FR 2025-00293

The document announces a proposed change by the NYSE Chicago, Inc., concerning fees associated with the Consolidated Audit Trail (CAT). The CAT is a system designed to track trading activity for stocks and options in the United States, introduced under the National Market System Plan. This proposed fee, labeled CAT Fee 2025-1, is set to replace the previous year's fee and is aimed at covering costs associated with the CAT for 2025. The fee rate will decrease from $0.000035 to $0.000022 per executed equivalent share. This adjustment is intended to recover about half of the anticipated costs for the year, with the fee being effective for the first six months of 2025.

Significant Issues or Concerns

One noticeable concern is the reduction in the fee rate without an explicit explanation for this decision. The document does not clarify why the fee has been lowered or how this will affect the overall cost recovery for the CAT system. Additionally, there is an absence of a detailed breakdown of how the fee aligns with the "reasonably budgeted CAT costs," raising questions about the precision and transparency of the budgeting process.

The document also references specific rules and plans, such as the CAT NMS Plan and NYSE Chicago Rule 6.6810, without elaborating on them. This oversight might result in confusion for readers unfamiliar with these references, limiting the document's accessibility to the general public.

The lack of explanation regarding the use of recovered fees beyond covering CAT costs could also warrant concern. This makes it difficult for stakeholders to evaluate whether the funds are being used effectively or if there is potential for inefficient allocation.

Impact on the Public and Specific Stakeholders

From a broader perspective, the document's implications for the public revolve around the transparency and integrity of financial markets, assured by the CAT system. By tracking trading activities, the CAT aids in safeguarding against market abuse and ensuring fair trading practices, which benefits the general population, including retail investors.

For stakeholders, specifically Industry Members who include exchange and association members, the fee adjustment will have a direct financial impact. If the lower fee rate falls short in covering CAT costs as anticipated, it could result in unforeseen adjustments later. This uncertainty might pose challenges, particularly for smaller or less financially robust Industry Members, potentially affecting their budgeting and financial planning.

Furthermore, the document does not address any differential impact on smaller versus larger Industry Members, raising questions about equity. Larger entities might absorb changes with minimal disruption, whereas smaller ones could face more significant challenges. The absence of considerations or accommodations for these differences could lead to financial strain for certain members.

Overall, while the proposed fee change aims to support the functioning of an important financial system tool, clarifications and disclosures regarding its financial underpinnings and equity implications would significantly improve stakeholder understanding and confidence.

The document outlines a proposed rule change by NYSE Chicago, Inc., concerning the establishment of fees for industry members related to the Consolidated Audit Trail (CAT) costs for the year 2025. Specifically, the fee is referred to as CAT Fee 2025-1. The proposed fee rate is $0.000022 per executed equivalent share, which replaces the previous CAT Fee 2024-1 rate of $0.000035. This change represents a reduction in the fee rate, and it will be applied to executed transactions starting in January 2025, with industry members receiving their first invoices in February 2025.

Financial Allocation and Cost Recovery

The primary financial reference in the document is the reduction in the fee rate from $0.000035 to $0.000022 per executed equivalent share. According to the document, the new fee rate is expected to remain in effect for six months and aims to recover approximately half of the costs laid out in the budget for the Consolidated Audit Trail in 2025. This indicates a planned financial strategy to cover the operational expenses of CAT through these fees, though it raises questions about the adequacy of this reduced fee in achieving the cost recovery targets.

One significant issue identified is the absence of a detailed financial breakdown or justification for the reduced fee rate. The document does not explain why it was deemed necessary to lower the fee rate or how this will affect achieving the financial objectives of the CAT NMS Plan. Furthermore, without a clear definition of what constitutes "reasonably budgeted CAT costs," there remains ambiguity around how financial planning was approached and what specific expenditures these fees are intended to cover. This lack of detailed financial context could result in concerns regarding transparency and accountability in the fee-setting process.

Fairness and Impact on Industry Members

Another issue linked to the financial references is the potential impact on varying sizes of industry members. The document does not address how the fee change may affect smaller versus larger members of the industry, both of whom might experience different levels of financial strain due to this rate adjustment. This absence of an impact assessment could lead to concerns about fairness and equity among participants in the securities market. It would be beneficial to provide clarity on whether smaller members might face disproportionate challenges and how these might be mitigated.

Additionally, the document does not explain the method for adjusting fees annually or semi-annually, which leaves industry members uncertain about future financial planning and fee expectations. Addressing how and when fees are recalculated could enhance transparency and provide industry members with a clearer framework for financial planning.

Overall, while the document provides a clear numerical change in fees, it lacks in-depth financial justification and explanation, raising questions about planning, equity, and effectiveness in covering the necessary costs associated with the CAT NMS Plan for 2025.