Feb. 14, 2023
We wanted to follow-up on our call from January 11th. We very much appreciate you and the staff for making time to discuss the flaws we see with the current CAT funding model - specifically the fee collection component. It remains Dash's position that putting the executing brokers in the middle of the fee collection process is inefficient, can cause an undue burden to competition, and is without precedent. During the call Mr. Donohue raised a question about the fair and equitable allocation of Consolidated Audit Trail fees. We'd like to provide clarity on our response. CAT is designed to track the life cycle of every order, including the broker-dealers who handle an order throughout each step of the execution process. The purpose is to enable regulators to efficiently monitor activity throughout the U.S. equities and options markets. FINRA CAT is co-owned by FINRA and the SROs with the latter being charged with responsibility for operational funding. The broker-dealers handling the orders have the obligation to comply with CAT reporting requirements, which are all based on client activity - not their own. Executing brokers have the obligation to obtain the best execution on behalf of their clients and do not participate in profit or loss on any investment or trade. In the Fee Filing, the SROs cite client activity as the cause for the complex requirements and costs for CAT. This client activity is simply facilitated by executing brokers, not initiated by them. Many of these complexities stem from the fact we continue to see new SROs come online thus making the market structure more complex. Furthermore, executing broker-dealers have to make significant investments in order to comply with CAT reporting requirements. This investment is not a one-time event as continued maintenance will be required to remain compliant. The required investment in establishing and maintaining these reporting systems is already a significant operational cost and should be considered their fair contribution to CAT operations. Besides the costs to establish and maintain CAT reporting compliance, we should consider the Exchange Act fee filing guidelines (referencing Staff Guidance published on May 21, 2019). Specifically, Section 6(b)(4) of the Exchange Act addresses the fair and equitable allocation of fees. There's also Section 6(b)(5) and Section 6(b)(8) which address unfair discrimination and imposing burden to competition. In looking at SEC Section 31 Transaction Fees and Option Regulatory Fees as "regulatory fee precedent", the SRO's fee filings on record charge these fees to the beneficial account for each transaction. It is our opinion that these precedents should be followed. While Section 31 fees are a fee the SEC charges the SROs, the SROs have subsequently made fee filings in order to be reimbursed by the beneficial seller of each equities transaction. This regulatory fee is not imposed on executing brokers. Options Regulatory Fees are another regulatory fee that the SROs charge to each "Customer" buy or sell order. Again, this regulatory fee is imposed upon the beneficial "Customer" account and not to executing brokers. In looking at both regulatory fees related to trading activity, there simply is no precedent to allocate these costs to executing brokers. When combining all of these facts it does seem fair and equitable to allocate CAT fees to the SROs and beneficial accounts of each transaction while keep executing brokers out of the equation. We thank you again for the time and consideration; and we would welcome a follow-up conversation should the staff want to discuss anything further.