FR 2024-31767

The document is a formal notice from the Securities and Exchange Commission (SEC) announcing MEMX LLC's proposal to implement new fees for industry members. These fees, labeled as CAT Fee 2025-1, are intended to help cover the costs of the Consolidated Audit Trail (CAT) for the year 2025. The CAT is a system that collects data to monitor securities trading activities. The fee is set at $0.000022 per executed share, which is a reduction from the previous year's rate. Stakeholders in the securities market, including executing brokers, are encouraged to submit comments on this proposal by January 27, 2025.

General Summary

The filing by MEMX LLC proposes a new fee structure to fund part of the CAT costs for 2025. The CAT Fee 2025-1 will decrease to $0.000022 from the previous year's rate of $0.000035 per executed share. This fee will be applicable to brokers who execute trades and will be invoiced beginning February 2025 based on January's transactions. The anticipated revenue from this fee is expected to cover approximately half of the estimated budget for the CAT's operation in 2025.

Significant Issues and Concerns

A notable issue with the document is its lack of transparency regarding the determination of the specific fee rate of $0.000022. There is no detailed rationale for choosing this rate, which could leave stakeholders questioning its fairness or adequacy. Furthermore, the document refers to "reasonably budgeted" CAT costs but does not specify what these costs entail or how they have been assessed as reasonable. This lack of financial detail prevents a clear understanding of the fee's necessity.

Additionally, the document announces a decrease in the fee from the prior year but fails to discuss the implications of this change on the budget or stakeholders. Such a shift could affect how effectively the CAT is funded and maintained, yet these impacts remain unexplored.

Impact on the Public

For the general public, particularly investors, the functioning and funding of the CAT are significant as they contribute to market transparency and integrity. While the CAT itself is not a tangible concept to everyday investors, understanding that trading activities are monitored for fairness and compliance offers a level of security and confidence in financial markets.

Impact on Specific Stakeholders

For industry members, mainly executing brokers, this fee structure adjustment affects them directly since they are required to pay this fee. The reduced fee rate could be seen as a financial relief compared to the previous year. However, without clear justification and cost breakdowns, these members might also be concerned about the effects on transparency and whether the fee reduction could impair the CAT's operational effectiveness.

From a regulatory perspective, ensuring adequate feedback and scrutiny is important. The call for public comments invites stakeholders to participate in shaping the final fee decisions. This involvement helps maintain a collaborative approach to securities regulation, although the document could have been more proactive in providing contextual clarity for those unfamiliar with regulatory jargon or specific rules mentioned within the filing.

In summary, while the proposed changes appear to offer a reduced financial burden on brokers, the lack of detailed explanation regarding the rationale and implications of these changes leaves room for uncertainty. Both industry members and the public would benefit from increased transparency and engagement around the funding and operational aspects of the CAT.

In the document, there is a focus on establishing fees for industry members to cover costs associated with the Consolidated Audit Trail (CAT) for the year 2025. Specifically, CAT Fee 2025-1 has been introduced with a fee rate of $0.000022 per executed equivalent share. This fee is designed to cover part of the expenses linked to the National Market System Plan governing the CAT. CAT LLC intends for this fee to replace the previous fee, CAT Fee 2024-1, which had a higher rate of $0.000035 per executed equivalent share.

Summary of Financial Allocations

The financial resources outlined in the proposal are directly tied to the operational costs of the Consolidated Audit Trail system, which is a regulatory requirement for tracking securities transactions. The funds collected through these fees are allocated to cover approximately half of the reasonably budgeted costs for 2025. However, there is an absence of detailed financial breakdowns or disclosures that explain how these budgeted costs are calculated.

Issues Related to Financial References

1. Unclear Justification for Fee Rate: The document sets forth a fee rate of $0.000022 per executed equivalent share but falls short of providing a clear rationale or documentation that explains how this specific rate was determined. Without such context, it becomes challenging to evaluate the reasonableness of the fee or assess its impact on industry members.

2. Lack of Cost Breakdown: Although the fee aims to recoup roughly half of the budgeted costs for 2025, the document does not provide a breakdown of these costs or elaborate on what is categorized as "reasonably budgeted." This missing detail might hinder a comprehensive understanding of whether the fees are justified or necessary.

3. Impact of Changing Fee Strategy: The transition from the 2024 fee structure to a lower 2025 fee rate implies a change in funding strategy. Nevertheless, the document offers no analysis of how this alteration might affect the stakeholders involved, or what implications it has for the overall budget. Understanding this change requires insights that are not furnished in the document.

4. Complex References Without Clarification: There are numerous references to specific rules and plans, such as Rule 4.5 and the CAT NMS Plan, without any accompanying summaries. This lack of context might obscure understanding for readers who may not be familiar with these specific regulatory details. Consequently, the financial implications of the fee could be unclear without a thorough understanding of these references.

In conclusion, while the financial references aim to provide support for the CAT system's costs, the document could benefit from additional context and clarity regarding how these fees were decided and how the funds will be utilized. This would aid stakeholders in understanding and assessing the necessity and fairness of the proposed fee changes.