FR 2024-31770

Summary of the Document

The document details a notice from the Securities and Exchange Commission (SEC) about a proposed rule change filed by the Cboe BYX Exchange, Inc. This change, submitted on December 20, 2024, introduces a new fee for industry members tied to the Consolidated Audit Trail (CAT) for 2025. The CAT Fee 2025-1 is set at $0.000022 per executed equivalent share. The SEC is currently seeking public comments on this proposal, with a submission deadline of January 27, 2025.

Significant Issues and Concerns

Several issues arise from this proposed rule change. First, there is concern about the potential impact on smaller industry members due to the fee structure based on executed share volume, which might disproportionately affect those with lower trading volumes.

Additionally, the document lacks transparency, as it does not adequately explain the basis or calculation method for setting the fee at $0.000022 per executed equivalent share. Furthermore, the term "executed equivalent share" is not clearly defined within the text, potentially leading to misinterpretation.

The document refers to various sections of legal stipulations and regulations without providing sufficient detail on their content or implications, posing comprehension challenges for individuals not specialized in securities law. Moreover, there is no discussion on how the fee changes would affect market participants or industry operations, omitting an analysis of cost-effectiveness and necessity.

Impact on the Public Broadly

For the general public, this document might not appear immediately relevant as it specifically addresses industry members responsible for regulatory costs. However, the broader implication lies in how these fees might indirectly affect market dynamics, liquidity, and potentially, the cost of trading securities. An increase in operational costs for brokerage firms could eventually influence the fees or services offered to individual investors.

Impact on Specific Stakeholders

This proposed rule change may have distinct positive and negative impacts on different stakeholders. Industry members, particularly smaller investment firms, could face financial strain due to the volume-based fee structure, potentially reducing their competitiveness or profitability. These costs might be passed down to their clients, impacting individual investors who rely on these firms for trading services.

On the other hand, the proposed fee supports the funding of the Consolidated Audit Trail, which is a regulatory initiative aimed at providing comprehensive data to oversee market activities efficiently. Larger firms, with significant trading volumes and resources, might absorb these costs more comfortably while benefiting from improved market oversight and potentially reduced regulatory scrutiny due to better compliance infrastructure.

Overall, while the initiative appears well-intentioned in seeking to enhance market transparency and integrity, the proposal would benefit from clearer definitions, rationale, and consideration of alternative approaches to support its equitable impact across the industry.

The document outlines a recent filing by the Cboe BYX Exchange, Inc. with the Securities and Exchange Commission. It highlights a proposed rule change related to fees for industry members associated with the Consolidated Audit Trail (CAT) costs. Specifically, the document references the establishment of the CAT Fee 2025-1, set at $0.000022 per executed equivalent share.

Summary of Financial References

The primary financial reference within the document is the proposed CAT Fee 2025-1, which amounts to $0.000022 per executed equivalent share. This fee is intended to cover the "reasonably budgeted CAT costs" associated with the National Market System Plan for the Consolidated Audit Trail for the year 2025.

Financial Allocations and Potential Impacts

This fee directly pertains to the costs incurred for maintaining the Consolidated Audit Trail, a comprehensive system intended to track orders across exchanges. The allocation of this fee suggests a focus on distributing the financial burden of regulatory compliance across industry members based on their trading volumes.

One potential issue raised by this financial reference is its possible disproportionate impact on smaller industry members. Since the fee is assessed based on the volume of executed shares, firms with smaller trading volumes might find the cost relatively burdensome compared to larger firms with higher volumes.

Lack of Transparency and Clarity

The document does not provide the rationale behind the exact calculation of the $0.000022 fee rate. It also lacks a detailed explanation of how this amount was determined to be adequate for covering the 2025 CAT costs. This absence of detail could be perceived as a lack of transparency, which is a common concern when implementing new fees.

Additionally, terms like "executed equivalent share" are not defined within the document, which may lead to confusion or misinterpretation among industry members. Clear definitions are essential to ensure all stakeholders understand how fees will be applied and assessed.

Conclusion

Overall, while the document aims to cover the financial needs for CAT compliance, it raises several issues related to fairness, clarity, and transparency. Adequate justification and communication around how fees are calculated and applied are crucial to ensure that industry participants, especially smaller entities, understand and can appropriately plan for such financial obligations.