FR 2025-00168

General Summary

A recent filing with the Securities and Exchange Commission (SEC) by the Investors Exchange LLC (IEX) concerns a new fee, CAT Fee 2025-1, which is proposed to finance the costs associated with the Consolidated Audit Trail (CAT) for the year 2025. This fee, which is $0.000022 per executed equivalent share, will be applicable for six months. Notably, this proposal has been filed for immediate effect, meaning it is intended to become active promptly while comments are still being solicited. The primary goal is to cover half of the budgeted costs necessary to keep the CAT operating efficiently for the given period.

Significant Issues and Concerns

There are several areas of potential concern within the filing:

1. Lack of Cost Transparency: The document does not thoroughly break down how the "reasonably budgeted CAT costs" for 2025 were calculated. This lack of transparency makes it challenging to assess whether the proposed fees are justified.

2. Rationale for Fee Adjustment: While the fee for 2025 is lower than the previous year’s fee, the document does not clearly explain why it has been adjusted or how this particular rate was determined.

3. Implications of Documentation: The process for submitting comments and the references to additional information found on external websites might be hard to navigate for some, making public participation and understanding less accessible.

4. Incomplete Budget Coverage: It is mentioned that the fee will cover about half of the costs, but the document does not explain how the remaining costs will be addressed, leaving a potential gap in funding unaddressed.

Broad Public Impact

The introduction of these fees could potentially affect the public indirectly. For instance, if trading costs increase due to higher transaction fees, these might eventually be passed down to consumers and retail investors. Moreover, transparency issues around budget and costs could reduce public trust in financial regulatory practices if consumers feel that their interests are not adequately safeguarded.

Impact on Specific Stakeholders

The stakeholders primarily affected include the members of the securities industry who will directly pay the new fees. These are members of national securities exchanges and associations. They may experience an increase or decrease in expenses related to compliance and operational costs depending on how the fees compare to those of previous years.

Positively, a decreased fee rate suggests an attempt to lighten the financial burden on industry members compared to the previous year, potentially making it more economical for brokers and financial institutions to comply with regulations.

Negatively, without detailed insight into the cost structure, smaller firms might struggle with absorbing new fees, especially if there are any upfront preparations required that are not clearly outlined in the filing.

Conclusion

While the document sets forth a structured approach to recovering CAT costs through modest fees, the absence of detailed cost analysis and justifications raises questions about fiscal responsibility and the fairness of the plan. The broader impact on consumers, albeit indirect, coupled with potential burdens on stakeholders in the securities industry, suggests the need for additional clarification and transparency to ensure all parties understand and are prepared for the implications of the new fee structure.

The document from the Federal Register details a proposed rule change by the Investors Exchange LLC concerning fees associated with the Consolidated Audit Trail (CAT) for 2025. This commentary will focus on the financial aspects mentioned in the document, specifically regarding the establishment of these fees and their broader implications.

Summary of Financial Allocations

The document highlights a key financial change with the introduction of "CAT Fee 2025-1", which is set at a rate of $0.000022 per executed equivalent share. This fee is intended to cover approximately half of the anticipated costs for the Consolidated Audit Trail in 2025. It replaces the previous year's fee, known as "CAT Fee 2024-1," which was higher at $0.000035 per executed equivalent share. The reduction in the fee rate suggests a potential decrease in anticipated costs or a change in cost recovery strategy.

Relation to Identified Issues

Several issues arise concerning these financial references:

1. Lack of Cost Explanation: The document does not provide a detailed breakdown of the "reasonably budgeted CAT costs" for 2025. This omission makes it challenging to evaluate whether the new fee is appropriately set to recover necessary and justifiable expenses. The absence of details could raise concerns about the necessity and reasonableness of the costs that the fees aim to cover.

2. Rationale for Fee Adjustment: Although the fee rate has decreased from the previous year, the document does not clearly explain why this adjustment was made. Without a rationale, stakeholders may question whether the new fee accurately reflects a reduction in costs or if the shift is intended to address other financial goals.

3. Incomplete Budget Coverage: The proposal mentions that the CAT Fee 2025-1 is expected to cover only about half of the costs. There is no clarity on how the remaining costs will be managed, which could suggest that there is an incomplete understanding or communication of how the full budget will be covered.

4. Preparation and Contestation of Fees: The document outlines that invoices for the new fee will be issued starting in February 2025, based on January transactions. However, it does not detail procedures that allow brokers to prepare for or contest these fees if necessary, which may lead to confusion or disputes among the brokers affected by these charges.

5. Transparency Concerns: While financial allocations are addressed, the reliance on external websites for further details might not provide all stakeholders with easy access to the necessary information, potentially limiting transparency and complete understanding of how these fees will impact them financially.

In summary, while the document presents a clear change in fee structure from the previous year, it leaves several questions unanswered regarding the determination, need, and transparency of these financial allocations. Providing comprehensive details on the budget and cost justifications could improve understanding and acceptance of the fee changes by industry members.