FR 2025-00292

The document from the Federal Register discusses a proposal by NYSE Arca, Inc., which is a part of the securities exchange community, to revise its fee structure to support the expenses associated with the Consolidated Audit Trail (CAT) system for the year 2025. This CAT system is crucial for monitoring and tracking securities trades across the U.S. markets to enhance transparency and control. The proposal introduces a new fee, called CAT Fee 2025-1, set at $0.000022 per executed share, designed to recover a portion of the anticipated CAT operational costs in 2025. This fee is intended to replace the previous year's fee, which was slightly higher.

Significant Issues or Concerns

One notable issue with the proposal is its lack of detailed explanation regarding the "reasonably budgeted CAT costs." The document does not provide specific breakdowns or justifications of these costs, potentially raising concerns about efficient use of funds. Without transparency in budget allocation, stakeholders may worry about mismanagement or unnecessary spending.

Furthermore, the document utilizes specialized financial terminology such as "CAT Executing Brokers" and "Executed Equivalent Share." Such terms might not be immediately understandable to individuals who are not well-versed in securities markets, thus potentially limiting public comprehension of the proposal's implications.

Another significant point is the potential impact of the fee changes on different industry players. The document does not assess whether this fee structure disproportionately impacts smaller industry members compared to larger players, which could be a concern for smaller firms with lesser financial flexibility.

Additionally, the proposal reduces the fee from the previous year without providing clear justification for this decrease. Stakeholders may question the rationale behind the reduced fee structure, especially when the document indicates that the fee aims to cover only about half of the budgeted costs.

Finally, CAT Fee 2025-1 is proposed to be in effect only for six months. This limited duration raises questions about the long-term strategy for funding the CAT system and what measures will be put in place thereafter.

Impact on the Public Broadly

For the general public, this fee adjustment might not impact day-to-day activities directly but can have a ripple effect on the financial markets. The CAT system aims to improve market integrity which ultimately benefits investors by potentially preventing fraud and regulatory breaches.

Impact on Specific Stakeholders

Specific stakeholders, such as brokerage firms and industry members, could face financial implications due to the adjusted fees. Larger firms may absorb these costs more easily than smaller firms, potentially leading to an uneven competitive landscape. Moreover, the introduction of new fees might prompt these entities to adjust their pricing strategies, indirectly affecting their clients.

Overall, while the proposal aims to ensure continued support for the CAT system, its lack of transparency, potential uneven impacts on industry members, and short-term fee planning are areas that merit closer examination and public dialogue.

The Federal Register document discusses proposed changes to the fee structure related to the Consolidated Audit Trail (CAT), specifically the introduction of CAT Fee 2025-1. This fee is set at a rate of $0.000022 per executed equivalent share and is intended to partially cover the costs associated with the CAT system for the year 2025. This initiative marks a decrease from the previous year's fee, CAT Fee 2024-1, which was set at $0.000035 per executed equivalent share. The reduction in the fee rate necessitates a closer examination of both the rationale behind the updated pricing and the transparency of associated costs.

The primary financial consideration is the necessity of the CAT system. The proposed fee is expected to recover approximately half of the "reasonably budgeted" costs for operating this system in 2025. However, the document lacks a detailed breakdown of what these "reasonably budgeted" costs entail, raising concerns about transparency and the potential for inefficient expenditure. Stakeholders might question whether such costs are justified without a thorough disclosure of the financial details.

Furthermore, the impact of the fee adjustment on different market participants is also worth noting. While the document specifies the uniform fee rate, it does not address how this might affect smaller industry members compared to larger ones. Smaller firms may feel a disproportionate impact, yet this issue is not explored in the text. Understanding the equitable distribution of costs and ensuring fairness in the fee structure is crucial.

The updated fee rate, reduced from CAT Fee 2024-1 to CAT Fee 2025-1, also prompts a need for clear justification. The document does not elaborate on why the decrease from $0.000035 to $0.000022 per executed equivalent share is considered appropriate, leaving room for speculation about the decision-making process behind such financial adjustments. Stakeholders may seek an explicit rationale to ensure that the fees are appropriately aligned with their intended purpose.

These financial references are closely tied to broader concerns about budgeting transparency, the equitable impact on industry members, and the rationale for fee changes. A further comprehensive explanation may be necessary to address these issues fully and maintain confidence among market participants.