# Joint Industry Plan; Order Approving an Amendment to the National Market System Plan Governing the Consolidated Audit Trail, as Modified by the Commission, Regarding Implementation of a Revised Funding Model

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2026-05350

## Record

- **Collection:** Federal Register
- **Document type:** Notice
- **Published:** March 19, 2026
- **Citation:** 91 FR 13410

## Text

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105003; File No. 4-698]
Joint Industry Plan; Order Approving an Amendment to the National Market System Plan Governing the Consolidated Audit Trail, as Modified by the Commission, Regarding Implementation of a Revised Funding Model
March 16, 2026.
I. Introduction

On September 5, 2025, 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 (“Initial Proposed Amendment”) to implement a revised funding model (the “Executed Share Model”) for the consolidated audit trail (“CAT”)
5

and to establish a fee schedule for Participant CAT fees in accordance with the Executed Share Model.
6

The Initial Proposed Amendment was published for comment in the
Federal Register
on September 17, 2025.
7

1
The Participants are: 24X National Exchange LLC, 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., 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, MIAX Sapphire, LLC, Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, Nasdaq PHLX LLC, Nasdaq Texas, LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE National, Inc., and NYSE Texas, 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.

5
The Proposed Amendment modifies the existing funding model in Article XI of the CAT NMS Plan.

6

See
Letter to Vanessa Countryman, Secretary, Commission, from Robert Walley, Chair, CAT NMS Plan Operating Committee, dated Sept. 5, 2025.

7

See
Securities Exchange Act Release No. 103960 (Sept. 12, 2025), 90 FR 44910 (“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.

On November 21, 2025, the Commission instituted proceedings pursuant to Rule 608(b)(2)(i) of Regulation NMS
8

to determine whether to disapprove the Initial Proposed Amendment or to approve the Initial Proposed Amendment with any changes or subject to any conditions the Commission deems necessary or appropriate after considering public comment (“OIP”).
9

On December 18, 2025, CAT LLC, on behalf of the Participants to the CAT NMS Plan, filed an amendment to the Initial Proposed Amendment.
10

8
17 CFR 242.608(b)(2)(i).

9

See
Securities Exchange Act Release No. 104234 (Nov. 21, 2025), 90 FR 54438 (Nov. 26, 2025). 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

See
Letter to Vanessa Countryman, Secretary, Commission, from Robert Walley, Chair, CAT NMS Plan Operating Committee, dated Dec. 18, 2025,
available at: https://www.sec.gov/comments/4-698/4698-685927-2125515.pdf
(“CAT LLC December 2025 Response Letter” or “Amendment No. 1”). In Amendment No. 1, CAT LLC proposes to revise proposed Section 11.3(e) of Appendix D of the CAT NMS Plan to “better, reflect that the Proposed Amendment was approved under the Plan and avoid statements suggesting that all Participants voted for the proposal,” by modifying the provision to modify a clause stating that “[e]ach Participant agrees not to file . . .” to instead be, “[n]o Participant will file.”
Id.
at 5.

This order approves the Proposed Amendment, as modified by the Commission (hereinafter, the “Proposed Amendment” unless otherwise noted).
11

For the reasons discussed below, the Commission finds that the Proposed Amendment, as modified by the Commission, is appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of, a national market system, or is otherwise in furtherance of the purposes of the Exchange Act.

11
The Commission is modifying the Proposed Amendment to reflect Amendment No. 1 and approving the Proposed Amendment, as so modified, pursuant to Rule 608(b)(2), as discussed in more detail in Part III.A.2 below.

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.
12

On November 15, 2016, the Commission approved the CAT NMS Plan.
13

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 establish funding for the Company to operate the CAT, including establishing fees to be paid by the Participants and Industry Members.
14

12
17 CFR 242.613.

13

See
CAT NMS Plan.

14
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, at Section 1.1.
See also

id.
at Section 11.1(b).

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.”
15

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
16

that are Execution Venues,
17

including ATSs,
18

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).”
19

15

Id.
at Section 11.2(b) and (e).

16
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.

17
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.

18

Id.

19

See
CAT NMS Plan, at Section 11.2(c).
See id.
at Article XI for additional detail.

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”).
20

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
21

(“Post-Amendment Expenses”). Section 11.6 establishes target deadlines for four Financial Accountability Milestones (Periods 1, 2, 3 and 4)
22

and reduces the amount of fee recovery available to the Participants if these deadlines are missed.
23

20

See
Securities Exchange Act Release No. 88890, 85 FR 31322 (May 22, 2020).

21
“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, at Section 1.1.

22

See
CAT NMS Plan, Section 11.6(a)(i).

23

Id.
at Section 11.6(a)(ii) and (iii).

Since the CAT plan's approval in 2016, CAT LLC has proposed, withdrawn, and refiled several iterations of the funding amendment, resulting in an extensive process of evaluating and receiving comment on various funding models. On September 6, 2023, the Commission approved an amendment to the CAT NMS Plan to implement a new funding model (the “Executed Share Model”), which charged fees based on executed equivalent share volume of transactions in Eligible Securities (“2023 Funding Model Amendment”).
24

24

See
Notice, at 44910; Securities Exchange Act Release No. 98290, 88 FR 62628 (Sept. 12, 2023) (the “2023 Funding Model Order”)

The Executed Share Model established two categories of CAT fees: (1) “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”); and (2) “Historical CAT Assessments” to be payable by Industry Members who were CAT Executing Brokers for the Buyer and for the Seller with regard to CAT Costs previously paid by the Participants (“Past CAT Costs”).
25

For each of these categories, Participants were to submit fee filings pursuant to Section 19(b) of the Exchange Act to establish CAT Fees and a Historical CAT Assessment to be charged to Industry Members based on the Executed Share Model. To date, each of the Participants filed fee filings related to three CAT fees and one Historical CAT Assessment, and as of the initial filing of the Proposed Amendment, CAT LLC collected or was collecting such CAT fees.
26

25

Id.

26

See
Notice, at 44911. On November 25, 2025, CAT LLC issued CAT Fee Alert 2025-4, which states that CAT Reporters would not receive further monthly invoices for CAT Fees and for Historical CAT Assessments until further notice.
See
CAT Fee Alert 2025-4, dated Nov. 25, 2025,
available at:

https://www.catnmsplan.com/sites/default/files/2025-11/11.25.25-CAT-Fee-Alert-2025-4.pdf.
The Commission anticipates that CAT LLC will establish a new CAT Fee and Historical CAT Assessment, and that the Participants will submit new rule filings pursuant to Section 19(b) of the Exchange Act to implement those fees, after approval of the Proposed Amendment, as modified by the Commission.

On July 25, 2025, the U.S. Court of Appeals for the Eleventh Circuit (the “Court”) issued an opinion vacating the 2023 Funding Model Order and remanding the matter to the Commission for further proceedings consistent with its opinion.
27

The Court did not take issue with—and, in their briefing, the petitioners did not challenge the reasonableness of—the Executed Share Model or its allocation of fees among the Participants and the Executing Brokers for the Buyer and for the Seller. Rather, the Court concluded that the 2023 Funding Model Order was arbitrary and capricious because the Commission “did not explain or justify” its decision not to preemptively prohibit the Participants from “pass[ing] through” their share of CAT costs onto Industry Members in future fee filings and failed to incorporate actual CAT costs into its economic analysis.
28

The Court stayed its judgment for sixty days following the issuance of its mandate, recognizing that vacatur would “leave[ ] the CAT without a mechanism for the equitable allocation of costs between self-regulatory organizations and broker-dealers” and that “the Commission and the industry need some time to adjust and react to this reality.”
29

Prior to the effective date of the Court's judgment (December 1, 2025), the Participants filed the Proposed Amendment, seeking to implement an Executed Share Model similar to that in the 2023 Funding Model Amendment with the addition of a provision related to direct pass-through fees.
30

27

See Am. Sec. Ass'n
v.
SEC,
147 F.4th 1264 (11th Cir. 2025).

28

Id.
at 1269, 1274.

29

Id.
at 1280.

30

See supra
note 7.

III. Discussion and Commission Findings

The Commission is currently engaged in a comprehensive review of the CAT which is intended to include, among other things, its design and functionality, the scope of information it collects, and an examination of CAT costs.
31

Several commenters suggest that the Proposed Amendment should not be approved in advance of the outcome of that review.
32

FINRA and the Cboe

Exchanges, both Participants or representing multiple Participants of the CAT NMS Plan, suggest that the Commission should consider a time-limited interim funding solution.
33

31

See
Prepared Remarks Before SEC Speaks, Chairman Paul S. Atkins, May 19, 2025,
available at

https://www.sec.gov/newsroom/speeches-statements/atkins-prepared-remarks-sec-speaks-051925.

32

See
Letters to Vanessa Countryman, Secretary, Commission, from Steffen N. Johnson, Wilson Sonsini Goodrich & Rosati, dated October 17, 2025 (“FINRA October 2025 Letter”), at 14-15 and dated Jan. 30, 2026 (“FINRA Wilson Sonsini January 2026 Letter”), at 5; Letter to Vanessa Countryman, Secretary, Commission, from Marcia E. Asquith, Corporate Secretary, EVP, Board and External Relations, FINRA, dated January 30, 2026, at 2 (“FINRA January 2026 Letter”); Letters to Vanessa Countryman, Secretary, Commission, from Stephen John Berger, Managing Director, Global Head of Government & Regulatory Policy, Citadel Securities, dated October 17, 2025 (“Citadel October 2025 Letter”), at 14 and dated Jan. 30, 2026 (“Citadel January 2026 Letter”), at 8; Letter, to Vanessa Countryman, Secretary, Commission, from Katie Kolchin, CFA, Managing Director, Head of Equity & Options Market Structure and Joseph Corcoran, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association, dated October 21, 2025 (“SIFMA October 2025 Letter”), at 4 Letters to Vanessa Countryman, Secretary, Commission, from Christopher A. Iacovella, President & Chief Executive Officer, American Securities Association, dated October 31, 2025 (“ASA October 2025 Letter”), at 2 and dated Feb. 10, 2026 (“ASA January 2026 Letter”), at 2; Letter to Vanessa Countryman, Secretary, Commission, from Gentry Collins, CEO, AmFree Chamber, dated October 17,

2025 (“AmFree Letter”), at 1; Letter to Vanessa Countryman, Secretary, Commission, from Patrick Sexton, EVP, General Counsel, Corporate Secretary, Cboe Exchanges, dated October 31, 2025 (“Cboe Letter”), at 2; Letter to Vanessa Countryman, Secretary, Commission, from Joanna Mallers, Secretary, PTG, dated Nov. 24, 2025 (“PTG Letter”), at 2; The Cboe Exchanges include Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe C2 Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., and Cboe Exchange, Inc. (collectively, “the Cboe Exchanges”).
See
Cboe Letter, at 1, n.1.

33

See
Cboe Letter, at 2; FINRA October 2025 Letter; FINRA Wilson Sonsini January 2026 Letter, at 5.

CAT LLC states in response that it supports the Commission's announced comprehensive review as well as its broader efforts to ensure that CAT achieves its intended regulatory purposes in a cost-effective manner, but asserts that a time-limited, interim funding solution would not address the pressing need to implement a stable funding mechanism for the CAT given the CAT's significant costs and its substantial regulatory value to regulators.
34

CAT LLC cautions that it “should not be assumed that any Participant will voluntarily agree to loan funds to the Company once the operational reserve is exhausted,” and that, “absent Commission action to approve a viable funding model for the CAT, there is significant uncertainty regarding the continued operation of the CAT and the Company's ability to continue as a going concern.”
35

34

See
CAT LLC December 2025 Response Letter, at 9.

35

Id.
at 13. In a comment letter submitted in connection with the 2023 Funding Model Amendment, a commenter objected to a 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
Letter to Vanessa Countryman, Secretary, Commission, from Stephen John Berger, Managing Director, Global Head of Government & Regulatory Policy, Citadel Securities, dated August 22, 2023 (“Citadel August 2023 Letter”), at 1. For the reasons explained in this order, the Proposed Amendment, as modified by the Commission, meets the applicable standard for approval.

The Commission agrees with commenters that it would be premature to adopt a new, permanent funding model while it considers changes to the CAT that could potentially affect its design, functionality, the information it collects, and how and by whom it is funded. Any such changes to the system could bear on the Commission's analysis of options for a permanent funding solution. At the same time, the SROs and the Commission currently rely on CAT to carry out their market oversight functions, and a defined funding source is needed to ensure its continued existence and funding during the period in which the Commission conducts its review. Operating CAT without consistent, defined funding during this interim period would be a potentially destabilizing option, that is inconsistent with the CAT NMS Plan's premise that the costs of CAT are to be allocated to both the Participants and Industry Members.
36

36

See
CAT NMS Plan, at Section 11.2(b).

As discussed in detail below, the Commission concludes that the Proposed Amendment constitutes a reasonable approach to allocating the costs of CAT during the interim period. The Commission is therefore approving the Proposed Amendment, with a modification, pursuant to Rule 608(b)(2), that provides for a two-year deadline for the proposed funding model. Specifically, new subparagraph (f) to Section 11.3 (Recovery) of the CAT NMS Plan will state the following:

(f) Time Limitation. The Company, the Plan Processor and the Participants will not be permitted to bill or otherwise request the payment of CAT Fees or Historical CAT Assessments from Industry Members after March 31, 2028. No Industry Member can be required to directly contribute to the funding of the CAT by the Company, the Plan Processor, or any Participant after such date except for CAT Fees or Historical CAT Assessments billed to the Industry Member prior to March 31, 2028.

This provision will effectively end the collection of fees pursuant to the funding model in the Proposed Amendment in two years absent further action by the Commission. To the extent that commenters disagree with the Commission's conclusions regarding the likely effects of the Proposed Amendment, the Commission will be able to take the experience with this interim funding model into account when considering a longer-term replacement.

After careful review, the Commission, pursuant to Section 11A of the Exchange Act,
37

and Rule 608(b)(2)
38

thereunder, is approving the Proposed Amendment, as modified by the Commission, to provide for funding of the CAT for a two-year interim period while the Commission engages in its comprehensive review of the CAT. 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.
39

Rule 608 of Regulation NMS authorizes two or more SROs, acting jointly, to file with the Commission proposed amendments to an effective NMS plan,
40

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.
41

37
15 U.S.C. 78k-1.

38
17 CFR 242.608(b)(2).

39

See
15 U.S.C. 78k-1(a)(3)(B).

40

See
17 CFR 242.608.

41

See
17 CFR 242.608(b)(2).

The Participants have sufficiently demonstrated that the proposed allocation of fees is appropriate and meets the Rule 608(b) approval standard. In the interim period during which the Commission undertakes its comprehensive review of the CAT, the CAT must be funded to ensure that the SROs and the Commission can continue to fulfill their regulatory responsibilities to oversee the equities and options markets. There are a number of potential approaches to allocating the costs of operating the CAT, all of which have relative strengths and weaknesses. 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 Amendment provides for the allocation of one-third of CAT fees each 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.
42

In our view, splitting the costs of the CAT evenly among the buyer, seller, and market regulator in transactions reportable to the CAT—at least during this interim period—constitutes a reasonable and equitable allocation of costs among the primary parties that participate in and benefit from such trading activity and the market oversight CAT enables.

42

See infra
Part III.A.2.

Unlike the funding model approved in the 2023 Funding Model Order, the Proposed Amendment, as modified by the Commission,
43

states that no Participant will file with the SEC a proposed rule change pursuant to Section 19(b) and Rule 19b-4 thereunder that would establish a new

fee for passing through to its members the CAT fee charged to such Participant.
44

The Commission believes that this prohibition on directly passing through CAT fees by Participants reasonably aligns with the premise of the Plan since the time of its approval that there is to be an “allocation of the costs” of CAT among the Participants and Industry Members.
45

The proposed prohibition reasonably responds to the concern that a Participant's ability to create a new fee directly passing-through the one-third share of CAT costs that the Plan allocates to the Participant calls into question whether there is an “allocation of the costs” of the CAT as contemplated by the Plan.
46

By precluding the simple filing of a new fee to directly pass through CAT costs, it places Participants in a similar position as Industry Members who must also make decisions as to how to fund their financial obligations to the CAT in the context of their overall regulatory and business expenses.

43

See supra
note 10 and accompanying text.

44

See
proposed Section 11.3(e).

45

See
CAT NMS Plan Approval Order, at 84795;
see also
CAT NMS Plan Section 11.2(b);
Am. Secs. Ass'n,
147 F.4th at 1274-75.

46

See Am. Secs. Ass'n,
147 F.4th at 1274-75, 1279 & n.1 (discussing FINRA fees directly passing through FINRA's share of CAT costs). For example, the FINRA pass-through fees highlighted by the Eleventh Circuit were specific “cost recovery fee[s] designed to permit FINRA to recoup its designated portion of the reasonably budgeted CAT costs of the [CAT NMS Plan].”
See
Securities Exchange Act Release No. 103373 (July 2, 2025), 90 FR 30171, 30171 (July 8, 2025) (SR-FINRA-2025-010).

The provision would not prohibit Participants from funding their share of CAT costs through other mechanisms that may indirectly result in Industry Members (or others, including investors) ultimately bearing those costs, any more than it limits Industry Members' discretion to pass some or all of their costs onto their customers. As both a legal and practical matter, the Plan's cost-sharing premise governs the
initial
allocation of costs between Participants and Industry Members. From the inception of the CAT NMS Plan, the Commission has recognized both that some portion of the costs of the CAT should be allocated to the Participants and that the Exchange Act expressly permits the Participants to recover their regulatory costs—including the portion of costs that the Plan allocates to them—from their members through fee filings, subject to the requirements of the Act.
47

Similarly, the Commission has long recognized that, despite the initial allocation of CAT costs to the Participants and Industry Members, “some or most of the costs of CAT will be passed on to investors.”
48

Thus, while the Proposed Amendment prevents the Participants from effectively altering the initial allocation of costs by directly passing their share through to Industry Members, the Plan has never purported to regulate the business decisions individual Participants or Industry Members may make to finance the costs they incur to comply with their regulatory obligations, including the costs allocated to them by the Plan.

47
For example, in adopting Rule 613 in 2012, the Commission explained that “although the [SROs] likely would initially incur the costs to establish and fund the central repository”—
i.e.,
to establish and operate CAT—“directly, they may seek to recover some or all of these costs from their members.” Securities Exchange Act Release No. 67457 (July 18, 2012), 77 FR 45722, 45795 (Aug. 1, 2012) (“Rule 613 Adopting Release”). In approving the Plan in 2016, the Commission similarly acknowledged that the Exchange Act permits the Participants to recover their regulatory costs through fees on members if such fees meet the requirements of the Act.
See, e.g.
,
CAT NMS Plan Approval Order, at 84794 (“The Participants, as SROs, have traditionally recovered their regulatory costs through the collection of fees from their members, and such fees are specifically contemplated by the Exchange Act . . . . [S]uch fees must be consistent with applicable statutory standards under the Exchange Act.”);
id.
(“[T]he Exchange Act specifically permits the Participants to charge members fees to fund their self-regulatory obligations.”);
id.
at 84796-97 (“[T]he Exchange Act permits the Participants to assess fees among their members to recoup their regulatory costs, as long as such fees meet the applicable Exchange Act standards.”). This understanding is also reflected in the Commission's assumption in the CAT NMS Plan Approval Order that the Participants would recover from Industry Members 100% of the CAT development costs they had incurred to date.
See id.
at 84,855, 84,858, 84, 864.

48

See
CAT NMS Plan Approval Order, at 84863.

In leaving open the possibility that the Participants could propose to recover their share of costs from Industry Members indirectly by increasing existing fees, the Commission is making no determination that it would be permissible to so recover costs in any particular instance. To the extent a Participant were to seek to offset the CAT costs it incurs by raising the rates of its other member fees, any such indirect pass-through fees would be subject to the rule filing process under Section 19(b)(2) of the Act and must be reasonable, equitable, and not unfairly discriminatory.
49

Participants must file proposed rule changes relating to fees with the Commission and these proposed rule changes are published by the Commission and there is an opportunity for public comment. The Commission has a statutory obligation to suspend and disapprove proposed rule changes if they do not satisfy the Act's requirements.
50

Moreover, if the Participants were to attempt to increase existing fees for the purpose of recovering their share of CAT costs during the two-year period in which the Proposed Amendment is in effect, the Commission can take that experience into account in assessing options for a longer-term funding model. But the Commission cannot now assess a hypothetical future fee filing by an unknown Participant seeking recovery of an unknown amount of costs in an unknown manner under unknown circumstances. While this order therefore makes no determination as to the lawfulness of any future attempt by a Participant to indirectly pass through its share of CAT costs, the Commission nonetheless considers “the effects of potential broker-dealer only funding” of CAT for the next two years below,
51

consistent with the Eleventh Circuit's opinion.
52

49

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).

50

See Bloomberg L.P.
v.
SEC,
45 F.4th 462, 476 (D.C. Cir. 2022) (recognizing that the Commission “has control over proposed [SRO] fees and will not approve them unless they are reasonable and equitable such that they are consistent with the Exchange Act”).

51

See infra
Part IV.B.

52

See Am. Secs. Ass'n,
147 F.4th at 1275.

The use of executed equivalent share volume provides an appropriate basis for the calculation of CAT 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. Charging 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. Because such entities are already identified and their CAT fees are known, this method could streamline the billing process and allow such entities to calculate their own fees. The Commission also concludes that the division of fees into Prospective CAT Fees and the Historical CAT Assessment provides an appropriate method of allowing Participants to ensure funding for operation of the system during the interim period. In addition, the provision of fee calculation information, approach to billing and collection of fees, conforming changes and the proposal for a fee schedule are all appropriate, and will provide transparency to CAT Reporters regarding the calculation of their CAT

Fees and should permit CAT Execution Brokers the ability to confirm the accuracy of their invoices for CAT Fees.

As discussed above, the Commission is modifying the Proposed Amendment to provide for a two-year limitation on collecting funds from Industry Members under this funding model. This limitation could be removed in the future, but removing the limitation (and thus codifying the funding model in the Proposed Amendment) would require another CAT NMS Plan amendment, either submitted by the Participants and approved by the SEC, or initiated by Commission rulemaking. The Commission believes that this is appropriate in light of the Commission's ongoing comprehensive review of the CAT,
53

and potential benefits of further deliberation on the mechanism and system for funding the CAT on a long-term basis. The Commission is therefore approving the Proposed Amendment, as modified and discussed above.

53

See
Securities Exchange Act Release No. 104144 (Sept. 30, 2025), 90 FR 47853, 47854 (Oct. 2, 2025) (stating that “the Chairman of the Commission instructed the staff to undertake a comprehensive review of the CAT” and citing Prepared Remarks Before SEC Speaks, Chairman Paul S. Atkins, May 19, 2025,
available at

https://www.sec.gov/newsroom/speeches-statements/atkins-prepared-remarks-sec-speaks-051925
).
See also
SIFMA October 2025 Letter, at 2 (stating that the commenter “wholeheartedly” supports the announced comprehensive review of the CAT and is submitting a separate letter with several high-level recommendations).

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 Executed Share Model is in most material respects identical to the funding model approved in the 2023 Funding Model Order, with the exception of the prohibition on new fees to directly pass-through costs incurred by the Participants to Industry Members. 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.
54

In contrast, the Executed Share Model would charge fees based on the executed equivalent share volume of transactions in Eligible Securities.
55

In addition, instead of charging fees to Industry Members, under the Executed Share Model, fees would be charged to each Industry Member that is a CAT Executing Broker
56

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”).
57

54

See
CAT NMS Plan, at Section 11.3(a) and (b).

55

See
Notice, 90 FR at 44917-19.

56

See infra
Part III.A.4. for the definition of CAT Executing Broker.

57

See
Notice, 90 FR at 44919.

Under the Executed Share Model, CAT LLC proposes to establish two categories of CAT fees. The first category of CAT fees would be 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”).
58

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”).
59

58

Id.,
at 44916;
see also
proposed Section 11.3(a). The defined term “CAT Fees” applies specifically to CAT fees related to Prospective CAT Costs.
Id.

59

See
Notice, 90 FR at 44920;
see also
proposed Section 11.3(b).

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.
60

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,
61

as described below.
62

Participants would 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.
63

The Participants' one-third share of Historical CAT Costs
64

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.
65

60

See
Notice, 90 FR at 44919;
see also
proposed Section 11.3(a)(iii), proposed Section 11.3(b)(iii).

61

See infra
Part III.A.5.a. (Prospective CAT Fees—Fee Rate Formula) for the definition and description of the calculation of the Fee Rate.

62

See
Notice, 90 FR at 44919;
infra
Parts III.A.2 and III.A.5.a.
See also
proposed Section 11.3(a)(iii), proposed Section 11.3(b)(iii).

63

See
Notice, 90 FR at 44919;
see also
proposed Section 11.3(a)(ii).

64
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
Part III.A.6.a. for a discussion of Historical CAT Costs.

65

See
proposed Section 11.3(b)(ii).

FINRA CAT would be responsible for calculating the CAT fees and submitting invoices to the CAT Executing Brokers based on this CAT Data.
66

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.
67

CAT fees would be charged to Industry Members pursuant to separately filed proposed rule filings pursuant to Section 19(b) of the Exchange Act,
68

establishing 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.
69

In each proposed rule filing, if the Participants seek to recover amounts under the Financial Accountability Milestones, they would need to discuss their completion of the applicable milestone.
70

66

See
Notice, 90 FR at 44913.

67

Id.

68
15 U.S.C. 78s(b).

69

See
Notice, 90 FR at 44923.

70
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.

Commenters state that the Proposed Amendment lacks input from the industry.
71

One commenter states that the SROs through the CAT Operating Committee have for years sought to establish a funding model for CAT without meaningful industry input, including the Proposed Amendment

which was filed without prior consultation with Industry Members.
72

71

See, e.g.,
SIFMA October 2025 Letter, at 3; PTG Letter, at 3.
See also
FINRA June 2022 Letter, at 8, 9 (advocating for a more inclusive development process that would include input from the industry); Letter to Vanessa Countryman, Secretary, Commission, from Stephen John Berger, Managing Director, Global Head of Government & Regulatory Policy, dated July 14, 2023 (“Citadel July 2023 Letter”), at 9-10.

72

See
SIFMA October 2025 Letter, at 3;
supra
note 27.

Two of these commenters submitted comment letters stating that they incorporate prior comment letters submitted regarding the 2023 Funding Model Amendment.
73

Because the 2023 Funding Model Amendment is substantively identical to the Proposed Amendment, with the exception of the pass-through prohibition discussed in Part III.A.2 below, the Commission is considering comment letters from these two commenters regarding the 2023 Funding Model Amendment to the extent that they are still applicable to the Proposed Amendment. In addition, the Commission is considering CAT LLC's responses to those previous comment letters, submitted in various response letters by CAT LLC in the context of the 2023 Funding Model Amendment.
74

The Commission is not otherwise discussing or considering comment letters submitted in connection with the 2023 Funding Model Amendment, which was a proposed amendment to the CAT NMS Plan that was subject to its own distinct comment period.

73

See
Citadel January 2026 Letter, at 5 n.5 (stating that Citadel Securities incorporates and restates the comments set forth in all of its prior submissions regarding the CAT); FINRA October 2025 Letter, at 4 (incorporating by reference FINRA's prior comment letters concerning the Executed Share Model and the 2023 Funding Model Amendment). Comments received in response to the 2023 Funding Model Amendment can be found on the Commission's website at
https://www.sec.gov/comments/4-698/4-698-a.htm.

74

See
CAT LLC December 2025 Response Letter at 3, n.10 (stating that CAT LLC incorporates by reference its prior letters concerning the Executed Shares Model).

In connection with the 2023 Funding Model Amendment, one of these commenters states that the Operating Committee refuses to engage the industry in constructive dialogue, instead choosing to file funding proposals that are inconsistent with the Exchange Act.
75

The commenter also states that the CAT Advisory Committee has been completely ignored by the Operating Committee and that its recommendations are non-binding.
76

75

See
Citadel July 2023 Letter, at 9-10.

76

Id.
at 6.

CAT LLC states that commenters incorrectly state that the Proposed Amendment lacks input from the industry and that CAT LLC has engaged with the industry extensively and in good faith since 2016 as it has explored different approaches to CAT funding and considered various CAT funding issues, and as detailed in the CAT LLC May 2023 Response Letter and CAT LLC July 2023 Response Letter.
77

CAT LLC previously stated that it has engaged with the industry on the funding model over the prior 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.
78

CAT LLC listed ideas suggested by the industry that it adopted in revised versions of the funding model in 2023,
79

which is largely identical to the funding model proposed in the Proposed Amendment, and previously stated that “the current model results from years of modifications that have been made in significant part in response to industry comments to earlier versions.”
80

CAT LLC previously stated that it welcomes industry input on the funding model but believes a decision on the model is overdue.
81

CAT LLC states that it remains “committed to working constructively with the industry on issues related to CAT funding.”
82

77

See
CAT LLC December 2025 Response Letter, at 6.

78

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 12; 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 26-27;
see also
CAT LLC December 2025 Response Letter, at 6 (stating that, as “discussed in detail” in the CAT LLC May 2023 Response Letter, and CAT LLC July 2023 Response Letter, CAT LLC has engaged with the industry—including the CAT Advisory Committee, industry associations, as well as individual Industry Members—extensively and in good faith since 2016 as it has explored different approaches to CAT funding and considered various CAT funding issues).

79

See
CAT LLC July 2023 Response Letter, at 27-28.

80

Id.
at 28. CAT LLC also stated that it has “repeatedly sought the views of SIFMA and other industry participants on specific aspects of the model.”
Id.

81

See
CAT LLC May 2023 Response Letter, at 12.

82

See
CAT LLC December 2025 Response Letter, at 6.

2. Allocation of Fees Between 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.
83

83

See
Citadel October 2025 Letter, at 6-8; Citadel July 2023 Letter; Citadel August 2023 Letter; ASA October 2025 Letter, at 2 (stating that “neither Rule 613 nor the national market system (NMS) plan adopted for the CAT in 2016 authorizes a single dollar of those expenses to be paid by broker-dealers”); Letters to Vanessa Countryman, Secretary, Commission, from 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).

Comments on the 2023 Funding Model Amendment

In comment letters submitted previously in response to the 2023 Funding Model Amendment, and incorporated by reference in the FINRA October 2025 Letter, FINRA stated that, while the Proposed Amendment justified the fairness of the Executed Share Model because it would operate like other fees, such as FINRA's Trading Activity Fee (“TAF”), Section 31 fees, and the options regulatory fee,
84

the Proposed Amendment did not support why those fee frameworks should be used as a model in this context.
85

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 CAT.
86

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.
87

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.”
88

84

See
Notice, 90 FR at 44926-27.

85

See
FINRA June 2022 Letter, at 4.
See also
2023 Funding Model Amendment Approval Order, at 62630.

86

See
FINRA April 2023 Letter, at 8.

87

Id.
FINRA 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.

88

See
FINRA May 2023 Letter, at 3.

Furthermore, in a comment on the 2023 Funding Model Amendment that FINRA incorporated by reference because it applies to the Proposed Amendment, FINRA objected to statements that Industry Members can pass through to their customers their CAT cost allocation and additional costs resulting from an increase in FINRA

fees.
89

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.”
90

In response to that comment on the 2023 Funding Model Amendment, CAT LLC stated that Industry Members can pass through their own CAT fees to their customers, like broker-dealers do for transaction-based fees.
91

CAT LLC stated that this may result in Industry Members not having any funding burden if they decide to entirely pass-through their allocation to investors.
92

CAT LLC also 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.
93

89

See
FINRA April 2023 Letter, at 6-7.

90

Id.
at 7.

91

See
CAT LLC July 2023 Response Letter, at 8.

92

Id.

93

See
CAT LLC July 2023 Response Letter, at 9.

Another commenter states 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.
94

The commenter explains 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).
95

Additionally, the commenter states that there is no precedent for fees to be allocated to Industry Members in perpetuity, stating that this would contravene the Exchange Act.
96

94

See
Citadel July 2023 Letter, at 27.
See also
2023 Funding Model Order, at 62630-31.

95

Id.
The commenter also stated that FINRA has sought to avoid increases in the TAF.
Id.

96

Id.
This commenter states 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.

In response to the comment stating 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,
97

CAT LLC states 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.
98

Furthermore, CAT LLC states 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.
99

CAT LLC adds 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.
100

97

See
Citadel July 2023 Letter, at 27.

98

See
CAT LLC July 2023 Response Letter, at 14.

99

Id.

100

Id.

FINRA also states 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.
101

FINRA also states that the Proposed Amendment did not consider alternatives suggested by commenters on a prior proposed funding model,
102

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.”
103

FINRA urges the Commission to require those alternatives to be analyzed.
104

Another commenter states that once analyzed by the Commission, “it will be clear” that allocating at least two-thirds of CAT system costs to broker-dealers and their customers in the manner contemplated by the Proposed Amendment is not fair and equitable under the Exchange Act, and that that Commission must also consider the economic implications of the “winners and losers” in terms of the proposed allocation of costs.
105

101

See
FINRA June 2022 Letter, at 3.

102

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).

103

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, U.S.C. Marshall School of Business, dated June 21, 2022).

104

Id.

105

See
Citadel October 2025 Letter, at 8.

In response to the comment stating that the Participants had not analyzed a suggested Section 31-style approach to a funding model,
106

CAT LLC stated in a response letter submitted for the 2023 Funding Model Amendment 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.
107

CAT LLC stated that the approaches are also similar because, in both, an exchange would be able to determine to pass the fee onto its members, as would FINRA.
108

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.
109

106

See
FINRA April 2023 Letter, at 5.

107

See
CAT LLC May 2023 Response Letter, at 9.

108

Id.

109

Id.

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.
110

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.
111

110

See
FINRA May 2023 Letter, at 3, n.8.

111

Id.

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.
112

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.
113

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 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.”
114

112

See
FINRA May 2023 Letter, at 3.

113

See
CAT LLC July 2023 Response Letter, at 35.

114

Id.

In a comment letter submitted previously in response to the 2023 Funding Model Amendment, a commenter states that the Proposed Amendment does not demonstrate that it is equitable, as required by Section 6(b)(4),
115

or rational, as required by the Administrative Procedure Act,
116

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.”
117

Furthermore, the commenter states that the Proposed Amendment would result in an inequitable allocation to a small number of Industry Members.
118

115
15 U.S.C. 78f(b)(4).

116
5 U.S.C. 551
et seq.

117

See
Citadel July 2023 Letter, at 17.

118

Id.

In response to comments that object to the proposed allocation to Industry Members because Industry Members would not benefit from the CAT,
119

CAT LLC states allocating costs based on who benefits from the CAT is “not appropriate or practical.”
120

CAT LLC states 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.”
121

In response to a commenter that suggests that Industry Members should not be allocated any “costs for matters that primarily benefit the CAT Operating Committee or the SROs.”
122

CAT LLC disagrees 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.
123

CAT LLC also states that it was not “reasonable or practical to attempt to parse CAT costs by who `primarily benefits' from those costs.”
124

119

See
Citadel July 2023 Letter, at 17.

120

See
CAT LLC July 2023 Response Letter, at 10.

121

Id.
at 11.

122

See
Citadel July 2023 Letter, at 32.

123

See
CAT LLC July 2023 Response Letter, at 13.

124

Id.
at 12.
See also id.
at 13.

The commenter also states 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.
125

The commenter states 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.
126

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 2023 Funding Model Amendment.
127

The commenter stated that 78% is the same amount allocated to Industry Members in a prior CAT funding model proposal from 2021, and states that in the 2023 Funding Model Amendment, the Operating Committee concedes that the 2021 allocation “may have an adverse effect on competition, liquidity or other aspects of market structure,”
128

however the 2023 Funding Model 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.
129

125

Id.
at 1, 16, 22.

126

Id.
at 1, 21, 22.

127

Id.
at 21.

128

Id.

129

See
Citadel July 2023 Letter, at 21.

Further, the commenter states that Industry Members may also be required to pay the exchange cost allocation,
130

citing a statement in the 2023 Funding Model Amendment that “each Participant may determine to charge their members fees to fund their share of the CAT fees.”
131

The commenter states 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.”
132

The commenter requests that the Commission prohibit exchanges from passing-on their CAT costs.
133

The commenter also states 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.
134

The commenter states that the 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,
135

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.”
136

130

Id.
at 22.
See also
Citadel August 2023 Letter, at 2.

131

See
Citadel July 2023 Letter, at 22.
See also
2023 Funding Model Amendment, 88 FR at 17107. The commenter also states that while the 2023 Funding Model 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 2023 Letter, at 21.
See also
2023 Funding Model Amendment, 88 FR at 17087; Notice, 90 FR at 44911.

132
Citadel July 2023 Letter, at 22.
See also id.
at 16.
See also
Citadel August 2023 Letter, at 2 (stating that an allocation of 100% of CAT costs to Industry Members cannot be lawful).

133
Citadel July 2023 Letter, at 22.

134

Id.
at 10.

135

Id.
at 15.

136

Id.

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,
137

and in the context of the 2023 Funding Model Amendment, CAT LLC states that Industry Members can pass through their own CAT fees to their customers, like broker-dealers do for transaction-based fees.
138

CAT LLC states that this may result in Industry Members not having any funding burden if they decide to entirely pass-through their allocation to investors.
139

In response to commenters that request that Participants be prohibited from passing-on their CAT costs to their members,
140

CAT LLC states 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.
141

As discussed below, unlike the 2023 Funding Model Amendment, the Proposed Amendment includes a proposed provision limiting the ability of Participants to establish new fees to pass-through their CAT costs.

137

See
Citadel July 2023 Letter, at 16, 22.

138

See
CAT LLC July 2023 Response Letter, at 8.

139

Id.

140

See
Citadel July 2023 Letter, at 3, 22, 30.

141

See
CAT LLC July 2023 Response Letter, at 9.

The commenter stated that the 2023 Funding Model Amendment does not provide the percentage of total costs to build and operate the CAT that will be borne by Industry Members in practice.
142

The commenter states 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.”
143

142

See
Citadel August 2023 Letter, at 2.

143

Id.

This commenter states 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.
144

The commenter states 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.
145

The commenter states that although the 2023 Funding Model Amendment states 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.
146

144

See
Citadel July 2023 Letter, at 17.

145

See
Citadel July 2023 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).

146

Id.

In response to comments objecting to the proposed allocation to Industry Members for not taking into account regulatory fees currently paid by Industry Members,
147

CAT LLC states 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.”
148

147

See
Citadel July 2023 Letter, at 17. 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 2023 Letter, at 17).

148

See
CAT LLC July 2023 Response Letter, at 13.

This commenter also objects to statements made regarding the complexity of Industry Member business models contributes substantially to the costs of the CAT. This commenter states 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,
149

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.
150

149

See
Citadel July 2023 Letter, at 17-18.
See also
Notice, at 44927 (noting the “complexity of market activity”).

150

Id.
at 18.

In response to comments regarding the complexity of Industry Member business models as a driver of CAT costs,
151

CAT LLC states 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 states are more profound than those of Participants, not on complexity of the market in general.
152

CAT LLC explains 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.
153

CAT LLC explains that (1) the complexity and diversity of Industry Members' business models and order handling practices require processing and storing hundreds of reporting scenarios for Industry Members, resulting in significant data processing and storage costs;
154

(2) Industry Members have more late data and corrections than Participants, resulting in significant linker costs;
155

and (3) Industry Members have customers, which results in CAT costs related to customer account information (FDID, CCID and CAIS) and customer investment strategies.
156

CAT LLC also states that Participants would pay the same amount as the CEBBs and CEBSs in each transaction.
157

CAT LLC states that commenters did not demonstrate a causal connection between exchange fee structures and CAT costs.
158

CAT LLC states that it was not involved in these Industry Member business decisions and a substantial amount of CAT costs result from such business decisions.
159

CAT LLC also states that Participant activity does not contribute as much to CAT costs as complex Industry Member activity.
160

151

See
Citadel July 2023 Letter, at 17-18.

152

See
CAT LLC May 2023 Response Letter, at 6; CAT LLC July 2023 Response Letter, at 6.

153

See
CAT LLC May 2023 Response Letter, at 7; CAT LLC July 2023 Response Letter, at 7.

154

See
CAT LLC July 2023 Response Letter, at 7.

155

Id.

156

Id.

157

Id.
at 6.

158

See
CAT LLC July 2023 Response Letter, at 6.

159

Id.

160

Id.

This commenter also states 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.
161

The commenter states that this would contradict the 2023 Funding Model Amendment's arguments that there are more Industry Members than Participants and that Industry Members have greater financial resources than Participants because the Operating Committee would outnumber the Industry Members that would be paying the most in costs.
162

161

See
Citadel July 2023 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.

162

Id.

The commenter also states that the Proposed Amendment lacks support for the proposed allocation.
163

The commenter states that the Operating Committee has not met its burden to demonstrate that the proposed allocation is consistent with the Exchange Act.
164

The commenter also states 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.
165

163

Id.
at 13.
See also
Citadel August 2023 Letter, at 2.

164

See
Citadel July 2023 Letter, at 13.

165

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.

The commenter suggests alternatives to the proposed allocation methodology.
166

The commenter states 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.
167

The commenter also suggests that exchanges should be prohibited from passing-on their CAT cost allocation to market participants,
168

and that the Participants consider allocating costs to the Commission “to align incentives.”
169

The commenter recommends a consistent methodology for allocating costs to both Industry Members and exchanges.
170

The commenter also recommends 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,”
171

and would not inequitably allocate costs to specific market segments (such as “retail trading activity in NMS stocks”).
172

The commenter suggests 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).”
173

166

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.

167

Id.
at 3, 30, 31.

168

See
Citadel July 2023 Letter, at 3, 30, 31.

169

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
CAT LLC July 2023 Response Letter, at 31, n.144.

170

See
Citadel July 2023 Letter, at 30-31.

171

Id.
at 30.

172

Id.
at 3, 30.

173

See id.
at 30.
See also
Citadel August 2023 Letter, at 5.

In response to the commenter that recommended allocating no more than 50% of CAT costs to Industry Members, including the FINRA allocation,
174

CAT LLC states that the commenter did not offer a reasoned basis why such an allocation would be consistent with the Exchange Act.
175

CAT LLC also states 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.”
176

Furthermore, in response to the commenter's other suggested allocation methodology which the commenter states would ensure that a small group of firms and specific market segments would not be subject to inequitable cost burdens,
177

CAT LLC states that the commenter did not explain how the suggested methodology would fit into a funding model or how such a funding model would be consistent with the Exchange Act.
178

CAT LLC states 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.”
179

174

See
Citadel July 2023 Letter, at 31.

175

See
CAT LLC July 2023 Response Letter, at 10.

176

Id.

177

See
Citadel July 2023 Letter, at 30.

178

See
CAT LLC July 2023 Response Letter, at 10.

179

Id.
at 11-12.

In response, the commenter states that its suggestions, which included minimum and maximum fee levels, calibrations for liquidity provision, and consideration of additional metrics,
180

were included in prior funding model proposals.
181

The commenter states 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.”
182

180

See
Citadel August 2023 Letter, at 5.

181

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)).

182

Id.

This commenter also states 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.
183

The commenter urges for 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.
184

The commenter also states that the 2023 Funding Model 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).
185

183

See
Citadel July 2023 Letter, at 20.
See also
Citadel August 2023 Letter, at 3.

184

See
Citadel August 2023 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.

185

See
Citadel July 2023 Letter, at 2.

Comments on the Proposed Amendment

Subsequent to the 2023 Funding Model Order and vacatur of that order by the Eleventh Circuit, the Participants submitted the Proposed Amendment which would include a new paragraph (e) to Section 11.3 of the CAT NMS Plan that would provide that each Participant agrees not to establish a new fee for passing through its CAT fees, which the Participants state is to “address the Eleventh Circuit's opinion regarding the potential for Participants to pass-through 100% of their CAT fees to Industry Members, and its effect on the allocation of CAT costs under the Executed Share Model.”
186

Proposed Section 11.3(e) of the CAT NMS Plan, as modified by the Commission,
187

would state that no Participant will file with the SEC a proposed rule change pursuant to Section 19(b) and Rule 19b-4 thereunder that would establish a new fee for directly passing through to its members the CAT fee charged to such Participant in accordance with Section 11.3(a) (the “direct pass-through prohibition”).

186
Notice, at 44923.

187

See supra
note 10 and accompanying text.

Multiple commenters state that the direct pass-through prohibition would be ineffective in its stated goal.
188

Commenters specifically note that the direct pass-through prohibition only purports to prevent a Participant from filing a rule change with the Commission to establish a “new fee.”
189

One of these commenters states that this usage of the term “new fee” raises the specter of adding CAT costs to existing fees the SROs already charge their members to recoup their CAT costs, thus doing indirectly what they cannot

do directly.
190

FINRA states that this theoretical limit on direct pass-through fees also ignores the reality of FINRA's funding structure, because the most direct way to allocate FINRA's designated CAT costs to its members (who ultimately will bear costs allocated to FINRA) would be to apply cost recovery fees to members whose activities most directly contribute to FINRA's designated portion of Participant CAT fees.
191

Another commenter states that CAT LLC is “clearly” attempting to preserve the ability for SROs to pass through some of all of their CAT costs to their members in other ways in direct contravention of the Eleventh Circuit's decision.
192

This commenter states that allowing SRO pass-throughs directly conflicts with the Eleventh Circuit's decision and fundamentally alters the allocation formula that the Commission is considering.
193

Another commenter states that FINRA is responsible for roughly 10% of the entire CAT budget, and nothing in the Proposed Amendment stops FINRA from passing on 100% of those costs to its members by increasing its existing membership fees.
194

Multiple commenters state that the Proposed Amendment is simply an attempt to circumvent the Eleventh Circuit's opinion vacating the 2023 Funding Model Order, and that the Proposed Amendment should be disapproved.
195

188

See
FINRA Wilson Sonsini January 2026 Letter, at 1; FINRA October 2025 Letter, at 10-11; Citadel October 2025 Letter, at 9-10; SIFMA October 2025 Letter, at 2; PTG Letter, at 2; AmFree Letter, at 5.
See also
Citadel July 2023 Letter, at 20 and Citadel August Letter, at 3 (both raising concerns about CAT costs being passed on to investors); ASA February 2026 Letter, at 4.

189

See
FINRA October 2025 Letter, at 10-11; Citadel October 2025 Letter, at 9; SIFMA October 2025 Letter, at 2; PTG Letter, at 2.
See also
ASA February 2026 Letter, at 4 (stating that while the Proposed Amendment purports to limit certain pass-throughs, it leaves in place Plan language that permits SROs to bundle or otherwise incorporate CAT costs into their various other fees or assessments).

190

See
SIFMA Letter, at 2.
See also
PTG Letter, at 2.

191

See
FINRA October 2025 Letter, at 11-12. This commenter states that the direct pass-through prohibition is “unlawful, ineffective, and fails to cure the defects identified by the Eleventh Circuit.”
See
FINRA Wilson Sonsini January 2026 Letter, at 1.

192

See
Citadel October 2025 Letter, at 9.

193

See id. See also
ASA February 2026 Letter, at 4 (stating that if SRO pass-throughs up to 100% of their allocations are permitted in substance, the Commission must confront that reality, explain its policy shift, and incorporate the full economic impact into its analysis).

194

See
AmFree Letter, at 5. The commenter states that at minimum the Proposed Amendment must prohibit FINRA from increasing its existing membership fees to account for CAT costs.
Id.
at 6.
See also
Citadel October 2025 Letter, at 9 (stating that the Proposed Amendment provides no explanation as to how FINRA, as a not-for-profit-organization, will fund its allocation of CAT costs, which amounts to more than 10% of the entire CAT budget).

195

See
Citadel October 2025 Letter, at 1; SIFMA October 2025 Letter, at 1-3.
See also
ASA October 2025 Letter, at 1-2 (stating that the Proposed Amendment “mirrors the unlawful 2023 plan in every essential respect”); PTG Letter, at 1 (stating that the Proposed Amendment disregards the decision and is the SROs attempt to “simply repackage the same unlawful model”); ASA February 2026 Letter, at 4 (stating that the Eleventh Circuit made clear that the Commission cannot pretend that SROs will bear a portion of CAT costs while ignoring their ability to pass those costs on to broker-dealers and their customers).

Two commenters state that the Proposed Amendment exceeds CAT LLC's authority and is unlawful, because the Exchange Act and Rule 608 of Regulation NMS do not empower CAT LLC or the Plan Participants to restrict fee filings made by other Plan Participants or control how other Plan Participants internally fund their costs.
196

One commenter states that both the text and history of Rule 608's predecessor establishes that Rule 608's scope of fee authority is limited to
joint
fees for NMS plans.
197

This commenter states that the proposed direct pass-through prohibition would not control CAT LLC fees, but instead purport to control how a Participant SRO funds its own SRO costs through separate SRO fees, which could potentially establish a dangerous precedent and enable similar overreach in other NMS plans.
198

196

See
FINRA October 2025 Letter, at 2, 7-10; FINRA Wilson Sonsini January 2026 Letter, at 2-3; FINRA January 2026 Letter, at 2; Cboe Letter, at 1-2.

197

See
FINRA October 2025 Letter, at 8-9.

198

Id.
at 9. This commenter further states that the Plan may violate FINRA's due process rights and run afoul of the Takings Clause.
Id.
at 10.

CAT LLC states that commenters incorrectly state that the direct pass-through prohibition attempts to circumvent the Eleventh Circuit's opinion.
199

CAT LLC explains that the Eleventh Circuit held that the Commission's order approving the Executed Shares Model violated the Administrative Procedures Act as a result of (1) the Commission allowing for the possibility for “self-regulatory organizations to pass through 100% of their fees to broker-dealers—without considering the effects of that choice” or providing a “reasoned justification or explanation” of that policy change; and (2) the Commission failing to “conduct a new economic analysis or revise its previous economic analysis.”
200

CAT LLC states that the Proposed Amendment directly addresses the Eleventh Circuit's core concern regarding the possibility of 100% pass-through costs under the 2023 funding order without the SEC considering the effects of that choice, and that CAT LLC will continue to work collaboratively with the Commission to inform its new economic analysis.
201

199

See
CAT LLC December 2025 Response Letter, at 3.

200

Id.
at 3-4.

201

Id.
at 4.

CAT LLC disagrees with commenters that state that the direct pass-through prohibition would allow SROs to charge their members to recoup their CAT costs indirectly and that this would circumvent the Eleventh Circuit's decision.
202

CAT LLC states that the Eleventh Circuit disapproved the Executed Shares Model Approval Order only insofar as it permitted “self-regulatory organizations to pass through 100% of their fees to broker-dealers—without considering the effects of that choice” or satisfactorily explaining that policy change.
203

CAT LLC states that the Eleventh Circuit did not hold that SROs could never pass through 100% of their CAT-related fees, but rather that in considering a pass-through the SEC must weigh the effects of and explain its decision.
204

202

Id.
at 4 (citing SIFMA October 2025 Letter, at 2 and PTG Letter, at 2).

203

Id.

204

Id.

CAT LLC also states that the direct pass-through provision, as originally proposed, was intended to impose an obligation on all Participants, and not intended to suggest that all Participants voted to approve the Proposed Amendment.
205

Subsequent to the filing of those comment letters, CAT LLC submitted Amendment No. 1., which proposes to revise proposed Section 11.3(e) of Appendix D of the CAT NMS Plan to “better reflect that the Proposed Amendment was approved under the Plan and avoid statements suggesting that all Participants voted for the proposal,” by modifying the provision to state that “[e]ach Participant agrees not to file . . .” to instead be, “[n]o Participant will file.”
206

CAT LLC states that this would better reflect that the Proposed Amendment was approved under the Plan and avoid statements suggesting that all participants voted for the proposal.
207

As noted above, the Commission instead is modifying the Proposed Amendment to reflect Amendment No. 1 pursuant to Rule 608(b)(2).

205

Id.
at 5. CAT LLC states that as required by the CAT NMS Plan, a supermajority of Participants voted in favor of the Proposed Amendment, but there was no unanimity.
Id.

206

See id.

207

See
CAT LLC December 2025 Response Letter, at 5.

CAT LLC also objects to comments arguing that it is unlawful for the CAT NMS Plan to prevent individual Participants from passing their CAT fees through to Industry Members.
208

CAT LLC states that the proposed direct pass-through provision falls squarely within the broad authority of SEC Rule 608(a)(4)(ii) because it embodies a written understanding relating to the interpretation of the CAT NMS Plan.
209

CAT LLC also notes that the CAT NMS Plan already includes provisions that

prevent the Participants from collecting Post-Amendment Industry Member Fees, and thus the CAT NMS Plan already imposes restrictions on individual SRO fees.
210

208

Id.
at 5.

209

Id.

210

Id.
at 5-6.

One commenter responds by stating that CAT LLC's attempt to justify the direct pass-through prohibition are unpersuasive.
211

This commenter states that CAT LLC's argument regarding SEC Rule 608(a)(4)(ii) conflates interpreting the Plan with controlling individual SRO actions, and thus rests on a flawed reading of Rule 608's text and purpose.
212

This commenter states that Rule 608 imposes requirements to facilitate transparency, by requiring disclosure to the Commission and the public of how internal operations of the Plan—not the external relationship between a distinct SRO and its members—will be managed, and the relevant provisions of Rule 608 do not grant substantive authority of any sort, much less authority for a majority of Plan Participants to effectively suspend Section 19(b) of the Exchange Act, the plain text of which grants individual SROs the right to file their own fee rules.
213

The commenter also states that other provisions identified by CAT LLC in the CAT NMS Plan are not analogous to the proposed direct pass-through prohibition, and none of them support the proposition that the CAT NMS Plan may lawfully restrict how an individual Participant SRO funds its own SRO costs through separate SRO fees.
214

211

See
FINRA Wilson Sonsini January 2026 Letter, at 1.

212

See id.
at 1-2.

213

See id.
at 2.

214

See id.
at 2-3.

This commenter also states that CAT LLC presents a false dichotomy when it states that prohibiting all pass-throughs is lawful because the Eleventh Circuit implicitly held that “prior to 2023 the CAT NMS Plan did not contemplate 100% pass-throughs via individual SRO fees.”
215

The commenter states that the Eleventh Circuit vacated the 2023 Funding Order because it allowed—without explanation or “reason”—for the possibility that all SROs would pass through 100% of CAT costs, leaving “broker-dealers . . . on the hook for [the CAT's]
entire cost.”
(emphasis in original).
216

This commenter continues to state that “[n]othing in the Eleventh Circuit's decision hinted that it viewed 100% pass-through by FINRA as unlawful or inconsistent with the prior CAT NMS Plan. On the contrary, the Court acknowledged that “FINRA may be unique[ly]” justified in passing through its CAT costs, as it is “the only nonprofit exchange.”
217

215

See id.
at 3 (citing CAT LLC December 2025 Response Letter, at 5).

216

See
FINRA Wilson Sonsini January 2026 Letter, at 3 (citing Eleventh Circuit Decision, at 1275).

217

See
FINRA Wilson Sonsini January 2026 Letter, at 3 (citing Eleventh Circuit Decision, at 1279).

The commenter also states that CAT LLC's amendment of the language of the direct pass-through prohibition, deleting the phrase “[e]ach Participant agrees,” by replacing it with “[n]o Participant will file,” is more accurate but not more lawful, and underscores that proposed Section 11.3(e) is not a “written understanding” among consenting parties, but rather a regulation that CAT LLC is attempting to unlawfully impose over the objection of dissenting Participants.
218

This commenter states that the Proposed Amendment purports to restrict FINRA's ability to fund itself while leaving untouched the commercial revenue generated for exchanges, when FINRA is the only not-for-profit SRO that relies primarily on fees from its members for funding and the only Participant not operating a market, which means that the practical reality is that any allocation of Participants' CAT costs to FINRA will almost certainly be equivalent to allocating those costs to industry members.
219

218

See id.
at 3-4.
See also
FINRA January 2026 Letter, at 2 (stating that while this formulation is more accurate, it is no more lawful because FINRA did not vote in favor of this modified formulation, in part because SROs may not use the mechanism of a national market system plan to control the fees of other SROs that are participants in the plan).

219

See
FINRA Wilson Sonsini January 2026 Letter, at 4.

One commenter also states that the Proposed Amendment would have an “undue impact” on market makers, by allocating a disproportionate percentage of total CAT system costs to a “small handful of market makers,” and that because market makers would be allocated costs for their proprietary trading activity, those costs could be passed-on to other market participants through higher trading spreads.
220

The commenter states that the Commission must assess the economic implications for market makers and overall market liquidity by determining (i) the percentage of total CAT costs that the ten largest market makers would be allocated based their proprietary trading activity (using CAT data and the invoices sent by CAT LLC over the past year under the vacated 2023 funding order) and (ii) the potential impact on spreads, particularly in less liquid stocks with wider quoted spreads.
221

220

See
Citadel October 2025 Letter, at 7.

221

Id.

CAT LLC states that commenters make several arguments related to the decision to allocate one-third of CAT costs to Participants and two-thirds of CAT costs to Industry Members and that these commenters made the same arguments with respect to the allocation of CAT costs between Participants and Industry Members under the Executed Shares Model when it was originally proposed, and CAT LLC addressed those comments in detail in its prior comment letters concerning the Executed Shares Model, as well as when it originally proposed the Executed Shares Model.
222

222

See
CAT LLC December 2025 Response Letter, at 2-3.
See also
Letter to Vanessa Countryman, Secretary, Commission, from Robert Walley, CAT NMS Plan Operating Committee Chair, dated Jan. 14, 2026 (“CAT LLC January 2026 Response Letter”).

Findings Regarding Allocation of Fees

The Commission disagrees with the assertions of certain commenters that the Proposed Amendment violates the Exchange Act, contravenes the Eleventh Circuit's decision, imposes an excessive portion of CAT costs on Industry Members, or will result in an insufficient focus on cost control. The Executed Share Model reflects an appropriate approach to funding the operation of the CAT during the interim period while the Commission engages in its comprehensive review of CAT.
223

The CAT NMS Plan contemplates that the costs of the CAT are to be allocated between the Participants
224

and Industry Members (which would include CAT Executing Brokers).
225

How the costs of CAT should be allocated between Participants and Industry Members is a question of judgment for which there may be multiple reasonable approaches. CAT LLC's proposal to split CAT fees evenly among the three parties who have primary roles related to transactions reportable to CAT—the buyer, seller, and market regulator—constitutes a reasonable and equitable allocation of the costs of CAT among the primary

parties that participate in and benefit from such trading activity and the market oversight CAT enables. In vacating the 2023 funding order, the Eleventh Circuit decision did not question the reasonableness of this method of determining and allocating CAT fees.

223

See
17 CFR 242.608(b)(2).

224
The CAT NMS Plan requires Execution Venues and Industry Members to fund the CAT. The definition of “Execution Venue” includes Participants.
See supra
note 17.

225

See
CAT NMS Plan, 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).

The Proposed Amendment's approach to the issue of Participant pass-through does not alter our conclusion. As discussed above, the prohibition on Participants directly passing through their one-third share of CAT fees through a new fee on Industry Members reasonably reinforces CAT's cost-sharing premise.
226

Inconsistency with that Plan provision would be grounds for suspension and disapproval of a fee filing.
227

FINRA and the Cboe Exchanges state that a national market system plan cannot lawfully constrain how an SRO chooses to fund its own costs through fees on its own members.
228

FINRA also states that the direct pass-through prohibition “ignores the reality of FINRA's funding structure,” because the most direct way to allocate FINRA's designated CAT costs to its members (who ultimately will bear costs allocated to FINRA) would be to apply cost recovery fees to members whose activities most directly contribute to FINRA's designated portion of Participant CAT fees.
229

But FINRA represents that it makes “the following firm commitment: should the Commission approve a CAT funding model on a temporary or interim basis, FINRA will not establish any new CAT recovery fees for a period of two years from approval of such temporary funding model (or for a shorter period designated by the Commission in an approval order as the effective period of such interim funding model).”
230

FINRA has thus voluntarily committed to abide by the direct pass-through prohibition for the two years the Proposed Amendment will be in effect. In addition, the Cboe Exchanges have expressed a willingness to agree to refrain from new direct pass-through CAT fees to their members.
231

And as FINRA observes, all of the other CAT NMS Plan Participants voted in favor of the direct pass-through prohibition, thereby indicating that they too have individually determined and committed to not establish new CAT recovery fees.
232

Given the Participants' willingness to discuss a voluntary agreement to not make rule filings seeking to directly pass through their CAT costs for a specified period, the fact that we are only approving this funding model on a temporary basis while we consider the CAT more broadly, and because the Commission would have imposed the same direct pass-through prohibition if the Participants had not proposed it for reasons discussed elsewhere in this order, the Commission is not deciding at this time what limits a national market system plan can or cannot place on an SRO's discretion with respect to the way in which it recovers its regulatory costs.

226

See supra
Part III.

227

See
15 U.S.C. 78s(b)(2)(C) (“The Commission shall approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of [the Exchange Act] and the rules and regulations [thereunder] that are applicable to such organization,” and “shall disapprove” the proposed rule change “if it does not make [that] finding”); 17 CFR 242.608(c) (“Each self-regulatory organization shall comply with the terms of any effective national market system plan of which it is a sponsor or a participant.”).

228

See
FINRA October 2025 Letter, at 2, 7-10; FINRA January 2026 Letter, at 2-3; FINRA Wilson Sonsini January 2026 Letter, at 1-3; Cboe Letter, at 2-3.

229

See
FINRA October 2025 Letter, at 11-12.

230

See
FINRA January 2026 Letter, at 3.

231

See
Cboe Letter, at 2; FINRA January 2026 Letter, at 3 (stating that Cboe “has previously expressed that it is `open to discussing a voluntary agreement by all of the SROs not to make rule filings seeking to pass through their costs for a specified period,' ” citing Cboe Letter).

232

See
FINRA January 2026 Letter, at 3.

The decision not to preemptively prohibit the Participants from passing through their share of CAT costs indirectly through other member fees is also reasonable. As discussed above, the Exchange Act expressly contemplates the ability of the Participants to recoup their costs to fulfill their statutory obligations under the Exchange Act, and consistent with that principle, the Commission has recognized since CAT's inception that the Participants may seek to recover some or all of the CAT costs they incur, subject to the requirements set forth in the Act.
233

The Eleventh Circuit did not hold that it would be arbitrary and capricious to leave open the possibility of pass-through, as one commenter suggests. Rather, the court held only that the 2023 funding order did not adequately “explain or justify,” and “consider[ ] the effects of,” that decision.
234

233

See supra
Part III.

234

Am. Secs. Ass'n,
147 F.4 at 1274-77.

The Commission is not including a prohibition on any action the Participants may take that might result in their indirectly recovering some of their CAT costs from Industry Members as suggested by some commenters.
235

While the direct pass-through prohibition gives meaning to the Plan's requirement that the Participants and Industry Members share in CAT costs, the Plan doesn't change the reality as to how the Participants are funded, including how they fund the costs of fulfilling their regulatory obligations. It would be inequitable to single out the Participants and prevent only them from attempting to recover their costs when the Plan contains no restriction on the ability of Industry Members to pass through their share to others, particularly given that, unlike Industry Members, the Participants would be required to establish that increases in any other fees are reasonable, equitable, and not unfairly discriminatory in the rule filing process. Moreover, as a practical matter it would be difficult to effectively amend the CAT NMS Plan in such a way as to prevent a Participant from ever indirectly passing through any CAT costs.

235

See, e.g.,
SIFMA October 2025 Letter, at 2 (stating the Participants raise the specter of adding CAT costs to existing fees the SROs already charge their members to recoup their CAT costs, thus doing indirectly what they cannot do directly); Citadel October 2025 Letter, at 9 (stating that CAT LLC is clearly attempting to preserve the ability for SROs to pass through some or all of their CAT costs to their members in other ways in direct contravention of the Eleventh Circuit's decision); PTG Letter, at 2; ASA February 2026 Letter, at 4 (stating that the Proposed Amendment does not meaningfully prohibit SRO pass-throughs of CAT costs).

Nor does the Commission believe that a total, preemptive prohibition on all forms of pass-through during the two years in which the Proposed Amendment will be in effect is necessary to maintain an adequate focus on cost control. CAT costs are driven by a variety of factors, including storage, data processing, and message traffic. Pursuant to the CAT NMS Plan, the CAT must process and store extremely large data volumes within specific timeframes, and this process has been occurring in a market environment of increasing message traffic.
236

236

See
Securities Exchange Act Release No. 104504 (Dec. 23, 2025), 90 FR 61506, 61506 n.7 (Dec. 31, 2025) (“2025 Cost Savings Amendment”) (stating that there were 109 trillion events in 202, 116 trillion events in 2023, and 154 trillion events in 2024, a 41% growth in data volumes over a three-year period).

The Commission and the Participants have recently taken a series of measures to bring down these costs. For example, a 2024 CAT NMS Plan amendment was approved that CAT LLC states has resulted in projected savings of $30 million in the first year,
237

and another amendment recently approved relating to Customer data in the CAT is projected to achieve an estimated $7 to $9 million in annual cost savings (the

“CAIS Amendment”).
238

In addition, the Commission is currently considering a proposed CAT amendment that would in part codify exemptive relief granted by the Commission designed to allow the Participants to reduce the costs of operating the CAT,
239

and that proposed amendment is estimated by the Participants to provide cost savings of $55 million to $73 million, if approved.
240

The cost savings efforts that have been approved have already reduced the CAT budget significantly, with the projected 2026 CAT budget currently estimated to be $156,432,998,
241

compared to the initial estimated 2025 CAT budget of $248,846,076.
242

These efforts demonstrate that the Commission and the Participants are focused on controlling the costs of the CAT.

237

See
Securities Exchange Act Release No. 101901 (Dec. 12, 2024), 89 FR 103033 (Dec. 18, 2024) (“2024 CAT Cost Savings Amendment”).

238

See
Securities Exchange Act Release No. 104586 (Jan. 13, 2026), 91 FR 2164 (Jan. 16, 2026) (“CAIS Amendment Approval Order”).

239

See
Securities Exchange Act Release No. 104144 (Sept. 30, 2025), 90 FR 47853 (Oct. 2, 2025) (“September 2025 Exemptive Order”).

240

See
2025 Cost Savings Amendment, at 61508-09.

241

See
Consolidated Audit Trail, LLC, 2026 Financial and Operating Budget, dated Dec. 11, 2025,
available at:

https://www.catnmsplan.com/sites/default/files/2025-12/12.08.25-CAT-LLC-2026-Financial_and_Operating_Budget.pdf.

242

See
Consolidated Audit Trail, LLC, 2025 Financial and Operating Budget, dated Nov. 20, 2024,
available at:

https://www.catnmsplan.com/sites/default/files/2024-11/11.20.24-CAT-LLC-2025-Financial_and_Operating-Budget.pdf.

Even Participants that attempt to increase existing fees to recover their CAT costs will continue to have incentives to contain the costs that are within their control. Any such indirect pass-through effort would be subject to the rule filing process under Section 19(b) and Rule 19b-4, and, if the Participants fail to control costs, their ability to demonstrate that the CAT budget is “reasonable” and that a proposed fee is reasonable and consistent with the Exchange Act may be compromised. In general, after a Participant files 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.
243

Although the proposed rule changes may take effect upon filing,
244

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.
245

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.
246

As is the case with all of the fees the Participants collect from their members to fund their SRO responsibilities in market and member regulation, a Participant seeking to increase existing fees in an attempt to recover CAT costs paid by the Participant would be required to establish that the fee is consistent with applicable statutory standards under the Exchange Act, including being reasonable, equitable and not unfairly discriminatory.
247

243
15 U.S.C. 78s(b).

244
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.

245
15 U.S.C. 78s(b)(3)(C).

246
15 U.S.C. 78s(b)(2)(B).

247

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”).

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”
248

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.”
249

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 both that their budgeted CAT costs are reasonable and that the proposed fee is reasonable and consistent the Exchange Act, then that would constitute grounds to suspend and disapprove not only fee filings seeking to recover the Participants' one-third share of CAT costs, but also fee filings seeking to collect Industry Members' two-thirds share.

248

See
proposed Section 11.3(a)(i)(A)(I) and proposed Section 11.3(a)(i)(A)(II).

249

See
proposed Section 11.3(a)(i)(C).

The Participants may be further incentivized to limit CAT costs because even if a Participant were able to pass-through the Participant's allocated CAT costs to its members, the Participant would experience a delay in recouping such funds and bear the risk of non-payment from members. In addition, the higher the relevant CAT costs are, the more difficult it may be for the Participants to explain to their members and the more difficult it would be to establish a pass-through of a CAT fee or a recovery of the CAT costs by increasing other fees. For example, a Participant seeking to increase other fees to recover substantial CAT costs paid by that Participant would be required to establish that the specific fee increase is reasonable, and Industry Members and market participants would have the opportunity to comment and question whether or not that fee increase is reasonable.
250

Additionally, these incentives are further reinforced by a number of cost discipline mechanisms discussed below.
251

250
The Commission has previously suspended and/or disapproved numerous rule filings submitted under Section 19(b), and Participants would be required to establish that any fee seeking to indirectly recover CAT costs satisfy
all
Exchange Act requirements, and the rules and regulations thereunder.
See e.g.,
Securities Exchange Act Release No. 101766, (SR-NASDAQ-2024-016) (disapproving fee proposal for, among other things, the Exchange not meeting its burden under the Exchange Act and the Commission's Rules of Practice to demonstrate that the Proposal is consistent with the requirements of Sections 6(b)(4), (b)(5), and (b)(8) of the Exchange Act, as well as Section 11A of the Exchange Act and Rules 603(a)(1) and 603(a)(2) of Regulation NMS which, among other things, require the Exchange to distribute market data on terms that are “fair and reasonable” and “not unreasonably discriminatory.”).

251

See infra
notes 606-608 and accompanying text.

Moreover, even if a Participant is able to establish that an increase in existing fees to recover CAT costs is consistent with applicable statutory standards, including that it is reasonable, equitable, and not unfairly discriminatory, Industry Members may be able to offset fees assessed to them by passing their CAT fees through to their customers.
252

The 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 the Commission believes that many are able to and that at least some will do so. For all of these reasons, the Commission does not believe that the potential ability of SRO costs to be passed through to Industry Members indirectly precludes a finding that the allocation model set forth in the Proposed Amendment meets the approval standard.

252

See
Notice, 90 FR at 17108;
see also
CAT LLC July Response Letter, at 8-9;
cf.
Citadel July 2023 Letter, at 20. 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.

Contrary to the arguments of one commenter,
253

it is appropriate 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 and proprietary trading firms would be incentivized to recoup CAT fees in other ways, including potentially higher trading spreads. 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 the firm to be responsible for payment of CAT fees for those trades. CAT enables the Participants and the Commission to oversee and ensure the integrity of the markets from which Industry Members earn profits and therefore it is reasonable for fees to be charged for that profit-making activity, regardless of whether those fees can be passed on to customers.

253

See
Citadel October 2025 Letter, at 7; Citadel July 2023 Letter, at 20; Citadel August 2023 Letter, at 3.

Further, the fact 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. 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.”
254

The decision to exclude the costs of compliance from this funding model is thus a reasonable one.

254

See
CAT NMS Plan, at Section 11.1(c).

Nor does the Commission 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 appropriate.

The Commission acknowledges the commenter concern that certain market makers may be responsible for a “disproportionate percentage of total CAT system costs,” and that these costs could be passed-on to other market participants through higher trading spreads, but the usage of executed equivalent share volume in the Executed Share Model is reasonably designed to attribute CAT fees to market participants in proportion to their trading activity. To the extent that certain market makers or market participants pay proportionately larger CAT fees, this is a result of more trading activity, which impacts CAT cost drivers. As previously stated, the Original Funding Model would have used message traffic, which could have resulted in an even greater share of costs on market makers and the provision of quotes.

The Commission believes that the Executed Share Model is a reasonable method of allocating costs for the interim period while the Commission engages in a comprehensive review of the CAT because it reasonably reflects the extent to which different CAT Reporters participate in and benefit from the equities and options markets,
255

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 (
e.g.,
CAT fees would be the same regardless of whether a transaction is executed on an exchange or in the over-the-counter market).
256

The Participants considered, and have previously proposed, alternative allocations and funding models.
257

And the Commission acknowledges the alternative funding models and allocations suggested by commenters.
258

Each of those alternatives has relative strengths and weaknesses. Similarly, the alternatives suggested by a commenter,
259

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 that each of these alternatives has its own potential weaknesses, and the limited time period for which this funding model is being approved, the Commission does not believe that the existence of 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),
260

or otherwise warrant a departure from the policy choices made by the Participants.

255

See
Notice, 90 FR at 44911.

256

Id.

257
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 e

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2026-05350. Public record. Not legal advice.