to streamline or limit Industry Member system changes, the CAT has been designed to limit the effect on Industry Members. The following provides examples of such accommodations:
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To be clear, if OATS-like error correction tools are not made available on Day 1, hundreds of firms will be required to create and test their own tools or obtain vendor alternatives prior to the CAT Go-Live Date. Proprietary tools will require additional system builds, access to and ingestion of CAT data to perform system validation, and testing which will further stress the limited number of subject matter experts (“SMEs”) dedicated to the implementation of CAT reporting. Should this occur, inevitably firms (especially small firms who lack the necessary IT staff to write code and develop proprietary systems), may be put in the position of passing onto investors the cost required to build hundreds of redundant systems.
CAT provides various tools to help Industry Members identify and rectify errors.
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FIF CAT WG is not proposing a specific format; rather, we are proposing flexibility of input formats which includes support of existing formats (
Mandating a uniform format for reporting data to the CAT simplifies the task for the Central Repository of consolidating/storing data, but it puts the burden on each CAT Reporter to accurately translate their current (
CAT provides such a flexible input format.
The costs for cloud hosting services are appropriate and have not been adversely affected by the original design and approaches of the Initial Plan Processor. FCAT's design costs are the result of the requirements of the Commission-approved CAT NMS Plan.
When FCAT took over as the Plan Processor from Thesys, it utilized certain aspects of the technical specifications created by Thesys in its design. However, FCAT has not maintained aspects of the original design that would not be appropriate for the CAT. FCAT revised and enhanced the original technical specifications of the CAT System to increase its efficiency and efficacy, and to ensure its compliance with the CAT NMS Plan. For example, the Initial Plan Processor's approach utilized many more fields than FCAT's approach, which relies on additional linkages. With the additional linkages, the CAT System takes on more of the CAT-related burdens than the Industry Members. Such an approach serves to facilitate consistency, uniformity and accuracy in reporting.
Moreover, FCAT did not utilize the system built by the Initial Plan Processor; it rebuilt the CAT System based on revised technical specifications. For example, the Initial Plan Processor used an on-premises processing approach which was not geared toward the huge amounts of data stored in the CAT, while FCAT adopted a cloud-based solution in response to such data demands.
Furthermore, given the very short timeframe to develop the CAT System and the prior optimization of certain query tools (
CAT LLC continues to support the selection of AWS as the cloud hosting services provider for CAT given the compliance, operational, and security requirements of the CAT. Independent analyses confirm these conclusions, noting that “AWS is an excellent choice for either strategic or tactical use and recommends considering AWS for almost all cloud IaaS or IaaS+PaaS scenarios.”
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In addition, the nature of the CAT, including the amount of data it must process and the size of its data footprint, does not allow for a multi-cloud solution as this would be cost prohibitive and greatly increase the security boundary and associated risk profile of the CAT. For example, a multi-cloud hosting option would increase costs, complexity, and risk for operations with regard to, for example, DevOps, production support, and networking. Similarly, with regard to security, a multi-cloud solution would increase risk, including with regard to the need for data transfers between cloud providers and the expansion of the security boundary. With regard to labor, a multi-cloud solution would lose economies of scale due to the need to support unique cloud requirements. Accordingly, the use of single-cloud solution continues to provide advantages with regard to cost, complexity, and risk. Indeed, “[t]he best practice is to focus on a single primary strategic provider.”
Furthermore, if another cloud service provider were determined to be a better match for the CAT at some future date, switching cloud service providers would be a very significant, expensive and time-consuming effort. Such an effort would likely be a 10-to-15-year commitment at a substantial expense. Such a move would require the replication or redesign of the underlying cloud environments (
CAT LLC believes that the recovery of costs related to the development of the funding model is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
Funding the CAT is a critical aspect of Rule 613 and the CAT NMS Plan. Article XI of the CAT NMS Plan describes in detail the requirements for funding the CAT, and the Participants are required to comply with and enforce compliance with the funding requirements of the CAT NMS Plan, just as with other aspects of the Plan. Accordingly, the development and implementation of a funding model for the CAT is as much a part of the requirements of the CAT NMS Plan as the development and operation of the CAT System. CAT LLC sees no reason to distinguish the efforts to develop a funding model from, for example, efforts to develop the CAT System, in seeking to recover reasonable CAT costs.
Moreover, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . legal costs.”
In addition, the legal costs incurred for the assistance in developing the CAT Funding Model are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at negotiated rates for such services that reflect both the
CAT LLC believes that the recovery of legal costs related to the litigation with the SEC regarding the CAT NMS Plan is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
The conditional exemptive relief in this Order allows for the implementation of alternative regulatory solutions that continue to advance the regulatory goals that Rule 613 and the CAT NMS Plan were intended to promote, while reducing the implementation and operational costs, burdens, and/or difficulties that would otherwise be incurred by the Participants and Industry Members that must fund the CAT.
CAT LLC believes it is reasonable and appropriate to incur costs to limit the need to incur even greater costs due to certain interpretations of the Plan.
In addition, the legal costs incurred during the litigation are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at market rates for such services. As such, the legal costs related to this litigation incurred during the period covered by Historical CAT Assessment 1 were reasonable.
Finally, Industry Members will directly benefit from the result of the litigation because it has addressed CAT NMS Plan requirements that would have imposed significantly greater costs on the CAT. Accordingly, it is reasonable and appropriate that the costs of such litigation be included in the Historical CAT Costs 1.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017, which was the date by which Participants were required to begin reporting to the CAT, due to the delay in the commencement of reporting to the CAT. As discussed above, the Participants determined to exclude all CAT costs incurred from November 15, 2017 through November 15, 2018, which includes $37,852,083 in Thesys costs incurred from November 15, 2017 through November 15, 2018 (as well as other CAT costs during this period). The remaining Thesys costs incurred after November 15, 2018 are the $19,628,791 in capitalized developed technology costs for the period from November 16, 2018 through February 2019 incurred in the development of the CAT by the Initial Plan Processor, as well as a transition fee for the transition from the Initial Plan Processor to the successor Plan Processor. The Participants would remain responsible for 100% of these $19,628,791 in costs.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017. CAT LLC notes that the development and implementation of the CAT System, while unprecedented in scope and design, is like any other large and innovative technology project in that, inevitably, there were adjustments and refinements in the technical approach as the project developed, even with substantial planning efforts and oversight prior to the build. This is even more likely when the project faces a very tight implementation schedule, such as the one imposed by the Commission in Rule 613 and the CAT NMS Plan. However, an adjusted approach does not mean that the funds were not valid expenditures and should not be recovered.
The reasonableness of Thesys costs should be evaluated by the Commission as of the time they were incurred, not in hindsight. As detailed above, the Commission concluded in 2016 that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue.”
As noted in the CAT Funding Model Approval Order, “[i]n Rule 613, the Commission made the determination that the costs of the CAT should be shared by the Participants and Industry Members.”
CAT LLC believes that the recovery of CAIS-related costs is appropriate, and that the amount and scope of such costs, as described above, are reasonable, and that the reasonableness of historical costs should be evaluated by the Commission as of the time they were incurred, not in hindsight.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable CAIS operating costs as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . CAIS operating fees.”
In addition, CAT LLC determined that the CAIS operating fees described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The “CAIS Operating Costs” for Historical CAT Assessment 1 total $9,480,587, with Pre-FAM costs of $2,072,908, FAM 1 costs of $254,998, FAM 2 costs of $1,590,298, and FAM 3 costs of $5,562,383. As described above, the CAIS operating fees were incurred with regard to two categories of CAIS-related efforts: (1) the acceleration of the reporting of LTIDs; and (2) the development of the CAIS Technical Specifications and the building of CAIS. These two categories of costs are discussed in more detail below.
During the period covered by Historical CAT Assessment 1, the CAIS operating costs included costs related to the acceleration of the reporting of LTIDs earlier than originally contemplated during this period at the request of the SEC and in accordance with exemptive relief granted by the SEC.
• After FCAT developed the LTID Technical Specifications, the LTID Technical Specifications were published on January 31, 2020, with additional updates provided to the LTID Technical Specifications through April 2021.
• The LTID account information testing environment opened on August 24, 2020.
• The LTID account information reporting production environment opened on December 14, 2020.
• CAT Reporters were required to request their production readiness certification for account information related to LTIDs by the deadline of April 9, 2021.
• The LTID account information reporting for Phases 2a, 2b and 2c for Large Industry Members went live on April 26, 2021.
• The LTID account information reporting for Phases 2d for Large Industry Members went live on December 13, 2021.
• The LTID account information reporting for Phases 2a, 2b, 2c and 2d for Small Industry Members went live on April 26, 2021.
Throughout this project, FCAT and CAT LLC worked closely with the industry on LTID and CAIS reporting. Between December 2019 and December 2021, at least 57 checkpoint calls, webinars, and technical working group meetings with industry representatives were hosted to address issues and to educate CAT Reporters regarding LTID and CAIS reporting.
The LTID reporting project was successfully completed in a timely fashion, and the fees related to the project were reasonable. Accordingly, CAT LLC appropriately seeks to recover such costs via Historical CAT Assessment 1.
During the period covered by Historical CAT Assessment 1, FCAT began the development of the full CAIS Technical Specifications and the building of CAIS. The CAIS Technical Specifications were developed during this period as follows:
• Iterative drafts of the CAIS Technical Specifications were published on June 30, 2020, December 1, 2020, and January 1, 2021.
• The full, final CAIS Technical Specifications were published on January 29, 2021.
• Updated versions of the CAIS Technical Specifications were published throughout 2021.
As discussed above, FCAT and CAT LLC frequently engaged with the industry regarding the development of CAIS, hosting regular checkpoint calls, webinars, and technical working group meetings with industry representatives to address any issues, including addressing the interplay between Industry Members' existing customer systems and CAIS, and to educate CAT Reporters regarding LTID and CAIS reporting. Such engagement was critical to the CAIS development process as the CAIS project was unprecedented in terms of its content, scope and complexity.
During this period, FCAT also commenced the building of the CAIS system in accordance with the CAIS Technical Specifications during the period covered by Historical CAT Assessment 1. The CAIS system was ready for industry testing shortly after the end of this period in January 2022.
The CAIS Technical Specifications and the CAIS system, as developed during this period, continue to be in use today. Industry Members have been required to report, and have continuously reported, required data to CAIS on a daily basis since November 7, 2022, consistent with interim reporting obligations. The CAIS system accepts and validates the CAIS data submitted by Industry Members and provides Industry Members with initial feedback on data errors. In light of the unprecedented nature of the CAIS system, certain changes to the system, such as changes related to error corrections and the CAIS regulatory portal, were necessary to finalize CAIS reporting. FCAT worked to address these remaining issues,
CAT LLC believes that the recovery of public relations costs is appropriate and that the amount and scope of such costs, as described above, are reasonable.
The Commission has long recognized that external public relations costs are reasonably associated with creating, implementing and maintaining the CAT. In the CAT NMS Plan Approval Order, the Commission estimated that the Participants had collectively spent approximately $2,400,000 in preparation of the CAT NMS Plan on external public relations, legal, and consulting costs, and estimated that the Participants would continue to incur external public relations costs associated with maintaining the CAT upon approval of the CAT NMS Plan.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for public relations services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . public relations costs.”
In addition, CAT LLC determined that the public relations costs described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The services performed by the public relations firms through 2021 were limited in scope to assist CAT LLC, which has no employees of its own, to be better positioned to understand and address CAT matters to the benefit of all market participants and to communicate on important CAT topics with the public. In addition, the costs for these services were appropriately limited. During the 10-year period covered by Historical CAT Assessment 1, the average cost per year for these services was approximately $36,000.
CAT LLC believes that the recovery of legal costs related to the limitation of liability provision, including costs related to the proceedings before the SEC and costs related to the proposed amendment to the Consolidated Audit Trail Reporter Agreement and the Consolidated Audit Trail Reporting Agent Agreement (the “Reporting Agreements”) is appropriate and that the amount and scope of such costs as described above are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
Moreover, it is critical that CAT LLC, which has no employees of its own, have the ability to fund a legal defense in litigation and other legal proceedings against it. In response to CAT LLC requiring Industry Members to agree to the limitation of liability provision to submit data to the CAT, SIFMA filed an application for review of actions taken by CAT LLC and the Participants pursuant to Sections 19(d) and 19(f) of the Exchange Act. Contemporaneously with the filing of this proceeding, SIFMA moved for a stay of the requirement that Industry Members sign a Reporter Agreement, or in the alternative, asked the Commission to further delay the launch of CAT reporting on June 22, 2020. CAT LLC must have the resources to defend itself from litigious actions by others, like these.
Although a limitation of liability provision ultimately was not adopted as proposed, it was a reasonable provision to propose for the CAT Reporter Agreements, given that such provisions are in accordance with industry norms. Limitations of liability are ubiquitous within the securities industry and have long governed the economic relationships between self-regulatory organizations and the entities that they regulate. For example, U.S. securities exchanges have adopted rules to limit their liability for losses that Industry Members incur through their use of exchange facilities.
Furthermore, as described above, the specialized services were performed by experienced counsel at market rates for such services. Accordingly, the legal costs for the efforts related to the limitation of liability provision were reasonable.
CAT LLC believes that the recovery of consulting costs related to the Chair of the CAT Operating Committee is appropriate and that the amount and scope of such costs are reasonable.
As a preliminary matter, the selection of the Chair of the Operating Committee complies with the requirements of Section 4.2 of the CAT NMS Plan. The initial Chair that served during the period covered by Historical CAT Assessment was designated by a Participant as the Participant's alternate voting member. Accordingly, the Chair is a representative of the Participants, as required by the CAT NMS Plan.
In addition, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for consulting as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . consulting . . . ” costs.
The Participants determined that the position of the Chair was a critical role for the implementation of the CAT, and an independent Chair would appropriately consider and address the views of each of the Participants. The Participants also determined that it was important to have a Chair with a strong
CAT LLC understands that there are three types of reconciliation processes related to the invoices:
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As discussed further below, CAT LLC only considers the first type of process to be a “reconciliation” and the only type of process that is required under the CAT NMS Plan. CAT LLC provides the means to reconcile the CAT invoice amount to the underlying trades provided by CAT.
The CAT NMS Plan does not require CAT LLC to facilitate the second type of process: matching underlying trades for a CAT invoice with a firm's internal books and records. CAT LLC has access only to the underlying trades provided by CAT; it does not have access to a firm's internal books and records. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
The CAT NMS Plan also does not require CAT LLC to provide the ability to identify the order originator for the underlying trades for the CAT invoices. Accordingly, the billing guidance and processes do not provide CAT Reporters with the ability to identify the order originator for the underlying trades provided by CAT with CAT invoices. CAT LLC has been working closely with CAT Reporters to explain its billing approach and to address any outstanding billing questions. But, it should not be lost that CAT LLC provides information sufficient to allow CAT Reporters to reconcile CAT invoice amounts with the underlying trades provided by CAT LLC.
The CAT NMS Plan does not require CAT LLC to facilitate the matching of underlying trades for a CAT invoice with a firm's internal books and records, which may consist of trading data from various sources external to CAT. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
In this regard, it is important to recognize that CAT LLC has developed a billing approach that greatly improves upon existing billing practices for similar regulatory fees (
To facilitate the introduction of CAT fees, CAT LLC has worked with FCAT to develop an approach to CAT billing that is consistent with existing billing constructs used with regard to Section 31-related sales values fees, subject to certain enhancements. Under this billing approach, FCAT is providing additional linkage elements, not necessarily provided in the Section 31-sales value fee context, to facilitate CAT Reporters' ability to match the underlying trades provided by CAT with their internal books and records and to reduce the complexity of that process. Specifically, FCAT is providing various key elements of the trade itself, such as the tradeID and branch sequence,
With the Additional Trade Details, CAT LLC and FCAT believe that the overwhelming majority of underlying trades provided by CAT bills can be matched with a CAT Reporter's internal books and records. CAT LLC recognizes that there may be certain cases in which such matching is more difficult given various firm-specific considerations, but believes that such instances are significantly more limited than with regard to the SRO fees charged in relation to Section 31.
Similar to other regulatory fees, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Accordingly, Historical CAT Assessment 1 does not address the process by which any CAT Reporters may pass through the fee to their
In its approval of the CAT Funding Model, the Commission approved charging CAT fees to the CAT Executing Broker, rather than the originating broker. This fee filing must comply with the requirements of the CAT Funding Model, and, therefore, charges the Historical CAT Assessment 1 to CAT Executing Brokers.
Moreover, charging originating brokers would introduce significant complexity to the billing process from the CAT's perspective, and would increase the costs of implementing CAT fees. Charging the CAT Executing Broker is simple and straightforward, and leverages a one-to-one relationship between billable events (trades) and billable parties, similar to other transaction-based fees. In contrast, for a single trade event, there may be many originating brokers, and each trade must be broken down on a pro-rata basis, to account for one or more layers of aggregation, disaggregation, and representation of the underlying orders. While CAT is indeed designed to capture and unwind complex aggregation scenarios, the data and linkages are structured to facilitate regulatory use, and not a billing mechanism that assesses fees on a distinct set of executed trades; it is not simply a matter of using existing CAT linkages. Furthermore, charging originating brokers would implicate issues related to lifecycle linkage rates, and issues related to corrections, cancellations and allocations, while charging CAT Executing Brokers would avoid such issues.
As noted, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT Fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Nevertheless, the Additional Trade Details provided with regard to the underlying trades on CAT invoices may assist with this process. Like with Section 31-related sales value fees, however, it is not always possible to trace every fee on a transaction back to the originating party. Industry Members have faced these issues under Section 31-related sales values fees for many years.
CAT LLC has worked with FCAT to provide significant technical assistance to Industry Members to allow the Industry Members to understand how Historical CAT Assessment 1 will be implemented and billed, including webinars, CAT alerts, mock invoices, and responses to questions posed to the FCAT Help Desk.
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By providing such detailed and sustained assistance to Industry Members regarding CAT fees and billing, CAT LLC has successfully addressed questions raised by Industry Members regarding the CAT fees and billing processes.
CAT LLC has provided Industry Members with ample time to comply with the implementation of Historical CAT Assessment 1. CAT LLC originally proposed issuing the first invoices for Historical CAT Assessment 1 in December 2023 based on transactions in Eligible Securities in November 2023. In consideration of the feedback about the need for additional time to implement the new fee, CAT LLC pushed back this timeline by four months, proposing to issue the first Historical CAT Assessment 1 in April 2024 based on transactions in March 2024.
The Exchange believes the proposed rule change is consistent with the requirements of the Exchange Act. The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,
The Exchange believes that this proposal is consistent with the Act because it implements provisions of the Plan and is designed to assist the Exchange 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.”
The Exchange believes that the proposed fees paid by the CEBBs and CEBSs are reasonable, equitably allocated and not unfairly discriminatory. First, the Historical CAT Assessment 1 fees to be collected are directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to technology, legal, consulting, insurance, professional and administration, and public relations costs. The Exchange has already incurred such development and implementation costs and the proposed Historical CAT Assessment 1 fees, therefore, would allow the Exchange 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 and not to support the Exchange's business operations. The proposed fees would not cover Exchange services unrelated to the CAT.
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. The Exchange believes that the proposed fees adopted pursuant to the CAT Funding Model approved by the SEC are reasonable, equitably allocated and not unfairly discriminatory.
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, the Exchange has filed this fee filing to implement the Industry Member CAT fees included in the CAT Funding Model. The Exchange 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 the Exchange 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.”
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.
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:
In accordance with this requirement, the Exchange 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, the Exchange 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.
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.
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
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
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 (
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.
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.
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.
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.
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.
These costs involve the activity of both the Initial Plan Processor and FCAT, as the successor Plan Processor.
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.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover consulting costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover insurance costs as a part of Historical CAT Assessments.
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.
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
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 balanace of these considerations.
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.
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.
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.
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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.
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.
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, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
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
The Exchange believes that imposing Historical CAT Assessment 1 with a fee rate of $0.000013 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, the Exchange 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 (
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.
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.
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.
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, the Exchange 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 the fee schedule. The Exchange 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 Exchange members to reasonably predict their payment obligations for budgeting purposes.
Section 6(b)(8) of the Act
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
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.
No written comments were either solicited or received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Exchange Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of 1934 (the “Act”)
The Exchange is filing with the Securities and Exchange Commission (“Commission”) a proposed rule change to amend the Fee Schedule to establish fees for Industry Members
In its filing with the Commission, the Exchange 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 IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.
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.
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).
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').”
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.
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. 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.' ”
The Exchange previously filed a fee filing to implement Historical CAT Assessment 1. On January 17, 2024, the SEC published this prior filing for Historical CAT Assessment 1, temporarily suspended the fee filing, and instituted proceedings to determine whether to approve or disapprove the fee filing.
Historical CAT Assessment 1 will be charged to each CEBB and CEBS for each applicable transaction in Eligible Securities.
The following fields of the Participant Technical Specifications indicate the CAT Executing Brokers for the transactions executed on an exchange.
In addition, the following fields of the Participant Technical Specifications would indicate the CAT Executing Brokers for the transactions executed otherwise than on an exchange.
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 $0.00003994969693072937 per executed equivalent share. This rate is then divided by three and rounded to determine the fee rate of $0.000013 per executed equivalent share that will be assessed to CEBBs and CEBSs, as also discussed in detail below.
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 (
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.”
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.”
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 $124,290,730. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($41,430,243.33), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third ($41,430,243.33). 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.
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.
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, 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 [
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,”
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 (
FCAT was selected to assume the role of the successor Plan Processor. Prior to this selection, the Participants engaged in discussions with two prior Bidders
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.
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.
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;
• 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, the 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
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content;
• 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.
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 originally adopted.
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 change 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.
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 $51,847,150 relate to technology provided by the Initial Plan Processor and the successor Plan Processor.
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.
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 January 30, 2019, 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. 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, addressed security-related matters for the CAT, and worked towards the initiation of Participant reporting per the Participant Technical Specifications.
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.
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 the 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 (
• 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 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.
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 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 management 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 (
• 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.
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.
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.
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;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
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.
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.
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 (
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.
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”),
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.
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
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 draft 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.
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.
CAT LLC did not incur costs related to change requests during FAM Period 1.
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 timestamps; (2) implementation fees; and (3) license fees.
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.
• 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.
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.
Although insurance was in effect during FAM Period 1, CAT LLC did not incur costs related to insurance during FAM Period 1.
• 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 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.
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 (
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”),
By the completion of FAM Period 2, CAT LLC was required to implement the following with regard to the CAT:
(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.
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.
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.
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.
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.
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 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.
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.
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.
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.
• 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 (
• 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.
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.
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.
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.
• 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.
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 (
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”),
By the completion of FAM Period 3, CAT LLC was required to implement the following requirements with regard the CAT:
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.
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.
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.
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.
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.
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.
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.
• 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
• 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;
• Provided assistance with change requests;
• Provided guidance and regulatory support for litigation regarding the response to the 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.
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.
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 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.
The insurance costs of $1,582,714 represent the fees paid for insurance during 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.
The professional and administration costs of $595,923 represent the fees paid to Anchin and Grant Thornton for financial services during FAM Period 3.
• 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.
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 (
Historical CAT Costs 1 would not include three categories of CAT costs (“Excluded Costs”): (1) $14,749,362 of costs related to the termination of the relationship with the Initial Plan Processor; (2) $48,874,937, which are all CAT costs incurred from November 15, 2017 through November 15, 2018; and (3) $19,628,791, which are costs paid to the the Initial Plan Processor from November 16, 2018 through February 2019 when the relationship with the Initial Plan Processor was concluded. The Participants would remain responsible for 100% of these costs, which total $83,253,090. CAT LLC determined to exclude these Excluded Costs from Historical CAT Costs 1 because these costs relate to the delay in the start of reporting to the CAT and the conclusion of the relationship with the Initial Plan Processor.
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 the Initial Plan Processor, and the settlement costs related to the arbitration with the Initial Plan Processor. The Participants would remain responsible for 100% of these $14,749,362 in costs.
Second, Historical CAT Costs 1 would not include all CAT costs incurred from November 15, 2017 through November 15, 2018. CAT LLC determined to exclude all costs during 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.
The following provides additional detail regarding the Excluded Costs.
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.
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.
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.
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 (
• Assisted with cost and funding issues 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 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.
CAT LLC did not incur costs related to insurance during the period from November 15, 2017 through November 15, 2018.
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.
• 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.
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 engagment [
Third, Historical CAT Costs 1 would not include the $19,628,791 in costs paid to the Initial Plan Processor from November 16, 2018 through February 2019 when CAT LLC's relationship with the Initial Plan Processor concluded. CAT LLC determined that Historical CAT Costs 1 would not include any fees paid to the Initial Plan Processor after November 15, 2017,
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.
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.
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.
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.”
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
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.
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.
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.
The CAT NMS Plan further states that “Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs.”
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.
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.”
To implement Historical CAT Assessment 1, a new section would be added to the Exchange's fee schedule for “Consolidated Audit Trail Funding Fees”, and it would include the proposed paragraphs described below.
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.
Accordingly, based on the factors discussed above, the Exchange proposes to add paragraph A.1. to the Consolidated Audit Trail Funding Fees section of its fee schedule. Proposed paragraph A.1. would state the following:
a. Each CAT Executing Broker shall receive its first invoice for Historical CAT Assessment 1 in November 2024, which shall set forth the Historical CAT Assessment 1 fees calculated based on transactions in October 2024, and shall receive an invoice for Historical CAT Assessment 1 for each month thereafter in which Historical CAT Assessment 1 is in effect.
b. 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 $0.000013 per executed equivalent share.
c. Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (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.
d. Each CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph B.
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.
The proposed language in paragraph A.1.a. of the fee schedule 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 November 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 October 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 paragraph B.2. of the fee schedule.
Proposed paragraph A.1.a. of the fee schedule 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 November 2024, invoices will be sent to CAT Executing Brokers each month thereafter while Historical CAT Assessment 1 is in effect.
Proposed paragraph A.1.b. of the fee schedule would describe the invoices for Historical CAT Assessment 1. Proposed paragraph A.1.b. of the fee schedule 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.b. of the fee schedule 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 $0.000013 per executed equivalent share.”
Furthermore, proposed paragraph A.1.c. of the fee schedule 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 $212,039,879.34 (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 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.d. of the fee schedule 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 B.”
Paragraph B.1. to the “Consolidated Audit Trail Funding Fees” section of its fee schedule describes the manner of payment of Industry Member CAT fees. Paragraph B.1. states that “[e]ach CAT Executing Broker shall pay its CAT fees as required pursuant to paragraph A. each month to the Consolidated Audit Trail, LLC in the manner prescribed by the Consolidated Audit Trail, LLC.” The CAT NMS Plan requires the Operating Committee to establish a system for the collection of 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.
Accordingly, the Exchange previously has added this requirement to the Exchange's fee schedule. Specifically, paragraph B.2. of the fee schedule states:
Each CAT Executing Broker shall pay the CAT fees required pursuant to paragraph (a) within thirty 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.
The requirements of paragraph B.2. would apply to Historical CAT Assessment 1.
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.
Such information would provide CEBBs and CEBSs with the ability to understand the details regarding the calculation of their Historical CAT Assessment.
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
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.
To assist Industry Members with compliance with the commencement of Historical CAT Assessment 1, CAT LLC has been making available to CAT Executing Brokers mock invoices prior to the commencement of Historical CAT Assessment 1. Specifically, CAT Executing Brokers have received mock invoices based on transaction data each month since November 2023. The mock invoices are in the same form as the actual, payable invoices, including both the relevant transaction data and the corresponding fee. However, no payments have been required in response to such mock invoices; they have been used solely to assist CAT Executing Brokers with the development of their processes for paying the CAT fees. Such data has provided 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.
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.”
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”
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.
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: equites 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.
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
• 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 (
• 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.
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.' ”
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).
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:
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,
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.
• “Production Go-Live for Equities 2a Intrafirm Linkage validations” was completed on 7/27/2020;
• “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.
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.
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 remain [
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:
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
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,
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 (
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 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;
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 (
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
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.”
• “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.
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.
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.” The Exchange 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.
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.
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 remain [
As discussed above, CAT LLC has satisfied the Financial Accountability Milestones (“FAMs”) for Periods 1 through 3.
CAT LLC does not believe that the exemptive relief relating to the reporting of electronic responses for quotes (“RFQs”) that are not immediately actionable (“NIA Electronic RFQ Responses”) affect the conclusion that FAMs 1 through 3 have been satisfied. The only reason CAT LLC pursued this relief is because certain Industry Members introduced concerns that NIA Electronic RFQ Responses could be considered “orders” reportable pursuant to Rule 613(j)(8) and some Industry Members were not prepared to report such orders to CAT. Thus, the relief was requested on behalf of Industry Members. CAT LLC itself has not taken any position on whether NIA Electronic RFQ Responses are “orders,” as the definition of “order” is an SEC rule and the trading processes for NIA Electronic RFQ Responses are the Industry Members', not those of the Participants
Only “orders” as defined in SEC Rule 613(j)(8) are reportable to CAT. There is no agreement across the industry or among regulators as to whether NIA Electronic RFQ Responses are “orders” reportable to CAT. Certain Industry Members have raised the question as to whether NIA Electronic RFQ Responses are orders, but others have argued that they are not orders under Rule 613(j)(8).
As further discussed in the prior FIF letters, even if the Commission had the legal authority to require the reporting of NIA RFQ responses to CAT without an amendment to Rule 613, the Commission has not provided guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT. In subsequent discussions with industry members, Commission representatives have agreed that, prior to NIA RFQ responses being reportable to CAT, it would be necessary for the Commission to provide further guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT.
On May 20, 2024, the Commission granted CAT LLC's request for exemptive relief from certain CAT reporting requirements pertaining to NIA Electronic RFQ Responses to the extent such responses are considered “orders” reportable pursuant to Rule 613(j)(8).
When the Commission proposed the FAMs, the Participants expressed concern that, “by conditioning the ability of CAT LLC and the Participants to collect Post-Amendment Industry Member Fees on factors dependent on the efforts of Industry Members, the Commission's proposals inadvertently establish a perverse incentive for Industry Members to devote less than maximum efforts to comply with their obligations related to the CAT as they will pay less fees in such instances.”
CAT LLC does not believe that the Commission's May 19, 2023 order granting temporary exemptive relief relating to certain verbal floor activity and unstructured verbal and electronic upstairs activity (the “2023 Verbal Quotes Exemption”) affects the conclusion that FAMs 1 through 3 have been satisfied. The 2023 Verbal Quotes Exemption, which was issued on May 19, 2023, is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. The relevant exemption for this time period is the Commission's November 12, 2020 order, which granted relief for the same activity through July 31, 2023 (the “2020 Verbal Quotes Order”).
CAT LLC does not believe that the Commission's November 2, 2023 order granting relief from certain CAT NMS Plan requirements (the “November 2023 Order”) affects the conclusion that FAMs 1 through 3 have been satisfied. The November 2023 Order is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. As described in the November 2023 Order, the relevant exemptive orders for this time period were issued on December 16, 2020, which also states that “the Commission has determined that the Participants have sufficiently complied with the conditions set forth in the prior Orders and with the technical requirements for Quarterly Progress
CAT LLC also completed the requirements of FAM Period 2, including the required linkages, by December 31, 2020. Although Participant exchanges may report the Executing Broker to CAT differently in certain situations, these reporting differences are irrelevant for linkage purposes as the fields used for CAT Executing Broker are not used for linkage.
The CAT Funding Model approved by the Commission permits the recovery of reasonable costs in each of the categories of CAT costs sought to be recovered via Historical CAT Assessment 1.
CAT LLC believes that it is reasonable to seek recovery of costs incurred prior to when the CAT NMS Plan became effective in November 2016, such as legal and consulting fees incurred to create the CAT NMS Plan. Rule 613 specifically mandates that the CAT be created, implemented and maintained, and further provides that the CAT NMS Plan include a proposed allocation of estimated costs to fund the creation, implementation and maintenance of the CAT among the Participants (referred to as “plan sponsors”), and between the Participants and Industry Members (referred to as “members of the plan sponsors”).
Accordingly, the CAT NMS Plan specifically permits the recovery of costs, including legal and consulting costs, reasonably incurred prior to November 2016 in connection with the creation and implementation of the CAT.
Furthermore, the costs incurred to create and implement the CAT prior to the effective date of the CAT NMS Plan (“Pre-Formation Costs”) were reasonable both in scope and amount, in accordance with the requirements of Section 11.1(c) of the CAT NMS Plan. During the four-year period from 2012 to 2016, a total of $13,842,881 in Pre-Formation Costs were incurred. This is an average of approximately $3.5 million per year over this period. The Pre-Formation Costs fell into three categories: legal costs, consulting costs and public relations costs. This includes legal costs of $3,196,434; consulting costs of $10,589,273; and public relations costs of $57,174. The legal, consulting and public relations services were performed by WilmerHale, Deloitte and Peppercomm, respectively. The selection considerations and fees for these three firms are described in detail above and are described further below. The Pre-Formation Costs are direct costs of CAT, which have been funded entirely by the Participants through non-interest-bearing notes. The Pre-Formation Costs do not include the significant costs incurred by each of the individual Participants in responding to the adoption of Rule 613.
The Pre-Formation Costs are reasonable and appropriate as they reflect the extensive efforts that were necessary to create the CAT NMS Plan as mandated after the SEC's adoption of Rule 613. As described in more detail below, these efforts included, among other things, developing a plan for selecting the Plan Processor, soliciting and evaluating bids, engaging a diverse set of market participants and the SEC in the development of the Plan, interacting with the SEC in their oversight of the development of the Plan, and seeking appropriate exemptive relief to address areas of concern in Rule 613.
The Participants determined to utilize an RFP to ensure that potential alternative solutions for creating the Plan could be presented and considered, and that a detailed and meaningful cost-benefit analysis could be performed. The SEC supported the use of an RFP, and approved its use as it is described
In the context of the SEC's adoption of Rule 613, commenters urged the Commission to utilize an RFP process to assist in the planning and design of the NMS plan.
In this regard, several commenters suggested that the Commission undergo a RFP or request for information (“RFI”) process to create and implement a consolidated audit trail. Specifically, FIF urged the Commission to perform a RFP process “to determine the best technical solution for developing a consolidated audit trail.” FIF suggested that the Commission “should outline a set of goals and guiding principles they are striving to achieve as part of the adopted CAT filing and leave the determination of data elements and other technical requirements to [an] industry working group.” Similarly, Direct Edge suggested that Commission staff should form and engage in a working group to develop an RFP for publication by the Commission. DirectEdge explained that an RFP process would facilitate the identification of the costs and benefits of the audit trail, as well as the consideration of a wider range of technological solutions. Further, commenters, including Broadridge Financial Solutions, Inc., a technology provider, also requested more specific information about the audit trail system to better assess the Commission's initial cost estimates and to determine the best approach to the consolidated audit trail.
In response to these comments, the Commission modified Rule 613 to require the Participants to address certain important considerations regarding the features and details of the NMS plan and to extend the timeframe for submission of the CAT NMS Plan by the Participants from the 90 days as originally proposed to 270 days, in part, to accommodate a process that would address these considerations.
The SEC specifically recognized that the Participants planned to use an RFP when it approved the Selection Plan, and stated that the RFP was a reasonable approach.
On February 26, 2013, the Participants published an RFP soliciting bids from parties interested in serving as the plan processor for the CAT. Initially, 31 firms submitted intentions to bid. In the following months, the Participants engaged with potential bidders with respect to, among other things, the selection process, selection criteria, and potential bidders' questions and concerns. On March 21, 2014, the Participants received ten bids in response to the RFP.
On September 4, 2013, the Participants filed with the Commission a national market system plan to govern the process for Participant review of the bids submitted in response to the RFP, the procedures for evaluating the bids, and, ultimately, selection of the plan processor (the “Selection Plan”).
The Selection Plan divided the review and evaluation of bids, and the selection of the plan processor, into various stages. Specifically, pursuant to the Selection Plan, a selection committee reviewed all bids and determined which bids contained sufficient information to allow the Participants to meaningfully assess and evaluate the bids. The ten submitted bids were deemed “Qualified Bids,” and so passed to the next stage, in which each bidder presented its bids to the Participants on a confidential basis. On July 1, 2014, after conducting careful analysis and comparison of the bids, the Selection Committee voted and selected a shortlist of six eligible bidders. The Selection Committee determined which shortlisted bidders would be provided the opportunity to revise their bids. After the Selection Committee assessed and evaluated the revised bids, the Selection Committee selected the plan processor via two rounds of voting by the Participants, as described in the Selection Plan.
The Selection Plan established an Operating Committee responsible for formulating, drafting, and filing with the Commission the CAT NMS Plan and for ensuring that the Participants' joint obligations under Rule 613 were met in a timely and efficient manner. In formulating the CAT NMS Plan, the Participants also engaged multiple persons across a wide range of roles and expertise, engaged the consulting firm Deloitte as project manager, and engaged the law firm WilmerHale to serve as legal counsel in drafting the Plan. Within this structure, the Participants focused on, among other things, comparative analyses of the proposed technologies and operating models, development of funding models to support the building and operation of the CAT, and detailed review of governance considerations. Given the complexity and scope of developing the CAT NMS Plan, these efforts were extensive.
When it approved the CAT NMS Plan in 2016, the Commission reiterated its belief that the Selection Plan remains a “reasonable approach,” that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue”:
In approving the Selection Plan, the Commission stated that the Selection Plan is reasonably designed to achieve its objective of facilitating the development of the CAT
During the process of developing the CAT NMS Plan, the Participants engaged in extensive and meaningful dialogue with market participants and the SEC. To this end, the Participants created a website to update the public on the progress of the CAT NMS Plan, published a request for comment on multiple issues related to the Plan, held multiple public events to inform the industry of the progress of the CAT and to address inquiries, and formed, and later expanded, a DAG to solicit more input from a representative industry group.
The DAG included representatives of Participants and Industry Members and conducted meetings to discuss, among other things, technical and operational aspects the Participants were considering for the Plan. The Participants issued press releases soliciting participants for the DAG, and a wide spectrum of firms was deliberately chosen to provide insight from various industry segments affected by CAT. The DAG meetings included discussions of topics such as option market maker quote reporting, requirements for capturing Customer IDs, timestamps and clock synchronization, reporting requirements for order handling scenarios, costs and funding, error handling and corrections, and potential elimination of systems made redundant by the CAT. From the inception of the DAG through September 2014, the DAG participated in 36 meetings, as well as a variety of DAG subcommittee meetings.
Following multiple discussions between the Participants and both the DAG and the bidders, as well as among the Participants themselves, the Participants recognized that some provisions of Rule 613 would not permit certain solutions to be included in the Plan that the Participants, in coordination with the DAG, determined advisable to effectuate the most efficient and cost-effective CAT. Specifically, “the SROs reached the conclusion that additional flexibility in certain of the minimum requirements specified in Rule 613 would allow them to propose a more efficient and cost-effective approach without adversely affecting the reliability or accuracy of CAT Data, or its security and confidentiality.”
After reviewing the exemptive request, the Commission determined that it was appropriate in the public interest and consistent with the protection of investors to grant the requested exemptive relief.
The Commission further stated that the requested exemptive relief is consistent with the protection of investors. The Commission noted that:
Doing so will provide the public an opportunity to consider and comment on whether these proposed alternative approaches would indeed be more efficient and cost-effective than those otherwise required by Rule 613, and whether such approaches would adversely affect the reliability or accuracy of CAT Data or otherwise undermine the goals of Rule 613. Moreover, if—as the SROs represent—efficiency gains and cost savings would result from including the proposed approaches in the CAT NMS Plan without adverse effects, then the resultant benefits could potentially flow to investors (
The Participants incorporated the exemptive relief into the proposed CAT NMS Plan, which was noticed for comment, and the Commission ultimately approved the CAT NMS Plan with the more efficient and cost-effective alternative approaches described in the exemptive relief. Accordingly, the Participants believe that the costs incurred in developing the exemptive request were critical to the creation of a better CAT than was originally contemplated by Rule 613, and therefore should be recoverable as part of Historical CAT Assessment 1.
Rule 613(a)(1) under Regulation NMS required the Participants to jointly file the CAT NMS Plan on or before April 28, 2013, less than a year after the adoption of Rule 613. In recognition of the complexity of the project to create the CAT NMS Plan as well as industry interest in limiting or eliminating certain requirements of Rule 613 (
The SROs stated in their Request Letter that they do not believe that the 270-day time period provided for in Rule 613(a)(1) provides sufficient time for the development of the RFP, formulation and submission of bids, and review and evaluation of such bids. The SROs also stated that they believe additional time beyond the 270 days provided for in Rule 613(a)(1) is necessary in order to provide sufficient time for effective consultation with and input from the industry and the public on the proposed solution chosen by the SROs for the creation of the consolidated audit trail at the
In recognition of the need for additional time to refine the technical description of and requirements for the CAT and to allow for additional evaluation of the proposed cost and funding considerations, the SEC granted two extensions of this deadline.
This additional time to complete the RFP process should allow the SROs to engage in a more thoughtful and comprehensive process for the development of an NMS plan. In this regard, the Commission notes that the additional time to solicit comment from the industry and the public at certain key points in the development of the NMS plan could identify issues that can be resolved earlier in the development of the consolidated audit trail and prior to filing the NMS plan with the Commission.
After extensive analyses and discussions with the DAG, bidders, market participants and the SEC staff, the Participants finalized the draft of the CAT NMS Plan and filed the CAT NMS Plan with the SEC on September 30, 2014. Following additional discussions, the Participants filed several amendments to the CAT NMS Plan during 2015 and 2016. With these additional changes, the SEC published the CAT NMS Plan for notice and comment in May 2016.
The Pre-Formation Costs include legal costs of $3,196,434. The legal services were performed by WilmerHale. The selection considerations and fees for WilmerHale were described in detail above. Prior to the creation of CAT LLC, WilmerHale was engaged to represent the consortium of SROs, not the individual Participants. For administrative purposes, FINRA agreed to receive such legal bills, although such costs were shared among the Participants. Therefore, the legal costs incurred with respect to WilmerHale do not include legal costs incurred by the individual Participants. These pre-formation legal costs are described in detail above and are further described below:
• 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 DAG;
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on the 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 (
• Drafted exemptive requests;
• Provided interpretations related to the CAT NMS Plan;
• Provided support with regard to discussions among the exchanges, FINRA and other third parties, such as Deloitte;
• Provided tax advice with regard to CAT's status as a tax-exempt organization; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The Pre-Formation Costs include consulting costs of $10,589,273. The consulting services were performed by Deloitte. The selection considerations and fees for Deloitte were described in detail above. Prior to the creation of CAT LLC, for administrative purposes, Deloitte was engaged by FINRA to provide consulting services related to CAT, but the costs were shared by the consortium of SROs per agreement. Therefore, the consulting costs incurred with respect to Deloitte do not include consulting costs incurred by the individual Participants. The pre-formation consulting costs include the following:
• Established and implemented program operations for the CAT project, including the program management 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 Participants' independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, reviewing technical requirements of other NMS plans, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• 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 (
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided support for industry outreach sessions, including with regard to program design and agenda development, program support and logistics and coordination; and
• Provided support in fact finding, drafting content and meeting coordination for WilmerHale with regard to the CAT and the development of the CAT NMS Plan.
Such Pre-Formation Costs did not include costs related to the Chair of the CAT NMS Plan Operating Committee, as the CAT NMS Plan had not yet been adopted.
The Pre-Formation Costs include public relations costs of $57,174. The public relations services were performed by Peppercomm. The selection considerations and fees for Peppercomm are described in detail above. The costs related to Peppercomm were shared among the SROs. Therefore, the public relations costs do not include public relations costs incurred by the individual Participants. The pre-formation public relations costs include services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs related to cloud hosting services as a part of Historical CAT Assessments. CAT LLC believes that the costs related to cloud hosting services described in detail above are reasonable and appropriate given the strict data processing timelines and storage requirements imposed by the Commission-approved CAT NMS Plan and should be recoverable as a part of Historical CAT Assessment 1.
CAT LLC believes that the costs for the cloud hosting services are reasonable, both in terms of the level of the fees paid by CAT LLC for cloud hosting services provided by AWS and the scope of the services performed by AWS for CAT LLC. CAT LLC believes that both the scope and amount of the costs for cloud hosting services are reasonable given the current requirements of the CAT NMS Plan adopted pursuant to Rule 613, including the strict data processing timeline, storage and other technical requirements under the Commission-approved CAT NMS Plan.
CAT LLC believes that the level of fees for the cloud hosting services is 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.
CAT LLC also believes that the scope of services provided by AWS for the CAT are appropriate given the current requirements of the Commission-approved CAT NMS Plan. As described above, the cloud hosting services costs reflect a variety of factors including, among other things:
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In addition, various requirements of the CAT NMS Plan adopted pursuant to Rule 613 contribute to the significant cloud hosting services costs, and that various Plan requirements could be amended or removed without affecting the regulatory purpose of the CAT. Indeed, CAT LLC has repeatedly sought exemptive relief and filed amendments to the CAT NMS Plan, and has even filed suit against the Commission, to seek to revise or eliminate certain costly requirements related to the CAT. However, despite these efforts, absent the Commission granting exemptive relief or approving cost savings amendments to the CAT NMS Plan, CAT LLC, the Participants and Industry Members are all required to comply with such requirements.
CAT is reasonably designed to efficiently and effectively utilize cloud computing and storage services, given the requirements of the Commission-approved CAT NMS Plan, including requirements related to security, operational reliance and quality assurance, and maintainability.
The Plan Processor uses state-of-the-art software that meets the strict security standards of the CAT NMS Plan. CAT utilizes a big data processing framework that is extensively used by large data processing companies, such as Apple, Meta, Netflix, IBM and Google. As such, it has substantial commercial support and support in the open-source community. It is also well suited for use with regard to iterative types of algorithms and query functions and analytics that the CAT requires, and it provides the heightened security necessary for the CAT.
The development and implementation of the design of CAT is not and has not been static. CAT LLC and the Plan Processor are always evaluating new innovations and service offerings from AWS and other providers to seek to maximize efficiency and cost avoidance while still satisfying the requirements of the CAT NMS Plan. These efforts have led to substantial savings to date. The cloud hosting costs for 2023 were less than the cloud hosting costs for 2022 by $8 million despite processing seven trillion more events in 2023 due to the efficiency and cost avoidance efforts for cloud hosting services. For example, when AWS introduced new storage options, FCAT adopted the cost-efficient new storage option after establishing that the new offering would satisfy the security and other standards of the CAT NMS Plan. This change led to millions of dollars of savings in storage costs. Similarly, when AWS introduced a new compute processor, FCAT adopted this new compute processor, which lead to millions of dollars in savings in compute costs. However, in other cases, new cloud technology developments could not be implemented in CAT because they would not satisfy the security or other requirements of the CAT NMS Plan.
When evaluating the design of the CAT, it must be kept in mind that the CAT is not a typical commercial technology project. The ability to make use of technology approaches that may lead to cost avoidance is also subject to the restrictive requirements of the CAT NMS Plan, such as processing timeframes, requirements for retention of data versions, query requirements,
The CAT System also was designed to minimize the extent to which Industry Members would need to alter their systems to report to CAT. During the design process, Industry Member groups argued that it would make more sense financially for the CAT to accommodate differences in industry systems, than for all Industry Members to change their systems. Moreover, such design choices would facilitate consistency, uniformity and accuracy in reporting. Requiring the CAT to make such accommodations may increase CAT costs while accommodating CAT Reporters.
Based on the requirements in the CAT NMS Plan and/or in response to industry requests for functionality to be embedded with the Plan Processor to streamline or limit Industry Member system changes, the CAT has been designed to limit the effect on Industry Members. The following provides examples of such accommodations:
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To be clear, if OATS-like error correction tools are not made available on Day 1, hundreds of firms will be required to create and test their own tools or obtain vendor alternatives prior to the CAT Go-Live Date. Proprietary tools will require additional system builds, access to and ingestion of CAT data to perform system validation, and testing which will further stress the limited number of subject matter experts (“SMEs”) dedicated to the implementation of CAT reporting. Should this occur, inevitably firms (especially small firms who lack the necessary IT staff to write code and develop proprietary systems), may be put in the position of passing onto investors the cost required to build hundreds of redundant systems.
CAT provides various tools to help Industry Members identify and rectify errors.
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FIF CAT WG is not proposing a specific format; rather, we are proposing flexibility of input formats which includes support of existing formats (
Mandating a uniform format for reporting data to the CAT simplifies the task for the Central Repository of consolidating/storing data, but it puts the burden on each CAT Reporter to accurately translate their current (
CAT provides such a flexible input format.
The costs for cloud hosting services are appropriate and have not been adversely affected by the original design and approaches of the Initial Plan Processor. FCAT's design costs are the result of the requirements of the Commission-approved CAT NMS Plan.
When FCAT took over as the Plan Processor from Thesys, it utilized certain aspects of the technical specifications created by Thesys in its design. However, FCAT has not maintained aspects of the original design that would not be appropriate for the CAT. FCAT revised and enhanced the original technical specifications of the CAT System to increase its efficiency and efficacy, and to ensure its compliance with the CAT NMS Plan. For example, the Initial Plan Processor's approach utilized many more fields than FCAT's approach, which relies on additional linkages. With the additional linkages, the CAT System takes on more of the CAT-related burdens than the Industry Members. Such an approach serves to facilitate consistency, uniformity and accuracy in reporting.
Moreover, FCAT did not utilize the system built by the Initial Plan Processor; it rebuilt the CAT System based on revised technical specifications. For example, the Initial Plan Processor used an on-premises processing approach which was not
Furthermore, given the very short timeframe to develop the CAT System and the prior optimization of certain query tools (
CAT LLC continues to support the selection of AWS as the cloud hosting services provider for CAT given the compliance, operational, and security requirements of the CAT. Independent analyses confirm these conclusions, noting that “AWS is an excellent choice for either strategic or tactical use and recommends considering AWS for almost all cloud IaaS or IaaS+PaaS scenarios.”
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In addition, the nature of the CAT, including the amount of data it must process and the size of its data footprint, does not allow for a multi-cloud solution as this would be cost prohibitive and greatly increase the security boundary and associated risk profile of the CAT. For example, a multi-cloud hosting option would increase costs, complexity, and risk for operations with regard to, for example, DevOps, production support, and networking. Similarly, with regard to security, a multi-cloud solution would increase risk, including with regard to the need for data transfers between cloud providers and the expansion of the security boundary. With regard to labor, a multi-cloud solution would lose economies of scale due to the need to support unique cloud requirements. Accordingly, the use of single-cloud solution continues to provide advantages with regard to cost, complexity, and risk. Indeed, “[t]he best practice is to focus on a single primary strategic provider.”
Furthermore, if another cloud service provider were determined to be a better match for the CAT at some future date, switching cloud service providers would be a very significant, expensive and time-consuming effort. Such an effort would likely be a 10-to-15-year commitment at a substantial expense. Such a move would require the replication or redesign of the underlying cloud environments (
CAT LLC believes that the recovery of costs related to the development of the funding model is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
Funding the CAT is a critical aspect of Rule 613 and the CAT NMS Plan. Article XI of the CAT NMS Plan describes in detail the requirements for funding the CAT, and the Participants are required to comply with and enforce compliance with the funding requirements of the CAT NMS Plan, just as with other aspects of the Plan. Accordingly, the development and implementation of a funding model for the CAT is as much a part of the requirements of the CAT NMS Plan as the development and operation of the CAT System. CAT LLC sees no reason to distinguish the efforts to develop a funding model from, for example, efforts to develop the CAT System, in seeking to recover reasonable CAT costs.
Moreover, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . legal costs.”
In addition, the legal costs incurred for the assistance in developing the CAT Funding Model are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at negotiated rates for such services that reflect both the extent of the services and market rates. Moreover, the scope of the legal costs associated with the development of the funding model reflect the complexity of the task in satisfying the detailed requirements of the CAT NMS Plan, the standards of the Exchange Act, and the many perspectives of the different market constituents potentially affected by or interested in the funding model, including Industry Members, Participants and investors. The many and varied comments by market participants on CAT funding over the years demonstrate the complexity of the task.
CAT LLC believes that the recovery of legal costs related to the litigation with the SEC regarding the CAT NMS Plan is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that
The conditional exemptive relief in this Order allows for the implementation of alternative regulatory solutions that continue to advance the regulatory goals that Rule 613 and the CAT NMS Plan were intended to promote, while reducing the implementation and operational costs, burdens, and/or difficulties that would otherwise be incurred by the Participants and Industry Members that must fund the CAT.
CAT LLC believes it is reasonable and appropriate to incur costs to limit the need to incur even greater costs due to certain interpretations of the Plan.
In addition, the legal costs incurred during the litigation are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at market rates for such services. As such, the legal costs related to this litigation incurred during the period covered by Historical CAT Assessment 1 were reasonable.
Finally, Industry Members will directly benefit from the result of the litigation because it has addressed CAT NMS Plan requirements that would have imposed significantly greater costs on the CAT. Accordingly, it is reasonable and appropriate that the costs of such litigation be included in the Historical CAT Costs 1.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017, which was the date by which Participants were required to begin reporting to the CAT, due to the delay in the commencement of reporting to the CAT. As discussed above, the Participants determined to exclude all CAT costs incurred from November 15, 2017 through November 15, 2018, which includes $37,852,083 in Thesys costs incurred from November 15, 2017 through November 15, 2018 (as well as other CAT costs during this period). The remaining Thesys costs incurred after November 15, 2018 are the $19,628,791 in capitalized developed technology costs for the period from November 16, 2018 through February 2019 incurred in the development of the CAT by the Initial Plan Processor, as well as a transition fee for the transition from the Initial Plan Processor to the successor Plan Processor. The Participants would remain responsible for 100% of these $19,628,791 in costs.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017. CAT LLC notes that the development and implementation of the CAT System, while unprecedented in scope and design, is like any other large and innovative technology project in that, inevitably, there were adjustments and refinements in the technical approach as the project developed, even with substantial planning efforts and oversight prior to the build. This is even more likely when the project faces a very tight implementation schedule, such as the one imposed by the Commission in Rule 613 and the CAT NMS Plan. However, an adjusted approach does not mean that the funds were not valid expenditures and should not be recovered.
The reasonableness of Thesys costs should be evaluated by the Commission as of the time they were incurred, not in hindsight. As detailed above, the Commission concluded in 2016 that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue.”
As noted in the CAT Funding Model Approval Order, “[i]n Rule 613, the Commission made the determination that the costs of the CAT should be shared by the Participants and Industry Members.”
CAT LLC believes that the recovery of CAIS-related costs is appropriate, and that the amount and scope of such costs, as described above, are reasonable, and that the reasonableness of historical costs should be evaluated by the Commission as of the time they were incurred, not in hindsight.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable CAIS operating costs as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . CAIS operating fees.”
In addition, CAT LLC determined that the CAIS operating fees described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The “CAIS Operating Costs” for Historical CAT Assessment 1 total
During the period covered by Historical CAT Assessment 1, the CAIS operating costs included costs related to the acceleration of the reporting of LTIDs earlier than originally contemplated during this period at the request of the SEC and in accordance with exemptive relief granted by the SEC.
• After FCAT developed the LTID Technical Specifications, the LTID Technical Specifications were published on January 31, 2020, with additional updates provided to the LTID Technical Specifications through April 2021.
• The LTID account information testing environment opened on August 24, 2020.
• The LTID account information reporting production environment opened on December 14, 2020.
• CAT Reporters were required to request their production readiness certification for account information related to LTIDs by the deadline of April 9, 2021.
• The LTID account information reporting for Phases 2a, 2b and 2c for Large Industry Members went live on April 26, 2021.
• The LTID account information reporting for Phases 2d for Large Industry Members went live on December 13, 2021.
• The LTID account information reporting for Phases 2a, 2b, 2c and 2d for Small Industry Members went live on April 26, 2021.
Throughout this project, FCAT and CAT LLC worked closely with the industry on LTID and CAIS reporting. Between December 2019 and December 2021, at least 57 checkpoint calls, webinars, and technical working group meetings with industry representatives were hosted to address issues and to educate CAT Reporters regarding LTID and CAIS reporting.
The LTID reporting project was successfully completed in a timely fashion, and the fees related to the project were reasonable. Accordingly, CAT LLC appropriately seeks to recover such costs via Historical CAT Assessment 1.
During the period covered by Historical CAT Assessment 1, FCAT began the development of the full CAIS Technical Specifications and the building of CAIS. The CAIS Technical Specifications were developed during this period as follows:
• Iterative drafts of the CAIS Technical Specifications were published on June 30, 2020, December 1, 2020, and January 1, 2021.
• The full, final CAIS Technical Specifications were published on January 29, 2021.
• Updated versions of the CAIS Technical Specifications were published throughout 2021.
As discussed above, FCAT and CAT LLC frequently engaged with the industry regarding the development of CAIS, hosting regular checkpoint calls, webinars, and technical working group meetings with industry representatives to address any issues, including addressing the interplay between Industry Members' existing customer systems and CAIS, and to educate CAT Reporters regarding LTID and CAIS reporting. Such engagement was critical to the CAIS development process as the CAIS project was unprecedented in terms of its content, scope and complexity.
During this period, FCAT also commenced the building of the CAIS system in accordance with the CAIS Technical Specifications during the period covered by Historical CAT Assessment 1. The CAIS system was ready for industry testing shortly after the end of this period in January 2022.
The CAIS Technical Specifications and the CAIS system, as developed during this period, continue to be in use today. Industry Members have been required to report, and have continuously reported, required data to CAIS on a daily basis since November 7, 2022, consistent with interim reporting obligations. The CAIS system accepts and validates the CAIS data submitted by Industry Members and provides Industry Members with initial feedback on data errors. In light of the unprecedented nature of the CAIS system, certain changes to the system, such as changes related to error corrections and the CAIS regulatory portal, were necessary to finalize CAIS reporting. FCAT worked to address these remaining issues,
CAT LLC believes that the recovery of public relations costs is appropriate and that the amount and scope of such costs, as described above, are reasonable.
The Commission has long recognized that external public relations costs are reasonably associated with creating, implementing and maintaining the CAT. In the CAT NMS Plan Approval Order, the Commission estimated that the Participants had collectively spent approximately $2,400,000 in preparation of the CAT NMS Plan on external public relations, legal, and consulting costs, and estimated that the Participants would continue to incur external public relations costs associated with maintaining the CAT upon approval of the CAT NMS Plan.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for public relations services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . .
In addition, CAT LLC determined that the public relations costs described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The services performed by the public relations firms through 2021 were limited in scope to assist CAT LLC, which has no employees of its own, to be better positioned to understand and address CAT matters to the benefit of all market participants and to communicate on important CAT topics with the public. In addition, the costs for these services were appropriately limited. During the 10-year period covered by Historical CAT Assessment 1, the average cost per year for these services was approximately $36,000.
CAT LLC believes that the recovery of legal costs related to the limitation of liability provision, including costs related to the proceedings before the SEC and costs related to the proposed amendment to the Consolidated Audit Trail Reporter Agreement and the Consolidated Audit Trail Reporting Agent Agreement (the “Reporting Agreements”) is appropriate and that the amount and scope of such costs as described above are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
Moreover, it is critical that CAT LLC, which has no employees of its own, have the ability to fund a legal defense in litigation and other legal proceedings against it. In response to CAT LLC requiring Industry Members to agree to the limitation of liability provision to submit data to the CAT, SIFMA filed an application for review of actions taken by CAT LLC and the Participants pursuant to Sections 19(d) and 19(f) of the Exchange Act. Contemporaneously with the filing of this proceeding, SIFMA moved for a stay of the requirement that Industry Members sign a Reporter Agreement, or in the alternative, asked the Commission to further delay the launch of CAT reporting on June 22, 2020. CAT LLC must have the resources to defend itself from litigious actions by others, like these.
Although a limitation of liability provision ultimately was not adopted as proposed, it was a reasonable provision to propose for the CAT Reporter Agreements, given that such provisions are in accordance with industry norms. Limitations of liability are ubiquitous within the securities industry and have long governed the economic relationships between self-regulatory organizations and the entities that they regulate. For example, U.S. securities exchanges have adopted rules to limit their liability for losses that Industry Members incur through their use of exchange facilities.
Furthermore, as described above, the specialized services were performed by experienced counsel at market rates for such services. Accordingly, the legal costs for the efforts related to the limitation of liability provision were reasonable.
CAT LLC believes that the recovery of consulting costs related to the Chair of the CAT Operating Committee is appropriate and that the amount and scope of such costs are reasonable.
As a preliminary matter, the selection of the Chair of the Operating Committee complies with the requirements of Section 4.2 of the CAT NMS Plan. The initial Chair that served during the period covered by Historical CAT Assessment was designated by a Participant as the Participant's alternate voting member. Accordingly, the Chair is a representative of the Participants, as required by the CAT NMS Plan.
In addition, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for consulting as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . consulting . . . ” costs.
The Participants determined that the position of the Chair was a critical role for the implementation of the CAT, and an independent Chair would appropriately consider and address the views of each of the Participants. The Participants also determined that it was important to have a Chair with a strong background regarding issues related to the regulatory obligations of self-regulatory organizations, including their obligations under national market system plans. The compensation paid to the Chair is appropriate for a person with such background and skills. The average annual amount paid to the Chair from 2017 through the end of FAM 3 was $292,733.30. Separate from the Chair, CAT LLC relies upon a Leadership Team of representatives of the SROs to oversee the day-to-day implementation of the CAT NMS Plan. CAT LLC does not compensate any member of the Leadership Team.
CAT LLC understands that there are three types of reconciliation processes related to the invoices:
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As discussed further below, CAT LLC only considers the first type of process to be a “reconciliation” and the only type of process that is required under the CAT NMS Plan. CAT LLC provides the means to reconcile the CAT invoice amount to the underlying trades provided by CAT.
The CAT NMS Plan does not require CAT LLC to facilitate the second type of process: matching underlying trades for a CAT invoice with a firm's internal books and records. CAT LLC has access only to the underlying trades provided by CAT; it does not have access to a firm's internal books and records. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
The CAT NMS Plan also does not require CAT LLC to provide the ability to identify the order originator for the underlying trades for the CAT invoices. Accordingly, the billing guidance and processes do not provide CAT Reporters with the ability to identify the order originator for the underlying trades provided by CAT with CAT invoices. CAT LLC has been working closely with CAT Reporters to explain its billing approach and to address any outstanding billing questions. But, it should not be lost that CAT LLC provides information sufficient to allow CAT Reporters to reconcile CAT invoice amounts with the underlying trades provided by CAT LLC.
The CAT NMS Plan does not require CAT LLC to facilitate the matching of underlying trades for a CAT invoice with a firm's internal books and records, which may consist of trading data from various sources external to CAT. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
In this regard, it is important to recognize that CAT LLC has developed a billing approach that greatly improves upon existing billing practices for similar regulatory fees (
To facilitate the introduction of CAT fees, CAT LLC has worked with FCAT to develop an approach to CAT billing that is consistent with existing billing constructs used with regard to Section 31-related sales values fees, subject to certain enhancements. Under this billing approach, FCAT is providing additional linkage elements, not necessarily provided in the Section 31-sales value fee context, to facilitate CAT Reporters' ability to match the underlying trades provided by CAT with their internal books and records and to reduce the complexity of that process. Specifically, FCAT is providing various key elements of the trade itself, such as the tradeID and branch sequence,
With the Additional Trade Details, CAT LLC and FCAT believe that the overwhelming majority of underlying trades provided by CAT bills can be matched with a CAT Reporter's internal books and records. CAT LLC recognizes that there may be certain cases in which such matching is more difficult given various firm-specific considerations, but believes that such instances are significantly more limited than with regard to the SRO fees charged in relation to Section 31.
Similar to other regulatory fees, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Accordingly, Historical CAT Assessment 1 does not address the process by which any CAT Reporters may pass through the fee to their customers. Likewise, the CAT billing approach provided by the Plan Processor is designed to address the needs of CAT Reporters with regard to the reconciliation of CAT invoices with the underlying trades provided by CAT LLC with the invoices; they are not designed to address issues related to any pass-through fees. Accordingly, facilitating CAT Reporters' ability to pass through fees to their clients is outside the scope of this fee filing. Nevertheless, as described below, CAT LLC and the Plan Processor have expended significant efforts to provide
In its approval of the CAT Funding Model, the Commission approved charging CAT fees to the CAT Executing Broker, rather than the originating broker. This fee filing must comply with the requirements of the CAT Funding Model, and, therefore, charges the Historical CAT Assessment 1 to CAT Executing Brokers.
Moreover, charging originating brokers would introduce significant complexity to the billing process from the CAT's perspective, and would increase the costs of implementing CAT fees. Charging the CAT Executing Broker is simple and straightforward, and leverages a one-to-one relationship between billable events (trades) and billable parties, similar to other transaction-based fees. In contrast, for a single trade event, there may be many originating brokers, and each trade must be broken down on a pro-rata basis, to account for one or more layers of aggregation, disaggregation, and representation of the underlying orders. While CAT is indeed designed to capture and unwind complex aggregation scenarios, the data and linkages are structured to facilitate regulatory use, and not a billing mechanism that assesses fees on a distinct set of executed trades; it is not simply a matter of using existing CAT linkages. Furthermore, charging originating brokers would implicate issues related to lifecycle linkage rates, and issues related to corrections, cancellations and allocations, while charging CAT Executing Brokers would avoid such issues.
As noted, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT Fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Nevertheless, the Additional Trade Details provided with regard to the underlying trades on CAT invoices may assist with this process. Like with Section 31-related sales value fees, however, it is not always possible to trace every fee on a transaction back to the originating party. Industry Members have faced these issues under Section 31-related sales values fees for many years.
CAT LLC has worked with FCAT to provide significant technical assistance to Industry Members to allow the Industry Members to understand how Historical CAT Assessment 1 will be implemented and billed, including webinars, CAT alerts, mock invoices, and responses to questions posed to the FCAT Help Desk.
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By providing such detailed and sustained assistance to Industry Members regarding CAT fees and billing, CAT LLC has successfully addressed questions raised by Industry Members regarding the CAT fees and billing processes.
CAT LLC has provided Industry Members with ample time to comply with the implementation of Historical CAT Assessment 1. CAT LLC originally proposed issuing the first invoices for Historical CAT Assessment 1 in December 2023 based on transactions in Eligible Securities in November 2023. In consideration of the feedback about the need for additional time to implement the new fee, CAT LLC pushed back this timeline by four months, proposing to issue the first Historical CAT Assessment 1 in April 2024 based on transactions in March 2024.
The Exchange believes the proposed rule change is consistent with the requirements of the Exchange Act. The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,
The Exchange believes that this proposal is consistent with the Act because it implements provisions of the Plan and is designed to assist the Exchange 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.”
The Exchange believes that the proposed fees paid by the CEBBs and CEBSs are reasonable, equitably allocated and not unfairly discriminatory. First, the Historical CAT Assessment 1 fees to be collected are directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to technology, legal, consulting, insurance, professional and administration, and public relations costs. The Exchange has already incurred such development and implementation costs and the proposed Historical CAT Assessment 1 fees, therefore, would allow the Exchange 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 and not to support the Exchange's business operations. The proposed fees would not cover Exchange services unrelated to the CAT. In addition, any surplus would be used as a reserve to offset future fees. Given the direct relationship between CAT fees and CAT costs, the Exchange believes that the proposed fees are reasonable, equitable and not unfairly discriminatory.
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. The Exchange believes that the proposed fees adopted pursuant to the CAT
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, the Exchange has filed this fee filing to implement the Industry Member CAT fees included in the CAT Funding Model. The Exchange 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 the Exchange 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.”
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.
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:
In accordance with this requirement, the Exchange 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, the Exchange 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.
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.
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
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 (
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.
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.
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.
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.
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.
These costs involve the activity of both the Initial Plan Processor and FCAT, as the successor Plan Processor.
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.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover consulting costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover insurance costs as a part of Historical CAT Assessments.
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.
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.
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 balanace of these considerations.
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.
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.
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.
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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.
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.
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, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
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.
The Exchange believes that imposing Historical CAT Assessment 1 with a fee rate of $0.000013 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, the Exchange 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 (
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.
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.
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.
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, the Exchange 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 the fee schedule. The Exchange 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 Exchange members to reasonably predict their payment obligations for budgeting purposes.
Section 6(b)(8) of the Act
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.
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.
No written comments were either solicited or received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Exchange Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of 1934 (the “Act”)
Cboe EDGX Exchange, Inc. (the “Exchange” or “Cboe EDGX”) proposes to amend its fee schedule entitled “Consolidated Audit Trail Funding Fees”
The text of the proposed rule change is also available on the Exchange's website (
In its filing with the Commission, the Exchange 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 IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
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.
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).
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').”
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.
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. 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.' ”
The Exchange previously filed a fee filing to implement Historical CAT Assessment 1. On January 17, 2024, the SEC published this prior filing for Historical CAT Assessment 1, temporarily suspended the fee filing, and instituted proceedings to determine whether to approve or disapprove the fee filing.
Historical CAT Assessment 1 will be charged to each CEBB and CEBS for each applicable transaction in Eligible Securities.
(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.
The following
In addition, the following fields of the Participant Technical Specifications would indicate the CAT Executing Brokers for the transactions executed otherwise than on an exchange:
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 $0.00003994969693072937 per executed equivalent share. This rate is then divided by three and rounded to determine the fee rate of $0.000013 per executed equivalent share that will be assessed to CEBBs and CEBSs, as also discussed in detail below.
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 (
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.”
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.”
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 $124,290,730. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($41,430,243.33), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third ($41,430,243.33). 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.
The Pre-FAM
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, 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 [
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,”
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 (
FCAT was selected to assume the role of the successor Plan Processor. Prior to this selection, the Participants engaged in discussions with two prior Bidders
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.
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.
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;
• 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, the 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;
• 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.
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 originally adopted.
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 change 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.
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 $51,847,150 relate to technology provided by the Initial Plan Processor and the successor Plan Processor.
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.
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 January 30, 2019, 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. 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, addressed security-related matters for the CAT, and worked towards the initiation of Participant reporting per the Participant Technical Specifications.
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.
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 the 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 (
• 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 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.
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 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 [
• 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 (
• 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.
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
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.
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;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
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.
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.
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
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.
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”),
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.
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
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.
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 draft 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.
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.
CAT LLC did not incur costs related to change requests during FAM Period 1.
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 timestamps; (2) implementation fees; and (3) license fees.
The legal costs of $481,687 represent the fees paid for legal services provided
• 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.
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.
Although insurance was in effect during FAM Period 1, CAT LLC did not incur costs related to insurance during FAM Period 1.
• 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 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.
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 (
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”),
By the
(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.
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.
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.
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.
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.
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 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.
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.
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.
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.
• 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 (
• 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.
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.
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.
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.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
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”),
By the completion of FAM Period 3, CAT LLC was required to implement the following requirements with regard the CAT:
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.
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.
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.
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.
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.
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.
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.
• 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
• 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 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;
• Provided assistance with change requests;
• Provided guidance and regulatory support for litigation regarding the response to the 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.
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.
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 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.
The insurance costs of $1,582,714 represent the fees paid for insurance during 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.
The professional and administration costs of $595,923 represent the fees paid to Anchin and Grant Thornton for financial services during FAM Period 3.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
Historical CAT Costs 1 would not include three categories of CAT costs (“Excluded Costs”): (1) $14,749,362 of costs related to the termination of the relationship with the Initial Plan Processor; (2) $48,874,937, which are all CAT costs incurred from November 15, 2017 through November 15, 2018; and (3) $19,628,791, which are costs paid to the the Initial Plan Processor from November 16, 2018 through February 2019 when the relationship with the Initial Plan Processor was concluded. The Participants would remain responsible for 100% of these costs, which total $83,253,090. CAT LLC determined to exclude these Excluded Costs from Historical CAT Costs 1 because these costs relate to the delay in the start of reporting to the CAT and the conclusion of the relationship with the Initial Plan Processor.
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 the Initial Plan Processor, and the settlement costs related to the arbitration with the Initial Plan Processor. The Participants would remain responsible for 100% of these $14,749,362 in costs.
Second, Historical CAT Costs 1 would not include all CAT costs incurred from November 15, 2017 through November 15, 2018. CAT LLC determined to exclude all costs during 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.
The following provides additional detail regarding the Excluded Costs.
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.
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.
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.
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 (
• Assisted with cost and funding issues 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 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.
CAT LLC did not incur costs related to insurance during the period from November 15, 2017 through November 15, 2018.
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.
• 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.
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 engagment [
Third, Historical CAT Costs 1 would not include the $19,628,791 in costs paid to the Initial Plan Processor from November 16, 2018 through February 2019 when CAT LLC's relationship with the Initial Plan Processor concluded. CAT LLC determined that Historical CAT Costs 1 would not include any fees paid to the Initial Plan Processor after November 15, 2017,
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.
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.
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.
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.”
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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
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.
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.
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.
The CAT NMS Plan further states that “Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs.”
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.
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.”
To implement Historical CAT Assessment 1, a new section would be added to the Exchange's fee schedule for “Consolidated Audit Trail Funding Fees”, and it would include the proposed paragraphs described below.
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.
Accordingly, based on the factors discussed above, the Exchange proposes to add paragraph (a)(1) to the Consolidated Audit Trail Funding Fees section of its fee schedule. Proposed paragraph (a)(1) would state the following:
(A) Each CAT Executing Broker shall receive its first invoice for Historical CAT Assessment 1 in November 2024, which shall set forth the Historical CAT Assessment 1 fees calculated based on transactions in October 2024, and shall receive an invoice for Historical CAT Assessment 1 for each month thereafter in which Historical CAT Assessment 1 is in effect.
(B) 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 $0.000013 per executed equivalent share.
(C) Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (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.
(D) Each CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).
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.
The proposed language in paragraph (a)(1)(A) of the fee schedule 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 November 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 October 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 paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(1)(A) of the fee schedule 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 November 2024, invoices will be sent to CAT Executing Brokers each month thereafter while Historical CAT Assessment 1 is in effect.
Proposed paragraph (a)(1)(B) of the fee schedule would describe the invoices for Historical CAT Assessment 1. Proposed paragraph (a)(1)(B) of the fee schedule 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)(B) of the fee schedule 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 $0.000013 per executed equivalent share.”
Furthermore, proposed paragraph (a)(1)(C) of the fee schedule 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 $212,039,879.34 (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 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)(D) of the fee schedule 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 (b).”
Paragraph (b)(1) to the “Consolidated Audit Trail Funding Fees” section of its fee schedule describes the manner of payment of Industry Member CAT fees. Paragraph (b)(1) states that “[e]ach CAT Executing Broker shall pay its CAT fees as required pursuant to paragraph (a) each month to the Consolidated Audit Trail, LLC in the manner prescribed by the Consolidated Audit Trail, LLC.” The CAT NMS Plan requires the Operating Committee to establish a system for the collection of 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.
Accordingly, the Exchange previously has added this requirement to the Exchange's fee schedule. Specifically, paragraph (b)(2) of the fee schedule states:
Each CAT Executing Broker shall pay the CAT fees required pursuant to paragraph (a) within thirty 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
The requirements of paragraph (b)(2) would apply to Historical CAT Assessment 1.
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.
Such information would provide CEBBs and CEBSs with the ability to understand the details regarding the calculation of their Historical CAT Assessment.
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.”
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.
To assist Industry Members with compliance with the commencement of Historical CAT Assessment 1, CAT LLC has been making available to CAT Executing Brokers mock invoices prior to the commencement of Historical CAT Assessment 1. Specifically, CAT Executing Brokers have received mock invoices based on transaction data each month since November 2023. The mock invoices are in the same form as the actual, payable invoices, including both the relevant transaction data and the corresponding fee. However, no payments have been required in response to such mock invoices; they have been used solely to assist CAT Executing Brokers with the development of their processes for paying the CAT fees. Such data has provided 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.
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.”
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”
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.
Under the FAM Period 1 requirement of Initial Industry Member Core Equity and Options Reporting, Industry
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.' ”
• 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 (
• 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.
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.' ”
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).
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:
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,
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.
• “Production Go-Live for Equities 2a Intrafirm Linkage validations” was completed on 7/27/2020;
• “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.
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.
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 remain [
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:
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,
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,
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 (
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 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;
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
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 (
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.”
• “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.
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.
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.” The Exchange 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.
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.
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 remain [
As discussed above, CAT LLC has satisfied the Financial Accountability Milestones (“FAMs”) for Periods 1
CAT LLC does not believe that the exemptive relief relating to the reporting of electronic responses for quotes (“RFQs”) that are not immediately actionable (“NIA Electronic RFQ Responses”) affect the conclusion that FAMs 1 through 3 have been satisfied. The only reason CAT LLC pursued this relief is because certain Industry Members introduced concerns that NIA Electronic RFQ Responses could be considered “orders” reportable pursuant to Rule 613(j)(8) and some Industry Members were not prepared to report such orders to CAT. Thus, the relief was requested on behalf of Industry Members. CAT LLC itself has not taken any position on whether NIA Electronic RFQ Responses are “orders,” as the definition of “order” is an SEC rule and the trading processes for NIA Electronic RFQ Responses are the Industry Members', not those of the Participants or CAT LLC. Accordingly, CAT LLC stated in its letter that “Industry Members must determine whether trading interest falls within the definition of an `order' for CAT purposes. To the extent an NIA Electronic RFQ Response is not considered an `order” as defined in Rule 613(j)(8) and the CAT NMS Plan, it would not be reportable to CAT.”
Only “orders” as defined in SEC Rule 613(j)(8) are reportable to CAT. There is no agreement across the industry or among regulators as to whether NIA Electronic RFQ Responses are “orders” reportable to CAT. Certain Industry Members have raised the question as to whether NIA Electronic RFQ Responses are orders, but others have argued that they are not orders under Rule 613(j)(8).
As further discussed in the prior FIF letters, even if the Commission had the legal authority to require the reporting of NIA RFQ responses to CAT without an amendment to Rule 613, the Commission has not provided guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT. In subsequent discussions with industry members, Commission representatives have agreed that, prior to NIA RFQ responses being reportable to CAT, it would be necessary for the Commission to provide further guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT.
On May 20, 2024, the Commission granted CAT LLC's request for exemptive relief from certain CAT reporting requirements pertaining to NIA Electronic RFQ Responses to the extent such responses are considered “orders” reportable pursuant to Rule 613(j)(8).
When the Commission proposed the FAMs, the Participants expressed concern that, “by conditioning the ability of CAT LLC and the Participants to collect Post-Amendment Industry Member Fees on factors dependent on the efforts of Industry Members, the Commission's proposals inadvertently establish a perverse incentive for Industry Members to devote less than maximum efforts to comply with their obligations related to the CAT as they will pay less fees in such instances.”
CAT LLC does not believe that the Commission's May 19, 2023 order granting temporary exemptive relief relating to certain verbal floor activity and unstructured verbal and electronic upstairs activity (the “2023 Verbal Quotes Exemption”) affects the conclusion that FAMs 1 through 3 have been satisfied. The 2023 Verbal Quotes Exemption, which was issued on May 19, 2023, is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. The relevant exemption for this time period is the Commission's November 12, 2020 order, which granted relief for the same activity through July 31, 2023 (the “2020 Verbal Quotes Order”).
CAT LLC does not believe that the Commission's November 2, 2023 order granting relief from certain CAT NMS Plan requirements (the “November 2023 Order”) affects the conclusion that FAMs 1 through 3 have been satisfied. The November 2023 Order is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. As described in the November 2023 Order, the relevant exemptive orders for this time period were issued on December 16, 2020, which also states that “the Commission has determined that the Participants have sufficiently complied with the conditions set forth in the prior Orders and with the technical requirements for Quarterly Progress Reports set forth in section 6.6(c) of the CAT NMS Plan, including for purposes of determining compliance with any applicable Financial Accountability Milestones.”
CAT LLC also completed the requirements of FAM Period 2, including the required linkages, by December 31, 2020. Although Participant exchanges may report the Executing Broker to CAT differently in certain situations, these reporting differences are irrelevant for linkage purposes as the fields used for CAT Executing Broker are not used for linkage.
The CAT Funding Model approved by the Commission permits the recovery of reasonable costs in each of the categories of CAT costs sought to be recovered via Historical CAT Assessment 1.
CAT LLC believes that it is reasonable to seek recovery of costs incurred prior to when the CAT NMS Plan became effective in November 2016, such as legal and consulting fees incurred to create the CAT NMS Plan. Rule 613 specifically mandates that the CAT be created, implemented and maintained, and further provides that the CAT NMS Plan include a proposed allocation of estimated costs to fund the creation, implementation and maintenance of the CAT among the Participants (referred to as “plan sponsors”), and between the Participants and Industry Members (referred to as “members of the plan sponsors”).
Accordingly, the CAT NMS Plan specifically permits the recovery of costs, including legal and consulting costs, reasonably incurred prior to November 2016 in connection with the creation and implementation of the CAT.
Furthermore, the costs incurred to create and implement the CAT prior to the effective date of the CAT NMS Plan (“Pre-Formation Costs”) were reasonable both in scope and amount, in accordance with the requirements of Section 11.1(c) of the CAT NMS Plan. During the four-year period from 2012 to 2016, a total of $13,842,881 in Pre-Formation Costs were incurred. This is an average of approximately $3.5 million per year over this period. The Pre-Formation Costs fell into three categories: legal costs, consulting costs and public relations costs. This includes legal costs of $3,196,434; consulting costs of $10,589,273; and public relations costs of $57,174. The legal, consulting and public relations services were performed by WilmerHale, Deloitte and Peppercomm, respectively. The selection considerations and fees for these three firms are described in detail above and are described further below. The Pre-Formation Costs are direct costs of CAT, which have been funded entirely by the Participants through non-interest-bearing notes. The Pre-Formation Costs do not include the significant costs incurred by each of the
The Pre-Formation Costs are reasonable and appropriate as they reflect the extensive efforts that were necessary to create the CAT NMS Plan as mandated after the SEC's adoption of Rule 613. As described in more detail below, these efforts included, among other things, developing a plan for selecting the Plan Processor, soliciting and evaluating bids, engaging a diverse set of market participants and the SEC in the development of the Plan, interacting with the SEC in their oversight of the development of the Plan, and seeking appropriate exemptive relief to address areas of concern in Rule 613.
The Participants determined to utilize an RFP to ensure that potential alternative solutions for creating the Plan could be presented and considered, and that a detailed and meaningful cost-benefit analysis could be performed. The SEC supported the use of an RFP, and approved its use as it is described in extensive detail in the CAT NMS Plan.
In the context of the SEC's adoption of Rule 613, commenters urged the Commission to utilize an RFP process to assist in the planning and design of the NMS plan.
In this regard, several commenters suggested that the Commission undergo a RFP or request for information (“RFI”) process to create and implement a consolidated audit trail. Specifically, FIF urged the Commission to perform a RFP process “to determine the best technical solution for developing a consolidated audit trail.” FIF suggested that the Commission “should outline a set of goals and guiding principles they are striving to achieve as part of the adopted CAT filing and leave the determination of data elements and other technical requirements to [an] industry working group.” Similarly, Direct Edge suggested that Commission staff should form and engage in a working group to develop an RFP for publication by the Commission. DirectEdge explained that an RFP process would facilitate the identification of the costs and benefits of the audit trail, as well as the consideration of a wider range of technological solutions. Further, commenters, including Broadridge Financial Solutions, Inc., a technology provider, also requested more specific information about the audit trail system to better assess the Commission's initial cost estimates and to determine the best approach to the consolidated audit trail.
In response to these comments, the Commission modified Rule 613 to require the Participants to address certain important considerations regarding the features and details of the NMS plan and to extend the timeframe for submission of the CAT NMS Plan by the Participants from the 90 days as originally proposed to 270 days, in part, to accommodate a process that would address these considerations.
The SEC specifically recognized that the Participants planned to use an RFP when it approved the Selection Plan, and stated that the RFP was a reasonable approach.
On February 26, 2013, the Participants published an RFP soliciting bids from parties interested in serving as the plan processor for the CAT. Initially, 31 firms submitted intentions to bid. In the following months, the Participants engaged with potential bidders with respect to, among other things, the selection process, selection criteria, and potential bidders' questions and concerns. On March 21, 2014, the Participants received ten bids in response to the RFP.
On September 4, 2013, the Participants filed with the Commission a national market system plan to govern the process for Participant review of the bids submitted in response to the RFP, the procedures for evaluating the bids, and, ultimately, selection of the plan processor (the “Selection Plan”).
The Selection Plan divided the review and evaluation of bids, and the selection of the plan processor, into various stages. Specifically, pursuant to the Selection Plan, a selection committee reviewed all bids and determined which bids contained sufficient information to allow the Participants to meaningfully assess and evaluate the bids. The ten submitted bids were deemed “Qualified Bids,” and so passed to the next stage, in which each bidder presented its bids to the Participants on a confidential basis. On July 1, 2014, after conducting careful analysis and comparison of the bids, the Selection Committee voted and selected a shortlist of six eligible bidders. The Selection Committee determined which shortlisted bidders would be provided the opportunity to revise their bids. After the Selection Committee assessed and evaluated the revised bids, the Selection Committee selected the plan processor via two rounds of voting by the Participants, as described in the Selection Plan.
The Selection Plan established an Operating Committee responsible for
When it approved the CAT NMS Plan in 2016, the Commission reiterated its belief that the Selection Plan remains a “reasonable approach,” that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue”:
In approving the Selection Plan, the Commission stated that the Selection Plan is reasonably designed to achieve its objective of facilitating the development of the CAT NMS Plan and the selection of the Plan Processor. The Commission also found that the Selection Plan is reasonably designed to govern the process by which the SROs will formulate and submit the CAT NMS Plan, including the review, evaluation, and narrowing down of Bids in response to the RFP, and ultimately choosing the Plan Processor that will build, operate, and maintain the consolidated audit trail. The Commission believes that the process set out in the Selection Plan for selecting a Plan Processor remains a reasonable approach, which will facilitate the selection of Plan Processor through a fair, transparent and competitive process and that no modifications to the Selection Plan are required to meet the approval standard. . . . In response to the comment that offered support for a specific Bidder, the Commission agrees with the Participants that the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor and thus believes that the process set forth in the Selection Plan should be permitted to continue.
During the process of developing the CAT NMS Plan, the Participants engaged in extensive and meaningful dialogue with market participants and the SEC. To this end, the Participants created a website to update the public on the progress of the CAT NMS Plan, published a request for comment on multiple issues related to the Plan, held multiple public events to inform the industry of the progress of the CAT and to address inquiries, and formed, and later expanded, a DAG to solicit more input from a representative industry group.
The DAG included representatives of Participants and Industry Members and conducted meetings to discuss, among other things, technical and operational aspects the Participants were considering for the Plan. The Participants issued press releases soliciting participants for the DAG, and a wide spectrum of firms was deliberately chosen to provide insight from various industry segments affected by CAT. The DAG meetings included discussions of topics such as option market maker quote reporting, requirements for capturing Customer IDs, timestamps and clock synchronization, reporting requirements for order handling scenarios, costs and funding, error handling and corrections, and potential elimination of systems made redundant by the CAT. From the inception of the DAG through September 2014, the DAG participated in 36 meetings, as well as a variety of DAG subcommittee meetings.
Following multiple discussions between the Participants and both the DAG and the bidders, as well as among the Participants themselves, the Participants recognized that some provisions of Rule 613 would not permit certain solutions to be included in the Plan that the Participants, in coordination with the DAG, determined advisable to effectuate the most efficient and cost-effective CAT. Specifically, “the SROs reached the conclusion that additional flexibility in certain of the minimum requirements specified in Rule 613 would allow them to propose a more efficient and cost-effective approach without adversely affecting the reliability or accuracy of CAT Data, or its security and confidentiality.”
After reviewing the exemptive request, the Commission determined that it was appropriate in the public interest and consistent with the protection of investors to grant the requested exemptive relief.
The Commission further stated that the requested exemptive relief is consistent with the protection of investors. The Commission noted that:
Doing so will provide the public an opportunity to consider and comment on whether these proposed alternative approaches would indeed be more efficient and cost-effective than those otherwise required by Rule 613, and whether such approaches would adversely affect the reliability or accuracy of CAT Data or otherwise undermine the goals of Rule 613. Moreover, if—as the SROs represent—efficiency gains and cost savings would result from including the proposed approaches in the CAT NMS Plan without adverse effects, then the resultant benefits could potentially flow to investors (
The Participants incorporated the exemptive relief into the proposed CAT NMS Plan, which was noticed for comment, and the Commission ultimately approved the CAT NMS Plan with the more efficient and cost-effective alternative approaches described in the exemptive relief. Accordingly, the Participants believe that the costs incurred in developing the exemptive request were critical to the creation of a better CAT than was
Rule 613(a)(1) under Regulation NMS required the Participants to jointly file the CAT NMS Plan on or before April 28, 2013, less than a year after the adoption of Rule 613. In recognition of the complexity of the project to create the CAT NMS Plan as well as industry interest in limiting or eliminating certain requirements of Rule 613 (
The SROs stated in their Request Letter that they do not believe that the 270-day time period provided for in Rule 613(a)(1) provides sufficient time for the development of the RFP, formulation and submission of bids, and review and evaluation of such bids. The SROs also stated that they believe additional time beyond the 270 days provided for in Rule 613(a)(1) is necessary in order to provide sufficient time for effective consultation with and input from the industry and the public on the proposed solution chosen by the SROs for the creation of the consolidated audit trail at the conclusion of the RFP process and the NMS plan itself.
In recognition of the need for additional time to refine the technical description of and requirements for the CAT and to allow for additional evaluation of the proposed cost and funding considerations, the SEC granted two extensions of this deadline.
This additional time to complete the RFP process should allow the SROs to engage in a more thoughtful and comprehensive process for the development of an NMS plan. In this regard, the Commission notes that the additional time to solicit comment from the industry and the public at certain key points in the development of the NMS plan could identify issues that can be resolved earlier in the development of the consolidated audit trail and prior to filing the NMS plan with the Commission.
Given the Commission's recognition of the reasonableness and value of the extension of the deadline to file the CAT NMS Plan, the Participants believe that the costs incurred in developing the extension request were important to the process of developing the CAT NMS Plan, and therefore should be recoverable as part of Historical CAT Assessment 1.
After extensive analyses and discussions with the DAG, bidders, market participants and the SEC staff, the Participants finalized the draft of the CAT NMS Plan and filed the CAT NMS Plan with the SEC on September 30, 2014. Following additional discussions, the Participants filed several amendments to the CAT NMS Plan during 2015 and 2016. With these additional changes, the SEC published the CAT NMS Plan for notice and comment in May 2016.
The Pre-Formation Costs include legal costs of $3,196,434. The legal services were performed by WilmerHale. The selection considerations and fees for WilmerHale were described in detail above. Prior to the creation of CAT LLC, WilmerHale was engaged to represent the consortium of SROs, not the individual Participants. For administrative purposes, FINRA agreed to receive such legal bills, although such costs were shared among the Participants. Therefore, the legal costs incurred with respect to WilmerHale do not include legal costs incurred by the individual Participants. These pre-formation legal costs are described in detail above and are further described below:
• 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 DAG;
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on the 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 (
• Drafted exemptive requests;
• Provided interpretations related to the CAT NMS Plan;
• Provided support with regard to discussions among the exchanges, FINRA and other third parties, such as Deloitte;
• Provided tax advice with regard to CAT's status as a tax-exempt organization; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The Pre-Formation Costs include consulting costs of $10,589,273. The consulting services were performed by Deloitte. The selection considerations and fees for Deloitte were described in detail above. Prior to the creation of CAT LLC, for administrative purposes, Deloitte was engaged by FINRA to provide consulting services related to CAT, but the costs were shared by the consortium of SROs per agreement. Therefore, the consulting costs incurred with respect to Deloitte do not include consulting costs incurred by the individual Participants. The pre-formation consulting costs include the following:
• Established and implemented program operations for the CAT project, including the program management 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 Participants' independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, reviewing technical requirements of other NMS plans, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• 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 (
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided support for industry outreach sessions, including with regard to program design and agenda development, program support and logistics and coordination; and
• Provided support in fact finding, drafting content and meeting coordination for WilmerHale with regard to the CAT and the development of the CAT NMS Plan.
Such Pre-Formation Costs did not include costs related to the Chair of the CAT NMS Plan Operating Committee, as the CAT NMS Plan had not yet been adopted.
The Pre-Formation Costs include public relations costs of $57,174. The public relations services were performed by Peppercomm. The selection considerations and fees for Peppercomm are described in detail above. The costs related to Peppercomm were shared among the SROs. Therefore, the public relations costs do not include public relations costs incurred by the individual Participants. The pre-formation public relations costs include services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs related to cloud hosting services as a part of Historical CAT Assessments. CAT LLC believes that the costs related to cloud hosting services described in detail above are reasonable and appropriate given the strict data processing timelines and storage requirements imposed by the Commission-approved CAT NMS Plan and should be recoverable as a part of Historical CAT Assessment 1.
CAT LLC believes that the costs for the cloud hosting services are reasonable, both in terms of the level of the fees paid by CAT LLC for cloud hosting services provided by AWS and the scope of the services performed by AWS for CAT LLC. CAT LLC believes that both the scope and amount of the costs for cloud hosting services are reasonable given the current requirements of the CAT NMS Plan adopted pursuant to Rule 613, including the strict data processing timeline, storage and other technical requirements under the Commission-approved CAT NMS Plan.
CAT LLC believes that the level of fees for the cloud hosting services is 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.
CAT LLC also believes that the scope of services provided by AWS for the CAT are appropriate given the current requirements of the Commission-approved CAT NMS Plan. As described above, the cloud hosting services costs reflect a variety of factors including, among other things:
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In addition, various requirements of the CAT NMS Plan adopted pursuant to Rule 613 contribute to the significant cloud hosting services costs, and that various Plan requirements could be amended or removed without affecting the regulatory purpose of the CAT. Indeed, CAT LLC has repeatedly sought exemptive relief and filed amendments to the CAT NMS Plan, and has even filed suit against the Commission, to seek to revise or eliminate certain costly requirements related to the CAT. However, despite these efforts, absent the Commission granting exemptive relief or approving cost savings amendments to the CAT NMS Plan, CAT LLC, the Participants and Industry Members are all required to comply with such requirements.
CAT is reasonably designed to efficiently and effectively utilize cloud computing and storage services, given the requirements of the Commission-approved CAT NMS Plan, including requirements related to security, operational reliance and quality assurance, and maintainability.
The Plan Processor uses state-of-the-art software that meets the strict security standards of the CAT NMS Plan. CAT utilizes a big data processing framework that is extensively used by large data processing companies, such as Apple, Meta, Netflix, IBM and Google. As such, it has substantial commercial support and support in the open-source community. It is also well suited for use with regard to iterative types of algorithms and query functions and analytics that the CAT requires, and it provides the heightened security necessary for the CAT.
The development and implementation of the design of CAT is not and has not been static. CAT LLC and the Plan Processor are always evaluating new innovations and service offerings from AWS and other providers to seek to maximize efficiency and cost avoidance while still satisfying the requirements of the CAT NMS Plan. These efforts have led to substantial savings to date. The cloud hosting costs for 2023 were less than the cloud hosting costs for 2022 by $8 million despite processing seven
When evaluating the design of the CAT, it must be kept in mind that the CAT is not a typical commercial technology project. The ability to make use of technology approaches that may lead to cost avoidance is also subject to the restrictive requirements of the CAT NMS Plan, such as processing timeframes, requirements for retention of data versions, query requirements, and security standards. Because such requirements are set forth in the CAT NMS Plan, any modification of such requirements are subject to the time-consuming process of amending the CAT NMS Plan or seeking an exemption from the relevant requirement. For example, CAT LLC recently has filed an amendment to address several of these expensive Plan requirements.
The CAT System also was designed to minimize the extent to which Industry Members would need to alter their systems to report to CAT. During the design process, Industry Member groups argued that it would make more sense financially for the CAT to accommodate differences in industry systems, than for all Industry Members to change their systems. Moreover, such design choices would facilitate consistency, uniformity and accuracy in reporting. Requiring the CAT to make such accommodations may increase CAT costs while accommodating CAT Reporters.
Based on the requirements in the CAT NMS Plan and/or in response to industry requests for functionality to be embedded with the Plan Processor to streamline or limit Industry Member system changes, the CAT has been designed to limit the effect on Industry Members. The following provides examples of such accommodations:
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To be clear, if OATS-like error correction tools are not made available on Day 1, hundreds of firms will be required to create and test their own tools or obtain vendor alternatives prior to the CAT Go-Live Date. Proprietary tools will require additional system builds, access to and ingestion of CAT data to perform system validation, and testing which will further stress the limited number of subject matter experts (“SMEs”) dedicated to the implementation of CAT reporting. Should this occur, inevitably firms (especially small firms who lack the necessary IT staff to write code and develop proprietary systems), may be put in the position of passing onto investors the cost required to build hundreds of redundant systems.
CAT provides various tools to help Industry Members identify and rectify errors.
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FIF CAT WG is not proposing a specific format; rather, we are proposing flexibility of input formats which includes support of existing formats (
Mandating a uniform format for reporting data to the CAT simplifies the task for the Central Repository of consolidating/storing data, but it puts the burden on each CAT Reporter to accurately translate their current (
CAT provides such a flexible input format.
The costs for cloud hosting services are appropriate and have not been adversely affected by the original design and approaches of the Initial Plan Processor. FCAT's design costs are the result of the requirements of the Commission-approved CAT NMS Plan.
When FCAT took over as the Plan Processor from Thesys, it utilized certain aspects of the technical specifications created by Thesys in its design. However, FCAT has not maintained aspects of the original design that would not be appropriate for
Moreover, FCAT did not utilize the system built by the Initial Plan Processor; it rebuilt the CAT System based on revised technical specifications. For example, the Initial Plan Processor used an on-premises processing approach which was not geared toward the huge amounts of data stored in the CAT, while FCAT adopted a cloud-based solution in response to such data demands.
Furthermore, given the very short timeframe to develop the CAT System and the prior optimization of certain query tools (
CAT LLC continues to support the selection of AWS as the cloud hosting services provider for CAT given the compliance, operational, and security requirements of the CAT. Independent analyses confirm these conclusions, noting that “AWS is an excellent choice for either strategic or tactical use and recommends considering AWS for almost all cloud IaaS or IaaS+PaaS scenarios.”
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In addition, the nature of the CAT, including the amount of data it must process and the size of its data footprint, does not allow for a multi-cloud solution as this would be cost prohibitive and greatly increase the security boundary and associated risk profile of the CAT. For example, a multi-cloud hosting option would increase costs, complexity, and risk for operations with regard to, for example, DevOps, production support, and networking. Similarly, with regard to security, a multi-cloud solution would increase risk, including with regard to the need for data transfers between cloud providers and the expansion of the security boundary. With regard to labor, a multi-cloud solution would lose economies of scale due to the need to support unique cloud requirements. Accordingly, the use of single-cloud solution continues to provide advantages with regard to cost, complexity, and risk. Indeed, “[t]he best practice is to focus on a single primary strategic provider.”
Furthermore, if another cloud service provider were determined to be a better match for the CAT at some future date, switching cloud service providers would be a very significant, expensive and time-consuming effort. Such an effort would likely be a 10-to-15-year commitment at a substantial expense. Such a move would require the replication or redesign of the underlying cloud environments (
CAT LLC believes that the recovery of costs related to the development of the funding model is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
Funding the CAT is a critical aspect of Rule 613 and the CAT NMS Plan. Article XI of the CAT NMS Plan describes in detail the requirements for funding the CAT, and the Participants are required to comply with and enforce compliance with the funding requirements of the CAT NMS Plan, just as with other aspects of the Plan. Accordingly, the development and implementation of a funding model for the CAT is as much a part of the requirements of the CAT NMS Plan as the development and operation of the CAT System. CAT LLC sees no reason to distinguish the efforts to develop a funding model from, for example, efforts to develop the CAT System, in seeking to recover reasonable CAT costs.
Moreover, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . legal costs.”
In addition, the legal costs incurred for the assistance in developing the CAT Funding Model are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at negotiated rates for such services that reflect both the extent of the services and market rates. Moreover, the scope of the legal costs associated with the development of the funding model reflect the complexity of the task in satisfying the detailed requirements of the CAT NMS Plan, the
CAT LLC believes that the recovery of legal costs related to the litigation with the SEC regarding the CAT NMS Plan is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
The conditional exemptive relief in this Order allows for the implementation of alternative regulatory solutions that continue to advance the regulatory goals that Rule 613 and the CAT NMS Plan were intended to promote, while reducing the implementation and operational costs, burdens, and/or difficulties that would otherwise be incurred by the Participants and Industry Members that must fund the CAT.
CAT LLC believes it is reasonable and appropriate to incur costs to limit the need to incur even greater costs due to certain interpretations of the Plan.
In addition, the legal costs incurred during the litigation are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at market rates for such services. As such, the legal costs related to this litigation incurred during the period covered by Historical CAT Assessment 1 were reasonable.
Finally, Industry Members will directly benefit from the result of the litigation because it has addressed CAT NMS Plan requirements that would have imposed significantly greater costs on the CAT. Accordingly, it is reasonable and appropriate that the costs of such litigation be included in the Historical CAT Costs 1.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017, which was the date by which Participants were required to begin reporting to the CAT, due to the delay in the commencement of reporting to the CAT. As discussed above, the Participants determined to exclude all CAT costs incurred from November 15, 2017 through November 15, 2018, which includes $37,852,083 in Thesys costs incurred from November 15, 2017 through November 15, 2018 (as well as other CAT costs during this period). The remaining Thesys costs incurred after November 15, 2018 are the $19,628,791 in capitalized developed technology costs for the period from November 16, 2018 through February 2019 incurred in the development of the CAT by the Initial Plan Processor, as well as a transition fee for the transition from the Initial Plan Processor to the successor Plan Processor. The Participants would remain responsible for 100% of these $19,628,791 in costs.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017. CAT LLC notes that the development and implementation of the CAT System, while unprecedented in scope and design, is like any other large and innovative technology project in that, inevitably, there were adjustments and refinements in the technical approach as the project developed, even with substantial planning efforts and oversight prior to the build. This is even more likely when the project faces a very tight implementation schedule, such as the one imposed by the Commission in Rule 613 and the CAT NMS Plan. However, an adjusted approach does not mean that the funds were not valid expenditures and should not be recovered.
The reasonableness of Thesys costs should be evaluated by the Commission as of the time they were incurred, not in hindsight. As detailed above, the Commission concluded in 2016 that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue.”
As noted in the CAT Funding Model Approval Order, “[i]n Rule 613, the Commission made the determination that the costs of the CAT should be shared by the Participants and Industry Members.”
CAT LLC believes that the recovery of CAIS-related costs is appropriate, and that the amount and scope of such costs, as described above, are reasonable, and that the reasonableness of historical costs should be evaluated by the Commission as of the time they were incurred, not in hindsight.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable CAIS operating costs as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall
In addition, CAT LLC determined that the CAIS operating fees described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The “CAIS Operating Costs” for Historical CAT Assessment 1 total $9,480,587, with Pre-FAM costs of $2,072,908, FAM 1 costs of $254,998, FAM 2 costs of $1,590,298, and FAM 3 costs of $5,562,383. As described above, the CAIS operating fees were incurred with regard to two categories of CAIS-related efforts: (1) the acceleration of the reporting of LTIDs; and (2) the development of the CAIS Technical Specifications and the building of CAIS. These two categories of costs are discussed in more detail below.
During the period covered by Historical CAT Assessment 1, the CAIS operating costs included costs related to the acceleration of the reporting of LTIDs earlier than originally contemplated during this period at the request of the SEC and in accordance with exemptive relief granted by the SEC.
• After FCAT developed the LTID Technical Specifications, the LTID Technical Specifications were published on January 31, 2020, with additional updates provided to the LTID Technical Specifications through April 2021.
• The LTID account information testing environment opened on August 24, 2020.
• The LTID account information reporting production environment opened on December 14, 2020.
• CAT Reporters were required to request their production readiness certification for account information related to LTIDs by the deadline of April 9, 2021.
• The LTID account information reporting for Phases 2a, 2b and 2c for Large Industry Members went live on April 26, 2021.
• The LTID account information reporting for Phases 2d for Large Industry Members went live on December 13, 2021.
• The LTID account information reporting for Phases 2a, 2b, 2c and 2d for Small Industry Members went live on April 26, 2021.
Throughout this project, FCAT and CAT LLC worked closely with the industry on LTID and CAIS reporting. Between December 2019 and December 2021, at least 57 checkpoint calls, webinars, and technical working group meetings with industry representatives were hosted to address issues and to educate CAT Reporters regarding LTID and CAIS reporting.
The LTID reporting project was successfully completed in a timely fashion, and the fees related to the project were reasonable. Accordingly, CAT LLC appropriately seeks to recover such costs via Historical CAT Assessment 1.
During the period covered by Historical CAT Assessment 1, FCAT began the development of the full CAIS Technical Specifications and the building of CAIS. The CAIS Technical Specifications were developed during this period as follows:
• Iterative drafts of the CAIS Technical Specifications were published on June 30, 2020, December 1, 2020, and January 1, 2021.
• The full, final CAIS Technical Specifications were published on January 29, 2021.
• Updated versions of the CAIS Technical Specifications were published throughout 2021.
As discussed above, FCAT and CAT LLC frequently engaged with the industry regarding the development of CAIS, hosting regular checkpoint calls, webinars, and technical working group meetings with industry representatives to address any issues, including addressing the interplay between Industry Members' existing customer systems and CAIS, and to educate CAT Reporters regarding LTID and CAIS reporting. Such engagement was critical to the CAIS development process as the CAIS project was unprecedented in terms of its content, scope and complexity.
During this period, FCAT also commenced the building of the CAIS system in accordance with the CAIS Technical Specifications during the period covered by Historical CAT Assessment 1. The CAIS system was ready for industry testing shortly after the end of this period in January 2022.
The CAIS Technical Specifications and the CAIS system, as developed during this period, continue to be in use today. Industry Members have been required to report, and have continuously reported, required data to CAIS on a daily basis since November 7, 2022, consistent with interim reporting obligations. The CAIS system accepts and validates the CAIS data submitted by Industry Members and provides Industry Members with initial feedback on data errors. In light of the unprecedented nature of the CAIS system, certain changes to the system, such as changes related to error corrections and the CAIS regulatory portal, were necessary to finalize CAIS reporting. FCAT worked to address these remaining issues,
CAT LLC believes that the recovery of public relations costs is appropriate and that the amount and scope of such costs, as described above, are reasonable.
The Commission has long recognized that external public relations costs are reasonably associated with creating,
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for public relations services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . public relations costs.”
In addition, CAT LLC determined that the public relations costs described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The services performed by the public relations firms through 2021 were limited in scope to assist CAT LLC, which has no employees of its own, to be better positioned to understand and address CAT matters to the benefit of all market participants and to communicate on important CAT topics with the public. In addition, the costs for these services were appropriately limited. During the 10-year period covered by Historical CAT Assessment 1, the average cost per year for these services was approximately $36,000.
CAT LLC believes that the recovery of legal costs related to the limitation of liability provision, including costs related to the proceedings before the SEC and costs related to the proposed amendment to the Consolidated Audit Trail Reporter Agreement and the Consolidated Audit Trail Reporting Agent Agreement (the “Reporting Agreements”) is appropriate and that the amount and scope of such costs as described above are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
Moreover, it is critical that CAT LLC, which has no employees of its own, have the ability to fund a legal defense in litigation and other legal proceedings against it. In response to CAT LLC requiring Industry Members to agree to the limitation of liability provision to submit data to the CAT, SIFMA filed an application for review of actions taken by CAT LLC and the Participants pursuant to Sections 19(d) and 19(f) of the Exchange Act. Contemporaneously with the filing of this proceeding, SIFMA moved for a stay of the requirement that Industry Members sign a Reporter Agreement, or in the alternative, asked the Commission to further delay the launch of CAT reporting on June 22, 2020. CAT LLC must have the resources to defend itself from litigious actions by others, like these.
Although a limitation of liability provision ultimately was not adopted as proposed, it was a reasonable provision to propose for the CAT Reporter Agreements, given that such provisions are in accordance with industry norms. Limitations of liability are ubiquitous within the securities industry and have long governed the economic relationships between self-regulatory organizations and the entities that they regulate. For example, U.S. securities exchanges have adopted rules to limit their liability for losses that Industry Members incur through their use of exchange facilities.
Furthermore, as described above, the specialized services were performed by experienced counsel at market rates for such services. Accordingly, the legal costs for the efforts related to the limitation of liability provision were reasonable.
CAT LLC believes that the recovery of consulting costs related to the Chair of the CAT Operating Committee is appropriate and that the amount and scope of such costs are reasonable.
As a preliminary matter, the selection of the Chair of the Operating Committee complies with the requirements of Section 4.2 of the CAT NMS Plan. The initial Chair that served during the period covered by Historical CAT Assessment was designated by a Participant as the Participant's alternate voting member. Accordingly, the Chair is a representative of the Participants, as required by the CAT NMS Plan.
In addition, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for consulting as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . consulting . . . ” costs.
The Participants determined that the position of the Chair was a critical role for the implementation of the CAT, and an independent Chair would appropriately consider and address the views of each of the Participants. The Participants also determined that it was important to have a Chair with a strong background regarding issues related to
CAT LLC understands that there are three types of reconciliation processes related to the invoices:
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As discussed further below, CAT LLC only considers the first type of process to be a “reconciliation” and the only type of process that is required under the CAT NMS Plan. CAT LLC provides the means to reconcile the CAT invoice amount to the underlying trades provided by CAT.
The CAT NMS Plan does not require CAT LLC to facilitate the second type of process: matching underlying trades for a CAT invoice with a firm's internal books and records. CAT LLC has access only to the underlying trades provided by CAT; it does not have access to a firm's internal books and records. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
The CAT NMS Plan also does not require CAT LLC to provide the ability to identify the order originator for the underlying trades for the CAT invoices. Accordingly, the billing guidance and processes do not provide CAT Reporters with the ability to identify the order originator for the underlying trades provided by CAT with CAT invoices. CAT LLC has been working closely with CAT Reporters to explain its billing approach and to address any outstanding billing questions. But, it should not be lost that CAT LLC provides information sufficient to allow CAT Reporters to reconcile CAT invoice amounts with the underlying trades provided by CAT LLC.
The CAT NMS Plan does not require CAT LLC to facilitate the matching of underlying trades for a CAT invoice with a firm's internal books and records, which may consist of trading data from various sources external to CAT. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
In this regard, it is important to recognize that CAT LLC has developed a billing approach that greatly improves upon existing billing practices for similar regulatory fees (
To facilitate the introduction of CAT fees, CAT LLC has worked with FCAT to develop an approach to CAT billing that is consistent with existing billing constructs used with regard to Section 31-related sales values fees, subject to certain enhancements. Under this billing approach, FCAT is providing additional linkage elements, not necessarily provided in the Section 31-sales value fee context, to facilitate CAT Reporters' ability to match the underlying trades provided by CAT with their internal books and records and to reduce the complexity of that process. Specifically, FCAT is providing various key elements of the trade itself, such as the tradeID and branch sequence,
With the Additional Trade Details, CAT LLC and FCAT believe that the overwhelming majority of underlying trades provided by CAT bills can be matched with a CAT Reporter's internal books and records. CAT LLC recognizes that there may be certain cases in which such matching is more difficult given various firm-specific considerations, but believes that such instances are significantly more limited than with regard to the SRO fees charged in relation to Section 31.
Similar to other regulatory fees, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Accordingly, Historical CAT Assessment 1 does not address the process by which any CAT Reporters may pass through the fee to their
In its approval of the CAT Funding Model, the Commission approved charging CAT fees to the CAT Executing Broker, rather than the originating broker. This fee filing must comply with the requirements of the CAT Funding Model, and, therefore, charges the Historical CAT Assessment 1 to CAT Executing Brokers.
Moreover, charging originating brokers would introduce significant complexity to the billing process from the CAT's perspective, and would increase the costs of implementing CAT fees. Charging the CAT Executing Broker is simple and straightforward, and leverages a one-to-one relationship between billable events (trades) and billable parties, similar to other transaction-based fees. In contrast, for a single trade event, there may be many originating brokers, and each trade must be broken down on a pro-rata basis, to account for one or more layers of aggregation, disaggregation, and representation of the underlying orders. While CAT is indeed designed to capture and unwind complex aggregation scenarios, the data and linkages are structured to facilitate regulatory use, and not a billing mechanism that assesses fees on a distinct set of executed trades; it is not simply a matter of using existing CAT linkages. Furthermore, charging originating brokers would implicate issues related to lifecycle linkage rates, and issues related to corrections, cancellations and allocations, while charging CAT Executing Brokers would avoid such issues.
As noted, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT Fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Nevertheless, the Additional Trade Details provided with regard to the underlying trades on CAT invoices may assist with this process. Like with Section 31-related sales value fees, however, it is not always possible to trace every fee on a transaction back to the originating party. Industry Members have faced these issues under Section 31-related sales values fees for many years.
CAT LLC has worked with FCAT to provide significant technical assistance to Industry Members to allow the Industry Members to understand how Historical CAT Assessment 1 will be implemented and billed, including webinars, CAT alerts, mock invoices, and responses to questions posed to the FCAT Help Desk.
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By providing such detailed and sustained assistance to Industry Members regarding CAT fees and billing, CAT LLC has successfully addressed questions raised by Industry Members regarding the CAT fees and billing processes.
CAT LLC has provided Industry Members with ample time to comply with the implementation of Historical CAT Assessment 1. CAT LLC originally proposed issuing the first invoices for Historical CAT Assessment 1 in December 2023 based on transactions in Eligible Securities in November 2023. In consideration of the feedback about the need for additional time to implement the new fee, CAT LLC pushed back this timeline by four months, proposing to issue the first Historical CAT Assessment 1 in April 2024 based on transactions in March 2024.
The Exchange believes the proposed rule change is consistent with the requirements of the Exchange Act. The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,
The Exchange believes that this proposal is consistent with the Act because it implements provisions of the Plan and is designed to assist the Exchange 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.”
The Exchange believes that the proposed fees paid by the CEBBs and CEBSs are reasonable, equitably allocated and not unfairly discriminatory. First, the Historical CAT Assessment 1 fees to be collected are directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to technology, legal, consulting, insurance, professional and administration, and public relations costs. The Exchange has already incurred such development and implementation costs and the proposed Historical CAT Assessment 1 fees, therefore, would allow the Exchange 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 and not to support the Exchange's business operations. The proposed fees would not cover Exchange services unrelated to the CAT.
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. The Exchange believes that the proposed fees adopted pursuant to the CAT Funding Model approved by the SEC are reasonable, equitably allocated and not unfairly discriminatory.
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, the Exchange has filed this fee filing to implement the Industry Member CAT fees included in the CAT Funding Model. The Exchange 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 the Exchange 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.”
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.
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:
In accordance with this requirement, the Exchange 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, the Exchange 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.
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.
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
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
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 (
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.
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.
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.
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.
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.
These costs involve the activity of both the Initial Plan Processor and FCAT, as the successor Plan Processor.
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.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover consulting costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover insurance costs as a part of Historical CAT Assessments.
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.
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
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 balanace of these considerations.
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.
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.
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.
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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.
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.
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, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
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
The Exchange believes that imposing Historical CAT Assessment 1 with a fee rate of $0.000013 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, the Exchange 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 (
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.
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.
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.
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, the Exchange 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 the fee schedule. The Exchange 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 Exchange members to reasonably predict their payment obligations for budgeting purposes.
Section 6(b)(8) of the Act
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
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.
The Exchange neither solicited nor received written comments on the proposed rule change.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Exchange Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
SR-CboeEDGX-2024-054 on the subject line.
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of 1934 (the “Act”)
The Exchange is filing with the Securities and Exchange Commission (“Commission”) a proposed rule change to establish fees for Industry Members
In its filing with the Commission, the Exchange 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 IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
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.
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).
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').”
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.
CAT LLC proposes to charge CEBBs and CEBSs (as described in more detail
The Exchange previously filed a fee filing to implement Historical CAT Assessment 1. On January 17, 2024, the SEC published this prior filing for Historical CAT Assessment 1, temporarily suspended the fee filing, and instituted proceedings to determine whether to approve or disapprove the fee filing.
Historical CAT Assessment 1 will be charged to each CEBB and CEBS for each applicable transaction in Eligible Securities.
(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.
The following fields of the Participant Technical Specifications indicate the CAT Executing Brokers for the transactions executed on an exchange.
In addition, the following fields of the Participant Technical Specifications would indicate the CAT Executing Brokers for the transactions executed otherwise than on an exchange:
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 $0.00003994969693072937 per executed equivalent share. This rate is then divided by three and rounded to determine the fee rate of $0.000013 per executed equivalent share that will be assessed to CEBBs and CEBSs, as also discussed in detail below.
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 (
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.”
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.”
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 $124,290,730. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($41,430,243.33), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third ($41,430,243.33). 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.
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.
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, 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 [
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,”
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 (
FCAT was selected to assume the role of the successor Plan Processor. Prior to this selection, the Participants engaged in discussions with two prior Bidders
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.
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.
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;
• 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
• 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, the 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;
• 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.
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 originally adopted.
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 change 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.
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 $51,847,150 relate to technology provided by the Initial Plan Processor and the successor Plan Processor.
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.
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 January 30, 2019, the Initial Plan Processor engaged in various activities with respect to the CAT, including preparing iterative drafts of Participant Technical
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.
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 the 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 (
• 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 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.
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 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 [
• 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 (
• 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.
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.
In adopting the CAT NMS Plan, the Commission amended the Plan to add a requirement that CAT LLC's financial
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;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
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.
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.
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 (
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.
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”),
By
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
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.
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 draft 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.
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.
CAT LLC did not incur costs related to change requests during FAM Period 1.
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 timestamps; (2) implementation fees; and (3) license fees.
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.
• 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.
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.
Although insurance was in effect during FAM Period 1, CAT LLC did not incur costs related to insurance during FAM Period 1.
• 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 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.
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 (
Historical CAT Costs 1 would include costs incurred by CAT LLC and already
By the completion of FAM Period 2, CAT LLC was required to implement the following with regard to the CAT:
(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.
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.
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.
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.
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.
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 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.
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.
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.
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.
• 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 (
• 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.
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.
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.
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.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
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”),
By
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.
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.
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.
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.
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.
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.
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.
• 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 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;
• Provided assistance with change requests;
• Provided guidance and regulatory support for litigation regarding the response to the 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.
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.
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 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.
The insurance costs of $1,582,714 represent the fees paid for insurance during 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.
The professional and administration costs of $595,923 represent the fees paid to Anchin and Grant Thornton for financial services during FAM Period 3.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
Historical CAT Costs 1 would not include three categories of CAT costs (“Excluded Costs”): (1) $14,749,362 of costs related to the termination of the relationship with the Initial Plan Processor; (2) $48,874,937, which are all CAT costs incurred from November 15, 2017 through November 15, 2018; and (3) $19,628,791, which are costs paid to the the Initial Plan Processor from November 16, 2018 through February 2019 when the relationship with the Initial Plan Processor was concluded. The Participants would remain responsible for 100% of these costs, which total $83,253,090. CAT LLC determined to exclude these Excluded Costs from Historical CAT Costs 1 because these costs relate to the delay in the start of reporting to the CAT and the conclusion of the relationship with the Initial Plan Processor.
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 the Initial Plan Processor, and the settlement costs related to the arbitration with the Initial Plan Processor. The Participants would remain responsible for 100% of these $14,749,362 in costs.
Second, Historical CAT Costs 1 would not include all CAT costs incurred from November 15, 2017 through November 15, 2018. CAT LLC determined to exclude all costs during 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.
The following provides additional detail regarding the Excluded Costs.
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.
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.
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.
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 (
• Assisted with cost and funding issues 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 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.
CAT LLC did not incur costs related to insurance during the period from November 15, 2017 through November 15, 2018.
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.
• 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.
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 engagment [
Third, Historical CAT Costs 1 would not include the $19,628,791 in costs paid to the Initial Plan Processor from November 16, 2018 through February 2019 when CAT LLC's relationship with the Initial Plan Processor concluded. CAT LLC determined that Historical CAT Costs 1 would not include any fees paid to the Initial Plan Processor after November 15, 2017,
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.
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.
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.
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.”
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
The projected total executed equivalent share volume of all transactions in Eligible Securities for
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.
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.
The CAT NMS Plan further states that “Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs.”
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.
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.”
To implement Historical CAT Assessment 1, a new section would be added to the Exchange's fee schedule for “Consolidated Audit Trail Funding Fees”, and it would include the proposed paragraphs described below.
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.
Accordingly, based on the factors discussed above, the Exchange proposes to add paragraph (a)(1) to the Consolidated Audit Trail Funding Fees section of its fee schedule. Proposed paragraph (a)(1) would state the following:
(A) Each CAT Executing Broker shall receive its first invoice for Historical CAT Assessment 1 in November 2024, which shall set forth the Historical CAT Assessment 1 fees calculated based on transactions in October 2024, and shall receive an invoice for Historical CAT Assessment 1 for each month thereafter in which Historical CAT Assessment 1 is in effect.
(B) 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 $0.000013 per executed equivalent share.
(C) Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (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.
(D) Each CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).
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
The proposed language in paragraph (a)(1)(A) of the fee schedule 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 November 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 October 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 paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(1)(A) of the fee schedule 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 November 2024, invoices will be sent to CAT Executing Brokers each month thereafter while Historical CAT Assessment 1 is in effect.
Proposed paragraph (a)(1)(B) of the fee schedule would describe the invoices for Historical CAT Assessment 1. Proposed paragraph (a)(1)(B) of the fee schedule 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)(B) of the fee schedule 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 $0.000013 per executed equivalent share.”
Furthermore, proposed paragraph (a)(1)(C) of the fee schedule 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 $212,039,879.34 (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 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)(D) of the fee schedule 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 (b).”
Paragraph (b)(1) to the “Consolidated Audit Trail Funding Fees” section of its fee schedule describes the manner of payment of Industry Member CAT fees. Paragraph (b)(1) states that “[e]ach CAT Executing Broker shall pay its CAT fees as required pursuant to paragraph (a) each month to the Consolidated Audit Trail, LLC in the manner prescribed by the Consolidated Audit Trail, LLC.” The CAT NMS Plan requires the Operating Committee to establish a system for the collection of 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.
Accordingly, the Exchange previously has added this requirement to the Exchange's fee schedule. Specifically, paragraph (b)(2) of the fee schedule states:
Each CAT Executing Broker shall pay the CAT fees required pursuant to paragraph (a) within thirty 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.
The requirements of paragraph (b)(2) would apply to Historical CAT Assessment 1.
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.
Such information would provide CEBBs and CEBSs with the ability to understand the details regarding the calculation of their Historical CAT Assessment.
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.”
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.
To assist Industry Members with compliance with the commencement of Historical CAT Assessment 1, CAT LLC has been making available to CAT Executing Brokers mock invoices prior to the commencement of Historical CAT Assessment 1. Specifically, CAT Executing Brokers have received mock invoices based on transaction data each month since November 2023. The mock invoices are in the same form as the actual, payable invoices, including both the relevant transaction data and the corresponding fee. However, no payments have been required in response to such mock invoices; they have been used solely to assist CAT Executing Brokers with the development of their processes for paying the CAT fees. Such data has provided 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.
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.”
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”
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.
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: equites 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.
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.' ”
• 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 (
• 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.
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.' ”
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).
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,
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.
• “Production Go-Live for Equities 2a Intrafirm Linkage validations” was completed on 7/27/2020;
• “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.
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.
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 remain [
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:
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,
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,
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 (
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 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;
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
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 (
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.”
• “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.
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.
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.” The Exchange 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.
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.
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 remain [
As discussed above, CAT LLC has satisfied the Financial Accountability Milestones (“FAMs”) for Periods 1 through 3.
CAT LLC does not believe that the exemptive relief relating to the reporting of electronic responses for quotes
Only “orders” as defined in SEC Rule 613(j)(8) are reportable to CAT. There is no agreement across the industry or among regulators as to whether NIA Electronic RFQ Responses are “orders” reportable to CAT. Certain Industry Members have raised the question as to whether NIA Electronic RFQ Responses are orders, but others have argued that they are not orders under Rule 613(j)(8).
As further discussed in the prior FIF letters, even if the Commission had the legal authority to require the reporting of NIA RFQ responses to CAT without an amendment to Rule 613, the Commission has not provided guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT. In subsequent discussions with industry members, Commission representatives have agreed that, prior to NIA RFQ responses being reportable to CAT, it would be necessary for the Commission to provide further guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT.
On May 20, 2024, the Commission granted CAT LLC's request for exemptive relief from certain CAT reporting requirements pertaining to NIA Electronic RFQ Responses to the extent such responses are considered “orders” reportable pursuant to Rule 613(j)(8).
When the Commission proposed the FAMs, the Participants expressed concern that, “by conditioning the ability of CAT LLC and the Participants to collect Post-Amendment Industry Member Fees on factors dependent on the efforts of Industry Members, the Commission's proposals inadvertently establish a perverse incentive for Industry Members to devote less than maximum efforts to comply with their obligations related to the CAT as they will pay less fees in such instances.”
CAT LLC does not believe that the Commission's May 19, 2023 order granting temporary exemptive relief relating to certain verbal floor activity and unstructured verbal and electronic upstairs activity (the “2023 Verbal Quotes Exemption”) affects the conclusion that FAMs 1 through 3 have been satisfied. The 2023 Verbal Quotes Exemption, which was issued on May 19, 2023, is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. The relevant exemption for this time period is the Commission's November 12, 2020 order, which granted relief for the same activity through July 31, 2023 (the “2020 Verbal Quotes Order”).
CAT LLC does not believe that the Commission's November 2, 2023 order granting relief from certain CAT NMS Plan requirements (the “November 2023 Order”) affects the conclusion that FAMs 1 through 3 have been satisfied. The November 2023 Order is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. As described in the November 2023 Order, the relevant exemptive orders for this time period were issued on December 16, 2020, which also states that “the Commission has determined that the Participants have sufficiently complied with the conditions set forth in the prior Orders and with the technical requirements for Quarterly Progress Reports set forth in section 6.6(c) of the CAT NMS Plan, including for purposes of determining compliance with any applicable Financial Accountability Milestones.”
CAT LLC also completed the requirements of FAM Period 2, including the required linkages, by December 31, 2020. Although Participant exchanges may report the Executing Broker to CAT differently in certain situations, these reporting differences are irrelevant for linkage purposes as the fields used for CAT Executing Broker are not used for linkage.
The CAT Funding Model approved by the Commission permits the recovery of reasonable costs in each of the categories of CAT costs sought to be recovered via Historical CAT Assessment 1.
CAT LLC believes that it is reasonable to seek recovery of costs incurred prior to when the CAT NMS Plan became effective in November 2016, such as legal and consulting fees incurred to create the CAT NMS Plan. Rule 613 specifically mandates that the CAT be created, implemented and maintained, and further provides that the CAT NMS Plan include a proposed allocation of estimated costs to fund the creation, implementation and maintenance of the CAT among the Participants (referred to as “plan sponsors”), and between the Participants and Industry Members (referred to as “members of the plan sponsors”).
Accordingly, the CAT NMS Plan specifically permits the recovery of costs, including legal and consulting costs, reasonably incurred prior to November 2016 in connection with the creation and implementation of the CAT.
Furthermore, the costs incurred to create and implement the CAT prior to the effective date of the CAT NMS Plan (“Pre-Formation Costs”) were reasonable both in scope and amount, in accordance with the requirements of Section 11.1(c) of the CAT NMS Plan. During the four-year period from 2012 to 2016, a total of $13,842,881 in Pre-Formation Costs were incurred. This is an average of approximately $3.5 million per year over this period. The Pre-Formation Costs fell into three categories: legal costs, consulting costs and public relations costs. This includes legal costs of $3,196,434; consulting costs of $10,589,273; and public relations costs of $57,174. The legal, consulting and public relations services were performed by WilmerHale, Deloitte and Peppercomm, respectively. The selection considerations and fees for these three firms are described in detail above and are described further below. The Pre-Formation Costs are direct costs of CAT, which have been funded entirely by the Participants through non-interest-bearing notes. The Pre-Formation Costs do not include the significant costs incurred by each of the individual Participants in responding to the adoption of Rule 613.
The Pre-Formation Costs are reasonable and appropriate as they reflect the extensive efforts that were necessary to create the CAT NMS Plan as mandated after the SEC's adoption of Rule 613. As described in more detail below, these efforts included, among other things, developing a plan for selecting the Plan Processor, soliciting and evaluating bids, engaging a diverse set of market participants and the SEC in the development of the Plan, interacting with the SEC in their oversight of the development of the Plan, and seeking appropriate
The Participants determined to utilize an RFP to ensure that potential alternative solutions for creating the Plan could be presented and considered, and that a detailed and meaningful cost-benefit analysis could be performed. The SEC supported the use of an RFP, and approved its use as it is described in extensive detail in the CAT NMS Plan.
In the context of the SEC's adoption of Rule 613, commenters urged the Commission to utilize an RFP process to assist in the planning and design of the NMS plan.
In this regard, several commenters suggested that the Commission undergo a RFP or request for information (“RFI”) process to create and implement a consolidated audit trail. Specifically, FIF urged the Commission to perform a RFP process “to determine the best technical solution for developing a consolidated audit trail.” FIF suggested that the Commission “should outline a set of goals and guiding principles they are striving to achieve as part of the adopted CAT filing and leave the determination of data elements and other technical requirements to [an] industry working group.” Similarly, Direct Edge suggested that Commission staff should form and engage in a working group to develop an RFP for publication by the Commission. DirectEdge explained that an RFP process would facilitate the identification of the costs and benefits of the audit trail, as well as the consideration of a wider range of technological solutions. Further, commenters, including Broadridge Financial Solutions, Inc., a technology provider, also requested more specific information about the audit trail system to better assess the Commission's initial cost estimates and to determine the best approach to the consolidated audit trail.
In response to these comments, the Commission modified Rule 613 to require the Participants to address certain important considerations regarding the features and details of the NMS plan and to extend the timeframe for submission of the CAT NMS Plan by the Participants from the 90 days as originally proposed to 270 days, in part, to accommodate a process that would address these considerations.
The SEC specifically recognized that the Participants planned to use an RFP when it approved the Selection Plan, and stated that the RFP was a reasonable approach.
On February 26, 2013, the Participants published an RFP soliciting bids from parties interested in serving as the plan processor for the CAT. Initially, 31 firms submitted intentions to bid. In the following months, the Participants engaged with potential bidders with respect to, among other things, the selection process, selection criteria, and potential bidders' questions and concerns. On March 21, 2014, the Participants received ten bids in response to the RFP.
On September 4, 2013, the Participants filed with the Commission a national market system plan to govern the process for Participant review of the bids submitted in response to the RFP, the procedures for evaluating the bids, and, ultimately, selection of the plan processor (the “Selection Plan”).
The Selection Plan divided the review and evaluation of bids, and the selection of the plan processor, into various stages. Specifically, pursuant to the Selection Plan, a selection committee reviewed all bids and determined which bids contained sufficient information to allow the Participants to meaningfully assess and evaluate the bids. The ten submitted bids were deemed “Qualified Bids,” and so passed to the next stage, in which each bidder presented its bids to the Participants on a confidential basis. On July 1, 2014, after conducting careful analysis and comparison of the bids, the Selection Committee voted and selected a shortlist of six eligible bidders. The Selection Committee determined which shortlisted bidders would be provided the opportunity to revise their bids. After the Selection Committee assessed and evaluated the revised bids, the Selection Committee selected the plan processor via two rounds of voting by the Participants, as described in the Selection Plan.
The Selection Plan established an Operating Committee responsible for formulating, drafting, and filing with the Commission the CAT NMS Plan and for ensuring that the Participants' joint obligations under Rule 613 were met in a timely and efficient manner. In formulating the CAT NMS Plan, the Participants also engaged multiple persons across a wide range of roles and expertise, engaged the consulting firm Deloitte as project manager, and engaged the law firm WilmerHale to serve as legal counsel in drafting the Plan. Within this structure, the Participants focused on, among other things, comparative analyses of the proposed technologies and operating models, development of funding models to support the building and operation of the CAT, and detailed review of
When it approved the CAT NMS Plan in 2016, the Commission reiterated its belief that the Selection Plan remains a “reasonable approach,” that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue”:
In approving the Selection Plan, the Commission stated that the Selection Plan is reasonably designed to achieve its objective of facilitating the development of the CAT NMS Plan and the selection of the Plan Processor. The Commission also found that the Selection Plan is reasonably designed to govern the process by which the SROs will formulate and submit the CAT NMS Plan, including the review, evaluation, and narrowing down of Bids in response to the RFP, and ultimately choosing the Plan Processor that will build, operate, and maintain the consolidated audit trail. The Commission believes that the process set out in the Selection Plan for selecting a Plan Processor remains a reasonable approach, which will facilitate the selection of Plan Processor through a fair, transparent and competitive process and that no modifications to the Selection Plan are required to meet the approval standard. . . . In response to the comment that offered support for a specific Bidder, the Commission agrees with the Participants that the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor and thus believes that the process set forth in the Selection Plan should be permitted to continue.
During the process of developing the CAT NMS Plan, the Participants engaged in extensive and meaningful dialogue with market participants and the SEC. To this end, the Participants created a website to update the public on the progress of the CAT NMS Plan, published a request for comment on multiple issues related to the Plan, held multiple public events to inform the industry of the progress of the CAT and to address inquiries, and formed, and later expanded, a DAG to solicit more input from a representative industry group.
The DAG included representatives of Participants and Industry Members and conducted meetings to discuss, among other things, technical and operational aspects the Participants were considering for the Plan. The Participants issued press releases soliciting participants for the DAG, and a wide spectrum of firms was deliberately chosen to provide insight from various industry segments affected by CAT. The DAG meetings included discussions of topics such as option market maker quote reporting, requirements for capturing Customer IDs, timestamps and clock synchronization, reporting requirements for order handling scenarios, costs and funding, error handling and corrections, and potential elimination of systems made redundant by the CAT. From the inception of the DAG through September 2014, the DAG participated in 36 meetings, as well as a variety of DAG subcommittee meetings.
Following multiple discussions between the Participants and both the DAG and the bidders, as well as among the Participants themselves, the Participants recognized that some provisions of Rule 613 would not permit certain solutions to be included in the Plan that the Participants, in coordination with the DAG, determined advisable to effectuate the most efficient and cost-effective CAT. Specifically, “the SROs reached the conclusion that additional flexibility in certain of the minimum requirements specified in Rule 613 would allow them to propose a more efficient and cost-effective approach without adversely affecting the reliability or accuracy of CAT Data, or its security and confidentiality.”
After reviewing the exemptive request, the Commission determined that it was appropriate in the public interest and consistent with the protection of investors to grant the requested exemptive relief.
[T]he Commission is persuaded to provide flexibility in the discrete areas discussed in the Exemption Request so that the alternative approaches can be included in the CAT NMS Plan and subject to notice and comment. Doing so could allow for more efficient and cost-effective approaches than otherwise would be permitted. The Commission at this stage is not deciding whether the proposed approaches detailed below are more efficient or effective than those in Rule 613. However, the Commission believes the proposed approaches should be within the permissible range of alternatives available to the SROs.
The Commission further stated that the requested exemptive relief is consistent with the protection of investors. The Commission noted that:
Doing so will provide the public an opportunity to consider and comment on whether these proposed alternative approaches would indeed be more efficient and cost-effective than those otherwise required by Rule 613, and whether such approaches would adversely affect the reliability or accuracy of CAT Data or otherwise undermine the goals of Rule 613. Moreover, if—as the SROs represent—efficiency gains and cost savings would result from including the proposed approaches in the CAT NMS Plan without adverse effects, then the resultant benefits could potentially flow to investors (
The Participants incorporated the exemptive relief into the proposed CAT NMS Plan, which was noticed for comment, and the Commission ultimately approved the CAT NMS Plan with the more efficient and cost-effective alternative approaches described in the exemptive relief. Accordingly, the Participants believe that the costs incurred in developing the exemptive request were critical to the creation of a better CAT than was originally contemplated by Rule 613, and therefore should be recoverable as part of Historical CAT Assessment 1.
Rule 613(a)(1) under Regulation NMS required the Participants to jointly file the CAT NMS Plan on or before April 28, 2013, less than a year after the adoption of Rule 613. In recognition of the complexity of the project to create the CAT NMS Plan as well as industry interest in limiting or eliminating certain requirements of Rule 613 (
The SROs stated in their Request Letter that they do not believe that the 270-day time period provided for in Rule 613(a)(1) provides sufficient time for the development of the RFP, formulation and submission of bids, and review and evaluation of such bids. The SROs also stated that they believe additional time beyond the 270 days provided for in Rule 613(a)(1) is necessary in order to provide sufficient time for effective consultation with and input from the industry and the public on the proposed solution chosen by the SROs for the creation of the consolidated audit trail at the conclusion of the RFP process and the NMS plan itself.
In recognition of the need for additional time to refine the technical description of and requirements for the CAT and to allow for additional evaluation of the proposed cost and funding considerations, the SEC granted two extensions of this deadline.
This additional time to complete the RFP process should allow the SROs to engage in a more thoughtful and comprehensive process for the development of an NMS plan. In this regard, the Commission notes that the additional time to solicit comment from the industry and the public at certain key points in the development of the NMS plan could identify issues that can be resolved earlier in the development of the consolidated audit trail and prior to filing the NMS plan with the Commission.
Given the Commission's recognition of the reasonableness and value of the extension of the deadline to file the CAT NMS Plan, the Participants believe that the costs incurred in developing the extension request were important to the process of developing the CAT NMS Plan, and therefore should be recoverable as part of Historical CAT Assessment 1.
After extensive analyses and discussions with the DAG, bidders, market participants and the SEC staff, the Participants finalized the draft of the CAT NMS Plan and filed the CAT NMS Plan with the SEC on September 30, 2014. Following additional discussions, the Participants filed several amendments to the CAT NMS Plan during 2015 and 2016. With these additional changes, the SEC published the CAT NMS Plan for notice and comment in May 2016.
The Pre-Formation Costs include legal costs of $3,196,434. The legal services were performed by WilmerHale. The selection considerations and fees for WilmerHale were described in detail above. Prior to the creation of CAT LLC, WilmerHale was engaged to represent the consortium of SROs, not the individual Participants. For administrative purposes, FINRA agreed to receive such legal bills, although such costs were shared among the Participants. Therefore, the legal costs incurred with respect to WilmerHale do not include legal costs incurred by the individual Participants. These pre-formation legal costs are described in detail above and are further described below:
• 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 DAG;
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on the 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 (
• Drafted exemptive requests;
• Provided interpretations related to the CAT NMS Plan;
• Provided support with regard to discussions among the exchanges, FINRA and other third parties, such as Deloitte;
• Provided tax advice with regard to CAT's status as a tax-exempt organization; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The Pre-Formation Costs include consulting costs of $10,589,273. The consulting services were performed by Deloitte. The selection considerations and fees for Deloitte were described in detail above. Prior to the creation of CAT LLC, for administrative purposes, Deloitte was engaged by FINRA to provide consulting services related to CAT, but the costs were shared by the consortium of SROs per agreement. Therefore, the consulting costs incurred with respect to Deloitte do not include consulting costs incurred by the individual Participants. The pre-formation consulting costs include the following:
• Established and implemented program operations for the CAT project, including the program management 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 Participants' independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, reviewing technical requirements of other NMS plans, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• 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 (
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided support for industry outreach sessions, including with regard to program design and agenda development, program support and logistics and coordination; and
• Provided support in fact finding, drafting content and meeting coordination for WilmerHale with regard to the CAT and the development of the CAT NMS Plan.
Such Pre-Formation Costs did not include costs related to the Chair of the CAT NMS Plan Operating Committee, as the CAT NMS Plan had not yet been adopted.
The Pre-Formation Costs include public relations costs of $57,174. The public relations services were performed by Peppercomm. The selection considerations and fees for Peppercomm are described in detail above. The costs related to Peppercomm were shared among the SROs. Therefore, the public relations costs do not include public relations costs incurred by the individual Participants. The pre-formation public relations costs include services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs related to cloud hosting services as a part of Historical CAT Assessments. CAT LLC believes that the costs related to cloud hosting services described in detail above are reasonable and appropriate given the strict data processing timelines and storage requirements imposed by the Commission-approved CAT NMS Plan and should be recoverable as a part of Historical CAT Assessment 1.
CAT LLC believes that the costs for the cloud hosting services are reasonable, both in terms of the level of the fees paid by CAT LLC for cloud hosting services provided by AWS and the scope of the services performed by AWS for CAT LLC. CAT LLC believes that both the scope and amount of the costs for cloud hosting services are reasonable given the current requirements of the CAT NMS Plan adopted pursuant to Rule 613, including the strict data processing timeline, storage and other technical requirements under the Commission-approved CAT NMS Plan.
CAT LLC believes that the level of fees for the cloud hosting services is 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.
CAT LLC also believes that the scope of services provided by AWS for the CAT are appropriate given the current requirements of the Commission-approved CAT NMS Plan. As described above, the cloud hosting services costs reflect a variety of factors including, among other things:
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In addition, various requirements of the CAT NMS Plan adopted pursuant to Rule 613 contribute to the significant cloud hosting services costs, and that various Plan requirements could be amended or removed without affecting the regulatory purpose of the CAT. Indeed, CAT LLC has repeatedly sought exemptive relief and filed amendments to the CAT NMS Plan, and has even filed suit against the Commission, to seek to revise or eliminate certain costly requirements related to the CAT. However, despite these efforts, absent the Commission granting exemptive relief or approving cost savings amendments to the CAT NMS Plan, CAT LLC, the Participants and Industry Members are all required to comply with such requirements.
CAT is reasonably designed to efficiently and effectively utilize cloud computing and storage services, given the requirements of the Commission-approved CAT NMS Plan, including requirements related to security, operational reliance and quality assurance, and maintainability.
The Plan Processor uses state-of-the-art software that meets the strict security standards of the CAT NMS Plan. CAT utilizes a big data processing framework that is extensively used by large data processing companies, such as Apple, Meta, Netflix, IBM and Google. As such, it has substantial commercial support and support in the open-source community. It is also well suited for use with regard to iterative types of algorithms and query functions and analytics that the CAT requires, and it provides the heightened security necessary for the CAT.
The development and implementation of the design of CAT is not and has not been static. CAT LLC and the Plan Processor are always evaluating new innovations and service offerings from AWS and other providers to seek to maximize efficiency and cost avoidance while still satisfying the requirements of the CAT NMS Plan. These efforts have led to substantial savings to date. The cloud hosting costs for 2023 were less than the cloud hosting costs for 2022 by $8 million despite processing seven trillion more events in 2023 due to the efficiency and cost avoidance efforts for cloud hosting services. For example, when AWS introduced new storage options, FCAT adopted the cost-efficient new storage option after establishing that the new offering would satisfy the security and other standards of the CAT NMS Plan. This change led to millions of dollars of savings in storage costs. Similarly, when AWS introduced a new compute processor, FCAT adopted this new compute processor, which lead to millions of dollars in savings in compute costs. However, in other cases, new cloud technology developments could not be implemented in CAT because they would not satisfy the
When evaluating the design of the CAT, it must be kept in mind that the CAT is not a typical commercial technology project. The ability to make use of technology approaches that may lead to cost avoidance is also subject to the restrictive requirements of the CAT NMS Plan, such as processing timeframes, requirements for retention of data versions, query requirements, and security standards. Because such requirements are set forth in the CAT NMS Plan, any modification of such requirements are subject to the time-consuming process of amending the CAT NMS Plan or seeking an exemption from the relevant requirement. For example, CAT LLC recently has filed an amendment to address several of these expensive Plan requirements.
The CAT System also was designed to minimize the extent to which Industry Members would need to alter their systems to report to CAT. During the design process, Industry Member groups argued that it would make more sense financially for the CAT to accommodate differences in industry systems, than for all Industry Members to change their systems. Moreover, such design choices would facilitate consistency, uniformity and accuracy in reporting. Requiring the CAT to make such accommodations may increase CAT costs while accommodating CAT Reporters.
Based on the requirements in the CAT NMS Plan and/or in response to industry requests for functionality to be embedded with the Plan Processor to streamline or limit Industry Member system changes, the CAT has been designed to limit the effect on Industry Members. The following provides examples of such accommodations:
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To be clear, if OATS-like error correction tools are not made available on Day 1, hundreds of firms will be required to create and test their own tools or obtain vendor alternatives prior to the CAT Go-Live Date. Proprietary tools will require additional system builds, access to and ingestion of CAT data to perform system validation, and testing which will further stress the limited number of subject matter experts (“SMEs”) dedicated to the implementation of CAT reporting. Should this occur, inevitably firms (especially small firms who lack the necessary IT staff to write code and develop proprietary systems), may be put in the position of passing onto investors the cost required to build hundreds of redundant systems.
CAT provides various tools to help Industry Members identify and rectify errors.
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FIF CAT WG is not proposing a specific format; rather, we are proposing flexibility of input formats which includes support of existing formats (
Mandating a uniform format for reporting data to the CAT simplifies the task for the Central Repository of consolidating/storing data, but it puts the burden on each CAT Reporter to accurately translate their current (
CAT provides such a flexible input format.
The costs for cloud hosting services are appropriate and have not been adversely affected by the original design and approaches of the Initial Plan Processor. FCAT's design costs are the result of the requirements of the Commission-approved CAT NMS Plan.
When FCAT took over as the Plan Processor from Thesys, it utilized certain aspects of the technical specifications created by Thesys in its design. However, FCAT has not maintained aspects of the original design that would not be appropriate for the CAT. FCAT revised and enhanced the original technical specifications of the CAT System to increase its efficiency and efficacy, and to ensure its compliance with the CAT NMS Plan. For example, the Initial Plan Processor's approach utilized many more fields than FCAT's approach, which relies on additional linkages. With the additional linkages, the CAT System takes on more of the CAT-related burdens than the Industry Members. Such an approach serves to facilitate consistency, uniformity and accuracy in reporting.
Moreover, FCAT did not utilize the system built by the Initial Plan Processor; it rebuilt the CAT System based on revised technical specifications. For example, the Initial Plan Processor used an on-premises processing approach which was not
Furthermore, given the very short timeframe to develop the CAT System and the prior optimization of certain query tools (
CAT LLC continues to support the selection of AWS as the cloud hosting services provider for CAT given the compliance, operational, and security requirements of the CAT. Independent analyses confirm these conclusions, noting that “AWS is an excellent choice for either strategic or tactical use and recommends considering AWS for almost all cloud IaaS or IaaS+PaaS scenarios.”
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In addition, the nature of the CAT, including the amount of data it must process and the size of its data footprint, does not allow for a multi-cloud solution as this would be cost prohibitive and greatly increase the security boundary and associated risk profile of the CAT. For example, a multi-cloud hosting option would increase costs, complexity, and risk for operations with regard to, for example, DevOps, production support, and networking. Similarly, with regard to security, a multi-cloud solution would increase risk, including with regard to the need for data transfers between cloud providers and the expansion of the security boundary. With regard to labor, a multi-cloud solution would lose economies of scale due to the need to support unique cloud requirements. Accordingly, the use of single-cloud solution continues to provide advantages with regard to cost, complexity, and risk. Indeed, “[t]he best practice is to focus on a single primary strategic provider.”
Furthermore, if another cloud service provider were determined to be a better match for the CAT at some future date, switching cloud service providers would be a very significant, expensive and time-consuming effort. Such an effort would likely be a 10-to-15-year commitment at a substantial expense. Such a move would require the replication or redesign of the underlying cloud environments (
CAT LLC believes that the recovery of costs related to the development of the funding model is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
Funding the CAT is a critical aspect of Rule 613 and the CAT NMS Plan. Article XI of the CAT NMS Plan describes in detail the requirements for funding the CAT, and the Participants are required to comply with and enforce compliance with the funding requirements of the CAT NMS Plan, just as with other aspects of the Plan. Accordingly, the development and implementation of a funding model for the CAT is as much a part of the requirements of the CAT NMS Plan as the development and operation of the CAT System. CAT LLC sees no reason to distinguish the efforts to develop a funding model from, for example, efforts to develop the CAT System, in seeking to recover reasonable CAT costs.
Moreover, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . legal costs.”
In addition, the legal costs incurred for the assistance in developing the CAT Funding Model are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at negotiated rates for such services that reflect both the extent of the services and market rates. Moreover, the scope of the legal costs associated with the development of the funding model reflect the complexity of the task in satisfying the detailed requirements of the CAT NMS Plan, the standards of the Exchange Act, and the many perspectives of the different market constituents potentially affected by or interested in the funding model, including Industry Members, Participants and investors. The many and varied comments by market participants on CAT funding over the years demonstrate the complexity of the task.
CAT LLC believes that the recovery of legal costs related to the litigation with the SEC regarding the CAT NMS Plan is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that
The conditional exemptive relief in this Order allows for the implementation of alternative regulatory solutions that continue to advance the regulatory goals that Rule 613 and the CAT NMS Plan were intended to promote, while reducing the implementation and operational costs, burdens, and/or difficulties that would otherwise be incurred by the Participants and Industry Members that must fund the CAT.
CAT LLC believes it is reasonable and appropriate to incur costs to limit the need to incur even greater costs due to certain interpretations of the Plan.
In addition, the legal costs incurred during the litigation are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at market rates for such services. As such, the legal costs related to this litigation incurred during the period covered by Historical CAT Assessment 1 were reasonable.
Finally, Industry Members will directly benefit from the result of the litigation because it has addressed CAT NMS Plan requirements that would have imposed significantly greater costs on the CAT. Accordingly, it is reasonable and appropriate that the costs of such litigation be included in the Historical CAT Costs 1.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017, which was the date by which Participants were required to begin reporting to the CAT, due to the delay in the commencement of reporting to the CAT. As discussed above, the Participants determined to exclude all CAT costs incurred from November 15, 2017 through November 15, 2018, which includes $37,852,083 in Thesys costs incurred from November 15, 2017 through November 15, 2018 (as well as other CAT costs during this period). The remaining Thesys costs incurred after November 15, 2018 are the $19,628,791 in capitalized developed technology costs for the period from November 16, 2018 through February 2019 incurred in the development of the CAT by the Initial Plan Processor, as well as a transition fee for the transition from the Initial Plan Processor to the successor Plan Processor. The Participants would remain responsible for 100% of these $19,628,791 in costs.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017. CAT LLC notes that the development and implementation of the CAT System, while unprecedented in scope and design, is like any other large and innovative technology project in that, inevitably, there were adjustments and refinements in the technical approach as the project developed, even with substantial planning efforts and oversight prior to the build. This is even more likely when the project faces a very tight implementation schedule, such as the one imposed by the Commission in Rule 613 and the CAT NMS Plan. However, an adjusted approach does not mean that the funds were not valid expenditures and should not be recovered.
The reasonableness of Thesys costs should be evaluated by the Commission as of the time they were incurred, not in hindsight. As detailed above, the Commission concluded in 2016 that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue.”
As noted in the CAT Funding Model Approval Order, “[i]n Rule 613, the Commission made the determination that the costs of the CAT should be shared by the Participants and Industry Members.”
CAT LLC believes that the recovery of CAIS-related costs is appropriate, and that the amount and scope of such costs, as described above, are reasonable, and that the reasonableness of historical costs should be evaluated by the Commission as of the time they were incurred, not in hindsight.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable CAIS operating costs as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . CAIS operating fees.”
In addition, CAT LLC determined that the CAIS operating fees described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The “CAIS Operating Costs” for Historical CAT Assessment 1 total
During the period covered by Historical CAT Assessment 1, the CAIS operating costs included costs related to the acceleration of the reporting of LTIDs earlier than originally contemplated during this period at the request of the SEC and in accordance with exemptive relief granted by the SEC.
• After FCAT developed the LTID Technical Specifications, the LTID Technical Specifications were published on January 31, 2020, with additional updates provided to the LTID Technical Specifications through April 2021.
• The LTID account information testing environment opened on August 24, 2020.
• The LTID account information reporting production environment opened on December 14, 2020.
• CAT Reporters were required to request their production readiness certification for account information related to LTIDs by the deadline of April 9, 2021.
• The LTID account information reporting for Phases 2a, 2b and 2c for Large Industry Members went live on April 26, 2021.
• The LTID account information reporting for Phases 2d for Large Industry Members went live on December 13, 2021.
• The LTID account information reporting for Phases 2a, 2b, 2c and 2d for Small Industry Members went live on April 26, 2021.
Throughout this project, FCAT and CAT LLC worked closely with the industry on LTID and CAIS reporting. Between December 2019 and December 2021, at least 57 checkpoint calls, webinars, and technical working group meetings with industry representatives were hosted to address issues and to educate CAT Reporters regarding LTID and CAIS reporting.
The LTID reporting project was successfully completed in a timely fashion, and the fees related to the project were reasonable. Accordingly, CAT LLC appropriately seeks to recover such costs via Historical CAT Assessment 1.
During the period covered by Historical CAT Assessment 1, FCAT began the development of the full CAIS Technical Specifications and the building of CAIS. The CAIS Technical Specifications were developed during this period as follows:
• Iterative drafts of the CAIS Technical Specifications were published on June 30, 2020, December 1, 2020, and January 1, 2021.
• The full, final CAIS Technical Specifications were published on January 29, 2021.
• Updated versions of the CAIS Technical Specifications were published throughout 2021.
As discussed above, FCAT and CAT LLC frequently engaged with the industry regarding the development of CAIS, hosting regular checkpoint calls, webinars, and technical working group meetings with industry representatives to address any issues, including addressing the interplay between Industry Members' existing customer systems and CAIS, and to educate CAT Reporters regarding LTID and CAIS reporting. Such engagement was critical to the CAIS development process as the CAIS project was unprecedented in terms of its content, scope and complexity.
During this period, FCAT also commenced the building of the CAIS system in accordance with the CAIS Technical Specifications during the period covered by Historical CAT Assessment 1. The CAIS system was ready for industry testing shortly after the end of this period in January 2022.
The CAIS Technical Specifications and the CAIS system, as developed during this period, continue to be in use today. Industry Members have been required to report, and have continuously reported, required data to CAIS on a daily basis since November 7, 2022, consistent with interim reporting obligations. The CAIS system accepts and validates the CAIS data submitted by Industry Members and provides Industry Members with initial feedback on data errors. In light of the unprecedented nature of the CAIS system, certain changes to the system, such as changes related to error corrections and the CAIS regulatory portal, were necessary to finalize CAIS reporting. FCAT worked to address these remaining issues,
CAT LLC believes that the recovery of public relations costs is appropriate and that the amount and scope of such costs, as described above, are reasonable.
The Commission has long recognized that external public relations costs are reasonably associated with creating, implementing and maintaining the CAT. In the CAT NMS Plan Approval Order, the Commission estimated that the Participants had collectively spent approximately $2,400,000 in preparation of the CAT NMS Plan on external public relations, legal, and consulting costs, and estimated that the Participants would continue to incur external public relations costs associated with maintaining the CAT upon approval of the CAT NMS Plan.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for public relations services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . .
In addition, CAT LLC determined that the public relations costs described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The services performed by the public relations firms through 2021 were limited in scope to assist CAT LLC, which has no employees of its own, to be better positioned to understand and address CAT matters to the benefit of all market participants and to communicate on important CAT topics with the public. In addition, the costs for these services were appropriately limited. During the 10-year period covered by Historical CAT Assessment 1, the average cost per year for these services was approximately $36,000.
CAT LLC believes that the recovery of legal costs related to the limitation of liability provision, including costs related to the proceedings before the SEC and costs related to the proposed amendment to the Consolidated Audit Trail Reporter Agreement and the Consolidated Audit Trail Reporting Agent Agreement (the “Reporting Agreements”) is appropriate and that the amount and scope of such costs as described above are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
Moreover, it is critical that CAT LLC, which has no employees of its own, have the ability to fund a legal defense in litigation and other legal proceedings against it. In response to CAT LLC requiring Industry Members to agree to the limitation of liability provision to submit data to the CAT, SIFMA filed an application for review of actions taken by CAT LLC and the Participants pursuant to Sections 19(d) and 19(f) of the Exchange Act. Contemporaneously with the filing of this proceeding, SIFMA moved for a stay of the requirement that Industry Members sign a Reporter Agreement, or in the alternative, asked the Commission to further delay the launch of CAT reporting on June 22, 2020. CAT LLC must have the resources to defend itself from litigious actions by others, like these.
Although a limitation of liability provision ultimately was not adopted as proposed, it was a reasonable provision to propose for the CAT Reporter Agreements, given that such provisions are in accordance with industry norms. Limitations of liability are ubiquitous within the securities industry and have long governed the economic relationships between self-regulatory organizations and the entities that they regulate. For example, U.S. securities exchanges have adopted rules to limit their liability for losses that Industry Members incur through their use of exchange facilities.
Furthermore, as described above, the specialized services were performed by experienced counsel at market rates for such services. Accordingly, the legal costs for the efforts related to the limitation of liability provision were reasonable.
CAT LLC believes that the recovery of consulting costs related to the Chair of the CAT Operating Committee is appropriate and that the amount and scope of such costs are reasonable.
As a preliminary matter, the selection of the Chair of the Operating Committee complies with the requirements of Section 4.2 of the CAT NMS Plan. The initial Chair that served during the period covered by Historical CAT Assessment was designated by a Participant as the Participant's alternate voting member. Accordingly, the Chair is a representative of the Participants, as required by the CAT NMS Plan.
In addition, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for consulting as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . consulting . . . ” costs.
The Participants determined that the position of the Chair was a critical role for the implementation of the CAT, and an independent Chair would appropriately consider and address the views of each of the Participants. The Participants also determined that it was important to have a Chair with a strong background regarding issues related to the regulatory obligations of self-regulatory organizations, including their obligations under national market system plans. The compensation paid to the Chair is appropriate for a person with such background and skills. The average annual amount paid to the Chair from 2017 through the end of FAM 3 was $292,733.30. Separate from the Chair, CAT LLC relies upon a Leadership Team of representatives of the SROs to oversee the day-to-day implementation of the CAT NMS Plan. CAT LLC does not compensate any member of the Leadership Team.
CAT LLC understands that there are three types of reconciliation processes related to the invoices:
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As discussed further below, CAT LLC only considers the first type of process to be a “reconciliation” and the only type of process that is required under the CAT NMS Plan. CAT LLC provides the means to reconcile the CAT invoice amount to the underlying trades provided by CAT.
The CAT NMS Plan does not require CAT LLC to facilitate the second type of process: matching underlying trades for a CAT invoice with a firm's internal books and records. CAT LLC has access only to the underlying trades provided by CAT; it does not have access to a firm's internal books and records. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
The CAT NMS Plan also does not require CAT LLC to provide the ability to identify the order originator for the underlying trades for the CAT invoices. Accordingly, the billing guidance and processes do not provide CAT Reporters with the ability to identify the order originator for the underlying trades provided by CAT with CAT invoices. CAT LLC has been working closely with CAT Reporters to explain its billing approach and to address any outstanding billing questions. But, it should not be lost that CAT LLC provides information sufficient to allow CAT Reporters to reconcile CAT invoice amounts with the underlying trades provided by CAT LLC.
The CAT NMS Plan does not require CAT LLC to facilitate the matching of underlying trades for a CAT invoice with a firm's internal books and records, which may consist of trading data from various sources external to CAT. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
In this regard, it is important to recognize that CAT LLC has developed a billing approach that greatly improves upon existing billing practices for similar regulatory fees (
To facilitate the introduction of CAT fees, CAT LLC has worked with FCAT to develop an approach to CAT billing that is consistent with existing billing constructs used with regard to Section 31-related sales values fees, subject to certain enhancements. Under this billing approach, FCAT is providing additional linkage elements, not necessarily provided in the Section 31-sales value fee context, to facilitate CAT Reporters' ability to match the underlying trades provided by CAT with their internal books and records and to reduce the complexity of that process. Specifically, FCAT is providing various key elements of the trade itself, such as the tradeID and branch sequence,
With the Additional Trade Details, CAT LLC and FCAT believe that the overwhelming majority of underlying trades provided by CAT bills can be matched with a CAT Reporter's internal books and records. CAT LLC recognizes that there may be certain cases in which such matching is more difficult given various firm-specific considerations, but believes that such instances are significantly more limited than with regard to the SRO fees charged in relation to Section 31.
Similar to other regulatory fees, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Accordingly, Historical CAT Assessment 1 does not address the process by which any CAT Reporters may pass through the fee to their customers. Likewise, the CAT billing approach provided by the Plan Processor is designed to address the needs of CAT Reporters with regard to the reconciliation of CAT invoices with the underlying trades provided by CAT LLC with the invoices; they are not designed to address issues related to any pass-through fees. Accordingly, facilitating CAT Reporters' ability to pass through fees to their clients is outside the scope of this fee filing. Nevertheless, as described below, CAT LLC and the Plan Processor have expended significant efforts to provide
In its approval of the CAT Funding Model, the Commission approved charging CAT fees to the CAT Executing Broker, rather than the originating broker. This fee filing must comply with the requirements of the CAT Funding Model, and, therefore, charges the Historical CAT Assessment 1 to CAT Executing Brokers.
Moreover, charging originating brokers would introduce significant complexity to the billing process from the CAT's perspective, and would increase the costs of implementing CAT fees. Charging the CAT Executing Broker is simple and straightforward, and leverages a one-to-one relationship between billable events (trades) and billable parties, similar to other transaction-based fees. In contrast, for a single trade event, there may be many originating brokers, and each trade must be broken down on a pro-rata basis, to account for one or more layers of aggregation, disaggregation, and representation of the underlying orders. While CAT is indeed designed to capture and unwind complex aggregation scenarios, the data and linkages are structured to facilitate regulatory use, and not a billing mechanism that assesses fees on a distinct set of executed trades; it is not simply a matter of using existing CAT linkages. Furthermore, charging originating brokers would implicate issues related to lifecycle linkage rates, and issues related to corrections, cancellations and allocations, while charging CAT Executing Brokers would avoid such issues.
As noted, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT Fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Nevertheless, the Additional Trade Details provided with regard to the underlying trades on CAT invoices may assist with this process. Like with Section 31-related sales value fees, however, it is not always possible to trace every fee on a transaction back to the originating party. Industry Members have faced these issues under Section 31-related sales values fees for many years.
CAT LLC has worked with FCAT to provide significant technical assistance to Industry Members to allow the Industry Members to understand how Historical CAT Assessment 1 will be implemented and billed, including webinars, CAT alerts, mock invoices, and responses to questions posed to the FCAT Help Desk.
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By providing such detailed and sustained assistance to Industry Members regarding CAT fees and billing, CAT LLC has successfully addressed questions raised by Industry Members regarding the CAT fees and billing processes.
CAT LLC has provided Industry Members with ample time to comply with the implementation of Historical CAT Assessment 1. CAT LLC originally proposed issuing the first invoices for Historical CAT Assessment 1 in December 2023 based on transactions in Eligible Securities in November 2023. In consideration of the feedback about the need for additional time to implement the new fee, CAT LLC pushed back this timeline by four months, proposing to issue the first Historical CAT Assessment 1 in April 2024 based on transactions in March 2024.
The Exchange believes the proposed rule change is consistent with the requirements of the Exchange Act. The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,
The Exchange believes that this proposal is consistent with the Act because it implements provisions of the Plan and is designed to assist the Exchange 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.”
The Exchange believes that the proposed fees paid by the CEBBs and CEBSs are reasonable, equitably allocated and not unfairly discriminatory. First, the Historical CAT Assessment 1 fees to be collected are directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to technology, legal, consulting, insurance, professional and administration, and public relations costs. The Exchange has already incurred such development and implementation costs and the proposed Historical CAT Assessment 1 fees, therefore, would allow the Exchange 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 and not to support the Exchange's business operations. The proposed fees would not cover Exchange services unrelated to the CAT. In addition, any surplus would be used as a reserve to offset future fees. Given the direct relationship between CAT fees and CAT costs, the Exchange believes that the proposed fees are reasonable, equitable and not unfairly discriminatory.
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. The Exchange believes that the proposed fees adopted pursuant to the CAT
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, the Exchange has filed this fee filing to implement the Industry Member CAT fees included in the CAT Funding Model. The Exchange 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 the Exchange 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.”
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.
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:
In accordance with this requirement, the Exchange 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, the Exchange 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.
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.
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
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 (
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.
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.
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.
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.
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.
These costs involve the activity of both the Initial Plan Processor and FCAT, as the successor Plan Processor.
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.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover consulting costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover insurance costs as a part of Historical CAT Assessments.
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.
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.
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 balanace of these considerations.
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.
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.
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.
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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.
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.
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, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
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.
The Exchange believes that imposing Historical CAT Assessment 1 with a fee rate of $0.000013 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, the Exchange 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 (
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.
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.
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.
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, the Exchange 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 the fee schedule. The Exchange 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 Exchange members to reasonably predict their payment obligations for budgeting purposes.
Section 6(b)(8) of the Act
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.
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.
The Exchange neither solicited nor received comments on the proposed rule change.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Exchange Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”)
The Exchange is filing with the Commission a proposed rule change to establish fees for Industry Members
In its filing with the Commission, the Exchange 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 IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
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.
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).
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').”
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 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. 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.' ”
The Exchange previously filed a fee filing to implement Historical CAT Assessment 1. On February 13, 2024, the SEC published this prior filing for Historical CAT Assessment 1, temporarily suspended the fee filing, and instituted proceedings to determine whether to approve or disapprove the fee filing.
Historical CAT Assessment 1 will be charged to each CEBB and CEBS for each applicable transaction in Eligible Securities.
(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.
The following fields of the Participant Technical Specifications indicate
In addition, the following fields of the Participant Technical Specifications would indicate the CAT Executing Brokers for the transactions executed otherwise than on an exchange.
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 $0.00003994969693072937 per executed equivalent share. This rate is then divided by three and rounded to determine the fee rate of $0.000013 per executed equivalent share that will be assessed to CEBBs and CEBSs, as also discussed in detail below.
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 (
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.”
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.”
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 $124,290,730. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($41,430,243.33), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third ($41,430,243.33). 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.
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.
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, 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 [
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,”
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 (
FCAT was selected to assume the role of the successor Plan Processor. Prior to this selection, the Participants engaged in discussions with two prior Bidders
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.
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.
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;
• 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, the 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;
• 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.
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 originally adopted.
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 change 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.
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 $51,847,150 relate to technology provided by the Initial Plan Processor and the successor Plan Processor.
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.
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 January 30, 2019, the Initial Plan Processor engaged in various activities with respect to the CAT, including preparing iterative drafts of Participant Technical
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.
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 the 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 (
• 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 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.
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 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 [
• 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 (
• 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.
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.
In adopting the CAT NMS Plan, the Commission amended the Plan to add a requirement that CAT LLC's financial
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;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
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.
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.
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 (
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.
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”),
By
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
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.
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 draft 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.
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.
CAT LLC did not incur costs related to change requests during FAM Period 1.
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 timestamps; (2) implementation fees; and (3) license fees.
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.
• 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.
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.
Although insurance was in effect during FAM Period 1, CAT LLC did not incur costs related to insurance during FAM Period 1.
• 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 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.
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 (
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”),
By the completion of FAM Period 2, CAT LLC was required to implement the following with regard to the CAT:
(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.
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.
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.
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.
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.
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 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.
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.
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.
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.
• 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 (
• 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.
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.
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.
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.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
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”),
By the completion of FAM Period 3, CAT LLC was required to implement the following requirements with regard the CAT:
(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.
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.
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.
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.
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.
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.
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.
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.
• 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
• 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 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;
• Provided assistance with change requests;
• Provided guidance and regulatory support for litigation regarding the response to the 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.
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.
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 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.
The insurance costs of $1,582,714 represent the fees paid for insurance during 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.
The professional and administration costs of $595,923 represent the fees paid to Anchin and Grant Thornton for financial services during FAM Period 3.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
Historical CAT Costs 1 would not include three categories of CAT costs (“Excluded Costs”): (1) $14,749,362 of costs related to the termination of the relationship with the Initial Plan Processor; (2) $48,874,937, which are all CAT costs incurred from November 15, 2017 through November 15, 2018; and (3) $19,628,791, which are costs paid to the the Initial Plan Processor from November 16, 2018 through February 2019 when the relationship with the Initial Plan Processor was concluded. The Participants would remain responsible for 100% of these costs, which total $83,253,090. CAT LLC determined to exclude these Excluded Costs from Historical CAT Costs 1 because these costs relate to the delay in the start of reporting to the CAT and the conclusion of the relationship with the Initial Plan Processor.
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 the Initial Plan Processor, and the settlement costs related to the arbitration with the Initial Plan Processor. The Participants would remain responsible for 100% of these $14,749,362 in costs.
Second, Historical CAT Costs 1 would not include all CAT costs incurred from November 15, 2017 through November 15, 2018. CAT LLC determined to exclude all costs during 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.
The following provides additional detail regarding the Excluded Costs.
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.
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.
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.
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 (
• Assisted with cost and funding issues 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 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.
CAT LLC did not incur costs related to insurance during the period from November 15, 2017 through November 15, 2018.
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.
• 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.
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 engagment [
Third, Historical CAT Costs 1 would not include the $19,628,791 in costs paid to the Initial Plan Processor from November 16, 2018 through February 2019 when CAT LLC's relationship with the Initial Plan Processor concluded. CAT LLC determined that Historical CAT Costs 1 would not include any fees paid to the Initial Plan Processor after November 15, 2017,
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.
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.
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.
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.”
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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
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.
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.
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.
The CAT NMS Plan further states that “Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs.”
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.
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.”
To implement Historical CAT Assessment 1, a new section would be added to the Exchange's fee schedule for “Consolidated Audit Trail Funding Fees”, and it would include the proposed paragraphs described below.
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.
Accordingly, based on the factors discussed above, the Exchange proposes to add paragraph (a)(1) to the Consolidated Audit Trail Funding Fees section of its fee schedule. Proposed paragraph (a)(1) would state the following:
(A) Each CAT Executing Broker shall receive its first invoice for Historical CAT Assessment 1 in November 2024, which shall set forth the Historical CAT Assessment 1 fees calculated based on transactions in October 2024, and shall receive an invoice for Historical CAT Assessment 1 for each month thereafter in which Historical CAT Assessment 1 is in effect.
(B) 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 $0.000013 per executed equivalent share.
(C) Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (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.
(D) Each CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).
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.
The proposed language in paragraph (a)(1)(A) of the fee schedule 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 November 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 October 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 paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(1)(A) of the fee schedule 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 November 2024, invoices will be sent to CAT Executing Brokers each month thereafter while Historical CAT Assessment 1 is in effect.
Proposed paragraph (a)(1)(B) of the fee schedule would describe the invoices for Historical CAT Assessment 1. Proposed paragraph (a)(1)(B) of the fee schedule 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)(B) of the fee schedule 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 $0.000013 per executed equivalent share.”
Furthermore, proposed paragraph (a)(1)(C) of the fee schedule 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 $212,039,879.34 (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 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)(D) of the fee schedule 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 (b).”
Paragraph (b)(1) to the “Consolidated Audit Trail Funding Fees” section of its fee schedule describes the manner of payment of Industry Member CAT fees. Paragraph (b)(1) states that “[e]ach CAT Executing Broker shall pay its CAT fees as required pursuant to paragraph (a) each month to the Consolidated Audit Trail, LLC in the manner prescribed by the Consolidated Audit Trail, LLC.” The CAT NMS Plan requires the Operating Committee to establish a system for the collection of 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.
Accordingly, the Exchange previously has added this requirement to the Exchange's fee schedule. Specifically, paragraph (b)(2) of the fee schedule states:
Each CAT Executing Broker shall pay the CAT fees required pursuant to paragraph (a) within thirty 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
The requirements of paragraph (b)(2) would apply to Historical CAT Assessment 1.
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.
Such information would provide CEBBs and CEBSs with the ability to understand the details regarding the calculation of their Historical CAT Assessment.
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.”
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.
To assist Industry Members with compliance with the commencement of Historical CAT Assessment 1, CAT LLC has been making available to CAT Executing Brokers mock invoices prior to the commencement of Historical CAT Assessment 1. Specifically, CAT Executing Brokers have received mock invoices based on transaction data each month since November 2023. The mock invoices are in the same form as the actual, payable invoices, including both the relevant transaction data and the corresponding fee. However, no payments have been required in response to such mock invoices; they have been used solely to assist CAT Executing Brokers with the development of their processes for paying the CAT fees. Such data has provided 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.
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.”
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”
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.
Under the FAM Period 1 requirement of Initial Industry Member Core Equity and Options Reporting, Industry
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.' ”
• 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 (
• 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.
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.' ”
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).
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:
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,
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.
• “Production Go-Live for Equities 2a Intrafirm Linkage validations” was completed on 7/27/2020;
• “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.
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.
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 remain [
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:
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,
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,
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 (
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 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;
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
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 (
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.”
• “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.
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.
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.” The Exchange 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.
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.
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 remain [
As discussed above, CAT LLC has satisfied the Financial Accountability Milestones (“FAMs”) for Periods 1
CAT LLC does not believe that the exemptive relief relating to the reporting of electronic responses for quotes (“RFQs”) that are not immediately actionable (“NIA Electronic RFQ Responses”) affect the conclusion that FAMs 1 through 3 have been satisfied. The only reason CAT LLC pursued this relief is because certain Industry Members introduced concerns that NIA Electronic RFQ Responses could be considered “orders” reportable pursuant to Rule 613(j)(8) and some Industry Members were not prepared to report such orders to CAT. Thus, the relief was requested on behalf of Industry Members. CAT LLC itself has not taken any position on whether NIA Electronic RFQ Responses are “orders,” as the definition of “order” is an SEC rule and the trading processes for NIA Electronic RFQ Responses are the Industry Members', not those of the Participants or CAT LLC. Accordingly, CAT LLC stated in its letter that “Industry Members must determine whether trading interest falls within the definition of an `order' for CAT purposes. To the extent an NIA Electronic RFQ Response is not considered an `order” as defined in Rule 613(j)(8) and the CAT NMS Plan, it would not be reportable to CAT.”
Only “orders” as defined in SEC Rule 613(j)(8) are reportable to CAT. There is no agreement across the industry or among regulators as to whether NIA Electronic RFQ Responses are “orders” reportable to CAT. Certain Industry Members have raised the question as to whether NIA Electronic RFQ Responses are orders, but others have argued that they are not orders under Rule 613(j)(8).
As further discussed in the prior FIF letters, even if the Commission had the legal authority to require the reporting of NIA RFQ responses to CAT without an amendment to Rule 613, the Commission has not provided guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT. In subsequent discussions with industry members, Commission representatives have agreed that, prior to NIA RFQ responses being reportable to CAT, it would be necessary for the Commission to provide further guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT.
On May 20, 2024, the Commission granted CAT LLC's request for exemptive relief from certain CAT reporting requirements pertaining to NIA Electronic RFQ Responses to the extent such responses are considered “orders” reportable pursuant to Rule 613(j)(8).
When the Commission proposed the FAMs, the Participants expressed concern that, “by conditioning the ability of CAT LLC and the Participants to collect Post-Amendment Industry Member Fees on factors dependent on the efforts of Industry Members, the Commission's proposals inadvertently establish a perverse incentive for Industry Members to devote less than maximum efforts to comply with their obligations related to the CAT as they will pay less fees in such instances.”
CAT LLC does not believe that the Commission's May 19, 2023 order granting temporary exemptive relief relating to certain verbal floor activity and unstructured verbal and electronic upstairs activity (the “2023 Verbal Quotes Exemption”) affects the conclusion that FAMs 1 through 3 have been satisfied. The 2023 Verbal Quotes Exemption, which was issued on May 19, 2023, is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. The relevant exemption for this time period is the Commission's November 12, 2020 order, which granted relief for the same activity through July 31, 2023 (the “2020 Verbal Quotes Order”).
CAT LLC does not believe that the Commission's November 2, 2023 order granting relief from certain CAT NMS Plan requirements (the “November 2023 Order”) affects the conclusion that FAMs 1 through 3 have been satisfied. The November 2023 Order is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. As described in the November 2023 Order, the relevant exemptive orders for this time period were issued on December 16, 2020, which also states that “the Commission has determined that the Participants have sufficiently complied with the conditions set forth in the prior Orders and with the technical requirements for Quarterly Progress Reports set forth in section 6.6(c) of the CAT NMS Plan, including for purposes of determining compliance with any applicable Financial Accountability Milestones.”
CAT LLC also completed the requirements of FAM Period 2, including the required linkages, by December 31, 2020. Although Participant exchanges may report the Executing Broker to CAT differently in certain situations, these reporting differences are irrelevant for linkage purposes as the fields used for CAT Executing Broker are not used for linkage.
The CAT Funding Model approved by the Commission permits the recovery of reasonable costs in each of the categories of CAT costs sought to be recovered via Historical CAT Assessment 1.
CAT LLC believes that it is reasonable to seek recovery of costs incurred prior to when the CAT NMS Plan became effective in November 2016, such as legal and consulting fees incurred to create the CAT NMS Plan. Rule 613 specifically mandates that the CAT be created, implemented and maintained, and further provides that the CAT NMS Plan include a proposed allocation of estimated costs to fund the creation, implementation and maintenance of the CAT among the Participants (referred to as “plan sponsors”), and between the Participants and Industry Members (referred to as “members of the plan sponsors”).
Accordingly, the CAT NMS Plan specifically permits the recovery of costs, including legal and consulting costs, reasonably incurred prior to November 2016 in connection with the creation and implementation of the CAT.
Furthermore, the costs incurred to create and implement the CAT prior to the effective date of the CAT NMS Plan (“Pre-Formation Costs”) were reasonable both in scope and amount, in accordance with the requirements of Section 11.1(c) of the CAT NMS Plan. During the four-year period from 2012 to 2016, a total of $13,842,881 in Pre-Formation Costs were incurred. This is an average of approximately $3.5 million per year over this period. The Pre-Formation Costs fell into three categories: legal costs, consulting costs and public relations costs. This includes legal costs of $3,196,434; consulting costs of $10,589,273; and public relations costs of $57,174. The legal, consulting and public relations services were performed by WilmerHale, Deloitte and Peppercomm, respectively. The selection considerations and fees for these three firms are described in detail above and are described further below. The Pre-Formation Costs are direct costs of CAT, which have been funded entirely by the Participants through non-interest-bearing notes. The Pre-Formation Costs do not include the significant costs incurred by each of the
The Pre-Formation Costs are reasonable and appropriate as they reflect the extensive efforts that were necessary to create the CAT NMS Plan as mandated after the SEC's adoption of Rule 613. As described in more detail below, these efforts included, among other things, developing a plan for selecting the Plan Processor, soliciting and evaluating bids, engaging a diverse set of market participants and the SEC in the development of the Plan, interacting with the SEC in their oversight of the development of the Plan, and seeking appropriate exemptive relief to address areas of concern in Rule 613.
The Participants determined to utilize an RFP to ensure that potential alternative solutions for creating the Plan could be presented and considered, and that a detailed and meaningful cost-benefit analysis could be performed. The SEC supported the use of an RFP, and approved its use as it is described in extensive detail in the CAT NMS Plan.
In the context of the SEC's adoption of Rule 613, commenters urged the Commission to utilize an RFP process to assist in the planning and design of the NMS plan.
In this regard, several commenters suggested that the Commission undergo a RFP or request for information (“RFI”) process to create and implement a consolidated audit trail. Specifically, FIF urged the Commission to perform a RFP process “to determine the best technical solution for developing a consolidated audit trail.” FIF suggested that the Commission “should outline a set of goals and guiding principles they are striving to achieve as part of the adopted CAT filing and leave the determination of data elements and other technical requirements to [an] industry working group.” Similarly, Direct Edge suggested that Commission staff should form and engage in a working group to develop an RFP for publication by the Commission. DirectEdge explained that an RFP process would facilitate the identification of the costs and benefits of the audit trail, as well as the consideration of a wider range of technological solutions. Further, commenters, including Broadridge Financial Solutions, Inc., a technology provider, also requested more specific information about the audit trail system to better assess the Commission's initial cost estimates and to determine the best approach to the consolidated audit trail.
In response to these comments, the Commission modified Rule 613 to require the Participants to address certain important considerations regarding the features and details of the NMS plan and to extend the timeframe for submission of the CAT NMS Plan by the Participants from the 90 days as originally proposed to 270 days, in part, to accommodate a process that would address these considerations.
The SEC specifically recognized that the Participants planned to use an RFP when it approved the Selection Plan, and stated that the RFP was a reasonable approach.
On February 26, 2013, the Participants published an RFP soliciting bids from parties interested in serving as the plan processor for the CAT. Initially, 31 firms submitted intentions to bid. In the following months, the Participants engaged with potential bidders with respect to, among other things, the selection process, selection criteria, and potential bidders' questions and concerns. On March 21, 2014, the Participants received ten bids in response to the RFP.
On September 4, 2013, the Participants filed with the Commission a national market system plan to govern the process for Participant review of the bids submitted in response to the RFP, the procedures for evaluating the bids, and, ultimately, selection of the plan processor (the “Selection Plan”).
The Selection Plan divided the review and evaluation of bids, and the selection of the plan processor, into various stages. Specifically, pursuant to the Selection Plan, a selection committee reviewed all bids and determined which bids contained sufficient information to allow the Participants to meaningfully assess and evaluate the bids. The ten submitted bids were deemed “Qualified Bids,” and so passed to the next stage, in which each bidder presented its bids to the Participants on a confidential basis. On July 1, 2014, after conducting careful analysis and comparison of the bids, the Selection Committee voted and selected a shortlist of six eligible bidders. The Selection Committee determined which shortlisted bidders would be provided the opportunity to revise their bids. After the Selection Committee assessed and evaluated the revised bids, the Selection Committee selected the plan processor via two rounds of voting by the Participants, as described in the Selection Plan.
The Selection Plan established an Operating Committee responsible for
When it approved the CAT NMS Plan in 2016, the Commission reiterated its belief that the Selection Plan remains a “reasonable approach,” that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue”:
In approving the Selection Plan, the Commission stated that the Selection Plan is reasonably designed to achieve its objective of facilitating the development of the CAT NMS Plan and the selection of the Plan Processor. The Commission also found that the Selection Plan is reasonably designed to govern the process by which the SROs will formulate and submit the CAT NMS Plan, including the review, evaluation, and narrowing down of Bids in response to the RFP, and ultimately choosing the Plan Processor that will build, operate, and maintain the consolidated audit trail. The Commission believes that the process set out in the Selection Plan for selecting a Plan Processor remains a reasonable approach, which will facilitate the selection of Plan Processor through a fair, transparent and competitive process and that no modifications to the Selection Plan are required to meet the approval standard. . . . In response to the comment that offered support for a specific Bidder, the Commission agrees with the Participants that the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor and thus believes that the process set forth in the Selection Plan should be permitted to continue.
During the process of developing the CAT NMS Plan, the Participants engaged in extensive and meaningful dialogue with market participants and the SEC. To this end, the Participants created a website to update the public on the progress of the CAT NMS Plan, published a request for comment on multiple issues related to the Plan, held multiple public events to inform the industry of the progress of the CAT and to address inquiries, and formed, and later expanded, a DAG to solicit more input from a representative industry group.
The DAG included representatives of Participants and Industry Members and conducted meetings to discuss, among other things, technical and operational aspects the Participants were considering for the Plan. The Participants issued press releases soliciting participants for the DAG, and a wide spectrum of firms was deliberately chosen to provide insight from various industry segments affected by CAT. The DAG meetings included discussions of topics such as option market maker quote reporting, requirements for capturing Customer IDs, timestamps and clock synchronization, reporting requirements for order handling scenarios, costs and funding, error handling and corrections, and potential elimination of systems made redundant by the CAT. From the inception of the DAG through September 2014, the DAG participated in 36 meetings, as well as a variety of DAG subcommittee meetings.
Following multiple discussions between the Participants and both the DAG and the bidders, as well as among the Participants themselves, the Participants recognized that some provisions of Rule 613 would not permit certain solutions to be included in the Plan that the Participants, in coordination with the DAG, determined advisable to effectuate the most efficient and cost-effective CAT. Specifically, “the SROs reached the conclusion that additional flexibility in certain of the minimum requirements specified in Rule 613 would allow them to propose a more efficient and cost-effective approach without adversely affecting the reliability or accuracy of CAT Data, or its security and confidentiality.”
After reviewing the exemptive request, the Commission determined that it was appropriate in the public interest and consistent with the protection of investors to grant the requested exemptive relief.
[T]he Commission is persuaded to provide flexibility in the discrete areas discussed in the Exemption Request so that the alternative approaches can be included in the CAT NMS Plan and subject to notice and comment. Doing so could allow for more efficient and cost-effective approaches than otherwise would be permitted. The Commission at this stage is not deciding whether the proposed approaches detailed below are more efficient or effective than those in Rule 613. However, the Commission believes the proposed approaches should be within the permissible range of alternatives available to the SROs.
The Commission further stated that the requested exemptive relief is consistent with the protection of investors. The Commission noted that:
Doing so will provide the public an opportunity to consider and comment on whether these proposed alternative approaches would indeed be more efficient and cost-effective than those otherwise required by Rule 613, and whether such approaches would adversely affect the reliability or accuracy of CAT Data or otherwise undermine the goals of Rule 613. Moreover, if—as the SROs represent—efficiency gains and cost savings would result from including the proposed approaches in the CAT NMS Plan without adverse effects, then the resultant benefits could potentially flow to investors (
The Participants incorporated the exemptive relief into the proposed CAT NMS Plan, which was noticed for comment, and the Commission ultimately approved the CAT NMS Plan with the more efficient and cost-effective alternative approaches described in the exemptive relief. Accordingly, the Participants believe that the costs incurred in developing the exemptive request were critical to the creation of a better CAT than was
Rule 613(a)(1) under Regulation NMS required the Participants to jointly file the CAT NMS Plan on or before April 28, 2013, less than a year after the adoption of Rule 613. In recognition of the complexity of the project to create the CAT NMS Plan as well as industry interest in limiting or eliminating certain requirements of Rule 613 (
The SROs stated in their Request Letter that they do not believe that the 270-day time period provided for in Rule 613(a)(1) provides sufficient time for the development of the RFP, formulation and submission of bids, and review and evaluation of such bids. The SROs also stated that they believe additional time beyond the 270 days provided for in Rule 613(a)(1) is necessary in order to provide sufficient time for effective consultation with and input from the industry and the public on the proposed solution chosen by the SROs for the creation of the consolidated audit trail at the conclusion of the RFP process and the NMS plan itself.
In recognition of the need for additional time to refine the technical description of and requirements for the CAT and to allow for additional evaluation of the proposed cost and funding considerations, the SEC granted two extensions of this deadline.
This additional time to complete the RFP process should allow the SROs to engage in a more thoughtful and comprehensive process for the development of an NMS plan. In this regard, the Commission notes that the additional time to solicit comment from the industry and the public at certain key points in the development of the NMS plan could identify issues that can be resolved earlier in the development of the consolidated audit trail and prior to filing the NMS plan with the Commission.
Given the Commission's recognition of the reasonableness and value of the extension of the deadline to file the CAT NMS Plan, the Participants believe that the costs incurred in developing the extension request were important to the process of developing the CAT NMS Plan, and therefore should be recoverable as part of Historical CAT Assessment 1.
After extensive analyses and discussions with the DAG, bidders, market participants and the SEC staff, the Participants finalized the draft of the CAT NMS Plan and filed the CAT NMS Plan with the SEC on September 30, 2014. Following additional discussions, the Participants filed several amendments to the CAT NMS Plan during 2015 and 2016. With these additional changes, the SEC published the CAT NMS Plan for notice and comment in May 2016.
The Pre-Formation Costs include legal costs of $3,196,434. The legal services were performed by WilmerHale. The selection considerations and fees for WilmerHale were described in detail above. Prior to the creation of CAT LLC, WilmerHale was engaged to represent the consortium of SROs, not the individual Participants. For administrative purposes, FINRA agreed to receive such legal bills, although such costs were shared among the Participants. Therefore, the legal costs incurred with respect to WilmerHale do not include legal costs incurred by the individual Participants. These pre-formation legal costs are described in detail above and are further described below:
• 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 DAG;
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on the 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 (
• Drafted exemptive requests;
• Provided interpretations related to the CAT NMS Plan;
• Provided support with regard to discussions among the exchanges, FINRA and other third parties, such as Deloitte;
• Provided tax advice with regard to CAT's status as a tax-exempt organization; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The Pre-Formation Costs include consulting costs of $10,589,273. The consulting services were performed by Deloitte. The selection considerations and fees for Deloitte were described in detail above. Prior to the creation of CAT LLC, for administrative purposes, Deloitte was engaged by FINRA to provide consulting services related to CAT, but the costs were shared by the consortium of SROs per agreement. Therefore, the consulting costs incurred with respect to Deloitte do not include consulting costs incurred by the individual Participants. The pre-formation consulting costs include the following:
• Established and implemented program operations for the CAT project, including the program management 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 Participants' independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, reviewing technical requirements of other NMS plans, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• 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 (
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided support for industry outreach sessions, including with regard to program design and agenda development, program support and logistics and coordination; and
• Provided support in fact finding, drafting content and meeting coordination for WilmerHale with regard to the CAT and the development of the CAT NMS Plan.
Such Pre-Formation Costs did not include costs related to the Chair of the CAT NMS Plan Operating Committee, as the CAT NMS Plan had not yet been adopted.
The Pre-Formation Costs include public relations costs of $57,174. The public relations services were performed by Peppercomm. The selection considerations and fees for Peppercomm are described in detail above. The costs related to Peppercomm were shared among the SROs. Therefore, the public relations costs do not include public relations costs incurred by the individual Participants. The pre-formation public relations costs include services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs related to cloud hosting services as a part of Historical CAT Assessments. CAT LLC believes that the costs related to cloud hosting services described in detail above are reasonable and appropriate given the strict data processing timelines and storage requirements imposed by the Commission-approved CAT NMS Plan and should be recoverable as a part of Historical CAT Assessment 1.
CAT LLC believes that the costs for the cloud hosting services are reasonable, both in terms of the level of the fees paid by CAT LLC for cloud hosting services provided by AWS and the scope of the services performed by AWS for CAT LLC. CAT LLC believes that both the scope and amount of the costs for cloud hosting services are reasonable given the current requirements of the CAT NMS Plan adopted pursuant to Rule 613, including the strict data processing timeline, storage and other technical requirements under the Commission-approved CAT NMS Plan.
CAT LLC believes that the level of fees for the cloud hosting services is 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.
CAT LLC also believes that the scope of services provided by AWS for the CAT are appropriate given the current requirements of the Commission-approved CAT NMS Plan. As described above, the cloud hosting services costs reflect a variety of factors including, among other things:
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In addition, various requirements of the CAT NMS Plan adopted pursuant to Rule 613 contribute to the significant cloud hosting services costs, and that various Plan requirements could be amended or removed without affecting the regulatory purpose of the CAT. Indeed, CAT LLC has repeatedly sought exemptive relief and filed amendments to the CAT NMS Plan, and has even filed suit against the Commission, to seek to revise or eliminate certain costly requirements related to the CAT. However, despite these efforts, absent the Commission granting exemptive relief or approving cost savings amendments to the CAT NMS Plan, CAT LLC, the Participants and Industry Members are all required to comply with such requirements.
CAT is reasonably designed to efficiently and effectively utilize cloud computing and storage services, given the requirements of the Commission-approved CAT NMS Plan, including requirements related to security, operational reliance and quality assurance, and maintainability.
The Plan Processor uses state-of-the-art software that meets the strict security standards of the CAT NMS Plan. CAT utilizes a big data processing framework that is extensively used by large data processing companies, such as Apple, Meta, Netflix, IBM and Google. As such, it has substantial commercial support and support in the open-source community. It is also well suited for use with regard to iterative types of algorithms and query functions and analytics that the CAT requires, and it provides the heightened security necessary for the CAT.
The development and implementation of the design of CAT is not and has not been static. CAT LLC and the Plan Processor are always evaluating new innovations and service offerings from AWS and other providers to seek to maximize efficiency and cost avoidance while still satisfying the requirements of the CAT NMS Plan. These efforts have led to substantial savings to date. The cloud hosting costs for 2023 were less than the cloud hosting costs for 2022 by $8 million despite processing seven
When evaluating the design of the CAT, it must be kept in mind that the CAT is not a typical commercial technology project. The ability to make use of technology approaches that may lead to cost avoidance is also subject to the restrictive requirements of the CAT NMS Plan, such as processing timeframes, requirements for retention of data versions, query requirements, and security standards. Because such requirements are set forth in the CAT NMS Plan, any modification of such requirements are subject to the time-consuming process of amending the CAT NMS Plan or seeking an exemption from the relevant requirement. For example, CAT LLC recently has filed an amendment to address several of these expensive Plan requirements.
The CAT System also was designed to minimize the extent to which Industry Members would need to alter their systems to report to CAT. During the design process, Industry Member groups argued that it would make more sense financially for the CAT to accommodate differences in industry systems, than for all Industry Members to change their systems. Moreover, such design choices would facilitate consistency, uniformity and accuracy in reporting. Requiring the CAT to make such accommodations may increase CAT costs while accommodating CAT Reporters.
Based on the requirements in the CAT NMS Plan and/or in response to industry requests for functionality to be embedded with the Plan Processor to streamline or limit Industry Member system changes, the CAT has been designed to limit the effect on Industry Members. The following provides examples of such accommodations:
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To be clear, if OATS-like error correction tools are not made available on Day 1, hundreds of firms will be required to create and test their own tools or obtain vendor alternatives prior to the CAT Go-Live Date. Proprietary tools will require additional system builds, access to and ingestion of CAT data to perform system validation, and testing which will further stress the limited number of subject matter experts (“SMEs”) dedicated to the implementation of CAT reporting. Should this occur, inevitably firms (especially small firms who lack the necessary IT staff to write code and develop proprietary systems), may be put in the position of passing onto investors the cost required to build hundreds of redundant systems.
CAT provides various tools to help Industry Members identify and rectify errors.
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FIF CAT WG is not proposing a specific format; rather, we are proposing flexibility of input formats which includes support of existing formats (
Mandating a uniform format for reporting data to the CAT simplifies the task for the Central Repository of consolidating/storing data, but it puts the burden on each CAT Reporter to accurately translate their current (
CAT provides such a flexible input format.
The costs for cloud hosting services are appropriate and have not been adversely affected by the original design and approaches of the Initial Plan Processor. FCAT's design costs are the result of the requirements of the Commission-approved CAT NMS Plan.
When FCAT took over as the Plan Processor from Thesys, it utilized certain aspects of the technical specifications created by Thesys in its design. However, FCAT has not maintained aspects of the original design that would not be appropriate for the CAT. FCAT revised and enhanced the original technical specifications of the CAT System to increase its
Moreover, FCAT did not utilize the system built by the Initial Plan Processor; it rebuilt the CAT System based on revised technical specifications. For example, the Initial Plan Processor used an on-premises processing approach which was not geared toward the huge amounts of data stored in the CAT, while FCAT adopted a cloud-based solution in response to such data demands.
Furthermore, given the very short timeframe to develop the CAT System and the prior optimization of certain query tools (
CAT LLC continues to support the selection of AWS as the cloud hosting services provider for CAT given the compliance, operational, and security requirements of the CAT. Independent analyses confirm these conclusions, noting that “AWS is an excellent choice for either strategic or tactical use and recommends considering AWS for almost all cloud IaaS or IaaS+PaaS scenarios.”
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In addition, the nature of the CAT, including the amount of data it must process and the size of its data footprint, does not allow for a multi-cloud solution as this would be cost prohibitive and greatly increase the security boundary and associated risk profile of the CAT. For example, a multi-cloud hosting option would increase costs, complexity, and risk for operations with regard to, for example, DevOps, production support, and networking. Similarly, with regard to security, a multi-cloud solution would increase risk, including with regard to the need for data transfers between cloud providers and the expansion of the security boundary. With regard to labor, a multi-cloud solution would lose economies of scale due to the need to support unique cloud requirements. Accordingly, the use of single-cloud solution continues to provide advantages with regard to cost, complexity, and risk. Indeed, “[t]he best practice is to focus on a single primary strategic provider.”
Furthermore, if another cloud service provider were determined to be a better match for the CAT at some future date, switching cloud service providers would be a very significant, expensive and time-consuming effort. Such an effort would likely be a 10-to-15-year commitment at a substantial expense. Such a move would require the replication or redesign of the underlying cloud environments (
CAT LLC believes that the recovery of costs related to the development of the funding model is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
Funding the CAT is a critical aspect of Rule 613 and the CAT NMS Plan. Article XI of the CAT NMS Plan describes in detail the requirements for funding the CAT, and the Participants are required to comply with and enforce compliance with the funding requirements of the CAT NMS Plan, just as with other aspects of the Plan. Accordingly, the development and implementation of a funding model for the CAT is as much a part of the requirements of the CAT NMS Plan as the development and operation of the CAT System. CAT LLC sees no reason to distinguish the efforts to develop a funding model from, for example, efforts to develop the CAT System, in seeking to recover reasonable CAT costs.
Moreover, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . legal costs.”
In addition, the legal costs incurred for the assistance in developing the CAT Funding Model are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at negotiated rates for such services that reflect both the extent of the services and market rates. Moreover, the scope of the legal costs associated with the development of the funding model reflect the complexity of the task in satisfying the detailed requirements of the CAT NMS Plan, the standards of the Exchange Act, and the many perspectives of the different
CAT LLC believes that the recovery of legal costs related to the litigation with the SEC regarding the CAT NMS Plan is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
The conditional exemptive relief in this Order allows for the implementation of alternative regulatory solutions that continue to advance the regulatory goals that Rule 613 and the CAT NMS Plan were intended to promote, while reducing the implementation and operational costs, burdens, and/or difficulties that would otherwise be incurred by the Participants and Industry Members that must fund the CAT.
CAT LLC believes it is reasonable and appropriate to incur costs to limit the need to incur even greater costs due to certain interpretations of the Plan.
In addition, the legal costs incurred during the litigation are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at market rates for such services. As such, the legal costs related to this litigation incurred during the period covered by Historical CAT Assessment 1 were reasonable.
Finally, Industry Members will directly benefit from the result of the litigation because it has addressed CAT NMS Plan requirements that would have imposed significantly greater costs on the CAT. Accordingly, it is reasonable and appropriate that the costs of such litigation be included in the Historical CAT Costs 1.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017, which was the date by which Participants were required to begin reporting to the CAT, due to the delay in the commencement of reporting to the CAT. As discussed above, the Participants determined to exclude all CAT costs incurred from November 15, 2017 through November 15, 2018, which includes $37,852,083 in Thesys costs incurred from November 15, 2017 through November 15, 2018 (as well as other CAT costs during this period). The remaining Thesys costs incurred after November 15, 2018 are the $19,628,791 in capitalized developed technology costs for the period from November 16, 2018 through February 2019 incurred in the development of the CAT by the Initial Plan Processor, as well as a transition fee for the transition from the Initial Plan Processor to the successor Plan Processor. The Participants would remain responsible for 100% of these $19,628,791 in costs.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017. CAT LLC notes that the development and implementation of the CAT System, while unprecedented in scope and design, is like any other large and innovative technology project in that, inevitably, there were adjustments and refinements in the technical approach as the project developed, even with substantial planning efforts and oversight prior to the build. This is even more likely when the project faces a very tight implementation schedule, such as the one imposed by the Commission in Rule 613 and the CAT NMS Plan. However, an adjusted approach does not mean that the funds were not valid expenditures and should not be recovered.
The reasonableness of Thesys costs should be evaluated by the Commission as of the time they were incurred, not in hindsight. As detailed above, the Commission concluded in 2016 that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue.”
As noted in the CAT Funding Model Approval Order, “[i]n Rule 613, the Commission made the determination that the costs of the CAT should be shared by the Participants and Industry Members.”
CAT LLC believes that the recovery of CAIS-related costs is appropriate, and that the amount and scope of such costs, as described above, are reasonable, and that the reasonableness of historical costs should be evaluated by the Commission as of the time they were incurred, not in hindsight.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable CAIS operating costs as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . CAIS operating fees.”
In addition, CAT LLC determined that the CAIS operating fees described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The “CAIS Operating Costs” for Historical CAT Assessment 1 total $9,480,587, with Pre-FAM costs of $2,072,908, FAM 1 costs of $254,998, FAM 2 costs of $1,590,298, and FAM 3 costs of $5,562,383. As described above, the CAIS operating fees were incurred with regard to two categories of CAIS-related efforts: (1) the acceleration of the reporting of LTIDs; and (2) the development of the CAIS Technical Specifications and the building of CAIS. These two categories of costs are discussed in more detail below.
During the period covered by Historical CAT Assessment 1, the CAIS operating costs included costs related to the acceleration of the reporting of LTIDs earlier than originally contemplated during this period at the request of the SEC and in accordance with exemptive relief granted by the SEC.
• After FCAT developed the LTID Technical Specifications, the LTID Technical Specifications were published on January 31, 2020, with additional updates provided to the LTID Technical Specifications through April 2021.
• The LTID account information testing environment opened on August 24, 2020.
• The LTID account information reporting production environment opened on December 14, 2020.
• CAT Reporters were required to request their production readiness certification for account information related to LTIDs by the deadline of April 9, 2021.
• The LTID account information reporting for Phases 2a, 2b and 2c for Large Industry Members went live on April 26, 2021.
• The LTID account information reporting for Phases 2d for Large Industry Members went live on December 13, 2021.
• The LTID account information reporting for Phases 2a, 2b, 2c and 2d for Small Industry Members went live on April 26, 2021.
Throughout this project, FCAT and CAT LLC worked closely with the industry on LTID and CAIS reporting. Between December 2019 and December 2021, at least 57 checkpoint calls, webinars, and technical working group meetings with industry representatives were hosted to address issues and to educate CAT Reporters regarding LTID and CAIS reporting.
The LTID reporting project was successfully completed in a timely fashion, and the fees related to the project were reasonable. Accordingly, CAT LLC appropriately seeks to recover such costs via Historical CAT Assessment 1.
During the period covered by Historical CAT Assessment 1, FCAT began the development of the full CAIS Technical Specifications and the building of CAIS. The CAIS Technical Specifications were developed during this period as follows:
• Iterative drafts of the CAIS Technical Specifications were published on June 30, 2020, December 1, 2020, and January 1, 2021.
• The full, final CAIS Technical Specifications were published on January 29, 2021.
• Updated versions of the CAIS Technical Specifications were published throughout 2021.
As discussed above, FCAT and CAT LLC frequently engaged with the industry regarding the development of CAIS, hosting regular checkpoint calls, webinars, and technical working group meetings with industry representatives to address any issues, including addressing the interplay between Industry Members' existing customer systems and CAIS, and to educate CAT Reporters regarding LTID and CAIS reporting. Such engagement was critical to the CAIS development process as the CAIS project was unprecedented in terms of its content, scope and complexity.
During this period, FCAT also commenced the building of the CAIS system in accordance with the CAIS Technical Specifications during the period covered by Historical CAT Assessment 1. The CAIS system was ready for industry testing shortly after the end of this period in January 2022.
The CAIS Technical Specifications and the CAIS system, as developed during this period, continue to be in use today. Industry Members have been required to report, and have continuously reported, required data to CAIS on a daily basis since November 7, 2022, consistent with interim reporting obligations. The CAIS system accepts and validates the CAIS data submitted by Industry Members and provides Industry Members with initial feedback on data errors. In light of the unprecedented nature of the CAIS system, certain changes to the system, such as changes related to error corrections and the CAIS regulatory portal, were necessary to finalize CAIS reporting. FCAT worked to address these remaining issues,
CAT LLC believes that the recovery of public relations costs is appropriate and that the amount and scope of such costs, as described above, are reasonable.
The Commission has long recognized that external public relations costs are reasonably associated with creating, implementing and maintaining the CAT. In the CAT NMS Plan Approval Order, the Commission estimated that the Participants had collectively spent approximately $2,400,000 in
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for public relations services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . public relations costs.”
In addition, CAT LLC determined that the public relations costs described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The services performed by the public relations firms through 2021 were limited in scope to assist CAT LLC, which has no employees of its own, to be better positioned to understand and address CAT matters to the benefit of all market participants and to communicate on important CAT topics with the public. In addition, the costs for these services were appropriately limited. During the 10-year period covered by Historical CAT Assessment 1, the average cost per year for these services was approximately $36,000.
CAT LLC believes that the recovery of legal costs related to the limitation of liability provision, including costs related to the proceedings before the SEC and costs related to the proposed amendment to the Consolidated Audit Trail Reporter Agreement and the Consolidated Audit Trail Reporting Agent Agreement (the “Reporting Agreements”) is appropriate and that the amount and scope of such costs as described above are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
Moreover, it is critical that CAT LLC, which has no employees of its own, have the ability to fund a legal defense in litigation and other legal proceedings against it. In response to CAT LLC requiring Industry Members to agree to the limitation of liability provision to submit data to the CAT, SIFMA filed an application for review of actions taken by CAT LLC and the Participants pursuant to Sections 19(d) and 19(f) of the Exchange Act. Contemporaneously with the filing of this proceeding, SIFMA moved for a stay of the requirement that Industry Members sign a Reporter Agreement, or in the alternative, asked the Commission to further delay the launch of CAT reporting on June 22, 2020. CAT LLC must have the resources to defend itself from litigious actions by others, like these.
Although a limitation of liability provision ultimately was not adopted as proposed, it was a reasonable provision to propose for the CAT Reporter Agreements, given that such provisions are in accordance with industry norms. Limitations of liability are ubiquitous within the securities industry and have long governed the economic relationships between self-regulatory organizations and the entities that they regulate. For example, U.S. securities exchanges have adopted rules to limit their liability for losses that Industry Members incur through their use of exchange facilities.
Furthermore, as described above, the specialized services were performed by experienced counsel at market rates for such services. Accordingly, the legal costs for the efforts related to the limitation of liability provision were reasonable.
CAT LLC believes that the recovery of consulting costs related to the Chair of the CAT Operating Committee is appropriate and that the amount and scope of such costs are reasonable.
As a preliminary matter, the selection of the Chair of the Operating Committee complies with the requirements of Section 4.2 of the CAT NMS Plan. The initial Chair that served during the period covered by Historical CAT Assessment was designated by a Participant as the Participant's alternate voting member. Accordingly, the Chair is a representative of the Participants, as required by the CAT NMS Plan.
In addition, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for consulting as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . consulting . . .” costs.
The Participants determined that the position of the Chair was a critical role for the implementation of the CAT, and an independent Chair would appropriately consider and address the views of each of the Participants. The Participants also determined that it was important to have a Chair with a strong background regarding issues related to the regulatory obligations of self-regulatory organizations, including their obligations under national market system plans. The compensation paid to the Chair is appropriate for a person with such background and skills. The
CAT LLC understands that there are three types of reconciliation processes related to the invoices:
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As discussed further below, CAT LLC only considers the first type of process to be a “reconciliation” and the only type of process that is required under the CAT NMS Plan. CAT LLC provides the means to reconcile the CAT invoice amount to the underlying trades provided by CAT.
The CAT NMS Plan does not require CAT LLC to facilitate the second type of process: matching underlying trades for a CAT invoice with a firm's internal books and records. CAT LLC has access only to the underlying trades provided by CAT; it does not have access to a firm's internal books and records. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
The CAT NMS Plan also does not require CAT LLC to provide the ability to identify the order originator for the underlying trades for the CAT invoices. Accordingly, the billing guidance and processes do not provide CAT Reporters with the ability to identify the order originator for the underlying trades provided by CAT with CAT invoices. CAT LLC has been working closely with CAT Reporters to explain its billing approach and to address any outstanding billing questions. But, it should not be lost that CAT LLC provides information sufficient to allow CAT Reporters to reconcile CAT invoice amounts with the underlying trades provided by CAT LLC.
The CAT NMS Plan does not require CAT LLC to facilitate the matching of underlying trades for a CAT invoice with a firm's internal books and records, which may consist of trading data from various sources external to CAT. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
In this regard, it is important to recognize that CAT LLC has developed a billing approach that greatly improves upon existing billing practices for similar regulatory fees (
To facilitate the introduction of CAT fees, CAT LLC has worked with FCAT to develop an approach to CAT billing that is consistent with existing billing constructs used with regard to Section 31-related sales values fees, subject to certain enhancements. Under this billing approach, FCAT is providing additional linkage elements, not necessarily provided in the Section 31-sales value fee context, to facilitate CAT Reporters' ability to match the underlying trades provided by CAT with their internal books and records and to reduce the complexity of that process. Specifically, FCAT is providing various key elements of the trade itself, such as the tradeID and branch sequence,
With the Additional Trade Details, CAT LLC and FCAT believe that the overwhelming majority of underlying trades provided by CAT bills can be matched with a CAT Reporter's internal books and records. CAT LLC recognizes that there may be certain cases in which such matching is more difficult given various firm-specific considerations, but believes that such instances are significantly more limited than with regard to the SRO fees charged in relation to Section 31.
Similar to other regulatory fees, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Accordingly, Historical CAT Assessment 1 does not address the process by which any CAT Reporters may pass through the fee to their customers. Likewise, the CAT billing approach provided by the Plan Processor is designed to address the needs of CAT Reporters with regard to the reconciliation of CAT invoices with
In its approval of the CAT Funding Model, the Commission approved charging CAT fees to the CAT Executing Broker, rather than the originating broker. This fee filing must comply with the requirements of the CAT Funding Model, and, therefore, charges the Historical CAT Assessment 1 to CAT Executing Brokers.
Moreover, charging originating brokers would introduce significant complexity to the billing process from the CAT's perspective, and would increase the costs of implementing CAT fees. Charging the CAT Executing Broker is simple and straightforward, and leverages a one-to-one relationship between billable events (trades) and billable parties, similar to other transaction-based fees. In contrast, for a single trade event, there may be many originating brokers, and each trade must be broken down on a pro-rata basis, to account for one or more layers of aggregation, disaggregation, and representation of the underlying orders. While CAT is indeed designed to capture and unwind complex aggregation scenarios, the data and linkages are structured to facilitate regulatory use, and not a billing mechanism that assesses fees on a distinct set of executed trades; it is not simply a matter of using existing CAT linkages. Furthermore, charging originating brokers would implicate issues related to lifecycle linkage rates, and issues related to corrections, cancellations and allocations, while charging CAT Executing Brokers would avoid such issues.
As noted, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT Fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Nevertheless, the Additional Trade Details provided with regard to the underlying trades on CAT invoices may assist with this process. Like with Section 31-related sales value fees, however, it is not always possible to trace every fee on a transaction back to the originating party. Industry Members have faced these issues under Section 31-related sales values fees for many years.
CAT LLC has worked with FCAT to provide significant technical assistance to Industry Members to allow the Industry Members to understand how Historical CAT Assessment 1 will be implemented and billed, including webinars, CAT alerts, mock invoices, and responses to questions posed to the FCAT Help Desk.
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By providing such detailed and sustained assistance to Industry Members regarding CAT fees and billing, CAT LLC has successfully addressed questions raised by Industry Members regarding the CAT fees and billing processes.
CAT LLC has provided Industry Members with ample time to comply with the implementation of Historical CAT Assessment 1. CAT LLC originally proposed issuing the first invoices for Historical CAT Assessment 1 in December 2023 based on transactions in Eligible Securities in November 2023. In consideration of the feedback about the need for additional time to implement the new fee, CAT LLC pushed back this timeline by four months, proposing to issue the first Historical CAT Assessment 1 in April 2024 based on transactions in March 2024.
The Exchange believes the proposed rule change is consistent with the requirements of the Exchange Act. The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,
The Exchange believes that this proposal is consistent with the Act because it implements provisions of the Plan and is designed to assist the Exchange 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.”
The Exchange believes that the proposed fees paid by the CEBBs and CEBSs are reasonable, equitably allocated and not unfairly discriminatory. First, the Historical CAT Assessment 1 fees to be collected are directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to technology, legal, consulting, insurance, professional and administration, and public relations costs. The Exchange has already incurred such development and implementation costs and the proposed Historical CAT Assessment 1 fees, therefore, would allow the Exchange 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 and not to support the Exchange's business operations. The proposed fees would not cover Exchange services unrelated to the CAT. In addition, any surplus would be used as a reserve to offset future fees. Given the direct relationship between CAT fees and CAT costs, the Exchange believes that the proposed fees are reasonable, equitable and not unfairly discriminatory.
As further discussed below, the SEC approved the CAT Funding Model,
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, the Exchange has filed this fee filing to implement the Industry Member CAT fees included in the CAT Funding Model. The Exchange 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 the Exchange 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.”
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.
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:
In accordance with this requirement, the Exchange 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, the Exchange 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.
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.
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
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 (
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.
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.
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.
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.
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
These costs involve the activity of both the Initial Plan Processor and FCAT, as the successor Plan Processor.
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.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover consulting costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover insurance costs as a part of Historical CAT Assessments.
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.
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.
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 balanace of these considerations.
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.
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.
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.
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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.
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.
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, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
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.
The Exchange believes that imposing Historical CAT Assessment 1 with a fee rate of $0.000013 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, the Exchange 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 (
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.
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.
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.
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, the Exchange 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 the fee schedule. The Exchange 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 Exchange members to reasonably predict their payment obligations for budgeting purposes.
Section 6(b)(8) of the Act
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.
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.
Not applicable.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Exchange Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”)
The Exchange is filing a proposal to amend the MIAX Fee Schedule (“Fee Schedule”) to establish fees for Industry Members
The text of the proposed rule change is available on the Exchange's website at
In its filing with the Commission, the Exchange 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 IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
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.
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).
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').”
Each Historical CAT Assessment to be paid by CEBBs and CEBSs is designed
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. 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.' ”
The Exchange previously filed a fee filing to implement Historical CAT Assessment 1. On January 17, 2024, the SEC published this prior filing for Historical CAT Assessment 1, temporarily suspended the fee filing, and instituted proceedings to determine whether to approve or disapprove the fee filing.
Historical CAT Assessment 1 will be charged to each CEBB and CEBS for each applicable transaction in Eligible Securities.
(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.
The following fields of the Participant Technical Specifications indicate the CAT Executing Brokers for the transactions executed on an exchange.
In addition, the following fields of the Participant Technical Specifications would indicate the CAT Executing Brokers for the transactions executed otherwise than on an exchange.
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 $0.00003994969693072937 per executed equivalent share. This rate is then divided by three and rounded to determine the fee rate of $0.000013 per executed equivalent share that will be assessed to CEBBs and CEBSs, as also discussed in detail below.
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 (
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.”
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 $124,290,730. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($41,430,243.33), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third ($41,430,243.33). 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.
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.
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, 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 [
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,”
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 (
FCAT was selected to assume the role of the successor Plan Processor. Prior to this selection, the Participants engaged in discussions with two prior Bidders
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.
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.
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;
• 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, the 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;
• 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.
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 originally adopted.
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 change 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.
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 $51,847,150 relate to technology provided by the Initial Plan Processor and the successor Plan Processor.
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.
From January 17, 2017 through January 30, 2019, the time in which the Thesys CAT was engaged for the CAT,
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.
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 the 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 (
• 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 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.
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 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 [
• 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 (
• 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.
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.
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.
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;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
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.
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.
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 (
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.
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”),
By
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
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.
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 draft 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.
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.
CAT LLC did not incur costs related to change requests during FAM Period 1.
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 timestamps; (2) implementation fees; and (3) license fees.
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.
• 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.
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.
Although insurance was in effect during FAM Period 1, CAT LLC did not incur costs related to insurance during FAM Period 1.
• 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 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.
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 (
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”),
By the completion
(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.
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.
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.
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.
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.
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 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.
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.
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.
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.
• 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 (
• 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.
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.
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.
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.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
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”),
By the completion of FAM Period 3, CAT LLC was required to implement the following requirements with regard the CAT:
(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.
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.
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.
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.
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.
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.
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.
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.
• 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
• 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 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;
• Provided assistance with change requests;
• Provided guidance and regulatory support for litigation regarding the response to the 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.
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.
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 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.
The insurance costs of $1,582,714 represent the fees paid for insurance during 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.
The professional and administration costs of $595,923 represent the fees paid to Anchin and Grant Thornton for financial services during FAM Period 3.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
Historical CAT Costs 1 would not include three categories of CAT costs (“Excluded Costs”): (1) $14,749,362 of costs related to the termination of the relationship with the Initial Plan Processor; (2) $48,874,937, which are all CAT costs incurred from November 15, 2017 through November 15, 2018; and (3) $19,628,791, which are costs paid to the the Initial Plan Processor from November 16, 2018 through February 2019 when the relationship with the Initial Plan Processor was concluded. The Participants would remain responsible for 100% of these costs, which total $83,253,090. CAT LLC determined to exclude these Excluded Costs from Historical CAT Costs 1 because these costs relate to the delay in the start of reporting to the CAT and the conclusion of the relationship with the Initial Plan Processor.
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 the Initial Plan Processor, and the settlement costs related to the arbitration with the Initial Plan Processor. The Participants would remain responsible for 100% of these $14,749,362 in costs.
Second, Historical CAT Costs 1 would not include all CAT costs incurred from November 15, 2017 through November 15, 2018. CAT LLC determined to exclude all costs during 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.
The following provides additional detail regarding the Excluded Costs.
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.
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.
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.
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 (
• Assisted with cost and funding issues 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 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.
CAT LLC did not incur costs related to insurance during the period from November 15, 2017 through November 15, 2018.
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.
• 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
• 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.
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 engagment [
Third, Historical CAT Costs 1 would not include the $19,628,791 in costs paid to the Initial Plan Processor from November 16, 2018 through February 2019 when CAT LLC's relationship with the Initial Plan Processor concluded. CAT LLC determined that Historical CAT Costs 1 would not include any fees paid to the Initial Plan Processor after November 15, 2017,
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.
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.
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.
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.”
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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
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.
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.
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.
The CAT NMS Plan further states that “Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs.”
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.
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.”
To implement Historical CAT Assessment 1, a new section would be added to the Exchange's fee schedule for “Consolidated Audit Trail Funding Fees”, and it would include the proposed paragraphs described below.
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.
Accordingly, based on the factors discussed above, the Exchange proposes to add paragraph (a)(1) to the Consolidated Audit Trail Funding Fees section of its fee schedule. Proposed paragraph (a)(1) would state the following:
(A) Each CAT Executing Broker shall receive its first invoice for Historical CAT Assessment 1 in November 2024, which shall set forth the Historical CAT Assessment 1 fees calculated based on transactions in October 2024, and shall receive an invoice for Historical CAT Assessment 1 for each month thereafter in which Historical CAT Assessment 1 is in effect.
(B) 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
(C) Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (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.
(D) Each CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).
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.
The proposed language in paragraph (a)(1)(A) of the fee schedule 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 November 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 October 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 paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(1)(A) of the fee schedule 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 November 2024, invoices will be sent to CAT Executing Brokers each month thereafter while Historical CAT Assessment 1 is in effect.
Proposed paragraph (a)(1)(B) of the fee schedule would describe the invoices for Historical CAT Assessment 1. Proposed paragraph (a)(1)(B) of the fee schedule 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)(B) of the fee schedule 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 $0.000013 per executed equivalent share.”
Furthermore, proposed paragraph (a)(1)(C) of the fee schedule 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 $212,039,879.34 (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 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)(D) of the fee schedule 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 (b).”
Paragraph (b)(1) to the “Consolidated Audit Trail Funding Fees” section of its fee schedule describes the manner of payment of Industry Member CAT fees. Paragraph (b)(1) states that “[e]ach CAT Executing Broker shall pay its CAT fees as required pursuant to paragraph (a) each month to the Consolidated Audit Trail, LLC in the manner prescribed by the Consolidated Audit Trail, LLC.” The CAT NMS Plan requires the Operating Committee to establish a system for the collection of 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.
Accordingly, the Exchange previously has added this requirement to the Exchange's fee schedule. Specifically, paragraph (b)(2) of the fee schedule states:
Each CAT Executing Broker shall pay the CAT fees required pursuant to paragraph (a) within thirty 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.
The requirements of paragraph (b)(2) would apply to Historical CAT Assessment 1.
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.
Such information would provide CEBBs and CEBSs with the ability to understand the details regarding the calculation of their Historical CAT Assessment.
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.”
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.
To assist Industry Members with compliance with the commencement of Historical CAT Assessment 1, CAT LLC has been making available to CAT Executing Brokers mock invoices prior to the commencement of Historical CAT Assessment 1. Specifically, CAT Executing Brokers have received mock invoices based on transaction data each month since November 2023. The mock invoices are in the same form as the actual, payable invoices, including both the relevant transaction data and the corresponding fee. However, no payments have been required in response to such mock invoices; they have been used solely to assist CAT Executing Brokers with the development of their processes for paying the CAT fees. Such data has provided 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.
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.”
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”
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.
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: equites 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.
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.' ”
• 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 (
• 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.
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.' ”
The Quarterly Progress Report for the third quarter of 2020 states that “Interim Step: Production Go-Live for Options 2b
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).
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:
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,
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.
• “Production Go-Live for Equities 2a Intrafirm Linkage validations” was completed on 7/27/2020;
• “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.
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.
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 remain [
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
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,
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,
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 (
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 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;
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
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 (
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.”
• “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.
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.
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.” The Exchange 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.
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.
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
As discussed above, CAT LLC has satisfied the Financial Accountability Milestones (“FAMs”) for Periods 1 through 3.
CAT LLC does not believe that the exemptive relief relating to the reporting of electronic responses for quotes (“RFQs”) that are not immediately actionable (“NIA Electronic RFQ Responses”) affect the conclusion that FAMs 1 through 3 have been satisfied. The only reason CAT LLC pursued this relief is because certain Industry Members introduced concerns that NIA Electronic RFQ Responses could be considered “orders” reportable pursuant to Rule 613(j)(8) and some Industry Members were not prepared to report such orders to CAT. Thus, the relief was requested on behalf of Industry Members. CAT LLC itself has not taken any position on whether NIA Electronic RFQ Responses are “orders,” as the definition of “order” is an SEC rule and the trading processes for NIA Electronic RFQ Responses are the Industry Members', not those of the Participants or CAT LLC. Accordingly, CAT LLC stated in its letter that “Industry Members must determine whether trading interest falls within the definition of an `order' for CAT purposes. To the extent an NIA Electronic RFQ Response is not considered an `order” as defined in Rule 613(j)(8) and the CAT NMS Plan, it would not be reportable to CAT.”
Only “orders” as defined in SEC Rule 613(j)(8) are reportable to CAT. There is no agreement across the industry or among regulators as to whether NIA Electronic RFQ Responses are “orders” reportable to CAT. Certain Industry Members have raised the question as to whether NIA Electronic RFQ Responses are orders, but others have argued that they are not orders under Rule 613(j)(8).
As further discussed in the prior FIF letters, even if the Commission had the legal authority to require the reporting of NIA RFQ responses to CAT without an amendment to Rule 613, the Commission has not provided guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT. In subsequent discussions with industry members, Commission representatives have agreed that, prior to NIA RFQ responses being reportable to CAT, it would be necessary for the Commission to provide further guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT.
On May 20, 2024, the Commission granted CAT LLC's request for exemptive relief from certain CAT reporting requirements pertaining to NIA Electronic RFQ Responses to the extent such responses are considered “orders” reportable pursuant to Rule 613(j)(8).
When the Commission proposed the FAMs, the Participants expressed concern that, “by conditioning the ability of CAT LLC and the Participants to collect Post-Amendment Industry Member Fees on factors dependent on the efforts of Industry Members, the Commission's proposals inadvertently establish a perverse incentive for Industry Members to devote less than maximum efforts to comply with their obligations related to the CAT as they will pay less fees in such instances.”
CAT LLC does not believe that the Commission's May 19, 2023 order granting temporary exemptive relief relating to certain verbal floor activity and unstructured verbal and electronic upstairs activity (the “2023 Verbal Quotes Exemption”) affects the conclusion that FAMs 1 through 3 have been satisfied. The 2023 Verbal Quotes Exemption, which was issued on May 19, 2023, is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. The relevant exemption for this time period is the Commission's November 12, 2020 order, which granted relief for the same activity through July 31, 2023 (the “2020 Verbal Quotes Order”).
CAT LLC does not believe that the Commission's November 2, 2023 order granting relief from certain CAT NMS Plan requirements (the “November 2023 Order”) affects the conclusion that FAMs 1 through 3 have been satisfied. The November 2023 Order is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. As described in the November 2023 Order, the relevant exemptive orders for this time period were issued on December 16, 2020, which also states that “the Commission has determined that the Participants have sufficiently complied with the conditions set forth in the prior Orders and with the technical requirements for Quarterly Progress Reports set forth in section 6.6(c) of the CAT NMS Plan, including for purposes of determining compliance with any applicable Financial Accountability Milestones.”
CAT LLC also completed the requirements of FAM Period 2, including the required linkages, by December 31, 2020. Although Participant exchanges may report the Executing Broker to CAT differently in certain situations, these reporting differences are irrelevant for linkage purposes as the fields used for CAT Executing Broker are not used for linkage.
The CAT Funding Model approved by the Commission permits the recovery of reasonable costs in each of the categories of CAT costs sought to be recovered via Historical CAT Assessment 1.
CAT LLC believes that it is reasonable to seek recovery of costs incurred prior to when the CAT NMS Plan became effective in November 2016, such as legal and consulting fees incurred to create the CAT NMS Plan. Rule 613 specifically mandates that the CAT be created, implemented and maintained, and further provides that the CAT NMS Plan include a proposed allocation of estimated costs to fund the creation, implementation and maintenance of the CAT among the Participants (referred to as “plan sponsors”), and between the Participants and Industry Members (referred to as “members of the plan sponsors”).
Accordingly, the CAT NMS Plan specifically permits the recovery of costs, including legal and consulting costs, reasonably incurred prior to November 2016 in connection with the creation and implementation of the CAT.
Furthermore, the costs incurred to create and implement the CAT prior to the effective date of the CAT NMS Plan (“Pre-Formation Costs”) were reasonable both in scope and amount, in accordance with the requirements of Section 11.1(c) of the CAT NMS Plan. During the four-year period from 2012 to 2016, a total of $13,842,881 in Pre-Formation Costs were incurred. This is an average of approximately $3.5 million per year over this period. The Pre-Formation Costs fell into three categories: legal costs, consulting costs and public relations costs. This includes legal costs of $3,196,434; consulting costs of $10,589,273; and public relations costs of $57,174. The legal, consulting and public relations services were performed by WilmerHale, Deloitte
The Pre-Formation Costs are reasonable and appropriate as they reflect the extensive efforts that were necessary to create the CAT NMS Plan as mandated after the SEC's adoption of Rule 613. As described in more detail below, these efforts included, among other things, developing a plan for selecting the Plan Processor, soliciting and evaluating bids, engaging a diverse set of market participants and the SEC in the development of the Plan, interacting with the SEC in their oversight of the development of the Plan, and seeking appropriate exemptive relief to address areas of concern in Rule 613.
The Participants determined to utilize an RFP to ensure that potential alternative solutions for creating the Plan could be presented and considered, and that a detailed and meaningful cost-benefit analysis could be performed. The SEC supported the use of an RFP, and approved its use as it is described in extensive detail in the CAT NMS Plan.
In the context of the SEC's adoption of Rule 613, commenters urged the Commission to utilize an RFP process to assist in the planning and design of the NMS plan.
In this regard, several commenters suggested that the Commission undergo a RFP or request for information (“RFI”) process to create and implement a consolidated audit trail. Specifically, FIF urged the Commission to perform a RFP process “to determine the best technical solution for developing a consolidated audit trail.” FIF suggested that the Commission “should outline a set of goals and guiding principles they are striving to achieve as part of the adopted CAT filing and leave the determination of data elements and other technical requirements to [an] industry working group.” Similarly, Direct Edge suggested that Commission staff should form and engage in a working group to develop an RFP for publication by the Commission. DirectEdge explained that an RFP process would facilitate the identification of the costs and benefits of the audit trail, as well as the consideration of a wider range of technological solutions. Further, commenters, including Broadridge Financial Solutions, Inc., a technology provider, also requested more specific information about the audit trail system to better assess the Commission's initial cost estimates and to determine the best approach to the consolidated audit trail.
In response to these comments, the Commission modified Rule 613 to require the Participants to address certain important considerations regarding the features and details of the NMS plan and to extend the timeframe for submission of the CAT NMS Plan by the Participants from the 90 days as originally proposed to 270 days, in part, to accommodate a process that would address these considerations.
The SEC specifically recognized that the Participants planned to use an RFP when it approved the Selection Plan, and stated that the RFP was a reasonable approach.
On February 26, 2013, the Participants published an RFP soliciting bids from parties interested in serving as the plan processor for the CAT. Initially, 31 firms submitted intentions to bid. In the following months, the Participants engaged with potential bidders with respect to, among other things, the selection process, selection criteria, and potential bidders' questions and concerns. On March 21, 2014, the Participants received ten bids in response to the RFP.
On September 4, 2013, the Participants filed with the Commission a national market system plan to govern the process for Participant review of the bids submitted in response to the RFP, the procedures for evaluating the bids, and, ultimately, selection of the plan processor (the “Selection Plan”).
The Selection Plan divided the review and evaluation of bids, and the selection of the plan processor, into various stages. Specifically, pursuant to the Selection Plan, a selection committee reviewed all bids and determined which bids contained sufficient information to allow the Participants to meaningfully assess and evaluate the bids. The ten submitted bids were deemed “Qualified Bids,” and so passed to the next stage, in which each bidder presented its bids to the Participants on a confidential basis. On July 1, 2014, after conducting careful analysis and comparison of the bids, the Selection Committee voted and selected a shortlist of six eligible bidders. The Selection Committee
The Selection Plan established an Operating Committee responsible for formulating, drafting, and filing with the Commission the CAT NMS Plan and for ensuring that the Participants' joint obligations under Rule 613 were met in a timely and efficient manner. In formulating the CAT NMS Plan, the Participants also engaged multiple persons across a wide range of roles and expertise, engaged the consulting firm Deloitte as project manager, and engaged the law firm WilmerHale to serve as legal counsel in drafting the Plan. Within this structure, the Participants focused on, among other things, comparative analyses of the proposed technologies and operating models, development of funding models to support the building and operation of the CAT, and detailed review of governance considerations. Given the complexity and scope of developing the CAT NMS Plan, these efforts were extensive.
When it approved the CAT NMS Plan in 2016, the Commission reiterated its belief that the Selection Plan remains a “reasonable approach,” that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue”:
In approving the Selection Plan, the Commission stated that the Selection Plan is reasonably designed to achieve its objective of facilitating the development of the CAT NMS Plan and the selection of the Plan Processor. The Commission also found that the Selection Plan is reasonably designed to govern the process by which the SROs will formulate and submit the CAT NMS Plan, including the review, evaluation, and narrowing down of Bids in response to the RFP, and ultimately choosing the Plan Processor that will build, operate, and maintain the consolidated audit trail. The Commission believes that the process set out in the Selection Plan for selecting a Plan Processor remains a reasonable approach, which will facilitate the selection of Plan Processor through a fair, transparent and competitive process and that no modifications to the Selection Plan are required to meet the approval standard. . . . In response to the comment that offered support for a specific Bidder, the Commission agrees with the Participants that the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor and thus believes that the process set forth in the Selection Plan should be permitted to continue.
During the process of developing the CAT NMS Plan, the Participants engaged in extensive and meaningful dialogue with market participants and the SEC. To this end, the Participants created a website to update the public on the progress of the CAT NMS Plan, published a request for comment on multiple issues related to the Plan, held multiple public events to inform the industry of the progress of the CAT and to address inquiries, and formed, and later expanded, a DAG to solicit more input from a representative industry group.
The DAG included representatives of Participants and Industry Members and conducted meetings to discuss, among other things, technical and operational aspects the Participants were considering for the Plan. The Participants issued press releases soliciting participants for the DAG, and a wide spectrum of firms was deliberately chosen to provide insight from various industry segments affected by CAT. The DAG meetings included discussions of topics such as option market maker quote reporting, requirements for capturing Customer IDs, timestamps and clock synchronization, reporting requirements for order handling scenarios, costs and funding, error handling and corrections, and potential elimination of systems made redundant by the CAT. From the inception of the DAG through September 2014, the DAG participated in 36 meetings, as well as a variety of DAG subcommittee meetings.
Following multiple discussions between the Participants and both the DAG and the bidders, as well as among the Participants themselves, the Participants recognized that some provisions of Rule 613 would not permit certain solutions to be included in the Plan that the Participants, in coordination with the DAG, determined advisable to effectuate the most efficient and cost-effective CAT. Specifically, “the SROs reached the conclusion that additional flexibility in certain of the minimum requirements specified in Rule 613 would allow them to propose a more efficient and cost-effective approach without adversely affecting the reliability or accuracy of CAT Data, or its security and confidentiality.”
After reviewing the exemptive request, the Commission determined that it was appropriate in the public interest and consistent with the protection of investors to grant the requested exemptive relief.
[T]he Commission is persuaded to provide flexibility in the discrete areas discussed in the Exemption Request so that the alternative approaches can be included in the CAT NMS Plan and subject to notice and comment. Doing so could allow for more efficient and cost-effective approaches than otherwise would be permitted. The Commission at this stage is not deciding whether the proposed approaches detailed below are more efficient or effective than those in Rule 613. However, the Commission believes the proposed approaches should be within the permissible range of alternatives available to the SROs.
The Commission further stated that the requested exemptive relief is consistent with the protection of investors. The Commission noted that:
Doing so will provide the public an opportunity to consider and comment on whether these proposed alternative approaches would indeed be more efficient and cost-effective than those otherwise required by Rule 613, and whether such approaches would adversely affect the reliability or accuracy of CAT Data or otherwise undermine the goals of Rule 613. Moreover, if—as the SROs represent—efficiency gains and cost savings would result from including the proposed approaches in the CAT NMS Plan without adverse effects, then the resultant benefits could potentially flow to investors (
The Participants incorporated the exemptive relief into the proposed CAT
Rule 613(a)(1) under Regulation NMS required the Participants to jointly file the CAT NMS Plan on or before April 28, 2013, less than a year after the adoption of Rule 613. In recognition of the complexity of the project to create the CAT NMS Plan as well as industry interest in limiting or eliminating certain requirements of Rule 613 (
The SROs stated in their Request Letter that they do not believe that the 270-day time period provided for in Rule 613(a)(1) provides sufficient time for the development of the RFP, formulation and submission of bids, and review and evaluation of such bids. The SROs also stated that they believe additional time beyond the 270 days provided for in Rule 613(a)(1) is necessary in order to provide sufficient time for effective consultation with and input from the industry and the public on the proposed solution chosen by the SROs for the creation of the consolidated audit trail at the conclusion of the RFP process and the NMS plan itself.
In recognition of the need for additional time to refine the technical description of and requirements for the CAT and to allow for additional evaluation of the proposed cost and funding considerations, the SEC granted two extensions of this deadline.
This additional time to complete the RFP process should allow the SROs to engage in a more thoughtful and comprehensive process for the development of an NMS plan. In this regard, the Commission notes that the additional time to solicit comment from the industry and the public at certain key points in the development of the NMS plan could identify issues that can be resolved earlier in the development of the consolidated audit trail and prior to filing the NMS plan with the Commission.
Given the Commission's recognition of the reasonableness and value of the extension of the deadline to file the CAT NMS Plan, the Participants believe that the costs incurred in developing the extension request were important to the process of developing the CAT NMS Plan, and therefore should be recoverable as part of Historical CAT Assessment 1.
After extensive analyses and discussions with the DAG, bidders, market participants and the SEC staff, the Participants finalized the draft of the CAT NMS Plan and filed the CAT NMS Plan with the SEC on September 30, 2014. Following additional discussions, the Participants filed several amendments to the CAT NMS Plan during 2015 and 2016. With these additional changes, the SEC published the CAT NMS Plan for notice and comment in May 2016.
The Pre-Formation Costs include legal costs of $3,196,434. The legal services were performed by WilmerHale. The selection considerations and fees for WilmerHale were described in detail above. Prior to the creation of CAT LLC, WilmerHale was engaged to represent the consortium of SROs, not the individual Participants. For administrative purposes, FINRA agreed to receive such legal bills, although such costs were shared among the Participants. Therefore, the legal costs incurred with respect to WilmerHale do not include legal costs incurred by the individual Participants. These pre-formation legal costs are described in detail above and are further described below:
• 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 DAG;
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on the 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 (
• Drafted exemptive requests;
• Provided interpretations related to the CAT NMS Plan;
• Provided support with regard to discussions among the exchanges, FINRA and other third parties, such as Deloitte;
• Provided tax advice with regard to CAT's status as a tax-exempt organization; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The Pre-Formation Costs include consulting costs of $10,589,273. The consulting services were performed by Deloitte. The selection considerations and fees for Deloitte were described in detail above. Prior to the creation of CAT LLC, for administrative purposes, Deloitte was engaged by FINRA to provide consulting services related to CAT, but the costs were shared by the consortium of SROs per agreement. Therefore, the consulting costs incurred with respect to Deloitte do not include consulting costs incurred by the individual Participants. The pre-formation consulting costs include the following:
• Established and implemented program operations for the CAT project, including the program management office and workstream design;
• Assisted with the Plan Processor selection process, including but not limited to, the development of the RFP
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, reviewing technical requirements of other NMS plans, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• 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 (
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided support for industry outreach sessions, including with regard to program design and agenda development, program support and logistics and coordination; and
• Provided support in fact finding, drafting content and meeting coordination for WilmerHale with regard to the CAT and the development of the CAT NMS Plan.
Such Pre-Formation Costs did not include costs related to the Chair of the CAT NMS Plan Operating Committee, as the CAT NMS Plan had not yet been adopted.
The Pre-Formation Costs include public relations costs of $57,174. The public relations services were performed by Peppercomm. The selection considerations and fees for Peppercomm are described in detail above. The costs related to Peppercomm were shared among the SROs. Therefore, the public relations costs do not include public relations costs incurred by the individual Participants. The pre-formation public relations costs include services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs related to cloud hosting services as a part of Historical CAT Assessments. CAT LLC believes that the costs related to cloud hosting services described in detail above are reasonable and appropriate given the strict data processing timelines and storage requirements imposed by the Commission-approved CAT NMS Plan and should be recoverable as a part of Historical CAT Assessment 1.
CAT LLC believes that the costs for the cloud hosting services are reasonable, both in terms of the level of the fees paid by CAT LLC for cloud hosting services provided by AWS and the scope of the services performed by AWS for CAT LLC. CAT LLC believes that both the scope and amount of the costs for cloud hosting services are reasonable given the current requirements of the CAT NMS Plan adopted pursuant to Rule 613, including the strict data processing timeline, storage and other technical requirements under the Commission-approved CAT NMS Plan.
CAT LLC believes that the level of fees for the cloud hosting services is 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.
CAT LLC also believes that the scope of services provided by AWS for the CAT are appropriate given the current requirements of the Commission-approved CAT NMS Plan. As described above, the cloud hosting services costs reflect a variety of factors including, among other things:
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In addition, various requirements of the CAT NMS Plan adopted pursuant to Rule 613 contribute to the significant cloud hosting services costs, and that various Plan requirements could be amended or removed without affecting the regulatory purpose of the CAT. Indeed, CAT LLC has repeatedly sought exemptive relief and filed amendments to the CAT NMS Plan, and has even filed suit against the Commission, to seek to revise or eliminate certain costly requirements related to the CAT. However, despite these efforts, absent the Commission granting exemptive relief or approving cost savings amendments to the CAT NMS Plan, CAT LLC, the Participants and Industry Members are all required to comply with such requirements.
CAT is reasonably designed to efficiently and effectively utilize cloud computing and storage services, given the requirements of the Commission-approved CAT NMS Plan, including requirements related to security, operational reliance and quality assurance, and maintainability.
The Plan Processor uses state-of-the-art software that meets the strict security standards of the CAT NMS Plan. CAT utilizes a big data processing framework that is extensively used by large data processing companies, such as Apple, Meta, Netflix, IBM and Google. As such, it has substantial commercial support and support in the open-source community. It is also well suited for use with regard to iterative types of algorithms and query functions and analytics that the CAT requires, and it provides the heightened security necessary for the CAT.
The development and implementation of the design of CAT is not and has not been static. CAT LLC and the Plan Processor are always evaluating new
When evaluating the design of the CAT, it must be kept in mind that the CAT is not a typical commercial technology project. The ability to make use of technology approaches that may lead to cost avoidance is also subject to the restrictive requirements of the CAT NMS Plan, such as processing timeframes, requirements for retention of data versions, query requirements, and security standards. Because such requirements are set forth in the CAT NMS Plan, any modification of such requirements are subject to the time-consuming process of amending the CAT NMS Plan or seeking an exemption from the relevant requirement. For example, CAT LLC recently has filed an amendment to address several of these expensive Plan requirements.
The CAT System also was designed to minimize the extent to which Industry Members would need to alter their systems to report to CAT. During the design process, Industry Member groups argued that it would make more sense financially for the CAT to accommodate differences in industry systems, than for all Industry Members to change their systems. Moreover, such design choices would facilitate consistency, uniformity and accuracy in reporting. Requiring the CAT to make such accommodations may increase CAT costs while accommodating CAT Reporters.
Based on the requirements in the CAT NMS Plan and/or in response to industry requests for functionality to be embedded with the Plan Processor to streamline or limit Industry Member system changes, the CAT has been designed to limit the effect on Industry Members. The following provides examples of such accommodations:
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To be clear, if OATS-like error correction tools are not made available on Day 1, hundreds of firms will be required to create and test their own tools or obtain vendor alternatives prior to the CAT Go-Live Date. Proprietary tools will require additional system builds, access to and ingestion of CAT data to perform system validation, and testing which will further stress the limited number of subject matter experts (“SMEs”) dedicated to the implementation of CAT reporting. Should this occur, inevitably firms (especially small firms who lack the necessary IT staff to write code and develop proprietary systems), may be put in the position of passing onto investors the cost required to build hundreds of redundant systems.
CAT provides various tools to help Industry Members identify and rectify errors.
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FIF CAT WG is not proposing a specific format; rather, we are proposing flexibility of input formats which includes support of existing formats (
Mandating a uniform format for reporting data to the CAT simplifies the task for the Central Repository of consolidating/storing data, but it puts the burden on each CAT Reporter to accurately translate their current (
CAT provides such a flexible input format.
The costs for cloud hosting services are appropriate and have not been adversely affected by the original design and approaches of the Initial Plan Processor. FCAT's design costs are the result of the requirements of the Commission-approved CAT NMS Plan.
When FCAT took over as the Plan Processor from Thesys, it utilized certain aspects of the technical specifications created by Thesys in its design. However, FCAT has not maintained aspects of the original design that would not be appropriate for the CAT. FCAT revised and enhanced the original technical specifications of the CAT System to increase its efficiency and efficacy, and to ensure its compliance with the CAT NMS Plan. For example, the Initial Plan Processor's approach utilized many more fields than FCAT's approach, which relies on additional linkages. With the additional linkages, the CAT System takes on more of the CAT-related burdens than the Industry Members. Such an approach serves to facilitate consistency, uniformity and accuracy in reporting.
Moreover, FCAT did not utilize the system built by the Initial Plan Processor; it rebuilt the CAT System based on revised technical specifications. For example, the Initial Plan Processor used an on-premises processing approach which was not geared toward the huge amounts of data stored in the CAT, while FCAT adopted a cloud-based solution in response to such data demands.
Furthermore, given the very short timeframe to develop the CAT System and the prior optimization of certain query tools (
CAT LLC continues to support the selection of AWS as the cloud hosting services provider for CAT given the compliance, operational, and security requirements of the CAT. Independent analyses confirm these conclusions, noting that “AWS is an excellent choice for either strategic or tactical use and recommends considering AWS for almost all cloud IaaS or IaaS+PaaS scenarios.”
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In addition, the nature of the CAT, including the amount of data it must process and the size of its data footprint, does not allow for a multi-cloud solution as this would be cost prohibitive and greatly increase the security boundary and associated risk profile of the CAT. For example, a multi-cloud hosting option would increase costs, complexity, and risk for operations with regard to, for example, DevOps, production support, and networking. Similarly, with regard to security, a multi-cloud solution would increase risk, including with regard to the need for data transfers between cloud providers and the expansion of the security boundary. With regard to labor, a multi-cloud solution would lose economies of scale due to the need to support unique cloud requirements. Accordingly, the use of single-cloud solution continues to provide advantages with regard to cost, complexity, and risk. Indeed, “[t]he best practice is to focus on a single primary strategic provider.”
Furthermore, if another cloud service provider were determined to be a better match for the CAT at some future date, switching cloud service providers would be a very significant, expensive and time-consuming effort. Such an effort would likely be a 10-to-15-year commitment at a substantial expense. Such a move would require the replication or redesign of the underlying cloud environments (
CAT LLC believes that the recovery of costs related to the development of the funding model is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
Funding the CAT is a critical aspect of Rule 613 and the CAT NMS Plan. Article XI of the CAT NMS Plan describes in detail the requirements for funding the CAT, and the Participants are required to comply with and enforce compliance with the funding requirements of the CAT NMS Plan, just as with other aspects of the Plan. Accordingly, the development and implementation of a funding model for the CAT is as much a part of the requirements of the CAT NMS Plan as the development and operation of the CAT System. CAT LLC sees no reason to distinguish the efforts to develop a funding model from, for example, efforts to develop the CAT System, in seeking to recover reasonable CAT costs.
Moreover, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . legal costs.”
In addition, the legal costs incurred for the assistance in developing the CAT Funding Model are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at negotiated rates for such services that reflect both the
CAT LLC believes that the recovery of legal costs related to the litigation with the SEC regarding the CAT NMS Plan is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
The conditional exemptive relief in this Order allows for the implementation of alternative regulatory solutions that continue to advance the regulatory goals that Rule 613 and the CAT NMS Plan were intended to promote, while reducing the implementation and operational costs, burdens, and/or difficulties that would otherwise be incurred by the Participants and Industry Members that must fund the CAT.
CAT LLC believes it is reasonable and appropriate to incur costs to limit the need to incur even greater costs due to certain interpretations of the Plan.
In addition, the legal costs incurred during the litigation are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at market rates for such services. As such, the legal costs related to this litigation incurred during the period covered by Historical CAT Assessment 1 were reasonable.
Finally, Industry Members will directly benefit from the result of the litigation because it has addressed CAT NMS Plan requirements that would have imposed significantly greater costs on the CAT. Accordingly, it is reasonable and appropriate that the costs of such litigation be included in the Historical CAT Costs 1.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017, which was the date by which Participants were required to begin reporting to the CAT, due to the delay in the commencement of reporting to the CAT. As discussed above, the Participants determined to exclude all CAT costs incurred from November 15, 2017 through November 15, 2018, which includes $37,852,083 in Thesys costs incurred from November 15, 2017 through November 15, 2018 (as well as other CAT costs during this period). The remaining Thesys costs incurred after November 15, 2018 are the $19,628,791 in capitalized developed technology costs for the period from November 16, 2018 through February 2019 incurred in the development of the CAT by the Initial Plan Processor, as well as a transition fee for the transition from the Initial Plan Processor to the successor Plan Processor. The Participants would remain responsible for 100% of these $19,628,791 in costs.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017. CAT LLC notes that the development and implementation of the CAT System, while unprecedented in scope and design, is like any other large and innovative technology project in that, inevitably, there were adjustments and refinements in the technical approach as the project developed, even with substantial planning efforts and oversight prior to the build. This is even more likely when the project faces a very tight implementation schedule, such as the one imposed by the Commission in Rule 613 and the CAT NMS Plan. However, an adjusted approach does not mean that the funds were not valid expenditures and should not be recovered.
The reasonableness of Thesys costs should be evaluated by the Commission as of the time they were incurred, not in hindsight. As detailed above, the Commission concluded in 2016 that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue.”
As noted in the CAT Funding Model Approval Order, “[i]n Rule 613, the Commission made the determination that the costs of the CAT should be shared by the Participants and Industry Members.”
CAT LLC believes that the recovery of CAIS-related costs is appropriate, and that the amount and scope of such costs, as described above, are reasonable, and that the reasonableness of historical costs should be evaluated by the Commission as of the time they were incurred, not in hindsight.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable CAIS operating costs as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . CAIS operating fees.”
In addition, CAT LLC determined that the CAIS operating fees described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The “CAIS Operating Costs” for Historical CAT Assessment 1 total $9,480,587, with Pre-FAM costs of $2,072,908, FAM 1 costs of $254,998, FAM 2 costs of $1,590,298, and FAM 3 costs of $5,562,383. As described above, the CAIS operating fees were incurred with regard to two categories of CAIS-related efforts: (1) the acceleration of the reporting of LTIDs; and (2) the development of the CAIS Technical Specifications and the building of CAIS. These two categories of costs are discussed in more detail below.
During the period covered by Historical CAT Assessment 1, the CAIS operating costs included costs related to the acceleration of the reporting of LTIDs earlier than originally contemplated during this period at the request of the SEC and in accordance with exemptive relief granted by the SEC.
• After FCAT developed the LTID Technical Specifications, the LTID Technical Specifications were published on January 31, 2020, with additional updates provided to the LTID Technical Specifications through April 2021.
• The LTID account information testing environment opened on August 24, 2020.
• The LTID account information reporting production environment opened on December 14, 2020.
• CAT Reporters were required to request their production readiness certification for account information related to LTIDs by the deadline of April 9, 2021.
• The LTID account information reporting for Phases 2a, 2b and 2c for Large Industry Members went live on April 26, 2021.
• The LTID account information reporting for Phases 2d for Large Industry Members went live on December 13, 2021.
• The LTID account information reporting for Phases 2a, 2b, 2c and 2d for Small Industry Members went live on April 26, 2021.
Throughout this project, FCAT and CAT LLC worked closely with the industry on LTID and CAIS reporting. Between December 2019 and December 2021, at least 57 checkpoint calls, webinars, and technical working group meetings with industry representatives were hosted to address issues and to educate CAT Reporters regarding LTID and CAIS reporting.
The LTID reporting project was successfully completed in a timely fashion, and the fees related to the project were reasonable. Accordingly, CAT LLC appropriately seeks to recover such costs via Historical CAT Assessment 1.
During the period covered by Historical CAT Assessment 1, FCAT began the development of the full CAIS Technical Specifications and the building of CAIS. The CAIS Technical Specifications were developed during this period as follows:
• Iterative drafts of the CAIS Technical Specifications were published on June 30, 2020, December 1, 2020, and January 1, 2021.
• The full, final CAIS Technical Specifications were published on January 29, 2021.
• Updated versions of the CAIS Technical Specifications were published throughout 2021.
As discussed above, FCAT and CAT LLC frequently engaged with the industry regarding the development of CAIS, hosting regular checkpoint calls, webinars, and technical working group meetings with industry representatives to address any issues, including addressing the interplay between Industry Members' existing customer systems and CAIS, and to educate CAT Reporters regarding LTID and CAIS reporting. Such engagement was critical to the CAIS development process as the CAIS project was unprecedented in terms of its content, scope and complexity.
During this period, FCAT also commenced the building of the CAIS system in accordance with the CAIS Technical Specifications during the period covered by Historical CAT Assessment 1. The CAIS system was ready for industry testing shortly after the end of this period in January 2022.
The CAIS Technical Specifications and the CAIS system, as developed during this period, continue to be in use today. Industry Members have been required to report, and have continuously reported, required data to CAIS on a daily basis since November 7, 2022, consistent with interim reporting obligations. The CAIS system accepts and validates the CAIS data submitted by Industry Members and provides Industry Members with initial feedback on data errors. In light of the unprecedented nature of the CAIS system, certain changes to the system, such as changes related to error corrections and the CAIS regulatory portal, were necessary to finalize CAIS reporting. FCAT worked to address these remaining issues,
CAT LLC believes that the recovery of public relations costs is appropriate and that the amount and scope of such costs, as described above, are reasonable.
The Commission has long recognized that external public relations costs are reasonably associated with creating, implementing and maintaining the CAT. In the CAT NMS Plan Approval Order, the Commission estimated that the Participants had collectively spent approximately $2,400,000 in preparation of the CAT NMS Plan on external public relations, legal, and consulting costs, and estimated that the Participants would continue to incur external public relations costs associated with maintaining the CAT upon approval of the CAT NMS Plan.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for public relations services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . public relations costs.”
In addition, CAT LLC determined that the public relations costs described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The services performed by the public relations firms through 2021 were limited in scope to assist CAT LLC, which has no employees of its own, to be better positioned to understand and address CAT matters to the benefit of all market participants and to communicate on important CAT topics with the public. In addition, the costs for these services were appropriately limited. During the 10-year period covered by Historical CAT Assessment 1, the average cost per year for these services was approximately $36,000.
CAT LLC believes that the recovery of legal costs related to the limitation of liability provision, including costs related to the proceedings before the SEC and costs related to the proposed amendment to the Consolidated Audit Trail Reporter Agreement and the Consolidated Audit Trail Reporting Agent Agreement (the “Reporting Agreements”) is appropriate and that the amount and scope of such costs as described above are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
Moreover, it is critical that CAT LLC, which has no employees of its own, have the ability to fund a legal defense in litigation and other legal proceedings against it. In response to CAT LLC requiring Industry Members to agree to the limitation of liability provision to submit data to the CAT, SIFMA filed an application for review of actions taken by CAT LLC and the Participants pursuant to Sections 19(d) and 19(f) of the Exchange Act. Contemporaneously with the filing of this proceeding, SIFMA moved for a stay of the requirement that Industry Members sign a Reporter Agreement, or in the alternative, asked the Commission to further delay the launch of CAT reporting on June 22, 2020. CAT LLC must have the resources to defend itself from litigious actions by others, like these.
Although a limitation of liability provision ultimately was not adopted as proposed, it was a reasonable provision to propose for the CAT Reporter Agreements, given that such provisions are in accordance with industry norms. Limitations of liability are ubiquitous within the securities industry and have long governed the economic relationships between self-regulatory organizations and the entities that they regulate. For example, U.S. securities exchanges have adopted rules to limit their liability for losses that Industry Members incur through their use of exchange facilities.
Furthermore, as described above, the specialized services were performed by experienced counsel at market rates for such services. Accordingly, the legal costs for the efforts related to the limitation of liability provision were reasonable.
CAT LLC believes that the recovery of consulting costs related to the Chair of the CAT Operating Committee is appropriate and that the amount and scope of such costs are reasonable.
As a preliminary matter, the selection of the Chair of the Operating Committee complies with the requirements of Section 4.2 of the CAT NMS Plan. The initial Chair that served during the period covered by Historical CAT Assessment was designated by a Participant as the Participant's alternate voting member. Accordingly, the Chair is a representative of the Participants, as required by the CAT NMS Plan.
In addition, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for consulting as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . consulting . . .” costs.
The Participants determined that the position of the Chair was a critical role for the implementation of the CAT, and an independent Chair would appropriately consider and address the views of each of the Participants. The Participants also determined that it was important to have a Chair with a strong
CAT LLC understands that there are three types of reconciliation processes related to the invoices:
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As discussed further below, CAT LLC only considers the first type of process to be a “reconciliation” and the only type of process that is required under the CAT NMS Plan. CAT LLC provides the means to reconcile the CAT invoice amount to the underlying trades provided by CAT.
The CAT NMS Plan does not require CAT LLC to facilitate the second type of process: matching underlying trades for a CAT invoice with a firm's internal books and records. CAT LLC has access only to the underlying trades provided by CAT; it does not have access to a firm's internal books and records. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
The CAT NMS Plan also does not require CAT LLC to provide the ability to identify the order originator for the underlying trades for the CAT invoices. Accordingly, the billing guidance and processes do not provide CAT Reporters with the ability to identify the order originator for the underlying trades provided by CAT with CAT invoices. CAT LLC has been working closely with CAT Reporters to explain its billing approach and to address any outstanding billing questions. But, it should not be lost that CAT LLC provides information sufficient to allow CAT Reporters to reconcile CAT invoice amounts with the underlying trades provided by CAT LLC.
The CAT NMS Plan does not require CAT LLC to facilitate the matching of underlying trades for a CAT invoice with a firm's internal books and records, which may consist of trading data from various sources external to CAT. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
In this regard, it is important to recognize that CAT LLC has developed a billing approach that greatly improves upon existing billing practices for similar regulatory fees (
To facilitate the introduction of CAT fees, CAT LLC has worked with FCAT to develop an approach to CAT billing that is consistent with existing billing constructs used with regard to Section 31-related sales values fees, subject to certain enhancements. Under this billing approach, FCAT is providing additional linkage elements, not necessarily provided in the Section 31-sales value fee context, to facilitate CAT Reporters' ability to match the underlying trades provided by CAT with their internal books and records and to reduce the complexity of that process. Specifically, FCAT is providing various key elements of the trade itself, such as the tradeID and branch sequence,
With the Additional Trade Details, CAT LLC and FCAT believe that the overwhelming majority of underlying trades provided by CAT bills can be matched with a CAT Reporter's internal books and records. CAT LLC recognizes that there may be certain cases in which such matching is more difficult given various firm-specific considerations, but believes that such instances are significantly more limited than with regard to the SRO fees charged in relation to Section 31.
Similar to other regulatory fees, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Accordingly, Historical CAT Assessment 1 does not address the process by which any CAT Reporters may pass through the fee to their
In its approval of the CAT Funding Model, the Commission approved charging CAT fees to the CAT Executing Broker, rather than the originating broker. This fee filing must comply with the requirements of the CAT Funding Model, and, therefore, charges the Historical CAT Assessment 1 to CAT Executing Brokers.
Moreover, charging originating brokers would introduce significant complexity to the billing process from the CAT's perspective, and would increase the costs of implementing CAT fees. Charging the CAT Executing Broker is simple and straightforward, and leverages a one-to-one relationship between billable events (trades) and billable parties, similar to other transaction-based fees. In contrast, for a single trade event, there may be many originating brokers, and each trade must be broken down on a pro-rata basis, to account for one or more layers of aggregation, disaggregation, and representation of the underlying orders. While CAT is indeed designed to capture and unwind complex aggregation scenarios, the data and linkages are structured to facilitate regulatory use, and not a billing mechanism that assesses fees on a distinct set of executed trades; it is not simply a matter of using existing CAT linkages. Furthermore, charging originating brokers would implicate issues related to lifecycle linkage rates, and issues related to corrections, cancellations and allocations, while charging CAT Executing Brokers would avoid such issues.
As noted, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT Fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Nevertheless, the Additional Trade Details provided with regard to the underlying trades on CAT invoices may assist with this process. Like with Section 31-related sales value fees, however, it is not always possible to trace every fee on a transaction back to the originating party. Industry Members have faced these issues under Section 31-related sales values fees for many years.
CAT LLC has worked with FCAT to provide significant technical assistance to Industry Members to allow the Industry Members to understand how Historical CAT Assessment 1 will be implemented and billed, including webinars, CAT alerts, mock invoices, and responses to questions posed to the FCAT Help Desk.
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By providing such detailed and sustained assistance to Industry Members regarding CAT fees and billing, CAT LLC has successfully addressed questions raised by Industry Members regarding the CAT fees and billing processes.
CAT LLC has provided Industry Members with ample time to comply with the implementation of Historical CAT Assessment 1. CAT LLC originally proposed issuing the first invoices for Historical CAT Assessment 1 in December 2023 based on transactions in Eligible Securities in November 2023. In consideration of the feedback about the need for additional time to implement the new fee, CAT LLC pushed back this timeline by four months, proposing to issue the first Historical CAT Assessment 1 in April 2024 based on transactions in March 2024.
The Exchange believes the proposed rule change is consistent with the requirements of the Exchange Act. The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,
The Exchange believes that this proposal is consistent with the Act because it implements provisions of the Plan and is designed to assist the Exchange 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.”
The Exchange believes that the proposed fees paid by the CEBBs and CEBSs are reasonable, equitably allocated and not unfairly discriminatory. First, the Historical CAT Assessment 1 fees to be collected are directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to technology, legal, consulting, insurance, professional and administration, and public relations costs. The Exchange has already incurred such development and implementation costs and the proposed Historical CAT Assessment 1 fees, therefore, would allow the Exchange 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 and not to support the Exchange's business operations. The proposed fees would not cover Exchange services unrelated to the CAT.
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. The Exchange believes that the proposed fees adopted pursuant to the CAT Funding Model approved by the SEC are reasonable, equitably allocated and not unfairly discriminatory.
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, the Exchange has filed this fee filing to implement the Industry Member CAT fees included in the CAT Funding Model. The Exchange 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 the Exchange 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.”
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.
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:
In accordance with this requirement, the Exchange 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, the Exchange 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.
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.
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
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
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 (
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.
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.
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.
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.
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.
These costs involve the activity of both the Initial Plan Processor and FCAT, as the successor Plan Processor.
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.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover consulting costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover insurance costs as a part of Historical CAT Assessments.
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.
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
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 balanace of these considerations.
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.
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.
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.
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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.
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.
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, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
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
The Exchange believes that imposing Historical CAT Assessment 1 with a fee rate of $0.000013 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, the Exchange 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 (
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.
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.
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.
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, the Exchange 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 the fee schedule. The Exchange 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 Exchange members to reasonably predict their payment obligations for budgeting purposes.
Section 6(b)(8) of the Act
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
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.
Written comments were neither solicited nor received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Exchange Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of 1934 (the “Act”)
The Exchange proposes to establish fees for Industry Members
The text of the proposed rule change is available on the Exchange's website at
In its filing with the Commission, the Exchange 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 IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
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.
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).
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').”
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.
CAT LLC proposes to charge CEBBs and CEBSs (as described in more detail
The Exchange previously filed a fee filing to implement Historical CAT Assessment 1. On January 17, 2024, the SEC published this prior filing for Historical CAT Assessment 1, temporarily suspended the fee filing, and instituted proceedings to determine whether to approve or disapprove the fee filing.
Historical CAT Assessment 1 will be charged to each CEBB and CEBS for each applicable transaction in Eligible Securities.
(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.
The following fields of the Participant Technical Specifications indicate the CAT Executing Brokers for the transactions executed on an exchange.
In addition, the following fields of the Participant Technical Specifications would indicate the CAT Executing Brokers for the transactions executed otherwise than on an exchange.
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 $0.00003994969693072937 per executed equivalent share. This rate is then divided by three and rounded to determine the fee rate of $0.000013 per executed equivalent share that will be assessed to CEBBs and CEBSs, as also discussed in detail below.
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 (
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.”
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.”
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 $124,290,730. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($41,430,243.33), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third ($41,430,243.33). 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.
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.
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, 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 [
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,”
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 (
FCAT was selected to assume the role of the successor Plan Processor. Prior to this selection, the Participants engaged in discussions with two prior Bidders
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.
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.
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;
• 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, the 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
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content;
• 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.
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 originally adopted.
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 change 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.
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 $51,847,150 relate to technology provided by the Initial Plan Processor and the successor Plan Processor.
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.
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 January 30, 2019, 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. 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, addressed security-related matters for the CAT, and worked towards the initiation of Participant reporting per the Participant Technical Specifications.
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.
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 the 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 (
• 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 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.
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 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 [
• 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 (
• 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.
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.
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.
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;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
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.
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.
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 (
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.
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”),
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.
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
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 draft 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.
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.
CAT LLC did not incur costs related to change requests during FAM Period 1.
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 timestamps; (2) implementation fees; and (3) license fees.
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.
• 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.
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.
Although insurance was in effect during FAM Period 1, CAT LLC did not incur costs related to insurance during FAM Period 1.
• 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 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.
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 (
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”),
By the completion of FAM Period 2, CAT LLC was required to implement the following with regard to the CAT:
(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.
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.
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.
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.
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.
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 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.
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.
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.
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.
• 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 (
• 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.
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.
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.
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.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
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”),
By the completion of FAM Period 3, CAT LLC was required to implement the following requirements with regard the CAT:
(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.
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.
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.
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.
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.
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.
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.
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.
• 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 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;
• Provided assistance with change requests;
• Provided guidance and regulatory support for litigation regarding the response to the 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.
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.
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 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.
The insurance costs of $1,582,714 represent the fees paid for insurance during 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.
The professional and administration costs of $595,923 represent the fees paid to Anchin and Grant Thornton for financial services during FAM Period 3.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
Historical CAT Costs 1 would not include three categories of CAT costs (“Excluded Costs”): (1) $14,749,362 of costs related to the termination of the relationship with the Initial Plan Processor; (2) $48,874,937, which are all CAT costs incurred from November 15, 2017 through November 15, 2018; and (3) $19,628,791, which are costs paid to the the Initial Plan Processor from November 16, 2018 through February 2019 when the relationship with the Initial Plan Processor was concluded. The Participants would remain responsible for 100% of these costs, which total $83,253,090. CAT LLC determined to exclude these Excluded Costs from Historical CAT Costs 1 because these costs relate to the delay in the start of reporting to the CAT and the conclusion of the relationship with the Initial Plan Processor.
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 the Initial Plan Processor, and the settlement costs related to the arbitration with the Initial Plan Processor. The Participants would remain responsible for 100% of these $14,749,362 in costs.
Second, Historical CAT Costs 1 would not include all CAT costs incurred from November 15, 2017 through November 15, 2018. CAT LLC determined to exclude all costs during 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.
The following provides additional detail regarding the Excluded Costs.
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.
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.
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.
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 (
• Assisted with cost and funding issues 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 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.
CAT LLC did not incur costs related to insurance during the period from November 15, 2017 through November 15, 2018.
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.
• 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.
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 engagment [
Third, Historical CAT Costs 1 would not include the $19,628,791 in costs paid to the Initial Plan Processor from November 16, 2018 through February 2019 when CAT LLC's relationship with the Initial Plan Processor concluded. CAT LLC determined that Historical CAT Costs 1 would not include any fees paid to the Initial Plan Processor after November 15, 2017,
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.
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.
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.
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.”
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
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.
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.
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.
The CAT NMS Plan further states that “Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs.”
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.
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.”
To implement Historical CAT Assessment 1, a new section would be added to the Exchange's fee schedule for “Consolidated Audit Trail Funding Fees”, and it would include the proposed paragraphs described below.
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.
Accordingly, based on the factors discussed above, the Exchange proposes to add paragraph (a)(1) to the Consolidated Audit Trail Funding Fees section of its fee schedule. Proposed paragraph (a)(1) would state the following:
(A) Each CAT Executing Broker shall receive its first invoice for Historical CAT Assessment 1 in November 2024, which shall set forth the Historical CAT Assessment 1 fees calculated based on transactions in October 2024, and shall receive an invoice for Historical CAT Assessment 1 for each month thereafter in which Historical CAT Assessment 1 is in effect.
(B) 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 $0.000013 per executed equivalent share.
(C) Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (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.
(D) Each CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).
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.
The proposed language in paragraph (a)(1)(A) of the fee schedule would
Proposed paragraph (a)(1)(A) of the fee schedule 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 November 2024, invoices will be sent to CAT Executing Brokers each month thereafter while Historical CAT Assessment 1 is in effect.
Proposed paragraph (a)(1)(B) of the fee schedule would describe the invoices for Historical CAT Assessment 1. Proposed paragraph (a)(1)(B) of the fee schedule 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)(B) of the fee schedule 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 $0.000013 per executed equivalent share.”
Furthermore, proposed paragraph (a)(1)(C) of the fee schedule 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 $212,039,879.34 (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 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)(D) of the fee schedule 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 (b).”
Paragraph (b)(1) to the “Consolidated Audit Trail Funding Fees” section of its fee schedule describes the manner of payment of Industry Member CAT fees. Paragraph (b)(1) states that “[e]ach CAT Executing Broker shall pay its CAT fees as required pursuant to paragraph (a) each month to the Consolidated Audit Trail, LLC in the manner prescribed by the Consolidated Audit Trail, LLC.” The CAT NMS Plan requires the Operating Committee to establish a system for the collection of 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.
Accordingly, the Exchange previously has added this requirement to the Exchange's fee schedule. Specifically, paragraph (b)(2) of the fee schedule states:
Each CAT Executing Broker shall pay the CAT fees required pursuant to paragraph (a) within thirty 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.
The requirements of paragraph (b)(2) would apply to Historical CAT Assessment 1.
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.
Such information would provide CEBBs and CEBSs with the ability to understand the details regarding the calculation of their Historical CAT Assessment.
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
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.
To assist Industry Members with compliance with the commencement of Historical CAT Assessment 1, CAT LLC has been making available to CAT Executing Brokers mock invoices prior to the commencement of Historical CAT Assessment 1. Specifically, CAT Executing Brokers have received mock invoices based on transaction data each month since November 2023. The mock invoices are in the same form as the actual, payable invoices, including both the relevant transaction data and the corresponding fee. However, no payments have been required in response to such mock invoices; they have been used solely to assist CAT Executing Brokers with the development of their processes for paying the CAT fees. Such data has provided 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.
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.”
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”
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.
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: equites 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.
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
• 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 (
• 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.
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.' ”
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).
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:
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,
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.
• “Production Go-Live for Equities 2a Intrafirm Linkage validations” was completed on 7/27/2020;
• “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.
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.
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 remain [
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:
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
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,
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 (
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 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;
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 (
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
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.”
• “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.
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.
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.” The Exchange 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.
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.
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 remain [
As discussed above, CAT LLC has satisfied the Financial Accountability Milestones (“FAMs”) for Periods 1 through 3.
CAT LLC does not believe that the exemptive relief relating to the reporting of electronic responses for quotes (“RFQs”) that are not immediately actionable (“NIA Electronic RFQ Responses”) affect the conclusion that FAMs 1 through 3 have been satisfied. The only reason CAT LLC pursued this relief is because certain Industry Members introduced concerns that NIA Electronic RFQ Responses could be considered “orders” reportable pursuant to Rule 613(j)(8) and some Industry Members were not prepared to report such orders to CAT. Thus, the relief was requested on behalf of Industry Members. CAT LLC itself has not taken any position on whether NIA Electronic RFQ Responses are “orders,” as the definition of “order” is an SEC rule and the trading processes for NIA Electronic RFQ Responses are the Industry Members', not those of the Participants
Only “orders” as defined in SEC Rule 613(j)(8) are reportable to CAT. There is no agreement across the industry or among regulators as to whether NIA Electronic RFQ Responses are “orders” reportable to CAT. Certain Industry Members have raised the question as to whether NIA Electronic RFQ Responses are orders, but others have argued that they are not orders under Rule 613(j)(8).
As further discussed in the prior FIF letters, even if the Commission had the legal authority to require the reporting of NIA RFQ responses to CAT without an amendment to Rule 613, the Commission has not provided guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT. In subsequent discussions with industry members, Commission representatives have agreed that, prior to NIA RFQ responses being reportable to CAT, it would be necessary for the Commission to provide further guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT.
On May 20, 2024, the Commission granted CAT LLC's request for exemptive relief from certain CAT reporting requirements pertaining to NIA Electronic RFQ Responses to the extent such responses are considered “orders” reportable pursuant to Rule 613(j)(8).
When the Commission proposed the FAMs, the Participants expressed concern that, “by conditioning the ability of CAT LLC and the Participants to collect Post-Amendment Industry Member Fees on factors dependent on the efforts of Industry Members, the Commission's proposals inadvertently establish a perverse incentive for Industry Members to devote less than maximum efforts to comply with their obligations related to the CAT as they will pay less fees in such instances.”
CAT LLC does not believe that the Commission's May 19, 2023 order granting temporary exemptive relief relating to certain verbal floor activity and unstructured verbal and electronic upstairs activity (the “2023 Verbal Quotes Exemption”) affects the conclusion that FAMs 1 through 3 have been satisfied. The 2023 Verbal Quotes Exemption, which was issued on May 19, 2023, is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. The relevant exemption for this time period is the Commission's November 12, 2020 order, which granted relief for the same activity through July 31, 2023 (the “2020 Verbal Quotes Order”).
CAT LLC does not believe that the Commission's November 2, 2023 order granting relief from certain CAT NMS Plan requirements (the “November 2023 Order”) affects the conclusion that FAMs 1 through 3 have been satisfied. The November 2023 Order is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. As described in the November 2023 Order, the relevant exemptive orders for this time period were issued on December 16, 2020, which also states that “the Commission has determined that the Participants have sufficiently complied with the conditions set forth in the prior Orders and with the technical requirements for Quarterly Progress
CAT LLC also completed the requirements of FAM Period 2, including the required linkages, by December 31, 2020. Although Participant exchanges may report the Executing Broker to CAT differently in certain situations, these reporting differences are irrelevant for linkage purposes as the fields used for CAT Executing Broker are not used for linkage.
The CAT Funding Model approved by the Commission permits the recovery of reasonable costs in each of the categories of CAT costs sought to be recovered via Historical CAT Assessment 1.
CAT LLC believes that it is reasonable to seek recovery of costs incurred prior to when the CAT NMS Plan became effective in November 2016, such as legal and consulting fees incurred to create the CAT NMS Plan. Rule 613 specifically mandates that the CAT be created, implemented and maintained, and further provides that the CAT NMS Plan include a proposed allocation of estimated costs to fund the creation, implementation and maintenance of the CAT among the Participants (referred to as “plan sponsors”), and between the Participants and Industry Members (referred to as “members of the plan sponsors”).
Accordingly, the CAT NMS Plan specifically permits the recovery of costs, including legal and consulting costs, reasonably incurred prior to November 2016 in connection with the creation and implementation of the CAT.
Furthermore, the costs incurred to create and implement the CAT prior to the effective date of the CAT NMS Plan (“Pre-Formation Costs”) were reasonable both in scope and amount, in accordance with the requirements of Section 11.1(c) of the CAT NMS Plan. During the four-year period from 2012 to 2016, a total of $13,842,881 in Pre-Formation Costs were incurred. This is an average of approximately $3.5 million per year over this period. The Pre-Formation Costs fell into three categories: legal costs, consulting costs and public relations costs. This includes legal costs of $3,196,434; consulting costs of $10,589,273; and public relations costs of $57,174. The legal, consulting and public relations services were performed by WilmerHale, Deloitte and Peppercomm, respectively. The selection considerations and fees for these three firms are described in detail above and are described further below. The Pre-Formation Costs are direct costs of CAT, which have been funded entirely by the Participants through non-interest-bearing notes. The Pre-Formation Costs do not include the significant costs incurred by each of the individual Participants in responding to the adoption of Rule 613.
The Pre-Formation Costs are reasonable and appropriate as they reflect the extensive efforts that were necessary to create the CAT NMS Plan as mandated after the SEC's adoption of Rule 613. As described in more detail below, these efforts included, among other things, developing a plan for selecting the Plan Processor, soliciting and evaluating bids, engaging a diverse set of market participants and the SEC in the development of the Plan, interacting with the SEC in their oversight of the development of the Plan, and seeking appropriate exemptive relief to address areas of concern in Rule 613.
The Participants determined to utilize an RFP to ensure that potential alternative solutions for creating the Plan could be presented and considered, and that a detailed and meaningful cost-benefit analysis could be performed. The SEC supported the use of an RFP, and approved its use as it is described
In the context of the SEC's adoption of Rule 613, commenters urged the Commission to utilize an RFP process to assist in the planning and design of the NMS plan.
In this regard, several commenters suggested that the Commission undergo a RFP or request for information (“RFI”) process to create and implement a consolidated audit trail. Specifically, FIF urged the Commission to perform a RFP process “to determine the best technical solution for developing a consolidated audit trail.” FIF suggested that the Commission “should outline a set of goals and guiding principles they are striving to achieve as part of the adopted CAT filing and leave the determination of data elements and other technical requirements to [an] industry working group.” Similarly, Direct Edge suggested that Commission staff should form and engage in a working group to develop an RFP for publication by the Commission. DirectEdge explained that an RFP process would facilitate the identification of the costs and benefits of the audit trail, as well as the consideration of a wider range of technological solutions. Further, commenters, including Broadridge Financial Solutions, Inc., a technology provider, also requested more specific information about the audit trail system to better assess the Commission's initial cost estimates and to determine the best approach to the consolidated audit trail.
In response to these comments, the Commission modified Rule 613 to require the Participants to address certain important considerations regarding the features and details of the NMS plan and to extend the timeframe for submission of the CAT NMS Plan by the Participants from the 90 days as originally proposed to 270 days, in part, to accommodate a process that would address these considerations.
The SEC specifically recognized that the Participants planned to use an RFP when it approved the Selection Plan, and stated that the RFP was a reasonable approach.
On February 26, 2013, the Participants published an RFP soliciting bids from parties interested in serving as the plan processor for the CAT. Initially, 31 firms submitted intentions to bid. In the following months, the Participants engaged with potential bidders with respect to, among other things, the selection process, selection criteria, and potential bidders' questions and concerns. On March 21, 2014, the Participants received ten bids in response to the RFP.
On September 4, 2013, the Participants filed with the Commission a national market system plan to govern the process for Participant review of the bids submitted in response to the RFP, the procedures for evaluating the bids, and, ultimately, selection of the plan processor (the “Selection Plan”).
The Selection Plan divided the review and evaluation of bids, and the selection of the plan processor, into various stages. Specifically, pursuant to the Selection Plan, a selection committee reviewed all bids and determined which bids contained sufficient information to allow the Participants to meaningfully assess and evaluate the bids. The ten submitted bids were deemed “Qualified Bids,” and so passed to the next stage, in which each bidder presented its bids to the Participants on a confidential basis. On July 1, 2014, after conducting careful analysis and comparison of the bids, the Selection Committee voted and selected a shortlist of six eligible bidders. The Selection Committee determined which shortlisted bidders would be provided the opportunity to revise their bids. After the Selection Committee assessed and evaluated the revised bids, the Selection Committee selected the plan processor via two rounds of voting by the Participants, as described in the Selection Plan.
The Selection Plan established an Operating Committee responsible for formulating, drafting, and filing with the Commission the CAT NMS Plan and for ensuring that the Participants' joint obligations under Rule 613 were met in a timely and efficient manner. In formulating the CAT NMS Plan, the Participants also engaged multiple persons across a wide range of roles and expertise, engaged the consulting firm Deloitte as project manager, and engaged the law firm WilmerHale to serve as legal counsel in drafting the Plan. Within this structure, the Participants focused on, among other things, comparative analyses of the proposed technologies and operating models, development of funding models to support the building and operation of the CAT, and detailed review of governance considerations. Given the complexity and scope of developing the CAT NMS Plan, these efforts were extensive.
When it approved the CAT NMS Plan in 2016, the Commission reiterated its belief that the Selection Plan remains a “reasonable approach,” that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue”:
In approving the Selection Plan, the Commission stated that the Selection Plan is reasonably designed to achieve its objective of facilitating the development of the CAT
During the process of developing the CAT NMS Plan, the Participants engaged in extensive and meaningful dialogue with market participants and the SEC. To this end, the Participants created a website to update the public on the progress of the CAT NMS Plan, published a request for comment on multiple issues related to the Plan, held multiple public events to inform the industry of the progress of the CAT and to address inquiries, and formed, and later expanded, a DAG to solicit more input from a representative industry group.
The DAG included representatives of Participants and Industry Members and conducted meetings to discuss, among other things, technical and operational aspects the Participants were considering for the Plan. The Participants issued press releases soliciting participants for the DAG, and a wide spectrum of firms was deliberately chosen to provide insight from various industry segments affected by CAT. The DAG meetings included discussions of topics such as option market maker quote reporting, requirements for capturing Customer IDs, timestamps and clock synchronization, reporting requirements for order handling scenarios, costs and funding, error handling and corrections, and potential elimination of systems made redundant by the CAT. From the inception of the DAG through September 2014, the DAG participated in 36 meetings, as well as a variety of DAG subcommittee meetings.
Following multiple discussions between the Participants and both the DAG and the bidders, as well as among the Participants themselves, the Participants recognized that some provisions of Rule 613 would not permit certain solutions to be included in the Plan that the Participants, in coordination with the DAG, determined advisable to effectuate the most efficient and cost-effective CAT. Specifically, “the SROs reached the conclusion that additional flexibility in certain of the minimum requirements specified in Rule 613 would allow them to propose a more efficient and cost-effective approach without adversely affecting the reliability or accuracy of CAT Data, or its security and confidentiality.”
After reviewing the exemptive request, the Commission determined that it was appropriate in the public interest and consistent with the protection of investors to grant the requested exemptive relief.
The Commission further stated that the requested exemptive relief is consistent with the protection of investors. The Commission noted that:
Doing so will provide the public an opportunity to consider and comment on whether these proposed alternative approaches would indeed be more efficient and cost-effective than those otherwise required by Rule 613, and whether such approaches would adversely affect the reliability or accuracy of CAT Data or otherwise undermine the goals of Rule 613. Moreover, if—as the SROs represent—efficiency gains and cost savings would result from including the proposed approaches in the CAT NMS Plan without adverse effects, then the resultant benefits could potentially flow to investors (
The Participants incorporated the exemptive relief into the proposed CAT NMS Plan, which was noticed for comment, and the Commission ultimately approved the CAT NMS Plan with the more efficient and cost-effective alternative approaches described in the exemptive relief. Accordingly, the Participants believe that the costs incurred in developing the exemptive request were critical to the creation of a better CAT than was originally contemplated by Rule 613, and therefore should be recoverable as part of Historical CAT Assessment 1.
Rule 613(a)(1) under Regulation NMS required the Participants to jointly file the CAT NMS Plan on or before April 28, 2013, less than a year after the adoption of Rule 613. In recognition of the complexity of the project to create the CAT NMS Plan as well as industry interest in limiting or eliminating certain requirements of Rule 613 (
The SROs stated in their Request Letter that they do not believe that the 270-day time period provided for in Rule 613(a)(1) provides sufficient time for the development of the RFP, formulation and submission of bids, and review and evaluation of such bids. The SROs also stated that they believe additional time beyond the 270 days provided for in Rule 613(a)(1) is necessary in order to provide sufficient time for effective consultation with and input from the industry and the public on the proposed solution chosen by the SROs for the creation of the consolidated audit trail at the
In recognition of the need for additional time to refine the technical description of and requirements for the CAT and to allow for additional evaluation of the proposed cost and funding considerations, the SEC granted two extensions of this deadline.
This additional time to complete the RFP process should allow the SROs to engage in a more thoughtful and comprehensive process for the development of an NMS plan. In this regard, the Commission notes that the additional time to solicit comment from the industry and the public at certain key points in the development of the NMS plan could identify issues that can be resolved earlier in the development of the consolidated audit trail and prior to filing the NMS plan with the Commission.
After extensive analyses and discussions with the DAG, bidders, market participants and the SEC staff, the Participants finalized the draft of the CAT NMS Plan and filed the CAT NMS Plan with the SEC on September 30, 2014. Following additional discussions, the Participants filed several amendments to the CAT NMS Plan during 2015 and 2016. With these additional changes, the SEC published the CAT NMS Plan for notice and comment in May 2016.
The Pre-Formation Costs include legal costs of $3,196,434. The legal services were performed by WilmerHale. The selection considerations and fees for WilmerHale were described in detail above. Prior to the creation of CAT LLC, WilmerHale was engaged to represent the consortium of SROs, not the individual Participants. For administrative purposes, FINRA agreed to receive such legal bills, although such costs were shared among the Participants. Therefore, the legal costs incurred with respect to WilmerHale do not include legal costs incurred by the individual Participants. These pre-formation legal costs are described in detail above and are further described below:
• 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 DAG;
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on the 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 (
• Drafted exemptive requests;
• Provided interpretations related to the CAT NMS Plan;
• Provided support with regard to discussions among the exchanges, FINRA and other third parties, such as Deloitte;
• Provided tax advice with regard to CAT's status as a tax-exempt organization; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The Pre-Formation Costs include consulting costs of $10,589,273. The consulting services were performed by Deloitte. The selection considerations and fees for Deloitte were described in detail above. Prior to the creation of CAT LLC, for administrative purposes, Deloitte was engaged by FINRA to provide consulting services related to CAT, but the costs were shared by the consortium of SROs per agreement. Therefore, the consulting costs incurred with respect to Deloitte do not include consulting costs incurred by the individual Participants. The pre-formation consulting costs include the following:
• Established and implemented program operations for the CAT project, including the program management 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 Participants' independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, reviewing technical requirements of other NMS plans, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• 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 (
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided support for industry outreach sessions, including with regard to program design and agenda development, program support and logistics and coordination; and
• Provided support in fact finding, drafting content and meeting coordination for WilmerHale with regard to the CAT and the development of the CAT NMS Plan.
Such Pre-Formation Costs did not include costs related to the Chair of the CAT NMS Plan Operating Committee, as the CAT NMS Plan had not yet been adopted.
The Pre-Formation Costs include public relations costs of $57,174. The public relations services were performed by Peppercomm. The selection considerations and fees for Peppercomm are described in detail above. The costs related to Peppercomm were shared among the SROs. Therefore, the public relations costs do not include public relations costs incurred by the individual Participants. The pre-formation public relations costs include services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs related to cloud hosting services as a part of Historical CAT Assessments. CAT LLC believes that the costs related to cloud hosting services described in detail above are reasonable and appropriate given the strict data processing timelines and storage requirements imposed by the Commission-approved CAT NMS Plan and should be recoverable as a part of Historical CAT Assessment 1.
CAT LLC believes that the costs for the cloud hosting services are reasonable, both in terms of the level of the fees paid by CAT LLC for cloud hosting services provided by AWS and the scope of the services performed by AWS for CAT LLC. CAT LLC believes that both the scope and amount of the costs for cloud hosting services are reasonable given the current requirements of the CAT NMS Plan adopted pursuant to Rule 613, including the strict data processing timeline, storage and other technical requirements under the Commission-approved CAT NMS Plan.
CAT LLC believes that the level of fees for the cloud hosting services is 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.
CAT LLC also believes that the scope of services provided by AWS for the CAT are appropriate given the current requirements of the Commission-approved CAT NMS Plan. As described above, the cloud hosting services costs reflect a variety of factors including, among other things:
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In addition, various requirements of the CAT NMS Plan adopted pursuant to Rule 613 contribute to the significant cloud hosting services costs, and that various Plan requirements could be amended or removed without affecting the regulatory purpose of the CAT. Indeed, CAT LLC has repeatedly sought exemptive relief and filed amendments to the CAT NMS Plan, and has even filed suit against the Commission, to seek to revise or eliminate certain costly requirements related to the CAT. However, despite these efforts, absent the Commission granting exemptive relief or approving cost savings amendments to the CAT NMS Plan, CAT LLC, the Participants and Industry Members are all required to comply with such requirements.
CAT is reasonably designed to efficiently and effectively utilize cloud computing and storage services, given the requirements of the Commission-approved CAT NMS Plan, including requirements related to security, operational reliance and quality assurance, and maintainability.
The Plan Processor uses state-of-the-art software that meets the strict security standards of the CAT NMS Plan. CAT utilizes a big data processing framework that is extensively used by large data processing companies, such as Apple, Meta, Netflix, IBM and Google. As such, it has substantial commercial support and support in the open-source community. It is also well suited for use with regard to iterative types of algorithms and query functions and analytics that the CAT requires, and it provides the heightened security necessary for the CAT.
The development and implementation of the design of CAT is not and has not been static. CAT LLC and the Plan Processor are always evaluating new innovations and service offerings from AWS and other providers to seek to maximize efficiency and cost avoidance while still satisfying the requirements of the CAT NMS Plan. These efforts have led to substantial savings to date. The cloud hosting costs for 2023 were less than the cloud hosting costs for 2022 by $8 million despite processing seven trillion more events in 2023 due to the efficiency and cost avoidance efforts for cloud hosting services. For example, when AWS introduced new storage options, FCAT adopted the cost-efficient new storage option after establishing that the new offering would satisfy the security and other standards of the CAT NMS Plan. This change led to millions of dollars of savings in storage costs. Similarly, when AWS introduced a new compute processor, FCAT adopted this new compute processor, which lead to millions of dollars in savings in compute costs. However, in other cases, new cloud technology developments could not be implemented in CAT because they would not satisfy the security or other requirements of the CAT NMS Plan.
When evaluating the design of the CAT, it must be kept in mind that the CAT is not a typical commercial technology project. The ability to make use of technology approaches that may lead to cost avoidance is also subject to the restrictive requirements of the CAT NMS Plan, such as processing timeframes, requirements for retention of data versions, query requirements,
The CAT System also was designed to minimize the extent to which Industry Members would need to alter their systems to report to CAT. During the design process, Industry Member groups argued that it would make more sense financially for the CAT to accommodate differences in industry systems, than for all Industry Members to change their systems. Moreover, such design choices would facilitate consistency, uniformity and accuracy in reporting. Requiring the CAT to make such accommodations may increase CAT costs while accommodating CAT Reporters.
Based on the requirements in the CAT NMS Plan and/or in response to industry requests for functionality to be embedded with the Plan Processor to streamline or limit Industry Member system changes, the CAT has been designed to limit the effect on Industry Members. The following provides examples of such accommodations:
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To be clear, if OATS-like error correction tools are not made available on Day 1, hundreds of firms will be required to create and test their own tools or obtain vendor alternatives prior to the CAT Go-Live Date. Proprietary tools will require additional system builds, access to and ingestion of CAT data to perform system validation, and testing which will further stress the limited number of subject matter experts (“SMEs”) dedicated to the implementation of CAT reporting. Should this occur, inevitably firms (especially small firms who lack the necessary IT staff to write code and develop proprietary systems), may be put in the position of passing onto investors the cost required to build hundreds of redundant systems.
CAT provides various tools to help Industry Members identify and rectify errors.
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FIF CAT WG is not proposing a specific format; rather, we are proposing flexibility of input formats which includes support of existing formats (
Mandating a uniform format for reporting data to the CAT simplifies the task for the Central Repository of consolidating/storing data, but it puts the burden on each CAT Reporter to accurately translate their current (
CAT provides such a flexible input format.
The costs for cloud hosting services are appropriate and have not been adversely affected by the original design and approaches of the Initial Plan Processor. FCAT's design costs are the result of the requirements of the Commission-approved CAT NMS Plan.
When FCAT took over as the Plan Processor from Thesys, it utilized certain aspects of the technical specifications created by Thesys in its design. However, FCAT has not maintained aspects of the original design that would not be appropriate for the CAT. FCAT revised and enhanced the original technical specifications of the CAT System to increase its efficiency and efficacy, and to ensure its compliance with the CAT NMS Plan. For example, the Initial Plan Processor's approach utilized many more fields than FCAT's approach, which relies on additional linkages. With the additional linkages, the CAT System takes on more of the CAT-related burdens than the Industry Members. Such an approach serves to facilitate consistency, uniformity and accuracy in reporting.
Moreover, FCAT did not utilize the system built by the Initial Plan Processor; it rebuilt the CAT System based on revised technical specifications. For example, the Initial Plan Processor used an on-premises processing approach which was not geared toward the huge amounts of data stored in the CAT, while FCAT adopted a cloud-based solution in response to such data demands.
Furthermore, given the very short timeframe to develop the CAT System and the prior optimization of certain query tools (
CAT LLC continues to support the selection of AWS as the cloud hosting services provider for CAT given the compliance, operational, and security requirements of the CAT. Independent analyses confirm these conclusions, noting that “AWS is an excellent choice for either strategic or tactical use and recommends considering AWS for almost all cloud IaaS or IaaS+PaaS scenarios.”
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In addition, the nature of the CAT, including the amount of data it must process and the size of its data footprint, does not allow for a multi-cloud solution as this would be cost prohibitive and greatly increase the security boundary and associated risk profile of the CAT. For example, a multi-cloud hosting option would increase costs, complexity, and risk for operations with regard to, for example, DevOps, production support, and networking. Similarly, with regard to security, a multi-cloud solution would increase risk, including with regard to the need for data transfers between cloud providers and the expansion of the security boundary. With regard to labor, a multi-cloud solution would lose economies of scale due to the need to support unique cloud requirements. Accordingly, the use of single-cloud solution continues to provide advantages with regard to cost, complexity, and risk. Indeed, “[t]he best practice is to focus on a single primary strategic provider.”
Furthermore, if another cloud service provider were determined to be a better match for the CAT at some future date, switching cloud service providers would be a very significant, expensive and time-consuming effort. Such an effort would likely be a 10-to-15-year commitment at a substantial expense. Such a move would require the replication or redesign of the underlying cloud environments (
CAT LLC believes that the recovery of costs related to the development of the funding model is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
Funding the CAT is a critical aspect of Rule 613 and the CAT NMS Plan. Article XI of the CAT NMS Plan describes in detail the requirements for funding the CAT, and the Participants are required to comply with and enforce compliance with the funding requirements of the CAT NMS Plan, just as with other aspects of the Plan. Accordingly, the development and implementation of a funding model for the CAT is as much a part of the requirements of the CAT NMS Plan as the development and operation of the CAT System. CAT LLC sees no reason to distinguish the efforts to develop a funding model from, for example, efforts to develop the CAT System, in seeking to recover reasonable CAT costs.
Moreover, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . legal costs.”
In addition, the legal costs incurred for the assistance in developing the CAT Funding Model are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at negotiated rates for such services that reflect both the extent of the services and market rates. Moreover, the scope of the legal costs associated with the development of the funding model reflect the complexity of the task in satisfying the detailed requirements of the CAT NMS Plan, the standards of the Exchange Act, and the many perspectives of the different market constituents potentially affected by or interested in the funding model, including Industry Members, Participants and investors. The many and varied comments by market participants on CAT funding over the years demonstrate the complexity of the task.
CAT LLC believes that the recovery of legal costs related to the litigation with the SEC regarding the CAT NMS Plan is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
The conditional exemptive relief in this Order allows for the implementation of alternative regulatory solutions that continue to advance the regulatory goals that Rule 613 and the CAT NMS Plan were intended to promote, while reducing the implementation and operational costs, burdens, and/or difficulties that would otherwise be incurred by the Participants and Industry Members that must fund the CAT.
CAT LLC believes it is reasonable and appropriate to incur costs to limit the need to incur even greater costs due to certain interpretations of the Plan.
In addition, the legal costs incurred during the litigation are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at market rates for such services. As such, the legal costs related to this litigation incurred during the period covered by Historical CAT Assessment 1 were reasonable.
Finally, Industry Members will directly benefit from the result of the litigation because it has addressed CAT NMS Plan requirements that would have imposed significantly greater costs on the CAT. Accordingly, it is reasonable and appropriate that the costs of such litigation be included in the Historical CAT Costs 1.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017, which was the date by which Participants were required to begin reporting to the CAT, due to the delay in the commencement of reporting to the CAT. As discussed above, the Participants determined to exclude all CAT costs incurred from November 15, 2017 through November 15, 2018, which includes $37,852,083 in Thesys costs incurred from November 15, 2017 through November 15, 2018 (as well as other CAT costs during this period). The remaining Thesys costs incurred after November 15, 2018 are the $19,628,791 in capitalized developed technology costs for the period from November 16, 2018 through February 2019 incurred in the development of the CAT by the Initial Plan Processor, as well as a transition fee for the transition from the Initial Plan Processor to the successor Plan Processor. The Participants would remain responsible for 100% of these $19,628,791 in costs.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017. CAT LLC notes that the development and implementation of the CAT System, while unprecedented in scope and design, is like any other large and innovative technology project in that, inevitably, there were adjustments and refinements in the technical approach as the project developed, even with substantial planning efforts and oversight prior to the build. This is even more likely when the project faces a very tight implementation schedule, such as the one imposed by the Commission in Rule 613 and the CAT NMS Plan. However, an adjusted approach does not mean that the funds were not valid expenditures and should not be recovered.
The reasonableness of Thesys costs should be evaluated by the Commission as of the time they were incurred, not in hindsight. As detailed above, the Commission concluded in 2016 that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue.”
As noted in the CAT Funding Model Approval Order, “[i]n Rule 613, the Commission made the determination that the costs of the CAT should be shared by the Participants and Industry Members.”
CAT LLC believes that the recovery of CAIS-related costs is appropriate, and that the amount and scope of such costs, as described above, are reasonable, and that the reasonableness of historical costs should be evaluated by the Commission as of the time they were incurred, not in hindsight.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable CAIS operating costs as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . CAIS operating fees.”
In addition, CAT LLC determined that the CAIS operating fees described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The “CAIS Operating Costs” for Historical CAT Assessment 1 total $9,480,587, with Pre-FAM costs of $2,072,908, FAM 1 costs of $254,998, FAM 2 costs of $1,590,298, and FAM 3 costs of $5,562,383. As described above, the CAIS operating fees were incurred with regard to two categories of CAIS-related efforts: (1) the acceleration of the reporting of LTIDs; and (2) the development of the CAIS Technical Specifications and the building of CAIS. These two categories of costs are discussed in more detail below.
During the period covered by Historical CAT Assessment 1, the CAIS operating costs included costs related to the acceleration of the reporting of LTIDs earlier than originally contemplated during this period at the request of the SEC and in accordance with exemptive relief granted by the SEC.
• After FCAT developed the LTID Technical Specifications, the LTID Technical Specifications were published on January 31, 2020, with additional updates provided to the LTID Technical Specifications through April 2021.
• The LTID account information testing environment opened on August 24, 2020.
• The LTID account information reporting production environment opened on December 14, 2020.
• CAT Reporters were required to request their production readiness certification for account information related to LTIDs by the deadline of April 9, 2021.
• The LTID account information reporting for Phases 2a, 2b and 2c for Large Industry Members went live on April 26, 2021.
• The LTID account information reporting for Phases 2d for Large Industry Members went live on December 13, 2021.
• The LTID account information reporting for Phases 2a, 2b, 2c and 2d for Small Industry Members went live on April 26, 2021.
Throughout this project, FCAT and CAT LLC worked closely with the industry on LTID and CAIS reporting. Between December 2019 and December 2021, at least 57 checkpoint calls, webinars, and technical working group meetings with industry representatives were hosted to address issues and to educate CAT Reporters regarding LTID and CAIS reporting.
The LTID reporting project was successfully completed in a timely fashion, and the fees related to the project were reasonable. Accordingly, CAT LLC appropriately seeks to recover such costs via Historical CAT Assessment 1.
During the period covered by Historical CAT Assessment 1, FCAT began the development of the full CAIS Technical Specifications and the building of CAIS. The CAIS Technical Specifications were developed during this period as follows:
• Iterative drafts of the CAIS Technical Specifications were published on June 30, 2020, December 1, 2020, and January 1, 2021.
• The full, final CAIS Technical Specifications were published on January 29, 2021.
• Updated versions of the CAIS Technical Specifications were published throughout 2021.
As discussed above, FCAT and CAT LLC frequently engaged with the industry regarding the development of CAIS, hosting regular checkpoint calls, webinars, and technical working group meetings with industry representatives to address any issues, including addressing the interplay between Industry Members' existing customer systems and CAIS, and to educate CAT Reporters regarding LTID and CAIS reporting. Such engagement was critical to the CAIS development process as the CAIS project was unprecedented in terms of its content, scope and complexity.
During this period, FCAT also commenced the building of the CAIS system in accordance with the CAIS Technical Specifications during the period covered by Historical CAT Assessment 1. The CAIS system was ready for industry testing shortly after the end of this period in January 2022.
The CAIS Technical Specifications and the CAIS system, as developed during this period, continue to be in use today. Industry Members have been required to report, and have continuously reported, required data to CAIS on a daily basis since November 7, 2022, consistent with interim reporting obligations. The CAIS system accepts and validates the CAIS data submitted by Industry Members and provides Industry Members with initial feedback on data errors. In light of the unprecedented nature of the CAIS system, certain changes to the system, such as changes related to error corrections and the CAIS regulatory portal, were necessary to finalize CAIS reporting. FCAT worked to address these remaining issues,
CAT LLC believes that the recovery of public relations costs is appropriate and that the amount and scope of such costs, as described above, are reasonable.
The Commission has long recognized that external public relations costs are reasonably associated with creating, implementing and maintaining the CAT. In the CAT NMS Plan Approval Order, the Commission estimated that the Participants had collectively spent approximately $2,400,000 in preparation of the CAT NMS Plan on external public relations, legal, and consulting costs, and estimated that the Participants would continue to incur external public relations costs associated with maintaining the CAT upon approval of the CAT NMS Plan.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for public relations services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . public relations costs.”
In addition, CAT LLC determined that the public relations costs described
CAT LLC believes that the recovery of legal costs related to the limitation of liability provision, including costs related to the proceedings before the SEC and costs related to the proposed amendment to the Consolidated Audit Trail Reporter Agreement and the Consolidated Audit Trail Reporting Agent Agreement (the “Reporting Agreements”) is appropriate and that the amount and scope of such costs as described above are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
Moreover, it is critical that CAT LLC, which has no employees of its own, have the ability to fund a legal defense in litigation and other legal proceedings against it. In response to CAT LLC requiring Industry Members to agree to the limitation of liability provision to submit data to the CAT, SIFMA filed an application for review of actions taken by CAT LLC and the Participants pursuant to Sections 19(d) and 19(f) of the Exchange Act. Contemporaneously with the filing of this proceeding, SIFMA moved for a stay of the requirement that Industry Members sign a Reporter Agreement, or in the alternative, asked the Commission to further delay the launch of CAT reporting on June 22, 2020. CAT LLC must have the resources to defend itself from litigious actions by others, like these.
Although a limitation of liability provision ultimately was not adopted as proposed, it was a reasonable provision to propose for the CAT Reporter Agreements, given that such provisions are in accordance with industry norms. Limitations of liability are ubiquitous within the securities industry and have long governed the economic relationships between self-regulatory organizations and the entities that they regulate. For example, U.S. securities exchanges have adopted rules to limit their liability for losses that Industry Members incur through their use of exchange facilities.
Furthermore, as described above, the specialized services were performed by experienced counsel at market rates for such services. Accordingly, the legal costs for the efforts related to the limitation of liability provision were reasonable.
CAT LLC believes that the recovery of consulting costs related to the Chair of the CAT Operating Committee is appropriate and that the amount and scope of such costs are reasonable.
As a preliminary matter, the selection of the Chair of the Operating Committee complies with the requirements of Section 4.2 of the CAT NMS Plan. The initial Chair that served during the period covered by Historical CAT Assessment was designated by a Participant as the Participant's alternate voting member. Accordingly, the Chair is a representative of the Participants, as required by the CAT NMS Plan.
In addition, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for consulting as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . consulting . . . ” costs.
The Participants determined that the position of the Chair was a critical role for the implementation of the CAT, and an independent Chair would appropriately consider and address the views of each of the Participants. The Participants also determined that it was important to have a Chair with a strong background regarding issues related to the regulatory obligations of self-regulatory organizations, including their obligations under national market system plans. The compensation paid to the Chair is appropriate for a person with such background and skills. The average annual amount paid to the Chair from 2017 through the end of FAM 3 was $292,733.30. Separate from the Chair, CAT LLC relies upon a Leadership Team of representatives of the SROs to oversee the day-to-day implementation of the CAT NMS Plan. CAT LLC does not compensate any member of the Leadership Team.
CAT LLC understands that there are three types of reconciliation processes related to the invoices:
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As discussed further below, CAT LLC only considers the first type of process to be a “reconciliation” and the only type of process that is required under the CAT NMS Plan. CAT LLC provides the means to reconcile the CAT invoice amount to the underlying trades provided by CAT.
The CAT NMS Plan does not require CAT LLC to facilitate the second type of process: matching underlying trades for a CAT invoice with a firm's internal books and records. CAT LLC has access only to the underlying trades provided by CAT; it does not have access to a firm's internal books and records. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
The CAT NMS Plan also does not require CAT LLC to provide the ability to identify the order originator for the underlying trades for the CAT invoices. Accordingly, the billing guidance and processes do not provide CAT Reporters with the ability to identify the order originator for the underlying trades provided by CAT with CAT invoices. CAT LLC has been working closely with CAT Reporters to explain its billing approach and to address any outstanding billing questions. But, it should not be lost that CAT LLC provides information sufficient to allow CAT Reporters to reconcile CAT invoice amounts with the underlying trades provided by CAT LLC.
The CAT NMS Plan does not require CAT LLC to facilitate the matching of underlying trades for a CAT invoice with a firm's internal books and records, which may consist of trading data from various sources external to CAT. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
In this regard, it is important to recognize that CAT LLC has developed a billing approach that greatly improves upon existing billing practices for similar regulatory fees (
To facilitate the introduction of CAT fees, CAT LLC has worked with FCAT to develop an approach to CAT billing that is consistent with existing billing constructs used with regard to Section 31-related sales values fees, subject to certain enhancements. Under this billing approach, FCAT is providing additional linkage elements, not necessarily provided in the Section 31-sales value fee context, to facilitate CAT Reporters' ability to match the underlying trades provided by CAT with their internal books and records and to reduce the complexity of that process. Specifically, FCAT is providing various key elements of the trade itself, such as the tradeID and branch sequence,
With the Additional Trade Details, CAT LLC and FCAT believe that the overwhelming majority of underlying trades provided by CAT bills can be matched with a CAT Reporter's internal books and records. CAT LLC recognizes that there may be certain cases in which such matching is more difficult given various firm-specific considerations, but believes that such instances are significantly more limited than with regard to the SRO fees charged in relation to Section 31.
Similar to other regulatory fees, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Accordingly, Historical CAT Assessment 1 does not address the process by which any CAT Reporters may pass through the fee to their customers. Likewise, the CAT billing approach provided by the Plan Processor is designed to address the needs of CAT Reporters with regard to the reconciliation of CAT invoices with the underlying trades provided by CAT LLC with the invoices; they are not designed to address issues related to any pass-through fees. Accordingly, facilitating CAT Reporters' ability to pass through fees to their clients is outside the scope of this fee filing. Nevertheless, as described below, CAT LLC and the Plan Processor have expended significant efforts to provide technical assistance to Industry Members regarding the implementation of Historical CAT Assessment 1, including providing Additional Trade Details that provide significant details about each underlying trade.
In its approval of the CAT Funding Model, the Commission approved charging CAT fees to the CAT Executing Broker, rather than the originating broker. This fee filing must comply with the requirements of the CAT Funding Model, and, therefore, charges the Historical CAT Assessment 1 to CAT Executing Brokers.
Moreover, charging originating brokers would introduce significant
As noted, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT Fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Nevertheless, the Additional Trade Details provided with regard to the underlying trades on CAT invoices may assist with this process. Like with Section 31-related sales value fees, however, it is not always possible to trace every fee on a transaction back to the originating party. Industry Members have faced these issues under Section 31-related sales values fees for many years.
CAT LLC has worked with FCAT to provide significant technical assistance to Industry Members to allow the Industry Members to understand how Historical CAT Assessment 1 will be implemented and billed, including webinars, CAT alerts, mock invoices, and responses to questions posed to the FCAT Help Desk.
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By providing such detailed and sustained assistance to Industry Members regarding CAT fees and billing, CAT LLC has successfully addressed questions raised by Industry Members regarding the CAT fees and billing processes.
CAT LLC has provided Industry Members with ample time to comply with the implementation of Historical CAT Assessment 1. CAT LLC originally proposed issuing the first invoices for Historical CAT Assessment 1 in December 2023 based on transactions in Eligible Securities in November 2023. In consideration of the feedback about the need for additional time to implement the new fee, CAT LLC pushed back this timeline by four months, proposing to issue the first Historical CAT Assessment 1 in April 2024 based on transactions in March 2024.
The Exchange believes the proposed rule change is consistent with the requirements of the Exchange Act. The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,
The Exchange believes that this proposal is consistent with the Act because it implements provisions of the Plan and is designed to assist the Exchange 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.”
The Exchange believes that the proposed fees paid by the CEBBs and CEBSs are reasonable, equitably allocated and not unfairly discriminatory. First, the Historical CAT Assessment 1 fees to be collected are directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to technology, legal, consulting, insurance, professional and administration, and public relations costs. The Exchange has already incurred such development and implementation costs and the proposed Historical CAT Assessment 1 fees, therefore, would allow the Exchange 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 and not to support the Exchange's business operations. The proposed fees would not cover Exchange services unrelated to the CAT. In addition, any surplus would be used as a reserve to offset future fees. Given the direct relationship between CAT fees and CAT costs, the Exchange believes that the proposed fees are reasonable, equitable and not unfairly discriminatory.
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. The Exchange believes that the proposed fees adopted pursuant to the CAT Funding Model approved by the SEC are reasonable, equitably allocated and not unfairly discriminatory.
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, the Exchange has filed this fee filing to implement the Industry Member CAT fees included in the CAT Funding Model. The Exchange 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 the Exchange and its Industry Members in meeting regulatory obligations pursuant to the CAT NMS Plan. In approving the CAT NMS Plan,
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.
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:
In accordance with this requirement, the Exchange 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, the Exchange 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.
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.
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
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 (
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.
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.
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.
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.
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.
These costs involve the activity of both the Initial Plan Processor and FCAT, as the successor Plan Processor.
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.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover consulting costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover insurance costs as a part of Historical CAT Assessments.
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.
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.
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 balanace of these considerations.
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.
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.
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.
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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.
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.
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, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
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.
The Exchange believes that imposing Historical CAT Assessment 1 with a fee rate of $0.000013 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, the Exchange 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 (
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.
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.
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.
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, the Exchange 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 the fee schedule. The Exchange 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 Exchange members to reasonably predict their payment obligations for budgeting purposes.
Section 6(b)(8) of the Act
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.
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
No written comments were either solicited or received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Exchange Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of 1934 (the “Act”)
The Exchange proposes to establish fees for Industry Members
The text of the proposed rule change is available on the Exchange's website at
In its filing with the Commission, the Exchange 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 IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
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.
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).
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').”
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.
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. 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.' ”
The Exchange previously filed a fee filing to implement Historical CAT Assessment 1. On January 17, 2024, the SEC published this prior filing for Historical CAT Assessment 1, temporarily suspended the fee filing, and instituted proceedings to determine whether to approve or disapprove the fee filing.
Historical CAT Assessment 1 will be charged to each CEBB and CEBS for each applicable transaction in Eligible Securities.
The following fields of the Participant Technical Specifications indicate the CAT Executing Brokers for the transactions executed on an exchange.
In addition, the following fields of the Participant Technical Specifications would indicate the CAT Executing Brokers for the transactions executed otherwise than on an exchange.
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 $0.00003994969693072937 per executed equivalent share. This rate is then divided by three and rounded to determine the fee rate of $0.000013 per executed equivalent share that will be assessed to CEBBs and CEBSs, as also discussed in detail below.
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 (
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.”
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.”
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 $124,290,730. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($41,430,243.33), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third ($41,430,243.33). 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.
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.
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, 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 [
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,”
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 (
FCAT was selected to assume the role of the successor Plan Processor. Prior to this selection, the Participants engaged in discussions with two prior Bidders
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.
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.
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;
• 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, the 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;
• 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.
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 originally adopted.
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 change 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.
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 $51,847,150 relate to technology provided by the Initial Plan Processor and the successor Plan Processor.
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.
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 January 30, 2019, the Initial Plan Processor engaged in various activities with respect to the CAT, including preparing iterative drafts of Participant Technical
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.
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 the 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 (
• 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 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.
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 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 [
• 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 (
• 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.
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.
In adopting the CAT NMS Plan, the Commission amended the Plan to add a requirement that CAT LLC's financial
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;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
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.
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.
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 (
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.
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”),
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.
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
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.
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 draft 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.
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.
CAT LLC did not incur costs related to change requests during FAM Period 1.
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 timestamps; (2) implementation fees; and (3) license fees.
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.
• 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.
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.
Although insurance was in effect during FAM Period 1, CAT LLC did not incur costs related to insurance during FAM Period 1.
• 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 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.
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 (
Historical CAT Costs 1 would include costs incurred by CAT LLC and already
By the completion of FAM Period 2, CAT LLC was required to implement the following with regard to the CAT:
(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.
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.
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.
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.
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.
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 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.
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.
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.
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.
• 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 (
• 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.
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.
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.
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.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
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”),
By the completion of FAM Period 3, CAT LLC was required to implement the following requirements with regard the CAT:
(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.
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.
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.
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.
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.
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.
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.
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.
• 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
• 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 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;
• Provided assistance with change requests;
• Provided guidance and regulatory support for litigation regarding the response to the 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.
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.
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 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.
The insurance costs of $1,582,714 represent the fees paid for insurance during 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.
The professional and administration costs of $595,923 represent the fees paid to Anchin and Grant Thornton for financial services during FAM Period 3.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
Historical CAT Costs 1 would not include three categories of CAT costs (“Excluded Costs”): (1) $14,749,362 of costs related to the termination of the relationship with the Initial Plan Processor; (2) $48,874,937, which are all CAT costs incurred from November 15, 2017 through November 15, 2018; and (3) $19,628,791, which are costs paid to the the Initial Plan Processor from November 16, 2018 through February 2019 when the relationship with the Initial Plan Processor was concluded. The Participants would remain responsible for 100% of these costs, which total $83,253,090. CAT LLC determined to exclude these Excluded Costs from Historical CAT Costs 1 because these costs relate to the delay in the start of reporting to the CAT and the conclusion of the relationship with the Initial Plan Processor.
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 the Initial Plan Processor, and the settlement costs related to the arbitration with the Initial Plan Processor. The Participants would remain responsible for 100% of these $14,749,362 in costs.
Second, Historical CAT Costs 1 would not include all CAT costs incurred from November 15, 2017 through November 15, 2018. CAT LLC determined to exclude all costs during 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.
The following provides additional detail regarding the Excluded Costs.
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.
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.
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.
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 (
• Assisted with cost and funding issues 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 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.
CAT LLC did not incur costs related to insurance during the period from November 15, 2017 through November 15, 2018.
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.
• 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.
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 engagment [
Third, Historical CAT Costs 1 would not include the $19,628,791 in costs paid to the Initial Plan Processor from November 16, 2018 through February 2019 when CAT LLC's relationship with the Initial Plan Processor concluded. CAT LLC determined that Historical CAT Costs 1 would not include any fees paid to the Initial Plan Processor after November 15, 2017,
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.
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.
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.
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.”
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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
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.
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.
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.
The CAT NMS Plan further states that “Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs.”
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.
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.”
To implement Historical CAT Assessment 1, a new section would be added to the Exchange's fee schedule for “Consolidated Audit Trail Funding Fees”, and it would include the proposed paragraphs described below.
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.
Accordingly, based on the factors discussed above, the Exchange proposes to add paragraph (a)(1) to the Consolidated Audit Trail Funding Fees section of its fee schedule. Proposed paragraph (a)(1) would state the following:
(A) Each CAT Executing Broker shall receive its first invoice for Historical CAT Assessment 1 in November 2024, which shall set forth the Historical CAT Assessment 1 fees calculated based on transactions in October 2024, and shall receive an invoice for Historical CAT Assessment 1 for each month thereafter in which Historical CAT Assessment 1 is in effect.
(B) 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 $0.000013 per executed equivalent share.
(C) Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (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.
(D) Each CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).
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.
The proposed language in paragraph (a)(1)(A) of the fee schedule 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 November 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 October 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 paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(1)(A) of the fee schedule 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 November 2024, invoices will be sent to CAT Executing Brokers each month thereafter while Historical CAT Assessment 1 is in effect.
Proposed paragraph (a)(1)(B) of the fee schedule would describe the invoices for Historical CAT Assessment 1. Proposed paragraph (a)(1)(B) of the fee schedule 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)(B) of the fee schedule 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 $0.000013 per executed equivalent share.”
Furthermore, proposed paragraph (a)(1)(C) of the fee schedule 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 $212,039,879.34 (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 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)(D) of the fee schedule 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 (b).”
Paragraph (b)(1) to the “Consolidated Audit Trail Funding Fees” section of its fee schedule describes the manner of payment of Industry Member CAT fees. Paragraph (b)(1) states that “[e]ach CAT Executing Broker shall pay its CAT fees as required pursuant to paragraph (a) each month to the Consolidated Audit Trail, LLC in the manner prescribed by the Consolidated Audit Trail, LLC.” The CAT NMS Plan requires the Operating Committee to establish a system for the collection of 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.
Accordingly, the Exchange previously has added this requirement to the Exchange's fee schedule. Specifically, paragraph (b)(2) of the fee schedule states:
Each CAT Executing Broker shall pay the CAT fees required pursuant to paragraph (a) within thirty 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
The requirements of paragraph (b)(2) would apply to Historical CAT Assessment 1.
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.
Such information would provide CEBBs and CEBSs with the ability to understand the details regarding the calculation of their Historical CAT Assessment.
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.”
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.
To assist Industry Members with compliance with the commencement of Historical CAT Assessment 1, CAT LLC has been making available to CAT Executing Brokers mock invoices prior to the commencement of Historical CAT Assessment 1. Specifically, CAT Executing Brokers have received mock invoices based on transaction data each month since November 2023. The mock invoices are in the same form as the actual, payable invoices, including both the relevant transaction data and the corresponding fee. However, no payments have been required in response to such mock invoices; they have been used solely to assist CAT Executing Brokers with the development of their processes for paying the CAT fees. Such data has provided 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.
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.”
(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”
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.
Under the FAM Period 1 requirement of Initial Industry Member Core Equity and Options Reporting, Industry Members—excluding Small Industry
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.' ”
• 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 (
• 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.
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.' ”
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).
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,
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.
• “Production Go-Live for Equities 2a Intrafirm Linkage validations” was completed on 7/27/2020;
• “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.
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.
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 remain [
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
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,
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,
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 (
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 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;
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
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 (
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.”
• “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.
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.
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.” The Exchange 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.
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.
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 remain [
As discussed above, CAT LLC has satisfied the Financial Accountability Milestones (“FAMs”) for Periods 1
CAT LLC does not believe that the exemptive relief relating to the reporting of electronic responses for quotes (“RFQs”) that are not immediately actionable (“NIA Electronic RFQ Responses”) affect the conclusion that FAMs 1 through 3 have been satisfied. The only reason CAT LLC pursued this relief is because certain Industry Members introduced concerns that NIA Electronic RFQ Responses could be considered “orders” reportable pursuant to Rule 613(j)(8) and some Industry Members were not prepared to report such orders to CAT. Thus, the relief was requested on behalf of Industry Members. CAT LLC itself has not taken any position on whether NIA Electronic RFQ Responses are “orders,” as the definition of “order” is an SEC rule and the trading processes for NIA Electronic RFQ Responses are the Industry Members', not those of the Participants or CAT LLC. Accordingly, CAT LLC stated in its letter that “Industry Members must determine whether trading interest falls within the definition of an `order' for CAT purposes. To the extent an NIA Electronic RFQ Response is not considered an `order” as defined in Rule 613(j)(8) and the CAT NMS Plan, it would not be reportable to CAT.”
Only “orders” as defined in SEC Rule 613(j)(8) are reportable to CAT. There is no agreement across the industry or among regulators as to whether NIA Electronic RFQ Responses are “orders” reportable to CAT. Certain Industry Members have raised the question as to whether NIA Electronic RFQ Responses are orders, but others have argued that they are not orders under Rule 613(j)(8).
As further discussed in the prior FIF letters, even if the Commission had the legal authority to require the reporting of NIA RFQ responses to CAT without an amendment to Rule 613, the Commission has not provided guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT. In subsequent discussions with industry members, Commission representatives have agreed that, prior to NIA RFQ responses being reportable to CAT, it would be necessary for the Commission to provide further guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT.
On May 20, 2024, the Commission granted CAT LLC's request for exemptive relief from certain CAT reporting requirements pertaining to NIA Electronic RFQ Responses to the extent such responses are considered “orders” reportable pursuant to Rule 613(j)(8).
When the Commission proposed the FAMs, the Participants expressed concern that, “by conditioning the ability of CAT LLC and the Participants to collect Post-Amendment Industry Member Fees on factors dependent on the efforts of Industry Members, the Commission's proposals inadvertently establish a perverse incentive for Industry Members to devote less than maximum efforts to comply with their obligations related to the CAT as they will pay less fees in such instances.”
CAT LLC does not believe that the Commission's May 19, 2023 order granting temporary exemptive relief relating to certain verbal floor activity and unstructured verbal and electronic upstairs activity (the “2023 Verbal Quotes Exemption”) affects the conclusion that FAMs 1 through 3 have been satisfied. The 2023 Verbal Quotes Exemption, which was issued on May 19, 2023, is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. The relevant exemption for this time period is the Commission's November 12, 2020 order, which granted relief for the same activity through July 31, 2023 (the “2020 Verbal Quotes Order”).
CAT LLC does not believe that the Commission's November 2, 2023 order granting relief from certain CAT NMS Plan requirements (the “November 2023 Order”) affects the conclusion that FAMs 1 through 3 have been satisfied. The November 2023 Order is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. As described in the November 2023 Order, the relevant exemptive orders for this time period were issued on December 16, 2020, which also states that “the Commission has determined that the Participants have sufficiently complied with the conditions set forth in the prior Orders and with the technical requirements for Quarterly Progress Reports set forth in section 6.6(c) of the CAT NMS Plan, including for purposes of determining compliance with any applicable Financial Accountability Milestones.”
CAT LLC also completed the requirements of FAM Period 2, including the required linkages, by December 31, 2020. Although Participant exchanges may report the Executing Broker to CAT differently in certain situations, these reporting differences are irrelevant for linkage purposes as the fields used for CAT Executing Broker are not used for linkage.
The CAT Funding Model approved by the Commission permits the recovery of reasonable costs in each of the categories of CAT costs sought to be recovered via Historical CAT Assessment 1.
CAT LLC believes that it is reasonable to seek recovery of costs incurred prior to when the CAT NMS Plan became effective in November 2016, such as legal and consulting fees incurred to create the CAT NMS Plan. Rule 613 specifically mandates that the CAT be created, implemented and maintained, and further provides that the CAT NMS Plan include a proposed allocation of estimated costs to fund the creation, implementation and maintenance of the CAT among the Participants (referred to as “plan sponsors”), and between the Participants and Industry Members (referred to as “members of the plan sponsors”).
[i]n determining fees on Participants and Industry Members the Operating Committee shall take into account fees, costs and expenses (including legal and consulting fees and expenses) reasonably incurred by Participants on behalf of the Company prior to the Effective Date in connection with the creation and implementation of the CAT.
Accordingly, the CAT NMS Plan specifically permits the recovery of costs, including legal and consulting costs, reasonably incurred prior to November 2016 in connection with the creation and implementation of the CAT.
Furthermore, the costs incurred to create and implement the CAT prior to the effective date of the CAT NMS Plan (“Pre-Formation Costs”) were reasonable both in scope and amount, in accordance with the requirements of Section 11.1(c) of the CAT NMS Plan. During the four-year period from 2012 to 2016, a total of $13,842,881 in Pre-Formation Costs were incurred. This is an average of approximately $3.5 million per year over this period. The Pre-Formation Costs fell into three categories: legal costs, consulting costs and public relations costs. This includes legal costs of $3,196,434; consulting costs of $10,589,273; and public relations costs of $57,174. The legal, consulting and public relations services were performed by WilmerHale, Deloitte and Peppercomm, respectively. The selection considerations and fees for these three firms are described in detail above and are described further below. The Pre-Formation Costs are direct costs of CAT, which have been funded entirely by the Participants through non-interest-bearing notes. The Pre-Formation Costs do not include the significant costs incurred by each of the
The Pre-Formation Costs are reasonable and appropriate as they reflect the extensive efforts that were necessary to create the CAT NMS Plan as mandated after the SEC's adoption of Rule 613. As described in more detail below, these efforts included, among other things, developing a plan for selecting the Plan Processor, soliciting and evaluating bids, engaging a diverse set of market participants and the SEC in the development of the Plan, interacting with the SEC in their oversight of the development of the Plan, and seeking appropriate exemptive relief to address areas of concern in Rule 613.
The Participants determined to utilize an RFP to ensure that potential alternative solutions for creating the Plan could be presented and considered, and that a detailed and meaningful cost-benefit analysis could be performed. The SEC supported the use of an RFP, and approved its use as it is described in extensive detail in the CAT NMS Plan.
In the context of the SEC's adoption of Rule 613, commenters urged the Commission to utilize an RFP process to assist in the planning and design of the NMS plan.
In this regard, several commenters suggested that the Commission undergo a RFP or request for information (“RFI”) process to create and implement a consolidated audit trail. Specifically, FIF urged the Commission to perform a RFP process “to determine the best technical solution for developing a consolidated audit trail.” FIF suggested that the Commission “should outline a set of goals and guiding principles they are striving to achieve as part of the adopted CAT filing and leave the determination of data elements and other technical requirements to [an] industry working group.” Similarly, Direct Edge suggested that Commission staff should form and engage in a working group to develop an RFP for publication by the Commission. DirectEdge explained that an RFP process would facilitate the identification of the costs and benefits of the audit trail, as well as the consideration of a wider range of technological solutions. Further, commenters, including Broadridge Financial Solutions, Inc., a technology provider, also requested more specific information about the audit trail system to better assess the Commission's initial cost estimates and to determine the best approach to the consolidated audit trail.
In response to these comments, the Commission modified Rule 613 to require the Participants to address certain important considerations regarding the features and details of the NMS plan and to extend the timeframe for submission of the CAT NMS Plan by the Participants from the 90 days as originally proposed to 270 days, in part, to accommodate a process that would address these considerations.
The SEC specifically recognized that the Participants planned to use an RFP when it approved the Selection Plan, and stated that the RFP was a reasonable approach.
On February 26, 2013, the Participants published an RFP soliciting bids from parties interested in serving as the plan processor for the CAT. Initially, 31 firms submitted intentions to bid. In the following months, the Participants engaged with potential bidders with respect to, among other things, the selection process, selection criteria, and potential bidders' questions and concerns. On March 21, 2014, the Participants received ten bids in response to the RFP.
On September 4, 2013, the Participants filed with the Commission a national market system plan to govern the process for Participant review of the bids submitted in response to the RFP, the procedures for evaluating the bids, and, ultimately, selection of the plan processor (the “Selection Plan”).
The Selection Plan divided the review and evaluation of bids, and the selection of the plan processor, into various stages. Specifically, pursuant to the Selection Plan, a selection committee reviewed all bids and determined which bids contained sufficient information to allow the Participants to meaningfully assess and evaluate the bids. The ten submitted bids were deemed “Qualified Bids,” and so passed to the next stage, in which each bidder presented its bids to the Participants on a confidential basis. On July 1, 2014, after conducting careful analysis and comparison of the bids, the Selection Committee voted and selected a shortlist of six eligible bidders. The Selection Committee determined which shortlisted bidders would be provided the opportunity to revise their bids. After the Selection Committee assessed and evaluated the revised bids, the Selection Committee selected the plan processor via two rounds of voting by the Participants, as described in the Selection Plan.
The Selection Plan established an Operating Committee responsible for formulating, drafting, and filing with the
When it approved the CAT NMS Plan in 2016, the Commission reiterated its belief that the Selection Plan remains a “reasonable approach,” that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue”:
In approving the Selection Plan, the Commission stated that the Selection Plan is reasonably designed to achieve its objective of facilitating the development of the CAT NMS Plan and the selection of the Plan Processor. The Commission also found that the Selection Plan is reasonably designed to govern the process by which the SROs will formulate and submit the CAT NMS Plan, including the review, evaluation, and narrowing down of Bids in response to the RFP, and ultimately choosing the Plan Processor that will build, operate, and maintain the consolidated audit trail. The Commission believes that the process set out in the Selection Plan for selecting a Plan Processor remains a reasonable approach, which will facilitate the selection of Plan Processor through a fair, transparent and competitive process and that no modifications to the Selection Plan are required to meet the approval standard. . . . In response to the comment that offered support for a specific Bidder, the Commission agrees with the Participants that the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor and thus believes that the process set forth in the Selection Plan should be permitted to continue.
During the process of developing the CAT NMS Plan, the Participants engaged in extensive and meaningful dialogue with market participants and the SEC. To this end, the Participants created a website to update the public on the progress of the CAT NMS Plan, published a request for comment on multiple issues related to the Plan, held multiple public events to inform the industry of the progress of the CAT and to address inquiries, and formed, and later expanded, a DAG to solicit more input from a representative industry group.
The DAG included representatives of Participants and Industry Members and conducted meetings to discuss, among other things, technical and operational aspects the Participants were considering for the Plan. The Participants issued press releases soliciting participants for the DAG, and a wide spectrum of firms was deliberately chosen to provide insight from various industry segments affected by CAT. The DAG meetings included discussions of topics such as option market maker quote reporting, requirements for capturing Customer IDs, timestamps and clock synchronization, reporting requirements for order handling scenarios, costs and funding, error handling and corrections, and potential elimination of systems made redundant by the CAT. From the inception of the DAG through September 2014, the DAG participated in 36 meetings, as well as a variety of DAG subcommittee meetings.
Following multiple discussions between the Participants and both the DAG and the bidders, as well as among the Participants themselves, the Participants recognized that some provisions of Rule 613 would not permit certain solutions to be included in the Plan that the Participants, in coordination with the DAG, determined advisable to effectuate the most efficient and cost-effective CAT. Specifically, “the SROs reached the conclusion that additional flexibility in certain of the minimum requirements specified in Rule 613 would allow them to propose a more efficient and cost-effective approach without adversely affecting the reliability or accuracy of CAT Data, or its security and confidentiality.”
After reviewing the exemptive request, the Commission determined that it was appropriate in the public interest and consistent with the protection of investors to grant the requested exemptive relief.
The Commission further stated that the requested exemptive relief is consistent with the protection of investors. The Commission noted that:
Doing so will provide the public an opportunity to consider and comment on whether these proposed alternative approaches would indeed be more efficient and cost-effective than those otherwise required by Rule 613, and whether such approaches would adversely affect the reliability or accuracy of CAT Data or otherwise undermine the goals of Rule 613. Moreover, if—as the SROs represent—efficiency gains and cost savings would result from including the proposed approaches in the CAT NMS Plan without adverse effects, then the resultant benefits could potentially flow to investors (
The Participants incorporated the exemptive relief into the proposed CAT NMS Plan, which was noticed for comment, and the Commission ultimately approved the CAT NMS Plan with the more efficient and cost-effective alternative approaches described in the exemptive relief. Accordingly, the Participants believe that the costs incurred in developing the exemptive request were critical to the creation of a better CAT than was
Rule 613(a)(1) under Regulation NMS required the Participants to jointly file the CAT NMS Plan on or before April 28, 2013, less than a year after the adoption of Rule 613. In recognition of the complexity of the project to create the CAT NMS Plan as well as industry interest in limiting or eliminating certain requirements of Rule 613 (
The SROs stated in their Request Letter that they do not believe that the 270-day time period provided for in Rule 613(a)(1) provides sufficient time for the development of the RFP, formulation and submission of bids, and review and evaluation of such bids. The SROs also stated that they believe additional time beyond the 270 days provided for in Rule 613(a)(1) is necessary in order to provide sufficient time for effective consultation with and input from the industry and the public on the proposed solution chosen by the SROs for the creation of the consolidated audit trail at the conclusion of the RFP process and the NMS plan itself.
In recognition of the need for additional time to refine the technical description of and requirements for the CAT and to allow for additional evaluation of the proposed cost and funding considerations, the SEC granted two extensions of this deadline.
This additional time to complete the RFP process should allow the SROs to engage in a more thoughtful and comprehensive process for the development of an NMS plan. In this regard, the Commission notes that the additional time to solicit comment from the industry and the public at certain key points in the development of the NMS plan could identify issues that can be resolved earlier in the development of the consolidated audit trail and prior to filing the NMS plan with the Commission.
After extensive analyses and discussions with the DAG, bidders, market participants and the SEC staff, the Participants finalized the draft of the CAT NMS Plan and filed the CAT NMS Plan with the SEC on September 30, 2014. Following additional discussions, the Participants filed several amendments to the CAT NMS Plan during 2015 and 2016. With these additional changes, the SEC published the CAT NMS Plan for notice and comment in May 2016.
The Pre-Formation Costs include legal costs of $3,196,434. The legal services were performed by WilmerHale. The selection considerations and fees for WilmerHale were described in detail above. Prior to the creation of CAT LLC, WilmerHale was engaged to represent the consortium of SROs, not the individual Participants. For administrative purposes, FINRA agreed to receive such legal bills, although such costs were shared among the Participants. Therefore, the legal costs incurred with respect to WilmerHale do not include legal costs incurred by the individual Participants. These pre-formation legal costs are described in detail above and are further described below:
• 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 DAG;
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on the 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 (
• Drafted exemptive requests;
• Provided interpretations related to the CAT NMS Plan;
• Provided support with regard to discussions among the exchanges, FINRA and other third parties, such as Deloitte;
• Provided tax advice with regard to CAT's status as a tax-exempt organization; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The Pre-Formation Costs include consulting costs of $10,589,273. The consulting services were performed by Deloitte. The selection considerations and fees for Deloitte were described in detail above. Prior to the creation of CAT LLC, for administrative purposes, Deloitte was engaged by FINRA to provide consulting services related to CAT, but the costs were shared by the consortium of SROs per agreement. Therefore, the consulting costs incurred with respect to Deloitte do not include consulting costs incurred by the individual Participants. The pre-formation consulting costs include the following:
• Established and implemented program operations for the CAT project, including the program management 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 Participants' independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, reviewing technical requirements of other NMS plans, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• 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 (
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided support for industry outreach sessions, including with regard to program design and agenda development, program support and logistics and coordination; and
• Provided support in fact finding, drafting content and meeting coordination for WilmerHale with regard to the CAT and the development of the CAT NMS Plan.
Such Pre-Formation Costs did not include costs related to the Chair of the CAT NMS Plan Operating Committee, as the CAT NMS Plan had not yet been adopted.
The Pre-Formation Costs include public relations costs of $57,174. The public relations services were performed by Peppercomm. The selection considerations and fees for Peppercomm are described in detail above. The costs related to Peppercomm were shared among the SROs. Therefore, the public relations costs do not include public relations costs incurred by the individual Participants. The pre-formation public relations costs include services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs related to cloud hosting services as a part of Historical CAT Assessments. CAT LLC believes that the costs related to cloud hosting services described in detail above are reasonable and appropriate given the strict data processing timelines and storage requirements imposed by the Commission-approved CAT NMS Plan and should be recoverable as a part of Historical CAT Assessment 1.
CAT LLC believes that the costs for the cloud hosting services are reasonable, both in terms of the level of the fees paid by CAT LLC for cloud hosting services provided by AWS and the scope of the services performed by AWS for CAT LLC. CAT LLC believes that both the scope and amount of the costs for cloud hosting services are reasonable given the current requirements of the CAT NMS Plan adopted pursuant to Rule 613, including the strict data processing timeline, storage and other technical requirements under the Commission-approved CAT NMS Plan.
CAT LLC believes that the level of fees for the cloud hosting services is 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.
CAT LLC also believes that the scope of services provided by AWS for the CAT are appropriate given the current requirements of the Commission-approved CAT NMS Plan. As described above, the cloud hosting services costs reflect a variety of factors including, among other things:
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In addition, various requirements of the CAT NMS Plan adopted pursuant to Rule 613 contribute to the significant cloud hosting services costs, and that various Plan requirements could be amended or removed without affecting the regulatory purpose of the CAT. Indeed, CAT LLC has repeatedly sought exemptive relief and filed amendments to the CAT NMS Plan, and has even filed suit against the Commission, to seek to revise or eliminate certain costly requirements related to the CAT. However, despite these efforts, absent the Commission granting exemptive relief or approving cost savings amendments to the CAT NMS Plan, CAT LLC, the Participants and Industry Members are all required to comply with such requirements.
CAT is reasonably designed to efficiently and effectively utilize cloud computing and storage services, given the requirements of the Commission-approved CAT NMS Plan, including requirements related to security, operational reliance and quality assurance, and maintainability.
The Plan Processor uses state-of-the-art software that meets the strict security standards of the CAT NMS Plan. CAT utilizes a big data processing framework that is extensively used by large data processing companies, such as Apple, Meta, Netflix, IBM and Google. As such, it has substantial commercial support and support in the open-source community. It is also well suited for use with regard to iterative types of algorithms and query functions and analytics that the CAT requires, and it provides the heightened security necessary for the CAT.
The development and implementation of the design of CAT is not and has not been static. CAT LLC and the Plan Processor are always evaluating new innovations and service offerings from AWS and other providers to seek to maximize efficiency and cost avoidance while still satisfying the requirements of the CAT NMS Plan. These efforts have led to substantial savings to date. The cloud hosting costs for 2023 were less than the cloud hosting costs for 2022 by $8 million despite processing seven
When evaluating the design of the CAT, it must be kept in mind that the CAT is not a typical commercial technology project. The ability to make use of technology approaches that may lead to cost avoidance is also subject to the restrictive requirements of the CAT NMS Plan, such as processing timeframes, requirements for retention of data versions, query requirements, and security standards. Because such requirements are set forth in the CAT NMS Plan, any modification of such requirements are subject to the time-consuming process of amending the CAT NMS Plan or seeking an exemption from the relevant requirement. For example, CAT LLC recently has filed an amendment to address several of these expensive Plan requirements.
The CAT System also was designed to minimize the extent to which Industry Members would need to alter their systems to report to CAT. During the design process, Industry Member groups argued that it would make more sense financially for the CAT to accommodate differences in industry systems, than for all Industry Members to change their systems. Moreover, such design choices would facilitate consistency, uniformity and accuracy in reporting. Requiring the CAT to make such accommodations may increase CAT costs while accommodating CAT Reporters.
Based on the requirements in the CAT NMS Plan and/or in response to industry requests for functionality to be embedded with the Plan Processor to streamline or limit Industry Member system changes, the CAT has been designed to limit the effect on Industry Members. The following provides examples of such accommodations:
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To be clear, if OATS-like error correction tools are not made available on Day 1, hundreds of firms will be required to create and test their own tools or obtain vendor alternatives prior to the CAT Go-Live Date. Proprietary tools will require additional system builds, access to and ingestion of CAT data to perform system validation, and testing which will further stress the limited number of subject matter experts (“SMEs”) dedicated to the implementation of CAT reporting. Should this occur, inevitably firms (especially small firms who lack the necessary IT staff to write code and develop proprietary systems), may be put in the position of passing onto investors the cost required to build hundreds of redundant systems.
CAT provides various tools to help Industry Members identify and rectify errors.
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FIF CAT WG is not proposing a specific format; rather, we are proposing flexibility of input formats which includes support of existing formats (
Mandating a uniform format for reporting data to the CAT simplifies the task for the Central Repository of consolidating/storing data, but it puts the burden on each CAT Reporter to accurately translate their current (
CAT provides such a flexible input format.
The costs for cloud hosting services are appropriate and have not been adversely affected by the original design and approaches of the Initial Plan Processor. FCAT's design costs are the result of the requirements of the Commission-approved CAT NMS Plan.
When FCAT took over as the Plan Processor from Thesys, it utilized certain aspects of the technical specifications created by Thesys in its design. However, FCAT has not maintained aspects of the original design that would not be appropriate for the CAT. FCAT revised and enhanced the original technical specifications of the CAT System to increase its
Moreover, FCAT did not utilize the system built by the Initial Plan Processor; it rebuilt the CAT System based on revised technical specifications. For example, the Initial Plan Processor used an on-premises processing approach which was not geared toward the huge amounts of data stored in the CAT, while FCAT adopted a cloud-based solution in response to such data demands.
Furthermore, given the very short timeframe to develop the CAT System and the prior optimization of certain query tools (
CAT LLC continues to support the selection of AWS as the cloud hosting services provider for CAT given the compliance, operational, and security requirements of the CAT. Independent analyses confirm these conclusions, noting that “AWS is an excellent choice for either strategic or tactical use and recommends considering AWS for almost all cloud IaaS or IaaS+PaaS scenarios.”
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In addition, the nature of the CAT, including the amount of data it must process and the size of its data footprint, does not allow for a multi-cloud solution as this would be cost prohibitive and greatly increase the security boundary and associated risk profile of the CAT. For example, a multi-cloud hosting option would increase costs, complexity, and risk for operations with regard to, for example, DevOps, production support, and networking. Similarly, with regard to security, a multi-cloud solution would increase risk, including with regard to the need for data transfers between cloud providers and the expansion of the security boundary. With regard to labor, a multi-cloud solution would lose economies of scale due to the need to support unique cloud requirements. Accordingly, the use of single-cloud solution continues to provide advantages with regard to cost, complexity, and risk. Indeed, “[t]he best practice is to focus on a single primary strategic provider.”
Furthermore, if another cloud service provider were determined to be a better match for the CAT at some future date, switching cloud service providers would be a very significant, expensive and time-consuming effort. Such an effort would likely be a 10-to-15-year commitment at a substantial expense. Such a move would require the replication or redesign of the underlying cloud environments (
CAT LLC believes that the recovery of costs related to the development of the funding model is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
Funding the CAT is a critical aspect of Rule 613 and the CAT NMS Plan. Article XI of the CAT NMS Plan describes in detail the requirements for funding the CAT, and the Participants are required to comply with and enforce compliance with the funding requirements of the CAT NMS Plan, just as with other aspects of the Plan. Accordingly, the development and implementation of a funding model for the CAT is as much a part of the requirements of the CAT NMS Plan as the development and operation of the CAT System. CAT LLC sees no reason to distinguish the efforts to develop a funding model from, for example, efforts to develop the CAT System, in seeking to recover reasonable CAT costs.
Moreover, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . legal costs.”
In addition, the legal costs incurred for the assistance in developing the CAT Funding Model are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at negotiated rates for such services that reflect both the extent of the services and market rates. Moreover, the scope of the legal costs associated with the development of the funding model reflect the complexity of the task in satisfying the detailed requirements of the CAT NMS Plan, the standards of the Exchange Act, and the many perspectives of the different
CAT LLC believes that the recovery of legal costs related to the litigation with the SEC regarding the CAT NMS Plan is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
The conditional exemptive relief in this Order allows for the implementation of alternative regulatory solutions that continue to advance the regulatory goals that Rule 613 and the CAT NMS Plan were intended to promote, while reducing the implementation and operational costs, burdens, and/or difficulties that would otherwise be incurred by the Participants and Industry Members that must fund the CAT.
CAT LLC believes it is reasonable and appropriate to incur costs to limit the need to incur even greater costs due to certain interpretations of the Plan.
In addition, the legal costs incurred during the litigation are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at market rates for such services. As such, the legal costs related to this litigation incurred during the period covered by Historical CAT Assessment 1 were reasonable.
Finally, Industry Members will directly benefit from the result of the litigation because it has addressed CAT NMS Plan requirements that would have imposed significantly greater costs on the CAT. Accordingly, it is reasonable and appropriate that the costs of such litigation be included in the Historical CAT Costs 1.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017, which was the date by which Participants were required to begin reporting to the CAT, due to the delay in the commencement of reporting to the CAT. As discussed above, the Participants determined to exclude all CAT costs incurred from November 15, 2017 through November 15, 2018, which includes $37,852,083 in Thesys costs incurred from November 15, 2017 through November 15, 2018 (as well as other CAT costs during this period). The remaining Thesys costs incurred after November 15, 2018 are the $19,628,791 in capitalized developed technology costs for the period from November 16, 2018 through February 2019 incurred in the development of the CAT by the Initial Plan Processor, as well as a transition fee for the transition from the Initial Plan Processor to the successor Plan Processor. The Participants would remain responsible for 100% of these $19,628,791 in costs.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017. CAT LLC notes that the development and implementation of the CAT System, while unprecedented in scope and design, is like any other large and innovative technology project in that, inevitably, there were adjustments and refinements in the technical approach as the project developed, even with substantial planning efforts and oversight prior to the build. This is even more likely when the project faces a very tight implementation schedule, such as the one imposed by the Commission in Rule 613 and the CAT NMS Plan. However, an adjusted approach does not mean that the funds were not valid expenditures and should not be recovered.
The reasonableness of Thesys costs should be evaluated by the Commission as of the time they were incurred, not in hindsight. As detailed above, the Commission concluded in 2016 that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue.”
As noted in the CAT Funding Model Approval Order, “[i]n Rule 613, the Commission made the determination that the costs of the CAT should be shared by the Participants and Industry Members.”
CAT LLC believes that the recovery of CAIS-related costs is appropriate, and that the amount and scope of such costs, as described above, are reasonable, and that the reasonableness of historical costs should be evaluated by the Commission as of the time they were incurred, not in hindsight.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable CAIS operating costs as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . CAIS operating fees.”
In addition, CAT LLC determined that the CAIS operating fees described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The “CAIS Operating Costs” for Historical CAT Assessment 1 total $9,480,587, with Pre-FAM costs of $2,072,908, FAM 1 costs of $254,998, FAM 2 costs of $1,590,298, and FAM 3 costs of $5,562,383. As described above, the CAIS operating fees were incurred with regard to two categories of CAIS-related efforts: (1) the acceleration of the reporting of LTIDs; and (2) the development of the CAIS Technical Specifications and the building of CAIS. These two categories of costs are discussed in more detail below.
During the period covered by Historical CAT Assessment 1, the CAIS operating costs included costs related to the acceleration of the reporting of LTIDs earlier than originally contemplated during this period at the request of the SEC and in accordance with exemptive relief granted by the SEC.
• After FCAT developed the LTID Technical Specifications, the LTID Technical Specifications were published on January 31, 2020, with additional updates provided to the LTID Technical Specifications through April 2021.
• The LTID account information testing environment opened on August 24, 2020.
• The LTID account information reporting production environment opened on December 14, 2020.
• CAT Reporters were required to request their production readiness certification for account information related to LTIDs by the deadline of April 9, 2021.
• The LTID account information reporting for Phases 2a, 2b and 2c for Large Industry Members went live on April 26, 2021.
• The LTID account information reporting for Phases 2d for Large Industry Members went live on December 13, 2021.
• The LTID account information reporting for Phases 2a, 2b, 2c and 2d for Small Industry Members went live on April 26, 2021.
Throughout this project, FCAT and CAT LLC worked closely with the industry on LTID and CAIS reporting. Between December 2019 and December 2021, at least 57 checkpoint calls, webinars, and technical working group meetings with industry representatives were hosted to address issues and to educate CAT Reporters regarding LTID and CAIS reporting.
The LTID reporting project was successfully completed in a timely fashion, and the fees related to the project were reasonable. Accordingly, CAT LLC appropriately seeks to recover such costs via Historical CAT Assessment 1.
During the period covered by Historical CAT Assessment 1, FCAT began the development of the full CAIS Technical Specifications and the building of CAIS. The CAIS Technical Specifications were developed during this period as follows:
• Iterative drafts of the CAIS Technical Specifications were published on June 30, 2020, December 1, 2020, and January 1, 2021.
• The full, final CAIS Technical Specifications were published on January 29, 2021.
• Updated versions of the CAIS Technical Specifications were published throughout 2021.
As discussed above, FCAT and CAT LLC frequently engaged with the industry regarding the development of CAIS, hosting regular checkpoint calls, webinars, and technical working group meetings with industry representatives to address any issues, including addressing the interplay between Industry Members' existing customer systems and CAIS, and to educate CAT Reporters regarding LTID and CAIS reporting. Such engagement was critical to the CAIS development process as the CAIS project was unprecedented in terms of its content, scope and complexity.
During this period, FCAT also commenced the building of the CAIS system in accordance with the CAIS Technical Specifications during the period covered by Historical CAT Assessment 1. The CAIS system was ready for industry testing shortly after the end of this period in January 2022.
The CAIS Technical Specifications and the CAIS system, as developed during this period, continue to be in use today. Industry Members have been required to report, and have continuously reported, required data to CAIS on a daily basis since November 7, 2022, consistent with interim reporting obligations. The CAIS system accepts and validates the CAIS data submitted by Industry Members and provides Industry Members with initial feedback on data errors. In light of the unprecedented nature of the CAIS system, certain changes to the system, such as changes related to error corrections and the CAIS regulatory portal, were necessary to finalize CAIS reporting. FCAT worked to address these remaining issues,
CAT LLC believes that the recovery of public relations costs is appropriate and that the amount and scope of such costs, as described above, are reasonable.
The Commission has long recognized that external public relations costs are reasonably associated with creating, implementing and maintaining the CAT. In the CAT NMS Plan Approval Order, the Commission estimated that the Participants had collectively spent approximately $2,400,000 in
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for public relations services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . public relations costs.”
In addition, CAT LLC determined that the public relations costs described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The services performed by the public relations firms through 2021 were limited in scope to assist CAT LLC, which has no employees of its own, to be better positioned to understand and address CAT matters to the benefit of all market participants and to communicate on important CAT topics with the public. In addition, the costs for these services were appropriately limited. During the 10-year period covered by Historical CAT Assessment 1, the average cost per year for these services was approximately $36,000.
CAT LLC believes that the recovery of legal costs related to the limitation of liability provision, including costs related to the proceedings before the SEC and costs related to the proposed amendment to the Consolidated Audit Trail Reporter Agreement and the Consolidated Audit Trail Reporting Agent Agreement (the “Reporting Agreements”) is appropriate and that the amount and scope of such costs as described above are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
Moreover, it is critical that CAT LLC, which has no employees of its own, have the ability to fund a legal defense in litigation and other legal proceedings against it. In response to CAT LLC requiring Industry Members to agree to the limitation of liability provision to submit data to the CAT, SIFMA filed an application for review of actions taken by CAT LLC and the Participants pursuant to Sections 19(d) and 19(f) of the Exchange Act. Contemporaneously with the filing of this proceeding, SIFMA moved for a stay of the requirement that Industry Members sign a Reporter Agreement, or in the alternative, asked the Commission to further delay the launch of CAT reporting on June 22, 2020. CAT LLC must have the resources to defend itself from litigious actions by others, like these.
Although a limitation of liability provision ultimately was not adopted as proposed, it was a reasonable provision to propose for the CAT Reporter Agreements, given that such provisions are in accordance with industry norms. Limitations of liability are ubiquitous within the securities industry and have long governed the economic relationships between self-regulatory organizations and the entities that they regulate. For example, U.S. securities exchanges have adopted rules to limit their liability for losses that Industry Members incur through their use of exchange facilities.
Furthermore, as described above, the specialized services were performed by experienced counsel at market rates for such services. Accordingly, the legal costs for the efforts related to the limitation of liability provision were reasonable.
CAT LLC believes that the recovery of consulting costs related to the Chair of the CAT Operating Committee is appropriate and that the amount and scope of such costs are reasonable.
As a preliminary matter, the selection of the Chair of the Operating Committee complies with the requirements of Section 4.2 of the CAT NMS Plan. The initial Chair that served during the period covered by Historical CAT Assessment was designated by a Participant as the Participant's alternate voting member. Accordingly, the Chair is a representative of the Participants, as required by the CAT NMS Plan.
In addition, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for consulting as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . consulting . . . ” costs.
The Participants determined that the position of the Chair was a critical role for the implementation of the CAT, and an independent Chair would appropriately consider and address the views of each of the Participants. The Participants also determined that it was important to have a Chair with a strong background regarding issues related to the regulatory obligations of self-regulatory organizations, including their obligations under national market system plans. The compensation paid to the Chair is appropriate for a person with such background and skills. The
CAT LLC understands that there are three types of reconciliation processes related to the invoices:
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As discussed further below, CAT LLC only considers the first type of process to be a “reconciliation” and the only type of process that is required under the CAT NMS Plan. CAT LLC provides the means to reconcile the CAT invoice amount to the underlying trades provided by CAT.
The CAT NMS Plan does not require CAT LLC to facilitate the second type of process: matching underlying trades for a CAT invoice with a firm's internal books and records. CAT LLC has access only to the underlying trades provided by CAT; it does not have access to a firm's internal books and records. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
The CAT NMS Plan also does not require CAT LLC to provide the ability to identify the order originator for the underlying trades for the CAT invoices. Accordingly, the billing guidance and processes do not provide CAT Reporters with the ability to identify the order originator for the underlying trades provided by CAT with CAT invoices. CAT LLC has been working closely with CAT Reporters to explain its billing approach and to address any outstanding billing questions. But, it should not be lost that CAT LLC provides information sufficient to allow CAT Reporters to reconcile CAT invoice amounts with the underlying trades provided by CAT LLC.
The CAT NMS Plan does not require CAT LLC to facilitate the matching of underlying trades for a CAT invoice with a firm's internal books and records, which may consist of trading data from various sources external to CAT. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
In this regard, it is important to recognize that CAT LLC has developed a billing approach that greatly improves upon existing billing practices for similar regulatory fees (
To facilitate the introduction of CAT fees, CAT LLC has worked with FCAT to develop an approach to CAT billing that is consistent with existing billing constructs used with regard to Section 31-related sales values fees, subject to certain enhancements. Under this billing approach, FCAT is providing additional linkage elements, not necessarily provided in the Section 31-sales value fee context, to facilitate CAT Reporters' ability to match the underlying trades provided by CAT with their internal books and records and to reduce the complexity of that process. Specifically, FCAT is providing various key elements of the trade itself, such as the tradeID and branch sequence,
With the Additional Trade Details, CAT LLC and FCAT believe that the overwhelming majority of underlying trades provided by CAT bills can be matched with a CAT Reporter's internal books and records. CAT LLC recognizes that there may be certain cases in which such matching is more difficult given various firm-specific considerations, but believes that such instances are significantly more limited than with regard to the SRO fees charged in relation to Section 31.
Similar to other regulatory fees, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Accordingly, Historical CAT Assessment 1 does not address the process by which any CAT Reporters may pass through the fee to their customers. Likewise, the CAT billing approach provided by the Plan Processor is designed to address the needs of CAT Reporters with regard to the reconciliation of CAT invoices with
In its approval of the CAT Funding Model, the Commission approved charging CAT fees to the CAT Executing Broker, rather than the originating broker. This fee filing must comply with the requirements of the CAT Funding Model, and, therefore, charges the Historical CAT Assessment 1 to CAT Executing Brokers.
Moreover, charging originating brokers would introduce significant complexity to the billing process from the CAT's perspective, and would increase the costs of implementing CAT fees. Charging the CAT Executing Broker is simple and straightforward, and leverages a one-to-one relationship between billable events (trades) and billable parties, similar to other transaction-based fees. In contrast, for a single trade event, there may be many originating brokers, and each trade must be broken down on a pro-rata basis, to account for one or more layers of aggregation, disaggregation, and representation of the underlying orders. While CAT is indeed designed to capture and unwind complex aggregation scenarios, the data and linkages are structured to facilitate regulatory use, and not a billing mechanism that assesses fees on a distinct set of executed trades; it is not simply a matter of using existing CAT linkages. Furthermore, charging originating brokers would implicate issues related to lifecycle linkage rates, and issues related to corrections, cancellations and allocations, while charging CAT Executing Brokers would avoid such issues.
As noted, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT Fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Nevertheless, the Additional Trade Details provided with regard to the underlying trades on CAT invoices may assist with this process. Like with Section 31-related sales value fees, however, it is not always possible to trace every fee on a transaction back to the originating party. Industry Members have faced these issues under Section 31-related sales values fees for many years.
CAT LLC has worked with FCAT to provide significant technical assistance to Industry Members to allow the Industry Members to understand how Historical CAT Assessment 1 will be implemented and billed, including webinars, CAT alerts, mock invoices, and responses to questions posed to the FCAT Help Desk.
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By providing such detailed and sustained assistance to Industry Members regarding CAT fees and billing, CAT LLC has successfully addressed questions raised by Industry Members regarding the CAT fees and billing processes.
CAT LLC has provided Industry Members with ample time to comply with the implementation of Historical CAT Assessment 1. CAT LLC originally proposed issuing the first invoices for Historical CAT Assessment 1 in December 2023 based on transactions in Eligible Securities in November 2023. In consideration of the feedback about the need for additional time to implement the new fee, CAT LLC pushed back this timeline by four months, proposing to issue the first Historical CAT Assessment 1 in April 2024 based on transactions in March 2024.
The Exchange believes the proposed rule change is consistent with the requirements of the Exchange Act. The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,
The Exchange believes that this proposal is consistent with the Act because it implements provisions of the Plan and is designed to assist the Exchange 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.”
The Exchange believes that the proposed fees paid by the CEBBs and CEBSs are reasonable, equitably allocated and not unfairly discriminatory. First, the Historical CAT Assessment 1 fees to be collected are directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to technology, legal, consulting, insurance, professional and administration, and public relations costs. The Exchange has already incurred such development and implementation costs and the proposed Historical CAT Assessment 1 fees, therefore, would allow the Exchange 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 and not to support the Exchange's business operations. The proposed fees would not cover Exchange services unrelated to the CAT. In addition, any surplus would be used as a reserve to offset future fees. Given the direct relationship between CAT fees and CAT costs, the Exchange believes that the proposed fees are reasonable, equitable and not unfairly discriminatory.
As further discussed below, the SEC approved the CAT Funding Model,
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, the Exchange has filed this fee filing to implement the Industry Member CAT fees included in the CAT Funding Model. The Exchange 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 the Exchange 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.”
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.
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:
In accordance with this requirement, the Exchange 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, the Exchange 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.
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.
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
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 (
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.
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.
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.
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.
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
These costs involve the activity of both the Initial Plan Processor and FCAT, as the successor Plan Processor.
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.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover consulting costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover insurance costs as a part of Historical CAT Assessments.
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.
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.
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 balanace of these considerations.
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.
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.
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.
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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.
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.
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, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
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.
The Exchange believes that imposing Historical CAT Assessment 1 with a fee rate of $0.000013 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, the Exchange 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 (
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.
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.
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.
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, the Exchange 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 the fee schedule. The Exchange 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 Exchange members to reasonably predict their payment obligations for budgeting purposes.
Section 6(b)(8) of the Act
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.
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.
No written comments were either solicited or received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Exchange Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”)
The Exchange is filing a proposal to amend the MIAX Pearl Options Fee Schedule (“Fee Schedule”) to establish fees for Industry Members
The text of the proposed rule change is available on the Exchange's website at
In its filing with the Commission, the Exchange 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 IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
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.
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).
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').”
Each Historical CAT Assessment to be paid by CEBBs and CEBSs is designed
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. 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.' ”
The Exchange previously filed a fee filing to implement Historical CAT Assessment 1. On January 17, 2024, the SEC published this prior filing for Historical CAT Assessment 1, temporarily suspended the fee filing, and instituted proceedings to determine whether to approve or disapprove the fee filing.
Historical CAT Assessment 1 will be charged to each CEBB and CEBS for each applicable transaction in Eligible Securities.
(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.
The following fields of the Participant Technical Specifications indicate the CAT Executing Brokers for the transactions executed on an exchange.
In addition, the following fields of the Participant Technical Specifications would indicate the CAT Executing Brokers for the transactions executed otherwise than on an exchange.
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 $0.00003994969693072937 per executed equivalent share. This rate is then divided by three and rounded to determine the fee rate of $0.000013 per executed equivalent share that will be assessed to CEBBs and CEBSs, as also discussed in detail below.
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 (
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.”
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 $124,290,730. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($41,430,243.33), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third ($41,430,243.33). 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.
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.
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, 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 [
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,”
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 (
FCAT was selected to assume the role of the successor Plan Processor. Prior to this selection, the Participants engaged in discussions with two prior Bidders
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.
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.
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;
• 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, the 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
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content;
• 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.
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 originally adopted.
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 change 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.
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 $51,847,150 relate to technology provided by the Initial Plan Processor and the successor Plan Processor.
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.
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 January 30, 2019, 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. 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, addressed security-related matters for the CAT, and worked towards the initiation of Participant reporting per the Participant Technical Specifications.
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.
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 the 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 (
• 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 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.
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 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 [
• 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 (
• 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.
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.
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.
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;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
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.
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.
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 (
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.
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”),
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.
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
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 draft 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.
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.
CAT LLC did not incur costs related to change requests during FAM Period 1.
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 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.
• 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.
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.
Although insurance was in effect during FAM Period 1, CAT LLC did not incur costs related to insurance during FAM Period 1.
• 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 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.
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 (
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”),
By the completion of FAM Period 2, CAT LLC was required to implement the following with regard to the CAT:
(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.
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.
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.
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.
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 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.
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.
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.
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.
• 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 (
• 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.
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.
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.
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.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
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”),
By the completion of FAM Period 3, CAT LLC was required to implement the following requirements with regard the CAT:
(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.
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.
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.
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.
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.
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.
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.
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.
• 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
• 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;
• Provided assistance with change requests;
• Provided guidance and regulatory support for litigation regarding the response to the 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.
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.
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 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.
The insurance costs of $1,582,714 represent the fees paid for insurance during 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.
The professional and administration costs of $595,923 represent the fees paid to Anchin and Grant Thornton for financial services during FAM Period 3.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• 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.
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 (
Historical CAT Costs 1 would not include three categories of CAT costs (“Excluded Costs”): (1) $14,749,362 of costs related to the termination of the relationship with the Initial Plan Processor; (2) $48,874,937, which are all CAT costs incurred from November 15, 2017 through November 15, 2018; and (3) $19,628,791, which are costs paid to the the Initial Plan Processor from November 16, 2018 through February 2019 when the relationship with the Initial Plan Processor was concluded. The Participants would remain responsible for 100% of these costs, which total $83,253,090. CAT LLC determined to exclude these Excluded Costs from Historical CAT Costs 1 because these costs relate to the delay in the start of reporting to the CAT and the conclusion of the relationship with the Initial Plan Processor.
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 the Initial Plan Processor, and the settlement costs related to the arbitration with the Initial Plan Processor. The Participants would remain responsible for 100% of these $14,749,362 in costs.
Second, Historical CAT Costs 1 would not include all CAT costs incurred from November 15, 2017 through November 15, 2018. CAT LLC determined to exclude all costs during 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.
The following provides additional detail regarding the Excluded Costs.
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.
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.
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.
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 (
• Assisted with cost and funding issues 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 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.
CAT LLC did not incur costs related to insurance during the period from November 15, 2017 through November 15, 2018.
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.
• 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.
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 engagment [
Third, Historical CAT Costs 1 would not include the $19,628,791 in costs paid to the Initial Plan Processor from November 16, 2018 through February 2019 when CAT LLC's relationship with the Initial Plan Processor concluded. CAT LLC determined that Historical CAT Costs 1 would not include any fees paid to the Initial Plan Processor after November 15, 2017,
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.
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.
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.
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.”
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
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.
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.
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.
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.
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.”
To implement Historical CAT Assessment 1, a new section would be added to the Exchange's fee schedule for “Consolidated Audit Trail Funding Fees”, and it would include the proposed paragraphs described below.
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.
(A) Each CAT Executing Broker shall receive its first invoice for Historical CAT Assessment 1 in November 2024, which shall set forth the Historical CAT Assessment 1 fees calculated based on transactions in October 2024, and shall receive an invoice for Historical CAT Assessment 1 for each month thereafter in which Historical CAT Assessment 1 is in effect.
(B) 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 $0.000013 per executed equivalent share.
(C) Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (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.
(D) Each CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).
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.
The proposed language in paragraph (a)(1)(A) of the fee schedule 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 November 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 October 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 paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(1)(A) of the fee schedule 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 November 2024, invoices will be sent to CAT Executing Brokers each month thereafter while Historical CAT Assessment 1 is in effect.
Proposed paragraph (a)(1)(B) of the fee schedule would describe the invoices for Historical CAT Assessment 1. Proposed paragraph (a)(1)(B) of the fee schedule 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)(B) of the fee schedule 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 $0.000013 per executed equivalent share.”
Furthermore, proposed paragraph (a)(1)(C) of the fee schedule 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 $212,039,879.34 (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 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)(D) of the fee schedule 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 (b).”
Paragraph (b)(1) to the “Consolidated Audit Trail Funding Fees” section of its fee schedule describes the manner of payment of Industry Member CAT fees. Paragraph (b)(1) states that “[e]ach CAT Executing Broker shall pay its CAT fees as required pursuant to paragraph (a) each month to the Consolidated Audit Trail, LLC in the manner prescribed by the Consolidated Audit Trail, LLC.” The CAT NMS Plan requires the Operating Committee to establish a system for the collection of 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.
Each CAT Executing Broker shall pay the CAT fees required pursuant to paragraph (a) within thirty 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.
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.
In addition, CAT LLC will make certain aggregate statistics regarding Historical CAT Assessments publicly available. Specifically, the CAT NMS
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.
To assist Industry Members with compliance with the commencement of Historical CAT Assessment 1, CAT LLC has been making available to CAT Executing Brokers mock invoices prior to the commencement of Historical CAT Assessment 1. Specifically, CAT Executing Brokers have received mock invoices based on transaction data each month since November 2023. The mock invoices are in the same form as the actual, payable invoices, including both the relevant transaction data and the corresponding fee. However, no payments have been required in response to such mock invoices; they have been used solely to assist CAT Executing Brokers with the development of their processes for paying the CAT fees. Such data has provided 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.
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.”
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”
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.
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: equites 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.
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
• 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 (
• 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.
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.' ”
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).
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:
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.
• “Production Go-Live for Equities 2a Intrafirm Linkage validations” was completed on 7/27/2020;
• “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.
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.
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 remain [
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:
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,
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 (
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 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;
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 (
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
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.”
• “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.
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.
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.” The Exchange 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.
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.
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 CEBSs paying one-third ($48,138,422.70).
As discussed above, CAT LLC has satisfied the Financial Accountability Milestones (“FAMs”) for Periods 1 through 3.
CAT LLC does not believe that the exemptive relief relating to the reporting of electronic responses for quotes (“RFQs”) that are not immediately actionable (“NIA Electronic RFQ Responses”) affect the conclusion that FAMs 1 through 3 have been satisfied. The only reason CAT LLC pursued this relief is because certain Industry Members introduced concerns that NIA Electronic RFQ Responses could be considered “orders” reportable pursuant to Rule 613(j)(8) and some Industry Members were not prepared to report such orders to CAT. Thus, the relief was requested on behalf of Industry Members. CAT LLC itself has not taken any position on whether NIA Electronic RFQ Responses are “orders,” as the definition of “order” is an SEC rule and the trading processes for NIA Electronic RFQ Responses are the Industry Members', not those of the Participants
Only “orders” as defined in SEC Rule 613(j)(8) are reportable to CAT. There is no agreement across the industry or among regulators as to whether NIA Electronic RFQ Responses are “orders” reportable to CAT. Certain Industry Members have raised the question as to whether NIA Electronic RFQ Responses are orders, but others have argued that they are not orders under Rule 613(j)(8).
As further discussed in the prior FIF letters, even if the Commission had the legal authority to require the reporting of NIA RFQ responses to CAT without an amendment to Rule 613, the Commission has not provided guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT. In subsequent discussions with industry members, Commission representatives have agreed that, prior to NIA RFQ responses being reportable to CAT, it would be necessary for the Commission to provide further guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT.
When the Commission proposed the FAMs, the Participants expressed concern that, “by conditioning the ability of CAT LLC and the Participants to collect Post-Amendment Industry Member Fees on factors dependent on the efforts of Industry Members, the Commission's proposals inadvertently establish a perverse incentive for Industry Members to devote less than maximum efforts to comply with their obligations related to the CAT as they will pay less fees in such instances.”
CAT LLC does not believe that the Commission's May 19, 2023 order granting temporary exemptive relief relating to certain verbal floor activity and unstructured verbal and electronic upstairs activity (the “2023 Verbal Quotes Exemption”) affects the conclusion that FAMs 1 through 3 have been satisfied. The 2023 Verbal Quotes Exemption, which was issued on May 19, 2023, is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. The relevant exemption for this time period is the Commission's November 12, 2020 order, which granted relief for the same activity through July 31, 2023 (the “2020 Verbal Quotes Order”).
CAT LLC does not believe that the Commission's November 2, 2023 order granting relief from certain CAT NMS Plan requirements (the “November 2023 Order”) affects the conclusion that FAMs 1 through 3 have been satisfied. The November 2023 Order is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. As described in the November 2023 Order, the relevant exemptive orders for this time period were issued on December 16, 2020, which also states that “the Commission has determined that the Participants have sufficiently complied with the conditions set forth in the prior Orders and with the technical requirements for Quarterly Progress Reports set forth in section 6.6(c) of the CAT NMS Plan, including for purposes of determining compliance with any applicable Financial Accountability
CAT LLC also completed the requirements of FAM Period 2, including the required linkages, by December 31, 2020. Although Participant exchanges may report the Executing Broker to CAT differently in certain situations, these reporting differences are irrelevant for linkage purposes as the fields used for CAT Executing Broker are not used for linkage.
The CAT Funding Model approved by the Commission permits the recovery of reasonable costs in each of the categories of CAT costs sought to be recovered via Historical CAT Assessment 1.
CAT LLC believes that it is reasonable to seek recovery of costs incurred prior to when the CAT NMS Plan became effective in November 2016, such as legal and consulting fees incurred to create the CAT NMS Plan. Rule 613 specifically mandates that the CAT be created, implemented and maintained, and further provides that the CAT NMS Plan include a proposed allocation of estimated costs to fund the creation, implementation and maintenance of the CAT among the Participants (referred to as “plan sponsors”), and between the Participants and Industry Members (referred to as “members of the plan sponsors”).
[i]n determining fees on Participants and Industry Members the Operating Committee shall take into account fees, costs and expenses (including legal and consulting fees and expenses) reasonably incurred by Participants on behalf of the Company prior to the Effective Date in connection with the creation and implementation of the CAT.
Accordingly, the CAT NMS Plan specifically permits the recovery of costs, including legal and consulting costs, reasonably incurred prior to November 2016 in connection with the creation and implementation of the CAT.
Furthermore, the costs incurred to create and implement the CAT prior to the effective date of the CAT NMS Plan (“Pre-Formation Costs”) were reasonable both in scope and amount, in accordance with the requirements of Section 11.1(c) of the CAT NMS Plan. During the four-year period from 2012 to 2016, a total of $13,842,881 in Pre-Formation Costs were incurred. This is an average of approximately $3.5 million per year over this period. The Pre-Formation Costs fell into three categories: legal costs, consulting costs and public relations costs. This includes legal costs of $3,196,434; consulting costs of $10,589,273; and public relations costs of $57,174. The legal, consulting and public relations services were performed by WilmerHale, Deloitte and Peppercomm, respectively. The selection considerations and fees for these three firms are described in detail above and are described further below. The Pre-Formation Costs are direct costs of CAT, which have been funded entirely by the Participants through non-interest-bearing notes. The Pre-Formation Costs do not include the significant costs incurred by each of the individual Participants in responding to the adoption of Rule 613.
The Pre-Formation Costs are reasonable and appropriate as they reflect the extensive efforts that were necessary to create the CAT NMS Plan as mandated after the SEC's adoption of Rule 613. As described in more detail below, these efforts included, among other things, developing a plan for selecting the Plan Processor, soliciting and evaluating bids, engaging a diverse set of market participants and the SEC in the development of the Plan, interacting with the SEC in their oversight of the development of the Plan, and seeking appropriate exemptive relief to address areas of concern in Rule 613.
The Participants determined to utilize an RFP to ensure that potential alternative solutions for creating the Plan could be presented and considered, and that a detailed and meaningful cost-benefit analysis could be performed. The SEC supported the use of an RFP, and approved its use as it is described in extensive detail in the CAT NMS Plan.
In the context of the SEC's adoption of Rule 613, commenters urged the Commission to utilize an RFP process to assist in the planning and design of the NMS plan.
In this regard, several commenters suggested that the Commission undergo a RFP or request for information (“RFI”) process to create and implement a consolidated audit trail. Specifically, FIF urged the Commission to perform a RFP process “to determine the best technical solution for developing a consolidated audit trail.” FIF suggested that the Commission “should outline a set of goals and guiding principles they are striving to achieve as part of the adopted CAT filing and leave the determination of data elements and other technical requirements to [an] industry working group.” Similarly, Direct Edge suggested that Commission staff should form and engage in a working group to develop an RFP for publication by the Commission. DirectEdge explained that an RFP process would facilitate the identification of the costs and benefits of the audit trail, as well as the consideration of a wider range of technological solutions. Further, commenters, including Broadridge Financial Solutions, Inc., a technology provider, also requested more specific information about the audit trail system to better assess the Commission's initial cost estimates and to determine the best approach to the consolidated audit trail.
The SEC specifically recognized that the Participants planned to use an RFP when it approved the Selection Plan, and stated that the RFP was a reasonable approach.
On February 26, 2013, the Participants published an RFP soliciting bids from parties interested in serving as the plan processor for the CAT. Initially, 31 firms submitted intentions to bid. In the following months, the Participants engaged with potential bidders with respect to, among other things, the selection process, selection criteria, and potential bidders' questions and concerns. On March 21, 2014, the Participants received ten bids in response to the RFP.
On September 4, 2013, the Participants filed with the Commission a national market system plan to govern the process for Participant review of the bids submitted in response to the RFP, the procedures for evaluating the bids, and, ultimately, selection of the plan processor (the “Selection Plan”).
The Selection Plan divided the review and evaluation of bids, and the selection of the plan processor, into various stages. Specifically, pursuant to the Selection Plan, a selection committee reviewed all bids and determined which bids contained sufficient information to allow the Participants to meaningfully assess and evaluate the bids. The ten submitted bids were deemed “Qualified Bids,” and so passed to the next stage, in which each bidder presented its bids to the Participants on a confidential basis. On July 1, 2014, after conducting careful analysis and comparison of the bids, the Selection Committee voted and selected a shortlist of six eligible bidders. The Selection Committee determined which shortlisted bidders would be provided the opportunity to revise their bids. After the Selection Committee assessed and evaluated the revised bids, the Selection Committee selected the plan processor via two rounds of voting by the Participants, as described in the Selection Plan.
The Selection Plan established an Operating Committee responsible for formulating, drafting, and filing with the Commission the CAT NMS Plan and for ensuring that the Participants' joint obligations under Rule 613 were met in a timely and efficient manner. In formulating the CAT NMS Plan, the Participants also engaged multiple persons across a wide range of roles and expertise, engaged the consulting firm Deloitte as project manager, and engaged the law firm WilmerHale to serve as legal counsel in drafting the Plan. Within this structure, the Participants focused on, among other things, comparative analyses of the proposed technologies and operating models, development of funding models to support the building and operation of the CAT, and detailed review of governance considerations. Given the complexity and scope of developing the CAT NMS Plan, these efforts were extensive.
When it approved the CAT NMS Plan in 2016, the Commission reiterated its belief that the Selection Plan remains a “reasonable approach,” that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue”:
In approving the Selection Plan, the Commission stated that the Selection Plan is reasonably designed to achieve its objective of facilitating the development of the CAT NMS Plan and the selection of the Plan Processor. The Commission also found that the Selection Plan is reasonably designed to govern the process by which the SROs will formulate and submit the CAT NMS Plan, including the review, evaluation, and narrowing down of Bids in response to the RFP, and ultimately choosing the Plan Processor that will build, operate, and maintain the consolidated audit trail. The
During the process of developing the CAT NMS Plan, the Participants engaged in extensive and meaningful dialogue with market participants and the SEC. To this end, the Participants created a website to update the public on the progress of the CAT NMS Plan, published a request for comment on multiple issues related to the Plan, held multiple public events to inform the industry of the progress of the CAT and to address inquiries, and formed, and later expanded, a DAG to solicit more input from a representative industry group.
The DAG included representatives of Participants and Industry Members and conducted meetings to discuss, among other things, technical and operational aspects the Participants were considering for the Plan. The Participants issued press releases soliciting participants for the DAG, and a wide spectrum of firms was deliberately chosen to provide insight from various industry segments affected by CAT. The DAG meetings included discussions of topics such as option market maker quote reporting, requirements for capturing Customer IDs, timestamps and clock synchronization, reporting requirements for order handling scenarios, costs and funding, error handling and corrections, and potential elimination of systems made redundant by the CAT. From the inception of the DAG through September 2014, the DAG participated in 36 meetings, as well as a variety of DAG subcommittee meetings.
Following multiple discussions between the Participants and both the DAG and the bidders, as well as among the Participants themselves, the Participants recognized that some provisions of Rule 613 would not permit certain solutions to be included in the Plan that the Participants, in coordination with the DAG, determined advisable to effectuate the most efficient and cost-effective CAT. Specifically, “the SROs reached the conclusion that additional flexibility in certain of the minimum requirements specified in Rule 613 would allow them to propose a more efficient and cost-effective approach without adversely affecting the reliability or accuracy of CAT Data, or its security and confidentiality.”
After reviewing the exemptive request, the Commission determined that it was appropriate in the public interest and consistent with the protection of investors to grant the requested exemptive relief.
[T]he Commission is persuaded to provide flexibility in the discrete areas discussed in the Exemption Request so that the alternative approaches can be included in the CAT NMS Plan and subject to notice and comment. Doing so could allow for more efficient and cost-effective approaches than otherwise would be permitted. The Commission at this stage is not deciding whether the proposed approaches detailed below are more efficient or effective than those in Rule 613. However, the Commission believes the proposed approaches should be within the permissible range of alternatives available to the SROs.
The Commission further stated that the requested exemptive relief is consistent with the protection of investors. The Commission noted that:
Doing so will provide the public an opportunity to consider and comment on whether these proposed alternative approaches would indeed be more efficient and cost-effective than those otherwise required by Rule 613, and whether such approaches would adversely affect the reliability or accuracy of CAT Data or otherwise undermine the goals of Rule 613. Moreover, if—as the SROs represent—efficiency gains and cost savings would result from including the proposed approaches in the CAT NMS Plan without adverse effects, then the resultant benefits could potentially flow to investors (
Rule 613(a)(1) under Regulation NMS required the Participants to jointly file the CAT NMS Plan on or before April 28, 2013, less than a year after the adoption of Rule 613. In recognition of the complexity of the project to create the CAT NMS Plan as well as industry interest in limiting or eliminating certain requirements of Rule 613 (
The SROs stated in their Request Letter that they do not believe that the 270-day time period provided for in Rule 613(a)(1) provides sufficient time for the development of the RFP, formulation and submission of bids, and review and evaluation of such bids. The SROs also stated that they believe additional time beyond the 270 days provided for in Rule 613(a)(1) is necessary in order to provide sufficient time for effective consultation with and input from the industry and the public on the proposed solution chosen by the SROs for the creation of the consolidated audit trail at the conclusion of the RFP process and the NMS plan itself.
In recognition of the need for additional time to refine the technical description of and requirements for the CAT and to allow for additional evaluation of the proposed cost and funding considerations, the SEC granted
This additional time to complete the RFP process should allow the SROs to engage in a more thoughtful and comprehensive process for the development of an NMS plan. In this regard, the Commission notes that the additional time to solicit comment from the industry and the public at certain key points in the development of the NMS plan could identify issues that can be resolved earlier in the development of the consolidated audit trail and prior to filing the NMS plan with the Commission.
After extensive analyses and discussions with the DAG, bidders, market participants and the SEC staff, the Participants finalized the draft of the CAT NMS Plan and filed the CAT NMS Plan with the SEC on September 30, 2014. Following additional discussions, the Participants filed several amendments to the CAT NMS Plan during 2015 and 2016. With these additional changes, the SEC published the CAT NMS Plan for notice and comment in May 2016.
The Pre-Formation Costs include legal costs of $3,196,434. The legal services were performed by WilmerHale. The selection considerations and fees for WilmerHale were described in detail above. Prior to the creation of CAT LLC, WilmerHale was engaged to represent the consortium of SROs, not the individual Participants. For administrative purposes, FINRA agreed to receive such legal bills, although such costs were shared among the Participants. Therefore, the legal costs incurred with respect to WilmerHale do not include legal costs incurred by the individual Participants. These pre-formation legal costs are described in detail above and are further described below:
• 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 DAG;
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on the 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 (
• Drafted exemptive requests;
• Provided interpretations related to the CAT NMS Plan;
• Provided support with regard to discussions among the exchanges, FINRA and other third parties, such as Deloitte;
• Provided tax advice with regard to CAT's status as a tax-exempt organization; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The Pre-Formation Costs include consulting costs of $10,589,273. The consulting services were performed by Deloitte. The selection considerations and fees for Deloitte were described in detail above. Prior to the creation of CAT LLC, for administrative purposes, Deloitte was engaged by FINRA to provide consulting services related to CAT, but the costs were shared by the consortium of SROs per agreement. Therefore, the consulting costs incurred with respect to Deloitte do not include consulting costs incurred by the individual Participants. The pre-formation consulting costs include the following:
• Established and implemented program operations for the CAT project, including the program management 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 Participants' independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, reviewing technical requirements of other NMS plans, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• 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 (
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided support for industry outreach sessions, including with regard to program design and agenda development, program support and logistics and coordination; and
• Provided support in fact finding, drafting content and meeting coordination for WilmerHale with regard to the CAT and the development of the CAT NMS Plan.
Such Pre-Formation Costs did not include costs related to the Chair of the CAT NMS Plan Operating Committee, as the CAT NMS Plan had not yet been adopted.
The Pre-Formation Costs include public relations costs of $57,174. The public relations services were performed by Peppercomm. The selection considerations and fees for Peppercomm are described in detail above. The costs related to Peppercomm
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs related to cloud hosting services as a part of Historical CAT Assessments. CAT LLC believes that the costs related to cloud hosting services described in detail above are reasonable and appropriate given the strict data processing timelines and storage requirements imposed by the Commission-approved CAT NMS Plan and should be recoverable as a part of Historical CAT Assessment 1.
CAT LLC believes that the costs for the cloud hosting services are reasonable, both in terms of the level of the fees paid by CAT LLC for cloud hosting services provided by AWS and the scope of the services performed by AWS for CAT LLC. CAT LLC believes that both the scope and amount of the costs for cloud hosting services are reasonable given the current requirements of the CAT NMS Plan adopted pursuant to Rule 613, including the strict data processing timeline, storage and other technical requirements under the Commission-approved CAT NMS Plan.
CAT LLC believes that the level of fees for the cloud hosting services is 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.
CAT LLC also believes that the scope of services provided by AWS for the CAT are appropriate given the current requirements of the Commission-approved CAT NMS Plan. As described above, the cloud hosting services costs reflect a variety of factors including, among other things:
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In addition, various requirements of the CAT NMS Plan adopted pursuant to Rule 613 contribute to the significant cloud hosting services costs, and that various Plan requirements could be amended or removed without affecting the regulatory purpose of the CAT. Indeed, CAT LLC has repeatedly sought exemptive relief and filed amendments to the CAT NMS Plan, and has even filed suit against the Commission, to seek to revise or eliminate certain costly requirements related to the CAT. However, despite these efforts, absent the Commission granting exemptive relief or approving cost savings amendments to the CAT NMS Plan, CAT LLC, the Participants and Industry Members are all required to comply with such requirements.
CAT is reasonably designed to efficiently and effectively utilize cloud computing and storage services, given the requirements of the Commission-approved CAT NMS Plan, including requirements related to security, operational reliance and quality assurance, and maintainability.
The Plan Processor uses state-of-the-art software that meets the strict security standards of the CAT NMS Plan. CAT utilizes a big data processing framework that is extensively used by large data processing companies, such as Apple, Meta, Netflix, IBM and Google. As such, it has substantial commercial support and support in the open-source community. It is also well suited for use with regard to iterative types of algorithms and query functions and analytics that the CAT requires, and it provides the heightened security necessary for the CAT.
The development and implementation of the design of CAT is not and has not been static. CAT LLC and the Plan Processor are always evaluating new innovations and service offerings from AWS and other providers to seek to maximize efficiency and cost avoidance while still satisfying the requirements of the CAT NMS Plan. These efforts have led to substantial savings to date. The cloud hosting costs for 2023 were less than the cloud hosting costs for 2022 by $8 million despite processing seven trillion more events in 2023 due to the efficiency and cost avoidance efforts for cloud hosting services. For example, when AWS introduced new storage options, FCAT adopted the cost-efficient new storage option after establishing that the new offering would satisfy the security and other standards of the CAT NMS Plan. This change led to millions of dollars of savings in storage costs. Similarly, when AWS introduced a new compute processor, FCAT adopted this new compute processor, which lead to millions of dollars in savings in compute costs. However, in other cases, new cloud technology developments could not be implemented in CAT because they would not satisfy the security or other requirements of the CAT NMS Plan.
When evaluating the design of the CAT, it must be kept in mind that the CAT is not a typical commercial technology project. The ability to make use of technology approaches that may lead to cost avoidance is also subject to the restrictive requirements of the CAT NMS Plan, such as processing timeframes, requirements for retention of data versions, query requirements, and security standards. Because such requirements are set forth in the CAT NMS Plan, any modification of such requirements are subject to the time-consuming process of amending the CAT NMS Plan or seeking an exemption from the relevant requirement. For example, CAT LLC recently has filed an
The CAT System also was designed to minimize the extent to which Industry Members would need to alter their systems to report to CAT. During the design process, Industry Member groups argued that it would make more sense financially for the CAT to accommodate differences in industry systems, than for all Industry Members to change their systems. Moreover, such design choices would facilitate consistency, uniformity and accuracy in reporting. Requiring the CAT to make such accommodations may increase CAT costs while accommodating CAT Reporters.
Based on the requirements in the CAT NMS Plan and/or in response to industry requests for functionality to be embedded with the Plan Processor to streamline or limit Industry Member system changes, the CAT has been designed to limit the effect on Industry Members. The following provides examples of such accommodations:
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To be clear, if OATS-like error correction tools are not made available on Day 1, hundreds of firms will be required to create and test their own tools or obtain vendor alternatives prior to the CAT Go-Live Date. Proprietary tools will require additional system builds, access to and ingestion of CAT data to perform system validation, and testing which will further stress the limited number of subject matter experts (“SMEs”) dedicated to the implementation of CAT reporting. Should this occur, inevitably firms (especially small firms who lack the necessary IT staff to write code and develop proprietary systems), may be put in the position of passing onto investors the cost required to build hundreds of redundant systems.
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FIF CAT WG is not proposing a specific format; rather, we are proposing flexibility of input formats which includes support of existing formats (
Mandating a uniform format for reporting data to the CAT simplifies the task for the Central Repository of consolidating/storing data, but it puts the burden on each CAT Reporter to accurately translate their current (
CAT provides such a flexible input format.
The costs for cloud hosting services are appropriate and have not been adversely affected by the original design and approaches of the Initial Plan Processor. FCAT's design costs are the result of the requirements of the Commission-approved CAT NMS Plan.
When FCAT took over as the Plan Processor from Thesys, it utilized certain aspects of the technical specifications created by Thesys in its design. However, FCAT has not maintained aspects of the original design that would not be appropriate for the CAT. FCAT revised and enhanced the original technical specifications of the CAT System to increase its efficiency and efficacy, and to ensure its compliance with the CAT NMS Plan. For example, the Initial Plan Processor's approach utilized many more fields than FCAT's approach, which relies on additional linkages. With the additional linkages, the CAT System takes on more of the CAT-related burdens than the Industry Members. Such an approach serves to facilitate consistency, uniformity and accuracy in reporting.
Moreover, FCAT did not utilize the system built by the Initial Plan Processor; it rebuilt the CAT System based on revised technical specifications. For example, the Initial Plan Processor used an on-premises processing approach which was not geared toward the huge amounts of data stored in the CAT, while FCAT adopted a cloud-based solution in response to such data demands.
Furthermore, given the very short timeframe to develop the CAT System and the prior optimization of certain query tools (
CAT LLC continues to support the selection of AWS as the cloud hosting services provider for CAT given the compliance, operational, and security requirements of the CAT. Independent analyses confirm these conclusions,
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In addition, the nature of the CAT, including the amount of data it must process and the size of its data footprint, does not allow for a multi-cloud solution as this would be cost prohibitive and greatly increase the security boundary and associated risk profile of the CAT. For example, a multi-cloud hosting option would increase costs, complexity, and risk for operations with regard to, for example, DevOps, production support, and networking. Similarly, with regard to security, a multi-cloud solution would increase risk, including with regard to the need for data transfers between cloud providers and the expansion of the security boundary. With regard to labor, a multi-cloud solution would lose economies of scale due to the need to support unique cloud requirements. Accordingly, the use of single-cloud solution continues to provide advantages with regard to cost, complexity, and risk. Indeed, “[t]he best practice is to focus on a single primary strategic provider.”
Furthermore, if another cloud service provider were determined to be a better match for the CAT at some future date, switching cloud service providers would be a very significant, expensive and time-consuming effort. Such an effort would likely be a 10-to-15-year commitment at a substantial expense. Such a move would require the replication or redesign of the underlying cloud environments (
CAT LLC believes that the recovery of costs related to the development of the funding model is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
Funding the CAT is a critical aspect of Rule 613 and the CAT NMS Plan. Article XI of the CAT NMS Plan describes in detail the requirements for funding the CAT, and the Participants are required to comply with and enforce compliance with the funding requirements of the CAT NMS Plan, just as with other aspects of the Plan. Accordingly, the development and implementation of a funding model for the CAT is as much a part of the requirements of the CAT NMS Plan as the development and operation of the CAT System. CAT LLC sees no reason to distinguish the efforts to develop a funding model from, for example, efforts to develop the CAT System, in seeking to recover reasonable CAT costs.
Moreover, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . legal costs.”
In addition, the legal costs incurred for the assistance in developing the CAT Funding Model are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at negotiated rates for such services that reflect both the extent of the services and market rates. Moreover, the scope of the legal costs associated with the development of the funding model reflect the complexity of the task in satisfying the detailed requirements of the CAT NMS Plan, the standards of the Exchange Act, and the many perspectives of the different market constituents potentially affected by or interested in the funding model, including Industry Members, Participants and investors. The many and varied comments by market participants on CAT funding over the years demonstrate the complexity of the task.
CAT LLC believes that the recovery of legal costs related to the litigation with the SEC regarding the CAT NMS Plan is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
The conditional exemptive relief in this Order allows for the implementation of alternative regulatory solutions that continue to advance the regulatory goals that Rule 613 and the CAT NMS Plan were intended to promote, while reducing the implementation and operational costs, burdens, and/or difficulties that would otherwise be incurred by the Participants and Industry Members that must fund the CAT.
In addition, the legal costs incurred during the litigation are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at market rates for such services. As such, the legal costs related to this litigation incurred during the period covered by Historical CAT Assessment 1 were reasonable.
Finally, Industry Members will directly benefit from the result of the litigation because it has addressed CAT NMS Plan requirements that would have imposed significantly greater costs on the CAT. Accordingly, it is reasonable and appropriate that the costs of such litigation be included in the Historical CAT Costs 1.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017, which was the date by which Participants were required to begin reporting to the CAT, due to the delay in the commencement of reporting to the CAT. As discussed above, the Participants determined to exclude all CAT costs incurred from November 15, 2017 through November 15, 2018, which includes $37,852,083 in Thesys costs incurred from November 15, 2017 through November 15, 2018 (as well as other CAT costs during this period). The remaining Thesys costs incurred after November 15, 2018 are the $19,628,791 in capitalized developed technology costs for the period from November 16, 2018 through February 2019 incurred in the development of the CAT by the Initial Plan Processor, as well as a transition fee for the transition from the Initial Plan Processor to the successor Plan Processor. The Participants would remain responsible for 100% of these $19,628,791 in costs.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017. CAT LLC notes that the development and implementation of the CAT System, while unprecedented in scope and design, is like any other large and innovative technology project in that, inevitably, there were adjustments and refinements in the technical approach as the project developed, even with substantial planning efforts and oversight prior to the build. This is even more likely when the project faces a very tight implementation schedule, such as the one imposed by the Commission in Rule 613 and the CAT NMS Plan. However, an adjusted approach does not mean that the funds were not valid expenditures and should not be recovered.
The reasonableness of Thesys costs should be evaluated by the Commission as of the time they were incurred, not in hindsight. As detailed above, the Commission concluded in 2016 that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue.”
As noted in the CAT Funding Model Approval Order, “[i]n Rule 613, the Commission made the determination that the costs of the CAT should be shared by the Participants and Industry Members.”
CAT LLC believes that the recovery of CAIS-related costs is appropriate, and that the amount and scope of such costs, as described above, are reasonable, and that the reasonableness of historical costs should be evaluated by the Commission as of the time they were incurred, not in hindsight.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable CAIS operating costs as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . CAIS operating fees.”
In addition, CAT LLC determined that the CAIS operating fees described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The “CAIS Operating Costs” for Historical CAT Assessment 1 total $9,480,587, with Pre-FAM costs of $2,072,908, FAM 1 costs of $254,998, FAM 2 costs of $1,590,298, and FAM 3 costs of $5,562,383. As described above, the CAIS operating fees were incurred with regard to two categories of CAIS-related efforts: (1) the acceleration of the reporting of LTIDs; and (2) the development of the CAIS Technical Specifications and the building of CAIS. These two categories of costs are discussed in more detail below.
During the period covered by Historical CAT Assessment 1, the CAIS operating costs included costs related to the acceleration of the reporting of LTIDs earlier than originally contemplated during this period at the
• After FCAT developed the LTID Technical Specifications, the LTID Technical Specifications were published on January 31, 2020, with additional updates provided to the LTID Technical Specifications through April 2021.
• The LTID account information testing environment opened on August 24, 2020.
• The LTID account information reporting production environment opened on December 14, 2020.
• CAT Reporters were required to request their production readiness certification for account information related to LTIDs by the deadline of April 9, 2021.
• The LTID account information reporting for Phases 2a, 2b and 2c for Large Industry Members went live on April 26, 2021.
• The LTID account information reporting for Phases 2d for Large Industry Members went live on December 13, 2021.
• The LTID account information reporting for Phases 2a, 2b, 2c and 2d for Small Industry Members went live on April 26, 2021.
Throughout this project, FCAT and CAT LLC worked closely with the industry on LTID and CAIS reporting. Between December 2019 and December 2021, at least 57 checkpoint calls, webinars, and technical working group meetings with industry representatives were hosted to address issues and to educate CAT Reporters regarding LTID and CAIS reporting.
The LTID reporting project was successfully completed in a timely fashion, and the fees related to the project were reasonable. Accordingly, CAT LLC appropriately seeks to recover such costs via Historical CAT Assessment 1.
During the period covered by Historical CAT Assessment 1, FCAT began the development of the full CAIS Technical Specifications and the building of CAIS. The CAIS Technical Specifications were developed during this period as follows:
• Iterative drafts of the CAIS Technical Specifications were published on June 30, 2020, December 1, 2020, and January 1, 2021.
• The full, final CAIS Technical Specifications were published on January 29, 2021.
• Updated versions of the CAIS Technical Specifications were published throughout 2021.
As discussed above, FCAT and CAT LLC frequently engaged with the industry regarding the development of CAIS, hosting regular checkpoint calls, webinars, and technical working group meetings with industry representatives to address any issues, including addressing the interplay between Industry Members' existing customer systems and CAIS, and to educate CAT Reporters regarding LTID and CAIS reporting. Such engagement was critical to the CAIS development process as the CAIS project was unprecedented in terms of its content, scope and complexity.
During this period, FCAT also commenced the building of the CAIS system in accordance with the CAIS Technical Specifications during the period covered by Historical CAT Assessment 1. The CAIS system was ready for industry testing shortly after the end of this period in January 2022.
The CAIS Technical Specifications and the CAIS system, as developed during this period, continue to be in use today. Industry Members have been required to report, and have continuously reported, required data to CAIS on a daily basis since November 7, 2022, consistent with interim reporting obligations. The CAIS system accepts and validates the CAIS data submitted by Industry Members and provides Industry Members with initial feedback on data errors. In light of the unprecedented nature of the CAIS system, certain changes to the system, such as changes related to error corrections and the CAIS regulatory portal, were necessary to finalize CAIS reporting. FCAT worked to address these remaining issues,
CAT LLC believes that the recovery of public relations costs is appropriate and that the amount and scope of such costs, as described above, are reasonable.
The Commission has long recognized that external public relations costs are reasonably associated with creating, implementing and maintaining the CAT. In the CAT NMS Plan Approval Order, the Commission estimated that the Participants had collectively spent approximately $2,400,000 in preparation of the CAT NMS Plan on external public relations, legal, and consulting costs, and estimated that the Participants would continue to incur external public relations costs associated with maintaining the CAT upon approval of the CAT NMS Plan.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for public relations services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . public relations costs.”
In addition, CAT LLC determined that the public relations costs described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The services performed by the public relations firms through 2021 were limited in scope to assist CAT LLC, which has no employees of its own, to
CAT LLC believes that the recovery of legal costs related to the limitation of liability provision, including costs related to the proceedings before the SEC and costs related to the proposed amendment to the Consolidated Audit Trail Reporter Agreement and the Consolidated Audit Trail Reporting Agent Agreement (the “Reporting Agreements”) is appropriate and that the amount and scope of such costs as described above are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
Moreover, it is critical that CAT LLC, which has no employees of its own, have the ability to fund a legal defense in litigation and other legal proceedings against it. In response to CAT LLC requiring Industry Members to agree to the limitation of liability provision to submit data to the CAT, SIFMA filed an application for review of actions taken by CAT LLC and the Participants pursuant to Sections 19(d) and 19(f) of the Exchange Act. Contemporaneously with the filing of this proceeding, SIFMA moved for a stay of the requirement that Industry Members sign a Reporter Agreement, or in the alternative, asked the Commission to further delay the launch of CAT reporting on June 22, 2020. CAT LLC must have the resources to defend itself from litigious actions by others, like these.
Although a limitation of liability provision ultimately was not adopted as proposed, it was a reasonable provision to propose for the CAT Reporter Agreements, given that such provisions are in accordance with industry norms. Limitations of liability are ubiquitous within the securities industry and have long governed the economic relationships between self-regulatory organizations and the entities that they regulate. For example, U.S. securities exchanges have adopted rules to limit their liability for losses that Industry Members incur through their use of exchange facilities.
Furthermore, as described above, the specialized services were performed by experienced counsel at market rates for such services. Accordingly, the legal costs for the efforts related to the limitation of liability provision were reasonable.
CAT LLC believes that the recovery of consulting costs related to the Chair of the CAT Operating Committee is appropriate and that the amount and scope of such costs are reasonable.
As a preliminary matter, the selection of the Chair of the Operating Committee complies with the requirements of Section 4.2 of the CAT NMS Plan. The initial Chair that served during the period covered by Historical CAT Assessment was designated by a Participant as the Participant's alternate voting member. Accordingly, the Chair is a representative of the Participants, as required by the CAT NMS Plan.
In addition, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for consulting as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . consulting . . .” costs.
The Participants determined that the position of the Chair was a critical role for the implementation of the CAT, and an independent Chair would appropriately consider and address the views of each of the Participants. The Participants also determined that it was important to have a Chair with a strong background regarding issues related to the regulatory obligations of self-regulatory organizations, including their obligations under national market system plans. The compensation paid to the Chair is appropriate for a person with such background and skills. The average annual amount paid to the Chair from 2017 through the end of FAM 3 was $292,733.30. Separate from the Chair, CAT LLC relies upon a Leadership Team of representatives of the SROs to oversee the day-to-day implementation of the CAT NMS Plan. CAT LLC does not compensate any member of the Leadership Team.
CAT LLC understands that there are three types of reconciliation processes related to the invoices:
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As discussed further below, CAT LLC only considers the first type of process to be a “reconciliation” and the only type of process that is required under the CAT NMS Plan. CAT LLC provides the means to reconcile the CAT invoice amount to the underlying trades provided by CAT.
The CAT NMS Plan does not require CAT LLC to facilitate the second type of process: matching underlying trades for a CAT invoice with a firm's internal books and records. CAT LLC has access only to the underlying trades provided by CAT; it does not have access to a firm's internal books and records. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
The CAT NMS Plan also does not require CAT LLC to provide the ability to identify the order originator for the underlying trades for the CAT invoices. Accordingly, the billing guidance and processes do not provide CAT Reporters with the ability to identify the order originator for the underlying trades provided by CAT with CAT invoices. CAT LLC has been working closely with CAT Reporters to explain its billing approach and to address any outstanding billing questions. But, it should not be lost that CAT LLC provides information sufficient to allow CAT Reporters to reconcile CAT invoice amounts with the underlying trades provided by CAT LLC.
The CAT NMS Plan does not require CAT LLC to facilitate the matching of underlying trades for a CAT invoice with a firm's internal books and records, which may consist of trading data from various sources external to CAT. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
In this regard, it is important to recognize that CAT LLC has developed a billing approach that greatly improves upon existing billing practices for similar regulatory fees (
To facilitate the introduction of CAT fees, CAT LLC has worked with FCAT to develop an approach to CAT billing that is consistent with existing billing constructs used with regard to Section 31-related sales values fees, subject to certain enhancements. Under this billing approach, FCAT is providing additional linkage elements, not necessarily provided in the Section 31-sales value fee context, to facilitate CAT Reporters' ability to match the underlying trades provided by CAT with their internal books and records and to reduce the complexity of that process. Specifically, FCAT is providing various key elements of the trade itself, such as the tradeID and branch sequence,
With the Additional Trade Details, CAT LLC and FCAT believe that the overwhelming majority of underlying trades provided by CAT bills can be matched with a CAT Reporter's internal books and records. CAT LLC recognizes that there may be certain cases in which such matching is more difficult given various firm-specific considerations, but believes that such instances are significantly more limited than with regard to the SRO fees charged in relation to Section 31.
Similar to other regulatory fees, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Accordingly, Historical CAT Assessment 1 does not address the process by which any CAT Reporters may pass through the fee to their customers. Likewise, the CAT billing approach provided by the Plan Processor is designed to address the needs of CAT Reporters with regard to the reconciliation of CAT invoices with the underlying trades provided by CAT LLC with the invoices; they are not designed to address issues related to any pass-through fees. Accordingly, facilitating CAT Reporters' ability to pass through fees to their clients is outside the scope of this fee filing. Nevertheless, as described below, CAT LLC and the Plan Processor have expended significant efforts to provide technical assistance to Industry Members regarding the implementation of Historical CAT Assessment 1, including providing Additional Trade Details that provide significant details about each underlying trade.
In its approval of the CAT Funding Model, the Commission approved charging CAT fees to the CAT Executing Broker, rather than the originating broker. This fee filing must comply with the requirements of the CAT Funding Model, and, therefore, charges the Historical CAT Assessment 1 to CAT Executing Brokers.
Moreover, charging originating brokers would introduce significant complexity to the billing process from the CAT's perspective, and would increase the costs of implementing CAT fees. Charging the CAT Executing Broker is simple and straightforward, and leverages a one-to-one relationship between billable events (trades) and billable parties, similar to other
As noted, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT Fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Nevertheless, the Additional Trade Details provided with regard to the underlying trades on CAT invoices may assist with this process. Like with Section 31-related sales value fees, however, it is not always possible to trace every fee on a transaction back to the originating party. Industry Members have faced these issues under Section 31-related sales values fees for many years.
CAT LLC has worked with FCAT to provide significant technical assistance to Industry Members to allow the Industry Members to understand how Historical CAT Assessment 1 will be implemented and billed, including webinars, CAT alerts, mock invoices, and responses to questions posed to the FCAT Help Desk.
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By providing such detailed and sustained assistance to Industry Members regarding CAT fees and billing, CAT LLC has successfully addressed questions raised by Industry Members regarding the CAT fees and billing processes.
CAT LLC has provided Industry Members with ample time to comply with the implementation of Historical CAT Assessment 1. CAT LLC originally proposed issuing the first invoices for Historical CAT Assessment 1 in December 2023 based on transactions in Eligible Securities in November 2023. In consideration of the feedback about the need for additional time to implement the new fee, CAT LLC pushed back this timeline by four months, proposing to issue the first Historical CAT Assessment 1 in April 2024 based on transactions in March 2024.
The Exchange believes the proposed rule change is consistent with the requirements of the Exchange Act. The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,
The Exchange believes that this proposal is consistent with the Act because it implements provisions of the Plan and is designed to assist the Exchange 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.”
The Exchange believes that the proposed fees paid by the CEBBs and CEBSs are reasonable, equitably allocated and not unfairly discriminatory. First, the Historical CAT Assessment 1 fees to be collected are directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to technology, legal, consulting, insurance, professional and administration, and public relations costs. The Exchange has already incurred such development and implementation costs and the proposed Historical CAT Assessment 1 fees, therefore, would allow the Exchange 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 and not to support the Exchange's business operations. The proposed fees would not cover Exchange services unrelated to the CAT. In addition, any surplus would be used as a reserve to offset future fees. Given the direct relationship between CAT fees and CAT costs, the Exchange believes that the proposed fees are reasonable, equitable and not unfairly discriminatory.
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. The Exchange believes that the proposed fees adopted pursuant to the CAT Funding Model approved by the SEC are reasonable, equitably allocated and not unfairly discriminatory.
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, the Exchange has filed this fee filing to implement the Industry Member CAT fees included in the CAT Funding Model. The Exchange 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 the Exchange 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
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.
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:
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, the Exchange 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.
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.
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
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 (
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
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.
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.
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.
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.
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.
These costs involve the activity of both the Initial Plan Processor and FCAT, as the successor Plan Processor.
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.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover consulting costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover insurance costs as a part of Historical CAT Assessments.
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.
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.
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 balanace of these considerations.
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.
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.
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.
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 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.
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.
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, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
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.
The Exchange believes that imposing Historical CAT Assessment 1 with a fee rate of $0.000013 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, the Exchange 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 (
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.
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.
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.
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, the Exchange 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 the fee schedule. The Exchange 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 Exchange members to reasonably predict their payment obligations for budgeting purposes.
Section 6(b)(8) of the Act
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.
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.
Written comments were neither solicited nor received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Exchange Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.