Securities and Exchange Commission v. Cat LLC, et al.

SECURITIES AND EXCHANGE COMMISSION 
(Release No. 34-98290; File No. 4-698) 
 
September 6, 2023 
 
Joint Industry Plan; Order Approving an Amendment to the National Market System Plan 
Governing the Consolidated Audit Trail 
 
I. Introduction 
  
On March 13, 2023, the Consolidated Audit Trail, LLC (“CAT LLC”), on behalf of the 
Participants
1
 to the National Market System Plan Governing the Consolidated Audit Trail (“CAT 
NMS Plan” or “Plan”),
2
 filed with the Securities and Exchange Commission (“Commission”), 
pursuant to Section 11A of the Exchange Act
3
 and Rule 608 of Regulation National Market 
System (“Regulation NMS”) thereunder,
4
 a proposed amendment to the CAT NMS Plan 
(“Proposed Amendment”) to implement a revised funding model (“Executed Share Model”) for 
 
1
  The Participants are:  BOX Exchange LLC, Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe 
C2 Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe Exchange, Inc., The 
Financial Industry Regulatory Authority, Inc. (“FINRA”), Investors Exchange LLC, Long-Term Stock 
Exchange, Inc., MEMX LLC, Miami International Securities Exchange, LLC, MIAX Emerald, LLC, 
MIAX PEARL, LLC, Nasdaq BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, 
Nasdaq PHLX LLC, The Nasdaq Stock Market LLC, New York Stock Exchange LLC, NYSE American 
LLC, NYSE Arca, Inc., NYSE Chicago, Inc., and NYSE National, Inc. (collectively, the “Participants,” 
“self-regulatory organizations,” or “SROs”). 
2
  The CAT NMS Plan is a national market system plan approved by the Commission pursuant to Section 
11A of the Securities Exchange Act of 1934 (“Exchange Act”) and the rules and regulations thereunder.  
See Securities Exchange Act Release No. 78318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (“CAT 
NMS Plan Approval Order”).  The CAT NMS Plan is Exhibit A to the CAT NMS Plan Approval Order.  
See CAT NMS Plan Approval Order, 81 FR at 84943–85034.  The CAT NMS Plan functions as the limited 
liability company agreement of the jointly owned limited liability company formed under Delaware state 
law through which the Participants conduct the activities of the CAT (“Company”).  Each Participant is a 
member of the Company and jointly owns the Company on an equal basis.  The Participants submitted to 
the Commission a proposed amendment to the CAT NMS Plan on August 29, 2019, which they designated 
as effective on filing.  On August 29, 2019, the Participants replaced the CAT NMS Plan in its entirety with 
the limited liability company agreement of a new limited liability company, CAT LLC, which became the 
Company.  See Securities Exchange Act Release No. 87149 (Sept. 27, 2019), 84 FR 52905 (Oct. 3, 2019).  
The latest version of the CAT NMS Plan is available at https://catnmsplan.com/about-cat/cat-nms-plan. 
3
  15 U.S.C. 78k-1. 
4
  17 CFR 242.608. 

2 
the consolidated audit trail (“CAT”)
5
 and to establish a fee schedule for Participant CAT fees in 
accordance with the Executed Share Model (“Proposed Participant Fee Schedule”).
6
  The 
Proposed Amendment was published for comment in the Federal Register on March 21, 2023.
7
 
On June 16, 2023, the Commission instituted proceedings pursuant to Rule 608(b)(2)(i) 
of Regulation NMS
8
 to determine whether to disapprove the Proposed Amendment or to approve 
the Proposed Amendment with any changes or subject to any conditions the Commission deems 
necessary or appropriate after considering public comment (“OIP”).
9
  
This order approves the Proposed Amendment. 
II. Background 
On July 11, 2012, the Commission adopted Rule 613 of Regulation NMS, which required 
the 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.
10
  On November 15, 2016, the Commission approved the CAT NMS Plan.
11
  
Under the CAT NMS Plan, the Operating Committee of the Company, of which each Participant 
is a member, has the discretion (subject to the funding principles set forth in the Plan) to 
 
5
  The Proposed Amendment modifies the existing funding model in Article XI. of the CAT NMS Plan. 
6
  See Letter from Brandon Becker, Chair, CAT NMS Plan Operating Committee, to Vanessa Countryman, 
Secretary, Commission (Mar. 13, 2023) (“Transmittal Letter”). 
7
 See Securities Exchange Act Release No. 97151 (Mar. 15, 2023), 88 FR 17086 (Mar. 21, 2023) (“Notice”).  
Comments received in response to the Notice can be found on the Commission’s website at 
https://www.sec.gov/comments/4-698/4-698-a.htm.  
8
  17 CFR 242.608(b)(2)(i).  
9
  See Securities Exchange Act Release No. 97750 (June 16, 2023), 88 FR 41142 (June 23, 2023).  Comments 
received in response to the OIP can be found on the Commission’s website at 
https://www.sec.gov/comments/4-698/4-698-a.htm. 
10
  17 CFR 242.613. 
11
  See CAT NMS Plan, supra note 2.  

3 
establish funding for the Company to operate the CAT, including establishing fees to be paid by 
the Participants and Industry Members.
12
   
 Under the CAT NMS Plan, CAT fees are to be implemented in accordance with various 
funding principles, including an “allocation of the Company’s related costs among Participants 
and Industry Members that is consistent with the Exchange Act taking into account . . . 
distinctions in the securities trading operations of Participants and Industry Members and their 
relative impact upon the Company resources and operations” and the “avoid[ance of] any 
disincentives such as placing an inappropriate burden on competition and reduction in market 
quality.”
13
  The Plan specifies that, in establishing the funding of the Company, the Operating 
Committee shall establish “a tiered fee structure in which the fees charged to:  (1) CAT 
Reporters
14
 that are Execution Venues,
15
 including ATSs,
16
 are based upon the level of market 
share; (2) Industry Members’ non-ATS activities are based upon message traffic; and (3) the 
CAT Reporters with the most CAT-related activity (measured by market share and/or message 
traffic, as applicable) are generally comparable (where, for these comparability purposes, the 
tiered fee structure takes into consideration affiliations between or among CAT Reporters, 
whether Execution Venues and/or Industry Members).”
17
  
 
12
  The CAT NMS Plan defines “Industry Member” as “a member of a national securities exchange or a 
member of a national securities association.”  See CAT NMS Plan, supra note 2
, at Section 1.1.  See also 
id. at Section 11.1(b). 
13
  Id. at Section 11.2(b) and (e). 
14
  The CAT NMS Plan defines “CAT Reporter” as “each national securities exchange, national securities 
association and Industry Member that is required to record and report information to the Central Repository 
pursuant to SEC Rule 613(c).”  Id. at Section 1.1. 
15
  The CAT NMS Plan defines “Execution Venue” as “a Participant or an alternative trading system (‘ATS’) 
(as defined in Rule 300 of Regulation ATS) that operates pursuant to Rule 301 of Regulation ATS 
(excluding any such ATS that does not execute orders).”  Id. 
16
  Id.    
17
  CAT NMS Plan, supra note 2, at Section 11.2(c).  See id. at Article XI for additional detail.   

4 
 On May 15, 2020, the Commission adopted amendments to the CAT NMS Plan designed 
to increase the Participants’ financial accountability for the timely completion of the CAT 
(“Financial Accountability Amendments”).
18
  The Financial Accountability Amendments added 
Section 11.6 to the CAT NMS Plan to govern the recovery from Industry Members of any 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 June 22, 2020 until such time that the Participants have completed Full Implementation of 
CAT NMS Plan Requirements
19
 (“Post-Amendment Expenses”).  Section 11.6 establishes target 
deadlines for four Financial Accountability Milestones (Periods 1, 2, 3 and 4)
20
 and reduces the 
amount of fee recovery available to the Participants if these deadlines are missed.
21
   
III. Discussion and Commission Findings 
 After careful review, the Commission, pursuant to Section 11A of the Exchange Act,
22
 
and Rule 608(b)(2)
23
 thereunder, is approving the Proposed Amendment.  Section 11A of the 
Exchange Act authorizes the Commission, by rule or order, to authorize or require the self-
regulatory organizations to act jointly with respect to matters as to which they share authority 
 
18
  See Securities Exchange Act Release No. 88890, 85 FR 31322 (May 22, 2020). 
19
  “Full Implementation of CAT NMS Plan Requirements” means “the point at which the Participants have 
satisfied all of their obligations to build and implement the CAT, such that all CAT system functionality 
required by Rule 613 and the CAT NMS Plan has been developed, successfully tested, and fully 
implemented at the initial Error Rates specified by Section 6.5(d)(i) or less, including functionality that 
efficiently permits the Participants and the Commission to access all CAT Data required to be stored in the 
Central Repository pursuant to Section 6.5(a), including Customer Account Information, Customer-ID, 
Customer Identifying Information, and Allocation Reports, and to analyze the full lifecycle of an order 
across the national market system, from order origination through order execution or order cancellation, 
including any related allocation information provided in an Allocation Report.  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).”  CAT NMS Plan, supra note 2
, at Section 1.1. 
20
  See CAT NMS Plan, supra note 2, at Section 11.6(a)(i). 
21
  Id. at Section 11.6(a)(ii) and (iii). 
22
  15 U.S.C. 78k-1. 
23
  17 CFR 242.608(b)(2). 

5 
under the Exchange Act in planning, developing, operating, or regulating a facility of the 
national market system.
24
  Rule 608 of Regulation NMS authorizes two or more SROs, acting 
jointly, to file with the Commission proposed amendments to an effective NMS plan,
25
 and 
further provides that the Commission shall approve an amendment to an effective NMS plan if it 
finds that the amendment is necessary or 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 mechanisms of, a national market system, or otherwise in furtherance of the purposes of the 
Exchange Act.
26
  
The Participants have sufficiently demonstrated that the proposed allocation of fees is 
reasonable.  There are a number of potential approaches to allocating the costs of operating the 
CAT, all of which have relative strengths and weaknesses.  In adopting Rule 613 and approving 
the CAT NMS Plan, the Commission determined that the CAT was appropriate in order to 
enable the SROs and the Commission to fulfill their responsibilities to oversee the equities and 
options markets.  The CAT NMS Plan requires both Execution Venues (which include the 
Participants) and Industry Members (which include CAT Executing Brokers) to fund the CAT.  
The proposed one-third allocation of CAT fees to the applicable Participant in a transaction, the 
CAT Executing Broker for the buyer in a transaction and the CAT Executing Broker for the 
seller in a transaction, assesses an equal fee to the three primary roles in a transaction:  the buyer, 
seller and market regulator.  In our view, allocating the costs for the CAT among the three 
parties who play significant roles in transactions reportable to the CAT in this manner represents 
 
24
  See 15 U.S.C. 78k-1(a)(3)(B).  
25
  See 17 CFR 242.608. 
26
  See 17 CFR 242.608(b)(2).  

6 
a reasonable method of allocating costs among the parties who participate in and benefit from 
those markets.   
Commenters expressed concern that the Participant exchanges and FINRA would pass 
their share of costs on to Industry Members.  But the Exchange Act expressly contemplates the 
ability of the Participants to recoup the costs of fulfilling their statutory obligations under the 
Exchange Act.  And, as we explained in adopting Rule 613 and approving the CAT NMS Plan, 
the CAT is important to the performance of these regulatory activities in modern, interconnected 
markets, to the ultimate benefit of investors and market participants.  Moreover, these costs will 
not be unchecked.  The Participants must file their proposed rule changes relating to fees with 
the Commission.  Those proposed rule changes are published by the Commission and there is an 
opportunity for public comment.  CAT fees, like any fees the Participants collect from their 
members to fund their SRO responsibilities in market and member regulation, must be consistent 
with applicable statutory standards under the Exchange Act, including being reasonable, 
equitable and not unfairly discriminatory.  
We also conclude that the use of executed equivalent share volume provides a reasonable 
basis for the calculation of these fees.  Executed equivalent share volume is readily determinable 
and—because it is based on trading activity, which impacts CAT costs—provides a reasonable 
proxy for the costs to CAT, allowing CAT Reporters to be assessed fees corresponding to the 
cost burden they impose on the CAT.  The use of CAT Executing Brokers is also appropriate 
because the proposed Executed Share Model is based on executed equivalent shares (emphasis 
added).  Therefore, charging the CAT Executing Brokers would reflect their executing role in 
each transaction, which is already recorded in transaction reports from the exchanges and 
FINRA’s equity trade reporting facilities for calculating the CAT fees.  Because such entities are 

7 
already identified and their CAT fees are known, this method could streamline the billing 
process and allow such entities to calculate their own fees.  We also conclude that the division of 
fees into Prospective CAT Fees and the Historical CAT Assessment provides a reasonable 
method of allowing Participants to recoup their significant expenditures on the development of 
CAT to date while ensuring funding for future operations of the system.  And the provision of 
fee calculation information, approach to billing and collection of fees, conforming changes and 
the Proposed Participant Fee Schedule are all reasonable.  The Commission is therefore 
approving the Proposed Amendment.
27
   
 A. Funding Model 
 
1. Overview 
 
CAT LLC proposes to replace the funding model set forth in Article XI of the CAT NMS 
Plan (“Original Funding Model”) with the Executed Share Model.  The Original Funding Model 
involved a bifurcated approach, where costs associated with building and operating the CAT 
would be borne by (1) Industry Members (other than alternative trading systems (“ATSs”) that 
execute transactions in Eligible Securities (“Execution Venue ATSs”)) through fixed tiered fees 
based on message traffic for Eligible Securities, and (2) Participants and Industry Members that 
are Execution Venue ATSs for Eligible Securities through fixed tiered fees based on market 
share.
28
  In contrast, the Executed Share Model would charge fees based on the executed 
equivalent share volume of transactions in Eligible Securities.
29
  In addition, instead of charging 
fees to Industry Members, under the Executed Share Model, fees would be charged to each 
 
27
  Id.  
28
  See CAT NMS Plan, supra note 2, at Section 11.3(a) and (b). 
29
  See Notice, supra note 7, 88 FR at 17086. 

8 
Industry Member that is a CAT Executing Broker
30
 for the buyer in a transaction in Eligible 
Securities (“CAT Executing Broker for the Buyer” or “CEBB”) and each Industry Member that 
is the CAT Executing Broker for the seller in a transaction in Eligible Securities (“CAT 
Executing Broker for the Seller” or “CEBS”).
31
     
Under the Executed Share Model, CAT LLC proposes to establish two categories of CAT 
fees.  The first category of CAT fees would be fees (“CAT Fees”) payable by Participants and 
Industry Members that are CAT Executing Brokers for the Buyer and for the Seller with regard 
to CAT costs not previously paid by the Participants (“Prospective CAT Costs”).
32
  The second 
category of CAT fees would be fees (“Historical CAT Assessments”) to be payable by Industry 
Members that are CAT Executing Brokers for the Buyer and for the Seller with regard to CAT 
costs previously paid by the Participants (“Past CAT Costs”).
33
   
For each category of fees, each CEBB and each CEBS will be required to pay a CAT fee 
for each such transaction in Eligible Securities in the prior month based on CAT Data.
34
  The 
CEBB’s CAT fee or CEBS’s CAT fee (as applicable) for each transaction in Eligible Securities 
will be calculated by multiplying the number of executed equivalent shares in the transaction by 
one-third and by the reasonably determined Fee Rate,
35
 as described below.
36
  Participants would 
 
30
  See i nfra Section III.A.4. for the definition of CAT Executing Broker. 
31
  See Notice, supra note 7, 88 FR at 17087. 
32
  Id. at 17086; see also proposed Section 11.3(a).  The defined term “CAT Fees” applies specifically to CAT 
fees related to Prospective CAT Costs.  Id. 
33
  See Notice, supra note 7, 88 FR at 17086; see also proposed Section 11.3(b). 
34
  See Notice, supra note 7, 88 FR at 17093; see also proposed Section 11.3(a)(iii), proposed Section 
11.3(b)(iii). 
35
  See infra Section III.A.5.a. (Prospective CAT Fees - Fee Rate Formula) for the definition and description of 
the calculation of the Fee Rate.  See also infra notes 1100–1102 and accompanying text (stating that the 
anticipated CAT Fee Rate and the fee rate for Historical CAT Assessments are expected to be relatively 
small). 
36
  See Notice, supra note 7, 88 FR at 17095; see also proposed Section 11.3(a)(iii), proposed Section 
11.3(b)(iii).   

9 
incur CAT Fees only for Prospective CAT Costs and the Participant CAT Fee will be calculated 
by multiplying the number of executed equivalent shares in the transaction by one-third and by 
the reasonably determined Fee Rate.
37
  The Participants’ one-third share of Historical CAT 
Costs
38
 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.
39
 
FINRA CAT would be responsible for calculating the CAT fees and submitting invoices 
to the CAT Executing Brokers based on this CAT Data.
40
  All data used to calculate the fees 
under the Executed Share Model would be CAT Data, and, therefore, it would be directly 
available through the CAT to FINRA CAT for calculating CAT fees.
41
   
  Once the Proposed Amendment has been approved by the Commission, the Participants 
would separately file proposed rule filings pursuant to Section 19(b) of the Exchange Act
42
 to 
establish the amounts of the proposed CAT Fees and Historical CAT Assessments to be charged 
to Industry Members, subject to the satisfaction of applicable Financial Accountability 
Milestones as set forth in Section 11.6 of the CAT NMS Plan and the implementation of the 
billing and collection system for the CAT fees.
43
  In each proposed rule filing, if the Participants 
 
37
  See Notice, supra note 7, 88 FR at 17094; see also proposed Section 11.3(a)(ii). 
38
  The actual amount of Past CAT Costs to be recovered through the Historical CAT Assessments would be 
reduced by an amount of “Excluded Costs.”  The resulting amount would be defined as “Historical CAT 
Costs” in proposed Section 11.3(b)(i)(C) of the CAT NMS Plan.  See infra Section III.A.6.a. for a 
discussion of Historical CAT Costs. 
39
  See proposed Section 11.3(b)(ii). 
40
  See Notice, supra note 7, 88 FR at 17088. 
41
  Id. 
42
  15 U.S.C. 78s(b). 
43
  See Notice, supra note 7, 88 FR at 17086, 17122. 

10 
seek to recover amounts under the Financial Accountability Milestones, they would need to 
discuss their completion of the applicable milestone.
44
   
2. Allocation of Fee among Participants and Industry Members 
Under the Executed Share Model, CAT fees would be allocated one-third to the 
applicable Participant, one-third to the CEBS and one-third to the CEBB of a transaction.  
Certain commenters opposed the proposed allocation.
45
 
FINRA stated that, while the Proposed Amendment justified the fairness of the Executed 
Share Model because it would operate like other fees, like FINRA’s Trading Activity Fee 
(“TAF”), Section 31 fees, and the options regulatory fee,
46
 the Proposed Amendment did not 
support why those fee frameworks should be used as a model in this context.
47
  For example, 
FINRA stated that the TAF is designed to recover the costs of FINRA’s regulatory activities, 
while the CAT fees are intended to align with the costs to build, operate and administer the 
 
44
  Proposed Section 11.3(b)(iii)(B)(III) would prohibit any Participant from filing proposed rule filings 
pursuant to Section 19(b) of the Exchange Act regarding any Historical CAT Assessment until any 
applicable Financial Accountability Milestone in Section 11.6 of the CAT NMS Plan has been satisfied. 
45
  See Letters to Vanessa Countryman, Secretary, Commission, from Stephen John Berger, Managing 
Director, Global Head of Government and Regulatory Policy, Citadel Securities, dated July 14, 2023 
(“Citadel July Letter”); August 22, 2023 (“Citadel August Letter”); Marcia E. Asquith, Corporate 
Secretary, EVP, Board and External Relations, FINRA, dated May 25, 2023 (“FINRA May 2023 Letter”); 
April 11, 2023 (“FINRA April 2023 Letter”); and June 22, 2022 (“FINRA June 2022 Letter”) (the FINRA 
June 2022 Letter was submitted in response to the prior funding proposal and was attached and 
incorporated by reference in the FINRA April 2023 Letter); Ellen Greene, Managing Director, Equities & 
Options Market Structure, and Joseph Corcoran, Managing Director, Associate General Counsel, SIFMA, 
dated July 13, 2023 (“SIFMA July 2023 Letter”); June 5, 2023 (“SIFMA June 2023 Letter”); May 2, 2023 
(“SIFMA May 2023 Letter”); January 12, 2023 (“SIFMA January 2023 Letter”); December 14, 2022 
(“SIFMA December 2022 Letter”); October 7, 2022 (“SIFMA October 2022 Letter”); and June 22, 2022 
(“SIFMA June 2022 Letter”) (the SIFMA June 2022 Letter, SIFMA October 2022 Letter, SIFMA 
December 2022 Letter and SIFMA January 2023 Letter were submitted in response to the prior funding 
proposal and incorporated by reference in the SIFMA May 2023 Letter); Joanna Mallers, Secretary, FIA 
Principal Traders Group, dated July 14, 2023 (“FIA Letter”); Douglas A. Cifu, Chief Executive Officer, 
Virtu Financial, dated July 13, 2023 (“Virtu Letter”).  See infra note 
58. 
46
  See Notice, supra note 7, 88 FR at 17122.  
47
  See FINRA June 2022 Letter at 4. 

11 
CAT.
48
  Further, FINRA stated that the Proposed Amendment has insufficiently explained the 
connection between the TAF and CAT fees, merely stating that they are similar fees because 
they are transaction-based fees used to provide funding for regulatory costs.
49
  FINRA stated that 
“CAT LLC’s observations superficially focus on the fact that these fees also use transaction-
based metrics (and may be assessed on members) and neglects other factors relevant to the 
analysis including, for example, that these fees are used in combination with other funding 
mechanisms and metrics to support an overall funding framework.”
50
     
Another commenter stated that the proposed CAT funding model cannot be compared to 
Section 31 fees, the TAF, or the options regulatory fee because the commenter believes that CAT 
fees appear to be unconstrained and out of the industry’s control.
51
  The commenter explained 
that, unlike the proposed CAT fees, Section 31 fees are based on an annual budget set by 
Congress and the options regulatory fee is only applied to customer transactions and thus can be 
easily passed-on to other market participants (unlike CAT fees for market making activity).
52
  
Additionally, the commenter stated that there is no precedent for fees to be allocated to Industry 
Members in perpetuity, stating that this would contravene the Exchange Act.
53
   
One commenter disagreed with the Participants’ statement that the Executed Share 
Model’s similarity to other transaction-based fees approved by the Commission is adequate 
 
48
  See FINRA April 2023 Letter at 8. 
49
  Id.  The commenter also stated that “it is unclear how assessing on FINRA the largest allocation of the 
SRO portion of CAT expenses ‘provides funding for regulatory costs’ in any reasonable and equitable 
sense comparable to the TAF...”  Id. 
50
  FINRA May 2023 Letter at 3. 
51
  Citadel July Letter at 27.   
52
 Id.  The commenter also stated that FINRA has sought to avoid increases in the TAF.  Id. 
53
  Id.  This commenter stated that it is inequitable to require Industry Members to fund CAT costs in 
perpetuity when they lack representation on the Operating Committee and therefore have little transparency 
into the drivers of the costs, and there is no plan to contain the costs.  See id. at 2.   

12 
justification for consistency with the Exchange Act.
54
  The commenter stated that similarity to 
other transaction-based fees is not an adequate basis to show that the Executed Share Model is 
consistent with relevant standards; each proposed fee must be individually supported.
55
  For 
example, the commenter stated that the Participants compared the Executed Share Model to 
Section 31 fees as justification for the Executed Share Model, but failed to address the 
differences between the Executed Share Model and Section 31 fees, such as the Executed Share 
Model’s treatment of high-volume trades in low-priced stocks while Section 31 fees are based on 
the notional value of a trade.
56
 
Commenters also questioned the Participants’ justifications for the one-third allocation 
methodology.  FINRA stated that the Proposed Amendment did not justify why the proposed 
allocation by thirds to the Participant, buy-side and sell-side is equitable in the context of the 
CAT NMS Plan.
57
  FINRA also stated that the Proposed Amendment did not consider 
alternatives suggested by commenters on a prior proposed funding model,
58
 such as a model 
similar to Section 31 fees and a CAT funding model based on the “Cost Recovery Principle” and 
the “Benefits Received Principle.”
59
  FINRA urged the Commission to require those alternatives 
to be analyzed.
60
 
 
54
  See SIFMA June 2022 Letter at 4.  
55
  Id. 
56
  See SIFMA October 2022 Letter at 7.  See   also Citadel August Letter at 5.  
57
  See FINRA June 2022 Letter at 3.   
58
  See Securities Exchange Act Release Nos. 94984 (May 25, 2022), 87 FR 33226 (June 1, 2022); 96394 
(Nov. 28, 2022), 87 FR 74183 (Dec. 2, 2022); and Letter from Michael Simon, Chair Emeritus, CAT NMS 
Plan Operating Committee, to Vanessa Countryman, Secretary, Commission (Feb. 15, 2023). 
59
  See FINRA April 2023 Letter at 5 ( citing Letter to Vanessa Countryman, Secretary, Commission, from 
Lawrence Harris, Fred V. Keenan Chair in Finance, Professor of Finance and Business and Economics, 
USC Marshall School of Business, dated June 21, 2022).  
60
  Id.  Another commenter suggested a review of alternative approaches to funding, such as the extent to 
which CAT could be funded by Section 31 fees.  See Letter to Vanessa Countryman, Secretary, 
 

13 
One commenter stated that the Participants have not met their burden to demonstrate the 
proposed allocation is consistent with the Exchange Act fee standards and not arbitrary.
61
  The 
commenter stated that because FINRA is funded by Industry Members, Industry Members would 
pay over 80% of CAT costs since they must pay not only their own share but FINRA’s as well; 
therefore, the Commission should disapprove the proposal.
62
  The commenter stated that the 
Proposed Amendment does not explain how allocating 80% of total CAT costs to the industry in 
perpetuity without a mechanism to limit the budget
63
 is consistent with the Exchange Act and 
guidance on SRO filings related to fees because the industry has no role in the governance, 
oversight or design of CAT and does not benefit from the CAT.
64
  Another commenter stated 
that Industry Members will bear significantly more costs than the Proposal suggests if the 
Participants decide to charge their members to fund their share of CAT fees.
65
  The commenter 
stated that “[i]f the Participants were to do this, it would render the entire Funding Model 
 
Commission, from Kirsten Wegner, Chief Executive Officer, Modern Markets Initiative, dated July 13, 
2023 (“MMI July Letter”), at 4. 
61
  See SIFMA May 2023 Letter at 6; SIFMA June 2023 Letter at 1–2.  The commenter also stated that the 
Proposed Amendment provides unsupported conclusory statements that it meets the requirements of the 
Exchange Act.  See SIFMA June 2023 Letter at 2.  See also id. at n 11; FIA Letter at 2. 
62
  See SIFMA May 2023 Letter at 2.  See also SIFMA June 2022 Letter at 1–2 (stating that the proposed cost 
allocation methodology is inconsistent with Exchange Act fee standards because most costs would be 
imposed on Industry Members). 
63
  The commenter stated that the CAT annual budget increased over 30% in the last year.  See SIFMA June 
2023 Letter at 4.  See also Virtu Letter at 4 (stating that the budget increase indicated that the Industry 
Members could be subject to ever-increasing fees with no say on the budget).  See also FIA Letter at 3 
(stating that “[w]ith little to no skin-in-the-game, the Participants will not be incentivized to control 
costs.”).  See infra Section III.A.5.b (discussing budgeted CAT costs and comments suggesting a review 
mechanism to control costs).   
64
  See SIFMA June 2023 Letter at 3, 4.  The commenter stated that approving such a proposal would “directly 
threaten[] efficiency, competition, and capital formation in U.S. securities markets.”  Id. at 4.  The 
commenter also quoted a Commission release stating that the Participants are potentially conflicted in 
allocating CAT fees to themselves and the Industry Members.  See Securities Exchange Act Release No. 
89618 (Aug. 19, 2020), 85 FR 65470, 65482 (Oct. 15, 2020).  Another commenter stated that the allocation 
of 80% to the industry was unfair.  See Virtu Letter at 4.   
65
  See FIA Letter at 2. 

14 
meaningless, with Industry Members bearing 100% of CAT costs.”
66
  Another commenter also 
stated that it was inappropriate to place responsibility for funding the CAT “on industry members 
that do not stand to benefit from it.”
67
 
One commenter stated that the Proposed Amendment does not demonstrate that it is 
equitable, as required by Section 6(b)(4),
68
 or rational, as required by the Administrative 
Procedure Act,
69
 to allocate two-thirds of CAT costs to Industry Members, stating that “there is 
no suggestion that Industry Members somehow receive 67% of the benefits from CAT.”
70
  
Furthermore, the commenter stated that the Proposed Amendment would result in an inequitable 
allocation to a small number of Industry Members.
71
   
The commenter also stated that the Proposed Amendment would result in the allocation 
of all of the costs to build and operate the CAT to Industry Members and would therefore be 
inconsistent with Section 6(b)(4) to equitably allocate reasonable fees.
72
  The commenter stated 
that, in addition to the proposed allocation to Industry Members, FINRA’s 11% cost allocation 
would be passed-on to Industry Members and that exchanges would also pass-on their 22% cost 
allocation.
73
  The commenter stated that, with FINRA’s allocation, 78% of the costs to build and 
operate the CAT would be allocated to Industry Members under the Proposed Amendment.
74
  
The commenter stated that 78% is the same amount allocated to Industry Members in a prior 
 
66
  Id. 
67
  See Virtu Letter at 2. 
68
  15 U.S.C. 78f(b)(4). 
69
  5 U.S.C. 551 et seq. 
70
  See Citadel July Letter at 17. 
71
  Id. 
72
  Id. at 1, 16, 22. 
73
  Id. at 1, 21, 22. 
74
  Id. at 21. 

15 
CAT funding model proposal from 2021, and stated that in the Proposed Amendment, the 
Operating Committee concedes that the 2021 allocation “may have an adverse effect on 
competition, liquidity or other aspects of market structure,”
75
 however the Proposed Amendment 
does not explain why using a different metric – executed share volume rather than message 
traffic—to create the same allocation would not result in similar consequences.
76
  
Further, the commenter stated that Industry Members may also be required to pay the 
exchange cost allocation,
77
 citing a statement in the Proposed Amendment that “each Participant 
may determine to charge their members fees to fund their share of the CAT fees.”
78
  The 
commenter stated that if exchanges choose to do this, then Industry Members would be 
responsible for 100% of CAT costs, which would “distort incentives and hinder the prioritization 
of critical cost-control measures, as the firms governing CAT are not bearing any of the 
associated costs.”
79
  The commenter requested that the Commission prohibit exchanges from 
passing-on their CAT costs.
80
  The commenter also stated that even after restructuring the 
funding model to base allocation on share volume instead of message traffic, as in prior funding 
model proposals, the allocation to exchanges stayed the same, arguing that the exchanges are 
unwilling to allocate themselves more than 22% of total costs.
81
  The commenter stated that the 
 
75
  Id. 
76
  See Citadel July Letter at 21. 
77
  Id. at 22.  See also Citadel August Letter at 2. 
78
  See Citadel July Letter at 22.  See also Notice, supra note 7, 88 FR at 17107.  The commenter also stated 
that while the Proposed Amendment describes the funding model as “neutral as to location and manner of 
execution,” counterparties to off-exchange transactions would receive higher fees than on-exchange 
transactions if exchanges choose not to pass-on their cost allocation to Industry Members.  See Citadel July 
Letter at 21.  See also Notice, supra note 7, 88 FR at 17087. 
79
  Citadel July Letter at 22.  See also id. at 16.  See also Citadel August Letter at 2 (stating that an allocation 
of 100% of CAT costs to Industry Members cannot be lawful). 
80
  Citadel July Letter at 22. 
81
  Id. at 10. 

16 
proposed allocation methodology is inconsistent with the Exchange Act because of the excessive 
percentage of total costs proposed to be allocated to Industry Members and the unfair method of 
allocating costs among Industry Members,
82
 stating, “[t]he allocation methodology will have a 
direct and negative impact on market efficiency, competition, and capital formation, and the 
Commission must comprehensively assess those impacts before approving this filing.”
83
   
The commenter stated that the Proposed Amendment does not provide the percentage of 
total costs to build and operate the CAT that will be borne by Industry Members in practice.
84
  
The commenter stated that it is necessary to determine the ultimate allocation of CAT costs to 
evaluate whether the proposed allocation is consistent with the Exchange Act, arguing that the 
statements made in support of the allocation were premised on the Participants being responsible 
for one-third of total CAT costs, and that if this is untrue, “the filing must be completely 
reconsidered, taking into account (a) the impact on market efficiency, competition and capital 
formation of allocating this magnitude of additional costs to Industry Members, (b) whether such 
a lopsided allocation is fair and equitable, and (c) the implications for CAT governance and 
budget control if the firms governing CAT do not have any skin-in-the-game.”
85
 
One commenter stated that the Participants do not account for “the time and expense 
Industry Members have devoted to developing and maintaining internal systems to be able to 
report the [sic] CAT, as well as the time and expense Industry Members have devoted to 
assisting the Operating Committee with its job of developing reporting specifications that allow 
 
82
  Id. at 15. 
83
  Id. 
84
  See Citadel August Letter at 2. 
85
  Id. 

17 
the CAT to achieve its regulatory purpose” in the proposed allocation
86
 and that “this omission is 
a flaw with the Participants’ decision to allocate two-thirds of the CAT costs to Industry 
Members and its inclusion would demonstrate that the Participants’ Executed Share Model does 
not provide for the equitable allocation of reasonable fees.”
87
   
Similarly, one commenter stated that the allocation does not take into account fees 
currently paid by the industry and implementation costs incurred by Industry Members to 
comply with CAT reporting requirements.
88
  The commenter stated that Industry Members 
already provide funding for regulatory matters to exchanges through regulatory fees, 
membership fees, market data fees, and registration fees, and that these fees must be factored 
into any equitable or rational allocation of CAT costs.
89
  The commenter stated that although the 
Proposed Amendment argues that there is no precedent for regulatory fees to be determined 
based on the cost of compliance of a regulated entity, it is necessary to take into account all 
CAT-related costs including those already allocated to Industry Members to assess whether the 
Proposed Amendment is equitable.
90
 
Commenters also objected to statements made in the Proposed Amendment that the 
complexity of Industry Member business models contributes substantially to the costs of the 
CAT.
91
  One commenter stated that the proposed allocation of two-thirds of CAT costs to 
 
86
  SIFMA June 2022 Letter at 4.  See also SIFMA January 2023 Letter at 4. 
87
  SIFMA June 2022 Letter at 4–5.  See also SIFMA January 2023 Letter at 5; Virtu Letter at 3. 
88
  See Citadel July Letter at 17.  See also Virtu Letter at 2 (noting that Industry Members “already provide the 
Plan Participants with a very substantial level of funding through membership fees, registration and 
licensing fees, dedicated regulatory fees, and options regulatory fees”). 
89
  See Citadel July Letter at 17 (further stating, “Industry Members are already bearing nearly all of the total 
CAT-related costs, at a rate much higher than the Commission estimated in its approval of the 2016 CAT 
NMS Plan.” Id. at 18). 
90
  Id. 
91
  See Notice, supra note 7, 88 FR at 17104. 

18 
Industry Members is unfair, unreasonable and arbitrary because the Participants are equally 
responsible for the complexity of trading activity in the markets.
92
  The commenter disagreed 
with the Participants’ argument that the allocation satisfies Exchange Act fee standards because 
Industry Members and the complexity of their business models drive the costs of the CAT, by 
stating that the examples of complexities provided were developed to address order types, 
activities and fee structures (such as the maker-taker fee structure) established by the Participant 
exchanges.
93
  The commenter stated that the Participants are just as responsible for such cost-
driving complex trading activity in the equity and options markets as Industry Members due to 
the “large number of equity and options exchanges established by the exchange families with 
fundamentally different execution models and order types.”
94
  The commenter stated that the 
Participant exchanges have not analyzed how their own business decisions have resulted in the 
complexity of Industry Member order routing practices and CAT costs.
95
  Another commenter 
stated that the complexity arguments in the Proposed Amendment contradict statements from the 
Operating Committee that stringent performance and other requirements for processing CAT 
data are significant drivers of CAT costs,
96
 and that the complexity arguments suggest that costs 
should be allocated evenly among Industry Members, not just a small group of Industry 
Members based on volume.
97
   
 
92
  See SIFMA May 2023 Letter at 3.  See also SIFMA January 2023 Letter at 2, 3–4. 
93
  See SIFMA May 2023 Letter at 6–7.  See also SIFMA January 2023 Letter at 3; Notice, supra note 7, 88 
FR at 17104. 
94
  SIFMA January 2023 Letter at 3. 
95
  See SIFMA May 2023 Letter at 7. 
96
  See Citadel July Letter at 17–18. 
97
  Id. at 18. 

19 
Commenters also disagreed with other justifications made in the Proposed Amendment 
for the proposed allocation; specifically, that there are more Industry Members than Participants 
and that Industry Members receive more in revenue than the Participants.
98
  One commenter 
stated that these assertions are not relevant in demonstrating that the proposed allocation is fair 
and reasonable.
99
  The commenter stated that the Participants are justifying the allocation based 
on the ability to pay rather than cost generation, which the commenter believes is inconsistent 
“with the Participant Exchanges’ proposed approach... of allocating CAT costs based on 
approximate responsibility for generating them...” and “with the historical CAT decision to 
allocate costs to the parties responsible for generating them.”
100
  The commenter suggested an 
alternative allocation that would equally split CAT costs between Participant exchanges and 
Industry Members, while FINRA would be subject only to a nominal regulatory user fee to 
access CAT Data.
101
  Another commenter stated that, while most Industry Members will pay 
little to no CAT costs, 20 Industry Members will be responsible for 75% of the costs allocated to 
Industry Members.
102
  The commenter said this would contradict the Proposed Amendment’s 
arguments that there are more Industry Members than Participants and that Industry Members 
 
98
  See Notice, supra note 7, 88 FR at 17104. 
99
  See SIFMA May 2023 Letter at 7.  See also SIFMA January 2023 Letter at 4. 
100
  See SIFMA May 2023 Letter at 7.  The commenter cited to the funding principles in Section 11.2 of the 
CAT NMS Plan. 
101
  See SIFMA January 2023 Letter at 4.  See also SIFMA May 2023 Letter at 8; SIFMA June 2022 Letter at 
5; SIFMA October 2022 Letter at 4.  This commenter also suggested another alternative allocation in which 
costs would be allocated to those Participants and Industry Members most directly responsible for the costs.  
Under this alternative, Industry Members would be responsible for the cost associated with initial ingestion 
of the data into the CAT system.  The commenter explained that Participants would be responsible for the 
costs associated with the stages after the data is initially ingested into the CAT system because the 
regulators directly control and benefit from these stages of the CAT system after ingestion.  See SIFMA 
June 2022 Letter at 5–6. 
102
  See Citadel July Letter at 17.  The commenter also stated that the Proposed Amendment does not explain 
why it would be equitable to allocate 50% of total CAT costs to 20 Industry Members and 22% of total 
CAT costs to 24 exchanges.  Id.    

20 
have greater financial resources than Participants because the Operating Committee would 
outnumber the Industry Members that would be paying the most in costs.
103
   
The commenter also stated that the Proposed Amendment lacks support for the proposed 
allocation.
104
  The commenter stated that the Operating Committee has not met its burden to 
demonstrate that the proposed allocation is consistent with the Exchange Act.
105
  The commenter 
also stated that the Proposed Amendment does not consider the impact of the proposed allocation 
to Industry Members on market efficiency, competition and capital formation, particularly with 
respect to the costs the industry will incur to build systems to pass-through their CAT fees, the 
expected impact on volumes, the expected impact on retail investors, and the expected impact on 
market makers.
106
   
 The commenter suggested alternatives to the proposed allocation methodology.
107
  The 
commenter stated that Industry Members should not be allocated more than 50% of ongoing 
CAT costs (including FINRA’s allocation) due to their lack of industry voting representation and 
because they already bear nearly all of the total CAT-related costs.
108
  The commenter also 
suggested that exchanges should be prohibited from passing-on their CAT cost allocation to 
market participants,
109
 and that the Participants consider allocating costs to the Commission “to 
 
103
  Id. 
104
  Id. at 13.  See also Citadel August Letter at 2. 
105
  See Citadel July Letter at 13.   
106
  Id. at 2, 16, 19, 20.  The commenter further stated that the Proposed Amendment is inconsistent with the 
Exchange Act because it cannot equitably allocate fees and will harm market efficiency, competition and 
capital formation.  Id. at 16.   
107
  Id. at 3, 30, 31.  The commenter stated that the Commission must consider reasonable alternatives and that 
the proposal should be rejected and replaced by a proposal incorporating the commenter’s 
recommendations.  Id. at 30, 2. 
108
  Id. at 3, 30, 31. 
109
  See Citadel July Letter at 3, 30, 31. 

21 
align incentives.”
110
  The commenter recommended a consistent methodology for allocating 
costs to both Industry Members and exchanges.
111
  The commenter also recommended an 
allocation methodology that would ensure that “a small group of firms are not disproportionately 
bearing costs given that CAT is designed to facilitate market-wide surveillance across all market 
participants,”
112
 and would not inequitably allocate costs to specific market segments (such as 
“retail trading activity in NMS stocks”).
113
  The commenter suggested that the approach could 
have “(I) minimum and maximum fee levels, (II) appropriate calibrations for liquidity provision, 
(III) a volume component based on notional (instead of executed shares), and (IV) consideration 
of additional metrics that could achieve a more equitable outcome (e.g., broker-dealer 
capital).”
114
   
Commenters also raised concerns about statements in the Proposed Amendment that 
CAT costs would be passed on to investors.
115
  One commenter stated, “[s]uch an assertion is 
inaccurate because it is almost certain that there will be scenarios faced by Industry Members in 
which they will not be able to figure out who was responsible for generating certain Historical 
CAT Costs.”
116
  The commenter stated that such assertions would minimize the Participants’ 
 
110
  Id. at 3, 31.  In response, CAT LLC stated that the Commission is not a party to the CAT NMS Plan, or 
subject to Rule 608 of Regulation NMS or Section 19(b) of the Exchange Act.  See Letter to Vanessa 
Countryman, Secretary, Commission, from Brandon Becker, CAT NMS Plan Operating Committee Chair, 
dated July 28, 2023 (“CAT LLC July 2023 Response Letter”), at 31, n.144. 
111
  See Citadel July Letter at 30–31. 
112
  Id. at 30. 
113
  Id. at 3, 30. 
114
  See id. at 30.  See also Citadel August Letter at 5. 
115
  See SIFMA May 2023 Letter at 8; FINRA April 2023 Letter at 6–7; Citadel July Letter at 20; Citadel 
August Letter at 3; Letter to Vanessa Countryman, Secretary, Commission, from Lindsey Weber Keljo, 
Head –   Asset Management Group, SIFMA, dated September 5, 2023 (“SIFMA AMG Letter”).  See also 
Virtu Letter at 4 (noting the inherent difficulties in implementing systems and processes to track and pass 
through fees to the appropriate client firms and stating that executing brokers would likely end up 
absorbing the fees themselves). 
116
  See SIFMA May 2023 Letter at 8; see also Virtu Letter at 4. 

22 
obligation to allocate fees consistent with Exchange Act fee standards and could result in the 
inequitable allocation of CAT fees to Industry Members under the mistaken belief that such fees 
would be passed down to investors.
117
  FINRA objected to statements in the Proposed 
Amendment that Industry Members can pass through to their customers their CAT cost 
allocation and additional costs resulting from an increase in FINRA fees.
118
  FINRA stated that 
“[s]ummarily stating that investors can be made to bear the costs resulting from the Funding 
Model without a detailed description of and transparency into how these fees would be 
determined or passed on to customers is inadequate, and does not provide interested parties 
sufficient information to consider the costs and benefits related to the Fee Proposal.”
119
  Another 
commenter expressed concern that CAT costs will be passed-through to investors directly or 
indirectly by affecting the transaction prices of equities, stating that this could negatively impact 
the investment returns of long-term investors (including retail investors).
120
  The commenter 
stated that the Participants have failed to analyze how passing-through CAT costs to investors is 
consistent with Exchange Act fee standards, and that the Commission has not fully considered 
these economic effects on clients and other end investors.
121
    
 
117
  See SIFMA May 2023 Letter at 8. 
118
  See FINRA April 2023 Letter at 6–7. 
119
  Id. at 7. 
120
  See SIFMA AMG Letter at 2. 
121
  Id. at 2, 3.   The commenter stated that, “[u]nder the Exchange Act, the Participants are required to 
demonstrate that the Proposed Amendment: (1) provides ‘for the equitable allocation of reasonable dues, 
fees, and other charges,’ (2) is ‘not designed to permit unfair discrimination between customers, issuers, 
brokers or dealers’ and (3) does not ‘impose any burden on competition not necessary or appropriate in 
furtherance of the purposes’ of the Exchange Act.”  Id. at 1, n.4 (citing to Sections 6 and 15A of the 
Exchange Act and Rule 700(b)(3)(iii) of the Commission’s Rules of Practice.  15 U.S.C. 78s; 15 U.S.C. 
15o-3; 17 CFR 201.700(b)(3)(iii)).  Approval of the Proposed Amendment, however, is governed by Rule 
608 of Regulation NMS.  That rule requires the Commission to approve a proposed amendment to an 
effective national market system plan if it finds that the amendment is necessary or 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 mechanisms of, a national market system, or otherwise in furtherance of 
the purposes of the Act.  17 CFR 242.608(b)(2).   

23 
One commenter stated that many of the largest Industry Members would be allocated 
CAT fees based on proprietary trading activity, so they would not be able to pass through their 
fees to investors.
122
  The commenter urged an analysis of proprietary executed volume compared 
to customer executed volume in order to evaluate how CAT costs will be allocated among 
Industry Members and whether the allocation methodology is fair, equitable and not unfairly 
discriminatory.
123
  The commenter also stated that the Proposed Amendment is inconsistent with 
Section 6(b)(5) by imposing a new and increasing expense on investors, which would negatively 
impact liquidity and efficiency, and that the proposed allocation to Industry Members would 
disproportionately impact market makers (because 20 firms would have to pay most of the costs) 
and retail investors (due to their trading in sub-dollar NMS stocks that increase executed share 
volume), in violation of Section 6(b)(8).
124
   
In response to the comment stating that the Participants had not analyzed a suggested 
Section 31-style approach to a funding model,
125
 CAT LLC stated that the CAT fee approach is 
similar to the Section 31 fee approach in how an exchange would be obligated to pay a 
transaction fee based on transactions occurring on that exchange, and that FINRA would be 
obligated to pay a transaction fee based on transactions in the over-the-counter market.
126
  CAT 
LLC stated that the approaches are also similar because, in both, an exchange would be able to 
 
122
  See Citadel July Letter at 20.  See also Citadel August Letter at 3. 
123
  See Citadel August Letter at 3.  The commenter said that such an analysis is feasible and should account for 
aggregate costs to be borne by affiliated entities, stating that this is required in Section 11.2(c) of the 2016 
CAT NMS Plan.  Id. 
124
  See Citadel July Letter at 2.  See also infra notes 260–265. 
125
  See FINRA April 2023 Letter at 5. 
126
  See Letter to Vanessa Countryman, Secretary, Commission, from Brandon Becker, Chair, CAT NMS Plan 
Operating Committee, dated May 18, 2023 (“CAT LLC May 2023 Response Letter”), at 9. 

24 
determine to pass the fee onto its members, as would FINRA.
127
  CAT LLC stated that if the 
Section 31 approach would comply with the Exchange Act, then the proposed CAT fee approach 
should also comply with the Exchange Act and CEBBs and CEBSs could determine whether to 
pass such fees onto their clients.
128
  
In response, FINRA stated that the CAT LLC May 2023 Response Letter misrepresented 
the commenter’s letter by incorrectly stating that the commenter’s letter recommended an 
approach similar to Section 31 fees.
129
  FINRA clarified that it was noting that the Commission 
had received comments suggesting a model like the Section 31 fees, that the Participants had not 
“meaningfully analyzed” the suggested alternatives in the Proposed Amendment, and that the 
Commission should require the Participants to analyze the alternatives.
130
   
CAT LLC further responded to FINRA’s objections to the use of the TAF as precedent 
for CAT fees—specifically, FINRA’s statement that unlike the proposed CAT fees, the TAF 
recovers the costs of FINRA’s regulatory activities, while the Proposed Amendment is designed 
to align with the costs to build, operate and administer the CAT.
131
  CAT LLC stated that there is 
no distinction between the two points raised by the commenter because CAT only has a 
regulatory purpose; therefore, costs to build, operate and administer the CAT are inherently 
regulatory costs.
132
  CAT LLC also noted that FINRA distinguished the TAF from the proposed 
CAT fees by describing the TAF as being used in combination with other funding mechanisms to 
 
127
  Id. 
128
  Id. 
129
  See FINRA May 2023 Letter at 3, n.8. 
130
  Id. 
131
  See FINRA May 2023 Letter at 3. 
132
  See CAT LLC July 2023 Response Letter at 35. 

25 
support a funding framework, but CAT LLC stated that “this does not change the general 
conclusion that a transaction-based fee complies with the Exchange Act.”
133
     
In response to a commenter that stated that there is no precedent for CAT fees to be 
allocated to Industry Members in perpetuity, and that the Exchange Act would not allow CAT 
LLC to require Industry Members to fund unlimited costs in perpetuity,
134
 CAT LLC stated that 
the proposed allocation would not require Industry Members to fund all costs since it would 
divide CAT costs such that one-third would be paid each by the Participant, CEBB and CEBS in 
a transaction.
135
  Furthermore, CAT LLC stated that fees would not be paid in perpetuity, as the 
Fee Rate set by the Operating Committee at the beginning of each year would be based on 
reasonably budgeted CAT costs and projected total executed equivalent share volume for the 
year and would be adjusted mid-year, and that to implement the Fee Rates, the Participants 
would need to file fee filings pursuant to Rule 19b-4 with the Commission that must be 
consistent with the Exchange Act and allow the public the opportunity to comment on the 
fees.
136
  CAT LLC added that the Executed Share Model would operate similarly to other fees 
that the Commission has determined are consistent with the Exchange Act, such as Participants’ 
sales value fees related to Section 31, the TAF and the options regulatory fee, and that the 
comment did not recognize that Industry Members can choose to pass-through CAT fees to their 
customers like they do the Section 31-related sales value fees.
137
 
 
133
  Id. 
134
  See Citadel July Letter at 27. 
135
  See CAT LLC July 2023 Response Letter at 14. 
136
  Id. 
137
  Id. 

26 
In response to comments that objected to the proposed allocation to Industry Members 
because Industry Members would not benefit from the CAT,
138
 CAT LLC stated allocating costs 
based on who benefits from the CAT is “not appropriate or practical.”
139
  CAT LLC stated that 
the CAT is intended to benefit all market participants, explaining how it would benefit Industry 
Members, and stated that it would be “impractical to determine a model that allocates a 
measurable amount of benefit that each market participant receives from the CAT.”
140
  In 
response to a commenter that suggested that Industry Members should not be allocated any 
“costs for matters that primarily benefit the CAT Operating Committee or the SROs,”
141
 and a 
commenter that stated that the industry does not benefit from the CAT,
142
 CAT LLC disagreed 
that Industry Members do not benefit from the CAT because CAT is critical for the protection of 
investors and because CAT supports fair and efficient markets.
143
  CAT LLC also stated that it 
was not “reasonable or practical to attempt to parse CAT costs by who ‘primarily benefits’ from 
those costs.”
144
   
In response to comments that state that Industry Members could bear 100% of CAT costs 
if Participants decide to pass-through their costs to them,
145
 CAT LLC stated that Industry 
Members can pass through their own CAT fees to their customers, like broker-dealers do for 
transaction-based fees.
146
  CAT LLC stated that this may result in Industry Members not having 
 
138
  See Citadel July Letter at 17; Virtu Letter at 2. 
139
  CAT LLC July 2023 Response Letter at 10. 
140
  Id. at 11. 
141
  Citadel July Letter at 32. 
142
  See Virtu Letter at 4. 
143
  See CAT LLC July 2023 Response Letter at 13. 
144
  Id. at 12.  See also id. at 13. 
145
  See Citadel July Letter at 16, 22; FIA Letter at 2. 
146
  See CAT LLC July 2023 Response Letter at 8. 

27 
any funding burden if they decide to entirely pass-through their allocation to investors.
147
  In 
response to commenters that requested that Participant be prohibited from passing-on their CAT 
costs to their members,
148
 CAT LLC stated that Participants are permitted by the Exchange Act 
to charge their members fees to fund the Participants’ share of CAT fees, as long as they submit 
fee filings that demonstrate that any proposed fee is consistent with the Exchange Act.
149
 
In response to comments objecting to the proposed allocation to Industry Members for 
not taking into account regulatory fees currently paid by Industry Members,
150
 CAT LLC stated 
that the Proposed Amendment is intended to assess fees “directly associated with the costs of 
establishing and maintaining the CAT, and not unrelated SRO services.”
151
   
In response to comments on whether Participants’ models are equally to blame for the 
complexity of the markets,
152
 CAT LLC stated that its analysis of the complexity of the 
industry’s business models is based on the effects of those models on the costs of the CAT, 
which it stated are more profound than those of Participants, not on complexity of the market in 
general.
153
  CAT LLC explained that the complexity of the Industry Members’ business models 
results in significant data processing and storage costs, which Participants do not contribute to as 
they do not originate market activity or orders.
154
  CAT LLC explained that (1) the complexity 
 
147
  Id. 
148
  See Citadel July Letter at 3, 22, 30; FIA Letter at 2–3. 
149
  See CAT LLC July 2023 Response Letter at 9. 
150
  See Citadel July Letter at 17; Virtu Letter at 2. CAT LLC also objected to one commenter’s description of 
the CAT as an exchange “revenue generator,” stating that CAT LLC is a business league under Section 
501(c)(6) of the Internal Revenue Code, and that enforcement activity obtains restitution for investors and 
deters future misconduct rather than generating revenue.  See CAT LLC July 2023 Response Letter at 13–
14 (responding to Citadel July Letter at 17). 
151
  CAT LLC July 2023 Response Letter at 13. 
152
  See SIFMA May 2023 Letter at 3; 6–7.  See also SIFMA January 2023 Letter at 2, 3–4. 
153
  See CAT LLC May 2023 Response Letter at 6; CAT LLC July 2023 Response Letter at 6. 
154
  See CAT LLC May 2023 Response Letter at 7; CAT LLC July 2023 Response Letter at 7. 

28 
and diversity of Industry Members’ business models and order handling practices require 
processing and storage of hundreds of reporting scenarios for Industry Members, resulting in 
significant data processing and storage costs;
155
 (2) Industry Members have more late data and 
corrections than Participants, resulting in significant linker costs;
156
 and (3) Industry Members 
have customers, which results in CAT costs related to customer account information (FDID, 
CCID and CAIS) and customer investment strategies.
157
  CAT LLC also stated that Participants 
would pay the same amount as the CEBBs and CEBSs in each transaction.
158
  In response to one 
commenter that stated that Industry Members implemented complex routing strategies to 
optimize exchange fees and rebates because exchange business decisions resulted in these and 
other exchange fee structures,
159
 CAT LLC stated that the commenter did not demonstrate a 
causal connection between exchange fee structures and CAT costs.
160
  CAT LLC stated that it 
was not involved in these Industry Member business decisions and a substantial amount of CAT 
costs result from such business decisions.
161
  CAT LLC also stated that Participant activity does 
not contribute as much to CAT costs as complex Industry Member activity.
162
 
CAT LLC also disagreed with one commenter’s dismissal of CAT LLC’s consideration 
of Industry Members’ relative ability to pay,
163
 stating that the Exchange Act specifically 
requires that the fees be fair and reasonable, which necessitates consideration of the relative 
 
155
  See CAT LLC July 2023 Response Letter at 7. 
156
  Id. 
157
  Id. 
158
  Id. at 6. 
159
  See SIFMA May 2023 Letter at 7. 
160
  See CAT LLC July 2023 Response Letter at 6. 
161
  Id. 
162
  Id. 
163
  See SIFMA May 2023 Letter at 7.  See also SIFMA January 2023 Letter at 4. 

29 
ability to pay.
164
  CAT LLC stated that fairness issues require the Participants to consider the 
greater financial resources of Industry Members in the creation of a funding model.  CAT LLC 
also stated that the commenter’s position runs contrary to its comments that an Industry 
Member’s ability to pay is an important consideration in the context of CAT fees.
165
   
Additionally, CAT LLC objected to the commenter’s statement that the proposed 
allocation is “inconsistent with the historical CAT decision to allocate costs to the parties 
responsible for generating them.”
166
  CAT LLC stated that, while the CAT NMS Plan does not 
require CAT costs to be allocated to parties responsible for generating such costs, the proposed 
allocation addresses cost burden on the CAT by (i) taking into account the impact of Industry 
Member activity on CAT costs, and (ii) using trading activity, which CAT LLC believes is a 
“reasonable proxy for cost burden on the CAT,”
167
 as the metric for cost allocation.
168
  CAT 
LLC also stated that there are other examples of trading activity-based fees so the funding model 
would not be novel or unique.
169
 
Additionally, CAT LLC responded to the commenter’s suggested alternative proposal 
that would equally allocate CAT costs to Participant exchanges and Industry Members, stating 
that the commenter did not explain why the alternative would satisfy the Exchange Act 
standards, and noting that CAT LLC had previously considered such an allocation but believed 
that it would not result in a fair and equitable allocation due to the greater number of Industry 
 
164
  See CAT LLC May 2023 Response Letter at 7; CAT LLC July 2023 Response Letter at 7. 
165
  See CAT LLC July 2023 Response Letter at 7–8. 
166
  See CAT LLC May 2023 Response Letter at 7; CAT LLC July 2023 Response Letter at 8; SIFMA May 
2023 Letter at 7. 
167
  See CAT LLC May 2023 Response Letter at 7; CAT LLC July 2023 Response Letter at 8. 
168
  See CAT LLC May 2023 Response Letter at 7; CAT LLC July 2023 Response Letter at 8. 
169
  See CAT LLC July 2023 Response Letter at 8. 

30 
Members than Participants, the greater financial resources of Industry Members, and the failure 
of the suggested allocation to take into account how the complexity of Industry Member business 
models contributes substantially to CAT costs.
170
 
In response, the commenter stated that the CAT LLC Response Letter did not 
meaningfully address the concerns it raised about the allocation of CAT costs between 
Participants and Industry Members.
171
  CAT LLC further responded, stating that it has responded 
to the commenter’s comments several times and that just because CAT LLC did not adopt the 
commenter’s viewpoints does not mean that CAT LLC did not consider or respond to the 
commenter’s comments.
172
   
In response to a commenter that recommended allocating no more than 50% of CAT 
costs to Industry Members, including the FINRA allocation,
173
 CAT LLC stated that the 
commenter did not offer a reasoned basis why such an allocation would be consistent with the 
Exchange Act.
174
  CAT LLC also stated that such an allocation would raise fairness concerns 
because, as compared to Participants, Industry Members have greater financial resources, and 
their complex business models “contribute substantially to the costs of the CAT.”
175
  
Furthermore, in response to the commenter’s other suggested allocation methodology which the 
commenter believed would ensure that a small group of firms and specific market segments 
would not be subject to inequitable cost burdens,
176
 CAT LLC stated that the commenter did not 
 
170
  See CAT LLC May 2023 Response Letter at 7. 
171
  See SIFMA June 2023 Letter at 2. 
172
  See CAT LLC July 2023 Response Letter at 27. 
173
  See Citadel July Letter at 31. 
174
  See CAT LLC July 2023 Response Letter at 10. 
175
  Id. 
176
  See Citadel July Letter at 30. 

31 
explain how the suggested methodology would fit into a funding model or how such a funding 
model would be consistent with the Exchange Act.
177
  CAT LLC stated that it evaluated various 
other funding models over the past seven years and concluded that “the Executed Share Model 
provides a variety of advantages in comparison to the alternatives, and satisfies the requirements 
of the Exchange Act...”
178
 
In response, the commenter stated that its suggestions, which included minimum and 
maximum fee levels, calibrations for liquidity provision, and consideration of additional 
metrics,
179
 were included in prior funding model proposals.
180
  The commenter stated that the 
CAT Operating Committee should explain why it changed its position on “the importance of 
these elements as part of a fair and equitable funding proposal that is consistent with the 
Exchange Act.”
181
 
The Executed Share Model reflects a reasonable approach to funding the building and 
operation of the CAT.
182
  The CAT NMS Plan requires both Participants
183
 and Industry 
Members (which would include CAT Executing Brokers) to fund the CAT.
184
  The costs of CAT 
 
177
  See CAT LLC July 2023 Response Letter at 10. 
178
  Id. at 11–12. 
179
  See Citadel August Letter at 5. 
180
  Id. (citing the minimum and maximum fees and market making discounts proposed in a funding model 
proposal from the CAT Operating Committee that was filed in 2021.  See Securities Exchange Act Release 
No. 91555 (Apr. 14, 2021), 86 FR 21050 (Apr. 21, 2021)). 
181
  Id. 
182
  See 17 CFR 242.608(b)(2).  
183
  The CAT NMS Plan requires Execution Venues and Industry Members to fund the CAT.  The definition of 
“Execution Venue” includes Participants.  See supra note 15
. 
184
  See CAT NMS Plan, supra note 2, at Section 11.1(b), 11.3(a) and (b).  Section 11.1(b) of the CAT NMS 
Plan authorizes the Operating Committee to establish fees for Execution Venues (which include 
Participants) and Industry Members to fund the CAT and Sections 11.3(a) and (b) of the CAT NMS Plan 
set forth how these fees would be calculated.  See also Rule 613(a)(1)(vii)(D) discussing how the CAT 
NMS Plan shall discuss the proposed allocation of estimated costs among the plan sponsors, and between 
the plan sponsors and members of the plan sponsors.  17 CFR 242.613(a)(1)(vii)(D).    

32 
therefore must be allocated in some fashion between Participants and Industry Members, and 
how to do so is a question of judgment for which there may be multiple reasonable approaches.  
CAT LLC has proposed to allocate CAT fees equitably among the three parties who have 
primary roles related to the transaction: the buyer, seller, and market regulator.  In response to 
one commenter that stated that the proposed allocation methodology is inconsistent with the 
Exchange Act because of an excessive percentage of total costs proposed to be allocated to 
Industry Members and an unfair method of allocating costs among Industry Members,
185
 the 
Commission believes that the proposed allocation is reasonable as discussed below.
186
    
While a commenter said the Proposed Amendment did not justify why the TAF, options 
regulatory fee, and Section 31 fees should be used as a model in the context of the Executed 
Share Model,
187
 CAT was created to serve regulatory purposes.  Moreover, CAT Data can only 
be used by SROs and the Commission for regulatory and surveillance purposes.
188
  Therefore, 
the costs incurred by the Participants to build, operate and administer the CAT similarly are 
regulatory costs, which here the Participants are seeking to recover through the CAT fees.  
Commenters expressed concerns that the Participants may impose fees on their members 
to recoup costs relating to CAT, making Industry Members responsible for CAT funding costs 
beyond those to which they will be directly assessed pursuant to the Executed Share Model,
189
 
that CAT costs will be passed-through to investors and that this aspect of the Proposed 
Amendment lacks information needed to demonstrate that it meets the approval standard and to 
 
185
  See Citadel July Letter at 15. 
186
  See   infra notes 189–201 and accompanying text.  
187
  See FINRA June 2022 Letter at 4; FINRA April 2023 Letter at 8. 
188
  See 17 CFR 242.613(e)(4)(i)(A); CAT NMS Plan Sections 6.5(c) and 6.5(g) and Appendix D, Section 8.1. 
189
  See SIFMA May 2023 Letter at 2; Citadel July Letter at 16, 17, 21, 22; Citadel August Letter at 2. 

33 
allow the Commission and other interested parties to consider the resulting economic effects.
190
  
In response to the comments, the Commission acknowledges the concerns but also emphasizes 
that, as discussed above, the CAT provides important benefits in facilitating effective market 
surveillance and the Exchange Act expressly contemplates the ability of the Participants to 
recoup their costs to fulfill their statutory obligations under the Exchange Act.
191
  To that end, 
the CAT NMS Plan expressly contemplates the allocation of the costs associated with operating 
the CAT among the Participants and the Industry Members.  The use of the Executed Share 
Model is a reasonable method, among a number of potential approaches to do so.   
The Commission recognizes that these operational costs may be passed on in other ways, 
including by both the Participants and Industry Members, who each may elect to pass on such 
operational costs as fees to customers indirectly through their charges for services to customers.  
That would be true regardless of how the Proposed Amendment chose to set the initial allocation.  
Even if the Participants decide to pass-through the costs of CAT to Industry Members, however, 
in our view, the rule filing process under Section 19(b) and Rule 19b-4 will still incentivize the 
Participants to control costs.  Any effort to pass-through costs will be subject to that process and, 
if the Participants fail to control costs, their ability to demonstrate that a proposed fee is 
reasonable and consistent with the Exchange Act may be compromised.  After the Participants 
file their proposed rule changes relating to fees with the Commission, those proposed rule 
changes are published by the Commission and there is an opportunity for public comment.
192
  
 
190
  See SIFMA AMG Letter at 2; FINRA April 2023 Letter at 6–7. 
191
  Sections 6(b)(1) and 15A(b)(2) of the Exchange Act require that a national securities exchange or national 
securities association have the capacity to be able to carry out the purposes of the Exchange Act, the rules 
and regulations thereunder, and the rules of the exchange or association.  15 U.S.C. 78f(b)(1); 15 U.S.C. 
78o-3(b)(2).  
192
  15 U.S.C. 78s(b). 

34 
Although the proposed rule changes could likely take effect upon filing,
193
 the Commission can 
temporarily suspend immediately effective rule changes if such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise in furtherance of the purposes 
of the Exchange Act.
194
  If the Commission takes such action, the Commission will institute 
proceedings under Section 19(b)(2)(B) to determine whether the proposed rule changes should 
be approved or disapproved.
195
  Those fees, like any fees the Participants collect from their 
members to fund their SRO responsibilities in market and member regulation, must be consistent 
with applicable statutory standards under the Exchange Act, including being reasonable, 
equitable and not unfairly discriminatory.
196
  Additionally, as stated by CAT LLC, Industry 
Members may be able to offset fees that FINRA assesses them by passing their CAT fees 
through to their customers,
197
 and as discussed further below, the Commission believes that the 
additional costs borne by investors are likely small relative to current transaction costs.
198
  The 
 
193
  15 U.S.C. 78s(b)(3)(A); 17 CFR 240.19b-4(f)(2).  Pursuant to Exchange Act Rule 19b-4, a proposed rule 
change may take effect upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Exchange 
Act if properly designated by the self-regulatory organization as:   (1) constituting a stated policy, practice, 
or interpretation with respect to the meaning, administration, or enforcement of an existing rule; (2) 
establishing or changing a due, fee, or other charge applicable only to a member; (3) concerned solely with 
the administration of the self-regulatory organization. 
194
  15 U.S.C. 78s(b)(3)(C). 
195
  15 U.S.C. 78s(b)(2)(B). 
196
  See Section 6(b)(4); Section 15A(b)(5); Section 6(b)(5); Section 15A(b)(6).  15 U.S.C. 78f(b)(4); 15 U.S.C. 
78f(b)(6); 15 U.S.C. 78o-3(b)(5); 15 U.S.C. 78o-3(b)(6).  See also e.g., Schedule A to the By-Laws of 
FINRA, Section 1(a) (stating “FINRA shall, in accordance with this section, collect member regulatory fees 
that are designed to recover the costs to FINRA of the supervision and regulation of members, including 
performing examinations, financial monitoring, and policy, rulemaking, interpretive, and enforcement 
activities”). 
197
  See Notice, supra note 7, 88 FR at 17108; see also CAT LLC July Response Letter at 8–9; cf. SIFMA May 
2023 Letter at 8; Citadel July Letter at 20. 
198
  Any efforts to recoup CAT costs will be subject to statutory and regulatory oversight as appropriate.  Under 
the federal securities laws and FINRA rules, prices for securities and broker-dealer compensation are 
required to be fair and reasonable, taking into consideration all relevant circumstances.  See, e.g.,  Exchange 
Act Sections 10(b) and 15(c); FINRA Rules 2121 (Fair Prices and Commissions), 2122 (Charges for 
Services Performed), and 2341 (Investment Company Securities).   See also FINRA Rule 3221 (Non-Cash 
Compensation).  Broker-dealers are also required to disclose the fees they charge related to a transaction 
pursuant to Exchange Act Rule 10b-10.  See 17 CFR 240.10b-10.   

35 
Commission recognizes that not all Industry Members currently pass through fees and cannot 
determine in advance the extent to which Industry Members can or will pass-through their CAT 
fees to investors or would determine to do so in the future.  But we believe that many are able to 
and that at least some will do so.  For all of these reasons, contrary to the view of some 
commenters,
199
 the Commission does not believe that the inability to determine the amount of 
the CAT costs that will be passed along to investors precludes a finding that the allocation model 
set forth in the Proposed Amendment meets the approval standard. 
In response to the commenter stating that proprietary trading firms cannot pass-through 
fees to investors and suggesting that an analysis of proprietary executed volume compared to 
customer executed volume is necessary to determine if the allocation is fair, equitable, and 
unfairly discriminatory,
200
 the Commission believes it is reasonable to charge executing brokers 
regardless of whether they are trading for their own account or for a customer’s account.  The 
Commission acknowledges that there is not a customer per se for proprietary trades and 
therefore, proprietary trading firms would not be able to pass-through their CAT fees to 
customers.  However, regardless of whether a firm trades for its own account or for a customer 
account, in both instances, the firm engages in trading activity to earn a profit.  In the 
Commission’s view, it is reasonable to allow a firm to incur CAT fees for its profit-making 
business activities, such as proprietary activity.  The Commission recognizes that Industry 
Members may pass-through CAT fees for customer executed volume but in the case of 
proprietary trades where a firm is trading for its own account, there is no customer to which the 
firm can pass-through fees, as the firm itself is the ultimate investor, and thus it is reasonable for 
 
199
  See SIFMA AMG Letter at 2; FINRA April 2023 Letter at 6–7. 
200
  See Citadel July Letter at 20; Citadel August Letter at 3. 

36 
the firm to be responsible for payment of CAT fees for those trades.  Further, the Commission 
believes it is reasonable to allow a firm to incur CAT fees for its profit-making activity, which in 
this case is proprietary activity.  CAT is a regulatory tool that will be used by the Participants 
and the Commission to oversee the activities for which Industry Members earn profits and 
therefore it is reasonable for fees to be charged for that profit-making activity, even if those fees 
cannot be passed on to customers. 
While comments raised concerns that the industry would be allocated most of the CAT 
costs in perpetuity without a mechanism to limit the budget,
201
 there is a statutory process for 
notice and comment and Commission review of proposed rule changes relating to fees, under 
Section 19(b) and Rule 19b-4.
202
  In addition, the Proposed Amendment requires that the Fee 
Rate calculated by the Operating Committee twice per year be based on “reasonably budgeted 
CAT costs”
203
 and that such budgeted CAT costs be composed of “all reasonable fees, costs and 
expenses reasonably budgeted to be incurred by or for the Company in connection with the 
development, implementation and operation of the CAT.”
204
  The Operating Committee must 
demonstrate that their proposed budget and associated fees are reasonable, and the Participants 
must provide support for such reasonableness in their associated fee filings.  If a Participant 
cannot demonstrate that their budgeted CAT costs are reasonable in a particular filing, following 
notice and public comment, then that would provide the Commission with grounds to suspend 
the filing and ultimately disapprove it, which should impose discipline or constraints on the fee 
setting process.  
 
201
  See SIFMA June 2023 Letter at 3, 4; Citadel July Letter at 2; FIA Letter at 2–5. 
202
  See supra notes 192–196 and accompanying text. 
203
  See proposed Section 11.3(a)(i)(A)(I) and proposed Section 11.3(a)(i)(A)(II).   
204
  See proposed Section 11.3(a)(i)(C). 

37 
Further, the concerns expressed that the proposed allocation did not account for the costs 
already incurred by Industry Members to comply with the CAT or other fees paid by Industry 
Members to exchanges for other regulatory matters do not render that allocation unreasonable.  
Both Participants and Industry Members have incurred costs in adapting their operations to 
report to CAT as is required to achieve the benefits anticipated from the CAT.  But the purpose 
of the funding model is to provide a framework for the recovery of a different set of costs—those 
incurred by the Participants’ in developing and maintaining the CAT system.  Section 11.1(c) of 
the CAT NMS Plan explicitly permits the Operating Committee to recover those costs, allowing 
it to “take into account fees, costs and expenses . . . incurred by the Participants on behalf of the 
Company . . . and such fees, costs and expenses shall be fairly and reasonably shared among the 
Participants and Industry Members.”
205
  The decision to exclude the costs of compliance from 
this funding model is thus a reasonable one.   
Further, the Commission does not base its finding with respect to the proposed allocation 
of costs between Participant and Industry Members on their respective responsibility for any 
complexity in the markets.  Regardless of the origin of that complexity, its existence contributes 
to the costs of CAT and the purpose of the funding model is to account for those current and 
future costs, not assess responsibility for the market structure.  The Participants’ decision to 
divide the costs evenly among the three parties who have primary roles related to the transaction 
is reasonable.   
As explained below, the Commission agrees with CAT LLC’s statements that, “[t]he 
Executed Share Model...reflects a reasonable effort to allocate costs based on the extent to 
which different CAT Reporters participate in and benefit from the equities and options 
 
205
  CAT NMS Plan, supra note 2, at Section 11.1(c). 

38 
markets,”
206
 and is “transparent, would be relatively easy to calculate and administer, and is 
designed not to have an impact on market activity because it is neutral as to the location and 
manner of execution.”
207
  The Participants considered, and have previously proposed, alternative 
allocations and funding models.
208
  And the Commission acknowledges the alternative funding 
models and allocations suggested by commenters.
209
  Each of those alternatives, as well as those 
suggested by commenters, has relative strengths and weaknesses.  Similarly, the alternatives 
suggested by a commenter,
210
 including maximum and minimum fees, appropriate calibrations 
for liquidity provision and consideration of additional provisions (e.g., broker-dealer capital), 
have strengths and weaknesses.  For example, imposing maximum and minimum fees would 
transfer costs from the largest members to the smallest members, distorting the economic 
incentives of the Executed Share Model.  A similar distortion could arise to the extent market 
maker volume is discounted or otherwise calibrated or to the extent considering other metrics 
that are not necessarily correlated with the cost drivers of the CAT.  Given the potential 
 
206
  See Notice, supra note 7, 88 FR at 17087. 
207
  Id. 
208
  In the Proposed Amendment, CAT LLC stated that it considered but rejected a number of alternative 
approaches to the CAT funding model; specifically, an approach based on a CAT Reporter’s cost burden on 
the CAT, a 50%-50% allocation of costs between Industry Members and Participant exchanges, a revenue-
based funding model in which CAT Reporters would pay fees based on their revenue, a message traffic 
model in which both Industry Members and Participants would be assessed fees based on message traffic in 
the CAT, a sales value model in which fees would be calculated based on transaction sales models, an 
alternative allocation in which fees would only be allocated to the CEBS, and the 2018 and 2021 Fee 
Proposals, a model in which CAT LLC would allocate all costs among the Participants and permit each 
Participant to charge its own members as it deems appropriate, and a cost allocation based on a strict pro-
rata distribution regardless of the type or size of CAT Reporters.  Id. at 17105–06, 17117–19.  See also 
CAT LLC May 2023 Response Letter at 8, where CAT LLC responded that SIFMA did not offer a 
reasoned basis for why a 50-50 allocation would satisfy the standards set forth in the Exchange Act.  While 
alternative models have been suggested and considered, the proposed Executed Share Model meets the 
approval standard in Rule 608(b)(2). 
209
  See FINRA April 2023 Letter at 5; SIFMA January 2023 Letter at 4.  See also SIFMA May 2023 Letter at 
8; SIFMA June 2022 Letter at 5–6; SIFMA October 2022 Letter at 4; Citadel July Letter at 3, 30, 31, 32.   
210
  See Citadel August Letter at 5. 

39 
distortions that could occur with these alternatives, the Commission does not believe that the 
existence of those alternatives, or the remaining concerns identified by commenters individually 
or collectively, call into question the Proposed Amendment’s satisfaction of the approval 
standard in Rule 608(b)(2),
211
 or otherwise warrant a departure from the policy choices made by 
the Participants. 
3. Executed Equivalent Shares 
Under the Executed Share Model, a CAT fee would be charged with regard to each 
transaction in Eligible Securities
212
 as reported in CAT Data based on executed equivalent 
shares.
213
  A CAT Fee would be imposed with regard to transactions in Eligible Securities in the 
CAT Data regardless of whether the trade is executed on an exchange or otherwise than on an 
exchange.
214
   
Proposed Section 11.3(a)(i)(B) of the CAT NMS Plan describes how executed equivalent 
shares would be counted for purposes of calculating CAT fees.  Specifically, the Executed Share 
Model uses the concept of executed equivalent shares as the transactions subject to a CAT Fee 
involve NMS Stocks, Listed Options and OTC Equity Securities, each of which have different 
 
211
  17 CFR 242.608(b)(2).   
212
  The CAT NMS Plan defines an “Eligible Security” as including all NMS Securities and all OTC Equity 
Securities.  See CAT NMS Plan, supra note 2
, at Section 1.1.  “NMS Security” is defined as “any security 
or class of securities for which transaction reports are collected, processed, and made available pursuant to 
an effective transaction reporting plan, or an effective national market system plan for reporting 
transactions in Listed Options.”  Id.  “OTC Equity Security” is defined by the CAT NMS Plan as “any 
equity security, other than an NMS Security, subject to prompt last sale reporting rules of a registered 
national securities association and reported to one of such association’s equity trade reporting facilities.”  
Id. 
213
  See Notice, supra note 7, 88 FR at 17086. 
214
  Id. at 17093. 

40 
trading characteristics.
215
  Proposed Section 11.3(a)(i)(B) would require the shares to be 
reasonably counted for each type of Eligible Securities in the following manner: 
NMS Stocks.  Under the Executed Share Model, each executed share for a transaction in 
NMS Stocks would be counted as one executed equivalent share.
216
  Accordingly, proposed 
Section 11.3(a)(i)(B)(I) of the CAT NMS Plan would state that “[f]or purposes of calculating 
CAT Fees, executed equivalent shares in a transaction in Eligible Securities will be reasonably 
counted as follows: (I) each executed share for a transaction in NMS Stocks will be counted as 
one executed equivalent share.”
217
 
Listed Options.  Recognizing that Listed Options trade in contracts rather than shares, 
each executed contract for a transaction in Listed Options will be counted using the contract 
multiplier applicable to the specific Listed Option in the relevant transaction.
218
  Typically, a 
Listed Option contract represents 100 shares; however, it may also represent another designated 
number of shares.
219
   
OTC Equity Securities.  Similarly, in recognition of the different trading characteristics of 
OTC Equity Securities as compared to NMS Stocks, the Executed Share Model would discount 
the share volume of OTC Equity Securities when calculating CAT Fees.
220
  CAT LLC explained 
that many OTC Equity Securities are priced at less than one dollar – and a significant number are 
priced at less than one penny – per share and low-priced shares tend to trade in larger 
 
215
  Id.  
216
  Id. 
217
  Proposed Section 11.3(a)(i)(B)(I). 
218
  See Notice, supra note 7, 88 FR at 17093. 
219
  Id.  See also proposed Section 11.3(a)(i)(B)(II). 
220
  See Notice, supra note 7, 88 FR at 17093. 

41 
quantities.
221
  Accordingly, a disproportionately large number of shares are involved in 
transactions involving OTC Equity Securities versus NMS Stocks.
222
  Because the Executed 
Share Model would calculate CAT Fees based on executed share volume, CAT Reporters trading 
OTC Equity Securities would likely be subject to higher fees than their market activity may 
warrant.
223
  To address this potential concern, CAT LLC proposed that the Executed Share 
Model would count each executed share for a transaction in OTC Equity Securities as 0.01 
executed equivalent shares.
224
   
   a. Executed Equivalent Share Volume  
CAT LLC had represented that a disproportionately large number of shares are involved 
in transactions involving OTC Equity Securities versus NMS Stocks,
225
 that trades in OTC 
Equity Securities accounted for 77% of the number of all equity shares traded, but only 0.51% of 
the notional value of all equity shares traded,
226
 and that under the Executed Share Model, CAT 
Reporters trading OTC Equity Securities would likely be subject to higher fees than their market 
activity may warrant.
227
  CAT LLC also explained the analysis it undertook to determine to 
count each executed share for a transaction in OTC Equity Securities as 0.01 executed equivalent 
shares, stating the discount was the result of an analysis of several different metrics comparing 
 
221
  Id. 
222
  In an example provided by CAT LLC, based on data from 2021, (1) the average price per executed share of 
OTC Equity Securities was $0.072 and the average price per executed share for NMS Stocks was $49.51; 
and (2) the average trade size for OTC Equity Securities was 63,474 and the average trade size for NMS 
Stocks was 166 shares.  Trades in OTC Equity Securities accounted for 77% of the number of all equity 
shares traded, but only 0.51% of the notional value of all equity shares traded.  Id. at 17093, n.36. 
223
  Id. at 17093. 
224
  See proposed Section 11.3(a)(i)(B)(III). 
225
  See Notice, supra note 7, 88 FR at 17093. 
226
  Id. at 17093, n.36. 
227
  Id. at 17093. 

42 
the markets for OTC Equity Securities and NMS Stocks.  CAT LLC stated that “(1) the ratio of 
total notional dollar value traded for OTC Equity Securities to OTC Equity Securities and NMS 
Stocks was 0.051%; (2) the ratio of total trades in OTC Equity Securities to total trades in OTC 
Equity Securities and NMS Stocks was 0.90%; and (3) the ratio of average share price per trade 
of OTC Equity Securities to average share price per trade for OTC Equity Securities and NMS 
Stocks was 0.065%.”
228
  For ease of application and because the calculations involve averages, 
CAT LLC decided to round the metrics to 1%.
229
   
In support of the use of executed equivalent shares to allocate costs under the Executed 
Share Model, CAT LLC explained that “trading activity provides a reasonable proxy for cost 
burden on the CAT, and therefore is an appropriate metric for allocating CAT costs among CAT 
Reporters.”
230
  CAT LLC stated that it is not feasible to determine the specific cost burden of 
each CAT Reporter on the CAT, explaining that “[t]he computation of a specific CAT Reporter’s 
burden on the CAT is complicated by the many inter-related factors that contribute to CAT costs, 
including message traffic, data processing, storage, the complexity of reporting requirements, 
reporting timelines, infrastructure, connectivity and more.”
231
  CAT LLC added that increased 
trading activity correlates with an increased cost burden on the CAT and Industry Members are 
generally engaged in effecting transactions in the market, so executed share volume would be an 
appropriate metric for the allocation of CAT costs.
232
  CAT LLC stated that this conclusion is 
consistent with the Commission’s prior recognition of the use of transaction volume to set 
 
228
  Id. 
229
  Id. 
230
  See Notice, supra note 7, 88 FR at 17103. 
231
  Id. at 17105; see also id. at 17103. 
232
  Id. at 17105. 

43 
regulatory fees.
233
  Additionally, CAT LLC stated that technology costs dominate all CAT costs, 
with compute costs comprising more than half of all technology costs, and “[w]hile [compute 
costs] are related in part to message traffic, they are driven by the stringent performance 
timelines, data complexity and operational requirements in the CAT NMS Plan.”
234
  This was 
one of the reasons CAT LLC decided to change from using message traffic to calculate CAT fees 
using executed equivalent share volume.
235
   
Commenters questioned the support for the use of executed share volume instead of 
message traffic, which was previously proposed in prior funding models.
236
  FINRA stated that 
the Proposed Amendment does not explain why the use of executed share volume as the basis of 
the cost allocation methodology, instead of message traffic, is equitable.
237
  FINRA explained 
that in prior models, message traffic was the key proxy for cost generation used to align CAT 
fees with CAT costs, but the Executed Share Model would base its cost allocation methodology 
entirely on executed share volume.
238
  FINRA stated that the Participants’ argument that 
executed share volume is related to cost generation is not enough to demonstrate that its use is 
reasonable and equitable.
239
   
Another commenter stated that the Operating Committee cannot explain why the 
proposed allocation to Industry Members is equitable, noting that it previously stated that 
charging Industry Members based on message traffic was the most equitable means of 
 
233
  Id. 
234
  Id. 
235
  See Notice, supra note 7, 88 FR at 17105. 
236
  See FINRA June 2022 Letter at 3, 4; Citadel July Letter at 10. 
237
  See FINRA June 2022 Letter at 3. 
238
  Id.   
239
  Id. at 4. 

44 
establishing fees.
240
  The commenter stated that allocating costs among Industry Members based 
on share volume is inconsistent with the Exchange Act.
241
  The commenter stated that there is no 
evidence to support the Operating Committee’s assertion that trading activity is a reasonable 
proxy for cost burden on the CAT, explaining that the Operating Committee has stated before 
that CAT Data processing requirements and message traffic are significant drivers of CAT costs.  
The same commenter stated that, according to one Participant, options activity creates a greater 
cost burden than equities trading volume and that the Proposed Amendment does not accurately 
describe the sources of CAT’s cost burdens.
242
  The commenter stated that the CAT Operating 
Committee must demonstrate how the proposed allocation would not unfairly discriminate 
against equities market participants and compare   equities and options activity with respect to (i) 
their cost burden on the CAT and (ii) the allocation of CAT costs to Industry Members.
243
  The 
commenter stated that if the equities markets are subsidizing options activity, this could have 
broad impacts on equity market liquidity, competition and efficiency that must be assessed under 
the Exchange Act.
244
   
Further, the commenter stated that allocating costs based on volume would result in costs 
being mostly allocated to “an extremely small group of broker-dealers,” which would unduly 
burden competition.
245
  The commenter stated that the Proposed Amendment also lacks a 
discussion of the impact of this allocation on market competition, efficiency and liquidity, but 
that the Operating Committee recognized in the Proposed Amendment that prior proposals, 
 
240
  See Citadel July Letter at 10.   
241
  Id. at 19.   
242
  Id. at 18, 19.  See also Citadel August Letter at 4. 
243
  See Citadel August Letter at 4.   
244
  Id. 
245
  Citadel July Letter at 19. 

45 
where message traffic was a metric used for fee allocation, could impose an outsized financial 
impact on certain Industry Members.
246
     
Additionally, FINRA objected to the statement in the Proposed Amendment that “trading 
activity provides a reasonable proxy for cost burden on the CAT, and therefore is an appropriate 
metric for allocating CAT costs among CAT Reporters.”
247
  The commenter stated that this 
statement is inconsistent with information that demonstrates that volume from FINRA’s trade 
reporting facilities (“TRFs”) contributes “a very small percentage of annual CAT compute and 
storage costs.”
248
  FINRA stated, “...despite the minimal data compute and storage costs for 
transactions reported to the TRF, FINRA would be assessed an estimated 34% of the total CAT 
costs to be borne amongst the 25 Participants, and more than all options exchanges combined,” 
therefore it cannot support the Participants’ assertion that trading activity is a reasonable proxy 
for cost burden.
249
  FINRA stated that the Proposed Amendment “fails to provide for reasonable 
fees that are equitably allocated and not unfairly discriminatory, does not reflect a reasonable 
approach to allocating costs amongst the Participants, nor does it transparently or accurately 
present information regarding the true sources of cost burdens on the CAT.”
250
 
FINRA further stated that the Executed Share Model is inconsistent with the “cost 
alignment” funding principle in Section 11.2(b) of the CAT NMS Plan, which requires the 
Participants to seek to establish an allocation of costs that takes into account distinctions in the 
securities trading operations of Participants and Industry Members and their relative impact upon 
 
246
  Id.  See also Citadel August Letter at 2–3. 
247
  FINRA May 2023 Letter at 2 (quoting Notice, supra note 7, 88 FR at 17103.) 
248
  FINRA May 2023 Letter at 2. 
249
  Id.  See also FINRA April 2023 Letter at 8. 
250
  FINRA May 2023 Letter at 4. 

46 
Company resources and operations.
251
  FINRA stated that “the Proposal fails to establish a 
sufficient nexus between executed share volume and the technology burdens that generate CAT 
costs and fails to relate each reporter group’s allocation to the burden that each reporter group 
imposes on CAT.”
252
   
In response to FINRA’s comment raising concerns about the use of trading activity as a 
proxy for costs,
253
 CAT LLC stated that the Proposed Amendment would provide an appropriate 
approach for allocating CAT costs because Industry Member activity is generally for the purpose 
of effecting transactions, and trading activity impacts various factors driving CAT costs, such as 
storage, data processing and message traffic.
254
  CAT LLC also stated that the Exchange Act 
does not require fees to be directly correlated with the costs created by the person charged the 
fee.
255
  CAT LLC stated that it is difficult to determine the precise cost burden created by each 
CAT Reporter on the CAT, and believes trading activity is a reasonable proxy for cost burden on 
the CAT.
256
   
CAT LLC responded to the commenter’s statement that the proposed allocation is 
inconsistent with the cost alignment principles of the CAT NMS Plan by noting that the 
Proposed Amendment incorporates the concept of cost burden in at least two ways.
257
  
Specifically, CAT LLC stated that it does so because “the allocation of CAT costs contemplates 
 
251
  Id.  See also F INRA April 2023 Letter at 7–9; Section 11.2(b) of the CAT NMS Plan.  The Proposed 
Amendment would amend Section 11.2(b).  See proposed Section 11.2(b); see also infra Section III.A.8 
(Additional Changes from Original Funding Model). 
252
  FINRA June 2022 Letter at 4. 
253
  See FINRA May 2023 Letter at 2. 
254
  See CAT LLC July 2023 Response Letter at 34.   
255
  Id.   
256
  Id. 
257
  CAT LLC May 2023 Response Letter at 7. 

47 
the effect of Industry Member activity on the cost of the CAT... and because trading activity 
provides a reasonable proxy for cost burden on the CAT, trading activity is an appropriate metric 
for allocating CAT costs among CAT Reporters.”
258
  CAT LLC added that because there are 
other examples of trading activity-based fees, the Executed Share Model would not be novel or 
unique.
259
 
 One commenter also stated that the Proposed Amendment made no adjustments for sub-
dollar trading activity in NMS stocks, when adjustments were made to volume in OTC Equity 
Securities to adjust for the large number of shares transacted in sub-dollar securities.
260
  The 
commenter also stated that it is arbitrary, capricious, and unfairly discriminatory for the CAT 
Operating Committee to significantly adjust executed share volumes for sub-dollar OTC Equity 
Securities but not to do the same for sub-dollar NMS stocks, as retail investor transactions will 
be allocated a disproportionate percentage of total CAT costs simply due to the securities 
traded.
261
  The commenter stated that the CAT Operating Committee must explain why it 
proposes to treat these securities differently and analyze the impact on retail investors.
262
  The 
commenter also stated that since fractional shares would be rounded up to one share, the result 
would overstate volume.
263
  The commenter stated that the Proposed Amendment thus 
discriminates against Industry Members that handle retail orders because of the amount of retail 
activity in sub-dollar stocks and fractional share trading.
264
  The commenter stated that the 
 
258
  Id. 
259
  Id. 
260
  See Citadel July Letter at 20. 
261
  See Citadel August Letter at 4–5. 
262
  Id. at 5. 
263
  See Citadel July Letter at 20. 
264
  Id.  See also Citadel August Letter at 4–5. 

48 
Proposed Amendment does not explain why volume by shares was chosen over notional volume, 
or address its impact on specific Industry Members, investors, or overall market competition, 
efficiency and liquidity.
265
  
CAT LLC proposed to delete the requirement in existing Section 11.2(b) of the CAT 
NMS Plan to take into account “distinctions in the securities trading operations of Participants 
and Industry Members and their relative impact upon Company resources and operations” in 
establishing the funding of the Company.
266
  CAT LLC explained that this requirement is related 
to using message traffic and market share in the calculation of CAT fees, as message traffic and 
market share were metrics related to the impact of a CAT Reporter on the Company’s resources 
and operations.
267
  CAT LLC explained that the requirement is no longer relevant because the 
proposed Executed Share Model uses the executed equivalent shares metric instead of message 
traffic and market share.
268
 
With respect to the deletion in Section 11.2(b) of the requirement that, when establishing 
the funding of the CAT, the Operating Committee must take into account “distinctions in the 
securities trading operations of Participants and Industry Members and their relative impact upon 
Company resources and operations,” FINRA stated that the Participants have proposed to delete 
the language in Section 11.2(b) because the proposed Executed Share Model is inconsistent with 
the language.
269
  FINRA stated that the Proposed Amendment “seeks to amend the core funding 
 
265
  See Citadel July Letter at 20.  See also Citadel August Letter at 5.   
266
  See proposed Section 11.2(b). 
267
  See Notice, supra note 7, 88 FR at 17099. 
268
  Id. 
269
  See FINRA June 2022 Letter at 4; see also FINRA April 2023 Letter at 7. 

49 
principles to align with an unjustified allocation methodology.”
270
  FINRA stated that any 
changes to the funding principles “must be well-reasoned and transparent and must continue to 
support the achievement of a fair and equitable outcome.”
271
 
In the Commission’s view, the use of executed equivalent share volume as the basis of 
the proposed cost allocation methodology is reasonable and consistent with the approach taken 
by the funding principles of the CAT NMS Plan.
272
  The proposed use of executed equivalent 
shares would continue to incorporate the concept of cost alignment because trading activity, as 
reflected through executed equivalent share volume, would, as CAT LLC explained, correlate 
with the cost burden on the CAT.
273
  It may not be possible to directly calculate each CAT 
Reporter’s cost burden on the CAT due to the many factors impacting CAT costs, such as data 
processing, storage, reporting timelines and requirements, and connectivity.  But executed 
equivalent share volume is a reasonable proxy for those costs because it is a result of trading 
activity, which CAT LLC explained impacts various CAT cost drivers, such as storage, data 
processing and message traffic.
274
  In addition, because the proposed use of executed equivalent 
share volume would preserve the cost alignment principle, while no longer relying on message 
traffic, the deletion of the requirement in Section 11.2(b) of the CAT NMS Plan that the 
Operating Committee, in allocating costs, take into account “distinctions in the securities trading 
 
270
  FINRA June 2022 Letter at 4.  The commenter states that the Executed Share Model instead places the 
greatest emphasis on the funding principle relating to the “ease of billing and other administrative 
functions,” favoring that principle over cost alignment.  Id. at 5. 
271
  Id.; FINRA April 2023 Letter at 8–9. 
272
  See Section 11.2(b) of the CAT NMS Plan. 
273
  CAT LLC May 2023 Response Letter at 7. 
274
  Id.  See also Notice, supra note 7, 88 FR at 17105; see also id. at 17103. 

50 
operations of Participants and Industry Members and their relative impact upon Company 
resources and operations”
275
 is reasonable.   
In response to the commenter that urged the CAT Operating Committee to demonstrate 
how the proposed allocation would not unfairly discriminate against equities market participants 
by subsidizing CAT costs related to options market activity,
276
 the Commission believes that 
subsidization of options market activity likely is reduced due to other CAT cost burdens, such as 
those relating to data processing (such as equity linkage processing, which the Commission 
understands is more complex than options order linkage processing, and thus more costly),
277
 
imposed on the CAT by equity market activity.  The Commission, however, does not believe the 
failure to eliminate the potential subsidization of options market activity (and any potential 
attendant impacts on liquidity, competition and efficiency) renders the Participants’ Funding 
Model proposal inconsistent with the Exchange Act.  The Commission does not believe it is 
possible for the Participants to predict with certainty how the magnitude of each driver of CAT 
costs will change over time.  To the extent the other costs noted above exceed, for example, the 
subsidy accorded to options market participants when calculating their executed equivalent 
shares, there may be no subsidy or even a reverse subsidy from options to equities markets.  
When the relative magnitudes of these cost drivers change, the amount of any subsidy changes.  
In light of the potential for the cost drivers to change over time, the Commission believes that the 
Participants’ proposal is reasonable.  
The Proposed Amendment’s treatment of sub-dollar NMS stocks and fractional shares is 
appropriate.  The Commission does not believe that the Participants’ failure to discount sub-
 
275
  See Notice, supra note 7, 88 FR at 17105; see also id. at 17103. 
276
  See Citadel August Letter at 4. 
277
  See infra notes 1075–1082 and accompanying text.   

51 
dollar NMS stocks renders the Proposed Amendment inconsistent with the Exchange Act.  The 
Commission acknowledges one commenter’s statement that retail investors could be allocated a 
disproportionate percentage of total CAT costs due to the lack of a discount for sub-penny NMS 
stocks.
278
  However, treating a subset of NMS stocks differently from NMS securities could 
introduce unnecessary complexity or administrative burdens to the extent an NMS stock price 
falls or rises above a dollar.  It is therefore reasonable for the Proposed Amendment to treat all 
NMS stocks the same, even though certain sub-dollar NMS stocks and fractional shares might 
have characteristics similar to OTC Equity Securities.  Additionally, in response to the 
commenter’s statement that since fractional shares would be rounded up to one share, the result 
would overstate volume,
279
 the Commission notes that CAT fees will be based on the data 
contained in the transaction reports and transaction reports do not provide for fractional 
quantities; therefore, CAT fees cannot be calculated using fractional shares or fractional share 
components of executed orders at this time.
280
  CAT LLC stated that if FINRA’s equity 
transaction reporting facilities or the exchanges report transactions in fractional shares in the 
future, then the calculation of CAT fees would also reflect fractional shares.
281
  In response to 
the comment that stated that the Proposed Amendment does not explain why volume by shares 
was chosen over notional volume,
282
 calculating the notional value of stock introduces additional 
complexity as the notional value would have to be calculated and would depend on the value of 
the execution or trade, whereas the number of executed shares is reported and, in the cases of 
 
278
  See Citadel August Letter at 4–5. 
279
  See Citadel July Letter at 20. 
280
  See Notice, supra note 7, 88 FR at 17089. 
281
  Id. at 17089, n.23. 
282
  See Citadel July Letter at 20.  See also Citadel August Letter at 5.   

52 
options for example, is based on a known multiplier (1/100).  While the Commission does not 
disagree that using executed notional shares may offer advantages and may lessen any 
discrimination, the Commission believes that the Proposed Amendment’s use of executed shares 
is administratively easier, less prone to error, and thus for these reasons and the reasons set forth 
above,
283
 is a reasonable proxy for allocating the cost of the CAT.  
The Commission also believes that CAT LLC’s explanation that increased trading 
activity correlates with an increased cost burden on the CAT is reasonable and that executed 
share volume is a reasonable proxy for a CAT Reporter’s cost burden on the CAT
284
 because 
increased trading activity impacts message traffic, but also data processing and storage costs.
285
  
The Original Funding Model would have used message traffic and market share to assess CAT 
fees on Industry Members and Execution Venues, respectively.
286
  CAT LLC expressed its belief 
that the use of executed equivalent share volume would be an improvement on the Original 
Funding Model’s use of message traffic,
287
 explaining that the use of executed equivalent share 
volume would result in fees tied to transactions (which CAT LLC stated is the “traditional source 
of revenue for Industry Members”
288
), that the resulting CAT fees would not adversely impact 
market makers, and that the Executed Share Model is simple to understand and to implement.
289
  
CAT LLC stated that Industry Member revenue is often driven by transactions, but “[b]ecause 
message traffic is separate from whether or not a transaction occurs, fees based on message 
 
283
  See supra notes 272–275 and accompanying text. 
284
  See Notice, supra note 7, 88 FR at 17105; id. at 17101–03. 
285
  Id. at 17105. 
286
  See CAT NMS Plan, supra note 2, at Section 11.3(a) and (b).  
287
  See Notice, supra note 7, 88 FR at 17102–03.  The Original Funding Model uses message traffic as the 
basis of Industry Member CAT fees.  See CAT NMS Plan, supra note 2, at Section 11.3(b).  
288
  Notice, supra note 7, 88 FR at 17103. 
289
  Id. 

53 
traffic may not correlate with common revenue or fee models,”
290
 which could negatively impact 
certain Industry Members in a significant way.
291
  CAT LLC stated that use of message traffic to 
calculate fees for Industry Members could adversely impact market makers because they 
generally create high levels of message traffic.
292
  We agree with CAT LLC regarding the 
benefits of the Executed Share Model and the drawbacks of the Original Funding Model, and 
thus believe that the decision to replace the use of message traffic to calculate CAT fees with 
executed equivalent share volume in the Executed Share Model is reasonable.   
The Commission acknowledges that executions do not take place on FINRA; however, 
the CAT NMS Plan already categorizes FINRA as an Execution Venue because it has trades 
reported by its members to its TRFs for reporting transactions effected otherwise than on an 
exchange.  Thus, treatment of FINRA as an Execution Venue is not a change to the existing CAT 
NMS Plan.
293
  Additionally, this allocation of fees to FINRA is similar to how Section 31 fees 
are assessed on FINRA.
294
 
Moreover, the Executed Share Model does not change the criteria used to charge 
Execution Venues (market share).
295
  While there are differences in how the CAT fees would be 
 
290
  Id. at 17102. 
291
  Id. 
292
  Id. at 17103. 
293
  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84793; CAT NMS Plan, supra note 2, at 
Section 1.1. (defining “Executing Venues”).  
294
  15 U.S.C. 78ee; Section 31 of the Securities Exchange Act requires each national securities exchange and 
national securities association to pay transaction fees to the Commission.   Specifically, Section 31(c) 
requires each national securities association to pay to the Commission fees based on the aggregate dollar 
amount of covered sales transacted by or through any member of the association other than on an exchange.  
15 U.S.C. 78ee(c).  Section 31(a) permits the Commission to collect transaction fees and assessments 
designed to recover the costs to the Government of the annual appropriation to the Commission by 
Congress. 15 U.S.C. 78ee(a). 
295
  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84793–97; CAT NMS Plan, supra note 2, at 
Section 11.2, Section 11.3.  

54 
allocated among the Participants under the Executed Share Model and the existing Original 
Funding Model, under the Executed Funding Model, as in the Original Funding Model, the fees 
charged to Participants will continue to be based upon the level of market share of each 
Participant.
296
  The Original Funding Model approved by the Commission would have assessed 
CAT fees on Execution Venues (which would include the Participants)
297
 based on market share 
determined by the share volume for a national securities exchange and determined by reported 
share volume of trades for a national securities association (i.e., FINRA) that had trades reported 
by its members to its trade reporting facility or facilities for reporting transactions effected 
otherwise than on an exchange in NMS Stocks or OTC Equity Securities.
298
  Additionally, this 
allocation is similar to how Section 31 fees are assessed on the exchanges and FINRA.  FINRA’s 
allocation of CAT fees under the Executed Share Model will continue to be based on its off-
exchange market share.   
The Commission recognizes that the proposed use of executed equivalent share volume is 
not a perfect proxy for CAT costs, but believes it is nonetheless a reasonable proxy.  The costs of 
CAT are attributable to a number of factors, such as message traffic, storage, and data processing 
costs, and that for these reasons, the Commission understands that it is difficult to calculate each 
CAT Reporter’s individual cost burden on the CAT.  Additionally, there are other operational 
costs of the CAT that cannot be easily attributed to a particular CAT Reporter and that need to be 
funded, such as costs for CAT NMS Plan requirements related to intake capacity,
299
 data search 
 
296
  Id.  
297
  See supra note 15.  
298
  See CAT NMS Plan, supra note 2, at Section 11.3(a)(i).   
299
  In the CAT NMS Plan Notice, the Commission said that it preliminarily believed that intake capacity level 
is likely to be a primary cost driver for the Central Repository.  See Securities Exchange Act Release No. 
77724 (Apr. 27, 2016), 81 FR 30614 (May 17, 2016), 81 FR at 30770. 

55 
tools
300
 and data security.
301
  Based on the breadth of CAT costs, it is not feasible to calculate the 
cost burden on CAT of each CAT Reporter.  A reasonable proxy for CAT cost burden must 
therefore be used.  As discussed above, the Commission believes the proposed use of executed 
equivalent share volume is a reasonable method of approximating the cost burden of CAT.
302
 
Additionally, CAT LLC stated that the proposed Executed Share Model would not unfairly 
burden or favor a product or product type because the model would recognize the different types 
of securities by counting executed equivalent share volume differently for NMS Stocks, Listed 
Options and OTC Equity Securities.
303
  The proposed treatment of these different types of 
securities would result in the equitable allocation of reasonable CAT fees across these securities.  
The Executed Share Model would count each executed contract for a transaction in Listed 
Options using the contract multiplier applicable to the specific Listed Option in the relevant 
transaction,
304
 which is appropriate because a Listed Option contract typically represents 100 
shares, or it could represent another designated number of shares, and since Listed Options trade 
in contracts instead of shares, they would need to be converted into shares for purposes of 
calculating the executed equivalent share volume of a transaction in Listed Options.  For OTC 
Equity Securities, the Executed Share Model would count each executed share for a transaction 
in OTC Equity Securities as 0.01 executed equivalent shares,
305
 which is appropriate because 
CAT LLC represented that this amount was a result of an analysis it conducted of several 
 
300
  See CAT NMS Plan, supra note 2, at Appendix C, Section 8.1–8.2. 
301
  Id. at Appendix D, Section 4. 
302
  See supra notes 271–274 and accompanying text. 
303
  See Notice, supra note 7, 88 FR at 17116. 
304
  Id. at 17093.  A Listed Option contract typically represents 100 shares, or it could represent another 
designated number of shares.  Id.   
305
  See proposed Section 11.3(a)(i)(B)(III). 

56 
different metrics comparing the markets for OTC Equity Securities and NMS Stocks, specifically 
total notional dollar value, total trades, and average share price per trade.
306
  Additionally, since 
transactions in OTC Equity Securities typically are priced below one dollar, or even one penny, 
and tend to trade in larger quantities, this treatment is appropriate to prevent CAT Reporters 
trading OTC Equity Securities from being assessed higher CAT fees than their activity would 
deserve.     
    b. Options vs. Equities 
The equal allocation of Participant CAT fees to Participants, regardless of whether they 
are transacting in options or in equities, is reasonable.  The Original Funding Model would have 
divided Participant CAT fees by Execution Venues that execute transactions (or in the case of a 
national securities association, has trades reported by its members to its trade reporting facility or 
facilities for reporting transactions effected otherwise than on an exchange) in NMS Stocks or 
OTC Equity Securities and by Execution Venues that execute transactions in Listed Options.
307
  
The Executed Share Model instead assesses a CAT fee based purely on executed equivalent 
share volume.
308
  CAT LLC explained that the use of equivalent executed share volume is 
designed to normalize options and equities in the calculation of fees, and to recognize and 
address the different trading characteristics of different types of securities by counting executed 
equivalent share volume differently for Listed Options and for equities.
309
  The use of executed 
equivalent share volume and, in particular, the different weights assigned to equities versus 
 
306
  See supra notes 227–229 and accompanying text. 
307
  See CAT NMS Plan, supra note 2, at Section 11.3(a)(i), (ii). 
308
  The Executed Share Model would count executed equivalent share volume differently for NMS Stocks, 
OTC Equity Securities and Listed Options for purposes of calculating a CAT fee.  CAT LLC explains that 
the proposed approach “would not favor or unfairly burden any one type of product or product type.”  See 
Notice, supra note 7, at 17116.  See also supra Section III.A.3. 
309
  See Notice, supra note 7, 88 FR at 17108. 

57 
options, are designed to result in an equitable treatment of the equities and options markets.  The 
proposed treatment of these different types of securities reasonably equalizes the CAT fees 
across these securities.  The Executed Share Model would count each executed contract for a 
transaction in Listed Options using the contract multiplier applicable to the specific Listed 
Option in the relevant transaction,
310
 which is appropriate because one options contract typically 
represents 100 shares.   
  c. FINRA Allocation 
Under the Executed Share Model, because FINRA is the Participant primarily responsible 
for oversight of off-exchange securities trading activity,
311
 FINRA will likely have greater 
executed equivalent share volume than other Participants
312
 and thus will be responsible for a 
significant portion of total CAT fees.  In the Proposed Amendment, CAT LLC stated that the 
size of FINRA’s fee is calculated based on the activity in the over-the-  counter market.
313
  CAT 
LLC stated that the executed equivalent share volume for over-the-counter trades in Eligible 
Securities in 2021 was 1,361,484,729,008 out of a total volume of 3,963,697,612,395 executed 
equivalent shares for trades in Eligible Securities.
314
  CAT LLC stated that approximately 34% 
 
310
  Id. at 17093. 
311
  See Securities Exchange Act Release No. 95388 (July 29, 2022), 87 FR 49930 (Aug. 12, 2022), at 49931 
(stating that FINRA historically has overseen off-exchange securities trading activity and that “the 
Exchange Act’s statutory framework places SRO oversight responsibility with a [national securities 
association] for trading that occurs elsewhere than an exchange to which a broker or dealer belongs as a 
member.”), 49932 (stating that an exchange would primarily have SRO oversight responsibility of its 
members and their trading on the exchange, while SRO oversight of other trading activity, such as off-
exchange trading, is primarily the responsibility of a national securities association).   
312
  See Notice, supra note 7, 88 FR at 17107. 
313
  Id. 
314
  Id. 

58 
of the executed equivalent share volume in Eligible Securities took place in the over-the-counter 
market.
315
 
CAT LLC stated that the assessment of a CAT fee on FINRA in the same manner as the 
other Participants would not result in a burden on competition for FINRA or for Industry 
Members engaging in off-exchange activity.
316
  CAT LLC also stated that FINRA and the 
exchanges should not be evaluated differently based upon the potential for a particular 
Participant to recoup its CAT fees through charging fees to its members or through revenue-
generating activity other than passing its fees through to its members.
317
  CAT LLC stated that 
each Participant, including FINRA, can choose to charge its members fees to fund the 
Participant’s CAT fees.
318
  Additionally, CAT LLC stated that FINRA, just like the exchange 
Participants, has revenue sources other than membership fees,
319
 explaining that FINRA 
generates significant revenues via Regulatory Services Agreements (“RSAs”) with the 
exchanges, among other sources.
320
  According to CAT LLC, these other revenue sources may 
be used to pay CAT fees, and, if they are used, would not lead to an increase in fees for Industry 
Members.
321
   
Certain commenters objected to the proposed allocation of Participant CAT fees to 
FINRA.
322
  A subset of these commenters objected to the allocation to FINRA of 34% of the 
 
315
  Id. 
316
  Id. 
317
  Id.  See also CAT LLC May 2023 Response Letter at 9.  
318
  See Notice, supra note 7, 88 FR at 17107. 
319
  Id. at 17108. 
320
  Id. 
321
  Id. 
322
  See FINRA May 2023 Letter; FINRA April 2023 Letter; FINRA June 2022 Letter; SIFMA May 2023 
Letter; SIFMA June 2022 Letter; SIFMA October 2022 Letter.  One of the commenters supported the 
 

59 
total CAT costs
323
 to be borne by the Participants.
324
  FINRA stated that this amount was a 
“disproportionate share of CAT costs,”
325
 especially as FINRA does not operate a market,
326
 and 
that the Proposed Amendment would place an undue burden on FINRA.
327
  FINRA stated that its 
share was “more than double that of the next highest Participant and $4 million more than all 
option exchanges combined.”
328
  FINRA also stated that its allocation would largely be based on 
transaction volume reported to the TRF; however, FINRA stated that TRF transactions generate 
fewer costs for the CAT,
329
 as opposed to options activity, but that only 25% of total Participant 
CAT fees would be assessed for options activity, while the remaining 75% would be assessed for 
equities activity.
330
  FINRA stated that “... FINRA would be assessed an estimated 34% of the 
total CAT costs to be borne amongst the 25 Participants, and more than all options exchanges 
combined.”
331
   
 
points raised in the FINRA April 2023 Letter that stated that the Proposed Amendment would result in the 
inequitable allocation of fees and should be disapproved.  See SIFMA May 2023 Letter at 2.  Another 
commenter supported these points and stated that the fact that one of the biggest Participants was so 
strongly opposed to the plan was evidence that it should be disapproved.  See Virtu Letter at 3. 
323
  One commenter stated that this estimate is based on 2021 data and urged the Commission to require the 
Participants to amend the Proposed Amendment to include the 2022 data and fee allocation estimates, 
stating that the CAT budget has grown significantly from 2021.  See FINRA April 2023 Letter at 3, 4–5.  In 
its response to comments, CAT LLC provided the Historical CAT Costs for 2022.  The total operating 
expenses increased from $144,415,268 in 2021 to $181,107,294 for 2022.  See Notice, supra note 
7, 88 FR 
at 17111; CAT LLC May 2023 Response Letter at 13.   
324
  See FINRA May 2023 Letter at 2; FINRA April 2023 Letter at 3; SIFMA May 2023 Letter at 2.     
325
  FINRA April 2023 Letter at 3.   
326
  Id. 
327
  See FINRA June 2022 Letter at 6. 
328
  FINRA April 2023 Letter at 4; see also FINRA June 2022 Letter at 5. 
329
  See FINRA April 2023 Letter at 8, n.23.  The commenter also stated that “TRF volume contributes to only 
a very small percentage of annual CAT compute and storage costs.”  FINRA May 2023 Letter at 2.   
330
  See FINRA April 2023 Letter at 8, n.23; FINRA May 2023 Letter at 2. 
331
  FINRA May 2023 Letter at 2. 

60 
FINRA stated that, unlike the exchange Participants, transactions are not executed on a 
FINRA marketplace and FINRA does not receive commercial revenue for those transactions.
332
  
FINRA explained that “while the NMS stock allocation to FINRA under the Funding Model is 
based on transactions that are reported to FINRA [TRFs], these transactions are not executed on 
a FINRA marketplace and FINRA does not retain commercial revenues from those 
transactions”
333
 unlike the exchanges that operate each FINRA TRF, which retain the market 
data and trade reporting revenue of the TRF.
334
  FINRA stated that, unlike itself, these exchanges 
would thus have a revenue stream related to the transactions that would be assessed a CAT fee, 
and that also, unlike FINRA, exchanges generate revenue from listings and proprietary data 
feeds in NMS securities.
335
  FINRA also stated that FINRA members can report over-the-counter 
transactions in listed stocks to the FINRA Alternative Display Facility, although most 
transactions are reported to a TRF.
336
  
FINRA further stated that it cannot necessarily recoup its costs through RSAs that it has 
entered into with certain exchanges
337
 because the exchanges must first agree to be charged CAT 
costs under the RSAs; therefore, RSAs would not be a reliable source of CAT funding for 
FINRA.
338
  Additionally, FINRA questioned CAT LLC’s statement that the Proposed 
Amendment “reflects a reasonable effort to allocate costs based on the extent to which different 
 
332
  See FINRA April 2023 Letter at 3. 
333
  Id. 
334
  Id. 
335
  Id. at 4. 
336
  Id. at 3, n.8. 
337
  This statement was made in response to a statement in the Proposed Amendment that FINRA, like the 
exchange Participants, has revenue sources other than membership fees, giving as an example the RSAs.  
See Notice, supra note 7
, 88 FR at 17107. 
338
  See FINRA April 2023 Letter at 4. 

61 
CAT Reporters participate in and benefit from the equities and options markets.”
339
 Specifically, 
FINRA asked how this explains the size of its allocation
340
 and noted that this statement 
“conflates the costs to create and operate the CAT with the usage of CAT data.”
341
 
In the Proposed Amendment, CAT LLC contested the view that FINRA should not be 
treated as a market center for CAT funding purposes merely because FINRA is not treated as a 
market center for governance purposes under the National Market System Plan Regarding 
Consolidated Equity Market Data (“CT Plan”).
342
  CAT LLC explained that the purpose and 
implementation of the CT Plan and the CAT NMS Plan are different.
343
  CAT LLC stated that 
while the CAT NMS Plan explicitly contemplates charging fees to all Participants, including 
FINRA,
344
 and that the CAT is solely for regulatory purposes, providing a regulatory system to 
facilitate the performance of the self-regulatory obligations of all of the Participants, including 
the exchanges and FINRA,
345
 “[i]n contrast, the CT Plan governs the public dissemination of 
real-time consolidated equity market data for NMS stocks.”
346
   
 
339
  Id. at 7. 
340
  Id. 
341
  Id.; see also FINRA June 2022 Letter at 6. 
342
  See Notice, supra note 7, 88 FR at 17108.  See also Joint Industry Plan; Order Approving, as Modified, a 
National Market System Plan Regarding Consolidated Equity Market Data; Securities Exchange Act 
Release No. 92586 (Aug. 6, 2021), 86 FR 44142 (Aug. 11, 2021) (File No. 4-757) (“Order Approving the 
CT Plan”).  The Order Approving the CT Plan was vacated by the DC Circuit on July 5, 2022.  See The 
NASDAQ Stock Market LLC et al. v. SEC, Case No. 21-1167, D.C. Cir. (July 5, 2022).  See also 
Securities Exchange Act Release No. 88827; File No. 4-757 (May 6, 2020), 85 FR 28702 (May 13, 2020) 
(Order Directing the Exchanges and the Financial Industry Regulatory Authority to Submit a New National 
Market System Plan Regarding Consolidated Equity Market Data).   
343
  See Notice, supra note 7, 88 FR at 17108.   
344
  See CAT NMS Plan, supra note 2, at Sections 11.2 and 11.3. 
345
  See Notice, supra note 7, 88 FR at 17108. 
346
  Id. 

62 
Certain commenters expressed concern about alleged arbitrary treatment of FINRA by 
the other Participants of the CAT NMS Plan.
347
  FINRA believes that its “outsized allocation”
348
 
was because of its limited voting power, only having one out of 25 votes on the Operating 
Committee as it does not control, nor is under common control with, any other Participant.
349
  
Another commenter stated that the current CAT NMS Plan voting structure results in the unfair 
and inequitable treatment of FINRA.
350
  Both commenters believe that the exchange Participants 
treat FINRA arbitrarily to benefit themselves, treating FINRA as a market center in the CAT 
NMS Plan while not as a market center under the CT Plan, which governs the public 
dissemination of real-time consolidated market data for national market system stocks.
351
  One 
commenter stated that the Participants do not treat FINRA as a market center under the CT Plan 
in order to limit FINRA’s voting power and therefore its ability to decide how to allocate market 
data revenue.
352
  The commenter stated that this example demonstrates the “... inherent conflicts 
of interest that for-profit exchanges have in operating as SROs...”
353
   
 
347
  See FINRA April 2023 Letter at 6; SIFMA October 2022 Letter at 3.  See also SIFMA May 2023 Letter at 
6, n.11. 
348
  FINRA April 2023 Letter at 7; FINRA June 2022 Letter at 6. 
349
  FINRA April 2023 Letter at 4, 8.  See also FINRA June 2022 Letter at 8. 
350
  See SIFMA January 2023 Letter at 3, n.7. 
351
  See FINRA April 2023 Letter at 6, n.16; SIFMA October 2022 Letter at 3.  See also SIFMA May 2023 
Letter at 6, n.11.  One commenter stated that the Participants treat FINRA in ways that are financially 
beneficial to them without considering FINRA’s role in the marketplace “... as the not-for-profit self-
regulator for the entire brokerage industry...”  SIFMA October 2022 Letter at 3.  See a lso SIFMA January 
2023 Letter at 4; SIFMA October 2022 Letter at 4; SIFMA May 2023 Letter at 8 (recommending that 
FINRA be treated differently from the Participant exchanges due to its unique role). 
352
  See SIFMA October 2022 Letter at 3–4.  See also SIFMA May 2023 Letter at 6, n.11. 
353
  SIFMA October 2022 Letter at 3.  See also SIFMA June 2023 Letter at 4 (quoting a Commission release 
stating that the Participants are potentially conflicted in allocating CAT fees to themselves and the Industry 
Members); supra   note 
64. 

63 
Certain commenters suggested that the Commission issue an order soliciting comment on 
whether the Operating Committee should be reorganized consistent with the CT Plan.
354
  One 
commenter stated, “[w]e believe such a governance structure for the CAT would help facilitate a 
fairer structure for the views of the SROs and industry to be heard and incorporated into any 
further CAT funding proposal by reducing the ability of the largest exchange groups to dictate 
the terms of any CAT funding proposal over the objections of other SRO Participants and the 
industry.”
355
 
Commenters also believe the allocation to FINRA would increase the allocation to 
Industry Members.
356
  FINRA stated that because it relies on regulatory fees from its members 
for funding, it must increase its member fees in order to fund CAT costs that it cannot recover 
from contractual arrangements with TRF business members.
357
  FINRA stated that the Proposed 
Amendment does not adequately analyze the allocation’s impact, including whether the 
allocation would increase Industry Members’ allocation of total costs beyond two-thirds.
358
  
FINRA dismissed as inadequate the Participants’ argument that Industry Members can pass 
through their costs, stating that the Proposed Amendment lacks a detailed description of and 
transparency into how the fees may be passed on to customers.
359
  Another commenter stated 
 
354
  SIFMA October 2022 Letter at 2.  See also infra Section III.A.9.f. (suggesting changes to the governance 
structure of the CAT NMS Plan); see also MMI July Letter at 1-3.  The latter commenter also felt that there 
should be a disclosure of the conflicts of interest the commenter believes are inherent in having the funding 
model determined by the Participants.). 
355
  SIFMA October 2022 Letter at 2.  The commenter also stated that the Industry Members are not voting 
members of the Operating Committee and have no way to direct the cost control efforts of the Participants 
or change their course if the cost control efforts prove to be unsuccessful.  See SIFMA June 2022 Letter at 
8. 
356
  See FINRA April 2023 Letter at 5–7; SIFMA June 2022 Letter at 4; Citadel July Letter at 2, 16, 21, supra 
notes 73–74 and accompanying text.  See also SIFMA October 2022 Letter at 2, 3. 
357
  See FINRA April 2023 Letter at 5–6.    See also FINRA June 2022 Letter at 7. 
358
  See FINRA April 2023 Letter at 6. 
359
  Id. at 6–7. 

64 
that the Participants “do not address the fact that the Executed Share Model for Prospective CAT 
Costs allocates two-thirds of CAT costs to Industry Members for exchange transactions and 
more for off-exchange transactions”
360
 because they cannot demonstrate that the proposed 
allocation results in an equitable allocation of reasonable fees.
361
  The commenter stated that 
Industry Members, who would be subject to two-thirds of Prospective CAT Costs under the 
Executed Share Model, already pay FINRA’s operating costs through regulatory fines and fees; 
therefore, Industry Members would additionally be indirectly assessed FINRA’s one-third CAT 
fee for off-exchange transactions.
362
  The commenter suggested an alternative allocation
363
 that 
would subject FINRA only to a nominal regulatory user fee to access CAT Data.
364
 
CAT LLC disagreed with the commenter’s proposal to charge FINRA only a nominal 
regulatory fee.
365
  CAT LLC stated that the proposed transaction-based CAT fee is purposely 
agnostic as to the location of where a trade occurs, and an intent of this design is to avoid 
influencing whether or where any trading activity would take place.  Moreover, CAT LLC stated 
that FINRA is no different from the exchanges in terms of its regulatory obligations regarding 
the CAT.
366
  CAT LLC also stated that FINRA’s allocation is “fair and reasonable as FINRA is 
 
360
  SIFMA June 2022 Letter at 4.  See also SIFMA October 2022 Letter at 3 (“... we believe the proposal is 
flawed because it fails to appropriately consider that Industry Members pay the full costs of operating 
FINRA.”). 
361
  See SIFMA June 2022 Letter at 4. 
362
  Id.  The commenter also stated that the proposed allocation would result in two-thirds of CAT costs for 
exchange transactions being imposed on Industry Members, and that this amount would be higher for off-
exchange transactions as FINRA would be assessed one-third as the venue fee and Industry Members 
would be indirectly assessed FINRA’s portion of CAT costs as they pay the entire costs of operating 
FINRA.  Id.  See also SIFMA October 2022 Letter at 2. 
363
  See supra notes 100–101 and accompanying text. 
364
  See SIFMA January 2023 Letter at 4.  See also SIFMA May 2023 Letter at 8; SIFMA June 2022 Letter at 
5; SIFMA October 2022 Letter at 4; supra notes 100–101 and accompanying text. 
365
  See CAT LLC May 2023 Response Letter at 8. 
366
  Id. 

65 
currently, and is expected to continue to be, one of the largest regulatory users of the CAT, and it 
is responsible for the oversight of the very large over-the-counter securities market.”
367
 
FINRA requested that if the Commission were to approve the Proposed Amendment, that 
it acknowledge “FINRA’s need and ability to cover CAT costs that are not recovered through 
contractual arrangements through member fee increases, so as not to jeopardize FINRA’s ability 
to carry out its critical regulatory mission.”
368
  FINRA also stated that it would file a    rule change 
to increase its member fees with the filing of any proposed rule change to effectuate the Funding 
Model.
369
   
The Commission acknowledges the comments objecting to the allocation to FINRA of 
34% of the total CAT costs to be borne by Participants,
370
 but believes that it is reasonable for 
the Proposed Amendment to assess fees to FINRA based on executed equivalent share volume 
like the other Participants for purposes of CAT funding.  FINRA is a Participant of the CAT 
NMS Plan.  All Participants are mandated under the CAT NMS Plan to fund the CAT.
371
  The 
Executed Share Model would assess CAT fees based on executed equivalent share volume.  
Under the Executed Share Model, CAT fees would be allocated among the buyer, seller, and the 
market regulator in each transaction.  FINRA would pay the Participant CAT fee based on off-
exchange trades reported by its members to its trade reporting facilities because FINRA is the 
market regulator responsible for the market in which the TRF transactions occur.  The Executed 
Share Model, like the current funding model, is designed to allocate CAT fees among the 
 
367
  See CAT LLC July 2023 Response Letter at 35.   
368
  FINRA April 2023 Letter at 7. 
369
  Id. 
370
  Id. at 3; SIFMA May 2023 Letter at 2. 
371
  See CAT NMS Plan, supra note 2, at Section 11.1(b); Section 11.3(a). 

66 
Participants based on market share.  Since FINRA is generally the market regulator for the over-
the-counter markets, its CAT fees, and thus market share, will be based on the trading activity in 
the over-the-counter markets reported to it by its members.  The trading volume of the over-the-
counter markets is greater than that on the exchanges; consequently, FINRA will likely be 
allocated a greater executed equivalent share volume than the other Participants.  However, 
trading volume generates costs for CAT, therefore, given its role overseeing the over-the-counter 
market, it is reasonable for FINRA to incur a greater share of CAT fees based on the over-the-
counter market’s trading volume.  As discussed above, it is difficult to calculate each CAT 
Reporter’s individual cost burden on the CAT, and a reasonable proxy for CAT cost burden must 
be used.  The proposed use of executed equivalent share volume is a reasonable method of 
allocating costs because it is readily determinable and equitable since executed share volume is 
based on trading activity, which impacts CAT costs.  In practice, CAT Reporters will be assessed 
fees corresponding to the cost burden they impose on the CAT through their trading activity, or 
in FINRA’s case, trading activity in the over-the-counter markets reported to it by its members. 
The Commission recognizes that there could be other methodologies for allocating costs 
among CAT Reporters, such as allocations that take into account the manner in which each 
Participant earns revenue, but these other methodologies may be significantly more complex and 
would not necessarily more accurately reflect the cost burden of each CAT Reporter.  CAT LLC 
chose to propose the use of executed equivalent share volume, explaining why trading activity is 
a reasonable proxy for cost burden and an appropriate metric for allocating CAT costs.
372
  
Although there may be multiple permissible approaches to cost allocation, the proposed 
 
372
  See Notice, supra note 7, 88 FR at 17103. 

67 
allocation of Participant CAT fees based on executed equivalent share volume is reasonable and 
meets the Rule 608 approval standard.
373
   
The Commission agrees with CAT LLC that the Executed Share Model reasonably 
assesses fees to FINRA in the same manner based on transaction volume as other Participants.  
The Executed Share Model is reasonably designed to be neutral as to the manner of execution 
and place of execution.
374
  All Participants are self-regulatory organizations that have the same 
regulatory obligations under the Exchange Act, regardless of whether they operate as a for-profit 
or not-for-profit entity.  Their regulatory responsibilities for the operations of CAT are the 
same.
375
 
The Commission acknowledges the concerns expressed by commenters that FINRA’s 
allocation could indirectly increase the allocation of CAT fees to Industry Members since 
Industry Members contribute to FINRA’s funding.
376
  As discussed above, however, the costs of 
CAT must be allocated between the Participants and Industry Members according to some 
formula.  Although the Participants and Industry Members have different means of potentially 
recovering from others some of the costs allocated to them (e.g., the Participants from Industry 
Members and Industry Members from customers), it is reasonable to allocate costs evenly among 
the three parties who have primary roles related to the transaction.  The Commission agrees with 
CAT LLC that Industry Members may be able to offset any fees that FINRA assesses them by 
passing their CAT fees through to their customers, just as they may do with Section 31-related 
 
373
  See 17 CFR 242.608(b)(2).  
374
  See Notice, supra note 7, 88 FR at 17107. 
375
  Id. 
376
  See FINRA April 2023 Letter at 5–7; SIFMA June 2022 Letter at 4; Citadel July Letter at 2, 16, 21, supra 
notes 73–74 and accompanying text.  See also SIFMA October 2022 Letter at 2, 3; FINRA June 2022 
Letter at 4. 

68 
fees and other fees.  The Commission recognizes, however, that not all Industry Members 
currently pass through fees or would determine to do so in the future. 
Finally, the Commission does not agree that the Participants’ treatment of FINRA is 
arbitrary because FINRA is treated as a market center for purposes of determining its CAT 
funding obligations while the CT Plan, which governs the public dissemination of consolidated 
market data, would not have counted FINRA’s market activity for purposes of determining the 
allocation of votes on the Operating Committee.
377
  The different treatment of FINRA in these 
NMS plans reasonably reflects the very different roles that a market center is used for in these 
contexts.  The CT Plan provisions discussed by the commenters involve the determination of 
which Participant(s) could be eligible for a second vote on the Operating Committee,
378
 while 
the Executed Share Model proposes to assess FINRA a Participant CAT Fee based on its role as 
the regulator for the over-the-counter market in which such trades occur.
379
  The commenter’s 
request that the Commission issue an order soliciting comment on whether the Operating 
Committee should be reorganized consistent with the CT Plan
380
 would be better addressed in 
the context of a separate plan amendment. 
 
377
  The CT Plan provided that an exchange group or independent exchange that has more than 15 percent of 
consolidated equity market share during four of the six calendar months preceding a vote of the operating 
committee would be authorized to cast two votes.  The CT Plan stated that FINRA is not considered a 
market center for purposes of determining consolidated equity market share solely by virtue of facilitating 
trades through any TRF that FINRA operates in affiliation with a national securities exchange designed to 
report transactions otherwise than on an exchange.  See supra note 342
. 
378
  See FINRA April 2023 Letter at 6; SIFMA October 2022 Letter at 3.  See also SIFMA January 2023 Letter 
at 4; SIFMA October 2022 Letter at 4; SIFMA May 2023 Letter at 8. 
379
  See supra notes 371–372 and accompanying text. 
380
  See SIFMA October 2022 Letter at 2. 

69 
  4. CAT Executing Broker 
As noted above, CAT Executing Brokers will be charged CAT fees.
381
  CAT LLC 
proposed to add a definition of “CAT Executing Broker” to Section 1.1 of the CAT NMS Plan.  
The definition would explain which party would be identified as a CAT Executing Broker in a 
transaction.  
With respect to transactions on an exchange and over-the-counter transactions, CAT LLC 
would use transaction reports reported to the CAT by FINRA or the exchanges to identify the 
transaction, as well as the CAT Executing Broker for each transaction, for purposes of 
calculating the CAT fees.
382
  Under the Participant Technical Specifications, for transactions 
occurring on a Participant exchange, there is a field for the exchange to report the market 
participant identifier (“MPID”) of “the member firm that is responsible for the order on this side 
of the trade.”
383
  The Industry Members identified in these fields for the transaction reports 
would be the CAT Executing Brokers for transactions executed on an exchange.
384
  FINRA is 
required to report to the CAT transactions in Eligible Securities reported to a FINRA trade 
reporting facility (i.e., the TRF, Over-the Counter Reporting Facility (“ORF”) and Alternative 
Display Facility (“ADF”)).
385
  Under the Participant Technical Specifications, for such 
 
381
  See Notice, supra note 7, 88 FR at 17087.  
382
  Id. at 17088.  The transaction reports used to identify transactions and CAT Executing Brokers do not 
provide for fractional quantities; therefore, CAT fees would not be calculated using fractional shares or 
fractional share components of executed orders.  Id.  at 17089.  See supra notes 
280–266 and accompanying 
text. 
383
  Section 4.7 (Order Trade Event) and Section 5.2.5.1 (Simple Option Trade Event: Side Details) of the CAT 
Reporting Technical Specifications for Plan Participants, Version 4.1.0-r17 (Feb. 21, 2023), 
https://www.catnmsplan.com/sites/default/files/2023-02/02.21.2023-CAT-Reporting-Technical-
Specifications-for-Participants-4.1.0-r17.pdf. 
384
  See Notice, supra note 7, 88 FR at 17087–88. 
385
  See Section 6.1 of the CAT Reporting Technical Specifications for Plan Participants (Feb. 21, 2023).  A 
CAT Executing Broker in over-the-counter transactions identified on the TRF/ORF/ADF Transaction Data 
Event is determined based on the tape or media report, that is, a trade report that is submitted to a FINRA 
 

70 
transactions reported to a FINRA trade reporting facility, FINRA is required to report the MPID 
of the executing party as well as the MPID of the contra-side executing party.
386
  The Industry 
Members identified in these two fields for the transaction reports would be the CAT Executing 
Brokers for over-the-counter transactions.
387
   
For transactions on ATSs, if an ATS is identified as the executing party and/or the contra-
side executing party in the TRF/ORF/ADF Transaction Data Event, then the ATS would be a 
CAT Executing Broker for purposes of the Executed Share Model.
388
  If the ATS is identified as 
the executing party for the buyer in such transaction reports, then the ATS would be the 
CEBB.
389
  If the ATS is identified as the executing party for the seller in such transaction 
reports, then the ATS would be the CEBS.
390
  If the ATS is identified as both the executing party 
and contra-side executing party, the ATS would be both the CEBB and the CEBS.
391
  ATSs 
would determine the executing party and the contra-side executing party reported to FINRA’s 
equity trading facilities in accordance with the transaction reporting requirements for FINRA’s 
equity trading facilities.
392
 
 
trade reporting facility and reported to and publicly disseminated by the appropriate exclusive Securities 
Information Processor.  A CAT Executing Broker for over-the-counter transactions is not determined based 
on a non-tape report (e.g., a regulatory report or a clearing report), which is not publicly disseminated. 
There is an exception to this statement for away-from-market trades.  These are non-media trades reported 
to the TRF with an “SRO Required Modifier Code” of “R”. 
386
  See Notice, supra note 7, 88 FR at 17087–88. 
387
  Id. at 17088. 
388
  Id. at 17088–89. 
389
  Id. at 17089. 
390
  Id. 
391
  Id.  See also FINRA, Trade Reporting Frequently Asked Questions at Section 203, available at 
https://www.finra.org/filing-reporting/market-transparency-reporting/trade-reporting-faq#203; FINRA 
Regulatory Notice 09-08, available at https://www.finra.org/rules-guidance/notices/09-08. 
392
  See Notice, supra note 7, 88 FR at 17089. 

71 
For transactions that do not occur on an exchange and there is only a FINRA member 
identified for one side of the trade, that FINRA member would be treated as the CAT Executing 
Broker for both the buy-side and the sell-side of the transaction, that is, as the CEBS and 
CEBB.
393
  Additionally, “[f]or any trade report on which a Canadian non-member appears as a 
party to the trade, the FINRA member must appear as the reporting party.”
394
  In this situation, 
the executing broker identified in the “reportingExecutingMpid” field would be billed for both 
sides of the transaction.
395
 
The Executed Share Model also provides for cancellations and corrections.
396
  CAT LLC 
stated that it expects to determine CAT fees based on the transaction reports for a month as of a 
particular day.
397
  To the extent that changes are made to the transaction reports on or before the 
day the CAT fees are determined for the given month, the changes will be reflected in the 
monthly bill.
398
  To the extent that changes are made to the transaction reports after the day the 
CAT fees are determined for that month, subsequent bills will reflect any changes via debits or 
credits, as applicable.
399
  CAT LLC represented that it will establish specific policies and 
procedures regarding the treatment of such adjustments as those related to cancellations and 
corrections, as is required under the CAT NMS Plan to adopt policies, procedures, and practices 
regarding the billing and collection of fees.
400
  Furthermore, CAT LLC stated that it will inform 
 
393
  See proposed Section 1.1. (definition of “CAT Executing Broker”). 
394
  Notice, supra note 7, 88 FR at 17089. 
395
  Id. 
396
  Id. 
397
  Id. 
398
  Id. 
399
  Id. 
400
  See CAT NMS Plan, supra note 2, at Section 11.1(d). 

72 
Industry Members and other market participants of these policies and procedures via FAQs, CAT 
Alerts and/or other appropriate methods.
401
 
Certain commenters objected to the proposed definition of “CAT Executing Broker.”
402
  
One commenter stated that the term “CAT Executing Broker” “does not appear to be universally 
defined or accepted by Option Industry Members or Participants” and that such lack of 
acceptance “present[s] a challenge when firms try to assess the impact the ‘Funding Proposal’ 
will have on their respective businesses.”
403
  Accordingly, the commenter advocated that the 
Executed Share Model follow the “structure already in place for [collecting] Regulatory Fees,” 
such as charging Clearing Brokers.
404
   
Another commenter stated that the proposed definition of executing broker would result 
in the inequitable allocation of fees.
405
  While the commenter supported the change from having 
clearing firms be assessed Industry Member CAT fees to executing brokers having this 
 
401
  See Notice, supra note 7, 88 FR at 17089. 
402
  See SIFMA May 2023 Letter; Letter from Timothy Miller, Chief Operating Officer, DASH Financial 
Technologies, LLC to Vanessa Countryman, Secretary, Commission (July 13, 2023) (“DASH July 2023 
Letter”), at 1–2; Letter from Timothy Miller, Chief Operating Officer, DASH Financial Technologies, LLC 
to Vanessa Countryman, Secretary, Commission (April 11, 2023) (“DASH April 2023 Letter”), at 1–2.  
Both the DASH July 2023 Letter and the DASH April 2023 Letter incorporated by reference a separate 
letter submitted by the commenter on the prior funding proposal (stating that the concerns expressed in the 
prior letter concerning the operating and competitive burdens of the proposed funding model are 
unchanged).  See Letter from Timothy Miller, Chief Operating Officer, DASH Financial Technologies 
LLC, to Vanessa Countryman, Secretary, Commission (Jan. 3, 2023) (“DASH January 2023 Letter”). 
403
  DASH April 2023 Letter at 1.  See also DASH July 2023 Letter at 1–2. 
404
  DASH April 2023 Letter at 2.  See also DASH July 2023 Letter at 1–2.  The commenter reiterated that it 
believes clearing firms are still best suited to process the collection of fees, as this can occur at trade 
settlement and the cost is ultimately borne by the end beneficiary of each transaction.  The commenter 
further stated that “there is precedent to follow with other Regulatory Fees, such as ORF and OCC, to 
streamline the workflow and reduce the number of counterparties involved in the payment/collection 
process,” and “that in the options industry, ORF and Section 31 fees are not consistently billed to the 
exchange facing member; but, most of the time, these fees follow the clearing firm associated with the 
order.”  
405
  See SIFMA May 2023 Letter at 3. 

73 
obligation,
406
 because clearing firms would have been unfairly burdened with CAT costs and 
could have been placed in situations in which they would have been unable to identify the client 
responsible for the costs,
407
 the commenter expressed concerns with how the Participants 
determined which entities would be considered executing brokers.
408
  In comment letters on the 
prior funding model proposal,
409
 which was amended to require executing brokers instead of 
clearing firms to be assessed CAT fees,
410
 the commenter requested additional detail on how an 
executing broker would be defined.
411
  The commenter subsequently stated that the definition in 
the current Proposed Amendment suffers from the same problems as the prior proposal in which 
CAT fees were allocated to clearing firms and would result in the inequitable allocation of CAT 
fees among Industry Members.
412
  
The commenter explained that CAT operates on a cost-recovery basis, with costs 
resulting from the number of messages that Participants and Industry Members report to the 
CAT, the processing and linking of such messages, and the costs of providing tools to regulators 
 
406
  Id.  See also SIFMA January 2023 Letter at 7–8. 
407
  See SIFMA May 2023 Letter at 3–4.  See also SIFMA October 2022 Letter at 5.  The commenter also 
expressed concerns about the assessment of CAT fees on clearing firms because clearing firms would be 
required to collect fees and thus would have to develop new systems and processes under the Executed 
Share Model, and because a clearing firm for a buyer or seller would not always be a party to a trade as it 
could be the clearer of a trade on behalf of an executing broker.  See SIFMA June 2022 Letter at 9; SIFMA 
October 2022 Letter at 7. 
408
  See SIFMA May 2023 Letter at 4. 
409
  See Securities Exchange Act Release No. 94984 (May 25, 2022), 87 FR 33226 (June 1, 2022) (“Prior 
Funding Model Proposal”). 
410
  Two partial amendments were submitted on the Prior Funding Model Proposal.  The first partial 
amendment initially proposed the use of executing brokers.  See Securities Exchange Act Release No. 
96394 (Nov. 28, 2022), 87 FR 74183 (Dec. 3, 2022).  The Prior Funding Model Proposal, as modified by 
the two partial amendments, was withdrawn by the Participants on March 1, 2023.  See Securities 
Exchange Act Release No. 97212 (Mar. 28, 2023), 88 FR 19693 (Apr. 3, 2023). 
411
  See SIFMA January 2023 Letter at 2, 8; SIFMA December 2022 Letter at 3.  See also SIFMA May 2023 
Letter at 4. 
412
  See SIFMA May 2023 Letter at 4.  See also SIFMA June 2022 Letter at 9–10; SIFMA October 2022 Letter 
at 5. 

74 
to analyze CAT data.
413
  The commenter stated that the use of message traffic as the basis of 
fees, in the Original Funding Model, would have ensured that all CAT Reporters would 
contribute to CAT’s funding.
414
  However, the commenter stated that, since the Proposed 
Amendment would not impose fees on all CAT Reporters, instead imposing fees on executing 
brokers, it would result in an inequitable allocation of fees as the executing brokers would be the 
last broker among many other brokers handling an order.
415
  The commenter stated that any 
analysis of such a funding model must evaluate whether (i) the executing brokers would pass-
through or absorb the CAT fees and any negative impacts on competition, noting that the 
Proposed Amendment would require executing brokers to incur expenses that other Industry 
Members would not incur since they would be required to collect the Industry Member portion 
of CAT fees on behalf of the Participants,
416
 and (ii) Industry Members that executed trades for 
introducing brokers and acted as order consolidators and ATSs would be responsible for CAT 
fees for transactions they did not originate and would have to either pay the fee for their clients 
or develop software and processes to collect the fees from their clients as they often are not 
capable of passing through fees to the clients that sent them the orders.
417
  The commenter stated 
that the Proposed Amendment would subject executing brokers to unfair burdens and require 
 
413
  See SIFMA May 2023 Letter at 4. 
414
  Id. 
415
  Id. at 4–5. 
416
  Id. at 5.  See also Virtu Letter at 5 (stating that it is “highly likely” that executing brokers would end up 
absorbing the fees themselves, as they would not have the systems in place to trace to whom the fees were 
properly allocable). 
417
  See SIFMA May 2023 Letter at 5. 

75 
them to “shoulder CAT costs in scenarios in which they could not determine which client firm 
was responsible for creating the CAT costs by initiating the transaction.”
418
   
The commenter suggested instead an allocation in which the Industry Member that 
originated an order would be treated as an “executing broker” and therefore be responsible for 
Industry Member CAT fees.
419
  Under this alternative, “the Industry Member who originates a 
new principal order or the Industry Member who initially receives and routes a customer order 
for execution on an agency basis would be directly assessed CAT Fees.”
420
  The commenter 
stated that this would be the most reasonable way to allocate CAT costs among Industry 
Members
421
 and that it would be “relatively easy to accommodate this approach.”
422
  One other 
commenter also suggested allocating costs to the party originating an order, stating that this 
would “streamline the process and more accurately allocate costs...”
423
 
One commenter expressed concerns about the imposition of CAT fees on CAT Executing 
Brokers.
424
  The commenter stated that charging CAT Executing Brokers “inordinately burdens 
Broker Dealers, especially small to medium-sized firms.”
425
  This commenter recommended 
using instead the existing structure for regulatory fees, including “the efficiencies afforded by the 
 
418
  Id.  Another commenter similarly objected to the imposition of CAT fees on Executing Brokers.  This 
commenter, a major wholesaler who also serves as the Executing Broker on many transactions, stated it 
was unjust to disproportionately burden Executing Brokers in this manner, and noted that the cost of 
designing processes and systems to route the fees to the appropriate parties could be prohibitive to smaller 
brokers.  See Virtu Letter at 4–5. 
419
  See SIFMA May 2023 Letter at 5. 
420
  Id. at 6. 
421
  Id. at 5. 
422
  Id. at 6. 
423
  See Citadel July Letter at 20.  See also id. at 3, 30, 31. 
424
  See DASH April 2023 Letter.  See also DASH July 2023 Letter at 1–2. 
425
  See DASH April 2023 Letter at 1.  See also DASH January 2023 Letter at 1; DASH July 2023 Letter at 1.  

76 
current structure, and the resulting alleviation of risk.”
426
  In this regard, the commenter stated 
that “Clearing Firms are best suited to process the collection of fees as it can occur at trade 
settlement and the cost is ultimately borne by the end beneficiary of each transaction.”
  427
  The 
commenter also stated that small and medium-sized executing brokers could expect a significant 
negative impact on their net capital as a result of the proposal, stating, “...the firms will be 
forced to recoup these costs by passing them on to their clients, either in the form of higher 
commission rates or as a separate transactional fee.  Using [Clearing Member Trade Agreement] 
commission invoicing and/or SEC 31(b) fees in a broker-to-broker relationship as a proxy, these 
invoices are generally paid well after the 60-day milestone to qualify the receivable as ‘good 
capital.’”
428
  
In response to the comment about the definition of CAT Executing Broker and the billing 
and collection process being better suited for clearing firms, CAT LLC stated that the proposed 
assessment of CAT fees on CAT Executing Brokers only addresses the party obligated to pay the 
CAT fee.
429
  CAT LLC stated that a CAT Executing Broker would not be required to follow a 
particular process for paying CAT fees, as it could pay the fees itself, or require a clearing firm 
or other third party to pay CAT fees on its behalf.
430
  For example, CAT LLC stated that a CAT 
Executing Broker can decide to enter into an arrangement with its clearing broker for the 
clearing broker to collect and pass-through the CAT fees like it does in other contexts.
431
   
 
426
  DASH January 2023 Letter at 3.  See also DASH April 2023 Letter at 1–2; DASH July 2023 Letter at 1–2. 
427
  DASH April 2023 Letter at 1.  See also DASH January 2023 Letter at 1; DASH July 2023 Letter at 1. 
428
  DASH January 2023 Letter at 2; DASH July 2023 Letter at 1–2. 
429
  See CAT LLC May 2023 Response Letter at 12; CAT LLC July 2023 Response Letter at 3. 
430
  See CAT LLC July 2023 Response Letter at 3. 
431
  CAT LLC May 2023 Response Letter at 12. 

77 
With respect to alternatives to the proposed definition of the CAT Executing Broker, 
CAT LLC stated that the “originating broker” suggestion was from a commenter who had 
previously recommended charging executing brokers in comment letters on the Prior Funding 
Model Proposal.
432
  CAT LLC stated that the commenter’s objection to charging executing 
brokers in the Executed Share Model was an attempt to further delay the approval of a funding 
model and the resultant payment of CAT fees by its members, rather than expressing a concern 
about the merits of charging executing brokers.
433
   
In response, the commenter stated that the Operating Committee mischaracterized the 
commenter’s position on the assessment of CAT fees to executing brokers by stating in the CAT 
LLC Response Letter that the commenter changed its position on this proposed change to delay 
adoption of a CAT funding model.
434
  The commenter represented that it stated in comment 
letters it submitted on the Prior Funding Model Proposal
435
 that initially proposed the use of 
executing brokers
436
 that (1) the Participants did not define who would be an executing broker in 
a transaction, (2) a clear definition is necessary for Industry Members to understand when they 
would be assessed costs under the Executed Share Model, and (3) its understanding was that the 
concept of executing broker generally refers to the Industry Member that initiates an order.
437
  
The commenter stated that the Participants only provided a definition of executing broker in the 
Proposed Amendment.
438
  The commenter stated that it provided concerns about the proposed 
 
432
  Id. at 2.  See also supra note 409. 
433
  CAT LLC May 2023 Response Letter at 3. 
434
  See SIFMA June 2023 Letter at 5. 
435
  See supra note 409. 
436
  See supra note 410.  
437
  See SIFMA June 2023 Letter at 5. 
438
  Id. 

78 
definition in its May 2023 comment letter, which the commenter stated were mischaracterized by 
the Operating Committee in the CAT LLC Response Letter in an attempt to rush the 
Commission to a decision on the Proposed Amendment.
439
 
In response to the comment that imposing fees on executing brokers would result in an 
inequitable allocation of fees and the suggestion that the use of message traffic as the basis of 
fees would have ensured that all CAT Reporters would contribute to CAT’s funding, CAT LLC 
disagreed and stated that because the message traffic is separate from whether or not a 
transaction occurs, fees based on message traffic may not correlate with common revenue or fee 
models.
440
  CAT LLC stated that, as a result, CAT fees based on message traffic could impose an 
outsized adverse financial impact on certain Industry Members, raising this same issue of an 
inequitable allocation of fees.
441
  Further, in response to the commenter’s criticism that in 
charging executing brokers, the fee would be charged to a subset of Industry Members and, as a 
result, that subset of Industry Members would incur expenses that other Industry Members would 
not incur, CAT LLC stated that it continues to believe that charging CAT Executing Brokers 
would satisfy the requirements of the Exchange Act.
442
  CAT LLC stated that in the past, the 
Commission has approved fees that are charged to some, but not all, broker-dealers.
443
  CAT 
LLC noted that, for example, FINRA’s TAF is assessed to a subset of FINRA members – that is, 
it is assessed on the sell side of member transactions.
444
  CAT LLC also stated that the options 
exchanges charge options regulatory fees per executed contract side, and, for both options and 
 
439
  Id. at 5–6. 
440
  See CAT LLC May 2023 Response Letter at 4. 
441
  Id. 
442
  Id. at 3. 
443
  Id. 
444
  Id. 

79 
equities, Section 31-related fees are charged to the sell-side in a transaction.
445
  CAT LLC 
recognized that, under the proposal to charge CAT Executing Brokers, the CAT Executing 
Broker, but not other Industry Members involved in a given order lifecycle, would be required to 
pay the CAT fees, and that Industry Members that sought to recoup such fees would have to 
develop processes to collect such fees from their clients.
446
  CAT LLC stated that this regulatory 
requirement would have a similar effect as other types of regulatory fees, such as the FINRA 
TAF, the options regulatory fee and Section 31-related sales value pass-through fees because, 
“[i]n each such case, a subset of broker-dealers is required to pay a transaction-based regulatory 
fee, and those broker-dealers seeking to recover such fees from other broker-dealers or non-
broker-dealers have established processes with regard to the pass-through of such fees.”
447
 
CAT LLC further stated that it disagrees with charging an originating broker instead of 
an executing broker because there are already several existing examples of transaction-based fees 
being assessed to executing brokers as opposed to the originating broker (e.g., TAF, Section 31 
fees, ORF fees), and it disagrees with the assertion that charging originating brokers would be 
easier.
448
  CAT LLC stated that charging the originating Industry Member would be difficult to 
implement and would increase the costs of implementing CAT fees, whereas charging CAT 
Executing Brokers is simple, straightforward and in line with existing fee and business models 
because for any given trade (buy or sell), there is only one CAT Executing Broker to which 
shares can be allocated.
449
  As such, CAT LLC stated that “charging the CAT Executing Broker 
 
445
    Id. 
446
  See CAT LLC May 2023 Response Letter at 4. 
447
  Id. 
448
  Id. at 5.  See also CAT LLC July 2023 Response Letter at 3–4, 4 (detailing challenges of allocating CAT 
costs to originating brokers). 
449
  See CAT LLC May 2023 Response Letter at 5.  See also CAT LLC July 2023 Response Letter at 3. 

80 
is simple and straightforward, and leverages a one-to-one relationship between billable events 
(trades) and billable parties.”
450
  CAT LLC stated that, 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.”
451
  Therefore, CAT LLC stated that one commenter’s
452
 “suggestion of a model that 
begins the funding analysis with new order events (e.g., MENO or MONO events) and then 
looks for any execution or fulfillment that is directly associated with that event does not reduce 
or mitigate the complexity associated with aggregation.”
453
  Further, CAT LLC stated that the 
commenter’s recommendation would not work with the design of the CAT system, stating that 
“[w]hile 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.”
454
  CAT LLC also stated that charging originating brokers would implicate issues 
related to lifecycle linkage rates, and issues related to corrections, cancellations and allocations, 
but charging CAT Executing Brokers would avoid such complications.
455
  CAT LLC also stated 
that allocating to the originating broker would not include Industry Members that were only 
involved in routing and execution, which would include “some of the largest Industry 
Members,”
456
 and that these Industry Members “are not involved in the origination of orders or 
 
450
  CAT LLC May 2023 Response Letter at 5.  See also CAT LLC July 2023 Response Letter at 4. 
451
  CAT LLC May 2023 Response Letter at 5.  See also CAT LLC July 2023 Response Letter at 3. 
452
  See SIFMA May 2023 Letter at 5. 
453
  See CAT LLC May 2023 Response Letter at 5. 
454
  Id. 
455
  Id. 
456
  See CAT LLC July 2023 Response Letter at 3. 

81 
originate few orders in relation to their overall market activity.”
457
  Furthermore, CAT LLC 
stated that originating brokers would also need to establish processes for paying CAT fees, just 
as CAT Executing Brokers would.
458
   
One commenter expressed uncertainty about CAT LLC’s response that some of the 
largest Industry Members are not involved in order origination or originate few orders relative to 
their market activity, stating that it is unclear to whom the statement is referring since the 
executing broker and the originating broker would be the same firm in the case of proprietary 
trading activity.
459
  Additionally, the commenter stated that the originating broker model should 
be pursued if it dramatically reduces market-wide implementation costs with a marginal increase 
in CAT costs, noting that Industry Members could bear most, if not all, CAT costs to implement 
the originating broker model.
460
  The commenter stated that, before proceeding, the CAT 
Operating Committee must publish an analysis of the costs and benefits of the executing broker 
and originating broker models including any differences in CAT implementation costs and 
Industry Member implementation costs.
461
   
In response to a comment stating that executing brokers lacked systems and processes to 
recover costs from their clients and would either choose to absorb the CAT fees or exit the 
business because of the investments necessary for the cost-recovery process,
462
 CAT LLC stated 
that those Industry Members that pass-through CAT fees will accordingly need to develop 
processes to recover the fees from their clients, like they do for other regulatory-related fees, like 
 
457
  Id. 
458
  Id. 
459
  See Citadel August Letter at 6. 
460
  Id. 
461
  Id. 
462
  See Virtu Letter at 5. 

82 
the TAF, the options regulatory fee and Section 31-related fees.
463
  CAT LLC also stated that 
CAT Executing Brokers would “have full discretion as to whether and the manner and extent to 
which they pass on their CAT fees, if at all,” noting that “a CAT Executing Broker could round 
up its fees to the nearest cent, or decide to charge for, or not charge for certain transactions, or 
assess a specific fee or incorporate the costs into other fee programs.”
464
  CAT LLC stated that 
assessing a transaction-based fee to an executing broker and the executing broker deciding 
whether and how to pass-through its costs to clients is “not new or novel.”
465
  Finally, CAT LLC 
noted that the Plan Processor would provide trade-by-trade data to CAT Executing Brokers, and 
will offer a training program for CAT Executing Brokers to help them understand their CAT 
bills.
466
   
In the Commission’s view, CAT LLC’s definition of “CAT Executing Broker” is 
reasonable given that the Executed Share Model is based upon the calculation of executed 
equivalent shares (emphasis added),
467
 and the executing brokers are reasonably suited to know 
their own volume and plan for future volume of executed equivalent shares to pay the CAT fees.  
One commenter’s suggested approach would also result in the assessment of fees on a subset of 
Industry Members –originating brokers–and thus could raise similar allocation concerns as those 
raised by the commenter about the proposed approach.
468
  In addition, as discussed below, the 
Commission agrees with the Participants that the ease of administration in using the transaction 
 
463
  See CAT LLC July 2023 Response Letter at 9.  See also id. at 5. 
464
  CAT LLC July 2023 Response Letter at 10.  See also id. at 5 (adding that broker-dealers pass-through fees 
to customers related to Section 31 fees). 
465
  Id. 
466
  Id. at 10.  See also id. at 5. 
467
  See Notice, supra note 7, 88 FR at 17086. 
468
  See SIFMA May 2023 Letter at 5, 6. 

83 
reports to identify the executing broker is an advantage of the Proposed Amendment.  Given the 
similar issues with either approach—either charging the fees to a subset of Industry Members 
based on whether they are the “CAT Executing Broker” or the originating broker—it is 
reasonable to choose the less administratively burdensome of the two options.  Accordingly, the 
assessment of CAT fees on CAT Executing Brokers is reasonable.
  469 
  
In response to the commenter that questioned CAT LLC’s response that some of the 
largest Industry Members are not involved in order origination or originate few orders relative to 
their market activity,
470
 the Commission is not relying on this statement by CAT LLC and 
understands that the executing broker and the originating broker would be the same in the case of 
proprietary trading activity.  Although one commenter suggested that the originating broker 
model should be pursued if it dramatically reduces market-wide implementation costs with a 
marginal increase in CAT costs,
471
 the Commission believes that the executing broker model is 
reasonable.  The Commission understands the argument that charging originating brokers instead 
of executing brokers would be easier and more cost effective for the executing brokers, but it 
would be at the expense of the originating brokers.  The Commission also understands that 
charging executing brokers instead of originating brokers is easier and more cost effective for the 
CAT Plan Processor.  Using CAT Data, the CAT Plan Processor can more easily determine 
which executing broker to charge.  On the other hand, if the CAT Plan Processor were to charge 
originating brokers, the Commission believes the CAT Plan Processor would have to rely on 
linkages, which may not be one-for-one in all circumstances, to determine which originating 
broker to charge for an execution.  And this difficulty not only would add to the costs of the CAT 
 
469
  See 17 CFR 242.608(b)(2).  
470
  See Citadel August Letter at 6. 
471
  Id. 

84 
but also would impact transparency and potentially the relative simplicity of the CAT Fees.  
Moreover, the Proposed Amendment does not address how executing brokers pass-through CAT 
fees to their customers.     
Using transaction reports to identify the transaction for purposes of calculating the CAT 
fees as well as the CAT Executing Broker for each transaction for purposes of calculating the 
CAT fees is a straightforward and more objective method of identifying executing brokers than 
other methods, such as identifying an originating broker through an evaluation of CAT 
linkages.  Although the definition of “CAT Executing Broker” may not be used by the industry 
or universally accepted, CAT Executing Brokers will be able review their transactions reports 
and request details regarding the calculation of their fees, which should allow them to better 
assess the impact of the Executed Share Model on their business models.
472
  It is appropriate for 
CAT LLC to establish policies and procedures on the treatment of adjustments related to 
cancellations and corrections.  CAT LLC stated that to the extent changes are made to the 
transaction reports on or before the day the CAT fees are determined for the given month, the 
changes will be reflected in the monthly bill.
473
  To the extent that changes are made to the 
transaction reports after the day the CAT fees are determined for that month, subsequent bills 
will reflect any changes via debits or credits, as applicable.
474
  It is appropriate to adjust an 
Industry Member’s or Participant’s CAT fees for cancellations and corrections when such 
adjustments are made to the transaction reports that are used for calculate CAT fees for that 
 
472
  See proposed Section 11.3(a)(iv)(A) and 11.3(b)(iv)(A).  See also infra Section III.A.7. (Calculation 
Information; Billing and Collection of CAT Fees). 
473
  See Notice, supra note 7, 88 FR at 17089. 
474
  Id. 

85 
month.  Additionally, under Section 11.1(d) of the CAT NMS Plan, the Operating Committee is 
required to adopt policies and procedures regarding the billing and collection of fees.
475
  
It is the Commission’s view that charging CEBBs and CEBSs is reasonable.  The 
Executed Share Model recognizes that there are three parties who play significant roles in 
transactions reportable to the CAT: the Participant, the buy-side and the sell-side.
476
  The 
Proposed Amendment also is based on executed equivalent shares (emphasis added).
477
  As such, 
CAT LLC stated that charging the CEBBs and CEBSs would reflect the executing role the 
CEBB and CEBS have in each transaction.
478
  Additionally, charging CEBBs and CEBSs is in 
line with the use of transaction reports from the exchanges and FINRA’s equity trading reporting 
facilities for calculating the CAT fees.
479
  Specifically, these transaction reports identify CEBBs 
and CEBSs, so charging such entities potentially streamlines the fee charging process.
480
  CAT 
LLC also explained that charging both the buy-side and the sell-side of a transaction would be 
consistent with other fees, such as the options regulation fee.
481
 
In Rule 613, the Commission made the determination that the costs of the CAT should be 
shared by the Participants and Industry Members.  Charging CAT Executing Brokers, clearing 
firms or “originating brokers” all would impose the costs initially on a subset of Industry 
Members.  As discussed above, given that the charges are based on executed equivalent shares, it 
makes sense to use the CAT Executing Brokers as the immediate recipients of the charge.  
 
475
  See CAT NMS Plan, supra note 2, at Section 11.1(d). 
476
  See Notice, supra note 7, 88 FR at 17104. 
477
  Id. at 17086.  
478
  Id. at 17103. 
479
  Id. 
480
  Id. 
481
  Id. at 17108. 

86 
Accordingly, the Commission agrees with CAT LLC that it is reasonable to impose the charge 
on CAT Executing Brokers.  The Commission acknowledges that charging CEBBs and CEBSs 
would impose a burden on such firms, which could potentially have an effect on their net capital.  
However, currently, such firms regularly pay transaction-based fees to the Participants, which 
they may pass-through to their customers who, in turn, could pass their CAT fees to their 
customers, until the fee is imposed on the ultimate participant in the transaction.
482
  Additionally, 
unlike clearing firms that may simply clear a trade on behalf of the executing broker, executing 
brokers are always parties to a transaction, including instances that may result in CAT costs but 
not in actual trades, such as unexecuted orders.  The Commission therefore agrees with CAT 
LLC that assessing Industry Members CAT fees on CEBBs and CEBSs would be reasonable for 
their “executing role” in each transaction.
483
    
5. Prospective CAT Fees 
   a. Fee Rate Formula 
Under the Executed Share Model, Participants, CEBSs and CEBBs would be subject to 
fees designed to cover the ongoing budgeted costs of the CAT, as determined by the Operating 
Committee.
484
  Each Participant and CAT Executing Broker would be required to pay a CAT Fee 
related to Prospective CAT Costs for each transaction in Eligible Securities in the prior month 
based on CAT Data.
485
  CAT Fees would be calculated by multiplying the executed equivalent 
 
482
  See Notice, supra note 7, 88 FR at 17103. 
483
  Id. 
484
  See proposed Section 11.3(a)(i)(A)(I) and (II); proposed Section 11.3(a)(iii)(A). 
485
  See proposed Section 11.3(a)(ii)(A) and (iii)(A). 

87 
shares in the transaction by one-third and the applicable “Fee Rate.”
486
  The Commission 
received no comments on the Fee Rate Formula. 
At the beginning of each year, the Operating Committee would set the Fee Rate to be 
used to determine CAT Fees.
487
  To calculate the Fee Rate for Prospective CAT Costs, the 
Operating Committee would divide the reasonably budgeted CAT costs by the reasonably 
projected total executed equivalent share volume of all transactions in Eligible Securities for that 
year.
488
  The Operating Committee would base the projected total executed equivalent share 
volume on the total executed equivalent share volume of transactions in Eligible Securities from 
the prior twelve months.
489
  Additionally, CAT LLC would permit the Operating Committee to 
use its discretion to analyze likely volume for the upcoming year
490
 and Participants would be 
required to describe the calculation of the projection in their fee filings submitted to the 
Commission pursuant to Section 19(b) to implement the CAT Fee for Industry Members.
491
  The 
Operating Committee also would be required to perform a mid-year adjustment of the Fee Rate 
for CAT Fees related to Prospective CAT Costs.
492
  
 CAT LLC proposed Section 11.3(a)(i)(A)(I) of the CAT NMS Plan to describe the annual 
calculation of the Fee Rate and the requirement for Participants to file a fee filing for CAT Fees 
to be charged to Industry Members calculated using the Fee Rate.  Under the Executed Share 
Model, the Operating Committee will calculate the Fee Rate by dividing the reasonably budgeted 
 
486
  Id.  
487
  See proposed Section 11.3(a)(i)(A)(I).  The Fee Rate would be established through a majority vote of the 
Operating Committee.  See Notice, supra note 7, 88 FR at 17108.  
488
  See proposed Section 11.3(a)(i)(A)(I).  
489
  See proposed Section 11.3(a)(i)(D). 
490
  See Notice, supra note 7, 88 FR at 17094. 
491
  See proposed Section 11.3(a)(iii)(B); 15 U.S.C. 78s(b). 
492
 See proposed Section 11.3(a)(i)(A)(II). 

88 
CAT costs for the year by the reasonably projected total executed equivalent share volume of all 
transactions in Eligible Securities for the year.
493
  Should the budgeted costs be higher than 
actual costs, any budget surplus will be credited against the fees for the following year, as CAT 
LLC cannot hold higher than a 25% reserve.
494  
Once the Operating Committee has approved such Fee Rate, the Participants shall be 
required to file with the Commission, pursuant to Section 19(b) of the Exchange Act,
495
 CAT 
Fees to be charged to Industry Members calculated using such Fee Rate.
496
  Participants and 
Industry Members will be required to pay CAT Fees calculated using this Fee Rate once such 
CAT Fees are in effect with regard to Industry Members in accordance with Section 19(b) of the 
Exchange Act.
497
    
 Proposed Section 11.3(a)(i)(A)(II) of the CAT NMS Plan describes the mandatory mid-
year calculation of the Fee Rate and the requirement for Participants to file a fee filing for CAT 
Fees to be charged Industry Members calculated using the Fee Rate.  Under the Executed Share 
Model, the Operating Committee will adjust the Fee Rate once mid-year
498
 by dividing the 
reasonably budgeted CAT costs for the remainder of the year by the reasonably projected total 
executed equivalent share volume of all transactions in Eligible Securities for the remainder of 
the year.
499
  Once the Operating Committee has approved the new Fee Rate, the Participants 
shall be required to file with the Commission, pursuant to Section 19(b) of the Exchange Act, 
 
493
  See proposed Section 11.3(a)(i)(A)(I). 
494
  See infra Section III.A.5.c (Reserves). 
495
  15 U.S.C. 78s(b). 
496
  See proposed Section 11.3(a)(i)(A)(I). 
497
  Id. 
498
  See proposed Section 11.3(a)(i)(A)(II). 
499
  Id. 

89 
CAT Fees to be charged to Industry Members calculated using the new Fee Rate.
500
  Participants 
and Industry Members will be required to pay CAT Fees calculated using this new Fee Rate once 
such CAT Fees are in effect with regard to Industry Members in accordance with Section 19(b) 
of the Exchange Act.
501
 
 CAT LLC proposed to add Section 11.3(a)(i)(A)(III) to the CAT NMS Plan to state that 
CAT Fees related to Prospective CAT Costs do not sunset automatically; such CAT Fees would 
remain in place until new CAT Fees are in place with a new Fee Rate.
502
   
CAT LLC proposed to add Section 11.3(a)(i)(A)(IV) to the CAT NMS Plan to provide 
that the first CAT Fee may commence at the beginning of the year or during the year.  If it were 
to commence during the year, the CAT Fee would be calculated as if it were a mid-year 
calculation.
503
 
The proposed recovery of Prospective CAT Costs is appropriate.  It is appropriate to 
require that each Participant, CEBB and CEBS pay a CAT Fee related to Prospective CAT Costs 
for each transaction in the prior month based on CAT Data.
504
  Basing the CAT Fee on 
transaction data from the prior month is appropriate as it is recent in time and therefore more 
reflective of current market data, and the Commission did not receive any comments on this 
issue.   
The manner in which the Fee Rate for Prospective CAT Costs will be calculated (i.e., by 
dividing the CAT costs reasonably budgeted for the upcoming year by the reasonably projected 
 
500
  Id. 
501
  Id. 
502
  See proposed Section 11.3(a)(i)(A)(III). 
503
  See proposed Section 11.3(a)(i)(A)(IV). 
504
  See proposed Section 11.3(a)(ii)(A) and (iii)(A). 

90 
total executed equivalent share volume of all transactions in Eligible Securities for the year) is 
reasonable.
505
  The use of projected executed equivalent share volume in determining the Fee 
Rate is appropriate because it would provide the likely volume for the year to be used as the 
denominator.  It is reasonable to use the prior twelve months to determine the projected total 
executed equivalent share volume of all transactions in Eligible Securities for the year
506
 because 
it would be the most recent data available to use to make a projection needed to calculate the Fee 
Rate, and the most recent data is on balance more likely to resemble the near future. 
Additionally, as noted above, that the Commission agrees with CAT LLC’s analysis that “trading 
activity provides a reasonable proxy for cost burden on the CAT, and therefore is an appropriate 
metric for allocating CAT costs among CAT Reporters.”
507
  Further, requiring that the CAT 
costs be “reasonably budgeted” and projected total executed equivalent share volume be 
“reasonably projected” is designed to help impose some discipline or constraints in the fee 
setting process.  It is reasonable for CAT LLC to permit the Operating Committee to project the 
upcoming volume for the upcoming year.
508
  It is not possible to know exactly what the volume 
will be before the year begins, so a projection will be necessary.  If the volume turns out to be 
higher than projected, then CAT LLC will be able to use its reserve to cover any shortage.  If it is 
lower, resulting in a budget surplus, the CAT fees for the following year would be lower.
509
  
Furthermore, since the Participants would be required to describe the calculation of the projected 
total executed equivalent share volume in the fee filings submitted to the Commission, pursuant 
 
505
  See proposed Section 11.3(a)(i)(A)(I). 
506
  See proposed Section 11.3(a)(i)(D). 
507
  See Notice, supra note 7, 88 FR at 17103. 
508
  Id. at 17094. 
509
  See infra Section III.A.5.c (Reserves). 

91 
to Section 19(b) of the Exchange Act, to implement CAT Fees for Industry Members, the public 
will have an opportunity to review the projection and provide comment.
510
 
The annual and mid-year adjustments of the Fee Rate for Prospective CAT Costs
511
 are 
appropriate because they would ensure that CAT Fees related to Prospective CAT Costs would 
stay aligned with changes to the budget and projected volume occurring as the year progresses 
with contemporaneous data.  Additionally, calculating a CAT Fee that starts mid-year as if it 
were a mid-year Fee Rate calculation is appropriate because calculating it that way would base 
the CAT Fee on the budgeted CAT costs and projected total executed equivalent share volume of 
all transactions in Eligible Securities for the remainder of the year, rather than for the entire year.  
This is an appropriate treatment of a CAT Fee that would commence mid-year, not at the 
beginning of the year. 
   b. Budgeted CAT Costs 
The calculation of the Fee Rate for CAT Fees related to Prospective CAT Costs requires 
the determination of the Budgeted CAT Costs for the year or other relevant period.
512
  Proposed 
Section 11.3(a)(i)(C) of the CAT NMS Plan provides that the budgeted CAT costs for the year 
shall be comprised of all reasonable fees, costs and expenses reasonably budgeted to be incurred 
by or for the Company in connection with the development, implementation and operation of the 
CAT as set forth in the annual operating budget approved by the Operating Committee pursuant 
 
510
  See proposed Section 11.3(a)(iii)(B). 
511
  See proposed Section 11.3(a)(i)(A)(I) and (II).  
512
  See proposed Section 11.3(a)(i)(A)(I). 

92 
to Section 11.1(a) of the CAT NMS Plan, or as adjusted during the year by the Operating 
Committee.
513
   
Section 11.1(a) of the CAT NMS Plan describes the requirement for the Operating 
Committee to approve an operating budget for CAT LLC on an annual basis.  It requires the 
budget to “include the projected costs of the Company, including the costs of developing and 
operating the CAT for the upcoming year, and the sources of all revenues to cover such costs, as 
well as the funding of any reserve that the Operating Committee reasonably deems appropriate 
for prudent operation of the Company.”
514
  CAT LLC proposed to amend Section 11.1(a) to 
require the Operating Committee to approve a reasonable operating budget for CAT LLC on an 
annual basis.
515
  
CAT LLC also proposed to amend Section 11.1(b) of the CAT NMS Plan to add a 
reference to Section 11.1.  Currently, Section 11.1(b) states that “[s]ubject to Section 11.2, the 
Operating Committee shall have the discretion to establish funding for the Company” including 
establishing fees to be paid by the Participants and Industry Members (that shall be implemented 
by the Participants)...”
516
  CAT LLC proposed to add a reference to Section 11.1 so that 
“[s]ubject to Section 11.1 and Section 11.2” the Operating Committee would have the discretion 
 
513
  CAT LLC proposed to use budgeted CAT costs in calculating CAT Fees rather than costs incurred.  CAT 
LLC explained that using budgeted CAT costs is necessary to build financial stability to support the 
Company as a going concern, in accordance with the funding principle in Section 11.2(f) of the CAT NMS 
Plan, because it would allow CAT LLC to collect fees before bills become payable.  CAT LLC stated that 
if CAT Fees were only collected after bills become payable, Participants would have to continue to fund 
the CAT for all CAT costs to pay bills as they are due.  See Notice, supra note 7
, 88 FR at 17114. 
514
  See CAT NMS Plan, supra note 2, at Section 11.1(a). 
515
  See proposed Section 11.1(a). 
516
  See CAT NMS Plan, supra note 2, at Section 11.1(b). 

93 
to establish funding for the Company.
517
  CAT LLC explained that this proposed change is 
relevant because Section 11.1 relates to the budget and the budget is used to calculate fees.
518
   
CAT LLC also proposed to add subparagraph (i) to Section 11.1(a) of the CAT NMS 
Plan to list the types of CAT costs to be included in the budget.  Specifically, CAT LLC 
proposed to state that “[w]ithout limiting the foregoing, the reasonably budgeted CAT costs shall 
include technology (including cloud hosting services, operating fees, CAIS operating fees, 
change request fees and capitalized developed technology costs), legal, consulting, insurance, 
professional and administration, and public relations costs, a reserve, and such other categories 
as reasonably determined by the Operating Committee to be included in the budget.”
519
    
Certain commenters noted a lack of detail provided on the cost categories.
520
  One 
commenter stated that the budget line item categories are too high level.
521
  The commenter 
urged the inclusion of much greater detail and specificity on the budget spending choices, 
especially in technology,
522
 to allow Industry Members and the public to understand and evaluate 
 
517
  See Notice, supra note 6, 88 FR at 17090. 
518
  Id. 
519
  Id.  CAT LLC has stated that it will consider providing additional detailed subcategories regarding 
technology costs, but notes that what it is currently providing is consistent with what is made publicly 
available on its website.  CAT LLC has stated that it will consider the need to provide additional detailed 
subcategories for any area besides technology, both because technology costs account for the majority of 
the budget and because it is not considered “best practices” to disclose detailed legal or insurance 
information, as these are particularly sensitive.  Id.  Detailed information is always available to the 
Commission for review upon request.  Id. 
520
  See SIFMA January 2023 Letter at 6; Citadel July Letter at 13–14; FIA Letter at 2–5; Letter to Vanessa 
Countryman, Secretary, Commission, from Joseph Corcoran, Managing Director, Associate General 
Counsel and Ellen Greene, Managing Director, Equities and Options Market Structure, SIFMA, and 
Howard Meyerson, Managing Director, Financial Information Forum, dated July 31, 2023 (“FIF and 
SIFMA Letter”), at 8. 
521
  See SIFMA January 2023 Letter at 6. 
522
  Id. (stating that CAT spending on technology should be broken into further refined cost breakdowns of the 
following categories: cloud hosting services, operating fees, CAIS operating fees and change request fees).  
The proposed breakdown is consistent with what is currently provided to the public.  See Notice, supra note 
6, 88 FR at 17090.  See also FIF and SIFMA Letter at 8. 

94 
CAT spending decisions.
523
  Similarly, other commenters requested more transparency into the 
drivers of CAT costs, in particular, technology costs, which they stated is the largest expense 
item.
524
  One commenter stated that their “concerns are exacerbated by the general lack of 
transparency coming from the CAT Operating Committee.  Despite continued requests for 
information about key drivers of the rapidly growing CAT costs, the CAT Operating Committee 
points to high-level financial and operating budgets published by the Committee that merely 
provide broad categories of costs and expenses.  Likewise, in the current structure, the SEC staff 
also have no incentive to control costs...This process does not afford industry members with 
appropriate notice of, and opportunity to comment on, material changes to the CAT.  Nor does it 
adhere to the requirements under the Exchange Act to weigh the costs and benefits of proposed 
changes to the NMS plan.”
525
  Another commenter stated that the Operating Committee refuses 
to provide cost transparency, such as more details on the broad expense categories provided in 
the operating expenses (as well as the Historical CAT Costs) provided in the Proposed 
Amendment.
526
  The commenter believes that the lack of transparency into costs would prevent 
the Commission from finding that the proposed allocation methodology is reasonable
527
 and 
would raise concerns that inappropriate expenses would be allocated to Industry Members, like 
 
523
  See SIFMA January 2023 Letter at 6. 
524
  See FIF and SIFMA Letter at 8.  The commenter stated that the 2023 budget divides technology costs, 
estimated to be $222.5 million and 95.3% of total operating costs, into four categories with cloud hosting 
services represents 75.5% of estimated CAT costs for 2023.  Id.  The commenter requested the Commission 
and the Participants to make publicly available the financial terms of the contract between the Participants 
and Amazon Web Services (“AWS”), the cloud hosting services provider, and publish all invoices from 
AWS.  Id.  The Commission declines to mandate the publication of a contract between private parties.  
Similarly, the Commission declines to mandate the publication of AWS invoices.  The Participants can 
choose to publish this information if they believe it is appropriate.  
525
  See FIA Letter at 2–5. 
526
  See Citadel July Letter at 13–14.  See also id. at 23. 
527
  Id. at 2, 15, 26. 

95 
litigation expenses incurred by the Operating Committee against the Commission, and expenses 
prohibited by the Financial Accountability Amendments from being recovered by the Operating 
Committee.
528
  The commenter also stated that the Proposed Amendment lacks sufficient detail 
for the Commission to perform the required economic analysis.
529
   
The commenter suggested enhancements to improve budget transparency.
530
  The 
commenter suggested that all CAT operating budgets should remain published on the CAT 
website
531
 and that any material change to the CAT system, related technology contracts or 
implementation scope should require the filing of an NMS plan amendment explaining the 
necessity of the change and include a robust cost-benefit analysis.
532
   
In addition, the commenter suggested that exchanges be responsible for costs that exceed 
the budget in order to incentivize cost control,
533
 and that Industry Members should not be 
allocated costs for matters specifically for the benefit of the Operating Committee or the 
Commission (such as costs related to litigation “or filings that are inconsistent with the Exchange 
Act”
534
), stating that “Industry Members should also not be allocated costs relating to how data is 
presented to, and used by, regulatory Staff at the SROs or the Commission.”
535
  Furthermore, the 
 
528
  Id. at 2. 
529
  Id. at 11.  Rule 613(a)(5) of Regulation NMS requires the Commission to conduct an assessment of the 
Proposed Amendment’s impact on efficiency, competition and capital formation, which is not the same 
economic analysis as the Commission conducts when engaged in a rulemaking.  17 CFR 242.613(a)(5).  
The Proposed Amendment contains the information needed for the Commission to conduct this assessment.  
See infra Section IV.  See also infra note 1044. 
530
  See Citadel July Letter at 33–35. 
531
  Id. at 3, 34. 
532
  Id.  See also FIF and SIFMA Letter at 13. 
533
  See   Citadel July Letter at 3, 32. 
534
  Id. at 32. 
535
  Id. 

96 
commenter suggested that change requests that do not involve specific NMS Plan requirements 
should be allocated to the requestor, including the Commission.
536
  
Commenters also discussed a need for a cost review mechanism,
537
 with several 
commenters citing to high operating costs as evidence for the need of one.
538
  One commenter 
stated that CAT costs are increasing at an unsustainable level and need to be controlled.
539
  The 
commenter stated that the Commission lacks a process to manage CAT costs as CAT operating 
costs are not part of the Commission’s budget and do not require an appropriation.
540
  The 
commenter urged that there is a need to allow the public, the Commission and industry to have a 
better understanding of the drivers of CAT operating costs,
541
 why they have exceeded the 
operating costs estimated in the CAT NMS Plan,
542
 and why they are projected to increase 27% 
from 2022 to 2023.
543
  The commenter requested that the Commission direct the Participants to 
analyze the increase in CAT operating costs and to evaluate future expected annual CAT 
operating cost increases,
544
 and also advised the Commission not to mandate any new processing 
or reporting requirements until such analysis has concluded.
545
   
 
536
  Id. 
537
  See SIFMA May 2023 Letter at 3, 8–10; Citadel July Letter at 8, 26, 27; FIF and SIFMA Letter at 8–9; 
SIFMA AMG Letter at 3.  See also SIFMA October 2022 Letter at 5–6; SIFMA January 2023 Letter at 2, 
5–6; SIFMA June 2023 Letter at 2, n.10, 4; Virtu Letter at 4; MMI July Letter at 3–4; FIA Letter at 3, 5.  
538
  See, e.g., MMI July Letter at 3; Virtu Letter at 4, FIF and SIFMA Letter at 2, 5–9; SIFMA AMG Letter at 
3. 
539
  FIF and SIFMA Letter at 2, 5.  The commenter stated that internal costs and costs associated with trading 
workflow changes to comply with certain CAT reporting requirements should also be considered, arguing 
that these costs would significantly exceed CAT operating costs are 100% paid for by broker-dealers and 
exchanges.  Id. at 2, 5, 6.   
540
  Id. at 8.   
541
  Id. 
542
  Id. at 7, 9.   
543
  Id. at 9. 
544
  FIF and SIFMA Letter at 4. 
545
  Id. 

97 
One commenter stated that asset managers were concerned about the lack of an 
independent cost review mechanism for the CAT budget to ensure that future fees are fair and 
reasonable and spending will be appropriate and cost-effective.
546
  Similarly, another commenter 
stated that an independent cost review mechanism is necessary to ensure future CAT fees are fair 
and reasonable and to safeguard against unchecked spending.
547
  The commenter urged the 
inclusion of a mechanism to allow the public to review the annual CAT budget before it is 
finalized, since, as proposed, the public would only have the opportunity to review the CAT 
budget when the Participants submit proposed rule changes, pursuant to Section 19(b) of the 
Exchange Act,
548
 to implement CAT fees on Industry Members.
549
  The commenter also stated 
that it is unlikely that the Commission would decide that a proposed CAT fee does not meet 
Exchange Act fee standards and require the Participants to modify the CAT budget because it 
would be a lengthy, time-consuming process and due to “the regulatory value of CAT data and 
the CAT system to the Commission.”
550
  The commenter stated that the Commission is “directly 
conflicted in its role as the user and beneficiary of the CAT system for regulatory functions and 
its role as the reviewer of the CAT budget and fee filings, a conflict that is only heightened due 
to a lack of a Commission funding obligation for CAT.”
551
  The commenter also requested that 
“the Participants’ proposed budget include as a separate line-item projected usage costs and 
 
546
  See SIFMA AMG Letter at 3. 
547
  See SIFMA May 2023 Letter at 3, 8–10.  See also SIFMA October 2022 Letter at 5–6; SIFMA January 
2023 Letter at 2, 5–6; SIFMA June 2023 Letter at 2, n.10, 4; Citadel July Letter at 2, 26 (stating that that 
“the trajectory of annual operating expenses is unconstrained,” and that the “magnitude and trajectory” of 
the costs are not reasonable since Industry Members have borne nearly all CAT-related costs”);  Citadel 
August Letter at 7. 
548
  15 U.S.C. 78s(b). 
549
  See SIFMA May 2023 Letter at 8–9.  See also SIFMA June 2022 Letter at 8–9; SIFMA October 2022 
Letter at 6; SIFMA January 2023 Letter at 5, 6. 
550
  SIFMA May 2023 Letter at 9. 
551
  Id. at 9–10. 

98 
system change costs related to the Commission’s use and design of the CAT system.”
552
  
Similarly, another commenter suggested that an independent expert committee assess whether 
cost levels and third party arrangements are reasonable, and whether more cost- control measures 
are warranted,
553
 and that the Commission formally approve the CAT budget on an annual 
basis.
554
  The commenter further stated that the Proposed Amendment made no attempt to 
specify the key drivers of costs, such as explaining the requirements that resulted in significant 
cost increases, or the design alternatives the Operating Committee previously considered.
555
  The 
commenter added that Industry Members must fund a 25% reserve above budgeted amounts, and 
ad-hoc discussions between the Operating Committee and the Commission could result in higher 
costs.
556
   
The commenter also suggested enhancements to reduce overall CAT operating costs.
557
  
Specifically, the commenter suggested that the Operating Committee and the Commission stop 
making changes to the CAT to stabilize operating costs, stating that there are changes slated for 
development that are currently subject to exemptive relief, and other requirements the 
commenter believes are outside the scope of the CAT NMS Plan that would result in costs that 
outweigh benefits.
558
  The commenter suggested that the Operating Committee file an updated 
NMS plan to reflect the status quo,
559
 and work with the Commission and industry to identify 
 
552
  Id.  See also SIFMA January 2023 Letter at 6. 
553
  See Citadel July Letter at 3, 33. 
554
  Id. 
555
  Id. at 14. 
556
  Id. at 26. 
557
  See Citadel July Letter at 33–35. 
558
  Id. at 3, 32–33.  One other commenter echoed some of these same considerations.  See MMI July Letter at 
4. 
559
  See Citadel July Letter at 3, 33. 

99 
technical requirements that could be modified to reduce costs without sacrificing the key benefits 
of the CAT system, like moving timelines from T+1 to T+2.
560
  The commenter also suggested 
that steps should be taken to streamline the CAT submission process to minimize reporting errors 
and to reduce industry implementation costs, like implementing further data validation.
561
  One 
commenter stated that if the Participants “determine to charge their members fees to fund their 
share of CAT fees,” then Industry Members would bear 100% of CAT costs, and thus,“[w]ith 
little to no skin-in-the-game, the Participants will not be incentivized to control costs.”
562
  The 
commenter further stated that they join other commenters in calling for an “independent cost 
review mechanism.”
563
  
In response to the comment that suggested that all CAT operating budgets should remain 
published on the CAT website,
564
 CAT LLC stated that it publishes its annual financial 
statements from 2017-on and voluntarily publishes its annual operating budget and updates to the 
budget occurring during the year.
565
  CAT LLC stated that, in response to the comment, it 
intends that prior CAT operating budgets will stay available on the CAT website.
566
 
In response to a commenter suggesting that the exchanges be responsible for any costs 
that exceeded the approved budget,
567
 CAT LLC stated that this suggestion would not result in a 
fair and equitable allocation consistent with the Exchange Act because Industry Member trading 
 
560
  Id. 
561
  Id.   
562
  See FIA Letter at 3.  See also Citadel August Letter at 2. 
563
  FIA Letter at 5. 
564
  See Citadel July Letter at 3, 34. 
565
  See CAT LLC July 2023 Response Letter at 26. 
566
  Id. 
567
  See Citadel July Letter at 32. 

100 
activity “contributes significantly”
568
 to CAT costs and it would not be fair for Participants to 
bear CAT costs exceeding the budget if unexpected increases in trading volume resulted in the 
increased CAT costs.
569
  CAT LLC also stated that this suggestion could incentivize the 
Participants to base the budget on “the most conservative projections for future Industry Member 
data volume”
570
 to not be responsible for costs that go over the budget.
571
  In addition, CAT LLC 
noted that the Proposed Amendment would include both a requirement to adjust the Fee Rate 
during the year to address any changes in projected or actual transaction volume or budgeted or 
actual CAT costs, and an operational reserve to address shortfalls in collected fees versus actual 
CAT costs.
572
 
In response to suggestions to use an independent cost review mechanism,
573
 CAT LLC 
stated that such a review process is unnecessary because it would go beyond what is required by 
either Rule 613 or the CAT NMS Plan, and would be superfluous since any CAT fees must, prior 
to being implemented, undergo the review process detailed in Rule 608 and Section 19(b) of the 
Exchange Act.
574
  CAT LLC also noted that the Commission is entitled to request additional 
budget or cost information it views as necessary to better evaluate those fees.
575
  CAT LLC also 
stated that it already provides significant cost transparency through the public disclosure of its 
quarterly budget information and its financials, and that it is already actively engaged in cost 
 
568
  See CAT LLC July 2023 Response Letter at 12. 
569
  Id. 
570
  Id. 
571
  Id. 
572
  Id. 
573
  See SIFMA May 2023 Letter at 3, 8–10.  See also SIFMA October 2022 Letter at 5–6; SIFMA January 
2023 Letter at 2, 5–6; SIFMA June 2023 Letter at 2, n.10, 4; Citadel July Letter at 3, 33; FIA Letter at 5. 
574
  See CAT LLC May 2023 Response Letter at 10. 
575
  Id. 

101 
discipline efforts, including through a designated cost-management working group.
576
  CAT 
LLC further explained that Participants are subject to regulatory requirements to implement CAT 
and oversee their members and cannot have their compliance subject to a third party without 
such restrictions.
577
  CAT LLC added that the Commission itself could have its ability to oversee 
the securities markets undermined if CAT is subject to review by a third party without regulatory 
restrictions.
578
  In response, one commenter stated that the CAT LLC Response Letter did not 
meaningfully address its concerns about the lack of a cost control mechanism.
579
 
CAT LLC provided a further response to commenters that recommended the adoption of 
an independent cost review mechanism for CAT costs,
580
 stating that a review process is not 
necessary or appropriate.
581
  CAT LLC explained that it is already actively involved in cost 
discipline efforts, such as through a designated cost management working group, and already 
provides “significant cost transparency” by publishing its quarterly budget information and 
financial information.
582
  CAT LLC also stated that such a review process would go beyond the 
requirements of Rule 613 and would be unnecessary because changes to the funding model 
would be filed as a plan amendment under Rule 608 of Regulation NMS and CAT fees for 
Industry Members would be filed pursuant to Section 19(b) of the Exchange Act, and both 
processes would permit the public to comment on such proposals.
583
  CAT LLC further stated 
 
576
  Id. 
577
  Id. 
578
  Id. 
579
  See SIFMA June 2023 Letter at 2. 
580
  See Citadel July Letter at 33; FIA Letter at 5; MMI July Letter at 2; SIFMA June 2023 Letter at 2; id. at 
n.10; Virtu Letter at 4.   
581
  See CAT LLC July 2023 Response Letter at 19. 
582
  Id. at 20. 
583
  Id. at 19–20. 

102 
that providing a third-party that does not have regulatory obligations control over the annual 
budget could “impermissibly restrict the Participants from discharging their regulatory 
obligations” and undermine the Commission’s ability to oversee the securities markets.
584
  CAT 
LLC also responded to the commenter that urged the Commission to annually approve the CAT 
budget
585
 by stating that such an approval process would not be necessary or appropriate as CAT 
LLC is a private entity subject to the requirements of the Exchange Act, not a governmental 
entity, and CAT fees would be filed with the Commission under Rule 608 of Regulation NMS 
and Section 19(b) of the Exchange Act and subject to the Commission’s review for consistency 
with the Exchange Act.
586
  Furthermore, CAT LLC stated that the Commission can request 
budget and financial information from CAT LLC if necessary for the evaluation of CAT fee 
filings.
587
  
In response to the commenter that asked whether the Participants would have an 
incentive to manage costs because they proposed to allocate most costs to Industry Members,
588
 
CAT LLC stated that it “strongly disagrees with the suggestion that the Participants would not be 
incentivized to control CAT costs if they are only responsible for one-third of the CAT costs 
going forward.”
589
  CAT LLC stated that the Participants have been focused on cost management 
when paying 100% of CAT costs and will continue this focus since they will be paying one-third 
of CAT costs, a “significant incentive to keep costs at an appropriate level.”
590
 
 
584
  Id. at 20. 
585
  See Citadel July Letter at 33. 
586
  See CAT LLC July 2023 Response Letter at 20–21. 
587
  Id. at 21. 
588
  See FIA Letter at 4–5. 
589
  See CAT LLC July 2023 Response Letter at 26. 
590
  Id. 

103 
In response to comments expressing concern about increasing CAT operating costs,
591
 
CAT LLC described its commitment to cost management,
592
 stating that cost management is a 
top priority and that it works to reduce costs in a number of ways, including through the Cost 
Management Working Group comprised of senior members of the Participants that works to find 
and address cost management needs.
593
  CAT LLC also noted that Rule 613 and the CAT NMS 
Plan “impose significant regulatory obligations on the Participants regarding how to design, 
build and operate the CAT System” and that the Commission could compel the Participants to 
comply with Rule 613 or the CAT NMS Plan through enforcement actions if CAT LLC and the 
Participants ever fail to do so.
594
  CAT LLC stated that its largest cost driver is the processing 
and storage of CAT data in the cloud, representing 75% of all CAT costs.
595
  CAT LLC stated 
that CAT NMS Plan requirements “do not allow for any material flexibility in cloud architecture 
design choices, processing timelines (e.g., the use of non-peak processing windows), or lower-
cost storage costs,” limiting CAT LLC’s cost management efforts, and provided examples where 
CAT LLC and the Plan Processor worked to optimize cloud cost savings despite regulatory 
constraints.
596
  CAT LLC described other steps it has taken to save costs, such as through 
requests to the Commission for exemptive relief and litigation challenging the Commission’s 
interpretation of specific requirements of the CAT NMS Plan,
597
 as well as identification of other 
 
591
  See Citadel July Letter at 7–9, MMI July Letter at 1, 4, SIFMA June 2023 Letter at 4; Virtu Letter at 4. 
592
  See CAT LLC July 2023 Response Letter at 22–25. 
593
  Id. at 22. 
594
  Id. 
595
  Id. 
596
  Id. at 23. 
597
  Id. at 24. 

104 
changes that could substantially lower costs but would require exemptive relief or the filing of a 
Plan amendment.
598
   
In response to one commenter’s recommendation that CAT LLC work with the 
Commission to identify technical requirements that could be modified to reduce costs without 
sacrificing the key benefits of the CAT system,
599
 CAT LLC stated that both it and the Plan 
Processor work to identify and raise with Commission staff potential fundamental changes to the 
CAT NMS Plan that would limit costs without compromising on regulatory goals, and provided 
examples of such changes.
600
 
The Commission acknowledges the comments expressing concern about increases to the 
CAT operating budget, particularly why it is now five times the amount estimated in the CAT 
NMS Plan Approval Order,
601 
 and the comments urging the need for a cost review 
mechanism,
602 
but believes the Participants have reasonably explained why they chose not to 
include an independent cost review mechanism for budgeted CAT costs for the reasons stated 
above and in the Notice.  Given the transparency of the budget and Rule 19b-4 process, the one-
third allocation of costs to Participants, which provides them with at least some incentive to 
control costs, and the pre-existing requirement for an independent audit of all fees, costs and 
 
598
  See CAT LLC July 2023 Response Letter at 25. 
599
  See Citadel July Letter at   33. 
600
  See CAT LLC July 2023 Response Letter at 25–26. 
601
  See, e.g., Citadel August Letter at 8; Citadel July Letter at 2, 5.  The Commission acknowledges a 
commenter’s suggestion that the Commission perform its own analysis of the budget increases.  Under the 
Proposed Amendment, the Participants must submit Rule 19b-4 filings that include a discussion of the 
budget that was used to calculate the Fee Rate.  At such time the Commission, Industry Members and the 
public will have an opportunity analyze the budget.  This Order, which approves the Funding Model, does 
not weigh-in on the budgets or the resulting Fee Rates.   
602
  See SIFMA May 2023 Letter at 3, 8–10; Citadel July Letter at 8, 26, 27; FIF and SIFMA Letter at 2, 5–9; 
SIFMA AMG Letter at 3.  See also SIFMA October 2022 Letter at 5–6; SIFMA January 2023 Letter at 2, 
5–6; SIFMA June 2023 Letter at 2, n.10, 4; Virtu Letter at 4; MMI July Letter at 3–4; FIA Letter at 3, 5.   

105 
expenses incurred by the Participants prior to filing this amendment,
603
 it is reasonable not to 
have an additional independent cost-review mechanism for the reasons set forth above.  The 
Commission believes that the incentive to control costs still exists even if the Participants pass-
through to Industry Members some or most of the costs of the CAT.  This is because, in order to 
pass-through CAT costs, the Participants would have to submit rule filings under the Section 
19(b) fee filing process.  To the extent the Participants fail to control costs, their ability to 
demonstrate that a proposed fee is reasonable and consistent with the Exchange Act may be 
compromised.  While the above obligations and controls are sufficient, other cost discipline 
mechanisms proposed by CAT LLC would provide beneficial cost transparency, which would 
help keep fees and costs reasonable.
604
  For example, (1) Section 9.2(a) of the CAT NMS Plan 
requires CAT LLC to make public an audited balance sheet, income statement, statement of cash 
flows and statement of changes in equity, and requires the Operating Committee to maintain a 
system of accounting established and administered in accordance with GAAP and to prepare 
financial statements or information supplied to the Participants in accordance with GAAP;
605
 (2) 
CAT LLC publicly provides the annual operating budget and updates to the budget on the CAT 
NMS Plan website and also has held webinars about CAT costs and alternative funding models; 
(3) involvement by CAT LLC and FINRA CAT in efforts to reduce CAT costs through CAT 
working groups and review of options to lower costly needs and obtain services in a cost-
effective manner; and (4) Commission oversight of CAT funding through attendance at 
Operating Committee, Subcommittee and working group meetings and review of the Proposed 
 
603
  See CAT NMS Plan, supra note 2 at Section 6.2(a)(v)(B). 
604
  See Notice, supra n ote 7, 88 FR at 17117. 
605
  See CAT NMS Plan, supra note 2, at Section 9.2(a).  Section 9.2(a) states that unaudited statements shall be 
subject to year-end adjustments and may not include footnotes. 

106 
Amendment and any associated CAT fees.
606
  Additionally, the specification of the items 
required to be included in the operating budget is appropriate in that it will help the Commission, 
Industry Members and others evaluate CAT costs for purposes of commenting on CAT fees 
when they are proposed under Section 19(b) of the Exchange Act.
607
  This additional detail 
should provide sufficient information about the budget for the Commission to determine whether 
such proposed fees are reasonable, and obviate the need for a separate Commission approval of 
the CAT budget, as suggested by commenters.
608
  Additionally, the Commission understands 
that technology costs account for more than 90% of the CAT budget
609
 and thus believes that it 
is appropriate for the CAT NMS Plan to require the Participants to separate such costs into costs 
for cloud hosting services, operating fees, CAIS operating fees, change request fees and 
capitalized developed technology costs.
610
   
One commenter requested further information to be provided on technology costs.
611
  
The Participants would be required to describe each line item (including such technology costs) 
in the fee filings for Industry Member CAT Fees and the Historical CAT Assessment, including 
the reasons for changes in each line item from the prior CAT fee filing, and that this information 
 
606
  See Notice, supra note 7, 88 FR at 17117.  CAT LLC also lists the following as cost-control mechanisms:  
(1) CAT LLC must operate on a break-even basis, in which fees would be used to recover costs and a 
reserve, and a surplus would be treated as an operational reserve to offset future fees (see CAT NMS Plan, 
supra note 2, at Section 11.1(c)); (2) CAT LLC qualifies as a Section 501(c)(6) business league, which 
means it is not organized for profit and no part of its net earnings can inure to the benefit of any private 
shareholder or individual (26 U.S.C. 501(c)(6)).  
607
  15 U.S.C. 78s(b).   
608
  See proposed Section 11.1(a)(i); proposed Section 11.3(a)(iii)(B) (requiring the information to be provided 
in the Industry Member CAT Fee filings submitted by the Participants to be of sufficient detail to 
demonstrate that the budget for the upcoming year, or part of year as applicable, is reasonable and 
appropriate).    
609
  See Notice, supra note 7, 88 FR at 17090. 
610
  Id. at   17117. 
611
  See supra note 522. 

107 
would be provided with sufficient detail to demonstrate the budget or Historical CAT Costs (as 
applicable) is reasonable and appropriate.
612
  Because the Participants are also assessed CAT 
fees, they have at least some incentive similar to that of the Industry Members to keep costs 
down.  As discussed above, the Commission believes that this incentive still exists even if the 
Participants pass-through to Industry Members some or most of the costs of the CAT, because 
any effort to pass on costs would require Participants to submit filings under the Section 19(b)(2) 
rule filing process.  Moreover, to the extent the Industry Members have concerns about the 
amounts allocated for each category in a particular budget, those concerns can be raised when the 
fee filings are submitted for Prospective CAT fees.  The Section 19(b)(2) rule filing process 
provides an opportunity for public comments and will allow commenters to raise concerns if they 
believe fees, including CAT Fees, are not reasonable and equitably allocated, would result in 
unfair discrimination, or would impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Exchange Act.  While a commenter stated that 
the Commission is a conflicted party due to its use of the CAT and its responsibility to review 
CAT fee filings,
613
 the Commission is not a party to the Plan.
614
  Moreover, as regulator of the 
Participants, the Commission oversees and enforces compliance with the Plan, as well as 
consistency of any fees with statutory and regulatory standards.
615
   
Additionally, one commenter recommended the inclusion of the Commission’s line item 
costs associated with its usage and design of the CAT in the budget.
616
  In response,
617
 CAT LLC 
 
612
  See proposed Section 11.3(a)(iii)(B); proposed Section 11.3(b)(iii)(B)(II). 
613
  See SIFMA May 2023 Letter at 9–10. 
614
  See 17 CFR 242.608(a)(1) (stating that NMS plans are filed by two or more SROs). 
615
  See 17 CFR 242.608(b)(2), (c), (d); 17 CFR 242.613(h). 
616
  See SIFMA May 2023 Letter at 10.  CAT LLC May 2023 Response Letter at 11. 
617
  See SIFMA May 2023 Letter at 10.   

108 
responded that, because all costs related to CAT are a result of the Commission’s adoption of 
Rule 613 and the total costs are reflected in the budget, it would be impractical to break out 
Commission-specific costs and would not be useful as a practical matter.
618
  The Commission 
agrees that it would be impractical to add a Commission-specific line item in the budget, in part 
because it would be difficult to separate costs associated with Commission use of the CAT 
system from costs associated with Participant use of the CAT system.
619
  Moreover, the 
implementation of the CAT – while mandated by the Commission through Rule 613 – has been 
managed by the Participants and the Plan Processor; the Commission does not believe that any 
changes to its design have been made that are inconsistent with the CAT NMS Plan as approved 
in 2016, such that the inclusion of a line item in the budget attributing certain design costs to the 
Commission would be inaccurate and misleading.
620
   
The Commission acknowledges the enhancements a commenter suggested to reduce CAT 
operating costs by modifying the technical specifications (e.g., by moving certain timelines to 
T+2 from T+1) and streamlining the reporting submission process (e.g., implementing further 
data validation),
621
 but such suggestions are better addressed in the context of a separate plan 
amendment.  The commenter also suggested that the CAT Operating Committee and the 
Commission stop making any changes to the CAT and noted that there are several changes that 
are currently subject to exemptive relief that are slated for development.
622
  The Commission 
disagrees that the changes cited by the commenter are new CAT NMS Plan requirements; indeed 
 
618
  See CAT LLC May 2023 Response Letter at 11. 
619
  All Participants are required to use the CAT in their surveillance programs.  See CAT NMS Plan, supra 
note 2, at Section 6.10. 
620
  For further discussion, see infra Section III.A.9.c.-d. 
621
  See Citadel July Letter at 33–35. 
622
  Id. 

109 
the relevant Commission orders granting exemptive relief discuss the various requirements under 
the CAT NMS Plan that form the basis of the relief granted.
623
  Furthermore, any amendments to 
the requirements in the CAT NMS Plan must be filed with the Commission and published for 
notice and comment and generally shall not become effective unless approved by the 
Commission.
624
  Regarding the suggested enhancements to improve CAT transparency,
625
 the 
CAT NMS Plan and Rules 608 and 613 of Regulation NMS provide for sufficient advance notice 
of material changes to the CAT system and related costs.  As discussed above,  changes to the 
CAT NMS Plan must be filed with the Commission as an NMS plan amendment pursuant to 
Rule 608 of Regulation NMS and therefore be subject to notice and comment, and the 
Commission shall consider, in determining to approve the amendment, the impact of the 
amendment on efficiency, competition and capital formation.
626
  Additionally, Section 6.9 of the 
CAT NMS Plan requires a Supermajority Vote of the CAT Operating Committee in order to 
make Material Amendments
627
 to the Technical Specifications.  Section 6.9, however, does not 
provide unfettered discretion to the CAT Operating Committee to make changes to the CAT 
system; any amendments to the CAT Technical Specifications must be consistent with the CAT 
NMS Plan.  If the CAT Operating Committee or the Commission wish to impose additional 
 
623
    See Securities Exchange Act Release No. 97350 (May 18, 2023), 88 FR 33655 (May 24, 2023); Securities 
Exchange Act Release No. 90689 (Dec.16, 2020), 85 FR 83667 (Dec. 22, 2020); Securities Exchange Act 
Release No. 90688 (Dec. 16, 2020), 85 FR 83634 (Dec. 22, 2020). 
624
  See Rule 608(b)(1); 17 CFR 242.608(b)(1).  However, a plan amendment can be put into effect upon filing 
with the Commission if it is designated as solely administrative, technical or ministerial.  See Rule 
608(b)(3). 
625
  See supra notes 530–532. 
626
  Rule 613(a)(5).  17 CFR 242.613(a)(5). 
627
  The CAT NMS Plan defines a “Material Amendment” as an amendment to the Technical Specifications 
that “would require a Participant or an Industry Member to engage in significant changes to the coding 
necessary to submit information to the Central Repository pursuant to this Agreement or if it is required to 
safeguard the security or confidentiality of the CAT Data.”  See CAT NMS Plan, supra note 2
, at Section 
6.9(c). 

110 
requirements that are not contemplated by the CAT NMS Plan, such requirements must be 
proposed through an amendment to the CAT NMS Plan, filed under Rule 608 of Regulation 
NMS, which must be published for notice and comment.
628
  The Commission agrees with the 
commenter that all CAT operating budgets should remain published on the CAT NMS Plan 
website, as they have been since 2022, and understands that CAT LLC will continue to do so in 
the future.
629
  Therefore, the Commission does not believe it is necessary to add an explicit 
requirement to this effect. 
The use of budgeted CAT costs is appropriate to determine the Fee Rate because it ties 
the Fee Rate to the costs that the CAT will likely incur during the relevant period which are also 
the Prospective CAT Costs that will need to be apportioned among the Participants and CAT 
Executing Brokers.
630
  Should the use of budgeted costs result in a budget surplus, that surplus 
would translate to lower fees in the coming year because there would be a lower requirement for 
reserves.
631
  Also, using budgeted costs to determine the Fee Rate facilitates financial stability, 
allowing CAT LLC to collect fees before bills become payable.
632
   
The requirements that the Operating Committee approve a “reasonable” operating budget 
for CAT LLC,
633
 that fees, costs and expenses be “reasonable” and that they be “reasonably 
budgeted to be incurred by or for the Company in connection with the development, 
implementation and operation of the CAT as set forth in the annual operating budget approved 
 
628
  See Rule 608(b)(1).  17 CFR 242.608(b)(1). 
629
  See CAT LLC May 2023 Response Letter at 10-11. 
630
  See Notice, supra note 7, 88 FR at 17114. 
631
  See infra Section III.A.5.c. (Reserve). 
632
  See id. 
633
  See proposed Section 11.1(a). 

111 
by the Operating Committee”
634
 is appropriate in the public interest.
635
  The existing CAT NMS 
Plan did not include such language, potentially providing the Participants full discretion to pass 
along to Industry Members costs that are not reasonable.  Such costs could have included costs 
that were incurred due to Participant mismanagement, costs that were inflated or costs that 
should reasonably be allocated to only the Participants.  Requiring these costs to be reasonable 
and reasonably budgeted imposes discipline on CAT spending, and the Commission, Industry 
Members and others will be able to review budget information during the rule filing process 
under Section 19(b) of the Exchange Act. 
   c. Reserve 
CAT LLC proposed to add a requirement to Section 11.1(a)(i) of the CAT NMS Plan that 
the budget shall include “a reserve and such other cost categories as reasonably determined by 
the Operating Committee to be included in the budget.”
636
  CAT LLC also proposed to add 
paragraph (ii) to Section 11.1(a) of the CAT NMS Plan to state that “[f]or the reserve referenced 
in paragraph (a)(i) of this Section, the budget will include an amount reasonably necessary to 
allow the Company to maintain a reserve of not more than 25% of the annual budget.”
637
  
Moreover, CAT LLC would calculate the reserve based on the amount of the budget other than 
the reserve.
638
  In addition, proposed subparagraph (ii) of Section 11.1(a) of the CAT NMS Plan 
 
634
  Proposed Section 11.3(a)(i)(C). 
635
  One commenter complained that Participants were not providing the public with an opportunity to review 
the budget until after it was finalized.  See SIFMA May 2023 Letter at 8-10.  As CAT LLC explained, this 
appears to be based on a misunderstanding, as CAT LLC provides the annual budget and quarterly updates 
to the public.  See CAT LLC May 2023 Response Letter at 11. 
636
  Proposed Section 11.1(a)(i). 
637
  Proposed Section 11.1(a)(ii).  
638
  Specifically, proposed Section 11.1(a)(ii) of the CAT NMS Plan would state that “[f]or the avoidance of 
doubt, the calculation of the amount of the reserve would exclude the amount of the reserve from the 
budget.” 

112 
would state that “[t]o the extent collected CAT fees exceed CAT costs, including the reserve of 
25% of the annual budget, such surplus will be used to offset future fees.”
639
  Proposed Section 
11.1(a)(ii) of the CAT NMS Plan provides that “[f]or the avoidance of doubt, the Company will 
only include an amount for the reserve in the annual budget if the Company does not have a 
sufficient reserve (which shall be up to but not more than 25% of the annual budget).”
640
  
One commenter stated that the proposed reserve of not more than 25% of the CAT 
budget is excessive.
641
  The commenter noted that the support provided for the proposed change 
was the Participants’ difficulty in forecasting CAT costs, which the commenter stated 
demonstrates a need for an independent cost review mechanism.
642
   
The Proposed Amendment providing that the annual operating budget include a reserve 
of not more than 25% of the annual budget is reasonable.
643
  Because the CAT is a critical 
regulatory tool/system, the CAT needs to have a stable funding source to build financial stability 
to support the Company as a going concern.
644
  Funding for the CAT, as noted in Section 
11.1(b), is the responsibility of the Participants and the industry.
645
  Because CAT fees are 
charged based on the budget, which is based on anticipated volume, it is reasonable to have a 
reserve on hand to prevent a shortfall in the event there is an unexpectedly high volume in a 
given year.  A reserve would help to assure that the CAT has sufficient resources to cover costs 
should there be unanticipated costs or costs that are higher than expected.  CAT LLC explained 
 
639
  Id. 
640
  Id. 
641
  See SIFMA January 2023 Letter at 6, n.15.  See also Citadel July Letter at 26 (objecting to the requirement 
that Industry Members “fund an additional 25% reserve over budgeted amounts each year.”).   
642
  See SIFMA January 2023 Letter at 6, n.15. 
643
  See Notice, supra note 6, 88 FR at 17090. 
644
  See CAT NMS Plan, supra note 2, at Section 11.2(f). 
645
  Id. at Section 11.1(b). 

113 
that the proposed reserve amount of not more than 25% of the annual budget is based on a 
comparison of actual CAT costs and budgeted costs from 2020 through the first nine months of 
2022 that demonstrated that actual CAT costs exceeded budgeted costs by 20% during this time 
period.
646
  CAT LLC also noted difficulty in predicting variable CAT costs in concluding to cap 
the reserve at 25%.
647
  Additionally, CAT LLC explained that CAT fees will be collected 
approximately three months after trading activity on which a CAT fee is based, or 25% of the 
year.
648
  CAT LLC stated that the reserve would be available to address funding needs related to 
this three-month delay.
649
  No commenter stated that they thought anything higher than a 25% 
reserve was necessary and no commenter provided an alternative solution to make sure that CAT 
remains funded and able to pay its bills.  The Commission therefore believes that a reserve of no 
more than 25% is reasonable based on the factors listed by CAT LLC.  
In addition, the Commission recognizes that if CAT fees exceed CAT costs, including the 
reserve, the surplus will be used to offset future fees, and that a reserve will only be included in 
the annual budget on which the fees are based if CAT LLC does not have a sufficient reserve, 
which would be limited to 25% of the annual budget.
650
  The Commission also recognizes that 
the Company must operate on a break-even basis and that any surpluses would be treated as an 
operational reserve to offset future fees and not be distributed to Participants as profits.
651
  The 
Commission further recognizes that proposed Section 11.1(a)(ii) states that CAT LLC will only 
 
646
  See Notice, supra   note 7, 88 FR at 17090. 
647
  Id. 
648
  Id. at 17091. 
649
  Id. 
650
  Id.  See also proposed Section 11.1(a)(ii). 
651
  The CAT NMS Plan requires that a surplus of the Company’s revenues over its expenses be treated as an 
operational reserve to offset future fees.  See CAT NMS Plan, supra note 2
, at Section 11.1(c). 

114 
include an amount for the reserve in the annual budget if the Company does not have a sufficient 
reserve; therefore, the Participants would not be collecting additional fees if CAT LLC already 
has a reserve of 25% of the annual budget.
652
  Furthermore, the reserve would be calculated by 
CAT LLC based on the amount of the budget other than the reserve because the reserve is meant 
to fund CAT LLC to pay its bills if necessary.
653
  These requirements should obviate the need for 
a refund mechanism.   
To date, CAT has been solely funded by the Participants.
654
  The CAT NMS Plan, 
however, requires funding for the CAT come from both Participants and Industry Members.
655
  It 
is the Commission’s view that establishing a reserve is a reasonable way to ensure that future 
funding is secured from all intended parties, rather than relying on Participants alone.  
d.  Fee Filings under Section 19(b) of the Exchange Act for Industry 
Member CAT Fees 
 
CAT LLC described the information that Participants would be required to include in 
their fee filings to be made pursuant to Section 19(b) of the Exchange Act and Rule 19b-4 
thereunder for Industry Member CAT Fees in proposed paragraph (B) of proposed Section 
11.3(a)(iii) of the CAT NMS Plan.
656
  Specifically, such filings would be required to include 
 
652
  See Notice, supra note 7, 88 FR at 17091.  See also proposed Section 11.1(a)(ii). 
653
  See Notice, supra note 7, 88 FR at 17090.  See also proposed Section 11.1(a)(ii). 
654
  One commenter objected to CAT LLC’s reference to the financial viability of the CAT as an attempt to 
“coerce the Commission into prematurely opining on a funding proposal that does not meet basic Exchange 
Act requirements.”  See Citadel August Letter at 1.  For the reasons explained in this order, the Funding 
Model meets the applicable standard for approval.   
655
  See CAT NMS Plan, supra note 2, at Section 11.1(b), 11.3(a) and (b). 
656
  CAT LLC stated that it expected the fee filings required to be made by the Participants pursuant to Section 
19(b) of the Exchange Act with regard to CAT Fees to be filed pursuant to Section 19(b)(3)(A) of the 
Exchange Act and Rule 19b-4(f)(2) thereunder.  CAT LLC further stated that in accordance with Section 
19(b)(3)(A) of the Exchange Act and Rule 19b-4(f)(2) thereunder, such fee filings would be effective upon 
filing.  See Notice, supra note 7
, 88 FR at 17095, n.38.  Pursuant to Section 19(b)(3)(A) and Rule 19b-
4(f)(2), a proposed rule change can take effect upon filing with the Commission if designated by the SRO 
as establishing or changing a due, fee, or other charge imposed by the SRO.  15 U.S.C. 78s(b), 15 U.S.C. 
78s(b)(3)(A), 17 CFR 240.19b-4(f)(2).  

115 
with regard to the CAT Fee: (A) the Fee Rate; (B) the budget for the upcoming year (or 
remainder of the year, as applicable), including a brief description of each line item in the 
budget, including (1) 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, a 
reserve and/or such other categories as reasonably determined by the Operating Committee to be 
included in the budget and the reason for changes in each such line item from the prior CAT Fee 
filing;
657
 (C) a discussion of how the budget is reconciled to the collected fees; and (D) the 
projected total executed equivalent share volume of all transactions in Eligible Securities for the 
year (or remainder of the year, as applicable), and a description of the calculation of the 
projection.  This detail would describe how the Fee Rate is calculated and explain how the 
budget used in the calculation is reconciled to the collected fees.
658
  In addition, CAT LLC 
proposed to state that the budgeted CAT costs described in the fee filings must provide sufficient 
detail to demonstrate that the CAT budget used in calculating the CAT Fees is reasonable and 
appropriate.
659
   
The collection of CAT Fees from Industry Members is subject to Section 11.6 of the 
CAT NMS Plan regarding the Financial Accountability Milestones.
660
  Accordingly, CAT LLC 
proposed to state that Participants will not make fee filings pursuant to Section 19(b) of the 
 
657
  CAT LLC stated that it intends to include any other categories as reasonably determined by the Operation 
Committee.  Accordingly, this provision refers to “such other categories as reasonably determined by the 
Operating Committee to be included in the budget.”  Notice, supra note 7
, 88 FR at 17095, n.39. 
658
  As a practical matter, the fee filing would provide the exact fee per executed equivalent share to be paid for 
the CAT Fees, by multiplying the Fee Rate by one-third and describing the relevant number of decimal 
places for the fee.  See   Notice, supra note 7
, 88 FR at 17095, n.40. 
659
  See proposed Section 11.3(a)(iii)(B).  
660
  See CAT NMS Plan, supra note 2, at Section 11.6; see also supra note 18. 

116 
Exchange Act
661
 regarding CAT Fees until the Financial Accountability Milestone related to 
Period 4 described in Section 11.6 of the CAT NMS Plan has been satisfied.
662
   
As discussed above, one commenter stated that the budget line-item categories, which 
would be included in the Section 19(b) fee filings, are too high level.
663
  The commenter urged 
the inclusion of much greater detail and specificity on the budget spending choices, especially in 
technology, to allow Industry Members and the public to understand and evaluate CAT spending 
decisions.
664
   
The proposed process for implementing CAT Fees related to Prospective CAT Costs for 
Industry Members is reasonable.  Under the Executed Share Model, the Participants would be 
required to submit fee filings pursuant to Section 19(b) of the Exchange Act to change the Fee 
Rates for Industry Members twice a year, once at the beginning and once during the year.
665
  It is 
appropriate to accompany each Fee Rate change with a Section 19(b) fee filing because it would 
provide notice to Industry Members and the public of the Fee Rate change and permit such 
entities to provide comment on the change.   
In addition to the budget information already provided by the Participants on the CAT 
website, the detail provided in the fee filings for the budget would provide transparency into the 
budget as it would describe the line items of the budget and any changes to the budget and allow 
the public the ability to comment on the budget.
666
  The fee filings must discuss how the budget 
is reconciled to collected fees, which would provide the public an opportunity to comment on the 
 
661
  15 U.S.C. 78s(b). 
662
  See proposed Section 11.3(a)(iii)(C); see also CAT NMS Plan, supra note 2, at Section 11.6(a)(i)(D). 
663
  See supra note 521. 
664
  Id. 
665
  See proposed Section 11.3(a)(i)(A)(I) and (II). 
666
  See proposed Section 11.3(a)(iii)(B). 

117 
effectiveness of the reconciliation.
667
  The Executed Share Model establishes the framework for 
Industry Member CAT fees; details of the Budgeted CAT Costs will be provided in the Section 
19(b) fee filings submitted by the Participants.   
One commenter objected to how the Proposed Amendment addressed the Financial 
Accountability Amendments Period 4
668
 expenses.
669
  The commenter stated that if full 
implementation does not occur by September 27, 2023, the Operating Committee cannot recover 
from Industry Members any expenses related to Period 4.
670
  The commenter explained that the 
Proposed Amendment states that costs incurred during Period 4 may be allocated to Industry 
Members and that the Operating Committee had requested exemptive relief to extend the 
deadline for full implementation until August 31, 2024, which would allow the Participants to 
recover all Period 4 expenses from Industry Members.
671
  The commenter stated that the 
expenses related to Period 4 would likely total more than $400 million, and expressed the belief 
that this amount may be allocated in its entirety to Industry Members if the terms of the CAT 
NMS Plan are not enforced.
672
   
The commenter stated that this issue is “highly relevant to the Commission’s analysis of 
the 2023 Funding Proposal”
673
 and recommended three alternatives for the Commission to 
address the matter:  (1) to state that relevant financial accountability provisions will be enforced 
 
667
  Id. 
668
  See CAT NMS Plan, supra note 2, at Section 11.6. 
669
  See Citadel July Letter at 24.   
670
  Id. 
671
  Id. at 24–25.  The commenter further explained that the Commission has reserved judgment on whether the 
terms of the Financial Accountability Amendments in Section 11.6 of the CAT NMS Plan would be 
enforced. 
672
  Id. at 25. 
673
  Id. 

118 
as written and permit the Operating Committee to allocate Period 4 expenses only to the extent 
permitted by the CAT NMS Plan (reduced by 75%, and by 100% if full implementation does not 
occur by September 27, 2023);
674
 (2) defer judgment and provide that Period 4 expenses cannot 
be allocated to Industry Members;
675
 or (3) defer judgment and permit the Operating Committee 
to allocate Period 4 expenses to Industry Members and analyze the potential impact of allocating 
all Period 4 costs to Industry Members on market efficiency, competition and capital 
formation.
676
  The commenter urged the Commission to conduct this analysis before waiting for 
a subsequent filing, stating that once the Commission approves an allocation methodology, “the 
CAT Operating Committee would simply apply that approved methodology to the costs incurred 
during a specific time period.”
677
 
In response to the commenter’s criticism that the Proposed Amendment does not 
adequately address the Period 4 expenses,
678
 CAT LLC stated that it recognizes the applicability 
of the Financial Accountability Milestones on the collection of CAT Fees and Historical CAT 
Assessments.
679
  CAT LLC stated that the Participants will not file CAT fee filings until they 
believe any applicable Financial Accountability Milestone has been satisfied, and noted that the 
Commission has not made a determination regarding the Participants’ satisfaction of the 
Financial Accountability Milestones.
680
   
 
674
  See Citadel July Letter at   25. 
675
  Id. 
676
  Id. 
677
  Id. at 26. 
678
  Id. at 24. 
679
  See CAT LLC July 2023 Response Letter at 30. 
680
  Id. 

119 
As stated by the Participants, the Proposed Amendment acknowledges that the 
Participants are prohibited from submitting Exchange Act filings regarding Prospective CAT 
Fees until the Financial Accountability Milestone related to Period 4 described in Section 11.6 of 
the CAT NMS Plan has been satisfied.
681
  This is a reasonable approach for addressing how fee 
filings will be handled in conjunction with a determination of the Participants’ compliance with 
the Financial Accountability Milestones.  Under existing Section 11.6, the Participants will not 
be able to recover the full costs of the CAT for a period if the relevant Financial Accountability 
Milestone has not been satisfied.
682
  Because the amount the Participants cannot recover from 
Industry Members is not known until the Financial Accountability Milestone has been satisfied, 
it would not be appropriate for the Participants to require Industry Members to pay CAT costs in 
advance, as the amount of such costs could be reduced.
683
  The Commission acknowledges the 
concerns raised and suggestions offered by the commenter but the Commission is not making a 
finding on the satisfaction of the Period 4 Financial Accountability Milestone in this Order nor is 
such a finding required.  This filing merely establishes the framework under which costs will be 
allocated, not the amount to be allocated.  The Participants will not be able to submit filings to 
recover Prospective CAT Fees or Historical CAT Assessments to recover Period 4 expenses until 
the Period 4 Milestone has been satisfied.  When they do submit such filings, the question of 
compliance will impact how much can be recovered under the applicable framework; this model 
will then be used to determine how to allocate that amount.   
 
681
  See proposed Section 11.3(a)(iii)(C). 
682
  See CAT NMS Plan, supra note 2, at Section 11.6. 
683
  See infra note 807. 

120 
e. Participant CAT Fees for Prospective CAT Costs 
CAT LLC proposed to describe the Participant CAT Fees related to Prospective CAT 
Costs in proposed Section 11.3(a)(ii) of the CAT NMS Plan.  Specifically, under proposed 
Section 11.3(a)(ii)(A) of the CAT NMS Plan, each Participant that is a national securities 
exchange will be required to pay the CAT Fee for each transaction in Eligible Securities 
executed on the exchange in the prior month based on CAT Data.  Each Participant that is a 
national securities association will be required to pay the CAT Fee for each transaction in 
Eligible Securities executed otherwise than on an exchange in the prior month based on CAT 
Data.
684
  The CAT Fee for each transaction in Eligible Securities will be calculated by 
multiplying the number of executed equivalent shares in the transaction by one-third and by the 
Fee Rate determined pursuant to proposed Section 11.3(a)(i).
685
   
CAT LLC also proposed Section 11.3(a)(ii)(B) of the CAT NMS Plan to provide that 
Participants would only be required to pay CAT Fees when Industry Members are required to 
pay CAT Fees.  CAT Fees charged to Industry Members become effective in accordance with 
the requirements of Section 19(b) of the Exchange Act.
686
  In contrast, CAT Fees charged to 
Participants are implemented via an approval of the CAT Fees by the Operating Committee in 
accordance with the requirements of the CAT NMS Plan.
687
  Specifically, to implement the 
Participant CAT fees, CAT LLC proposed to add the Proposed Participant Fee Schedule, entitled 
“Consolidated Audit Trail Funding Fees,” to Appendix B of the CAT NMS Plan. Proposed 
Paragraph (a) stated that “[e]ach Participant shall pay the CAT Fee set forth in Section 11.3(a) of 
 
684
  See proposed Section 11.3(a)(ii)(A). 
685
  Id. 
686
  See proposed Section 11.3(a)(i)(A)(I) and (II); see also 15 U.S.C. 78s(b). 
687
  See Notice, supra note 7, 88 FR at 17094. 

121 
the CAT NMS Plan to Consolidated Audit Trail, LLC in the manner prescribed by Consolidated 
Audit Trail, LLC on a monthly basis based on the Participant’s transactions in Eligible Securities 
in the prior month.”
688
  Because each Participant would be required to pay a CAT Fee once a Fee 
Rate has been established by the Operating Committee, and because of the time and burden 
required, CAT LLC stated that it would not submit an amendment to the CAT NMS Plan every 
time the Fee Rate is established or adjusted.
689
  
It is reasonable to require that each Participant pay a CAT Fee related to Prospective 
CAT Costs for each transaction in the prior month based on CAT Data.
690
  The CAT NMS Plan 
requires the Participants to contribute to the funding of the CAT.
691
  Additionally, as CAT LLC 
explained, the Executed Share Model recognizes the Participants (as market regulators) as one of 
the three parties who have primary roles in a transaction,
692
 so it is appropriate for a transaction-
based funding model to assess a CAT Fee upon the Participants.   
The Commission also believes it is reasonable that proposed Section 11.3(a)(ii)(B) 
provides that the Participants would be required to pay CAT Fees only when Industry Members 
are required to pay CAT Fees.  The CAT Fees charged to Participants would be implemented 
through an approval of the CAT Fees by the Operating Committee and not through a plan 
amendment submitted each time the Fee Rate changes,
693
 while CAT Fees charged to Industry 
Members may only become effective in accordance with the requirements of Section 19(b) of the 
 
688
  Paragraph (a) of the Proposed Participant Fee Schedule. 
689
  See Notice, supra note 7, 88 FR at 17108–09. 
690
  See proposed Section 11.3(a)(ii). 
691
  See CAT NMS Plan, supra note 2, at Section 11.1(b), Section 11.3(a). 
692
  See Notice, supra note 7, 88 FR at 17104.  
693
  Id. at 17108–09. 

122 
Exchange Act.
694
  However, both Participants and Industry Members would be subject to the 
same Fee Rate
695
 so it is appropriate to provide that Participants would be required to pay the 
Participant CAT Fee once CAT Fees based on the Fee Rate are effective for Industry Members. 
The Proposed Participant Fee Schedule is reasonable.  As the Proposed Participant Fee 
Schedule requires each Participant to pay the CAT Fee detailed in Section 11.3(a) of the CAT 
NMS Plan on a monthly basis, based on the Participant’s transactions in Eligible Securities in the 
prior month, in the manner prescribed by CAT LLC,
696
 the proposed fee schedule is appropriate 
because it imposes the Executed Share Model’s Participant CAT Fee obligation on the 
Participants by specifically requiring the Participants to pay a CAT Fee in accordance with the 
Executed Share Model.  The requirement in the Proposed Participant Fee Schedule clearly sets 
forth how the Participants will calculate their monthly CAT Fee obligation, and therefore does 
not believe that it is necessary for the Participants to submit an amendment to the CAT NMS 
Plan each time the Fee Rate changes; the formula for calculating fees will be constant although 
the Fee Rate that would be applied, which is objectively determined, will change only following 
a Participant fee filing under section 19(b) of the Exchange Act.
697
  This approach is reasonable 
in this circumstance because the CAT NMS Plan sets forth the Executed Share Model, the 
Participants are required to pay CAT Fees pursuant to the CAT NMS Plan and the same Fee Rate 
that would apply to Industry Members would apply to Participants.
698
  
 
694
  See proposed Section 11.3(a)(i)(A).   See also 15 U.S.C. 78s(b). 
695
  See proposed Section 11.3(a)(ii)(A) and (B). 
696
  See paragraph (a) of the Proposed Participant Fee Schedule. 
697
  See Notice, supra note 7, 88 FR at 17109. 
698
  See proposed Section 11.3(a)(ii)(A) and (B). 

123 
6. Historical CAT Assessment 
  a. Calculation of Historical CAT Assessment 
 
Under the Executed Share Model, Past CAT Costs will be recovered from CEBBs and 
CEBSs through Historical CAT Assessments.
699
  Pursuant to proposed Section 11.3(b) of the 
CAT NMS Plan the Operating Committee will establish one or more Historical CAT 
Assessments depending upon the timing of any approval of the Proposed Amendment and the 
completion of the Financial Accountability Milestones.
700
  In establishing a Historical CAT 
Assessment, the Operating Committee will determine a “Historical Recovery Period”
701
 and 
calculate a “Historical Fee Rate”
702
 for that Historical Recovery Period.  Then, for each month in 
which a Historical CAT Assessment is in effect, each CEBB and each CEBS will pay a fee (the 
Historical CAT Assessment) for each transaction in Eligible Securities executed by the CEBB or 
CEBS from the prior month as set forth in CAT Data, where the Historical CAT Assessment for 
each transaction will be calculated by multiplying the number of executed equivalent shares in 
the transaction by one-third and by the Historical Fee Rate reasonably determined pursuant to 
proposed Section 11.3(b)(i).
703
  
 The actual amount of Past CAT Costs to be recovered through the Historical CAT  
 
699
  See Notice, supra note 7, 88 FR at 17086; see also proposed Section 11.3(b); supra notes 32–33 and 
accompanying text (defining Historical CAT Assessments). 
700
  See proposed Section 11.3(b)(iii).  See Notice, supra note 7, 88 FR at 17096, n.43; see also supra note 18 
and CAT NMS Plan, supra note 2, at Section 11.6. 
701
  The Historical Recovery Period would be used to calculate the Historical Fee Rate for a Historical CAT 
Assessment.  Proposed Section 11.3(b)(i)(D) of the CAT NMS Plan provides the Operating Committee 
with the discretion to reasonably establish the length of the Historical Recovery Period as long as no such 
period is less than 24 months and more than five years.  See infra Section III.A.6.b. 
702
  The Historical Fee Rate is the fee rate used to calculate the Historical CAT Assessment.  See infra Section 
III.A.6.c. 
703
  See proposed Section 11.3(b)(iii)(A).  

124 
Assessments would be reduced by an amount of “Excluded Costs.”
704
  The resulting amount 
would be defined as “Historical CAT Costs” in proposed Section 11.3(b)(i)(C) of the CAT NMS 
Plan.  Proposed Section 11.3(b)(i)(C) 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.”
705
  The Historical CAT 
Costs would not include an amount of “Excluded Costs” so that Industry Members would not be 
assessed a Historical CAT Assessment to recover such Excluded Costs.
706
   
Certain commenters objected to the method of calculating the Historical CAT 
Assessment using current transaction activity.
707
  One commenter disagreed with the proposed 
method “due to difficulty of using current volumes and trading activity by individual Industry 
Members as a mechanism for assessing costs in the past where the trading volumes and 
individual Industry Member trading activity likely were different.”
708
  The commenter also 
stated that the proposed assessment of Past CAT Costs on current Industry Members based on 
their current trading activity is not fair or reasonable because new Industry Members would be 
assessed a share of Past CAT Costs even if they were not in operation when those costs were 
incurred, and that such costs would be attributable to Industry Members that are no longer in 
 
704
  The Excluded Costs would be $48,874,937 in CAT costs incurred from November 15, 2017 through 
November 15, 2018, and $14,749,362 in costs related to the termination of the initial Plan Processor.  See 
CAT LLC July 2023 Response Letter at 19. 
705
  Proposed Section 11.3(b)(i)(C). 
706
  See Notice, supra note 7, 88 FR at 17111.  According to the Proposed Amendment, “[e]ach 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.”  Proposed Section 11.3(b)(i)(C).  The 
Historical CAT Costs would be Past CAT Costs minus the Excluded Costs.  Id. 
707
  See SIFMA June 2023 Letter at 4; SIFMA January 2023 Letter at 7; SIFMA October 2022 Letter at 5; 
Citadel July Letter at 24, 32; MMI July Letter at 4; Virtu Letter at 4.   
708
  SIFMA October 2022 Letter at 5. 

125 
business.
709
  The commenter added that the Proposed Amendment has not explained how 
allocating “approximately $350 million in historical costs... to a small group of executing broker 
firms based on current market volumes” is consistent with the Exchange Act or how it would 
impact liquidity and competition.
710
  The commenter stated that since the proposed allocation 
would be based on current market share and unrelated to the firms or activity that contributed to 
historical costs, there would be little ability for executing brokers to pass on such costs.
711
  
Another commenter stated that the Proposed Amendment lacked a clear mechanism for Industry 
Members to pass-on historical costs to other market participants.
712
  The commenter stated, “[i]t 
appears challenging for the CAT Operating Committee to allocate historical costs in a way that is 
directly tied to historical activity, which makes it more difficult for Industry Members to pass-on 
these costs to other market participants.”
713
  Another commenter suggested a “review of current 
market percentage share dictating cost structure – e.g., industry fluctuations – how current 
market share [sic] not reflective of past/future market shares- need for adjustments.”
714
      
One commenter recommended a reevaluation of the use of transaction fees to assess Past 
CAT Costs,
715
 and suggested an alternative approach in which Past CAT Costs would be 
assigned to Industry Members “based on the lesser of (i) the CAT Fees that would be assessed on 
 
709
  See SIFMA January 2023 Letter at 7.  See also FIA Letter at 4 (stating that it is “patently unfair” to allocate 
all historical costs to current Industry Members based on their current market activity because current 
“Industry Members had no control over the stops and starts incurred in the development of CAT.”). 
710
  SIFMA June 2023 Letter at 4.  This statement was echoed by another commenter.  See Virtu Letter at 4. 
711
  SIFMA June 2023 Letter at 4.  The commenter also stated that the assessment of “retroactive liability for 
monies spent that private parties had no control over” for public purposes would violate the Fifth 
Amendment Takings Clause.  See infra Section III.9.d.   
712
  See Citadel July Letter at 24.   
713
  Id. at 32.   
714
  See MMI July Letter at 4.   
715
  See SIFMA October 2022 Letter at 5.  

126 
an Industry Member under the Participants’ proposed approach of using current trading activity 
or (ii) the CAT Fees that would be assessed on such member based on their prior trading activity 
in the years since 2016 when the CAT was being built and then operationalized...”
716
  The 
commenter stated that the share of Past CAT Costs belonging to Industry Members that are no 
longer in business could be calculated using this approach and then divided equally among the 
current Industry Members, while Industry Members that entered into business after certain Past 
CAT Costs were incurred would be assessed Past CAT Costs starting in the year after which they 
started operating based on the above approach.
717
  The commenter acknowledged that, while this 
approach would require more effort by the Participants, it would be “significantly closer to the 
fair and reasonable standard in the Exchange Act than the approach set forth by the Participants 
in the Executed Share Model.”
718
 
Additionally, commenters objected to the allocation of Past CAT Costs to Industry 
Members.
719
  One commenter stated that the Participants have failed to justify the allocation of 
Past CAT Costs to Industry Members during the period when only Participants were reporting to 
the CAT.
720
  Certain commenters stated that Industry Members should not be assessed any fees 
related to the decision to employ Thesys Technologies, LLC as the Plan Processor or legal or 
consulting fees incurred by the Participants in the creation of the CAT NMS Plan.
721
  One 
commenter stated that the Proposed Amendment fails to provide how much of the allocation to 
 
716
  SIFMA January 2023 Letter at 7. 
717
  Id. 
718
  Id. 
719
  See SIFMA January 2023 Letter at 6–7; SIFMA October 2022 Letter at 7; SIFMA June 2022 Letter at 7; 
Citadel July Letter at 3, 23, 24, 31, 32; FIA Letter at 4; MMI July Letter at 4 (suggesting accountability for 
historic costs).   
720
  See SIFMA October 2022 Letter at 7. 
721
  See SIFMA June 2022 Letter at 7; SIFMA January 2023 Letter at 6–7; FIA Letter at 4. 

127 
Industry Members is related to Thesys Technologies, LLC, and, therefore, the Participants have 
not demonstrated how the Executed Share Model is consistent with the Exchange Act.
722
   
Another commenter stated that it would be inappropriate to allocate any costs related to 
Thesys Technologies, LLC’s role as the plan processor, including the costs of transitioning to a 
new plan processor, or the Operating Committee’s costs of litigation against the Commission.
723
  
The commenter expressed concern about a lack of transparency into Historical CAT Costs and 
the size of such costs, stating that the historical costs are excessive and inconsistent with the 
CAT NMS Plan.
724
  The commenter stated that a lack of transparency into historical costs raises 
questions about whether Industry Members would be allocated costs for the period when Thesys 
Technologies, LLC was the plan processor, noting that the Proposed Amendment only intended 
to exclude $64 million in costs related to the “failed engagement of Thesys,” when the costs 
were much higher;
725
 whether Industry Members would be allocated costs related to litigation 
between the Operating Committee and the Commission;
726
 and whether Industry Members 
would be allocated costs related to repeated filing of prior funding models.
727
  The commenter 
stated that, without knowing the total amount of Historical CAT Costs, or basic information 
about such costs, the Commission cannot determine whether Historical CAT Costs are 
reasonable and cannot assess the impact of the proposed allocation on market liquidity, 
 
722
  See SIFMA June 2022 Letter at 7. 
723
  See Citadel July Letter at 31.   
724
  Id. at 23.  See also Citadel August Letter at 6–7. 
725
  See Citadel July Letter at 23.  See also id. at 23, n.100; id. at 8 (stating that “missteps” by the Operating 
Committee related to the hiring of the initial plan processor and the hiring of FINRA CAT to replace the 
initial plan processor resulted in “wasted expenditures” of more than $100 million).  See also Citadel 
August Letter at 7. 
726
  See Citadel July Letter at 23.  See also Citadel August Letter at 7. 
727
  See Citadel July Letter at 24.  See also Citadel August Letter at 7. 

128 
efficiency and competition.
728
  For example, the commenter stated that the CAT Operating 
Committee has not assessed “whether trading activity may decline or bid-offer spreads may 
widen.”
729
  The commenter stated that the CAT Operating Committee “recklessly argues” that 
the proposed allocation of Historical CAT Costs is not concerning due to the existence of higher 
transaction-based fees.
730
  In addition, the commenter stated that Industry Members have borne 
nearly all of the total CAT-related costs due to “a near-constant barrage” of changes to technical 
specifications.
731
  The commenter recommended not allocating any historical costs to Industry 
Members.
732
  
 One commenter stated that Industry Members were not subject to CAT obligations before 
the CAT NMS Plan’s approval, had no input into the selection of the service providers, and that 
“it is difficult to envision how the Participants could demonstrate that such an allocation provides 
for the equitable allocation of reasonable fees due to the fact that the CAT NMS Plan did not 
exist during the period prior to its approval.”
733
   
The commenter also stated that the Participants have not analyzed different alternatives to 
collecting Past CAT Costs and the costs associated with such alternatives or the costs associated 
 
728
  See Citadel August Letter at 7. 
729
  Id. 
730
  Id. 
731
  See Citadel July Letter at 31.  The commenter noted that in 2016, the Commission estimated that broker-
dealers would incur 90% of total CAT-related costs, even if not allocated any costs for building and 
operating the CAT.  The commenter stated that updates to these estimates would show that this figure 
would underestimate their cost burdens.  See id. 
732
  Id. at 3, 31, 32.   
733
  See SIFMA June 2022 Letter at 7. 

129 
with the proposed approach.
734
  The commenter urged collaboration between the Participants and 
Industry Members on the allocation of Past CAT Costs.
735
   
With respect to one commenter’s criticisms of the calculation and assessment of the 
Historical CAT Assessment,
736
 CAT LLC stated that the commenter had a “persistent 
misunderstanding” of the Historical CAT Assessment, explaining that, contrary to the 
commenter’s assertions in its comment letters, the Historical CAT Assessment would be 
assessed based on current market activity, not past market activity.
737
  While the fee rate would 
be calculated based on Historical CAT Costs, the fee rate would be applied to current market 
transactions.
738
  CAT LLC stated that the process of assessing fees for the Historical CAT 
Assessment would be exactly the same as with CAT Fees related to Prospective CAT Costs, and 
would be passed through in the same manner if a CEBB or CEBS so chooses.
739
  CAT LLC also 
stated that it would provide CAT Executing Brokers with details of their CAT fees to facilitate 
this process.
740
 
In response, the commenter stated that the CAT LLC Response Letter did not 
meaningfully address the concerns it raised about “the inability of firms defined as ‘executing 
brokers’ to transfer fees to those who may be more appropriate to bear certain historical CAT 
costs in the first place.”
741
  CAT LLC reiterated that the Historical CAT Assessment would be 
 
734
  See SIFMA October 2022 Letter at 5. 
735
  Id.  See also SIFMA October 2022 Letter at 2 (“[w]e also reiterate our call for the Participants to work with 
SIFMA and the industry in a collaborative manner to establish a viable CAT funding model.”). 
736
  See SIFMA May 2023 Letter at 8; SIFMA October 2022 Letter at 4–5; supra notes 708–713 and 
accompanying text. 
737
  See CAT LLC May 2023 Response Letter at 9. 
738
  Id. 
739
  Id. 
740
  Id. 
741
  See SIFMA June 2023 Letter at 2. 

130 
assessed in the same manner as CAT Fees for Prospective CAT Costs, and could likewise be 
passed-through by the CEBB or CEBS,
742
 and that CAT LLC would provide the relevant data to 
help CAT Executing Brokers pass-through the fees.
743
   
In response to a commenter that stated that a small group of broker-dealers would 
shoulder the Historical CAT Costs and asked whether allocating these costs to a small group of 
executing brokers based on current market volume is consistent with the Exchange Act,
744
 CAT 
LLC stated that “almost 700 of the 1100 Industry Members would have an obligation to 
contribute to Historical CAT Costs... not just a few CAT Executing Brokers”
745
 and since “the 
fees vary in accordance with the market activity of the CAT Executing Brokers, certain CAT 
Executing Brokers will have large bills for very significant market activity.”
746
  CAT LLC also 
reiterated that the Section 11.2(b) of the CAT NMS Plan contemplates that Industry Members 
would contribute to funding the costs of the CAT and that CAT Executing Brokers may pass on 
their CAT fees so they would not have any obligation to pay CAT fees.
747
  CAT LLC also 
clarified that Industry Members would be allocated Historical CAT Costs over a period of time 
that would be no less than 24 months and no more than five years, not in a single lump sum,
748
 
and stated that “it would potentially be appropriate to spread the Historical CAT Costs over a 
 
742
  See CAT LLC July 2023 Response Letter at 16. 
743
  Id. 
744
  See SIFMA June 2023 Letter at 4.  See also Virtu Letter at 4.   
745
  See CAT LLC July 2023 Response Letter at 15. 
746
  Id. 
747
  Id. 
748
  Id. 

131 
time period of a little less than three years, a time period which is within the two to five year 
range for the Historical Recovery Period.”
749
   
In response to the commenter that stated that Industry Members are bearing almost all of 
the CAT-related costs,
750
 CAT LLC stated that the commenter was conflating the Industry 
Members’ internal costs to comply with CAT reporting requirements with the direct costs of the 
CAT.
751
  CAT LLC stated that the Proposed Amendment is intended to address the funding of 
the direct costs of the CAT and not Participants and Industry Members’ compliance costs.
752
   
CAT LLC provided a comparison of Historical CAT Costs to Prospective CAT Costs, 
demonstrating that the $233 million 2023 CAT budget is approximately 45% of the $518 million 
in Historical CAT Costs (through 2022).
753
  CAT LLC stated that it expects to propose a fee rate 
for the Historical CAT Assessment that would be similar to or smaller than other transaction-
based fees, and provided examples in which CEBBs and CEBSs would be assessed less than 
1/1000 of a penny per executed equivalent share.
754
  CAT LLC noted that broker-dealers are 
currently charged other transaction-based fees that are higher than the proposed CAT fees.
755
   
In response to commenters that objected to the allocation to Industry Members of 
Historical CAT Costs related to the initial Plan Processor,
756
 CAT LLC stated that the Historical 
CAT Costs to be allocated to Industry Members would not include two categories of costs 
 
749
  See CAT LLC July 2023 Response Letter at 17.  CAT LLC also provided a comparison of Historical CAT 
Costs to Prospective CAT Costs, demonstrating that the $233 million 2023 CAT budget is approximately 
45% of the $518 million in Historical CAT Costs (through 2022).  Id. 
750
  See Citadel July Letter at 31.   
751
  See CAT LLC July 2023 Response Letter at 16. 
752
  Id. 
753
  Id. at 17. 
754
  Id. at 18. 
755
  Id. at 18–19. 
756
  See FIA Letter at 4; Citadel July Letter at 23, 31. 

132 
related to the initial Plan Processor:  $48,874,937 in CAT costs incurred from November 15, 
2017 through November 15, 2018, and $14,749,362 in costs related to the termination of the 
initial Plan Processor.
757
  CAT LLC stated that the Participants would remain responsible for 
these costs.
758
   
In the Commission’s view, the proposed recovery of Past CAT Costs via the Historical 
CAT Assessment is reasonable, and it is reasonable to require that each CEBB and CEBS pay a 
Historical CAT Assessment for each transaction in the prior month based on CAT Data.
759
  First, 
current Industry Members are actively reporting to the CAT
760
 and therefore receive the benefits 
from the CAT.  The CAT provides more effective oversight of market activity, which could 
increase investor confidence, resulting in expanded investment opportunities and increased 
trading activity.
761
  Second, it would be difficult to impose fees on Industry Members for their 
activity in the past because some Industry Members may no longer be in business and such 
Industry Members would not have taken into consideration the Historical CAT Assessment when 
entering into the past transactions.
762
  In this case, the Commission understands, from CAT 
LLC’s analysis of Industry Members, that there is “substantial continuity” among the largest 
Industry Members, going back to 2020,
763
 and thus it is likely that the Industry Members 
responsible for substantial transaction activity in 2020 (and perhaps earlier, beyond the scope of 
CAT LLC’s analysis) would also be responsible for substantial transaction activity in 2023, 
 
757
  See CAT LLC July 2023 Response Letter at 19. 
758
  Id. 
759
  See proposed Section 11.3(a)(ii)(A) and (iii)(A). 
760
  See Notice, supra note 7, 88 FR at 17113. 
761
  CAT NMS Plan Approval Order, at 81 FR at 84993. 
762
  See Notice, supra note 7, 88 FR at 17113. 
763
  Id. at 17113, n.116 ( stating that there has been substantial continuity in the largest Industry Members over 
time and providing statistics about the continuity).  

133 
mitigating concerns that current Industry Members would be responsible for CAT fees for the 
past transaction activity of non-operational Industry Members.   
Additionally, requiring CAT Executing Brokers to pay Historical CAT Assessments is 
appropriate because the Participants have thus far paid all Past CAT Costs and the CAT NMS 
Plan contemplates that both Industry Members and Participants would fund the Company.
764
   
Furthermore, it is reasonable, in the Commission’s view, for the Participants to exclude certain 
costs from the Past CAT Costs to be recovered from Industry Members; for example, such 
excluded costs would encompass costs incurred when Industry Members as a group were not 
reporting to the CAT, and costs associated with the conclusion of the relationship with the Initial 
Plan Processor.
765
  CAT LLC also proposes to require the Operating Committee, in determining 
fees on Participants and Industry Members, to take into account fees, costs and expenses 
(including legal and consulting fees) reasonably incurred by the Participants on behalf of the 
Company prior to the Effective Date in connection with the creation and implementation of the 
CAT.
766
   
In the Commission’s view, requiring the Operating Committee to take into account fees, 
costs and expenses (including legal and consulting fees) reasonably incurred by the Participants 
on behalf of the Company prior to the Effective Date in connection with the creation and 
implementation of the CAT, when determining fees for Participants and Industry Members will 
constrain the Operating Committee from assessing fees based on costs and expenses that are not 
reasonable.  Further, the proposed exclusion of the “Excluded Costs” from Past CAT Costs is 
reasonable in the Commission’s view because it would not require all costs incurred by the 
 
764
  See, e.g., CAT NMS Plan, supra note 2, at Section 11.1(b), Section 11.1(c), Section 11.2(b), Section 11.3. 
765
  See Notice, supra note 7, 88 FR at 17111. 
766
  See proposed Section 11.1(c) (emphasis added). 

134 
Participants to be recovered from Industry Members through the Historical CAT Assessment, 
specifically excluding those costs related to the delay in the start of reporting to the CAT and 
costs related to the conclusion of the relationship with the Initial Plan Processor.
767
 
Finally, the Proposed Amendment sets forth a process that the Commission believes will 
offer an appropriate level of transparency into Historical CAT Costs.  In response to a 
commenter that objected to the level of transparency provided about the total amount of 
Historical CAT Costs, and basic information about such costs, and stated that, as a result, the 
Commission cannot determine whether Historical CAT Costs are reasonable and cannot assess 
the impact of the proposed allocation on market liquidity, efficiency and competition,
768
 as 
discussed in Section III.A.6.e. herein, the Section 19(b) fee filings to be filed with the 
Commission by the Participants to impose the Historical CAT Assessment on Industry Members 
must include detailed information on the Historical CAT Costs, including the amount and type of 
Historical CAT Costs, and will allow the public the ability to comment on the Historical CAT 
Costs.
769
  In addition to addressing all relevant statutory requirements, including the 
requirements that the fees are reasonable, equitably allocated, not unfairly discriminatory, and do 
not unduly burden competition,
770
 these proposed Section 19(b) fee filings must contain 
“sufficient detail to demonstrate that such costs are reasonable and appropriate,”
771
 which would 
provide the public and the Commission the detail needed to evaluate the Historical CAT 
 
767
  See Notice, supra note 7, 88 FR at 17111. 
768
  See Citadel August Letter at 7. 
769
  See proposed Section 11.3(b)(iii)(B)(II). 
770
  15 U.S.C. 78f(b)(4), 15 U.S.C. 78o-3(b)(5); 15 U.S.C. 78f(b)(5), 15 U.S.C. 78o-3(b)(6); 15 U.S.C. 
78f(b)(8), 15 U.S.C. 78o-3(b)(9). 
771
  See proposed Section 11.3(b)(iii)(B)(II). 

135 
Assessments.  Once the proposed Section 19(b) fee filings are filed by the Participants, the 
Commission will review them for consistency with the Exchange Act and the CAT NMS Plan.   
In response to the comment that stated that the CAT Operating Committee has not 
assessed “whether trading activity may decline or bid-offer spreads may widen,”
772
 and in 
response to the comment that the CAT Operating Committee “recklessly argues” that the 
proposed allocation of Historical CAT Costs is not concerning due to the existence of higher 
transaction-based fees,
773
 as stated above, the Proposed Amendment does not approve per se the 
amount of the Historical CAT Costs; it sets forth the model but leaves the amount and 
description of the Historical CAT Costs for the Section 19(b) fee filings.  The Commission 
recognizes, however, that the Participants have disclosed the amount of the Historical CAT Costs 
in the Proposed Amendment.
774
  While such Historical CAT Costs are not being approved by the 
Commission at this time, the Commission understands that such amounts provide an indication 
of what might be charged.  In this regard, the Commission notes the Participants have included in 
Exhibit C to the Proposed Amendment a chart setting forth an example Historical CAT 
Assessment, for illustrative purposes only, that each CAT Executing Broker would pay based on 
its transactions in Eligible Securities in December 2022 related to CAT costs from prior to 2022.  
The chart indicated that the Historical Fee Rate for the assumed December 2022 period was 
$0.0000417950 per executed equivalent share.  The Commission believes that potential 
Historical CAT Assessments are likely to be significantly lower than fees assessed pursuant to 
 
772
  See Citadel August Letter at 7. 
773
  Id. 
774
  See Notice, supra note 7,  88 FR at 17110–11 (providing Historical CAT Costs prior to 2022).  CAT LLC 
also provided updated Historical CAT Costs through 2022.  See CAT LLC July 2023 Response Letter at 
17. 

136 
Section 31.
775
  Accordingly, the Commission believes that any potential impact on trading 
activity or bid-ask spreads would likely be limited. 
  b. Historical Recovery Period 
The “Historical Recovery Period” would be used to calculate the Historical Fee Rate for a 
Historical CAT Assessment.
776
  Proposed Section 11.3(b)(i)(D) of the CAT NMS Plan provides 
the Operating Committee with the discretion to reasonably establish the length of the Historical 
Recovery Period as long as no such period is less than 24 months and more than five years.  CAT 
LLC analyzed potential recovery periods and determined that the Historical Fee Rate calculated 
using the proposed Historical Recovery Period of two to five years would be reasonable for 
Industry Members even if they had to pay both the ongoing CAT Fee and the Historical Fee 
Assessment simultaneously.
777
  Additionally, in determining the range for the Historical 
Recovery Period, CAT LLC “sought to weigh the need for a reasonable Historical Fee Rate that 
spreads the Historical CAT Costs over an appropriate amount of time and the need to repay the 
loan notes to the Participants in a timely fashion.”
778
  In the Commission’s view, it is reasonable 
for the Operating Committee to establish the length of the Historical Recovery Period to be no 
less than 24 months and no more than five years.  According to the Participants, “[t]he length of 
the Historical Recovery Period used in calculating each Historical Fee Rate will be reasonably 
 
775
  See infra notes 1099–1102 and accompanying text (stating that a comparison to recent Section 31 fees of 
$0.00009 per share to $0.0004 per share indicates that the anticipated Historical Fee Rate and Fee Rate, 
assuming the Fee Rate is of a similar magnitude as the Historical Fee Rate, are expected to be relatively 
small).  See also infra note 
1102 ( discussing another example Historical Fee Rate that was provided in the 
CAT LLC July 2023 Response Letter at 18–19 that was close to the Historical Fee Rate in Exhibit C of the 
Proposed Amendment).   
776
  See proposed Section 11.3(b)(i)(D)(I). 
777
  See Notice, supra note 7, 88 FR at 17096–97.  CAT LLC acknowledged that the Historical CAT 
Assessment would need to be calculated using up-to-date Historical CAT Costs and executed equivalent 
share volume.  Id. at 17097. 
778
  Id. at 17096. 

137 
established by the Operating Committee based on the amount of the Historical CAT Costs to be 
recovered by the Historical CAT Assessment.”
779
  The Operating Committee is authorized by the 
CAT NMS Plan to establish the funding of CAT LLC, including the fees to be paid by 
Participants and Industry Members.
780
  Because the Historical Recovery Period is used in the 
calculation of Historical CAT Assessments to recover costs incurred to fund the CAT, the 
Commission views it as appropriate for the Operating Committee to determine a reasonable 
length of time for the Historical Recovery Period since the Operating Committee has authority 
over CAT funding pursuant to the Plan. 
  c. Historical Fee Rate 
The Historical Fee Rate would be used to calculate Historical CAT Assessments.  The 
Operating Committee will calculate the Historical Fee Rate for each Historical CAT Assessment 
by dividing the Historical CAT Costs for each Historical CAT Assessment by the reasonably 
projected total executed equivalent share volume of all transactions in Eligible Securities for the 
Historical Recovery Period.
781
  Additionally, proposed Section 11.3(b)(i)(A) states that once the 
Operating Committee has approved a Historical Fee Rate, the Participants will be required to file 
with the Commission, pursuant to Section 19(b) of the Exchange Act,
782
 the Historical CAT 
Assessment to be charged to Industry Members using the Historical Fee Rate.
783
  Industry 
Members would be required to pay such Historical CAT Assessment using such Historical Fee 
 
779
  Id. at 17097. 
780
  See CAT NMS Plan, supra note 2, at Section 11.1(b). 
781
  See proposed Section 11.3(b)(i)(A).  Proposed Section 11.3(b)(i)(B) provides that the executed equivalent 
shares used to calculate the Historical CAT Assessment would be counted in the same manner as executed 
equivalent shares used to calculate CAT Fees related to Prospective CAT Costs.  
782
  15 U.S.C. 78s(b). 
783
  See proposed Section 11.3(b)(i)(A). 

138 
Rate once such Historical CAT Assessment is in effect in accordance with Section 19(b) of the 
Exchange Act.
784
   
Proposed Section 11.3(b)(i)(E) of the CAT NMS Plan provides that “[t]he Operating 
Committee shall 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.”
785
  
CAT LLC would allow the Operating Committee to base its projected total executed equivalent 
share volume on the prior twelve months, but to use its discretion to analyze the likely volume 
for the upcoming year.
786
  Participants would be required to describe the calculation of the 
projection in their fee filings submitted to the Commission, pursuant to Section 19(b) of the 
Exchange Act, to implement the Historical CAT Assessments on Industry Members.
787
 
The calculation of the Historical Fee Rate by dividing Historical CAT Costs by the 
projected total executed equivalent share volume of all transactions in Eligible Securities for the 
Historical Recovery Period
788
 is reasonable.  First, it is appropriate for the Historical Fee Rate to 
be based on Historical CAT Costs.  The Proposed Amendment defines Historical CAT Costs as 
Past CAT Costs minus the Past CAT Costs reasonably excluded from Historical CAT Costs by 
the Operating Committee
789
 (e.g., the Excluded Costs).
790
  It is appropriate to use the Historical 
 
784
  Id.; see also 15 U.S.C. 78s(b); see infra Section III.A.6.e. (Historical CAT Assessment - Fee Filings under 
Section 19(b) of the Exchange Act for Industry Member CAT Fees) for a discussion of Section 19(b) filing 
requirements. 
785
  Proposed Section 11.3(b)(i)(E). 
786
  See Notice, supra note 7, 88 FR at 17097. 
787
  See proposed Section 11.3(b)(iii)(B)(II). 
788
  See proposed Section 11.3(b)(i)(A). 
789
  See proposed Section 11.3(b)(i)(C). 
790
  See Notice, supra note 7, 88 FR at 17111. 

139 
CAT Costs related to a Historical CAT Assessment to calculate the Historical Fee Rate used to 
calculate the Historical CAT Assessment because the Participants are seeking to recover the 
Historical CAT Costs through the Historical CAT Assessment.
791
  The use of Historical CAT 
Costs is appropriate to determine the Historical Fee Rate because it ties the Historical Fee Rate to 
the costs that the CAT has incurred and will be apportioned among the CAT Executing Brokers 
for recovery.  Second, it is appropriate to use the projected total executed equivalent share 
volume of all transactions in Eligible Securities for the Historical Recovery Period to calculate 
the Historical Fee Rate because this would provide the likely volume for the Historical Recovery 
Period to be used as the denominator, similar to the manner in which the Fee Rate for 
Prospective CAT Fees would be calculated.  This proposed projection of total executed 
equivalent share volume based on the prior twelve months is appropriate because it balances the 
use of data that is sufficiently long to avoid short term fluctuations while providing data close in 
time to the calculation of the Fee Rate or Historical Fee Rate.
792
  Additionally, it is appropriate 
for CAT LLC to permit the Operating Committee to use its discretion to analyze the likely 
volume for the upcoming year.
793
  This would allow the Operating Committee to use its 
judgment when estimating projected total executed equivalent share volume if the volume over 
the prior twelve months was unusual or otherwise unfit to serve as the basis of a future volume 
estimate.  Furthermore, since the Participants would be required to describe the calculation of the 
projected total executed equivalent share volume in the fee filings submitted to the Commission, 
pursuant to Section 19(b) of the Exchange Act, to implement the Historical CAT Assessments on 
 
791
  See proposed Section 11.3(b)(i)(C). 
792
  See Notice, supra note 7, 88 FR at 17116–17. 
793
  Id. at 17097. 

140 
Industry Members, the public will have an opportunity to review the projection and provide 
comment.
794
 
   d. Length of Time Historical CAT Assessment Would be  
in Effect 
 
Proposed Section 11.3(b)(i)(D)(II) of the CAT NMS Plan would describe the length of 
time that a Historical CAT Assessment would be in effect.  This period of time may be longer or 
shorter than the Historical Recovery Period used to calculate the Historical Fee Rate for a 
Historical CAT Assessment.  Each Historical CAT Assessment calculated using the Historical 
Fee Rate would remain in effect until all Historical CAT Costs for that Historical CAT 
Assessment are collected.
795
  CAT LLC stated that “[a]ny Historical CAT Assessment would 
remain in effect until the relevant Historical CAT Costs are collected, whether that time is 
shorter or longer than the Historical Recovery Period used in calculating the Historical Fee 
Rate.”
796
  The length of time that the Historical CAT Assessment would be in effect would 
depend “on the amount of the Historical CAT Assessments collected based on the actual volume 
during the time that the Historical CAT Assessment is in effect.”
797
   
In the Commission’s view, it is reasonable for Industry Members to be charged a 
Historical CAT Assessment until all Historical CAT Costs for the Historical CAT Assessment 
are collected.  The Commission understands that the amount of Historical CAT Costs collected 
will vary depending on how the actual volume compares to the estimated volume.  To the extent 
the actual volume exceeds the estimated volume, a Historical CAT Assessment would be 
 
794
  See proposed Section 11.3(b)(iii)(B)(II). 
795
  See proposed Section 11.3(b)(i)(D)(II). 
796
  Notice, supra note 7, 88 FR at 17097. 
797
  Id. 

141 
collected faster and thus would be in effect for a shorter period.  Similarly, to the extent the 
actual volume is less than the estimated volume, the Historical CAT Assessment would be 
collected slower and thus would be in effect for a longer period.   
e. Fee Filings under Section 19(b) of the Exchange Act for Industry 
Member CAT Fees 
 
 Once the Operating Committee has approved a Historical Fee Rate, the Participants shall 
be required to file with the Commission, pursuant to Section 19(b) of the Exchange Act,
798
 such 
Historical CAT Assessment to be charged Industry Members calculated using such Historical 
Fee Rate.
799
  CAT LLC proposes to provide additional details regarding the fee filings to be filed 
by the Participants regarding each Historical CAT Assessment pursuant to Section 19(b) of the 
Exchange Act in proposed Section 11.3(b)(iii)(B) of the CAT NMS Plan.  Specifically, this 
provision would describe that fee filings would be required for each Historical CAT Assessment, 
the content of such fee filings, and the effect of the Financial Accountability Milestones 
described in Section 11.6 of the CAT NMS Plan on the fee filings.
800
  
Proposed Section 11.3(b)(iii)(B)(I) of the CAT NMS Plan would state that “Participants 
will be required to file with the SEC pursuant to Section 19(b) of the Exchange Act a filing for 
each Historical CAT Assessment.”
801
  CAT LLC proposes to provide additional detail about the 
information that Participants would be required to include in the filings for the Historical CAT 
Assessments in proposed Section 11.3(b)(iii)(B)(II).  The proposed paragraph sets forth the 
information about the Historical CAT Assessments that should be included in the fee filings 
 
798
  15 U.S.C. 78s(b). 
799
  See proposed Section 11.3(b)(i)(A). 
800
  See proposed Section 11.3(b)(iii)(B)(I), (II), (III). 
801
  Proposed Section 11.3(b)(iii)(B)(II). 

142 
required to be made by the Participants pursuant to Section 19(b) of the Exchange Act.
802
  
Specifically, such filings would be required to include:  (A) the Historical Fee Rate; (B) 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; (C) the Historical Recovery Period and the 
reasons for its length; and (D) the projected total executed equivalent share volume of all 
transactions in Eligible Securities for the Historical Recovery Period, and a description of the 
calculation of the projection.
803 
 
In addition, CAT LLC proposes to clarify that the Historical CAT Costs described in the 
fee filings must provide sufficient detail to demonstrate that such costs are reasonable and 
appropriate.
804
  Therefore, CAT LLC proposes to add the following sentence to proposed Section 
11.3(b)(iii)(B)(II) of the CAT NMS Plan: “The information provided in this Section would be 
provided with sufficient detail to demonstrate that the Historical CAT Costs are reasonable and 
appropriate.”
805
 
Proposed Section 11.3(b)(iii)(B)(III) provides that the Participants will not make CAT fee 
filings pursuant to Section 19(b) of the Exchange Act
806
 regarding a Historical CAT Assessment 
until any applicable Financial Accountability Milestone has been satisfied.  This provision is 
appropriate as it takes into account existing requirements set forth in Section 11.6 of the CAT 
 
802
  15 U.S.C. 78s(b). 
803
  See proposed Section 11.3(b)(iii)(B)(II). 
804
  Id. 
805
  Id. 
806
  15 U.S.C. 78s(b). 

143 
NMS Plan that prevent the Participants from recovering fees related to any given Financial 
Accountability Milestone until that Financial Accountability Milestone has been achieved.
807
   
The Commission emphasizes that the fee filings filed with the Commission, pursuant to 
Section 19(b) of the Exchange Act,
808
 to implement each Historical CAT Assessment on 
Industry Members will need to provide sufficient information to enable the Commission to make 
a determination on whether and when the Participants have satisfied each of the Financial 
Accountability Milestones – questions that the Commission is not deciding herein.  This Order 
only approves the establishment of the framework by which the Participants will propose 
Historical CAT Assessments to be charged to Industry Members.
809
  
In the Commission’s view, the proposed requirement for the Participants to file fee filings 
with the Commission, pursuant to Section 19(b) of the Exchange Act,
810
 to implement each 
Historical Fee Assessment on Industry Members is appropriate.  The detail provided in the fee 
filings for the Historical CAT Assessment would provide transparency into the Past CAT Costs 
as it would describe the amount and type of Historical CAT Costs and allow the public the 
 
807
  See, e.g., Section 11.6(a)(iv) (“The Participants will only be permitted to collect Post-Amendment Industry 
Member Fees for Period 1, Period 2, Period 3, or Period 4 at the end of each respective Period.”).  Section 
11.6 of the CAT NMS Plan is designed to reduce the amount of fees, costs, and expenses that the 
Participants may recover from Industry Members if the Participants miss the target deadlines established by 
that Section.   To the extent that the Participants miss a target deadline established by Section 11.6, the 
Participants would be responsible for paying a larger amount of CAT-related fees, costs, and expenses on 
their own.   The Commission expects that the portion of these fees, costs, and expenses that is attributable to 
for-profit national securities exchanges would likely be paid out of their existing profits, whereas the 
portion of these fees, costs, and expenses that is attributable to non-profit national securities associations 
like FINRA would likely be paid out of past revenue or new and/or existing fees.   The Commission would 
evaluate any such new or existing fees in accordance with Section 6(b)(4) and Section 15A(b)(5) of the 
Exchange Act.   15 U.S.C. 78f(b)(4); 15 U.S.C. 78o-3(b)(5).   
808
  15 U.S.C. 78s(b). 
809
  The Commission does not believe it could determine whether the Historical CAT Costs associated with a 
Financial Accountability Milestone are “reasonable or appropriate” under Section 11.3(b)(iii)(B)(II) 
without such information. 
810
  15 U.S.C. 78s(b). 

144 
ability to comment on the Historical CAT Costs.
811
  The fee filings must contain sufficient detail 
to demonstrate that the fees are consistent with the Exchange Act, including that such costs are 
reasonable and appropriate,
812
 and provide the public with the detail needed to evaluate the 
Historical CAT Assessments for comment. 
The Proposed Amendment offers an appropriate level of transparency into the Past CAT 
Costs used for the Historical CAT Assessment so that the industry and the public will be able to 
understand and assess the Past CAT Costs and the Historical Fee Rate.  The Proposed 
Amendment requires the Section 19(b) fee filings to be submitted to the Commission by the 
Participants to establish the Historical CAT Assessments for Industry Members to contain the 
following information: “(A) the Historical Fee Rate; (B) 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; (C) the Historical Recovery Period and the reasons for its length; and (D) the 
projected total executed equivalent share volume of all transactions in Eligible Securities for the 
Historical Recovery Period, and a description of the calculation of the projection.”
813
  CAT LLC 
explained that this information “would provide Industry Members and other interested parties 
with a    clear understanding of the calculation of each Historical CAT Assessment and its 
relationship to Historical CAT Costs.”
814
  In the Commission’s view, the detail provided in the 
fee filings for the Historical CAT Assessment would provide transparency into the Past CAT 
 
811
  See proposed Section 11.3(b)(iii)(B)(II). 
812
  Id. 
813
  Proposed Section 11.3(b)(iii)(B)(II).  
814
  Notice, supra note 7, 88 FR at 17098. 

145 
Costs as the filings would describe the amount and type of Historical CAT Costs and allow the 
public the ability to comment on the Historical CAT Costs.
815
  Additionally, pursuant to the 
Proposed Amendment being approved, the fee filings will also need to contain “sufficient detail 
to demonstrate that such costs are reasonable and appropriate,”
816
 which would provide the 
public and the Commission the detail needed to evaluate the Historical CAT Assessments for 
consistency with the Exchange Act and the CAT NMS Plan.  
f. Past CAT Costs and Participants  
Proposed Section 11.3(b)(ii) of the CAT NMS Plan would clarify that the Participants 
would not be required to pay the Historical CAT Assessment as the Participants previously have 
paid all Past CAT Costs.  It would state that, “[b]ecause Participants previously have paid Past 
CAT Costs via loans to the Company, Participants would not be required to pay any Historical 
CAT Assessment.”
817
  In addition, proposed Section 11.3(b)(ii) of the CAT NMS Plan would 
state that the Historical CAT fees collected from Industry Members would be allocated to 
Participants for repayment of the outstanding loan notes of the Participants to the Company on a 
pro rata basis; such fees would not be allocated to Participants based on the executed equivalent 
share volume of transactions in Eligible Securities.
818
  Specifically, proposed Section 11.3(b)(ii) 
of the CAT NMS Plan would state that “[i]n 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 
 
815
  See proposed Section 11.3(b)(iii)(B)(II). 
816
  Id. 
817
  Proposed Section 11.3(b)(ii). 
818
  See Notice, supra note 7, 88 FR at 17112. 

146 
loans.”
819
  Furthermore, proposed Section 11.3(b)(ii) of the CAT NMS Plan would emphasize 
that “[t]he Historical CAT Assessment is designed to recover two-thirds of the Historical CAT 
Costs.”
820
 
 The proposed allocation of the Historical CAT Assessment solely to CEBSs and CEBBs, 
and ultimately Industry Members, is reasonable.  The Historical CAT Assessment will still be 
divided into thirds.
821
  CAT LLC stated that 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” and that the Participants will also be 
100% responsible for the Excluded Costs.
822
  CAT LLC explained that the terms of the loan 
agreements between CAT LLC and the Participants dictate that repayment of the notes will be on 
a pro rata basis.
823
  The pro rata basis for cancelling the loans is appropriate because repayment 
of the loans made by the Participants is required pro rata per the loan agreements between the 
Participants and CAT LLC.
824
  The CAT NMS Plan permits the Participants to seek recovery of 
CAT costs from Industry Members, which includes Past CAT Costs.
825
  However, similar to 
cancelling the loans, the Executed Share Model would require the Participants to pay CAT fees 
related to Prospective CAT Costs.
826
 
 
819
  Proposed Section 11.3(b)(ii). 
820
  Id. 
821
  Id. 
822
  Notice, supra note 7, 88 FR at 17097, n.48. 
823
  Id. at 17112. 
824
  Id. 
825
  See CAT NMS Plan, supra note 2, at Section 11.1(b), Section 11.3(b). 
826
  See proposed Section 11.3(a)(ii). 

147 
7. Calculation Information; Billing and Collection of CAT Fees 
CAT LLC proposed to provide Participants and CAT Executing Brokers with details 
regarding the calculation of their CAT Fees upon request.
827
  Specifically, CAT LLC proposed to 
add Section 11.3(a)(iv)(A) to the CAT NMS Plan to provide that “[d]etails regarding the 
calculation of a Participant or CAT Executing Brokers’ CAT Fees will be provided upon request 
to such Participant or CAT Executing Broker.”
828
  Similarly, for the Historical CAT Assessment, 
under proposed Section 11.3(b)(iv)(A), “at minimum, such details would include each CAT 
Executing Broker’s executed equivalent share volume and corresponding fee.”
829
  In both cases, 
the new sections require that these details be separated 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.
830
  
Additionally, for each CAT Fee and Historical CAT Assessment, at a minimum, CAT LLC will 
make publicly available the aggregate executed equivalent share volume and corresponding 
aggregate fee also 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.
831
  The Commission 
 
827
  See Notice, supra note 7, 88 FR at 17086. 
828
  Proposed Section 11.3(a)(iv)(A). 
829
  Proposed Section 11.3(b)(iv)(A).  
830
  See proposed Section 11.3(a)(iv)(A); proposed Section 11.3(b)(iv)(A) 
831
  See proposed Section 11.3(a)(iv)(B); proposed Section 11.3(b)(iv)(B). 

148 
understands that the publicly available aggregate statistics will be made available by CAT LLC 
on a monthly basis with each invoice. 
CAT LLC stated that consistent with Section 11.1(d) of the CAT NMS Plan, it will adopt 
policies, procedures and practices regarding the billing and collection of fees Section 11.4 of the 
CAT NMS Plan.
832
  In addition, pursuant to Section 11.4 of the CAT NMS Plan, CAT LLC will 
establish a system for the collection of CAT fees from Participants and Industry Members.
833
  
Under Section 11.4 of the CAT NMS Plan, the Participants must 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, 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.
834
 
Similarly, as set forth in Section 3.7(b) of the CAT NMS Plan, each Participant must pay 
all fees or other amounts required to be paid under the Plan within thirty (30) days after receipt 
of an invoice or other notice indicating payment is due (unless a longer payment period is 
otherwise indicated) (“Payment Date”).  The Participant shall pay interest on the outstanding 
balance from the Payment Date until such fee or amount 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 
 
832
  See Notice, supra note 6, 88 FR at 17089. 
833
  Id. at 17101. 
834
  See CAT NMS Plan, supra note 2, at Section 11.4. 

149 
applicable law.
835
  The Commission did not receive any objections to nor any comments 
regarding the calculation of this interest rate. 
The proposed provision to Participants and CAT Executing Brokers with details 
regarding the calculation of their CAT Fees upon request is reasonable.  In the Commission’s 
view, providing CAT Execution Brokers information regarding the calculation of their CAT Fees 
will aid in transparency and permit CAT Execution Brokers to confirm the accuracy of their 
invoices for CAT Fees.  The publication of the aggregate executed equivalent share volume and 
aggregate fee is appropriate because it would allow Participants and CAT Executing Brokers a 
high-level validation of executed volume and fees.  
8. Additional Changes from Original Funding Model 
CAT LLC proposed to delete the term “Execution Venue” and its definition from Section 
1.1 of the CAT NMS Plan, explaining that this term is not relevant in the Executed Share 
Model.
836
  Section 1.1 of the existing CAT NMS Plan defined “Execution Venue” to mean “a 
Participant or an alternative trading system (‘ATS’) (as defined in Rule 300 of Regulation ATS) 
that operates pursuant to Rule 301 of Regulation ATS (excluding any such ATS that does not 
execute orders).”  The Original Funding Model would have imposed fees based on market share 
to CAT Reporters that are Execution Venues, including ATSs, and fees based on message traffic 
for Industry Members’ non-ATS activities.
837
  In contrast, the Executed Share Model does not 
use the term “Execution Venue,” as the Executed Share Model imposes fees based on the 
 
835
  Id. at Section 3.7(b).  If any such remaining outstanding balance is not paid within thirty (30) days after the 
Payment Date, the Participants shall file an amendment to this Agreement requesting the termination of the 
participation in the Company of such Participant, and its right to any Company Interest, with the 
Commission.  
836
  See Notice, supra note 7, 88 FR at 17099.  
837
  See CAT NMS Plan, supra note 2, at Section 11.3(a)(i) and (ii); Section 11.3(b). 

150 
executed equivalent shares of transactions in Eligible Securities for three categories of CAT 
Reporters: Participants, CEBBs and CEBSs.
838
   
CAT LLC also proposed to amend Section 11.2(c) and Section 11.3(a) and (b) of the 
CAT NMS Plan to require Participants and CAT Executing Brokers to pay CAT fees based on 
the number of executed equivalent shares in a transaction in Eligible Securities instead of based 
on market share and message traffic.
839
   
First, CAT LLC proposed to delete subparagraphs (i) and (ii) of Section 11.2(c) and 
replace these subparagraphs with the requirement that the fee structure in which the fees charged 
to “Participants and Industry Members are based upon the executed equivalent share volume of 
transactions in Eligible Securities.”
840
  The deleted provisions would have required the Operating 
Committee, in establishing the funding of the Company, to seek to establish a tiered fee structure 
in which the fees charged to: (i) CAT Reporters that are Execution Venues, including ATSs, are 
based upon the level of market share and (ii) Industry Members’ non-ATS activities are based 
upon message traffic.   
Second, CAT LLC proposed to amend Sections 11.3(a) and 11.3(b) of the CAT NMS 
Plan to remove detail regarding fixed fees and fee tiers for market share and message traffic by 
Participants and Execution Venue ATSs under the Original Funding Model.
841
  Section 11.3(a) 
currently describes the fixed CAT fees to be paid by Participants and Execution Venue ATSs 
based on market share and Section 11.3(b) currently describes the fixed CAT fees to be paid by 
 
838
  See proposed Section 11.3(a)(ii) and (iii); proposed Section 11.3(b)(iii). 
839
  See Notice, supra note 7, 88 FR at 17099. 
840
  Proposed Section 11.2(c). 
841
  See Notice, supra note 7, 88 FR at 17100–01. 

151 
Industry Members (other than Execution Venue ATSs) based on message traffic.
842
  The text in 
these sections would be replaced with proposed Sections 11.3(a) and (b), which, as discussed 
above, would describe the calculation and application of the CAT Fees related to Prospective 
CAT Costs and the Historical CAT Assessments.  These proposed changes to Sections 11.3(a) 
and (b) would also replace references to “fixed fees” with “fees” instead.  CAT LLC explained 
that the concept of fixed fees is not relevant in the Executed Share Model.
843
  
CAT LLC also proposed to amend Sections 11.1(d), 11.2(c), 11.3(a) and 11.3(b) of the 
CAT NMS Plan to eliminate tiered fees and related concepts because the Executed Share Model 
does not utilize tiering.
844
  First, CAT LLC proposed to remove a reference to the “assignment of 
tiers” from Section 11.1(d).  CAT LLC also proposed to remove two sentences from Section 
11.1(d) permitting the Operating Committee to change the tier assigned to any Person.  Second, 
CAT LLC proposed to amend Section 11.2(c) to delete a reference to a tiered fee structure 
(specifically, deleting the word “tiered”) so that CAT fees would not be tiered under the 
Executed Share Model.  Third, CAT LLC proposed to delete subparagraph (iii) of Section 
11.2(c), which required the Operating Committee, in establishing the funding of the Company, to 
seek to establish a fee structure in which the fees charged to CAT Reporters with the most CAT-
related activity (measured by market share and/or message traffic, as applicable) are generally 
comparable (where, for these comparability purposes, the tiered fee structure takes into 
consideration affiliates between or among CAT Reporters, whether Execution Venues and/or 
Industry Members).
845
  CAT LLC explained that this comparability provision was a factor used 
 
842
  See CAT NMS Plan, supra note 2, at Section 11.3(a) and (b).  
843
  See Notice, supra note 7, 88 FR at 17101. 
844
  Id. at 17100–01. 
845
  Id. at 17100. 

152 
to determine the tiers for Industry Members and Execution Venues under the Original Funding 
Model, but that it is no longer necessary since the proposed Executed Share Model would not use 
a tiered fee structure.
846
  Finally, as discussed above, CAT LLC proposed to amend Sections 
11.3(a) and (b) to replace the language with proposed Sections 11.3(a) and (b), which would 
describe the calculation and application of the CAT Fees related to Prospective CAT Costs and 
the Historical CAT Assessments. CAT LLC states that such proposed changes would remove the 
references to tiers in Sections 11.3(a)(i) and (ii) and 11.3(b).
847
 
In addition, CAT LLC proposed to amend the CAT funding principles to clarify that 
CAT Fees and the Historical CAT Assessments are intended to be cost-based fees.
848
  
Specifically, CAT LLC proposed to amend the funding principle set forth in Section 11.2(c) by 
making a specific reference to “the costs of the CAT.”  Proposed Section 11.2(c) would state, 
“[i]n establishing the funding of the Company, the Operating Committee shall seek... to 
establish a fee structure in which the fees charged to Participants and Industry Members are 
based upon the executed equivalent share volume of transactions in Eligible Securities, and the 
costs of the CAT (emphasis added).”
849
    
In the Commission’s view, the proposed deletion of the term “Execution Venue” from the 
CAT NMS Plan is reasonable because the term is no longer relevant to the CAT NMS Plan. The 
proposed Executed Share Model does not impose fees on Execution Venues and would instead 
impose fees on Participants and CAT Executing Brokers (and, ultimately, Industry Members) 
and therefore it is appropriate to delete the term. 
 
846
  Id. 
847
  Id. at 17100–01. 
848
  Id. at 17099. 
849
  Proposed Section 11.2(c). 

153 
Additionally, it is reasonable to amend Section 11.2(c) and Section 11.3(a) and (b) of the 
CAT NMS Plan to reflect the proposed use of the number of executed equivalent shares in 
transactions in Eligible Securities in calculating CAT fees.  These changes are appropriate 
because, unlike the Original Funding Model, the proposed Executed Share Model would not use 
message traffic, or a tiered fee structure.   
Further, the proposed elimination of tiered fees and related concepts from the CAT NMS 
Plan and the proposed replacement of “fixed fees” with references to “fees” in the CAT NMS 
Plan are reasonable.  The Original Funding Model would use a tiered fee structure of fixed fees; 
however, the proposed Executed Share Model would require each Participant and CAT 
Executing Broker to pay a CAT fee based on its transactions in Eligible Securities.
850
  CAT LLC 
explained that “[t]he proposed non-tiering approach is simpler and more objective to administer 
than the tiering approach”
851
 and that removing tiers “eliminates a variety of subjective analyses 
and judgments from the model and simplifies the determination of CAT fees.”
852
  Additionally, 
the Proposed Amendment would replace the concept of “fixed fees” with “fees” because CAT 
fees will vary in accordance with the number of executed equivalent shares in a transaction.
853
  
The proposed elimination of tiered fees and related concepts from the CAT NMS Plan and the 
proposed replacement of “fixed fees” with references to “fees” in the CAT NMS Plan are 
reasonable because these changes conform the CAT NMS Plan funding model to the proposed 
Executed Share Model. 
 
850
  See proposed Section 11.3(a)(ii)(A), (a)(iii)(A), (b)(iii)(A). 
851
  Notice, supra note 7, 88 FR at 17100. 
852
  Id. 
853
  Id. at 17101. 

154 
Additionally, the Proposed Amendment would amend Section 11.2(c) to make clear that 
the fee structure established by the Operating Committee to charge fees to Participants and 
Industry Members would also be based on the costs of the CAT.
854
  CAT LLC explained that the 
change clarifies that the CAT fees are cost-based fees designed to recover the cost of the 
creation, implementation and operation of the CAT.
855
  These proposed changes are appropriate 
because they would update language in the Original Funding Model to reflect the operation of 
the proposed Executed Share Model.  
9. Other Comments 
   a. Lack of Industry Input   
A number of commenters stated that the Proposed Amendment lacks input from the 
industry.
856
  One commenter stated that the Participants did not meaningfully solicit input from 
the industry when developing the Executed Share Model.
857
  Another commenter stated that the 
Proposed Amendment reflects a lack of representation by executing brokers and offered its 
participation in future discussions and advisory committees on the topic of CAT funding.
858
  One 
 
854
  See proposed Section 11.2(c) (“... fees charged to Participants and Industry Members are based upon the 
executed equivalent share volume of transactions in Eligible Securities, and the costs of the CAT.” 
(emphasis added)).  
855
  See Notice, supra note 7, 88 FR at 17099. 
856
  See DASH April 2023 Letter at 2; DASH January 2023 Letter at 3; SIFMA June 2023 Letter at 4; SIFMA 
May 2023 Letter at 2; SIFMA June 2022 Letter at 2; SIFMA January 2023 Letter at 2; Citadel July Letter 
at 9–10.  See also FINRA June 2022 Letter at 8, 9 (advocating for a more inclusive development process 
that would include input from the industry); MMI July Letter at 2, 4; Virtu Letter at 6 (stating that they 
would like to have a meaningful dialogue with the Participants and that the best way forward is for the 
interested parties to meet and devise an equitable solution); FIA Letter at 4 (stating that they have “raised 
concerns over the lack of industry participation in the development, operation and cost allocation processes 
of the CAT” and they “believe that at a minimum, the CAT Operating Committee should be reconfigured, 
with Industry Members comprising the percentage of the Committee equivalent to whatever cost allocation 
percentage is eventually allocated to them.”). 
857
  See SIFMA May 2023 Letter at 2.  See also SIFMA June 2023 Letter at 4, 5; SIFMA June 2022 Letter at 2; 
SIFMA January 2023 Letter at 2. 
858
  See DASH April 2023 Letter at 2; DASH January 2023 Letter at 3. 

155 
commenter stated that “[t]he impact of CAT on the brokerage community must be taken 
seriously by the SRO committee, and brokers need their voice heard on the committee’s 
recommendations.  To date, we have seen little evidence of either.”
859
  This commenter also 
suggested the allocation of human resources to hire industry experts in industry workflows and 
public-private engagement to assist with building the CAT.
860
 
In response, CAT LLC stated that it has engaged with the industry on the funding model 
over the past seven years, explaining that it has discussed funding model issues with the CAT 
Advisory Committee, which includes representation from the industry, as well as with industry 
associations such as SIFMA and the Financial Information Forum, and with individual Industry 
Members; analyzed and responded to comment letters on the prior proposals; and hosted 
webinars for the industry on funding issues.
861
  CAT LLC stated that it welcomes industry input 
on the funding model but believes a decision on the model is overdue.
862
   
In response, one commenter stated that Industry Members are willing to work with the 
Commission and the Participants to develop a CAT funding model.
863
  The commenter urged 
collaboration and dialogue between the Participants and the Industry Members before the filing 
of a formal proposal with the Commission.
864
  The commenter also stated that limiting industry 
input to the notice and comment process for NMS plan amendments is an inefficient process 
resulting in significant delays.
865
  Another commenter stated that the Operating Committee 
 
859
  MMI July Letter at 4.   
860
  Id.   
861
  See CAT LLC May 2023 Response Letter at 12. 
862
  Id. 
863
  See SIFMA June 2023 Letter at 4. 
864
  Id. 
865
  Id. at 4–5. 

156 
refuses to engage the industry in constructive dialogue, instead choosing to file funding 
proposals that are inconsistent with the Exchange Act.
866
  The commenter also stated that the 
CAT Advisory Committee has been completely ignored by the Operating Committee and that its 
recommendations are non-binding.
867
   
CAT LLC further responded to two commenters that stated that CAT LLC refused to 
collaborate with the industry in the development of the Proposed Amendment.
868
  CAT LLC 
stated that it has engaged with the industry over the last seven years, discussing funding model 
issues with the CAT Advisory Committee, holding industry-wide webinars on funding issues, 
and meeting with industry associations and individual Industry Members to discuss funding 
model issues.
869
  CAT LLC stated that it has “repeatedly sought the views of SIFMA and other 
industry participants on specific aspects of the model.”
870
  CAT LLC listed ideas suggested by 
the industry that it adopted in revised versions of the funding model
871
 and stated “the current 
model results from years of modifications that have been made in significant part in response to 
industry comments to earlier versions.”
872
     
The Commission understands that Industry Members and other market participants have 
been able to provide input into CAT funding through meetings with CAT LLC, participation in 
webinars held by CAT LLC on CAT costs and potential alternative funding models,
873
 and 
 
866
  See Citadel July Letter at 9–10.   
867
  Id. at 6. 
868
  See MMI July Letter at 2; SIFMA June 2023 Letter at 4. 
869
  See CAT LLC July 2023 Response Letter at 26–27. 
870
  Id. at 28. 
871
  Id. at 27–28. 
872
  Id. at 28. 
873
  See CAT Industry Webinar: CAT Costs (Sept. 21, 2021), available at 
https://catnmsplan.com/sites/default/files/2021-09/09.21.21-CAT-Costs_0.pdf; CAT Industry Webinar: Fee 
 

157 
through the provision of comments on the current and prior proposed funding models.
874
  The 
Commission encourages frequent and constructive collaboration between the industry and CAT 
LLC.   
  b. Implementation 
 One commenter suggested that upon approval of any CAT funding model, Industry 
Members should be given at least a year “to implement any necessary changes to systems and 
processes for them to be able to capture their portion of CAT costs.”
875
  CAT LLC responded 
that it was unlikely to take Industry Members a year to implement any needed changes, 
particularly given the relatively small fees likely to be incurred by most small Industry Members 
that would not require extensive new processes to pay.
876
   
The Commission acknowledges this comment but highlights, as did CAT LLC,
877
 that the 
Participants have entirely funded the CAT to date; in the Commission’s view, it is imperative 
that CAT funding be established in a timely manner after approval of the Executed Share Model.   
   c. Rule 613 and the CAT NMS Plan 
Certain commenters stated that the CAT as it is structured today is not what was 
contemplated by Rule 613 of Regulation NMS.
878
  One commenter recommended that the 
Commission come up with a new structure for the CAT.
879
  The commenter stated that Rule 613 
 
Models (Sept. 22, 2021), available at https://catnmsplan.com/sites/default/files/2021-09/09.22.21-CAT-
Fee-Model.pdf. 
874
  See, e.g.,  supra note 58; see also https://www.sec.gov/comments/4-698/4-698-a.htm. 
875
  SIFMA May 2023 Letter at 2. 
876
  See CAT LLC May 2023 Response Letter at 12. 
877
  Id. 
878
  See SIFMA June 2023 Letter at 2, 6–7; Citadel July Letter at 5; FIA Letter at 5; FIF and SIFMA Letter at 
4, 5, 8–23.   
879
  See SIFMA Letter June 2023 at 6. 

158 
and the 2016 CAT NMS Plan do not support CAT as it is currently structured
880
 and provided 
examples where it believes that subsequent changes to the CAT requested by the Commission 
have caused the CAT to become inconsistent with the requirements of Rule 613 and the 2016 
CAT NMS Plan.
881
  According to the commenter: (1) Rule 613 requires the reporting of certain 
events and that the events must be linked to their originating order, but the Commission has 
required the reporting of events that are not CAT-reportable and are not linked to particular 
orders (for example, Rule 613 requires the reporting of the cancellation of an order, but the 
Commission has also required the reporting of messages acknowledging the receipt of a 
cancellation request);
882
 (2) the Commission expanded the CAT to include OTC equities and 
requests-for-quotes;
883
 (3) the CAT NMS Plan contemplates that data will be available to the 
Commission on a T+5 basis, but the Commission and staff have insisted that certain data be 
available to the Commission for use before T+5;
884
 (4) Rule 613 requires the reporting of every 
material term of an order, but the Commission has also required the reporting of the port-level 
settings applicable to all orders sent to a port on an exchange.
885
 The commenter stated that these 
changes to CAT resulted from discussions between the Commission and the Participants, that 
such changes “significantly increased CAT costs,” and that Industry Members with “no voice 
and little transparency” into the building of the CAT system would be allocated most of the 
increased CAT costs.
886
  The commenter stated that the Commission approval of a funding 
 
880
  Id. at 6–7. 
881
  Id. at 6.   
882
  Id. at 6–7. 
883
  Id. at 7. 
884
  See SIFMA June 2023 Letter at 6. 
885
  Id.  See also Citadel July Letter at 32–33. 
886
  See SIFMA June 2023 Letter at 7. 

159 
proposal for a system that is not consistent with Rule 613 and the CAT NMS Plan would be 
arbitrary and capricious action.
887
   
Another commenter stated that some of the drivers of CAT costs are the addition of 
various new system features and reporting requirements that were established as the result of 
discussion between Commission staff and the CAT Operating Committee.
888
  The commenter 
stated that some of these requirements have been driven by “informal reinterpretations” of the 
Plan and have resulted in material changes to the CAT without proper weighing of costs and 
benefits associated with such changes.
889
  The commenter further stated that the Participants 
should confirm that the existing CAT system meets the requirements of the Plan, before the 
funding proposal is finalized.
890
 
One commenter believes that the Commission should require an amendment to the CAT 
NMS Plan for new reporting requirements or enhancements for which costs and benefits were 
never considered by Commission in the economic analysis for the approval of the CAT NMS 
Plan.
891
  This commenter believes that the Commission is imposing CAT processing 
requirements that are not required by Rule 613 and the CAT NMS Plan.
892
  The commenter 
further believes these “changes” should be subject to greater review by the Industry Members 
and the public at large, and therefore should be filed as amendments to the CAT NMS Plan, 
thereby requiring a cost-benefit analysis to be conducted by the Commission and public 
 
887
  Id. 
888
  See FIA Letter at 5. 
889
  Id. 
890
  Id. 
891
  See FIF and SIFMA Letter at 4, 5.   
892
  Id. at 9–12 (discussing various “processing changes” the commenter believes the Commission intends to 
impose, as well as summarizing the objections made by the Participants to these “changes”). 

160 
disclosure.
893
 The commenter stated that the Commission has mandated additional reporting 
requirements for CAT that the commenter does not believe to be within the scope of Rule 613 
and the CAT NMS Plan, and that these additional reporting requirements should be subject to an 
appropriate cost-benefit analysis.
894
  The commenter stated their concern that these reporting 
requirements would be very costly to implement and questioned whether the surveillance value 
of these additional reporting requirements justified the additional costs that will be imposed on 
market participants (and potentially passed through to customers).
895
  The commenter further 
stated that, to the extent that these additional reporting requirements are found to be within the 
scope of Rule 613 and the CAT NMS Plan, the Commission should grant exemptive relief with 
respect to these requirements because of the additional costs.
896
  The commenter also stated that 
if the Commission does not grant exemptive relief, then the Commission should require an 
amendment to the CAT NMS Plan, that sets forth the costs and benefits, for each of these 
additional reporting requirements because the commenter believes that these reporting 
requirements were not considered as part of the cost estimates in the CAT NMS Plan.
897
   
 
893
  Id. at 10–11.  This commenter also stated that there were several “processing requirements” that could 
reduce CAT operating costs and that the Commission should direct the Participants to analyze these 
“processing requirements” and make that analysis available to the public for discussion.  Id. at 12–13. 
894
  See FIF and SIFMA Letter at 13–23 (discussing various reporting requirements that the commenter does 
not consider to be within the scope of Rule 613 and the CAT NMS Plan or believes that exemptive relief 
should be granted because of the costs for implementing these requirements, including: requiring CAT 
reporting of verbal (unstructured) activity; requiring CAT reporting of non-executable RFQ responses; 
requiring CAT reporting of request messages; requiring that an order recipient report rejections to CAT; 
requiring an order sender to report venue (order recipient) port settings; requiring CAT reporting of linkage 
of representative to customer orders and linkage of order fulfillments to representative and principal orders; 
various requirements with respect to CAIS reporting; and other CAT reporting requirements relating to 
quoting activity on the OTC Link ATS operated by OTC Markets).  
895
  Id. at 14. 
896
  Id. 
897
  Id. 

161 
Another commenter stated that changes and cost overruns have changed the structure of 
the CAT from what was contemplated by Rule 613.
898
  The commenter believes that the 
Operating Committee and the Commission have engaged in ad-hoc discussions to interpret what 
the Plan requires “without adequate notice to Industry Members or due consideration of the costs 
and benefits associated with such interpretations.”
899
  The commenter stated that the 
Commission has not regularly assessed whether costs resulting from a specific interpretation of 
Rule 613 and the CAT NMS Plan outweigh benefits.
900
  The commenter requested that the 
Commission revisit its assumptions from the CAT NMS Plan Approval Order
901
 due to 
inaccurate cost estimates, a failure to retire duplicative systems, impracticality of technology 
requirements, a lack of effective governance, and a lack of processes to consider requests to add 
more data.
902
   
The commenter also stated that the Commission must update the economic analysis from 
the CAT NMS Plan Approval Order
903
 to revise its estimates of costs to build and operate CAT 
using actual costs incurred,
904
 to project average annual increases in the CAT operating 
budget,
905
 and to update its analysis of CAT-related costs to be borne by Industry Members.
906
  
The commenter stated that the 2016 CAT NMS Plan lacked a funding model, so the Commission 
 
898
  See Citadel July Letter at 7. 
899
  Id. at 6. 
900
  Id. 
901
  See supra note 2. 
902
  See Citadel July Letter at 5; see also FIF and SIFMA Letter at 24–26. 
903
  See CAT NMS Plan Approval Order, supra note 2. 
904
  See Citadel July Letter at 12.  The commenter stated that 2016 figures underestimated such implementation 
costs for larger broker-dealers by assuming cost savings would be realized through retirement of other 
reporting systems which haven’t been retired yet.  Id. at 12–13. 
905
  Id. at 13.       
906
  Id. at 12. 

162 
did not consider the implications of allocating costs to Industry Members to build and operate the 
CAT.
907
  The commenter stated that the Proposed Amendment would allocate at least 78% and 
up to 100% of costs to Industry Members and a small group of Industry Members will pay the 
majority of these costs (and potentially both historical and ongoing costs simultaneously).
908
  
The commenter stated that the proposed allocation would have “dramatic effects” on market 
efficiency, competition and capital formation,
909
 stating that “[t]he allocation methodology will 
have a direct and negative impact on market efficiency, competition, and capital formation, and 
the Commission must comprehensively assess those impacts before approving this filing.”
910
   
Additionally, the commenter stated that Rule 613 requires the Participants to provide an 
estimate of the costs associated with creating, implementing and maintaining the CAT, the costs, 
benefits and rationale for the choices made in developing the CAT NMS Plan, and their own 
analysis of the plan’s impact on competition, efficiency and capital formation.
911
  The 
commenter requested the Commission to require the members of the Operating Committee to 
update the analysis required by Rule 613 in light of a “massive increase” in costs since 2016.
912
  
Another commenter similarly suggested that additional oversight and public review of the actual 
costs and purpose of the CAT is called for, and also requested additional transparency on the 
status of legacy reporting systems, since their retirement could offset some of the CAT fees.
913
 
 
907
  Id. 
908
  See Citadel July Letter at 12; id. at 12, n.57. 
909
  Id. at 12. 
910
  Id. at 15. 
911
  Id. at 14–15; see also FIF and SIFMA Letter at 24-25. 
912
  See Citadel July Letter at 15. 
913
  See MMI July Letter at 6. This commenter did not specifically request that the Operating Committee 
update the Rule 613 analysis. 

163 
In response to one commenter that stated that Rule 613 and the CAT NMS Plan no longer 
reflect the operation of the CAT,
914
 CAT LLC stated that the CAT was implemented in 
accordance with Rule 613 and the CAT NMS Plan and that the CAT NMS Plan permits the 
recovery of costs incurred in the creation, implementation and maintenance of the CAT.
915
 
CAT LLC also responded to comments that raised concerns about the Commission’s 
interpretations of CAT NMS Plan requirements that were not related to the funding model and 
the costs and benefits of those interpretations.
916
  CAT LLC stated that the Proposed Amendment 
is not the appropriate forum to resolve interpretive questions.
917
  CAT LLC also stated that, for 
proposed changes to the CAT NMS Plan, the Participants are following the process in Rule 608 
for plan amendments and noted that material changes to the CAT system would require an 
amendment to the CAT NMS Plan,
918
 but not a material change to a technology contract as the 
CAT NMS Plan permits the Operating Committee to enter into, modify or terminate a material 
contract.
919
     
The CAT NMS Plan is consistent with Rule 613 and we do not believe that any changes 
have been made that are inconsistent with the Plan as approved in 2016, as amended in 2020.
920
 
The examples provided by commenters of changes to the CAT requested by the Commission,
921
 
 
914
  See SIFMA June 2023 Letter at 7. 
915
  See CAT LLC July 2023 Response Letter at 28. 
916
  See Citadel July Letter at 32–34; FIA Letter at 3, 4; MMI July Letter at 4. 
917
  See CAT LLC July 2023 Response Letter at 29. 
918
  Id. 
919
  Id. at 30 (citing to Section 4.3 of the CAT NMS Plan). 
920
 See Securities Exchange Act Release No. 89387 (July 24, 2020), 85 FR 45941 (July 30, 2020); Financial 
Accountability Amendments, supra note 18. 
921
  See SIFMA June 2023 Letter at 6, 7, supra notes 881–885 and accompanying text; Citadel July Letter at 
33–35; FIF and SIFMA Letter at 8–23.  The issues raised by those commenters are either being adjudicated 
in a separate forum or addressed through a request for exemptive relief.  See Petition for Review, USCA 
 

164 
in the Commission’s view, were included in the CAT NMS Plan approved by the Commission in 
2016.
922
  Rule 608 and Rule 613 of Regulation NMS provide advance notice of material changes 
to the CAT system and related costs by requiring changes to the CAT NMS Plan to be filed with 
the Commission as an NMS plan amendment pursuant to Rule 608 of Regulation NMS and 
thereby be subject to notice and comment, and require that the Commission consider, in 
determining to approve the amendment, the impact of the amendment on efficiency, competition 
and capital formation.
923
  Section 6.9 of the CAT NMS Plan does not provide unfettered 
discretion to the CAT Operating Committee to make Material Amendments to the CAT system.  
If the CAT Operating Committee or the Commission wish to impose additional requirements to 
the CAT NMS Plan, such requirements must be proposed through an amendment to the CAT 
NMS Plan, filed under Rule 608 of Regulation NMS.  Such amendments must be published for 
notice and comment.
924
  Additionally, Rule 613(a)(5) of Regulation NMS
925
 requires the 
Commission to consider, in determining whether to approve an amendment to the CAT NMS 
Plan, the impact of the amendment on efficiency, competition and capital formation; therefore, 
this Order contains an analysis of the Proposed Amendment’s impact on efficiency, competition, 
and capital formation.   
   d. Funding in the Appropriation Process 
 
Case No. 22-1234; Request for Exemption from Certain Provisions of the CAT NMS Plan Related to 
Reporting of Certain Verbal Activity, Floor and Upstairs Activity, available at 
https://catnmsplan.com/sites/default/files/2023-03/03.31.23-CAT-Exemption-Request-Verbal-Floor-and-
Upstairs-Activity.pdf.  22-1234; Request for Exemption from Certain Provisions of the CAT NMS Plan 
Related to Reporting of Certain Verbal Activity, Floor and Upstairs Activity, available at 
https://catnmsplan.com/sites/default/files/2023-03/03.31.23-CAT-Exemption-Request-Verbal-Floor-and-
Upstairs-Activity.pdf.   
922
  See Securities Exchange Act Release No. 95234 (July 8, 2022), 87 FR 42247 (July 14, 2022). 
923
  Rule 613(a)(5).  17 CFR 242.613(a)(5).   
924
  See Rule 608(a)(1).  17 CFR 242.608(a)(1). 
925
  17 CFR 242.613(a)(5).   

165 
Certain commenters believe that funding for the CAT should be accomplished through 
Congressional appropriations.
926
  These commenters characterized the CAT as a Commission 
tool for law enforcement.
927
  One commenter stated that the Proposed Amendment would 
“evade”
928
 the separation of powers established by the Constitution, arguing that since the CAT 
is a “Commission system used for enforcement”
929
 and that law enforcement “is an executive 
prerogative,”
930
 Congress must approve public funds to build the CAT through the 
appropriations process.
931
  The commenter stated “[t]he Constitution does not permit the 
Commission to fund its own enforcement apparatus through the backdoor—to require the SROs 
to raise and spend hundreds of millions of dollars to build a new law enforcement tool for the 
Commission.”
932
  The commenter also stated that the assessment of “retroactive liability for 
monies spent that private parties had no control over” for public purposes would violate the Fifth 
Amendment Takings Clause.
933
   
Another commenter stated that the Proposed Amendment is unconstitutional because it 
would require Industry Members to provide the Operating Committee with a blank check to fund 
100% of costs in perpetuity for a law enforcement tool designed for the Commission that has not 
 
926
  See SIFMA June 2023 Letter at 8; Citadel July Letter at 28–29; FIA Letter at 3; MMI July Letter at 2–4.  
See also MMI July Letter at 1–2.  This commenter suggested evaluating whether the CAT is truly an NMS 
plan, or if it is better viewed as a Commission system whose budget should be subject to Congressional 
approval and oversight.  In response, CAT LLC stated that this comment is outside the scope of the 
Proposed Amendment.  See CAT LLC July 2023 Response Letter at 31, n.144. 
927
  See SIFMA June 2023 Letter at 8; FIA Letter at 3; Citadel July Letter at 28, 29.  See also MMI July Letter 
at 2–4 (categorizing the CAT as a Commission system, required by and dictated by the Commission that 
should be funded in the same way as other Commission functions). 
928
  See SIFMA June 2023 Letter at 8. 
929
  Id.  See also FIA Letter at 3. 
930
  See SIFMA June 2023 Letter at 8. 
931
  Id. 
932
  Id.  See also Citadel July Letter at 28, 29.   
933
  See SIFMA June 2023 Letter at 8. 

166 
been authorized by Congress.
934
  The commenter also stated that requiring the Participants to 
build “a multi-billion dollar enforcement tool” is beyond the scope of Section 11A’s 
authorization to the Commission to require SROs to act jointly or facilitate the development of a 
national market system.
935
  Another commenter stated that the Commission has directed the 
development of CAT to supplement the government’s surveillance program while the Funding 
Proposal effectively places all or most of the costs of the CAT on the Industry Members, who 
have no voice in its control or development.
936
  The commenter states that these costs are 
essentially a tax on the industry from an agency and should require Congressional oversight.
937
  
Additionally, one commenter suggested the treatment of the CAT budget in terms of accounting 
and transparency as a Commission system, and a cap on the budget for CAT which, if exceeded, 
would trigger Congressional budget oversight.
938
 
In response to recent comments expressing concern that the Industry Member allocation 
would raise constitutional issues,
939
 CAT LLC stated that the first commenter to raise this issue 
had never once before challenged the constitutionality of Rule 613 or the CAT NMS Plan.
940
  
CAT LLC stated “SIFMA’s strategic decision to inundate the Commission with these 
arguments—which directly contradict its prior statements that industry contributions are 
‘justifiable under the Exchange Act’—just two days before a scheduled SEC Open Meeting to 
consider the Funding Proposal suggests their ultimate strategy is to delay the Commission’s 
 
934
  See Citadel July Letter at 29. 
935
  Id. at 28.   
936
  See FIA Letter at 3. 
937
  Id. 
938
  See MMI July Letter at 2, 4.   
939
  See SIFMA June 2023 Letter at 7–9; Citadel July Letter at 28–29; FIA Letter at 3; Virtu Letter at 2. 
940
  See CAT LLC July 2023 Response Letter at 31. 

167 
review and approval of any funding model that would require the industry to contribute to the 
funding of the CAT.”
941
  CAT LLC urged the Commission to not let the commenter further 
delay a decision on the Proposed Amendment by filing comments that it could have submitted 
years before.
942
  CAT LLC also noted that, despite the commenter’s argument that requiring 
Industry Members to contribute to CAT costs was a constitutional takings problem, the 
commenter had suggested a funding model for the CAT based on a 50%-50% allocation of costs 
divided among Participants and Industry Members.
943
  CAT LLC stated that regardless of how 
this issue is resolved, the Participants should be able to recover their investment in CAT because 
Rule 613 and the CAT NMS Plan contemplate Industry Member contributions to CAT 
funding.
944
 
 In characterizing CAT as solely a “Commission tool used for enforcement,” these 
comments misunderstand its purposes.
945
  CAT serves multiple regulatory purposes for both 
SROs and the Commission.  SROs have long had audit trail systems and the SROs themselves, 
as well as the Commission, have long used the market data from those systems to oversee the 
securities markets and fulfill their responsibilities under federal securities laws.
946
  In directing 
the SROs to file an NMS plan establishing the CAT, the Commission sought to address 
shortcomings in those existing systems and create an audit trail system that would provide both 
 
941
  Id. at 32. 
942
  Id. at 33. 
943
  Id. at 31.  See also SIFMA May 2023 Letter at 2; supra note 101 and accompanying text. 
944
  See CAT LLC July 2023 Response Letter at 33. 
945
  See SIFMA June 2023 Letter at 8; FIA Letter at 3; Citadel July Letter at 28, 29.  See also MMI July Letter 
at 2–4 (categorizing the CAT as a Commission system, required by and dictated by the Commission that 
should be funded in the same way as other Commission functions). 
946
  See Securities Exchange Act Release No. 67457 (July 18, 2012), 77 FR 45722 (Aug. 1, 2012) (“CAT 
Adopting Release”) at 45727.  

168 
the SROs and the Commission with timely access to a comprehensive set of trading data 
sufficient to oversee modern markets.  And in approving the CAT NMS Plan, the Commission 
determined that the Plan would substantially improve the ability of both the SROs and the 
Commission to perform these regulatory activities to the benefit of investors and markets.
947
   
In this respect, the CAT’s regulatory and enforcement utility to the SROs as well as the 
Commission is similar to many of the SROs’ other self-regulatory functions that are funded in 
part by Industry Members.  And this dual purpose is consistent with the long history of SRO and 
Commission oversight of the securities markets.  Self-regulation in the securities industry 
predates the securities laws and, in enacting the Exchange Act in 1934, Congress formalized this 
structure, purposefully determining to rely on self-regulation as a fundamental component of 
U.S. market and broker-dealer regulation.
948
  Among other things, Congress determined that 
effectively regulating the inner-workings of the securities industry at the federal level was cost 
prohibitive and inefficient.
949
 And industry participants preferred the less invasive regulation by 
their peers to direct government regulation.
  950
  Congress and the Commission have repeatedly 
reaffirmed that decision in the years since.
951
  And Courts have repeatedly affirmed the 
 
947
  See CAT NMS Plan Approval Order, supra note 2,  81 FR at 84727, 84800. 
948
  See Securities Exchange Act Release No. 50700 (Nov. 18, 2004),  69 FR 71255 (Dec. 8, 2004) (“Concept 
Release Concerning Self-Regulation”).   
949
   Id., citing S. Rep. No. 1455, 73d Cong., 2d Sess. (1934); H.R. Doc. No. 1383, 73d Cong., 2d Sess. (1934); 
S. Rep. No. 1455, 73d Cong., 2d Sess. (1934).; see also S. Rep. No. 94-75, 94th Cong., 1st Sess. 7, II 
(1975) (stating that a principal reason for retaining a self-regulatory regime was the “sheer ineffectiveness 
of attempting to assure [regulation] directly through the government on a wide scale”) 
950
  See Concept Release on Self-Regulation, supra note 948, 69 FR at 71256-57.  
951
  See e.g., Exchange Act Amendments of 1975, Pub. L. 29, 89 Stat. 97 (1975); 1961-1963 Special Study of 
Securities Markets. Securities and Exchange Commission, Report of Special Study of Securities Markets, 
(“Special Study”), H.R. Doc. No. 95, 88th Cong., 1st Sess. (1963) and Market 2000: An Examination of 
Current Equity Market Developments, Division of Market Regulation, U.S. Securities and Exchange 
Commission (January 1994) (“Market 2000 Report”). 

169 
constitutionality of this system of self-regulation.
952
  As contemplated by Congress, the SROs 
have also long funded their frontline responsibility to supervise their members’ compliance with 
their own rules and the federal securities laws, subject to Commission oversight, through fees on 
those members.
953
  The participation of Industry Members in the funding of CAT is no different.   
The assertion by commenters that the funding of the CAT violates the Appropriations 
Clause or other constitutional limitations thus lacks merit.  The funding of an initiative, such as 
CAT, that has utility to both the SROs and the Commission does not implicate the 
Appropriations Clause in the manner that has been questioned in courts.
954
  As the Supreme 
Court has stated, that clause “means simply that no money can be paid out of the Treasury unless 
it has been appropriated by an act of Congress.”
955
  The use of SRO and Industry Member 
funding for a self-regulatory initiative—which, as discussed below, falls within the authority 
provided by Congress—does not transgress that principle. 
Nor does Industry Members’ participation in CAT funding implicate the Takings Clause.  
In choosing to participate in the securities industry, Industry Members could not have had any 
 
952
  See Todd & Co. v. SEC, 557 F.2d 1008, 1012-13 (3d Cir. 1977); First Jersey Sec., Inc. v. Bergen, 605 F.2d 
690, 697 (3d Cir. 1979); Sorrell v. SEC, 679 F.2d 1323, 1325-26 (9th Cir. 1982); R.H. Johnson & Co. v. 
SEC, 198 F.2d 690, 695 (2d Cir. 1952); see generally Oklahoma v. United States, 62 F.4th 221, 229 (6th 
Cir. 2023). 
953
  See Concept Release Concerning Self-Regulation, supra note 948, 69 FR at 71268-69, citing Exchange Act 
Section 6(b)(4), 15 U.S.C. 78f(b)(4); Exchange Act Section 15A(b)(5), 15 U.S.C. 78o-3(b)(5); Exchange 
Act Section 15A(b)(2) and 6(b)(1) 15 U.S.C. 78o-3(b)(2) and 78f(b)(1).] 
954
  For these reasons, we disagree with the assertion of commenters that the Fifth Circuit’s reasoning in Cmty. 
Fin. Servs. Ass’n of Am., Ltd. v. CFPB, 51 F.4th 616, 642 (5th Cir. 2022), cert. granted sub nom. CFPB v. 
Com. Fin. Servs. Ass’n, U.S.  (Feb. 27, 2023), casts doubt on the constitutionality of CAT.  The holding in 
that case rested on the court’s view that the CFPB’s “perpetual self-directed, double-insulated funding 
structure” was “unprecedented” for an agency that “wields vast rulemaking, enforcement, and adjudicatory 
authority.”  See also CFPB v. Law Offices of Crystal Maroney, 63 F.4th174, 181-83 (2d. Cir. 2023) 
(disagreeing with Fifth Circuit’s reasoning and rejecting challenge to CFPB’s funding structure). 
955
  See Cincinnati Soap Co. v. United States, 301 U.S. 308, 321 (1937); see also Off. Of Pers. Mgmt. v. 
Richmond, 496 U.S. 414, 424 (1990) (The Appropriations Clause requires that “the payment of money 
from the Treasury must be authorized by a statute.”). 

170 
“distinct investment-backed expectations”
956
 that they would not have to share in funding 
regulatory initiatives such as development and maintenance of a consolidated audit trail for 
tracking securities trading, the purpose of which is to “strengthen the integrity and efficiency of 
the markets” and thus “enhance investor protection and increase capital formation.”
957
 
Finally, the creation of CAT falls within the Commission’s authority under the Exchange 
Act.
958
  Pursuant to that Act, each national securities exchange and national securities association 
must be organized and have the capacity to comply, and enforce compliance by its members, 
with its rules, and with the federal securities laws, rules, and regulations.
959
  And, among other 
things, the Commission has a responsibility to oversee those organizations and to enforce 
compliance by the members of exchanges and associations with the respective exchange's or 
association's rules, and the federal securities laws and regulations.
960
  Congress has also charged 
the Commission with “insur[ing] the maintenance of fair and honest markets,” removing 
“impediments to” and perfecting “the mechanisms of a national market system for securities” 
and “provid[ing] for regulation and control of” transactions on securities exchanges and the over-
the-counter market.
961
  In furtherance of these responsibilities, Congress authorized the 
Commission to “impose requirements necessary to make such regulation and control reasonably 
 
956
  See Penn Central Transp. Co. v. New York City, 438 U.S. 104, 124 (1978). 
957
   See CAT NMS Plan Approval Order, supra note 2,  81 FR at 84727. 
958
  See 15 U.S.C. 78b, 78c(b), 78e, 78f, 78k-1, 78o, 78o-3; cf. Nasdaq Stock Mkt. LLC v. SEC, 38 F.4th 1126, 
1131 (D.C. Cir. 2022) (explaining that Congress granted the Commission “‘broad, discretionary powers’ to 
ensure ‘maximum flexibility’ in ‘oversee[ing] the development of a national market system’ and 
‘implement[ing] its specific components in accordance with the findings and . .   . objectives’ of the 
legislation,” quoting S. Rep. 94-75, at 7 (1975)). 
959
  See, e.g., Sections 6(b)(1), 19(g)(1) and 15A(b)(2) of the Exchange Act, 15 U.S.C. 78f(b)(1), 78s(g)(1), and 
78o-3(b)(2). 
960
  See, e.g., Sections 2, 6(b), 15A(b), and 19(h)(1) of the Exchange Act, 15 U.S.C. 78b, 15 U.S.C. 78f(b), 15 
U.S.C. 78o-3(b), and 15 U.S.C. 78s(h)(1). 
961
  See Section 2 of the Exchange Act, 15 U.S.C. 78b. 

171 
complete and effective”
962
 as well as to make such rules and regulations “as may be necessary or 
appropriate to implement the provisions” of the Exchange Act.
963
   
More recently, Congress also directed the Commission to facilitate the establishment of a 
national market system in accordance with specified findings and objectives.
964
  The initial 
Congressional findings were that the securities markets are an important national asset that must 
be preserved and strengthened, and that new data processing and communications techniques 
create the opportunity for more efficient and effective market operations.
965
 Congress then 
proceeded to mandate a national market system composed of multiple competing markets that 
are linked through technology, directing the Commission to “use its authority under [the 
Exchange Act] to facilitate the establishment of a national market system,” including “by rule” 
“to authorize or require self-regulatory organizations to act jointly with respect to matters as to 
which they share authority under [the Exchange Act] in planning, developing, operating, or 
regulation a national market system.”
966
   
The creation of the CAT was an appropriate exercise of this authority.  The Commission's 
task pursuant to the mandate in Section 11A has been to facilitate an appropriately balanced 
market structure that promotes competition among markets, while minimizing the potentially 
adverse effects of fragmentation.  An appropriately balanced market structure also must provide 
for strong investor protection.
967
  As the Commission explained in adopting Rule 613, the 
creation of a consolidated audit trail with the ability to surveil cross-market activity had become 
 
962
  Id.   
963
  Section 23(a)(1) of the Exchange Act. 
964
  Section 11A of the Exchange Act, 15 U.S.C. 78k-1. 
965
  15 U.S.C. 78k-1(a)(1). 
966
  15 U.S.C. 78k-1(a)(3)(B). 
967
  See Securities Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21, 2010) at   3597. 

172 
key to the ability of both the SROs and the Commission to perform many of their core regulatory 
functions in the modern iteration of the national market system.
968
  While the SROs and the 
Commission relied on existing audit trails and data in fulfilling their regulatory responsibilities 
prior to CAT, each of those systems had its own flaws and drawbacks, and there was a 
significant disparity in the audit trail requirements among the exchanges and FINRA.  At the 
same time, the rapid change to fast, electronic markets on which trading was dispersed across 
market centers gave rise to an increasing need to a more uniform audit trail with cross-market 
compatibility.
969
  The establishment of the CAT thus enabled the SROs and the Commission to 
more efficiently and effectively perform their respective regulatory responsibilities, including to 
analyze and reconstruct market events, monitor market behavior, conduct market analysis to 
support regulatory decisions, and perform surveillance, investigation, and enforcement 
activities.
970
 
Contrary to one commenter’s suggestion, the Supreme Court’s major questions doctrine 
is not implicated here.  In directing the SROs to act jointly to create an accurate, complete, 
accessible and timely audit trail to replace these existing audit trails, the Commission did not 
 
968
  See CAT Adopting Release, supra note 946.  Indeed, many SROs, in commenting on that rule, recognized 
the essential nature of the project.  Id. at 45736, quoting Letter from Marcia E. Asquith, Senior Vice 
President and Corporate Secretary, FINRA, and Janet McGinness Kissane, Senior Vice President and 
Corporate Secretary, NYSE Euronext, to Elizabeth M. Murphy, Secretary, Commission, dated August 9, 
2010 ( “the evolution of the U.S. equity markets and the technological advancements that have recently 
taken place have created an environment where a consolidated audit trail is now essential to ensuring the 
proper surveillance of the securities markets and maintaining the confidence of investors in those 
markets.”). 
969
  See Securities Exchange Act Release No. 62174 (May 26, 2010), 75 FR 32556 (June 8, 2010) (“CAT 
Proposing Release”).  Even prior to proposing the creation of the CAT in 2010, the Commission had twice 
requested comment regarding how best to enhance the capability of SROs and the Commission to 
effectively and efficiently conduct cross-market supervision of trading activity.  See Securities Exchange 
Act Release No. 47849 (May 14, 2003), 68 FR 27722 (May 20, 2003) (File No. S7-11-03) (“Intermarket 
Trading Concept Release”) and Concept Release Concerning Self-Regulation. 
970
  See CAT Adopting Release, supra note 946, 77 FR at 45727; see also CAT NMS Plan Approval Order, 
supra note 2,  81 FR at 84727, 84738, 84800. 

173 
claim an “[e]xtraordinary grant[] of regulatory authority” based on “vague,” “cryptic,” 
“ancillary,” or “modest” statutory language. 
971
  Nor did it assert authority that falls outside its 
“particular domain.” 
972
  And, while CAT is undoubtedly a large database, that is a function of 
the size of the “complex, dispersed, and highly automated national market system”
973
 Congress 
expressly charged the SROs and the Commission with overseeing.  As detailed above, the 
collection of securities transaction data by the SROs and the Commission is an important factor 
in enabling both to fulfill their statutory responsibilities and has a long history.  There is no 
reason to question that Congress would have intended for the Commission to address the serious 
shortcomings and regulatory obstacles associated with the lack of a consolidated audit trail.  And 
there is therefore no basis for dispensing with ordinary principles of statutory construction to 
require express authorization for CAT by Congress.
 974
   
   e. Rule 608 and Rule 19b-4 
Certain commenters believe the assessment of CAT fees on Industry Members through 
filings submitted by each exchange under Rule 19b-4 is likely inconsistent with Rule 608.
975
  
One commenter stated that the Commission amended Rule 608 in 2020 to remove the effective-
upon-filing procedure for NMS plan fees by requiring that NMS plan fees be subject to notice 
and comment and Commission approval prior to becoming effective.
976
  The commenter also 
stated that the 2020 amendment specifically contemplates that CAT fees would be subject to 
 
971
  West Virginia v. EPA, 142 S. Ct. 2587, 2608-10 (2022) (quotation omitted). 
972
  Alabama Ass’n of Realtors v. HHS, 141 S. Ct. 2485, 2489 (2021) (per curiam). 
973
  See CAT Adopting Release, supra note 946,  77 FR at 45723. 
974
  Contra Biden v. Nebraska, 143 S. Ct. 2355, 2372, 2375 (2023), 143 S.Ct. 2355, 2372, 2375 (2023). 
975
  See SIFMA June 2023 Letter at 4, 9; Citadel July Letter at 15. 
976
  See SIFMA June 2023 Letter at 9.   

174 
Rule 608,
977
 however the Commission was considering approving a process for CAT fees that 
would not permit a meaningful review opportunity, contrary to the Rule 608 amendment.
978
  The 
commenter acknowledged that the CAT NMS Plan provides for Section 19(b) fee filings but also 
stated that (1) the CAT NMS Plan was approved prior to the amendment of Rule 608 in 2020 and 
(2) the CAT NMS Plan is silent about whether Section 19(b) fee filings would need to be made 
after the Operating Committee receives approval to assess the fees under Rule 608.
979
  The 
commenter suggested that due to the “infirmities with the process for establishing and assessing 
CAT Fees under the Funding Proposal,” the Operating Committee must create a new funding 
process consistent with Rule 608 and stated that the Commission cannot find that the Proposed 
Amendment is consistent with the Exchange Act.
980
  Another commenter stated that the 
proposed approach seems inconsistent with recent Commission rulemaking to ensure that fee 
filings related to an NMS plan can no longer be effective upon filing.
981
 
In response to one commenter that stated that the filing of Industry Member CAT fees 
under Rule 19b-4 likely violates Rule 608 of Regulation NMS,
982
 CAT LLC stated that it 
disagreed with the comment because the Proposed Amendment complies with Rule 608.
983
  CAT 
LLC stated that Section 11.1(b) of the CAT NMS Plan requires the Participants to file Industry 
Member CAT fees pursuant to Section 19(b) of the Exchange Act,
984
 and Section 19(b) permits 
 
977
  Id. 
978
  Id. 
979
  Id. at 9, n.45. 
980
  Id.   
981
  See Citadel July Letter at 15. 
982
  See SIFMA June 2023 Letter at 9. 
983
  See CAT LLC July 2023 Response Letter at 30. 
984
  Id. 

175 
fees to become effective upon filing.
985
  CAT LLC also noted that the funding methodology for 
Participant fees would be established through the Proposed Amendment, which was filed in 
accordance with Rule 608; therefore, Participant CAT fees would be adopted in accordance with 
Rule 608.
986
  CAT LLC stated that Industry Member CAT fees would be filed pursuant to Rule 
19b-4 and those filings would be based on the Proposed Amendment, which would have to be 
approved pursuant to Rule 608, therefore “any Industry Member CAT fees will have been 
subject to the same extensive notice and comment process as Participant CAT fees and must 
satisfy the requirements of the Exchange Act.”
987
 
The Commission disagrees with the commenters’ position.  The filing of Industry 
Member CAT fees under Rule 19b-4 is consistent with the structure of the CAT.  The CAT NMS 
Plan functions as a joint agreement amongst the SROs who are parties to the CAT NMS Plan.  
But Industry Members are not parties to the Plan and the Plan itself does not bind Industry 
Members. Rather, Rule 608(c) of Regulation NMS requires each SRO to enforce compliance by 
its members with an effective NMS plan of which it is a sponsor or a participant.
988
  
Additionally, Rule 613(g) requires: (1) each SRO plan sponsor to file a proposed rule change to 
require its members to comply with Rule 613 and the CAT NMS Plan pursuant to Section 
19(b)(2) of the Exchange Act and Rule 19b-4 thereunder;
989
 (2) each member of an SRO plan 
sponsor to comply with the CAT NMS Plan;
990
 (3) each SRO plan sponsor to agree to enforce 
 
985
  Id. 
986
  Id. at 31. 
987
  Id. 
988
  17 CFR 242.608(c).  See also CAT NMS Plan at Section 3.11 (requiring each Participant to comply with 
and enforce compliance, as required by Rule 608(c), by its Industry Members with the provisions of Rule 
613 and the CAT NMS Plan). 
989
  17 CFR 242.613(g)(1).   
990
  17 CFR 242.613(g)(2). 

176 
compliance by its members with the CAT NMS Plan;
991
 and (4) the CAT NMS Plan to include a 
mechanism to ensure compliance with the CAT NMS Plan.
992
  Thus, Industry Members’ CAT 
reporting requirements stem from rules the Participants put in place for their members pursuant 
to the Section 19(b)(2) rule filing process.
993
   
The amendments to Rule 608 (“Rescission of Effective-Upon-Filing Procedure for NMS 
Plan Fee Amendments”), among other things, rescinded Rule 608(b)(3)(i),
994
 a provision that 
permitted fee changes assessed under NMS plans to become effective-upon-filing, and required 
NMS Plan fee amendments to be filed pursuant to Rule 608(b)(1) and (2), thus mandating an 
opportunity for public comment and Commission approval by order before the effectiveness of 
such fees.
995
  Vendors and subscribers of market data under the Market Data Plans are subject to 
vendor or subscribers’ fees charged by the applicable NMS Plan and filed by the NMS Plan 
using Rule 608.  As these vendors and subscribers are not parties to the NMS Plans, the 
mechanism by which fees are imposed on them is contractual.  Specifically, in order to receive 
market data under the NMS Plans, vendors and subscribers must individually enter into a vendor 
and/or a subscription agreement under which they agree to pay fees.
996
  The rescission impacted 
the way the Commission considers fees imposed on vendors and subscribers of market data 
under Market Data Plans since their fees are filed by the NMS Plans pursuant to Rule 608. 
 
991
  17 CFR 242.613(g)(3). 
992
  17 CFR 242.613(g)(4).   
993
  See Securities Exchange Act Release No. 80256 (Mar. 15, 2017), 82 FR 14526 (Mar. 21, 2017).  
994
  17 CFR 242.608(b)(3)(i). 
995
  See Securities Exchange Act Release No. 89618 (Aug. 19, 2020), 85 FR 65470, 65471 (Oct. 15, 2020). 
996
  See, e.g., UTP Plan Subscriber Agreement, available at https://www.utpplan.com/DOC/subagreement.pdf; 
Second Restatement of the Plan Submitted to the Securities and Exchange Commission Pursuant to Rule 
11Aa3-1 under the Securities Exchange Act of 1934, composite as of June 3, 2021, available at 
https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/110000358917/CTA%20Plan%20-
%20Composite%20as%20of%20June%203,%202021.pdf,  at Exhibit C (Form of Vendor Contract); at 
Exhibit D (Form of Subscriber Contracts). 

177 
In contrast, all Industry Members who are CAT Reporters are members of at least one 
Participant.  Industry Members are bound by the rules of the Participant(s) of which they are 
members.  The process for adopting rules of a Participant that affect their members is through the 
Section 19(b) rule filing process, which includes the ability to adopt immediately-effective 
fees.
997
  Additionally, fees filed by the Section 19(b) rule filing process are still subject to public 
notice and comment, and the Commission may suspend and institute proceedings on these 
filings.
998
  For these reasons, the Commission does not believe that the Rescission of Effective-
Upon-Filing Procedure for NMS Plan Fee Amendments impacts the CAT NMS Plan provisions 
relating to how Industry Member fees are filed with the Commission.  
 f. Governance 
One commenter stated that the CAT governance structure is flawed because exchange 
groups with multiple affiliated exchanges have “significant influence” over the Operating 
Committee and can “dictate many CAT-related decisions” such as the allocation of CAT 
costs.
999
  The commenter further stated that Industry Members lack representation on the 
Operating Committee; therefore, they cannot vote on the design, implementation or funding of 
the CAT.
1000
  The commenter stated that the governance structure results in the allocation of all 
CAT costs to Industry Members.
1001
  Additionally, the commenter believes the governance 
structure permits the Operating Committee to provide minimal information on the costs to be 
allocated to Industry Members,
1002
 stating that the financial information that has been provided 
 
997
  15 U.S.C. 78s(b)(3)(A). 
998
  Id.   See also 17 CFR 240.19b-4(f)(2).  See also supra notes 192–196 and accompanying text. 
999
  See Citadel July Letter at 5, 6. 
1000
  Id. at 6.   
1001
  See id. 
1002
  Id. 

178 
by the Operating Committee through audited financial statements and an annual financial and 
operating budget is disclosed in broad categories and lacks detail about the key drivers of the 
costs, and that the annual financial and operating budget does not predict costs accurately.
1003
  
Based on this lack of detail, the commenter stated that market participants cannot assess whether 
total CAT costs are reasonable and cannot suggest cost-saving alternatives and must rely on the 
Operating Committee to contain the budget.
1004
  The commenter stated, “[i]t is clearly 
inequitable to compel Industry Members to provide a blank check to fund these spiraling costs in 
perpetuity, without any governance role or any plan to contain overall costs,”
1005
 and that 
allocating all CAT costs to firms without representation “marginalize[s] cost-related 
considerations.”
1006
  The commenter also stated that the governance structure does not require 
the Operating Committee or the Commission to assess whether the costs of a specific 
interpretation of the Plan outweigh any benefits.
1007
  
 The commenter recommended the following enhancements to improve CAT governance: 
(1) each exchange group and national securities association should have one vote on the 
Operating Committee, but will have a second vote if “the exchange group or national securities 
association has a market center or centers that trade more than 15 percent of consolidated equity 
and options market share;”
1008
 (2) all actions related to funding by the Operating Committee 
 
1003
  Id. at 6–7; id. at n.14. 
1004
  See Citadel July Letter at 7. 
1005
  Id. at 2.  See also id. at 23 (stating Section 6(b)(4), Section 6(b)(5) and Section 6(b)(8) of the Exchange Act 
do not allow a private entity to require Industry Members to provide a blank check in perpetuity because 
this is not an equitable allocation of reasonable fees and would greatly harm market competition, efficiency 
and liquidity). 
1006
  Id. at 7. 
1007
  Id.  See also MMI July Letter at 4 (suggesting “[i]ncentivization of cost-consciousness and accountability 
for SEC interpretations and mandates for CAT reporting specifications, interpretations, and usage of 
CAT.”).   
1008
  See Citadel July Letter at 34. 

179 
should be authorized by supermajority vote;
1009
 and (3) Industry Members should have voting 
representation on the Operating Committee commensurate with the costs allocated to them.
1010
  
The commenter stated that if industry representation cannot be achieved through an NMS plan, 
the plan is not an appropriate vehicle for CAT governance.
1011
 
 In response to comments objecting to a lack of Industry Member voting representation on 
the Operating Committee and suggesting their inclusion based on the proportion of costs 
allocated to them,
1012
 CAT LLC stated that the addition of Industry Member voting 
representation is not consistent with the Exchange Act.
1013
  CAT LLC stated that “allowing 
Industry Members to control CAT LLC as the commenters suggest could adversely affect the 
regulatory objectives of the CAT”
1014
 as Industry Members “have no statutory obligation to 
protect investors or to act in the public interest, nor do they have any regulatory obligation to 
operate the CAT System in a manner that is consistent with the Rule 613 and the CAT NMS 
Plan.”
1015
  CAT LLC stated that Industry Members can provide input through Plan amendments 
and fee filings and the CAT Advisory Committee.
1016
   
 
1009
  Id. at 3, 34. 
1010
  Id.  See also MMI July Letter at 1, 2 (requesting the Commission require Industry Member representation 
on the Operating Committee before approving any funding proposal, with SIFMA acting as the broker 
representative); FIA Letter at 4 (stating that the CAT Operating Committee should be reconfigured, with 
Industry Members comprising the percentage of the Committee equivalent to whatever cost allocation 
percentage is eventually allocated to them). 
1011
  See Citadel July Letter at 34.  In response, CAT LLC stated that this comment is outside the scope of the 
Proposed Amendment.  See CAT LLC July 2023 Response Letter at 31, n.144. 
1012
  See FIA Letter at 4; Citadel July Letter at 34; MMI July Letter at 2. 
1013
  See CAT LLC July 2023 Response Letter at 21. 
1014
  Id. 
1015
  Id. 
1016
  Id. 

180 
 In response to a comment suggesting changes to the allocation of Participant voting 
rights,
1017
 CAT LLC stated that this issue is beyond the scope of the CAT funding model.  CAT 
LLC also responded to the commenter’s suggestion that all funding actions by the Operating 
Committee require a supermajority vote by stating that it disagreed with the suggestion because 
all Operating Committee actions relate in a way to CAT costs; therefore, imposing a 
supermajority requirement could undermine governance.
1018
 
Regarding SRO and Industry Member voting rights, the Commission does not believe 
that modification of the voting rights, which the Commission considered when it approved the 
CAT NMS Plan, is within the scope of the Proposed Amendment.
1019
  Furthermore, in response 
to those comments suggesting the addition of Industry Members as voting members on the 
operating committee, we note that—in vacating the Order Approving the CT Plan—the D.C. 
Circuit concluded that the inclusion of non-SRO representation on the operating committee of 
the CT Plan was inconsistent with Section 11A of the Exchange Act.
1020
  Industry Members do 
have an opportunity to attend meetings of the Operating Committee through the CAT Advisory 
Committee.  According to Section 4.13(d) of the CAT NMS Plan, “[m]embers of the Advisory 
Committee shall have the right to attend meetings of the Operating Committee or any 
Subcommittee, to receive information concerning the operation of the Central Repository 
(subject to Section 4.13(e)), and to submit their views to the Operating Committee or any 
 
1017
  See Citadel July Letter at 34. 
1018
  See CAT LLC July 2023 Response Letter at 21–22. 
1019
  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84728–30. 
1020
  See The NASDAQ Stock Market LLC et al. v. SEC, Case No. 21-1167, D.C. Cir. (July 5, 2022).  15 U.S.C. 
78k-1. 

181 
Subcommittee on matters pursuant to [the CAT NMS Plan] prior to a decision by the Operating 
Committee on such matters.
1021
    
   g. Miscellaneous 
Certain commenters urged the Commission to address data security concerns associated 
with the CAT.
1022
  One commenter suggested that the Commission prioritize finalizing the 
proposed amendments to the CAT NMS Plan to enhance data security.
1023
 Commenters also 
raised concerns that the Commission was considering the Proposed Amendment at the same time 
it is considering modifying certain Commission rules governing equity market structure.
1024
   
One commenter expressed concern that the Commission would approve the Proposed 
Amendment prematurely without careful consideration.
1025
  The commenter also stated that the 
Commission is “rushing forward to approve the latest proposal without taking advantage of the 
allotted time under the Exchange Act for careful consideration” and “prematurely moving 
forward” while simultaneously considering revisions of the rules governing equity and options 
market structure and proceeding with other proposals that will impose costs on Industry 
Members.
1026
  The commenter stated that “[t]he unequitable distribution of CAT costs 
contemplated by the Funding Proposal will exacerbate these problems, harming the functioning 
 
1021
  See CAT NMS Plan, supra note 2, at Section 4.13.  See also 17 CFR 242.613(b)(7). 
1022
  See Citadel July Letter at 3, 35; SIFMA June 2023 Letter at 2; Virtu Letter at 4.   
1023
  See Citadel July Letter at 3, 35; see Securities Exchange Act Release No. 89632 (Aug. 21, 2020), 85 FR 
65990 (Oct. 16, 2020).   Two other commenters stated that the Commission has failed to address data 
security concerns associated with the CAT.  See SIFMA June 2023 Letter at 2; Virtu Letter at 4. 
1024
  See SIFMA June 2023 Letter at 3; Citadel July Letter at n.54 and 113; see Exchange Act Release Nos. 
96496, 88 FR 5440 (Jan. 27, 2023) (Regulation Best Execution); 96495, 88 FR 128 (Jan. 3, 2023) (Order 
Competition Rule); 96494, 87 FR 80266 (Dec. 29, 2022) (Minimum Pricing Increments); 96493, 88 FR 
3786 (Jan. 20, 2023) (Order Execution Information). 
1025
  See SIFMA June 2023 Letter at 3.   
1026
  Id.  See also Virtu Letter at 4. 

182 
of U.S. securities markets.”
1027
  The commenter further stated that the Commission cannot 
determine whether the proposed allocation of costs is equitable without assessing the distribution 
of costs and benefits under the other pending proposals.
1028
   
In response to comments that urged the Commission to prioritize CAT data security 
concerns,
1029
 CAT LLC stated that “CAT security is of paramount importance, and the CAT 
System is protected by a comprehensive information security program required by the CAT 
NMS Plan and overseen by a dedicated CISO, as well as via SEC oversight...”
1030
  CAT LLC 
stated that security concerns should not be used to prevent appropriate funding of the CAT, 
noting that appropriate funding can help to ensure the security of CAT Data.
1031
 
CAT LLC also responded to comments that expressed concern that the Commission was 
considering the Proposed Amendment while also considering changes to Commission rules 
governing equity market structure.
1032
  CAT LLC stated that the Commission’s consideration of 
its market structure proposals should not impede its decision on the Proposed Amendment, 
which would ensure appropriate funding of the CAT as these are different decisions.
1033
   
In response to the commenter that stated that the Commission would be rushing to 
approve the Proposed Amendment,
1034
 CAT LLC stated that “the current model results from 
years of modifications that have been made in significant part in response to industry comments 
 
1027
  See SIFMA June 2023 Letter at 3. 
1028
  Id. 
1029
  See Citadel July Letter at 35; SIFMA June 2023 Letter at 2; Virtu Letter at 4. 
1030
  See CAT LLC July 2023 Response Letter at 33. 
1031
  Id. 
1032
  See Citadel July Letter at 26, n.112; SIFMA June 2023 Letter at 3; Virtu Letter at 4. 
1033
  See CAT LLC July 2023 Response Letter at 34. 
1034
  See SIFMA June 2023 Letter at 3. 

183 
to earlier versions,”
1035
 and that because the current proposal “differs very little from the 
immediately preceding funding model,” commenters had more than 400 days to comment on the 
substance of the Proposed Amendment.
1036
       
The CAT data security issues and the costs and benefits of unrelated pending equity 
market structure proposals
1037
 are beyond the scope of the Proposed Amendment, which is 
limited to CAT funding.  Further, the Commission’s ability to consider the proposed 
amendments to the CAT NMS Plan to enhance data security is not impacted by the Proposed 
Amendment, as it is a separate proposal and both are being considered in due course.
1038
  Given 
the time between the Prior Funding Model Proposal and the OIP of the Proposed Amendment, 
the Commission has also had ample time for “careful consideration” of the Executed Share 
Model as the Proposed Amendment’s proposed changes to the CAT NMS Plan are closely 
similar to the changes proposed in the Prior Funding Model Proposal,
1039
 as modified by the two 
partial amendments that were filed, respectively, in November 2022 and February 2023.
1040
  
Additionally, the time spent for the Commission’s review of the Proposed Amendment is 
consistent with the time permitted by Rule 608(b) for the Commission to approve or disapprove 
NMS plan amendments,
1041
 for both the Prior Funding Model Proposal (for which the 
Commission extended to 300 days from the date of notice publication the date by which the 
 
1035
  See CAT LLC July 2023 Response Letter at 28. 
1036
  Id. 
1037
  See supra note 1024. 
1038
  See supra note 1023. 
1039
  See supra note 409. 
1040
  See supra note 410. 
1041
  17 CFR 242.608(b). 

184 
Commission would conclude proceedings to determine whether to approve or disapprove the 
Prior Funding Model Proposal),
1042
 and this Proposed Amendment.   
IV. Efficiency, Competition, and Capital Formation  
 
In determining whether to approve a proposed amendment, and whether such amendment 
is in the public interest, Rule 613 requires the Commission to consider the potential effects of the 
proposed amendment on efficiency, competition, and capital formation.
1043
  In its analysis, the 
Commission has reviewed the arguments about such effects put forth by the Participants and 
commenters and independently analyzed the likely effects of the Proposed Amendment on 
efficiency, competition, and capital formation.
1044
  Several commenters stated that, because CAT 
costs incurred to date are greater than those estimated at the time the CAT NMS Plan was 
approved, the Commission should update its economic analysis of that plan.  Because that 
analysis was conducted in the process of deciding whether to approve the original plan and was 
appropriately based upon the information available to the Commission at the time it made that 
determination, we decline to do so.  However, in analyzing the potential impacts of the Proposed 
Amendment on efficiency, competition, and capital formation – including our discussion of the 
economic baseline – the Commission has supplemented the analysis in the CAT NMS Plan 
Approval Order with additional information learned since the time of that Order.  Therefore, for 
the purposes of this analysis, the effects are measured against a baseline that recognizes that the 
 
1042
  See Securities Exchange Act Release No. 96725 (Jan. 20, 2023), 88 FR 5059 (Jan. 26, 2023). 
1043
  17 CFR 242.613(a)(5). 
1044
  Some commenters stated that the Participants’ analysis of the effects of the Proposed Amendment on 
Efficiency, Competition, and Capital Formation was lacking analysis and/or information (see, e.g., SIFMA 
June Letter at 4; Citadel July Letter at 2, 11, 12-13, and 16) and several commenters made general 
statements that the Proposed Amendment would have negative effects on Efficiency, Competition, and 
Capital Formation (see, e.g., SIFMA June Letter at 3; Citadel July Letter at 12 and 15).  The Commission 
has independently analyzed the Proposed Amendment using information from the Participants and 
commenters as well as additional information as indicated. 

185 
Proposed Amendment replaces certain provisions of the CAT NMS Plan and the Proposed 
Amendment also provides detail not previously included in the CAT NMS Plan.
1045
  As a result, 
the Commission provides the baseline required to conduct a comprehensive analysis of the 
Proposed Amendment in light of issues raised in the Notice and public comments. 
Based on its analysis, the Commission believes that the Proposed Amendment will 
involve efficiency gains along some dimensions but will likely also involve tradeoffs against 
other forms of efficiency, could negatively alter the competitive position of particular 
competitors, though the fees associated with the Proposed Amendment are unlikely to be large 
enough to affect overall competition, and will result in insignificant effects on capital 
formation.
1046
  These effects are discussed below. 
A.   Efficiency 
1.   Baseline 
In the CAT NMS Plan Approval Order, the Commission identified certain elements of 
the Original Funding Model that could have negative implications for efficiency and also stated 
that the significant uncertainty in the Original Funding Model could also have implications for 
efficiency.
1047
 In consideration of the comment letters submitted in response to the Executed 
Share Model, the Commission recognizes that the Original Funding Model would have also 
resulted in additional inefficiencies.  Overall, the Original Funding Model could have resulted in 
negative, but likely insignificant, reductions in operational efficiencies, skewed incentives for 
efficiency, and reductions in market efficiencies. 
 
1045
  Some of the conclusions of the Proposed Amendment on Efficiency, Competition, and Capital Formation 
provided by the commenters and Participants are assessed relative to alternatives rather than the baseline 
the Commission used in the analysis herein.   
1046
  See supra Section III for a discussion of why the Commission is approving the Proposed Amendment. 
1047
  See   CAT NMS Plan Approval Order, supra note 2, 81 FR at 84882.   

186 
a.    Operational Efficiency 
The tiered structure of the Original Funding Model would also have led to uncertainties 
affecting operational efficiencies of Industry Members and Participants.  In particular, Industry 
Members would not have known their per-message cost until the end of the month, though they 
would have charged their customers in real time, creating an inefficiency.  In particular, the 
Original Funding Model would have charged flat fees to Industry Members and Participants in 
the same tiers (“Original CAT Fees”).  Thus, Industry Members with message traffic near the top 
of the tier would pay lower fees per message than Industry Members in the same tier but with 
lower message traffic.  Likewise, Participants with more market share in their tiers would pay 
lower fees per executed share.  Even if Industry Members and Participants could predict which 
tier they would be in, passing-through fees would involve Industry Members and Participants 
charging based on expected per-message or per-share Original CAT Fees rather than actual per-
message or per-share Original CAT Fees, which could have been higher or lower than expected.  
This uncertainty creates an operational inefficiency in structuring the fee pass-through.   
Also, charging Industry Members a flat fee that depends on their message traffic could 
result in Industry Members, who generally earn revenue only for executed orders,
1048
 getting 
charged for orders that do not transact.  This could have resulted in certain Industry Members 
paying more in Original CAT Fees than they generated from transactions.  Further, some 
Industry Members would have found passing through fees only to those whose orders transact 
operationally more efficient by increasing existing fees (or reducing incentives such as payment 
for order flow).  These situations would have resulted in transacted orders subsidizing the 
burdens of message traffic (assuming message traffic is the only cost driver). 
 
1048
  See Notice, supra note 7, 88 FR at 17103. 

187 
Complexities associated with creating tiers in the Original Funding Model would also 
have created operational inefficiencies.  To ensure that the CAT NMS Plan covered its costs with 
the tiered fees, the creation of the fee schedule would have involved deciding on the number of 
tiers, estimating how many Industry Members would qualify for each tier, estimating how much 
to charge each tier, and then justifying each decision.  The potential for disagreements resulting 
from the complexity and the challenges in drafting justifications for such complex decisions 
could have involved a cumbersome and inefficient fee setting experience.    
b.    Incentive Effects  
The Original Funding Model also could have affected efficiency by skewing incentives.  
Because fees to be charged by CAT are based on cost recovery, aligning such fees with burdens 
on CAT could promote efficiency by creating incentives to limit costs.  If message traffic is the 
only cost driver of CAT, the Original Funding Model created incentives for Industry Members to 
limit costs by limiting their unnecessary message traffic,
1049
 but the tiered structure of the 
Original Funding Model would have dampened these incentives, and message traffic is not the 
only cost driver of CAT.  Further, the uncertainty in the allocations across equities or options and 
across Participants or Industry Members meant that the Original Funding Model would have 
created the risk that the inefficiencies of such allocations were less than perfectly aligned with 
costs.  Finally, any pass-throughs to Participants’ members or the customers of Industry 
Members could have further dampened the incentives for cost efficiency.  As a result, the 
Original Funding Model would not have perfectly aligned fees with the costs imposed on CAT, 
limiting the incentives for cost efficiency.   
 
1049
  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84881.   

188 
While the Original Funding Model would have set fees for Industry Members based on 
their message traffic, the efficiency benefits were unlikely to have been significant.  First, its 
tiered structure would have dampened the incentives to reduce the costs of CAT by reducing 
unnecessary message traffic.  In particular, the Original Funding Model would have assigned 
Industry Members to tiers based on their message traffic.  Within a tier, however, all Industry 
Members would have been charged the same flat fee.  Thus, an additional message would have 
been free in terms of CAT costs unless it put the Industry Member into a higher tier.  So, only 
those Industry Members close to a cutoff would have had the incentive to reduce message traffic, 
and Industry Members who expected to be in the top tier would have had no incentive to reduce 
unnecessary message traffic.  Further, Industry Members cannot reduce message traffic without 
altering how they handle customer orders, which could be counter to their duties, or reducing 
liquidity, which could reduce market efficiency.  Therefore, absent evidence of significant 
unnecessary message traffic, the efficiency improvements of basing Original CAT Fees on 
message traffic are unlikely to have been significant. 
In addition, since the approval of the CAT NMS Plan, additional information about the 
cost drivers have been made public and suggest that message traffic is not the only cost 
driver.
1050
  In particular, a September 2021 report shows that 51% of CAT costs are from the 
“Linker,” 17% from storage, and 15% from “Data, Processing, Collection, & ETL.”  In addition, 
the Participants in their response to commenters indicated that 75% of CAT costs are the 
processing and storage of CAT data in the cloud.
1051
  The “Linker” costs are the costs to link 
 
1050
  See CAT Industry Webinar: CAT Costs, supra note 873.  The Participants stated in this presentation to 
Industry Members in Sept. 2021, that, “[t]he primary cost drivers for the CAT are compute costs (e.g., 
linker) and storage costs.  These costs are volume based and have increased significantly each year beyond 
the volume estimate included in the Plan.”  
1051
  CAT LLC July   2023 Response Letter at 22.  For the first quarter of 2023, 72.9% of CAT costs are cloud 
costs (See CAT Financial and Operating Budget | CATNMSPLAN
). 

189 
order messages across a lifecycle.
1052
  These costs involve looking across four days of data and 
are likely related to message traffic.  While the report does not separate options messages from 
equities messages, it does indicate that Participant message traffic involved in linkage processing 
is much larger than Industry Member message traffic.  However, the Commission understands 
that complexity of the order lifecycles is a cost driver within the linkage processing, and certain 
order handling practices of Industry Members, such as the use of riskless principal transactions, 
involve more complex linkages than other order handling practices.  Indeed, while one 
commenter stated, “costs are a direct result of the total number of messages that CAT Reporters 
(both Participants and Industry Members) send to CAT, the costs of processing and linking such 
messages, and the costs to CAT of providing tools and mechanisms to the SEC and SROs to 
analyze the CAT data,”
1053
 the processing and linking and regulatory use costs are not perfectly 
aligned with message traffic. 
The Original Funding Model did not indicate how Original CAT Fees would be allocated 
to equities versus options, but this allocation decision would have had an effect on efficiency.  
The options markets account for the vast majority of message traffic, but most of the options 
market message traffic is on-exchange message traffic (mostly market maker quotes).
1054
  
However, option market maker quotes likely do not have complex order lifecycles that would 
drive the costs of the linkage processing.  Further, the Commission understands that the linkage 
 
1052
  Id.  See also, CAT NMS Plan Approval Order, supra note 2, 81 FR at 85024-5 for a discussion of linkage 
requirements.  
1053
  SIFMA May 2023 Letter at 4. 
1054
  Furthermore, because options market makers do not report many of their quotes to CAT, instead sending a 
quote-sent time stamp to options exchanges that is included in the exchanges’ CAT data, additional option 
market maker quotes increase the message traffic of Participants rather than option market makers and are, 
thus, not counted in the message traffic of Industry Members in the Original Funding Model.  
Consequently, roughly 72% of CAT message traffic could only affect Participant fees, which are capped in 
the Original Funding Model, though the Plan does not define the exact cap.  See CAT NMS Plan Approval 
Order, supra note 2, 81 FR at 84873. 

190 
processing of equities orders is generally more complex than the linkage processing of options 
orders.  As a result, it is unlikely that the Original Funding Model would have successfully 
matched Original CAT Fees with cost burdens without a complex algorithm to allocate costs 
across equities and options. 
The Original Funding Model also had the potential to result in a lack of incentives for 
Participants to seek efficient ways to achieve the regulatory objectives of CAT.
1055
  In particular, 
the Original Funding Model did not specify the allocation between Industry Members and 
Participants and it could have skewed heavily toward Industry Members.  If the Original CAT 
Fees would have offset CAT costs without the Participants internalizing those CAT costs, 
Participants could lack the incentive to limit costs.  Thus, a lower allocation to Participants could 
reduce Participants’ incentives to limit CAT costs. 
The ability for Participants and Industry Members to pass through fees could reduce 
incentive effects of the Original Funding Model, but the Commission believes that Participants 
and Industry Members would still have had some incentives to limit costs.  In the CAT Approval 
Order, the Commission recognized that FINRA could pass through its fees to its members.
1056
  
Other Participants could have also passed through their fees to their members, but such pass-
throughs could take several forms.  The Commission understands that Participants, including 
FINRA, have many revenue sources, such as transaction fees, data fees, connectivity fees, listing 
fees, regulatory fees.  In fact, because the Original Funding Model charged Participants based on 
their market share, the most direct way for Participants to pass through the costs would have 
been to increase fees related to their market share – their transaction fees, which are based on a 
 
1055
  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84891-2.   
1056
  Id. at 84853. 

191 
fee schedule set pre-trade.  Because the per volume CAT fee would have been unknown at the 
time the Participants had to file the transaction fees for such volume, the Participants would have 
internalized the risk of the pass-through fees not covering their Original CAT Fees.  Likewise, 
Industry Members who pass-through their Original CAT Fees would have had reduced 
incentives to limit CAT costs, but the inability to structure their pass through to perfectly align 
with Original CAT Fees would have forced some internalization of costs.  
c. Market Efficiency 
The Original Funding Model could have resulted in market inefficiencies, though these 
inefficiencies were unlikely to be significant.
1057
  Several of these inefficiencies derive from the 
fact that the Original Funding Model would have charged Industry Members a flat fee according 
to a tiered fee schedule.  An Industry Member’s tier would have been determined by its message 
traffic.  Because providing liquidity, including but not restricted to market making, involves 
more potential message traffic, the Original Funding Model could discourage liquidity provision.  
Discouraging liquidity provision could reduce liquidity, particularly in less liquid securities, 
potentially reducing market efficiency.  The tiered nature of the Original Funding Model reduced 
the potential reduction in liquidity by flattening the fees, but this could create its own 
inefficiencies if Industry Members alter activity to avoid qualifying for a higher tier.  The 
Commission concluded in the CAT NMS Plan Approval Order that any changes in behavior 
were unlikely except in those Industry Members near a fee-tier cutoff point, and, therefore, these 
behavior changes would likely not have a significant effect on market quality or efficiency.
1058
   
2.       Analysis of the Proposed Amendment 
 
1057
  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84879.   
1058
  Id. at 84879.   

192 
The Participants provided an analysis of efficiency in the Notice.  In particular, the 
Participants state that, “By providing for the financial viability of the CAT, the [Executed Share 
Model] would allow the CAT to provide its intended benefits.  For example, the CAT is intended 
to provide significant improvements in efficiency related to how regulatory data is collected and 
used.  In addition, the CAT could result in improvements in market efficiency by deterring 
violative activity.”
1059
  
The Commission considered whether the Executed Share Model promotes efficiency 
along several dimensions:  operational efficiency, incentive alignment, and market efficiency.  In 
this analysis, the Commission considered both how the Executed Share Model differs from the 
Original Funding Model and the additional details in the Executed Share Model not previously 
included in the CAT NMS Plan.  In the analysis below, the Commission explains that the 
Executed Share Model itself will promote operational efficiency and market efficiency, trade off 
some efficiencies associated with aligning fees with CAT costs against others, and create some 
efficiency-improving incentives at the expense of others.  The analysis also recognizes below 
that some commenters stated that the Executed Share Model is less efficient than it could be. 
a. Operational Efficiency 
 The Commission believes that the Executed Share Model presents some operational 
efficiency improvements over the Original Funding Model while recognizing that commenters 
point out that it may not be as efficient as other alternatives.  The Executed Share Model could 
improve efficiency over the Original Funding Model by providing more certainty on potential 
costs for Industry Members and by reducing the complexity of the fees.  However, it is not clear 
 
1059
  See Notice, supra note 7, 88 FR at 17115. 

193 
that the Executed Share Model presents an operational efficiency improvement over the Original 
Funding Model with respect to precision of estimates of expected total fees to be collected. 
Relative to the Original Funding Model, Industry Members and Participants will be better 
able to observe their fee per activity, in this case per share transacted, and can more easily pass 
all or a portion of those fees through to members or customers.  Under the Executed Share 
Model, the CAT Fee and Historical CAT Assessments per Executed Equivalent Share are known 
before an order is submitted such that all market participants can estimate in advance the fees 
charged on each potential transaction rather than Industry Members only learning about their 
fees per message after the end of the month under the Original Funding Model.
1060
  Having more 
precise information on fee rates helps Industry Members and Participants who choose to pass-
through these fees to create fee schedules for their customers that better reflect their costs, 
resulting in operational efficiencies.  In response to the commenter who said that Industry 
Members “are not set up to track and pass-through fees to the client [broker-dealers] that sent 
them the orders that resulted in executions”
1061
 and other similar comments,
1062
 the Commission 
understands that such Industry Members generally have arrangements with client broker-dealers 
for services based on executed shares and these arrangements could include charges to cover 
various fees.
1063
  Further, CAT LLC argues that charging the executing brokers as specified in 
 
1060
  See supra Section IV.A.1.a for a discussion of how the per-message fees would have varied within the flat-
fee tiers of the Original Funding Model.  Also, one commenter stated that the Proposed Amendment would 
afford industry with a “straightforward rate to be applied across buyers and sellers.”   See DASH July Letter 
at 2. 
1061
  See SIFMA May 2023 Letter at 5. 
1062
  See, e.g., SIFMA June 2023 Letter at 2;  MMI July Letter at 2;  Citadel July Letter at 20 and 24; Citadel 
Letter August 2023 at 5-6; and Virtu Letter at 4-5.  Citadel July Letter at 20 and 24 also focused 
specifically on the ability for IMs to pass through Historical CAT Assessments, but those fees would also 
have a fixed rate charged to future executed shares, so passing those fees through would still represent an 
efficiency improvement over the Original Funding Model.  
1063
  See supra Section IV.A.1.a for information on current fee arrangements based on executed shares.  See a lso 
CAT LLC July 2023 Response Letter at 9 and 34. 

194 
the Executed Share Model is an efficient way for CAT LLC to bill Participants and Industry 
Members as it is simple, straightforward, and in-line with existing fee and business models.
1064
  
They also acknowledge that certain Industry Members will have to develop processes to collect 
pass-through CAT fees from clients and describe that the Plan Processor plans to make available 
trade-by-trade data to CAT Executing Brokers for each CAT bill, which will facilitate the 
passing-through of CAT fees.
1065
 
The Commission believes that the Executed Share Model reduces the complexities of the 
Original Funding Model, improving operational efficiency, but that the Executed Share Model 
may not increase the precision in estimating the fees to be collected, thus creating uncertainty in 
its impact on operational efficiency.  The Executed Share Model will not involve designing a 
tiered structure that estimates how many Industry Members and Participants will qualify for each 
tier based on projections of each’s message traffic or market share, coming up with cutoffs and 
flat fees in each tier to cover projected costs, and justifying each projection model, tier cutoff, 
and flat fee.  Instead, the Executed Share Model involves estimating future volume, dividing 
budgeted costs by the estimated future volume, and justifying the estimated future volume model 
and budgeted costs.  Thus, the Executed Share Model will be much less complex for Participants 
to implement.  However, because the Executed Share Model involves estimating future volume 
and the Commission has observed significant fluctuations in volume, the fees actually collected 
in the Executed Share Model will not necessarily match the budgeted costs.  Because the 
Original Funding Model had similar uncertainties, the Commission cannot determine if this 
inefficiency is more or less severe for the Executed Share Model. 
 
1064
  See CAT LLC July 2023 Response Letter at 3-4. 
1065
  See CAT LLC July 2023 Response Letter at 9-10. 

195 
The Commission recognizes the inefficiencies pointed out by some commenters 
associated with invoicing CEBBs and CEBSs directly rather than using clearing brokers to 
collect fees.
1066
  Because the Original Funding Model allowed for but did not specify the use of 
clearing brokers, this inefficiency is not relative to the baseline but is relative to an alternative.  
The industry’s current practice is to collect certain regulatory fees from the sell-side clearing 
broker-dealer.  One commenter stated, “[c]learing Firms are best suited to process the collection 
of fees as it can occur at trade settlement and the cost is ultimately borne by the end beneficiary 
of each transaction.  This seems prudent from a logistical and efficiency perspective and, in our 
opinion, also introduces the least financial risk to the industry today.”
1067
  This commenter also 
made similar statements in subsequent comment letters.
1068
  However, as another commenter 
noted, collecting CAT fees from clearing broker-dealers could introduce inefficiencies as 
well.
1069
  
 
1066
  See DASH January 3 Letter at 1. 
1067
  Id. 
1068
  See DASH April   Letter at 1;  DASH July Letter at 1. 
1069
  This could result in Industry Member CAT fees being borne by clearing broker-dealers.  The SIFMA May 
2023 Letter said that allocating “CAT Fees to clearing brokers would have led to unfair burdens on them 
and could have resulted in them shouldering the burden of CAT costs in scenarios in which they could not 
determine which clearing client was responsible for the costs.”  This commenter, commenting on the prior 
funding proposal which originally proposed to assess CAT fees on clearing brokers instead of executing 
brokers, stated that clearing brokers would especially have difficulty passing on the Past CAT Costs to their 
clearing clients.  See Letter from Ellen Greene, Managing Director, Equities & Options Market Structure, 
and Joseph Corcoran, Managing Director, Associate General Counsel, SIFMA, to Vanessa Countryman, 
Secretary, Commission (Oct. 7, 2022), at 4-5,    available at https://www.sec.gov/comments/4-6
98/4698-
20145239-310561.pdf.  This commenter also discussed the additional implementation and operational costs 
the prior funding model would impose on clearing broker-dealers.  See Letter from Ellen Greene, 
Managing Director, Equities & Options Market Structure, and Joseph Corcoran, Managing Director, 
Associate General Counsel, SIFMA, to Vanessa Countryman, Secretary, Commission (June 22, 2022) 
(“SIFMA June 2022 Letter”), at 9, available at 
https://www.sec.gov/comments/4-698/
4698-20132695-
303187.pdf.  Also, the Proposed Amendment requires the collection of CAT fees from both the buy and 
sell side of the transaction.  Commenters on the prior funding proposal stated that current industry practice 
does not involve clearing broker-dealers collecting fees from the buy-side of the transaction, and thus it 
might require costly implementation steps from clearing broker-dealers.  See Letter from Kirsten Wegner, 
Chief Executive Officer, Modern Markets Initiative, to Vanessa Countryman, Secretary, Commission (June 
21, 2022), at 3, available at 
https://www.sec.gov/comments/4-698/4698-20132603-303126.pdf; SIFMA 
 

196 
b. Incentive Effects  
The Commission recognizes the potential for the Executed Share Model to affect 
incentives and, therefore, either improve or harm efficiency.  Aligning fees with costs promotes 
economic efficiency because Industry Members and Participants bear the costs they directly or 
indirectly impose on CAT NMS, creating the incentive to limit costs.  Overall, the Executed 
Share Model will have inefficiencies related to not perfectly aligning with costs, but might not be 
any more inefficient than the Original Funding Model.  In particular, basing Industry Member 
fees on share volume rather than message traffic could reduce efficiency relative to the Original 
Funding Model, but the efficiency benefits of the Original Funding Model would have been 
dampened by its tiered structure.  The Commission recognizes that, based on the breadth of CAT 
costs, it is not feasible to calculate the cost burden on CAT of each CAT Reporter
1070
 and the 
Executed Share Model could also have some efficiency improvements over the Original Funding 
Model.  The Commission also recognizes the potential risks of the Proposed Amendments on not 
incentivizing Participants enough to consider cost efficiency.  In addition, the Commission 
considered other incentives as well, but believes that the potential magnitude of CAT fees is 
unlikely to significantly affect these efficiencies.   
 
June 2022 Letter at 9; see https://www.sec.gov/comments/4-698/4698-20132603-303126.pdf; SIFMA June 
2022 Letter at 9.  See also supra note 58.  CAT LLC describes in their response to comments that charging 
clearing brokers would be less efficient than charging executing brokers because it would require linking 
executed shares to clearing brokers.  They argue that charging executing brokers is simple, straightforward, 
and in-line with existing fee and business models.  They also describe how CAT LLC is planning to make 
pass-through of costs easier, which would also increase operational efficiency for Participants and Industry 
Members.  See CAT LLC July 2023 Response Letter at 3 and 5. 
1070
  See Notice, supra note 7, 88 FR at 17103 (“In light of the many inter-related cost drivers of the CAT (e.g., 
storage, message traffic, processing), determining the precise cost burden imposed by each individual CAT 
Reporter on CAT is not feasible.”).  See also CAT LLC July 2023 Response Letter at 34, where the 
Participants describe that it is difficult to determine the precise cost burden imposed by each individual 
CAT reporter.  They state that increased trading activity impacts message traffic, data processing, storage, 
and other factors and, thus, correlate with cost burdens and that Industry Member activity is generally for 
the purpose of transacting. 

197 
Because CAT costs have some relation to message traffic, a fee schedule less dependent 
on message traffic such as the Executed Share Model will be less efficient on this dimension.  As 
such, the Executed Share Model could create inefficiencies relative to the message-traffic based 
Original Funding Model.  Further, the Executed Share Model could result in Participants or 
Industry Members paying different fees across transactions despite potential similarities in cost.  
For example, Participants or Industry Members will be charged ten times the fee for a 1,000 
share transaction than for a 100 share transaction.  While 1,000 share transactions may, on 
average, have a higher burden on CAT than a 100 share transaction because such transactions are 
more likely to involve more messages and more complex lifecycles, the burden of a 1,000 share 
transaction on CAT versus a 100 share transaction is unlikely to be ten times higher.  However, 
the incentive efficiencies of the message-traffic based fees in the Original Funding Model would 
have been dampened by several factors,
1071
 including the tiered structure of the Original Funding 
Model and by the fact that message traffic is not the only significant cost driver for CAT.
1072
   
One commenter raised other potential inefficiencies related to outsized allocations to 
transactions for retail investors associated with those retail investors trading low priced NMS 
stocks.
1073
  The Commission recognizes that such an allocation could discourage brokers from 
servicing retail investors if they cannot pass through all CAT costs to investors and/or that retail 
investors could be paying for a large portion of CAT costs.  In the Approval Order, the 
 
1071
  See supra Section IV.A.1.c for further discussion of the inefficiencies of the Original Funding Model. 
1072
  See supra note 1050 and accompanying text for a discussion of CAT cost drivers.  The biggest cost driver 
is for linking order messages into a lifecycle, followed by storage costs. 
1073
  See Citadel July Letter at 20.  This commenter states that trades in stocks with sub $1 prices account for 
33% of retail NMS stock trading and that rounding fractional shares to 1 share further increases the share of 
CAT costs charged to retail transactions.  See also Citadel August Letter at 4. 

198 
Commission recognized that retail investors were likely to bear costs for CAT and were 
beneficiaries of CAT.
1074
 
Further, if the Executed Share Model over-allocates fees to equity market transactions 
relative to options market or OTC equity transactions, it will create inefficiency by artificially 
inflating equity transaction costs while artificially decreasing options and OTC transaction costs. 
The Commission has mixed information on whether the Executed Share Model will, indeed, 
over-allocate fees to the equity markets.  One commenter stated that equity trading volume 
creates a relatively low burden relative to options activity.
 1075
  The Commission disagrees with 
this statement.  Based on March 2023 public market data,
1076
 equities (NMS and OTC) account 
for approximately 73% of the equivalent share volume while options account for approximately 
27%.  On the contrary, based on an analysis of March 2023 CAT data, equities account for 23% 
of message traffic while options account for 77%.
1077
  The message traffic in the options market 
is driven by options market quotes, which are reported by options exchanges.  If processing and 
storing CAT messages is a primary cost driver and option and equity messages are equally 
burdensome, aligning fees to costs would result in the Participants and Industry Members in the 
 
1074
  See, e.g., CAT NMS Plan Approval Order, supra note 2, 81 FR at 84863, 84881, 84888, and 84893 for 
examples of statements on investors bearing the costs of CAT and at 84833 to 84845 for ways that 
investors benefit from CAT.   
1075
  See FINRA April   2023 Letter at note 23.  See also Citadel August Letter at 4 citing to the FINRA April 
2023 Letter. 
1076
  Calculated using monthly market volume data from Cboe for equities:   Cboe, US Equities: Historical 
Market Volume Data, available at 
https://www.cboe.com/us/equities/market_statistics/historical_market_volume/, OCC for options: Options 
Clearing Corp., Market Data: Monthly & Weekly Volume Statistics, available at 
https://www.theocc.com/market-data/market-data-reports/volume-and-open-interest/monthly-weekly-
volume-statistics, and FINRA for OTC securities: FINRA, Over-the-Counter-Equities: Market Statistics, 
available at  https://otce.finra.org/otce/marketStatistics/historicalData.  Option contract volume is 
multiplied by 100 and OTC volume is divided by 100 to establish rough estimates of equivalent share 
volume to reported equity transactions. 
1077
  CAT Plan Participant and Industry Member Report Card Monthly Summary Tables, which contain the 
number of records processed into CAT.  

199 
equities markets being assessed approximately 23% of the fees, suggesting that the Executed 
Share Model allocation of approximately 73% of the fees over-allocates fees to equities. 
However, because equity order linking complexity likely accounts for higher costs than 
option order linking complexity, the higher allocation of CAT fees to equity market Participants 
and Industry Members could promote efficiency.  The linkage processing costs of CAT are three 
times the storage costs.
1078
  The Commission estimated that roughly 90% of CAT Participant 
message traffic and 72% of total message traffic is comprised of options market quotes.
1079
  
While option market maker quotes account for such a large fraction of message traffic and, thus, 
storage costs, option market maker quotes involve lower linkage costs than other messages.
1080
  
Indeed, the equities market accounted for about 48.4% of the number of linkages processed and 
the number of options linkages processed was a third of the number of options messages 
reported, reflecting less linkage processing for many options market maker quotes.
1081
  
Additionally, the Commission understands that equities linkages can be more complex, and thus 
more costly to process, than are options messages.  As a result, the Commission disagrees with 
the commenter’s assertion that equity trading volume creates a relatively low burden relative to 
options activity. 
 
1078
  See supra note 1050 and accompanying text for a discussion of cost drivers.   “Linker” accounts for 51% of 
CAT costs while storage accounts for 17%.  Data processing, Collection and ETL costs are 15%. 
1079
  Mar. 2023 CAT data.  If processing and storing CAT messages is a primary cost driver, options exchanges’ 
collective 8.9% share of CAT costs (compared to equity exchanges’ 13.6% share and FINRA’s 10.8% 
share) may also appear to inefficiently over-allocate the Participants’ share of CAT costs to equity 
exchanges.  However, processing and storage costs combined account for lower costs than linkage 
processing.  See id. 
1080
  See supra Section IV.A.1.b for further discussion of option market maker quotes. 
1081
  Based on Mar. 2023 CAT data containing statistics for validations and linkage for files submitted to 
FINRA CAT, the equities market accounted for 1.24 trillion linkages processed on 1.20 trillion messages 
reported while the options market accounted for 1.33 trillion linkages processed on 4.02 trillion messages 
reported.  Most options market maker quotes have only two events in their CAT Lifecycle (i.e., quote and 
quote cancelation) and don’t require linkage to other CAT events.  

200 
The Commission believes that the Executed Share Model presents a risk, as the Original 
Funding Model did,
1082
 that Participants might not have the incentive to seek efficient ways to 
achieve the regulatory objectives of CAT.  While the Executed Share Model specifies an 
allocation that was unknown in the Original Funding Model, several commenters question 
whether the allocation provides Participants with incentives to seek efficiency.
1083
  Commenters 
also expressed concern with rising CAT costs to illustrate the magnitude of this potential 
inefficiency,
1084
 stating that they do not have enough transparency on cost drivers to assess 
whether CAT costs are reasonable,
1085
 that no data or estimates regarding future costs were 
provided,
1086
 and that the Proposed Amendment has no mechanism to control or limit the 
budget.
1087
  Some commenters further stated that the ability to pass through fees lessens 
Participants’ incentive to control costs.
1088
 
The Participants have stated that the transparency and level of detail in the fee filings will 
impose a discipline on the Participants to justify the costs of CAT.
1089
  For example, separating 
 
1082
  See supra Section IV.A.1.b.  
1083
  See, e.g., Citadel July Letter at 1, 5, 6, and 16; Citadel August Letter at 2; MMI July Letter at 1-3.    
1084
  See, e.g., Citadel July Letter at 2, 5, 7-9, 23, and 26-27; Citadel August Letter at 7-8; FIA PTG at 4-5 ; 
FIF/SIFMA at 5.  One commenter pointed out that CAT costs typically exceed the budget by 20% (See 
Citadel July Letter at 8-9, n.21; Citadel August Letter at 7).  In addition, one commenter stated that CAT 
operating costs significantly exceed cost estimates in the CAT NMS Plan and recent increases in CAT 
operating costs are not sustainable (See FIF/SIFMA Letter at 7-8). 
1085
  See, e.g., Citadel July Letter at 2, 6-7, 13-14, and nn.63, 64; Citadel August Letter at 6-7; FIA PTG at 1 and 
4, MMI July Letter at 3.  In addition, one commenter stated   that enhanced transparency about CAT costs is 
necessary, especially for the cloud costs (See FIF/SIFMA Letter at 8-9). 
1086
  See Citadel August Letter at 7. 
1087
  See, e.g., SIFMA June   Letter at 2 and 4; Virtu Letter at 4; FIF/SIFMA Letter at 5; SIFMA AMG Letter at 
3.    One commenter (FIF/SIFMA Letter at 5) pointed out that there is no legal limit to CAT costs.  One 
commenter (Citadel August Letter at 7) states that there are no constraints on costs. 
1088
  See, e.g., FIA PTG Letter at 2-3; Citadel July Letter at 16 and 22; and MMI July   Letter at 4. 
1089
  See also, CAT LLC May 2023 Response Letter at 10-11 for a discussion of other efforts to manage the 
costs of CAT.  The Participants provide a more comprehensive response about cost management efforts 
(See CAT LLC July   2023 Response Letter at 19-20).  They state that Industry Members will have ample 
opportunity to comment, there will be quarterly budget information and financials, there is Commission 
 

201 
Historical CAT Costs from Prospective CAT Costs allows Industry Members more insight into 
the sources of CAT costs underlying the fees and to allow Industry Members to comment on the 
size of such fees.  The Participants offer explanations for the increases in CAT costs.  For 
example, at the adoption of the CAT NMS Plan in 2016, the Commission estimated that the CAT 
would receive 58 billion records per day, but the Participants state that as of the fourth quarter of 
2022, the CAT receives an average 418 billion records per day.
1090
  This highlights the difficulty 
in estimating future costs because costs are directly related to trading activity.  While the 
Participants did not provide data or estimates regarding future costs, they discussed how costs 
are related to trading activity, which should help Industry Members and other market participants 
form their own estimates. 
The Participants also disagree that they are not incentivized to manage costs with a one-
third allocation.  They argue that currently, there is a strong incentive to manage costs while 
paying 100% of the costs and that incentive will continue with a one-third allocation.  They state 
that CAT costs are substantial and they will continue to receive critical review.
1091
  In response 
to comments on whether the exchanges will pass through all of their fees, some of the equity 
exchange Participants already charge transaction fees at the maximum level allowed by 
regulation, which prevents them from increasing their transaction fees to efficiently pass through 
all CAT fees to their members.
1092
  As a result, such equities exchanges will likely internalize 
 
oversight, and the Participants have ongoing cost discipline efforts through a cost management group and 
other efforts.  For more details of the activities of the cost management group, see CAT LLC July 2023 
Response Letter at 22-26. 
1090
  See CAT LLC July 2023 Response Letter at 22. 
1091
  See CAT LLC July 2023 Response Letter at 22. 
1092
  See Securities Exchange Act Release No. 96494 (Dec. 14, 2022), 87 FR 80266, tbl.5 (Dec. 29, 2022).  
While exchanges charge several tiers of fees, they will not be able to raise the fees that already match the 
fee cap. 

202 
some of their CAT fees, ensuring some incentive to limit costs.  In addition, the fact that FINRA 
is expected to be the heaviest regulatory user of CAT suggests that FINRA being responsible for 
a large proportion of CAT costs promotes efficiency.
1093
  Further, the Participants argue that the 
complexity and diversity of Industry Members’ chosen business models and order handling 
practices contributes substantially to CAT costs because they result in increased processing and 
storage costs.
1094
  In contrast, exchange features are not nearly as diverse as the ways in which 
Industry Members execute trades.
1095
  In addition, Industry Members have customers that create 
CAT costs related to FDIDs, CCIDs, and CAIS, while Participants do not.
1096
  Further, the 
Participants state that “Industry Members have far more late data and corrections than 
Participants” and that “[t]he linker costs related to late data and corrections are significant.”
1097
  
The Commission believes that Industry Members being responsible for a large proportion of 
CAT costs promotes efficiency.  This is particularly valid for late data and corrections, which is 
something Industry Members can directly control to reduce overall CAT costs. 
The Commission believes the Executed Share Model trades off incentives to inefficiently 
spend too much against incentives to inefficiently spend too little.  The Commission does not 
believe that being responsible for CAT costs (or having to internalize CAT costs they do not pass 
 
1093
  But see FINRA April   2023 Letter: “it is unclear... how the outsized allocation to FINRA is based on the 
extent to which FINRA participates in and benefits from the markets.  In addition, this rationale conflates 
the costs to create and operate CAT with the usage of CAT data.”  The Commission believes that data 
usage does significantly contribute to CAT costs.  Query tools, for example, account for 7% of CAT costs.  
See supra note 
1050.  Note that FINRA’s allocation in the Original Funding Model (~48% for Participants’ 
share of the costs allocated to equities) could have been the same or greater than the allocation in the 
Executed Share Model. 
1094
  See CAT LLC July 2023 Response Letter at 7. 
1095
  See supra note 1094. 
1096
  See supra note 1094. 
1097
  See supra note 1094. 

203 
through) will result in Participants having the incentive to under-spend on regulatory tools.
1098
  
Any such under-spending would not reduce the Participants’ self-regulatory duties and could 
result in inefficiencies in their own regulatory costs. 
One commenter stated that charging for Historical CAT Costs using current volumes 
bears no relation to the contributions to CAT Costs.
1099
  The Commission agrees that the 
Historical Assessments in the Executed Share Model do not provide much incentive for 
efficiency.  However, this does not reflect a change in the efficiency from the Original Funding 
Model, because Industry Members cannot retroactively change their behavior to reduce CAT 
costs under either model.  Indeed, by separating Historical CAT Assessments from CAT Fees, 
the Executed Share Model could allow Industry Members and Participants to more clearly assess 
how their own actions could affect the Prospective CAT Costs and their CAT Fees to promote 
improvements to efficiency relative to the Original Funding Model.    
 The Executed Share Model could change other incentives that could potentially affect 
efficiencies, but the expected magnitude of CAT Fees will mitigate the impact of such incentive 
changes.  For example, if the fees for OTC transactions are not passed on to non-FINRA 
members, the Executed Share Model could discourage FINRA membership by those who have a 
choice.  Further, the Historical Fee Rate in Exhibit C of $0.0000417950 per Executed Equivalent 
Share would result in each CEBB and CEBS paying $0.00001393167 per Executed Equivalent 
Share (one third of $0.0000417950).  A comparison to recent Section 31 fees of $0.00009 per 
 
1098
  The Participants state that they seed to reduce costs “without adversely affecting the regulatory goals of the 
CAT.” See CAT LLC July 2023 Response Letter at 22. 
1099
  See SIFMA January 2023 Letter at 7. 

204 
share to $0.0004 per share
1100
 and average effective half spreads of $0.013
1101
 indicates that the 
anticipated Historical Fee Rate and Fee Rate, assuming the Fee Rate is of a similar magnitude as 
the Historical Fee Rate, are expected to be relatively small.
1102
   
c. Market Efficiency 
 
1100
  Section 31 fees are expressed per dollar volume traded.  Translating this to a per share range involves 
identifying reasonable high and low trade sizes.  The lower end of this range comes from the 25
th
 percentile 
in $ trade size of 1,200 and share trade size of 71 from the first quarter of 2021.  The higher end of this 
range comes from the 75
th
 percentile in $ trade size of 5,200 and share trade size of 300 from the first 
quarter of 2021.  Section 31 fees have ranged from $5.10 per $Million to $23.10 per $Million from Oct. 1, 
2016 to Mar. 1, 2023.  The CAT LLC July 2023 Response Letter at 18-19 offers two additional 
comparisons to transaction-based fees.  They state that “Nasdaq charges various transaction-based equities 
fees, ranging from $0.0005 per share to $0.0030 [per share].”  They also state that “Cboe charges an 
options regulatory fee that is $0.0017 per contract, and NYSE American charges an options regulatory fee 
of $0.0055.”  Assuming that option contracts are for 100 shares of the underlying, this would translate to 
options regulatory fees of $0.000017 and $0.000055 per equivalent share. 
1101
  This is the average share-weighted effective spread across more liquid stocks from the first quarter of 2021.  
More liquid stocks were defined as the stocks in the most actively traded decile by total daily trading 
volume.  Effective spreads are a measure of transaction costs.  For each trade, the effective spread was 
calculated as the absolute value of the difference between the trade price and the quote midpoint at the time 
of the trade.  Less liquid stocks have higher effective spreads, making the CAT fees even smaller relative to 
transaction costs. 
1102
  See Notice, supra note 7, 88 FR at 17130.  In particular, Exhibit C sets forth illustrative Historical CAT 
Assessments.  While this is an illustrative example and actual Historical CAT Assessments may differ, the 
Commission believes that the Historical Fee Rate per equivalent share, will be calculated using the methods 
laid out in the table “Calculation of Historical CAT Assessment.”  Further, the Commission assumes that 
the example Historical Fee Rate is of the approximate magnitude of potential Historical Fee Rates because 
this rate was calculated using actual CAT costs and volume estimates grounded in historical volume.  
While the rate may be imprecise for the reasons discussed in Exhibit C, the rate is unlikely to be orders of 
magnitudes larger because the sample fees assume two-year collection whereas the Operating Committee 
could choose a longer collection period.  While Exhibit C only estimates Historical Fee Rates, the 
Commission does not expect Fee Rates to be significantly larger than Historical Fee Rates because 
Historical Fees will cover a longer time period than CAT Fees and will cover a broader scope of activities 
than CAT Fees.  Historical Costs include costs incurred since the CAT Approval in Nov. 2016 to build, 
operate and maintain CAT up to a certain date and will be spread out over two to five years (the estimate 
was based on spreading it out two years).  On the other hand, CAT Fees are based on Prospective Costs, 
which are estimates of monthly costs from a certain date forward and include costs to operate and maintain 
CAT.  While some commenters expressed concern about increasing CAT costs that are much higher than 
those estimated in the 2016 Approval Order (See, e.g., SIFMA June Letter at 4;  MMI July Letter at 3;  and 
Virtu Letter at 4), some of those costs may reflect implementation costs in addition to ongoing costs.  Once 
CAT is fully implemented, the Commission expects annual operating costs to reflect ongoing costs only.  
See also CAT LLC July 2023 Response Letter at 17 for a comparison and discussion of historical and 
prospective CAT costs.   The CAT LLC July 2023 Response Letter at 18-19 also provides another example 
of a Historical Fee Rate.  They add an additional year and consider all Historical CAT Costs for prior to 
2023 and find that each CEBB and CEBS would pay $0.0000142689 per executed equivalent share (one 
third of $0.0000428068).  The Historical Fee Rate based in this example is close to the Historical Fee Rate 
in Exhibit C.   

205 
The Commission believes that the Executed Share Model will promote market efficiency, 
but has uncertainty as to the degree of any improvement.  The Executed Share Model eliminates 
the disincentives to provide liquidity of the Original Funding Model that could have resulted in 
market inefficiencies, including removing the potential for perverse incentives near the tier 
cutoffs.
1103
  Instead of paying higher fees with more message traffic, which would discourage 
liquidity providing activity,
1104
 the Executed Share Model charges a fee for each Executed 
Equivalent Share.  Because market making and other liquidity providing activity tends to have a 
high ratio of message traffic to transactions, the Executed Share Model could be more favorable 
towards providing liquidity than the Original Funding Model.  Promoting liquidity provision 
promotes market efficiency.  However, because the Original Funding Model addressed this 
disincentive in its tier structure, the Commission cannot be certain that the reduction of this 
disincentive would have a significant effect on market efficiency.  Further, the Commission 
previously concluded that the effect of behavior changes around the tier cutoffs on market 
efficiency was likely not significant.
1105
  As a result, the Commission believes the removal of 
tiers promotes market efficiency but is unable to conclude that it will significantly improve 
market efficiency.    
Some commenters stated that the Proposed Amendments would harm liquidity provision 
and increase costs for investors, thus harming market efficiency.
1106
  The Commission 
recognizes that in charging fees only to CEBB and CEBS, the fees will be charged to fewer 
 
1103
  See supra Section IV.A.1.a.  
1104
  Id. 
1105
  See supra note 1058 and accompanying text. 
1106
  See,  e.g., MMI July Letter at 2; Citadel July Letter at 2; Virtu Letter at 5.  One commenter stated that the 
Proposed Amendments would disproportionately impact market makers in particular (see Citadel July 
Letter at 2 and Citadel August Letter at 4). 

206 
Industry Members than under the Original Funding Model and that market makers could be 
charged a large proportion of those fees.  This could increase the importance of passing through 
fees to the ability to spread those fees out among more market participants.  The Commission 
believes that efficiency improvements to the ability to pass through fees
1107
 will help alleviate 
the risk that CAT fees will harm liquidity provision from market makers and market efficiency. 
Some commenters argued that under the Proposed Amendment all CAT fees will 
ultimately be passed through to investors
1108
 and retail investors in particular,
1109
thereby 
increasing transaction costs for investors and reducing market efficiency.  The Commission 
recognizes that CAT fees may be passed through to investors, but the Proposed Amendment 
covers the allocation of CAT fees for operating the CAT among Participants and Industry 
Members and does not address whether Industry Members pass through their CAT fees to their 
customers.
1110
  Further, Industry Members may have passed through CAT fees to their customer 
under the Original Funding Model as well.  Hence, any impact on market efficiency of CAT fees 
being potentially passed through to investors under the Proposed Amendment may not represent 
a change to the baseline.  Finally, while Industry Members may pass through CAT fees to their 
customers, the customers also receive a benefit from the CAT.  The CAT provides more 
effective oversight of market activity, which could increase investor confidence, resulting in 
expanded investment opportunities and increased trading activity.
1111
 
B.   Competition 
 
1107
  See supra S ection IV.A.1 for a discussion of pass-through efficiency improvements. 
1108
  See SIFMA AMG Letter at 2. 
1109
  See Virtu Letter at 5. 
1110
  See supra Section III.A.2.  
1111
  See supra note 761 and preceding text. 

207 
Several commenters stated that the Proposed Amendments present a burden on 
competition.
1112
  The Commission analyzed the impact of the Proposed Amendments on the 
competition for trading services, broker-dealer services, and regulatory services.  The 
Commission believes the Proposed Amendment could negatively alter the competitive position 
of a few types of competitors for trading services and broker-dealer services, but the 
Commission also believes that whether such changes will render these markets less competitive 
overall is uncertain.  Specifically, the Commission believes that the Executed Share Model could 
provide exchanges with a competitive advantage relative to off-exchange market makers who 
internalize in providing trading services.  Further, the Executed Share Model could provide 
competitive advantages to certain broker-dealer business models over others and could harm the 
competitive position of smaller broker-dealers by putting a strain on their net capital. 
1.   Baseline 
In the CAT NMS Plan Approval Order, the Commission identified certain elements of 
the Original Funding Model that could have negative implications for competition in trading 
services, broker-dealer services, and regulatory services.
1113
  In addition, the Commission stated 
“the uncertainty regarding how the [Operating] Committee allocated the fees used to fund the 
Central Repository could affect the conclusions on competition.”
1114
   
a.    Trading Services 
The market for trading services, which is served by exchanges, ATSs, and liquidity 
providers (internalizers and others), relies on competition to supply investors with execution 
services at efficient prices.  These trading venues, which compete to match traders with 
 
1112
  See SIFMA June Letter at 1-2; SIFMA July Letter at 2;  Virtu Letter at 2 and 3;  and Citadel July Letter at 1. 
1113
  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84882-84884.   
1114
  See id. a t 84882 n.2800. 

208 
counterparties, provide a framework for price negotiation and disseminate trading information.  
The competitors for trading services compete on a number of dimensions, such as transaction 
fees and execution quality, and some attempt to attract order flow by paying for that order flow 
or otherwise rebating. 
The market for trading services in options and equities consists of 24 national securities 
exchanges, which are all Plan Participants, and off-exchange trading venues including broker-
dealer internalizers, which execute substantial volumes of transactions in equities, and 39 ATSs, 
which are not Plan Participants.
1115
  Aside from trading venues, exchange market makers provide 
trading services in the securities market.  These firms stand ready to buy and sell a security “on a 
regular and continuous basis at publicly quoted prices.”
1116
  Exchange market makers quote both 
buy and sell prices in a security held in inventory, for their own account, for the business purpose 
of generating a profit from trading with a spread between the sell and buy prices.  Off-exchange 
market makers also stand ready to buy and sell out of their own inventory, but they do not quote 
buy and sell prices.
1117
 
In the Original Funding Model, the portion of fees allocated to the exchanges, FINRA, 
and ATSs would have been divided among them according to market share of share volume and 
the portion allocated to Industry Members would have been divided among them according to 
message traffic, including message traffic sent to and from an ATS.
1118
  The Operating 
Committee would have allocated fees for the equities market and options market separately 
 
1115
  See Securities Exchange Act Release No. 61358, 75 FR 3594 (Nov. 23, 2016) at 3598–3560, (for a 
discussion of the types of trading centers).   The number of ATSs includes 34 NMS ATSs from 
https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm and 5 OTC ATSs. 
1116
  See SEC, Market Maker,  available at http://www.sec.gov/answers/mktmaker.htm. 
1117
  See Securities Exchange Act Release No. 96495, 88 FR at 181 (Jan. 3, 2023).   
1118
  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84793. 

209 
based on market share in each market.  The Commission concluded that the Original Funding 
Model could have resulted in a competitive advantage for exchanges over ATSs because 
message traffic to and from an ATS would have generated fee obligations on the broker-dealer 
that sponsors the ATS, while exchanges would have incurred almost no message traffic fees.
1119
  
In addition, the Commission recognized uncertainties associated with the allocation of fees that 
could have affected competition, such as the level of fees at each tier (though the entities in the 
smallest activity tier would have paid the lowest fees) and whether off-exchange liquidity 
providers would have paid fees similar to similarly-sized ATSs and exchanges.  Finally, the 
Commission recognized potentially differential fees across market participants, including lower 
fees for internalizers, which could affect competition.
1120
 
b.    Broker-Dealer Services 
For simplification, the Commission presents its analysis as if the competition to provide 
broker-dealer services encompasses one broad market with multiple segments even though, in 
terms of competition, it actually may be more realistic to think of it as numerous inter-related 
markets.  There are approximately 1,100 broker-dealers that are CAT Reporters.
1121
  The 
competition to provide broker-dealer services covers many different markets for a variety of 
services, including, but not limited to, managing orders for customers and routing them to 
various trading venues, holding customer funds and securities, handling clearance and settlement 
of trades, intermediating between customers and carrying/clearing brokers, dealing in 
government bonds, private placements of securities, and effecting transactions in mutual funds 
 
1119
  See id. a t 84883.   
1120
  See id. a t 84879.   
1121
  See Notice, supra note 7, 88 FR at 17104. 

210 
that involve transferring funds directly to the issuer.  Some broker-dealers may specialize in just 
one narrowly defined service, while others may provide a wide variety of services.   
The market for broker-dealer services relies on competition among broker-dealers to 
provide the services listed above to their customers at efficient levels of quality and quantity.  
The broker-dealer industry is highly competitive, with most business concentrated among a small 
set of large broker-dealers and thousands of small broker-dealers competing for niche or regional 
segments of the market.  Broker-dealers often compete among each other through commission 
rates, service quality, and service variety and some bundle their services.  At present, some 
broker-dealers specializing in individual investors charge zero commissions and instead cover 
costs by receiving payment for order flow or charging more for other services.  To limit costs 
and make business more viable, small broker-dealers often contract with larger broker-dealers or 
service bureaus to handle certain functions, such as clearing and execution, or to update their 
technology.
1122
  Large broker-dealers typically enjoy economies of scale over small broker-
dealers and compete with each other to service the smaller broker-dealers, who are both their 
competitors and their customers.  
Some broker-dealers may offer specialized services in one line of business mentioned 
above, while other broker-dealers may offer diversified services across many different lines of 
businesses.  As such, the competitive dynamics within each of these specific lines of business for 
broker-dealers is different, depending on the number of broker-dealers that operate in the given 
segment and the market share that the broker-dealers occupy. 
 
1122
  See Securities Exchange Act Release No. 63241 (Nov. 3, 2010), 75 FR 69791, 69822 (Nov. 15, 2010) 
(Risk Management Controls for Brokers or Dealers with Market Access). 

211 
The CAT NMS Plan Approval Order described the Original Funding Model as an explicit 
source of financial obligation for broker-dealers and therefore an important feature to evaluate 
when considering potential differential effects of the Plan on competition in the market for 
broker-dealer services.
1123
  The Commission understood that the Original Funding Model should 
have resulted in the smallest broker-dealers paying the lowest fees,
1124
 but the Plan did not 
outline how the magnitudes of fees would have differed across the tiers or whether the smallest 
broker-dealers would have paid the highest per-message fees.  The Commission concluded that, 
regardless of the differential effects of the CAT NMS Plan Funding Model on small versus large 
broker-dealers, the CAT NMS Plan Funding Model, in aggregate, would have likely not reduced 
competition in the overall market for broker-dealer services.
1125
 
c.  Regulatory Services 
In the CAT Approval Order, the Commission considered the effect of the CAT NMS 
Plan on competition to provide regulatory services.
1126
  SROs compete to provide regulatory 
services in at least two ways.  First, because SROs are responsible for regulating their members 
and the trading within venues they operate, their regulatory oversight is bundled with the 
operations of their venues.  Consequently, for a broker-dealer, selecting a trading venue also 
involves being subject to regulatory oversight of the SRO that operates that venue.  Second, 
SROs can provide regulatory services for other SROs through the use of RSAs.
1127
  In addition, 
some regulatory activity is coordinated among SROs through multiparty 17d-2 agreements.
1128
  
 
1123
  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84885. 
1124
  See id. a t 84884. 
1125
  See id. a t 84887.   
1126
  See id. a  t 84887. 
1127
  See supra note 320 and accompanying text.   
1128
  See 17 CFR 240.17d-2. 

212 
FINRA is the primary provider of contracted regulatory services.  Any new competitors for 
regulatory services would face significant barriers to entry in building up the necessary expertise 
and technical capabilities.
1129
 
RSAs are contracts that would not be renegotiated as often as CAT Fees would vary, 
which limits the precision to which FINRA can increase the charges on these agreements as a 
mechanism to pass through its CAT Fees.  Since the start of the CAT NMS Plan implementation, 
the Commission has not observed a change in the competition for regulatory services. 
2.       Analysis of the Proposed Amendment 
a.    Trading Services 
The Participants state that, “the [Executed Share Model] would not impose an 
inappropriate burden on competition,” arguing that transaction-based models for fee recovery are 
already in place.
1130
  The Commission agrees that transaction-based models do offer some 
efficiency benefits over the Original Funding Model,
1131
 but believes the Proposed Amendment 
may provide a competitive advantage to exchanges and a competitive disadvantage to executing 
broker-dealers who internalize.  The effects on these competitors might not affect the overall 
level of competition because the fees are expected to be relatively small. 
The Commission believes that the Proposed Amendment may provide a competitive 
advantage for exchanges over off-exchange trading venues, but this advantage may not be large 
 
1129
  The Commission stated in the Approval Order that “CAT may reduce barriers to entry for this market” 
while acknowledging other barriers to entry.  See CAT NMS Plan Approval Order, supra note 2
, 81 FR at 
84887, note 2849 (describing the barriers to entry addressed by CAT).  See also Securities Exchange Act 
Release No. 95388 (July 29, 2022), 87   FR 49930 (August 12, 2022) at 49961 (describing the barriers to 
entry of potential new national securities associations more generally).   
1130
  See Notice, supra note 7, 88 FR at 17115.  
1131
  See supra Section IV.A.2.b and IV.A.2.c for discussions of efficiency gains associated with basing CAT 
fees on shares executed rather than message traffic. 

213 
relative to the level of competition and relative to the advantages for exchanges in the Original 
Funding Model.  In particular, the Executed Share Model will allocate higher CAT fee 
allocations to Industry Members relative to Participants, but exchanges, one type of Participant, 
could be in a better position to avoid raising transaction fees to offset their CAT fee allocations. 
Using March 2023 data, the Commission estimates that 31% of share volume is reported to 
FINRA trade reporting facilities while the remaining 69% is reported by exchanges.
1132
  The 
Commission believes that FINRA’s allocation of CAT fees likely will be passed through to 
Industry Members.
1133
  If FINRA’s CAT fees are passed through to Industry Members, the 
Commission believes that Industry Members could bear 77% of CAT costs,
1134
 assuming that the 
exchanges do not also directly pass-through their CAT fee allocations to their members.
1135
  In 
fact, if the exchanges are able to offset their CAT fees in ways other than increasing transaction 
fees on exchanges, the cost to transact on ATSs or directly through broker-dealers will appear to 
increase more in response to CAT fee allocations, providing exchanges with a competitive 
advantage.
1136
  This is particularly probable for exchanges who do not rely solely on revenues 
 
1132
  Calculated using monthly market volume data from CBOE for equities, OCC for options, and FINRA for 
OTC securities.  Option contract volume is multiplied by 100 and OTC volume is divided by 100 to 
establish equivalent share volume to reported equity transactions.  
1133
  See FINRA April   2023 Letter at 7 (“If the Funding Model is approved by the Commission, FINRA intends 
to file a rule change to increase member fees simultaneous with the filing of any proposed rule change to 
effectuate the Funding Model.”). 
1134
  This results from dividing the FINRA allocation (31%) by its share of each off-exchange or OTC Executed 
Equivalent Share, three, and then adding the Industry Member share, two-thirds, to the result (31% ×1/3 + 
2/3 = 77%) and ignores what Industry Members would pass to investors.  Several commenters expressed 
concerns about the competitive effects of Industry Members paying 78-80% of CAT fees, assuming 100% 
FINRA pass through, and potentially more if exchanges pass through as well (See, e.g., Virtu Letter at 1-2 
and 4, FIA PTG Letter at 2-3, and Citadel July Letter at 16, 21 and 22).  The Commission analysis assesses 
this competition from the ability to competitively price transaction services. 
1135
  If exchanges passed their CAT fees onto their members in full, the Industry Members would effectively 
bear 100% of the CAT allocation (ignoring what they would pass to investors). 
1136
  One commenter stated that the Proposed Amendments will result in off-exchange transactions being 
assessed higher fees than on-exchange transactions (See Citadel July Letter at 21) 

214 
from transaction fees.  However, ATSs might be better off relative to exchanges under the 
Executed Share Model than they would have been under the Original Share Model, which would 
have resulted in a competitive disadvantage for ATSs.
1137
 
The Executed Share Model could increase the costs of internalization relative to agency 
order matching (or riskless principal), creating a competitive disadvantage for the internalization 
model, reversing the competitive advantage internalizers would have had under the Original 
Funding Model.
1138
  Specifically, off-exchange market makers will be assessed at least CEBB or 
CEBS for their internalizing trades, both when trading with non-broker-dealer customers or 
broker-dealers who are not FINRA members and also when internalizing the orders of FINRA 
members or their customers.  However, they do not have more than one customer to which to 
directly pass-through this fee.  In particular, if an exchange were to directly pass-through its 
CAT Assessments, it could split its 1/3 fee across buyers and sellers, or 1/6 each (each side 
would also have a 1/3 CAT assessment as CEBB or CEBS for a total of 1/2).  However, for 
internalizers to directly pass-through their fees would mean the internalized customer (whether 
an Industry Member or not) would pay 2/3 of the fee plus whatever pass-through they pay for the 
FINRA assessment (up to 1/3).  Alternatively, an internalizer could also recover CAT 
assessments by reducing payment for order flow or price improvement.
1139
  Any of these 
alternatives could hurt internalizers competitively and create the incentive to not fully pass-
through their fees,
1140
 thus reducing their profit margins.  In addition, some executing brokers 
 
1137
  See supra note 1119 and accompanying text. 
1138
  See supra note 1120 and accompanying text. 
1139
  See CAT LLC July 2023 Response Letter at 9-10. 
1140
  One commenter stated that many executing brokers will absorb CAT fees (See Virtu Letter at 5).  However, 
the Participants argue that the executing brokers may determine to pass their CAT fees through to their own 
customers and thus may not absorb the CAT fees (See CAT LLC July 2023 Response Letter at 8-9).  
 

215 
could be charged two-thirds of the fee per Executed Equivalent Share when internalizing the 
orders of customers or non-FINRA broker-dealers, though this is likely rare.   
More generally, any market makers, whether on exchange or not, will be charged fees for 
their proprietary trading, and this could create competitive advantages in certain situations.  The 
Commission recognizes that this likely would result in on-exchange market makers in equities 
being at a competitive disadvantage in having to absorb the fees because they do not know the 
identities of their counter-parties to directly pass-through the fees and they do not have other 
arrangements, such as payment for order flow, that could facilitate indirectly passing-through 
fees.  Because other liquidity providers who post limit orders and quotes to trade would face the 
same cost, the displayed quotations on exchanges could appear to be less competitive overall but 
would likely increase only marginally – enough to cover CAT assessments.  Such a marginal 
increase could also help to offset any disadvantage to internalization because marginally wider 
spreads could help internalizers avoid reductions in price improvement and payment for order 
flow.  In options, however, the Executed Share Model could result in exchange members who 
bring an order to an exchange experiencing a competitive advantage in price improvement 
auctions.  In particular, because knowing who is responsible for the order allows them to pass-
through their fees, they can bid more competitively in the auctions than can exchange members 
who cannot directly pass-through the fees.   
However, the Commission believes that the magnitude of changes in any competitive 
advantages or disadvantages is unlikely to significantly affect order flow because fee differences 
between competing venues are only one of many factors (such as availability of non-displayed 
 
Another commenter stated that fees charged on proprietary trading cannot be passed through (See Citadel 
July Letter at 19-20; see also Citadel August Letter at 3).  This latter commenter also stated that the 
potential to pass through some CAT costs does not alleviate the competitive issues (See Citadel July Letter 
at 19; see also Citadel August Letter at 4). 

216 
order types and price impact characteristics of transactions on different venues) that broker-
dealers consider when choosing how to route their order flow.  Further, the Executed Share 
Model levels the playing field between exchanges and ATSs relative to the Original Funding 
Model.
1141
  In particular, the assessments and any pass-throughs paid by broker-dealers or 
investors of an execution on an ATS could be similar to those of an execution on an exchange, 
depending on how (and whether) ATSs and exchanges choose to pass-through their fees.  
Further, the magnitude of the fees in the example in Exhibit C are small relative to current 
transaction costs.
1142
 
b.    Broker-Dealer Services 
The Commission believes that the Executed Share Model alleviates concerns with the 
Original Funding Model about the allocation of fees across small and large broker-dealers.  In 
particular, by charging CEBBs and CEBSs based on Executed Equivalent Shares, small broker-
dealers are less likely to face CAT fees that are outsized relative to their revenue, whether they 
act as executing brokers or are charged pass-throughs by executing brokers.  This could reduce 
barriers to entry. 
On the other hand, the efficiency gains in passing through fees from the Executed Share 
Model will not be evenly distributed across broker-dealer competitive strategies.  In particular, 
where competition has driven commissions to zero, the Executed Share Model Fees are more 
easily passed through to customers of broker-dealers who offer a wider variety of services than 
for broker-dealers who do not.  These latter broker-dealers could be at a competitive 
 
1141
  See supra note 1120 and accompanying text for a discussion of the effect of the Original Funding Model on 
ATSs. 
1142
  See supra notes 1100, 1101, and 1102 and accompanying text for analysis of the potential magnitude of 
fees under the Executed Share Model. 

217 
disadvantage if they have no other option but to absorb such fees or accept reduced payment for 
order flow as a form of pass-through from executing brokers.  Because more established broker-
dealers are more likely to be the ones offering a wider variety of services, this effect could 
increase barriers to entry. 
Furthermore, as one commenter stated, there may be capital requirements associated with 
carrying the receivable associated with passing-through these CAT fees, which could be 
burdensome for small and medium-sized Executing Brokers.
  1143
  According to this commenter, 
these burdens, coupled with FINRA Rule 15c3-1 will significantly impact healthy small and 
medium-sized brokers.
 1144
  If so, the Executed Share Model could increase barriers to entry in 
providing broker-dealer services.  However, whether and how to pass-on the CAT assessments is 
at the discretion of Executing Brokers.
1145
  Further, the economic effect of not passing-on fees is 
equivalent to passing-on fees to clients who pay more than 30 days after the Executing Broker 
has booked the receivable.
1146
 Therefore, this issue boils down to the magnitude of the potential 
costs and whether small and medium-sized Executing Brokers are treated the same as others.  If 
small and medium-sized Executing Brokers have lower trading activity than large Executing 
Brokers, their CAT assessments will be lower as well.  Further, the per equivalent share fee rate 
will be the same across all Executing Brokers in the Executed Share Model whereas it would not 
have been under the Original Funding Model.  In fact, small broker-dealers, including Executing 
 
1143
  See DASH January 2023 Letter at 1; DASH April 2023 Letter at 1. 
1144
  See DASH January 2023 Letter at 2. 
1145
  See supra Section III.A.4 for further discussion of the comments on net capital and the Commission’s 
response to those comments.  
1146
  The effect on net capital comes when Industry Members record that they expect to receive a    pass-through 
from customers as an asset (a “booked” receivable) more than 30 days before when their customers pay.  If 
the Industry Members book a receivable for the pass-through more than 30 days before they collect, they 
cannot count that receivable as an asset toward net capital.  If Industry Members instead do not pass-
through the fees, they will not have a receivable at all to count toward net capital. 

218 
Brokers, could be better positioned competitively under the Executed Share Model than under 
the Original Funding model, which contained uncertainty in the tier structure and whether small 
broker-dealers would have paid more in assessments than they earn in revenues. 
One commenter stated that the top 10 (20) Industry Members would be allocated 50% 
(70%) of the fees under the Executed Share Model, “unduly burdening competition”.
1147
  The 
Commission has considered this concentration and believes that several factors alleviate this 
concern.  In particular, the Commission believes that many of these Industry Members will pass 
through much of their fees to client broker-dealers.
1148
  In addition, the Commission believes that 
the Industry Members that will be charged the most under the Proposed Amendments engage in 
different services than broker-dealers who are charged the least or not charged fees at all under 
the Proposed Amendments.
1149
  Therefore, these two sets of broker-dealers are not direct 
competitors.   
c.    Regulatory Services 
The Commission recognizes that if FINRA were to pass through its CAT fees by 
increasing its fees for RSAs over time, FINRA could be less competitive in providing regulatory 
services.
1150
  This could increase the chances either of exchanges conducting more of their own 
 
1147
  See Citadel July Letter at 19. 
1148
  See supra Section IV.A.2.a. 
1149
  Broker dealers that compete as electronic liquidity providers in high-volume securities are likely to have 
the highest executed share volume and thus pay the highest fees.  However, these broker-dealers compete 
against each other in providing this service, and thus are likely to be similarly burdened by fees under the 
amendment.  Broker-dealers that pay the lowest or no fees are unlikely to compete in this activity because 
such activity entails high fixed costs in specialized technology and thus are unlikely to gain a competitive 
advantage from the amendment. 
1150
  The Participants state, “[b]y treating each Participant the same, the CAT fees would not become a 
competitive issue by and among the Participants.”  See Notice supra note 7
, 88 FR at 17115.  See also a 
similar statement at 17122.  This conclusion does not seem to address competition to provide regulatory 
services specifically.  However, the comments about the treatment of FINRA in, for example, the FINRA 
April   2023 Letter at 2-5 warrants considering this competition given FINRA’s position in providing RSAs. 

219 
regulatory services or of another SRO attempting to compete with FINRA for RSAs.  Indeed, 
such potential competitors would not have the burden of having to cover CAT Fees for off-
exchange and OTC volume.  However, because RSAs are not renegotiated as often as CAT Fees 
are likely to change, FINRA will likely not attempt to cover all of their share of CAT costs by 
increasing what they charge for RSAs.
1151
  Further, even with access to CAT, the barriers to 
entry in competing for RSAs could limit new competitors. 
C.   Capital Formation 
In the CAT NMS Plan Approval Order, the Commission stated that the Original Funding 
Model for CAT was not wholly certain and, thus, stated the “view that there is uncertainty 
concerning the extent to which investors will bear Plan costs and consequently to what extent 
Plan costs could affect investors’ allocation of capital.”
1152
  The Participants state that they 
believe the Proposed Amendment would have a positive effect on capital formation due to 
improvements in investor confidence.
1153
 
The Commission recognizes that the Proposed Amendment may have negative effects on 
capital formation if the CAT fees ultimately borne by investors are large enough to affect 
investors’ allocation of capital or if capital constraints of small or mid-sized broker-dealers 
significantly hinder innovating to find more efficient ways to service investors.
1154
  However, the 
Commission believes that the net capital effect would not be significant.
1155
  Further, the 
 
1151
   See FINRA April   2023 Letter at 7 (“If the Funding Model is approved by the Commission, FINRA intends 
to file a rule change to increase member fees simultaneous with the filing of any proposed rule change to 
effectuate the Funding Model.”).   
1152
  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84893. 
1153
  See Notice, supra note 7, 88 FR at 17115. 
1154
  See, e.g., DASH April   2023 Letter at 1; Virtu Letter at 2; SIFMA AMG at 2-3. 
1155
  See supra Section III.A.4 for a response to a commenter’s concerns regarding net capital and supra Section 
IV.B.2.b for an explanation of why the net capital effects are like to be small. 

220 
additional costs borne by investors are likely small relative to current transaction costs.
1156
  
While recognizing that the Executed Share Model might change which investors ultimately bear 
CAT costs, the Executed Share Model might not change the total costs borne by investors 
relative to the Original Funding Model. 
V. Conclusion 
 
For the reasons discussed, the Commission, pursuant to Section 11A of the Exchange 
Act,
1157
 and Rule 608(b)(2)
1158
 thereunder, is approving the Proposed Amendment.  Section 11A 
of the Exchange Act authorizes the Commission, by rule or order, to authorize or require the self-
regulatory organizations to act jointly with respect to matters as to which they share authority 
under the Exchange Act in planning, developing, operating, or regulating a facility of the 
national market system.
1159
  Rule 608 of Regulation NMS authorizes two or more SROs, acting 
jointly, to file with the Commission proposed amendments to an effective NMS plan,
1160
 and 
further provides that the Commission shall approve an amendment to an effective NMS plan if it 
finds that the amendment is necessary or 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 mechanisms of, a national market system, or otherwise in furtherance of the purposes of the 
Exchange Act.
1161
   
 
1156
  See supra notes 1100, 1101, and 1102 and accompanying text for analysis of the potential magnitude of 
fees under the Executed Share Model.  
1157
  15 U.S.C. 78k-1. 
1158
  17 CFR 242.608(b)(2). 
1159
  See 15 U.S.C. 78k-1(a)(3)(B).  
1160
  See 17 CFR 242.608. 
1161
  See 17 CFR 242.608(b)(2).  

221 
For the reasons set forth above, the Commission finds that the Proposed Amendment 
meets the required standard. 
 IT IS THEREFORE ORDERED, pursuant to Section 11A of the Exchange Act,
1162
 and 
Rule 608(b)(2)
1163
 thereunder, that the Proposed Amendment (File No. 4-698) be, and hereby is, 
approved. 
 By the Commission. 
 
J. Matthew DeLesDernier 
Deputy Secretary  
 
 
 
1162
  15 U.S.C. 78k-1. 
1163
  17 CFR 242.608(b)(2). 

SECURITIES AND EXCHANGE COMMISSION 
(Release No. 34-98290; File No. 4-698) 
 
September 6, 2023 
 
Joint Industry Plan; Order Approving an Amendment to the National Market System Plan 
Governing the Consolidated Audit Trail 
 
I. Introduction 
  

On March 13, 2023, the Consolidated Audit Trail, LLC (“CAT LLC”), on behalf of the 

Participants1 to the National Market System Plan Governing the Consolidated Audit Trail (“CAT 

NMS Plan” or “Plan”),2 filed with the Securities and Exchange Commission (“Commission”), 

pursuant to Section 11A of the Exchange Act3 and Rule 608 of Regulation National Market 

System (“Regulation NMS”) thereunder,4 a proposed amendment to the CAT NMS Plan 

(“Proposed Amendment”) to implement a revised funding model (“Executed Share Model”) for 

 
1  The Participants are:  BOX Exchange LLC, Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe 

C2 Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe Exchange, Inc., The 
Financial Industry Regulatory Authority, Inc. (“FINRA”), Investors Exchange LLC, Long-Term Stock 
Exchange, Inc., MEMX LLC, Miami International Securities Exchange, LLC, MIAX Emerald, LLC, 
MIAX PEARL, LLC, Nasdaq BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, 
Nasdaq PHLX LLC, The Nasdaq Stock Market LLC, New York Stock Exchange LLC, NYSE American 
LLC, NYSE Arca, Inc., NYSE Chicago, Inc., and NYSE National, Inc. (collectively, the “Participants,” 
“self-regulatory organizations,” or “SROs”). 

2  The CAT NMS Plan is a national market system plan approved by the Commission pursuant to Section 
11A of the Securities Exchange Act of 1934 (“Exchange Act”) and the rules and regulations thereunder.  
See Securities Exchange Act Release No. 78318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (“CAT 
NMS Plan Approval Order”).  The CAT NMS Plan is Exhibit A to the CAT NMS Plan Approval Order.  
See CAT NMS Plan Approval Order, 81 FR at 84943–85034.  The CAT NMS Plan functions as the limited 
liability company agreement of the jointly owned limited liability company formed under Delaware state 
law through which the Participants conduct the activities of the CAT (“Company”).  Each Participant is a 
member of the Company and jointly owns the Company on an equal basis.  The Participants submitted to 
the Commission a proposed amendment to the CAT NMS Plan on August 29, 2019, which they designated 
as effective on filing.  On August 29, 2019, the Participants replaced the CAT NMS Plan in its entirety with 
the limited liability company agreement of a new limited liability company, CAT LLC, which became the 
Company.  See Securities Exchange Act Release No. 87149 (Sept. 27, 2019), 84 FR 52905 (Oct. 3, 2019).  
The latest version of the CAT NMS Plan is available at https://catnmsplan.com/about-cat/cat-nms-plan. 

3  15 U.S.C. 78k-1. 
4  17 CFR 242.608. 



2 

the consolidated audit trail (“CAT”)5 and to establish a fee schedule for Participant CAT fees in 

accordance with the Executed Share Model (“Proposed Participant Fee Schedule”).6  The 

Proposed Amendment was published for comment in the Federal Register on March 21, 2023.7 

On June 16, 2023, the Commission instituted proceedings pursuant to Rule 608(b)(2)(i) 

of Regulation NMS8 to determine whether to disapprove the Proposed Amendment or to approve 

the Proposed Amendment with any changes or subject to any conditions the Commission deems 

necessary or appropriate after considering public comment (“OIP”).9  

This order approves the Proposed Amendment. 

II. Background 

On July 11, 2012, the Commission adopted Rule 613 of Regulation NMS, which required 

the 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.10  On November 15, 2016, the Commission approved the CAT NMS Plan.11  

Under the CAT NMS Plan, the Operating Committee of the Company, of which each Participant 

is a member, has the discretion (subject to the funding principles set forth in the Plan) to 

 
5  The Proposed Amendment modifies the existing funding model in Article XI. of the CAT NMS Plan. 
6  See Letter from Brandon Becker, Chair, CAT NMS Plan Operating Committee, to Vanessa Countryman, 

Secretary, Commission (Mar. 13, 2023) (“Transmittal Letter”). 
7 See Securities Exchange Act Release No. 97151 (Mar. 15, 2023), 88 FR 17086 (Mar. 21, 2023) (“Notice”).  

Comments received in response to the Notice can be found on the Commission’s website at 
https://www.sec.gov/comments/4-698/4-698-a.htm.  

8  17 CFR 242.608(b)(2)(i).  
9  See Securities Exchange Act Release No. 97750 (June 16, 2023), 88 FR 41142 (June 23, 2023).  Comments 

received in response to the OIP can be found on the Commission’s website at 
https://www.sec.gov/comments/4-698/4-698-a.htm. 

10  17 CFR 242.613. 
11  See CAT NMS Plan, supra note 2.  



3 

establish funding for the Company to operate the CAT, including establishing fees to be paid by 

the Participants and Industry Members.12   

 Under the CAT NMS Plan, CAT fees are to be implemented in accordance with various 

funding principles, including an “allocation of the Company’s related costs among Participants 

and Industry Members that is consistent with the Exchange Act taking into account . . . 

distinctions in the securities trading operations of Participants and Industry Members and their 

relative impact upon the Company resources and operations” and the “avoid[ance of] any 

disincentives such as placing an inappropriate burden on competition and reduction in market 

quality.”13  The Plan specifies that, in establishing the funding of the Company, the Operating 

Committee shall establish “a tiered fee structure in which the fees charged to:  (1) CAT 

Reporters14 that are Execution Venues,15 including ATSs,16 are based upon the level of market 

share; (2) Industry Members’ non-ATS activities are based upon message traffic; and (3) the 

CAT Reporters with the most CAT-related activity (measured by market share and/or message 

traffic, as applicable) are generally comparable (where, for these comparability purposes, the 

tiered fee structure takes into consideration affiliations between or among CAT Reporters, 

whether Execution Venues and/or Industry Members).”17  

 
12  The CAT NMS Plan defines “Industry Member” as “a member of a national securities exchange or a 

member of a national securities association.”  See CAT NMS Plan, supra note 2, at Section 1.1.  See also 
id. at Section 11.1(b). 

13  Id. at Section 11.2(b) and (e). 
14  The CAT NMS Plan defines “CAT Reporter” as “each national securities exchange, national securities 

association and Industry Member that is required to record and report information to the Central Repository 
pursuant to SEC Rule 613(c).”  Id. at Section 1.1. 

15  The CAT NMS Plan defines “Execution Venue” as “a Participant or an alternative trading system (‘ATS’) 
(as defined in Rule 300 of Regulation ATS) that operates pursuant to Rule 301 of Regulation ATS 
(excluding any such ATS that does not execute orders).”  Id. 

16  Id.    
17  CAT NMS Plan, supra note 2, at Section 11.2(c).  See id. at Article XI for additional detail.   



4 

 On May 15, 2020, the Commission adopted amendments to the CAT NMS Plan designed 

to increase the Participants’ financial accountability for the timely completion of the CAT 

(“Financial Accountability Amendments”).18  The Financial Accountability Amendments added 

Section 11.6 to the CAT NMS Plan to govern the recovery from Industry Members of any 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 June 22, 2020 until such time that the Participants have completed Full Implementation of 

CAT NMS Plan Requirements19 (“Post-Amendment Expenses”).  Section 11.6 establishes target 

deadlines for four Financial Accountability Milestones (Periods 1, 2, 3 and 4)20 and reduces the 

amount of fee recovery available to the Participants if these deadlines are missed.21   

III. Discussion and Commission Findings 

 After careful review, the Commission, pursuant to Section 11A of the Exchange Act,22 

and Rule 608(b)(2)23 thereunder, is approving the Proposed Amendment.  Section 11A of the 

Exchange Act authorizes the Commission, by rule or order, to authorize or require the self-

regulatory organizations to act jointly with respect to matters as to which they share authority 

 
18  See Securities Exchange Act Release No. 88890, 85 FR 31322 (May 22, 2020). 
19  “Full Implementation of CAT NMS Plan Requirements” means “the point at which the Participants have 

satisfied all of their obligations to build and implement the CAT, such that all CAT system functionality 
required by Rule 613 and the CAT NMS Plan has been developed, successfully tested, and fully 
implemented at the initial Error Rates specified by Section 6.5(d)(i) or less, including functionality that 
efficiently permits the Participants and the Commission to access all CAT Data required to be stored in the 
Central Repository pursuant to Section 6.5(a), including Customer Account Information, Customer-ID, 
Customer Identifying Information, and Allocation Reports, and to analyze the full lifecycle of an order 
across the national market system, from order origination through order execution or order cancellation, 
including any related allocation information provided in an Allocation Report.  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).”  CAT NMS Plan, supra note 2, at Section 1.1. 

20  See CAT NMS Plan, supra note 2, at Section 11.6(a)(i). 
21  Id. at Section 11.6(a)(ii) and (iii). 
22  15 U.S.C. 78k-1. 
23  17 CFR 242.608(b)(2). 



5 

under the Exchange Act in planning, developing, operating, or regulating a facility of the 

national market system.24  Rule 608 of Regulation NMS authorizes two or more SROs, acting 

jointly, to file with the Commission proposed amendments to an effective NMS plan,25 and 

further provides that the Commission shall approve an amendment to an effective NMS plan if it 

finds that the amendment is necessary or 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 mechanisms of, a national market system, or otherwise in furtherance of the purposes of the 

Exchange Act.26  

The Participants have sufficiently demonstrated that the proposed allocation of fees is 

reasonable.  There are a number of potential approaches to allocating the costs of operating the 

CAT, all of which have relative strengths and weaknesses.  In adopting Rule 613 and approving 

the CAT NMS Plan, the Commission determined that the CAT was appropriate in order to 

enable the SROs and the Commission to fulfill their responsibilities to oversee the equities and 

options markets.  The CAT NMS Plan requires both Execution Venues (which include the 

Participants) and Industry Members (which include CAT Executing Brokers) to fund the CAT.  

The proposed one-third allocation of CAT fees to the applicable Participant in a transaction, the 

CAT Executing Broker for the buyer in a transaction and the CAT Executing Broker for the 

seller in a transaction, assesses an equal fee to the three primary roles in a transaction:  the buyer, 

seller and market regulator.  In our view, allocating the costs for the CAT among the three 

parties who play significant roles in transactions reportable to the CAT in this manner represents 

 
24  See 15 U.S.C. 78k-1(a)(3)(B).  
25  See 17 CFR 242.608. 
26  See 17 CFR 242.608(b)(2).  



6 

a reasonable method of allocating costs among the parties who participate in and benefit from 

those markets.   

Commenters expressed concern that the Participant exchanges and FINRA would pass 

their share of costs on to Industry Members.  But the Exchange Act expressly contemplates the 

ability of the Participants to recoup the costs of fulfilling their statutory obligations under the 

Exchange Act.  And, as we explained in adopting Rule 613 and approving the CAT NMS Plan, 

the CAT is important to the performance of these regulatory activities in modern, interconnected 

markets, to the ultimate benefit of investors and market participants.  Moreover, these costs will 

not be unchecked.  The Participants must file their proposed rule changes relating to fees with 

the Commission.  Those proposed rule changes are published by the Commission and there is an 

opportunity for public comment.  CAT fees, like any fees the Participants collect from their 

members to fund their SRO responsibilities in market and member regulation, must be consistent 

with applicable statutory standards under the Exchange Act, including being reasonable, 

equitable and not unfairly discriminatory.  

We also conclude that the use of executed equivalent share volume provides a reasonable 

basis for the calculation of these fees.  Executed equivalent share volume is readily determinable 

and—because it is based on trading activity, which impacts CAT costs—provides a reasonable 

proxy for the costs to CAT, allowing CAT Reporters to be assessed fees corresponding to the 

cost burden they impose on the CAT.  The use of CAT Executing Brokers is also appropriate 

because the proposed Executed Share Model is based on executed equivalent shares (emphasis 

added).  Therefore, charging the CAT Executing Brokers would reflect their executing role in 

each transaction, which is already recorded in transaction reports from the exchanges and 

FINRA’s equity trade reporting facilities for calculating the CAT fees.  Because such entities are 



7 

already identified and their CAT fees are known, this method could streamline the billing 

process and allow such entities to calculate their own fees.  We also conclude that the division of 

fees into Prospective CAT Fees and the Historical CAT Assessment provides a reasonable 

method of allowing Participants to recoup their significant expenditures on the development of 

CAT to date while ensuring funding for future operations of the system.  And the provision of 

fee calculation information, approach to billing and collection of fees, conforming changes and 

the Proposed Participant Fee Schedule are all reasonable.  The Commission is therefore 

approving the Proposed Amendment.27   

 A. Funding Model 
 

1. Overview 
 

CAT LLC proposes to replace the funding model set forth in Article XI of the CAT NMS 

Plan (“Original Funding Model”) with the Executed Share Model.  The Original Funding Model 

involved a bifurcated approach, where costs associated with building and operating the CAT 

would be borne by (1) Industry Members (other than alternative trading systems (“ATSs”) that 

execute transactions in Eligible Securities (“Execution Venue ATSs”)) through fixed tiered fees 

based on message traffic for Eligible Securities, and (2) Participants and Industry Members that 

are Execution Venue ATSs for Eligible Securities through fixed tiered fees based on market 

share.28  In contrast, the Executed Share Model would charge fees based on the executed 

equivalent share volume of transactions in Eligible Securities.29  In addition, instead of charging 

fees to Industry Members, under the Executed Share Model, fees would be charged to each 

 
27  Id.  
28  See CAT NMS Plan, supra note 2, at Section 11.3(a) and (b). 
29  See Notice, supra note 7, 88 FR at 17086. 



8 

Industry Member that is a CAT Executing Broker30 for the buyer in a transaction in Eligible 

Securities (“CAT Executing Broker for the Buyer” or “CEBB”) and each Industry Member that 

is the CAT Executing Broker for the seller in a transaction in Eligible Securities (“CAT 

Executing Broker for the Seller” or “CEBS”).31     

Under the Executed Share Model, CAT LLC proposes to establish two categories of CAT 

fees.  The first category of CAT fees would be fees (“CAT Fees”) payable by Participants and 

Industry Members that are CAT Executing Brokers for the Buyer and for the Seller with regard 

to CAT costs not previously paid by the Participants (“Prospective CAT Costs”).32  The second 

category of CAT fees would be fees (“Historical CAT Assessments”) to be payable by Industry 

Members that are CAT Executing Brokers for the Buyer and for the Seller with regard to CAT 

costs previously paid by the Participants (“Past CAT Costs”).33   

For each category of fees, each CEBB and each CEBS will be required to pay a CAT fee 

for each such transaction in Eligible Securities in the prior month based on CAT Data.34  The 

CEBB’s CAT fee or CEBS’s CAT fee (as applicable) for each transaction in Eligible Securities 

will be calculated by multiplying the number of executed equivalent shares in the transaction by 

one-third and by the reasonably determined Fee Rate,35 as described below.36  Participants would 

 
30  See infra Section III.A.4. for the definition of CAT Executing Broker. 
31  See Notice, supra note 7, 88 FR at 17087. 
32  Id. at 17086; see also proposed Section 11.3(a).  The defined term “CAT Fees” applies specifically to CAT 

fees related to Prospective CAT Costs.  Id. 
33  See Notice, supra note 7, 88 FR at 17086; see also proposed Section 11.3(b). 
34  See Notice, supra note 7, 88 FR at 17093; see also proposed Section 11.3(a)(iii), proposed Section 

11.3(b)(iii). 
35  See infra Section III.A.5.a. (Prospective CAT Fees - Fee Rate Formula) for the definition and description of 

the calculation of the Fee Rate.  See also infra notes 1100–1102 and accompanying text (stating that the 
anticipated CAT Fee Rate and the fee rate for Historical CAT Assessments are expected to be relatively 
small). 

36  See Notice, supra note 7, 88 FR at 17095; see also proposed Section 11.3(a)(iii), proposed Section 
11.3(b)(iii).   



9 

incur CAT Fees only for Prospective CAT Costs and the Participant CAT Fee will be calculated 

by multiplying the number of executed equivalent shares in the transaction by one-third and by 

the reasonably determined Fee Rate.37  The Participants’ one-third share of Historical CAT 

Costs38 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.39 

FINRA CAT would be responsible for calculating the CAT fees and submitting invoices 

to the CAT Executing Brokers based on this CAT Data.40  All data used to calculate the fees 

under the Executed Share Model would be CAT Data, and, therefore, it would be directly 

available through the CAT to FINRA CAT for calculating CAT fees.41   

  Once the Proposed Amendment has been approved by the Commission, the Participants 

would separately file proposed rule filings pursuant to Section 19(b) of the Exchange Act42 to 

establish the amounts of the proposed CAT Fees and Historical CAT Assessments to be charged 

to Industry Members, subject to the satisfaction of applicable Financial Accountability 

Milestones as set forth in Section 11.6 of the CAT NMS Plan and the implementation of the 

billing and collection system for the CAT fees.43  In each proposed rule filing, if the Participants 

 
37  See Notice, supra note 7, 88 FR at 17094; see also proposed Section 11.3(a)(ii). 
38  The actual amount of Past CAT Costs to be recovered through the Historical CAT Assessments would be 

reduced by an amount of “Excluded Costs.”  The resulting amount would be defined as “Historical CAT 
Costs” in proposed Section 11.3(b)(i)(C) of the CAT NMS Plan.  See infra Section III.A.6.a. for a 
discussion of Historical CAT Costs. 

39  See proposed Section 11.3(b)(ii). 
40  See Notice, supra note 7, 88 FR at 17088. 
41  Id. 
42  15 U.S.C. 78s(b). 
43  See Notice, supra note 7, 88 FR at 17086, 17122. 



10 

seek to recover amounts under the Financial Accountability Milestones, they would need to 

discuss their completion of the applicable milestone.44   

2. Allocation of Fee among Participants and Industry Members 

Under the Executed Share Model, CAT fees would be allocated one-third to the 

applicable Participant, one-third to the CEBS and one-third to the CEBB of a transaction.  

Certain commenters opposed the proposed allocation.45 

FINRA stated that, while the Proposed Amendment justified the fairness of the Executed 

Share Model because it would operate like other fees, like FINRA’s Trading Activity Fee 

(“TAF”), Section 31 fees, and the options regulatory fee,46 the Proposed Amendment did not 

support why those fee frameworks should be used as a model in this context.47  For example, 

FINRA stated that the TAF is designed to recover the costs of FINRA’s regulatory activities, 

while the CAT fees are intended to align with the costs to build, operate and administer the 

 
44  Proposed Section 11.3(b)(iii)(B)(III) would prohibit any Participant from filing proposed rule filings 

pursuant to Section 19(b) of the Exchange Act regarding any Historical CAT Assessment until any 
applicable Financial Accountability Milestone in Section 11.6 of the CAT NMS Plan has been satisfied. 

45  See Letters to Vanessa Countryman, Secretary, Commission, from Stephen John Berger, Managing 
Director, Global Head of Government and Regulatory Policy, Citadel Securities, dated July 14, 2023 
(“Citadel July Letter”); August 22, 2023 (“Citadel August Letter”); Marcia E. Asquith, Corporate 
Secretary, EVP, Board and External Relations, FINRA, dated May 25, 2023 (“FINRA May 2023 Letter”); 
April 11, 2023 (“FINRA April 2023 Letter”); and June 22, 2022 (“FINRA June 2022 Letter”) (the FINRA 
June 2022 Letter was submitted in response to the prior funding proposal and was attached and 
incorporated by reference in the FINRA April 2023 Letter); Ellen Greene, Managing Director, Equities & 
Options Market Structure, and Joseph Corcoran, Managing Director, Associate General Counsel, SIFMA, 
dated July 13, 2023 (“SIFMA July 2023 Letter”); June 5, 2023 (“SIFMA June 2023 Letter”); May 2, 2023 
(“SIFMA May 2023 Letter”); January 12, 2023 (“SIFMA January 2023 Letter”); December 14, 2022 
(“SIFMA December 2022 Letter”); October 7, 2022 (“SIFMA October 2022 Letter”); and June 22, 2022 
(“SIFMA June 2022 Letter”) (the SIFMA June 2022 Letter, SIFMA October 2022 Letter, SIFMA 
December 2022 Letter and SIFMA January 2023 Letter were submitted in response to the prior funding 
proposal and incorporated by reference in the SIFMA May 2023 Letter); Joanna Mallers, Secretary, FIA 
Principal Traders Group, dated July 14, 2023 (“FIA Letter”); Douglas A. Cifu, Chief Executive Officer, 
Virtu Financial, dated July 13, 2023 (“Virtu Letter”).  See infra note 58. 

46  See Notice, supra note 7, 88 FR at 17122.  
47  See FINRA June 2022 Letter at 4. 



11 

CAT.48  Further, FINRA stated that the Proposed Amendment has insufficiently explained the 

connection between the TAF and CAT fees, merely stating that they are similar fees because 

they are transaction-based fees used to provide funding for regulatory costs.49  FINRA stated that 

“CAT LLC’s observations superficially focus on the fact that these fees also use transaction-

based metrics (and may be assessed on members) and neglects other factors relevant to the 

analysis including, for example, that these fees are used in combination with other funding 

mechanisms and metrics to support an overall funding framework.”50     

Another commenter stated that the proposed CAT funding model cannot be compared to 

Section 31 fees, the TAF, or the options regulatory fee because the commenter believes that CAT 

fees appear to be unconstrained and out of the industry’s control.51  The commenter explained 

that, unlike the proposed CAT fees, Section 31 fees are based on an annual budget set by 

Congress and the options regulatory fee is only applied to customer transactions and thus can be 

easily passed-on to other market participants (unlike CAT fees for market making activity).52  

Additionally, the commenter stated that there is no precedent for fees to be allocated to Industry 

Members in perpetuity, stating that this would contravene the Exchange Act.53   

One commenter disagreed with the Participants’ statement that the Executed Share 

Model’s similarity to other transaction-based fees approved by the Commission is adequate 

 
48  See FINRA April 2023 Letter at 8. 
49  Id.  The commenter also stated that “it is unclear how assessing on FINRA the largest allocation of the 

SRO portion of CAT expenses ‘provides funding for regulatory costs’ in any reasonable and equitable 
sense comparable to the TAF…”  Id. 

50  FINRA May 2023 Letter at 3. 
51  Citadel July Letter at 27.   
52 Id.  The commenter also stated that FINRA has sought to avoid increases in the TAF.  Id. 
53  Id.  This commenter stated that it is inequitable to require Industry Members to fund CAT costs in 

perpetuity when they lack representation on the Operating Committee and therefore have little transparency 
into the drivers of the costs, and there is no plan to contain the costs.  See id. at 2.   



12 

justification for consistency with the Exchange Act.54  The commenter stated that similarity to 

other transaction-based fees is not an adequate basis to show that the Executed Share Model is 

consistent with relevant standards; each proposed fee must be individually supported.55  For 

example, the commenter stated that the Participants compared the Executed Share Model to 

Section 31 fees as justification for the Executed Share Model, but failed to address the 

differences between the Executed Share Model and Section 31 fees, such as the Executed Share 

Model’s treatment of high-volume trades in low-priced stocks while Section 31 fees are based on 

the notional value of a trade.56 

Commenters also questioned the Participants’ justifications for the one-third allocation 

methodology.  FINRA stated that the Proposed Amendment did not justify why the proposed 

allocation by thirds to the Participant, buy-side and sell-side is equitable in the context of the 

CAT NMS Plan.57  FINRA also stated that the Proposed Amendment did not consider 

alternatives suggested by commenters on a prior proposed funding model,58 such as a model 

similar to Section 31 fees and a CAT funding model based on the “Cost Recovery Principle” and 

the “Benefits Received Principle.”59  FINRA urged the Commission to require those alternatives 

to be analyzed.60 

 
54  See SIFMA June 2022 Letter at 4.  
55  Id. 
56  See SIFMA October 2022 Letter at 7.  See also Citadel August Letter at 5.  
57  See FINRA June 2022 Letter at 3.   
58  See Securities Exchange Act Release Nos. 94984 (May 25, 2022), 87 FR 33226 (June 1, 2022); 96394 

(Nov. 28, 2022), 87 FR 74183 (Dec. 2, 2022); and Letter from Michael Simon, Chair Emeritus, CAT NMS 
Plan Operating Committee, to Vanessa Countryman, Secretary, Commission (Feb. 15, 2023). 

59  See FINRA April 2023 Letter at 5 (citing Letter to Vanessa Countryman, Secretary, Commission, from 
Lawrence Harris, Fred V. Keenan Chair in Finance, Professor of Finance and Business and Economics, 
USC Marshall School of Business, dated June 21, 2022).  

60  Id.  Another commenter suggested a review of alternative approaches to funding, such as the extent to 
which CAT could be funded by Section 31 fees.  See Letter to Vanessa Countryman, Secretary, 

 



13 

One commenter stated that the Participants have not met their burden to demonstrate the 

proposed allocation is consistent with the Exchange Act fee standards and not arbitrary.61  The 

commenter stated that because FINRA is funded by Industry Members, Industry Members would 

pay over 80% of CAT costs since they must pay not only their own share but FINRA’s as well; 

therefore, the Commission should disapprove the proposal.62  The commenter stated that the 

Proposed Amendment does not explain how allocating 80% of total CAT costs to the industry in 

perpetuity without a mechanism to limit the budget63 is consistent with the Exchange Act and 

guidance on SRO filings related to fees because the industry has no role in the governance, 

oversight or design of CAT and does not benefit from the CAT.64  Another commenter stated 

that Industry Members will bear significantly more costs than the Proposal suggests if the 

Participants decide to charge their members to fund their share of CAT fees.65  The commenter 

stated that “[i]f the Participants were to do this, it would render the entire Funding Model 

 
Commission, from Kirsten Wegner, Chief Executive Officer, Modern Markets Initiative, dated July 13, 
2023 (“MMI July Letter”), at 4. 

61  See SIFMA May 2023 Letter at 6; SIFMA June 2023 Letter at 1–2.  The commenter also stated that the 
Proposed Amendment provides unsupported conclusory statements that it meets the requirements of the 
Exchange Act.  See SIFMA June 2023 Letter at 2.  See also id. at n 11; FIA Letter at 2. 

62  See SIFMA May 2023 Letter at 2.  See also SIFMA June 2022 Letter at 1–2 (stating that the proposed cost 
allocation methodology is inconsistent with Exchange Act fee standards because most costs would be 
imposed on Industry Members). 

63  The commenter stated that the CAT annual budget increased over 30% in the last year.  See SIFMA June 
2023 Letter at 4.  See also Virtu Letter at 4 (stating that the budget increase indicated that the Industry 
Members could be subject to ever-increasing fees with no say on the budget).  See also FIA Letter at 3 
(stating that “[w]ith little to no skin-in-the-game, the Participants will not be incentivized to control 
costs.”).  See infra Section III.A.5.b (discussing budgeted CAT costs and comments suggesting a review 
mechanism to control costs).   

64  See SIFMA June 2023 Letter at 3, 4.  The commenter stated that approving such a proposal would “directly 
threaten[] efficiency, competition, and capital formation in U.S. securities markets.”  Id. at 4.  The 
commenter also quoted a Commission release stating that the Participants are potentially conflicted in 
allocating CAT fees to themselves and the Industry Members.  See Securities Exchange Act Release No. 
89618 (Aug. 19, 2020), 85 FR 65470, 65482 (Oct. 15, 2020).  Another commenter stated that the allocation 
of 80% to the industry was unfair.  See Virtu Letter at 4.   

65  See FIA Letter at 2. 



14 

meaningless, with Industry Members bearing 100% of CAT costs.”66  Another commenter also 

stated that it was inappropriate to place responsibility for funding the CAT “on industry members 

that do not stand to benefit from it.”67 

One commenter stated that the Proposed Amendment does not demonstrate that it is 

equitable, as required by Section 6(b)(4),68 or rational, as required by the Administrative 

Procedure Act,69 to allocate two-thirds of CAT costs to Industry Members, stating that “there is 

no suggestion that Industry Members somehow receive 67% of the benefits from CAT.”70  

Furthermore, the commenter stated that the Proposed Amendment would result in an inequitable 

allocation to a small number of Industry Members.71   

The commenter also stated that the Proposed Amendment would result in the allocation 

of all of the costs to build and operate the CAT to Industry Members and would therefore be 

inconsistent with Section 6(b)(4) to equitably allocate reasonable fees.72  The commenter stated 

that, in addition to the proposed allocation to Industry Members, FINRA’s 11% cost allocation 

would be passed-on to Industry Members and that exchanges would also pass-on their 22% cost 

allocation.73  The commenter stated that, with FINRA’s allocation, 78% of the costs to build and 

operate the CAT would be allocated to Industry Members under the Proposed Amendment.74  

The commenter stated that 78% is the same amount allocated to Industry Members in a prior 

 
66  Id. 
67  See Virtu Letter at 2. 
68  15 U.S.C. 78f(b)(4). 
69  5 U.S.C. 551 et seq. 
70  See Citadel July Letter at 17. 
71  Id. 
72  Id. at 1, 16, 22. 
73  Id. at 1, 21, 22. 
74  Id. at 21. 



15 

CAT funding model proposal from 2021, and stated that in the Proposed Amendment, the 

Operating Committee concedes that the 2021 allocation “may have an adverse effect on 

competition, liquidity or other aspects of market structure,”75 however the Proposed Amendment 

does not explain why using a different metric – executed share volume rather than message 

traffic—to create the same allocation would not result in similar consequences.76  

Further, the commenter stated that Industry Members may also be required to pay the 

exchange cost allocation,77 citing a statement in the Proposed Amendment that “each Participant 

may determine to charge their members fees to fund their share of the CAT fees.”78  The 

commenter stated that if exchanges choose to do this, then Industry Members would be 

responsible for 100% of CAT costs, which would “distort incentives and hinder the prioritization 

of critical cost-control measures, as the firms governing CAT are not bearing any of the 

associated costs.”79  The commenter requested that the Commission prohibit exchanges from 

passing-on their CAT costs.80  The commenter also stated that even after restructuring the 

funding model to base allocation on share volume instead of message traffic, as in prior funding 

model proposals, the allocation to exchanges stayed the same, arguing that the exchanges are 

unwilling to allocate themselves more than 22% of total costs.81  The commenter stated that the 

 
75  Id. 
76  See Citadel July Letter at 21. 
77  Id. at 22.  See also Citadel August Letter at 2. 
78  See Citadel July Letter at 22.  See also Notice, supra note 7, 88 FR at 17107.  The commenter also stated 

that while the Proposed Amendment describes the funding model as “neutral as to location and manner of 
execution,” counterparties to off-exchange transactions would receive higher fees than on-exchange 
transactions if exchanges choose not to pass-on their cost allocation to Industry Members.  See Citadel July 
Letter at 21.  See also Notice, supra note 7, 88 FR at 17087. 

79  Citadel July Letter at 22.  See also id. at 16.  See also Citadel August Letter at 2 (stating that an allocation 
of 100% of CAT costs to Industry Members cannot be lawful). 

80  Citadel July Letter at 22. 
81  Id. at 10. 



16 

proposed allocation methodology is inconsistent with the Exchange Act because of the excessive 

percentage of total costs proposed to be allocated to Industry Members and the unfair method of 

allocating costs among Industry Members,82 stating, “[t]he allocation methodology will have a 

direct and negative impact on market efficiency, competition, and capital formation, and the 

Commission must comprehensively assess those impacts before approving this filing.”83   

The commenter stated that the Proposed Amendment does not provide the percentage of 

total costs to build and operate the CAT that will be borne by Industry Members in practice.84  

The commenter stated that it is necessary to determine the ultimate allocation of CAT costs to 

evaluate whether the proposed allocation is consistent with the Exchange Act, arguing that the 

statements made in support of the allocation were premised on the Participants being responsible 

for one-third of total CAT costs, and that if this is untrue, “the filing must be completely 

reconsidered, taking into account (a) the impact on market efficiency, competition and capital 

formation of allocating this magnitude of additional costs to Industry Members, (b) whether such 

a lopsided allocation is fair and equitable, and (c) the implications for CAT governance and 

budget control if the firms governing CAT do not have any skin-in-the-game.”85 

One commenter stated that the Participants do not account for “the time and expense 

Industry Members have devoted to developing and maintaining internal systems to be able to 

report the [sic] CAT, as well as the time and expense Industry Members have devoted to 

assisting the Operating Committee with its job of developing reporting specifications that allow 

 
82  Id. at 15. 
83  Id. 
84  See Citadel August Letter at 2. 
85  Id. 



17 

the CAT to achieve its regulatory purpose” in the proposed allocation86 and that “this omission is 

a flaw with the Participants’ decision to allocate two-thirds of the CAT costs to Industry 

Members and its inclusion would demonstrate that the Participants’ Executed Share Model does 

not provide for the equitable allocation of reasonable fees.”87   

Similarly, one commenter stated that the allocation does not take into account fees 

currently paid by the industry and implementation costs incurred by Industry Members to 

comply with CAT reporting requirements.88  The commenter stated that Industry Members 

already provide funding for regulatory matters to exchanges through regulatory fees, 

membership fees, market data fees, and registration fees, and that these fees must be factored 

into any equitable or rational allocation of CAT costs.89  The commenter stated that although the 

Proposed Amendment argues that there is no precedent for regulatory fees to be determined 

based on the cost of compliance of a regulated entity, it is necessary to take into account all 

CAT-related costs including those already allocated to Industry Members to assess whether the 

Proposed Amendment is equitable.90 

Commenters also objected to statements made in the Proposed Amendment that the 

complexity of Industry Member business models contributes substantially to the costs of the 

CAT.91  One commenter stated that the proposed allocation of two-thirds of CAT costs to 

 
86  SIFMA June 2022 Letter at 4.  See also SIFMA January 2023 Letter at 4. 
87  SIFMA June 2022 Letter at 4–5.  See also SIFMA January 2023 Letter at 5; Virtu Letter at 3. 
88  See Citadel July Letter at 17.  See also Virtu Letter at 2 (noting that Industry Members “already provide the 

Plan Participants with a very substantial level of funding through membership fees, registration and 
licensing fees, dedicated regulatory fees, and options regulatory fees”). 

89  See Citadel July Letter at 17 (further stating, “Industry Members are already bearing nearly all of the total 
CAT-related costs, at a rate much higher than the Commission estimated in its approval of the 2016 CAT 
NMS Plan.” Id. at 18). 

90  Id. 
91  See Notice, supra note 7, 88 FR at 17104. 



18 

Industry Members is unfair, unreasonable and arbitrary because the Participants are equally 

responsible for the complexity of trading activity in the markets.92  The commenter disagreed 

with the Participants’ argument that the allocation satisfies Exchange Act fee standards because 

Industry Members and the complexity of their business models drive the costs of the CAT, by 

stating that the examples of complexities provided were developed to address order types, 

activities and fee structures (such as the maker-taker fee structure) established by the Participant 

exchanges.93  The commenter stated that the Participants are just as responsible for such cost-

driving complex trading activity in the equity and options markets as Industry Members due to 

the “large number of equity and options exchanges established by the exchange families with 

fundamentally different execution models and order types.”94  The commenter stated that the 

Participant exchanges have not analyzed how their own business decisions have resulted in the 

complexity of Industry Member order routing practices and CAT costs.95  Another commenter 

stated that the complexity arguments in the Proposed Amendment contradict statements from the 

Operating Committee that stringent performance and other requirements for processing CAT 

data are significant drivers of CAT costs,96 and that the complexity arguments suggest that costs 

should be allocated evenly among Industry Members, not just a small group of Industry 

Members based on volume.97   

 
92  See SIFMA May 2023 Letter at 3.  See also SIFMA January 2023 Letter at 2, 3–4. 
93  See SIFMA May 2023 Letter at 6–7.  See also SIFMA January 2023 Letter at 3; Notice, supra note 7, 88 

FR at 17104. 
94  SIFMA January 2023 Letter at 3. 
95  See SIFMA May 2023 Letter at 7. 
96  See Citadel July Letter at 17–18. 
97  Id. at 18. 



19 

Commenters also disagreed with other justifications made in the Proposed Amendment 

for the proposed allocation; specifically, that there are more Industry Members than Participants 

and that Industry Members receive more in revenue than the Participants.98  One commenter 

stated that these assertions are not relevant in demonstrating that the proposed allocation is fair 

and reasonable.99  The commenter stated that the Participants are justifying the allocation based 

on the ability to pay rather than cost generation, which the commenter believes is inconsistent 

“with the Participant Exchanges’ proposed approach… of allocating CAT costs based on 

approximate responsibility for generating them…” and “with the historical CAT decision to 

allocate costs to the parties responsible for generating them.”100  The commenter suggested an 

alternative allocation that would equally split CAT costs between Participant exchanges and 

Industry Members, while FINRA would be subject only to a nominal regulatory user fee to 

access CAT Data.101  Another commenter stated that, while most Industry Members will pay 

little to no CAT costs, 20 Industry Members will be responsible for 75% of the costs allocated to 

Industry Members.102  The commenter said this would contradict the Proposed Amendment’s 

arguments that there are more Industry Members than Participants and that Industry Members 

 
98  See Notice, supra note 7, 88 FR at 17104. 
99  See SIFMA May 2023 Letter at 7.  See also SIFMA January 2023 Letter at 4. 
100  See SIFMA May 2023 Letter at 7.  The commenter cited to the funding principles in Section 11.2 of the 

CAT NMS Plan. 
101  See SIFMA January 2023 Letter at 4.  See also SIFMA May 2023 Letter at 8; SIFMA June 2022 Letter at 

5; SIFMA October 2022 Letter at 4.  This commenter also suggested another alternative allocation in which 
costs would be allocated to those Participants and Industry Members most directly responsible for the costs.  
Under this alternative, Industry Members would be responsible for the cost associated with initial ingestion 
of the data into the CAT system.  The commenter explained that Participants would be responsible for the 
costs associated with the stages after the data is initially ingested into the CAT system because the 
regulators directly control and benefit from these stages of the CAT system after ingestion.  See SIFMA 
June 2022 Letter at 5–6. 

102  See Citadel July Letter at 17.  The commenter also stated that the Proposed Amendment does not explain 
why it would be equitable to allocate 50% of total CAT costs to 20 Industry Members and 22% of total 
CAT costs to 24 exchanges.  Id.    



20 

have greater financial resources than Participants because the Operating Committee would 

outnumber the Industry Members that would be paying the most in costs.103   

The commenter also stated that the Proposed Amendment lacks support for the proposed 

allocation.104  The commenter stated that the Operating Committee has not met its burden to 

demonstrate that the proposed allocation is consistent with the Exchange Act.105  The commenter 

also stated that the Proposed Amendment does not consider the impact of the proposed allocation 

to Industry Members on market efficiency, competition and capital formation, particularly with 

respect to the costs the industry will incur to build systems to pass-through their CAT fees, the 

expected impact on volumes, the expected impact on retail investors, and the expected impact on 

market makers.106   

 The commenter suggested alternatives to the proposed allocation methodology.107  The 

commenter stated that Industry Members should not be allocated more than 50% of ongoing 

CAT costs (including FINRA’s allocation) due to their lack of industry voting representation and 

because they already bear nearly all of the total CAT-related costs.108  The commenter also 

suggested that exchanges should be prohibited from passing-on their CAT cost allocation to 

market participants,109 and that the Participants consider allocating costs to the Commission “to 

 
103  Id. 
104  Id. at 13.  See also Citadel August Letter at 2. 
105  See Citadel July Letter at 13.   
106  Id. at 2, 16, 19, 20.  The commenter further stated that the Proposed Amendment is inconsistent with the 

Exchange Act because it cannot equitably allocate fees and will harm market efficiency, competition and 
capital formation.  Id. at 16.   

107  Id. at 3, 30, 31.  The commenter stated that the Commission must consider reasonable alternatives and that 
the proposal should be rejected and replaced by a proposal incorporating the commenter’s 
recommendations.  Id. at 30, 2. 

108  Id. at 3, 30, 31. 
109  See Citadel July Letter at 3, 30, 31.21 

align incentives.”110  The commenter recommended a consistent methodology for allocating 

costs to both Industry Members and exchanges.111  The commenter also recommended an 

allocation methodology that would ensure that “a small group of firms are not disproportionately 

bearing costs given that CAT is designed to facilitate market-wide surveillance across all market 

participants,”112 and would not inequitably allocate costs to specific market segments (such as 

“retail trading activity in NMS stocks”).113  The commenter suggested that the approach could 

have “(I) minimum and maximum fee levels, (II) appropriate calibrations for liquidity provision, 

(III) a volume component based on notional (instead of executed shares), and (IV) consideration 

of additional metrics that could achieve a more equitable outcome (e.g., broker-dealer 

capital).”114   

Commenters also raised concerns about statements in the Proposed Amendment that 

CAT costs would be passed on to investors.115  One commenter stated, “[s]uch an assertion is 

inaccurate because it is almost certain that there will be scenarios faced by Industry Members in 

which they will not be able to figure out who was responsible for generating certain Historical 

CAT Costs.”116  The commenter stated that such assertions would minimize the Participants’ 

 
110  Id. at 3, 31.  In response, CAT LLC stated that the Commission is not a party to the CAT NMS Plan, or 

subject to Rule 608 of Regulation NMS or Section 19(b) of the Exchange Act.  See Letter to Vanessa 
Countryman, Secretary, Commission, from Brandon Becker, CAT NMS Plan Operating Committee Chair, 
dated July 28, 2023 (“CAT LLC July 2023 Response Letter”), at 31, n.144. 

111  See Citadel July Letter at 30–31. 
112  Id. at 30. 
113  Id. at 3, 30. 
114  See id. at 30.  See also Citadel August Letter at 5. 
115  See SIFMA May 2023 Letter at 8; FINRA April 2023 Letter at 6–7; Citadel July Letter at 20; Citadel 

August Letter at 3; Letter to Vanessa Countryman, Secretary, Commission, from Lindsey Weber Keljo, 
Head – Asset Management Group, SIFMA, dated September 5, 2023 (“SIFMA AMG Letter”).  See also 
Virtu Letter at 4 (noting the inherent difficulties in implementing systems and processes to track and pass 
through fees to the appropriate client firms and stating that executing brokers would likely end up 
absorbing the fees themselves). 

116  See SIFMA May 2023 Letter at 8; see also Virtu Letter at 4. 



22 

obligation to allocate fees consistent with Exchange Act fee standards and could result in the 

inequitable allocation of CAT fees to Industry Members under the mistaken belief that such fees 

would be passed down to investors.117  FINRA objected to statements in the Proposed 

Amendment that Industry Members can pass through to their customers their CAT cost 

allocation and additional costs resulting from an increase in FINRA fees.118  FINRA stated that 

“[s]ummarily stating that investors can be made to bear the costs resulting from the Funding 

Model without a detailed description of and transparency into how these fees would be 

determined or passed on to customers is inadequate, and does not provide interested parties 

sufficient information to consider the costs and benefits related to the Fee Proposal.”119  Another 

commenter expressed concern that CAT costs will be passed-through to investors directly or 

indirectly by affecting the transaction prices of equities, stating that this could negatively impact 

the investment returns of long-term investors (including retail investors).120  The commenter 

stated that the Participants have failed to analyze how passing-through CAT costs to investors is 

consistent with Exchange Act fee standards, and that the Commission has not fully considered 

these economic effects on clients and other end investors.121    

 
117  See SIFMA May 2023 Letter at 8. 
118  See FINRA April 2023 Letter at 6–7. 
119  Id. at 7. 
120  See SIFMA AMG Letter at 2. 
121  Id. at 2, 3.  The commenter stated that, “[u]nder the Exchange Act, the Participants are required to 

demonstrate that the Proposed Amendment: (1) provides ‘for the equitable allocation of reasonable dues, 
fees, and other charges,’ (2) is ‘not designed to permit unfair discrimination between customers, issuers, 
brokers or dealers’ and (3) does not ‘impose any burden on competition not necessary or appropriate in 
furtherance of the purposes’ of the Exchange Act.”  Id. at 1, n.4 (citing to Sections 6 and 15A of the 
Exchange Act and Rule 700(b)(3)(iii) of the Commission’s Rules of Practice.  15 U.S.C. 78s; 15 U.S.C. 
15o-3; 17 CFR 201.700(b)(3)(iii)).  Approval of the Proposed Amendment, however, is governed by Rule 
608 of Regulation NMS.  That rule requires the Commission to approve a proposed amendment to an 
effective national market system plan if it finds that the amendment is necessary or 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 mechanisms of, a national market system, or otherwise in furtherance of 
the purposes of the Act.  17 CFR 242.608(b)(2).   



23 

One commenter stated that many of the largest Industry Members would be allocated 

CAT fees based on proprietary trading activity, so they would not be able to pass through their 

fees to investors.122  The commenter urged an analysis of proprietary executed volume compared 

to customer executed volume in order to evaluate how CAT costs will be allocated among 

Industry Members and whether the allocation methodology is fair, equitable and not unfairly 

discriminatory.123  The commenter also stated that the Proposed Amendment is inconsistent with 

Section 6(b)(5) by imposing a new and increasing expense on investors, which would negatively 

impact liquidity and efficiency, and that the proposed allocation to Industry Members would 

disproportionately impact market makers (because 20 firms would have to pay most of the costs) 

and retail investors (due to their trading in sub-dollar NMS stocks that increase executed share 

volume), in violation of Section 6(b)(8).124   

In response to the comment stating that the Participants had not analyzed a suggested 

Section 31-style approach to a funding model,125 CAT LLC stated that the CAT fee approach is 

similar to the Section 31 fee approach in how an exchange would be obligated to pay a 

transaction fee based on transactions occurring on that exchange, and that FINRA would be 

obligated to pay a transaction fee based on transactions in the over-the-counter market.126  CAT 

LLC stated that the approaches are also similar because, in both, an exchange would be able to 

 
122  See Citadel July Letter at 20.  See also Citadel August Letter at 3. 
123  See Citadel August Letter at 3.  The commenter said that such an analysis is feasible and should account for 

aggregate costs to be borne by affiliated entities, stating that this is required in Section 11.2(c) of the 2016 
CAT NMS Plan.  Id. 

124  See Citadel July Letter at 2.  See also infra notes 260–265. 
125  See FINRA April 2023 Letter at 5. 
126  See Letter to Vanessa Countryman, Secretary, Commission, from Brandon Becker, Chair, CAT NMS Plan 

Operating Committee, dated May 18, 2023 (“CAT LLC May 2023 Response Letter”), at 9. 



24 

determine to pass the fee onto its members, as would FINRA.127  CAT LLC stated that if the 

Section 31 approach would comply with the Exchange Act, then the proposed CAT fee approach 

should also comply with the Exchange Act and CEBBs and CEBSs could determine whether to 

pass such fees onto their clients.128  

In response, FINRA stated that the CAT LLC May 2023 Response Letter misrepresented 

the commenter’s letter by incorrectly stating that the commenter’s letter recommended an 

approach similar to Section 31 fees.129  FINRA clarified that it was noting that the Commission 

had received comments suggesting a model like the Section 31 fees, that the Participants had not 

“meaningfully analyzed” the suggested alternatives in the Proposed Amendment, and that the 

Commission should require the Participants to analyze the alternatives.130   

CAT LLC further responded to FINRA’s objections to the use of the TAF as precedent 

for CAT fees—specifically, FINRA’s statement that unlike the proposed CAT fees, the TAF 

recovers the costs of FINRA’s regulatory activities, while the Proposed Amendment is designed 

to align with the costs to build, operate and administer the CAT.131  CAT LLC stated that there is 

no distinction between the two points raised by the commenter because CAT only has a 

regulatory purpose; therefore, costs to build, operate and administer the CAT are inherently 

regulatory costs.132  CAT LLC also noted that FINRA distinguished the TAF from the proposed 

CAT fees by describing the TAF as being used in combination with other funding mechanisms to 

 
127  Id. 
128  Id. 
129  See FINRA May 2023 Letter at 3, n.8. 
130  Id. 
131  See FINRA May 2023 Letter at 3. 
132  See CAT LLC July 2023 Response Letter at 35. 



25 

support a funding framework, but CAT LLC stated that “this does not change the general 

conclusion that a transaction-based fee complies with the Exchange Act.”133     

In response to a commenter that stated that there is no precedent for CAT fees to be 

allocated to Industry Members in perpetuity, and that the Exchange Act would not allow CAT 

LLC to require Industry Members to fund unlimited costs in perpetuity,134 CAT LLC stated that 

the proposed allocation would not require Industry Members to fund all costs since it would 

divide CAT costs such that one-third would be paid each by the Participant, CEBB and CEBS in 

a transaction.135  Furthermore, CAT LLC stated that fees would not be paid in perpetuity, as the 

Fee Rate set by the Operating Committee at the beginning of each year would be based on 

reasonably budgeted CAT costs and projected total executed equivalent share volume for the 

year and would be adjusted mid-year, and that to implement the Fee Rates, the Participants 

would need to file fee filings pursuant to Rule 19b-4 with the Commission that must be 

consistent with the Exchange Act and allow the public the opportunity to comment on the 

fees.136  CAT LLC added that the Executed Share Model would operate similarly to other fees 

that the Commission has determined are consistent with the Exchange Act, such as Participants’ 

sales value fees related to Section 31, the TAF and the options regulatory fee, and that the 

comment did not recognize that Industry Members can choose to pass-through CAT fees to their 

customers like they do the Section 31-related sales value fees.137 

 
133  Id. 
134  See Citadel July Letter at 27. 
135  See CAT LLC July 2023 Response Letter at 14. 
136  Id. 
137  Id. 



26 

In response to comments that objected to the proposed allocation to Industry Members 

because Industry Members would not benefit from the CAT,138 CAT LLC stated allocating costs 

based on who benefits from the CAT is “not appropriate or practical.”139  CAT LLC stated that 

the CAT is intended to benefit all market participants, explaining how it would benefit Industry 

Members, and stated that it would be “impractical to determine a model that allocates a 

measurable amount of benefit that each market participant receives from the CAT.”140  In 

response to a commenter that suggested that Industry Members should not be allocated any 

“costs for matters that primarily benefit the CAT Operating Committee or the SROs,”141 and a 

commenter that stated that the industry does not benefit from the CAT,142 CAT LLC disagreed 

that Industry Members do not benefit from the CAT because CAT is critical for the protection of 

investors and because CAT supports fair and efficient markets.143  CAT LLC also stated that it 

was not “reasonable or practical to attempt to parse CAT costs by who ‘primarily benefits’ from 

those costs.”144   

In response to comments that state that Industry Members could bear 100% of CAT costs 

if Participants decide to pass-through their costs to them,145 CAT LLC stated that Industry 

Members can pass through their own CAT fees to their customers, like broker-dealers do for 

transaction-based fees.146  CAT LLC stated that this may result in Industry Members not having 

 
138  See Citadel July Letter at 17; Virtu Letter at 2. 
139  CAT LLC July 2023 Response Letter at 10. 
140  Id. at 11. 
141  Citadel July Letter at 32. 
142  See Virtu Letter at 4. 
143  See CAT LLC July 2023 Response Letter at 13. 
144  Id. at 12.  See also id. at 13. 
145  See Citadel July Letter at 16, 22; FIA Letter at 2. 
146  See CAT LLC July 2023 Response Letter at 8. 



27 

any funding burden if they decide to entirely pass-through their allocation to investors.147  In 

response to commenters that requested that Participant be prohibited from passing-on their CAT 

costs to their members,148 CAT LLC stated that Participants are permitted by the Exchange Act 

to charge their members fees to fund the Participants’ share of CAT fees, as long as they submit 

fee filings that demonstrate that any proposed fee is consistent with the Exchange Act.149 

In response to comments objecting to the proposed allocation to Industry Members for 

not taking into account regulatory fees currently paid by Industry Members,150 CAT LLC stated 

that the Proposed Amendment is intended to assess fees “directly associated with the costs of 

establishing and maintaining the CAT, and not unrelated SRO services.”151   

In response to comments on whether Participants’ models are equally to blame for the 

complexity of the markets,152 CAT LLC stated that its analysis of the complexity of the 

industry’s business models is based on the effects of those models on the costs of the CAT, 

which it stated are more profound than those of Participants, not on complexity of the market in 

general.153  CAT LLC explained that the complexity of the Industry Members’ business models 

results in significant data processing and storage costs, which Participants do not contribute to as 

they do not originate market activity or orders.154  CAT LLC explained that (1) the complexity 

 
147  Id. 
148  See Citadel July Letter at 3, 22, 30; FIA Letter at 2–3. 
149  See CAT LLC July 2023 Response Letter at 9. 
150  See Citadel July Letter at 17; Virtu Letter at 2. CAT LLC also objected to one commenter’s description of 

the CAT as an exchange “revenue generator,” stating that CAT LLC is a business league under Section 
501(c)(6) of the Internal Revenue Code, and that enforcement activity obtains restitution for investors and 
deters future misconduct rather than generating revenue.  See CAT LLC July 2023 Response Letter at 13–
14 (responding to Citadel July Letter at 17). 

151  CAT LLC July 2023 Response Letter at 13. 
152  See SIFMA May 2023 Letter at 3; 6–7.  See also SIFMA January 2023 Letter at 2, 3–4. 
153  See CAT LLC May 2023 Response Letter at 6; CAT LLC July 2023 Response Letter at 6. 
154  See CAT LLC May 2023 Response Letter at 7; CAT LLC July 2023 Response Letter at 7. 



28 

and diversity of Industry Members’ business models and order handling practices require 

processing and storage of hundreds of reporting scenarios for Industry Members, resulting in 

significant data processing and storage costs;155 (2) Industry Members have more late data and 

corrections than Participants, resulting in significant linker costs;156 and (3) Industry Members 

have customers, which results in CAT costs related to customer account information (FDID, 

CCID and CAIS) and customer investment strategies.157  CAT LLC also stated that Participants 

would pay the same amount as the CEBBs and CEBSs in each transaction.158  In response to one 

commenter that stated that Industry Members implemented complex routing strategies to 

optimize exchange fees and rebates because exchange business decisions resulted in these and 

other exchange fee structures,159 CAT LLC stated that the commenter did not demonstrate a 

causal connection between exchange fee structures and CAT costs.160  CAT LLC stated that it 

was not involved in these Industry Member business decisions and a substantial amount of CAT 

costs result from such business decisions.161  CAT LLC also stated that Participant activity does 

not contribute as much to CAT costs as complex Industry Member activity.162 

CAT LLC also disagreed with one commenter’s dismissal of CAT LLC’s consideration 

of Industry Members’ relative ability to pay,163 stating that the Exchange Act specifically 

requires that the fees be fair and reasonable, which necessitates consideration of the relative 

 
155  See CAT LLC July 2023 Response Letter at 7. 
156  Id. 
157  Id. 
158  Id. at 6. 
159  See SIFMA May 2023 Letter at 7. 
160  See CAT LLC July 2023 Response Letter at 6. 
161  Id. 
162  Id. 
163  See SIFMA May 2023 Letter at 7.  See also SIFMA January 2023 Letter at 4. 



29 

ability to pay.164  CAT LLC stated that fairness issues require the Participants to consider the 

greater financial resources of Industry Members in the creation of a funding model.  CAT LLC 

also stated that the commenter’s position runs contrary to its comments that an Industry 

Member’s ability to pay is an important consideration in the context of CAT fees.165   

Additionally, CAT LLC objected to the commenter’s statement that the proposed 

allocation is “inconsistent with the historical CAT decision to allocate costs to the parties 

responsible for generating them.”166  CAT LLC stated that, while the CAT NMS Plan does not 

require CAT costs to be allocated to parties responsible for generating such costs, the proposed 

allocation addresses cost burden on the CAT by (i) taking into account the impact of Industry 

Member activity on CAT costs, and (ii) using trading activity, which CAT LLC believes is a 

“reasonable proxy for cost burden on the CAT,”167 as the metric for cost allocation.168  CAT 

LLC also stated that there are other examples of trading activity-based fees so the funding model 

would not be novel or unique.169 

Additionally, CAT LLC responded to the commenter’s suggested alternative proposal 

that would equally allocate CAT costs to Participant exchanges and Industry Members, stating 

that the commenter did not explain why the alternative would satisfy the Exchange Act 

standards, and noting that CAT LLC had previously considered such an allocation but believed 

that it would not result in a fair and equitable allocation due to the greater number of Industry 

 
164  See CAT LLC May 2023 Response Letter at 7; CAT LLC July 2023 Response Letter at 7. 
165  See CAT LLC July 2023 Response Letter at 7–8. 
166  See CAT LLC May 2023 Response Letter at 7; CAT LLC July 2023 Response Letter at 8; SIFMA May 

2023 Letter at 7. 
167  See CAT LLC May 2023 Response Letter at 7; CAT LLC July 2023 Response Letter at 8. 
168  See CAT LLC May 2023 Response Letter at 7; CAT LLC July 2023 Response Letter at 8. 
169  See CAT LLC July 2023 Response Letter at 8. 



30 

Members than Participants, the greater financial resources of Industry Members, and the failure 

of the suggested allocation to take into account how the complexity of Industry Member business 

models contributes substantially to CAT costs.170 

In response, the commenter stated that the CAT LLC Response Letter did not 

meaningfully address the concerns it raised about the allocation of CAT costs between 

Participants and Industry Members.171  CAT LLC further responded, stating that it has responded 

to the commenter’s comments several times and that just because CAT LLC did not adopt the 

commenter’s viewpoints does not mean that CAT LLC did not consider or respond to the 

commenter’s comments.172   

In response to a commenter that recommended allocating no more than 50% of CAT 

costs to Industry Members, including the FINRA allocation,173 CAT LLC stated that the 

commenter did not offer a reasoned basis why such an allocation would be consistent with the 

Exchange Act.174  CAT LLC also stated that such an allocation would raise fairness concerns 

because, as compared to Participants, Industry Members have greater financial resources, and 

their complex business models “contribute substantially to the costs of the CAT.”175  

Furthermore, in response to the commenter’s other suggested allocation methodology which the 

commenter believed would ensure that a small group of firms and specific market segments 

would not be subject to inequitable cost burdens,176 CAT LLC stated that the commenter did not 

 
170  See CAT LLC May 2023 Response Letter at 7. 
171  See SIFMA June 2023 Letter at 2. 
172  See CAT LLC July 2023 Response Letter at 27. 
173  See Citadel July Letter at 31. 
174  See CAT LLC July 2023 Response Letter at 10. 
175  Id. 
176  See Citadel July Letter at 30. 



31 

explain how the suggested methodology would fit into a funding model or how such a funding 

model would be consistent with the Exchange Act.177  CAT LLC stated that it evaluated various 

other funding models over the past seven years and concluded that “the Executed Share Model 

provides a variety of advantages in comparison to the alternatives, and satisfies the requirements 

of the Exchange Act…”178 

In response, the commenter stated that its suggestions, which included minimum and 

maximum fee levels, calibrations for liquidity provision, and consideration of additional 

metrics,179 were included in prior funding model proposals.180  The commenter stated that the 

CAT Operating Committee should explain why it changed its position on “the importance of 

these elements as part of a fair and equitable funding proposal that is consistent with the 

Exchange Act.”181 

The Executed Share Model reflects a reasonable approach to funding the building and 

operation of the CAT.182  The CAT NMS Plan requires both Participants183 and Industry 

Members (which would include CAT Executing Brokers) to fund the CAT.184  The costs of CAT 

 
177  See CAT LLC July 2023 Response Letter at 10. 
178  Id. at 11–12. 
179  See Citadel August Letter at 5. 
180  Id. (citing the minimum and maximum fees and market making discounts proposed in a funding model 

proposal from the CAT Operating Committee that was filed in 2021.  See Securities Exchange Act Release 
No. 91555 (Apr. 14, 2021), 86 FR 21050 (Apr. 21, 2021)). 

181  Id. 
182  See 17 CFR 242.608(b)(2).  
183  The CAT NMS Plan requires Execution Venues and Industry Members to fund the CAT.  The definition of 

“Execution Venue” includes Participants.  See supra note 15. 
184  See CAT NMS Plan, supra note 2, at Section 11.1(b), 11.3(a) and (b).  Section 11.1(b) of the CAT NMS 

Plan authorizes the Operating Committee to establish fees for Execution Venues (which include 
Participants) and Industry Members to fund the CAT and Sections 11.3(a) and (b) of the CAT NMS Plan 
set forth how these fees would be calculated.  See also Rule 613(a)(1)(vii)(D) discussing how the CAT 
NMS Plan shall discuss the proposed allocation of estimated costs among the plan sponsors, and between 
the plan sponsors and members of the plan sponsors.  17 CFR 242.613(a)(1)(vii)(D).    



32 

therefore must be allocated in some fashion between Participants and Industry Members, and 

how to do so is a question of judgment for which there may be multiple reasonable approaches.  

CAT LLC has proposed to allocate CAT fees equitably among the three parties who have 

primary roles related to the transaction: the buyer, seller, and market regulator.  In response to 

one commenter that stated that the proposed allocation methodology is inconsistent with the 

Exchange Act because of an excessive percentage of total costs proposed to be allocated to 

Industry Members and an unfair method of allocating costs among Industry Members,185 the 

Commission believes that the proposed allocation is reasonable as discussed below.186    

While a commenter said the Proposed Amendment did not justify why the TAF, options 

regulatory fee, and Section 31 fees should be used as a model in the context of the Executed 

Share Model,187 CAT was created to serve regulatory purposes.  Moreover, CAT Data can only 

be used by SROs and the Commission for regulatory and surveillance purposes.188  Therefore, 

the costs incurred by the Participants to build, operate and administer the CAT similarly are 

regulatory costs, which here the Participants are seeking to recover through the CAT fees.  

Commenters expressed concerns that the Participants may impose fees on their members 

to recoup costs relating to CAT, making Industry Members responsible for CAT funding costs 

beyond those to which they will be directly assessed pursuant to the Executed Share Model,189 

that CAT costs will be passed-through to investors and that this aspect of the Proposed 

Amendment lacks information needed to demonstrate that it meets the approval standard and to 

 
185  See Citadel July Letter at 15. 
186  See infra notes 189–201 and accompanying text.  
187  See FINRA June 2022 Letter at 4; FINRA April 2023 Letter at 8. 
188  See 17 CFR 242.613(e)(4)(i)(A); CAT NMS Plan Sections 6.5(c) and 6.5(g) and Appendix D, Section 8.1. 
189  See SIFMA May 2023 Letter at 2; Citadel July Letter at 16, 17, 21, 22; Citadel August Letter at 2. 



33 

allow the Commission and other interested parties to consider the resulting economic effects.190  

In response to the comments, the Commission acknowledges the concerns but also emphasizes 

that, as discussed above, the CAT provides important benefits in facilitating effective market 

surveillance and the Exchange Act expressly contemplates the ability of the Participants to 

recoup their costs to fulfill their statutory obligations under the Exchange Act.191  To that end, 

the CAT NMS Plan expressly contemplates the allocation of the costs associated with operating 

the CAT among the Participants and the Industry Members.  The use of the Executed Share 

Model is a reasonable method, among a number of potential approaches to do so.   

The Commission recognizes that these operational costs may be passed on in other ways, 

including by both the Participants and Industry Members, who each may elect to pass on such 

operational costs as fees to customers indirectly through their charges for services to customers.  

That would be true regardless of how the Proposed Amendment chose to set the initial allocation.  

Even if the Participants decide to pass-through the costs of CAT to Industry Members, however, 

in our view, the rule filing process under Section 19(b) and Rule 19b-4 will still incentivize the 

Participants to control costs.  Any effort to pass-through costs will be subject to that process and, 

if the Participants fail to control costs, their ability to demonstrate that a proposed fee is 

reasonable and consistent with the Exchange Act may be compromised.  After the Participants 

file their proposed rule changes relating to fees with the Commission, those proposed rule 

changes are published by the Commission and there is an opportunity for public comment.192  

 
190  See SIFMA AMG Letter at 2; FINRA April 2023 Letter at 6–7. 
191  Sections 6(b)(1) and 15A(b)(2) of the Exchange Act require that a national securities exchange or national 

securities association have the capacity to be able to carry out the purposes of the Exchange Act, the rules 
and regulations thereunder, and the rules of the exchange or association.  15 U.S.C. 78f(b)(1); 15 U.S.C. 
78o-3(b)(2).  

192  15 U.S.C. 78s(b). 



34 

Although the proposed rule changes could likely take effect upon filing,193 the Commission can 

temporarily suspend immediately effective rule changes if such action is necessary or appropriate 

in the public interest, for the protection of investors, or otherwise in furtherance of the purposes 

of the Exchange Act.194  If the Commission takes such action, the Commission will institute 

proceedings under Section 19(b)(2)(B) to determine whether the proposed rule changes should 

be approved or disapproved.195  Those fees, like any fees the Participants collect from their 

members to fund their SRO responsibilities in market and member regulation, must be consistent 

with applicable statutory standards under the Exchange Act, including being reasonable, 

equitable and not unfairly discriminatory.196  Additionally, as stated by CAT LLC, Industry 

Members may be able to offset fees that FINRA assesses them by passing their CAT fees 

through to their customers,197 and as discussed further below, the Commission believes that the 

additional costs borne by investors are likely small relative to current transaction costs.198  The 

 
193  15 U.S.C. 78s(b)(3)(A); 17 CFR 240.19b-4(f)(2).  Pursuant to Exchange Act Rule 19b-4, a proposed rule 

change may take effect upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Exchange 
Act if properly designated by the self-regulatory organization as:  (1) constituting a stated policy, practice, 
or interpretation with respect to the meaning, administration, or enforcement of an existing rule; (2) 
establishing or changing a due, fee, or other charge applicable only to a member; (3) concerned solely with 
the administration of the self-regulatory organization. 

194  15 U.S.C. 78s(b)(3)(C). 
195  15 U.S.C. 78s(b)(2)(B). 
196  See Section 6(b)(4); Section 15A(b)(5); Section 6(b)(5); Section 15A(b)(6).  15 U.S.C. 78f(b)(4); 15 U.S.C. 

78f(b)(6); 15 U.S.C. 78o-3(b)(5); 15 U.S.C. 78o-3(b)(6).  See also e.g., Schedule A to the By-Laws of 
FINRA, Section 1(a) (stating “FINRA shall, in accordance with this section, collect member regulatory fees 
that are designed to recover the costs to FINRA of the supervision and regulation of members, including 
performing examinations, financial monitoring, and policy, rulemaking, interpretive, and enforcement 
activities”). 

197  See Notice, supra note 7, 88 FR at 17108; see also CAT LLC July Response Letter at 8–9; cf. SIFMA May 
2023 Letter at 8; Citadel July Letter at 20. 

198  Any efforts to recoup CAT costs will be subject to statutory and regulatory oversight as appropriate.  Under 
the federal securities laws and FINRA rules, prices for securities and broker-dealer compensation are 
required to be fair and reasonable, taking into consideration all relevant circumstances.  See, e.g., Exchange 
Act Sections 10(b) and 15(c); FINRA Rules 2121 (Fair Prices and Commissions), 2122 (Charges for 
Services Performed), and 2341 (Investment Company Securities).  See also FINRA Rule 3221 (Non-Cash 
Compensation).  Broker-dealers are also required to disclose the fees they charge related to a transaction 
pursuant to Exchange Act Rule 10b-10.  See 17 CFR 240.10b-10.   



35 

Commission recognizes that not all Industry Members currently pass through fees and cannot 

determine in advance the extent to which Industry Members can or will pass-through their CAT 

fees to investors or would determine to do so in the future.  But we believe that many are able to 

and that at least some will do so.  For all of these reasons, contrary to the view of some 

commenters,199 the Commission does not believe that the inability to determine the amount of 

the CAT costs that will be passed along to investors precludes a finding that the allocation model 

set forth in the Proposed Amendment meets the approval standard. 

In response to the commenter stating that proprietary trading firms cannot pass-through 

fees to investors and suggesting that an analysis of proprietary executed volume compared to 

customer executed volume is necessary to determine if the allocation is fair, equitable, and 

unfairly discriminatory,200 the Commission believes it is reasonable to charge executing brokers 

regardless of whether they are trading for their own account or for a customer’s account.  The 

Commission acknowledges that there is not a customer per se for proprietary trades and 

therefore, proprietary trading firms would not be able to pass-through their CAT fees to 

customers.  However, regardless of whether a firm trades for its own account or for a customer 

account, in both instances, the firm engages in trading activity to earn a profit.  In the 

Commission’s view, it is reasonable to allow a firm to incur CAT fees for its profit-making 

business activities, such as proprietary activity.  The Commission recognizes that Industry 

Members may pass-through CAT fees for customer executed volume but in the case of 

proprietary trades where a firm is trading for its own account, there is no customer to which the 

firm can pass-through fees, as the firm itself is the ultimate investor, and thus it is reasonable for 

 
199  See SIFMA AMG Letter at 2; FINRA April 2023 Letter at 6–7. 
200  See Citadel July Letter at 20; Citadel August Letter at 3. 



36 

the firm to be responsible for payment of CAT fees for those trades.  Further, the Commission 

believes it is reasonable to allow a firm to incur CAT fees for its profit-making activity, which in 

this case is proprietary activity.  CAT is a regulatory tool that will be used by the Participants 

and the Commission to oversee the activities for which Industry Members earn profits and 

therefore it is reasonable for fees to be charged for that profit-making activity, even if those fees 

cannot be passed on to customers. 

While comments raised concerns that the industry would be allocated most of the CAT 

costs in perpetuity without a mechanism to limit the budget,201 there is a statutory process for 

notice and comment and Commission review of proposed rule changes relating to fees, under 

Section 19(b) and Rule 19b-4.202  In addition, the Proposed Amendment requires that the Fee 

Rate calculated by the Operating Committee twice per year be based on “reasonably budgeted 

CAT costs”203 and that such budgeted CAT costs be composed of “all reasonable fees, costs and 

expenses reasonably budgeted to be incurred by or for the Company in connection with the 

development, implementation and operation of the CAT.”204  The Operating Committee must 

demonstrate that their proposed budget and associated fees are reasonable, and the Participants 

must provide support for such reasonableness in their associated fee filings.  If a Participant 

cannot demonstrate that their budgeted CAT costs are reasonable in a particular filing, following 

notice and public comment, then that would provide the Commission with grounds to suspend 

the filing and ultimately disapprove it, which should impose discipline or constraints on the fee 

setting process.  

 
201  See SIFMA June 2023 Letter at 3, 4; Citadel July Letter at 2; FIA Letter at 2–5. 
202  See supra notes 192–196 and accompanying text. 
203  See proposed Section 11.3(a)(i)(A)(I) and proposed Section 11.3(a)(i)(A)(II).   
204  See proposed Section 11.3(a)(i)(C). 



37 

Further, the concerns expressed that the proposed allocation did not account for the costs 

already incurred by Industry Members to comply with the CAT or other fees paid by Industry 

Members to exchanges for other regulatory matters do not render that allocation unreasonable.  

Both Participants and Industry Members have incurred costs in adapting their operations to 

report to CAT as is required to achieve the benefits anticipated from the CAT.  But the purpose 

of the funding model is to provide a framework for the recovery of a different set of costs—those 

incurred by the Participants’ in developing and maintaining the CAT system.  Section 11.1(c) of 

the CAT NMS Plan explicitly permits the Operating Committee to recover those costs, allowing 

it to “take into account fees, costs and expenses . . . incurred by the Participants on behalf of the 

Company . . . and such fees, costs and expenses shall be fairly and reasonably shared among the 

Participants and Industry Members.”205  The decision to exclude the costs of compliance from 

this funding model is thus a reasonable one.   

Further, the Commission does not base its finding with respect to the proposed allocation 

of costs between Participant and Industry Members on their respective responsibility for any 

complexity in the markets.  Regardless of the origin of that complexity, its existence contributes 

to the costs of CAT and the purpose of the funding model is to account for those current and 

future costs, not assess responsibility for the market structure.  The Participants’ decision to 

divide the costs evenly among the three parties who have primary roles related to the transaction 

is reasonable.   

As explained below, the Commission agrees with CAT LLC’s statements that, “[t]he 

Executed Share Model…reflects a reasonable effort to allocate costs based on the extent to 

which different CAT Reporters participate in and benefit from the equities and options 

 
205  CAT NMS Plan, supra note 2, at Section 11.1(c). 



38 

markets,”206 and is “transparent, would be relatively easy to calculate and administer, and is 

designed not to have an impact on market activity because it is neutral as to the location and 

manner of execution.”207  The Participants considered, and have previously proposed, alternative 

allocations and funding models.208  And the Commission acknowledges the alternative funding 

models and allocations suggested by commenters.209  Each of those alternatives, as well as those 

suggested by commenters, has relative strengths and weaknesses.  Similarly, the alternatives 

suggested by a commenter,210 including maximum and minimum fees, appropriate calibrations 

for liquidity provision and consideration of additional provisions (e.g., broker-dealer capital), 

have strengths and weaknesses.  For example, imposing maximum and minimum fees would 

transfer costs from the largest members to the smallest members, distorting the economic 

incentives of the Executed Share Model.  A similar distortion could arise to the extent market 

maker volume is discounted or otherwise calibrated or to the extent considering other metrics 

that are not necessarily correlated with the cost drivers of the CAT.  Given the potential 

 
206  See Notice, supra note 7, 88 FR at 17087. 
207  Id. 
208  In the Proposed Amendment, CAT LLC stated that it considered but rejected a number of alternative 

approaches to the CAT funding model; specifically, an approach based on a CAT Reporter’s cost burden on 
the CAT, a 50%-50% allocation of costs between Industry Members and Participant exchanges, a revenue-
based funding model in which CAT Reporters would pay fees based on their revenue, a message traffic 
model in which both Industry Members and Participants would be assessed fees based on message traffic in 
the CAT, a sales value model in which fees would be calculated based on transaction sales models, an 
alternative allocation in which fees would only be allocated to the CEBS, and the 2018 and 2021 Fee 
Proposals, a model in which CAT LLC would allocate all costs among the Participants and permit each 
Participant to charge its own members as it deems appropriate, and a cost allocation based on a strict pro-
rata distribution regardless of the type or size of CAT Reporters.  Id. at 17105–06, 17117–19.  See also 
CAT LLC May 2023 Response Letter at 8, where CAT LLC responded that SIFMA did not offer a 
reasoned basis for why a 50-50 allocation would satisfy the standards set forth in the Exchange Act.  While 
alternative models have been suggested and considered, the proposed Executed Share Model meets the 
approval standard in Rule 608(b)(2). 

209  See FINRA April 2023 Letter at 5; SIFMA January 2023 Letter at 4.  See also SIFMA May 2023 Letter at 
8; SIFMA June 2022 Letter at 5–6; SIFMA October 2022 Letter at 4; Citadel July Letter at 3, 30, 31, 32.   

210  See Citadel August Letter at 5. 



39 

distortions that could occur with these alternatives, the Commission does not believe that the 

existence of those alternatives, or the remaining concerns identified by commenters individually 

or collectively, call into question the Proposed Amendment’s satisfaction of the approval 

standard in Rule 608(b)(2),211 or otherwise warrant a departure from the policy choices made by 

the Participants. 

3. Executed Equivalent Shares 

Under the Executed Share Model, a CAT fee would be charged with regard to each 

transaction in Eligible Securities212 as reported in CAT Data based on executed equivalent 

shares.213  A CAT Fee would be imposed with regard to transactions in Eligible Securities in the 

CAT Data regardless of whether the trade is executed on an exchange or otherwise than on an 

exchange.214   

Proposed Section 11.3(a)(i)(B) of the CAT NMS Plan describes how executed equivalent 

shares would be counted for purposes of calculating CAT fees.  Specifically, the Executed Share 

Model uses the concept of executed equivalent shares as the transactions subject to a CAT Fee 

involve NMS Stocks, Listed Options and OTC Equity Securities, each of which have different 

 
211  17 CFR 242.608(b)(2).   
212  The CAT NMS Plan defines an “Eligible Security” as including all NMS Securities and all OTC Equity 

Securities.  See CAT NMS Plan, supra note 2, at Section 1.1.  “NMS Security” is defined as “any security 
or class of securities for which transaction reports are collected, processed, and made available pursuant to 
an effective transaction reporting plan, or an effective national market system plan for reporting 
transactions in Listed Options.”  Id.  “OTC Equity Security” is defined by the CAT NMS Plan as “any 
equity security, other than an NMS Security, subject to prompt last sale reporting rules of a registered 
national securities association and reported to one of such association’s equity trade reporting facilities.”  
Id. 

213  See Notice, supra note 7, 88 FR at 17086. 
214  Id. at 17093. 



40 

trading characteristics.215  Proposed Section 11.3(a)(i)(B) would require the shares to be 

reasonably counted for each type of Eligible Securities in the following manner: 

NMS Stocks.  Under the Executed Share Model, each executed share for a transaction in 

NMS Stocks would be counted as one executed equivalent share.216  Accordingly, proposed 

Section 11.3(a)(i)(B)(I) of the CAT NMS Plan would state that “[f]or purposes of calculating 

CAT Fees, executed equivalent shares in a transaction in Eligible Securities will be reasonably 

counted as follows: (I) each executed share for a transaction in NMS Stocks will be counted as 

one executed equivalent share.”217 

Listed Options.  Recognizing that Listed Options trade in contracts rather than shares, 

each executed contract for a transaction in Listed Options will be counted using the contract 

multiplier applicable to the specific Listed Option in the relevant transaction.218  Typically, a 

Listed Option contract represents 100 shares; however, it may also represent another designated 

number of shares.219   

OTC Equity Securities.  Similarly, in recognition of the different trading characteristics of 

OTC Equity Securities as compared to NMS Stocks, the Executed Share Model would discount 

the share volume of OTC Equity Securities when calculating CAT Fees.220  CAT LLC explained 

that many OTC Equity Securities are priced at less than one dollar – and a significant number are 

priced at less than one penny – per share and low-priced shares tend to trade in larger 

 
215  Id.  
216  Id. 
217  Proposed Section 11.3(a)(i)(B)(I). 
218  See Notice, supra note 7, 88 FR at 17093. 
219  Id.  See also proposed Section 11.3(a)(i)(B)(II). 
220  See Notice, supra note 7, 88 FR at 17093.41 

quantities.221  Accordingly, a disproportionately large number of shares are involved in 

transactions involving OTC Equity Securities versus NMS Stocks.222  Because the Executed 

Share Model would calculate CAT Fees based on executed share volume, CAT Reporters trading 

OTC Equity Securities would likely be subject to higher fees than their market activity may 

warrant.223  To address this potential concern, CAT LLC proposed that the Executed Share 

Model would count each executed share for a transaction in OTC Equity Securities as 0.01 

executed equivalent shares.224   

   a. Executed Equivalent Share Volume  

CAT LLC had represented that a disproportionately large number of shares are involved 

in transactions involving OTC Equity Securities versus NMS Stocks,225 that trades in OTC 

Equity Securities accounted for 77% of the number of all equity shares traded, but only 0.51% of 

the notional value of all equity shares traded,226 and that under the Executed Share Model, CAT 

Reporters trading OTC Equity Securities would likely be subject to higher fees than their market 

activity may warrant.227  CAT LLC also explained the analysis it undertook to determine to 

count each executed share for a transaction in OTC Equity Securities as 0.01 executed equivalent 

shares, stating the discount was the result of an analysis of several different metrics comparing 

 
221  Id. 
222  In an example provided by CAT LLC, based on data from 2021, (1) the average price per executed share of 

OTC Equity Securities was $0.072 and the average price per executed share for NMS Stocks was $49.51; 
and (2) the average trade size for OTC Equity Securities was 63,474 and the average trade size for NMS 
Stocks was 166 shares.  Trades in OTC Equity Securities accounted for 77% of the number of all equity 
shares traded, but only 0.51% of the notional value of all equity shares traded.  Id. at 17093, n.36. 

223  Id. at 17093. 
224  See proposed Section 11.3(a)(i)(B)(III). 
225  See Notice, supra note 7, 88 FR at 17093. 
226  Id. at 17093, n.36. 
227  Id. at 17093. 



42 

the markets for OTC Equity Securities and NMS Stocks.  CAT LLC stated that “(1) the ratio of 

total notional dollar value traded for OTC Equity Securities to OTC Equity Securities and NMS 

Stocks was 0.051%; (2) the ratio of total trades in OTC Equity Securities to total trades in OTC 

Equity Securities and NMS Stocks was 0.90%; and (3) the ratio of average share price per trade 

of OTC Equity Securities to average share price per trade for OTC Equity Securities and NMS 

Stocks was 0.065%.”228  For ease of application and because the calculations involve averages, 

CAT LLC decided to round the metrics to 1%.229   

In support of the use of executed equivalent shares to allocate costs under the Executed 

Share Model, CAT LLC explained that “trading activity provides a reasonable proxy for cost 

burden on the CAT, and therefore is an appropriate metric for allocating CAT costs among CAT 

Reporters.”230  CAT LLC stated that it is not feasible to determine the specific cost burden of 

each CAT Reporter on the CAT, explaining that “[t]he computation of a specific CAT Reporter’s 

burden on the CAT is complicated by the many inter-related factors that contribute to CAT costs, 

including message traffic, data processing, storage, the complexity of reporting requirements, 

reporting timelines, infrastructure, connectivity and more.”231  CAT LLC added that increased 

trading activity correlates with an increased cost burden on the CAT and Industry Members are 

generally engaged in effecting transactions in the market, so executed share volume would be an 

appropriate metric for the allocation of CAT costs.232  CAT LLC stated that this conclusion is 

consistent with the Commission’s prior recognition of the use of transaction volume to set 

 
228  Id. 
229  Id. 
230  See Notice, supra note 7, 88 FR at 17103. 
231  Id. at 17105; see also id. at 17103. 
232  Id. at 17105. 



43 

regulatory fees.233  Additionally, CAT LLC stated that technology costs dominate all CAT costs, 

with compute costs comprising more than half of all technology costs, and “[w]hile [compute 

costs] are related in part to message traffic, they are driven by the stringent performance 

timelines, data complexity and operational requirements in the CAT NMS Plan.”234  This was 

one of the reasons CAT LLC decided to change from using message traffic to calculate CAT fees 

using executed equivalent share volume.235   

Commenters questioned the support for the use of executed share volume instead of 

message traffic, which was previously proposed in prior funding models.236  FINRA stated that 

the Proposed Amendment does not explain why the use of executed share volume as the basis of 

the cost allocation methodology, instead of message traffic, is equitable.237  FINRA explained 

that in prior models, message traffic was the key proxy for cost generation used to align CAT 

fees with CAT costs, but the Executed Share Model would base its cost allocation methodology 

entirely on executed share volume.238  FINRA stated that the Participants’ argument that 

executed share volume is related to cost generation is not enough to demonstrate that its use is 

reasonable and equitable.239   

Another commenter stated that the Operating Committee cannot explain why the 

proposed allocation to Industry Members is equitable, noting that it previously stated that 

charging Industry Members based on message traffic was the most equitable means of 

 
233  Id. 
234  Id. 
235  See Notice, supra note 7, 88 FR at 17105. 
236  See FINRA June 2022 Letter at 3, 4; Citadel July Letter at 10. 
237  See FINRA June 2022 Letter at 3. 
238  Id.   
239  Id. at 4. 



44 

establishing fees.240  The commenter stated that allocating costs among Industry Members based 

on share volume is inconsistent with the Exchange Act.241  The commenter stated that there is no 

evidence to support the Operating Committee’s assertion that trading activity is a reasonable 

proxy for cost burden on the CAT, explaining that the Operating Committee has stated before 

that CAT Data processing requirements and message traffic are significant drivers of CAT costs.  

The same commenter stated that, according to one Participant, options activity creates a greater 

cost burden than equities trading volume and that the Proposed Amendment does not accurately 

describe the sources of CAT’s cost burdens.242  The commenter stated that the CAT Operating 

Committee must demonstrate how the proposed allocation would not unfairly discriminate 

against equities market participants and compare equities and options activity with respect to (i) 

their cost burden on the CAT and (ii) the allocation of CAT costs to Industry Members.243  The 

commenter stated that if the equities markets are subsidizing options activity, this could have 

broad impacts on equity market liquidity, competition and efficiency that must be assessed under 

the Exchange Act.244   

Further, the commenter stated that allocating costs based on volume would result in costs 

being mostly allocated to “an extremely small group of broker-dealers,” which would unduly 

burden competition.245  The commenter stated that the Proposed Amendment also lacks a 

discussion of the impact of this allocation on market competition, efficiency and liquidity, but 

that the Operating Committee recognized in the Proposed Amendment that prior proposals, 

 
240  See Citadel July Letter at 10.   
241  Id. at 19.   
242  Id. at 18, 19.  See also Citadel August Letter at 4. 
243  See Citadel August Letter at 4.   
244  Id. 
245  Citadel July Letter at 19. 



45 

where message traffic was a metric used for fee allocation, could impose an outsized financial 

impact on certain Industry Members.246     

Additionally, FINRA objected to the statement in the Proposed Amendment that “trading 

activity provides a reasonable proxy for cost burden on the CAT, and therefore is an appropriate 

metric for allocating CAT costs among CAT Reporters.”247  The commenter stated that this 

statement is inconsistent with information that demonstrates that volume from FINRA’s trade 

reporting facilities (“TRFs”) contributes “a very small percentage of annual CAT compute and 

storage costs.”248  FINRA stated, “…despite the minimal data compute and storage costs for 

transactions reported to the TRF, FINRA would be assessed an estimated 34% of the total CAT 

costs to be borne amongst the 25 Participants, and more than all options exchanges combined,” 

therefore it cannot support the Participants’ assertion that trading activity is a reasonable proxy 

for cost burden.249  FINRA stated that the Proposed Amendment “fails to provide for reasonable 

fees that are equitably allocated and not unfairly discriminatory, does not reflect a reasonable 

approach to allocating costs amongst the Participants, nor does it transparently or accurately 

present information regarding the true sources of cost burdens on the CAT.”250 

FINRA further stated that the Executed Share Model is inconsistent with the “cost 

alignment” funding principle in Section 11.2(b) of the CAT NMS Plan, which requires the 

Participants to seek to establish an allocation of costs that takes into account distinctions in the 

securities trading operations of Participants and Industry Members and their relative impact upon 

 
246  Id.  See also Citadel August Letter at 2–3. 
247  FINRA May 2023 Letter at 2 (quoting Notice, supra note 7, 88 FR at 17103.) 
248  FINRA May 2023 Letter at 2. 
249  Id.  See also FINRA April 2023 Letter at 8. 
250  FINRA May 2023 Letter at 4. 



46 

Company resources and operations.251  FINRA stated that “the Proposal fails to establish a 

sufficient nexus between executed share volume and the technology burdens that generate CAT 

costs and fails to relate each reporter group’s allocation to the burden that each reporter group 

imposes on CAT.”252   

In response to FINRA’s comment raising concerns about the use of trading activity as a 

proxy for costs,253 CAT LLC stated that the Proposed Amendment would provide an appropriate 

approach for allocating CAT costs because Industry Member activity is generally for the purpose 

of effecting transactions, and trading activity impacts various factors driving CAT costs, such as 

storage, data processing and message traffic.254  CAT LLC also stated that the Exchange Act 

does not require fees to be directly correlated with the costs created by the person charged the 

fee.255  CAT LLC stated that it is difficult to determine the precise cost burden created by each 

CAT Reporter on the CAT, and believes trading activity is a reasonable proxy for cost burden on 

the CAT.256   

CAT LLC responded to the commenter’s statement that the proposed allocation is 

inconsistent with the cost alignment principles of the CAT NMS Plan by noting that the 

Proposed Amendment incorporates the concept of cost burden in at least two ways.257  

Specifically, CAT LLC stated that it does so because “the allocation of CAT costs contemplates 

 
251  Id.  See also FINRA April 2023 Letter at 7–9; Section 11.2(b) of the CAT NMS Plan.  The Proposed 

Amendment would amend Section 11.2(b).  See proposed Section 11.2(b); see also infra Section III.A.8 
(Additional Changes from Original Funding Model). 

252  FINRA June 2022 Letter at 4. 
253  See FINRA May 2023 Letter at 2. 
254  See CAT LLC July 2023 Response Letter at 34.   
255  Id.   
256  Id. 
257  CAT LLC May 2023 Response Letter at 7. 



47 

the effect of Industry Member activity on the cost of the CAT… and because trading activity 

provides a reasonable proxy for cost burden on the CAT, trading activity is an appropriate metric 

for allocating CAT costs among CAT Reporters.”258  CAT LLC added that because there are 

other examples of trading activity-based fees, the Executed Share Model would not be novel or 

unique.259 

 One commenter also stated that the Proposed Amendment made no adjustments for sub-

dollar trading activity in NMS stocks, when adjustments were made to volume in OTC Equity 

Securities to adjust for the large number of shares transacted in sub-dollar securities.260  The 

commenter also stated that it is arbitrary, capricious, and unfairly discriminatory for the CAT 

Operating Committee to significantly adjust executed share volumes for sub-dollar OTC Equity 

Securities but not to do the same for sub-dollar NMS stocks, as retail investor transactions will 

be allocated a disproportionate percentage of total CAT costs simply due to the securities 

traded.261  The commenter stated that the CAT Operating Committee must explain why it 

proposes to treat these securities differently and analyze the impact on retail investors.262  The 

commenter also stated that since fractional shares would be rounded up to one share, the result 

would overstate volume.263  The commenter stated that the Proposed Amendment thus 

discriminates against Industry Members that handle retail orders because of the amount of retail 

activity in sub-dollar stocks and fractional share trading.264  The commenter stated that the 

 
258  Id. 
259  Id. 
260  See Citadel July Letter at 20. 
261  See Citadel August Letter at 4–5. 
262  Id. at 5. 
263  See Citadel July Letter at 20. 
264  Id.  See also Citadel August Letter at 4–5. 



48 

Proposed Amendment does not explain why volume by shares was chosen over notional volume, 

or address its impact on specific Industry Members, investors, or overall market competition, 

efficiency and liquidity.265  

CAT LLC proposed to delete the requirement in existing Section 11.2(b) of the CAT 

NMS Plan to take into account “distinctions in the securities trading operations of Participants 

and Industry Members and their relative impact upon Company resources and operations” in 

establishing the funding of the Company.266  CAT LLC explained that this requirement is related 

to using message traffic and market share in the calculation of CAT fees, as message traffic and 

market share were metrics related to the impact of a CAT Reporter on the Company’s resources 

and operations.267  CAT LLC explained that the requirement is no longer relevant because the 

proposed Executed Share Model uses the executed equivalent shares metric instead of message 

traffic and market share.268 

With respect to the deletion in Section 11.2(b) of the requirement that, when establishing 

the funding of the CAT, the Operating Committee must take into account “distinctions in the 

securities trading operations of Participants and Industry Members and their relative impact upon 

Company resources and operations,” FINRA stated that the Participants have proposed to delete 

the language in Section 11.2(b) because the proposed Executed Share Model is inconsistent with 

the language.269  FINRA stated that the Proposed Amendment “seeks to amend the core funding 

 
265  See Citadel July Letter at 20.  See also Citadel August Letter at 5.   
266  See proposed Section 11.2(b). 
267  See Notice, supra note 7, 88 FR at 17099. 
268  Id. 
269  See FINRA June 2022 Letter at 4; see also FINRA April 2023 Letter at 7. 



49 

principles to align with an unjustified allocation methodology.”270  FINRA stated that any 

changes to the funding principles “must be well-reasoned and transparent and must continue to 

support the achievement of a fair and equitable outcome.”271 

In the Commission’s view, the use of executed equivalent share volume as the basis of 

the proposed cost allocation methodology is reasonable and consistent with the approach taken 

by the funding principles of the CAT NMS Plan.272  The proposed use of executed equivalent 

shares would continue to incorporate the concept of cost alignment because trading activity, as 

reflected through executed equivalent share volume, would, as CAT LLC explained, correlate 

with the cost burden on the CAT.273  It may not be possible to directly calculate each CAT 

Reporter’s cost burden on the CAT due to the many factors impacting CAT costs, such as data 

processing, storage, reporting timelines and requirements, and connectivity.  But executed 

equivalent share volume is a reasonable proxy for those costs because it is a result of trading 

activity, which CAT LLC explained impacts various CAT cost drivers, such as storage, data 

processing and message traffic.274  In addition, because the proposed use of executed equivalent 

share volume would preserve the cost alignment principle, while no longer relying on message 

traffic, the deletion of the requirement in Section 11.2(b) of the CAT NMS Plan that the 

Operating Committee, in allocating costs, take into account “distinctions in the securities trading 

 
270  FINRA June 2022 Letter at 4.  The commenter states that the Executed Share Model instead places the 

greatest emphasis on the funding principle relating to the “ease of billing and other administrative 
functions,” favoring that principle over cost alignment.  Id. at 5. 

271  Id.; FINRA April 2023 Letter at 8–9. 
272  See Section 11.2(b) of the CAT NMS Plan. 
273  CAT LLC May 2023 Response Letter at 7. 
274  Id.  See also Notice, supra note 7, 88 FR at 17105; see also id. at 17103. 



50 

operations of Participants and Industry Members and their relative impact upon Company 

resources and operations”275 is reasonable.   

In response to the commenter that urged the CAT Operating Committee to demonstrate 

how the proposed allocation would not unfairly discriminate against equities market participants 

by subsidizing CAT costs related to options market activity,276 the Commission believes that 

subsidization of options market activity likely is reduced due to other CAT cost burdens, such as 

those relating to data processing (such as equity linkage processing, which the Commission 

understands is more complex than options order linkage processing, and thus more costly),277 

imposed on the CAT by equity market activity.  The Commission, however, does not believe the 

failure to eliminate the potential subsidization of options market activity (and any potential 

attendant impacts on liquidity, competition and efficiency) renders the Participants’ Funding 

Model proposal inconsistent with the Exchange Act.  The Commission does not believe it is 

possible for the Participants to predict with certainty how the magnitude of each driver of CAT 

costs will change over time.  To the extent the other costs noted above exceed, for example, the 

subsidy accorded to options market participants when calculating their executed equivalent 

shares, there may be no subsidy or even a reverse subsidy from options to equities markets.  

When the relative magnitudes of these cost drivers change, the amount of any subsidy changes.  

In light of the potential for the cost drivers to change over time, the Commission believes that the 

Participants’ proposal is reasonable.  

The Proposed Amendment’s treatment of sub-dollar NMS stocks and fractional shares is 

appropriate.  The Commission does not believe that the Participants’ failure to discount sub-

 
275  See Notice, supra note 7, 88 FR at 17105; see also id. at 17103. 
276  See Citadel August Letter at 4. 
277  See infra notes 1075–1082 and accompanying text.   



51 

dollar NMS stocks renders the Proposed Amendment inconsistent with the Exchange Act.  The 

Commission acknowledges one commenter’s statement that retail investors could be allocated a 

disproportionate percentage of total CAT costs due to the lack of a discount for sub-penny NMS 

stocks.278  However, treating a subset of NMS stocks differently from NMS securities could 

introduce unnecessary complexity or administrative burdens to the extent an NMS stock price 

falls or rises above a dollar.  It is therefore reasonable for the Proposed Amendment to treat all 

NMS stocks the same, even though certain sub-dollar NMS stocks and fractional shares might 

have characteristics similar to OTC Equity Securities.  Additionally, in response to the 

commenter’s statement that since fractional shares would be rounded up to one share, the result 

would overstate volume,279 the Commission notes that CAT fees will be based on the data 

contained in the transaction reports and transaction reports do not provide for fractional 

quantities; therefore, CAT fees cannot be calculated using fractional shares or fractional share 

components of executed orders at this time.280  CAT LLC stated that if FINRA’s equity 

transaction reporting facilities or the exchanges report transactions in fractional shares in the 

future, then the calculation of CAT fees would also reflect fractional shares.281  In response to 

the comment that stated that the Proposed Amendment does not explain why volume by shares 

was chosen over notional volume,282 calculating the notional value of stock introduces additional 

complexity as the notional value would have to be calculated and would depend on the value of 

the execution or trade, whereas the number of executed shares is reported and, in the cases of 

 
278  See Citadel August Letter at 4–5. 
279  See Citadel July Letter at 20. 
280  See Notice, supra note 7, 88 FR at 17089. 
281  Id. at 17089, n.23. 
282  See Citadel July Letter at 20.  See also Citadel August Letter at 5.   



52 

options for example, is based on a known multiplier (1/100).  While the Commission does not 

disagree that using executed notional shares may offer advantages and may lessen any 

discrimination, the Commission believes that the Proposed Amendment’s use of executed shares 

is administratively easier, less prone to error, and thus for these reasons and the reasons set forth 

above,283 is a reasonable proxy for allocating the cost of the CAT.  

The Commission also believes that CAT LLC’s explanation that increased trading 

activity correlates with an increased cost burden on the CAT is reasonable and that executed 

share volume is a reasonable proxy for a CAT Reporter’s cost burden on the CAT284 because 

increased trading activity impacts message traffic, but also data processing and storage costs.285  

The Original Funding Model would have used message traffic and market share to assess CAT 

fees on Industry Members and Execution Venues, respectively.286  CAT LLC expressed its belief 

that the use of executed equivalent share volume would be an improvement on the Original 

Funding Model’s use of message traffic,287 explaining that the use of executed equivalent share 

volume would result in fees tied to transactions (which CAT LLC stated is the “traditional source 

of revenue for Industry Members”288), that the resulting CAT fees would not adversely impact 

market makers, and that the Executed Share Model is simple to understand and to implement.289  

CAT LLC stated that Industry Member revenue is often driven by transactions, but “[b]ecause 

message traffic is separate from whether or not a transaction occurs, fees based on message 

 
283  See supra notes 272–275 and accompanying text. 
284  See Notice, supra note 7, 88 FR at 17105; id. at 17101–03. 
285  Id. at 17105. 
286  See CAT NMS Plan, supra note 2, at Section 11.3(a) and (b).  
287  See Notice, supra note 7, 88 FR at 17102–03.  The Original Funding Model uses message traffic as the 

basis of Industry Member CAT fees.  See CAT NMS Plan, supra note 2, at Section 11.3(b).  
288  Notice, supra note 7, 88 FR at 17103. 
289  Id. 



53 

traffic may not correlate with common revenue or fee models,”290 which could negatively impact 

certain Industry Members in a significant way.291  CAT LLC stated that use of message traffic to 

calculate fees for Industry Members could adversely impact market makers because they 

generally create high levels of message traffic.292  We agree with CAT LLC regarding the 

benefits of the Executed Share Model and the drawbacks of the Original Funding Model, and 

thus believe that the decision to replace the use of message traffic to calculate CAT fees with 

executed equivalent share volume in the Executed Share Model is reasonable.   

The Commission acknowledges that executions do not take place on FINRA; however, 

the CAT NMS Plan already categorizes FINRA as an Execution Venue because it has trades 

reported by its members to its TRFs for reporting transactions effected otherwise than on an 

exchange.  Thus, treatment of FINRA as an Execution Venue is not a change to the existing CAT 

NMS Plan.293  Additionally, this allocation of fees to FINRA is similar to how Section 31 fees 

are assessed on FINRA.294 

Moreover, the Executed Share Model does not change the criteria used to charge 

Execution Venues (market share).295  While there are differences in how the CAT fees would be 

 
290  Id. at 17102. 
291  Id. 
292  Id. at 17103. 
293  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84793; CAT NMS Plan, supra note 2, at 

Section 1.1. (defining “Executing Venues”).  
294  15 U.S.C. 78ee; Section 31 of the Securities Exchange Act requires each national securities exchange and 

national securities association to pay transaction fees to the Commission.  Specifically, Section 31(c) 
requires each national securities association to pay to the Commission fees based on the aggregate dollar 
amount of covered sales transacted by or through any member of the association other than on an exchange.  
15 U.S.C. 78ee(c).  Section 31(a) permits the Commission to collect transaction fees and assessments 
designed to recover the costs to the Government of the annual appropriation to the Commission by 
Congress. 15 U.S.C. 78ee(a). 

295  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84793–97; CAT NMS Plan, supra note 2, at 
Section 11.2, Section 11.3.  



54 

allocated among the Participants under the Executed Share Model and the existing Original 

Funding Model, under the Executed Funding Model, as in the Original Funding Model, the fees 

charged to Participants will continue to be based upon the level of market share of each 

Participant.296  The Original Funding Model approved by the Commission would have assessed 

CAT fees on Execution Venues (which would include the Participants)297 based on market share 

determined by the share volume for a national securities exchange and determined by reported 

share volume of trades for a national securities association (i.e., FINRA) that had trades reported 

by its members to its trade reporting facility or facilities for reporting transactions effected 

otherwise than on an exchange in NMS Stocks or OTC Equity Securities.298  Additionally, this 

allocation is similar to how Section 31 fees are assessed on the exchanges and FINRA.  FINRA’s 

allocation of CAT fees under the Executed Share Model will continue to be based on its off-

exchange market share.   

The Commission recognizes that the proposed use of executed equivalent share volume is 

not a perfect proxy for CAT costs, but believes it is nonetheless a reasonable proxy.  The costs of 

CAT are attributable to a number of factors, such as message traffic, storage, and data processing 

costs, and that for these reasons, the Commission understands that it is difficult to calculate each 

CAT Reporter’s individual cost burden on the CAT.  Additionally, there are other operational 

costs of the CAT that cannot be easily attributed to a particular CAT Reporter and that need to be 

funded, such as costs for CAT NMS Plan requirements related to intake capacity,299 data search 

 
296  Id.  
297  See supra note 15.  
298  See CAT NMS Plan, supra note 2, at Section 11.3(a)(i).   
299  In the CAT NMS Plan Notice, the Commission said that it preliminarily believed that intake capacity level 

is likely to be a primary cost driver for the Central Repository.  See Securities Exchange Act Release No. 
77724 (Apr. 27, 2016), 81 FR 30614 (May 17, 2016), 81 FR at 30770. 



55 

tools300 and data security.301  Based on the breadth of CAT costs, it is not feasible to calculate the 

cost burden on CAT of each CAT Reporter.  A reasonable proxy for CAT cost burden must 

therefore be used.  As discussed above, the Commission believes the proposed use of executed 

equivalent share volume is a reasonable method of approximating the cost burden of CAT.302 

Additionally, CAT LLC stated that the proposed Executed Share Model would not unfairly 

burden or favor a product or product type because the model would recognize the different types 

of securities by counting executed equivalent share volume differently for NMS Stocks, Listed 

Options and OTC Equity Securities.303  The proposed treatment of these different types of 

securities would result in the equitable allocation of reasonable CAT fees across these securities.  

The Executed Share Model would count each executed contract for a transaction in Listed 

Options using the contract multiplier applicable to the specific Listed Option in the relevant 

transaction,304 which is appropriate because a Listed Option contract typically represents 100 

shares, or it could represent another designated number of shares, and since Listed Options trade 

in contracts instead of shares, they would need to be converted into shares for purposes of 

calculating the executed equivalent share volume of a transaction in Listed Options.  For OTC 

Equity Securities, the Executed Share Model would count each executed share for a transaction 

in OTC Equity Securities as 0.01 executed equivalent shares,305 which is appropriate because 

CAT LLC represented that this amount was a result of an analysis it conducted of several 

 
300  See CAT NMS Plan, supra note 2, at Appendix C, Section 8.1–8.2. 
301  Id. at Appendix D, Section 4. 
302  See supra notes 271–274 and accompanying text. 
303  See Notice, supra note 7, 88 FR at 17116. 
304  Id. at 17093.  A Listed Option contract typically represents 100 shares, or it could represent another 

designated number of shares.  Id.   
305  See proposed Section 11.3(a)(i)(B)(III). 



56 

different metrics comparing the markets for OTC Equity Securities and NMS Stocks, specifically 

total notional dollar value, total trades, and average share price per trade.306  Additionally, since 

transactions in OTC Equity Securities typically are priced below one dollar, or even one penny, 

and tend to trade in larger quantities, this treatment is appropriate to prevent CAT Reporters 

trading OTC Equity Securities from being assessed higher CAT fees than their activity would 

deserve.     

    b. Options vs. Equities 

The equal allocation of Participant CAT fees to Participants, regardless of whether they 

are transacting in options or in equities, is reasonable.  The Original Funding Model would have 

divided Participant CAT fees by Execution Venues that execute transactions (or in the case of a 

national securities association, has trades reported by its members to its trade reporting facility or 

facilities for reporting transactions effected otherwise than on an exchange) in NMS Stocks or 

OTC Equity Securities and by Execution Venues that execute transactions in Listed Options.307  

The Executed Share Model instead assesses a CAT fee based purely on executed equivalent 

share volume.308  CAT LLC explained that the use of equivalent executed share volume is 

designed to normalize options and equities in the calculation of fees, and to recognize and 

address the different trading characteristics of different types of securities by counting executed 

equivalent share volume differently for Listed Options and for equities.309  The use of executed 

equivalent share volume and, in particular, the different weights assigned to equities versus 

 
306  See supra notes 227–229 and accompanying text. 
307  See CAT NMS Plan, supra note 2, at Section 11.3(a)(i), (ii). 
308  The Executed Share Model would count executed equivalent share volume differently for NMS Stocks, 

OTC Equity Securities and Listed Options for purposes of calculating a CAT fee.  CAT LLC explains that 
the proposed approach “would not favor or unfairly burden any one type of product or product type.”  See 
Notice, supra note 7, at 17116.  See also supra Section III.A.3. 

309  See Notice, supra note 7, 88 FR at 17108. 



57 

options, are designed to result in an equitable treatment of the equities and options markets.  The 

proposed treatment of these different types of securities reasonably equalizes the CAT fees 

across these securities.  The Executed Share Model would count each executed contract for a 

transaction in Listed Options using the contract multiplier applicable to the specific Listed 

Option in the relevant transaction,310 which is appropriate because one options contract typically 

represents 100 shares.   

  c. FINRA Allocation 

Under the Executed Share Model, because FINRA is the Participant primarily responsible 

for oversight of off-exchange securities trading activity,311 FINRA will likely have greater 

executed equivalent share volume than other Participants312 and thus will be responsible for a 

significant portion of total CAT fees.  In the Proposed Amendment, CAT LLC stated that the 

size of FINRA’s fee is calculated based on the activity in the over-the-counter market.313  CAT 

LLC stated that the executed equivalent share volume for over-the-counter trades in Eligible 

Securities in 2021 was 1,361,484,729,008 out of a total volume of 3,963,697,612,395 executed 

equivalent shares for trades in Eligible Securities.314  CAT LLC stated that approximately 34% 

 
310  Id. at 17093. 
311  See Securities Exchange Act Release No. 95388 (July 29, 2022), 87 FR 49930 (Aug. 12, 2022), at 49931 

(stating that FINRA historically has overseen off-exchange securities trading activity and that “the 
Exchange Act’s statutory framework places SRO oversight responsibility with a [national securities 
association] for trading that occurs elsewhere than an exchange to which a broker or dealer belongs as a 
member.”), 49932 (stating that an exchange would primarily have SRO oversight responsibility of its 
members and their trading on the exchange, while SRO oversight of other trading activity, such as off-
exchange trading, is primarily the responsibility of a national securities association).   

312  See Notice, supra note 7, 88 FR at 17107. 
313  Id. 
314  Id. 



58 

of the executed equivalent share volume in Eligible Securities took place in the over-the-counter 

market.315 

CAT LLC stated that the assessment of a CAT fee on FINRA in the same manner as the 

other Participants would not result in a burden on competition for FINRA or for Industry 

Members engaging in off-exchange activity.316  CAT LLC also stated that FINRA and the 

exchanges should not be evaluated differently based upon the potential for a particular 

Participant to recoup its CAT fees through charging fees to its members or through revenue-

generating activity other than passing its fees through to its members.317  CAT LLC stated that 

each Participant, including FINRA, can choose to charge its members fees to fund the 

Participant’s CAT fees.318  Additionally, CAT LLC stated that FINRA, just like the exchange 

Participants, has revenue sources other than membership fees,319 explaining that FINRA 

generates significant revenues via Regulatory Services Agreements (“RSAs”) with the 

exchanges, among other sources.320  According to CAT LLC, these other revenue sources may 

be used to pay CAT fees, and, if they are used, would not lead to an increase in fees for Industry 

Members.321   

Certain commenters objected to the proposed allocation of Participant CAT fees to 

FINRA.322  A subset of these commenters objected to the allocation to FINRA of 34% of the 

 
315  Id. 
316  Id. 
317  Id.  See also CAT LLC May 2023 Response Letter at 9.  
318  See Notice, supra note 7, 88 FR at 17107. 
319  Id. at 17108. 
320  Id. 
321  Id. 
322  See FINRA May 2023 Letter; FINRA April 2023 Letter; FINRA June 2022 Letter; SIFMA May 2023 

Letter; SIFMA June 2022 Letter; SIFMA October 2022 Letter.  One of the commenters supported the 
 



59 

total CAT costs323 to be borne by the Participants.324  FINRA stated that this amount was a 

“disproportionate share of CAT costs,”325 especially as FINRA does not operate a market,326 and 

that the Proposed Amendment would place an undue burden on FINRA.327  FINRA stated that its 

share was “more than double that of the next highest Participant and $4 million more than all 

option exchanges combined.”328  FINRA also stated that its allocation would largely be based on 

transaction volume reported to the TRF; however, FINRA stated that TRF transactions generate 

fewer costs for the CAT,329 as opposed to options activity, but that only 25% of total Participant 

CAT fees would be assessed for options activity, while the remaining 75% would be assessed for 

equities activity.330  FINRA stated that “… FINRA would be assessed an estimated 34% of the 

total CAT costs to be borne amongst the 25 Participants, and more than all options exchanges 

combined.”331   

 
points raised in the FINRA April 2023 Letter that stated that the Proposed Amendment would result in the 
inequitable allocation of fees and should be disapproved.  See SIFMA May 2023 Letter at 2.  Another 
commenter supported these points and stated that the fact that one of the biggest Participants was so 
strongly opposed to the plan was evidence that it should be disapproved.  See Virtu Letter at 3. 

323  One commenter stated that this estimate is based on 2021 data and urged the Commission to require the 
Participants to amend the Proposed Amendment to include the 2022 data and fee allocation estimates, 
stating that the CAT budget has grown significantly from 2021.  See FINRA April 2023 Letter at 3, 4–5.  In 
its response to comments, CAT LLC provided the Historical CAT Costs for 2022.  The total operating 
expenses increased from $144,415,268 in 2021 to $181,107,294 for 2022.  See Notice, supra note 7, 88 FR 
at 17111; CAT LLC May 2023 Response Letter at 13.   

324  See FINRA May 2023 Letter at 2; FINRA April 2023 Letter at 3; SIFMA May 2023 Letter at 2.     
325  FINRA April 2023 Letter at 3.   
326  Id. 
327  See FINRA June 2022 Letter at 6. 
328  FINRA April 2023 Letter at 4; see also FINRA June 2022 Letter at 5. 
329  See FINRA April 2023 Letter at 8, n.23.  The commenter also stated that “TRF volume contributes to only 

a very small percentage of annual CAT compute and storage costs.”  FINRA May 2023 Letter at 2.   
330  See FINRA April 2023 Letter at 8, n.23; FINRA May 2023 Letter at 2. 
331  FINRA May 2023 Letter at 2. 



60 

FINRA stated that, unlike the exchange Participants, transactions are not executed on a 

FINRA marketplace and FINRA does not receive commercial revenue for those transactions.332  

FINRA explained that “while the NMS stock allocation to FINRA under the Funding Model is 

based on transactions that are reported to FINRA [TRFs], these transactions are not executed on 

a FINRA marketplace and FINRA does not retain commercial revenues from those 

transactions”333 unlike the exchanges that operate each FINRA TRF, which retain the market 

data and trade reporting revenue of the TRF.334  FINRA stated that, unlike itself, these exchanges 

would thus have a revenue stream related to the transactions that would be assessed a CAT fee, 

and that also, unlike FINRA, exchanges generate revenue from listings and proprietary data 

feeds in NMS securities.335  FINRA also stated that FINRA members can report over-the-counter 

transactions in listed stocks to the FINRA Alternative Display Facility, although most 

transactions are reported to a TRF.336  

FINRA further stated that it cannot necessarily recoup its costs through RSAs that it has 

entered into with certain exchanges337 because the exchanges must first agree to be charged CAT 

costs under the RSAs; therefore, RSAs would not be a reliable source of CAT funding for 

FINRA.338  Additionally, FINRA questioned CAT LLC’s statement that the Proposed 

Amendment “reflects a reasonable effort to allocate costs based on the extent to which different 

 
332  See FINRA April 2023 Letter at 3. 
333  Id. 
334  Id. 
335  Id. at 4. 
336  Id. at 3, n.8. 
337  This statement was made in response to a statement in the Proposed Amendment that FINRA, like the 

exchange Participants, has revenue sources other than membership fees, giving as an example the RSAs.  
See Notice, supra note 7, 88 FR at 17107. 

338  See FINRA April 2023 Letter at 4.61 

CAT Reporters participate in and benefit from the equities and options markets.”339 Specifically, 

FINRA asked how this explains the size of its allocation340 and noted that this statement 

“conflates the costs to create and operate the CAT with the usage of CAT data.”341 

In the Proposed Amendment, CAT LLC contested the view that FINRA should not be 

treated as a market center for CAT funding purposes merely because FINRA is not treated as a 

market center for governance purposes under the National Market System Plan Regarding 

Consolidated Equity Market Data (“CT Plan”).342  CAT LLC explained that the purpose and 

implementation of the CT Plan and the CAT NMS Plan are different.343  CAT LLC stated that 

while the CAT NMS Plan explicitly contemplates charging fees to all Participants, including 

FINRA,344 and that the CAT is solely for regulatory purposes, providing a regulatory system to 

facilitate the performance of the self-regulatory obligations of all of the Participants, including 

the exchanges and FINRA,345 “[i]n contrast, the CT Plan governs the public dissemination of 

real-time consolidated equity market data for NMS stocks.”346   

 
339  Id. at 7. 
340  Id. 
341  Id.; see also FINRA June 2022 Letter at 6. 
342  See Notice, supra note 7, 88 FR at 17108.  See also Joint Industry Plan; Order Approving, as Modified, a 

National Market System Plan Regarding Consolidated Equity Market Data; Securities Exchange Act 
Release No. 92586 (Aug. 6, 2021), 86 FR 44142 (Aug. 11, 2021) (File No. 4-757) (“Order Approving the 
CT Plan”).  The Order Approving the CT Plan was vacated by the DC Circuit on July 5, 2022.  See The 
NASDAQ Stock Market LLC et al. v. SEC, Case No. 21-1167, D.C. Cir. (July 5, 2022).  See also 
Securities Exchange Act Release No. 88827; File No. 4-757 (May 6, 2020), 85 FR 28702 (May 13, 2020) 
(Order Directing the Exchanges and the Financial Industry Regulatory Authority to Submit a New National 
Market System Plan Regarding Consolidated Equity Market Data).   

343  See Notice, supra note 7, 88 FR at 17108.   
344  See CAT NMS Plan, supra note 2, at Sections 11.2 and 11.3. 
345  See Notice, supra note 7, 88 FR at 17108. 
346  Id. 



62 

Certain commenters expressed concern about alleged arbitrary treatment of FINRA by 

the other Participants of the CAT NMS Plan.347  FINRA believes that its “outsized allocation”348 

was because of its limited voting power, only having one out of 25 votes on the Operating 

Committee as it does not control, nor is under common control with, any other Participant.349  

Another commenter stated that the current CAT NMS Plan voting structure results in the unfair 

and inequitable treatment of FINRA.350  Both commenters believe that the exchange Participants 

treat FINRA arbitrarily to benefit themselves, treating FINRA as a market center in the CAT 

NMS Plan while not as a market center under the CT Plan, which governs the public 

dissemination of real-time consolidated market data for national market system stocks.351  One 

commenter stated that the Participants do not treat FINRA as a market center under the CT Plan 

in order to limit FINRA’s voting power and therefore its ability to decide how to allocate market 

data revenue.352  The commenter stated that this example demonstrates the “… inherent conflicts 

of interest that for-profit exchanges have in operating as SROs…”353   

 
347  See FINRA April 2023 Letter at 6; SIFMA October 2022 Letter at 3.  See also SIFMA May 2023 Letter at 

6, n.11. 
348  FINRA April 2023 Letter at 7; FINRA June 2022 Letter at 6. 
349  FINRA April 2023 Letter at 4, 8.  See also FINRA June 2022 Letter at 8. 
350  See SIFMA January 2023 Letter at 3, n.7. 
351  See FINRA April 2023 Letter at 6, n.16; SIFMA October 2022 Letter at 3.  See also SIFMA May 2023 

Letter at 6, n.11.  One commenter stated that the Participants treat FINRA in ways that are financially 
beneficial to them without considering FINRA’s role in the marketplace “… as the not-for-profit self-
regulator for the entire brokerage industry…”  SIFMA October 2022 Letter at 3.  See also SIFMA January 
2023 Letter at 4; SIFMA October 2022 Letter at 4; SIFMA May 2023 Letter at 8 (recommending that 
FINRA be treated differently from the Participant exchanges due to its unique role). 

352  See SIFMA October 2022 Letter at 3–4.  See also SIFMA May 2023 Letter at 6, n.11. 
353  SIFMA October 2022 Letter at 3.  See also SIFMA June 2023 Letter at 4 (quoting a Commission release 

stating that the Participants are potentially conflicted in allocating CAT fees to themselves and the Industry 
Members); supra note 64. 



63 

Certain commenters suggested that the Commission issue an order soliciting comment on 

whether the Operating Committee should be reorganized consistent with the CT Plan.354  One 

commenter stated, “[w]e believe such a governance structure for the CAT would help facilitate a 

fairer structure for the views of the SROs and industry to be heard and incorporated into any 

further CAT funding proposal by reducing the ability of the largest exchange groups to dictate 

the terms of any CAT funding proposal over the objections of other SRO Participants and the 

industry.”355 

Commenters also believe the allocation to FINRA would increase the allocation to 

Industry Members.356  FINRA stated that because it relies on regulatory fees from its members 

for funding, it must increase its member fees in order to fund CAT costs that it cannot recover 

from contractual arrangements with TRF business members.357  FINRA stated that the Proposed 

Amendment does not adequately analyze the allocation’s impact, including whether the 

allocation would increase Industry Members’ allocation of total costs beyond two-thirds.358  

FINRA dismissed as inadequate the Participants’ argument that Industry Members can pass 

through their costs, stating that the Proposed Amendment lacks a detailed description of and 

transparency into how the fees may be passed on to customers.359  Another commenter stated 

 
354  SIFMA October 2022 Letter at 2.  See also infra Section III.A.9.f. (suggesting changes to the governance 

structure of the CAT NMS Plan); see also MMI July Letter at 1-3.  The latter commenter also felt that there 
should be a disclosure of the conflicts of interest the commenter believes are inherent in having the funding 
model determined by the Participants.). 

355  SIFMA October 2022 Letter at 2.  The commenter also stated that the Industry Members are not voting 
members of the Operating Committee and have no way to direct the cost control efforts of the Participants 
or change their course if the cost control efforts prove to be unsuccessful.  See SIFMA June 2022 Letter at 
8. 

356  See FINRA April 2023 Letter at 5–7; SIFMA June 2022 Letter at 4; Citadel July Letter at 2, 16, 21, supra 
notes 73–74 and accompanying text.  See also SIFMA October 2022 Letter at 2, 3. 

357  See FINRA April 2023 Letter at 5–6.  See also FINRA June 2022 Letter at 7. 
358  See FINRA April 2023 Letter at 6. 
359  Id. at 6–7. 



64 

that the Participants “do not address the fact that the Executed Share Model for Prospective CAT 

Costs allocates two-thirds of CAT costs to Industry Members for exchange transactions and 

more for off-exchange transactions”360 because they cannot demonstrate that the proposed 

allocation results in an equitable allocation of reasonable fees.361  The commenter stated that 

Industry Members, who would be subject to two-thirds of Prospective CAT Costs under the 

Executed Share Model, already pay FINRA’s operating costs through regulatory fines and fees; 

therefore, Industry Members would additionally be indirectly assessed FINRA’s one-third CAT 

fee for off-exchange transactions.362  The commenter suggested an alternative allocation363 that 

would subject FINRA only to a nominal regulatory user fee to access CAT Data.364 

CAT LLC disagreed with the commenter’s proposal to charge FINRA only a nominal 

regulatory fee.365  CAT LLC stated that the proposed transaction-based CAT fee is purposely 

agnostic as to the location of where a trade occurs, and an intent of this design is to avoid 

influencing whether or where any trading activity would take place.  Moreover, CAT LLC stated 

that FINRA is no different from the exchanges in terms of its regulatory obligations regarding 

the CAT.366  CAT LLC also stated that FINRA’s allocation is “fair and reasonable as FINRA is 

 
360  SIFMA June 2022 Letter at 4.  See also SIFMA October 2022 Letter at 3 (“… we believe the proposal is 

flawed because it fails to appropriately consider that Industry Members pay the full costs of operating 
FINRA.”). 

361  See SIFMA June 2022 Letter at 4. 
362  Id.  The commenter also stated that the proposed allocation would result in two-thirds of CAT costs for 

exchange transactions being imposed on Industry Members, and that this amount would be higher for off-
exchange transactions as FINRA would be assessed one-third as the venue fee and Industry Members 
would be indirectly assessed FINRA’s portion of CAT costs as they pay the entire costs of operating 
FINRA.  Id.  See also SIFMA October 2022 Letter at 2. 

363  See supra notes 100–101 and accompanying text. 
364  See SIFMA January 2023 Letter at 4.  See also SIFMA May 2023 Letter at 8; SIFMA June 2022 Letter at 

5; SIFMA October 2022 Letter at 4; supra notes 100–101 and accompanying text. 
365  See CAT LLC May 2023 Response Letter at 8. 
366  Id. 



65 

currently, and is expected to continue to be, one of the largest regulatory users of the CAT, and it 

is responsible for the oversight of the very large over-the-counter securities market.”367 

FINRA requested that if the Commission were to approve the Proposed Amendment, that 

it acknowledge “FINRA’s need and ability to cover CAT costs that are not recovered through 

contractual arrangements through member fee increases, so as not to jeopardize FINRA’s ability 

to carry out its critical regulatory mission.”368  FINRA also stated that it would file a rule change 

to increase its member fees with the filing of any proposed rule change to effectuate the Funding 

Model.369   

The Commission acknowledges the comments objecting to the allocation to FINRA of 

34% of the total CAT costs to be borne by Participants,370 but believes that it is reasonable for 

the Proposed Amendment to assess fees to FINRA based on executed equivalent share volume 

like the other Participants for purposes of CAT funding.  FINRA is a Participant of the CAT 

NMS Plan.  All Participants are mandated under the CAT NMS Plan to fund the CAT.371  The 

Executed Share Model would assess CAT fees based on executed equivalent share volume.  

Under the Executed Share Model, CAT fees would be allocated among the buyer, seller, and the 

market regulator in each transaction.  FINRA would pay the Participant CAT fee based on off-

exchange trades reported by its members to its trade reporting facilities because FINRA is the 

market regulator responsible for the market in which the TRF transactions occur.  The Executed 

Share Model, like the current funding model, is designed to allocate CAT fees among the 

 
367  See CAT LLC July 2023 Response Letter at 35.   
368  FINRA April 2023 Letter at 7. 
369  Id. 
370  Id. at 3; SIFMA May 2023 Letter at 2. 
371  See CAT NMS Plan, supra note 2, at Section 11.1(b); Section 11.3(a). 



66 

Participants based on market share.  Since FINRA is generally the market regulator for the over-

the-counter markets, its CAT fees, and thus market share, will be based on the trading activity in 

the over-the-counter markets reported to it by its members.  The trading volume of the over-the-

counter markets is greater than that on the exchanges; consequently, FINRA will likely be 

allocated a greater executed equivalent share volume than the other Participants.  However, 

trading volume generates costs for CAT, therefore, given its role overseeing the over-the-counter 

market, it is reasonable for FINRA to incur a greater share of CAT fees based on the over-the-

counter market’s trading volume.  As discussed above, it is difficult to calculate each CAT 

Reporter’s individual cost burden on the CAT, and a reasonable proxy for CAT cost burden must 

be used.  The proposed use of executed equivalent share volume is a reasonable method of 

allocating costs because it is readily determinable and equitable since executed share volume is 

based on trading activity, which impacts CAT costs.  In practice, CAT Reporters will be assessed 

fees corresponding to the cost burden they impose on the CAT through their trading activity, or 

in FINRA’s case, trading activity in the over-the-counter markets reported to it by its members. 

The Commission recognizes that there could be other methodologies for allocating costs 

among CAT Reporters, such as allocations that take into account the manner in which each 

Participant earns revenue, but these other methodologies may be significantly more complex and 

would not necessarily more accurately reflect the cost burden of each CAT Reporter.  CAT LLC 

chose to propose the use of executed equivalent share volume, explaining why trading activity is 

a reasonable proxy for cost burden and an appropriate metric for allocating CAT costs.372  

Although there may be multiple permissible approaches to cost allocation, the proposed 

 
372  See Notice, supra note 7, 88 FR at 17103. 



67 

allocation of Participant CAT fees based on executed equivalent share volume is reasonable and 

meets the Rule 608 approval standard.373   

The Commission agrees with CAT LLC that the Executed Share Model reasonably 

assesses fees to FINRA in the same manner based on transaction volume as other Participants.  

The Executed Share Model is reasonably designed to be neutral as to the manner of execution 

and place of execution.374  All Participants are self-regulatory organizations that have the same 

regulatory obligations under the Exchange Act, regardless of whether they operate as a for-profit 

or not-for-profit entity.  Their regulatory responsibilities for the operations of CAT are the 

same.375 

The Commission acknowledges the concerns expressed by commenters that FINRA’s 

allocation could indirectly increase the allocation of CAT fees to Industry Members since 

Industry Members contribute to FINRA’s funding.376  As discussed above, however, the costs of 

CAT must be allocated between the Participants and Industry Members according to some 

formula.  Although the Participants and Industry Members have different means of potentially 

recovering from others some of the costs allocated to them (e.g., the Participants from Industry 

Members and Industry Members from customers), it is reasonable to allocate costs evenly among 

the three parties who have primary roles related to the transaction.  The Commission agrees with 

CAT LLC that Industry Members may be able to offset any fees that FINRA assesses them by 

passing their CAT fees through to their customers, just as they may do with Section 31-related 

 
373  See 17 CFR 242.608(b)(2).  
374  See Notice, supra note 7, 88 FR at 17107. 
375  Id. 
376  See FINRA April 2023 Letter at 5–7; SIFMA June 2022 Letter at 4; Citadel July Letter at 2, 16, 21, supra 

notes 73–74 and accompanying text.  See also SIFMA October 2022 Letter at 2, 3; FINRA June 2022 
Letter at 4. 



68 

fees and other fees.  The Commission recognizes, however, that not all Industry Members 

currently pass through fees or would determine to do so in the future. 

Finally, the Commission does not agree that the Participants’ treatment of FINRA is 

arbitrary because FINRA is treated as a market center for purposes of determining its CAT 

funding obligations while the CT Plan, which governs the public dissemination of consolidated 

market data, would not have counted FINRA’s market activity for purposes of determining the 

allocation of votes on the Operating Committee.377  The different treatment of FINRA in these 

NMS plans reasonably reflects the very different roles that a market center is used for in these 

contexts.  The CT Plan provisions discussed by the commenters involve the determination of 

which Participant(s) could be eligible for a second vote on the Operating Committee,378 while 

the Executed Share Model proposes to assess FINRA a Participant CAT Fee based on its role as 

the regulator for the over-the-counter market in which such trades occur.379  The commenter’s 

request that the Commission issue an order soliciting comment on whether the Operating 

Committee should be reorganized consistent with the CT Plan380 would be better addressed in 

the context of a separate plan amendment. 

 
377  The CT Plan provided that an exchange group or independent exchange that has more than 15 percent of 

consolidated equity market share during four of the six calendar months preceding a vote of the operating 
committee would be authorized to cast two votes.  The CT Plan stated that FINRA is not considered a 
market center for purposes of determining consolidated equity market share solely by virtue of facilitating 
trades through any TRF that FINRA operates in affiliation with a national securities exchange designed to 
report transactions otherwise than on an exchange.  See supra note 342. 

378  See FINRA April 2023 Letter at 6; SIFMA October 2022 Letter at 3.  See also SIFMA January 2023 Letter 
at 4; SIFMA October 2022 Letter at 4; SIFMA May 2023 Letter at 8. 

379  See supra notes 371–372 and accompanying text. 
380  See SIFMA October 2022 Letter at 2. 



69 

  4. CAT Executing Broker 

As noted above, CAT Executing Brokers will be charged CAT fees.381  CAT LLC 

proposed to add a definition of “CAT Executing Broker” to Section 1.1 of the CAT NMS Plan.  

The definition would explain which party would be identified as a CAT Executing Broker in a 

transaction.  

With respect to transactions on an exchange and over-the-counter transactions, CAT LLC 

would use transaction reports reported to the CAT by FINRA or the exchanges to identify the 

transaction, as well as the CAT Executing Broker for each transaction, for purposes of 

calculating the CAT fees.382  Under the Participant Technical Specifications, for transactions 

occurring on a Participant exchange, there is a field for the exchange to report the market 

participant identifier (“MPID”) of “the member firm that is responsible for the order on this side 

of the trade.”383  The Industry Members identified in these fields for the transaction reports 

would be the CAT Executing Brokers for transactions executed on an exchange.384  FINRA is 

required to report to the CAT transactions in Eligible Securities reported to a FINRA trade 

reporting facility (i.e., the TRF, Over-the Counter Reporting Facility (“ORF”) and Alternative 

Display Facility (“ADF”)).385  Under the Participant Technical Specifications, for such 

 
381  See Notice, supra note 7, 88 FR at 17087.  
382  Id. at 17088.  The transaction reports used to identify transactions and CAT Executing Brokers do not 

provide for fractional quantities; therefore, CAT fees would not be calculated using fractional shares or 
fractional share components of executed orders.  Id. at 17089.  See supra notes 280–266 and accompanying 
text. 

383  Section 4.7 (Order Trade Event) and Section 5.2.5.1 (Simple Option Trade Event: Side Details) of the CAT 
Reporting Technical Specifications for Plan Participants, Version 4.1.0-r17 (Feb. 21, 2023), 
https://www.catnmsplan.com/sites/default/files/2023-02/02.21.2023-CAT-Reporting-Technical-
Specifications-for-Participants-4.1.0-r17.pdf. 

384  See Notice, supra note 7, 88 FR at 17087–88. 
385  See Section 6.1 of the CAT Reporting Technical Specifications for Plan Participants (Feb. 21, 2023).  A 

CAT Executing Broker in over-the-counter transactions identified on the TRF/ORF/ADF Transaction Data 
Event is determined based on the tape or media report, that is, a trade report that is submitted to a FINRA 

 



70 

transactions reported to a FINRA trade reporting facility, FINRA is required to report the MPID 

of the executing party as well as the MPID of the contra-side executing party.386  The Industry 

Members identified in these two fields for the transaction reports would be the CAT Executing 

Brokers for over-the-counter transactions.387   

For transactions on ATSs, if an ATS is identified as the executing party and/or the contra-

side executing party in the TRF/ORF/ADF Transaction Data Event, then the ATS would be a 

CAT Executing Broker for purposes of the Executed Share Model.388  If the ATS is identified as 

the executing party for the buyer in such transaction reports, then the ATS would be the 

CEBB.389  If the ATS is identified as the executing party for the seller in such transaction 

reports, then the ATS would be the CEBS.390  If the ATS is identified as both the executing party 

and contra-side executing party, the ATS would be both the CEBB and the CEBS.391  ATSs 

would determine the executing party and the contra-side executing party reported to FINRA’s 

equity trading facilities in accordance with the transaction reporting requirements for FINRA’s 

equity trading facilities.392 

 
trade reporting facility and reported to and publicly disseminated by the appropriate exclusive Securities 
Information Processor.  A CAT Executing Broker for over-the-counter transactions is not determined based 
on a non-tape report (e.g., a regulatory report or a clearing report), which is not publicly disseminated. 
There is an exception to this statement for away-from-market trades.  These are non-media trades reported 
to the TRF with an “SRO Required Modifier Code” of “R”. 

386  See Notice, supra note 7, 88 FR at 17087–88. 
387  Id. at 17088. 
388  Id. at 17088–89. 
389  Id. at 17089. 
390  Id. 
391  Id.  See also FINRA, Trade Reporting Frequently Asked Questions at Section 203, available at 

https://www.finra.org/filing-reporting/market-transparency-reporting/trade-reporting-faq#203; FINRA 
Regulatory Notice 09-08, available at https://www.finra.org/rules-guidance/notices/09-08. 

392  See Notice, supra note 7, 88 FR at 17089. 



71 

For transactions that do not occur on an exchange and there is only a FINRA member 

identified for one side of the trade, that FINRA member would be treated as the CAT Executing 

Broker for both the buy-side and the sell-side of the transaction, that is, as the CEBS and 

CEBB.393  Additionally, “[f]or any trade report on which a Canadian non-member appears as a 

party to the trade, the FINRA member must appear as the reporting party.”394  In this situation, 

the executing broker identified in the “reportingExecutingMpid” field would be billed for both 

sides of the transaction.395 

The Executed Share Model also provides for cancellations and corrections.396  CAT LLC 

stated that it expects to determine CAT fees based on the transaction reports for a month as of a 

particular day.397  To the extent that changes are made to the transaction reports on or before the 

day the CAT fees are determined for the given month, the changes will be reflected in the 

monthly bill.398  To the extent that changes are made to the transaction reports after the day the 

CAT fees are determined for that month, subsequent bills will reflect any changes via debits or 

credits, as applicable.399  CAT LLC represented that it will establish specific policies and 

procedures regarding the treatment of such adjustments as those related to cancellations and 

corrections, as is required under the CAT NMS Plan to adopt policies, procedures, and practices 

regarding the billing and collection of fees.400  Furthermore, CAT LLC stated that it will inform 

 
393  See proposed Section 1.1. (definition of “CAT Executing Broker”). 
394  Notice, supra note 7, 88 FR at 17089. 
395  Id. 
396  Id. 
397  Id. 
398  Id. 
399  Id. 
400  See CAT NMS Plan, supra note 2, at Section 11.1(d). 



72 

Industry Members and other market participants of these policies and procedures via FAQs, CAT 

Alerts and/or other appropriate methods.401 

Certain commenters objected to the proposed definition of “CAT Executing Broker.”402  

One commenter stated that the term “CAT Executing Broker” “does not appear to be universally 

defined or accepted by Option Industry Members or Participants” and that such lack of 

acceptance “present[s] a challenge when firms try to assess the impact the ‘Funding Proposal’ 

will have on their respective businesses.”403  Accordingly, the commenter advocated that the 

Executed Share Model follow the “structure already in place for [collecting] Regulatory Fees,” 

such as charging Clearing Brokers.404   

Another commenter stated that the proposed definition of executing broker would result 

in the inequitable allocation of fees.405  While the commenter supported the change from having 

clearing firms be assessed Industry Member CAT fees to executing brokers having this 

 
401  See Notice, supra note 7, 88 FR at 17089. 
402  See SIFMA May 2023 Letter; Letter from Timothy Miller, Chief Operating Officer, DASH Financial 

Technologies, LLC to Vanessa Countryman, Secretary, Commission (July 13, 2023) (“DASH July 2023 
Letter”), at 1–2; Letter from Timothy Miller, Chief Operating Officer, DASH Financial Technologies, LLC 
to Vanessa Countryman, Secretary, Commission (April 11, 2023) (“DASH April 2023 Letter”), at 1–2.  
Both the DASH July 2023 Letter and the DASH April 2023 Letter incorporated by reference a separate 
letter submitted by the commenter on the prior funding proposal (stating that the concerns expressed in the 
prior letter concerning the operating and competitive burdens of the proposed funding model are 
unchanged).  See Letter from Timothy Miller, Chief Operating Officer, DASH Financial Technologies 
LLC, to Vanessa Countryman, Secretary, Commission (Jan. 3, 2023) (“DASH January 2023 Letter”). 

403  DASH April 2023 Letter at 1.  See also DASH July 2023 Letter at 1–2. 
404  DASH April 2023 Letter at 2.  See also DASH July 2023 Letter at 1–2.  The commenter reiterated that it 

believes clearing firms are still best suited to process the collection of fees, as this can occur at trade 
settlement and the cost is ultimately borne by the end beneficiary of each transaction.  The commenter 
further stated that “there is precedent to follow with other Regulatory Fees, such as ORF and OCC, to 
streamline the workflow and reduce the number of counterparties involved in the payment/collection 
process,” and “that in the options industry, ORF and Section 31 fees are not consistently billed to the 
exchange facing member; but, most of the time, these fees follow the clearing firm associated with the 
order.”  

405  See SIFMA May 2023 Letter at 3. 



73 

obligation,406 because clearing firms would have been unfairly burdened with CAT costs and 

could have been placed in situations in which they would have been unable to identify the client 

responsible for the costs,407 the commenter expressed concerns with how the Participants 

determined which entities would be considered executing brokers.408  In comment letters on the 

prior funding model proposal,409 which was amended to require executing brokers instead of 

clearing firms to be assessed CAT fees,410 the commenter requested additional detail on how an 

executing broker would be defined.411  The commenter subsequently stated that the definition in 

the current Proposed Amendment suffers from the same problems as the prior proposal in which 

CAT fees were allocated to clearing firms and would result in the inequitable allocation of CAT 

fees among Industry Members.412  

The commenter explained that CAT operates on a cost-recovery basis, with costs 

resulting from the number of messages that Participants and Industry Members report to the 

CAT, the processing and linking of such messages, and the costs of providing tools to regulators 

 
406  Id.  See also SIFMA January 2023 Letter at 7–8. 
407  See SIFMA May 2023 Letter at 3–4.  See also SIFMA October 2022 Letter at 5.  The commenter also 

expressed concerns about the assessment of CAT fees on clearing firms because clearing firms would be 
required to collect fees and thus would have to develop new systems and processes under the Executed 
Share Model, and because a clearing firm for a buyer or seller would not always be a party to a trade as it 
could be the clearer of a trade on behalf of an executing broker.  See SIFMA June 2022 Letter at 9; SIFMA 
October 2022 Letter at 7. 

408  See SIFMA May 2023 Letter at 4. 
409  See Securities Exchange Act Release No. 94984 (May 25, 2022), 87 FR 33226 (June 1, 2022) (“Prior 

Funding Model Proposal”). 
410  Two partial amendments were submitted on the Prior Funding Model Proposal.  The first partial 

amendment initially proposed the use of executing brokers.  See Securities Exchange Act Release No. 
96394 (Nov. 28, 2022), 87 FR 74183 (Dec. 3, 2022).  The Prior Funding Model Proposal, as modified by 
the two partial amendments, was withdrawn by the Participants on March 1, 2023.  See Securities 
Exchange Act Release No. 97212 (Mar. 28, 2023), 88 FR 19693 (Apr. 3, 2023). 

411  See SIFMA January 2023 Letter at 2, 8; SIFMA December 2022 Letter at 3.  See also SIFMA May 2023 
Letter at 4. 

412  See SIFMA May 2023 Letter at 4.  See also SIFMA June 2022 Letter at 9–10; SIFMA October 2022 Letter 
at 5. 



74 

to analyze CAT data.413  The commenter stated that the use of message traffic as the basis of 

fees, in the Original Funding Model, would have ensured that all CAT Reporters would 

contribute to CAT’s funding.414  However, the commenter stated that, since the Proposed 

Amendment would not impose fees on all CAT Reporters, instead imposing fees on executing 

brokers, it would result in an inequitable allocation of fees as the executing brokers would be the 

last broker among many other brokers handling an order.415  The commenter stated that any 

analysis of such a funding model must evaluate whether (i) the executing brokers would pass-

through or absorb the CAT fees and any negative impacts on competition, noting that the 

Proposed Amendment would require executing brokers to incur expenses that other Industry 

Members would not incur since they would be required to collect the Industry Member portion 

of CAT fees on behalf of the Participants,416 and (ii) Industry Members that executed trades for 

introducing brokers and acted as order consolidators and ATSs would be responsible for CAT 

fees for transactions they did not originate and would have to either pay the fee for their clients 

or develop software and processes to collect the fees from their clients as they often are not 

capable of passing through fees to the clients that sent them the orders.417  The commenter stated 

that the Proposed Amendment would subject executing brokers to unfair burdens and require 

 
413  See SIFMA May 2023 Letter at 4. 
414  Id. 
415  Id. at 4–5. 
416  Id. at 5.  See also Virtu Letter at 5 (stating that it is “highly likely” that executing brokers would end up 

absorbing the fees themselves, as they would not have the systems in place to trace to whom the fees were 
properly allocable). 

417  See SIFMA May 2023 Letter at 5. 



75 

them to “shoulder CAT costs in scenarios in which they could not determine which client firm 

was responsible for creating the CAT costs by initiating the transaction.”418   

The commenter suggested instead an allocation in which the Industry Member that 

originated an order would be treated as an “executing broker” and therefore be responsible for 

Industry Member CAT fees.419  Under this alternative, “the Industry Member who originates a 

new principal order or the Industry Member who initially receives and routes a customer order 

for execution on an agency basis would be directly assessed CAT Fees.”420  The commenter 

stated that this would be the most reasonable way to allocate CAT costs among Industry 

Members421 and that it would be “relatively easy to accommodate this approach.”422  One other 

commenter also suggested allocating costs to the party originating an order, stating that this 

would “streamline the process and more accurately allocate costs…”423 

One commenter expressed concerns about the imposition of CAT fees on CAT Executing 

Brokers.424  The commenter stated that charging CAT Executing Brokers “inordinately burdens 

Broker Dealers, especially small to medium-sized firms.”425  This commenter recommended 

using instead the existing structure for regulatory fees, including “the efficiencies afforded by the 

 
418  Id.  Another commenter similarly objected to the imposition of CAT fees on Executing Brokers.  This 

commenter, a major wholesaler who also serves as the Executing Broker on many transactions, stated it 
was unjust to disproportionately burden Executing Brokers in this manner, and noted that the cost of 
designing processes and systems to route the fees to the appropriate parties could be prohibitive to smaller 
brokers.  See Virtu Letter at 4–5. 

419  See SIFMA May 2023 Letter at 5. 
420  Id. at 6. 
421  Id. at 5. 
422  Id. at 6. 
423  See Citadel July Letter at 20.  See also id. at 3, 30, 31. 
424  See DASH April 2023 Letter.  See also DASH July 2023 Letter at 1–2. 
425  See DASH April 2023 Letter at 1.  See also DASH January 2023 Letter at 1; DASH July 2023 Letter at 1.  



76 

current structure, and the resulting alleviation of risk.”426  In this regard, the commenter stated 

that “Clearing Firms are best suited to process the collection of fees as it can occur at trade 

settlement and the cost is ultimately borne by the end beneficiary of each transaction.” 427  The 

commenter also stated that small and medium-sized executing brokers could expect a significant 

negative impact on their net capital as a result of the proposal, stating, “…the firms will be 

forced to recoup these costs by passing them on to their clients, either in the form of higher 

commission rates or as a separate transactional fee.  Using [Clearing Member Trade Agreement] 

commission invoicing and/or SEC 31(b) fees in a broker-to-broker relationship as a proxy, these 

invoices are generally paid well after the 60-day milestone to qualify the receivable as ‘good 

capital.’”428  

In response to the comment about the definition of CAT Executing Broker and the billing 

and collection process being better suited for clearing firms, CAT LLC stated that the proposed 

assessment of CAT fees on CAT Executing Brokers only addresses the party obligated to pay the 

CAT fee.429  CAT LLC stated that a CAT Executing Broker would not be required to follow a 

particular process for paying CAT fees, as it could pay the fees itself, or require a clearing firm 

or other third party to pay CAT fees on its behalf.430  For example, CAT LLC stated that a CAT 

Executing Broker can decide to enter into an arrangement with its clearing broker for the 

clearing broker to collect and pass-through the CAT fees like it does in other contexts.431   

 
426  DASH January 2023 Letter at 3.  See also DASH April 2023 Letter at 1–2; DASH July 2023 Letter at 1–2. 
427  DASH April 2023 Letter at 1.  See also DASH January 2023 Letter at 1; DASH July 2023 Letter at 1. 
428  DASH January 2023 Letter at 2; DASH July 2023 Letter at 1–2. 
429  See CAT LLC May 2023 Response Letter at 12; CAT LLC July 2023 Response Letter at 3. 
430  See CAT LLC July 2023 Response Letter at 3. 
431  CAT LLC May 2023 Response Letter at 12. 



77 

With respect to alternatives to the proposed definition of the CAT Executing Broker, 

CAT LLC stated that the “originating broker” suggestion was from a commenter who had 

previously recommended charging executing brokers in comment letters on the Prior Funding 

Model Proposal.432  CAT LLC stated that the commenter’s objection to charging executing 

brokers in the Executed Share Model was an attempt to further delay the approval of a funding 

model and the resultant payment of CAT fees by its members, rather than expressing a concern 

about the merits of charging executing brokers.433   

In response, the commenter stated that the Operating Committee mischaracterized the 

commenter’s position on the assessment of CAT fees to executing brokers by stating in the CAT 

LLC Response Letter that the commenter changed its position on this proposed change to delay 

adoption of a CAT funding model.434  The commenter represented that it stated in comment 

letters it submitted on the Prior Funding Model Proposal435 that initially proposed the use of 

executing brokers436 that (1) the Participants did not define who would be an executing broker in 

a transaction, (2) a clear definition is necessary for Industry Members to understand when they 

would be assessed costs under the Executed Share Model, and (3) its understanding was that the 

concept of executing broker generally refers to the Industry Member that initiates an order.437  

The commenter stated that the Participants only provided a definition of executing broker in the 

Proposed Amendment.438  The commenter stated that it provided concerns about the proposed 

 
432  Id. at 2.  See also supra note 409. 
433  CAT LLC May 2023 Response Letter at 3. 
434  See SIFMA June 2023 Letter at 5. 
435  See supra note 409. 
436  See supra note 410.  
437  See SIFMA June 2023 Letter at 5. 
438  Id. 



78 

definition in its May 2023 comment letter, which the commenter stated were mischaracterized by 

the Operating Committee in the CAT LLC Response Letter in an attempt to rush the 

Commission to a decision on the Proposed Amendment.439 

In response to the comment that imposing fees on executing brokers would result in an 

inequitable allocation of fees and the suggestion that the use of message traffic as the basis of 

fees would have ensured that all CAT Reporters would contribute to CAT’s funding, CAT LLC 

disagreed and stated that because the message traffic is separate from whether or not a 

transaction occurs, fees based on message traffic may not correlate with common revenue or fee 

models.440  CAT LLC stated that, as a result, CAT fees based on message traffic could impose an 

outsized adverse financial impact on certain Industry Members, raising this same issue of an 

inequitable allocation of fees.441  Further, in response to the commenter’s criticism that in 

charging executing brokers, the fee would be charged to a subset of Industry Members and, as a 

result, that subset of Industry Members would incur expenses that other Industry Members would 

not incur, CAT LLC stated that it continues to believe that charging CAT Executing Brokers 

would satisfy the requirements of the Exchange Act.442  CAT LLC stated that in the past, the 

Commission has approved fees that are charged to some, but not all, broker-dealers.443  CAT 

LLC noted that, for example, FINRA’s TAF is assessed to a subset of FINRA members – that is, 

it is assessed on the sell side of member transactions.444  CAT LLC also stated that the options 

exchanges charge options regulatory fees per executed contract side, and, for both options and 

 
439  Id. at 5–6. 
440  See CAT LLC May 2023 Response Letter at 4. 
441  Id. 
442  Id. at 3. 
443  Id. 
444  Id. 



79 

equities, Section 31-related fees are charged to the sell-side in a transaction.445  CAT LLC 

recognized that, under the proposal to charge CAT Executing Brokers, the CAT Executing 

Broker, but not other Industry Members involved in a given order lifecycle, would be required to 

pay the CAT fees, and that Industry Members that sought to recoup such fees would have to 

develop processes to collect such fees from their clients.446  CAT LLC stated that this regulatory 

requirement would have a similar effect as other types of regulatory fees, such as the FINRA 

TAF, the options regulatory fee and Section 31-related sales value pass-through fees because, 

“[i]n each such case, a subset of broker-dealers is required to pay a transaction-based regulatory 

fee, and those broker-dealers seeking to recover such fees from other broker-dealers or non-

broker-dealers have established processes with regard to the pass-through of such fees.”447 

CAT LLC further stated that it disagrees with charging an originating broker instead of 

an executing broker because there are already several existing examples of transaction-based fees 

being assessed to executing brokers as opposed to the originating broker (e.g., TAF, Section 31 

fees, ORF fees), and it disagrees with the assertion that charging originating brokers would be 

easier.448  CAT LLC stated that charging the originating Industry Member would be difficult to 

implement and would increase the costs of implementing CAT fees, whereas charging CAT 

Executing Brokers is simple, straightforward and in line with existing fee and business models 

because for any given trade (buy or sell), there is only one CAT Executing Broker to which 

shares can be allocated.449  As such, CAT LLC stated that “charging the CAT Executing Broker 

 
445    Id. 
446  See CAT LLC May 2023 Response Letter at 4. 
447  Id. 
448  Id. at 5.  See also CAT LLC July 2023 Response Letter at 3–4, 4 (detailing challenges of allocating CAT 

costs to originating brokers). 
449  See CAT LLC May 2023 Response Letter at 5.  See also CAT LLC July 2023 Response Letter at 3. 



80 

is simple and straightforward, and leverages a one-to-one relationship between billable events 

(trades) and billable parties.”450  CAT LLC stated that, 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.”451  Therefore, CAT LLC stated that one commenter’s452 “suggestion of a model that 

begins the funding analysis with new order events (e.g., MENO or MONO events) and then 

looks for any execution or fulfillment that is directly associated with that event does not reduce 

or mitigate the complexity associated with aggregation.”453  Further, CAT LLC stated that the 

commenter’s recommendation would not work with the design of the CAT system, stating that 

“[w]hile 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.”454  CAT LLC also stated that charging originating brokers would implicate issues 

related to lifecycle linkage rates, and issues related to corrections, cancellations and allocations, 

but charging CAT Executing Brokers would avoid such complications.455  CAT LLC also stated 

that allocating to the originating broker would not include Industry Members that were only 

involved in routing and execution, which would include “some of the largest Industry 

Members,”456 and that these Industry Members “are not involved in the origination of orders or 

 
450  CAT LLC May 2023 Response Letter at 5.  See also CAT LLC July 2023 Response Letter at 4. 
451  CAT LLC May 2023 Response Letter at 5.  See also CAT LLC July 2023 Response Letter at 3. 
452  See SIFMA May 2023 Letter at 5. 
453  See CAT LLC May 2023 Response Letter at 5. 
454  Id. 
455  Id. 
456  See CAT LLC July 2023 Response Letter at 3.81 

originate few orders in relation to their overall market activity.”457  Furthermore, CAT LLC 

stated that originating brokers would also need to establish processes for paying CAT fees, just 

as CAT Executing Brokers would.458   

One commenter expressed uncertainty about CAT LLC’s response that some of the 

largest Industry Members are not involved in order origination or originate few orders relative to 

their market activity, stating that it is unclear to whom the statement is referring since the 

executing broker and the originating broker would be the same firm in the case of proprietary 

trading activity.459  Additionally, the commenter stated that the originating broker model should 

be pursued if it dramatically reduces market-wide implementation costs with a marginal increase 

in CAT costs, noting that Industry Members could bear most, if not all, CAT costs to implement 

the originating broker model.460  The commenter stated that, before proceeding, the CAT 

Operating Committee must publish an analysis of the costs and benefits of the executing broker 

and originating broker models including any differences in CAT implementation costs and 

Industry Member implementation costs.461   

In response to a comment stating that executing brokers lacked systems and processes to 

recover costs from their clients and would either choose to absorb the CAT fees or exit the 

business because of the investments necessary for the cost-recovery process,462 CAT LLC stated 

that those Industry Members that pass-through CAT fees will accordingly need to develop 

processes to recover the fees from their clients, like they do for other regulatory-related fees, like 

 
457  Id. 
458  Id. 
459  See Citadel August Letter at 6. 
460  Id. 
461  Id. 
462  See Virtu Letter at 5. 



82 

the TAF, the options regulatory fee and Section 31-related fees.463  CAT LLC also stated that 

CAT Executing Brokers would “have full discretion as to whether and the manner and extent to 

which they pass on their CAT fees, if at all,” noting that “a CAT Executing Broker could round 

up its fees to the nearest cent, or decide to charge for, or not charge for certain transactions, or 

assess a specific fee or incorporate the costs into other fee programs.”464  CAT LLC stated that 

assessing a transaction-based fee to an executing broker and the executing broker deciding 

whether and how to pass-through its costs to clients is “not new or novel.”465  Finally, CAT LLC 

noted that the Plan Processor would provide trade-by-trade data to CAT Executing Brokers, and 

will offer a training program for CAT Executing Brokers to help them understand their CAT 

bills.466   

In the Commission’s view, CAT LLC’s definition of “CAT Executing Broker” is 

reasonable given that the Executed Share Model is based upon the calculation of executed 

equivalent shares (emphasis added),467 and the executing brokers are reasonably suited to know 

their own volume and plan for future volume of executed equivalent shares to pay the CAT fees.  

One commenter’s suggested approach would also result in the assessment of fees on a subset of 

Industry Members –originating brokers–and thus could raise similar allocation concerns as those 

raised by the commenter about the proposed approach.468  In addition, as discussed below, the 

Commission agrees with the Participants that the ease of administration in using the transaction 

 
463  See CAT LLC July 2023 Response Letter at 9.  See also id. at 5. 
464  CAT LLC July 2023 Response Letter at 10.  See also id. at 5 (adding that broker-dealers pass-through fees 

to customers related to Section 31 fees). 
465  Id. 
466  Id. at 10.  See also id. at 5. 
467  See Notice, supra note 7, 88 FR at 17086. 
468  See SIFMA May 2023 Letter at 5, 6. 



83 

reports to identify the executing broker is an advantage of the Proposed Amendment.  Given the 

similar issues with either approach—either charging the fees to a subset of Industry Members 

based on whether they are the “CAT Executing Broker” or the originating broker—it is 

reasonable to choose the less administratively burdensome of the two options.  Accordingly, the 

assessment of CAT fees on CAT Executing Brokers is reasonable. 469   

In response to the commenter that questioned CAT LLC’s response that some of the 

largest Industry Members are not involved in order origination or originate few orders relative to 

their market activity,470 the Commission is not relying on this statement by CAT LLC and 

understands that the executing broker and the originating broker would be the same in the case of 

proprietary trading activity.  Although one commenter suggested that the originating broker 

model should be pursued if it dramatically reduces market-wide implementation costs with a 

marginal increase in CAT costs,471 the Commission believes that the executing broker model is 

reasonable.  The Commission understands the argument that charging originating brokers instead 

of executing brokers would be easier and more cost effective for the executing brokers, but it 

would be at the expense of the originating brokers.  The Commission also understands that 

charging executing brokers instead of originating brokers is easier and more cost effective for the 

CAT Plan Processor.  Using CAT Data, the CAT Plan Processor can more easily determine 

which executing broker to charge.  On the other hand, if the CAT Plan Processor were to charge 

originating brokers, the Commission believes the CAT Plan Processor would have to rely on 

linkages, which may not be one-for-one in all circumstances, to determine which originating 

broker to charge for an execution.  And this difficulty not only would add to the costs of the CAT 

 
469  See 17 CFR 242.608(b)(2).  
470  See Citadel August Letter at 6. 
471  Id. 



84 

but also would impact transparency and potentially the relative simplicity of the CAT Fees.  

Moreover, the Proposed Amendment does not address how executing brokers pass-through CAT 

fees to their customers.     

Using transaction reports to identify the transaction for purposes of calculating the CAT 

fees as well as the CAT Executing Broker for each transaction for purposes of calculating the 

CAT fees is a straightforward and more objective method of identifying executing brokers than 

other methods, such as identifying an originating broker through an evaluation of CAT 

linkages.  Although the definition of “CAT Executing Broker” may not be used by the industry 

or universally accepted, CAT Executing Brokers will be able review their transactions reports 

and request details regarding the calculation of their fees, which should allow them to better 

assess the impact of the Executed Share Model on their business models.472  It is appropriate for 

CAT LLC to establish policies and procedures on the treatment of adjustments related to 

cancellations and corrections.  CAT LLC stated that to the extent changes are made to the 

transaction reports on or before the day the CAT fees are determined for the given month, the 

changes will be reflected in the monthly bill.473 To the extent that changes are made to the 

transaction reports after the day the CAT fees are determined for that month, subsequent bills 

will reflect any changes via debits or credits, as applicable.474  It is appropriate to adjust an 

Industry Member’s or Participant’s CAT fees for cancellations and corrections when such 

adjustments are made to the transaction reports that are used for calculate CAT fees for that 

 
472  See proposed Section 11.3(a)(iv)(A) and 11.3(b)(iv)(A).  See also infra Section III.A.7. (Calculation 

Information; Billing and Collection of CAT Fees). 
473  See Notice, supra note 7, 88 FR at 17089. 
474  Id. 



85 

month.  Additionally, under Section 11.1(d) of the CAT NMS Plan, the Operating Committee is 

required to adopt policies and procedures regarding the billing and collection of fees.475  

It is the Commission’s view that charging CEBBs and CEBSs is reasonable.  The 

Executed Share Model recognizes that there are three parties who play significant roles in 

transactions reportable to the CAT: the Participant, the buy-side and the sell-side.476  The 

Proposed Amendment also is based on executed equivalent shares (emphasis added).477  As such, 

CAT LLC stated that charging the CEBBs and CEBSs would reflect the executing role the 

CEBB and CEBS have in each transaction.478  Additionally, charging CEBBs and CEBSs is in 

line with the use of transaction reports from the exchanges and FINRA’s equity trading reporting 

facilities for calculating the CAT fees.479  Specifically, these transaction reports identify CEBBs 

and CEBSs, so charging such entities potentially streamlines the fee charging process.480  CAT 

LLC also explained that charging both the buy-side and the sell-side of a transaction would be 

consistent with other fees, such as the options regulation fee.481 

In Rule 613, the Commission made the determination that the costs of the CAT should be 

shared by the Participants and Industry Members.  Charging CAT Executing Brokers, clearing 

firms or “originating brokers” all would impose the costs initially on a subset of Industry 

Members.  As discussed above, given that the charges are based on executed equivalent shares, it 

makes sense to use the CAT Executing Brokers as the immediate recipients of the charge.  

 
475  See CAT NMS Plan, supra note 2, at Section 11.1(d). 
476  See Notice, supra note 7, 88 FR at 17104. 
477  Id. at 17086.  
478  Id. at 17103. 
479  Id. 
480  Id. 
481  Id. at 17108. 



86 

Accordingly, the Commission agrees with CAT LLC that it is reasonable to impose the charge 

on CAT Executing Brokers.  The Commission acknowledges that charging CEBBs and CEBSs 

would impose a burden on such firms, which could potentially have an effect on their net capital.  

However, currently, such firms regularly pay transaction-based fees to the Participants, which 

they may pass-through to their customers who, in turn, could pass their CAT fees to their 

customers, until the fee is imposed on the ultimate participant in the transaction.482  Additionally, 

unlike clearing firms that may simply clear a trade on behalf of the executing broker, executing 

brokers are always parties to a transaction, including instances that may result in CAT costs but 

not in actual trades, such as unexecuted orders.  The Commission therefore agrees with CAT 

LLC that assessing Industry Members CAT fees on CEBBs and CEBSs would be reasonable for 

their “executing role” in each transaction.483    

5. Prospective CAT Fees 

   a. Fee Rate Formula 

Under the Executed Share Model, Participants, CEBSs and CEBBs would be subject to 

fees designed to cover the ongoing budgeted costs of the CAT, as determined by the Operating 

Committee.484  Each Participant and CAT Executing Broker would be required to pay a CAT Fee 

related to Prospective CAT Costs for each transaction in Eligible Securities in the prior month 

based on CAT Data.485  CAT Fees would be calculated by multiplying the executed equivalent 

 
482  See Notice, supra note 7, 88 FR at 17103. 
483  Id. 
484  See proposed Section 11.3(a)(i)(A)(I) and (II); proposed Section 11.3(a)(iii)(A). 
485  See proposed Section 11.3(a)(ii)(A) and (iii)(A). 



87 

shares in the transaction by one-third and the applicable “Fee Rate.”486  The Commission 

received no comments on the Fee Rate Formula. 

At the beginning of each year, the Operating Committee would set the Fee Rate to be 

used to determine CAT Fees.487  To calculate the Fee Rate for Prospective CAT Costs, the 

Operating Committee would divide the reasonably budgeted CAT costs by the reasonably 

projected total executed equivalent share volume of all transactions in Eligible Securities for that 

year.488  The Operating Committee would base the projected total executed equivalent share 

volume on the total executed equivalent share volume of transactions in Eligible Securities from 

the prior twelve months.489  Additionally, CAT LLC would permit the Operating Committee to 

use its discretion to analyze likely volume for the upcoming year490 and Participants would be 

required to describe the calculation of the projection in their fee filings submitted to the 

Commission pursuant to Section 19(b) to implement the CAT Fee for Industry Members.491  The 

Operating Committee also would be required to perform a mid-year adjustment of the Fee Rate 

for CAT Fees related to Prospective CAT Costs.492  

 CAT LLC proposed Section 11.3(a)(i)(A)(I) of the CAT NMS Plan to describe the annual 

calculation of the Fee Rate and the requirement for Participants to file a fee filing for CAT Fees 

to be charged to Industry Members calculated using the Fee Rate.  Under the Executed Share 

Model, the Operating Committee will calculate the Fee Rate by dividing the reasonably budgeted 

 
486  Id.  
487  See proposed Section 11.3(a)(i)(A)(I).  The Fee Rate would be established through a majority vote of the 

Operating Committee.  See Notice, supra note 7, 88 FR at 17108.  
488  See proposed Section 11.3(a)(i)(A)(I).  
489  See proposed Section 11.3(a)(i)(D). 
490  See Notice, supra note 7, 88 FR at 17094. 
491  See proposed Section 11.3(a)(iii)(B); 15 U.S.C. 78s(b). 
492 See proposed Section 11.3(a)(i)(A)(II). 



88 

CAT costs for the year by the reasonably projected total executed equivalent share volume of all 

transactions in Eligible Securities for the year.493  Should the budgeted costs be higher than 

actual costs, any budget surplus will be credited against the fees for the following year, as CAT 

LLC cannot hold higher than a 25% reserve.494  

Once the Operating Committee has approved such Fee Rate, the Participants shall be 

required to file with the Commission, pursuant to Section 19(b) of the Exchange Act,495 CAT 

Fees to be charged to Industry Members calculated using such Fee Rate.496  Participants and 

Industry Members will be required to pay CAT Fees calculated using this Fee Rate once such 

CAT Fees are in effect with regard to Industry Members in accordance with Section 19(b) of the 

Exchange Act.497    

 Proposed Section 11.3(a)(i)(A)(II) of the CAT NMS Plan describes the mandatory mid-

year calculation of the Fee Rate and the requirement for Participants to file a fee filing for CAT 

Fees to be charged Industry Members calculated using the Fee Rate.  Under the Executed Share 

Model, the Operating Committee will adjust the Fee Rate once mid-year498 by dividing the 

reasonably budgeted CAT costs for the remainder of the year by the reasonably projected total 

executed equivalent share volume of all transactions in Eligible Securities for the remainder of 

the year.499  Once the Operating Committee has approved the new Fee Rate, the Participants 

shall be required to file with the Commission, pursuant to Section 19(b) of the Exchange Act, 

 
493  See proposed Section 11.3(a)(i)(A)(I). 
494  See infra Section III.A.5.c (Reserves). 
495  15 U.S.C. 78s(b). 
496  See proposed Section 11.3(a)(i)(A)(I). 
497  Id. 
498  See proposed Section 11.3(a)(i)(A)(II). 
499  Id. 



89 

CAT Fees to be charged to Industry Members calculated using the new Fee Rate.500  Participants 

and Industry Members will be required to pay CAT Fees calculated using this new Fee Rate once 

such CAT Fees are in effect with regard to Industry Members in accordance with Section 19(b) 

of the Exchange Act.501 

 CAT LLC proposed to add Section 11.3(a)(i)(A)(III) to the CAT NMS Plan to state that 

CAT Fees related to Prospective CAT Costs do not sunset automatically; such CAT Fees would 

remain in place until new CAT Fees are in place with a new Fee Rate.502   

CAT LLC proposed to add Section 11.3(a)(i)(A)(IV) to the CAT NMS Plan to provide 

that the first CAT Fee may commence at the beginning of the year or during the year.  If it were 

to commence during the year, the CAT Fee would be calculated as if it were a mid-year 

calculation.503 

The proposed recovery of Prospective CAT Costs is appropriate.  It is appropriate to 

require that each Participant, CEBB and CEBS pay a CAT Fee related to Prospective CAT Costs 

for each transaction in the prior month based on CAT Data.504  Basing the CAT Fee on 

transaction data from the prior month is appropriate as it is recent in time and therefore more 

reflective of current market data, and the Commission did not receive any comments on this 

issue.   

The manner in which the Fee Rate for Prospective CAT Costs will be calculated (i.e., by 

dividing the CAT costs reasonably budgeted for the upcoming year by the reasonably projected 

 
500  Id. 
501  Id. 
502  See proposed Section 11.3(a)(i)(A)(III). 
503  See proposed Section 11.3(a)(i)(A)(IV). 
504  See proposed Section 11.3(a)(ii)(A) and (iii)(A). 



90 

total executed equivalent share volume of all transactions in Eligible Securities for the year) is 

reasonable.505  The use of projected executed equivalent share volume in determining the Fee 

Rate is appropriate because it would provide the likely volume for the year to be used as the 

denominator.  It is reasonable to use the prior twelve months to determine the projected total 

executed equivalent share volume of all transactions in Eligible Securities for the year506 because 

it would be the most recent data available to use to make a projection needed to calculate the Fee 

Rate, and the most recent data is on balance more likely to resemble the near future. 

Additionally, as noted above, that the Commission agrees with CAT LLC’s analysis that “trading 

activity provides a reasonable proxy for cost burden on the CAT, and therefore is an appropriate 

metric for allocating CAT costs among CAT Reporters.”507  Further, requiring that the CAT 

costs be “reasonably budgeted” and projected total executed equivalent share volume be 

“reasonably projected” is designed to help impose some discipline or constraints in the fee 

setting process.  It is reasonable for CAT LLC to permit the Operating Committee to project the 

upcoming volume for the upcoming year.508  It is not possible to know exactly what the volume 

will be before the year begins, so a projection will be necessary.  If the volume turns out to be 

higher than projected, then CAT LLC will be able to use its reserve to cover any shortage.  If it is 

lower, resulting in a budget surplus, the CAT fees for the following year would be lower.509  

Furthermore, since the Participants would be required to describe the calculation of the projected 

total executed equivalent share volume in the fee filings submitted to the Commission, pursuant 

 
505  See proposed Section 11.3(a)(i)(A)(I). 
506  See proposed Section 11.3(a)(i)(D). 
507  See Notice, supra note 7, 88 FR at 17103. 
508  Id. at 17094. 
509  See infra Section III.A.5.c (Reserves). 



91 

to Section 19(b) of the Exchange Act, to implement CAT Fees for Industry Members, the public 

will have an opportunity to review the projection and provide comment.510 

The annual and mid-year adjustments of the Fee Rate for Prospective CAT Costs511 are 

appropriate because they would ensure that CAT Fees related to Prospective CAT Costs would 

stay aligned with changes to the budget and projected volume occurring as the year progresses 

with contemporaneous data.  Additionally, calculating a CAT Fee that starts mid-year as if it 

were a mid-year Fee Rate calculation is appropriate because calculating it that way would base 

the CAT Fee on the budgeted CAT costs and projected total executed equivalent share volume of 

all transactions in Eligible Securities for the remainder of the year, rather than for the entire year.  

This is an appropriate treatment of a CAT Fee that would commence mid-year, not at the 

beginning of the year. 

   b. Budgeted CAT Costs 

The calculation of the Fee Rate for CAT Fees related to Prospective CAT Costs requires 

the determination of the Budgeted CAT Costs for the year or other relevant period.512  Proposed 

Section 11.3(a)(i)(C) of the CAT NMS Plan provides that the budgeted CAT costs for the year 

shall be comprised of all reasonable fees, costs and expenses reasonably budgeted to be incurred 

by or for the Company in connection with the development, implementation and operation of the 

CAT as set forth in the annual operating budget approved by the Operating Committee pursuant 

 
510  See proposed Section 11.3(a)(iii)(B). 
511  See proposed Section 11.3(a)(i)(A)(I) and (II).  
512  See proposed Section 11.3(a)(i)(A)(I). 



92 

to Section 11.1(a) of the CAT NMS Plan, or as adjusted during the year by the Operating 

Committee.513   

Section 11.1(a) of the CAT NMS Plan describes the requirement for the Operating 

Committee to approve an operating budget for CAT LLC on an annual basis.  It requires the 

budget to “include the projected costs of the Company, including the costs of developing and 

operating the CAT for the upcoming year, and the sources of all revenues to cover such costs, as 

well as the funding of any reserve that the Operating Committee reasonably deems appropriate 

for prudent operation of the Company.”514  CAT LLC proposed to amend Section 11.1(a) to 

require the Operating Committee to approve a reasonable operating budget for CAT LLC on an 

annual basis.515  

CAT LLC also proposed to amend Section 11.1(b) of the CAT NMS Plan to add a 

reference to Section 11.1.  Currently, Section 11.1(b) states that “[s]ubject to Section 11.2, the 

Operating Committee shall have the discretion to establish funding for the Company” including 

establishing fees to be paid by the Participants and Industry Members (that shall be implemented 

by the Participants)…”516  CAT LLC proposed to add a reference to Section 11.1 so that 

“[s]ubject to Section 11.1 and Section 11.2” the Operating Committee would have the discretion 

 
513  CAT LLC proposed to use budgeted CAT costs in calculating CAT Fees rather than costs incurred.  CAT 

LLC explained that using budgeted CAT costs is necessary to build financial stability to support the 
Company as a going concern, in accordance with the funding principle in Section 11.2(f) of the CAT NMS 
Plan, because it would allow CAT LLC to collect fees before bills become payable.  CAT LLC stated that 
if CAT Fees were only collected after bills become payable, Participants would have to continue to fund 
the CAT for all CAT costs to pay bills as they are due.  See Notice, supra note 7, 88 FR at 17114. 

514  See CAT NMS Plan, supra note 2, at Section 11.1(a). 
515  See proposed Section 11.1(a). 
516  See CAT NMS Plan, supra note 2, at Section 11.1(b). 



93 

to establish funding for the Company.517  CAT LLC explained that this proposed change is 

relevant because Section 11.1 relates to the budget and the budget is used to calculate fees.518   

CAT LLC also proposed to add subparagraph (i) to Section 11.1(a) of the CAT NMS 

Plan to list the types of CAT costs to be included in the budget.  Specifically, CAT LLC 

proposed to state that “[w]ithout limiting the foregoing, the reasonably budgeted CAT costs shall 

include technology (including cloud hosting services, operating fees, CAIS operating fees, 

change request fees and capitalized developed technology costs), legal, consulting, insurance, 

professional and administration, and public relations costs, a reserve, and such other categories 

as reasonably determined by the Operating Committee to be included in the budget.”519    

Certain commenters noted a lack of detail provided on the cost categories.520  One 

commenter stated that the budget line item categories are too high level.521  The commenter 

urged the inclusion of much greater detail and specificity on the budget spending choices, 

especially in technology,522 to allow Industry Members and the public to understand and evaluate 

 
517  See Notice, supra note 6, 88 FR at 17090. 
518  Id. 
519  Id.  CAT LLC has stated that it will consider providing additional detailed subcategories regarding 

technology costs, but notes that what it is currently providing is consistent with what is made publicly 
available on its website.  CAT LLC has stated that it will consider the need to provide additional detailed 
subcategories for any area besides technology, both because technology costs account for the majority of 
the budget and because it is not considered “best practices” to disclose detailed legal or insurance 
information, as these are particularly sensitive.  Id.  Detailed information is always available to the 
Commission for review upon request.  Id. 

520  See SIFMA January 2023 Letter at 6; Citadel July Letter at 13–14; FIA Letter at 2–5; Letter to Vanessa 
Countryman, Secretary, Commission, from Joseph Corcoran, Managing Director, Associate General 
Counsel and Ellen Greene, Managing Director, Equities and Options Market Structure, SIFMA, and 
Howard Meyerson, Managing Director, Financial Information Forum, dated July 31, 2023 (“FIF and 
SIFMA Letter”), at 8. 

521  See SIFMA January 2023 Letter at 6. 
522  Id. (stating that CAT spending on technology should be broken into further refined cost breakdowns of the 

following categories: cloud hosting services, operating fees, CAIS operating fees and change request fees).  
The proposed breakdown is consistent with what is currently provided to the public.  See Notice, supra note 
6, 88 FR at 17090.  See also FIF and SIFMA Letter at 8. 



94 

CAT spending decisions.523  Similarly, other commenters requested more transparency into the 

drivers of CAT costs, in particular, technology costs, which they stated is the largest expense 

item.524  One commenter stated that their “concerns are exacerbated by the general lack of 

transparency coming from the CAT Operating Committee.  Despite continued requests for 

information about key drivers of the rapidly growing CAT costs, the CAT Operating Committee 

points to high-level financial and operating budgets published by the Committee that merely 

provide broad categories of costs and expenses.  Likewise, in the current structure, the SEC staff 

also have no incentive to control costs…This process does not afford industry members with 

appropriate notice of, and opportunity to comment on, material changes to the CAT.  Nor does it 

adhere to the requirements under the Exchange Act to weigh the costs and benefits of proposed 

changes to the NMS plan.”525  Another commenter stated that the Operating Committee refuses 

to provide cost transparency, such as more details on the broad expense categories provided in 

the operating expenses (as well as the Historical CAT Costs) provided in the Proposed 

Amendment.526  The commenter believes that the lack of transparency into costs would prevent 

the Commission from finding that the proposed allocation methodology is reasonable527 and 

would raise concerns that inappropriate expenses would be allocated to Industry Members, like 

 
523  See SIFMA January 2023 Letter at 6. 
524  See FIF and SIFMA Letter at 8.  The commenter stated that the 2023 budget divides technology costs, 

estimated to be $222.5 million and 95.3% of total operating costs, into four categories with cloud hosting 
services represents 75.5% of estimated CAT costs for 2023.  Id.  The commenter requested the Commission 
and the Participants to make publicly available the financial terms of the contract between the Participants 
and Amazon Web Services (“AWS”), the cloud hosting services provider, and publish all invoices from 
AWS.  Id.  The Commission declines to mandate the publication of a contract between private parties.  
Similarly, the Commission declines to mandate the publication of AWS invoices.  The Participants can 
choose to publish this information if they believe it is appropriate.  

525  See FIA Letter at 2–5. 
526  See Citadel July Letter at 13–14.  See also id. at 23. 
527  Id. at 2, 15, 26. 



95 

litigation expenses incurred by the Operating Committee against the Commission, and expenses 

prohibited by the Financial Accountability Amendments from being recovered by the Operating 

Committee.528  The commenter also stated that the Proposed Amendment lacks sufficient detail 

for the Commission to perform the required economic analysis.529   

The commenter suggested enhancements to improve budget transparency.530  The 

commenter suggested that all CAT operating budgets should remain published on the CAT 

website531 and that any material change to the CAT system, related technology contracts or 

implementation scope should require the filing of an NMS plan amendment explaining the 

necessity of the change and include a robust cost-benefit analysis.532   

In addition, the commenter suggested that exchanges be responsible for costs that exceed 

the budget in order to incentivize cost control,533 and that Industry Members should not be 

allocated costs for matters specifically for the benefit of the Operating Committee or the 

Commission (such as costs related to litigation “or filings that are inconsistent with the Exchange 

Act”534), stating that “Industry Members should also not be allocated costs relating to how data is 

presented to, and used by, regulatory Staff at the SROs or the Commission.”535  Furthermore, the 

 
528  Id. at 2. 
529  Id. at 11.  Rule 613(a)(5) of Regulation NMS requires the Commission to conduct an assessment of the 

Proposed Amendment’s impact on efficiency, competition and capital formation, which is not the same 
economic analysis as the Commission conducts when engaged in a rulemaking.  17 CFR 242.613(a)(5).  
The Proposed Amendment contains the information needed for the Commission to conduct this assessment.  
See infra Section IV.  See also infra note 1044. 

530  See Citadel July Letter at 33–35. 
531  Id. at 3, 34. 
532  Id.  See also FIF and SIFMA Letter at 13. 
533  See Citadel July Letter at 3, 32. 
534  Id. at 32. 
535  Id. 



96 

commenter suggested that change requests that do not involve specific NMS Plan requirements 

should be allocated to the requestor, including the Commission.536  

Commenters also discussed a need for a cost review mechanism,537 with several 

commenters citing to high operating costs as evidence for the need of one.538  One commenter 

stated that CAT costs are increasing at an unsustainable level and need to be controlled.539  The 

commenter stated that the Commission lacks a process to manage CAT costs as CAT operating 

costs are not part of the Commission’s budget and do not require an appropriation.540  The 

commenter urged that there is a need to allow the public, the Commission and industry to have a 

better understanding of the drivers of CAT operating costs,541 why they have exceeded the 

operating costs estimated in the CAT NMS Plan,542 and why they are projected to increase 27% 

from 2022 to 2023.543  The commenter requested that the Commission direct the Participants to 

analyze the increase in CAT operating costs and to evaluate future expected annual CAT 

operating cost increases,544 and also advised the Commission not to mandate any new processing 

or reporting requirements until such analysis has concluded.545   

 
536  Id. 
537  See SIFMA May 2023 Letter at 3, 8–10; Citadel July Letter at 8, 26, 27; FIF and SIFMA Letter at 8–9; 

SIFMA AMG Letter at 3.  See also SIFMA October 2022 Letter at 5–6; SIFMA January 2023 Letter at 2, 
5–6; SIFMA June 2023 Letter at 2, n.10, 4; Virtu Letter at 4; MMI July Letter at 3–4; FIA Letter at 3, 5.  

538  See, e.g., MMI July Letter at 3; Virtu Letter at 4, FIF and SIFMA Letter at 2, 5–9; SIFMA AMG Letter at 
3. 

539  FIF and SIFMA Letter at 2, 5.  The commenter stated that internal costs and costs associated with trading 
workflow changes to comply with certain CAT reporting requirements should also be considered, arguing 
that these costs would significantly exceed CAT operating costs are 100% paid for by broker-dealers and 
exchanges.  Id. at 2, 5, 6.   

540  Id. at 8.   
541  Id. 
542  Id. at 7, 9.   
543  Id. at 9. 
544  FIF and SIFMA Letter at 4. 
545  Id. 



97 

One commenter stated that asset managers were concerned about the lack of an 

independent cost review mechanism for the CAT budget to ensure that future fees are fair and 

reasonable and spending will be appropriate and cost-effective.546  Similarly, another commenter 

stated that an independent cost review mechanism is necessary to ensure future CAT fees are fair 

and reasonable and to safeguard against unchecked spending.547  The commenter urged the 

inclusion of a mechanism to allow the public to review the annual CAT budget before it is 

finalized, since, as proposed, the public would only have the opportunity to review the CAT 

budget when the Participants submit proposed rule changes, pursuant to Section 19(b) of the 

Exchange Act,548 to implement CAT fees on Industry Members.549  The commenter also stated 

that it is unlikely that the Commission would decide that a proposed CAT fee does not meet 

Exchange Act fee standards and require the Participants to modify the CAT budget because it 

would be a lengthy, time-consuming process and due to “the regulatory value of CAT data and 

the CAT system to the Commission.”550  The commenter stated that the Commission is “directly 

conflicted in its role as the user and beneficiary of the CAT system for regulatory functions and 

its role as the reviewer of the CAT budget and fee filings, a conflict that is only heightened due 

to a lack of a Commission funding obligation for CAT.”551  The commenter also requested that 

“the Participants’ proposed budget include as a separate line-item projected usage costs and 

 
546  See SIFMA AMG Letter at 3. 
547  See SIFMA May 2023 Letter at 3, 8–10.  See also SIFMA October 2022 Letter at 5–6; SIFMA January 

2023 Letter at 2, 5–6; SIFMA June 2023 Letter at 2, n.10, 4; Citadel July Letter at 2, 26 (stating that that 
“the trajectory of annual operating expenses is unconstrained,” and that the “magnitude and trajectory” of 
the costs are not reasonable since Industry Members have borne nearly all CAT-related costs”); Citadel 
August Letter at 7. 

548  15 U.S.C. 78s(b). 
549  See SIFMA May 2023 Letter at 8–9.  See also SIFMA June 2022 Letter at 8–9; SIFMA October 2022 

Letter at 6; SIFMA January 2023 Letter at 5, 6. 
550  SIFMA May 2023 Letter at 9. 
551  Id. at 9–10. 



98 

system change costs related to the Commission’s use and design of the CAT system.”552  

Similarly, another commenter suggested that an independent expert committee assess whether 

cost levels and third party arrangements are reasonable, and whether more cost-control measures 

are warranted,553 and that the Commission formally approve the CAT budget on an annual 

basis.554  The commenter further stated that the Proposed Amendment made no attempt to 

specify the key drivers of costs, such as explaining the requirements that resulted in significant 

cost increases, or the design alternatives the Operating Committee previously considered.555  The 

commenter added that Industry Members must fund a 25% reserve above budgeted amounts, and 

ad-hoc discussions between the Operating Committee and the Commission could result in higher 

costs.556   

The commenter also suggested enhancements to reduce overall CAT operating costs.557  

Specifically, the commenter suggested that the Operating Committee and the Commission stop 

making changes to the CAT to stabilize operating costs, stating that there are changes slated for 

development that are currently subject to exemptive relief, and other requirements the 

commenter believes are outside the scope of the CAT NMS Plan that would result in costs that 

outweigh benefits.558  The commenter suggested that the Operating Committee file an updated 

NMS plan to reflect the status quo,559 and work with the Commission and industry to identify 

 
552  Id.  See also SIFMA January 2023 Letter at 6. 
553  See Citadel July Letter at 3, 33. 
554  Id. 
555  Id. at 14. 
556  Id. at 26. 
557  See Citadel July Letter at 33–35. 
558  Id. at 3, 32–33.  One other commenter echoed some of these same considerations.  See MMI July Letter at 

4. 
559  See Citadel July Letter at 3, 33. 



99 

technical requirements that could be modified to reduce costs without sacrificing the key benefits 

of the CAT system, like moving timelines from T+1 to T+2.560  The commenter also suggested 

that steps should be taken to streamline the CAT submission process to minimize reporting errors 

and to reduce industry implementation costs, like implementing further data validation.561  One 

commenter stated that if the Participants “determine to charge their members fees to fund their 

share of CAT fees,” then Industry Members would bear 100% of CAT costs, and thus,“[w]ith 

little to no skin-in-the-game, the Participants will not be incentivized to control costs.”562  The 

commenter further stated that they join other commenters in calling for an “independent cost 

review mechanism.”563  

In response to the comment that suggested that all CAT operating budgets should remain 

published on the CAT website,564 CAT LLC stated that it publishes its annual financial 

statements from 2017-on and voluntarily publishes its annual operating budget and updates to the 

budget occurring during the year.565  CAT LLC stated that, in response to the comment, it 

intends that prior CAT operating budgets will stay available on the CAT website.566 

In response to a commenter suggesting that the exchanges be responsible for any costs 

that exceeded the approved budget,567 CAT LLC stated that this suggestion would not result in a 

fair and equitable allocation consistent with the Exchange Act because Industry Member trading 

 
560  Id. 
561  Id.   
562  See FIA Letter at 3.  See also Citadel August Letter at 2. 
563  FIA Letter at 5. 
564  See Citadel July Letter at 3, 34. 
565  See CAT LLC July 2023 Response Letter at 26. 
566  Id. 
567  See Citadel July Letter at 32. 



100 

activity “contributes significantly”568 to CAT costs and it would not be fair for Participants to 

bear CAT costs exceeding the budget if unexpected increases in trading volume resulted in the 

increased CAT costs.569  CAT LLC also stated that this suggestion could incentivize the 

Participants to base the budget on “the most conservative projections for future Industry Member 

data volume”570 to not be responsible for costs that go over the budget.571  In addition, CAT LLC 

noted that the Proposed Amendment would include both a requirement to adjust the Fee Rate 

during the year to address any changes in projected or actual transaction volume or budgeted or 

actual CAT costs, and an operational reserve to address shortfalls in collected fees versus actual 

CAT costs.572 

In response to suggestions to use an independent cost review mechanism,573 CAT LLC 

stated that such a review process is unnecessary because it would go beyond what is required by 

either Rule 613 or the CAT NMS Plan, and would be superfluous since any CAT fees must, prior 

to being implemented, undergo the review process detailed in Rule 608 and Section 19(b) of the 

Exchange Act.574  CAT LLC also noted that the Commission is entitled to request additional 

budget or cost information it views as necessary to better evaluate those fees.575  CAT LLC also 

stated that it already provides significant cost transparency through the public disclosure of its 

quarterly budget information and its financials, and that it is already actively engaged in cost 

 
568  See CAT LLC July 2023 Response Letter at 12. 
569  Id. 
570  Id. 
571  Id. 
572  Id. 
573  See SIFMA May 2023 Letter at 3, 8–10.  See also SIFMA October 2022 Letter at 5–6; SIFMA January 

2023 Letter at 2, 5–6; SIFMA June 2023 Letter at 2, n.10, 4; Citadel July Letter at 3, 33; FIA Letter at 5. 
574  See CAT LLC May 2023 Response Letter at 10. 
575  Id.101 

discipline efforts, including through a designated cost-management working group.576  CAT 

LLC further explained that Participants are subject to regulatory requirements to implement CAT 

and oversee their members and cannot have their compliance subject to a third party without 

such restrictions.577  CAT LLC added that the Commission itself could have its ability to oversee 

the securities markets undermined if CAT is subject to review by a third party without regulatory 

restrictions.578  In response, one commenter stated that the CAT LLC Response Letter did not 

meaningfully address its concerns about the lack of a cost control mechanism.579 

CAT LLC provided a further response to commenters that recommended the adoption of 

an independent cost review mechanism for CAT costs,580 stating that a review process is not 

necessary or appropriate.581  CAT LLC explained that it is already actively involved in cost 

discipline efforts, such as through a designated cost management working group, and already 

provides “significant cost transparency” by publishing its quarterly budget information and 

financial information.582  CAT LLC also stated that such a review process would go beyond the 

requirements of Rule 613 and would be unnecessary because changes to the funding model 

would be filed as a plan amendment under Rule 608 of Regulation NMS and CAT fees for 

Industry Members would be filed pursuant to Section 19(b) of the Exchange Act, and both 

processes would permit the public to comment on such proposals.583  CAT LLC further stated 

 
576  Id. 
577  Id. 
578  Id. 
579  See SIFMA June 2023 Letter at 2. 
580  See Citadel July Letter at 33; FIA Letter at 5; MMI July Letter at 2; SIFMA June 2023 Letter at 2; id. at 

n.10; Virtu Letter at 4.   
581  See CAT LLC July 2023 Response Letter at 19. 
582  Id. at 20. 
583  Id. at 19–20. 



102 

that providing a third-party that does not have regulatory obligations control over the annual 

budget could “impermissibly restrict the Participants from discharging their regulatory 

obligations” and undermine the Commission’s ability to oversee the securities markets.584  CAT 

LLC also responded to the commenter that urged the Commission to annually approve the CAT 

budget585 by stating that such an approval process would not be necessary or appropriate as CAT 

LLC is a private entity subject to the requirements of the Exchange Act, not a governmental 

entity, and CAT fees would be filed with the Commission under Rule 608 of Regulation NMS 

and Section 19(b) of the Exchange Act and subject to the Commission’s review for consistency 

with the Exchange Act.586  Furthermore, CAT LLC stated that the Commission can request 

budget and financial information from CAT LLC if necessary for the evaluation of CAT fee 

filings.587  

In response to the commenter that asked whether the Participants would have an 

incentive to manage costs because they proposed to allocate most costs to Industry Members,588 

CAT LLC stated that it “strongly disagrees with the suggestion that the Participants would not be 

incentivized to control CAT costs if they are only responsible for one-third of the CAT costs 

going forward.”589  CAT LLC stated that the Participants have been focused on cost management 

when paying 100% of CAT costs and will continue this focus since they will be paying one-third 

of CAT costs, a “significant incentive to keep costs at an appropriate level.”590 

 
584  Id. at 20. 
585  See Citadel July Letter at 33. 
586  See CAT LLC July 2023 Response Letter at 20–21. 
587  Id. at 21. 
588  See FIA Letter at 4–5. 
589  See CAT LLC July 2023 Response Letter at 26. 
590  Id. 



103 

In response to comments expressing concern about increasing CAT operating costs,591 

CAT LLC described its commitment to cost management,592 stating that cost management is a 

top priority and that it works to reduce costs in a number of ways, including through the Cost 

Management Working Group comprised of senior members of the Participants that works to find 

and address cost management needs.593  CAT LLC also noted that Rule 613 and the CAT NMS 

Plan “impose significant regulatory obligations on the Participants regarding how to design, 

build and operate the CAT System” and that the Commission could compel the Participants to 

comply with Rule 613 or the CAT NMS Plan through enforcement actions if CAT LLC and the 

Participants ever fail to do so.594  CAT LLC stated that its largest cost driver is the processing 

and storage of CAT data in the cloud, representing 75% of all CAT costs.595  CAT LLC stated 

that CAT NMS Plan requirements “do not allow for any material flexibility in cloud architecture 

design choices, processing timelines (e.g., the use of non-peak processing windows), or lower-

cost storage costs,” limiting CAT LLC’s cost management efforts, and provided examples where 

CAT LLC and the Plan Processor worked to optimize cloud cost savings despite regulatory 

constraints.596  CAT LLC described other steps it has taken to save costs, such as through 

requests to the Commission for exemptive relief and litigation challenging the Commission’s 

interpretation of specific requirements of the CAT NMS Plan,597 as well as identification of other 

 
591  See Citadel July Letter at 7–9, MMI July Letter at 1, 4, SIFMA June 2023 Letter at 4; Virtu Letter at 4. 
592  See CAT LLC July 2023 Response Letter at 22–25. 
593  Id. at 22. 
594  Id. 
595  Id. 
596  Id. at 23. 
597  Id. at 24. 



104 

changes that could substantially lower costs but would require exemptive relief or the filing of a 

Plan amendment.598   

In response to one commenter’s recommendation that CAT LLC work with the 

Commission to identify technical requirements that could be modified to reduce costs without 

sacrificing the key benefits of the CAT system,599 CAT LLC stated that both it and the Plan 

Processor work to identify and raise with Commission staff potential fundamental changes to the 

CAT NMS Plan that would limit costs without compromising on regulatory goals, and provided 

examples of such changes.600 

The Commission acknowledges the comments expressing concern about increases to the 

CAT operating budget, particularly why it is now five times the amount estimated in the CAT 

NMS Plan Approval Order,601  and the comments urging the need for a cost review 

mechanism,602 but believes the Participants have reasonably explained why they chose not to 

include an independent cost review mechanism for budgeted CAT costs for the reasons stated 

above and in the Notice.  Given the transparency of the budget and Rule 19b-4 process, the one-

third allocation of costs to Participants, which provides them with at least some incentive to 

control costs, and the pre-existing requirement for an independent audit of all fees, costs and 

 
598  See CAT LLC July 2023 Response Letter at 25. 
599  See Citadel July Letter at 33. 
600  See CAT LLC July 2023 Response Letter at 25–26. 
601  See, e.g., Citadel August Letter at 8; Citadel July Letter at 2, 5.  The Commission acknowledges a 

commenter’s suggestion that the Commission perform its own analysis of the budget increases.  Under the 
Proposed Amendment, the Participants must submit Rule 19b-4 filings that include a discussion of the 
budget that was used to calculate the Fee Rate.  At such time the Commission, Industry Members and the 
public will have an opportunity analyze the budget.  This Order, which approves the Funding Model, does 
not weigh-in on the budgets or the resulting Fee Rates.   

602  See SIFMA May 2023 Letter at 3, 8–10; Citadel July Letter at 8, 26, 27; FIF and SIFMA Letter at 2, 5–9; 
SIFMA AMG Letter at 3.  See also SIFMA October 2022 Letter at 5–6; SIFMA January 2023 Letter at 2, 
5–6; SIFMA June 2023 Letter at 2, n.10, 4; Virtu Letter at 4; MMI July Letter at 3–4; FIA Letter at 3, 5.   



105 

expenses incurred by the Participants prior to filing this amendment,603 it is reasonable not to 

have an additional independent cost-review mechanism for the reasons set forth above.  The 

Commission believes that the incentive to control costs still exists even if the Participants pass-

through to Industry Members some or most of the costs of the CAT.  This is because, in order to 

pass-through CAT costs, the Participants would have to submit rule filings under the Section 

19(b) fee filing process.  To the extent the Participants fail to control costs, their ability to 

demonstrate that a proposed fee is reasonable and consistent with the Exchange Act may be 

compromised.  While the above obligations and controls are sufficient, other cost discipline 

mechanisms proposed by CAT LLC would provide beneficial cost transparency, which would 

help keep fees and costs reasonable.604  For example, (1) Section 9.2(a) of the CAT NMS Plan 

requires CAT LLC to make public an audited balance sheet, income statement, statement of cash 

flows and statement of changes in equity, and requires the Operating Committee to maintain a 

system of accounting established and administered in accordance with GAAP and to prepare 

financial statements or information supplied to the Participants in accordance with GAAP;605 (2) 

CAT LLC publicly provides the annual operating budget and updates to the budget on the CAT 

NMS Plan website and also has held webinars about CAT costs and alternative funding models; 

(3) involvement by CAT LLC and FINRA CAT in efforts to reduce CAT costs through CAT 

working groups and review of options to lower costly needs and obtain services in a cost-

effective manner; and (4) Commission oversight of CAT funding through attendance at 

Operating Committee, Subcommittee and working group meetings and review of the Proposed 

 
603  See CAT NMS Plan, supra note 2 at Section 6.2(a)(v)(B). 
604  See Notice, supra note 7, 88 FR at 17117. 
605  See CAT NMS Plan, supra note 2, at Section 9.2(a).  Section 9.2(a) states that unaudited statements shall be 

subject to year-end adjustments and may not include footnotes. 



106 

Amendment and any associated CAT fees.606  Additionally, the specification of the items 

required to be included in the operating budget is appropriate in that it will help the Commission, 

Industry Members and others evaluate CAT costs for purposes of commenting on CAT fees 

when they are proposed under Section 19(b) of the Exchange Act.607  This additional detail 

should provide sufficient information about the budget for the Commission to determine whether 

such proposed fees are reasonable, and obviate the need for a separate Commission approval of 

the CAT budget, as suggested by commenters.608  Additionally, the Commission understands 

that technology costs account for more than 90% of the CAT budget609 and thus believes that it 

is appropriate for the CAT NMS Plan to require the Participants to separate such costs into costs 

for cloud hosting services, operating fees, CAIS operating fees, change request fees and 

capitalized developed technology costs.610   

One commenter requested further information to be provided on technology costs.611  

The Participants would be required to describe each line item (including such technology costs) 

in the fee filings for Industry Member CAT Fees and the Historical CAT Assessment, including 

the reasons for changes in each line item from the prior CAT fee filing, and that this information 

 
606  See Notice, supra note 7, 88 FR at 17117.  CAT LLC also lists the following as cost-control mechanisms:  

(1) CAT LLC must operate on a break-even basis, in which fees would be used to recover costs and a 
reserve, and a surplus would be treated as an operational reserve to offset future fees (see CAT NMS Plan, 
supra note 2, at Section 11.1(c)); (2) CAT LLC qualifies as a Section 501(c)(6) business league, which 
means it is not organized for profit and no part of its net earnings can inure to the benefit of any private 
shareholder or individual (26 U.S.C. 501(c)(6)).  

607  15 U.S.C. 78s(b).   
608  See proposed Section 11.1(a)(i); proposed Section 11.3(a)(iii)(B) (requiring the information to be provided 

in the Industry Member CAT Fee filings submitted by the Participants to be of sufficient detail to 
demonstrate that the budget for the upcoming year, or part of year as applicable, is reasonable and 
appropriate).    

609  See Notice, supra note 7, 88 FR at 17090. 
610  Id. at 17117. 
611  See supra note 522. 



107 

would be provided with sufficient detail to demonstrate the budget or Historical CAT Costs (as 

applicable) is reasonable and appropriate.612  Because the Participants are also assessed CAT 

fees, they have at least some incentive similar to that of the Industry Members to keep costs 

down.  As discussed above, the Commission believes that this incentive still exists even if the 

Participants pass-through to Industry Members some or most of the costs of the CAT, because 

any effort to pass on costs would require Participants to submit filings under the Section 19(b)(2) 

rule filing process.  Moreover, to the extent the Industry Members have concerns about the 

amounts allocated for each category in a particular budget, those concerns can be raised when the 

fee filings are submitted for Prospective CAT fees.  The Section 19(b)(2) rule filing process 

provides an opportunity for public comments and will allow commenters to raise concerns if they 

believe fees, including CAT Fees, are not reasonable and equitably allocated, would result in 

unfair discrimination, or would impose any burden on competition that is not necessary or 

appropriate in furtherance of the purposes of the Exchange Act.  While a commenter stated that 

the Commission is a conflicted party due to its use of the CAT and its responsibility to review 

CAT fee filings,613 the Commission is not a party to the Plan.614  Moreover, as regulator of the 

Participants, the Commission oversees and enforces compliance with the Plan, as well as 

consistency of any fees with statutory and regulatory standards.615   

Additionally, one commenter recommended the inclusion of the Commission’s line item 

costs associated with its usage and design of the CAT in the budget.616  In response,617 CAT LLC 

 
612  See proposed Section 11.3(a)(iii)(B); proposed Section 11.3(b)(iii)(B)(II). 
613  See SIFMA May 2023 Letter at 9–10. 
614  See 17 CFR 242.608(a)(1) (stating that NMS plans are filed by two or more SROs). 
615  See 17 CFR 242.608(b)(2), (c), (d); 17 CFR 242.613(h). 
616  See SIFMA May 2023 Letter at 10.  CAT LLC May 2023 Response Letter at 11. 
617  See SIFMA May 2023 Letter at 10.   



108 

responded that, because all costs related to CAT are a result of the Commission’s adoption of 

Rule 613 and the total costs are reflected in the budget, it would be impractical to break out 

Commission-specific costs and would not be useful as a practical matter.618  The Commission 

agrees that it would be impractical to add a Commission-specific line item in the budget, in part 

because it would be difficult to separate costs associated with Commission use of the CAT 

system from costs associated with Participant use of the CAT system.619  Moreover, the 

implementation of the CAT – while mandated by the Commission through Rule 613 – has been 

managed by the Participants and the Plan Processor; the Commission does not believe that any 

changes to its design have been made that are inconsistent with the CAT NMS Plan as approved 

in 2016, such that the inclusion of a line item in the budget attributing certain design costs to the 

Commission would be inaccurate and misleading.620   

The Commission acknowledges the enhancements a commenter suggested to reduce CAT 

operating costs by modifying the technical specifications (e.g., by moving certain timelines to 

T+2 from T+1) and streamlining the reporting submission process (e.g., implementing further 

data validation),621 but such suggestions are better addressed in the context of a separate plan 

amendment.  The commenter also suggested that the CAT Operating Committee and the 

Commission stop making any changes to the CAT and noted that there are several changes that 

are currently subject to exemptive relief that are slated for development.622  The Commission 

disagrees that the changes cited by the commenter are new CAT NMS Plan requirements; indeed 

 
618  See CAT LLC May 2023 Response Letter at 11. 
619  All Participants are required to use the CAT in their surveillance programs.  See CAT NMS Plan, supra 

note 2, at Section 6.10. 
620  For further discussion, see infra Section III.A.9.c.-d. 
621  See Citadel July Letter at 33–35. 
622  Id. 



109 

the relevant Commission orders granting exemptive relief discuss the various requirements under 

the CAT NMS Plan that form the basis of the relief granted.623  Furthermore, any amendments to 

the requirements in the CAT NMS Plan must be filed with the Commission and published for 

notice and comment and generally shall not become effective unless approved by the 

Commission.624  Regarding the suggested enhancements to improve CAT transparency,625 the 

CAT NMS Plan and Rules 608 and 613 of Regulation NMS provide for sufficient advance notice 

of material changes to the CAT system and related costs.  As discussed above,  changes to the 

CAT NMS Plan must be filed with the Commission as an NMS plan amendment pursuant to 

Rule 608 of Regulation NMS and therefore be subject to notice and comment, and the 

Commission shall consider, in determining to approve the amendment, the impact of the 

amendment on efficiency, competition and capital formation.626  Additionally, Section 6.9 of the 

CAT NMS Plan requires a Supermajority Vote of the CAT Operating Committee in order to 

make Material Amendments627 to the Technical Specifications.  Section 6.9, however, does not 

provide unfettered discretion to the CAT Operating Committee to make changes to the CAT 

system; any amendments to the CAT Technical Specifications must be consistent with the CAT 

NMS Plan.  If the CAT Operating Committee or the Commission wish to impose additional 

 
623    See Securities Exchange Act Release No. 97350 (May 18, 2023), 88 FR 33655 (May 24, 2023); Securities 

Exchange Act Release No. 90689 (Dec.16, 2020), 85 FR 83667 (Dec. 22, 2020); Securities Exchange Act 
Release No. 90688 (Dec. 16, 2020), 85 FR 83634 (Dec. 22, 2020). 

624  See Rule 608(b)(1); 17 CFR 242.608(b)(1).  However, a plan amendment can be put into effect upon filing 
with the Commission if it is designated as solely administrative, technical or ministerial.  See Rule 
608(b)(3). 

625  See supra notes 530–532. 
626  Rule 613(a)(5).  17 CFR 242.613(a)(5). 
627  The CAT NMS Plan defines a “Material Amendment” as an amendment to the Technical Specifications 

that “would require a Participant or an Industry Member to engage in significant changes to the coding 
necessary to submit information to the Central Repository pursuant to this Agreement or if it is required to 
safeguard the security or confidentiality of the CAT Data.”  See CAT NMS Plan, supra note 2, at Section 
6.9(c). 



110 

requirements that are not contemplated by the CAT NMS Plan, such requirements must be 

proposed through an amendment to the CAT NMS Plan, filed under Rule 608 of Regulation 

NMS, which must be published for notice and comment.628  The Commission agrees with the 

commenter that all CAT operating budgets should remain published on the CAT NMS Plan 

website, as they have been since 2022, and understands that CAT LLC will continue to do so in 

the future.629  Therefore, the Commission does not believe it is necessary to add an explicit 

requirement to this effect. 

The use of budgeted CAT costs is appropriate to determine the Fee Rate because it ties 

the Fee Rate to the costs that the CAT will likely incur during the relevant period which are also 

the Prospective CAT Costs that will need to be apportioned among the Participants and CAT 

Executing Brokers.630  Should the use of budgeted costs result in a budget surplus, that surplus 

would translate to lower fees in the coming year because there would be a lower requirement for 

reserves.631  Also, using budgeted costs to determine the Fee Rate facilitates financial stability, 

allowing CAT LLC to collect fees before bills become payable.632   

The requirements that the Operating Committee approve a “reasonable” operating budget 

for CAT LLC,633 that fees, costs and expenses be “reasonable” and that they be “reasonably 

budgeted to be incurred by or for the Company in connection with the development, 

implementation and operation of the CAT as set forth in the annual operating budget approved 

 
628  See Rule 608(b)(1).  17 CFR 242.608(b)(1). 
629  See CAT LLC May 2023 Response Letter at 10-11. 
630  See Notice, supra note 7, 88 FR at 17114. 
631  See infra Section III.A.5.c. (Reserve). 
632  See id. 
633  See proposed Section 11.1(a). 



111 

by the Operating Committee”634 is appropriate in the public interest.635  The existing CAT NMS 

Plan did not include such language, potentially providing the Participants full discretion to pass 

along to Industry Members costs that are not reasonable.  Such costs could have included costs 

that were incurred due to Participant mismanagement, costs that were inflated or costs that 

should reasonably be allocated to only the Participants.  Requiring these costs to be reasonable 

and reasonably budgeted imposes discipline on CAT spending, and the Commission, Industry 

Members and others will be able to review budget information during the rule filing process 

under Section 19(b) of the Exchange Act. 

   c. Reserve 

CAT LLC proposed to add a requirement to Section 11.1(a)(i) of the CAT NMS Plan that 

the budget shall include “a reserve and such other cost categories as reasonably determined by 

the Operating Committee to be included in the budget.”636  CAT LLC also proposed to add 

paragraph (ii) to Section 11.1(a) of the CAT NMS Plan to state that “[f]or the reserve referenced 

in paragraph (a)(i) of this Section, the budget will include an amount reasonably necessary to 

allow the Company to maintain a reserve of not more than 25% of the annual budget.”637  

Moreover, CAT LLC would calculate the reserve based on the amount of the budget other than 

the reserve.638  In addition, proposed subparagraph (ii) of Section 11.1(a) of the CAT NMS Plan 

 
634  Proposed Section 11.3(a)(i)(C). 
635  One commenter complained that Participants were not providing the public with an opportunity to review 

the budget until after it was finalized.  See SIFMA May 2023 Letter at 8-10.  As CAT LLC explained, this 
appears to be based on a misunderstanding, as CAT LLC provides the annual budget and quarterly updates 
to the public.  See CAT LLC May 2023 Response Letter at 11. 

636  Proposed Section 11.1(a)(i). 
637  Proposed Section 11.1(a)(ii).  
638  Specifically, proposed Section 11.1(a)(ii) of the CAT NMS Plan would state that “[f]or the avoidance of 

doubt, the calculation of the amount of the reserve would exclude the amount of the reserve from the 
budget.” 



112 

would state that “[t]o the extent collected CAT fees exceed CAT costs, including the reserve of 

25% of the annual budget, such surplus will be used to offset future fees.”639  Proposed Section 

11.1(a)(ii) of the CAT NMS Plan provides that “[f]or the avoidance of doubt, the Company will 

only include an amount for the reserve in the annual budget if the Company does not have a 

sufficient reserve (which shall be up to but not more than 25% of the annual budget).”640  

One commenter stated that the proposed reserve of not more than 25% of the CAT 

budget is excessive.641  The commenter noted that the support provided for the proposed change 

was the Participants’ difficulty in forecasting CAT costs, which the commenter stated 

demonstrates a need for an independent cost review mechanism.642   

The Proposed Amendment providing that the annual operating budget include a reserve 

of not more than 25% of the annual budget is reasonable.643  Because the CAT is a critical 

regulatory tool/system, the CAT needs to have a stable funding source to build financial stability 

to support the Company as a going concern.644  Funding for the CAT, as noted in Section 

11.1(b), is the responsibility of the Participants and the industry.645  Because CAT fees are 

charged based on the budget, which is based on anticipated volume, it is reasonable to have a 

reserve on hand to prevent a shortfall in the event there is an unexpectedly high volume in a 

given year.  A reserve would help to assure that the CAT has sufficient resources to cover costs 

should there be unanticipated costs or costs that are higher than expected.  CAT LLC explained 

 
639  Id. 
640  Id. 
641  See SIFMA January 2023 Letter at 6, n.15.  See also Citadel July Letter at 26 (objecting to the requirement 

that Industry Members “fund an additional 25% reserve over budgeted amounts each year.”).   
642  See SIFMA January 2023 Letter at 6, n.15. 
643  See Notice, supra note 6, 88 FR at 17090. 
644  See CAT NMS Plan, supra note 2, at Section 11.2(f). 
645  Id. at Section 11.1(b). 



113 

that the proposed reserve amount of not more than 25% of the annual budget is based on a 

comparison of actual CAT costs and budgeted costs from 2020 through the first nine months of 

2022 that demonstrated that actual CAT costs exceeded budgeted costs by 20% during this time 

period.646  CAT LLC also noted difficulty in predicting variable CAT costs in concluding to cap 

the reserve at 25%.647  Additionally, CAT LLC explained that CAT fees will be collected 

approximately three months after trading activity on which a CAT fee is based, or 25% of the 

year.648  CAT LLC stated that the reserve would be available to address funding needs related to 

this three-month delay.649  No commenter stated that they thought anything higher than a 25% 

reserve was necessary and no commenter provided an alternative solution to make sure that CAT 

remains funded and able to pay its bills.  The Commission therefore believes that a reserve of no 

more than 25% is reasonable based on the factors listed by CAT LLC.  

In addition, the Commission recognizes that if CAT fees exceed CAT costs, including the 

reserve, the surplus will be used to offset future fees, and that a reserve will only be included in 

the annual budget on which the fees are based if CAT LLC does not have a sufficient reserve, 

which would be limited to 25% of the annual budget.650  The Commission also recognizes that 

the Company must operate on a break-even basis and that any surpluses would be treated as an 

operational reserve to offset future fees and not be distributed to Participants as profits.651  The 

Commission further recognizes that proposed Section 11.1(a)(ii) states that CAT LLC will only 

 
646  See Notice, supra note 7, 88 FR at 17090. 
647  Id. 
648  Id. at 17091. 
649  Id. 
650  Id.  See also proposed Section 11.1(a)(ii). 
651  The CAT NMS Plan requires that a surplus of the Company’s revenues over its expenses be treated as an 

operational reserve to offset future fees.  See CAT NMS Plan, supra note 2, at Section 11.1(c). 



114 

include an amount for the reserve in the annual budget if the Company does not have a sufficient 

reserve; therefore, the Participants would not be collecting additional fees if CAT LLC already 

has a reserve of 25% of the annual budget.652  Furthermore, the reserve would be calculated by 

CAT LLC based on the amount of the budget other than the reserve because the reserve is meant 

to fund CAT LLC to pay its bills if necessary.653  These requirements should obviate the need for 

a refund mechanism.   

To date, CAT has been solely funded by the Participants.654  The CAT NMS Plan, 

however, requires funding for the CAT come from both Participants and Industry Members.655  It 

is the Commission’s view that establishing a reserve is a reasonable way to ensure that future 

funding is secured from all intended parties, rather than relying on Participants alone.  

d.  Fee Filings under Section 19(b) of the Exchange Act for Industry 
Member CAT Fees 

 
CAT LLC described the information that Participants would be required to include in 

their fee filings to be made pursuant to Section 19(b) of the Exchange Act and Rule 19b-4 

thereunder for Industry Member CAT Fees in proposed paragraph (B) of proposed Section 

11.3(a)(iii) of the CAT NMS Plan.656  Specifically, such filings would be required to include 

 
652  See Notice, supra note 7, 88 FR at 17091.  See also proposed Section 11.1(a)(ii). 
653  See Notice, supra note 7, 88 FR at 17090.  See also proposed Section 11.1(a)(ii). 
654  One commenter objected to CAT LLC’s reference to the financial viability of the CAT as an attempt to 

“coerce the Commission into prematurely opining on a funding proposal that does not meet basic Exchange 
Act requirements.”  See Citadel August Letter at 1.  For the reasons explained in this order, the Funding 
Model meets the applicable standard for approval.   

655  See CAT NMS Plan, supra note 2, at Section 11.1(b), 11.3(a) and (b). 
656  CAT LLC stated that it expected the fee filings required to be made by the Participants pursuant to Section 

19(b) of the Exchange Act with regard to CAT Fees to be filed pursuant to Section 19(b)(3)(A) of the 
Exchange Act and Rule 19b-4(f)(2) thereunder.  CAT LLC further stated that in accordance with Section 
19(b)(3)(A) of the Exchange Act and Rule 19b-4(f)(2) thereunder, such fee filings would be effective upon 
filing.  See Notice, supra note 7, 88 FR at 17095, n.38.  Pursuant to Section 19(b)(3)(A) and Rule 19b-
4(f)(2), a proposed rule change can take effect upon filing with the Commission if designated by the SRO 
as establishing or changing a due, fee, or other charge imposed by the SRO.  15 U.S.C. 78s(b), 15 U.S.C. 
78s(b)(3)(A), 17 CFR 240.19b-4(f)(2).  



115 

with regard to the CAT Fee: (A) the Fee Rate; (B) the budget for the upcoming year (or 

remainder of the year, as applicable), including a brief description of each line item in the 

budget, including (1) 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, a 

reserve and/or such other categories as reasonably determined by the Operating Committee to be 

included in the budget and the reason for changes in each such line item from the prior CAT Fee 

filing;657 (C) a discussion of how the budget is reconciled to the collected fees; and (D) the 

projected total executed equivalent share volume of all transactions in Eligible Securities for the 

year (or remainder of the year, as applicable), and a description of the calculation of the 

projection.  This detail would describe how the Fee Rate is calculated and explain how the 

budget used in the calculation is reconciled to the collected fees.658  In addition, CAT LLC 

proposed to state that the budgeted CAT costs described in the fee filings must provide sufficient 

detail to demonstrate that the CAT budget used in calculating the CAT Fees is reasonable and 

appropriate.659   

The collection of CAT Fees from Industry Members is subject to Section 11.6 of the 

CAT NMS Plan regarding the Financial Accountability Milestones.660  Accordingly, CAT LLC 

proposed to state that Participants will not make fee filings pursuant to Section 19(b) of the 

 
657  CAT LLC stated that it intends to include any other categories as reasonably determined by the Operation 

Committee.  Accordingly, this provision refers to “such other categories as reasonably determined by the 
Operating Committee to be included in the budget.”  Notice, supra note 7, 88 FR at 17095, n.39. 

658  As a practical matter, the fee filing would provide the exact fee per executed equivalent share to be paid for 
the CAT Fees, by multiplying the Fee Rate by one-third and describing the relevant number of decimal 
places for the fee.  See Notice, supra note 7, 88 FR at 17095, n.40. 

659  See proposed Section 11.3(a)(iii)(B).  
660  See CAT NMS Plan, supra note 2, at Section 11.6; see also supra note 18. 



116 

Exchange Act661 regarding CAT Fees until the Financial Accountability Milestone related to 

Period 4 described in Section 11.6 of the CAT NMS Plan has been satisfied.662   

As discussed above, one commenter stated that the budget line-item categories, which 

would be included in the Section 19(b) fee filings, are too high level.663  The commenter urged 

the inclusion of much greater detail and specificity on the budget spending choices, especially in 

technology, to allow Industry Members and the public to understand and evaluate CAT spending 

decisions.664   

The proposed process for implementing CAT Fees related to Prospective CAT Costs for 

Industry Members is reasonable.  Under the Executed Share Model, the Participants would be 

required to submit fee filings pursuant to Section 19(b) of the Exchange Act to change the Fee 

Rates for Industry Members twice a year, once at the beginning and once during the year.665  It is 

appropriate to accompany each Fee Rate change with a Section 19(b) fee filing because it would 

provide notice to Industry Members and the public of the Fee Rate change and permit such 

entities to provide comment on the change.   

In addition to the budget information already provided by the Participants on the CAT 

website, the detail provided in the fee filings for the budget would provide transparency into the 

budget as it would describe the line items of the budget and any changes to the budget and allow 

the public the ability to comment on the budget.666  The fee filings must discuss how the budget 

is reconciled to collected fees, which would provide the public an opportunity to comment on the 

 
661  15 U.S.C. 78s(b). 
662  See proposed Section 11.3(a)(iii)(C); see also CAT NMS Plan, supra note 2, at Section 11.6(a)(i)(D). 
663  See supra note 521. 
664  Id. 
665  See proposed Section 11.3(a)(i)(A)(I) and (II). 
666  See proposed Section 11.3(a)(iii)(B). 



117 

effectiveness of the reconciliation.667  The Executed Share Model establishes the framework for 

Industry Member CAT fees; details of the Budgeted CAT Costs will be provided in the Section 

19(b) fee filings submitted by the Participants.   

One commenter objected to how the Proposed Amendment addressed the Financial 

Accountability Amendments Period 4668 expenses.669  The commenter stated that if full 

implementation does not occur by September 27, 2023, the Operating Committee cannot recover 

from Industry Members any expenses related to Period 4.670  The commenter explained that the 

Proposed Amendment states that costs incurred during Period 4 may be allocated to Industry 

Members and that the Operating Committee had requested exemptive relief to extend the 

deadline for full implementation until August 31, 2024, which would allow the Participants to 

recover all Period 4 expenses from Industry Members.671  The commenter stated that the 

expenses related to Period 4 would likely total more than $400 million, and expressed the belief 

that this amount may be allocated in its entirety to Industry Members if the terms of the CAT 

NMS Plan are not enforced.672   

The commenter stated that this issue is “highly relevant to the Commission’s analysis of 

the 2023 Funding Proposal”673 and recommended three alternatives for the Commission to 

address the matter:  (1) to state that relevant financial accountability provisions will be enforced 

 
667  Id. 
668  See CAT NMS Plan, supra note 2, at Section 11.6. 
669  See Citadel July Letter at 24.   
670  Id. 
671  Id. at 24–25.  The commenter further explained that the Commission has reserved judgment on whether the 

terms of the Financial Accountability Amendments in Section 11.6 of the CAT NMS Plan would be 
enforced. 

672  Id. at 25. 
673  Id. 



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as written and permit the Operating Committee to allocate Period 4 expenses only to the extent 

permitted by the CAT NMS Plan (reduced by 75%, and by 100% if full implementation does not 

occur by September 27, 2023);674 (2) defer judgment and provide that Period 4 expenses cannot 

be allocated to Industry Members;675 or (3) defer judgment and permit the Operating Committee 

to allocate Period 4 expenses to Industry Members and analyze the potential impact of allocating 

all Period 4 costs to Industry Members on market efficiency, competition and capital 

formation.676  The commenter urged the Commission to conduct this analysis before waiting for 

a subsequent filing, stating that once the Commission approves an allocation methodology, “the 

CAT Operating Committee would simply apply that approved methodology to the costs incurred 

during a specific time period.”677 

In response to the commenter’s criticism that the Proposed Amendment does not 

adequately address the Period 4 expenses,678 CAT LLC stated that it recognizes the applicability 

of the Financial Accountability Milestones on the collection of CAT Fees and Historical CAT 

Assessments.679  CAT LLC stated that the Participants will not file CAT fee filings until they 

believe any applicable Financial Accountability Milestone has been satisfied, and noted that the 

Commission has not made a determination regarding the Participants’ satisfaction of the 

Financial Accountability Milestones.680   

 
674  See Citadel July Letter at 25. 
675  Id. 
676  Id. 
677  Id. at 26. 
678  Id. at 24. 
679  See CAT LLC July 2023 Response Letter at 30. 
680  Id. 



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As stated by the Participants, the Proposed Amendment acknowledges that the 

Participants are prohibited from submitting Exchange Act filings regarding Prospective CAT 

Fees until the Financial Accountability Milestone related to Period 4 described in Section 11.6 of 

the CAT NMS Plan has been satisfied.681  This is a reasonable approach for addressing how fee 

filings will be handled in conjunction with a determination of the Participants’ compliance with 

the Financial Accountability Milestones.  Under existing Section 11.6, the Participants will not 

be able to recover the full costs of the CAT for a period if the relevant Financial Accountability 

Milestone has not been satisfied.682  Because the amount the Participants cannot recover from 

Industry Members is not known until the Financial Accountability Milestone has been satisfied, 

it would not be appropriate for the Participants to require Industry Members to pay CAT costs in 

advance, as the amount of such costs could be reduced.683  The Commission acknowledges the 

concerns raised and suggestions offered by the commenter but the Commission is not making a 

finding on the satisfaction of the Period 4 Financial Accountability Milestone in this Order nor is 

such a finding required.  This filing merely establishes the framework under which costs will be 

allocated, not the amount to be allocated.  The Participants will not be able to submit filings to 

recover Prospective CAT Fees or Historical CAT Assessments to recover Period 4 expenses until 

the Period 4 Milestone has been satisfied.  When they do submit such filings, the question of 

compliance will impact how much can be recovered under the applicable framework; this model 

will then be used to determine how to allocate that amount.   

 
681  See proposed Section 11.3(a)(iii)(C). 
682  See CAT NMS Plan, supra note 2, at Section 11.6. 
683  See infra note 807. 



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e. Participant CAT Fees for Prospective CAT Costs 

CAT LLC proposed to describe the Participant CAT Fees related to Prospective CAT 

Costs in proposed Section 11.3(a)(ii) of the CAT NMS Plan.  Specifically, under proposed 

Section 11.3(a)(ii)(A) of the CAT NMS Plan, each Participant that is a national securities 

exchange will be required to pay the CAT Fee for each transaction in Eligible Securities 

executed on the exchange in the prior month based on CAT Data.  Each Participant that is a 

national securities association will be required to pay the CAT Fee for each transaction in 

Eligible Securities executed otherwise than on an exchange in the prior month based on CAT 

Data.684  The CAT Fee for each transaction in Eligible Securities will be calculated by 

multiplying the number of executed equivalent shares in the transaction by one-third and by the 

Fee Rate determined pursuant to proposed Section 11.3(a)(i).685   

CAT LLC also proposed Section 11.3(a)(ii)(B) of the CAT NMS Plan to provide that 

Participants would only be required to pay CAT Fees when Industry Members are required to 

pay CAT Fees.  CAT Fees charged to Industry Members become effective in accordance with 

the requirements of Section 19(b) of the Exchange Act.686  In contrast, CAT Fees charged to 

Participants are implemented via an approval of the CAT Fees by the Operating Committee in 

accordance with the requirements of the CAT NMS Plan.687  Specifically, to implement the 

Participant CAT fees, CAT LLC proposed to add the Proposed Participant Fee Schedule, entitled 

“Consolidated Audit Trail Funding Fees,” to Appendix B of the CAT NMS Plan. Proposed 

Paragraph (a) stated that “[e]ach Participant shall pay the CAT Fee set forth in Section 11.3(a) of 

 
684  See proposed Section 11.3(a)(ii)(A). 
685  Id. 
686  See proposed Section 11.3(a)(i)(A)(I) and (II); see also 15 U.S.C. 78s(b). 
687  See Notice, supra note 7, 88 FR at 17094.121 

the CAT NMS Plan to Consolidated Audit Trail, LLC in the manner prescribed by Consolidated 

Audit Trail, LLC on a monthly basis based on the Participant’s transactions in Eligible Securities 

in the prior month.”688  Because each Participant would be required to pay a CAT Fee once a Fee 

Rate has been established by the Operating Committee, and because of the time and burden 

required, CAT LLC stated that it would not submit an amendment to the CAT NMS Plan every 

time the Fee Rate is established or adjusted.689  

It is reasonable to require that each Participant pay a CAT Fee related to Prospective 

CAT Costs for each transaction in the prior month based on CAT Data.690  The CAT NMS Plan 

requires the Participants to contribute to the funding of the CAT.691  Additionally, as CAT LLC 

explained, the Executed Share Model recognizes the Participants (as market regulators) as one of 

the three parties who have primary roles in a transaction,692 so it is appropriate for a transaction-

based funding model to assess a CAT Fee upon the Participants.   

The Commission also believes it is reasonable that proposed Section 11.3(a)(ii)(B) 

provides that the Participants would be required to pay CAT Fees only when Industry Members 

are required to pay CAT Fees.  The CAT Fees charged to Participants would be implemented 

through an approval of the CAT Fees by the Operating Committee and not through a plan 

amendment submitted each time the Fee Rate changes,693 while CAT Fees charged to Industry 

Members may only become effective in accordance with the requirements of Section 19(b) of the 

 
688  Paragraph (a) of the Proposed Participant Fee Schedule. 
689  See Notice, supra note 7, 88 FR at 17108–09. 
690  See proposed Section 11.3(a)(ii). 
691  See CAT NMS Plan, supra note 2, at Section 11.1(b), Section 11.3(a). 
692  See Notice, supra note 7, 88 FR at 17104.  
693  Id. at 17108–09. 



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Exchange Act.694  However, both Participants and Industry Members would be subject to the 

same Fee Rate695 so it is appropriate to provide that Participants would be required to pay the 

Participant CAT Fee once CAT Fees based on the Fee Rate are effective for Industry Members. 

The Proposed Participant Fee Schedule is reasonable.  As the Proposed Participant Fee 

Schedule requires each Participant to pay the CAT Fee detailed in Section 11.3(a) of the CAT 

NMS Plan on a monthly basis, based on the Participant’s transactions in Eligible Securities in the 

prior month, in the manner prescribed by CAT LLC,696 the proposed fee schedule is appropriate 

because it imposes the Executed Share Model’s Participant CAT Fee obligation on the 

Participants by specifically requiring the Participants to pay a CAT Fee in accordance with the 

Executed Share Model.  The requirement in the Proposed Participant Fee Schedule clearly sets 

forth how the Participants will calculate their monthly CAT Fee obligation, and therefore does 

not believe that it is necessary for the Participants to submit an amendment to the CAT NMS 

Plan each time the Fee Rate changes; the formula for calculating fees will be constant although 

the Fee Rate that would be applied, which is objectively determined, will change only following 

a Participant fee filing under section 19(b) of the Exchange Act.697  This approach is reasonable 

in this circumstance because the CAT NMS Plan sets forth the Executed Share Model, the 

Participants are required to pay CAT Fees pursuant to the CAT NMS Plan and the same Fee Rate 

that would apply to Industry Members would apply to Participants.698  

 
694  See proposed Section 11.3(a)(i)(A).  See also 15 U.S.C. 78s(b). 
695  See proposed Section 11.3(a)(ii)(A) and (B). 
696  See paragraph (a) of the Proposed Participant Fee Schedule. 
697  See Notice, supra note 7, 88 FR at 17109. 
698  See proposed Section 11.3(a)(ii)(A) and (B). 



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6. Historical CAT Assessment 

  a. Calculation of Historical CAT Assessment 
 
Under the Executed Share Model, Past CAT Costs will be recovered from CEBBs and 

CEBSs through Historical CAT Assessments.699  Pursuant to proposed Section 11.3(b) of the 

CAT NMS Plan the Operating Committee will establish one or more Historical CAT 

Assessments depending upon the timing of any approval of the Proposed Amendment and the 

completion of the Financial Accountability Milestones.700  In establishing a Historical CAT 

Assessment, the Operating Committee will determine a “Historical Recovery Period”701 and 

calculate a “Historical Fee Rate”702 for that Historical Recovery Period.  Then, for each month in 

which a Historical CAT Assessment is in effect, each CEBB and each CEBS will pay a fee (the 

Historical CAT Assessment) for each transaction in Eligible Securities executed by the CEBB or 

CEBS from the prior month as set forth in CAT Data, where the Historical CAT Assessment for 

each transaction will be calculated by multiplying the number of executed equivalent shares in 

the transaction by one-third and by the Historical Fee Rate reasonably determined pursuant to 

proposed Section 11.3(b)(i).703  

 The actual amount of Past CAT Costs to be recovered through the Historical CAT  

 
699  See Notice, supra note 7, 88 FR at 17086; see also proposed Section 11.3(b); supra notes 32–33 and 

accompanying text (defining Historical CAT Assessments). 
700  See proposed Section 11.3(b)(iii).  See Notice, supra note 7, 88 FR at 17096, n.43; see also supra note 18 

and CAT NMS Plan, supra note 2, at Section 11.6. 
701  The Historical Recovery Period would be used to calculate the Historical Fee Rate for a Historical CAT 

Assessment.  Proposed Section 11.3(b)(i)(D) of the CAT NMS Plan provides the Operating Committee 
with the discretion to reasonably establish the length of the Historical Recovery Period as long as no such 
period is less than 24 months and more than five years.  See infra Section III.A.6.b. 

702  The Historical Fee Rate is the fee rate used to calculate the Historical CAT Assessment.  See infra Section 
III.A.6.c. 

703  See proposed Section 11.3(b)(iii)(A).  



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Assessments would be reduced by an amount of “Excluded Costs.”704  The resulting amount 

would be defined as “Historical CAT Costs” in proposed Section 11.3(b)(i)(C) of the CAT NMS 

Plan.  Proposed Section 11.3(b)(i)(C) 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.”705  The Historical CAT 

Costs would not include an amount of “Excluded Costs” so that Industry Members would not be 

assessed a Historical CAT Assessment to recover such Excluded Costs.706   

Certain commenters objected to the method of calculating the Historical CAT 

Assessment using current transaction activity.707  One commenter disagreed with the proposed 

method “due to difficulty of using current volumes and trading activity by individual Industry 

Members as a mechanism for assessing costs in the past where the trading volumes and 

individual Industry Member trading activity likely were different.”708  The commenter also 

stated that the proposed assessment of Past CAT Costs on current Industry Members based on 

their current trading activity is not fair or reasonable because new Industry Members would be 

assessed a share of Past CAT Costs even if they were not in operation when those costs were 

incurred, and that such costs would be attributable to Industry Members that are no longer in 

 
704  The Excluded Costs would be $48,874,937 in CAT costs incurred from November 15, 2017 through 

November 15, 2018, and $14,749,362 in costs related to the termination of the initial Plan Processor.  See 
CAT LLC July 2023 Response Letter at 19. 

705  Proposed Section 11.3(b)(i)(C). 
706  See Notice, supra note 7, 88 FR at 17111.  According to the Proposed Amendment, “[e]ach 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.”  Proposed Section 11.3(b)(i)(C).  The 
Historical CAT Costs would be Past CAT Costs minus the Excluded Costs.  Id. 

707  See SIFMA June 2023 Letter at 4; SIFMA January 2023 Letter at 7; SIFMA October 2022 Letter at 5; 
Citadel July Letter at 24, 32; MMI July Letter at 4; Virtu Letter at 4.   

708  SIFMA October 2022 Letter at 5. 



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business.709  The commenter added that the Proposed Amendment has not explained how 

allocating “approximately $350 million in historical costs… to a small group of executing broker 

firms based on current market volumes” is consistent with the Exchange Act or how it would 

impact liquidity and competition.710  The commenter stated that since the proposed allocation 

would be based on current market share and unrelated to the firms or activity that contributed to 

historical costs, there would be little ability for executing brokers to pass on such costs.711  

Another commenter stated that the Proposed Amendment lacked a clear mechanism for Industry 

Members to pass-on historical costs to other market participants.712  The commenter stated, “[i]t 

appears challenging for the CAT Operating Committee to allocate historical costs in a way that is 

directly tied to historical activity, which makes it more difficult for Industry Members to pass-on 

these costs to other market participants.”713  Another commenter suggested a “review of current 

market percentage share dictating cost structure – e.g., industry fluctuations – how current 

market share [sic] not reflective of past/future market shares- need for adjustments.”714  

One commenter recommended a reevaluation of the use of transaction fees to assess Past 

CAT Costs,715 and suggested an alternative approach in which Past CAT Costs would be 

assigned to Industry Members “based on the lesser of (i) the CAT Fees that would be assessed on 

 
709  See SIFMA January 2023 Letter at 7.  See also FIA Letter at 4 (stating that it is “patently unfair” to allocate 

all historical costs to current Industry Members based on their current market activity because current 
“Industry Members had no control over the stops and starts incurred in the development of CAT.”). 

710  SIFMA June 2023 Letter at 4.  This statement was echoed by another commenter.  See Virtu Letter at 4. 
711  SIFMA June 2023 Letter at 4.  The commenter also stated that the assessment of “retroactive liability for 

monies spent that private parties had no control over” for public purposes would violate the Fifth 
Amendment Takings Clause.  See infra Section III.9.d.   

712  See Citadel July Letter at 24.   
713  Id. at 32.   
714  See MMI July Letter at 4.   
715  See SIFMA October 2022 Letter at 5.  



126 

an Industry Member under the Participants’ proposed approach of using current trading activity 

or (ii) the CAT Fees that would be assessed on such member based on their prior trading activity 

in the years since 2016 when the CAT was being built and then operationalized…”716  The 

commenter stated that the share of Past CAT Costs belonging to Industry Members that are no 

longer in business could be calculated using this approach and then divided equally among the 

current Industry Members, while Industry Members that entered into business after certain Past 

CAT Costs were incurred would be assessed Past CAT Costs starting in the year after which they 

started operating based on the above approach.717  The commenter acknowledged that, while this 

approach would require more effort by the Participants, it would be “significantly closer to the 

fair and reasonable standard in the Exchange Act than the approach set forth by the Participants 

in the Executed Share Model.”718 

Additionally, commenters objected to the allocation of Past CAT Costs to Industry 

Members.719  One commenter stated that the Participants have failed to justify the allocation of 

Past CAT Costs to Industry Members during the period when only Participants were reporting to 

the CAT.720  Certain commenters stated that Industry Members should not be assessed any fees 

related to the decision to employ Thesys Technologies, LLC as the Plan Processor or legal or 

consulting fees incurred by the Participants in the creation of the CAT NMS Plan.721  One 

commenter stated that the Proposed Amendment fails to provide how much of the allocation to 

 
716  SIFMA January 2023 Letter at 7. 
717  Id. 
718  Id. 
719  See SIFMA January 2023 Letter at 6–7; SIFMA October 2022 Letter at 7; SIFMA June 2022 Letter at 7; 

Citadel July Letter at 3, 23, 24, 31, 32; FIA Letter at 4; MMI July Letter at 4 (suggesting accountability for 
historic costs).   

720  See SIFMA October 2022 Letter at 7. 
721  See SIFMA June 2022 Letter at 7; SIFMA January 2023 Letter at 6–7; FIA Letter at 4. 



127 

Industry Members is related to Thesys Technologies, LLC, and, therefore, the Participants have 

not demonstrated how the Executed Share Model is consistent with the Exchange Act.722   

Another commenter stated that it would be inappropriate to allocate any costs related to 

Thesys Technologies, LLC’s role as the plan processor, including the costs of transitioning to a 

new plan processor, or the Operating Committee’s costs of litigation against the Commission.723  

The commenter expressed concern about a lack of transparency into Historical CAT Costs and 

the size of such costs, stating that the historical costs are excessive and inconsistent with the 

CAT NMS Plan.724  The commenter stated that a lack of transparency into historical costs raises 

questions about whether Industry Members would be allocated costs for the period when Thesys 

Technologies, LLC was the plan processor, noting that the Proposed Amendment only intended 

to exclude $64 million in costs related to the “failed engagement of Thesys,” when the costs 

were much higher;725 whether Industry Members would be allocated costs related to litigation 

between the Operating Committee and the Commission;726 and whether Industry Members 

would be allocated costs related to repeated filing of prior funding models.727  The commenter 

stated that, without knowing the total amount of Historical CAT Costs, or basic information 

about such costs, the Commission cannot determine whether Historical CAT Costs are 

reasonable and cannot assess the impact of the proposed allocation on market liquidity, 

 
722  See SIFMA June 2022 Letter at 7. 
723  See Citadel July Letter at 31.   
724  Id. at 23.  See also Citadel August Letter at 6–7. 
725  See Citadel July Letter at 23.  See also id. at 23, n.100; id. at 8 (stating that “missteps” by the Operating 

Committee related to the hiring of the initial plan processor and the hiring of FINRA CAT to replace the 
initial plan processor resulted in “wasted expenditures” of more than $100 million).  See also Citadel 
August Letter at 7. 

726  See Citadel July Letter at 23.  See also Citadel August Letter at 7. 
727  See Citadel July Letter at 24.  See also Citadel August Letter at 7. 



128 

efficiency and competition.728  For example, the commenter stated that the CAT Operating 

Committee has not assessed “whether trading activity may decline or bid-offer spreads may 

widen.”729  The commenter stated that the CAT Operating Committee “recklessly argues” that 

the proposed allocation of Historical CAT Costs is not concerning due to the existence of higher 

transaction-based fees.730  In addition, the commenter stated that Industry Members have borne 

nearly all of the total CAT-related costs due to “a near-constant barrage” of changes to technical 

specifications.731  The commenter recommended not allocating any historical costs to Industry 

Members.732  

 One commenter stated that Industry Members were not subject to CAT obligations before 

the CAT NMS Plan’s approval, had no input into the selection of the service providers, and that 

“it is difficult to envision how the Participants could demonstrate that such an allocation provides 

for the equitable allocation of reasonable fees due to the fact that the CAT NMS Plan did not 

exist during the period prior to its approval.”733   

The commenter also stated that the Participants have not analyzed different alternatives to 

collecting Past CAT Costs and the costs associated with such alternatives or the costs associated 

 
728  See Citadel August Letter at 7. 
729  Id. 
730  Id. 
731  See Citadel July Letter at 31.  The commenter noted that in 2016, the Commission estimated that broker-

dealers would incur 90% of total CAT-related costs, even if not allocated any costs for building and 
operating the CAT.  The commenter stated that updates to these estimates would show that this figure 
would underestimate their cost burdens.  See id. 

732  Id. at 3, 31, 32.   
733  See SIFMA June 2022 Letter at 7. 



129 

with the proposed approach.734  The commenter urged collaboration between the Participants and 

Industry Members on the allocation of Past CAT Costs.735   

With respect to one commenter’s criticisms of the calculation and assessment of the 

Historical CAT Assessment,736 CAT LLC stated that the commenter had a “persistent 

misunderstanding” of the Historical CAT Assessment, explaining that, contrary to the 

commenter’s assertions in its comment letters, the Historical CAT Assessment would be 

assessed based on current market activity, not past market activity.737  While the fee rate would 

be calculated based on Historical CAT Costs, the fee rate would be applied to current market 

transactions.738  CAT LLC stated that the process of assessing fees for the Historical CAT 

Assessment would be exactly the same as with CAT Fees related to Prospective CAT Costs, and 

would be passed through in the same manner if a CEBB or CEBS so chooses.739  CAT LLC also 

stated that it would provide CAT Executing Brokers with details of their CAT fees to facilitate 

this process.740 

In response, the commenter stated that the CAT LLC Response Letter did not 

meaningfully address the concerns it raised about “the inability of firms defined as ‘executing 

brokers’ to transfer fees to those who may be more appropriate to bear certain historical CAT 

costs in the first place.”741  CAT LLC reiterated that the Historical CAT Assessment would be 

 
734  See SIFMA October 2022 Letter at 5. 
735  Id.  See also SIFMA October 2022 Letter at 2 (“[w]e also reiterate our call for the Participants to work with 

SIFMA and the industry in a collaborative manner to establish a viable CAT funding model.”). 
736  See SIFMA May 2023 Letter at 8; SIFMA October 2022 Letter at 4–5; supra notes 708–713 and 

accompanying text. 
737  See CAT LLC May 2023 Response Letter at 9. 
738  Id. 
739  Id. 
740  Id. 
741  See SIFMA June 2023 Letter at 2. 



130 

assessed in the same manner as CAT Fees for Prospective CAT Costs, and could likewise be 

passed-through by the CEBB or CEBS,742 and that CAT LLC would provide the relevant data to 

help CAT Executing Brokers pass-through the fees.743   

In response to a commenter that stated that a small group of broker-dealers would 

shoulder the Historical CAT Costs and asked whether allocating these costs to a small group of 

executing brokers based on current market volume is consistent with the Exchange Act,744 CAT 

LLC stated that “almost 700 of the 1100 Industry Members would have an obligation to 

contribute to Historical CAT Costs… not just a few CAT Executing Brokers”745 and since “the 

fees vary in accordance with the market activity of the CAT Executing Brokers, certain CAT 

Executing Brokers will have large bills for very significant market activity.”746  CAT LLC also 

reiterated that the Section 11.2(b) of the CAT NMS Plan contemplates that Industry Members 

would contribute to funding the costs of the CAT and that CAT Executing Brokers may pass on 

their CAT fees so they would not have any obligation to pay CAT fees.747  CAT LLC also 

clarified that Industry Members would be allocated Historical CAT Costs over a period of time 

that would be no less than 24 months and no more than five years, not in a single lump sum,748 

and stated that “it would potentially be appropriate to spread the Historical CAT Costs over a 

 
742  See CAT LLC July 2023 Response Letter at 16. 
743  Id. 
744  See SIFMA June 2023 Letter at 4.  See also Virtu Letter at 4.   
745  See CAT LLC July 2023 Response Letter at 15. 
746  Id. 
747  Id. 
748  Id. 



131 

time period of a little less than three years, a time period which is within the two to five year 

range for the Historical Recovery Period.”749   

In response to the commenter that stated that Industry Members are bearing almost all of 

the CAT-related costs,750 CAT LLC stated that the commenter was conflating the Industry 

Members’ internal costs to comply with CAT reporting requirements with the direct costs of the 

CAT.751  CAT LLC stated that the Proposed Amendment is intended to address the funding of 

the direct costs of the CAT and not Participants and Industry Members’ compliance costs.752   

CAT LLC provided a comparison of Historical CAT Costs to Prospective CAT Costs, 

demonstrating that the $233 million 2023 CAT budget is approximately 45% of the $518 million 

in Historical CAT Costs (through 2022).753  CAT LLC stated that it expects to propose a fee rate 

for the Historical CAT Assessment that would be similar to or smaller than other transaction-

based fees, and provided examples in which CEBBs and CEBSs would be assessed less than 

1/1000 of a penny per executed equivalent share.754  CAT LLC noted that broker-dealers are 

currently charged other transaction-based fees that are higher than the proposed CAT fees.755   

In response to commenters that objected to the allocation to Industry Members of 

Historical CAT Costs related to the initial Plan Processor,756 CAT LLC stated that the Historical 

CAT Costs to be allocated to Industry Members would not include two categories of costs 

 
749  See CAT LLC July 2023 Response Letter at 17.  CAT LLC also provided a comparison of Historical CAT 

Costs to Prospective CAT Costs, demonstrating that the $233 million 2023 CAT budget is approximately 
45% of the $518 million in Historical CAT Costs (through 2022).  Id. 

750  See Citadel July Letter at 31.   
751  See CAT LLC July 2023 Response Letter at 16. 
752  Id. 
753  Id. at 17. 
754  Id. at 18. 
755  Id. at 18–19. 
756  See FIA Letter at 4; Citadel July Letter at 23, 31. 



132 

related to the initial Plan Processor:  $48,874,937 in CAT costs incurred from November 15, 

2017 through November 15, 2018, and $14,749,362 in costs related to the termination of the 

initial Plan Processor.757  CAT LLC stated that the Participants would remain responsible for 

these costs.758   

In the Commission’s view, the proposed recovery of Past CAT Costs via the Historical 

CAT Assessment is reasonable, and it is reasonable to require that each CEBB and CEBS pay a 

Historical CAT Assessment for each transaction in the prior month based on CAT Data.759  First, 

current Industry Members are actively reporting to the CAT760 and therefore receive the benefits 

from the CAT.  The CAT provides more effective oversight of market activity, which could 

increase investor confidence, resulting in expanded investment opportunities and increased 

trading activity.761  Second, it would be difficult to impose fees on Industry Members for their 

activity in the past because some Industry Members may no longer be in business and such 

Industry Members would not have taken into consideration the Historical CAT Assessment when 

entering into the past transactions.762  In this case, the Commission understands, from CAT 

LLC’s analysis of Industry Members, that there is “substantial continuity” among the largest 

Industry Members, going back to 2020,763 and thus it is likely that the Industry Members 

responsible for substantial transaction activity in 2020 (and perhaps earlier, beyond the scope of 

CAT LLC’s analysis) would also be responsible for substantial transaction activity in 2023, 

 
757  See CAT LLC July 2023 Response Letter at 19. 
758  Id. 
759  See proposed Section 11.3(a)(ii)(A) and (iii)(A). 
760  See Notice, supra note 7, 88 FR at 17113. 
761  CAT NMS Plan Approval Order, at 81 FR at 84993. 
762  See Notice, supra note 7, 88 FR at 17113. 
763  Id. at 17113, n.116 (stating that there has been substantial continuity in the largest Industry Members over 

time and providing statistics about the continuity).  



133 

mitigating concerns that current Industry Members would be responsible for CAT fees for the 

past transaction activity of non-operational Industry Members.   

Additionally, requiring CAT Executing Brokers to pay Historical CAT Assessments is 

appropriate because the Participants have thus far paid all Past CAT Costs and the CAT NMS 

Plan contemplates that both Industry Members and Participants would fund the Company.764   

Furthermore, it is reasonable, in the Commission’s view, for the Participants to exclude certain 

costs from the Past CAT Costs to be recovered from Industry Members; for example, such 

excluded costs would encompass costs incurred when Industry Members as a group were not 

reporting to the CAT, and costs associated with the conclusion of the relationship with the Initial 

Plan Processor.765  CAT LLC also proposes to require the Operating Committee, in determining 

fees on Participants and Industry Members, to take into account fees, costs and expenses 

(including legal and consulting fees) reasonably incurred by the Participants on behalf of the 

Company prior to the Effective Date in connection with the creation and implementation of the 

CAT.766   

In the Commission’s view, requiring the Operating Committee to take into account fees, 

costs and expenses (including legal and consulting fees) reasonably incurred by the Participants 

on behalf of the Company prior to the Effective Date in connection with the creation and 

implementation of the CAT, when determining fees for Participants and Industry Members will 

constrain the Operating Committee from assessing fees based on costs and expenses that are not 

reasonable.  Further, the proposed exclusion of the “Excluded Costs” from Past CAT Costs is 

reasonable in the Commission’s view because it would not require all costs incurred by the 

 
764  See, e.g., CAT NMS Plan, supra note 2, at Section 11.1(b), Section 11.1(c), Section 11.2(b), Section 11.3. 
765  See Notice, supra note 7, 88 FR at 17111. 
766  See proposed Section 11.1(c) (emphasis added). 



134 

Participants to be recovered from Industry Members through the Historical CAT Assessment, 

specifically excluding those costs related to the delay in the start of reporting to the CAT and 

costs related to the conclusion of the relationship with the Initial Plan Processor.767 

Finally, the Proposed Amendment sets forth a process that the Commission believes will 

offer an appropriate level of transparency into Historical CAT Costs.  In response to a 

commenter that objected to the level of transparency provided about the total amount of 

Historical CAT Costs, and basic information about such costs, and stated that, as a result, the 

Commission cannot determine whether Historical CAT Costs are reasonable and cannot assess 

the impact of the proposed allocation on market liquidity, efficiency and competition,768 as 

discussed in Section III.A.6.e. herein, the Section 19(b) fee filings to be filed with the 

Commission by the Participants to impose the Historical CAT Assessment on Industry Members 

must include detailed information on the Historical CAT Costs, including the amount and type of 

Historical CAT Costs, and will allow the public the ability to comment on the Historical CAT 

Costs.769  In addition to addressing all relevant statutory requirements, including the 

requirements that the fees are reasonable, equitably allocated, not unfairly discriminatory, and do 

not unduly burden competition,770 these proposed Section 19(b) fee filings must contain 

“sufficient detail to demonstrate that such costs are reasonable and appropriate,”771 which would 

provide the public and the Commission the detail needed to evaluate the Historical CAT 

 
767  See Notice, supra note 7, 88 FR at 17111. 
768  See Citadel August Letter at 7. 
769  See proposed Section 11.3(b)(iii)(B)(II). 
770  15 U.S.C. 78f(b)(4), 15 U.S.C. 78o-3(b)(5); 15 U.S.C. 78f(b)(5), 15 U.S.C. 78o-3(b)(6); 15 U.S.C. 

78f(b)(8), 15 U.S.C. 78o-3(b)(9). 
771  See proposed Section 11.3(b)(iii)(B)(II). 



135 

Assessments.  Once the proposed Section 19(b) fee filings are filed by the Participants, the 

Commission will review them for consistency with the Exchange Act and the CAT NMS Plan.   

In response to the comment that stated that the CAT Operating Committee has not 

assessed “whether trading activity may decline or bid-offer spreads may widen,”772 and in 

response to the comment that the CAT Operating Committee “recklessly argues” that the 

proposed allocation of Historical CAT Costs is not concerning due to the existence of higher 

transaction-based fees,773 as stated above, the Proposed Amendment does not approve per se the 

amount of the Historical CAT Costs; it sets forth the model but leaves the amount and 

description of the Historical CAT Costs for the Section 19(b) fee filings.  The Commission 

recognizes, however, that the Participants have disclosed the amount of the Historical CAT Costs 

in the Proposed Amendment.774  While such Historical CAT Costs are not being approved by the 

Commission at this time, the Commission understands that such amounts provide an indication 

of what might be charged.  In this regard, the Commission notes the Participants have included in 

Exhibit C to the Proposed Amendment a chart setting forth an example Historical CAT 

Assessment, for illustrative purposes only, that each CAT Executing Broker would pay based on 

its transactions in Eligible Securities in December 2022 related to CAT costs from prior to 2022.  

The chart indicated that the Historical Fee Rate for the assumed December 2022 period was 

$0.0000417950 per executed equivalent share.  The Commission believes that potential 

Historical CAT Assessments are likely to be significantly lower than fees assessed pursuant to 

 
772  See Citadel August Letter at 7. 
773  Id. 
774  See Notice, supra note 7, 88 FR at 17110–11 (providing Historical CAT Costs prior to 2022).  CAT LLC 

also provided updated Historical CAT Costs through 2022.  See CAT LLC July 2023 Response Letter at 
17. 



136 

Section 31.775  Accordingly, the Commission believes that any potential impact on trading 

activity or bid-ask spreads would likely be limited. 

  b. Historical Recovery Period 

The “Historical Recovery Period” would be used to calculate the Historical Fee Rate for a 

Historical CAT Assessment.776  Proposed Section 11.3(b)(i)(D) of the CAT NMS Plan provides 

the Operating Committee with the discretion to reasonably establish the length of the Historical 

Recovery Period as long as no such period is less than 24 months and more than five years.  CAT 

LLC analyzed potential recovery periods and determined that the Historical Fee Rate calculated 

using the proposed Historical Recovery Period of two to five years would be reasonable for 

Industry Members even if they had to pay both the ongoing CAT Fee and the Historical Fee 

Assessment simultaneously.777  Additionally, in determining the range for the Historical 

Recovery Period, CAT LLC “sought to weigh the need for a reasonable Historical Fee Rate that 

spreads the Historical CAT Costs over an appropriate amount of time and the need to repay the 

loan notes to the Participants in a timely fashion.”778  In the Commission’s view, it is reasonable 

for the Operating Committee to establish the length of the Historical Recovery Period to be no 

less than 24 months and no more than five years.  According to the Participants, “[t]he length of 

the Historical Recovery Period used in calculating each Historical Fee Rate will be reasonably 

 
775  See infra notes 1099–1102 and accompanying text (stating that a comparison to recent Section 31 fees of 

$0.00009 per share to $0.0004 per share indicates that the anticipated Historical Fee Rate and Fee Rate, 
assuming the Fee Rate is of a similar magnitude as the Historical Fee Rate, are expected to be relatively 
small).  See also infra note 1102 (discussing another example Historical Fee Rate that was provided in the 
CAT LLC July 2023 Response Letter at 18–19 that was close to the Historical Fee Rate in Exhibit C of the 
Proposed Amendment).   

776  See proposed Section 11.3(b)(i)(D)(I). 
777  See Notice, supra note 7, 88 FR at 17096–97.  CAT LLC acknowledged that the Historical CAT 

Assessment would need to be calculated using up-to-date Historical CAT Costs and executed equivalent 
share volume.  Id. at 17097. 

778  Id. at 17096. 



137 

established by the Operating Committee based on the amount of the Historical CAT Costs to be 

recovered by the Historical CAT Assessment.”779  The Operating Committee is authorized by the 

CAT NMS Plan to establish the funding of CAT LLC, including the fees to be paid by 

Participants and Industry Members.780  Because the Historical Recovery Period is used in the 

calculation of Historical CAT Assessments to recover costs incurred to fund the CAT, the 

Commission views it as appropriate for the Operating Committee to determine a reasonable 

length of time for the Historical Recovery Period since the Operating Committee has authority 

over CAT funding pursuant to the Plan. 

  c. Historical Fee Rate 

The Historical Fee Rate would be used to calculate Historical CAT Assessments.  The 

Operating Committee will calculate the Historical Fee Rate for each Historical CAT Assessment 

by dividing the Historical CAT Costs for each Historical CAT Assessment by the reasonably 

projected total executed equivalent share volume of all transactions in Eligible Securities for the 

Historical Recovery Period.781  Additionally, proposed Section 11.3(b)(i)(A) states that once the 

Operating Committee has approved a Historical Fee Rate, the Participants will be required to file 

with the Commission, pursuant to Section 19(b) of the Exchange Act,782 the Historical CAT 

Assessment to be charged to Industry Members using the Historical Fee Rate.783  Industry 

Members would be required to pay such Historical CAT Assessment using such Historical Fee 

 
779  Id. at 17097. 
780  See CAT NMS Plan, supra note 2, at Section 11.1(b). 
781  See proposed Section 11.3(b)(i)(A).  Proposed Section 11.3(b)(i)(B) provides that the executed equivalent 

shares used to calculate the Historical CAT Assessment would be counted in the same manner as executed 
equivalent shares used to calculate CAT Fees related to Prospective CAT Costs.  

782  15 U.S.C. 78s(b). 
783  See proposed Section 11.3(b)(i)(A). 



138 

Rate once such Historical CAT Assessment is in effect in accordance with Section 19(b) of the 

Exchange Act.784   

Proposed Section 11.3(b)(i)(E) of the CAT NMS Plan provides that “[t]he Operating 

Committee shall 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.”785  

CAT LLC would allow the Operating Committee to base its projected total executed equivalent 

share volume on the prior twelve months, but to use its discretion to analyze the likely volume 

for the upcoming year.786  Participants would be required to describe the calculation of the 

projection in their fee filings submitted to the Commission, pursuant to Section 19(b) of the 

Exchange Act, to implement the Historical CAT Assessments on Industry Members.787 

The calculation of the Historical Fee Rate by dividing Historical CAT Costs by the 

projected total executed equivalent share volume of all transactions in Eligible Securities for the 

Historical Recovery Period788 is reasonable.  First, it is appropriate for the Historical Fee Rate to 

be based on Historical CAT Costs.  The Proposed Amendment defines Historical CAT Costs as 

Past CAT Costs minus the Past CAT Costs reasonably excluded from Historical CAT Costs by 

the Operating Committee789 (e.g., the Excluded Costs).790  It is appropriate to use the Historical 

 
784  Id.; see also 15 U.S.C. 78s(b); see infra Section III.A.6.e. (Historical CAT Assessment - Fee Filings under 

Section 19(b) of the Exchange Act for Industry Member CAT Fees) for a discussion of Section 19(b) filing 
requirements. 

785  Proposed Section 11.3(b)(i)(E). 
786  See Notice, supra note 7, 88 FR at 17097. 
787  See proposed Section 11.3(b)(iii)(B)(II). 
788  See proposed Section 11.3(b)(i)(A). 
789  See proposed Section 11.3(b)(i)(C). 
790  See Notice, supra note 7, 88 FR at 17111. 



139 

CAT Costs related to a Historical CAT Assessment to calculate the Historical Fee Rate used to 

calculate the Historical CAT Assessment because the Participants are seeking to recover the 

Historical CAT Costs through the Historical CAT Assessment.791  The use of Historical CAT 

Costs is appropriate to determine the Historical Fee Rate because it ties the Historical Fee Rate to 

the costs that the CAT has incurred and will be apportioned among the CAT Executing Brokers 

for recovery.  Second, it is appropriate to use the projected total executed equivalent share 

volume of all transactions in Eligible Securities for the Historical Recovery Period to calculate 

the Historical Fee Rate because this would provide the likely volume for the Historical Recovery 

Period to be used as the denominator, similar to the manner in which the Fee Rate for 

Prospective CAT Fees would be calculated.  This proposed projection of total executed 

equivalent share volume based on the prior twelve months is appropriate because it balances the 

use of data that is sufficiently long to avoid short term fluctuations while providing data close in 

time to the calculation of the Fee Rate or Historical Fee Rate.792  Additionally, it is appropriate 

for CAT LLC to permit the Operating Committee to use its discretion to analyze the likely 

volume for the upcoming year.793  This would allow the Operating Committee to use its 

judgment when estimating projected total executed equivalent share volume if the volume over 

the prior twelve months was unusual or otherwise unfit to serve as the basis of a future volume 

estimate.  Furthermore, since the Participants would be required to describe the calculation of the 

projected total executed equivalent share volume in the fee filings submitted to the Commission, 

pursuant to Section 19(b) of the Exchange Act, to implement the Historical CAT Assessments on 

 
791  See proposed Section 11.3(b)(i)(C). 
792  See Notice, supra note 7, 88 FR at 17116–17. 
793  Id. at 17097. 



140 

Industry Members, the public will have an opportunity to review the projection and provide 

comment.794 

   d. Length of Time Historical CAT Assessment Would be  
in Effect 
 

Proposed Section 11.3(b)(i)(D)(II) of the CAT NMS Plan would describe the length of 

time that a Historical CAT Assessment would be in effect.  This period of time may be longer or 

shorter than the Historical Recovery Period used to calculate the Historical Fee Rate for a 

Historical CAT Assessment.  Each Historical CAT Assessment calculated using the Historical 

Fee Rate would remain in effect until all Historical CAT Costs for that Historical CAT 

Assessment are collected.795  CAT LLC stated that “[a]ny Historical CAT Assessment would 

remain in effect until the relevant Historical CAT Costs are collected, whether that time is 

shorter or longer than the Historical Recovery Period used in calculating the Historical Fee 

Rate.”796  The length of time that the Historical CAT Assessment would be in effect would 

depend “on the amount of the Historical CAT Assessments collected based on the actual volume 

during the time that the Historical CAT Assessment is in effect.”797   

In the Commission’s view, it is reasonable for Industry Members to be charged a 

Historical CAT Assessment until all Historical CAT Costs for the Historical CAT Assessment 

are collected.  The Commission understands that the amount of Historical CAT Costs collected 

will vary depending on how the actual volume compares to the estimated volume.  To the extent 

the actual volume exceeds the estimated volume, a Historical CAT Assessment would be 

 
794  See proposed Section 11.3(b)(iii)(B)(II). 
795  See proposed Section 11.3(b)(i)(D)(II). 
796  Notice, supra note 7, 88 FR at 17097. 
797  Id.141 

collected faster and thus would be in effect for a shorter period.  Similarly, to the extent the 

actual volume is less than the estimated volume, the Historical CAT Assessment would be 

collected slower and thus would be in effect for a longer period.   

e. Fee Filings under Section 19(b) of the Exchange Act for Industry 
Member CAT Fees 

 
 Once the Operating Committee has approved a Historical Fee Rate, the Participants shall 

be required to file with the Commission, pursuant to Section 19(b) of the Exchange Act,798 such 

Historical CAT Assessment to be charged Industry Members calculated using such Historical 

Fee Rate.799  CAT LLC proposes to provide additional details regarding the fee filings to be filed 

by the Participants regarding each Historical CAT Assessment pursuant to Section 19(b) of the 

Exchange Act in proposed Section 11.3(b)(iii)(B) of the CAT NMS Plan.  Specifically, this 

provision would describe that fee filings would be required for each Historical CAT Assessment, 

the content of such fee filings, and the effect of the Financial Accountability Milestones 

described in Section 11.6 of the CAT NMS Plan on the fee filings.800  

Proposed Section 11.3(b)(iii)(B)(I) of the CAT NMS Plan would state that “Participants 

will be required to file with the SEC pursuant to Section 19(b) of the Exchange Act a filing for 

each Historical CAT Assessment.”801  CAT LLC proposes to provide additional detail about the 

information that Participants would be required to include in the filings for the Historical CAT 

Assessments in proposed Section 11.3(b)(iii)(B)(II).  The proposed paragraph sets forth the 

information about the Historical CAT Assessments that should be included in the fee filings 

 
798  15 U.S.C. 78s(b). 
799  See proposed Section 11.3(b)(i)(A). 
800  See proposed Section 11.3(b)(iii)(B)(I), (II), (III). 
801  Proposed Section 11.3(b)(iii)(B)(II). 



142 

required to be made by the Participants pursuant to Section 19(b) of the Exchange Act.802  

Specifically, such filings would be required to include:  (A) the Historical Fee Rate; (B) 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; (C) the Historical Recovery Period and the 

reasons for its length; and (D) the projected total executed equivalent share volume of all 

transactions in Eligible Securities for the Historical Recovery Period, and a description of the 

calculation of the projection.803  

In addition, CAT LLC proposes to clarify that the Historical CAT Costs described in the 

fee filings must provide sufficient detail to demonstrate that such costs are reasonable and 

appropriate.804  Therefore, CAT LLC proposes to add the following sentence to proposed Section 

11.3(b)(iii)(B)(II) of the CAT NMS Plan: “The information provided in this Section would be 

provided with sufficient detail to demonstrate that the Historical CAT Costs are reasonable and 

appropriate.”805 

Proposed Section 11.3(b)(iii)(B)(III) provides that the Participants will not make CAT fee 

filings pursuant to Section 19(b) of the Exchange Act806 regarding a Historical CAT Assessment 

until any applicable Financial Accountability Milestone has been satisfied.  This provision is 

appropriate as it takes into account existing requirements set forth in Section 11.6 of the CAT 

 
802  15 U.S.C. 78s(b). 
803  See proposed Section 11.3(b)(iii)(B)(II). 
804  Id. 
805  Id. 
806  15 U.S.C. 78s(b). 



143 

NMS Plan that prevent the Participants from recovering fees related to any given Financial 

Accountability Milestone until that Financial Accountability Milestone has been achieved.807   

The Commission emphasizes that the fee filings filed with the Commission, pursuant to 

Section 19(b) of the Exchange Act,808 to implement each Historical CAT Assessment on 

Industry Members will need to provide sufficient information to enable the Commission to make 

a determination on whether and when the Participants have satisfied each of the Financial 

Accountability Milestones – questions that the Commission is not deciding herein.  This Order 

only approves the establishment of the framework by which the Participants will propose 

Historical CAT Assessments to be charged to Industry Members.809  

In the Commission’s view, the proposed requirement for the Participants to file fee filings 

with the Commission, pursuant to Section 19(b) of the Exchange Act,810 to implement each 

Historical Fee Assessment on Industry Members is appropriate.  The detail provided in the fee 

filings for the Historical CAT Assessment would provide transparency into the Past CAT Costs 

as it would describe the amount and type of Historical CAT Costs and allow the public the 

 
807  See, e.g., Section 11.6(a)(iv) (“The Participants will only be permitted to collect Post-Amendment Industry 

Member Fees for Period 1, Period 2, Period 3, or Period 4 at the end of each respective Period.”).  Section 
11.6 of the CAT NMS Plan is designed to reduce the amount of fees, costs, and expenses that the 
Participants may recover from Industry Members if the Participants miss the target deadlines established by 
that Section.  To the extent that the Participants miss a target deadline established by Section 11.6, the 
Participants would be responsible for paying a larger amount of CAT-related fees, costs, and expenses on 
their own.  The Commission expects that the portion of these fees, costs, and expenses that is attributable to 
for-profit national securities exchanges would likely be paid out of their existing profits, whereas the 
portion of these fees, costs, and expenses that is attributable to non-profit national securities associations 
like FINRA would likely be paid out of past revenue or new and/or existing fees.  The Commission would 
evaluate any such new or existing fees in accordance with Section 6(b)(4) and Section 15A(b)(5) of the 
Exchange Act.  15 U.S.C. 78f(b)(4); 15 U.S.C. 78o-3(b)(5).   

808  15 U.S.C. 78s(b). 
809  The Commission does not believe it could determine whether the Historical CAT Costs associated with a 

Financial Accountability Milestone are “reasonable or appropriate” under Section 11.3(b)(iii)(B)(II) 
without such information. 

810  15 U.S.C. 78s(b). 



144 

ability to comment on the Historical CAT Costs.811  The fee filings must contain sufficient detail 

to demonstrate that the fees are consistent with the Exchange Act, including that such costs are 

reasonable and appropriate,812 and provide the public with the detail needed to evaluate the 

Historical CAT Assessments for comment. 

The Proposed Amendment offers an appropriate level of transparency into the Past CAT 

Costs used for the Historical CAT Assessment so that the industry and the public will be able to 

understand and assess the Past CAT Costs and the Historical Fee Rate.  The Proposed 

Amendment requires the Section 19(b) fee filings to be submitted to the Commission by the 

Participants to establish the Historical CAT Assessments for Industry Members to contain the 

following information: “(A) the Historical Fee Rate; (B) 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; (C) the Historical Recovery Period and the reasons for its length; and (D) the 

projected total executed equivalent share volume of all transactions in Eligible Securities for the 

Historical Recovery Period, and a description of the calculation of the projection.”813  CAT LLC 

explained that this information “would provide Industry Members and other interested parties 

with a clear understanding of the calculation of each Historical CAT Assessment and its 

relationship to Historical CAT Costs.”814  In the Commission’s view, the detail provided in the 

fee filings for the Historical CAT Assessment would provide transparency into the Past CAT 

 
811  See proposed Section 11.3(b)(iii)(B)(II). 
812  Id. 
813  Proposed Section 11.3(b)(iii)(B)(II).  
814  Notice, supra note 7, 88 FR at 17098. 



145 

Costs as the filings would describe the amount and type of Historical CAT Costs and allow the 

public the ability to comment on the Historical CAT Costs.815  Additionally, pursuant to the 

Proposed Amendment being approved, the fee filings will also need to contain “sufficient detail 

to demonstrate that such costs are reasonable and appropriate,”816 which would provide the 

public and the Commission the detail needed to evaluate the Historical CAT Assessments for 

consistency with the Exchange Act and the CAT NMS Plan.  

f. Past CAT Costs and Participants  

Proposed Section 11.3(b)(ii) of the CAT NMS Plan would clarify that the Participants 

would not be required to pay the Historical CAT Assessment as the Participants previously have 

paid all Past CAT Costs.  It would state that, “[b]ecause Participants previously have paid Past 

CAT Costs via loans to the Company, Participants would not be required to pay any Historical 

CAT Assessment.”817  In addition, proposed Section 11.3(b)(ii) of the CAT NMS Plan would 

state that the Historical CAT fees collected from Industry Members would be allocated to 

Participants for repayment of the outstanding loan notes of the Participants to the Company on a 

pro rata basis; such fees would not be allocated to Participants based on the executed equivalent 

share volume of transactions in Eligible Securities.818  Specifically, proposed Section 11.3(b)(ii) 

of the CAT NMS Plan would state that “[i]n 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 

 
815  See proposed Section 11.3(b)(iii)(B)(II). 
816  Id. 
817  Proposed Section 11.3(b)(ii). 
818  See Notice, supra note 7, 88 FR at 17112. 



146 

loans.”819  Furthermore, proposed Section 11.3(b)(ii) of the CAT NMS Plan would emphasize 

that “[t]he Historical CAT Assessment is designed to recover two-thirds of the Historical CAT 

Costs.”820 

 The proposed allocation of the Historical CAT Assessment solely to CEBSs and CEBBs, 

and ultimately Industry Members, is reasonable.  The Historical CAT Assessment will still be 

divided into thirds.821  CAT LLC stated that 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” and that the Participants will also be 

100% responsible for the Excluded Costs.822  CAT LLC explained that the terms of the loan 

agreements between CAT LLC and the Participants dictate that repayment of the notes will be on 

a pro rata basis.823  The pro rata basis for cancelling the loans is appropriate because repayment 

of the loans made by the Participants is required pro rata per the loan agreements between the 

Participants and CAT LLC.824  The CAT NMS Plan permits the Participants to seek recovery of 

CAT costs from Industry Members, which includes Past CAT Costs.825  However, similar to 

cancelling the loans, the Executed Share Model would require the Participants to pay CAT fees 

related to Prospective CAT Costs.826 

 
819  Proposed Section 11.3(b)(ii). 
820  Id. 
821  Id. 
822  Notice, supra note 7, 88 FR at 17097, n.48. 
823  Id. at 17112. 
824  Id. 
825  See CAT NMS Plan, supra note 2, at Section 11.1(b), Section 11.3(b). 
826  See proposed Section 11.3(a)(ii). 



147 

7. Calculation Information; Billing and Collection of CAT Fees 

CAT LLC proposed to provide Participants and CAT Executing Brokers with details 

regarding the calculation of their CAT Fees upon request.827  Specifically, CAT LLC proposed to 

add Section 11.3(a)(iv)(A) to the CAT NMS Plan to provide that “[d]etails regarding the 

calculation of a Participant or CAT Executing Brokers’ CAT Fees will be provided upon request 

to such Participant or CAT Executing Broker.”828  Similarly, for the Historical CAT Assessment, 

under proposed Section 11.3(b)(iv)(A), “at minimum, such details would include each CAT 

Executing Broker’s executed equivalent share volume and corresponding fee.”829  In both cases, 

the new sections require that these details be separated 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.830  

Additionally, for each CAT Fee and Historical CAT Assessment, at a minimum, CAT LLC will 

make publicly available the aggregate executed equivalent share volume and corresponding 

aggregate fee also 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.831  The Commission 

 
827  See Notice, supra note 7, 88 FR at 17086. 
828  Proposed Section 11.3(a)(iv)(A). 
829  Proposed Section 11.3(b)(iv)(A).  
830  See proposed Section 11.3(a)(iv)(A); proposed Section 11.3(b)(iv)(A) 
831  See proposed Section 11.3(a)(iv)(B); proposed Section 11.3(b)(iv)(B). 



148 

understands that the publicly available aggregate statistics will be made available by CAT LLC 

on a monthly basis with each invoice. 

CAT LLC stated that consistent with Section 11.1(d) of the CAT NMS Plan, it will adopt 

policies, procedures and practices regarding the billing and collection of fees Section 11.4 of the 

CAT NMS Plan.832  In addition, pursuant to Section 11.4 of the CAT NMS Plan, CAT LLC will 

establish a system for the collection of CAT fees from Participants and Industry Members.833  

Under Section 11.4 of the CAT NMS Plan, the Participants must 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, 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.834 

Similarly, as set forth in Section 3.7(b) of the CAT NMS Plan, each Participant must pay 

all fees or other amounts required to be paid under the Plan within thirty (30) days after receipt 

of an invoice or other notice indicating payment is due (unless a longer payment period is 

otherwise indicated) (“Payment Date”).  The Participant shall pay interest on the outstanding 

balance from the Payment Date until such fee or amount 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 

 
832  See Notice, supra note 6, 88 FR at 17089. 
833  Id. at 17101. 
834  See CAT NMS Plan, supra note 2, at Section 11.4. 



149 

applicable law.835  The Commission did not receive any objections to nor any comments 

regarding the calculation of this interest rate. 

The proposed provision to Participants and CAT Executing Brokers with details 

regarding the calculation of their CAT Fees upon request is reasonable.  In the Commission’s 

view, providing CAT Execution Brokers information regarding the calculation of their CAT Fees 

will aid in transparency and permit CAT Execution Brokers to confirm the accuracy of their 

invoices for CAT Fees.  The publication of the aggregate executed equivalent share volume and 

aggregate fee is appropriate because it would allow Participants and CAT Executing Brokers a 

high-level validation of executed volume and fees.  

8. Additional Changes from Original Funding Model 

CAT LLC proposed to delete the term “Execution Venue” and its definition from Section 

1.1 of the CAT NMS Plan, explaining that this term is not relevant in the Executed Share 

Model.836  Section 1.1 of the existing CAT NMS Plan defined “Execution Venue” to mean “a 

Participant or an alternative trading system (‘ATS’) (as defined in Rule 300 of Regulation ATS) 

that operates pursuant to Rule 301 of Regulation ATS (excluding any such ATS that does not 

execute orders).”  The Original Funding Model would have imposed fees based on market share 

to CAT Reporters that are Execution Venues, including ATSs, and fees based on message traffic 

for Industry Members’ non-ATS activities.837  In contrast, the Executed Share Model does not 

use the term “Execution Venue,” as the Executed Share Model imposes fees based on the 

 
835  Id. at Section 3.7(b).  If any such remaining outstanding balance is not paid within thirty (30) days after the 

Payment Date, the Participants shall file an amendment to this Agreement requesting the termination of the 
participation in the Company of such Participant, and its right to any Company Interest, with the 
Commission.  

836  See Notice, supra note 7, 88 FR at 17099.  
837  See CAT NMS Plan, supra note 2, at Section 11.3(a)(i) and (ii); Section 11.3(b). 



150 

executed equivalent shares of transactions in Eligible Securities for three categories of CAT 

Reporters: Participants, CEBBs and CEBSs.838   

CAT LLC also proposed to amend Section 11.2(c) and Section 11.3(a) and (b) of the 

CAT NMS Plan to require Participants and CAT Executing Brokers to pay CAT fees based on 

the number of executed equivalent shares in a transaction in Eligible Securities instead of based 

on market share and message traffic.839   

First, CAT LLC proposed to delete subparagraphs (i) and (ii) of Section 11.2(c) and 

replace these subparagraphs with the requirement that the fee structure in which the fees charged 

to “Participants and Industry Members are based upon the executed equivalent share volume of 

transactions in Eligible Securities.”840  The deleted provisions would have required the Operating 

Committee, in establishing the funding of the Company, to seek to establish a tiered fee structure 

in which the fees charged to: (i) CAT Reporters that are Execution Venues, including ATSs, are 

based upon the level of market share and (ii) Industry Members’ non-ATS activities are based 

upon message traffic.   

Second, CAT LLC proposed to amend Sections 11.3(a) and 11.3(b) of the CAT NMS 

Plan to remove detail regarding fixed fees and fee tiers for market share and message traffic by 

Participants and Execution Venue ATSs under the Original Funding Model.841  Section 11.3(a) 

currently describes the fixed CAT fees to be paid by Participants and Execution Venue ATSs 

based on market share and Section 11.3(b) currently describes the fixed CAT fees to be paid by 

 
838  See proposed Section 11.3(a)(ii) and (iii); proposed Section 11.3(b)(iii). 
839  See Notice, supra note 7, 88 FR at 17099. 
840  Proposed Section 11.2(c). 
841  See Notice, supra note 7, 88 FR at 17100–01. 



151 

Industry Members (other than Execution Venue ATSs) based on message traffic.842  The text in 

these sections would be replaced with proposed Sections 11.3(a) and (b), which, as discussed 

above, would describe the calculation and application of the CAT Fees related to Prospective 

CAT Costs and the Historical CAT Assessments.  These proposed changes to Sections 11.3(a) 

and (b) would also replace references to “fixed fees” with “fees” instead.  CAT LLC explained 

that the concept of fixed fees is not relevant in the Executed Share Model.843  

CAT LLC also proposed to amend Sections 11.1(d), 11.2(c), 11.3(a) and 11.3(b) of the 

CAT NMS Plan to eliminate tiered fees and related concepts because the Executed Share Model 

does not utilize tiering.844  First, CAT LLC proposed to remove a reference to the “assignment of 

tiers” from Section 11.1(d).  CAT LLC also proposed to remove two sentences from Section 

11.1(d) permitting the Operating Committee to change the tier assigned to any Person.  Second, 

CAT LLC proposed to amend Section 11.2(c) to delete a reference to a tiered fee structure 

(specifically, deleting the word “tiered”) so that CAT fees would not be tiered under the 

Executed Share Model.  Third, CAT LLC proposed to delete subparagraph (iii) of Section 

11.2(c), which required the Operating Committee, in establishing the funding of the Company, to 

seek to establish a fee structure in which the fees charged to CAT Reporters with the most CAT-

related activity (measured by market share and/or message traffic, as applicable) are generally 

comparable (where, for these comparability purposes, the tiered fee structure takes into 

consideration affiliates between or among CAT Reporters, whether Execution Venues and/or 

Industry Members).845  CAT LLC explained that this comparability provision was a factor used 

 
842  See CAT NMS Plan, supra note 2, at Section 11.3(a) and (b).  
843  See Notice, supra note 7, 88 FR at 17101. 
844  Id. at 17100–01. 
845  Id. at 17100. 



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to determine the tiers for Industry Members and Execution Venues under the Original Funding 

Model, but that it is no longer necessary since the proposed Executed Share Model would not use 

a tiered fee structure.846  Finally, as discussed above, CAT LLC proposed to amend Sections 

11.3(a) and (b) to replace the language with proposed Sections 11.3(a) and (b), which would 

describe the calculation and application of the CAT Fees related to Prospective CAT Costs and 

the Historical CAT Assessments. CAT LLC states that such proposed changes would remove the 

references to tiers in Sections 11.3(a)(i) and (ii) and 11.3(b).847 

In addition, CAT LLC proposed to amend the CAT funding principles to clarify that 

CAT Fees and the Historical CAT Assessments are intended to be cost-based fees.848  

Specifically, CAT LLC proposed to amend the funding principle set forth in Section 11.2(c) by 

making a specific reference to “the costs of the CAT.”  Proposed Section 11.2(c) would state, 

“[i]n establishing the funding of the Company, the Operating Committee shall seek… to 

establish a fee structure in which the fees charged to Participants and Industry Members are 

based upon the executed equivalent share volume of transactions in Eligible Securities, and the 

costs of the CAT (emphasis added).”849    

In the Commission’s view, the proposed deletion of the term “Execution Venue” from the 

CAT NMS Plan is reasonable because the term is no longer relevant to the CAT NMS Plan. The 

proposed Executed Share Model does not impose fees on Execution Venues and would instead 

impose fees on Participants and CAT Executing Brokers (and, ultimately, Industry Members) 

and therefore it is appropriate to delete the term. 

 
846  Id. 
847  Id. at 17100–01. 
848  Id. at 17099. 
849  Proposed Section 11.2(c). 



153 

Additionally, it is reasonable to amend Section 11.2(c) and Section 11.3(a) and (b) of the 

CAT NMS Plan to reflect the proposed use of the number of executed equivalent shares in 

transactions in Eligible Securities in calculating CAT fees.  These changes are appropriate 

because, unlike the Original Funding Model, the proposed Executed Share Model would not use 

message traffic, or a tiered fee structure.   

Further, the proposed elimination of tiered fees and related concepts from the CAT NMS 

Plan and the proposed replacement of “fixed fees” with references to “fees” in the CAT NMS 

Plan are reasonable.  The Original Funding Model would use a tiered fee structure of fixed fees; 

however, the proposed Executed Share Model would require each Participant and CAT 

Executing Broker to pay a CAT fee based on its transactions in Eligible Securities.850  CAT LLC 

explained that “[t]he proposed non-tiering approach is simpler and more objective to administer 

than the tiering approach”851 and that removing tiers “eliminates a variety of subjective analyses 

and judgments from the model and simplifies the determination of CAT fees.”852  Additionally, 

the Proposed Amendment would replace the concept of “fixed fees” with “fees” because CAT 

fees will vary in accordance with the number of executed equivalent shares in a transaction.853  

The proposed elimination of tiered fees and related concepts from the CAT NMS Plan and the 

proposed replacement of “fixed fees” with references to “fees” in the CAT NMS Plan are 

reasonable because these changes conform the CAT NMS Plan funding model to the proposed 

Executed Share Model. 

 
850  See proposed Section 11.3(a)(ii)(A), (a)(iii)(A), (b)(iii)(A). 
851  Notice, supra note 7, 88 FR at 17100. 
852  Id. 
853  Id. at 17101. 



154 

Additionally, the Proposed Amendment would amend Section 11.2(c) to make clear that 

the fee structure established by the Operating Committee to charge fees to Participants and 

Industry Members would also be based on the costs of the CAT.854  CAT LLC explained that the 

change clarifies that the CAT fees are cost-based fees designed to recover the cost of the 

creation, implementation and operation of the CAT.855  These proposed changes are appropriate 

because they would update language in the Original Funding Model to reflect the operation of 

the proposed Executed Share Model.  

9. Other Comments 

   a. Lack of Industry Input   

A number of commenters stated that the Proposed Amendment lacks input from the 

industry.856  One commenter stated that the Participants did not meaningfully solicit input from 

the industry when developing the Executed Share Model.857  Another commenter stated that the 

Proposed Amendment reflects a lack of representation by executing brokers and offered its 

participation in future discussions and advisory committees on the topic of CAT funding.858  One 

 
854  See proposed Section 11.2(c) (“… fees charged to Participants and Industry Members are based upon the 

executed equivalent share volume of transactions in Eligible Securities, and the costs of the CAT.” 
(emphasis added)).  

855  See Notice, supra note 7, 88 FR at 17099. 
856  See DASH April 2023 Letter at 2; DASH January 2023 Letter at 3; SIFMA June 2023 Letter at 4; SIFMA 

May 2023 Letter at 2; SIFMA June 2022 Letter at 2; SIFMA January 2023 Letter at 2; Citadel July Letter 
at 9–10.  See also FINRA June 2022 Letter at 8, 9 (advocating for a more inclusive development process 
that would include input from the industry); MMI July Letter at 2, 4; Virtu Letter at 6 (stating that they 
would like to have a meaningful dialogue with the Participants and that the best way forward is for the 
interested parties to meet and devise an equitable solution); FIA Letter at 4 (stating that they have “raised 
concerns over the lack of industry participation in the development, operation and cost allocation processes 
of the CAT” and they “believe that at a minimum, the CAT Operating Committee should be reconfigured, 
with Industry Members comprising the percentage of the Committee equivalent to whatever cost allocation 
percentage is eventually allocated to them.”). 

857  See SIFMA May 2023 Letter at 2.  See also SIFMA June 2023 Letter at 4, 5; SIFMA June 2022 Letter at 2; 
SIFMA January 2023 Letter at 2. 

858  See DASH April 2023 Letter at 2; DASH January 2023 Letter at 3. 



155 

commenter stated that “[t]he impact of CAT on the brokerage community must be taken 

seriously by the SRO committee, and brokers need their voice heard on the committee’s 

recommendations.  To date, we have seen little evidence of either.”859  This commenter also 

suggested the allocation of human resources to hire industry experts in industry workflows and 

public-private engagement to assist with building the CAT.860 

In response, CAT LLC stated that it has engaged with the industry on the funding model 

over the past seven years, explaining that it has discussed funding model issues with the CAT 

Advisory Committee, which includes representation from the industry, as well as with industry 

associations such as SIFMA and the Financial Information Forum, and with individual Industry 

Members; analyzed and responded to comment letters on the prior proposals; and hosted 

webinars for the industry on funding issues.861  CAT LLC stated that it welcomes industry input 

on the funding model but believes a decision on the model is overdue.862   

In response, one commenter stated that Industry Members are willing to work with the 

Commission and the Participants to develop a CAT funding model.863  The commenter urged 

collaboration and dialogue between the Participants and the Industry Members before the filing 

of a formal proposal with the Commission.864  The commenter also stated that limiting industry 

input to the notice and comment process for NMS plan amendments is an inefficient process 

resulting in significant delays.865  Another commenter stated that the Operating Committee 

 
859  MMI July Letter at 4.   
860  Id.   
861  See CAT LLC May 2023 Response Letter at 12. 
862  Id. 
863  See SIFMA June 2023 Letter at 4. 
864  Id. 
865  Id. at 4–5. 



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refuses to engage the industry in constructive dialogue, instead choosing to file funding 

proposals that are inconsistent with the Exchange Act.866  The commenter also stated that the 

CAT Advisory Committee has been completely ignored by the Operating Committee and that its 

recommendations are non-binding.867   

CAT LLC further responded to two commenters that stated that CAT LLC refused to 

collaborate with the industry in the development of the Proposed Amendment.868  CAT LLC 

stated that it has engaged with the industry over the last seven years, discussing funding model 

issues with the CAT Advisory Committee, holding industry-wide webinars on funding issues, 

and meeting with industry associations and individual Industry Members to discuss funding 

model issues.869  CAT LLC stated that it has “repeatedly sought the views of SIFMA and other 

industry participants on specific aspects of the model.”870  CAT LLC listed ideas suggested by 

the industry that it adopted in revised versions of the funding model871 and stated “the current 

model results from years of modifications that have been made in significant part in response to 

industry comments to earlier versions.”872     

The Commission understands that Industry Members and other market participants have 

been able to provide input into CAT funding through meetings with CAT LLC, participation in 

webinars held by CAT LLC on CAT costs and potential alternative funding models,873 and 

 
866  See Citadel July Letter at 9–10.   
867  Id. at 6. 
868  See MMI July Letter at 2; SIFMA June 2023 Letter at 4. 
869  See CAT LLC July 2023 Response Letter at 26–27. 
870  Id. at 28. 
871  Id. at 27–28. 
872  Id. at 28. 
873  See CAT Industry Webinar: CAT Costs (Sept. 21, 2021), available at 

https://catnmsplan.com/sites/default/files/2021-09/09.21.21-CAT-Costs_0.pdf; CAT Industry Webinar: Fee 
 



157 

through the provision of comments on the current and prior proposed funding models.874  The 

Commission encourages frequent and constructive collaboration between the industry and CAT 

LLC.   

  b. Implementation 

 One commenter suggested that upon approval of any CAT funding model, Industry 

Members should be given at least a year “to implement any necessary changes to systems and 

processes for them to be able to capture their portion of CAT costs.”875  CAT LLC responded 

that it was unlikely to take Industry Members a year to implement any needed changes, 

particularly given the relatively small fees likely to be incurred by most small Industry Members 

that would not require extensive new processes to pay.876   

The Commission acknowledges this comment but highlights, as did CAT LLC,877 that the 

Participants have entirely funded the CAT to date; in the Commission’s view, it is imperative 

that CAT funding be established in a timely manner after approval of the Executed Share Model.   

   c. Rule 613 and the CAT NMS Plan 

Certain commenters stated that the CAT as it is structured today is not what was 

contemplated by Rule 613 of Regulation NMS.878  One commenter recommended that the 

Commission come up with a new structure for the CAT.879  The commenter stated that Rule 613 

 
Models (Sept. 22, 2021), available at https://catnmsplan.com/sites/default/files/2021-09/09.22.21-CAT-
Fee-Model.pdf. 

874  See, e.g., supra note 58; see also https://www.sec.gov/comments/4-698/4-698-a.htm. 
875  SIFMA May 2023 Letter at 2. 
876  See CAT LLC May 2023 Response Letter at 12. 
877  Id. 
878  See SIFMA June 2023 Letter at 2, 6–7; Citadel July Letter at 5; FIA Letter at 5; FIF and SIFMA Letter at 

4, 5, 8–23.   
879  See SIFMA Letter June 2023 at 6. 



158 

and the 2016 CAT NMS Plan do not support CAT as it is currently structured880 and provided 

examples where it believes that subsequent changes to the CAT requested by the Commission 

have caused the CAT to become inconsistent with the requirements of Rule 613 and the 2016 

CAT NMS Plan.881  According to the commenter: (1) Rule 613 requires the reporting of certain 

events and that the events must be linked to their originating order, but the Commission has 

required the reporting of events that are not CAT-reportable and are not linked to particular 

orders (for example, Rule 613 requires the reporting of the cancellation of an order, but the 

Commission has also required the reporting of messages acknowledging the receipt of a 

cancellation request);882 (2) the Commission expanded the CAT to include OTC equities and 

requests-for-quotes;883 (3) the CAT NMS Plan contemplates that data will be available to the 

Commission on a T+5 basis, but the Commission and staff have insisted that certain data be 

available to the Commission for use before T+5;884 (4) Rule 613 requires the reporting of every 

material term of an order, but the Commission has also required the reporting of the port-level 

settings applicable to all orders sent to a port on an exchange.885 The commenter stated that these 

changes to CAT resulted from discussions between the Commission and the Participants, that 

such changes “significantly increased CAT costs,” and that Industry Members with “no voice 

and little transparency” into the building of the CAT system would be allocated most of the 

increased CAT costs.886  The commenter stated that the Commission approval of a funding 

 
880  Id. at 6–7. 
881  Id. at 6.   
882  Id. at 6–7. 
883  Id. at 7. 
884  See SIFMA June 2023 Letter at 6. 
885  Id.  See also Citadel July Letter at 32–33. 
886  See SIFMA June 2023 Letter at 7. 



159 

proposal for a system that is not consistent with Rule 613 and the CAT NMS Plan would be 

arbitrary and capricious action.887   

Another commenter stated that some of the drivers of CAT costs are the addition of 

various new system features and reporting requirements that were established as the result of 

discussion between Commission staff and the CAT Operating Committee.888  The commenter 

stated that some of these requirements have been driven by “informal reinterpretations” of the 

Plan and have resulted in material changes to the CAT without proper weighing of costs and 

benefits associated with such changes.889  The commenter further stated that the Participants 

should confirm that the existing CAT system meets the requirements of the Plan, before the 

funding proposal is finalized.890 

One commenter believes that the Commission should require an amendment to the CAT 

NMS Plan for new reporting requirements or enhancements for which costs and benefits were 

never considered by Commission in the economic analysis for the approval of the CAT NMS 

Plan.891  This commenter believes that the Commission is imposing CAT processing 

requirements that are not required by Rule 613 and the CAT NMS Plan.892  The commenter 

further believes these “changes” should be subject to greater review by the Industry Members 

and the public at large, and therefore should be filed as amendments to the CAT NMS Plan, 

thereby requiring a cost-benefit analysis to be conducted by the Commission and public 

 
887  Id. 
888  See FIA Letter at 5. 
889  Id. 
890  Id. 
891  See FIF and SIFMA Letter at 4, 5.   
892  Id. at 9–12 (discussing various “processing changes” the commenter believes the Commission intends to 

impose, as well as summarizing the objections made by the Participants to these “changes”). 



160 

disclosure.893 The commenter stated that the Commission has mandated additional reporting 

requirements for CAT that the commenter does not believe to be within the scope of Rule 613 

and the CAT NMS Plan, and that these additional reporting requirements should be subject to an 

appropriate cost-benefit analysis.894  The commenter stated their concern that these reporting 

requirements would be very costly to implement and questioned whether the surveillance value 

of these additional reporting requirements justified the additional costs that will be imposed on 

market participants (and potentially passed through to customers).895  The commenter further 

stated that, to the extent that these additional reporting requirements are found to be within the 

scope of Rule 613 and the CAT NMS Plan, the Commission should grant exemptive relief with 

respect to these requirements because of the additional costs.896  The commenter also stated that 

if the Commission does not grant exemptive relief, then the Commission should require an 

amendment to the CAT NMS Plan, that sets forth the costs and benefits, for each of these 

additional reporting requirements because the commenter believes that these reporting 

requirements were not considered as part of the cost estimates in the CAT NMS Plan.897   

 
893  Id. at 10–11.  This commenter also stated that there were several “processing requirements” that could 

reduce CAT operating costs and that the Commission should direct the Participants to analyze these 
“processing requirements” and make that analysis available to the public for discussion.  Id. at 12–13. 

894  See FIF and SIFMA Letter at 13–23 (discussing various reporting requirements that the commenter does 
not consider to be within the scope of Rule 613 and the CAT NMS Plan or believes that exemptive relief 
should be granted because of the costs for implementing these requirements, including: requiring CAT 
reporting of verbal (unstructured) activity; requiring CAT reporting of non-executable RFQ responses; 
requiring CAT reporting of request messages; requiring that an order recipient report rejections to CAT; 
requiring an order sender to report venue (order recipient) port settings; requiring CAT reporting of linkage 
of representative to customer orders and linkage of order fulfillments to representative and principal orders; 
various requirements with respect to CAIS reporting; and other CAT reporting requirements relating to 
quoting activity on the OTC Link ATS operated by OTC Markets).  

895  Id. at 14. 
896  Id. 
897  Id.161 

Another commenter stated that changes and cost overruns have changed the structure of 

the CAT from what was contemplated by Rule 613.898  The commenter believes that the 

Operating Committee and the Commission have engaged in ad-hoc discussions to interpret what 

the Plan requires “without adequate notice to Industry Members or due consideration of the costs 

and benefits associated with such interpretations.”899  The commenter stated that the 

Commission has not regularly assessed whether costs resulting from a specific interpretation of 

Rule 613 and the CAT NMS Plan outweigh benefits.900  The commenter requested that the 

Commission revisit its assumptions from the CAT NMS Plan Approval Order901 due to 

inaccurate cost estimates, a failure to retire duplicative systems, impracticality of technology 

requirements, a lack of effective governance, and a lack of processes to consider requests to add 

more data.902   

The commenter also stated that the Commission must update the economic analysis from 

the CAT NMS Plan Approval Order903 to revise its estimates of costs to build and operate CAT 

using actual costs incurred,904 to project average annual increases in the CAT operating 

budget,905 and to update its analysis of CAT-related costs to be borne by Industry Members.906  

The commenter stated that the 2016 CAT NMS Plan lacked a funding model, so the Commission 

 
898  See Citadel July Letter at 7. 
899  Id. at 6. 
900  Id. 
901  See supra note 2. 
902  See Citadel July Letter at 5; see also FIF and SIFMA Letter at 24–26. 
903  See CAT NMS Plan Approval Order, supra note 2. 
904  See Citadel July Letter at 12.  The commenter stated that 2016 figures underestimated such implementation 

costs for larger broker-dealers by assuming cost savings would be realized through retirement of other 
reporting systems which haven’t been retired yet.  Id. at 12–13. 

905  Id. at 13.       
906  Id. at 12. 



162 

did not consider the implications of allocating costs to Industry Members to build and operate the 

CAT.907  The commenter stated that the Proposed Amendment would allocate at least 78% and 

up to 100% of costs to Industry Members and a small group of Industry Members will pay the 

majority of these costs (and potentially both historical and ongoing costs simultaneously).908  

The commenter stated that the proposed allocation would have “dramatic effects” on market 

efficiency, competition and capital formation,909 stating that “[t]he allocation methodology will 

have a direct and negative impact on market efficiency, competition, and capital formation, and 

the Commission must comprehensively assess those impacts before approving this filing.”910   

Additionally, the commenter stated that Rule 613 requires the Participants to provide an 

estimate of the costs associated with creating, implementing and maintaining the CAT, the costs, 

benefits and rationale for the choices made in developing the CAT NMS Plan, and their own 

analysis of the plan’s impact on competition, efficiency and capital formation.911  The 

commenter requested the Commission to require the members of the Operating Committee to 

update the analysis required by Rule 613 in light of a “massive increase” in costs since 2016.912  

Another commenter similarly suggested that additional oversight and public review of the actual 

costs and purpose of the CAT is called for, and also requested additional transparency on the 

status of legacy reporting systems, since their retirement could offset some of the CAT fees.913 

 
907  Id. 
908  See Citadel July Letter at 12; id. at 12, n.57. 
909  Id. at 12. 
910  Id. at 15. 
911  Id. at 14–15; see also FIF and SIFMA Letter at 24-25. 
912  See Citadel July Letter at 15. 
913  See MMI July Letter at 6. This commenter did not specifically request that the Operating Committee 

update the Rule 613 analysis. 



163 

In response to one commenter that stated that Rule 613 and the CAT NMS Plan no longer 

reflect the operation of the CAT,914 CAT LLC stated that the CAT was implemented in 

accordance with Rule 613 and the CAT NMS Plan and that the CAT NMS Plan permits the 

recovery of costs incurred in the creation, implementation and maintenance of the CAT.915 

CAT LLC also responded to comments that raised concerns about the Commission’s 

interpretations of CAT NMS Plan requirements that were not related to the funding model and 

the costs and benefits of those interpretations.916  CAT LLC stated that the Proposed Amendment 

is not the appropriate forum to resolve interpretive questions.917  CAT LLC also stated that, for 

proposed changes to the CAT NMS Plan, the Participants are following the process in Rule 608 

for plan amendments and noted that material changes to the CAT system would require an 

amendment to the CAT NMS Plan,918 but not a material change to a technology contract as the 

CAT NMS Plan permits the Operating Committee to enter into, modify or terminate a material 

contract.919     

The CAT NMS Plan is consistent with Rule 613 and we do not believe that any changes 

have been made that are inconsistent with the Plan as approved in 2016, as amended in 2020.920 

The examples provided by commenters of changes to the CAT requested by the Commission,921 

 
914  See SIFMA June 2023 Letter at 7. 
915  See CAT LLC July 2023 Response Letter at 28. 
916  See Citadel July Letter at 32–34; FIA Letter at 3, 4; MMI July Letter at 4. 
917  See CAT LLC July 2023 Response Letter at 29. 
918  Id. 
919  Id. at 30 (citing to Section 4.3 of the CAT NMS Plan). 
920 See Securities Exchange Act Release No. 89387 (July 24, 2020), 85 FR 45941 (July 30, 2020); Financial 

Accountability Amendments, supra note 18. 
921  See SIFMA June 2023 Letter at 6, 7, supra notes 881–885 and accompanying text; Citadel July Letter at 

33–35; FIF and SIFMA Letter at 8–23.  The issues raised by those commenters are either being adjudicated 
in a separate forum or addressed through a request for exemptive relief.  See Petition for Review, USCA 

 



164 

in the Commission’s view, were included in the CAT NMS Plan approved by the Commission in 

2016.922  Rule 608 and Rule 613 of Regulation NMS provide advance notice of material changes 

to the CAT system and related costs by requiring changes to the CAT NMS Plan to be filed with 

the Commission as an NMS plan amendment pursuant to Rule 608 of Regulation NMS and 

thereby be subject to notice and comment, and require that the Commission consider, in 

determining to approve the amendment, the impact of the amendment on efficiency, competition 

and capital formation.923  Section 6.9 of the CAT NMS Plan does not provide unfettered 

discretion to the CAT Operating Committee to make Material Amendments to the CAT system.  

If the CAT Operating Committee or the Commission wish to impose additional requirements to 

the CAT NMS Plan, such requirements must be proposed through an amendment to the CAT 

NMS Plan, filed under Rule 608 of Regulation NMS.  Such amendments must be published for 

notice and comment.924  Additionally, Rule 613(a)(5) of Regulation NMS925 requires the 

Commission to consider, in determining whether to approve an amendment to the CAT NMS 

Plan, the impact of the amendment on efficiency, competition and capital formation; therefore, 

this Order contains an analysis of the Proposed Amendment’s impact on efficiency, competition, 

and capital formation.   

   d. Funding in the Appropriation Process 

 
Case No. 22-1234; Request for Exemption from Certain Provisions of the CAT NMS Plan Related to 
Reporting of Certain Verbal Activity, Floor and Upstairs Activity, available at 
https://catnmsplan.com/sites/default/files/2023-03/03.31.23-CAT-Exemption-Request-Verbal-Floor-and-
Upstairs-Activity.pdf.  22-1234; Request for Exemption from Certain Provisions of the CAT NMS Plan 
Related to Reporting of Certain Verbal Activity, Floor and Upstairs Activity, available at 
https://catnmsplan.com/sites/default/files/2023-03/03.31.23-CAT-Exemption-Request-Verbal-Floor-and-
Upstairs-Activity.pdf.   

922  See Securities Exchange Act Release No. 95234 (July 8, 2022), 87 FR 42247 (July 14, 2022). 
923  Rule 613(a)(5).  17 CFR 242.613(a)(5).   
924  See Rule 608(a)(1).  17 CFR 242.608(a)(1). 
925  17 CFR 242.613(a)(5).   



165 

Certain commenters believe that funding for the CAT should be accomplished through 

Congressional appropriations.926  These commenters characterized the CAT as a Commission 

tool for law enforcement.927  One commenter stated that the Proposed Amendment would 

“evade”928 the separation of powers established by the Constitution, arguing that since the CAT 

is a “Commission system used for enforcement”929 and that law enforcement “is an executive 

prerogative,”930 Congress must approve public funds to build the CAT through the 

appropriations process.931  The commenter stated “[t]he Constitution does not permit the 

Commission to fund its own enforcement apparatus through the backdoor—to require the SROs 

to raise and spend hundreds of millions of dollars to build a new law enforcement tool for the 

Commission.”932  The commenter also stated that the assessment of “retroactive liability for 

monies spent that private parties had no control over” for public purposes would violate the Fifth 

Amendment Takings Clause.933   

Another commenter stated that the Proposed Amendment is unconstitutional because it 

would require Industry Members to provide the Operating Committee with a blank check to fund 

100% of costs in perpetuity for a law enforcement tool designed for the Commission that has not 

 
926  See SIFMA June 2023 Letter at 8; Citadel July Letter at 28–29; FIA Letter at 3; MMI July Letter at 2–4.  

See also MMI July Letter at 1–2.  This commenter suggested evaluating whether the CAT is truly an NMS 
plan, or if it is better viewed as a Commission system whose budget should be subject to Congressional 
approval and oversight.  In response, CAT LLC stated that this comment is outside the scope of the 
Proposed Amendment.  See CAT LLC July 2023 Response Letter at 31, n.144. 

927  See SIFMA June 2023 Letter at 8; FIA Letter at 3; Citadel July Letter at 28, 29.  See also MMI July Letter 
at 2–4 (categorizing the CAT as a Commission system, required by and dictated by the Commission that 
should be funded in the same way as other Commission functions). 

928  See SIFMA June 2023 Letter at 8. 
929  Id.  See also FIA Letter at 3. 
930  See SIFMA June 2023 Letter at 8. 
931  Id. 
932  Id.  See also Citadel July Letter at 28, 29.   
933  See SIFMA June 2023 Letter at 8. 



166 

been authorized by Congress.934  The commenter also stated that requiring the Participants to 

build “a multi-billion dollar enforcement tool” is beyond the scope of Section 11A’s 

authorization to the Commission to require SROs to act jointly or facilitate the development of a 

national market system.935  Another commenter stated that the Commission has directed the 

development of CAT to supplement the government’s surveillance program while the Funding 

Proposal effectively places all or most of the costs of the CAT on the Industry Members, who 

have no voice in its control or development.936  The commenter states that these costs are 

essentially a tax on the industry from an agency and should require Congressional oversight.937  

Additionally, one commenter suggested the treatment of the CAT budget in terms of accounting 

and transparency as a Commission system, and a cap on the budget for CAT which, if exceeded, 

would trigger Congressional budget oversight.938 

In response to recent comments expressing concern that the Industry Member allocation 

would raise constitutional issues,939 CAT LLC stated that the first commenter to raise this issue 

had never once before challenged the constitutionality of Rule 613 or the CAT NMS Plan.940  

CAT LLC stated “SIFMA’s strategic decision to inundate the Commission with these 

arguments—which directly contradict its prior statements that industry contributions are 

‘justifiable under the Exchange Act’—just two days before a scheduled SEC Open Meeting to 

consider the Funding Proposal suggests their ultimate strategy is to delay the Commission’s 

 
934  See Citadel July Letter at 29. 
935  Id. at 28.   
936  See FIA Letter at 3. 
937  Id. 
938  See MMI July Letter at 2, 4.   
939  See SIFMA June 2023 Letter at 7–9; Citadel July Letter at 28–29; FIA Letter at 3; Virtu Letter at 2. 
940  See CAT LLC July 2023 Response Letter at 31. 



167 

review and approval of any funding model that would require the industry to contribute to the 

funding of the CAT.”941  CAT LLC urged the Commission to not let the commenter further 

delay a decision on the Proposed Amendment by filing comments that it could have submitted 

years before.942  CAT LLC also noted that, despite the commenter’s argument that requiring 

Industry Members to contribute to CAT costs was a constitutional takings problem, the 

commenter had suggested a funding model for the CAT based on a 50%-50% allocation of costs 

divided among Participants and Industry Members.943  CAT LLC stated that regardless of how 

this issue is resolved, the Participants should be able to recover their investment in CAT because 

Rule 613 and the CAT NMS Plan contemplate Industry Member contributions to CAT 

funding.944 

 In characterizing CAT as solely a “Commission tool used for enforcement,” these 

comments misunderstand its purposes.945  CAT serves multiple regulatory purposes for both 

SROs and the Commission.  SROs have long had audit trail systems and the SROs themselves, 

as well as the Commission, have long used the market data from those systems to oversee the 

securities markets and fulfill their responsibilities under federal securities laws.946  In directing 

the SROs to file an NMS plan establishing the CAT, the Commission sought to address 

shortcomings in those existing systems and create an audit trail system that would provide both 

 
941  Id. at 32. 
942  Id. at 33. 
943  Id. at 31.  See also SIFMA May 2023 Letter at 2; supra note 101 and accompanying text. 
944  See CAT LLC July 2023 Response Letter at 33. 
945  See SIFMA June 2023 Letter at 8; FIA Letter at 3; Citadel July Letter at 28, 29.  See also MMI July Letter 

at 2–4 (categorizing the CAT as a Commission system, required by and dictated by the Commission that 
should be funded in the same way as other Commission functions). 

946  See Securities Exchange Act Release No. 67457 (July 18, 2012), 77 FR 45722 (Aug. 1, 2012) (“CAT 
Adopting Release”) at 45727.  



168 

the SROs and the Commission with timely access to a comprehensive set of trading data 

sufficient to oversee modern markets.  And in approving the CAT NMS Plan, the Commission 

determined that the Plan would substantially improve the ability of both the SROs and the 

Commission to perform these regulatory activities to the benefit of investors and markets.947   

In this respect, the CAT’s regulatory and enforcement utility to the SROs as well as the 

Commission is similar to many of the SROs’ other self-regulatory functions that are funded in 

part by Industry Members.  And this dual purpose is consistent with the long history of SRO and 

Commission oversight of the securities markets.  Self-regulation in the securities industry 

predates the securities laws and, in enacting the Exchange Act in 1934, Congress formalized this 

structure, purposefully determining to rely on self-regulation as a fundamental component of 

U.S. market and broker-dealer regulation.948  Among other things, Congress determined that 

effectively regulating the inner-workings of the securities industry at the federal level was cost 

prohibitive and inefficient.949 And industry participants preferred the less invasive regulation by 

their peers to direct government regulation. 950  Congress and the Commission have repeatedly 

reaffirmed that decision in the years since.951  And Courts have repeatedly affirmed the 

 
947  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84727, 84800. 
948  See Securities Exchange Act Release No. 50700 (Nov. 18, 2004), 69 FR 71255 (Dec. 8, 2004) (“Concept 

Release Concerning Self-Regulation”).   
949   Id., citing S. Rep. No. 1455, 73d Cong., 2d Sess. (1934); H.R. Doc. No. 1383, 73d Cong., 2d Sess. (1934); 

S. Rep. No. 1455, 73d Cong., 2d Sess. (1934).; see also S. Rep. No. 94-75, 94th Cong., 1st Sess. 7, II 
(1975) (stating that a principal reason for retaining a self-regulatory regime was the “sheer ineffectiveness 
of attempting to assure [regulation] directly through the government on a wide scale”) 

950  See Concept Release on Self-Regulation, supra note 948, 69 FR at 71256-57.  
951  See e.g., Exchange Act Amendments of 1975, Pub. L. 29, 89 Stat. 97 (1975); 1961-1963 Special Study of 

Securities Markets. Securities and Exchange Commission, Report of Special Study of Securities Markets, 
(“Special Study”), H.R. Doc. No. 95, 88th Cong., 1st Sess. (1963) and Market 2000: An Examination of 
Current Equity Market Developments, Division of Market Regulation, U.S. Securities and Exchange 
Commission (January 1994) (“Market 2000 Report”). 



169 

constitutionality of this system of self-regulation.952  As contemplated by Congress, the SROs 

have also long funded their frontline responsibility to supervise their members’ compliance with 

their own rules and the federal securities laws, subject to Commission oversight, through fees on 

those members.953  The participation of Industry Members in the funding of CAT is no different.   

The assertion by commenters that the funding of the CAT violates the Appropriations 

Clause or other constitutional limitations thus lacks merit.  The funding of an initiative, such as 

CAT, that has utility to both the SROs and the Commission does not implicate the 

Appropriations Clause in the manner that has been questioned in courts.954  As the Supreme 

Court has stated, that clause “means simply that no money can be paid out of the Treasury unless 

it has been appropriated by an act of Congress.”955  The use of SRO and Industry Member 

funding for a self-regulatory initiative—which, as discussed below, falls within the authority 

provided by Congress—does not transgress that principle. 

Nor does Industry Members’ participation in CAT funding implicate the Takings Clause.  

In choosing to participate in the securities industry, Industry Members could not have had any 

 
952  See Todd & Co. v. SEC, 557 F.2d 1008, 1012-13 (3d Cir. 1977); First Jersey Sec., Inc. v. Bergen, 605 F.2d 

690, 697 (3d Cir. 1979); Sorrell v. SEC, 679 F.2d 1323, 1325-26 (9th Cir. 1982); R.H. Johnson & Co. v. 
SEC, 198 F.2d 690, 695 (2d Cir. 1952); see generally Oklahoma v. United States, 62 F.4th 221, 229 (6th 
Cir. 2023). 

953  See Concept Release Concerning Self-Regulation, supra note 948, 69 FR at 71268-69, citing Exchange Act 
Section 6(b)(4), 15 U.S.C. 78f(b)(4); Exchange Act Section 15A(b)(5), 15 U.S.C. 78o-3(b)(5); Exchange 
Act Section 15A(b)(2) and 6(b)(1) 15 U.S.C. 78o-3(b)(2) and 78f(b)(1).] 

954  For these reasons, we disagree with the assertion of commenters that the Fifth Circuit’s reasoning in Cmty. 
Fin. Servs. Ass’n of Am., Ltd. v. CFPB, 51 F.4th 616, 642 (5th Cir. 2022), cert. granted sub nom. CFPB v. 
Com. Fin. Servs. Ass’n, U.S.  (Feb. 27, 2023), casts doubt on the constitutionality of CAT.  The holding in 
that case rested on the court’s view that the CFPB’s “perpetual self-directed, double-insulated funding 
structure” was “unprecedented” for an agency that “wields vast rulemaking, enforcement, and adjudicatory 
authority.”  See also CFPB v. Law Offices of Crystal Maroney, 63 F.4th174, 181-83 (2d. Cir. 2023) 
(disagreeing with Fifth Circuit’s reasoning and rejecting challenge to CFPB’s funding structure). 

955  See Cincinnati Soap Co. v. United States, 301 U.S. 308, 321 (1937); see also Off. Of Pers. Mgmt. v. 
Richmond, 496 U.S. 414, 424 (1990) (The Appropriations Clause requires that “the payment of money 
from the Treasury must be authorized by a statute.”). 



170 

“distinct investment-backed expectations”956 that they would not have to share in funding 

regulatory initiatives such as development and maintenance of a consolidated audit trail for 

tracking securities trading, the purpose of which is to “strengthen the integrity and efficiency of 

the markets” and thus “enhance investor protection and increase capital formation.”957 

Finally, the creation of CAT falls within the Commission’s authority under the Exchange 

Act.958  Pursuant to that Act, each national securities exchange and national securities association 

must be organized and have the capacity to comply, and enforce compliance by its members, 

with its rules, and with the federal securities laws, rules, and regulations.959  And, among other 

things, the Commission has a responsibility to oversee those organizations and to enforce 

compliance by the members of exchanges and associations with the respective exchange's or 

association's rules, and the federal securities laws and regulations.960  Congress has also charged 

the Commission with “insur[ing] the maintenance of fair and honest markets,” removing 

“impediments to” and perfecting “the mechanisms of a national market system for securities” 

and “provid[ing] for regulation and control of” transactions on securities exchanges and the over-

the-counter market.961  In furtherance of these responsibilities, Congress authorized the 

Commission to “impose requirements necessary to make such regulation and control reasonably 

 
956  See Penn Central Transp. Co. v. New York City, 438 U.S. 104, 124 (1978). 
957   See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84727. 
958  See 15 U.S.C. 78b, 78c(b), 78e, 78f, 78k-1, 78o, 78o-3; cf. Nasdaq Stock Mkt. LLC v. SEC, 38 F.4th 1126, 

1131 (D.C. Cir. 2022) (explaining that Congress granted the Commission “‘broad, discretionary powers’ to 
ensure ‘maximum flexibility’ in ‘oversee[ing] the development of a national market system’ and 
‘implement[ing] its specific components in accordance with the findings and . . . objectives’ of the 
legislation,” quoting S. Rep. 94-75, at 7 (1975)). 

959  See, e.g., Sections 6(b)(1), 19(g)(1) and 15A(b)(2) of the Exchange Act, 15 U.S.C. 78f(b)(1), 78s(g)(1), and 
78o-3(b)(2). 

960  See, e.g., Sections 2, 6(b), 15A(b), and 19(h)(1) of the Exchange Act, 15 U.S.C. 78b, 15 U.S.C. 78f(b), 15 
U.S.C. 78o-3(b), and 15 U.S.C. 78s(h)(1). 

961  See Section 2 of the Exchange Act, 15 U.S.C. 78b. 



171 

complete and effective”962 as well as to make such rules and regulations “as may be necessary or 

appropriate to implement the provisions” of the Exchange Act.963   

More recently, Congress also directed the Commission to facilitate the establishment of a 

national market system in accordance with specified findings and objectives.964  The initial 

Congressional findings were that the securities markets are an important national asset that must 

be preserved and strengthened, and that new data processing and communications techniques 

create the opportunity for more efficient and effective market operations.965 Congress then 

proceeded to mandate a national market system composed of multiple competing markets that 

are linked through technology, directing the Commission to “use its authority under [the 

Exchange Act] to facilitate the establishment of a national market system,” including “by rule” 

“to authorize or require self-regulatory organizations to act jointly with respect to matters as to 

which they share authority under [the Exchange Act] in planning, developing, operating, or 

regulation a national market system.”966   

The creation of the CAT was an appropriate exercise of this authority.  The Commission's 

task pursuant to the mandate in Section 11A has been to facilitate an appropriately balanced 

market structure that promotes competition among markets, while minimizing the potentially 

adverse effects of fragmentation.  An appropriately balanced market structure also must provide 

for strong investor protection.967  As the Commission explained in adopting Rule 613, the 

creation of a consolidated audit trail with the ability to surveil cross-market activity had become 

 
962  Id.   
963  Section 23(a)(1) of the Exchange Act. 
964  Section 11A of the Exchange Act, 15 U.S.C. 78k-1. 
965  15 U.S.C. 78k-1(a)(1). 
966  15 U.S.C. 78k-1(a)(3)(B). 
967  See Securities Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21, 2010) at 3597. 



172 

key to the ability of both the SROs and the Commission to perform many of their core regulatory 

functions in the modern iteration of the national market system.968  While the SROs and the 

Commission relied on existing audit trails and data in fulfilling their regulatory responsibilities 

prior to CAT, each of those systems had its own flaws and drawbacks, and there was a 

significant disparity in the audit trail requirements among the exchanges and FINRA.  At the 

same time, the rapid change to fast, electronic markets on which trading was dispersed across 

market centers gave rise to an increasing need to a more uniform audit trail with cross-market 

compatibility.969  The establishment of the CAT thus enabled the SROs and the Commission to 

more efficiently and effectively perform their respective regulatory responsibilities, including to 

analyze and reconstruct market events, monitor market behavior, conduct market analysis to 

support regulatory decisions, and perform surveillance, investigation, and enforcement 

activities.970 

Contrary to one commenter’s suggestion, the Supreme Court’s major questions doctrine 

is not implicated here.  In directing the SROs to act jointly to create an accurate, complete, 

accessible and timely audit trail to replace these existing audit trails, the Commission did not 

 
968  See CAT Adopting Release, supra note 946.  Indeed, many SROs, in commenting on that rule, recognized 

the essential nature of the project.  Id. at 45736, quoting Letter from Marcia E. Asquith, Senior Vice 
President and Corporate Secretary, FINRA, and Janet McGinness Kissane, Senior Vice President and 
Corporate Secretary, NYSE Euronext, to Elizabeth M. Murphy, Secretary, Commission, dated August 9, 
2010 ( “the evolution of the U.S. equity markets and the technological advancements that have recently 
taken place have created an environment where a consolidated audit trail is now essential to ensuring the 
proper surveillance of the securities markets and maintaining the confidence of investors in those 
markets.”). 

969  See Securities Exchange Act Release No. 62174 (May 26, 2010), 75 FR 32556 (June 8, 2010) (“CAT 
Proposing Release”).  Even prior to proposing the creation of the CAT in 2010, the Commission had twice 
requested comment regarding how best to enhance the capability of SROs and the Commission to 
effectively and efficiently conduct cross-market supervision of trading activity.  See Securities Exchange 
Act Release No. 47849 (May 14, 2003), 68 FR 27722 (May 20, 2003) (File No. S7-11-03) (“Intermarket 
Trading Concept Release”) and Concept Release Concerning Self-Regulation. 

970  See CAT Adopting Release, supra note 946, 77 FR at 45727; see also CAT NMS Plan Approval Order, 
supra note 2, 81 FR at 84727, 84738, 84800. 



173 

claim an “[e]xtraordinary grant[] of regulatory authority” based on “vague,” “cryptic,” 

“ancillary,” or “modest” statutory language. 971  Nor did it assert authority that falls outside its 

“particular domain.” 972  And, while CAT is undoubtedly a large database, that is a function of 

the size of the “complex, dispersed, and highly automated national market system”973 Congress 

expressly charged the SROs and the Commission with overseeing.  As detailed above, the 

collection of securities transaction data by the SROs and the Commission is an important factor 

in enabling both to fulfill their statutory responsibilities and has a long history.  There is no 

reason to question that Congress would have intended for the Commission to address the serious 

shortcomings and regulatory obstacles associated with the lack of a consolidated audit trail.  And 

there is therefore no basis for dispensing with ordinary principles of statutory construction to 

require express authorization for CAT by Congress. 974   

   e. Rule 608 and Rule 19b-4 

Certain commenters believe the assessment of CAT fees on Industry Members through 

filings submitted by each exchange under Rule 19b-4 is likely inconsistent with Rule 608.975  

One commenter stated that the Commission amended Rule 608 in 2020 to remove the effective-

upon-filing procedure for NMS plan fees by requiring that NMS plan fees be subject to notice 

and comment and Commission approval prior to becoming effective.976  The commenter also 

stated that the 2020 amendment specifically contemplates that CAT fees would be subject to 

 
971  West Virginia v. EPA, 142 S. Ct. 2587, 2608-10 (2022) (quotation omitted). 
972  Alabama Ass’n of Realtors v. HHS, 141 S. Ct. 2485, 2489 (2021) (per curiam). 
973  See CAT Adopting Release, supra note 946, 77 FR at 45723. 
974  Contra Biden v. Nebraska, 143 S. Ct. 2355, 2372, 2375 (2023), 143 S.Ct. 2355, 2372, 2375 (2023). 
975  See SIFMA June 2023 Letter at 4, 9; Citadel July Letter at 15. 
976  See SIFMA June 2023 Letter at 9.   



174 

Rule 608,977 however the Commission was considering approving a process for CAT fees that 

would not permit a meaningful review opportunity, contrary to the Rule 608 amendment.978  The 

commenter acknowledged that the CAT NMS Plan provides for Section 19(b) fee filings but also 

stated that (1) the CAT NMS Plan was approved prior to the amendment of Rule 608 in 2020 and 

(2) the CAT NMS Plan is silent about whether Section 19(b) fee filings would need to be made 

after the Operating Committee receives approval to assess the fees under Rule 608.979  The 

commenter suggested that due to the “infirmities with the process for establishing and assessing 

CAT Fees under the Funding Proposal,” the Operating Committee must create a new funding 

process consistent with Rule 608 and stated that the Commission cannot find that the Proposed 

Amendment is consistent with the Exchange Act.980  Another commenter stated that the 

proposed approach seems inconsistent with recent Commission rulemaking to ensure that fee 

filings related to an NMS plan can no longer be effective upon filing.981 

In response to one commenter that stated that the filing of Industry Member CAT fees 

under Rule 19b-4 likely violates Rule 608 of Regulation NMS,982 CAT LLC stated that it 

disagreed with the comment because the Proposed Amendment complies with Rule 608.983  CAT 

LLC stated that Section 11.1(b) of the CAT NMS Plan requires the Participants to file Industry 

Member CAT fees pursuant to Section 19(b) of the Exchange Act,984 and Section 19(b) permits 

 
977  Id. 
978  Id. 
979  Id. at 9, n.45. 
980  Id.   
981  See Citadel July Letter at 15. 
982  See SIFMA June 2023 Letter at 9. 
983  See CAT LLC July 2023 Response Letter at 30. 
984  Id. 



175 

fees to become effective upon filing.985  CAT LLC also noted that the funding methodology for 

Participant fees would be established through the Proposed Amendment, which was filed in 

accordance with Rule 608; therefore, Participant CAT fees would be adopted in accordance with 

Rule 608.986  CAT LLC stated that Industry Member CAT fees would be filed pursuant to Rule 

19b-4 and those filings would be based on the Proposed Amendment, which would have to be 

approved pursuant to Rule 608, therefore “any Industry Member CAT fees will have been 

subject to the same extensive notice and comment process as Participant CAT fees and must 

satisfy the requirements of the Exchange Act.”987 

The Commission disagrees with the commenters’ position.  The filing of Industry 

Member CAT fees under Rule 19b-4 is consistent with the structure of the CAT.  The CAT NMS 

Plan functions as a joint agreement amongst the SROs who are parties to the CAT NMS Plan.  

But Industry Members are not parties to the Plan and the Plan itself does not bind Industry 

Members. Rather, Rule 608(c) of Regulation NMS requires each SRO to enforce compliance by 

its members with an effective NMS plan of which it is a sponsor or a participant.988  

Additionally, Rule 613(g) requires: (1) each SRO plan sponsor to file a proposed rule change to 

require its members to comply with Rule 613 and the CAT NMS Plan pursuant to Section 

19(b)(2) of the Exchange Act and Rule 19b-4 thereunder;989 (2) each member of an SRO plan 

sponsor to comply with the CAT NMS Plan;990 (3) each SRO plan sponsor to agree to enforce 

 
985  Id. 
986  Id. at 31. 
987  Id. 
988  17 CFR 242.608(c).  See also CAT NMS Plan at Section 3.11 (requiring each Participant to comply with 

and enforce compliance, as required by Rule 608(c), by its Industry Members with the provisions of Rule 
613 and the CAT NMS Plan). 

989  17 CFR 242.613(g)(1).   
990  17 CFR 242.613(g)(2). 



176 

compliance by its members with the CAT NMS Plan;991 and (4) the CAT NMS Plan to include a 

mechanism to ensure compliance with the CAT NMS Plan.992  Thus, Industry Members’ CAT 

reporting requirements stem from rules the Participants put in place for their members pursuant 

to the Section 19(b)(2) rule filing process.993   

The amendments to Rule 608 (“Rescission of Effective-Upon-Filing Procedure for NMS 

Plan Fee Amendments”), among other things, rescinded Rule 608(b)(3)(i),994 a provision that 

permitted fee changes assessed under NMS plans to become effective-upon-filing, and required 

NMS Plan fee amendments to be filed pursuant to Rule 608(b)(1) and (2), thus mandating an 

opportunity for public comment and Commission approval by order before the effectiveness of 

such fees.995  Vendors and subscribers of market data under the Market Data Plans are subject to 

vendor or subscribers’ fees charged by the applicable NMS Plan and filed by the NMS Plan 

using Rule 608.  As these vendors and subscribers are not parties to the NMS Plans, the 

mechanism by which fees are imposed on them is contractual.  Specifically, in order to receive 

market data under the NMS Plans, vendors and subscribers must individually enter into a vendor 

and/or a subscription agreement under which they agree to pay fees.996  The rescission impacted 

the way the Commission considers fees imposed on vendors and subscribers of market data 

under Market Data Plans since their fees are filed by the NMS Plans pursuant to Rule 608. 

 
991  17 CFR 242.613(g)(3). 
992  17 CFR 242.613(g)(4).   
993  See Securities Exchange Act Release No. 80256 (Mar. 15, 2017), 82 FR 14526 (Mar. 21, 2017).  
994  17 CFR 242.608(b)(3)(i). 
995  See Securities Exchange Act Release No. 89618 (Aug. 19, 2020), 85 FR 65470, 65471 (Oct. 15, 2020). 
996  See, e.g., UTP Plan Subscriber Agreement, available at https://www.utpplan.com/DOC/subagreement.pdf; 

Second Restatement of the Plan Submitted to the Securities and Exchange Commission Pursuant to Rule 
11Aa3-1 under the Securities Exchange Act of 1934, composite as of June 3, 2021, available at 
https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/110000358917/CTA%20Plan%20-
%20Composite%20as%20of%20June%203,%202021.pdf, at Exhibit C (Form of Vendor Contract); at 
Exhibit D (Form of Subscriber Contracts). 



177 

In contrast, all Industry Members who are CAT Reporters are members of at least one 

Participant.  Industry Members are bound by the rules of the Participant(s) of which they are 

members.  The process for adopting rules of a Participant that affect their members is through the 

Section 19(b) rule filing process, which includes the ability to adopt immediately-effective 

fees.997  Additionally, fees filed by the Section 19(b) rule filing process are still subject to public 

notice and comment, and the Commission may suspend and institute proceedings on these 

filings.998  For these reasons, the Commission does not believe that the Rescission of Effective-

Upon-Filing Procedure for NMS Plan Fee Amendments impacts the CAT NMS Plan provisions 

relating to how Industry Member fees are filed with the Commission.  

 f. Governance 

One commenter stated that the CAT governance structure is flawed because exchange 

groups with multiple affiliated exchanges have “significant influence” over the Operating 

Committee and can “dictate many CAT-related decisions” such as the allocation of CAT 

costs.999  The commenter further stated that Industry Members lack representation on the 

Operating Committee; therefore, they cannot vote on the design, implementation or funding of 

the CAT.1000  The commenter stated that the governance structure results in the allocation of all 

CAT costs to Industry Members.1001  Additionally, the commenter believes the governance 

structure permits the Operating Committee to provide minimal information on the costs to be 

allocated to Industry Members,1002 stating that the financial information that has been provided 

 
997  15 U.S.C. 78s(b)(3)(A). 
998  Id.  See also 17 CFR 240.19b-4(f)(2).  See also supra notes 192–196 and accompanying text. 
999  See Citadel July Letter at 5, 6. 
1000  Id. at 6.   
1001  See id. 
1002  Id. 



178 

by the Operating Committee through audited financial statements and an annual financial and 

operating budget is disclosed in broad categories and lacks detail about the key drivers of the 

costs, and that the annual financial and operating budget does not predict costs accurately.1003  

Based on this lack of detail, the commenter stated that market participants cannot assess whether 

total CAT costs are reasonable and cannot suggest cost-saving alternatives and must rely on the 

Operating Committee to contain the budget.1004  The commenter stated, “[i]t is clearly 

inequitable to compel Industry Members to provide a blank check to fund these spiraling costs in 

perpetuity, without any governance role or any plan to contain overall costs,”1005 and that 

allocating all CAT costs to firms without representation “marginalize[s] cost-related 

considerations.”1006  The commenter also stated that the governance structure does not require 

the Operating Committee or the Commission to assess whether the costs of a specific 

interpretation of the Plan outweigh any benefits.1007  

 The commenter recommended the following enhancements to improve CAT governance: 

(1) each exchange group and national securities association should have one vote on the 

Operating Committee, but will have a second vote if “the exchange group or national securities 

association has a market center or centers that trade more than 15 percent of consolidated equity 

and options market share;”1008 (2) all actions related to funding by the Operating Committee 

 
1003  Id. at 6–7; id. at n.14. 
1004  See Citadel July Letter at 7. 
1005  Id. at 2.  See also id. at 23 (stating Section 6(b)(4), Section 6(b)(5) and Section 6(b)(8) of the Exchange Act 

do not allow a private entity to require Industry Members to provide a blank check in perpetuity because 
this is not an equitable allocation of reasonable fees and would greatly harm market competition, efficiency 
and liquidity). 

1006  Id. at 7. 
1007  Id.  See also MMI July Letter at 4 (suggesting “[i]ncentivization of cost-consciousness and accountability 

for SEC interpretations and mandates for CAT reporting specifications, interpretations, and usage of 
CAT.”).   

1008  See Citadel July Letter at 34. 



179 

should be authorized by supermajority vote;1009 and (3) Industry Members should have voting 

representation on the Operating Committee commensurate with the costs allocated to them.1010  

The commenter stated that if industry representation cannot be achieved through an NMS plan, 

the plan is not an appropriate vehicle for CAT governance.1011 

 In response to comments objecting to a lack of Industry Member voting representation on 

the Operating Committee and suggesting their inclusion based on the proportion of costs 

allocated to them,1012 CAT LLC stated that the addition of Industry Member voting 

representation is not consistent with the Exchange Act.1013  CAT LLC stated that “allowing 

Industry Members to control CAT LLC as the commenters suggest could adversely affect the 

regulatory objectives of the CAT”1014 as Industry Members “have no statutory obligation to 

protect investors or to act in the public interest, nor do they have any regulatory obligation to 

operate the CAT System in a manner that is consistent with the Rule 613 and the CAT NMS 

Plan.”1015  CAT LLC stated that Industry Members can provide input through Plan amendments 

and fee filings and the CAT Advisory Committee.1016   

 
1009  Id. at 3, 34. 
1010  Id.  See also MMI July Letter at 1, 2 (requesting the Commission require Industry Member representation 

on the Operating Committee before approving any funding proposal, with SIFMA acting as the broker 
representative); FIA Letter at 4 (stating that the CAT Operating Committee should be reconfigured, with 
Industry Members comprising the percentage of the Committee equivalent to whatever cost allocation 
percentage is eventually allocated to them). 

1011  See Citadel July Letter at 34.  In response, CAT LLC stated that this comment is outside the scope of the 
Proposed Amendment.  See CAT LLC July 2023 Response Letter at 31, n.144. 

1012  See FIA Letter at 4; Citadel July Letter at 34; MMI July Letter at 2. 
1013  See CAT LLC July 2023 Response Letter at 21. 
1014  Id. 
1015  Id. 
1016  Id. 



180 

 In response to a comment suggesting changes to the allocation of Participant voting 

rights,1017 CAT LLC stated that this issue is beyond the scope of the CAT funding model.  CAT 

LLC also responded to the commenter’s suggestion that all funding actions by the Operating 

Committee require a supermajority vote by stating that it disagreed with the suggestion because 

all Operating Committee actions relate in a way to CAT costs; therefore, imposing a 

supermajority requirement could undermine governance.1018 

Regarding SRO and Industry Member voting rights, the Commission does not believe 

that modification of the voting rights, which the Commission considered when it approved the 

CAT NMS Plan, is within the scope of the Proposed Amendment.1019  Furthermore, in response 

to those comments suggesting the addition of Industry Members as voting members on the 

operating committee, we note that—in vacating the Order Approving the CT Plan—the D.C. 

Circuit concluded that the inclusion of non-SRO representation on the operating committee of 

the CT Plan was inconsistent with Section 11A of the Exchange Act.1020  Industry Members do 

have an opportunity to attend meetings of the Operating Committee through the CAT Advisory 

Committee.  According to Section 4.13(d) of the CAT NMS Plan, “[m]embers of the Advisory 

Committee shall have the right to attend meetings of the Operating Committee or any 

Subcommittee, to receive information concerning the operation of the Central Repository 

(subject to Section 4.13(e)), and to submit their views to the Operating Committee or any 

 
1017  See Citadel July Letter at 34. 
1018  See CAT LLC July 2023 Response Letter at 21–22. 
1019  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84728–30. 
1020  See The NASDAQ Stock Market LLC et al. v. SEC, Case No. 21-1167, D.C. Cir. (July 5, 2022).  15 U.S.C. 

78k-1.181 

Subcommittee on matters pursuant to [the CAT NMS Plan] prior to a decision by the Operating 

Committee on such matters.1021    

   g. Miscellaneous 

Certain commenters urged the Commission to address data security concerns associated 

with the CAT.1022  One commenter suggested that the Commission prioritize finalizing the 

proposed amendments to the CAT NMS Plan to enhance data security.1023 Commenters also 

raised concerns that the Commission was considering the Proposed Amendment at the same time 

it is considering modifying certain Commission rules governing equity market structure.1024   

One commenter expressed concern that the Commission would approve the Proposed 

Amendment prematurely without careful consideration.1025  The commenter also stated that the 

Commission is “rushing forward to approve the latest proposal without taking advantage of the 

allotted time under the Exchange Act for careful consideration” and “prematurely moving 

forward” while simultaneously considering revisions of the rules governing equity and options 

market structure and proceeding with other proposals that will impose costs on Industry 

Members.1026  The commenter stated that “[t]he unequitable distribution of CAT costs 

contemplated by the Funding Proposal will exacerbate these problems, harming the functioning 

 
1021  See CAT NMS Plan, supra note 2, at Section 4.13.  See also 17 CFR 242.613(b)(7). 
1022  See Citadel July Letter at 3, 35; SIFMA June 2023 Letter at 2; Virtu Letter at 4.   
1023  See Citadel July Letter at 3, 35; see Securities Exchange Act Release No. 89632 (Aug. 21, 2020), 85 FR 

65990 (Oct. 16, 2020).  Two other commenters stated that the Commission has failed to address data 
security concerns associated with the CAT.  See SIFMA June 2023 Letter at 2; Virtu Letter at 4. 

1024  See SIFMA June 2023 Letter at 3; Citadel July Letter at n.54 and 113; see Exchange Act Release Nos. 
96496, 88 FR 5440 (Jan. 27, 2023) (Regulation Best Execution); 96495, 88 FR 128 (Jan. 3, 2023) (Order 
Competition Rule); 96494, 87 FR 80266 (Dec. 29, 2022) (Minimum Pricing Increments); 96493, 88 FR 
3786 (Jan. 20, 2023) (Order Execution Information). 

1025  See SIFMA June 2023 Letter at 3.   
1026  Id.  See also Virtu Letter at 4. 



182 

of U.S. securities markets.”1027  The commenter further stated that the Commission cannot 

determine whether the proposed allocation of costs is equitable without assessing the distribution 

of costs and benefits under the other pending proposals.1028   

In response to comments that urged the Commission to prioritize CAT data security 

concerns,1029 CAT LLC stated that “CAT security is of paramount importance, and the CAT 

System is protected by a comprehensive information security program required by the CAT 

NMS Plan and overseen by a dedicated CISO, as well as via SEC oversight…”1030  CAT LLC 

stated that security concerns should not be used to prevent appropriate funding of the CAT, 

noting that appropriate funding can help to ensure the security of CAT Data.1031 

CAT LLC also responded to comments that expressed concern that the Commission was 

considering the Proposed Amendment while also considering changes to Commission rules 

governing equity market structure.1032  CAT LLC stated that the Commission’s consideration of 

its market structure proposals should not impede its decision on the Proposed Amendment, 

which would ensure appropriate funding of the CAT as these are different decisions.1033   

In response to the commenter that stated that the Commission would be rushing to 

approve the Proposed Amendment,1034 CAT LLC stated that “the current model results from 

years of modifications that have been made in significant part in response to industry comments 

 
1027  See SIFMA June 2023 Letter at 3. 
1028  Id. 
1029  See Citadel July Letter at 35; SIFMA June 2023 Letter at 2; Virtu Letter at 4. 
1030  See CAT LLC July 2023 Response Letter at 33. 
1031  Id. 
1032  See Citadel July Letter at 26, n.112; SIFMA June 2023 Letter at 3; Virtu Letter at 4. 
1033  See CAT LLC July 2023 Response Letter at 34. 
1034  See SIFMA June 2023 Letter at 3. 



183 

to earlier versions,”1035 and that because the current proposal “differs very little from the 

immediately preceding funding model,” commenters had more than 400 days to comment on the 

substance of the Proposed Amendment.1036       

The CAT data security issues and the costs and benefits of unrelated pending equity 

market structure proposals1037 are beyond the scope of the Proposed Amendment, which is 

limited to CAT funding.  Further, the Commission’s ability to consider the proposed 

amendments to the CAT NMS Plan to enhance data security is not impacted by the Proposed 

Amendment, as it is a separate proposal and both are being considered in due course.1038  Given 

the time between the Prior Funding Model Proposal and the OIP of the Proposed Amendment, 

the Commission has also had ample time for “careful consideration” of the Executed Share 

Model as the Proposed Amendment’s proposed changes to the CAT NMS Plan are closely 

similar to the changes proposed in the Prior Funding Model Proposal,1039 as modified by the two 

partial amendments that were filed, respectively, in November 2022 and February 2023.1040  

Additionally, the time spent for the Commission’s review of the Proposed Amendment is 

consistent with the time permitted by Rule 608(b) for the Commission to approve or disapprove 

NMS plan amendments,1041 for both the Prior Funding Model Proposal (for which the 

Commission extended to 300 days from the date of notice publication the date by which the 

 
1035  See CAT LLC July 2023 Response Letter at 28. 
1036  Id. 
1037  See supra note 1024. 
1038  See supra note 1023. 
1039  See supra note 409. 
1040  See supra note 410. 
1041  17 CFR 242.608(b). 



184 

Commission would conclude proceedings to determine whether to approve or disapprove the 

Prior Funding Model Proposal),1042 and this Proposed Amendment.   

IV. Efficiency, Competition, and Capital Formation  
 

In determining whether to approve a proposed amendment, and whether such amendment 

is in the public interest, Rule 613 requires the Commission to consider the potential effects of the 

proposed amendment on efficiency, competition, and capital formation.1043  In its analysis, the 

Commission has reviewed the arguments about such effects put forth by the Participants and 

commenters and independently analyzed the likely effects of the Proposed Amendment on 

efficiency, competition, and capital formation.1044  Several commenters stated that, because CAT 

costs incurred to date are greater than those estimated at the time the CAT NMS Plan was 

approved, the Commission should update its economic analysis of that plan.  Because that 

analysis was conducted in the process of deciding whether to approve the original plan and was 

appropriately based upon the information available to the Commission at the time it made that 

determination, we decline to do so.  However, in analyzing the potential impacts of the Proposed 

Amendment on efficiency, competition, and capital formation – including our discussion of the 

economic baseline – the Commission has supplemented the analysis in the CAT NMS Plan 

Approval Order with additional information learned since the time of that Order.  Therefore, for 

the purposes of this analysis, the effects are measured against a baseline that recognizes that the 

 
1042  See Securities Exchange Act Release No. 96725 (Jan. 20, 2023), 88 FR 5059 (Jan. 26, 2023). 
1043  17 CFR 242.613(a)(5). 
1044  Some commenters stated that the Participants’ analysis of the effects of the Proposed Amendment on 

Efficiency, Competition, and Capital Formation was lacking analysis and/or information (see, e.g., SIFMA 
June Letter at 4; Citadel July Letter at 2, 11, 12-13, and 16) and several commenters made general 
statements that the Proposed Amendment would have negative effects on Efficiency, Competition, and 
Capital Formation (see, e.g., SIFMA June Letter at 3; Citadel July Letter at 12 and 15).  The Commission 
has independently analyzed the Proposed Amendment using information from the Participants and 
commenters as well as additional information as indicated. 



185 

Proposed Amendment replaces certain provisions of the CAT NMS Plan and the Proposed 

Amendment also provides detail not previously included in the CAT NMS Plan.1045  As a result, 

the Commission provides the baseline required to conduct a comprehensive analysis of the 

Proposed Amendment in light of issues raised in the Notice and public comments. 

Based on its analysis, the Commission believes that the Proposed Amendment will 

involve efficiency gains along some dimensions but will likely also involve tradeoffs against 

other forms of efficiency, could negatively alter the competitive position of particular 

competitors, though the fees associated with the Proposed Amendment are unlikely to be large 

enough to affect overall competition, and will result in insignificant effects on capital 

formation.1046  These effects are discussed below. 

A.   Efficiency 

1.   Baseline 

In the CAT NMS Plan Approval Order, the Commission identified certain elements of 

the Original Funding Model that could have negative implications for efficiency and also stated 

that the significant uncertainty in the Original Funding Model could also have implications for 

efficiency.1047 In consideration of the comment letters submitted in response to the Executed 

Share Model, the Commission recognizes that the Original Funding Model would have also 

resulted in additional inefficiencies.  Overall, the Original Funding Model could have resulted in 

negative, but likely insignificant, reductions in operational efficiencies, skewed incentives for 

efficiency, and reductions in market efficiencies. 

 
1045  Some of the conclusions of the Proposed Amendment on Efficiency, Competition, and Capital Formation 

provided by the commenters and Participants are assessed relative to alternatives rather than the baseline 
the Commission used in the analysis herein.   

1046  See supra Section III for a discussion of why the Commission is approving the Proposed Amendment. 
1047  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84882.   



186 

a.   Operational Efficiency 

The tiered structure of the Original Funding Model would also have led to uncertainties 

affecting operational efficiencies of Industry Members and Participants.  In particular, Industry 

Members would not have known their per-message cost until the end of the month, though they 

would have charged their customers in real time, creating an inefficiency.  In particular, the 

Original Funding Model would have charged flat fees to Industry Members and Participants in 

the same tiers (“Original CAT Fees”).  Thus, Industry Members with message traffic near the top 

of the tier would pay lower fees per message than Industry Members in the same tier but with 

lower message traffic.  Likewise, Participants with more market share in their tiers would pay 

lower fees per executed share.  Even if Industry Members and Participants could predict which 

tier they would be in, passing-through fees would involve Industry Members and Participants 

charging based on expected per-message or per-share Original CAT Fees rather than actual per-

message or per-share Original CAT Fees, which could have been higher or lower than expected.  

This uncertainty creates an operational inefficiency in structuring the fee pass-through.   

Also, charging Industry Members a flat fee that depends on their message traffic could 

result in Industry Members, who generally earn revenue only for executed orders,1048 getting 

charged for orders that do not transact.  This could have resulted in certain Industry Members 

paying more in Original CAT Fees than they generated from transactions.  Further, some 

Industry Members would have found passing through fees only to those whose orders transact 

operationally more efficient by increasing existing fees (or reducing incentives such as payment 

for order flow).  These situations would have resulted in transacted orders subsidizing the 

burdens of message traffic (assuming message traffic is the only cost driver). 

 
1048  See Notice, supra note 7, 88 FR at 17103. 



187 

Complexities associated with creating tiers in the Original Funding Model would also 

have created operational inefficiencies.  To ensure that the CAT NMS Plan covered its costs with 

the tiered fees, the creation of the fee schedule would have involved deciding on the number of 

tiers, estimating how many Industry Members would qualify for each tier, estimating how much 

to charge each tier, and then justifying each decision.  The potential for disagreements resulting 

from the complexity and the challenges in drafting justifications for such complex decisions 

could have involved a cumbersome and inefficient fee setting experience.    

b.   Incentive Effects  

The Original Funding Model also could have affected efficiency by skewing incentives.  

Because fees to be charged by CAT are based on cost recovery, aligning such fees with burdens 

on CAT could promote efficiency by creating incentives to limit costs.  If message traffic is the 

only cost driver of CAT, the Original Funding Model created incentives for Industry Members to 

limit costs by limiting their unnecessary message traffic,1049 but the tiered structure of the 

Original Funding Model would have dampened these incentives, and message traffic is not the 

only cost driver of CAT.  Further, the uncertainty in the allocations across equities or options and 

across Participants or Industry Members meant that the Original Funding Model would have 

created the risk that the inefficiencies of such allocations were less than perfectly aligned with 

costs.  Finally, any pass-throughs to Participants’ members or the customers of Industry 

Members could have further dampened the incentives for cost efficiency.  As a result, the 

Original Funding Model would not have perfectly aligned fees with the costs imposed on CAT, 

limiting the incentives for cost efficiency.   

 
1049  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84881.   



188 

While the Original Funding Model would have set fees for Industry Members based on 

their message traffic, the efficiency benefits were unlikely to have been significant.  First, its 

tiered structure would have dampened the incentives to reduce the costs of CAT by reducing 

unnecessary message traffic.  In particular, the Original Funding Model would have assigned 

Industry Members to tiers based on their message traffic.  Within a tier, however, all Industry 

Members would have been charged the same flat fee.  Thus, an additional message would have 

been free in terms of CAT costs unless it put the Industry Member into a higher tier.  So, only 

those Industry Members close to a cutoff would have had the incentive to reduce message traffic, 

and Industry Members who expected to be in the top tier would have had no incentive to reduce 

unnecessary message traffic.  Further, Industry Members cannot reduce message traffic without 

altering how they handle customer orders, which could be counter to their duties, or reducing 

liquidity, which could reduce market efficiency.  Therefore, absent evidence of significant 

unnecessary message traffic, the efficiency improvements of basing Original CAT Fees on 

message traffic are unlikely to have been significant. 

In addition, since the approval of the CAT NMS Plan, additional information about the 

cost drivers have been made public and suggest that message traffic is not the only cost 

driver.1050  In particular, a September 2021 report shows that 51% of CAT costs are from the 

“Linker,” 17% from storage, and 15% from “Data, Processing, Collection, & ETL.”  In addition, 

the Participants in their response to commenters indicated that 75% of CAT costs are the 

processing and storage of CAT data in the cloud.1051  The “Linker” costs are the costs to link 

 
1050  See CAT Industry Webinar: CAT Costs, supra note 873.  The Participants stated in this presentation to 

Industry Members in Sept. 2021, that, “[t]he primary cost drivers for the CAT are compute costs (e.g., 
linker) and storage costs.  These costs are volume based and have increased significantly each year beyond 
the volume estimate included in the Plan.”  

1051  CAT LLC July 2023 Response Letter at 22.  For the first quarter of 2023, 72.9% of CAT costs are cloud 
costs (See CAT Financial and Operating Budget | CATNMSPLAN). 

https://www.catnmsplan.com/cat-financial-and-operating-budget


189 

order messages across a lifecycle.1052  These costs involve looking across four days of data and 

are likely related to message traffic.  While the report does not separate options messages from 

equities messages, it does indicate that Participant message traffic involved in linkage processing 

is much larger than Industry Member message traffic.  However, the Commission understands 

that complexity of the order lifecycles is a cost driver within the linkage processing, and certain 

order handling practices of Industry Members, such as the use of riskless principal transactions, 

involve more complex linkages than other order handling practices.  Indeed, while one 

commenter stated, “costs are a direct result of the total number of messages that CAT Reporters 

(both Participants and Industry Members) send to CAT, the costs of processing and linking such 

messages, and the costs to CAT of providing tools and mechanisms to the SEC and SROs to 

analyze the CAT data,”1053 the processing and linking and regulatory use costs are not perfectly 

aligned with message traffic. 

The Original Funding Model did not indicate how Original CAT Fees would be allocated 

to equities versus options, but this allocation decision would have had an effect on efficiency.  

The options markets account for the vast majority of message traffic, but most of the options 

market message traffic is on-exchange message traffic (mostly market maker quotes).1054  

However, option market maker quotes likely do not have complex order lifecycles that would 

drive the costs of the linkage processing.  Further, the Commission understands that the linkage 

 
1052  Id.  See also, CAT NMS Plan Approval Order, supra note 2, 81 FR at 85024-5 for a discussion of linkage 

requirements.  
1053  SIFMA May 2023 Letter at 4. 
1054  Furthermore, because options market makers do not report many of their quotes to CAT, instead sending a 

quote-sent time stamp to options exchanges that is included in the exchanges’ CAT data, additional option 
market maker quotes increase the message traffic of Participants rather than option market makers and are, 
thus, not counted in the message traffic of Industry Members in the Original Funding Model.  
Consequently, roughly 72% of CAT message traffic could only affect Participant fees, which are capped in 
the Original Funding Model, though the Plan does not define the exact cap.  See CAT NMS Plan Approval 
Order, supra note 2, 81 FR at 84873. 



190 

processing of equities orders is generally more complex than the linkage processing of options 

orders.  As a result, it is unlikely that the Original Funding Model would have successfully 

matched Original CAT Fees with cost burdens without a complex algorithm to allocate costs 

across equities and options. 

The Original Funding Model also had the potential to result in a lack of incentives for 

Participants to seek efficient ways to achieve the regulatory objectives of CAT.1055  In particular, 

the Original Funding Model did not specify the allocation between Industry Members and 

Participants and it could have skewed heavily toward Industry Members.  If the Original CAT 

Fees would have offset CAT costs without the Participants internalizing those CAT costs, 

Participants could lack the incentive to limit costs.  Thus, a lower allocation to Participants could 

reduce Participants’ incentives to limit CAT costs. 

The ability for Participants and Industry Members to pass through fees could reduce 

incentive effects of the Original Funding Model, but the Commission believes that Participants 

and Industry Members would still have had some incentives to limit costs.  In the CAT Approval 

Order, the Commission recognized that FINRA could pass through its fees to its members.1056  

Other Participants could have also passed through their fees to their members, but such pass-

throughs could take several forms.  The Commission understands that Participants, including 

FINRA, have many revenue sources, such as transaction fees, data fees, connectivity fees, listing 

fees, regulatory fees.  In fact, because the Original Funding Model charged Participants based on 

their market share, the most direct way for Participants to pass through the costs would have 

been to increase fees related to their market share – their transaction fees, which are based on a 

 
1055  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84891-2.   
1056  Id. at 84853. 



191 

fee schedule set pre-trade.  Because the per volume CAT fee would have been unknown at the 

time the Participants had to file the transaction fees for such volume, the Participants would have 

internalized the risk of the pass-through fees not covering their Original CAT Fees.  Likewise, 

Industry Members who pass-through their Original CAT Fees would have had reduced 

incentives to limit CAT costs, but the inability to structure their pass through to perfectly align 

with Original CAT Fees would have forced some internalization of costs.  

c. Market Efficiency 

The Original Funding Model could have resulted in market inefficiencies, though these 

inefficiencies were unlikely to be significant.1057  Several of these inefficiencies derive from the 

fact that the Original Funding Model would have charged Industry Members a flat fee according 

to a tiered fee schedule.  An Industry Member’s tier would have been determined by its message 

traffic.  Because providing liquidity, including but not restricted to market making, involves 

more potential message traffic, the Original Funding Model could discourage liquidity provision.  

Discouraging liquidity provision could reduce liquidity, particularly in less liquid securities, 

potentially reducing market efficiency.  The tiered nature of the Original Funding Model reduced 

the potential reduction in liquidity by flattening the fees, but this could create its own 

inefficiencies if Industry Members alter activity to avoid qualifying for a higher tier.  The 

Commission concluded in the CAT NMS Plan Approval Order that any changes in behavior 

were unlikely except in those Industry Members near a fee-tier cutoff point, and, therefore, these 

behavior changes would likely not have a significant effect on market quality or efficiency.1058   

2.   Analysis of the Proposed Amendment 

 
1057  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84879.   
1058  Id. at 84879.   



192 

The Participants provided an analysis of efficiency in the Notice.  In particular, the 

Participants state that, “By providing for the financial viability of the CAT, the [Executed Share 

Model] would allow the CAT to provide its intended benefits.  For example, the CAT is intended 

to provide significant improvements in efficiency related to how regulatory data is collected and 

used.  In addition, the CAT could result in improvements in market efficiency by deterring 

violative activity.”1059  

The Commission considered whether the Executed Share Model promotes efficiency 

along several dimensions:  operational efficiency, incentive alignment, and market efficiency.  In 

this analysis, the Commission considered both how the Executed Share Model differs from the 

Original Funding Model and the additional details in the Executed Share Model not previously 

included in the CAT NMS Plan.  In the analysis below, the Commission explains that the 

Executed Share Model itself will promote operational efficiency and market efficiency, trade off 

some efficiencies associated with aligning fees with CAT costs against others, and create some 

efficiency-improving incentives at the expense of others.  The analysis also recognizes below 

that some commenters stated that the Executed Share Model is less efficient than it could be. 

a. Operational Efficiency 

 The Commission believes that the Executed Share Model presents some operational 

efficiency improvements over the Original Funding Model while recognizing that commenters 

point out that it may not be as efficient as other alternatives.  The Executed Share Model could 

improve efficiency over the Original Funding Model by providing more certainty on potential 

costs for Industry Members and by reducing the complexity of the fees.  However, it is not clear 

 
1059  See Notice, supra note 7, 88 FR at 17115. 



193 

that the Executed Share Model presents an operational efficiency improvement over the Original 

Funding Model with respect to precision of estimates of expected total fees to be collected. 

Relative to the Original Funding Model, Industry Members and Participants will be better 

able to observe their fee per activity, in this case per share transacted, and can more easily pass 

all or a portion of those fees through to members or customers.  Under the Executed Share 

Model, the CAT Fee and Historical CAT Assessments per Executed Equivalent Share are known 

before an order is submitted such that all market participants can estimate in advance the fees 

charged on each potential transaction rather than Industry Members only learning about their 

fees per message after the end of the month under the Original Funding Model.1060  Having more 

precise information on fee rates helps Industry Members and Participants who choose to pass-

through these fees to create fee schedules for their customers that better reflect their costs, 

resulting in operational efficiencies.  In response to the commenter who said that Industry 

Members “are not set up to track and pass-through fees to the client [broker-dealers] that sent 

them the orders that resulted in executions”1061 and other similar comments,1062 the Commission 

understands that such Industry Members generally have arrangements with client broker-dealers 

for services based on executed shares and these arrangements could include charges to cover 

various fees.1063  Further, CAT LLC argues that charging the executing brokers as specified in 

 
1060  See supra Section IV.A.1.a for a discussion of how the per-message fees would have varied within the flat-

fee tiers of the Original Funding Model.  Also, one commenter stated that the Proposed Amendment would 
afford industry with a “straightforward rate to be applied across buyers and sellers.”  See DASH July Letter 
at 2. 

1061  See SIFMA May 2023 Letter at 5. 
1062  See, e.g., SIFMA June 2023 Letter at 2; MMI July Letter at 2; Citadel July Letter at 20 and 24; Citadel 

Letter August 2023 at 5-6; and Virtu Letter at 4-5.  Citadel July Letter at 20 and 24 also focused 
specifically on the ability for IMs to pass through Historical CAT Assessments, but those fees would also 
have a fixed rate charged to future executed shares, so passing those fees through would still represent an 
efficiency improvement over the Original Funding Model.  

1063  See supra Section IV.A.1.a for information on current fee arrangements based on executed shares.  See also 
CAT LLC July 2023 Response Letter at 9 and 34. 



194 

the Executed Share Model is an efficient way for CAT LLC to bill Participants and Industry 

Members as it is simple, straightforward, and in-line with existing fee and business models.1064  

They also acknowledge that certain Industry Members will have to develop processes to collect 

pass-through CAT fees from clients and describe that the Plan Processor plans to make available 

trade-by-trade data to CAT Executing Brokers for each CAT bill, which will facilitate the 

passing-through of CAT fees.1065 

The Commission believes that the Executed Share Model reduces the complexities of the 

Original Funding Model, improving operational efficiency, but that the Executed Share Model 

may not increase the precision in estimating the fees to be collected, thus creating uncertainty in 

its impact on operational efficiency.  The Executed Share Model will not involve designing a 

tiered structure that estimates how many Industry Members and Participants will qualify for each 

tier based on projections of each’s message traffic or market share, coming up with cutoffs and 

flat fees in each tier to cover projected costs, and justifying each projection model, tier cutoff, 

and flat fee.  Instead, the Executed Share Model involves estimating future volume, dividing 

budgeted costs by the estimated future volume, and justifying the estimated future volume model 

and budgeted costs.  Thus, the Executed Share Model will be much less complex for Participants 

to implement.  However, because the Executed Share Model involves estimating future volume 

and the Commission has observed significant fluctuations in volume, the fees actually collected 

in the Executed Share Model will not necessarily match the budgeted costs.  Because the 

Original Funding Model had similar uncertainties, the Commission cannot determine if this 

inefficiency is more or less severe for the Executed Share Model. 

 
1064  See CAT LLC July 2023 Response Letter at 3-4. 
1065  See CAT LLC July 2023 Response Letter at 9-10. 



195 

The Commission recognizes the inefficiencies pointed out by some commenters 

associated with invoicing CEBBs and CEBSs directly rather than using clearing brokers to 

collect fees.1066  Because the Original Funding Model allowed for but did not specify the use of 

clearing brokers, this inefficiency is not relative to the baseline but is relative to an alternative.  

The industry’s current practice is to collect certain regulatory fees from the sell-side clearing 

broker-dealer.  One commenter stated, “[c]learing Firms are best suited to process the collection 

of fees as it can occur at trade settlement and the cost is ultimately borne by the end beneficiary 

of each transaction.  This seems prudent from a logistical and efficiency perspective and, in our 

opinion, also introduces the least financial risk to the industry today.”1067  This commenter also 

made similar statements in subsequent comment letters.1068  However, as another commenter 

noted, collecting CAT fees from clearing broker-dealers could introduce inefficiencies as 

well.1069  

 
1066  See DASH January 3 Letter at 1. 
1067  Id. 
1068  See DASH April Letter at 1; DASH July Letter at 1. 
1069  This could result in Industry Member CAT fees being borne by clearing broker-dealers.  The SIFMA May 

2023 Letter said that allocating “CAT Fees to clearing brokers would have led to unfair burdens on them 
and could have resulted in them shouldering the burden of CAT costs in scenarios in which they could not 
determine which clearing client was responsible for the costs.”  This commenter, commenting on the prior 
funding proposal which originally proposed to assess CAT fees on clearing brokers instead of executing 
brokers, stated that clearing brokers would especially have difficulty passing on the Past CAT Costs to their 
clearing clients.  See Letter from Ellen Greene, Managing Director, Equities & Options Market Structure, 
and Joseph Corcoran, Managing Director, Associate General Counsel, SIFMA, to Vanessa Countryman, 
Secretary, Commission (Oct. 7, 2022), at 4-5, available at https://www.sec.gov/comments/4-698/4698-
20145239-310561.pdf.  This commenter also discussed the additional implementation and operational costs 
the prior funding model would impose on clearing broker-dealers.  See Letter from Ellen Greene, 
Managing Director, Equities & Options Market Structure, and Joseph Corcoran, Managing Director, 
Associate General Counsel, SIFMA, to Vanessa Countryman, Secretary, Commission (June 22, 2022) 
(“SIFMA June 2022 Letter”), at 9, available at https://www.sec.gov/comments/4-698/4698-20132695-
303187.pdf.  Also, the Proposed Amendment requires the collection of CAT fees from both the buy and 
sell side of the transaction.  Commenters on the prior funding proposal stated that current industry practice 
does not involve clearing broker-dealers collecting fees from the buy-side of the transaction, and thus it 
might require costly implementation steps from clearing broker-dealers.  See Letter from Kirsten Wegner, 
Chief Executive Officer, Modern Markets Initiative, to Vanessa Countryman, Secretary, Commission (June 
21, 2022), at 3, available at https://www.sec.gov/comments/4-698/4698-20132603-303126.pdf; SIFMA 

 

https://www.sec.gov/comments/4-698/4698-20145239-310561.pdf
https://www.sec.gov/comments/4-698/4698-20145239-310561.pdf
https://www.sec.gov/comments/4-698/4698-20132695-303187.pdf
https://www.sec.gov/comments/4-698/4698-20132695-303187.pdf
https://www.sec.gov/comments/4-698/4698-20132603-303126.pdf


196 

b. Incentive Effects  

The Commission recognizes the potential for the Executed Share Model to affect 

incentives and, therefore, either improve or harm efficiency.  Aligning fees with costs promotes 

economic efficiency because Industry Members and Participants bear the costs they directly or 

indirectly impose on CAT NMS, creating the incentive to limit costs.  Overall, the Executed 

Share Model will have inefficiencies related to not perfectly aligning with costs, but might not be 

any more inefficient than the Original Funding Model.  In particular, basing Industry Member 

fees on share volume rather than message traffic could reduce efficiency relative to the Original 

Funding Model, but the efficiency benefits of the Original Funding Model would have been 

dampened by its tiered structure.  The Commission recognizes that, based on the breadth of CAT 

costs, it is not feasible to calculate the cost burden on CAT of each CAT Reporter1070 and the 

Executed Share Model could also have some efficiency improvements over the Original Funding 

Model.  The Commission also recognizes the potential risks of the Proposed Amendments on not 

incentivizing Participants enough to consider cost efficiency.  In addition, the Commission 

considered other incentives as well, but believes that the potential magnitude of CAT fees is 

unlikely to significantly affect these efficiencies.   

 
June 2022 Letter at 9; see https://www.sec.gov/comments/4-698/4698-20132603-303126.pdf; SIFMA June 
2022 Letter at 9.  See also supra note 58.  CAT LLC describes in their response to comments that charging 
clearing brokers would be less efficient than charging executing brokers because it would require linking 
executed shares to clearing brokers.  They argue that charging executing brokers is simple, straightforward, 
and in-line with existing fee and business models.  They also describe how CAT LLC is planning to make 
pass-through of costs easier, which would also increase operational efficiency for Participants and Industry 
Members.  See CAT LLC July 2023 Response Letter at 3 and 5. 

1070  See Notice, supra note 7, 88 FR at 17103 (“In light of the many inter-related cost drivers of the CAT (e.g., 
storage, message traffic, processing), determining the precise cost burden imposed by each individual CAT 
Reporter on CAT is not feasible.”).  See also CAT LLC July 2023 Response Letter at 34, where the 
Participants describe that it is difficult to determine the precise cost burden imposed by each individual 
CAT reporter.  They state that increased trading activity impacts message traffic, data processing, storage, 
and other factors and, thus, correlate with cost burdens and that Industry Member activity is generally for 
the purpose of transacting. 

https://www.sec.gov/comments/4-698/4698-20132603-303126.pdf


197 

Because CAT costs have some relation to message traffic, a fee schedule less dependent 

on message traffic such as the Executed Share Model will be less efficient on this dimension.  As 

such, the Executed Share Model could create inefficiencies relative to the message-traffic based 

Original Funding Model.  Further, the Executed Share Model could result in Participants or 

Industry Members paying different fees across transactions despite potential similarities in cost.  

For example, Participants or Industry Members will be charged ten times the fee for a 1,000 

share transaction than for a 100 share transaction.  While 1,000 share transactions may, on 

average, have a higher burden on CAT than a 100 share transaction because such transactions are 

more likely to involve more messages and more complex lifecycles, the burden of a 1,000 share 

transaction on CAT versus a 100 share transaction is unlikely to be ten times higher.  However, 

the incentive efficiencies of the message-traffic based fees in the Original Funding Model would 

have been dampened by several factors,1071 including the tiered structure of the Original Funding 

Model and by the fact that message traffic is not the only significant cost driver for CAT.1072   

One commenter raised other potential inefficiencies related to outsized allocations to 

transactions for retail investors associated with those retail investors trading low priced NMS 

stocks.1073  The Commission recognizes that such an allocation could discourage brokers from 

servicing retail investors if they cannot pass through all CAT costs to investors and/or that retail 

investors could be paying for a large portion of CAT costs.  In the Approval Order, the 

 
1071  See supra Section IV.A.1.c for further discussion of the inefficiencies of the Original Funding Model. 
1072  See supra note 1050 and accompanying text for a discussion of CAT cost drivers.  The biggest cost driver 

is for linking order messages into a lifecycle, followed by storage costs. 
1073  See Citadel July Letter at 20.  This commenter states that trades in stocks with sub $1 prices account for 

33% of retail NMS stock trading and that rounding fractional shares to 1 share further increases the share of 
CAT costs charged to retail transactions.  See also Citadel August Letter at 4. 



198 

Commission recognized that retail investors were likely to bear costs for CAT and were 

beneficiaries of CAT.1074 

Further, if the Executed Share Model over-allocates fees to equity market transactions 

relative to options market or OTC equity transactions, it will create inefficiency by artificially 

inflating equity transaction costs while artificially decreasing options and OTC transaction costs. 

The Commission has mixed information on whether the Executed Share Model will, indeed, 

over-allocate fees to the equity markets.  One commenter stated that equity trading volume 

creates a relatively low burden relative to options activity. 1075  The Commission disagrees with 

this statement.  Based on March 2023 public market data,1076 equities (NMS and OTC) account 

for approximately 73% of the equivalent share volume while options account for approximately 

27%.  On the contrary, based on an analysis of March 2023 CAT data, equities account for 23% 

of message traffic while options account for 77%.1077  The message traffic in the options market 

is driven by options market quotes, which are reported by options exchanges.  If processing and 

storing CAT messages is a primary cost driver and option and equity messages are equally 

burdensome, aligning fees to costs would result in the Participants and Industry Members in the 

 
1074  See, e.g., CAT NMS Plan Approval Order, supra note 2, 81 FR at 84863, 84881, 84888, and 84893 for 

examples of statements on investors bearing the costs of CAT and at 84833 to 84845 for ways that 
investors benefit from CAT.   

1075  See FINRA April 2023 Letter at note 23.  See also Citadel August Letter at 4 citing to the FINRA April 
2023 Letter. 

1076  Calculated using monthly market volume data from Cboe for equities:  Cboe, US Equities: Historical 
Market Volume Data, available at 
https://www.cboe.com/us/equities/market_statistics/historical_market_volume/, OCC for options: Options 
Clearing Corp., Market Data: Monthly & Weekly Volume Statistics, available at 
https://www.theocc.com/market-data/market-data-reports/volume-and-open-interest/monthly-weekly-
volume-statistics, and FINRA for OTC securities: FINRA, Over-the-Counter-Equities: Market Statistics, 
available at  https://otce.finra.org/otce/marketStatistics/historicalData.  Option contract volume is 
multiplied by 100 and OTC volume is divided by 100 to establish rough estimates of equivalent share 
volume to reported equity transactions. 

1077  CAT Plan Participant and Industry Member Report Card Monthly Summary Tables, which contain the 
number of records processed into CAT.  

https://www.cboe.com/us/equities/market_statistics/historical_market_volume/
https://www.theocc.com/market-data/market-data-reports/volume-and-open-interest/monthly-weekly-volume-statistics
https://www.theocc.com/market-data/market-data-reports/volume-and-open-interest/monthly-weekly-volume-statistics
https://otce.finra.org/otce/marketStatistics/historicalData


199 

equities markets being assessed approximately 23% of the fees, suggesting that the Executed 

Share Model allocation of approximately 73% of the fees over-allocates fees to equities. 

However, because equity order linking complexity likely accounts for higher costs than 

option order linking complexity, the higher allocation of CAT fees to equity market Participants 

and Industry Members could promote efficiency.  The linkage processing costs of CAT are three 

times the storage costs.1078  The Commission estimated that roughly 90% of CAT Participant 

message traffic and 72% of total message traffic is comprised of options market quotes.1079  

While option market maker quotes account for such a large fraction of message traffic and, thus, 

storage costs, option market maker quotes involve lower linkage costs than other messages.1080  

Indeed, the equities market accounted for about 48.4% of the number of linkages processed and 

the number of options linkages processed was a third of the number of options messages 

reported, reflecting less linkage processing for many options market maker quotes.1081  

Additionally, the Commission understands that equities linkages can be more complex, and thus 

more costly to process, than are options messages.  As a result, the Commission disagrees with 

the commenter’s assertion that equity trading volume creates a relatively low burden relative to 

options activity. 

 
1078  See supra note 1050 and accompanying text for a discussion of cost drivers.  “Linker” accounts for 51% of 

CAT costs while storage accounts for 17%.  Data processing, Collection and ETL costs are 15%. 
1079  Mar. 2023 CAT data.  If processing and storing CAT messages is a primary cost driver, options exchanges’ 

collective 8.9% share of CAT costs (compared to equity exchanges’ 13.6% share and FINRA’s 10.8% 
share) may also appear to inefficiently over-allocate the Participants’ share of CAT costs to equity 
exchanges.  However, processing and storage costs combined account for lower costs than linkage 
processing.  See id. 

1080  See supra Section IV.A.1.b for further discussion of option market maker quotes. 
1081  Based on Mar. 2023 CAT data containing statistics for validations and linkage for files submitted to 

FINRA CAT, the equities market accounted for 1.24 trillion linkages processed on 1.20 trillion messages 
reported while the options market accounted for 1.33 trillion linkages processed on 4.02 trillion messages 
reported.  Most options market maker quotes have only two events in their CAT Lifecycle (i.e., quote and 
quote cancelation) and don’t require linkage to other CAT events.  



200 

The Commission believes that the Executed Share Model presents a risk, as the Original 

Funding Model did,1082 that Participants might not have the incentive to seek efficient ways to 

achieve the regulatory objectives of CAT.  While the Executed Share Model specifies an 

allocation that was unknown in the Original Funding Model, several commenters question 

whether the allocation provides Participants with incentives to seek efficiency.1083  Commenters 

also expressed concern with rising CAT costs to illustrate the magnitude of this potential 

inefficiency,1084 stating that they do not have enough transparency on cost drivers to assess 

whether CAT costs are reasonable,1085 that no data or estimates regarding future costs were 

provided,1086 and that the Proposed Amendment has no mechanism to control or limit the 

budget.1087  Some commenters further stated that the ability to pass through fees lessens 

Participants’ incentive to control costs.1088 

The Participants have stated that the transparency and level of detail in the fee filings will 

impose a discipline on the Participants to justify the costs of CAT.1089  For example, separating 

 
1082  See supra Section IV.A.1.b.  
1083  See, e.g., Citadel July Letter at 1, 5, 6, and 16; Citadel August Letter at 2; MMI July Letter at 1-3.  
1084  See, e.g., Citadel July Letter at 2, 5, 7-9, 23, and 26-27; Citadel August Letter at 7-8; FIA PTG at 4-5; 

FIF/SIFMA at 5.  One commenter pointed out that CAT costs typically exceed the budget by 20% (See 
Citadel July Letter at 8-9, n.21; Citadel August Letter at 7).  In addition, one commenter stated that CAT 
operating costs significantly exceed cost estimates in the CAT NMS Plan and recent increases in CAT 
operating costs are not sustainable (See FIF/SIFMA Letter at 7-8). 

1085  See, e.g., Citadel July Letter at 2, 6-7, 13-14, and nn.63, 64; Citadel August Letter at 6-7; FIA PTG at 1 and 
4, MMI July Letter at 3.  In addition, one commenter stated that enhanced transparency about CAT costs is 
necessary, especially for the cloud costs (See FIF/SIFMA Letter at 8-9). 

1086  See Citadel August Letter at 7. 
1087  See, e.g., SIFMA June Letter at 2 and 4; Virtu Letter at 4; FIF/SIFMA Letter at 5; SIFMA AMG Letter at 

3.  One commenter (FIF/SIFMA Letter at 5) pointed out that there is no legal limit to CAT costs.  One 
commenter (Citadel August Letter at 7) states that there are no constraints on costs. 

1088  See, e.g., FIA PTG Letter at 2-3; Citadel July Letter at 16 and 22; and MMI July Letter at 4. 
1089  See also, CAT LLC May 2023 Response Letter at 10-11 for a discussion of other efforts to manage the 

costs of CAT.  The Participants provide a more comprehensive response about cost management efforts 
(See CAT LLC July 2023 Response Letter at 19-20).  They state that Industry Members will have ample 
opportunity to comment, there will be quarterly budget information and financials, there is Commission201 

Historical CAT Costs from Prospective CAT Costs allows Industry Members more insight into 

the sources of CAT costs underlying the fees and to allow Industry Members to comment on the 

size of such fees.  The Participants offer explanations for the increases in CAT costs.  For 

example, at the adoption of the CAT NMS Plan in 2016, the Commission estimated that the CAT 

would receive 58 billion records per day, but the Participants state that as of the fourth quarter of 

2022, the CAT receives an average 418 billion records per day.1090  This highlights the difficulty 

in estimating future costs because costs are directly related to trading activity.  While the 

Participants did not provide data or estimates regarding future costs, they discussed how costs 

are related to trading activity, which should help Industry Members and other market participants 

form their own estimates. 

The Participants also disagree that they are not incentivized to manage costs with a one-

third allocation.  They argue that currently, there is a strong incentive to manage costs while 

paying 100% of the costs and that incentive will continue with a one-third allocation.  They state 

that CAT costs are substantial and they will continue to receive critical review.1091  In response 

to comments on whether the exchanges will pass through all of their fees, some of the equity 

exchange Participants already charge transaction fees at the maximum level allowed by 

regulation, which prevents them from increasing their transaction fees to efficiently pass through 

all CAT fees to their members.1092  As a result, such equities exchanges will likely internalize 

 
oversight, and the Participants have ongoing cost discipline efforts through a cost management group and 
other efforts.  For more details of the activities of the cost management group, see CAT LLC July 2023 
Response Letter at 22-26. 

1090  See CAT LLC July 2023 Response Letter at 22. 
1091  See CAT LLC July 2023 Response Letter at 22. 
1092  See Securities Exchange Act Release No. 96494 (Dec. 14, 2022), 87 FR 80266, tbl.5 (Dec. 29, 2022).  

While exchanges charge several tiers of fees, they will not be able to raise the fees that already match the 
fee cap. 



202 

some of their CAT fees, ensuring some incentive to limit costs.  In addition, the fact that FINRA 

is expected to be the heaviest regulatory user of CAT suggests that FINRA being responsible for 

a large proportion of CAT costs promotes efficiency.1093  Further, the Participants argue that the 

complexity and diversity of Industry Members’ chosen business models and order handling 

practices contributes substantially to CAT costs because they result in increased processing and 

storage costs.1094  In contrast, exchange features are not nearly as diverse as the ways in which 

Industry Members execute trades.1095  In addition, Industry Members have customers that create 

CAT costs related to FDIDs, CCIDs, and CAIS, while Participants do not.1096  Further, the 

Participants state that “Industry Members have far more late data and corrections than 

Participants” and that “[t]he linker costs related to late data and corrections are significant.”1097  

The Commission believes that Industry Members being responsible for a large proportion of 

CAT costs promotes efficiency.  This is particularly valid for late data and corrections, which is 

something Industry Members can directly control to reduce overall CAT costs. 

The Commission believes the Executed Share Model trades off incentives to inefficiently 

spend too much against incentives to inefficiently spend too little.  The Commission does not 

believe that being responsible for CAT costs (or having to internalize CAT costs they do not pass 

 
1093  But see FINRA April 2023 Letter: “it is unclear… how the outsized allocation to FINRA is based on the 

extent to which FINRA participates in and benefits from the markets.  In addition, this rationale conflates 
the costs to create and operate CAT with the usage of CAT data.”  The Commission believes that data 
usage does significantly contribute to CAT costs.  Query tools, for example, account for 7% of CAT costs.  
See supra note 1050.  Note that FINRA’s allocation in the Original Funding Model (~48% for Participants’ 
share of the costs allocated to equities) could have been the same or greater than the allocation in the 
Executed Share Model. 

1094  See CAT LLC July 2023 Response Letter at 7. 
1095  See supra note 1094. 
1096  See supra note 1094. 
1097  See supra note 1094. 



203 

through) will result in Participants having the incentive to under-spend on regulatory tools.1098  

Any such under-spending would not reduce the Participants’ self-regulatory duties and could 

result in inefficiencies in their own regulatory costs. 

One commenter stated that charging for Historical CAT Costs using current volumes 

bears no relation to the contributions to CAT Costs.1099  The Commission agrees that the 

Historical Assessments in the Executed Share Model do not provide much incentive for 

efficiency.  However, this does not reflect a change in the efficiency from the Original Funding 

Model, because Industry Members cannot retroactively change their behavior to reduce CAT 

costs under either model.  Indeed, by separating Historical CAT Assessments from CAT Fees, 

the Executed Share Model could allow Industry Members and Participants to more clearly assess 

how their own actions could affect the Prospective CAT Costs and their CAT Fees to promote 

improvements to efficiency relative to the Original Funding Model.    

 The Executed Share Model could change other incentives that could potentially affect 

efficiencies, but the expected magnitude of CAT Fees will mitigate the impact of such incentive 

changes.  For example, if the fees for OTC transactions are not passed on to non-FINRA 

members, the Executed Share Model could discourage FINRA membership by those who have a 

choice.  Further, the Historical Fee Rate in Exhibit C of $0.0000417950 per Executed Equivalent 

Share would result in each CEBB and CEBS paying $0.00001393167 per Executed Equivalent 

Share (one third of $0.0000417950).  A comparison to recent Section 31 fees of $0.00009 per 

 
1098  The Participants state that they seed to reduce costs “without adversely affecting the regulatory goals of the 

CAT.” See CAT LLC July 2023 Response Letter at 22. 
1099  See SIFMA January 2023 Letter at 7. 



204 

share to $0.0004 per share1100 and average effective half spreads of $0.0131101 indicates that the 

anticipated Historical Fee Rate and Fee Rate, assuming the Fee Rate is of a similar magnitude as 

the Historical Fee Rate, are expected to be relatively small.1102   

c. Market Efficiency 

 
1100  Section 31 fees are expressed per dollar volume traded.  Translating this to a per share range involves 

identifying reasonable high and low trade sizes.  The lower end of this range comes from the 25th percentile 
in $ trade size of 1,200 and share trade size of 71 from the first quarter of 2021.  The higher end of this 
range comes from the 75th percentile in $ trade size of 5,200 and share trade size of 300 from the first 
quarter of 2021.  Section 31 fees have ranged from $5.10 per $Million to $23.10 per $Million from Oct. 1, 
2016 to Mar. 1, 2023.  The CAT LLC July 2023 Response Letter at 18-19 offers two additional 
comparisons to transaction-based fees.  They state that “Nasdaq charges various transaction-based equities 
fees, ranging from $0.0005 per share to $0.0030 [per share].”  They also state that “Cboe charges an 
options regulatory fee that is $0.0017 per contract, and NYSE American charges an options regulatory fee 
of $0.0055.”  Assuming that option contracts are for 100 shares of the underlying, this would translate to 
options regulatory fees of $0.000017 and $0.000055 per equivalent share. 

1101  This is the average share-weighted effective spread across more liquid stocks from the first quarter of 2021.  
More liquid stocks were defined as the stocks in the most actively traded decile by total daily trading 
volume.  Effective spreads are a measure of transaction costs.  For each trade, the effective spread was 
calculated as the absolute value of the difference between the trade price and the quote midpoint at the time 
of the trade.  Less liquid stocks have higher effective spreads, making the CAT fees even smaller relative to 
transaction costs. 

1102  See Notice, supra note 7, 88 FR at 17130.  In particular, Exhibit C sets forth illustrative Historical CAT 
Assessments.  While this is an illustrative example and actual Historical CAT Assessments may differ, the 
Commission believes that the Historical Fee Rate per equivalent share, will be calculated using the methods 
laid out in the table “Calculation of Historical CAT Assessment.”  Further, the Commission assumes that 
the example Historical Fee Rate is of the approximate magnitude of potential Historical Fee Rates because 
this rate was calculated using actual CAT costs and volume estimates grounded in historical volume.  
While the rate may be imprecise for the reasons discussed in Exhibit C, the rate is unlikely to be orders of 
magnitudes larger because the sample fees assume two-year collection whereas the Operating Committee 
could choose a longer collection period.  While Exhibit C only estimates Historical Fee Rates, the 
Commission does not expect Fee Rates to be significantly larger than Historical Fee Rates because 
Historical Fees will cover a longer time period than CAT Fees and will cover a broader scope of activities 
than CAT Fees.  Historical Costs include costs incurred since the CAT Approval in Nov. 2016 to build, 
operate and maintain CAT up to a certain date and will be spread out over two to five years (the estimate 
was based on spreading it out two years).  On the other hand, CAT Fees are based on Prospective Costs, 
which are estimates of monthly costs from a certain date forward and include costs to operate and maintain 
CAT.  While some commenters expressed concern about increasing CAT costs that are much higher than 
those estimated in the 2016 Approval Order (See, e.g., SIFMA June Letter at 4; MMI July Letter at 3; and 
Virtu Letter at 4), some of those costs may reflect implementation costs in addition to ongoing costs.  Once 
CAT is fully implemented, the Commission expects annual operating costs to reflect ongoing costs only.  
See also CAT LLC July 2023 Response Letter at 17 for a comparison and discussion of historical and 
prospective CAT costs.  The CAT LLC July 2023 Response Letter at 18-19 also provides another example 
of a Historical Fee Rate.  They add an additional year and consider all Historical CAT Costs for prior to 
2023 and find that each CEBB and CEBS would pay $0.0000142689 per executed equivalent share (one 
third of $0.0000428068).  The Historical Fee Rate based in this example is close to the Historical Fee Rate 
in Exhibit C.   



205 

The Commission believes that the Executed Share Model will promote market efficiency, 

but has uncertainty as to the degree of any improvement.  The Executed Share Model eliminates 

the disincentives to provide liquidity of the Original Funding Model that could have resulted in 

market inefficiencies, including removing the potential for perverse incentives near the tier 

cutoffs.1103  Instead of paying higher fees with more message traffic, which would discourage 

liquidity providing activity,1104 the Executed Share Model charges a fee for each Executed 

Equivalent Share.  Because market making and other liquidity providing activity tends to have a 

high ratio of message traffic to transactions, the Executed Share Model could be more favorable 

towards providing liquidity than the Original Funding Model.  Promoting liquidity provision 

promotes market efficiency.  However, because the Original Funding Model addressed this 

disincentive in its tier structure, the Commission cannot be certain that the reduction of this 

disincentive would have a significant effect on market efficiency.  Further, the Commission 

previously concluded that the effect of behavior changes around the tier cutoffs on market 

efficiency was likely not significant.1105  As a result, the Commission believes the removal of 

tiers promotes market efficiency but is unable to conclude that it will significantly improve 

market efficiency.    

Some commenters stated that the Proposed Amendments would harm liquidity provision 

and increase costs for investors, thus harming market efficiency.1106  The Commission 

recognizes that in charging fees only to CEBB and CEBS, the fees will be charged to fewer 

 
1103  See supra Section IV.A.1.a.  
1104  Id. 
1105  See supra note 1058 and accompanying text. 
1106  See, e.g., MMI July Letter at 2; Citadel July Letter at 2; Virtu Letter at 5.  One commenter stated that the 

Proposed Amendments would disproportionately impact market makers in particular (see Citadel July 
Letter at 2 and Citadel August Letter at 4). 



206 

Industry Members than under the Original Funding Model and that market makers could be 

charged a large proportion of those fees.  This could increase the importance of passing through 

fees to the ability to spread those fees out among more market participants.  The Commission 

believes that efficiency improvements to the ability to pass through fees1107 will help alleviate 

the risk that CAT fees will harm liquidity provision from market makers and market efficiency. 

Some commenters argued that under the Proposed Amendment all CAT fees will 

ultimately be passed through to investors1108 and retail investors in particular,1109thereby 

increasing transaction costs for investors and reducing market efficiency.  The Commission 

recognizes that CAT fees may be passed through to investors, but the Proposed Amendment 

covers the allocation of CAT fees for operating the CAT among Participants and Industry 

Members and does not address whether Industry Members pass through their CAT fees to their 

customers.1110  Further, Industry Members may have passed through CAT fees to their customer 

under the Original Funding Model as well.  Hence, any impact on market efficiency of CAT fees 

being potentially passed through to investors under the Proposed Amendment may not represent 

a change to the baseline.  Finally, while Industry Members may pass through CAT fees to their 

customers, the customers also receive a benefit from the CAT.  The CAT provides more 

effective oversight of market activity, which could increase investor confidence, resulting in 

expanded investment opportunities and increased trading activity.1111 

B.   Competition 

 
1107  See supra Section IV.A.1 for a discussion of pass-through efficiency improvements. 
1108  See SIFMA AMG Letter at 2. 
1109  See Virtu Letter at 5. 
1110  See supra Section III.A.2.  
1111  See supra note 761 and preceding text. 



207 

Several commenters stated that the Proposed Amendments present a burden on 

competition.1112  The Commission analyzed the impact of the Proposed Amendments on the 

competition for trading services, broker-dealer services, and regulatory services.  The 

Commission believes the Proposed Amendment could negatively alter the competitive position 

of a few types of competitors for trading services and broker-dealer services, but the 

Commission also believes that whether such changes will render these markets less competitive 

overall is uncertain.  Specifically, the Commission believes that the Executed Share Model could 

provide exchanges with a competitive advantage relative to off-exchange market makers who 

internalize in providing trading services.  Further, the Executed Share Model could provide 

competitive advantages to certain broker-dealer business models over others and could harm the 

competitive position of smaller broker-dealers by putting a strain on their net capital. 

1.   Baseline 

In the CAT NMS Plan Approval Order, the Commission identified certain elements of 

the Original Funding Model that could have negative implications for competition in trading 

services, broker-dealer services, and regulatory services.1113  In addition, the Commission stated 

“the uncertainty regarding how the [Operating] Committee allocated the fees used to fund the 

Central Repository could affect the conclusions on competition.”1114   

a.   Trading Services 

The market for trading services, which is served by exchanges, ATSs, and liquidity 

providers (internalizers and others), relies on competition to supply investors with execution 

services at efficient prices.  These trading venues, which compete to match traders with 

 
1112  See SIFMA June Letter at 1-2; SIFMA July Letter at 2; Virtu Letter at 2 and 3; and Citadel July Letter at 1. 
1113  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84882-84884.   
1114  See id. at 84882 n.2800. 



208 

counterparties, provide a framework for price negotiation and disseminate trading information.  

The competitors for trading services compete on a number of dimensions, such as transaction 

fees and execution quality, and some attempt to attract order flow by paying for that order flow 

or otherwise rebating. 

The market for trading services in options and equities consists of 24 national securities 

exchanges, which are all Plan Participants, and off-exchange trading venues including broker-

dealer internalizers, which execute substantial volumes of transactions in equities, and 39 ATSs, 

which are not Plan Participants.1115  Aside from trading venues, exchange market makers provide 

trading services in the securities market.  These firms stand ready to buy and sell a security “on a 

regular and continuous basis at publicly quoted prices.”1116  Exchange market makers quote both 

buy and sell prices in a security held in inventory, for their own account, for the business purpose 

of generating a profit from trading with a spread between the sell and buy prices.  Off-exchange 

market makers also stand ready to buy and sell out of their own inventory, but they do not quote 

buy and sell prices.1117 

In the Original Funding Model, the portion of fees allocated to the exchanges, FINRA, 

and ATSs would have been divided among them according to market share of share volume and 

the portion allocated to Industry Members would have been divided among them according to 

message traffic, including message traffic sent to and from an ATS.1118  The Operating 

Committee would have allocated fees for the equities market and options market separately 

 
1115  See Securities Exchange Act Release No. 61358, 75 FR 3594 (Nov. 23, 2016) at 3598–3560, (for a 

discussion of the types of trading centers).  The number of ATSs includes 34 NMS ATSs from 
https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm and 5 OTC ATSs. 

1116  See SEC, Market Maker, available at http://www.sec.gov/answers/mktmaker.htm. 
1117  See Securities Exchange Act Release No. 96495, 88 FR at 181 (Jan. 3, 2023).   
1118  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84793. 

https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm
http://www.sec.gov/answers/mktmaker.htm


209 

based on market share in each market.  The Commission concluded that the Original Funding 

Model could have resulted in a competitive advantage for exchanges over ATSs because 

message traffic to and from an ATS would have generated fee obligations on the broker-dealer 

that sponsors the ATS, while exchanges would have incurred almost no message traffic fees.1119  

In addition, the Commission recognized uncertainties associated with the allocation of fees that 

could have affected competition, such as the level of fees at each tier (though the entities in the 

smallest activity tier would have paid the lowest fees) and whether off-exchange liquidity 

providers would have paid fees similar to similarly-sized ATSs and exchanges.  Finally, the 

Commission recognized potentially differential fees across market participants, including lower 

fees for internalizers, which could affect competition.1120 

b.   Broker-Dealer Services 

For simplification, the Commission presents its analysis as if the competition to provide 

broker-dealer services encompasses one broad market with multiple segments even though, in 

terms of competition, it actually may be more realistic to think of it as numerous inter-related 

markets.  There are approximately 1,100 broker-dealers that are CAT Reporters.1121  The 

competition to provide broker-dealer services covers many different markets for a variety of 

services, including, but not limited to, managing orders for customers and routing them to 

various trading venues, holding customer funds and securities, handling clearance and settlement 

of trades, intermediating between customers and carrying/clearing brokers, dealing in 

government bonds, private placements of securities, and effecting transactions in mutual funds 

 
1119  See id. at 84883.   
1120  See id. at 84879.   
1121  See Notice, supra note 7, 88 FR at 17104. 



210 

that involve transferring funds directly to the issuer.  Some broker-dealers may specialize in just 

one narrowly defined service, while others may provide a wide variety of services.   

The market for broker-dealer services relies on competition among broker-dealers to 

provide the services listed above to their customers at efficient levels of quality and quantity.  

The broker-dealer industry is highly competitive, with most business concentrated among a small 

set of large broker-dealers and thousands of small broker-dealers competing for niche or regional 

segments of the market.  Broker-dealers often compete among each other through commission 

rates, service quality, and service variety and some bundle their services.  At present, some 

broker-dealers specializing in individual investors charge zero commissions and instead cover 

costs by receiving payment for order flow or charging more for other services.  To limit costs 

and make business more viable, small broker-dealers often contract with larger broker-dealers or 

service bureaus to handle certain functions, such as clearing and execution, or to update their 

technology.1122  Large broker-dealers typically enjoy economies of scale over small broker-

dealers and compete with each other to service the smaller broker-dealers, who are both their 

competitors and their customers.  

Some broker-dealers may offer specialized services in one line of business mentioned 

above, while other broker-dealers may offer diversified services across many different lines of 

businesses.  As such, the competitive dynamics within each of these specific lines of business for 

broker-dealers is different, depending on the number of broker-dealers that operate in the given 

segment and the market share that the broker-dealers occupy. 

 
1122  See Securities Exchange Act Release No. 63241 (Nov. 3, 2010), 75 FR 69791, 69822 (Nov. 15, 2010) 

(Risk Management Controls for Brokers or Dealers with Market Access). 



211 

The CAT NMS Plan Approval Order described the Original Funding Model as an explicit 

source of financial obligation for broker-dealers and therefore an important feature to evaluate 

when considering potential differential effects of the Plan on competition in the market for 

broker-dealer services.1123  The Commission understood that the Original Funding Model should 

have resulted in the smallest broker-dealers paying the lowest fees,1124 but the Plan did not 

outline how the magnitudes of fees would have differed across the tiers or whether the smallest 

broker-dealers would have paid the highest per-message fees.  The Commission concluded that, 

regardless of the differential effects of the CAT NMS Plan Funding Model on small versus large 

broker-dealers, the CAT NMS Plan Funding Model, in aggregate, would have likely not reduced 

competition in the overall market for broker-dealer services.1125 

c.  Regulatory Services 

In the CAT Approval Order, the Commission considered the effect of the CAT NMS 

Plan on competition to provide regulatory services.1126  SROs compete to provide regulatory 

services in at least two ways.  First, because SROs are responsible for regulating their members 

and the trading within venues they operate, their regulatory oversight is bundled with the 

operations of their venues.  Consequently, for a broker-dealer, selecting a trading venue also 

involves being subject to regulatory oversight of the SRO that operates that venue.  Second, 

SROs can provide regulatory services for other SROs through the use of RSAs.1127  In addition, 

some regulatory activity is coordinated among SROs through multiparty 17d-2 agreements.1128  

 
1123  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84885. 
1124  See id. at 84884. 
1125  See id. at 84887.   
1126  See id. at 84887. 
1127  See supra note 320 and accompanying text.   
1128  See 17 CFR 240.17d-2. 



212 

FINRA is the primary provider of contracted regulatory services.  Any new competitors for 

regulatory services would face significant barriers to entry in building up the necessary expertise 

and technical capabilities.1129 

RSAs are contracts that would not be renegotiated as often as CAT Fees would vary, 

which limits the precision to which FINRA can increase the charges on these agreements as a 

mechanism to pass through its CAT Fees.  Since the start of the CAT NMS Plan implementation, 

the Commission has not observed a change in the competition for regulatory services. 

2.   Analysis of the Proposed Amendment 

a.   Trading Services 

The Participants state that, “the [Executed Share Model] would not impose an 

inappropriate burden on competition,” arguing that transaction-based models for fee recovery are 

already in place.1130  The Commission agrees that transaction-based models do offer some 

efficiency benefits over the Original Funding Model,1131 but believes the Proposed Amendment 

may provide a competitive advantage to exchanges and a competitive disadvantage to executing 

broker-dealers who internalize.  The effects on these competitors might not affect the overall 

level of competition because the fees are expected to be relatively small. 

The Commission believes that the Proposed Amendment may provide a competitive 

advantage for exchanges over off-exchange trading venues, but this advantage may not be large 

 
1129  The Commission stated in the Approval Order that “CAT may reduce barriers to entry for this market” 

while acknowledging other barriers to entry.  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 
84887, note 2849 (describing the barriers to entry addressed by CAT).  See also Securities Exchange Act 
Release No. 95388 (July 29, 2022), 87 FR 49930 (August 12, 2022) at 49961 (describing the barriers to 
entry of potential new national securities associations more generally).  

1130  See Notice, supra note 7, 88 FR at 17115.  
1131  See supra Section IV.A.2.b and IV.A.2.c for discussions of efficiency gains associated with basing CAT 

fees on shares executed rather than message traffic. 



213 

relative to the level of competition and relative to the advantages for exchanges in the Original 

Funding Model.  In particular, the Executed Share Model will allocate higher CAT fee 

allocations to Industry Members relative to Participants, but exchanges, one type of Participant, 

could be in a better position to avoid raising transaction fees to offset their CAT fee allocations. 

Using March 2023 data, the Commission estimates that 31% of share volume is reported to 

FINRA trade reporting facilities while the remaining 69% is reported by exchanges.1132  The 

Commission believes that FINRA’s allocation of CAT fees likely will be passed through to 

Industry Members.1133  If FINRA’s CAT fees are passed through to Industry Members, the 

Commission believes that Industry Members could bear 77% of CAT costs,1134 assuming that the 

exchanges do not also directly pass-through their CAT fee allocations to their members.1135  In 

fact, if the exchanges are able to offset their CAT fees in ways other than increasing transaction 

fees on exchanges, the cost to transact on ATSs or directly through broker-dealers will appear to 

increase more in response to CAT fee allocations, providing exchanges with a competitive 

advantage.1136  This is particularly probable for exchanges who do not rely solely on revenues 

 
1132  Calculated using monthly market volume data from CBOE for equities, OCC for options, and FINRA for 

OTC securities.  Option contract volume is multiplied by 100 and OTC volume is divided by 100 to 
establish equivalent share volume to reported equity transactions.  

1133  See FINRA April 2023 Letter at 7 (“If the Funding Model is approved by the Commission, FINRA intends 
to file a rule change to increase member fees simultaneous with the filing of any proposed rule change to 
effectuate the Funding Model.”). 

1134  This results from dividing the FINRA allocation (31%) by its share of each off-exchange or OTC Executed 
Equivalent Share, three, and then adding the Industry Member share, two-thirds, to the result (31% ×1/3 + 
2/3 = 77%) and ignores what Industry Members would pass to investors.  Several commenters expressed 
concerns about the competitive effects of Industry Members paying 78-80% of CAT fees, assuming 100% 
FINRA pass through, and potentially more if exchanges pass through as well (See, e.g., Virtu Letter at 1-2 
and 4, FIA PTG Letter at 2-3, and Citadel July Letter at 16, 21 and 22).  The Commission analysis assesses 
this competition from the ability to competitively price transaction services. 

1135  If exchanges passed their CAT fees onto their members in full, the Industry Members would effectively 
bear 100% of the CAT allocation (ignoring what they would pass to investors). 

1136  One commenter stated that the Proposed Amendments will result in off-exchange transactions being 
assessed higher fees than on-exchange transactions (See Citadel July Letter at 21) 



214 

from transaction fees.  However, ATSs might be better off relative to exchanges under the 

Executed Share Model than they would have been under the Original Share Model, which would 

have resulted in a competitive disadvantage for ATSs.1137 

The Executed Share Model could increase the costs of internalization relative to agency 

order matching (or riskless principal), creating a competitive disadvantage for the internalization 

model, reversing the competitive advantage internalizers would have had under the Original 

Funding Model.1138  Specifically, off-exchange market makers will be assessed at least CEBB or 

CEBS for their internalizing trades, both when trading with non-broker-dealer customers or 

broker-dealers who are not FINRA members and also when internalizing the orders of FINRA 

members or their customers.  However, they do not have more than one customer to which to 

directly pass-through this fee.  In particular, if an exchange were to directly pass-through its 

CAT Assessments, it could split its 1/3 fee across buyers and sellers, or 1/6 each (each side 

would also have a 1/3 CAT assessment as CEBB or CEBS for a total of 1/2).  However, for 

internalizers to directly pass-through their fees would mean the internalized customer (whether 

an Industry Member or not) would pay 2/3 of the fee plus whatever pass-through they pay for the 

FINRA assessment (up to 1/3).  Alternatively, an internalizer could also recover CAT 

assessments by reducing payment for order flow or price improvement.1139  Any of these 

alternatives could hurt internalizers competitively and create the incentive to not fully pass-

through their fees,1140 thus reducing their profit margins.  In addition, some executing brokers 

 
1137  See supra note 1119 and accompanying text. 
1138  See supra note 1120 and accompanying text. 
1139  See CAT LLC July 2023 Response Letter at 9-10. 
1140  One commenter stated that many executing brokers will absorb CAT fees (See Virtu Letter at 5).  However, 

the Participants argue that the executing brokers may determine to pass their CAT fees through to their own 
customers and thus may not absorb the CAT fees (See CAT LLC July 2023 Response Letter at 8-9).  

 



215 

could be charged two-thirds of the fee per Executed Equivalent Share when internalizing the 

orders of customers or non-FINRA broker-dealers, though this is likely rare.   

More generally, any market makers, whether on exchange or not, will be charged fees for 

their proprietary trading, and this could create competitive advantages in certain situations.  The 

Commission recognizes that this likely would result in on-exchange market makers in equities 

being at a competitive disadvantage in having to absorb the fees because they do not know the 

identities of their counter-parties to directly pass-through the fees and they do not have other 

arrangements, such as payment for order flow, that could facilitate indirectly passing-through 

fees.  Because other liquidity providers who post limit orders and quotes to trade would face the 

same cost, the displayed quotations on exchanges could appear to be less competitive overall but 

would likely increase only marginally – enough to cover CAT assessments.  Such a marginal 

increase could also help to offset any disadvantage to internalization because marginally wider 

spreads could help internalizers avoid reductions in price improvement and payment for order 

flow.  In options, however, the Executed Share Model could result in exchange members who 

bring an order to an exchange experiencing a competitive advantage in price improvement 

auctions.  In particular, because knowing who is responsible for the order allows them to pass-

through their fees, they can bid more competitively in the auctions than can exchange members 

who cannot directly pass-through the fees.   

However, the Commission believes that the magnitude of changes in any competitive 

advantages or disadvantages is unlikely to significantly affect order flow because fee differences 

between competing venues are only one of many factors (such as availability of non-displayed 

 
Another commenter stated that fees charged on proprietary trading cannot be passed through (See Citadel 
July Letter at 19-20; see also Citadel August Letter at 3).  This latter commenter also stated that the 
potential to pass through some CAT costs does not alleviate the competitive issues (See Citadel July Letter 
at 19; see also Citadel August Letter at 4). 



216 

order types and price impact characteristics of transactions on different venues) that broker-

dealers consider when choosing how to route their order flow.  Further, the Executed Share 

Model levels the playing field between exchanges and ATSs relative to the Original Funding 

Model.1141  In particular, the assessments and any pass-throughs paid by broker-dealers or 

investors of an execution on an ATS could be similar to those of an execution on an exchange, 

depending on how (and whether) ATSs and exchanges choose to pass-through their fees.  

Further, the magnitude of the fees in the example in Exhibit C are small relative to current 

transaction costs.1142 

b.   Broker-Dealer Services 

The Commission believes that the Executed Share Model alleviates concerns with the 

Original Funding Model about the allocation of fees across small and large broker-dealers.  In 

particular, by charging CEBBs and CEBSs based on Executed Equivalent Shares, small broker-

dealers are less likely to face CAT fees that are outsized relative to their revenue, whether they 

act as executing brokers or are charged pass-throughs by executing brokers.  This could reduce 

barriers to entry. 

On the other hand, the efficiency gains in passing through fees from the Executed Share 

Model will not be evenly distributed across broker-dealer competitive strategies.  In particular, 

where competition has driven commissions to zero, the Executed Share Model Fees are more 

easily passed through to customers of broker-dealers who offer a wider variety of services than 

for broker-dealers who do not.  These latter broker-dealers could be at a competitive 

 
1141  See supra note 1120 and accompanying text for a discussion of the effect of the Original Funding Model on 

ATSs. 
1142  See supra notes 1100, 1101, and 1102 and accompanying text for analysis of the potential magnitude of 

fees under the Executed Share Model. 



217 

disadvantage if they have no other option but to absorb such fees or accept reduced payment for 

order flow as a form of pass-through from executing brokers.  Because more established broker-

dealers are more likely to be the ones offering a wider variety of services, this effect could 

increase barriers to entry. 

Furthermore, as one commenter stated, there may be capital requirements associated with 

carrying the receivable associated with passing-through these CAT fees, which could be 

burdensome for small and medium-sized Executing Brokers. 1143  According to this commenter, 

these burdens, coupled with FINRA Rule 15c3-1 will significantly impact healthy small and 

medium-sized brokers. 1144  If so, the Executed Share Model could increase barriers to entry in 

providing broker-dealer services.  However, whether and how to pass-on the CAT assessments is 

at the discretion of Executing Brokers.1145  Further, the economic effect of not passing-on fees is 

equivalent to passing-on fees to clients who pay more than 30 days after the Executing Broker 

has booked the receivable.1146 Therefore, this issue boils down to the magnitude of the potential 

costs and whether small and medium-sized Executing Brokers are treated the same as others.  If 

small and medium-sized Executing Brokers have lower trading activity than large Executing 

Brokers, their CAT assessments will be lower as well.  Further, the per equivalent share fee rate 

will be the same across all Executing Brokers in the Executed Share Model whereas it would not 

have been under the Original Funding Model.  In fact, small broker-dealers, including Executing 

 
1143  See DASH January 2023 Letter at 1; DASH April 2023 Letter at 1. 
1144  See DASH January 2023 Letter at 2. 
1145  See supra Section III.A.4 for further discussion of the comments on net capital and the Commission’s 

response to those comments.  
1146  The effect on net capital comes when Industry Members record that they expect to receive a pass-through 

from customers as an asset (a “booked” receivable) more than 30 days before when their customers pay.  If 
the Industry Members book a receivable for the pass-through more than 30 days before they collect, they 
cannot count that receivable as an asset toward net capital.  If Industry Members instead do not pass-
through the fees, they will not have a receivable at all to count toward net capital. 



218 

Brokers, could be better positioned competitively under the Executed Share Model than under 

the Original Funding model, which contained uncertainty in the tier structure and whether small 

broker-dealers would have paid more in assessments than they earn in revenues. 

One commenter stated that the top 10 (20) Industry Members would be allocated 50% 

(70%) of the fees under the Executed Share Model, “unduly burdening competition”.1147  The 

Commission has considered this concentration and believes that several factors alleviate this 

concern.  In particular, the Commission believes that many of these Industry Members will pass 

through much of their fees to client broker-dealers.1148  In addition, the Commission believes that 

the Industry Members that will be charged the most under the Proposed Amendments engage in 

different services than broker-dealers who are charged the least or not charged fees at all under 

the Proposed Amendments.1149  Therefore, these two sets of broker-dealers are not direct 

competitors.   

c.   Regulatory Services 

The Commission recognizes that if FINRA were to pass through its CAT fees by 

increasing its fees for RSAs over time, FINRA could be less competitive in providing regulatory 

services.1150  This could increase the chances either of exchanges conducting more of their own 

 
1147  See Citadel July Letter at 19. 
1148  See supra Section IV.A.2.a. 
1149  Broker dealers that compete as electronic liquidity providers in high-volume securities are likely to have 

the highest executed share volume and thus pay the highest fees.  However, these broker-dealers compete 
against each other in providing this service, and thus are likely to be similarly burdened by fees under the 
amendment.  Broker-dealers that pay the lowest or no fees are unlikely to compete in this activity because 
such activity entails high fixed costs in specialized technology and thus are unlikely to gain a competitive 
advantage from the amendment. 

1150  The Participants state, “[b]y treating each Participant the same, the CAT fees would not become a 
competitive issue by and among the Participants.”  See Notice supra note 7, 88 FR at 17115.  See also a 
similar statement at 17122.  This conclusion does not seem to address competition to provide regulatory 
services specifically.  However, the comments about the treatment of FINRA in, for example, the FINRA 
April 2023 Letter at 2-5 warrants considering this competition given FINRA’s position in providing RSAs. 



219 

regulatory services or of another SRO attempting to compete with FINRA for RSAs.  Indeed, 

such potential competitors would not have the burden of having to cover CAT Fees for off-

exchange and OTC volume.  However, because RSAs are not renegotiated as often as CAT Fees 

are likely to change, FINRA will likely not attempt to cover all of their share of CAT costs by 

increasing what they charge for RSAs.1151  Further, even with access to CAT, the barriers to 

entry in competing for RSAs could limit new competitors. 

C.   Capital Formation 

In the CAT NMS Plan Approval Order, the Commission stated that the Original Funding 

Model for CAT was not wholly certain and, thus, stated the “view that there is uncertainty 

concerning the extent to which investors will bear Plan costs and consequently to what extent 

Plan costs could affect investors’ allocation of capital.”1152  The Participants state that they 

believe the Proposed Amendment would have a positive effect on capital formation due to 

improvements in investor confidence.1153 

The Commission recognizes that the Proposed Amendment may have negative effects on 

capital formation if the CAT fees ultimately borne by investors are large enough to affect 

investors’ allocation of capital or if capital constraints of small or mid-sized broker-dealers 

significantly hinder innovating to find more efficient ways to service investors.1154  However, the 

Commission believes that the net capital effect would not be significant.1155  Further, the 

 
1151   See FINRA April 2023 Letter at 7 (“If the Funding Model is approved by the Commission, FINRA intends 

to file a rule change to increase member fees simultaneous with the filing of any proposed rule change to 
effectuate the Funding Model.”).   

1152  See CAT NMS Plan Approval Order, supra note 2, 81 FR at 84893. 
1153  See Notice, supra note 7, 88 FR at 17115. 
1154  See, e.g., DASH April 2023 Letter at 1; Virtu Letter at 2; SIFMA AMG at 2-3. 
1155  See supra Section III.A.4 for a response to a commenter’s concerns regarding net capital and supra Section 

IV.B.2.b for an explanation of why the net capital effects are like to be small. 



220 

additional costs borne by investors are likely small relative to current transaction costs.1156  

While recognizing that the Executed Share Model might change which investors ultimately bear 

CAT costs, the Executed Share Model might not change the total costs borne by investors 

relative to the Original Funding Model. 

V. Conclusion 
 

For the reasons discussed, the Commission, pursuant to Section 11A of the Exchange 

Act,1157 and Rule 608(b)(2)1158 thereunder, is approving the Proposed Amendment.  Section 11A 

of the Exchange Act authorizes the Commission, by rule or order, to authorize or require the self-

regulatory organizations to act jointly with respect to matters as to which they share authority 

under the Exchange Act in planning, developing, operating, or regulating a facility of the 

national market system.1159  Rule 608 of Regulation NMS authorizes two or more SROs, acting 

jointly, to file with the Commission proposed amendments to an effective NMS plan,1160 and 

further provides that the Commission shall approve an amendment to an effective NMS plan if it 

finds that the amendment is necessary or 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 mechanisms of, a national market system, or otherwise in furtherance of the purposes of the 

Exchange Act.1161   

 
1156  See supra notes 1100, 1101, and 1102 and accompanying text for analysis of the potential magnitude of 

fees under the Executed Share Model.  
1157  15 U.S.C. 78k-1. 
1158  17 CFR 242.608(b)(2). 
1159  See 15 U.S.C. 78k-1(a)(3)(B).  
1160  See 17 CFR 242.608. 
1161  See 17 CFR 242.608(b)(2).221 

For the reasons set forth above, the Commission finds that the Proposed Amendment 

meets the required standard. 

 IT IS THEREFORE ORDERED, pursuant to Section 11A of the Exchange Act,1162 and 

Rule 608(b)(2)1163 thereunder, that the Proposed Amendment (File No. 4-698) be, and hereby is, 

approved. 

 By the Commission. 

 

J. Matthew DeLesDernier 
Deputy Secretary  

 
 

 
1162  15 U.S.C. 78k-1. 
1163  17 CFR 242.608(b)(2).