The CAT Scratches: Fees for Options Exchanges

I saw a MIAX press release about Consolidated Audit Trail (CAT) fee disputes and it got me thinking why there would be reason for dispute. Please note, I don’t know if the following is on any exchange’s collective mind, but it seems like point of contention.

I’ll set the table with this stat from a Reuters story earlier this month – “Options execution venues with more than 1 percent of industry volume will pay $57,615 per quarter and those with less than 1 percent will pay $39,612 per quarter.” “Per venue” means per medallion/exchange.

That means that MIAX would pay $388,908 per year to support the CAT — MIAX at $57,615 a quarter and MIAX Pearl at $39,612 a quarter, since Pearl executes less than 1 percent of industry volume. Comparatively, NSYE would pay $460,920 per year to support the CAT — NYSE Arca and NYSE Amex both come in at $57,615 a quarter as both execute more than 1 percent of industry volume. On a monthly basis, NYSE overall executes some 12-15 percent of industry volume, whereas MIAX executes some 5-6 percent of industry volume.

I can see an argument to be made by MIAX (or BOX, or Nasdaq, or NYSE for that matter) for this being a disproportionate application of CAT costs when compared to the volume of information generated. If the CAT is intended to track trade activity and serve as a repository for all activity, doesn’t it make sense that those with more marketshare — more trades to track — would pay proportionately more? Because under the current model NYSE, which has some two to three times the total volume of MIAX, would only pay 18 percent more per year.

Yearly CAT fees for all exchange groups with rounded April marketshare next to exchange name:

-Nasdaq (36%) – six exchanges, two with less than 1 percent volume = $1,238,736
-CBOE (44%) – four exchanges with more than 1 percent daily volume = $921,840
-NYSE (12) – two exchanges with more than 1 percent daily volume = $460,920
-MIAX (5%) – two exchanges, one with less than 1 percent volume = $388,908
-BOX (2%) – one exchange with more than 1 percent daily volume = $230,460

Note: This $3+ million is just a sliver of the CAT cost ($50.7 million) and brokers will be footing 75 percent of the total bill.