Notice2026-18071
Notice of a Request for Exemption From Certain Provisions of the National Market System Plan Governing the Consolidated Audit Trail Related to the Recovery of Costs Incurred During Period 4 of the Financial Accountability Milestones Pursuant to Section 36 of the Securities Exchange Act of 1934 and/or Rule 608(e) of Regulation NMS Thereunder, and Request for Comment
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 3, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 91 Issue 170 (Thursday, September 3, 2026)</title>
</head>
<body><pre>
[Federal Register Volume 91, Number 170 (Thursday, September 3, 2026)]
[Notices]
[Pages 56691-56695]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-18071]
[[Page 56691]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106237; File No. 4-698]
Notice of a Request for Exemption From Certain Provisions of the
National Market System Plan Governing the Consolidated Audit Trail
Related to the Recovery of Costs Incurred During Period 4 of the
Financial Accountability Milestones Pursuant to Section 36 of the
Securities Exchange Act of 1934 and/or Rule 608(e) of Regulation NMS
Thereunder, and Request for Comment
September 1, 2026.
On August 11, 2026, Consolidated Audit Trail, LLC (``CAT LLC''), on
behalf of the Participants \1\ in the National Market System Plan
Governing the Consolidated Audit Trail (``CAT NMS Plan'' or
``Plan''),\2\ submitted a letter (the ``FAM 4 Exemption Request'') \3\
requesting that the Securities and Exchange Commission (``Commission''
or ``SEC'') use its exemptive authority under Section 36 of the
Exchange Act \4\ and/or Rule 608(e) of Regulation NMS thereunder \5\ in
connection with the recovery of certain costs incurred during the
fourth and final Financial Accountability Milestone (``FAM 4'') of the
Plan. The Commission is publishing this notice to provide interested
persons with an opportunity to comment.
---------------------------------------------------------------------------
\1\ The twenty-eight Participants of the CAT NMS Plan 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., 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, The Nasdaq Stock Market LLC, Nasdaq Texas, LLC, New York Stock
Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Texas, Inc.,
NYSE National, Inc., and Texas Stock Exchange LLC. CAT LLC notes
that, while this exemptive request represents the consensus of the
Participants, individual Participants may not fully agree with every
statement set forth in the exemptive request letter.
\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. 79318 (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 <a href="https://catnmsplan.com/about-cat/cat-nms-plan">https://catnmsplan.com/about-cat/cat-nms-plan</a>. Unless
otherwise noted, capitalized terms are used as defined in Rule 613,
in the CAT NMS Plan, or in the FAM 4 Exemption Request.
\3\ See letter from Participants to Vanessa Countryman,
Secretary, Commission, dated August 11, 2026 (the ``FAM 4 Exemption
Request''). The FAM 4 Exemption Request is included as an Appendix
to this notice.
\4\ 15 U.S.C. 78mm(a)(1). Section 36(a)(1) of the Exchange Act
gives the Commission the authority to exempt any person, security or
transaction or any class or classes of persons, securities or
transactions, conditionally or unconditionally, from any Exchange
Act provision or any rule or regulation thereunder by rule,
regulation or order, to the extent that the exemption is necessary
or appropriate in the public interest and consistent with the
protection of investors.
\5\ 17 CFR 242.608(e). Rule 608(e) provides that ``[t]he
Commission may exempt from the provisions of this section, either
unconditionally or on specified terms and conditions, any self-
regulatory organization, member thereof, or specified security, if
the Commission determines that such exemption is consistent with the
public interest, the protection of investors, the maintenance of
fair and orderly markets and the removal of impediments to, and
perfection of the mechanisms of, a national market system.''
---------------------------------------------------------------------------
I. Background
On July 18, 2012, the Commission adopted Rule 613 of Regulation
NMS.\6\ The goal of Rule 613 was to create a modernized audit trail
system--the CAT--that would provide regulators with timely access to a
comprehensive set of trading data, thus enabling regulators to more
efficiently and effectively analyze and reconstruct market events,
monitor market behavior, conduct market analysis to support regulatory
decisions, and perform surveillance, investigation, and enforcement
activities. On November 15, 2016, the Commission approved the CAT NMS
Plan as the national market system plan required by Rule 613. While
Rule 613 \7\ and the CAT NMS Plan contemplated that the costs of
building the CAT may eventually be split between Industry Members \8\
and the Participants,\9\ during the development and implementation
stages of the CAT, the Participants fully funded the historical costs
associated with building the CAT through non-interest-bearing
loans.\10\ On September 9, 2019, after significant delays in the
development and implementation of the CAT where the Participants had
met neither the deadlines set forth in the CAT NMS Plan \11\ nor their
own proposed extensions of those deadlines,\12\ the Commission proposed
to amend the CAT NMS Plan to include provisions designed to increase
operational transparency surrounding the implementation process and the
Participants' financial accountability for the timely completion of the
CAT.\13\ On May 15, 2020, the Commission approved the FAM Proposal and
amended the CAT NMS Plan to require the Participants to develop a
complete implementation plan containing a detailed timeline with
objective milestones to achieve full CAT implementation.\14\
Accordingly, the
[[Page 56692]]
Participants developed and implemented Section 11.6 (Funding Incentives
for Post-Amendment Expenses) of the CAT NMS Plan to establish a four
phased implementation schedule, as well as funding penalties in the
event that their chosen deadlines for the phased implementation
schedule were missed--the four Financial Accountability Milestones
(``FAMs''). Section 11.6 of the CAT NMS Plan requires the four FAMs to
be met by certain deadlines in order for the Participants to recover
the full amount of any fees established by the Operating Committee, or
implemented by the Participants, to recover a portion of Post-Amendment
Expenses \15\ from Industry Members (``Post-Amendment Industry Member
Fees'') and imposed penalties on what could be recovered if a deadline
was missed.\16\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 67457 (July 18,
2012), 77 FR 45722 (Aug. 1, 2012) (``Rule 613 Adopting Release'');
17 CFR 242.613.
\7\ See Rule 613(a)(1)(vii)(D) (requiring the CAT NMS Plan to
address ``[h]ow the plan sponsors propose to fund the creation,
implementation, and maintenance of the consolidated audit trail,
including the proposed allocation of such estimated costs among the
plan sponsors, and between the plan sponsors and members of the plan
sponsors'').
\8\ ``Industry Member'' means ``a member of a national
securities exchange or a member of a national securities
association.'' See CAT NMS Plan, Article I, Section 1.1.
\9\ See Rule 613 Adopting Release at 45795 (``[A]lthough the
plan sponsors likely would initially incur the costs to establish
and fund the central repository directly, they may seek to recover
some or all of these costs from their members.''). See, e.g., Rule
613(a)(1)(vii)(D) of Regulation NMS under the Exchange Act.
\10\ See, e.g., Securities Exchange Act Release No. 100938
(Sept. 5, 2024), 89 FR 73802, 73803 (Sept. 11, 2024) (``Example
Historical CAT Costs Fee Filing'') (providing an example Participant
fee filing discussing the loans for the historical CAT costs).
\11\ The CAT NMS Plan established deadlines related to the
implementation of critical CAT functionality, including (1) the
requirement that the Participants begin recording and reporting data
by November 15, 2017, and (2) the requirement that each Participant
require Industry Members and Small Industry Members to begin
reporting data by November 15, 2018 and November 15, 2019,
respectively. See CAT NMS Plan, supra note 2, at Section 6.7(a). The
Participants requested an exemption extending these deadlines. The
Commission did not grant this request. See, e.g., Statement on
Status of the Consolidated Audit Trail (Aug. 27, 2018), <a href="https://www.sec.gov/news/public-statement/tm-status-consolidated-audit-trail">https://www.sec.gov/news/public-statement/tm-status-consolidated-audit-trail</a>
(stating that the Participants requested an exemption to commence
Participant reporting on November 15, 2018 and Industry Member
reporting on November 15, 2019). Although the Participants began
reporting some transaction data to the Central Repository on
November 15, 2018, the Participants acknowledged that not all of the
required functionality had been implemented. See CAT NMS Announces
Initiation of Reporting to the Consolidated Audit Trail (Nov. 16,
2018), <a href="https://www.catnmsplan">https://www.catnmsplan</a>.com/wp-content/uploads/2018/11/Press-
Release-CAT-Launchfinal.pdf.
\12\ See Securities Exchange Act Release No. 86901 (Sept. 9,
2019), 84 FR 48458, 48458-461 (Sept. 13, 2019) (``FAM Proposal'')
(discussing the various deadlines missed by the Participants).
\13\ Id.
\14\ See Securities Exchange Act Release No. 88890 (May 15,
2020), 85 FR 31322 (May 22, 2020) (``Financial Accountability
Milestones Release''); See also, CAT NMS Plan, supra note 2, at
Section 11.6.
\15\ ``Post-Amendment Expenses'' are defined as ``all fees,
costs, and expenses (including legal and consulting fees, costs, and
expenses) incurred by or for the Company in connection with the
development, implementation, and operation of the CAT from the
effective date of this Section until such time as Full
Implementation of CAT NMS Plan Requirements has been achieved.''
Section 11.6 of the CAT NMS Plan.
\16\ The Participants stated that the first three FAMs,
including full implementation of the transactional database, were
completed by the deadlines set forth in the Plan. See FAM 4
Exemption Request, supra note 3, at 6. Indeed, beginning in 2024,
the Participants have sought to fully recover the expenses of the
first three FAMs and other historical costs from Industry Members by
implementing a Historical CAT Assessment in CAT fee filings. See,
e.g., the Example Historical CAT Costs Fee Filing, supra note 10.
---------------------------------------------------------------------------
The Participants stated that FAM 4--Full Implementation of CAT NMS
Plan Requirements--requires the completion of the Customer and Account
Information System (``CAIS''), among other things, and is defined as:
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).\17\
---------------------------------------------------------------------------
\17\ Section 1.1 of the CAT NMS Plan.
Section 11.6(a)(i)(D) of the CAT NMS Plan sets forth the target
---------------------------------------------------------------------------
deadline for FAM 4 of December 30, 2022. It states that:
[t]he Participants will be entitled to collect the full amount of: .
. . (D) Any Post-Amendment Industry Member Fees established or
implemented to recover the Post-Amendment Expenses incurred from the
date immediately following the achievement of Full Availability and
Regulatory Utilization of Transactional Database Functionality to
the date of Full Implementation of CAT NMS Plan Requirements
(``Period 4''), so long as such date is no later than December 30,
2022.
Section 11.6(a)(iii) of the CAT NMS Plan sets forth the penalty for
missing the target deadline of December 30, 2022. It states that:
The amount of Post-Amendment Industry Member Fees that the
Participants are entitled to collect for Periods 2, 3, and 4 will be
reduced according to the following schedule if the Participants miss
the deadline set forth for that Period:
(A) By 25% if the Participants miss the deadline set forth in
Section 11.6(a)(i)(B)-(D) by less than 90 days;
(B) By 50% if the Participants miss the deadline set forth in
Section 11.6(a)(i)(B)-(D) by 90 days or more, but less than 180
days;
(C) By 75% if the Participants miss the deadline set forth in
Section 11.6(a)(i)(B)-(D) by 180 days or more, but less than 270
days; and
(D) By 100% if the Participants miss the deadline set forth in
Section 11.6(a)(i)(B)-(D) by 270 days or more.
The Participants stated that under Section 1.1 of the CAT NMS Plan, a
FAM is considered complete as of the date identified in the
Participants' Quarterly Progress Reports (``QPRs''), and that due to
the need to address certain technical defects associated with CAIS,
Full Implementation of CAT NMS Plan Requirements was completed on July
15, 2024.\18\ Because July 15, 2024 was more than 270 days beyond FAM
4's December 30, 2022 deadline, under the schedule set forth in Section
11.6(a)(iii), the amount of Post-Amendment Industry Member Fees that
the Participants could collect for FAM 4 would be reduced by 100%.
---------------------------------------------------------------------------
\18\ See FAM 4 Exemption Request, supra note 3, at 7. See also,
Q2 & Q3 2024 Quarterly Progress Report (July 29, 2024), <a href="https://www.catnmsplan">https://www.catnmsplan</a> .com/sites/default/files/2024-07/CAT_Q2-and-Q3-2024-
QPR.pdf (indicating that Full Implementation of CAT NMS Plan
Requirements was completed as of July 15, 2024).
---------------------------------------------------------------------------
II. Summary of the FAM 4 Exemption Request
The Participants requested exemptive relief from this 100%
reduction penalty, as they stated that various other factors should be
taken into consideration.\19\ Specifically, the Participants stated
that they, through CAT LLC, seek exemptive relief to allow for the
recovery of non-CAIS FAM 4 costs from Industry Members. The
Participants also requested an exemption from Sections 11.3(b)(i)(D)(I)
and 11.3(f) of the CAT NMS Plan, which would allow for a shortened
historical recovery period or relief from the March 31, 2028 deadline
to recover Historical CAT Costs.
---------------------------------------------------------------------------
\19\ See FAM 4 Exemption Request, supra note 3, at 7.
---------------------------------------------------------------------------
The Participants stated that the requested exemptive relief is
``necessary or appropriate in the public interest, and is consistent
with the protection of investors,'' \20\ and is ``consistent with the
public interest, the protection of investors, the maintenance of fair
and orderly markets and the removal of impediments to, and perfection
of the mechanisms of, a national market system,'' \21\ because it would
prevent ``an excessive and grossly disproportionate'' penalty from
being imposed in connection with FAM 4.\22\ The Participants stated
that, in spite of what they believe to be the limited nature of the
delay in FAM 4 CAIS implementation, FAM 4 would prevent the recovery of
any CAT costs incurred by CAT LLC during Period 4--including any costs
related to the ongoing, successful operation of the transactional
database that was completed on time.\23\ The Participants further
stated that such a result would not be a reasonable or equitable
application of the financial accountability provisions adopted by the
Commission.\24\
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78mm(a)(1).
\21\ 17 CFR 242.608(e).
\22\ See FAM 4 Exemption Request, supra note 3, at 2.
\23\ Id.
\24\ Id.
---------------------------------------------------------------------------
The Participants stated that FAM 4 required the completion of a
novel and separate system for the submission of customer and account
data known as CAIS, among other requirements, and established a target
deadline of December 30, 2022.\25\ The Participants stated that
although the CAT NMS Plan requirements related to the transactional
database were implemented prior to FAM 4, certain technical aspects of
the
---------------------------------------------------------------------------
\25\ Id. at 3.
---------------------------------------------------------------------------
[[Page 56693]]
CAIS database were not completed until July 15, 2024.\26\ The
Participants stated that during Period 4 (from January 1, 2022 through
July 15, 2024), total CAT costs were $490,151,144, and these costs were
funded by the Participants through voluntary, interest-free loans
provided to CAT LLC.\27\ The Participants stated that total costs
incurred during Period 4 fall into three categories: (1) expenses
incurred during FAM 4 related to the transactional database; (2)
expenses incurred during FAM 4 related to CAIS; and (3) other operating
costs incurred during FAM 4, largely comprised of fees for legal,
consulting, and accounting support.\28\ The Participants further stated
that based on the current funding model, which allocates two-thirds of
CAT costs to Industry Members and one-third of CAT costs to
Participants, the application of the 100% penalty under FAM 4 would
prevent the Participants' recovery of $326,767,429 from Industry
Members.\29\ The Participants stated that, unrelated to the CAIS delay,
throughout Period 4 (January 1, 2022 through July 15, 2024), CAT LLC
continued to operate the transactional database, incurring $364,219,549
in related technology costs and $26,624,090 in other CAT LLC operating
costs--separate and apart from any CAIS-related costs.\30\ In addition,
the Participants stated that during Period 4, CAT LLC incurred CAIS-
related costs of $99,307,505, or approximately 20% of overall Period 4
costs of $490,151,144.\31\ The Participants provided the following
chart, which outlines the FAM 4 costs that would otherwise be
recoverable by Participants from Industry Members under the current CAT
funding model.\32\
---------------------------------------------------------------------------
\26\ See Q2 & Q3 2024 Quarterly Progress Report (July 29, 2024),
<a href="https://www.catnmsplan">https://www.catnmsplan</a>.com/sites/default/files/2024-07/CAT_Q2-and-
Q3-2024-QPR.pdf (indicating that Full Implementation of CAT NMS Plan
Requirements was completed as of July 15, 2024).
\27\ See FAM 4 Exemption Request, supra note 3, at 7.
\28\ Id.
\29\ Id. at 8.
\30\ Id. at 3.
\31\ Id. at 8.
\32\ Id.
------------------------------------------------------------------------
2/3 recovery per
FAM 4 costs CAT funding model
------------------------------------------------------------------------
FINRA CAT Technology Costs--Non- $364,219,549 $242,813,033
CAIS.............................
FINRA CAT Technology Costs--CAIS.. 99,307,505 66,205,003
Other Operating Costs............. 26,624,090 17,749,393
-------------------------------------
Total FAM 4 Costs............. 490,151,144 326,767,429
------------------------------------------------------------------------
The Participants stated that this $490 million total excludes
remediation costs incurred by FINRA CAT relating to the delayed
implementation of CAIS, and that FINRA CAT is prohibited from passing
through remediation costs associated with the CAIS implementation to
CAT LLC.\33\ The Participants stated that absent exemptive relief, they
would bear the full burden of $490,151,144 of Period 4 costs.\34\
---------------------------------------------------------------------------
\33\ See FAM 4 Exemption Request, supra note 3, at 8.
\34\ Id.
---------------------------------------------------------------------------
The Participants stated that, based on the current funding model,
which allocates two-thirds of CAT costs to Industry Members and one-
third of CAT costs to Participants, the requested relief would permit
the recovery of $260,562,426.\35\ The Participants provided the
following chart, which gives a breakdown of the FAM 4 amounts that
would be anticipated in a subsequent Historical CAT Assessment, should
the Commission grant this exemptive request.\36\
---------------------------------------------------------------------------
\35\ Id.
\36\ Id.
----------------------------------------------------------------------------------------------------------------
Anticipated 2/3
2/3 recovery per recovery per CAT
FAM 4 costs CAT funding model funding model if
exemption granted
----------------------------------------------------------------------------------------------------------------
FINRA CAT Technology Costs--Non-CAIS................... $364,219,549 $242,813,033 $242,813,033
FINRA CAT Technology Costs--CAIS....................... 99,307,505 66,205,003 .................
Other Operating Costs.................................. 26,624,090 17,749,393 17,749,393
--------------------------------------------------------
Total FAM 4 Costs.................................. 490,151,144 326,767,429 260,562,426
----------------------------------------------------------------------------------------------------------------
The Participants stated that the exemptive relief should be granted
because the vast majority of Period 4 costs related to the operation of
the transactional database, which was fully implemented by December 31,
2021, and was fully operational during the entirety of Period 4.\37\
The Participants stated that during the period when certain aspects of
CAIS were delayed, the Commission acknowledged that ``CAT is now
operational and serves as a critical market oversight tool,'' and that
``CAT has also contributed to the Commission's enforcement and
regulatory work.'' \38\ The Participants provided the examples of the
Commission relying on CAT data in December 2022 to uncover a multi-year
front-running scheme that generated at least $47 million in illegal
trading profits,\39\ and using CAT data in conducting the economic
analyses for a package of market structure rule
[[Page 56694]]
proposals.\40\ The Participants stated that the Commission adopted the
FAMs with the goal of seeking to ensure that the Participants acted
diligently while building the CAT and sought to encourage the timely
development of the CAT by reducing the Participants' potential recovery
of CAT costs in the event of delays.\41\ The Participants stated that
the transactional database was successfully completed on time and in
accordance with the FAM deadlines, and thus the central premise
underlying the FAMs--i.e., that missed deadlines ``prevent regulators
and market participants from reaping the regulatory benefits of the
CAT'' \42\--was absent with regard to the transactional database.\43\
Therefore, the Participants stated, denying recovery of all Period 4
costs, the vast majority of which were attributed to the ongoing
operation of the transactional database, would be an unfair and
inequitable result.\44\
---------------------------------------------------------------------------
\37\ Id. at 9.
\38\ Id. (citing American Securities Association; Citadel
Securities LLC v. Securities and Exchange Commission, Brief for
Respondent Securities and Exchange Commission at 19 (11th Cir. Apr.
15, 2024)).
\39\ See FAM 4 Exemption Request, supra note 3, at 9. See also
Press Release, SEC Charges Financial Services Professional and
Associate in $47 Million Front-Running Scheme (Dec. 14, 2022)
<a href="https://www.sec.gov/newsroom/press-releases/2022-228">https://www.sec.gov/newsroom/press-releases/2022-228</a> (stating that
SEC staff analyzed CAT data to uncover defendant's allegedly
fraudulent trading and to identify how he profited by repeatedly
front-running large trades by the other defendant's employer).
\40\ See FAM 4 Exemption Request, supra note 3, at 9. See also
Regulation Best Execution, Exchange Act Release No. 96496 (Dec. 14,
2022), 88 FR 5440, 5499 n.422 (Jan. 27, 2023) (``[t]his analysis
used CAT data to examine the execution quality of marketable orders
in NMS Common stocks and ETFs that belonged to accounts with a CAT
account type of `Individual Customer' and that originated from a
broker-dealer MPID that originated orders from 10,000 or more unique
`Individual Customer' accounts during January 2022.''); Order
Competition Rule, Exchange Act Release No. 96495 (Dec. 14, 2022), 88
FR 128, 150 n.194 (Jan. 3, 2023) (``[t]he proposed level is
supported by an analysis of the distribution of order activity
across accounts reported to the Consolidated Audit Trail as being
held for the benefit of an `Individual Customer' for the first six
months of 2022.''); Minimum Pricing Increments, Access Fees, and
Transparency of Better Priced Orders, Exchange Act Release No. 96494
(Dec. 14, 2022), 87 FR 80266, 80334 n.625 (Dec. 29, 2022) (``[t]his
estimate [of the number of broker-dealers with order entry systems]
is obtained using consolidated audit trail data `CAT' [sic] data
from the month of June 2022.''); Disclosure of Order Information,
Exchange Act Release No. 96493 (Dec. 14, 2022), 88 FR 3786, 3791
n.86 (Jan. 20, 2023) (``[a]nalysis of Consolidated Audit Trail
(`CAT') data from the first five months of 2022 found that
wholesalers provide different execution quality to different retail
brokers, and in particular that broker-dealers with higher average
selection risk systematically receive higher effective spreads and
lower price improvement than broker-dealers with lower adverse
selection risk.'').
\41\ Id. at 10.
\42\ Financial Accountability Milestones Release at 31335.
\43\ See FAM 4 Exemption Request, supra note 3, at 10.
\44\ Id.
---------------------------------------------------------------------------
In addition, the Participants stated that when the Commission
adopted the FAMs, it could not have reasonably envisioned imposing a
strict liability $326 million FAM 4 penalty for CAIS-related defects
while the transactional database remained fully operational and in
active regulatory use.\45\ The Participants stated that the delayed
technical aspects of CAIS did not affect the overall utility of the
transactional database, which was fully operational throughout Period
4.\46\ The Participants stated that based on the successful completion
of the transactional database, the Commission approved the retirement
of OATS, which was supported by Industry Members.\47\ The Participants
further stated that neither the Commission nor the Participants
anticipated such an excessive and disproportionate penalty would be
possible when the FAMs were adopted, and that it would be inequitable
for the Commission to impose a $326 million penalty tied to the
completion of CAIS when the Commission later determined--only after the
costs had already been incurred--that CAIS should no longer exist as
originally conceived when the Commission established FAM 4.\48\
---------------------------------------------------------------------------
\45\ See FAM 4 Exemption Request, supra note 3, at 4.
\46\ Id.
\47\ Id. See also, e.g., Letter from Ellen Greene, Managing
Director, Equity & Options Market Structure, SIFMA, to Vanessa
Countryman, Secretary, Commission (Sept. 24, 2020) (``The
elimination of duplicative systems is one of the CAT's most critical
issues, and we support FINRA's proposal to eliminate the reporting
rules for the OATS.''); William J. Leahey, Head of Regulatory
Compliance, Refinitiv, to Vanessa Countryman, Secretary, Commission
(Sept. 22, 2020) (advocating for the ``urgent decommissioning of
OATS'').
\48\ Id. See also Exchange Act Release No. 102386 (Feb. 10,
2025), 90 FR 9642, 9644-45 (Feb. 14, 2025) (``CAIS Exemption
Order'') (concluding that ``the regulatory benefit of collecting the
names, addresses and years of birth for natural persons reported
with transformed SSNs no longer justifies the associated risks'');
Exchange Act Release No. 104586 (Jan. 13, 2026), 91 FR 2164 (Jan.
16, 2026) (``CAIS Amendment Approval Order'').
---------------------------------------------------------------------------
The Participants stated that, when adopting the FAMs, the
Commission expressly highlighted its general exemptive authority,
suggesting that the availability of exemptive relief was a material
consideration in adopting the FAMs.\49\ The Participants stated that
the unforeseeable nature of an excessively large reduction in
recoverable costs resulting from the delay in certain limited aspects
of one part of the CAT system is exactly the type of circumstance that
warrants the use of the Commission's exemptive authority.\50\ The
Participants stated when the SEC proposed the FAMs, both the
Participants and Industry Members ``recommended that the Commission
adopt a more flexible approach that could account for the possibility
of reasonable delays to CAT implementation'' \51\ without giving rise
to financial penalties.\52\ The Participants summarized sections from
the Financial Information Forum (``FIF''), Securities Industry and
Financial Markets Association (``SIFMA''), and Fidelity Capital Markets
comment letters on the Financial Accountability Milestones Release
suggesting that the Commission should allow for flexibility with the
milestone dates and financial penalties, taking into account reasonable
delays and unforeseen circumstances.\53\ In their own comment letter on
the Financial Accountability Milestones Release, the Participants
stated that ``the Commission and all market participants would benefit
from a more flexible approach in which the Commission would assess the
appropriateness of the recovery of Post-Amendment Industry Member Fees
in the context of particular facts and circumstances in the event of a
delay in meeting such a Milestone.'' \54\ The Participants stated that
in Financial Accountability Milestones Release, the Commission noted
``it is sensitive to the concerns expressed by commenters,'' \55\ that
it has ``authority to grant exemptive relief from any requirement
associated with a particular Financial Accountability Milestone,'' and
that ``this ability, in particular, should alleviate the Participants'
concerns regarding the potential impact of unforeseeable or reasonable
delays.'' \56\ The Participants stated that this is the type of
circumstance that warrants exemptive relief. The Participants stated
that, in the past, they submitted three exemptive requests seeking full
recovery
[[Page 56695]]
of FAM 4 costs, but the Commission has not acted on those requests.\57\
The Participants distinguished this request for exemptive relief by
stating that this request relates to the recovery of non-CAIS FAM 4
costs.\58\ The Participants stated that this circumstance--where
certain technical defects with a single component of the larger CAT
system would preclude recovery of $326 million in reasonably incurred
costs, the vast majority of which were attributed to the ongoing
operation of the transactional database--represents exactly the sort of
scenario the Commission recognized in adopting the FAMs where it would
be appropriate to exercise its exemptive authority.\59\
---------------------------------------------------------------------------
\49\ See FAM 4 Exemption Request, supra note 3, at 10.
\50\ Id. at 11.
\51\ See Financial Accountability Milestones Release at 31335
(summarizing comments regarding the possibility of reasonable delays
to CAT implementation).
\52\ See FAM 4 Exemption Request, supra note 3, at 11.
\53\ Id. See also, Financial Accountability Milestones Release
at 31332. See Letter from Christopher Bok, Director, Financial
Information Forum, to Vanessa Countryman, Secretary, Commission,
dated October 28, 2019 (``FIF Letter''), at 4, <a href="https://www.sec.gov/comments/s7-13-19/s71319-6355358-196251.pdf">https://www.sec.gov/comments/s7-13-19/s71319-6355358-196251.pdf</a>. See Letter from
Theodore R. Lazo, Managing Director & Associate General Counsel, and
Ellen Greene, Managing Director, Financial Services Operations,
Securities Industry and Financial Markets Association, to Vanessa
Countryman, Secretary, Commission, dated October 28, 2019 (``SIFMA
Letter''), at 2, <a href="https://www.sec.gov/comments/s7-13-19/s71319-6366765-195937.pdf">https://www.sec.gov/comments/s7-13-19/s71319-6366765-195937.pdf</a>. See Letter from Thomas Tesauro, President,
Fidelity Capital Markets, to Vanessa Countryman, Secretary,
Commission, dated October 28, 2019 (``Fidelity Letter''), at 5,
<a href="https://www.sec.gov/comments/s7-13-19/s71319-6357608-196387.pdf">https://www.sec.gov/comments/s7-13-19/s71319-6357608-196387.pdf</a>.
\54\ See FAM 4 Exemption Request, supra note 3, at 11. See also,
Financial Accountability Milestones Release at 31335 n.168. See
Letter from Michael Simon, CAT NMS Plan Operating Committee Chair,
to Vanessa Countryman, Secretary, Commission, dated October 28, 2019
(``Participant Letter''), at 10, <a href="https://www.sec.gov/comments/s7-13-19/s71319-6357609-196389.pdf">https://www.sec.gov/comments/s7-13-19/s71319-6357609-196389.pdf</a>.
\55\ Financial Accountability Milestones Release at 31335.
\56\ Id. See also, FAM 4 Exemption Request, supra note 3, at 12.
\57\ Id. See also, letters from Michael Simon, CAT NMS Plan
Operating Committee Chair, to Vanessa Countryman, Secretary,
Commission, dated June 30, 2022, November 22, 2022, and May 22,
2023.
\58\ See FAM 4 Exemption Request, supra note 3, at 12.
\59\ Id. at 13.
---------------------------------------------------------------------------
In addition, the Participants stated that the Commission has
consistently reaffirmed that both the Participants and Industry Members
should share in the costs of the CAT.\60\ The Participants stated that
all industry participants--the Commission, Participants, and Industry
Members--benefitted from the regulatory oversight afforded by a fully
operational CAT that was used in surveillance, enforcement, and
rulemaking throughout Period 4.\61\ The Participants stated that
Industry Members would be unjustly enriched by FAM 4 absent exemptive
relief because the Participants would bear the full burden of $490
million in reasonably incurred FAM 4 costs.\62\ Additionally, the
Participants stated that the vast majority of FAM 4 costs were cloud
hosting fees and Plan Processor operating fees associated with the
development and operation of the transactional database, which was
fully operational throughout Period 4.\63\ The Participants stated that
any such penalty would overlook the specific intent expressed in Rule
613 that the Participants and Industry Members are to share in the
costs of CAT.\64\
---------------------------------------------------------------------------
\60\ Id. at 12.
\61\ Id. at 13.
\62\ Id.
\63\ Id.
\64\ See FAM 4 Exemption Request, supra note 3, at 13.
---------------------------------------------------------------------------
For these reasons, the Participants stated that they requested,
through CAT LLC, that the Commission provide exemptive relief from the
provisions in Section 11.6(a)(i)(D) and (iii) limiting the collection
of the full amount of any Post-Amendment Industry Member Fees
established or implemented to recover the Post-Amendment Expenses
incurred from the date immediately following the achievement of Full
Availability and Regulatory Utilization of Transactional Database
Functionality to the date of Full Implementation of CAT NMS Plan
Requirements with respect to the $390,843,639 in non-CAIS FAM 4 costs
described above.\65\ The Participants stated that with such exemptive
relief, based on the existing funding model, CAT LLC would anticipate
seeking recovery of $260,562,426 in costs related to FAM 4 from
Industry Members via a Historical CAT Assessment (i.e., two-thirds of
$390,843,639).\66\
---------------------------------------------------------------------------
\65\ Id.
\66\ Id.
---------------------------------------------------------------------------
The Participants further stated that in order to facilitate the
recovery of historical CAT costs pursuant to the funding model under
the CAT NMS Plan, the Operating Committee is required to reasonably
establish the length of the Historical Recovery Period used in
calculating each Historical Fee Rate based upon the amount of the
Historical CAT Costs to be recovered by the Historical CAT Assessment,
and to describe the reasons for its length.\67\ Section
11.3(b)(i)(D)(I) of the CAT NMS Plan states that the Historical
Recovery Period used in calculating the Historical Fee Rate may not be
less than 24 months or more than five years.\68\ However, Section
11.3(f) of the CAT NMS Plan would prohibit the billing of Historical
CAT Assessments after March 31, 2028, which is less than 24 months from
the date of this request.\69\ Accordingly, the Participants stated that
a shortened historical recovery period or relief from the March 2028
deadline is necessary to effectuate the requested relief.\70\
---------------------------------------------------------------------------
\67\ Id. See also, Section 11.3(b)(i)(D)(I) and Section
11.3(b)(iii)(B)(II) of the CAT NMS Plan.
\68\ See FAM 4 Exemption Request, supra note 3, at 13.
\69\ Id.
\70\ Id.
---------------------------------------------------------------------------
In order to establish a Historical CAT Assessment to recover the
FAM 4 costs contemplated by the requested relief prior to the March 31,
2028 deadline, the Participants requested an exemption from Section
11.3(b)(i)(D)(I) of the CAT NMS Plan to allow for a historical recovery
period of one year.\71\ The Participants represented that using a
historical recovery period shorter than two years would continue to
result in a reasonable fee rate, as CAT LLC currently estimates, based
on the recovery of $260,562,426 and based on recent executed equivalent
share volumes, the estimated fee rate would be approximately $0.000022
for a one-year recovery period.\72\ The Participants stated that this
is comparable to the fee rates previously charged for Prospective CAT
Fees and Historical CAT Assessments.\73\
---------------------------------------------------------------------------
\71\ Id.
\72\ See FAM 4 Exemption Request, supra note 3, at 14.
\73\ Id. See also CAT Fee Alerts, <a href="https://www.catnmsplan">https://www.catnmsplan</a>.com/
cat-fee-alerts.
---------------------------------------------------------------------------
III. Request for Comment
We request and encourage any interested person to submit written
data, views, arguments, and comments regarding the FAM 4 Exemption
Request, including whether the Commission should grant the request.
Comments should be received on or before October 5, 2026. Comments
may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#750700191058161a1818101b0106350610165b121a03"><span class="__cf_email__" data-cfemail="b2c0c7ded79fd1dddfdfd7dcc6c1f2c1d7d19cd5ddc4">[email protected]</span></a>. Please include
File Number 4-698 (CAT FAM 4 Exemption Request) on the subject line.
Paper Comments
<bullet> Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number 4-698 (CAT FAM 4 Exemption
Request). This file number should be included on the subject line if
email is used. To help the Commission process and review your comments
more efficiently, please use only one method. The Commission will post
all comments on the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>). Do not include personal identifiable information in
submissions; you should submit only information that you wish to make
available publicly. We may redact in part or withhold entirely from
publication submitted material that is obscene or subject to copyright
protection.
For further information, you may contact David Hsu, Office of
Market Supervision, Division of Trading and Markets, at (202) 551-5500,
Securities and Exchange Commission, 100 F Street, NE, Washington, DC
20549.
By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-18071 Filed 9-2-26; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on September 3, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.