FINRA Rule 6897

The Core Funding Model

The fee framework traces to the SEC's CAT Funding Model Approval Order, issued September 6, 2023, in Securities Exchange Act Release No. 98290, 88 FR 62628, which established the executed-equivalent-share methodology still in use today. Under this model, CAT fees are calculated based on executed equivalent shares and charged to the CAT Executing Broker for the buyer, referred to as the CEBB, and the CAT Executing Broker for the seller, referred to as the CEBS, since these entities are already identifiable in transaction reports submitted to the exchanges and to FINRA's own equity trade reporting facilities, giving the model an efficient, already-existing data source for billing purposes rather than requiring an entirely new reporting mechanism built solely for fee calculation.

The underlying cost allocation follows a fixed formula: CEBBs collectively bear one-third of the relevant period's budgeted CAT costs, CEBSs collectively bear another one-third, and the CAT NMS Plan Participants, meaning FINRA and the national securities exchanges, collectively bear the remaining one-third themselves. For any given transaction, the fee is calculated by multiplying the number of executed equivalent shares in that transaction by the applicable Fee Rate the Operating Committee has established for the relevant period. CEBBs and CEBSs may, but are not required to, pass through their CAT Fees to their own clients, who may in turn pass those fees further down the chain, until the fee is ultimately borne by whichever account actually executed the underlying transaction.

The Remarkable Decline in Fee Rates Over Time

Candidates and practitioners tracking Rule 6897's amendment history will notice a striking, sustained trend: the per-share fee rate has fallen dramatically since CAT Fees were first established. CAT Fee 2024-1 was set at $0.000035 per executed equivalent share; CAT Fee 2025-1 fell to $0.000022; CAT Fee 2025-2 fell further still to $0.000009; and CAT Fee 2026-1, covering the period from May 1, 2026 through December 31, 2026, fell to just $0.000001 per executed equivalent share, roughly one thirty-fifth of the original 2024 rate. This consistent downward trajectory reflects a maturing system whose ongoing budgeted costs have declined significantly relative to CAT's earlier, more capital-intensive build-out and implementation phase, and firms modeling their own CAT-related costs should expect this downward trend to continue moderating the practical financial impact of these fees on ordinary trading activity, absent some new cost driver reversing the pattern.

Historical CAT Assessments: A Separate, Backward-Looking Fee Category

Rule 6897 addresses two conceptually distinct categories of fee, and candidates should not conflate them. The CAT Fees discussed above cover Prospective CAT Costs, meaning costs not yet incurred as of the relevant fee filing, covering CAT's ongoing, forward-looking operational expenses. A separate category, the Historical CAT Assessment, addresses Past CAT Costs, meaning costs the Participants had already incurred and funded themselves before CAT's funding model shifted meaningful cost responsibility onto Industry Members, specifically costs incurred prior to June 22, 2020, the date Phase 2a reporting commenced under Rule 6895, referred to as the Pre-FAM, or pre-Full Audit Trail Model, period.

Historical CAT Assessment 1, the original such assessment, was established at a fee rate of $0.000015 per executed equivalent share, designed to recover $212,039,879.34, representing two-thirds of Historical CAT Costs 1 of $401,312,909 after excluding certain costs the Operating Committee determined should not be recovered from Industry Members, with the Participants themselves remaining responsible for the corresponding one-third they had already funded historically. This assessment, however, ultimately collected only $173,075,024 of its $212,039,879.34 target before it ceased to be in effect, leaving a shortfall of $38,964,855.34 uncollected relative to the original recovery goal. Rather than simply abandoning the uncollected remainder, the Operating Committee established a successor assessment, Historical CAT Assessment 1A, at a fee rate of $0.000002 per executed equivalent share, specifically designed to collect this remaining shortfall, with CAT Executing Brokers receiving their first invoice for this assessment in June 2026. This sequence illustrates that Historical CAT Assessments function as targeted collection campaigns tied to a specific dollar recovery goal, continuing or restarting as needed until that specific target is actually reached, rather than operating on a fixed calendar schedule independent of collection progress.

FINRA's Own Prospective CAT Cost Recovery Fee

Beyond the CAT Fees CAT LLC itself invoices directly, FINRA has separately established its own distinct fee mechanism, the Prospective CAT Cost Recovery Fee, addressing a specific structural feature of how CAT costs are allocated among Participants. Because FINRA, as one of the CAT NMS Plan Participants, itself bears a share of the Participants' collective one-third of CAT costs, and because FINRA's own facilities, the Trade Reporting Facilities, the OTC Reporting Facility, and the Alternative Display Facility, handle the OTC-executed transactions where FINRA is the relevant Participant, FINRA established a separate fee specifically to recover its own Participant-level cost share from the CEBBs and CEBSs on those specific OTC transactions, rather than absorbing that allocated cost internally without any corresponding pass-through mechanism of its own.

This means a firm executing meaningful OTC equity volume may receive two genuinely separate CAT-related invoices covering overlapping activity: the CAT Fee invoice from CAT LLC directly, and a separate Prospective CAT Cost Recovery Fee invoice from FINRA itself, covering FINRA's own allocated Participant share specifically tied to OTC-executed transactions. FINRA structures its own recovery fee rate by apportioning the rate assessed to FINRA under the corresponding CAT Fee period equally between the CEBB and CEBS sides of each relevant transaction; for the CAT Fee 2025-2 period, for example, with a $0.000009 CAT Fee rate, FINRA's corresponding Prospective CAT Cost Recovery Fee 2025-2 rate was set at $0.000005 per executed equivalent share, reflecting FINRA's own equal apportionment of its assessed share between the two sides of the transaction.

Determining the CEBB and CEBS for OTC Transactions

Supplementary Material .01 to Rule 6897 addresses a specific technical question directly relevant to firms reporting through FINRA's equity trade reporting facilities: how to determine the CEBB and CEBS for a transaction executed otherwise than on an exchange. For such a transaction, required to be reported to a Trade Reporting Facility, the OTC Reporting Facility, or the Alternative Display Facility, the CEBB and CEBS are the members identified as the executing broker and the contra-side executing broker, respectively, in the underlying trade report data itself, drawing directly on the same reportingExecutingMpid and contraExecutingMpid fields firms already populate when submitting their trade reports under the rules discussed elsewhere in this dictionary. Where the contra-side executing broker identified in that data is a non-member, or where no contra-side executing broker is identified at all, the member identified as the executing broker is treated as both the CEBB and the CEBS for that transaction, and bears the fee obligation for both sides rather than only its own side.

A Worked Example of Combined Fee Exposure

Consider a FINRA member firm that executes a substantial volume of OTC equity transactions during the CAT Fee 2025-2 period, reported through one of FINRA's Trade Reporting Facilities. For each such transaction where the firm is identified as the executing broker, and a FINRA member counterparty is identified as the contra-side executing broker, the firm would owe the CAT Fee 2025-2 rate of $0.000009 per executed equivalent share on its own side of each transaction as either the CEBB or CEBS, invoiced directly by CAT LLC. Because the transaction was executed on an OTC venue and reported through a FINRA facility, with FINRA serving as the relevant Participant, the firm would separately owe FINRA's own Prospective CAT Cost Recovery Fee 2025-2, at $0.000005 per executed equivalent share, invoiced separately by FINRA itself covering FINRA's own allocated Participant-level cost share.

If that same firm also happened to be trading during a period when Historical CAT Assessment 1A was in effect, and if any portion of its historical transaction volume traced back to the assessment's underlying calculation methodology, the firm could simultaneously see a third category of charge reflecting this backward-looking cost recovery, layered on top of the two prospective fee streams already described. A firm's finance and compliance functions should understand that these three categories, ordinary prospective CAT Fees, FINRA's own Participant-level Prospective CAT Cost Recovery Fee for OTC activity, and any currently active Historical CAT Assessment, are conceptually and administratively distinct, even though all three ultimately trace back to funding the same underlying CAT system, and a firm's invoice reconciliation process should be built to recognize and validate each category independently rather than treating all CAT-related charges as a single undifferentiated line item.

Relevance Across FINRA's Exam Programs

The SIE, Series 63, and Series 65 do not test Rule 6897's fee mechanics, since these exams do not reach into CAT's cost-recovery infrastructure. A Series 7 candidate is unlikely to encounter this rule directly, though understanding that CAT's ongoing operation carries real, allocated costs borne by executing brokers reinforces broader awareness of how market infrastructure gets funded.

A Series 24 candidate supervising a firm's operational and finance functions needs to understand the distinction between prospective CAT Fees and backward-looking Historical CAT Assessments, since a principal reviewing the firm's CAT-related invoices should be able to correctly categorize each charge and confirm it aligns with the currently effective rate for that specific fee period. A principal at a firm with meaningful OTC trading activity should also understand that the firm may receive both a CAT LLC invoice and a separate FINRA Prospective CAT Cost Recovery Fee invoice, ensuring the firm's accounts payable function does not mistake the second invoice for a duplicate billing error. A Series 57 candidate handling OTC order execution should understand how the CEBB and CEBS determination under Supplementary Material .01 connects directly to the same executing-party and contra-party fields used elsewhere in trade reporting, since correctly identifying these parties at the point of trade reporting has direct fee consequences beyond the trade reporting obligation itself.

Practical Guidance for Firms

Firms should build ongoing monitoring of Rule 6897's fee rate changes directly into their operational cost forecasting, given how frequently these rates have changed and how dramatically they have moved over a relatively short period. A firm that continues applying an outdated fee rate assumption in its own internal cost modeling, rather than tracking each successive fee period's actual current rate, risks a meaningfully inaccurate picture of its own CAT-related cost exposure, particularly given the magnitude of the rate decline observed between the 2024 and 2026 fee periods, a decline substantial enough to materially change the economics of high-volume trading strategies that are sensitive to per-share regulatory costs at the margin.

Firms with meaningful OTC trading volume should specifically confirm their accounts payable and reconciliation processes correctly distinguish between the CAT LLC invoice and any separate FINRA Prospective CAT Cost Recovery Fee invoice, ensuring both are properly validated against the firm's own transaction volume rather than assumed to represent duplicate or erroneous billing. Given that these two invoices arrive from different issuing entities covering conceptually related but formally distinct fee obligations, a firm's internal invoice reconciliation process should specifically account for this dual-invoice structure rather than treating all CAT-related billing as a single, undifferentiated cost category.

Firms should also periodically confirm their CEBB and CEBS determination logic for OTC transactions remains correctly aligned with the executing-party and contra-party fields discussed in Supplementary Material .01, particularly for transactions involving a non-member contra-party, since a firm incorrectly excluding itself from CEBS liability on a transaction where it should properly bear both the CEBB and CEBS fee, because the contra-side was a non-member, risks under-remitting fees owed and creating a discrepancy that could surface during a later reconciliation or examination. Firms should treat this determination logic as directly tied to, and dependent upon, the accuracy of the same executing-party and contra-party fields relied upon elsewhere in the firm's trade reporting infrastructure, reinforcing why accuracy in those underlying fields matters for fee compliance purposes in addition to the trade reporting purposes those fields were originally designed to serve.

Firms passing CAT Fees through to their own clients should ensure this pass-through practice is clearly documented and disclosed as appropriate, given that Rule 6897 permits, but does not require, this pass-through, and given that a firm's own client agreements and fee schedules should accurately reflect whether and how CAT-related costs are being passed along the execution chain. A firm electing not to pass through these fees should factor the ongoing, if currently declining, cost into its own internal profitability analysis for the affected business lines, while a firm that does pass the fees through should confirm its billing systems correctly calculate the pass-through amount using the currently effective rate for each relevant fee period, given how frequently that rate has changed.

Firms should build a standing internal reference document tracking the currently effective rate for each of the three fee categories discussed in this entry, updated promptly whenever FINRA files a new fee schedule, rather than relying on institutional memory or outdated internal documentation that may no longer reflect the current rate environment. Given the sheer frequency of rate changes evident across the 2024 through 2026 period alone, a firm without a disciplined, actively maintained internal tracking mechanism risks applying a stale rate in its own cost projections or client pass-through calculations, a discrepancy that compounds over time the longer an outdated rate assumption goes uncorrected.