CAT - New Collections Supporting Statement (March 16 2017) - FINAL

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
the Consolidated Audit Trail NMS Plan (NMS Plan Required to be Filed under
Commission Rule 613)
A.

Justification

This submission is being made pursuant to the Paperwork Reduction Act of 1995,
44 U.S.C. Section 3501 et. seq. The collection of information is in connection with an
National Market System (NMS) Plan filed with the Commission under Rule 613.
1.

Necessity of Information Collection

The Commission believes that the regulatory data infrastructure on which FINRA
and the national securities exchanges (the “Participants”) and the Commission currently
must rely is generally outdated and inadequate to effectively oversee a complex,
dispersed and highly automated national market system. In performing their oversight
responsibilities, regulators today must attempt to cobble together disparate data from a
variety of existing information systems lacking in completeness, accuracy, accessibility,
and/or timeliness—a model that neither supports the efficient aggregation of data from
multiple trading venues, nor yields the type of complete and accurate market activity data
needed for robust market oversight.
Currently, FINRA and some of the exchanges maintain their own separate audit
trail systems for certain segments of this trading activity, which vary in scope, required
data elements and format. In performing their market oversight responsibilities,
Participant and Commission staffs today must rely heavily on data from these various
Participant audit trails. However, there are shortcomings in the completeness, accuracy,
accessibility, and timeliness of these existing audit trail systems. Some of these
shortcomings are a result of the disparate nature of the systems, which make it
impractical, for example, to follow orders through their entire lifecycle as they may be
routed, aggregated, re-routed, and disaggregated across multiple markets. The lack of
key information in the audit trails that would be useful for regulatory oversight, such as
the identity of the customers who originate orders, or even the fact that two sets of orders
may have been originated by the same customer, is another shortcoming.
Though Participant and Commission staffs also have access to sources of market
activity data other than Participant audit trails, these systems each suffer their own
drawbacks. For example, data obtained from the electronic blue sheet system and equity
cleared reports comprise only trade executions, and not orders or quotes. In addition, like
data from existing audit trails, data from these sources lacks key elements important to
regulators, such as the identity of the customer in the case of equity cleared reports.
Furthermore, recent experience with implementing incremental improvements to the
electronic blue sheet system has illustrated some of the overall limitations of the current
technologies and mechanisms used by the industry to collect, record, and make available

market activity data for regulatory purposes.1
Recognizing these shortcomings, on July 11, 2012, the Commission adopted
Rule 613 of Regulation NMS under the Act.2 Rule 613 required the Participants to
submit an NMS plan to create, implement, and maintain the consolidated audit trail
(“CAT”) that would capture customer and order event information for orders in NMS
securities, across all markets, from the time of order inception through routing,
cancellation, modification, or execution in a single, consolidated data source.3 On
February 27, 2015, the Participants submitted the CAT NMS Plan.4
On April 27, 2016, the Commission published a notice soliciting comments from
the public (“CAT NMS Plan Notice”).5 On November 15, 2016, the Commission
approved the CAT NMS Plan (“CAT NMS Plan Order”), including the information
collections proposed in the CAT NMS Plan Notice and certain additional information
collections that are the subject of this supplemental submission.6 The CAT NMS Plan
1

See Securities Exchange Act Release No. 64976 (July 27, 2011), 76 FR 46960
(August 3, 2011) (“Large Trader Release”).

2

See Securities Exchange Act Release No. 67457 (July 18, 2012), 77 FR 45722
(August 1, 2012) (“Adopting Release”); see also Securities Exchange Act Release
No. 62174 (May 26, 2010), 75 FR 32556 (June 8, 2010) (“Proposing Release”).

3

See 17 CFR 242.613(a)(1), (c)(1), (c)(7).

4

See Letter from Participants to Brent J. Fields, Secretary, Commission, dated
February 27, 2015. The Participants filed the CAT NMS Plan on September 30,
2014. See Letter from the Participants, to Brent J. Fields, Secretary, Commission,
dated September 30, 2014. The CAT NMS Plan filed on February 27, 2015, was
an amendment to and replacement of the Initial CAT NMS Plan (the “Amended
and Restated CAT NMS Plan”). On December 24, 2015, the Participants
submitted an Amendment to the Amended and Restated CAT NMS Plan. See
Letter from Participants to Brent J. Fields, Secretary, Commission, dated
December 23, 2015 (the “Amendment”). On February 9, 2016, the Participants
filed with the Commission an identical, but unmarked, version of the Amended
and Restated CAT NMS Plan, dated February 27, 2015, as modified by the
Amendment, as well as a copy of the request for proposal issued by the
Participants to solicit Bids from parties interested in serving as the Plan Processor
for the consolidated audit trail. Unless the context otherwise requires, the “CAT
NMS Plan” shall refer to the Amended and Restated CAT NMS Plan, as modified
by the Amendment.

5

See Securities Exchange Act Release No. 77724 (April 27, 2016), 81 FR 30613
(May 17, 2016). The burdens associated with the CAT NMS Plan Notice were
submitted under OMB number 3235-0671 which relates to the NMS Plan required
to be filed under Rule 613.

6

See Securities Exchange Act Release No. 79318 (November 15, 2016), 81 FR
84696 (November 23, 2016).

2

Order information collections that were first noticed in the CAT NMS Plan Notice were
approved by OMB on March 9, 2017 (“Existing Collections”). The Existing Collections
are further detailed in the attached previously-filed supporting statement (“Existing
Collections Supporting Statement”), and the associated burdens therein remain
unchanged by this submission.
This supporting statement addresses only the new information collections noticed
in the CAT NMS Plan Order, which are: (1) an independent audit of the fees, costs, and
expenses incurred by the Participants on behalf of the CAT NMS, LLC (“Company”)
prior to the Effective Date of the Plan; (2) an assessment of the clock synchronization
standards in the Plan before reporting begins for Industry Members, which assessment
shall takes into account the diversity of CAT Reporters and systems; (3) a report that
discusses the Participants’ assessment of implementing coordinated surveillance; (4) a
report discussing the feasibility and advisability of allowing Industry Members to bulk
download the Raw Data that it has submitted to the Central Repository; (5) an assessment
of the nature and extent of errors in the Customer information submitted to the Central
Repository and whether the correction of certain data fields over others should be
prioritized; (6) a report on the impact of tiered fees on market liquidity, including an
analysis of the impact of the tiered-fee structure on Industry Members provision of
liquidity; (7) an assessment of the projected impact of any Material Systems Change on
the Maximum Error Rate, prior to the implementation of such Material Systems Change;
(8) a requirement that that the CAT LLC financials be (i) in compliance with GAAP, (ii)
be audited by an independent public accounting firm, and (iii) be made publicly
available; and (9) a requirement that each Participant conduct background checks of its
employees and contractors that will use the CAT System. The estimates discussed below
are for these new information collection requirements proposed in the CAT NMS Plan
Order.
2.

Purposes and Use of the Information Collection

The Commission believes that the CAT NMS Plan would improve the quality of
the data available to regulators in four areas that affect the ultimate effectiveness of core
regulatory efforts—completeness, accuracy, accessibility and timeliness.7 To ensure that
the Plan is implemented in accordance with these objectives, for the reasons described
below, the Commission believes an audit, certain assessments and certain reports
prepared by the Participants on various aspects of the Plan are necessary.

7

See Adopting Release, supra note 2, at 45727 (discussing four “qualities” of trade
and order data that impact the effectiveness of core Participant and Commission
regulatory efforts: accuracy, completeness, accessibility, and timeliness).

3

A.

Independent Audit of Expenses Incurred Prior to the Effective
Date

The Commission understands that the Participants intend to recover, through CAT
fees, the amounts spent on the development of the CAT to date. Section 6.6(a)(i) of the
CAT NMS Plan requires the Participants to provide to the Commission, and make public,
an independent audit of fees, costs and expenses incurred by the Participants on behalf of
the Company, prior to the Effective Date, in connection with the creation and
implementation of the CAT, at least one month prior to submitting any rule filing to
establish initial fees to the Commission. To facilitate public comment and Commission
review of such fee filings to ensure the fees imposed on Industry Members are
reasonable, equitable and not unfairly discriminatory, the Commission believes it is
appropriate for the Participants to obtain an audit of the fees, costs and expenses incurred
by the Participants on behalf of the Company prior to the Effective Date.
B.

Review of Clock Synchronization Standards

Section 6.6(a)(ii) of the CAT NMS Plan requires a written assessment of clock
synchronization standards, including consideration of industry standards based on the
type of CAT Reporter, Industry Member and type of system. The Commission believes
that the Participants should consider the type of CAT Reporter, the type of Industry
member, and type of system when determining industry standards. The Commission
believes the Participants should consider the Plan’s clock synchronization standards
based on the diversity of the CAT Reporter, Industry Member, and type of system
promptly and propose any appropriate amendments for Commission consideration, within
six months of effectiveness of the Plan.
C.

Coordinated Surveillance Report

Section 6.6(a)(iii) of the CAT NMS Plan requires the Participants to provide the
Commission with a written report that discusses the Participants’ assessment of
implementing coordinated surveillance, whether through 17d-2 agreements, regulatory
services agreements, or some other approach, within 12 months of effectiveness of the
Plan. The CAT is designed to facilitate the ability of regulators to conduct cross-market
surveillances and to review conduct that occurs across the market. As a result, the
Commission believes that it may be efficient for the Participants to coordinate to conduct
cross market surveillances.
D.

Assessment of Industry Member Bulk Access to Reported Data

Section 6.6(a)(iv) of the CAT NMS Plan requires the Participants to provide a
written report discussing the feasibility, benefits and risks of allowing an Industry
Member to bulk download the Raw Data it submitted to the Central Repository, within 24
months of effectiveness of the Plan. Commenters expressed a desire for bulk access to
their own data for surveillance and internal compliance purposes, as well as to facilitate
the error correction process. While the Participants did not permit such access in the

4

Plan, citing security and cost concerns, they did represent that they would consider
allowing bulk access to the audit trail data reported by Industry Members once CAT is
operational. The Commission believes it is important to consider the potential
efficiencies of allowing Industry Members bulk access to their own CAT data, so long as
such access does not impact the security of the CAT Data, and accordingly added this
requirement.
E.

Assessment of Errors in Customer Information Fields

Section 6.6(a)(v) of the CAT NMS Plan requires the Participants to submit a
written assessment of the nature and extent of errors in the Customer information
submitted to the Central Repository and whether the correction of certain data fields
should be prioritized, within 36 months of effectiveness of the Plan. The Commission
believes that requiring such an assessment, which will coincide with the date all Industry
Members are reporting to the CAT, could help ensure that the accuracy of CAT Data is
achieved in the most prompt and efficient manner.
F.

Report on Impact of Tiered Fees on Market Liquidity

Section 6.6(a)(vi) of the CAT NMS Plan requires the Participants to submit a
written report on the impact of tiered-fees on market liquidity, including an analysis of
the impact of the tiered-fee structure on Industry Members provision of liquidity, within
36 months of effectiveness of the Plan. To help determine whether the Plan’s funding
model actually achieves the Participants’ stated objective, the Commission believes it is
appropriate to require them to prepare such an assessment of the impact of tiered fees
once the CAT becomes fully operational.
G.

Assessment of Material Systems Change on Error Rate

The CAT NMS Plan requires the Participants to provide the Commission a
written assessment of the projected impact of any Material Systems Change on the
Maximum Error Rate, prior to the implementation of any Material Systems Change. The
Commission believes that Material Systems Changes either could result in new
challenges for CAT Reporters or simplify the means for reporting data. In either case,
the appropriateness of the Maximum Error Rate could be impacted, and thus warrant a
change. Accordingly, the Commission believes it appropriate to require the Participants
to provide the Commission an assessment of the projected impact on the Maximum Error
Rate, including any recommended changes thereto, prior to the implementation of any
Material Systems Change.
H.

Financial Statements

Section 9.2 of the CAT NMS Plan requires that CAT LLC’s financials be (i) in
compliance with GAAP, (ii) be audited by an independent public accounting firm, and
(iii) be made publicly available. The Commission believes that this requirement will

5

promote will promote greater accuracy and greater transparency with respect to the
Company’s financial accounting.
I.

Background Checks

Section 6.1(g) of the CAT NMS Plan requires that each Participant conduct
background checks for its employees and contractors that will use the CAT System. The
Commission believes that this is appropriate in order to ensure that only authorized and
qualified persons are using the CAT System.
3.

Consideration Given to Information Technology

The Commission believes that the collection of information requirement
“Background Checks” would involve the use of electronic submission and collection
techniques. The Commission believes that these would be background checks using
fingerprints that would be submitted either in hard copy or electronically to the Attorney
General of the United States for identification and processing.
Improvements in information technology would not have any impact on the
burdens associated with the proposed collections of information (in fact, improvements in
information technology may reduce any burdens associated with the Plan), nor that any
obstacles exist to reducing such burdens.
4.

Duplication

With the exception of the “Background Checks” information collection, the
proposed collection of information requirement pertains solely to the CAT LLC or the
operation of the CAT System and, is not required elsewhere. We are not aware of any
collection of information requirements that conflict with or substantially duplicate the
proposed collection of information requirements.
With respect to the “Background Checks” collection of information, Section
6.1(g) of the CAT NMS Plan requires each Participant to conduct background checks of
its employees and contractors that will use the CAT System. While Section 6.1(g) may
result in a duplication of requirement because other rules currently require Participants to
conduct fingerprint-based background checks,8 the Commission believes that there will
be no duplication of effort because if an employee or contractor of a Participant who will
be a CAT user is already subject to a Participant’s existing background check
requirements, we anticipate that those requirements would satisfy the proposed
8

See e.g., 17 CFR 240.17f-2(a) (OMB Control Number 3235-0029); 17 CFR
240.17f-2(c) (OMB Control Number 3235-0034). Additionally, most Participants
currently have rules that permit them to conduct fingerprint-based background
checks of contractors. See e.g., BOX Rule 10080; CBOE Rule 15.10; ISE Rule
1408; Nasdaq Rule 0140; NYSE Rule 28; and IEX Rule 1.180.

6

background checks requirements of the CAT NMS Plan. Further, if such Participant
believes that its employees and contractors should be subject to a more stringent or
different background check requirement to be a CAT user than currently required by the
Participant, then there will be no duplication of effort because the proposed background
check requirements would be more rigorous or different and thus differ from the
Participant’s existing background check requirements.
5.

Effect on Small Entities

Not applicable. The Participants—the respondents to the new collection of
information requirement addressed in this supporting statement—are not small entities.9
6.

Consequences of Not Conducting Collections

If the Commission were to not require the collections (or were to require the
collections on a less frequent basis), the Commission believes that this could impact the
implementation of the CAT. The Commission believes that the CAT NMS Plan would
improve the completeness, accuracy, accessibility and timeliness of the data available to
regulators. To ensure that the Plan is implemented in accordance with these objectives,
the Commission believes the audit, assessments and reports prepared by the Participants
are necessary.
The Commission has amended the Plan to require that the Participants provide the
Commission, and make public, at least one month prior to submitting any rule filing to
establish initial fees for CAT Reporters, an independent audit of the fees, costs, and
expenses incurred by the Participants on behalf of the Company prior to the Effective
Date of the Plan. The Commission understands that the Participants intend to recover
through CAT fees the amounts spent on the development of the CAT to date. Without
this independent audit of expenses incurred prior to the Effective Date of the Plan, it will
be difficult for the public and the Commission to accurately assess the propriety of the
level of initial fees imposed in the fee filings filed by the Participants.
Second, the Commission has amended the Plan to require the Participants to
provide the Commission with a written assessment of the clock synchronization standards
in the Plan within six months of effectiveness of the Plan. The Commission believes that
the Participants should consider the type of CAT Reporter, the type of Industry Member,
and type of system when determining industry standards. Without this assessment, the
Commission believes that potential modifications to the clock synchronization standards
that take into account the diversity of CAT Reporters, Industry Members and type of
systems, which could improve the accuracy of the data, may not be realized.

9

The effect on small entities of the Existing Collections is addressed in the
attached Existing Collections Supporting Statement. See Existing Collections
Supporting Statement, at 9–10.

7

Third, the Commission has amended the Plan to require the Participants to
provide the Commission a written report that discusses the Participants’ assessment of
implementing coordinated surveillance, whether through 17d-2 agreements, regulatory
services agreements or another approach, within 12 months of effectiveness of the Plan.
Without this assessment, the Commission believes that potential efficiencies for the
Participants resulting from coordinated surveillances may be missed.
Fourth, the Commission has amended the Plan to require the Participants to
submit to the Commission a written report, within 24 months of effectiveness of the Plan,
discussing the feasibility, benefits, and risks of allowing an Industry Member to bulk
download the Raw Data that it has submitted to the Central Repository. Commenters on
the CAT NMS Plan Notice expressed a desire to have bulk access to their own data for
surveillance and internal compliance purposes, as well as to facilitate the error correction
process. The Commission believes it is important to consider the potential efficiencies of
allowing Industry Members bulk access to their own CAT data, so long as such access
does not impact the security of the CAT Data. Without this assessment, the Commission
and the Participants will not have sufficient information to consider the tradeoffs of bulk
access, and therefore not be able to fully consider whether to permit Industry Members
bulk access to their own CAT Data.
Fifth, the Commission has amended the Plan to require the Participants to provide
the Commission with a written assessment, within 36 months of effectiveness of the Plan,
of the nature and extent of errors in the Customer information submitted to the Central
Repository and whether the correction of certain data fields over others should be
prioritized. The Commission believes that requiring such an assessment could help
ensure that the accuracy of CAT Data is achieved in the most prompt and efficient
manner. Without this assessment, the Commission believes that unanticipated issues
concerning the accuracy of the customer information fields may go unidentified and
negatively impact the overall accuracy of CAT Data.
Sixth, the Commission has amended the Plan to require the Participants to provide
the Commission with a written report, 36 months after effectiveness of the Plan, on the
impact of tiered fees on market liquidity, including an analysis of the impact of the tieredfee structure on Industry Members’ provision of liquidity. One commenter on the CAT
NMS Plan Notice expressed concern that use of a tiered fee structure could discourage
displayed quotes and, in response, the Participants explained that one of the reasons they
chose to use a tiered-fee funding model was to limit disincentives to provide liquidity.
To help determine whether the Plan’s funding model actually achieves the Participants’
stated objective, the Commission believes it appropriate to require them to prepare such
an assessment of the impact of tiered fees once the CAT becomes fully operational.
Without this assessment, the Participants and the Commission could lack insight into
whether the fee model affects liquidity provision and market quality, which could hamper
any necessary adjustments to the Funding Model.
Seventh, the Commission has amended the Plan to require the Participants to
provide the Commission a written assessment of the projected impact of any Material

8

Systems Change on the Maximum Error Rate, prior to the implementation of any
Material Systems Change. The Commission believes that Material Systems Changes
either could result in new challenges for CAT Reporters or simplify the means for
reporting data. In either case, the appropriateness of the Maximum Error Rate could be
impacted, and thus warrant a change. Without this assessment, the Participants and the
Commission may lack a thorough understanding of how a particular Material Systems
Change would impact Error Rates and whether to temporarily adjust the Error Rates
around that Material Systems Change.
Eighth, the Commission has amended the Plan to require that the CAT LLC’s
financials be (i) in compliance with GAAP, (ii) be audited by an independent public
accounting firm, and (iii) be made publicly available. The Commission believes that this
requirement will promote greater transparency with respect to the Company’s financial
accounting. Without this requirement, that purpose will not be achieved.
Finally, the Commission has amended the Plan to require that each Participant
conduct background checks for its employees and contractors that will use the CAT
System. The Commission believes that this requirement is appropriate to ensure that only
authorized and qualified persons are using the CAT System. Without this requirement,
that purpose would not be achieved.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

The information collections “Assessment of Material Systems Changes on Error
Rates” and “Background Checks” could potentially require the Participants to report and
disclose information more frequently than quarterly.
In addition, the information collections: “Coordinated Surveillance Report”;
“Bulk Access to Reported Data”; “Errors in Customer Information”; “Impact of Tiered
Fees on Market Liquidity”; and “Assessment of Material Systems Changes on Error
Rates” may require the Participants to submit confidential information to the
Commission. To the extent the Commission receives confidential information pursuant
to the CAT NMS Plan, such information will be kept confidential, subject to the
provisions of applicable law.
8.

Consultations Outside the Agency

In the CAT NMS Plan Order, the Commission solicited comment on the new
“collections of information” requirement and associated paperwork burdens. The
Commission did not receive any comments. A copy of the CAT NMS Plan Order
(containing the proposed new collection of information requirement) is attached. Any
comments received on the proposed collection of information requirements and
associated paperwork burdens will be posted on the Commission’s public website, and
made available through https://www.sec.gov/comments/4-698/4-698.shtml. The
Commission will consider all comments received with respect to these new information
collections.

9

9.

Payment or Gift

Not applicable. The Commission has not provided any payment or gift to the
respondents.
10.

Confidentiality

The Participants will not be submitting the Background Check information to the
Commission and the Commission is not collecting this information; however, if the
Commission receives any confidential information pursuant to the CAT NMS Plan, such
information will be kept confidential, subject to the provisions of applicable law.
11.

Sensitive Questions

The Participants will not be submitting the Background Check information to the
Commission and the Commission is not collecting this information; however, if the
Commission receives any confidential information pursuant to the CAT NMS Plan, such
information will be kept confidential, subject to the provisions of applicable law.
12.

Burden of Information Collection under the CAT NMS Plan by the
Commission

The proposed collection of information requirement applies to the 21 Participants
(the 20 national securities exchanges and the one national securities association
(FINRA)) currently registered with the Commission.10

10

The Participants are: Bats BZX Exchange, Inc., Bats BYX Exchange, Inc., BOX
Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board
Options Exchange, Incorporated, Chicago Stock Exchange, Inc., Bats EDGA
Exchange, Inc., Bats EDGX Exchange, Inc., Financial Industry Regulatory
Authority, Inc., International Securities Exchange, LLC, ISE Gemini, LLC,
Miami International Securities Exchange LLC, NASDAQ BX, Inc., NASDAQ
PHLX LLC, The NASDAQ Stock Market LLC, National Stock Exchange, Inc.,
New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc. ISE
Mercury, LLC and Investors Exchange LLC will become Participants in the CAT
NMS Plan and are thus accounted for as Participants for purposes of this
supporting statement analysis. Since the publication of the CAT NMS Plan
Notice, the Investors Exchange LLC became a registered national securities
exchange on June 17, 2016. See Securities Exchange Act Release No. 78101
(June 17, 2016), 81 FR 41142 (June 23, 2016).

10

A. Review of Clock Synchronization Standards
Section 6.6(a)(ii) of the CAT NMS Plan requires a written assessment of clock
synchronization standards, including consideration of industry standards based on the
type of CAT Reporter, Industry Member and type of system, within six months of
effectiveness of the Plan.
The Commission preliminarily estimates that it would take each Participant
approximately 19 initial, one-time burden hours of internal legal and information
technology staff time to prepare and submit the assessment of clock synchronization
standards.11 The Commission believes that this burden would mostly be comprised of
information technology staff time to conduct the assessment, with less time allocated to
internal legal staff for review of the assessment. Therefore, the Commission
preliminarily estimates that the initial, one-time burden of preparing and submitting the
assessment would be 19 initial, one-time burden hours per Participant for an estimated
aggregate initial, one-time burden of approximately 399 hours.12
The Commission preliminarily estimates that it would take the Participants
approximately 133 annualized burden hours to prepare and submit the assessment of
clock synchronization standards (19 initial, one-time burden hours amortized over three
years) x (21 Participants).
B. Coordinated Surveillance Report
Section 6.6(a)(iii) of the CAT NMS Plan requires the Participants to submit a
written report detailing the Participants’ consideration of coordinated surveillance (e.g.,
entering into Rule 17d-2 agreements or regulatory services agreements), within 12
months of effectiveness of the Plan.
The Commission preliminarily estimates that it would take each Participant
approximately 85.71 initial burden hours of internal legal, compliance, business
operations, and information technology staff time to prepare and submit the report.13
11

The Commission estimates that 19 internal burden hours = (Computer Operations
Department Manager at 5 hours) + (Senior Systems Analyst at 5 hours) +
(Systems Analyst at 5 hours) + (Attorney at 2 hours) + (Assistant General
Counsel at 2 hours).

12

399 initial internal burden hours = (19 initial, one-time burden hours) x (21
Participants).

13

The Commission calculates the total estimated burden hours based on a similar
formulation used for calculating the total estimated burden hours of Rule 613(i)’s
requirement for a document addressing expansion of the CAT to other securities.
The Commission assumes that the preparation of the report would be
approximately one-half as burdensome as the document. See CAT NMS Plan
Order, supra note 6, at 84923–84924. Because the Commission believes that the

11

Therefore, the Commission preliminarily estimates that the initial, one-time burden of
preparing and submitting the report would be 85.71 initial, one-time burden hours per
Participant, for an estimated aggregate initial, one-time burden of 1,799.91 hours.14
The Commission preliminarily estimates that it would take the Participants
approximately 599.97 annualized burden hours to to submit a written report detailing the
Participants’ consideration of coordinated surveillance (85.71 initial, one-time burden
hours amortized over three years) x (21 Participants).
C. Assessment of Industry Member Bulk Access to Reported Data
Section 6.6(a)(iv) of the CAT NMS Plan requires the Participants to provide a
written report discussing the feasibility, benefits, and risks of allowing an Industry
Member to bulk download the Raw Data it submitted to the Central Repository, within 24
months of effectiveness of the Plan.
The Commission preliminarily estimates that it would take each Participant
approximately 15 initial, one-time burden hours of internal legal, compliance, business
operations, and information technology staff time to prepare and submit the assessment.15
Therefore, the Commission preliminarily estimates that the initial one-time burden of
submitting a written assessment would be 15 initial burden hours per Participant, for an
estimated aggregate initial burden of approximately 315 hours.16
The Commission preliminarily estimates that it would take the Participants
approximately 105 annualized burden hours to to submit a written report detailing the
Participants’ consideration of bulk access by Industry Members (15 initial, one-time
burden hours amortized over three years) x (21 Participants).

report would be half as burdensome as the document required by Rule 613(i), the
Commission believes that all of the Participants would need 1 FTE for the report.
(1 FTE) x (1,800 working hours per year) = 1,800 initial, one-time burden hours
per year for all of the Participants. (1,800 burden hours per year) / (21
Participants) = 85.71 initial, one-time burden hours per Participant for preparation
and submission of the report.
14

1,799.91 initial, one-time burden hours = (85.71 initial, one-time burden hours) x
(21 Participants).

15

The Commission estimates that 15 internal burden hours = (Computer Operations
Department Manager at 2 hours) + (Senior Database Administrator at 5 hours) +
(Senior Systems Analyst at 2 hours) + (Systems Analyst at 2 hours) + (Attorney at
2 hours) + (Assistant General Counsel at 2 hours).

16

315 initial one-time internal burden hours = (15 initial, one-time burden hours per
Participant) x (21 Participants).

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D. Assessment of Errors in Customer Information Fields
Section 6.6(a)(v) of the CAT NMS Plan requires the Participants to submit a
written assessment of errors in the customer information submitted to the Central
Repository and whether to prioritize the correction of certain data fields over others,
within 36 months of effectiveness of the Plan.
The Commission preliminarily estimates that it would take each Participant
approximately 24 initial, one-time burden hours of internal legal, compliance, and
information technology staff time to prepare and submit the assessment of errors.17
Therefore, the Commission now preliminarily estimates that the initial, one-time burden
of preparing and submitting a written assessment would be 24 initial, one-time burden
hours per Participant, for an estimated aggregate initial, one-time burden of
approximately 504 hours.18
The Commission preliminarily estimates that it would take the Participants
approximately 168 annualized burden hours to submit the written assessment of errors in
the customer information (24 initial, one-time burden hours amortized over three years) x
(21 Participants).
E. Report on Impact of Tiered Fees on Market Liquidity
Section 6.6(a)(vi) of the CAT NMS Plan requires the Participants to submit a
written report to study the impact of tiered-fees on market liquidity, including an analysis
of the impact of the tiered-fee structure on Industry Members provision of liquidity,
within 36 months of effectiveness of the Plan.
17

The Commission estimates that 24 internal burden hours = (Computer Operations
Department Manager at 3 hours) + (Senior Database Administrator at 4 hours) +
(Senior Systems Analyst at 2 hours) + (Systems Analyst at 2 hours) +
(Compliance Attorney at 5 hours) + (Attorney at 4 hours) + (Assistant General
Counsel at 4 hours). The Commission believes that the assessment of the errors
in the customer information submitted to the Central Repository and the
prioritization of the correction of certain data fields over others would require the
time of certain information technology staff and their managers. A Database
Administrator would be involved in analyzing the errors in the customer
information submitted to the Central Repository and in suggesting any changes to
the Central Repository, and Systems Analysts would assess the impact of any
proposed changes to the Central Repository on other systems. Further, the
Commission believes that the prioritization of the correction of data fields would
require the input of compliance and legal staff, and that legal staff would need to
review the assessment before it is submitted.

18

504 initial, one-time burden hours = (24 initial, one-time burden hours per
Participant) x (21 Participants).

13

The Commission preliminarily estimates that it would take each Participant
approximately 21.43 initial, one-time burden hours of internal legal and business
operations staff time to prepare and submit the report studying the impact of tiered fees
on market liquidity.19 Therefore, the Commission now preliminarily estimates that the
initial, one-time burden of preparing and submitting the report studying the impact of
tiered fees on market liquidity would be 21.43 initial, one-time burden hours per
Participant, for an estimated aggregate initial, one-time burden of approximately 450
hours.20
The Commission preliminarily estimates that it would take the Participants
approximately 150 annualized burden hours to prepare and submit the report studying the
impact of tiered fees on market liquidity (21.43 initial, one-time burden hours amortized
over three years) x (21 Participants).
F. Assessment of Material Systems Change on Error Rate
Section 6.6(a)(vii) of the CAT NMS Plan requires a written assessment of the
projected impact of any Material Systems Change on the Maximum Error Rate, prior to
the implementation of any Material Systems Change.
The Commission preliminarily estimates that the CAT may have four Material
Systems Changes per year. Based on this estimate, the Commission preliminarily
estimates that each Participant would incur 5.9521 burden hours to prepare and submit
19

The Commission calculated the total estimated burden hours based on a similar
formulation used for calculating the total estimated burden hours of Rule 613(i)’s
requirement for a document addressing expansion of the CAT to other securities.
The Commission assumes that the preparation of the assessment would be
approximately one-eighth as burdensome as the document required by Rule
613(i). To estimate the Rule 613(i) burden, the Commission applied the internal
burden estimate provided in the CAT NMS Plan for Plan development over a 6month period, and divided the result in half. See CAT NMS Plan, supra note 4, at
Appendix C, Section B.7(b)(iii). 0.667 FTEs required for all Participants per
month to develop the CAT NMS Plan = (20 FTEs / 30 months). 0.667 FTEs x 6
months = 4 FTEs. 4 FTEs/ 2 = 2 FTEs needed for all of the Participants to create
and submit the Rule 613(i) document. (2 FTEs) x (1/8) = 0.25 FTE to prepare
and submit the report studying the impact of tiered fees on market liquidity. (0.25
FTE x 1,800 working hours per year) = 450 initial, one-time burden hours for all
of the Participants to review and comment on the written assessment. (450
burden hours / 21 Participants) = 21.43 initial, one-time burden hours per
Participant to prepare and submit the report.

20

450 initial, one-time burden hours = (21.43 initial, one-time burden hours) x (21
Participants).

21

This estimate is based on the quarterly material system change reports required
under Rule 1003(a)(1) of Regulation SCI. The Commission estimated that each

14

each assessment, or 23.8 annual burden hours per year,22 for an aggregate, ongoing
estimate of 125 burden hours per report,23 or an aggregate ongoing estimate of 500
burden hours per year.24
The Commission preliminarily estimates that it would take the Participants
approximately 500 annualized burden hours to prepare and submit each assessment (23.8
annual burden hours per year) x (21 Participants).
G. Background Checks
Section 6.1(g) of the CAT NMS Plan requires each Participant to conduct
background checks of its employees and contractors that will use the CAT System. The
Commission preliminarily estimates that this requirement will impact approximately
1,500 users.25 The Commission preliminarily estimates that each Participant would need
to have background checks of approximately 71 users.26 For its estimates, the
Commission is assuming that these would be background checks using fingerprints
submitted to the Attorney General of the United States for identification and processing.27
The Commission preliminarily estimates that it would take approximately 15 minutes28 to
create and submit each fingerprint card.29 The total reporting burden per Participant is
SCI entity would incur a burden of 125 hours to comply with the quarterly report
on material changes to SCI systems required under Rule 1003(a)(1) (7.5 hours by
an Attorney, 7.5 hours by a Compliance Manager, 5 hours by a Chief Compliance
Officer, 30 hours by a Senior Business Analyst, and 75 hours by a Senior Systems
Analyst). See Regulation Systems Compliance and Integrity, Securities Exchange
Act Release No. 73639 (December 5, 2014), 79 FR 72251, at 72390, n.1656.
Because the CAT is an SCI System of the Participants, the Commission is
assuming for its estimates that each Participant would incur an equal portion of
the 125 burden hours per report.
22

The Commission estimates that there would be four Material System Changes per
year. (5.95 burden hours per report) x (4 reports per year) = 23.8 annual burden
hours per year.

23

(5.95 burden hours per report) x 21 Participants = 125 burden hours per report.

24

(125 burden hours) x (4 reports per year) = 500 annual burden hours.

25

This number is based on conversations with Participants.

26

71.42 users per Participant = (1,500 users) / (21 Participants).

27

The Commission is basing this assumption on the requirements of Section
17(f)(2). 15 U.S.C. 78q(f)(2).

28

This is based on the per respondent burden in Extension of Rule 17f-2, SEC File
No. 270-35, OMB Control No. 3235-0029, 79 FR 42563 (July 22, 2014).

29

The Commission is assuming that this would be a burden of 15 minutes for a
Compliance Manager per fingerprint card.

15

therefore preliminarily estimated to be 17.75 initial, one-time burden hours,30 for an
aggregate, initial burden of 374.01 hours.31
The Commission preliminarily estimates that the ongoing internal burden hours
for each Participant would be approximately 4.26 annual burden hours,32 for an aggregate
annual burden hour amount of 89.51 burden hours.33
The Commission preliminarily estimates that it would take the Participants
approximately 213.71 annualized burden hours to conduct a background check [((17.75
initial, one-time burden hours amortized over three years) + (4.26 annual burden hours))
x (21 Participants)].
The following chart provides a summary of the burden hours for above new
collections together with the Existing Collections approved on March 9, 2017.

30

17.81 burden hours = (Compliance Manager at 15 minutes) x (71.42 users).

31

374.01 = (17.75 initial one-time burden hours) x (21 Participants).

32

The Commission assumes that the finance industry has a rate of 23.87% turnover
per year, based on a monthly rate for both employment separations and hires of
1.8% for the finance and insurance industry in September 2016. See
http://www.bls.gov/news.release/pdf/jolts.pdf (news release from the Bureau of
Labor Statistics, dated November 8, 2016). The Commission preliminarily
estimates that the Participants will have to annually conduct background checks
of 23.87% of the 1,500 users, or 358.05 users per year. (358.05 users) / (21
Participants) = 17.05 users that will need to be subject to background checks on
an annual basis. Based on this estimate, the Commission estimates that each
Participant would incur a burden of 4.26 ongoing annual burden hours =
(Compliance Manager at 15 minutes) x (17.05 users).

33

89.51 annual ongoing burden hours = (4.26 ongoing annual burden hours per
Participant) x (21 Participants).

16

Summary of Hourly Burdens
Type of Burden

[A.]
Number of
Entities
Impacted

[B.]
Annual
Responses
per Entity

Review of Clock
Synchronization
Standards

Reporting

21

1

19

6.33

0

6.33

6.33

132.93

0

Coordinated
Surveillance Report

Reporting

21

1

85.71

28.57

0

28.57

28.57

599.97

0

Assessment of Industry
Member Bulk Access to
Reporter Data

Reporting

21

1

15

5

0

5

5

105

0

Assessment of Errors in
Cusomer Information
Fields

Reporting

21

1

24

8

0

8

8

168

0

Report on Impact of
Tiered Fees on Market
Liquidity

Reporting

21

1

21.43

7.14

0

7.14

7.14

149.94

0

Assessment of Material
Systems Change on
Error Rate

Reporting

21

4

0

0

5.95

5.95

23.8

499.8

0.00

Background Checks

Disclosure

21

1

17.75

5.92

4.26

10.18

10.18

213.78

0.00

Central Repository

Recordkeeping

21

1

686.05

228.68

686.05

914.73

914.73

19,209.4

0.00

Data Collection and
Reporting (Participants)

Third Party Disclosure

21

1

2,080.8

693.6

1,474.2

2,167.8

2,167.8

45,523.8

0.00

Third Party Disclosure

14

1

14,490.00

4,830.00

13,338.00

18,168.00

18,168.00

254,352.00

0.00

Third Party Disclosure

31

1

14,490.00

4,830.00

13,338.00

18,168.00

18,168.00

563,208.00

0.00

Third Party Disclosure

126

1

26,856.00

8,952.00

18,054.00

27,006.00

27,006.00

3,402,756.00

0.00

Third Party Disclosure

806

1

1,800.00

600.00

1,350.00

1,950.00

1,950.00

1,571,700.00

Estimated
39534

Third Party Disclosure

823

1

3,600.00

1,200.00

1,350.00

2,550.00

2,550.00

2,098,650.00

Estimated
82335

Recordkeeping

21

1

3,535.2

1,178.4

13,473

14,651.4

14,651.4

307,679.4

0.00

Name of Information
Collection

Data Collection and
Reporting (Large, NonOATS Reporting
Broker-Dealers) - ELPs
Data Collection and
Reporting (Large, NonOATS Reporting
Broker-Dealers) –
Options Market Makers
Data Collection and
Reporting (Large
OATS Reporting
Broker-Dealers)
Data Collection and
Reporting (Small
OATS Reporting
Broker-Dealers)
Data Collection and
Reporting (Non-OATS
Reporting BrokerDealers)
Surveillance

[C.]
Initial Burden
per Entity per
Response

[D.]
Initial Burden
Annualized
per Entity per
Response
[ = C ÷ 3 years]

[E.]
Ongoing
Burden per
Entity per
Response

[F.]
Annual
Burden Per
Entity per
Response
[ = D + E]

34

See Existing Collections Supporting Statement, at 49, n.240.

35

Id.

17

[G.]
Total Annual
Burden Per
Entity
[ = (D + E) *
B]

[H.]
Total Industry
Burden
[ = G * A]

Small
Business
Entities
Affected

Type of Burden

[A.]
Number of
Entities
Impacted

[B.]
Annual
Responses
per Entity

Written Assessment of
Operation of CAT

Reporting

21

1

0.00

0.00

171.43

171.43

171.43

3,600.03

0.00

Document on
Expansion to Other
Securities

Reporting

21

1

171.43

57.14

0.00

57.14

57.14

1,199.94

0.00

TOTAL HOURLY BURDEN FOR ALL RESPONDENTS

8,269,747.99

Name of Information
Collection

13.

[C.]
Initial Burden
per Entity per
Response

[D.]
Initial Burden
Annualized
per Entity per
Response
[ = C ÷ 3 years]

[E.]
Ongoing
Burden per
Entity per
Response

[F.]
Annual
Burden Per
Entity per
Response
[ = D + E]

[G.]
Total Annual
Burden Per
Entity
[ = (D + E) *
B]

[H.]
Total Industry
Burden
[ = G * A]

Costs to Respondents
A. Independent Audit of Expenses Incurred Prior to the Effective
Date

Section 6.6(a)(i) of the CAT NMS Plan requires the Participants to provide to the
Commission an independent one-time audit of fees, costs and expenses incurred by the
Participants on behalf of the Company, prior to the Effective Date, in connection with the
creation and implementation of the CAT, at least one month prior to submitting any rule
filing to establish initial fees to the Commission.
The Commission preliminarily estimates that each Participant would incur an
initial, one-time external cost of the audit of $238.09.36 The Commission preliminarily
estimates that the aggregate initial, one-time external cost of the audit is $5,000.37
The Commission preliminarily estimates that the Participants would incur an
aggregate, annualized external cost of approximately $1,666.56 to provide to the
Commission the independent audit of fees, costs and expenses incurred by the
Participants on behalf of the Company, prior to the Effective Date, in connection with the
creation and implementation of the CAT ($238.09 in initial external costs amortized over
three years) x (21 Participants).

36

The Commission estimates that the cost of the audit would be an aggregate,
external cost of $5,000. The CAT NMS Plan Order states that to arrive at this
estimate, the Commission relied on an industry source for the costs of an audit per
dollar of revenue, and assumed that the audit cost per unit of revenue would be
comparable to the audit cost per unit of development costs, which were
approximately $8.8 million. The Commission used an industry estimate of $479
in audit costs per $1 million in revenue. ($8,800,000 / $1,000,000) = $8.80 per $1
million in revenue. ($8.80) x ($479 in audit costs) = $4,215 for the audit. In the
CAT NMS Plan Order, the Commission rounded this amount up to $5,000. See
CAT NMS Plan Order, supra note 6, at 84856, n.2494. $5,000 / 21 Participants =
$238.09 per Participant for the independent audit.

37

Id.

18

Small
Business
Entities
Affected

B. Review of Clock Synchronization Standards
Section 6.6(a)(ii) of the CAT NMS Plan requires a written assessment of clock
synchronization standards, including consideration of industry standards based on the
type of CAT Reporter, Industry Member and type of system, within six months of
effectiveness of the Plan.
The Commission preliminarily estimates that each Participant would outsource
0.5 hours of legal time to assist in the review of the assessment, for an initial, one-time
external cost of approximately $200.38 Therefore, the Commission preliminarily
estimates that the initial, one-time cost of preparing and submitting the assessment would
be $200 of external costs for outsourced legal counsel per Participant, for an estimated
aggregate initial, one-time external cost of $4,200.39
The Commission preliminarily estimates that the Participants would incur an
aggregate, annualized external cost of approximately $1,400.00 to provide to the
Commission written assessment of clock synchronization standards ($200.00 in initial
external costs amortized over three years) x (21 Participants).
C. Coordinated Surveillance Report
Section 6.6(a)(iii) of the CAT NMS Plan requires the Participants to submit a
written report detailing the Participants consideration of coordinated surveillance (e.g.,
entering into Rule 17d-2 agreements or regulatory services agreements), within 12
months of effectiveness of the Plan.
The Commission preliminarily estimates that on average, each Participant would
outsource 2.5 hours of legal time to assist in the drafting and review of the report, for an
initial, one-time external cost of approximately $1,000.40 Therefore, the Commission
38

$200 = ($400 per hour rate for outside legal services) x (0.5 hours). The
Commission based this estimate on the assumption that the assessment would
require approximately one-fifth the effort of review by outside counsel as the
document required by Rule 613(i) regarding the expansion of the CAT to other
securities because the Commission believes the assessment is not as
comprehensive as the expansion document since it is limited to clock
synchronization standards. See CAT NMS Plan Order, supra note 6, at 84923–24.

39

$4,200 = (21 Participants) x ($400 per hour rate for outside legal services) x (0.5
hours).

40

$1,000 = ($400 per hour rate for outside legal services) x (2.5 hours). The
Commission based this estimate on the assumption that the report would require
approximately one-tenth the effort of drafting by outside counsel as the document
required by Rule 613(i) regarding the expansion of the CAT to other securities.
See CAT NMS Plan Order, supra note 6, at 84923–24.

19

preliminarily estimates that each Participant would incur an initial, one-time external cost
of $1,000 for outsourced legal counsel, for an estimated aggregate initial, one-time
external cost of $21,000.41
The Commission preliminarily estimates that the Participants would incur an
aggregate, annualized external cost of approximately $6,999.93 to provide to the
Commission a coordinated surveillance report, prior to the Effective Date, in connection
with the creation and implementation of the CAT ($1,000 in initial external costs
amortized over three years) x (21 Participants).
D. Assessment of Industry Member Bulk Access to Reported Data
Section 6.6(a)(iv) of the CAT NMS Plan requires the Participants to provide a
written report discussing the feasibility, benefits, and risks of allowing an Industry
Member to bulk download the Raw Data it submitted to the Central Repository, within 24
months of effectiveness of the Plan.
The Commission preliminarily estimates that on average, each Participant would
outsource five hours of legal time to assist in the preparation and review of the
assessment, for an initial, one-time external cost of approximately $2,000.42 Therefore,
the Commission preliminarily estimates that each Participant would incur an initial onetime external cost of $2,000 for outsourced legal counsel per Participant, for an estimated
aggregate initial external cost of $42,000.43
The Commission preliminarily estimates that the Participants would incur an
aggregate, annualized external cost of approximately $14,000.07 to submit the written
report ($2,000 in initial external costs amortized over three years) x (21 Participants).
E. Assessment of Errors in Customer Information Fields
Section 6.6(a)(v) of the CAT NMS Plan requires the Participants to submit a
written assessment of errors in the customer information submitted to the Central
41

$21,000 = (21 Participants) x ($400 per hour rate for outside legal services) x
(2.5 hours).

42

$2,000 = ($400 per hour rate for outside legal services) x (5 hours). The
Commission is basing this estimate on the assumption that the assessment would
require approximately twice the effort of drafting by outside counsel as the
document required by Rule 613(i) regarding the expansion of the CAT to other
securities. The Commission attributes this difference to ensuring that any
potential security issues regarding industry bulk access of data are sufficiently
reviewed and addressed. See CAT NMS Plan Order, supra note 6, at 84923–24.

43

$42,000 = (21 Participants) x ($400 per hour rate for outside legal services) x (5
hours).

20

Repository and whether to prioritize the correction of certain data fields over others,
within 36 months of effectiveness of the Plan.
The Commission preliminarily estimates that on average, each Participant would
outsource 1.25 hours of legal time to assist in the review of the assessment, for an initial,
one-time external cost of approximately $500.44 Therefore, the Commission now
preliminarily estimates that each Participant would incur $500 of initial, one-time
external costs for outsourced legal counsel per Participant, for an estimated aggregate
initial, one-time external cost of $10,500.45
The Commission preliminarily estimates that the Participants would incur an
aggregate, annualized external cost of approximately $3,500.07 to submit the written
assessment of errors in the customer information provide to the Commission ($500 in
initial external costs amortized over three years) x (21 Participants).
F. Report on Impact of Tiered Fees on Market Liquidity
Section 6.6(a)(vi) of the CAT NMS Plan requires the Participants to submit a
written report to study the impact of tiered-fees on market liquidity, including an analysis
of the impact of the tiered-fee structure on Industry Members provision of liquidity,
within 36 months of effectiveness of the Plan.
The Commission preliminarily estimates that on average, each Participant would
outsource 0.5 hours of legal time to assist in drafting the report, for an initial, one-time
external cost of approximately $200.46 Therefore, the Commission now preliminarily
estimates that each Participant would incur $200 of initial, one-time external costs for

44

The Commission calculated the total estimated external cost based on the revised
burden hour estimate for the written assessment of the operation of the CAT. See
CAT NMS Plan Order, supra note 6, at 84925. The Commission assumes that the
preparation and submission of the error assessment would cost approximately half
as much as the revised written assessment . The revised written assessment
estimate provides that each Participant would outsource 2.5 hours of legal time to
assist in the review of the assessment, for an external cost of approximately
$1,000. The Commission estimates that each Participant would outsource
approximately 1.25 hours of legal time, for an initial, one-time external cost of
$500 (1.25 hours x $400 per hour rate for outside legal services) to assist in
drafting the error assessment.

45

$10,500 = (21 Participants) x ($400 per hour rate for outside legal services) x
(1.25 hours).

46

$200 = ($400 per hour rate for outside legal services) x (0.5 hours).

21

outsourced legal counsel per Participant, for an estimated aggregate initial, one-time
external cost of $4,200.47
The Commission preliminarily estimates that the Participants would incur an
aggregate, annualized external cost of approximately $1,400.07 to provide to the
Commission the written report to study the impact of tiered-fees on market liquidity
($200 in initial external costs amortized over three years) x (21 Participants).
G. Financial Statements
Section 9.2 of the CAT NMS Plan now requires that the CAT LLC financials be
(i) in compliance with GAAP, (ii) be audited by an independent public accounting firm,
and (iii) be made publicly available. The Commission preliminarily estimates that each
Participant would incur an annual external cost of $3,095.2448 associated with this
requirement, for an aggregate annual, ongoing external cost of $65,000 to the
Participants.49
The Commission preliminarily estimates that the Participants would incur an
aggregate, annualized external cost of approximately $65,000 to have the CAT LLC
47

$4,200 = (21 Participants) x ($400 per hour rate for outside legal services) x (0.5
hours).

48

In the CAT NMS Plan Order, the Commission estimated that the aggregate cost of
this requirement for the Participants is $65,000. To estimate this number, the
Commission drew from a recent Commission adopting release and an industry
report. Specifically, the Commission’s Crowdfunding Adopting Release
estimated that the audit costs for affected issuers would be $2,500 to $30,000.
See Securities Act Release No. 9974 (October 30, 2015), 80 FR 71499
(November 16, 2015). The Commission believes this estimate could be reasonable
if the Company’s financials are of the same level of complexity as the larger
issuers affected by the Crowdfunding rule, which is realistic because the
Company is not publicly traded, is organized as a “business league”, and has a
limited and predictable revenue stream. As an alternative estimate, the
Commission estimated an audit cost of approximately $65,000 using an industry
estimate of $479 in audit costs per $1 million in revenue, using the assumption
that Company revenue will just offset expected costs of $139 million. See Audit
Analytics report “Audit Fees and Non-Audit Fees: A Twelve Year Trend,”
October 9, 2014, available at http://www.auditanalytics.com/blog/audit-fees-andnon-audit-fees-a-twelve-year-trend/. $479 x $139 = $64,665 ~ $65,000. The
Commission incorporates the higher estimate from the two methodologies
($65,000) into its cost estimates. See CAT NMS Plan Order, supra note 6, at
84856, n.2503. ($65,000 annual, external cost) / ( 21 Participants) = $3,095.24 per
Participant.

49

Id.

22

financials be (i) in compliance with GAAP, (ii) be audited by an independent public
accounting firm, and (iii) be made publicly available ($3,095.24 in annual, ongoing
external costs) x (21 Participants).
H. Background Checks
Section 6.1(g) of the CAT NMS Plan requires each Participant to conduct
background checks of its employees and contractors that will use the CAT System. The
Commission preliminarily estimates that this requirement will impact approximately
1,500 users.50 The Commission preliminarily estimates that each Participant would need
to have background checks of approximately 71 users.51 For its estimates, the
Commission is assuming that these would be background checks using fingerprints
submitted to the Attorney General of the United States for identification and processing.52
The Commission preliminarily estimates that the total initial external cost per Participant
would be $2,603.04,53 for an aggregate, initial external cost of $54,987.45.54
The Commission preliminarily estimates that the ongoing external cost to be
incurred by each Participant would be approximately $625.07,55 for an aggregate annual
external cost of $13,126.37.56

50

This number is based on conversations with Participants.

51

71.42 users per Participant = (1,500 users) / (21 Participants).

52

The Commission is basing this assumption on the requirements of Section
17(f)(2). 15 U.S.C. 78q(f)(2).

53

71.42 x 45% hard copy fingerprinting = 32.14 users. 71 x 55% electronic
fingerprinting = 39.28 users. (32.14 hard copy fingerprinting users) x ($44.50 per
hard copy fingerprint) = $1,430.23 for hard copy fingerprinting users per
Participant. (39.28 electronic fingerprinting users) x ($30.25 per electronic
fingerprint) = $1,188.22 for electronic fingerprint users per Participant. $1,430.23
+ $1,188.22= $2,618.45 per Participant in initial external costs for fingerprinting.

54

$54,987.45 = ($2,618.45 per Participant) x (21 Participants).

55

See supra note 32. Based on the Commission’s estimate that 17.05 users will
need to be subject to background checks annually, the Commission estimates that
45% of the 17.05 users would submit hard copy fingerprints and 55% of the 17.05
users would submit electronic fingerprints to conduct their background checks.
45% of 17.05 = 7.67 users that would submit hard copy fingerprints. 55% of
17.05 = 9.38 users that would submit electronic fingerprints. (7.67 hard copy
fingerprinting users) x ($44.50 per hard copy fingerprint) = $341.32 for hard copy
fingerprinting users per Participant. (9.38 electronic fingerprinting users) x
($30.25 per electronic fingerprint) = $283.75 for electronic fingerprint users per
Participant. $341.32 + $283.75 = $625.07 per Participant in initial external costs
for fingerprinting.

23

The Commission preliminarily estimates that the Participants would incur an
aggregate, annualized external cost of approximately $31,347.75 to conduct background
checks of its employees and contractors that will use the CAT System ($2,603.04 in
initial external costs amortized over three years) + ($625.07 in annual, ongoing external
costs) x (21 Participants).
The following chart provides a summary of the cost for the above new collections
together with the Existing Collections approved on March 9, 2017.

Summary of Dollar Costs
Type of Burden

[A.]
Number of
Entities
Impacted

[B.]
Annual
Responses
per Entity

[C.]
Initial Cost per
Entity per
Response

[D.]
Initial Cost
Annualized per
Entity per
Response
[ = C ÷ 3 years]

[E.]
Ongoing Cost per
Entity per
Response

[F.]
Annual Cost Per
Entity per
Response
[ = D + E]

[G.]
Total Annual
Cost Per Entity
[ = (D + E) * B]

[H.]
Total Industry Cost
[ = G * A]

Small
Business
Entities
Affected

Disclosure

21

1

$238.09

$79.36

$0

$79.36

$79.36

$1,666.56

0

Reporting

21

1

$200

$66.67

$0

$66.67

$66.67

$1,400.07

0

Coordinated
Surveillance
Report

Reporting

21

1

$1,000

$333.33

$0

$333.33

$333.33

$6,999.93

0

Assessment of
Industry
Member Bulk
Access to
Reporter Data

Reporting

21

1

$2,000

$666.67

$0

$666.67

$666.67

$14,000.07

0

Assessment of
Errors in
Customer
Information
Fields

Reporting

21

1

$500

$166.67

$0

$166.67

$166.67

$3,500.07

0

Report on
Impact of
Tiered Fees on
Market
Liquidity

Reporting

21

1

$200

$66.67

$0

$66.67

$66.67

$1,400.07

0

Financial
Statements

Disclosure

21

1

0

0

$3,095.24

$3,095.24

$3,095.24

$65,000.04

0

Disclosure

21

1

$2,603.04

$867.68

$625.07

$1,492.75

$1,492.75

$31,347.75

0

Recordkeeping

21

1

$3,209,523.8

$1,069,841.27

$2,657,142.86

$3,726,984.13

$3,726,984.13

$78,266,666.73

0

Third Party
Disclosure

21

1

$361,904.76

$120,634.92

$352,380.95

$473,015.87

$473,015.87

$9,933,333.27

0

Name of
Information
Collection

Independent
Audit of
Expenses
Incurred Prior
to the Effective
Date
Review of
Clock
Synchronization
Standards

Background
Checks
Central
Repository
Data Collection
and Reporting
(Participants)

56

($625.07 per Participant in annual, ongoing external costs) x (21 Participants) =
$13,126.37 to conduct a fingerprint-based background check of the users.

24

Name of
Information
Collection

Data Collection
and Reporting
(Large, NonOATS
Reporting
Broker-Dealers
- ELPs)
Data Collection
and Reporting
(Large, NonOATS
Reporting
Broker-dealers
– Options
Market Makers)
Data Collection
and Reporting
(Large OATS
Reporting
Broker-Dealers)
Data Collection
and Reporting
(Small OATS
Reporting
Broker-Dealers)
Data Collection
and Reporting
(Non-OATS
Reporting
Broker-Dealers)
Surveillance
Written
Assessment of
Operation of
CAT
Document on
Expansion to
Other Securities

[A.]
Number of
Entities
Impacted

[B.]
Annual
Responses
per Entity

[C.]
Initial Cost per
Entity per
Response

[D.]
Initial Cost
Annualized per
Entity per
Response
[ = C ÷ 3 years]

[E.]
Ongoing Cost per
Entity per
Response

[F.]
Annual Cost Per
Entity per
Response
[ = D + E]

[G.]
Total Annual
Cost Per Entity
[ = (D + E) * B]

[H.]
Total Industry Cost
[ = G * A]

Small
Business
Entities
Affected

Third Party
Disclosure

14

1

$709,500

$236,500

$110,466.68

$346,966.68

$346,966.68

$4,857,533.52

0

Third Party
Disclosure

31

1

$1,270,790.32

$423,596.77

$493,722.48

$917,319.25

$917,319.25

$28,436,896.75

0

Third Party
Disclosure

126

1

$1,250,000

$416,666.67

$529,166.67

$945,833.34

$945,833.34

$119,175,000.84

0

Third Party
Disclosure

806

1

$125,171.04

$41,723.68

$124,439.50

$166,163.18

$166,163.18

$133,927,523.08

Estimated
39557

Third Party
Disclosure

823

1

$125,171.04

$41,723.68

$124,439.50

$166,163.18

$166,163.18

$136,752,297.14

Estimated
82358

Recordkeeping

21

1

$271,428.57

$90,476.19

$1,000,000.00

$1,090,476.19

$1,090,476.19

$22,899,999.99

0

Reporting

21

1

$1,000.00

$1,000.00

$1,000.00

$21,000.00

0

Reporting

21

1

$3,333.33

$3,333.33

$69,999.93

0

Type of Burden

$10,000.00

$3,333.33

TOTAL COST FOR ALL RESPONDENTS

14.

$534,465,565.81

Costs to Federal Government
Not applicable.

15.

Changes in Burden

Changes in burden have occurred because the Commission added, as detailed
above, new information collections of audits, reports, and assessments of various aspects
of the CAT NMS Plan, which are necessary to achieving the CAT NMS Plan’s objective
of improving the quality of the data available to regulators in four areas that affect the
ultimate effectiveness of core regulatory efforts—completeness, accuracy, accessibility
and timeliness, and background checks necessary to ensure that only authorized and
qualified persons are using the CAT System.
16.

Information Collection Planned for Statistical Purposes

57

See supra note 34.

58

Id.

25

Not applicable.
17.

Display of OMB Approval Date

The Commission is not seeking approval to not display the expiration date for
OMB approval.
18.

Exceptions to Certification
This collection complies with the requirements in 5 CFR 1320.9.

B.

Collections of Information Employing Statistical Methods
This information collection does not involve statistical methods.

26