Regulation ATS for ATSs That Trade U.S. Government Securities, NMS Stock, and Other Securities; Regulation SCI for ATSs That Trade U.S. Treasury Securities and Agency Securities; and Electronic Corporate Bond and Municipal Securities Markets, 87106-87253 [2020-21781]
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Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Proposed Rules
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 240, 242 and 249
[Release No. 34–90019; File No. S7–12–20]
RIN 3235–AM45
Regulation ATS for ATSs That Trade
U.S. Government Securities, NMS
Stock, and Other Securities;
Regulation SCI for ATSs That Trade
U.S. Treasury Securities and Agency
Securities; and Electronic Corporate
Bond and Municipal Securities Markets
Securities and Exchange
Commission.
ACTION: Proposed rule; request for
comment; concept release.
AGENCY:
The Securities and Exchange
Commission is proposing amendments
to Regulation ATS under the Securities
Exchange Act of 1934 (‘‘Exchange Act’’)
for alternative trading systems
(‘‘ATSs’’). The Commission is proposing
to amend Regulation ATS for ATSs that
trade government securities as defined
under Section 3(a)(42) of the Exchange
Act (‘‘government securities’’) or
repurchase and reverse repurchase
agreements on government securities
(‘‘Government Securities ATSs’’) to:
Eliminate the exemption from
compliance with Regulation ATS for an
ATS that limits its securities activities
to government securities or repurchase
and reverse repurchase agreements on
government securities, and registers as a
broker-dealer or is a bank; require the
filing of public Form ATS–G, which
would require a Government Securities
ATS to disclose information about its
manner of operations and the ATSrelated activities of the registered
broker-dealer or government securities
broker or government securities dealer
that operates the ATS and its affiliates;
require, among other things, public
posting of certain Form ATS–G filings
and to provide a process for the
Commission to review Form ATS–G
filings and, after notice and opportunity
for hearing, declare Form ATS–G filings
ineffective; and apply the fair access
rule under Rule 301(b)(5) of Regulation
ATS to Government Securities ATSs
that meet certain volume thresholds in
U.S. Treasury Securities or in a debt
security issued or guaranteed by a U.S.
executive agency, or governmentsponsored enterprise (‘‘Agency
Securities’’). The Commission is also
proposing changes to correct and
modernize Regulation ATS, Form ATS,
Form ATS–N, and Form ATS–R. In
addition, the Commission is proposing
to amend Regulation Systems
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SUMMARY:
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Compliance and Integrity to apply it to
ATSs that meet certain volume
thresholds in U.S. Treasury Securities or
Agency Securities. Finally, the
Commission is issuing a concept release
on the regulatory framework for
electronic platforms that trade corporate
debt and municipal securities.
DATES: Comments should be received on
or before March 1, 2021.
ADDRESSES: Comments may be
submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/proposed.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number S7–
12–20 on the subject line.
Paper Comments
• Send paper comments to Vanessa
A. Countryman, Secretary, Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090.
All submissions should refer to File
Number S7–12–20. This file number
should be included on the subject line
if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/proposed.shtml). Comments are
also available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. All comments received
will be posted without change. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly.
Studies, memoranda, or other
substantive items may be added by the
Commission or staff to the comment file
during this rulemaking. A notification of
the inclusion in the comment file of any
materials will be made available on the
Commission’s website. To ensure direct
electronic receipt of such notifications,
sign up through the ‘‘Stay Connected’’
option at www.sec.gov to receive
notifications by email.
FOR FURTHER INFORMATION CONTACT:
Regulation ATS: Tyler Raimo, Assistant
Director, at (202) 551–6227; Matthew
Cursio, Special Counsel, at (202) 551–
5748; David Garcia, Special Counsel, at
(202) 551–5681; Megan Mitchell,
Special Counsel, at (202) 551–4887; and
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Joanne Kim, Law Clerk, at (202) 551–
4393, and for Regulation SCI: David Liu,
Special Counsel, at (312) 353–6265 and
Sara Hawkins, Special Counsel, at (202)
551–5523, Office of Market Supervision,
Division of Trading and Markets,
Securities and Exchange Commission,
100 F Street NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The
Commission is proposing to: (1) Amend
Rule 300 (17 CFR 242.300) and Rule 301
(17 CFR 242.301) of Regulation ATS
under the Exchange Act to eliminate the
current exemption from compliance
with Rules 300 through 304 (17 CFR
242.300 through 242.304) (‘‘Regulation
ATS’’) under the Exchange Act for an
ATS that limits its securities activities
to government securities or repurchase
and reverse repurchase agreements on
government securities, and registers as a
broker-dealer or is a bank and require
such ATS to comply with applicable
provisions of Regulation ATS; (2)
amend Rule 3a1–1(b) (17 CFR 242.3a1–
1(b)) under the Exchange Act to require
a Government Securities ATS, which
otherwise qualifies for the Rule 3a1–1(a)
exemption, to register as a national
securities exchange if the ATS meets
certain, specified volume levels in U.S.
Treasury Securities and Agency
Securities, and the Commission
determines that such exemption is not
necessary or appropriate in the public
interest or consistent with the
protection of investors; (3) include
Government Securities ATSs within the
scope of Rule 304 (17 CFR 242.304) of
Regulation ATS,1 which would provide
new requirements for Government
Securities ATSs seeking to use the
exemption from the definition of
‘‘exchange’’ under Regulation ATS; (4)
require that Government Securities
ATSs use new Form ATS–G in
accordance with Rule 3a1–1(a) (17 CFR
240.3a1–1(a)); (5) amend Rule 301(b)(5)
(17 CFR 242.301(b)(5)) of Regulation
ATS (‘‘Fair Access Rule’’) to require
Government Securities ATSs that meet
certain trading volume thresholds in
transactions in U.S. Treasury Securities
or Agency Securities to comply with the
Fair Access Rule; (6) amend Rule 301 of
Regulation ATS and Form ATS and
Form ATS–R to provide that such forms
must be electronically filed; and (7)
amend Rule 1000 (17 CFR 242.1000) of
Regulation Systems Compliance and
Integrity (‘‘Regulation SCI’’) under the
Exchange Act by expanding the
definition of ‘‘SCI alternative trading
system’’ to include Government
1 The Commission adopted Rule 304 on July 18,
2018. See Securities Exchange Act Release No.
83663 (July 18, 2018), 83 FR 38768 (August 7, 2018)
(‘‘NMS Stock ATS Adopting Release’’).
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Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Proposed Rules
Securities ATSs that meet a specified
volume threshold in transactions in U.S.
Treasury Securities or Agency
Securities, and as a result subject these
Government Securities ATSs to the
requirements of Regulation SCI.2
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Table of Contents
I. Government Securities ATS: Background
A. ATS Markets for U.S. Government
Securities
B. Current Regulatory Framework for
Government Securities ATSs
C. Prior Comments Received About
Government Securities Markets
II. Proposed Amendments to Regulation ATS
for Government Securities ATSs
A. Proposed Amendment to Exchange Act
Rule 3a1–1(b)
B. Proposed Definitions for Government
Securities ATSs Rules
C. Proposed Elimination of the Exemption
for ATSs That Limit Securities Activities
to Government Securities and Repos
D. Application of Fair Access to
Government Securities ATSs
E. Filing Requirements for Broker-Dealers
That Operate ATSs That Trade
Government Securities and NonGovernment Securities
F. Enhanced Filing Requirements for
Government Securities ATSs
G. Public Disclosure of Form ATS–G and
Related Commission Orders
H. Form ATS–G Requirements
III. Proposed Form ATS–G for Government
Securities ATSs
A. Cover Page and Part I of Form ATS–G
1. Cover Page
2. Part I of Form ATS–G: Identifying
Information
B. Part II of Form ATS–G: ATS-Related
Activities of the Broker-Dealer Operator
and Affiliates
1. Broker-Dealer Operator and Its Affiliate
Trading Activities on the Government
Securities ATS
2. Order Interaction With Broker-Dealer
Operator; Affiliates
3. Arrangements With Other Trading
Venues
4. Other Products and Services
5. Activities of Service Providers
6. Protection of Confidential Trading
Information
C. Part III Form ATS–G: Manner of ATS
Operations
1. Types of ATS Subscribers
2. Eligibility for ATS Services
3. Exclusion From ATS Services
4. Hours of Operations
5. Means of Entry
6. Connectivity and Co-Location
7. Order Types and Attributes
8. Order Sizes
9. Indications of Interest
10. Opening and Reopening
11. Trading Services, Facilities and Rules
12. Liquidity Providers
13. Segmentation; Notice
2 The Commission adopted Regulation SCI on
November 19, 2014. See Securities Exchange Act
Release No. 73639 (November 19, 2014), 79 FR
72252 (December 5, 2014) (‘‘Regulation SCI
Adopting Release’’).
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14. Counter-Party Selection
15. Display
16. Interaction With Related Markets
17. Closing
18. Trading Outside of Regular Trading
Hours
19. Fees
20. Suspension of Trading
21. Trade Reporting
22. Clearance and Settlement
23. Market Data
24. Fair Access
25. Aggregate Platform-Wide Data; Trading
Statistics
D. Part IV of Proposed Form ATS–G
IV. EDGAR Filing Requirements; Structured
Data
V. Amendments to Regulation ATS, Form
ATS, Form ATS–R, and Form ATS–N
A. Amendments to Rules 301(b)(5) and
301(b)(6) of Regulation ATS
B. Amendment to Rule 301(b)(2)(vii)
C. Modernization and Electronic Filing of
Form ATS and Form ATS–R
D. Changes to Form ATS–N
VI. Proposed Amendments to Regulation SCI
for Government Securities ATS
VII. General Request for Comment
VIII. Concept Release on Electronic Corporate
Bond and Municipal Securities Market
IX. Paperwork Reduction Act
A. Summary of Collection of Information
1. Requirements Relating to Application of
Rule 301(b) of Regulation ATS to
Currently Exempted Government
Securities ATSs
2. Requirements Relating To Proposed
Amendments to Rules 301(b)(2)(viii) and
304 of Regulation ATS, Including
Proposed Form ATS–G, and
Amendments to Rule 301(b)(9)
3. Requirements Relating To Proposed
Amendments to Rule 301(b)(5)
4. Requirements Related To Proposed
Amendments to Rule 301(b)(2), Form
ATS, and Form ATS–R
5. Requirements Related to Amendments to
Regulation SCI
B. Proposed Use of Information
1. Proposed Amendments To Apply Rule
301(b) of Regulation ATS to Currently
Exempted Government Securities ATSs
2. Proposed Amendments to Rule 301(b)(5)
of Regulation ATS
3. Proposed Amendments to Rule
301(b)(2), Form ATS, and Form ATS–R
4. Proposed Application of Regulation SCI
to Government Securities ATSs
5. Proposed Rules 301(b)(2)(viii) and 304 of
Regulation ATS, Including Proposed
Form ATS–G, and Proposed Rule
301(b)(9)
C. Respondents
D. Total Initial and Annual Reporting and
Recordkeeping Burdens
1. Rule 301(b) of Regulation ATS to
Currently Exempted Government
Securities ATSs
2. Proposed Amendments to Rules
301(b)(2)(viii) and 304 of Regulation
ATS, Including Proposed Form ATS–G
3. Proposed Amendments to Rule 301(b)(5)
of Regulation ATS
4. Proposed Amendments to Rule
301(b)(2), Form ATS, and Form ATS–R
5. Proposed Amendments to Regulation
SCI
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E. Collection of Information Is Mandatory
F. Confidentiality of Responses to
Collection of Information
G. Retention Period for Recordkeeping
Requirements
H. Request for Comments
X. Economic Analysis
A. Introduction
B. Baseline
1. Current State of Competition in the
Market for Trading Government
Securities
2. Reporting Requirements for Government
Securities ATSs
3. Information Asymmetries Due to
Limited Public Information About
Operations of Government Securities
ATSs
4. Government Securities ATSs Treatment
of Subscriber Confidential Trading
Information
5. Fair Access Rule
6. Regulation SCI
7. Implications for Efficiency
C. Economic Effects and Effects on
Efficiency, Competition, and Capital
Formation
1. Benefits
2. Costs
3. Efficiency, Competition, and Capital
Formation
D. Reasonable Alternatives
1. Require Currently Exempted
Government Securities ATSs To File a
Non-Public Form ATS
2. Require Proposed Form ATS–G Be Filed
But Treat the Information as Confidential
3. Initiate Differing Levels of Public
Disclosure Depending on Government
Securities ATS Dollar Volume
4. Extend the Transparency Requirements
of Regulation ATS to All Non-ATS
Trading Venues for Government
Securities
5. Alter the Volume Thresholds for the Fair
Access Rule and Regulation SCI
6. Apply Rule 301(b)(6) of Regulation ATS
to Government Securities ATSs
7. Require Forms ATS–G, ATS, and ATS–
R To Be Submitted in the Inline XBRL
Format
8. Require Forms ATS–G, ATS, and ATS–
R To Be Filed on EFFS or on Individual
ATS Websites
E. Request for Comments
XI. Consideration of Impact on the Economy
XII. Regulatory Flexibility Act Certification
XIII. Statutory Authority and Text of
Proposed Amendments
I. Government Securities ATS:
Background
A. ATS Markets for U.S. Government
Securities
An ATS is a trading system for
securities that meets the definition of
‘‘exchange’’ under federal securities
laws but is not required to register with
the Commission as a national securities
exchange if it complies with the
conditions to an exemption provided
under Regulation ATS. Since Regulation
ATS was adopted in 1998, ATSs have
become increasingly important venues
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for trading government securities.3
Currently, ATSs, particularly those that
operate in the secondary interdealer
markets for on-the-run U.S. Treasury
Securities, have become a significant
source of orders and trading interest for
government securities.4 ATSs for
government securities now operate with
complexity similar to that of markets
that trade NMS stocks in terms of
automation and speed of trading, the
use of limit order books, order types,
algorithms, connectivity, data feeds, and
the active participation of principal
trading firms (‘‘PTFs’’) on ATSs.5
Furthermore, government securities 6
make up more than half of the
outstanding debt issuances in the U.S.
bond market 7 and play a critical role in
the U.S. and global economies. Over the
last six months of 2019, the average
daily trading volume in government
securities was approximately $835
billion, or roughly 95 percent of all
fixed income trading volume in the
U.S.8
The most liquid and commonly
traded government securities are U.S.
Treasury Securities, which are direct
3 A venue for trading government securities can
include, among other things, an exchange, an ATS,
an OTC market maker, or any other broker or dealer
operated platform for executing trading interest
internally by trading as principal or crossing orders
as agent.
4 See infra Section X.B.1.
5 See NMS Stock ATS Adopting Release, supra
note 1, at 38771 for a discussion about the current
operational complexities of ATSs that trade
National Market System stocks (‘‘NMS Stock
ATSs’’).
6 Under the Exchange Act, government securities
are defined as, among other things, securities which
are direct obligations of, or obligations guaranteed
as to principal or interest by, the United States. See
15 U.S.C. 78c(42)(A). Government securities
include U.S. Treasury securities, debt securities
issued or guaranteed by a U.S. executive agency, as
defined in 5 U.S.C. 105, or government-sponsored
enterprise, as defined in 2 U.S.C. 622(8), and
Agency Mortgage-Backed Securities. Government
securities also include (i) securities which are
issued or guaranteed by the Tennessee Valley
Authority or by corporations in which the United
States has a direct or indirect interest and which are
designated by the Secretary of the Treasury for
exemption as necessary or appropriate in the public
interest or for the protection of investors; (ii)
securities issued or guaranteed as to principal or
interest by any corporation the securities of which
are designated, by statute specifically naming such
corporation, to constitute exempt securities within
the meaning of the laws administered by the
Commission; and (iii) any put, call, straddle,
option, or privilege on one of the aforementioned
(subject to limited exceptions). 15 U.S.C.
78c(42)(B)–(C).
7 See infra Section X.B.1.
8 See SIFMA Fixed Income Trading Volume,
available at https://www.sifma.org/resources/
research/us-fixed-income-trading-volume/. This
includes U.S. Treasury Securities, Agency
Mortgage-Backed Securities, and Federal Agency
Securities. The six-month average is the mean of the
average daily trading volume for these instruments
from July to December 2019.
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obligations of the U.S. Government
issued by the U.S. Department of the
Treasury (‘‘Treasury Department’’). The
Treasury Department issues several
different types of securities, including
Treasury bills, nominal coupons notes
and bonds, Floating Rate Notes, and
Treasury Inflation Protected Securities.
For each security type, the most recently
issued (‘‘on-the-run’’) securities are
generally considered most liquid in the
secondary market.9 Market participants
commonly refer to securities issued
prior to ‘‘on-the-run’’ securities as ‘‘offthe-run’’ securities.10 Market
participants use U.S. Treasury
Securities as an investment instrument,
hedging vehicle, and to source orders
and trading interest, among other things.
U.S. banks commonly own U.S.
Treasury Securities due to their low risk
and strong liquidity characteristics.
Additionally, U.S. Treasury Securities
are often used as collateral in lending
arrangements or as margin on other
financial transactions.
For U.S. Treasury Securities, the
secondary market is generally bifurcated
between the dealer-to-customer market,
in which dealers trade with their
customers (e.g., investment companies,
pension funds, insurance companies,
corporations, or retail) and the
interdealer market, in which dealers and
specialty firms trade with one another.11
Trading in the U.S. Treasury Securities
dealer-to-customer market is generally—
and has historically been—conducted
through bilateral transactions.
Customers, also referred to as ‘‘end
users,’’ have not traditionally traded
directly with other end users.12 Rather,
end users primarily trade with dealers,
and dealers use the interdealer market
as a source of orders and trading interest
to help facilitate their trading with
clients in the dealer-to-customer market.
Such trading often occurs either over
9 On-the-run U.S. Treasury Securities are the most
recently issued nominal coupon securities. Nominal
coupon securities pay a fixed semi-annual coupon
and are currently issued at original maturities of 2,
3, 5, 7, 10, 20, and 30 years. These standard
maturities are commonly referred to as
‘‘benchmark’’ securities because the yields for these
securities are used as references to price a number
of private market transactions.
10 Off-the-run or ‘‘seasoned’’ U.S. Treasury
Securities are the issues that preceded the current
on-the-run securities. The U.S. Treasury Securities
market also comprises futures and options on U.S.
Treasury Securities, and securities financing
transactions in which U.S. Treasury Securities are
used as collateral. See Department of the Treasury
Release No. 2015–0013 (January 22, 2016), Notice
Seeking Public Comment on the Evolution of the
Treasury Market Structure, 81 FR 3928, 3928
(‘‘Treasury Request for Information’’). For the
purpose of this proposal, the Commission focuses
on the secondary cash market.
11 See id.
12 See id.
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the phone or on trading venues that
facilitate the matching of buy and sell
orders through electronic systems.
Broker-dealers also internalize a portion
of their customer flow, although the
extent to which broker-dealers
internalize is unclear.13
In the interdealer market, the majority
of trading in on-the-run U.S. Treasury
Securities currently occurs on ATSs
using central limit order books
supported by advanced electronic
trading technology.14 For off-the-run
U.S. Treasury Securities,15 the majority
of interdealer trading occurs via
bilateral transactions through traditional
voice-assisted brokers and electronic
trading platforms that offer various
trading protocols to bring together
buyers and sellers,16 though, some
interdealer trading of off-the-run U.S.
Treasury Securities does occur on
ATSs.17 Furthermore, interdealer
trading for on-the-run U.S. Treasury
Securities is generally concentrated
within a very small number of ATSs,
especially when compared to the market
for NMS stocks, which is dispersed
among many trading venues.
Specifically, over the past several years,
the majority of overall trading in the
interdealer secondary market for on-therun U.S. Treasury Securities has
13 See id. For the purposes of this proposal,
internalization refers to a broker filling a customer
order either from the firm’s own inventory or by
matching the order with other customer order flow,
instead of sending the order to an interdealer
market for execution. See id. at 3928 n.5.
14 See Joint Staff Report: The U.S. Treasury
Market on October 15, 2014, at 11, 35–36, available
at https://www.sec.gov/files/treasury-marketvolatility-10-14-2014-joint-report.pdf (‘‘October 15
Staff Report’’). The October 15 Staff Report is a joint
report about the unusually high level of volatility
and rapid round-trip in prices that occurred in the
U.S. Treasuries market on October 15, 2014. Among
other things, the October 15 Staff Report provides
an overview of the market structure, liquidity, and
applicable regulations of the U.S. Treasury market,
as well as the broad changes to the structure of the
U.S. Treasury market that have occurred over the
past two decades.
15 Also, as noted in the October 15 Staff Report
issued by the U.S. Department of the Treasury,
Board of Governors of the Federal Reserve System,
Federal Reserve Bank of New York, the
Commission, and U.S. Commodity Futures Trading
Commission, trading in off-the-run U.S. Treasury
Securities has always been less active than trading
in on-the-run U.S. Treasury Securities, and price
discovery in the cash markets primarily occurs in
on-the-run securities. See id.
16 See id. at 35.
17 While trading in on-the-run securities likely
accounts for more than half of total daily trading
volumes, off-the-run U.S. Treasury Securities make
up over 95 percent of the outstanding marketable
U.S. Treasury Securities. See James Clark, Chris
Cameron, and Gabriel Mann, Examining Liquidity
in On-the-Run and Off-the-Run Treasury Securities,
Treasury Notes Blog, https://www.treasury.gov/
connect/blog/Pages/Examining-Liquidity-in-On-theRun-and-Off-the-Run-Treasury-Securities.aspx.
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occurred on ATSs.18 For example,
during the 4th quarter of 2019, one ATS
accounted for $15.60 trillion in total
dollar volume in all U.S. government
securities, the majority of which were
on-the-run U.S. Treasury Securities.19
Another type of government securities
is Agency Securities. Agency Securities
include securities issued by or
guaranteed by U.S. Government
corporations and U.S. Government
sponsored enterprises (‘‘GSEs’’).20 For
example, the Government National
Mortgage Association (‘‘Ginnie Mae’’) is
a U.S. Government corporation that
issues mortgage-backed securities
guaranteed by the full faith and credit
of the U.S. Government. The assets
collateralized into the securities issued
by Ginnie Mae are federally insured and
guaranteed mortgage loans. Agency
Securities issued by GSEs include those
issued by the Federal Home Loan Banks
(‘‘FHLBs’’), the Federal National
Mortgage Association (‘‘Fannie Mae’’),
the Federal Home Loan Mortgage
Corporation (‘‘Freddie Mac’’), and the
Student Loan Marketing Association
(‘‘Sallie Mae’’).21 Agency Securities
issued by GSEs are not normally backed
by the full faith and credit of the U.S.
Government and therefore, may present
some default and credit risk.
Agency Securities, while often not
backed by the full faith and credit of the
U.S. Government, are generally
considered to be very liquid and offer
state and local tax advantages to the
holder. Market participants frequently
use ATSs to buy and sell Agency
Securities, although, based on the
Commission’s review of Form ATS–R
filings, transaction volume of Agency
Securities is not as large as that of U.S.
Treasury Securities on ATSs.22
Investors, banks, and other market
participants often acquire Agency
Securities in the secondary market to
support various investing strategies,
such as hedging against other more risky
investments in a given portfolio.
Trading of both U.S. Treasury
Securities and Agency Securities has
18 See text accompanying infra note 583; Table
X.2 and accompanying text.
19 For an additional discussion of trading volume
in the U.S. bond market as a whole and U.S.
Treasury Securities, see infra Section X.B.
20 See U.S. Department of the Treasury Resource
Center, ‘‘Fixed Income: Agency Securities,’’
available at https://www.treasury.gov/resourcecenter/faqs/Markets/Pages/fixedfederal.aspx.
21 See id. The housing sector GSEs are Fannie
Mae, Freddie Mac, and the FHLB institutions, the
latter of which issue debt through the joint Office
of Finance. Sallie Mae is a higher education sector
GSE that currently is in the transition process to full
privatization. See id.
22 Additionally, repurchase and reverse
repurchase agreements on government securities are
also traded on some ATSs.
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become increasingly electronic, and
ATSs that trade government securities
have evolved into very complex
markets. This is particularly true for the
trading of on-the-run U.S. Treasury
Securities,23 but is also the case for the
trading of other U.S. Treasury Securities
and Agency Securities.24 For example,
based on the Commission’s review of
Form ATS filings by ATSs that trade
government securities, and discussions
with market participants for government
securities, the Commission believes that
Government Securities ATSs often offer
subscribers a variety of order types to
pursue both aggressive and passive
trading strategies, and low latency, highspeed connectivity to the ATS. These
ATSs frequently use automated systems,
such as a central limit order book, to
match orders anonymously on a price/
time priority basis, and offer subscribers
direct data feeds and co-location
services. Some Government Securities
ATSs also segment orders into
categories by participants or allow
participants the ability to interact with
specific counterparty groups on the ATS
and facilitate order interaction and
execution.25
With regard to the interdealer
secondary markets for on-the-run U.S.
Treasury Securities, the continued
growth of electronic trading has
contributed to an increased presence of
23 The growth of electronic trading has
contributed to a marked shift in the composition of
the interdealer cash market for U.S. Treasury
Securities over time. Traditionally, interdealer
brokers only allowed primary dealers to access their
trading venues. After 1992, however, interdealer
brokers expanded access to all entities that were
netting members of the Government Securities
Clearing Corporation (which is now the Fixed
Income Clearing Corporation’s Government
Securities Division). Thereafter, other entities
gained access to these trading venues through their
prime brokers, who themselves had access, and in
recent years the trading venues granted direct
access to an even wider range of participants,
including non-dealer PTFs, which account for more
than half of the trading activity in the futures and
electronically brokered interdealer cash markets.
See October 15 Staff Report, supra note 14, at 36.
See also Treasury Request for Information, supra
note 10, at 3928.
24 See James Collin Harkrader and Michael
Puglia, Fixed Income Market Structure: Treasuries
vs. Agency MBS, Board of Governors of the Federal
Reserve System: FEDS NOTES (August 25, 2020),
available at https://www.federalreserve.gov/
econres/notes/feds-notes/fixed-income-marketstructure-treasuries-vs-agency-mbs-20200825.htm
(‘‘August 25th FEDS Notes’’) (explaining the recent
evolution of the government securities market
structure).
25 This evolution in the interdealer secondary
cash markets for U.S. Treasury Securities was also
highlighted in the October 15 Staff Report, see
October 15 Staff Report, supra note 14, the Treasury
Request for Information, see Treasury Request for
Information, supra note 10, at 3928, and public
comment received by the Commission, see infra
Section I.C.
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PTFs in the marketplace.26 Currently,
PTFs account for the majority of trading
and provide significant top-of-the-book
liquidity for on-the-run U.S. Treasury
Securities on electronic interdealer
trading venues.27 From July 1, 2019 to
December 31, 2019, PTFs traded on 13
Government Securities ATSs accounting
for approximately 55 percent of total
Government Securities ATS trading
volume.28 PTFs usually have direct
access to electronic interdealer trading
venues for U.S. Treasury Securities, and
as is the case with the equity markets,
PTFs trading on the electronic
interdealer trading venues for on-therun U.S. Treasury Securities often
employ automated algorithmic trading
strategies that rely on speed and allow
the PTFs to cancel or modify quotes in
response to perceived market events.29
Furthermore, most PTFs trading U.S.
Treasury Securities on these trading
venues for on-the-run U.S. Treasury
Securities also restrict their activities to
principal trading and do not hold
positions long term 30 while dealers use
the interdealer market as a source of
orders and trading interest to help
facilitate their trading with clients in the
dealer-to-customer market. As explained
in the October 15 Staff Report, the
increase in trading by PTFs in the
interdealer market may affect the
amount of liquidity available to end
users in the dealer-to-customer
market.31
B. Current Regulatory Framework for
Government Securities ATSs
Despite the critical role of government
securities in the U.S. and global
economy, the significant volume in
government securities transacted on
ATSs, and these ATSs’ growing
importance to investors and overall
securities market structure, an ATS that
limits its securities activities to
government securities or repurchase and
reverse repurchase agreements on
26 PTFs are not, however, very active in the
electronic markets for Agency Securities. See
August 25th FEDS Notes, supra note 24 (‘‘Though
parts of the agency MBS market have moved from
voice-based to screen-based trading since the early
2000s, algorithmic high-frequency electronic
trading still does not comprise a meaningful share
of average daily volume and the market remains
devoid of PTF participation.’’).
27 See October 15 Staff Report, supra note 14, at
36; Remarks of Deputy Secretary Justin Muzinich at
the 2019 U.S. Treasury Market Structure Conference
(September 23, 2019), available at https://
home.treasury.gov/news/press-releases/sm782
(‘‘Muzinich Remarks’’).
28 See infra Table X.2. (ATS PTF volume/ATS
volume) × 100 = PTF share of ATS volume (%).
29 See October 15 Staff Report, supra note 14, at
32, 35–36, 39.
30 See id. at 38.
31 See id. at 37.
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government securities (‘‘repos’’), and
registers as a broker-dealer or is a bank
(‘‘Currently Exempted Government
Securities ATS’’) is exempt from
exchange registration and is not
required to comply with Regulation
ATS. Furthermore, ATSs that trade both
government securities and nongovernment debt securities (e.g.,
corporate bonds) are not subject to all
the provisions of Regulation ATS, such
as the Fair Access Rule, and are not
subject to Regulation SCI.
Regulation ATS and its related rules
provide an exemption from the
definition of ‘‘exchange’’ under Section
3(a)(1) of the Exchange Act,32 coupled
with alternate regulatory requirements
with which ATSs must comply to
achieve and maintain their eligibility for
the exemption. Exchange Act Rule 3b–
16(a) provides a functional test to assess
whether a trading platform meets the
definition of ‘‘exchange’’ under Section
3(a)(1) of the Exchange Act.33 Under
Rule 3b–16(a), an organization,
association, or group of persons shall be
considered to constitute, maintain, or
provide a market place or facilities for
bringing together purchasers and sellers
of securities or for otherwise performing
with respect to securities the functions
commonly performed by a stock
exchange, if such organization,
association, or group of persons: (1)
Brings together the orders for securities
of multiple buyers and sellers; and (2)
uses established, non-discretionary
methods (whether by providing a
trading facility or by setting rules) under
which such orders interact with each
other, and the buyers and sellers
entering such orders agree to the terms
of a trade.34 Accordingly, an entity that
provides a marketplace for bringing
together buyers and sellers for
government securities, regardless of the
applied technology, would need to
consider whether its activities meet the
32 15 U.S.C. 78c(a)(1). Pursuant to Section 3(a)(1)
of the Exchange Act, the statutory definition of
‘‘exchange’’ means any organization, association, or
group of persons, whether incorporated or
unincorporated, which constitutes, maintains, or
provides a market place or facilities for bringing
together purchasers and sellers of securities or for
otherwise performing with respect to securities the
functions commonly performed by a stock exchange
as that term is generally understood, and includes
the market place and the market facilities
maintained by such exchange.
33 See 15 U.S.C. 78e and 78f.
34 17 CFR 240.3b–16(a). Exchange Act Rule 3b–
16(b) explicitly excludes from that definition
certain systems that do not meet the definition of
‘‘exchange,’’ such as order routers and systems that
allow persons to enter orders for execution against
the bids and offers of a single dealer. See 17 CFR
240.3b–16(b). See also NMS Stock ATS Adopting
Release, supra note 1, at n.32 and accompanying
text.
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definition of an ‘‘exchange’’ under the
federal securities laws.35
Section 5 of the Exchange Act 36
requires an organization, association, or
group of persons that meets the
definition of ‘‘exchange’’ under Section
3(a)(1) of the Exchange Act,37 unless
otherwise exempt, to register with the
Commission as a national securities
exchange pursuant to Section 6 of the
Exchange Act.38 Exchange Act Rule
3a1–1(a)(2) 39 provides an exemption
from national securities exchange
registration for ATSs, which are systems
that meet the Rule 3b–16(a) criteria and
do not perform self-regulatory
activities.40 As a result of the
exemption, an organization, association,
or group of persons that meets the
definition of an exchange and complies
with Regulation ATS is not required by
Section 5 of the Exchange Act to register
as a national securities exchange
pursuant to Section 6 of Exchange Act
and is not a self-regulatory organization
(‘‘SRO’’), and therefore, is not required
to comply with regulatory requirements
applicable to national securities
exchanges and SROs.41
The vast majority of ATSs that operate
today do so pursuant to the exemption
provided by Exchange Act Rule 3a1–
1(a)(2), which requires the ATSs to
comply with Regulation ATS and
register as broker-dealers. Currently
Exempted Government Securities ATSs,
however, operate pursuant to Exchange
35 For
example, whether or not a particular
system is an exchange does not turn solely on the
level of automation used; ‘‘orders’’ can be given
over the telephone, as well as electronically. See
Securities Exchange Act Release No. 40760
(December 8, 1998), 63 FR 70844, 70850 (December
22, 1998) (‘‘Regulation ATS Adopting Release’’).
36 15 U.S.C. 78e.
37 15 U.S.C. 78c(a)(1).
38 15 U.S.C. 78f.
39 See 17 CFR 240.3a1–1(a)(2).
40 See 17 CFR 242.300(a). Rule 300(a) of
Regulation ATS defines an ATS as any
organization, association, person, group of persons,
or system: (1) That constitutes, maintains, or
provides a market place or facilities for bringing
together purchasers and sellers of securities or for
otherwise performing with respect to securities the
functions commonly performed by a stock exchange
within the meaning of Rule 3b–16; and (2) that does
not: (i) Set rules governing the conduct of
subscribers other than the conduct of such
subscribers’ trading on such organization,
association, person, group of persons, or system; or
(ii) discipline subscribers other than by exclusion
from trading.
41 See 15 U.S.C. 78e (Section 5 of the Exchange
Act); 78f (Section 6 of the Exchange Act); and 78s
(Section 19 of the Exchange Act). See also NMS
Stock ATS Adopting Release, supra note 1, at
78772. An ATS that fails to comply with Regulation
ATS would no longer qualify for the exemption
provided under Rule 3a1–1(a)(2) and thus risks
operating as an unregistered exchange in violation
of Section 5 of the Exchange Act. See 15 U.S.C. 78e.
See also NMS Stock ATS Adopting Release, supra
note 1, at 78772.
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Act Rule 3a1–1(a)(3) 42 and Rule
301(a)(4)(ii)(A).43 These provisions
currently exempt an ATS from
compliance with the requirements in
Rule 301(b) of Regulation ATS 44 if, in
relevant part, the ATS is registered as a
broker-dealer under Sections 15(b) 45 or
15C 46 of the Exchange Act, or is a bank,
and limits its securities activities to
government securities, as defined in
Section 3(a)(42) of the Exchange Act,
repos, any puts, calls, straddles, options,
or privileges on government securities,
other than puts, calls, straddles, options,
or privileges that: (1) Are traded on one
or more national securities exchanges;
or (2) for which quotations are
disseminated through an automated
quotation system operated by a
registered securities association, and
commercial paper.47 Accordingly, such
Currently Exempted Government
Securities ATSs are not required to
register as a national securities exchange
or comply with Regulation ATS.48 To
the Commission’s knowledge, most
Currently Exempted Government
Securities ATSs operating pursuant to
this exemption limit their securities
activities solely to government
securities and register as broker-dealers
with the Commission.49
ATSs that trade government securities
or repos and other securities—such as
corporate bonds or municipal
securities—cannot use this exemption
42 17
CFR 240.3a1–1(a)(3).
CFR 242.301(a)(4)(ii)(A).
CFR 242.301(b).
45 See 15 U.S.C. 78o(b) (Section 15(b) of the
Exchange Act pertains to the registration and
regulation of brokers and dealers).
46 See 15 U.S.C. 78o–5 (Section 15C of the
Exchange Act pertains to government securities
brokers and dealers).
47 See 15 U.S.C. 78c(a)(42). The Commission
notes that the definition of ‘‘government securities’’
in Section 3(a)(42) of the Exchange Act includes
certain puts, calls, straddles, options, or privileges
on government securities, other than puts,
straddles, options, or privileges that: (1) Are traded
on one or more national securities exchanges; or (2)
for which quotations are disseminated through an
automated quotation system operated by a
registered securities association. See supra note 6.
Therefore, references to ‘‘government securities’’
throughout this proposal include such puts, calls,
straddles, options, or privileges on government
securities.
48 See 17 CFR 242.301(a)(4)(i) and (ii)(A).
Although not required to register as a national
securities exchange or comply with Regulation
ATS, a Currently Exempted Government Securities
ATS may need to register as a broker-dealer under
Section 15(b) or as a government securities broker
or government securities dealer pursuant to
Exchange Act Section 15C, and comply with
associated regulatory requirements. See, e.g., 17
CFR, Subchapter A—Regulations under Section 15C
of the Securities Exchange Act of 1934.
49 Some ATSs that are eligible for the exemption
voluntarily comply with Regulation ATS, even
though ATSs that trade only government securities
are not required to comply with Regulation ATS at
all.
43 17
44 17
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because these ATSs do not limit their
securities activities solely to
government securities or repos. Such
ATSs must either register as a national
securities exchange or comply with
Regulation ATS pursuant to Exchange
Act Rule 3a1–1(a)(2), which includes,
among other things, registering as a
broker-dealer under Section 15 of the
Exchange Act. As a registered brokerdealer, an ATS must also, in addition to
complying with Regulation ATS,
comply with broker-dealer filing and
conduct obligations, including
becoming a member of an SRO, such as
the Financial Industry Regulatory
Authority (‘‘FINRA’’). Among other
things, Government Securities ATSs
that are currently subject to Regulation
ATS must report transactions in U.S.
Treasury Securities and Agency
Securities to the Trade Reporting and
Compliance Engine (‘‘TRACE’’),50 and
FINRA publicly disseminates data about
these transactions. Currently, FINRA
publishes weekly aggregated transaction
information on U.S. Treasury Securities
and disseminates certain transaction
information on Agency Securities
immediately upon receipt of a
transaction report.51
In addition to registering as a brokerdealer, an ATS that trades government
securities or repos and securities other
than government securities or repos
50 See FINRA Rule 6730(a)(1) requires FINRA
members to report transactions in TRACE-Eligible
Securities, which FINRA Rule 6710 defines to
include U.S. Treasury Securities and Agency
Securities. For each transaction in U.S. Treasury
Securities and Agency Securities, a FINRA member
would be required to report the CUSIP number or
similar numeric identifier or FINRA symbol; size
(volume) of the transaction; price of the transaction
(or elements necessary to calculate price); symbol
indicating whether transaction is a buy or sell; date
of trade execution (‘‘as/of’’ trades only); contraparty’s identifier; capacity (principal or agent); time
of execution; reporting side executing broker as
‘‘give-up’’ (if any); contra side introducing broker
(in case of ‘‘give-up’’ trade); the commission (total
dollar amount), if applicable; date of settlement; if
the member is reporting a transaction that occurred
on an ATS, the ATS’s separate Market Participant
Identifier (‘‘MPID’’); and trade modifiers as
required. For when-issued transactions in U.S.
Treasury Securities, a FINRA member would be
required to report the yield in lieu of price. See
FINRA Rule 6730(c).
51 FINRA Rule 6750(a) requires FINRA to
disseminate information on all transactions on
certain securities, including Agency Securities (but
excluding U.S. Treasury Securities), immediately
upon receipt of the transaction report. FINRA is
permitted to publish or distribute weekly
aggregated transaction information and statistics on
U.S. Treasury Securities, and has stated that it
intends to publish weekly volume information
aggregated by U.S. Treasury subtype (e.g., Bills,
Floating Rate Notes, Treasury Inflation-Protected
Securities, and Nominal Coupons). See Securities
Exchange Release No. 87837 (December 20, 2019),
84 FR 71986 (December 30, 2019) (approving a
proposed rule change to allow FINRA to publish or
distribute aggregated transaction information and
statistics on U.S. Treasury Securities).
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must file notices with the Commission
on Form ATS (which are ‘‘deemed
confidential’’ and ‘‘available only to the
examination of Commission staff, state
securities authorities, and the selfregulatory organizations’’) to disclose
their operations to the Commission
pursuant to Rule 301(b)(2); cooperate
with the Commission’s or an SRO’s
inspection, examination, or
investigation of the ATS or any of the
ATS’s subscribers pursuant to Rule
301(b)(7); make, keep current, and
preserve certain records as prescribed
under Rule 302 and Rule 303 of
Regulation ATS pursuant to Rule
301(b)(8); periodically report certain
information about trading activities on
Form ATS–R pursuant to Rule 301(b)(9);
adopt written safeguards and written
procedures to protect subscriber
confidential trading information and
separate ATS functions from other
broker-dealer functions, including
principal and customer trading pursuant
to Rule 301(b)(10); and not use in its
name the word ‘‘exchange,’’ or
derivations of the word ‘‘exchange’’
pursuant to Rule 301(b)(11).52
Such Government Securities ATSs,
however, are subject to only certain
provisions of Regulation ATS because
not all the provisions of Regulation ATS
are applicable to trading in government
securities. In particular, government
securities are not included in any
category of securities under the Fair
Access Rule.53 Today, the categories of
securities under the Fair Access Rule
include NMS stocks, equity securities
that are not NMS stocks and for which
transactions are reported to an SRO,
municipal securities, and corporate debt
securities.54 Under the Fair Access Rule,
an ATS that meets the average daily
volume threshold for a category of
securities during at least four of the
preceding six calendar months must: (1)
Establish written standards for granting
access to trading on its system; (2) not
unreasonably prohibit or limit any
person in respect to access to services
offered by such ATS by applying the
above written standards in an unfair or
discriminatory manner; and (3) make
and keep certain records. In addition,
Regulation SCI does not apply to ATSs
with respect to their trading in
52 See 17 CFR 242.301(b)(1); 301(b)(2); and
301(b)(7) through (b)(11). The order display and
execution access provisions under Rule 301(b)(3)
and the related fee restrictions of Rule 301(b)(4) of
Regulation ATS only apply to an ATS’s NMS stock
activities. See 17 CFR 242.301(b)(3)–(4).
53 17 CFR 242.301(b)(5).
54 See id.
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government securities.55 The capacity,
integrity, and security of automated
systems provisions of Rule 301(b)(6)
under Regulation ATS (‘‘Capacity,
Integrity, and Security Rule’’) 56 also do
not apply to the government securities
activities of an ATS.57
Finally, Government Securities ATSs
that trade only government securities or
repos are not required to comply with
rules applicable to ATSs that trade NMS
stocks, including Rule 304 of Regulation
ATS.58 Rule 304 requires only NMS
Stock ATSs to file a public Form ATS–
N, which discloses the manner of the
NMS Stock ATS’s operations and the
ATS-related activities of the brokerdealer operator and its affiliates. Form
ATS–N disclosures are subject to review
by the Commission and an NMS Stock
ATS is prohibited from operating unless
the Form ATS–N is effective. ATSs that
transact in government securities or
repos are also not required to comply
with the order display and execution
access provisions under Rule
301(b)(3) 59 and the related fee
restrictions of Rule 301(b)(4),60 both of
which only apply to an ATS’s NMS
stock activities.
C. Prior Comments Received About
Government Securities Markets
On July 18, 2018, the Commission
adopted amendments to Regulation ATS
and Exchange Act Rule 3a1–1 to
enhance operational transparency of,
55 See infra Section VI (describing the types of
entities that are currently subject to the
requirements of Regulation SCI).
56 17 CFR 242.301(b)(6).
57 Rule 301(b)(6) requires an ATS that trades only
municipal securities or corporate debt securities
with 20 percent or more of the average daily volume
traded in the United States during at least four of
the preceding six calendar months to comply with
the Capacity, Integrity, and Security Rule. Prior to
the Commission’s adoption of Regulation SCI, the
requirements of Rule 301(b)(6) also applied to ATSs
with regard to their trading in NMS stocks and nonNMS stocks; however, Regulation SCI superseded
and replaced the requirements of Rule 301(b)(6)
with regard to ATSs that trade NMS stocks and nonNMS stocks. See infra Section VI (describing each
requirement of Regulation SCI).
58 17 CFR 242.304.
59 Rule 301(b)(3) only applies to ATSs that (1)
display subscriber orders in an NMS stock to any
person (other than an employee of the ATS) and (2)
during at least four of the preceding six calendar
months, had an average daily trading volume of 5
percent or more of the aggregate average daily share
volume for that NMS stock, as reported by an
effective transaction reporting plan. See 17 CFR
242.301(b)(3).
60 Under Rule 301(b)(4), an ATS must not charge
any fee to broker-dealers that access the ATS
through a national securities exchange or national
securities association that is inconsistent with the
equivalent access to the ATS that is required under
Rule 301(b)(3)(iii), and thus, the requirements of
Rule 301(b)(4) also only apply to ATSs that transact
in NMS stock and trigger the order display
requirements of Rule 301(b)(3). See 17 CFR
242.301(b)(4).
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and increase Commission oversight for,
NMS Stock ATSs.61 In the
Commission’s proposal for these
amendments, the Commission solicited
comment about whether the proposal
should apply to other types of ATSs,
including Currently Exempted
Government Securities ATSs and
Government Securities ATSs. The
Commission also acknowledged the
observations made in the October 15
Staff Report about the significance of the
government securities markets and the
rapid and continuing evolution of the
electronic secondary market in U.S.
Treasury Securities. The Commission
solicited comment about removing the
exemption for Currently Exempted
Government Securities ATSs and
amending Regulation ATS to apply
provisions of Regulation ATS to
Government Securities ATSs, including
the Fair Access Rule.62
The Commission received several
comments regarding Government
Securities ATSs.63 Commenters
generally supported increasing
operational transparency for
Government Securities ATSs.64 Several
commenters suggested that the current
exemption should be eliminated or that
Regulation ATS should be amended to
apply to Currently Exempted
61 See NMS Stock ATS Adopting Release, supra
note 1.
62 See Securities Exchange Act Release No. 76474
(November 18, 2015), 80 FR 80998, 81018–20
(December 28, 2015) (‘‘NMS Stock ATS Proposing
Release’’).
63 All comments received on the NMS Stock ATS
Proposing Release regarding Government Securities
ATS are available at: https://www.sec.gov/
comments/s7-23-15/s72315.shtml.
64 See, e.g., Letter from Venu Palaparthi, Senior
Vice President, Virtu Financial, to Brent J. Fields,
Secretary, Commission, dated December 2, 2015
(‘‘Virtu Letter’’), at 2; Letter from Dennis M.
Kelleher, President and Chief Executive Officer,
Stephen W. Hall, Legal Director & Securities
Specialist, and Allen Dreschel, Attorney, Better
Markets, Inc., to Brent J. Fields, Secretary,
Commission, dated February 26, 2016 (‘‘Better
Markets Letter’’), at 8; and Letter from Theodore R.
Lazo, Managing Director and Associate General
Counsel, Securities Industry and Financial Markets
Association, to Brent J. Fields, Secretary,
Commission, dated March 7, 2016 (‘‘SIFMA
Letter’’), at 36. See also Letter from Jonathan A.
Clark, Chief Executive Officer, and James C. Dolan,
Chief Compliance Office, Luminex Trading &
Analytics LLC, to Brent J. Fields, Secretary,
Commission, dated February 23, 2016 (‘‘Luminex
Letter’’), at 3 (supporting public disclosure of Form
ATS for all ATSs); Letter from David W. Blass,
General Counsel, Investment Company Institute, to
Brent J. Fields, Secretary, Commission, dated
February 25, 2016 (‘‘ICI Letter’’), at 11–12; and
Letter from Marc R. Bryant, Senior Vice President
and Deputy General Counsel, Fidelity Investments,
to Brent J. Fields, Secretary, Commission, dated
February 26, 2016 (‘‘Fidelity Letter’’), at 7 (generally
supporting improving transparency into the
operations of non-NMS Stock ATSs by providing
public disclosure of Form ATS).
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Government Securities ATSs,65 and
several commenters stated that the
proposal relating to the oversight of
NMS Stock ATSs should be expanded to
include Government Securities ATSs.66
One commenter, however, stated that
Government Securities ATSs should not
be subject to increased regulation, as
such requirements would place such
ATSs at a disadvantage with respect to
non-ATS trading venues that trade
government securities.67 Another
65 See Virtu Letter, supra note 64, at 2 (stating that
Regulation ATS should be amended to include
electronic platforms for government securities
because greater public transparency and enhanced
monitoring of trading activity in these securities
would result in greater investor confidence with
respect to U.S. Treasury Securities markets); Letter
from Rick A. Fleming, Investor Advocate, Office of
the Investor Advocate, Commission, to Brent J.
Fields, Secretary, Commission, dated September 9,
2016 (‘‘OIA Letter’’), at 16–19 (supporting the
elimination of the exemption for Currently
Exempted Government Securities ATSs and making
their Form ATS public as an interim step); and
Letter from Adam C. Cooper, Senior Managing
Director and Chief Legal Officer, Citadel LLC, to
Brent J. Fields, Secretary, Commission, dated March
1, 2016 (‘‘Citadel Letter’’), at 4. Another commenter
also did not object to applying the requirements of
Regulation ATS to systems that cross trades in
government securities. See Letter from Howard
Meyerson, General Counsel, Liquidnet, Inc., to
Brent J. Fields, Secretary, Commission, dated
February 26, 2016 (‘‘Liquidnet Letter’’), at 3.
66 See, e.g., Letter from Kurt N. Schacht,
Managing Director, Standards & Advocacy, CFA
Institute, and James C. Allen, Head, Capital Markets
Policy, CFA Institute, to Brent J. Fields, Secretary,
Commission, dated February 26, 2016, at 3–4
(stating that there is not a compelling case that
public disclosure of relatively fundamental
organizational structure would harm trading venues
and should, therefore, be hidden from market
participants); Letter from Micah Hauptman,
Financial Services Counsel, Consumer Federation
of America, to Brent J. Fields, Secretary,
Commission, dated February 26, 2016, at Section
II.A (stating that requiring all ATSs to publicly
disclose their Form ATS–N should foster greater
competition for order flow among ATSs on terms
that are beneficial to investors); Better Markets
Letter, supra note 64, at 8 (stating that all investors
in securities deserve equally robust protections
against conflicts of interest and assurances of access
to transparent information relating to their trading
venues, and that all trading venues should be able
to conduct their businesses on a level regulatory
playing field regardless of the types of securities
trading they seek to offer to investors); Letter from
Dave Lauer, Chairman, Healthy Markets
Association, to Brent J. Fields, Secretary,
Commission, dated February 26, 2016 (‘‘HMA
Letter’’), at 5–6 (stating that while market
characteristics across asset classes are different and
such differences may render information that is
extremely material for one asset class irrelevant to
trading in another asset class, those circumstances
are generally rare); Citadel Letter, supra note 65, at
4; and Letter from Stuart J. Kaswell, Executive Vice
President, Managing Director, and General Counsel,
Managed Funds Association, and Jirˇı´ Kro´l, Deputy
Chief Executive Officer, Global Head of Government
Affairs, Alternative Investment Management
Association, to Brent J. Fields, Secretary,
Commission, dated February 26, 2016 (‘‘MFA/
AIMA Letter’’), at 2–4.
67 See Letter from John A. McCarthy, General
Counsel, KCG Holdings, Inc., to Brent J. Fields,
Secretary, Commission, dated March 15, 2016
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commenter stated that Government
Securities ATSs should be excluded
from the scope of the Form ATS–N-like
requirements because of the different
trading characteristics they offer and the
relatively recent entry of ATSs into this
space.68 The commenter also stated that
any additional regulatory proposals
with respect to Government Securities
ATSs should be informed by the results
of any review of the U.S. Treasury
Securities market structure in
connection with the October 15 Staff
Report.69
Of the several commenters that
expressed support for expanding the
ATS–N disclosure regime to include
Government Securities ATSs,70 one
commenter in particular described the
importance of the U.S. Treasury
Securities market and the depth,
liquidity, and significant volume in
recently issued benchmark or on-therun U.S. Treasury Securities transacted
on ATSs.71 This commenter also stated
that the U.S. Treasury Securities market
has undergone significant changes with
the transition to electronic trading and
the entry of new liquidity providers.72
The commenter stated that removing the
exemption for Government Securities
ATSs would subject them to appropriate
oversight and that market participants
using these ATSs would benefit from
increased operational transparency
(‘‘KCG Letter’’), at 13. See also Liquidnet Letter,
supra note 65, at 3 (stating that the enhanced
transparency requirements should be limited to the
trading of equity securities). This commenter,
however, did not object to the requirements of
Regulation ATS applying to ATSs that cross trades
in government securities. See id.
68 See SIFMA Letter, supra note 64, at 35–36. This
commenter, however, generally supported
increased transparency for Government Securities
ATSs, although it stated that disclosure to give
effect to this goal should be tailored to the unique
characteristics of the government securities market,
and that it would support making current Form
ATS for Government Securities ATSs publicly
available as an interim step. Id. at 36. Another
commenter stated that the disclosure required by
Form ATS–N might not be appropriate for securities
other than NMS stocks at this time in their
development, and recommended that the
Commission carefully study these other markets
before proceeding with an enhanced disclosure
regime for ATSs that offer trading exclusively in
non-NMS stocks. See ICI Letter, supra note 64, at
11. However, this commenter did not explicitly
comment on Government Securities ATSs, or
whether ATSs that currently transact solely in
government securities should or should not be
required to comply with the Regulation ATS
requirements or be subject to any transparency
requirements at this time. Id.
69 See SIFMA Letter, supra note 64, at 35. See
also October 15 Staff Report, supra note 14, at 47
(stating that the authors of the report, among other
items, support a review of the current regulatory
requirements applicable to the government
securities market and its participants).
70 See supra note 64.
71 See Citadel Letter, supra note 65, at 4.
72 See id.
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regarding subscriber segmentation,
potential conflicts of interest, order
types, and fees.73
Another commenter stated that many
of the concerns surrounding potential
conflicts of interest that arise between
an ATS and the activities of its brokerdealer operator and affiliates are equally
relevant with respect to Government
Securities ATSs as with NMS Stock
ATSs.74 This commenter stated that
there is little information available to
investors and the public about
Government Securities ATSs and that
Form ATS–N-like disclosures for these
ATSs could greatly enhance public
transparency of these markets.75
Another commenter stated that making
the Form ATS public for Government
Securities ATSs would enhance
transparency and provide important
disclosures to market participants and
the public about increasingly important
venues of cash trading in government
securities.76 In addition, of the
commenters who stated that
Government Securities ATSs should be
subject to similar obligations as NMS
Stock ATSs,77 one commenter
specifically asserted that Government
Securities ATSs should be subject to the
Fair Access Rule to prevent them from
arbitrarily excluding specific market
participants.78 This commenter stated
that these requirements would not only
promote market safety, stability, and
integrity, but would also improve
conditions for investors through
increased transparency, more
competition, better pricing, and new
sources of orders and trading interest.79
Moreover, this commenter supported a
comprehensive review of the current
regulatory framework for electronic
trading platforms for government
securities in an effort to improve market
transparency, fairness, and resiliency.
This commenter stated that requiring
electronic trading platforms for
government securities to comply with
the systems compliance and integrity
standards in Regulation SCI, among
other things, would promote a
transparent, efficient, and resilient
market.80
II. Proposed Amendments to Regulation
ATS for Government Securities ATSs
The Commission recognizes that Form
ATS and the requirements of Regulation
ATS were designed before Government
Securities ATSs operated as electronic
platforms with the automation, speed,
and complexity that they do today, and
that market conditions for government
securities have substantially changed
since the adoption of Regulation ATS in
1998. The Commission has carefully
considered prior comments it received
relating to Government Securities ATSs,
the significant role of Government
Securities ATSs in today’s government
securities market structure, and the
complexity of Government Securities
ATS operations, and is proposing the
amendments described below.81
A. Proposed Amendment to Exchange
Act Rule 3a1–1(b)
The Commission is proposing to
amend the existing classes of securities
set forth in Exchange Act Rule 3a1–
1(b)(3) 82 to add U.S. Treasury Securities
and Agency Securities for which
transactions are reported to an SRO.83
As a result of the proposed change, the
Commission could require a
Government Securities ATS, which
otherwise meets the conditions to the
Rule 3a1–1(a) exemption,84 to register as
a national securities exchange if the
ATS meets specified volume levels in
U.S. Treasury Securities or Agency
Securities 85 and the Commission finds
that the exemption would not be
necessary or appropriate in the public
interest or consistent with the
protection of investors.86
The Commission would provide a
Government Securities ATS with notice
and an opportunity to respond before
determining the exemption from
national securities exchange registration
is not necessary or appropriate in the
public interest or consistent with the
protection of investors. The Commission
would take into account the
requirements for exchange registration
81 See
infra Sections II.A–H and III.
CFR 240.3a1–1(b).
Commission is proposing to specify that
Rule 3a1–1(b) would apply to U.S. Treasury
Securities and Agency Securities for which
transactions are reported to an SRO to allow the
Commission and market participants to calculate
the volume level threshold provided under the rule.
84 See supra note 40 and accompanying text.
85 The volume thresholds are met if during three
of the preceding four calendar quarters, the ATS
had (i) fifty percent or more of the average daily
dollar trading volume in any security and five
percent or more of the average daily dollar trading
volume in any class of securities; or (ii) forty
percent or more of the average daily dollar trading
volume in any class of securities. See 17 CFR
240.3a1–1(b)(1).
86 See 17 CFR 240.3a1–1(b)(2).
82 17
83 The
73 See
id.
MFA/AIMA Letter, supra note 66, at 3.
75 See id. This commenter also stated that at a
minimum, a trading venue should clearly disclose
the manner of its operations. See id. at 4.
76 See OIA Letter, supra note 65, at 19.
77 See supra note 64.
78 See Citadel Letter, supra note 65, at 4. This
commenter also stated that government securities
trading venues that do not currently meet the
definition of ATS, such as trading venues that use
request for quote systems, should be subject to
equivalent regulation as well. Id. at 5.
79 See id. at 4.
80 See id.
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87113
under Section 6 of the Exchange Act
and the objectives of the national market
system. This amendment would extend
the existing provision under Rule 3a1–
1(b) applicable to ATSs that trade NMS
stocks, corporate debt, municipal
securities, and OTC equity securities to
ATSs that trade U.S. Treasury Securities
or Agency Securities and enhance the
Commission’s ability to regulate certain
large volume ATSs whose registration as
a national securities exchange, and the
associated increased obligations that
arise therefrom, may be in the public
interest.
Request for Comment
1. Should the Commission amend
Exchange Act Rule 3a1–1(b) to add U.S.
Treasury Securities and Agency
Securities to the list of existing classes
of securities set forth in Rule 3a1–
1(b)(3)?
B. Proposed Definitions for Government
Securities ATSs Rules
The Commission is proposing to
amend Rule 300 of Regulation ATS to
define ‘‘Government Securities ATS’’ to
mean an alternative trading system, as
defined in Rule 300(a), that trades
government securities, as defined in
section 3(a)(42) of the Exchange Act (15
U.S.C. 78c(a)(42)),87 or repurchase and
reverse repurchase agreements on
government securities.88 To meet the
definition of a Government Securities
ATS, the organization, association,
person, group of persons, or system
must meet the definition of an
alternative trading system under Rule
300(a) of Regulation ATS.89 The
Commission is also proposing that a
Government Securities ATS shall not
trade securities other than government
securities or repos 90 and that trading of
securities other than government
securities or repos would require the
separate filing of either a Form ATS or
a Form ATS–N, depending on the types
of securities traded.91 This amendment
would not, however, impose new
compliance requirements on such ATSs
other than complying with Rule 304 and
87 The definition of government security in
section 3(a)(42) of the Exchange Act encompasses
‘‘any put, call, straddle, option, or privilege’’ on any
government security listed in subsections (A)–(C) of
the definition, other than any put, call, straddle,
option or privilege that is traded on one or more
national securities exchanges, or for which
quotations are disseminated through an automated
quotation system operated by a registered securities
association. 15 U.S.C. 78c(a)(42)(D).
88 See proposed Rule 300(l).
89 17 CFR 242.300(a). See Regulation ATS
Adopting Release, supra note 35, at 70851–52.
90 See proposed Rule 300(l).
91 An ATS that does not trade NMS stocks or
government securities, as proposed, must file Form
ATS.
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filing Form ATS–G.92 Under the
proposal, if a registered broker-dealer or
government securities broker or
government securities dealer that
operates the ATS (‘‘broker-dealer
operator’’) that currently operates an
ATS for government securities and nongovernment securities such as, for
example, corporate bonds, the brokerdealer operator would operate two
separate ATSs: (1) A Government
Securities ATS that would trade
government securities, which would be
subject to Rule 304, and file disclosures
on proposed Form ATS–G and (2) a
non-Government Securities ATS that
would trade corporate bonds, which
would not be subject to Rule 304, and
file disclosures on its existing Form
ATS, as amended to remove references
to government securities. To provide
that the same approach applies to
broker-dealers that operate NMS Stock
ATSs and non-NMS Stock ATSs, and to
clarify requirements applicable to NMS
Stock ATSs, the Commission is
proposing to amend the definition of
‘‘NMS Stock ATS’’ to state that an NMS
Stock ATS shall not trade securities
other than NMS stocks.93 Today,
securities other than NMS stocks are not
traded in any NMS Stock ATS and the
proposed amendment to the definition
of NMS Stock ATS would have no
impact on any existing ATS nor on the
requirements applicable to existing
NMS Stock ATSs.94
The Commission is also proposing to
amend Rule 300 of Regulation ATS to
define the terms ‘‘Covered ATS’’ and
‘‘Covered Form.’’ 95 The proposed terms
would be used throughout Rule 304
because Government Securities ATSs, in
addition to NMS Stock ATSs, would be
subject to Rule 304 of Regulation ATS.96
‘‘Covered ATS’’ would mean an NMS
Stock ATS or Government Securities
ATS and ‘‘Covered Form’’ would mean
92 Broker-dealers that operate Government
Securities ATSs that are currently subject to
Regulation ATS already must have established
written safeguards and written procedures to
protect subscribers’ confidential trading
information, pursuant to Rule 301(b)(10), and
already must make and keep records pursuant to
Rule 301(b)(8) that are tailored to the types of
securities the ATS trades and the subscribers that
trade those securities on the ATS. The Commission
believes the proposal is broadly consistent with the
manner in which broker-dealers that operate NMS
Stock ATSs and non-NMS Stock ATSs currently
comply with Regulation ATS. For further
discussion, see infra Section II.E.
93 See proposed Rule 300(k).
94 Broker-dealer operators of NMS Stock ATSs are
currently required to file a Form ATS–N for NMS
Stock ATS operations and a separate Form ATS for
any non-NMS Stock ATS operations. See current
Rule 301(b)(2)(viii). This would not change under
this proposal.
95 See proposed Rule 300(m)–(n).
96 See infra Section II.F–H.
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a filing on Form ATS–N or Form ATS–
G, as applicable. To facilitate the orderly
transition to the heightened
requirements for Government Securities
ATSs that are currently operating, the
Commission is defining such ATSs as
‘‘Legacy Government Securities
ATSs.’’ 97 The Commission believes
these proposed definitions are nonsubstantive and enhance the readability
of the rule text.
The Commission is also proposing to
add definitions of ‘‘U.S. Treasury
Security’’ and ‘‘Agency Security’’ for
purposes of Regulation ATS.98 ‘‘U.S.
Treasury Security’’ would mean a
security issued by the U.S. Department
of the Treasury. ‘‘Agency Security’’
would mean a debt security issued or
guaranteed by a U.S. executive agency,
as defined in 5 U.S.C. 105, or
government-sponsored enterprise, as
defined in 2 U.S.C. 622(8). The
proposed definitions are designed to
provide the scope of securities a
Government Securities ATS must
include when calculating whether the
fair access requirements set forth in
Rule 301(b)(5) are applicable and to
facilitate compliance with the Fair
Access Rule.99 In addition, the
Commission is proposing to use these
definitions in the proposed amendment
to Exchange Act Rule 3a1–1(b)(3) to
provide the scope of securities for
which the Commission could remove
the exemption from national securities
exchange if certain volume thresholds
are met.100
Request for Comment
2. Should the Commission adopt a
more limited or expansive definition of
Government Securities ATS than the
definition that is being proposed?
3. Should the Commission cite to the
section 3(a)(42) (15 U.S.C. 78c(a)(42))
definition of government securities for
purposes of defining Government
Securities ATS? Should the securities
encompassed by the definition (e.g.,
certain options on government
securities) be considered ‘‘government
securities’’ for purposes of this
regulation?
97 See proposed Rule 300(o). Legacy Government
Securities ATSs would include all Government
Securities ATSs operating as of [the date 120
calendar days after the date of publication of the
final rule in the Federal Register] (‘‘Compliance
Date’’), including both (1) Currently Exempted
Government Securities ATSs and (2) Government
Securities ATSs operating pursuant to a Form ATS
on file with Commission as of the Compliance Date.
98 See proposed Rule 300(p)–(q).
99 See infra Section II.D. The proposed definitions
are similar to those in FINRA’s rules. See FINRA
Rule 6710(l) and FINRA Rule 6710(p).
100 See supra Section II.A.
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4. Should the Commission modify the
proposed definitions of U.S. Treasury
Securities and Agency Securities in any
way?
5. The proposed amendments to the
definitions of NMS Stock ATS and
Government Securities ATS are not
designed to limit a broker-dealer
operator for an NMS Stock ATS or
Government Securities ATS with
respect to other types of securities that
the broker-dealer operator may wish to
trade in an ATS that is subject to Rule
301(b)(2) of Regulation ATS or how the
broker-dealer operator may elect to
structure the operations of its ATS
businesses. Would the proposed
amendments to the definitions of NMS
Stock ATS and Government Securities
ATS impose any operational or other
burdens on the broker-dealer operator,
other than those related to filing Form
ATS, Form ATS–R, Form ATS–G or
Form ATS–N, as applicable?
C. Proposed Elimination of the
Exemption for ATSs That Limit
Securities Activities to Government
Securities and Repos
The Commission is proposing
amendments to Regulation ATS that
would require a Currently Exempted
Government Securities ATS that seeks
to operate pursuant to the exemption
from the definition of an ‘‘exchange’’
under Exchange Act Rule 3a1–1(a)(2),
and thus not be required to be registered
as a national securities exchange, to
comply with Regulation ATS. A
Currently Exempted Government
Securities ATS that opts to comply with
Regulation ATS would then be subject
to the conditions to the exemption from
exchange registration that are designed
to provide its subscribers with investor
protections and enable Commission
oversight, including the surveillance
and examination of ATSs, and to help
assure fair and orderly markets.101 The
Commission is also proposing to subject
Currently Exempted Government
Securities ATSs to the enhanced public
transparency requirements of Rule 304
and Form ATS–G.
At present, Exchange Act Rule 3a1–
1(a)(3) and Rule 301(a)(4) of Regulation
ATS exempt from the definition of an
‘‘exchange’’ under Section 3(a)(1) of the
Exchange Act an ATS that is operated
by a registered broker-dealer or a bank
that solely trades government securities
or repos.102 The Commission is
proposing to amend Regulation ATS to
eliminate the exemption under Rule
101 See Regulation ATS Adopting Release, supra
note 35, at 70878. See also infra notes 121–131 and
accompanying text.
102 See 17 CFR 240.3a1–1(a)(3) and 17 CFR
242.301(a)(4).
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301(a)(4) of Regulation ATS for ATSs
that solely trade government securities
and repos. As a result of this proposed
amendment, any system that meets the
definition of an ‘‘exchange’’ under
Section 3(a)(1) of the Exchange Act and
Rule 3b–16(a) thereunder and solely
trades government securities or repos
would no longer be exempt from the
definition of an ‘‘exchange’’ and would
either have to register as a national
securities exchange or operate pursuant
to an exemption to such registration,
such as the exemption under Regulation
ATS.103
The Commission is also proposing to
amend Rule 301(b)(1) of Regulation
ATS, which currently requires an ATS
to register as a broker-dealer under
Section 15 of the Exchange Act,104 to
allow an ATS to register either as a
broker-dealer under Exchange Act
Section 15 or a government securities
broker or government securities dealer
under Exchange Act Section
15C(a)(1)(A).105 Registration pursuant to
Section 15C(a)(1)(A) specifically applies
to government securities brokers and
dealers other than registered brokerdealers or financial institutions.106
Registration as a broker-dealer under
Section 15 or government securities
broker or government securities dealer
under Section 15C(a)(1)(A) of the
Exchange Act is important because,
among other things, it requires
membership in an SRO, such as
FINRA.107 Because ATSs that register as
103 The Commission is proposing to delete the
text of Rule 301(a)(4)(ii)(A)–(C) and replace each
paragraph with the term ‘‘Reserved.’’ The
Commission is not proposing to eliminate Rule
301(a)(4)(ii)(D), which exempts an ATS from
compliance with Regulation ATS if the ATS limits
its securities activities to commercial paper.
Accordingly, the only ATSs that would continue to
be exempt under Rule 301(a)(4) would be ATSs that
are registered broker-dealers or are banks and limit
their securities activities to commercial paper.
104 15 U.S.C. 78o.
105 See 15 U.S.C. 78o–5. Exchange Act Section
15C(a)(1)(A) makes it unlawful for a government
securities broker or government securities dealer
(other than a registered broker or dealer or a
financial institution) to make use of the mails or
any means or instrumentality of interstate
commerce to effect a transaction in any government
securities unless the government securities broker
or government securities dealer is registered with
Commission pursuant to Exchange Act Section
15C(a)(2). See 15 U.S.C. 78o–5(a)(1)(A). Section
15C(e) in turn generally requires that a government
securities broker or government securities dealer
that is registered or required to be registered under
Section 15C(a)(1)(A) must be a member of a
registered national securities exchange or registered
securities association such as FINRA.
106 Broker-dealers that limit their activity to
government securities require specialized
registration under Section 15C of the Exchange Act
and do not have to register as general-purpose
broker-dealers under Section 15(b). See 15 U.S.C.
78o–5.
107 See Regulation ATS Adopting Release, supra
note 35, at 70863 (discussing the importance of an
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broker-dealers or government securities
brokers or dealers do not have selfregulatory responsibilities, the
Commission believes it is important for
these ATSs to be members of an SRO
and thus subject to SRO examination
and surveillance,108 trade reporting
obligations,109 and certain investor
protection rules.110 Like ATSs registered
as broker-dealers under Section 15, an
ATS registered as a government
securities broker or government
securities dealer under Section
15C(a)(1)(A) would be subject to
oversight and surveillance by an
SRO.111
In contrast, SRO membership is not
required for a bank or other financial
institution that registers as a
government securities broker or
dealer.112 Accordingly, the amendment
to Regulation ATS would not permit a
bank or other financial institution to
satisfy the broker-dealer registration
requirement by registering as a
government securities broker or
government securities dealer under
Section 15C(a)(1)(B) of the Exchange
Act.113 The Commission believes it is
ATS being a member of an SRO because ATSs
registered as broker-dealers will not have selfregulatory responsibilities). As noted above, Section
15C(e) generally requires SRO membership for a
government securities broker or government
securities dealer that is registered or required to be
registered under Section 15C(a)(1)(A). Similarly,
Section 15(b)(8) generally requires a registered
broker-dealer to be a member of a registered
securities association such as FINRA.
108 See, e.g., FINRA Rule 1000 Series, FINRA
Rules 4140, 4510, 4520, 4530, and 8210.
109 See, e.g., FINRA Rule 6730.
110 See, e.g., FINRA Rules 3110, 4370, 5210, 5220,
5230, 5310, and 5340.
111 See Regulation ATS Adopting Release, supra
note 35, at 70863.
112 As proposed, Currently Exempted Government
Securities ATSs that are operated by banks would
be required to structure their business to either
comply with Regulation ATS or register as a
national securities exchange. For example, to
comply with Regulation ATS, the Government
Securities ATS might move its ATS operations into
a new or existing broker-dealer affiliate of the bank.
Unlike registered broker-dealers (Section 15(b)(8))
and government securities brokers or government
securities dealers that are registered or required to
be registered under Section 15C(a)(1)(A) (Section
15C(e)), there is no statutory requirement of SRO
membership for banks. Because banks typically
operate in reliance on exceptions from broker or
dealer status, they are not required to become a
member of an SRO, such as FINRA. In this regard,
Exchange Act Section 3(a)(4)(B)(iii)(II) excludes
from the definition of ‘‘broker’’ a bank that effects
transactions in ‘‘exempted securities’’ such as
government securities. 15 U.S.C. 78c(a)(4)(B)(iii)(II).
See Exchange Act Section 3(a)(12) (defining
‘‘exempted securities’’ to include ‘‘government
securities’ as defined in Section 3(a)(42) of the
Exchange Act). Exchange Act Section
3(a)(5)(C)(i)(II) similarly excepts from the definition
of ‘‘dealer’’ a bank that buys or sells exempted
securities. 15 U.S.C. 78c(a)(5)(C)(i)(II).
113 Exchange Act Section 15C(a)(1)(B) makes it
unlawful for any government securities broker or
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important for an ATS to be a member of
an SRO, and unlike registrants under
Sections 15 and 15C(a)(1)(A), a bank or
other financial institution that registers
under Section 15C(a)(1)(B) is not
required to be a member of an SRO.114
As a result, a bank-operated ATS that
trades only government securities or
repos would be unable to rely on the
exemption provided by Regulation ATS,
as proposed to be amended, and could
not otherwise operate unless registered
as a national securities exchange
pursuant to Section 5 of the Exchange
Act. However, this is the case currently
with respect to bank-operated ATSs that
trade securities other than government
securities, and it is the Commission’s
understanding that these ATSs often are
operated by bank affiliates that are
themselves registered broker-dealers,
rather than by the banks themselves.
The Commission believes that a bank
that operates an ATS that trades only
government securities might adopt a
similar registered affiliate structure for
its government securities operations.
The Commission is requesting
comment, however, on whether it
should amend Rule 301(b)(1) to make
the Regulation ATS exemption available
to entities registered under Section
15C(a)(1)(B), and whether some
transition period is required if a bank
decides to restructure the operation of
its Government Securities ATS.
Eliminating the exemption from the
definition of ‘‘exchange’’ for brokerdealers and banks that operate an ATS
for solely government securities or repos
would bring these markets within the
Commission’s regulatory framework for
exchanges and, as discussed in more
detail above, enhance regulatory
oversight, protect investors, and help
ensure fair and orderly markets for
government securities and repos.115
Additionally, this proposal seeks to
bring greater transparency to a very
important market, and removing the
exemption under Rule 301(a)(4) of
government securities dealer that is a registered
broker or dealer or a financial institution to make
use of the mails or any means or instrumentality of
interstate commerce to effect any transaction in, or
to induce or attempt to induce the purchase or sale
of, any government security unless such
government securities broker or government
securities dealer has filed with the appropriate
regulatory agency written notice that it is a
government securities broker or government
securities dealer. 15 U.S.C. 78o–5(a)(1)(B)(i).
114 See Exchange Act Sections 3(a)(6) (defining
‘‘bank’’) and 3(a)(46) (defining ‘‘financial
institution’’).
115 See supra text accompanying note 101
(describing that the proposed amendments would
provide better Commission oversight of and public
transparency over Currently Exempted Government
Securities ATSs).
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Regulation ATS would accomplish this
goal.
In addition to Rule 301(b)(1) of
Regulation ATS, with which most
Currently Exempted Government
Securities ATSs currently comply,116 a
Currently Exempted Government
Securities ATS would be required to
comply with the conditions of the
Regulation ATS exemption, as proposed
to be amended. This includes Rule 304,
which would require that Government
Securities ATSs file Form ATS–G.
Government Securities ATSs would not,
however, be subject to the order display
and execution access provisions under
Rule 301(b)(3) or the fees provision of
Rule 301(b)(4) that are applicable only
to NMS Stock ATSs.117 As discussed
further below, the Commission is
proposing to require Government
Securities ATSs that meet a certain
volume threshold to comply with the
Fair Access Rule with respect to trading
in U.S. Treasury Securities and Agency
Securities.118 Because the Commission
is proposing to apply Regulation SCI to
certain Government Securities ATSs
that trade U.S. Treasury Securities and/
or Agency Securities, the Capacity,
Integrity, and Security Rule under Rule
301(b)(6) would not apply to the trading
of government securities on ATSs.119
The Commission believes that it is
important to apply these conditions to
the exemption to Currently Exempted
Government Securities ATSs because
the conditions are designed to protect
investors and to facilitate Commission
oversight. Therefore, the Commission is
proposing that a Currently Exempted
Government Securities ATS must:
• Permit the examination and
inspection of its premises, systems, and
records, and cooperate with the
examination, inspection, or
investigation of subscribers, whether
such examination is being conducted by
the Commission or by an SRO of which
such subscriber is a member, pursuant
to Rule 301(b)(7).120 The Commission
believes that because subscribers to
whom the Commission’s inspection
authority does not extend could use a
Currently Exempted Government
Securities ATS to manipulate the
market in a security, it is important that
116 See
supra text accompanying note 49 (stating
that most Currently Exempted Government
Securities ATSs register as broker-dealers with the
Commission).
117 See 17 CFR 242.301(b)(3)–(4).
118 See infra Section II.D.
119 See infra Section VI.
120 See 17 CFR 242.301(b)(7). See also Regulation
ATS Adopting Release, supra note 35, Section
IV.A.2.f.
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these ATSs cooperate in all inspections,
examinations, and investigations.121
• Make and keep certain records
specified in Rule 302 122 and preserve
records specified in Rule 303,123
pursuant to Rule 301(b)(8).124 The
recordkeeping requirements would
require the Currently Exempted
Government Securities ATSs to create a
meaningful audit trail and allow the
Commission to examine whether the
ATS is in compliance with federal
securities laws.125
• Periodically report certain
information about transactions on the
ATS and information about certain
activities on Form ATS–R within 30
calendar days after the end of each
calendar quarter in which the market
has operated pursuant to Rule
301(b)(9).126 The information reported
on Form ATS–R by Currently Exempted
121 See Regulation ATS Adopting Release, supra
note 35, at 70877.
122 Rule 302 requires all ATSs to make and keep
current certain records, including: A record of
subscribers to the ATS; daily summaries of trading
in the ATS; and time-sequenced records of order
information in the ATS. See 17 CFR 242.302.
123 Rule 303, and specifically Rule 303(a)(1),
requires an ATS to preserve: All records required
to be made pursuant to Rule 302; all notices
provided to subscribers, including notices
addressing hours of operations, system
malfunctions, changes to system procedures, and
instructions pertaining to access to the ATS;
documents made or received in the course of
complying with the Capacity, Integrity, and
Security Rule in Rule 301(b)(6), if applicable; and,
if the ATS is subject to the Fair Access Rule under
Rule 301(b)(5), a record of its access standards. Rule
303(a)(2) requires that certain other records must be
kept for the life of the ATS and any successor
enterprise, including partnership articles or articles
of incorporation (as applicable), and copies of
reports filed pursuant to Rule 301(b)(2), which
includes current Form ATS, and records made
pursuant to Rule 301(b)(5). In particular, reports
required to be maintained for the life of the ATS
or any successor enterprise include initial operation
reports, amendments, and cessation of operations
reports, filed on Form ATS.
124 See 17 CFR 242.301(b)(8). See also Regulation
ATS Adopting Release, supra note 35, Section
IV.A.2.g.
125 See Regulation ATS Adopting Release, supra
note 35, at 70878.
126 See 17 CFR 242.301(b)(9). See also infra
Section II.E; Regulation ATS Adopting Release,
supra note 35, Section IV.A.2.h (Rule 301(b)(9)).
Form ATS–R requires the ATS to report, among
other things, the aggregate quarterly volume data for
specified categories of securities, a list of all
securities traded on the ATS during the quarter, and
a list of all subscribers that were participants during
the quarter. In addition, Form ATS–R requires an
ATS that is subject to the fair access obligations
under Rule 301(b)(5) of Regulation ATS to report a
list of all persons granted, denied, or limited access
to the ATS during the period covered by the Form
ATS–R and designate for each person: (a) Whether
access was granted, denied, or limited; (b) the date
the ATS took such action; (c) the effective date of
such action; and (d) the nature of any denial or
limitation of access. Rule 301(b)(9) requires an ATS
to complete and file Form ATS–R within 10
calendar days after ceasing to operate. See Form
ATS–R.
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Government Securities ATSs will
permit the Commission to monitor the
trading on these ATSs for compliance
with the Exchange Act and applicable
rules thereunder and enforce the Fair
Access Rule.127
• Adopt written safeguards and
written procedures to protect
confidential trading information and to
separate ATS functions from other
broker-dealer functions, including
principal and customer trading pursuant
to Rule 301(b)(10).128 The Commission
believes that applying the requirements
of Rule 301(b)(10) to Currently
Exempted Government Securities ATSs
will help prevent the potential for abuse
of subscriber confidential trading
information.129
• Not use in its name the word
‘‘exchange,’’ or any derivation of the
word ‘‘exchange’’ pursuant to Rule
301(b)(11).130 The Commission believes
that the use of the word ‘‘exchange’’ by
an ATS, including a Currently
Exempted Government Securities ATS,
would be deceptive and could lead
investors to believe incorrectly that such
ATS is registered as a national securities
exchange.131
Request for Comment
6. Should the Commission amend
Regulation ATS to eliminate the
exemption from compliance with
Regulation ATS under Rule
301(a)(4)(ii)(A) for all Currently
Exempted Government Securities ATS,
including those operated by banks?
7. Should the proposed elimination of
the exemption from compliance with
Regulation ATS only apply to
Government Securities ATSs that trade
a certain type of government security
(e.g., only U.S. Treasury Securities or
only Agency Securities)? Should the
proposed elimination of the exemption
from compliance with Regulation ATS
only apply to Government Securities
ATSs that trade government securities
(and not repos)? If so, for which type of
Government Securities ATS should the
exemption be eliminated?
8. Should Government Securities
ATSs seeking to operate pursuant to the
exemption provided by Regulation ATS
have the alternative option to satisfy
broker-dealer registration with the
127 See Regulation ATS Adopting Release, supra
note 35, at 70874 and 70878.
128 See 17 CFR 242.301(b)(10); NMS Stock ATS
Adopting Release, supra note 1, Section VI.
129 See NMS Stock ATS Adopting Release, supra
note 1, at 38864.
130 See 17 CFR 242.301(b)(11); Regulation ATS
Adopting Release, supra note 35, Section II.C.
131 See Securities Exchange Act Release No.
39884 (April 17, 1998), 63 FR 23504, 23523 (April
29, 1998) (‘‘Regulation ATS Proposing Release’’).
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Commission pursuant to Section
15C(a)(1)(A)?
9. Should the Commission adopt any
alternatives to requiring Government
Securities ATSs to register with the
Commission as broker-dealers under
Section 15 or Section 15C(a)(1)(A)? For
example, should the Commission
amend Rule 301(b)(1) of Regulation ATS
to include an alternative for a bank to
register as a government securities
broker or dealer pursuant to Section
15C(a)(1)(B), which would not require
the bank to become a member of an
SRO?
10. Should there be a transition
period for Currently Exempted
Government Securities ATSs that are
currently operated by banks to comply
with the proposed amendments to Rule
301(b)(1), including ATSs provided and
operated by an affiliate of the bank? If
so, how long should the transition
period be?
11. Should there be a transition
period for Currently Exempted
Government Securities ATSs to comply
with all or some of the requirements of
Regulation ATS? If so, which
requirements would require such a
transition period, and how long should
such transition period be?
12. Should the Commission amend
Regulation ATS to remove the
exemption from Regulation ATS for
ATSs that limit their securities activities
to commercial paper? Do market
participants use ATSs to trade
commercial paper? If so, how is
commercial paper traded on an ATS?
Should the Commission remove any
other exemption from Regulation ATS
available under Rule 301?
13. Should the Commission require
Currently Exempted Government
Securities ATSs to comply with all of
the requirements of Regulation ATS
applicable to all ATSs that are currently
required to comply with Regulation
ATS? If not, which requirements should
a Currently Exempted Government
Securities ATS not be required to
comply with and why?
D. Application of Fair Access to
Government Securities ATSs
The Commission believes that the
proposal to amend Regulation ATS to
include U.S. Treasury Securities and
Agency Securities as categories of
securities under the Fair Access Rule
would promote fair and orderly markets
given the importance of Government
Securities ATSs. When Regulation ATS
was adopted, the Commission explained
that the fair treatment by ATSs of
potential and current subscribers is
particularly important when an ATS
captures a large percentage of trading
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volume in a security, because viable
alternatives to trading on such a system
are limited.132 The Commission further
explained that if an ATS has a
significantly large percentage of the
volume of trading in a security or type
of security, unfairly discriminatory
actions can hurt investors lacking access
to that ATS.
Currently, Rule 301(b)(5) only applies
to the trading of NMS stocks, equity
securities that are not NMS stocks and
for which transactions are reported to an
SRO, municipal securities, and
corporate debt securities, but not to
trading in government securities.133 An
ATS subject to the Fair Access Rule
must, among other things, establish
written standards for granting access to
trading on systems and apply these
standards fairly, and is prohibited from
unreasonably prohibiting or limiting
any person with respect to trading in the
stated security when that trading
exceeds certain volume thresholds.134
These requirements are designed to
ensure that qualified market
participants have fair access to the
nation’s securities markets.
Government Securities ATSs have
become a significant source of orders
and trading interest in U.S. Treasury
Securities and Agency Securities for
investors.135 Regulation ATS, however,
does not provide a mechanism to
prevent unfair denials or limitations of
access by Government Securities ATSs
that trade U.S. Treasury Securities or
Agency Securities or regulatory
oversight of such denials or limitations
of access. The Commission believes that
today, the principles undergirding the
Fair Access Rule are equally relevant to
a Government Securities ATS and
amending the Fair Access Rule to
include the trading of U.S. Treasury
Securities and Agency Securities would
help ensure the fair treatment of
potential and current subscribers to
ATSs that consist of a large percentage
of trading volume in these two types of
securities.136
132 See Regulation ATS Adopting Release, supra
note 35, at 70872.
133 See 17 CFR 242.301(b)(5)(i).
134 See supra Section I.B.
135 See infra Section X.B.1.
136 Under the proposal, the Fair Access Rule
would not apply to Government Securities ATSs
that trade repos, including repos on U.S. Treasury
Securities and Agency Securities. Based on
information available to the Commission, the
Commission does not believe that ATSs today
capture a significant market share for trading repos
or that these markets are as liquid as the markets
for securities currently covered by the Fair Access
Rule. The Commission also notes FINRA does not
require ATSs to report transactions for repos. The
Commission is requesting comment on its
preliminary assessment and on whether the
Commission should amend Regulation ATS to
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Under the proposed amendments to
Rule 301(b)(5), a Government Securities
ATS would be subject to the Fair Access
Rule if during at least four of the
preceding six calendar months, the
Government Securities ATS had, (1)
with respect to U.S. Treasury Securities,
five percent or more of the average
weekly dollar volume traded in the
United States as provided by the selfregulatory organization to which such
transactions are reported, and (2) with
respect to Agency Securities, five
percent or more of the average daily
dollar volume traded in the United
States as provided by the self-regulatory
organization to which such transactions
are reported.137
The Commission is proposing five
percent volume thresholds for
subjecting a Government Securities ATS
to the Fair Access Rule. Specifically, a
Government Securities ATS would be
subject to the Fair Access Rule for its
trading of U.S. Treasury Securities if its
volume surpasses the five percent
threshold for U.S. Treasury Securities.
Similarly, a Government Securities ATS
would be subject to the Fair Access Rule
for its trading in Agency Securities if its
volume surpasses the five percent
threshold for Agency Securities.138
When the Commission adopted Rule
301(b)(5), the Fair Access Rule
threshold was 20 percent of the average
daily trading volume.139 Currently, the
Fair Access Rule applies on a securityby-security basis for NMS stocks and
equity securities that are not NMS
stocks, and on a category basis for
corporate bonds and municipal
securities. The original volume
threshold was reduced to five percent
for all categories of securities when the
Commission adopted Regulation NMS,
and the Commission proposes to apply
require Government Securities ATSs that trade
repos, including repos on U.S. Treasury Securities
and Agency Securities, to be subject to the
requirements of the Fair Access Rule.
137 Dollar volume is measured in par value, where
par value is the face value or nominal value of a
bond. The Commission notes that TRACE Security
Activity Report and TRACE Fact Book report
volume in the same unit, ‘‘par value volume’’ or
‘‘par value traded.’’ See FINRA Rule 7730(g)(7). See
also FINRA, TRACE Fact Book, available at https://
www.finra.org/filing-reporting/trace/trace-factbook.
138 As such, a Government Securities ATS with
high trading volume in U.S. Treasury Securities and
low trading volume in Agency Securities might
only be subject to the Fair Access Rule for U.S.
Treasury Securities. Likewise, a Government
Securities ATS with high Agency Securities trading
volume and low U.S. Treasury Securities trading
volume might only be subject to the Fair Access
Rule for Agency Securities. A Government
Securities ATS that surpasses each of the two
thresholds would be subject to the Fair Access Rule
for U.S. Treasury Securities and Agency Securities.
139 See Regulation ATS Adopting Release, supra
note 35, at 70873.
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five percent volume thresholds for the
trading of U.S. Treasury Securities and
Agency Securities.140
The proposed thresholds include only
such securities for which transactions
are reported to an SRO. FINRA
publishes weekly aggregate data on U.S.
Treasury Securities based on the
mandatory transaction reports of its
members to TRACE, and disseminates
transactions data about Agency
Securities immediately upon receipt of
a transaction report.141 Because weekly
dollar volume data about transactions in
U.S. Treasury Securities and daily
dollar volume data about transactions in
Agency Securities are publicly available
via TRACE, Government Securities
ATSs will be able to readily calculate
whether they meet the applicable
thresholds.
The Commission believes that
separate volume thresholds for U.S.
Treasury Securities and Agency
Securities would advance the investor
protection goals of the Fair Access Rule.
U.S. Treasury Securities and Agency
Securities make up the vast amount of
government securities traded on ATSs
today, and also constitute different
sources of potential orders and trading
interest for market participants.142 The
proposed volume thresholds would help
ensure that the Fair Access Rule applies
to the category of security for which an
ATS has significant trading volume. If a
Government Securities ATS has
significant trading volume in U.S.
Treasury Securities but not Agency
Securities, for example, the proposed
rule would help ensure that investors
are provided fair access to the ATS’s
services with respect to U.S. Treasury
Securities, even if the ATS’s combined
trading volume in both U.S. Treasury
Securities and Agency Securities would
not exceed a five percent volume
threshold. The Commission believes
that it would be unnecessary and overly
burdensome to require a Government
Securities ATS to comply with the Fair
Access Rule for a category of
government security for which that ATS
does not have significant volume.
Additionally, given that U.S. Treasury
Securities and Agency Securities are
types of debt securities, the Commission
believes that it is appropriate to
determine these five percent volume
thresholds on a category basis because
doing so would be consistent with the
Fair Access Rule’s application to other
categories of fixed income securities
140 See Securities and Exchange Act Release No.
51808 (June 9, 2005) 70 FR 37496, 37550 (June 29,
2005) (File No. S7–10–04).
141 See supra notes 50–51.
142 See infra Section X.B.1. See also supra Section
I.A.
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(i.e., corporate bonds and municipal
securities).
The Commission believes that the
proposed five percent volume threshold
test is consistent with the Commission’s
current threshold for identifying
significant markets for purposes of the
Fair Access Rule and is appropriate for
determining whether a Government
Securities ATS should be subject to the
Fair Access Rule for trading in the
categories of U.S. Treasury Securities
and Agency Securities. Currently, the
Commission estimates that three ATSs
trading U.S. Treasury Securities and one
ATS trading Agency Securities would
be subject to the Fair Access Rule under
the proposed five percent volume
thresholds.143 The ATS with the largest
market volume in U.S. Treasury
Securities has approximately 24 percent
of market volume, while the second and
third largest are both slightly above five
percent market share. The one ATS that
would exceed the proposed threshold
for Agency Securities accounts for
roughly 13 percent of volume in Agency
Securities. If the Commission were to
propose a four percent volume
threshold, the number of ATSs that
would be subject to the Fair Access Rule
for U.S. Treasury Securities and Agency
Securities would not change, but if the
Commission proposed a three percent
volume threshold test, the Commission
estimates a total of four ATSs would be
subject to the Fair Access Rule for U.S.
Treasury Securities and the number of
ATSs subject to the Fair Access Rule for
Agency Securities would remain at
one.144
If the proposed volume thresholds
were 10 percent, however, only one
ATS trading U.S. Treasury Securities
and one ATS trading Agency Securities
would be subject to the Fair Access
Rule.145 The Commission believes that
the proposed five percent volume
thresholds—in addition to being
consistent with the current volume
threshold for categories of debt
securities under the Fair Access Rule—
are appropriately designed to capture
those ATSs that are significant liquidity
venues for U.S. Treasury Securities or
Agency Securities. That said, as further
specified below, the Commission is
requesting comment on whether these
proposed volume thresholds should be
set higher or lower for ATSs trading
government securities.
The proposed fair access volume
threshold for U.S. Treasury Securities
would have a different data benchmark
than that for Agency Securities. The
143 See
infra Table X.1.
id.
145 See id.
144 See
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former would be based on average
weekly dollar volume traded, and the
latter would be based on average daily
volume traded. This proposed
difference is because FINRA only
provides weekly aggregated transaction
information on U.S. Treasury Securities
but provides individual trade reports for
Agency Securities transactions.
Currently, FINRA neither provides
individual trade reports nor aggregate
daily volume data for U.S. Treasury
Securities transactions to TRACE
subscribers (or to the public). Thus,
Government Securities ATSs will only
have weekly-volume data upon which
to make fair access determinations for
U.S. Treasury Securities. FINRA,
however, provides individual trade
reports for all Agency Securities
transactions to TRACE subscribers, and
therefore,146 Government Securities
ATSs will be able determine the average
daily trading volume for a given month
by aggregating these trade reports.
Accordingly, the Commission proposes
an average daily volume threshold for
Agency Securities, which is consistent
with the current volume thresholds in
301(b)(5).147
Lastly, the Commission is proposing
that a Government Securities ATS
would only be required to comply with
the Fair Access Rule only if it has met
at least one of the applicable volume
thresholds during at least four of the
preceding six calendar months.148 This
is the same time period for evaluating
the applicability of the Fair Access Rule
to ATSs that trade U.S. Treasury
Securities or Agency Securities that is
currently applied to ATSs that trade
NMS stocks, equity securities that are
not NMS stocks and for which
transactions are reported to an SRO,
municipal securities, and corporate debt
securities. Because of the similarity of
Government Securities ATSs to the
other ATSs, the Commission believes
that the range of time is an appropriate
146 The Commission believes that the vast
majority—and likely, all—broker-dealer operators of
Government Securities ATSs that trade Agency
Securities currently subscribe to TRACE. The
Commission is, however, requesting public
comment on the extent to which Government
Securities ATSs (both Currently Exempted
Government Securities ATSs and those subject to
current Regulation ATS) have access to TRACE
trade reports for Agency Securities.
147 See supra notes 138–140.
148 However, if, for example, during the six month
period from January to June, the Government
Securities ATS met the threshold for U.S. Treasury
Securities only during January and April and met
the threshold for Agency Securities only during
February and May, the Government Securities ATS
would not be subject to the Fair Access Rule in July
because the ATS would not have met the threshold
for either type of security during at least four of the
preceding six months in either U.S. Treasury
Securities or Agency Securities.
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period to evaluate the trading volume of
an ATS and strikes an appropriate
balance; the threshold will not be
triggered by atypical periods of
increased trading or a few occurrences
of very large trades, but will be timely
triggered after an ATS attains a
significant role in the market.
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Request for Comment
14. Should any other type of
government securities be included as a
category of securities under Rule
301(b)(5)? Should the Commission
apply Rule 301(b)(5) to all Government
Securities ATSs? What would be the
costs and benefits associated with such
a requirement?
15. Should the proposed five percent
fair access threshold for U.S. Treasury
Securities be applied to all types of U.S.
Treasury Securities or only to a subset(s)
of U.S. Treasury Securities? For
example, should the five percent fair
access threshold be applied to
transaction volume in only on-the-run
U.S. Treasury Securities? Should the
five percent fair access threshold should
be applied to all Agency Securities or
only to a subset(s) of Agency Securities?
16. Should the proposed five percent
fair access threshold for U.S. Treasury
Securities be set higher or lower than
five percent? If so, what should that
percentage threshold should be? Should
there be no threshold? Please support
your views. Is the five percent threshold
an appropriate threshold to capture
ATSs that are significant markets for
trading in U.S. Treasury Securities or
Agency Securities? Would the five
percent threshold capture ATSs that are
not significant markets for U.S. Treasury
Securities and Agency Securities? If
there should be a percent threshold for
a subset of U.S. Treasury Securities, for
example on-the-run U.S. Treasury
Securities or off-the-run U.S. Treasury
Securities, what should that threshold
should be?
17. Would the proposed four out of
six month period be an appropriate
period to measure the volume
thresholds for U.S. Treasury Securities,
Agency Securities, or both? If not, what
period of time would be appropriate?
18. Would it be appropriate to use five
percent of average weekly dollar volume
traded in the United States as a fair
access threshold for U.S. Treasury
Securities?
19. If the average weekly dollar
volumes were to include transactions
for U.S Treasury Securities by nonFINRA members, which currently are
not reported to, or collected by, the SRO
that makes public average weekly dollar
volume statistics, should the fair access
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threshold change? If so, what should be
the appropriate threshold?
20. Would it be appropriate to use five
percent of average daily dollar volume
traded in the United States as a fair
access threshold for Agency Securities?
Do ATSs that trade Agency Securities
currently subscribe to TRACE and,
therefore, receive TRACE trade reports
for Agency Securities? If not, what
percentage of these ATSs do not
currently subscribe to TRACE?
21. Should the requirements under
the Fair Access Rule be amended
specifically for Government Securities
ATS? If so, how?
22. Should the proposed five percent
fair access threshold for U.S. Treasury
Securities be applied on a security-bysecurity basis?
23. Should the proposed fair access
volume threshold measurement for
Government Securities ATSs, and
current fair access threshold
measurements applicable to ATSs that
trade NMS stock, OTC equity securities,
corporate bonds, and municipal
securities, take into account whether the
ATSs are under common control share
the same technology platform? A brokerdealer may be the registered brokerdealer for multiple types of ATSs that
trade different types of securities (e.g.,
an NMS Stock ATS and a non-NMS
Stock ATS) or a broker-dealer may also
be the registered broker-dealer for
multiple ATSs that trade the same type
of securities but are separate and
distinct from each other (e.g., a brokerdealer registered for, and operates, two
NMS Stock ATSs that each maintains a
separate book of orders that are
governed by distinct priority and order
interaction rules). In both instances,
each of the ATSs operated by the
broker-dealer operator is separate from
each other and must independently
comply with Regulation ATS. Should
two or more ATSs under common
control and operated by the same
broker-dealer be viewed as a single ATS
required to aggregate volume of
transactions for purposes of determining
whether the fair access threshold has
been satisfied? If yes, what factors
should be considered when determining
the fair access threshold test for
multiple ATSs operated by the same
broker-dealer, and why?
E. Filing Requirements for BrokerDealers That Operate ATSs That Trade
Government Securities and NonGovernment Securities
The Commission is proposing to
revise Rule 301(b)(2)(viii) 149 of
149 17 CFR 242.301(b)(2)(viii). Current Rule
301(b)(2)(viii) provides that NMS Stock ATSs must
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Regulation ATS to provide that a Legacy
Government Securities ATS that is
operating pursuant to a Form ATS as of
the Compliance Date will continue to be
subject to the Rule 301(b)(2)
requirements to file a Form ATS.
However, once the ATS files a Form
ATS–G, it will no longer be subject to
Rule 301(b)(2)(i) through (vii) and will
instead be subject to the reporting
requirements under Rule 304, which
provides the rules for filing of Form
ATS–G. The Commission is also
proposing to provide that as of the
Compliance Date, an entity seeking to
operate as a Government Securities ATS
will not be subject to the requirements
of Rule 301(b)(2)(i) through (vii) and
will instead be required to file reports
under Rule 304. In addition, the
Commission is proposing rules to make
clear that a Currently Exempted
Government Securities ATS would be
subject to Rule 304 and would not be
subject to Rule 301(b)(2)(i) through
(viii). Other than changes to refer to
Government Securities ATSs, the
relevant compliance dates, and the
treatment of Currently Exempted
Government Securities ATSs, these
rules are identical to the existing rules
that were applied to Legacy NMS Stock
ATSs operating during the Commission
review period for Form ATS–N and
would avoid Government Securities
ATSs from being subject to potentially
duplicative requirements in Rule 304
and Rule 301(b)(2).
The Commission is proposing to
amend Rule 301(b)(2)(viii) to make clear
that NMS Stock ATSs and Government
Securities ATSs are required to file
reports pursuant to § 242.304 and ATSs
that are not NMS Stock ATSs or
Government Securities ATSs are subject
to Rule 301(b)(2). A broker-dealer may
be the registered broker-dealer for
multiple types of ATSs that trade
different types of securities (e.g., NMS
Stock ATS and non-NMS Stock ATS) or
a broker-dealer may be the registered
broker-dealer for multiple ATSs that
trade the same type of securities but are
separate and distinct from each other
(e.g., a broker-dealer registered for, and
file with the Commission the reports and
amendments required by Rule 304 and that NMS
Stock ATSs are not subject to Rule 301(b)(2). NMS
Stock ATSs or entities seeking to operate as NMS
Stock ATSs would continue to file reports pursuant
to Rule 304. Because the Commission review period
for all Forms ATS–N filed by Legacy NMS Stock
ATSs ended in October 2019, the Commission is
proposing to delete references in Rule 301(b)(2)(viii)
to Legacy NMS Stock ATSs. The Commission is
also proposing to consolidate the current provisions
of Rule 301(b)(2)(viii) applicable to NMS Stock
ATSs to state that NMS Stock ATSs or entities
seeking to operate as an NMS Stock ATS shall not
be subject to the requirements of Rule 301(b)(2)(i)
through (vii) and would be subject to Rule 304.
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operates, two NMS Stock ATSs, each of
which maintains a separate book of
orders that is governed by distinct
priority and order interaction rules for
one type of security). In both instances,
each of the ATSs is separate from the
other and must independently comply
with Regulation ATS.150 The
Commission is proposing to add to Rule
301(b)(2)(viii) to provide that an NMS
Stock ATS or a Government Securities
ATS that is operated by a broker-dealer
that is the registered broker-dealer for
more than one ATS must independently
comply with Regulation ATS, including
the filing requirements of Rule 304. The
Commission believes that the proposed
language makes clear that the proposal
would not require compliance with the
heightened transparency requirements
of Regulation ATS for ATSs that are not
NMS Stock ATSs or Government
Securities ATSs. Under the proposal, a
broker-dealer operator, for example, for
an ATS that noticed on its initial
operation report on Form ATS that the
ATS trades government securities and
corporate debt securities would be the
broker-dealer operator for two types of
ATSs that would be separate from each
other with regard to trading these
securities and independently comply
with Regulation ATS. These two types
of ATSs would be (1) a Government
Securities ATS that would file a Form
ATS–G with respect to government
securities and (2) a non-Government
Securities ATS that would file a Form
ATS with respect to corporate debt.151
In addition, each of the two ATSs would
be required to comply with the
conditions to Regulation ATS,
including, among other things, each
adopting written safeguards and written
procedures to protect subscriber
confidential trading information for the
ATS pursuant to Rule 301(b)(10) and
150 See Rule 3a1–1(a)(2) (providing that an
organization, association, or group of persons shall
be exempt from the definition of ‘‘exchange’’ if it
is in compliance with Regulation ATS) and Rule
301(a) (providing that an ATS shall comply with
the requirements of Rule 301(b)).
151 Under the proposed rules, a broker-dealer
operator for an ATS that currently trades
government securities and corporate bonds, for
example, would file a Form ATS–G to disclose its
government securities activities for the Government
Securities ATS. The broker-dealer operator would
disclose the corporate bond activities of its existing
ATS by filing with the Commission a material
amendment to its Form ATS pursuant to Rule
301(b)(2)(ii) of Regulation ATS to remove
information regarding government securities
activities. See Regulation ATS Adopting Release,
supra note 35, at 70864 (discussing circumstances
under which an ATS would file a material
amendment to Form ATS pursuant to Rule
301(b)(2), which, among other things, includes
changes to the operating platform, the types of
securities traded, or types of subscribers).
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each making and keeping records for the
ATS pursuant to Rule 301(b)(8).152
The Commission also is proposing to
amend Rule 301(b)(9) of Regulation
ATS.153 This rule requires an ATS to
report transaction volume in various
types of securities, including
government securities and repos, on
Form ATS–R on a quarterly basis and
within 10 calendar days after it ceases
operation.154 As discussed above, the
Commission is proposing to define
‘‘Government Securities ATS’’ and to
clarify the definition of ‘‘NMS Stock
ATS’’ to make clear that a Government
Securities ATS cannot trade securities
other than government securities or
repos and that an NMS Stock ATS
cannot trade securities other than NMS
stocks.155 For example, a Government
Securities ATS operated by a brokerdealer that is also the registered brokerdealer for a non-Government Securities
ATS would be separate from the nonGovernment Securities ATS and would
be required to file a Form ATS–R for the
Government Securities ATS. The
broker-dealer would be required to file
a separate Form ATS–R for the nonGovernment Securities ATS. The
Commission is proposing to amend Rule
301(b)(9) by removing language stating
that an ATS must ‘‘separately file’’ a
Form ATS–R for transactions in NMS
stocks and for transactions in securities
other than NMS stocks to simplify the
text and convey that each ATS, whether
operated by a broker-dealer that
operates multiple types of ATS, must
file a Form ATS–R. This is consistent
with the current Form ATS–R filing
process for a broker-dealer that operates
an NMS Stock ATS and non-NMS Stock
ATS.156
Request for Comment
24. Should an NMS Stock ATS or
Government Securities ATS that is
operated by a broker-dealer that is a
registered broker-dealer for more than
one ATS be subject to Rule 304
independently from any other ATS for
which its broker-dealer is registered?
25. Should a broker-dealer that is the
registered broker-dealer for more than
one ATS be required to file separate
Forms ATS–R for each of the ATSs it
operates?
152 See
supra note 92 and accompanying text.
17 CFR 242.301(b)(9).
154 The information filed on Form ATS–R permits
the Commission to monitor trading on an ATS. See
Regulation ATS Adopting Release, supra note 35,
at 70878.
155 See supra note 94 and accompanying text.
156 See NMS Stock ATS Adopting Release, supra
note 1, Section III.B.5.
153 See
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F. Enhanced Filing Requirements for
Government Securities ATSs
The Commission is proposing a
process for the Commission to review
disclosures on Form ATS–G and declare
a Form ATS–G ineffective if the
Commission finds, after notice and
opportunity for hearing, that such action
is necessary and appropriate in the
public interest and the protection of
investors. The proposed effectiveness
process is not merit based and is the
same effectiveness process that is
currently applicable to NMS Stock
ATSs. The effectiveness process is
designed to facilitate the Commission’s
oversight of Government Securities
ATSs, as the process has facilitated the
review of NMS Stock ATSs, and
address, for example, material
deficiencies with respect to the
accuracy, currency, and completeness of
disclosures on Form ATS–G.
The Commission is proposing to
amend Rule 304(a) to require that a
Covered ATS, which will include a
Government Securities ATS, must
comply with Rules 300 through 304 of
Regulation ATS as applicable to be
exempt pursuant to Rule 3a1–1(a)(2).157
As proposed, all Government Securities
ATSs would be required to comply with
Rule 304, as amended, to, among other
things, file Form ATS–G with the
Commission. The Commission is
proposing to apply to Government
Securities ATSs the existing provisions
of current Rule 304(a) for the filing and
Commission review of an initial
Covered Form, which will include Form
ATS–G,158 with a modification to the
circumstances under which the
Commission can extend the review
period for an initial Covered Form.159
The Commission believes this process is
appropriate for the same reasons stated
in the NMS Stock ATS Adopting
Release.160 The Commission believes
that this review process will facilitate
the Commission’s oversight of
Government Securities ATSs and help
ensure that information is disclosed in
a complete and comprehensible manner.
The differences between Form ATS–G
and Form ATS–N would not warrant a
different review and effectiveness
process and the Commission is
proposing to apply the same provisions
157 As proposed, references to ‘‘NMS Stock ATSs’’
throughout Rule 304 would be changed to refer to
‘‘Covered ATSs,’’ which would encompass
Government Securities ATSs. See supra Section
II.B.
158 See infra notes 161–167 and accompanying
text.
159 See infra notes 168–170 and accompanying
text.
160 See NMS Stock ATS Adopting Release, supra
note 1, Section IV, at 38782.
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that are applicable to NMS Stock ATSs
to Government Securities ATSs, which
include the following:
• No exemption is available to a
Government Securities ATS pursuant to
Exchange Act Rule 3a1–1(a)(2) unless
the Government Securities ATS files
with the Commission an initial Form
ATS–G,161 and the initial Form ATS–G
is effective.162
• To permit the Commission, by
order, to declare ineffective an initial
Form ATS–G no later than 120 calendar
days from the date of filing with the
Commission, or, if applicable, the end of
the extended Commission review
period.163 During the Commission
review period, the Government
Securities ATS shall amend its initial
Form ATS–G by filing updating
amendments and correcting
amendments, as applicable.164
• An initial Form ATS–G, as
amended, will become effective, unless
declared ineffective, upon the earlier of:
(1) The completion of review by the
Commission and publication pursuant
to Rule 304(b)(2)(i); or (2) the expiration
of the Commission review period, or, if
applicable, the end of the extended
review period.165
• The Commission will, by order,
declare an initial Form ATS–G
ineffective if it finds, after notice and
opportunity for hearing, that such action
is necessary or appropriate in the public
interest, and is consistent with the
161 The Commission staff may reject a Form ATS–
G filing that is defective because, for example, it is
missing sections or missing responses to any subquestions, or does not comply with the electronic
filing requirements. This is a separate process from
the determination to declare a Form ATS–G
ineffective. See NMS Stock ATS Adopting Release,
supra note 1, at 38791.
162 See Rule 304(a)(1)(i). Because NMS Stock
ATSs must file a Form ATS–N and Government
Securities ATSs must file a Form ATS–G, the
Commission is proposing a change to current Rule
304(a)(1)(i) to state that no exemption is available
to a Covered ATS pursuant to § 240.3a1–1(a)(2)
unless the Covered ATS files with the Commission
an ‘‘applicable’’ initial Covered Form.
163 See proposed Rule 304(a)(1)(ii). As proposed,
the Commission may extend the initial Form ATS–
G review period for: (1) An additional 90 calendar
days, if the Commission determines that a longer
period is appropriate, in which case the
Commission will notify the Government Securities
ATS in writing within the initial 120-calendar day
review period and will briefly describe the reason
for the determination for which additional time for
review is required; or (2) any extended review
period to which a duly authorized representative of
the Government Securities ATS agrees in writing.
See infra note 169.
164 As proposed, to make material changes to its
initial Form ATS–G during the Commission review
period, the Government Securities ATS shall
withdraw its filed initial Form ATS–G and may
refile an initial Form ATS–G pursuant to Rule
304(a)(1). See Rule 304(a)(1)(ii)(B).
165 See proposed Rule 304(a)(1)(iii)(A).
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protection of investors.166 If the
Commission declares an initial Form
ATS–G ineffective, the Government
Securities ATS shall be prohibited from
operating as a Government Securities
ATS pursuant to Exchange Act Rule
3a1–1(a)(2). An initial Form ATS–G
declared ineffective does not prevent
the Government Securities ATS from
subsequently filing a new Form ATS–
G.167
The Commission is proposing to
amend Rule 304(a)(1)(ii)(A)(1), which
currently provides that the Commission
may extend the initial Form ATS–N
review period for an additional 90
calendar days if the Form ATS–N is
unusually lengthy or raises novel or
complex issues that require additional
time for review.168 The Commission is
extending the rule to Form ATS–G, and
furthermore, the Commission believes
that it is appropriate to extend the
Commission review period for a
Covered Form if it finds that an
extension is appropriate.169 For
example, if an ATS’s disclosures on an
initial Form ATS–G are difficult to
understand or appear to be incomplete,
the Commission may need additional
time to discuss the disclosures with the
ATS to ascertain whether to declare the
Form ATS–G ineffective, even if the
166 Like the review process for Form ATS–N, the
Commission’s review of Form ATS–G would not be
merit-based; instead it would focus on the
completeness and comprehensibility of the
disclosures. See NMS Stock ATS Adopting Release,
supra note 1, at 38790. In the NMS Stock ATS
Adopting Release, the Commission discussed the
circumstances under which the Commission would
declare a Form ATS–N amendment ineffective.
Such circumstances would also apply to the
Commission’s review of an amendment to Form
ATS–G filed by a Government Securities ATS. For
example, the Commission believes it would be
necessary or appropriate in the public interest, and
consistent with the protection of investors, to
declare ineffective a Form ATS–G if, for example,
the Commission finds, after notice and opportunity
for hearing, the Form ATS–G was filed by an entity
that does not meet the definition of a Government
Securities ATS; one or more disclosures reveal noncompliance with federal securities laws, or the rules
or regulations thereunder, including Regulation
ATS; or one or more disclosures on Form ATS–G
are materially deficient with respect to their
completeness or comprehensibility. For further
discussion, see id. at Section IV.B.2.
167 See Rule 304(a)(1)(iii)(B).
168 See Rule 304(a)(1)(ii)(A)(1). As proposed, the
Commission may also extend the initial Covered
Form review period for any extended review period
to which a duly authorized representative of the
Covered Form agrees in writing. See Rule
304(a)(1)(ii)(A)(2).
169 In the Commission’s experience reviewing
Forms ATS–N, the Commission review period was
extended (either by the Commission or by the
agreement of a duly authorized representative of the
ATS) for 31 of the 35 Forms ATS–N that the
Commission has reviewed and published. In its
review of each Form ATS–N, the Commission staff
engaged in extensive conversations with the NMS
Stock ATS with regard to the NMS Stock ATS’s
disclosures on its initial Form ATS–N.
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87121
form is not unusually lengthy or does
not raise novel or complex issues.
Rather than moving to declare an initial
Form ATS–G ineffective because of
material deficiencies with respect to
completeness and comprehensibility,
the Commission could extend the
review period to allow the filer to
resolve the deficiencies. The
Commission is therefore proposing that
the Commission may extend the initial
Covered Form review period by an
additional 90 calendar days if it
determines a longer period is
appropriate. The proposed standard is
the same standard for extending the
Commission review period for SRO rule
filings under Section 19 of the Exchange
Act.170 As under current Rule
304(a)(1)(ii)(A)(1), in such case, the
Commission will notify the Covered
ATS in writing within the initial 120calendar day review period and will
briefly describe the reason for the
determination for which additional time
for review is required.
The Commission is also proposing
that Legacy Government Securities
ATSs that have a Form ATS on file with
the Commission as of the Compliance
Date be subject to identical rules (other
than changes to terminology) during the
transition from operating pursuant to a
Form ATS to operating pursuant to a
Form ATS–G as those that were applied
to Legacy NMS Stock ATSs during the
Commission’s review period. In
addition, to allow a Currently Exempted
Government Securities ATS to continue
to operate without disruption while its
initial Form ATS–G is under
Commission review, the Commission is
proposing to amend Rule 304(a)(1)(i) to
provide that a Currently Exempted
Government Securities ATS may
continue to operate pursuant to
Regulation ATS until its initial Form
ATS–G becomes effective. The
Commission believes that all Legacy
Government Securities ATSs—whether
they are operating pursuant to a Form
ATS or whether they have operated as
a Currently Exempted Government
Securities ATS—should be permitted to
continue to operate during the
Commission review period. The
Commission is therefore proposing that
Legacy Government Securities ATSs can
operate pursuant to Form ATS–G on a
provisional basis during the
Commission review period. A
Government Securities ATS would file
with the Commission an initial Form
ATS–G no earlier than the Compliance
Date 171 and no later than the date 150
170 See
171 See
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calendar days after the date of
publication of the final rule in the
Federal Register. An initial Form ATS–
G filed by a Legacy Government
Securities ATS would supersede and
replace a previously filed Form ATS of
the Legacy Government Securities ATS.
A Legacy Government Securities ATS
that fails to comply with the
requirements of Regulation ATS by
filing Form ATS–G by the 150th
calendar day and continues operating as
a Government Securities ATS would no
longer qualify for the exemption
provided under Rule 3a1–1(a)(2), and
thus, risks operating as an unregistered
exchange in violation of Section 5 of the
Exchange Act. If a Legacy Government
Securities ATS that has a Form ATS on
file with the Commission to trade, for
example, government securities and
corporate bonds fails to file a Form
ATS–G by the 150th calendar day, the
ATS must either file a cessation of
operations report on Form ATS or file
a material amendment on Form ATS to
remove information related to
government securities.
For the same reasons discussed
above,172 the Commission is proposing
to amend Rule 304(a)(1)(iv)(B) to
provide that the Commission can extend
the initial Form ATS–G review period
by an additional 120 calendar days if it
determines that a longer period is
appropriate, even if the form is not
unusually lengthy or does not raise
novel or complex issues.
Other than the proposed changes to
the circumstances under which the
Commission may extend the
Commission review period, the
Commission is also proposing that the
process for the Commission review and
ineffectiveness determination for an
initial Form ATS–G filed by a Legacy
Government Securities ATS would be
the same as the process for an initial
Form ATS–N filed by a Legacy NMS
Stock ATS.173 Given the intended uses
172 See
supra notes 168–170 and accompanying
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text.
173 See Rule 304(a)(1)(iv)(B), which, as proposed,
will provide that the Commission may, by order, as
provided in Rule 304(a)(1)(iii), declare an initial
Form ATS–G filed by a Legacy Government
Securities ATS ineffective no later than 120
calendar days from the date of filing with the
Commission, or, if applicable, the end of the
extended review period. As proposed, the
Commission may extend the initial Form ATS–G
review period for a Legacy Government Securities
ATS for: (1) An additional 120 calendar days if the
Commission determines that a longer period is
appropriate, in which case the Commission will
notify the Legacy Government Securities ATS in
writing within the initial 120-calendar day review
period and will briefly describe the reason for the
determination for which additional time for review
is required; or (2) any extended review period to
which a duly-authorized representative of the
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of proposed Form ATS–G to allow the
Commission to monitor developments
and carry out its oversight functions
over Government Securities ATSs and
to enable market participants to make
more informed decisions about how
their orders will be handled by the
ATSs, the Commission believes that it is
important for a Government Securities
ATS to maintain an accurate, current,
and complete Form ATS–G.174
Providing the Commission with the
opportunity to review Form ATS–G
disclosures would help ensure that
information is disclosed in a complete
and comprehensible manner.175
As the intended uses of Form ATS–
G and Form ATS–N disclosures are
similar, the Commission is proposing
the same filing requirements that are
currently applicable to Form ATS–N
amendments filed by NMS Stock ATSs
to Form ATS–G amendments filed by
Government Securities ATSs. A
Government Securities ATS would be
required to amend Form ATS–G:
• At least 30 calendar days prior to
the date of implementation of a material
change to the operations of the
Government Securities ATS or to the
activities of the broker-dealer operator
or its affiliates that are subject to
disclosure on the Form ATS–G, other
than changes related to order display or
fair access, which will be contingent
amendments reported pursuant to Rule
304(a)(2)(i)(D).176
Legacy Government Securities ATS agrees in
writing. See supra note 172.
174 See NMS Stock ATS Proposing Release, supra
note 62, at 81025 (discussing the proposed process
for amendments to, and Commission review of,
Form ATS–N).
175 See NMS Stock ATS Adopting Release, supra
note 1, Section IV.A.3.
176 See Rule 304(a)(2)(i)(A). Scenarios that are
particularly likely to implicate a material change
include: (1) A broker-dealer operator or its affiliates
beginning to trade on the Government Securities
ATS; (2) a change to the broker-dealer operator’s
policies and procedures governing the written
safeguards and written procedures to protect the
confidential trading information of subscribers
pursuant to Rule 301(b)(10)(i) of Regulation ATS;
(3) a change to the types of participants on the
Government Securities ATS; (4) the introduction or
removal of a new order type on the Government
Securities ATS; (5) a change to the order interaction
and priority procedures; (6) a change to the
segmentation of orders and participants; (7) a
change to the manner in which the Government
Securities ATS displays orders or trading interest;
and (8) a change of a service provider to the
operations of the Government Securities ATS that
has access to subscribers’ confidential trading
information. This list is not intended to be
exhaustive, and does not mean to imply that other
changes to the operations of a Government
Securities ATS or the activities of the broker-dealer
operator or its affiliates could not constitute
material changes. Further, the Government
Securities ATS should generally consider whether
the cumulative effect of a series of changes to the
operations of the Government Securities ATS or the
activities of the broker-dealer operator or its
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• No later than 30 calendar days after
the end of each calendar quarter to
correct information that has become
inaccurate or incomplete for any reason
and was not required to be reported to
the Commission as a material
amendment, correcting amendment, or
contingent amendment.177
• Promptly to correct information in
any previous disclosure on the Form
ATS–G, after discovery that any
information previously filed on a Form
ATS–G was materially inaccurate or
incomplete when filed.178
• No later than seven calendar days
after information required to be
disclosed in Part III, Item 24 on Form
ATS–G, which addresses fair access, has
become inaccurate or incomplete.
Because the order display and execution
access rule under Rule 301(b)(3) does
not apply to Government Securities
ATSs, Form ATS–G does not include a
requirement to disclose information
pertaining to order display and
execution access. Accordingly, Rule
304(a)(2)(i)(D) will only apply to the fair
access disclosure on Form ATS–G.179
Like amendments to Form ATS–N, the
Commission will, by order, declare
ineffective any Form ATS–G
amendment filed pursuant to Rule
304(a)(2)(i)(A) through (D), no later than
30 calendar days from filing with the
Commission, if it finds that such action
is necessary or appropriate in the public
interest and is consistent with the
protection of investors.180
The Commission is further proposing
to apply current Rule 304(a)(3) to
require a Government Securities ATS to
notice its cessation of operations on a
Form ATS–G at least 10 business days
prior to the date it will cease to operate
affiliates with regard to the Government Securities
ATS is material. In addition, in determining
whether a change is material, an ATS generally
should consider whether such change would affect:
(1) The competitive dynamics among ATS
subscribers; (2) the execution quality or
performance of the orders of any subscriber or
category of subscribers; (3) the fees that any
subscriber or category of subscribers would pay to
access and/or use the ATS; (4) the nature or
composition of counter-parties with which any
subscriber or category of subscribers interact; and
(5) the relative speed of access or execution of any
subscriber or group of subscribers. For further
discussion, see NMS Stock ATS Adopting Release,
supra note 1, Section IV.B.1.a.
177 See Rule 304(a)(2)(i)(B).
178 See Rule 304(a)(2)(i)(C). For a discussion of
when an ATS should file a correcting amendment,
see NMS Stock ATS Adopting Release, supra note
1, at 38806.
179 The Commission is proposing to revise Rule
304 to replace references to ‘‘Order Display and Fair
Access Amendments’’ with ‘‘Contingent
Amendments.’’ The term ‘‘Contingent Amendment’’
would apply to the relevant amendments under
Rule 304(a)(2)(i)(D) to both Form ATS–N and Form
ATS–G.
180 See Rule 304(a)(2)(ii).
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as a Government Securities ATS and to
cause the Form ATS–G to become
ineffective on the date designated by the
Government Securities ATS. In
addition, the Commission is proposing
to apply Rule 304(a)(4) to Government
Securities ATSs, which would provide
that the Commission will, by order, if it
finds, after notice and opportunity for
hearing, that such action is necessary or
appropriate in the public interest and is
consistent with the protection of
investors, suspend for a period not
exceeding twelve months,181 limit, or
revoke the exemption for a Covered ATS
pursuant to Rule 3a1–1(a)(2).182 Rule
304(a)(4)(ii) would provide that if the
exemption for a Government Securities
ATS is suspended or revoked pursuant
to Rule 304(a)(4)(i), the Government
Securities ATS would be prohibited
from operating pursuant to the Rule
3a1–1(a)(2) exemption.183 If the
exemption for a Government Securities
ATS is limited pursuant to Rule
304(a)(4)(i), the Government Securities
ATS shall be prohibited from operating
in a manner otherwise inconsistent with
the terms and conditions of the
Commission order.
In addition, Rule 304(a)(4) would
provide that prior to issuing an order
suspending, limiting, or revoking a
Government Securities ATS’s
exemption pursuant to Rule 304(a)(4)(i),
the Commission will provide notice and
opportunity for hearing to the
Government Securities ATS, and make
the findings specified in Rule
304(a)(4)(i) described above, that, in the
Commission’s opinion, the suspension,
limitation, or revocation is necessary or
appropriate in the public interest and is
consistent with the protection of
investors.184
181 The proposed limitation on the time frame for
suspension is consistent with federal securities law
provisions pursuant to which the Commission may
suspend the activities or registration of a regulated
entity. See, e.g., Exchange Act Section 15(b)(4) (15
U.S.C. 78o(b)(4)) and 15B(c)(2) (15 U.S.C. 78o–
4(c)(2)). See NMS Stock ATS Proposing Release,
supra note 62, at 81031 n.322.
182 See proposed Rule 304(a)(4)(i).
183 See Rule 304(a)(4). In making a determination
as to whether suspension, limitation, or revocation
of a Government Securities ATS’s exemption is
necessary or appropriate in the public interest, and
is consistent with the protection of investors, the
Commission would, for example, take into account
whether the entity no longer meets the definition
of Government Securities ATS under Rule 300(l),
does not comply with the conditions to the
exemption (in that it fails to comply with any part
of Regulation ATS, including Rule 304), or
otherwise violates any provision of federal
securities laws. For further discussion of such
examples as applied to NMS Stock ATSs, see NMS
Stock ATS Proposing Release, supra note 62, at
81032.
184 Pursuant to the Commission’s current
information sharing practices with the Department
of the Treasury, the Commission expects to provide
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Request for Comment
26. Should Government Securities
ATSs be required to file proposed Form
ATS–G instead of Form ATS?
27. Should Form ATS, or parts
thereof, for ATSs that effect transactions
in government securities or repos and
securities other than government
securities or repos be made available to
the public? Is current Form ATS
sufficient to elicit information for the
public about the operations of
Government Securities ATSs?
28. Do commenters believe that
broker-dealers that effect transactions in
government securities or repos
generally, or U.S. Treasury Securities or
Agency Securities, specifically, might
choose to modify their business models
so that they would not be required to
comply with enhanced regulatory or
operational transparency requirements
for Government Securities ATSs?
29. Should Government Securities
ATSs be subject to Rule 304(a), in whole
or in part?
30. Should Rule 304(a) be amended to
provide that an initial Covered Form be
made effective by Commission order or
any other means instead of upon
publication by the Commission?
31. Should Rule 304(a) only apply to
Government Securities ATSs that trade
a certain type of government security
(e.g., U.S. Treasury Securities, Agency
Securities)? If so, to which type of
Government Securities ATS should Rule
304 apply (e.g., Government Securities
ATSs that trade U.S. Treasury Securities
or Government Securities ATSs that
trade Agency Securities)?
32. Should the Commission require a
Currently Exempted Government
Securities ATS to file Form ATS–G and
comply with the requirements of Rule
304 to qualify for the exemption from
the definition of exchange?
33. Would the proposal to require a
Currently Exempted Government
Securities ATS to file Form ATS–G by
the date 150 calendar days after the date
of publication of the final rule in the
Federal Register provide the ATS
sufficient time to transition to
compliance with Regulation ATS and
the proposed requirements under Rule
304? Would the proposal to require a
Legacy Government Securities ATS to
file a Form ATS–G by the date 150
calendar days after the date of
publication of the final rule in the
the Department of the Treasury with prompt notice
in certain cases, such as when the Commission is
requiring registration for certain large volume
Government Securities ATSs under Rule 3a1–1(b),
declaring a Form ATS–G ineffective under Rule
304(a)(1)(iii)(b), or suspending, limiting, or revoking
the exemption of a Government Securities ATS
under Rule 304(a)(4).
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Federal Register provide the ATS
sufficient time to transition to
compliance with Rule 304?
34. Should the Commission be
permitted to extend the initial Covered
Form review period if it finds that it is
appropriate to extend such review
period?
35. Should a Legacy Government
Securities ATS be allowed to continue
operations during the Commission’s
review of its initial Form ATS–G?
Should the Commission make a Legacy
Government Securities ATS’s Form
ATS–G publicly available upon filing?
36. Are there any aspects of Rule
304(a)(2) relating to the filing and
review of amendments that should be
modified specifically for Form ATS–G
amendments filed by Government
Securities ATSs?
37. What changes or types of changes
to an ATS’s operations or the activities
of the broker-dealer operator or its
affiliates do commenters believe are
particularly likely to be material as so to
require a material amendment to Form
ATS–G?
38. Currently, and as proposed, Rule
304(a)(2) does not provide for the
Commission to extend the length of the
Commission review period for
amendments to a Covered Form.185 The
Commission has 30 days to review the
amendment, engage in discussion with
the ATS, and, if necessary or
appropriate in the public interest, and
consistent with the protection of
investors, declare the amendment
ineffective. If, however, after the end of
the Commission review period for an
amendment, the Commission finds that,
in light of such amendment, it is
necessary or appropriate in the public
interest and consistent with the
protection of investors, the Commission
may, after notice and opportunity for
hearing, suspend, limit, or revoke a
Covered ATS’s exemption from the
definition of ‘‘exchange’’ pursuant to
Rule 3a1–1(a)(2). Should the
Commission amend Rule 304(a)(2) to
allow the Commission to extend the
length of the Commission review period
for amendments to a Covered Form? If
so, under what circumstances should
the Commission be permitted to extend
the length of the Commission review
period for a Covered Form amendment
and how long should an extension be
(e.g., 15, 30, 45 calendar days)?
185 Based on the Commission’s review of Form
ATS–N filings, the Commission has observed that
material amendments are often complex and the
Commission staff has frequently engaged in
extensive dialogue with the ATS regarding such
disclosures. To date, the Commission has not
declared a Form ATS–N amendment ineffective.
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39. Should the Commission consider
any other factors in determining
whether a Form ATS–G filed by a
Government Securities ATS should
become effective or ineffective? If so,
what are they and why?
40. Is the process for the Commission
to suspend, limit, or revoke an NMS
Stock ATS’s exemption from the
definition of ‘‘exchange’’ to Government
Securities ATSs necessary or
appropriate to protect investors?
G. Public Disclosure of Form ATS–G
and Related Commission Orders
The Commission is also proposing to
make public certain Form ATS–G
reports filed by Government Securities
ATSs by applying existing Rule 304(b)
to Covered Forms, which would include
Form ATS–G.186 Commission orders
related to the effectiveness of Form
ATS–G would also be publicly posted
on the Commission’s website. Applying
existing Rule 304(b) to Government
Securities ATSs would mandate greater
public disclosure of the operations of
these ATSs through the publication of
Form ATS–G and related filings
available on the Commission’s
website.187 Accordingly, the
Commission is proposing the following:
• Similar to Form ATS–N, every
Form ATS–G filed pursuant to Rule 304
shall constitute a ‘‘report’’ within the
meaning of Sections 11A, 17(a), 18(a),
and 32(a) and any other applicable
provisions of the Exchange Act.188
• The Commission will make public
via posting on the Commission’s
website, each: (1) Effective initial Form
ATS–G, as amended; (2) order of
ineffective initial Form ATS–G; (3)
Form ATS–G amendment to an effective
Form ATS–G; (4) order of ineffective
Form ATS–G amendment; (5) notice of
cessation; and (6) order suspending,
limiting, or revoking the exemption for
a Government Securities ATS from the
definition of an ‘‘exchange’’ pursuant to
Exchange Act Rule 3a1–1(a)(2).189
The Commission is proposing to
apply Rule 304(b)(3) to require each
Government Securities ATS that has a
website to post a direct URL hyperlink
to the Commission’s website that
contains the documents enumerated in
Rule 304(b)(2), which include the
Government Securities ATS’s Form
ATS–G filings.
186 See proposed revisions to Rule 304(b)(1)
(providing that every Form ATS–G filed pursuant
to Rule 304 shall constitute a ‘‘report’’ within the
meaning of Sections 11A, 17(a), 18(a), and 32(a) and
any other applicable provisions of the Exchange
Act).
187 See infra Section III.
188 See Rule 304(b)(1).
189 See Rule 301(b)(2).
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In addition, to promote further
transparency, the Commission is
proposing to amend Rule 304(b)(3) to
require each Covered ATS to post on its
website the most recently disseminated
Covered Form (excluding Part IV, which
is non-public information) within one
business day after publication on the
Commission’s website, except for any
amendment that the Commission has
declared ineffective or that has been
withdrawn. The most recently
disseminated Covered Form shall be
maintained on the Covered ATS’s
website until: (a) The Covered ATS
ceases operations; or (b) the exemption
of the Covered ATS is revoked or
suspended, in which cases the Covered
ATS shall remove the Covered Form
from its website within one business
day of such cessation, revocation or
suspension, as applicable.190 A Covered
ATS that has submitted a Covered Form
or amendment thereto that is under
Commission review prior to
dissemination could monitor the
Commission’s website to ensure that the
ATS’s website reflects the most current
version of the form.191
rather than the Commission (by EDGAR
or by any other form of filing)?
43. Should Rule 304(b) be amended to
require Covered ATSs to post the
Covered Form on their websites? Should
Covered ATSs be required to post the
Covered Form on their websites in
addition to or instead of posting a
hyperlink to the Commission website?
44. Should Rule 304(b) only apply to
Government Securities ATSs that trade
a type of government securities (e.g.,
U.S. Treasury Securities, Agency
Securities)? If so, to which type of
Government Securities ATS should Rule
304 apply?
45. Are there any other requirements
that should apply to making public a
Form ATS–G report filed by a
Government Securities ATS? Please
support your arguments, and if so,
please list and explain such procedures
in detail.
46. Should Rule 304(b) apply to Form
ATS–G reports filed by a Currently
Exempted Government Securities ATS?
If not, which aspects of Rule 304(b)
should not apply and why?
Request for Comment
41. Should the requirements of Rule
304(b) apply to Form ATS–G reports
filed by Government Securities ATSs, in
whole or in part? Should the
Commission modify Rule 304(b) in any
way for all Covered ATSs?
42. Rule 304(b)(2) currently provides
that the Commission make Form ATS–
N filings available on its website. The
Commission disseminates Form ATS–N
and amendments thereto through the
Commission’s Electronic Data
Gathering, Analysis, and Retrieval
system (‘‘EDGAR’’). Should Rule 304(b)
be amended so that only filers of a
Covered Form make filings public,
H. Form ATS–G Requirements
190 If the broker-dealer operator has not created a
website specific for the ATS, the broker-dealer
operator would place the Covered Form, the
hyperlink to the Commission’s website, and any
other information related to the Covered Form (e.g.,
aggregate platform-wide data or direct/indirect
ownership information) on the broker-dealer
operator’s website in a conspicuous place for the
public to view.
191 The Commission believes that Covered ATSs
could reasonably anticipate when an initial Covered
Form and amendments thereto would be
disseminated. Filers receive an automated notice
when a filing is accepted by EDGAR. Once
accepted, amendments to a Covered Form (other
than material amendments) would be disseminated.
Material amendments would be made public
following the expiration of the 30-calendar day
Commission review period. Although an initial
Covered Form may be disseminated at any time
within the 120-calendar day Commission review
period or any extension thereof, the Commission
expects to engage in dialogue with the Covered ATS
during such review period so that the ATS could
reasonably anticipate when its initial Covered Form
would be disseminated.
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The Commission is proposing to
apply existing Rule 304(c) to Covered
ATSs, which would include
Government Securities ATSs. As
proposed, Rule 304(c) would require
Government Securities ATSs to file a
Form ATS–G in accordance with the
instructions therein. Other than
references to Government Securities
ATSs and Form ATS–G and the relevant
compliance dates, the proposed
instructions to Form ATS–G are
identical to the instructions to Form
ATS–N. They require, among other
things, that a Government Securities
ATS provide all the information
required by Form ATS–G, including
responses to each Item, as applicable,
and the Exhibits, and disclose
information that is accurate, current,
and complete.192 Given that the
Commission expects market participants
will use Form ATS–G to decide where
to send their orders for execution, the
Commission believes that it is important
that Form ATS–G filings comply with
the instructions and that the
information provided on Form ATS–G
is accurate, current, and complete. The
Commission is also proposing that Form
ATS–G, like Form ATS–N,193 be filed
electronically in a structured format
through EDGAR.194
192 See
Instructions to proposed Form ATS–G.
NMS Stock ATS Adopting Release, supra
note 1, Section VII.
194 See infra Section IV.
193 See
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The Commission is proposing to
apply Rule 304(c)(2) to Government
Securities ATSs, which would provide
that any report required under Rule 304
shall be filed on a Form ATS–G, and
include all information as prescribed in
the Form ATS–G and the instructions to
the Form ATS–G. Rule 304(c)(2) would
provide that a Form ATS–G be executed
at, or prior to, the time the Form ATS–
G is filed and shall be retained by the
Government Securities ATS in
accordance with Rules 302 and 303, and
the instructions in the Form ATS–G. In
the Regulation ATS Adopting Release,
the Commission stated that the
requirements to make and preserve
records set forth in Regulation ATS are
necessary to create a meaningful audit
trail and permit surveillance and
examination to help ensure fair and
orderly markets 195 and that expanding
Rule 304(c) to encompass Form ATS–G
would further these goals for
Government Securities ATSs.
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Request for Comment
47. Should Rule 304(c) be applied, in
whole or in part, to Government
Securities ATSs?
48. Should Rule 304(c) only apply to
Government Securities ATSs that trade
a certain type of government security
(e.g., U.S. Treasury Securities, Agency
Securities)? If so, to which type of
Government Securities ATS should it
apply?
III. Proposed Form ATS–G for
Government Securities ATSs
As outlined above, the Commission
proposes to require Government
Securities ATSs to file a proposed Form
ATS–G, which would be a public report
that provides detailed information about
the manner of operations of the ATS
and about the ATS-related activities of
the broker-dealer operator and its
affiliates. Despite the significant role of
ATSs in the government securities
market structure and the complexity of
their operations, most market
participants have limited access to
information that permits them to
adequately compare and contrast how
their orders would be handled by
different Government Securities ATSs.
The Commission believes that proposed
Form ATS–G’s public disclosures would
provide important information to
market participants that would help
them better understand these
operational facets of Government
Securities ATSs and select the best
trading venue based on their needs. In
addition, in the Commission’s
195 See Regulation ATS Adopting Release, supra
note 35, at 70877–78.
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experience reviewing disclosures on
Form ATS–N, the Commission observed
that the information responsive to the
form is not proprietary or commercially
sensitive. Because the disclosures that
would be required on proposed Form
ATS–G are similar to those of Form
ATS–N, the Commission believes that
likewise, the vast majority of responsive
information would not be proprietary or
commercially sensitive.196
The Commission also believes that the
proposed disclosures on Form ATS–G
about the conflicts of interest that might
arise from the business structures of the
Government Securities ATS and the
ATS-related activities of the brokerdealer operator and its affiliates would
help subscribers protect their interests
when using the services of the ATS.197
As the Commission has previously
stated, the broker-dealer operator
controls all aspects of the ATS’s
operations and the broker-dealer
operator’s non-ATS and ATS functions
may overlap.198 Currently, market
participants have limited information
about conflicts of interest that might
arise from the non-ATS activities of the
broker-dealer operator of a Government
Securities ATS, and different classes of
subscribers may have different levels of
information about the operations of the
ATS.199 Because of overlap between a
broker-dealer’s ATS operations and its
other operations, there is a risk of
information leakage of subscribers’
confidential trading information to other
business units of the broker-dealer
operator or its affiliates. The
Commission believes that some market
participants would want to consider the
trading activity of the broker-dealer
operator, or its affiliates, when
evaluating potential conflicts of interest
on a Government Securities ATS and
may also like to know the range of
services and products that the brokerdealer operator or its affiliates offer
subscribers for use on the ATS because
such services or products may have an
impact on the subscribers’ access to, or
trading on, the ATS. Some commenters
have also stated that there are close
similarities between the operations of
NMS Stock ATSs and some Government
Securities ATSs, particularly with
respect to U.S. Treasury Securities, and
that trading in U.S. Treasury Securities
may present potential conflicts of
interest similar to those for NMS Stock
196 See
infra Section III.
infra Section III.B.
198 See NMS Stock ATS Proposing Release, supra
note 62, at 81010, 81041.
199 See id. at 81010.
197 See
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ATSs.200 The Commission also believes
that the disclosures on proposed Form
ATS–G would better inform the
Commission and other regulators about
the activities of Government Securities
ATSs and their role in the government
securities markets, which in turn, would
facilitate better oversight of these ATSs
and the markets to the benefit of
investors.
Given the similarities of operations
between NMS Stock ATSs and
Government Securities ATSs, almost all
requests for information on proposed
Form ATS–G are similar to or derived
from Form ATS–N; however, certain
requests have been tailored for
Government Securities ATSs. The
differences between the forms include
that: Form ATS–G does not have an
item corresponding to Part III, Item 16
(Routing) of Form ATS–N; Form ATS–
G does not have an item corresponding
to Part III, Item 24 (Order Display and
Execution Access) of Form ATS–N as
the associated rule is inapplicable to
government securities; and Form ATS–
G added proposed Part III, Item 16
requiring information about nongovernment securities markets (e.g.,
futures, currencies, swaps, corporate
bonds) used in conjunction with the
ATS. The Commission is requesting
comment on each of the requests for
information on proposed Form ATS–G
and information about the operations of
Government Securities ATSs and ATSrelated activities of the broker-dealer
operator and its affiliates that would be
important to subscribers and market
participants.
A. Cover Page and Part I of Form ATS–
G
1. Cover Page
To make clear that the Commission is
not conducting a merit-based review of
Form ATS–G disclosures filed with the
Commission, the Commission proposes
to include a legend on the Form ATS–
G cover page stating that the
Commission has not passed upon the
merits or accuracy of the disclosures in
the filing. On the cover page of
proposed Form ATS–G, the ATS would
be required to identify whether it is a
Legacy Government Securities ATS
currently operating as of the
Compliance Date (either pursuant to a
Form ATS or an exemption under
Exchange Act Rule 3a1–1(a)(3)). In
addition, the Government Securities
200 See MFA/AIMA Letter, supra note 66, at 3;
OIA Letter, supra note 65, at 18–19.
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ATS would indicate the type of filing by
marking the appropriate checkbox.201
If the Government Securities ATS is
filing an amendment, the ATS would be
required to indicate the Part and Item
number of the Form ATS–G that is the
subject of the change(s), provide a brief
summary of the change(s), and state
whether or not the change(s) applies to
all subscribers and the broker-dealer
operator.202 In addition, the
Government Securities ATS would be
required to provide the EDGAR
accession number for the Form ATS–G
filing to be amended so that market
participants can identify the filing that
is being amended. The Commission is
proposing to apply Rule 304(b)(2)(iii) to
Form ATS–G to provide that the
Commission would make public the
cover page of a filed Form ATS–G
material amendment upon filing and
then make public the entirety of the
material amendment following the
expiration of the review period pursuant
to Rule 304(a)(2)(ii). For updating and
correcting amendments, which would
be made public upon filing, the
Commission believes that the
information in the narrative could assist
market participants in understanding
the general nature of the change that the
Government Securities ATS is
implementing.
If the filing is a cessation of
operations, the Commission is
proposing that the Government
Securities ATS provide the date that the
ATS will cease to operate. The
Commission is also proposing to
include a checkbox where the ATS
could indicate whether it wishes to
withdraw a previously-filed Form ATS–
G filing and provide the EDGAR
accession number for the filing to be
withdrawn. The instructions to Form
ATS–G would state that a Government
Securities ATS may withdraw an initial
Form ATS–G or an amendment before
the end of the applicable Commission
review period. In addition, the
201 The proposed cover page would provide that
a filing may be an initial Form ATS–G, or a Form
ATS–G material amendment, updating amendment,
correcting amendment, or contingent amendment.
202 See Instruction A.7.g of Form ATS–G. If a
change subject to the amendment would equally
apply to all subscribers and the broker-dealer
operator, the Government Securities ATS would
indicate that the change applies to all subscribers
and the broker-dealer equally. If a change would
apply differently among subscribers or types of
subscribers, between subscribers and the brokerdealer operator, or between the broker-dealer
operator and its affiliates (which may be subscribers
to the ATS), the Government Securities ATS would
state so and describe the differences in treatment.
This is the same as how NMS Stock ATSs describe
whether or not a change applies to all subscribers
and the broker-dealer operator in amendments on
Form ATS–N.
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Commission is proposing that a
Government Securities ATS may
withdraw a notice of cessation of
operations at any time before the date
that the ATS indicated it intended to
cease operating.
2. Part I of Form ATS–G: Identifying
Information
Part I of Form ATS–G, as proposed,
would be substantively the same as that
for Form ATS–N, as proposed to be
amended,203 except that unlike Form
ATS–N, Form ATS–G would require an
ATS to identify whether it trades U.S.
Treasury Securities, Agency Securities,
repos, or other securities. To parallel the
Form ATS–N requirement, the
Commission is proposing that Form
ATS–G would require an ATS to
identify the registered broker-dealer that
operates the ATS. Part I, Item 1.a of
Form ATS–G would require the ATS to
state whether the filer is a broker-dealer
registered with the Commission. The
Commission is also proposing that the
Government Securities ATS provide the
name of the registered broker-dealer or
government securities broker or
government securities dealer for the
Government Securities ATS (i.e., the
broker-dealer operator), as it is stated on
Form BD, in Part I, Item 2 of Form ATS–
G. Part I, Item 1.b of Form ATS–G
would require the ATS to indicate
whether the broker-dealer operator has
been authorized by a national securities
association to operate an ATS.204 To
comply with Regulation ATS, and thus
qualify for the Rule 3a1–1(a)(2)
exemption, an ATS must register as a
broker-dealer and thus become a
member of an SRO. As a member of the
SRO, the ATS must comply with the
rules of the SRO, including obtaining
any required approvals by the SRO in
connection with operating an ATS in
accordance with applicable SRO
rules.205 The Commission believes that
proposed Part I, Item 1.b would
facilitate compliance with and
Commission oversight of this
requirement.
To the extent that a commercial or
‘‘DBA’’ (doing business as) name or
names are used to identify the
Government Securities ATS to the
public, the Commission, or its SRO, or
if a registered broker-dealer operates
multiple Government Securities ATSs,
Form ATS–G would require the full
name(s) of the Government Securities
ATS under which business is
203 The Commission is proposing changes to Form
ATS–N, which are described infra Section V.D.
204 The Commission is proposing herein to add
this subpart to Form ATS–N. See infra Section V.D.
205 See 15 U.S.C. 78o(b)(8). See also NMS Stock
ATS Adopting Release, supra note 1, at 38773.
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conducted, if different, in Part I, Item 3
of Form ATS–G. Part I, Item 4 of Form
ATS–G would require the Government
Securities ATS to provide the brokerdealer operator’s SEC File Number and
Central Registration Depository (‘‘CRD’’)
Number. Part I, Item 5 of Form ATS–G
would require the Government
Securities ATS to select the types of
securities the ATS trades (i.e., U.S.
Treasury Securities, Agency Securities,
repos, or other). If the ATS selects
‘‘other,’’ it would be required to list the
types of government securities that it
trades.206 Part I, Item 6 of Form ATS–
G would require the Government
Securities ATS to provide the full name
of the national securities association of
the broker-dealer operator, the effective
date of the broker-dealer operator’s
membership with the national securities
association, and its MPID. Pursuant to
FINRA rules, each ATS is required to
use a unique MPID in its reporting to
FINRA, such that its volume reporting is
distinguishable from other transaction
volume reported by the broker-dealer
operator of the ATS, including volume
reported for other ATSs or trading desks
operated by the broker-dealer
operator.207 The broker-dealer operator
would provide the unique MPID for the
Government Securities ATS and assess
the functionalities related to trading
under that MPID and describe them, as
applicable, in response to the
information requests on Form ATS–G.
Providing the name of the Government
Securities ATS or DBAs and its MPID
would identify the ATS to the public
and Commission. The Commission
believes that the name, identity of the
broker-dealer operator, any ‘‘DBA’’
name, and the ATS’s MPID are basic
information critical to market
participants for identifying the ATS and
should be disclosed.
Proposed Part I, Item 7 of Form ATS–
G would require the Government
Securities ATS to provide a URL
address for the website of the ATS and
proposed Part I, Item 8 of Form ATS–
G would require the ATS to provide the
physical street address, if any, of a
secondary location for the ATS that may
be used in the event that the primary
physical location is not available.
Proposed Part I, Items 9 and 10 would
require a Government Securities ATS to
attach its most recently filed or
amended Schedule A of the brokerdealer operator’s Form BD disclosing
information related to direct owners and
206 The types of securities traded would be
limited to government securities (15 U.S.C.
78c(a)(42)) and repos on government securities. See
proposed Rule 300(l).
207 See FINRA Rules 6160, 6170, 6480, and 6720.
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executive officers, and its most recently
filed or amended Schedule B of the
broker-dealer operator’s Form BD
disclosing information related to
indirect owners as Exhibits 1 and 2,
respectively. In lieu of attaching those
schedules, the Government Securities
ATS can indicate, via a checkbox, that
the information under those schedules
is available on its website and is
accurate as of the date of the filing of the
Form ATS–G.208 In addition, the
Commission is proposing Part I, Item 11
of Form ATS–G to require the
Government Securities ATS, for filings
made pursuant to Rule 304(a)(2)(i) (i.e.,
Form ATS–G amendments), to attach as
Exhibit 3 a marked document to
indicate changes to ‘‘yes’’ or ‘‘no’’
answers and additions or deletions from
any item in Part I, Part II, and Part III,
as applicable.
Request for Comment
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49. A Legal Entity Identifier (‘‘LEI’’) is
a 20-character reference code that
uniquely identifies legally distinct
entities that engage in financial
transactions 209 and is used by
numerous domestic and international
regulatory regimes. Although several
existing ATS broker-dealer operators
currently have an LEI, not all brokerdealers have an LEI. An LEI can be
obtained for a $65 initial cost and a $50
per year renewal cost.210 Should the
Commission require a Government
Securities ATS to disclose the LEI of its
broker-dealer operator, in addition to its
CRD Number and the MPID for the
Government Securities ATS, on Form
ATS–G?
208 Like Form ATS–N, Part I, Items 9 and 10 and
Part III, Item 25 (see infra Section III.A.2 and
Section III.C.25) are the only requests for
information that would allow a Government
Securities ATS to cross-reference to information on
the Government Securities ATS’s website instead of
providing it in the form disclosures. Like Form
ATS–N, Form ATS–G disclosures would be the
vehicle for disseminating to the public information
about the operations of the Government Securities
ATS and the ATS-related activities of the brokerdealer operator and its affiliates under Rule 304,
which are required to be kept current, accurate, and
complete by the ATS. Accordingly, Government
Securities ATSs would be required to provide
information required by the form in the Form ATS–
G disclosures and not cross-reference to other
sources.
209 See Securities Act Release No. 10425, 82 FR
50988 at 51005 (November 2, 2017) (stating that
LEIs are intended to improve market transparency
by providing clear identification of participants).
210 Prices retrieved from Bloomberg Finance, L.P.,
https://lei.bloomberg.com/docs/faq#what-fees-areinvolved. Bloomberg is one of twelve Legal Entity
Identifier issuers that are accredited to issue LEIs
specifically to U.S. entities.
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B. Part II of Form ATS–G: ATS-Related
Activities of the Broker-Dealer Operator
and Affiliates
The Commission believes that the
interests of the broker-dealer operator or
its affiliates sometimes compete against
the interests of those that use the ATS’s
services. These competing interests, at
times, may give rise to conflicts of
interest for the broker-dealer operator
and its affiliates or the potential for
information leakage of subscribers’
confidential trading information.
Proposed Part II of Form ATS–G is
designed to provide subscribers and
market participants with information
about these competing interests, and
inform them about: (1) The operation of
the Government Securities ATS—
regardless of the corporate structure of
the ATS—and of its broker-dealer
operator, or any arrangements the
broker-dealer operator may have made,
whether contractual or otherwise,
pertaining to the operation of its
Government Securities ATS; and (2)
ATS-related activities of the brokerdealer operator and its affiliates that
may give rise to conflicts of interest for
the broker-dealer operator and its
affiliates or the potential for information
leakage of subscribers’ confidential
trading information. The Commission
believes that these disclosures would
enable subscribers to protect their
interests while participating on the
ATS. At the same time, the Commission
also believes that Form ATS–G should
not require public disclosure of
activities or affiliate relationships of the
broker-dealer operator that do not relate
to the Government Securities ATS and
thus, do not present a potential conflict
of interest.
The proposed definitions of ‘‘affiliate’’
and ‘‘control,’’ which are identical to
those in Form ATS–N,211 are intended
211 Proposed Form ATS–G would define
‘‘affiliate’’ as, with respect to a specified person,
any person that, directly or indirectly, controls, is
under common control with, or is controlled by, the
specified person. ‘‘Control’’ would be defined to
mean the power, directly or indirectly, to direct the
management or policies of the broker-dealer of an
alternative trading system, whether through
ownership of securities, by contract, or otherwise.
A person is presumed to control the broker-dealer
of an alternative trading system if that person: (1)
Is a director, general partner, or officer exercising
executive responsibility (or having similar status or
performing similar functions); (2) directly or
indirectly has the right to vote 25 percent or more
of a class of voting securities or has the power to
sell or direct the sale of 25 percent or more of a
class of voting securities of the broker-dealer of the
alternative trading system; or (3) in the case of a
partnership, has contributed, or has the right to
receive upon dissolution, 25 percent or more of the
capital of the broker-dealer of the alternative trading
system. In this proposal, the Commission is
proposing to update the definition of person for the
purposes of Forms ATS–N and ATS–G. See infra
Section V.D.
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87127
to encompass all relevant affiliate
relationships between the broker-dealer
operator and other entities that the
Commission believes would help
market participants’ evaluation of
potential conflicts of interest.212
1. Broker-Dealer Operator and Its
Affiliate Trading Activities on the
Government Securities ATS
The Commission is proposing that
Part II, Items 1(a) and 2(a) of Form ATS–
G ask whether business units of the
broker-dealer operator or its affiliates,
respectively, are permitted to enter or
direct the entry of orders and trading
interest into the Government Securities
ATS. If the person that operates and
controls an ATS is also able to trade on
that ATS, there may be an incentive to
design the operations of the ATS to
favor the trading activity of the operator
of the ATS or affiliates of the operator.
The operator of an ATS that also trades
on the ATS it operates would likely
have informational advantages over
others trading on the ATS, such as a
better understanding of the manner in
which the system operates or who is
trading on the ATS. In the most
egregious case, the operator of the ATS
might use the confidential trading
information of other traders to
advantage its own trading on or off of
the ATS.213 Part II, Items 1(a) and 2(a)
of Form ATS–G disclosures are
designed to inform market participants
about whether the Government
Securities ATS permits the brokerdealer operator or its affiliates to trade
on the ATS. If the Government
Securities ATS permits the brokerdealer operator or its affiliates to enter
orders and trading interest on the ATS,
whether on an agency or principal basis,
the ATS would be required to only list
the business units or affiliates that
actually enter or direct the entry of
orders and trading interest into the ATS.
The Commission believes that if a
business unit or affiliate of the brokerdealer operator enters or directs the
entry of orders and trading interest into
the Government Securities ATS, market
participants would find it useful to
know that they may be trading with
those business units, affiliates, or client
orders entered by those entities. The
Commission believes that disclosure of
whether a broker-dealer operator of a
Government Securities ATS or its
affiliates may trade on that ATS would
212 See NMS Stock ATS Adopting Release, supra
note 1, at 38818–19.
213 For a further discussion about how a conflict
of interest related to trading by the broker-dealer
operator on its own ATS could be harmful to other
subscribers, see NMS Stock ATS Adopting Release,
supra note 1, at 38771, 38824–29.
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be important to subscribers given the
conflicts of interest that may arise from
the unique position the broker-dealer
operator occupies in relation to the
ATS.
Part II, Items 1(a) and 2(a) of proposed
Form ATS–G would require the
Government Securities ATS to list the
business unit or affiliate if, for example,
a trading desk of the broker-dealer
operator or an affiliate uses a direct
connection to the ATS or algorithm to
submit orders or trading interest into the
ATS. Likewise, if an affiliated asset
manager of the broker-dealer operator
uses the services of a third-party brokerdealer to direct orders to the
Government Securities ATS (i.e., the
asset manager instructs the third-party
broker-dealer to send its orders to the
ATS), the ATS would be required to list
that affiliated asset manager under Item
2(a). However, if that affiliated asset
manager submits orders to a third-party
broker-dealer, and that third-party
broker-dealer using its own discretion,
directs the orders of the asset manager
into the affiliated Government
Securities ATS, the ATS would not be
required to list the affiliated asset
manager under Item 2(a); under such
circumstances, the affiliate would not be
‘‘directing’’ orders to the ATS because
the third-party broker-dealer is using its
discretion to direct the affiliate’s orders
and thus, it would not be required to be
listed under Item 2(a).
The proposed requests also specify
the type of information that must be
provided with regard to business units
or affiliates of the broker-dealer
operator. Specifically, Item 1(a) would
require the Government Securities ATS
to name and describe each type of
business unit of the broker-dealer
operator that enters or directs the entry
of orders and trading interest into the
ATS (e.g., Government Securities ATS,
type of trading desks, market maker,
sales or client desk) and, for each
business unit, to provide the applicable
MPID and list the capacity of its orders
and trading interest (e.g., principal,
agency, riskless principal). Item 2(a)
would require the Government
Securities ATS to name and describe
each type of affiliate that enters or
directs the entry of orders and trading
interest into the ATS (e.g., brokerdealers, investment companies, hedge
funds, market makers, PTFs) and, for
each of those affiliates, provide the
applicable MPID and list the capacity of
its orders and trading interest (e.g.,
principal, agency, riskless principal).
The Commission believes that market
participants will find it useful to know
both the types of broker-dealer operator
business units and affiliates that can
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trade in the Government Securities ATS,
and their trading activities.214
Part II, Items 1(c) and 2(c) of proposed
Form ATS–G would require
Government Securities ATSs to disclose
the broker-dealer operator’s or any of its
affiliates’ role as a liquidity provider on
the ATS, if applicable. These Items
would require the Government
Securities ATS to disclose—in the form
of a ‘‘yes’’ or ‘‘no’’ response—whether
there are any formal or informal
arrangements with any of the sources of
orders or trading interest of the brokerdealer operator or affiliates identified in
Item 1(a) and Item 2(a), respectively, to
provide orders or other trading interest
to the ATS (e.g., undertaking to buy or
sell continuously, or to meet specified
thresholds of trading or quoting
activity). If the Government Securities
ATS answers ‘‘yes,’’ it must identify the
business unit(s) or affiliate(s) and
respond to the Item with information
about liquidity providers on the ATS.215
The Commission believes that
highlighting whether the broker-dealer
operator or affiliate acts as a liquidity
provider on the Government Securities
ATS would help market participants
evaluate the potential for conflicts of
interest or information leakage on the
trading platform.
Finally, Part II, Item 1(d) and Item
2(d) of proposed Form ATS–G would
require the Government Securities ATSs
to disclose information about sending
orders and trading interest to a trading
venue operated or controlled by the
broker-dealer operator or any of its
affiliates, respectively. These Items
would require the Government
Securities ATS to disclose—in the form
of a ‘‘yes’’ or ‘‘no’’ response—whether
orders and trading interest in the ATS
can be sent to a trading venue operated
or controlled by the broker-dealer
operator or any of its affiliates. If the
Government Securities ATS answers
‘‘yes,’’ it must identify the trading venue
and explain when and how the order or
trading interest are sent from the ATS to
the trading venue. NMS Stock ATSs are
required to provide on Form ATS–N
Part III, Item 16 information related to
the routing of orders from the ATS if
they indicated that the ATS sent trading
214 Although the narrative responses to Items 1(a)
and 2(a) could typically be kept up-to-date via
updating amendments to Form ATS–G, the
Commission also notes that in most cases, if the
‘‘yes’’ or ‘‘no’’ response to Items 1(a) or 2(a) changes
(e.g., the Government Securities ATS changes its
operations to allow affiliates to trade whereas they
could not do so prior, or vice versa), the
Government Securities ATS would be required to
file a material amendment. See NMS Stock ATS
Adopting Release, supra note 1, at 38826.
215 This request is contained in Part III, Item 12.
See infra Section III.C.12.
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interest to a trading center operated by
the broker-dealer operator or any of its
affiliates in Part II, Items 1(d) and 2(d).
Because the routing of government
securities among trading centers is not
as prevalent as in the market for NMS
stocks, the Commission is not proposing
to require on Form ATS–G the same
information about routing that would
otherwise be covered under Part III,
Item 16 of Form ATS–N. Instead, the
Commission is requiring a Government
Securities ATS to disclose information
about the trading venue where orders
and trading interest may be sent and
when and how orders and trading
interest are sent in Part II, Items 1(d)
and 2(d) of Form ATS–G. The
Commission believes that such
information would help market
participants evaluate whether the ATS
sending orders to a trading venue
operated or controlled by the brokerdealer operator or its affiliates poses a
conflict of interest and is consistent
with its trading objectives.
Request for Comment
50. What information about trading by
the broker-dealer operator and its
affiliates related to the Government
Securities ATS is important to market
participants?
51. Are there potential conflicts of
interest for broker-dealer operators of
Government Securities ATSs or their
affiliates that may justify greater
operational transparency for
Government Securities ATSs?
52. Should the Commission require
separate disclosures for different types
of trading by the broker-dealer operator
on the Government Securities ATS,
such as trading by the broker-dealer
operator for the purpose of correcting
error trades executed on the ATS, as
compared to other types of principal
trading? If so, what types of principal
trading should be addressed separately
and why? What disclosures should the
Commission require about principal
trading and why?
53. Should the Commission limit or
expand in any way the proposed
disclosure requirements to require
disclosure of arrangements regarding
access by the broker-dealer operator or
its affiliates to both other trading venues
and affiliates of those other trading
venues?
54. Form ATS–N requires, and Form
ATS–G as proposed would require, that
a Covered ATS name the affiliate(s) of
the broker-dealer operator permitted to
enter or direct the entry of orders and
trading interest into the Covered ATS.
The Covered ATS is required to describe
the type of affiliates on the Covered
Form. Should the Commission amend
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Form ATS–N, and not require in Form
ATS–G, that the name(s) of affiliate(s) be
disclosed?
55. Should the Commission require
Government Securities ATSs to disclose
the percentage of trading on the ATS
attributable to each or all of the brokerdealer operator’s business units,
affiliates or both? Should Form ATS–G
require a Government Securities ATS to
disclose specific trade volume data for
its trading with business units of the
broker-dealer operator or its affiliates? If
so, how should that volume be
measured (e.g., executed trades, dollar
volume)? Should the Commission
amend Form ATS–N to require such
trading percentages or data for NMS
Stock ATSs that execute orders with
business units of the broker-dealer
operator or its affiliates?
56. Would the disclosure of
information about trading by the brokerdealer operator and its affiliates in the
ATS be sufficient to address potential
conflicts of interest? If disclosure alone
is insufficient, are there other measures
the Commission could take to mitigate
potential conflicts of interest regarding
trading? Should the Commission
prohibit some or all trading by the
broker-dealer operator and its affiliates
in the ATS?
2. Order Interaction With Broker-Dealer
Operator; Affiliates
Part II, Item 3 of proposed Form ATS–
G would request information about the
interaction of orders and trading interest
between unaffiliated subscribers to the
Government Securities ATS and orders
and trading interest of the broker-dealer
operator and its affiliates in the ATS.
Part II, Item 3(a) of proposed Form
ATS–G would require a Government
Securities ATS to disclose whether a
subscriber can opt out of interacting
with orders and trading interest of the
broker-dealer operator in the ATS, and
Part II, Item 3(b) would require a
Government Securities ATS to disclose
whether a subscriber can opt out of
interacting with the orders and trading
interest of an affiliate of the brokerdealer operator in the ATS.216 Part II,
Item 3(c) of proposed Form ATS–G
would require the Government
Securities ATS to disclose whether the
terms and conditions of the opt-out
processes for the broker-dealer operator
and affiliates required to be identified in
216 For example, if a broker-dealer operator uses
algorithms to submit subscriber orders into the
ATS, any steps that either the broker-dealer
operator or the subscriber needs to take so that the
ATS prevents those orders from trading with the
broker-dealer operator or its affiliates would be
required disclosures under Items 3(a) and 3(b),
respectively.
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Items 3(a) and (b) are the same for all
subscribers. The Commission believes
that proposed Part II, Item 3 would be
important to unaffiliated market
participants trading on an ATS because,
given the potential for informational
advantages by the broker-dealer operator
or its affiliates,217 some unaffiliated
subscribers may not wish to interact
with the order flow of the broker-dealer
operator or its affiliates. This disclosure
could also help subscribers understand
whether and how they may avoid
trading with the broker-dealer operator
and its affiliates should they elect to use
the services of the Government
Securities ATS.
Request for Comment
57. Should proposed Form ATS–G
request more or less information about
how a market participant can limit its
interaction on a Government Securities
ATS with the broker-dealer operator or
its affiliates? If commenters believe
Form ATS–G should request more
information, please provide specific
information that would be useful along
with an explanation of its utility.
3. Arrangements With Other Trading
Venues
Part II, Item 4 of proposed Form ATS–
G is designed to provide for the
disclosure of formal or informal
arrangements (e.g., mutual, reciprocal,
or preferential access arrangements) 218
between the broker-dealer operator or an
affiliate of the broker-dealer operator
and a trading venue (e.g., ATS, OTC
market maker, futures or options
market) 219 to access the Government
Securities ATS services (e.g.,
arrangements to effect transactions or to
submit, disseminate, or display orders
and trading interest in the ATS).
Proposed Part II, Item 4 would require
disclosure of an arrangement between
the broker-operator for the Government
Securities ATS or affiliate of the brokerdealer operator and a broker-dealer
operator of an unaffiliated Government
supra Section III.B.1.
NMS Stock ATS Adopting Release, supra
note 1, at 38831 n.769–70 and accompanying text.
As the Commission discussed in the NMS Stock
ATS Adopting Release, the disclosures required by
Part II, Item 4 of proposed Form ATS–G are not so
broad as to require the Government Securities ATS
to list each unaffiliated subscriber that accesses its
system. See id. at 38831.
219 The Commission is using the term ‘‘trading
venue’’ for proposed Form ATS–G instead of the
term ‘‘Trading Center,’’ which is used in Form
ATS–N, because ‘‘Trading Center’’ is a defined term
for purposes of Regulation NMS (17 CFR
600(b)(78)). A trading venue for government
securities can include, among other things, an ATS,
an OTC market maker, a futures or options market,
or any other broker- or dealer-operated platform for
executing trading interest internally by trading as
principal or crossing orders as agent.
87129
Securities ATS under which the brokerdealer operator would send orders or
other trading interest to the unaffiliated
Government Securities ATS for possible
execution before sending them to any
other destination. Item 4 also would
require disclosure of the inverse
arrangement pursuant to which any
subscriber orders sent out of the
unaffiliated Government Securities ATS
would be sent first to the Government
Securities ATS before any other trading
venue. Item 4 would also require a
summary of the terms and conditions of
the arrangement such as, for example,
whether the broker-dealer operator of
the Government Securities ATS is
providing monetary compensation or
some other brokerage service to the
unaffiliated Government Securities
ATS. To the extent that a broker-dealer
operator has an arrangement with
another trading venue operated by the
broker-dealer operator or an affiliate, or
an unaffiliated trading venue, the
Commission believes that market
participants are likely to consider
information about such arrangements
relevant to their evaluation of a
Government Securities ATS as a
potential trading venue and such an
arrangement may raise concerns about
conflicts of interest or information
leakage. The Commission is therefore
proposing disclosure of such
arrangements in Part II, Item 4 of
proposed Form ATS–G.220
Request for Comment
58. What type of arrangements might
a broker-dealer operator of a
Government Securities ATS have with a
trading venue for government securities
or repos? Please explain and describe
what information, if any, market
participants may wish to know about
such an arrangement.
4. Other Products and Services
Part II, Item 5(a) of proposed Form
ATS–G is designed to disclose whether
the broker-dealer operator offers
subscribers any products or services for
217 See
218 See
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220 In the NMS Stock ATS Adopting Release, the
Commission provided examples of when potential
conflicts of interest and information leakage could
occur as a result of preferential routing
arrangements (e.g., an affiliate is contractually
obligated to route all unexecuted orders to ATS) or
routing arrangements with affiliates (e.g., all orders
routed by the NMS Stock ATS must first be routed
to an the affiliate(s)). Specifically, the former might
result in information leakage should the
arrangement provide that all orders not executed by
the affiliate are to be sent to the NMS Stock ATS
and the latter could provide incentive for the NMS
Stock ATS to route orders to an affiliate instead of
trying to execute the order in the ATS. The
Commission believes that these issues could arise
in the government securities markets, as well, so
those examples are also applicable to this proposal.
See id. at 38831 n.771.
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the purpose of effecting transactions or
submitting, disseminating, or displaying
orders and trading interest in the
Government Securities ATS (e.g.,
algorithmic trading products that send
orders to the ATS, order management or
order execution systems, data feeds
regarding orders and trading interest in,
or executions occurring on, the ATS,
order hedging or aggregation
functionality), and if applicable, to
indicate whether the terms and
conditions of the services or products
required to be identified in Part II, Item
5(a) are the same for all subscribers and
the broker-dealer operator.221
Customers of a broker-dealer operator
could be both subscribers to its ATS and
customers of the broker-dealer operator
and the broker-dealer operator may offer
its customers trading products and
services in addition to its ATS services.
In certain cases, the product and service
offered might be used by the customer
in conjunction with the customer’s use
of the ATS. Broker-dealer operators of
Government Securities ATSs may,
directly or indirectly through an
affiliate, offer products or services to
subscribers for the purpose of, for
example, submitting orders, or receiving
information about displayed interest, in
the ATS.222 For example, a Government
Securities ATS would be required to
disclose any aggregation functionality
that the broker-dealer operator or its
affiliate(s) offers to subscribers, which,
for example, could be used by
subscribers to interface with the ATS to
send or receive orders and trading
interest to and from other markets,
including U.S. Treasury Securities
markets, over-the-counter spot markets,
or futures markets. The Commission
221 For example, if a broker-dealer operator offers
subscribers alternative algorithms to handle orders,
including sending such orders to the Government
Securities ATS, and there is a difference in the
latency in which each of the alternatives transmits
information, such differences in latency would
need to be disclosed in Part II, Item 5 of proposed
Form ATS–G.
222 See NMS Stock ATS Proposing Release, supra
note 62, at 81048. See also NMS Stock ATS
Adopting Release, supra note 1, at 38832 n.779. For
example, order hedging functionalities could
encompass a product or service offered by the
broker-dealer operator to a customer that the
customer may use as a subscriber to the brokerdealer operator’s ATS to hedge exposures of trading
interest in or outside the ATS. A broker-dealer
operator that offers such a functionality for use with
the ATS would describe the terms and conditions
for a subscriber to use the functionality in Part II,
Item 5 and explain its use with regard to the ATS
in Part III of Form ATS–G. For example, if the order
hedging functionality affects order interaction in
the ATS, the ATS would explain the functionality
in Part III, Item 11(c). If the order hedging
functionality involves futures and trading interest
in the ATS, the Government Securities ATS would
explain the related procedures under Part III, Item
16.
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believes that subscribers to the
Government Securities ATS would be
interested in understanding the use of
an aggregation functionality with the
ATS and how it can help achieve their
trading strategies. If the broker-dealer
operator or its affiliate offered a product
for effecting transactions or submitting,
disseminating, or displaying orders and
trading interest in the Government
Securities ATS that was used in
conjunction with related financial
markets for non-government securities
(e.g., futures, currencies, swaps,
corporate bonds), the ATS would
summarize the terms and conditions for
use of such a product in this item and
explain the product’s use under Part III,
Item 16.
The Commission believes subscribers
want to know the products or services
that the broker-dealer operator or its
affiliates may offer for the purpose of
effecting transactions, or submitting,
disseminating, or displaying orders and
trading interest on the Government
Securities ATS because such products
or services may impact the subscribers’
access to, or trading on, the ATS.223 In
some cases, a broker-dealer operator
offering products or services in
connection with a subscriber’s use of
the Government Securities ATS may
result in the subscribers receiving more
favorable terms from the broker-dealer
operator with respect to their use of the
ATS. For example, if a subscriber
purchases a service offered by the
broker-dealer operator of a Government
Securities ATS, the broker-dealer
operator might also provide that
subscriber more favorable terms for its
use of the ATS than other subscribers
who do not purchase the service. Such
favorable terms could include fee
discounts or access to a faster
connection line to the Government
Securities ATS. Additionally, a brokerdealer operator of a Government
Securities ATS may offer certain
products and services only to certain
subscribers or may offer products and
services on different terms to different
categories of subscribers. The
Commission believes that subscribers
would want to know, when assessing a
Government Securities ATS as a
potential trading venue, the range of
services or products that the brokerdealer operator or its affiliates offers
subscribers of the ATS, and any
differences in treatment among
223 Services for the purpose of effecting
transactions, or submitting, disseminating, or
displaying orders and trading interest on the
Government Securities ATS that are offered by a
third-party in contract with the broker-dealer
operator or affiliates would also be responsive to
this Item.
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subscribers, because such services or
products may impact the subscribers’
access to, or trading on, the ATS.
To the extent that a customer is a
subscriber to the Government Securities
ATS and is offered use of products and
services by the broker-dealer operator or
its affiliate for the purpose of effecting
transactions or submitting,
disseminating, or displaying orders and
trading interest in the ATS, Part II, Item
5 of proposed Form ATS–G would
require disclosures about those products
or services. For example, if a brokerdealer operator offers its customers an
order management system that can also
be used by customer-subscribers to the
Government Securities ATS to manage
orders in the ATS (e.g., adjust the
pricing or size of an ATS order in
relation to an order resting in or outside
the ATS, modify order instructions to
execute or cancel at a specified time or
under certain market conditions), the
ATS would be required to identify the
order management system, provide a
summary of the terms and conditions
for its use, and identify the Part and
Item number in Form ATS–G for where
the order management system is
explained. In addition, any services
offered by the broker-dealer operator for
subscribers to mitigate risk, such as
limits on gross or net notional exposures
by a subscriber, identification of
duplicative orders in the ATS, or other
checks offered related to order entry or
authorizations to trade in the ATS,
would be identified in this Item and
explained further in Part III, Item 8
(Order Sizes). However, the proposed
requests in Part II, Item 5 would not
encompass trading products or services
offered by the broker-dealer operator to
customers that are not for the purpose
of effecting transactions or submitting,
disseminating, or displaying orders and
trading interest in the Government
Securities ATS.
To alleviate any concerns regarding
the potential disclosure of commercially
sensitive information in this disclosure
request, the proposed disclosure request
would require the Government
Securities ATS to provide only a
summary of the terms and conditions
for the products and services disclosed
and to explain how the product or
service is used with the ATS in the
applicable Item number in Part III of
proposed Form ATS–G. The
Commission believes that requiring only
a summary narrative would normally
not require the broker-dealer operator to
disclose commercially sensitive
information.
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Request for Comment
59. What types of products and
services do broker-dealer operators of
Government Securities ATS or affiliates
of the broker-dealer operator offer to
subscribers and how are such products
and services used in connection with
the ATS?
60. What information about the
products and services offered by brokerdealer operators would be helpful to
market participants?
61. Should the Commission expand
Part II, Item 5 of proposed Form ATS–
G to require disclosure of products or
services offered by the broker-dealer
operator or its affiliates to subscribers,
but not necessarily offered in
connection with transacting on the
Government Securities ATS?
5. Activities of Service Providers
a. Shared Employees
Part II, Item 6(a) of proposed Form
ATS–G is designed to solicit disclosures
relating to any employee of the ATS’s
broker-dealer operator or employee of
its affiliate that provides services for
both the operations of the Government
Securities ATS and any other business
unit or any affiliate of the broker-dealer
operator (‘‘shared employee’’) that has
access to subscriber confidential trading
information. The Commission believes
that disclosures about shared employees
with access to subscriber confidential
trading information would help market
participants evaluate circumstances
when there is the potential for
information leakage. For example, the
Commission believes that market
participants would likely want to know
if an employee of the broker-dealer
operator (or employee of an affiliate of
the broker-dealer operator) that is
responsible for the operations of a
system containing subscriber
confidential trading information from
the Government Securities ATS is also
responsible for supporting, for instance,
the principal trading activity of the
broker-dealer operator, or another
trading venue operated by the brokerdealer, or a trading venue that is an
affiliate of the broker-dealer operator.
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Request for Comment
62. Should the Commission expand
the proposed disclosures in Part II, Item
6(a) to other employees, personnel, or
independent contractors of the brokerdealer operator? If so, which employees,
personnel, or independent contractors
should be included and what
information about such persons should
be solicited?
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b. Third-Party Service Providers
Part II, Item 6(b) of proposed Form
ATS–G is designed to provide
disclosures relating to any entity, other
than the broker-dealer operator, that
supports the services or functionalities
of the Government Securities ATS.
Information about the roles and
responsibilities of service providers to
the ATS is important because it could
inform market participants about the
potential for information leakage on the
Government Securities ATS.224 The
Commission is not proposing that the
third-party service provider requests
encompass purely administrative items,
such as human resources support, or
basic overhead items, such as phone
services and other utilities. The
information solicited in this disclosure
is meant to provide information about
the extent to which a third party may be
able to influence or control the
operations of the ATS through
involvement with its operations (such as
operating the ATS’s proprietary data
feeds sent to subscribers). For example,
any service provider for clearance and
settlement of transactions on the ATS,
consulting relating to the trading
systems or functionality, regulatory
compliance, and recordkeeping for the
Government Securities ATS would be
responsive to this request.225
Furthermore, the proposed requests
under Part II, Items 6(c)–(d) would
require the Government Securities ATS
to disclose whether any service
providers or their affiliates use the
services of the ATS. If they do, the ATS
would be required to identify the
service providers, the service(s) used,
and whether there is any disparate
treatment between those service
providers and other subscribers. Thus, a
Government Securities ATS would only
be required to obtain and disclose
information about third-party vendors
and their affiliates that actively use the
224 Legacy Government Securities ATSs that
operate pursuant to a Form ATS on file with the
Commission are currently subject to the disclosure
requirement of Exhibit E of Form ATS, which
requires ATSs to disclose the name of any entity
other than the ATS that will be involved in the
operation of the ATS, including the execution,
trading, clearing, and settling of transactions on
behalf of the ATS; and to provide a description of
the role and responsibilities of each entity. See Item
7 of Form ATS (describing the requirements for
Exhibit E of Form ATS). Proposed Part II, Item 6(b)
would expand upon this requirement.
225 If a summary of the role and responsibilities
of the service provider is disclosed in response to
Part III of Form ATS–G, the Government Securities
ATS need only list the applicable Item number in
response to this Item. If there are services or
functionalities that are not applicable to Part III, the
ATS would identify the service provider, the
services and functionalities, and also provide a
summary of the role and responsibilities of the
service provider in proposed Part II, Item 6(b).
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87131
services of the ATS; the ATS should be
aware of all parties that use its services
under its current recordkeeping
obligations. The Commission believes
that market participants, when
analyzing potential conflicts of interest
or information leakage, would find it
very useful to understand whether
potential counterparties with whom
they are trading, and who also service
the operation of the Government
Securities ATS, have access to different
or unique ATS-related services. Part II,
Item 6(d) of proposed Form ATS–G
would require the Government
Securities ATS to identify and explain
any differences in ATS services to a
service provider and all other
subscribers. Additionally, depending on
the role and responsibilities of the thirdparty service provider, market
participants may wish to consider
evaluating the robustness of the
Government Securities ATS’s safeguards
and procedures to protect confidential
subscriber information.
This request for summary information
is designed to provide market
participants with a general
understanding of the types of
technology or hardware provided by the
service provider as part of its
responsibilities, and how that hardware
or technology is used by the
Government Securities ATS. The
purpose of this disclosure is to provide
information that subscribers can use to
better understand whether the service
provider might be able to access
subscriber confidential trading
information, so Government Securities
ATSs should draft their disclosure with
the goal of conveying such information.
Simply stating that a third party
provides technology or hardware to the
ATS would not be responsive to the
required summary of the service
provider’s role, but, on the other hand,
the ATS would not have to provide
information about the manufacturer of
its hardware components.
Request for Comment
63. Are there any critical services or
functionalities (e.g., matching engine,
market data) that, if provided by a third
party, should be required to be
described in a higher level of detail than
the proposed ‘‘summary’’ level? If so,
which services and functionalities?
6. Protection of Confidential Trading
Information
Part II, Item 7(a) of proposed Form
ATS–G would require a Government
Securities ATS to describe its written
safeguards and written procedures to
protect the confidential trading
information of subscribers to the ATS,
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including: (i) Written standards
controlling employees of the ATS that
trade for employees’ accounts; and (ii)
written oversight procedures to ensure
that the safeguards and procedures
described above are implemented and
followed. The protection of confidential
trading information is a bedrock
component of the regulation of ATSs
and is essential to ensuring the integrity
of ATSs as execution venues. If such
information is not protected, many of
the advantages or purposes for which a
subscriber may choose to send its orders
to an ATS (e.g., to trade anonymously
and/or to mitigate the impact of trading
in large positions) are eliminated. In
cases where the confidential trading
information of a subscriber is
impermissibly shared with the
personnel of the broker-dealer operator
or any of its affiliates, such an abuse is
also compounded by the conflicting
interests of the broker-dealer operator.
That is, in such a case, the broker-dealer
operator has invited subscribers to trade
on its ATS and may have abused that
relationship to provide itself or its
affiliates with a direct competitive
advantage over that subscriber.
Accordingly, the Commission believes
that disclosures informing market
participants about broker-dealer
operators’ written safeguards and
written procedures to protect
confidential trading information are
necessary so market participants can
independently evaluate the robustness
of the safeguards and procedures and
decide for themselves whether they
wish to do business with a particular
Government Securities ATS.
The Commission is proposing Part II,
Items 7(b) and (c) to require a
Government Securities ATS to disclose
whether a subscriber can consent and
withdraw consent, respectively, to the
disclosure of its confidential trading
information to any person (not
including those employees of the ATS
who are operating the system or
responsible for its compliance with
applicable rules). Subscribers should be
able to give consent if they so choose to
share their confidential trading
information.226 ATSs that transact in
government securities vary in terms of
the types of orders, indications of
interests (‘‘IOIs’’), or other forms of
trading interest that are confidential on
their systems and what information
about such trading interest may be
shared. For example, an ATS might
provide that no IOIs submitted by
subscribers will be considered
confidential, but may provide
226 See Regulation ATS Adopting Release, supra
note 35, at 70879.
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subscribers with the option to restrict
the information in the IOI message to
just the symbol and side (i.e., buy or
sell). For this example, Part II, Items 7(b)
and 7(c) of proposed Form ATS–G
would require the Government
Securities ATS to describe the means by
which a subscriber could control some
of the information contained in the IOI
message by providing consent or
withdrawing such consent for the
sharing of its confidential trading
information.227 For example, a
subscriber can consent to its open
trading interest being displayed to
certain subscribers that the subscriber
believes are less likely to misuse or
exploit such information, or that have
open trading interest on the contra side
in the same symbol. If a Government
Securities ATS allows subscribers to
consent in this manner, the ATS would
mark ‘‘yes’’ to Part II, Item 7(b).
Continuing the example, if the
subscriber can subsequently withdraw
its consent to this display of its open
trading interest, the Government
Securities ATS would mark ‘‘yes’’ to
Part II, Item 7(c).
Finally, the Commission is proposing
Part II, Item 7(d) to require a
Government Securities ATS to provide
a summary of the roles and
responsibilities of any persons that have
access to confidential trading
information, the confidential trading
information that is accessible by them,
and the basis for the access. In
responding to this Item, the Government
Securities ATS would initially need to
describe what it considers to be
confidential trading information. For
example, the ATS would need to
disclose whether only pre-trade order
information would be considered
confidential trading information, or
whether post-trade information would
also be treated as confidential trading
information, and for what period of
time. Furthermore, to explain the basis
for the access, the Government
Securities ATS would need to provide
the basis for a person to have access to
the confidential trading information and
any limitations placed on that person’s
access.
Request for Comment—Part II
64. Should the Commission require
the disclosure of the information in Part
II of Form ATS–G? If so, what level of
detail should be disclosed?
227 See id. The Commission believes that there
may be some Government Securities ATSs that
might not offer any means by which a subscriber
could consent to the dissemination of its
confidential trading information. A Government
Securities ATS would be required to disclose this
fact pursuant to Item 7(a). See id. at 70891 n.437.
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65. Would Part II of proposed Form
ATS–G capture the information that is
most relevant to understanding the
Government Securities ATS and its
relationship with the broker-dealer
operator and the broker-dealer
operator’s affiliates? Please support your
arguments.
66. Would the proposed disclosures
in Part II require broker-dealer operators
of Government Securities ATSs to reveal
too much (or not enough) information
about their structure and operations?
67. Is there other information about
the activities of the broker-dealer
operator and its affiliates that market
participants might find relevant or
useful in their assessment of use of the
ATS? If so, describe such information
and explain whether or not such
information should be required to be
provided under proposed Form ATS–G.
68. Should the proposed disclosures
in Part II not be required to be disclosed
on proposed Form ATS–G due to
concerns regarding confidentiality,
business reasons, trade secrets, burden,
or any other concerns? If so, what
information and why?
69. Are there ways to obtain the same
information as would be required from
Government Securities ATSs by Part II
other than through disclosure on
proposed Form ATS–G? If so, how else
could this information be obtained and
would such alternative means be
preferable to the proposed disclosures
in Part II?
70. Should Government Securities
ATSs be required to publicly disclose in
their entirety on Form ATS–G their
written safeguards and written
procedures to protect the confidential
trading information of subscribers?
Should the Commission require less
information be disclosed about the
written safeguards and procedures?
71. Would the information about
written safeguards and written
procedures to protect the confidential
trading information of subscribers
described in Form ATS–G be sufficient
for subscribers to independently
evaluate such safeguards and
procedures and thus evaluate the ATS
as a destination for their orders? Should
the Commission prohibit the disclosure
of confidential subscriber information in
some circumstances?
C. Part III Form ATS–G: Manner of ATS
Operations
Part III of proposed Form ATS–G is
designed to provide public disclosures
to help market participants understand,
among other things, how subscribers’
orders and trading interest are handled,
matched, and executed on the
Government Securities ATS. Part III of
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Form ATS–G is modeled after Form
ATS–N with few differences. Form
ATS–G does not have an item
corresponding to Part III, Item 16
(Routing) of Form ATS–N nor does it
have an item corresponding to Part III,
Item 24 (Order Display and Execution
Access) of Form ATS–N as the
associated rule is inapplicable to
government securities. And, because of
the close relationship between
government securities markets and
markets for other financial instruments
(e.g., futures), the Commission is
proposing Part III, Item 16 of Form
ATS–G to specifically highlight for
market participants how the brokerdealer operator and subscribers may use
a functionality or procedure to facilitate
trading on, or source of pricing for, the
Government Securities ATS in
conjunction with a related market (e.g.,
futures).228 In Form ATS–G, the
Commission has included ‘‘yes’’ or ‘‘no’’
questions, which the Commission
believes would allow market
participants to find information more
efficiently and facilitate comparisons
across Government Securities ATSs.
The Commission also has included a
requirement to identify and explain any
differences in the treatment of
subscribers and the broker-dealer
operator that the Commission believes
would help market participants discern
any benefit or disadvantage they may
receive in comparison to other market
participants or the broker-dealer
operator.229 The Commission believes
that the disclosure about differences in
treatment of subscribers is important to
market participants and would better
allow them to decide whether
submitting order flow to that
Government Securities ATS aligns with
their trading objectives.
228 On Form ATS–N, an NMS Stock ATS that
offers a functionality or procedure that subscribers
could use on the ATS in conjunction with a related
market (e.g., futures, options) would disclose this
information under Part II, Item 5 and Part III, Item
11.
229 For example, in Part III, Item 5, if a
Government Securities ATS designed its operations
to allow only certain types of subscribers to enter
orders into the ATS through direct means (e.g., FIX
protocol) and other types of subscribers to enter
orders into the ATS through indirect means (e.g.,
SOR or algorithm), the ATS would describe these
means of entry in Part III, Items 5(a) and 5(c),
respectively. If, for example, the Government
Securities ATS were to treat a subscriber that enters
orders directly into the ATS differently from other
subscribers that also enter orders directly into the
ATS with respect to means of order entry, the ATS
would describe that different treatment in Part III,
Item 5(b). Differences in treatment of subscribers
and the broker-dealer operator are disclosed in the
same way on Form ATS–N.
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1. Types of ATS Subscribers
Part III, Item 1 of proposed Form
ATS–G is designed to provide
information on the type(s) of subscribers
that can use the Government Securities
ATS services. The Item would provide
market participants with information
about the type of order flow in the
Government Securities ATS based on
the types of subscribers that use it.
Government Securities ATSs may
design their system for trading by retail
investors, institutional investors,
dealers, or any other type of market
participant. The Commission is
providing a list of market participants in
Part III, Item 1 of proposed Form ATS–
G that, in the Commission’s experience,
are commonly used.230 The list
includes: Retail investors, asset
managers, brokers, dealers, investment
companies, hedge funds, market makers,
PTFs, insurance companies, pension
funds, corporations, and banks. The list
is non-exhaustive and a Government
Securities ATS would be required to list
any type of subscriber that can use the
ATS’s services.231 In addition to
disclosing its subscribers, a Government
Securities ATS may use Part III, Item 1
to disclose any types of participants
whose trading interest may reach the
ATS. For example, for an ATS that only
allows brokers or dealers as subscribers,
the ATS could identify the types of
customers for which the brokers or
dealers send orders to the ATS.
Request for Comment
72. Should Form ATS–G include
information about the types of
subscribers to the ATS? Based on
Commission experience, some ATSs
only accept broker-dealers as
subscribers to the ATS and various
types of market participants send orders
into the ATS through the broker-dealer
subscriber. Should the Commission
require the identification of the types of
market participants whose orders may
be sent to the ATS, whether directly or
indirectly, by a broker-dealer subscriber
to the Government Securities ATS?
Should the Commission require the
230 As compared to Form ATS–N, the
Commission is modifying the checkboxes listing
types of subscribers to remove types that are not
applicable to the government securities market and
adding insurance companies, pension funds, and
corporations to the list of checkboxes. The
Commission is also proposing to add these
checkboxes to Form ATS–N. See infra Section V.D.
The Commission believes that adding these
checkboxes will provide more granular information
on the types of subscribers participating on an ATS
in an easier-to-read format.
231 See NMS Stock ATS Adopting Release, supra
note 1, at 38820–21 (discussing the definition of
‘‘subscriber’’ and the persons encompassed
thereunder).
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87133
same information from NMS Stock
ATSs by amending Form ATS–N?
Would this information be useful to
understanding the type of order flow in
the ATS?
2. Eligibility for ATS Services
Part III, Item 2 of proposed Form
ATS–G is designed to provide market
participants with information about
whether the Government Securities ATS
requires subscribers to be registered
broker-dealers or enter a written
agreement to use the ATS services, and
whether there are any other conditions
that the ATS requires a person to satisfy
before accessing the ATS services. This
Item would require the conditions a
person must satisfy ‘‘before accessing
the ATS services.’’ On the other hand,
Part III, Item 3 of proposed Form ATS–
G (discussed infra), would require
disclosures about any conditions that
would exclude a subscriber, in whole or
in part, from using the Government
Securities ATS as a result of subscriber
behavior while already actively
participating in the ATS.232
The Commission believes that the
disclosures required by Part III, Item 2
would allow market participants to
understand the conditions that they
would need to satisfy to participate on
the Government Securities ATS. If the
Government Securities ATS indicates
that it does have conditions that a
person must satisfy before accessing the
ATS services, the request would require
the ATS to list and provide a
‘‘summary’’ of those conditions. Some
Government Securities ATSs may only
have the eligibility requirement that a
person be a client of the broker-dealer
operator. In that case, any eligibility
requirements to become a client of the
broker-dealer operator would be
responsive to this Item. For example, if
a subscriber must be a customer of the
broker-dealer operator, the Government
Securities ATS would provide a
summary of conditions the subscriber,
as a customer, would need to satisfy
(e.g., know your customer) before its
orders can be entered into the ATS. If
the Government Securities ATS requires
subscribers to be members of a third
party for purposes of clearance and
settlement, such as the Fixed Income
Clearing Corporation’s Government
232 For example, if a Government Securities ATS
has a practice of excluding subscribers that do not
meet certain percentage thresholds for submitting
firm-up orders in response to receiving an IOI or
conditional order sent to them by the ATS, then this
practice would be subject to disclosure under Part
III, Item 3 of proposed Form ATS–G (‘‘Exclusion
from ATS Services’’) and not Part III, Item 2
(‘‘Eligibility for ATS Services’’).
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Securities Division, such information
would be responsive.
Request for Comment
73. What eligibility requirements to
access a Government Securities ATS are
important to a potential subscriber or
participant to the ATS and why?
3. Exclusion From ATS Services
Based on the Commission’s
experience, ATSs often have rules
governing subscribers’ participation on
the ATS, and if a subscriber fails to
comply with these rules, the ATS may
limit or deny access to the ATS.233 Part
III, Item 3 of proposed Form ATS–G
would require the Government
Securities ATS to provide information
about whether the ATS can exclude, in
whole or in part, any subscriber from
the ATS services, and if so, to list and
provide a summary of the conditions for
excluding (or limiting) a participant
from using the ATS. The disclosures are
designed to provide subscribers with
information about when the
Government Securities ATS can
exclude, in whole or in part, a
subscriber from the services of the ATSs
and help them reasonably anticipate the
types of activities that may cause them
to be excluded (or limited) from using
the services of the ATS. The
Commission believes that allowing for a
summary of conditions for excluding (or
limiting) a participant would alert
subscribers about the types of activities
that may cause them to be excluded (or
limited) from using the services of the
Government Securities ATS while
allowing the ATS to reasonably control
the activities and quality of flow on its
platform and not allowing subscribers to
game a more detailed description of
conditions for excluding.
Request for Comment
74. Is there any subscriber behavior
for which ATSs commonly exclude a
subscriber in whole or in part? What is
that behavior(s) and what form of
exclusion is commonly employed (e.g.,
disqualification from ATS, limitation of
services)?
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4. Hours of Operations
Part III, Item 4 is intended to provide
market participants with information
about the days and hours of operations
of the Government Securities ATS,
including the times when orders or
233 These limitations can result in some
subscribers having different levels of functionality
or more favorable terms of access than others. For
example, in the Commission’s experience, some
ATSs exclude subscribers that frequently fail to
respond with a firm-up order after receiving an IOI
or request for quote.
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trading interest can be entered on the
ATS, and any hours of operations
outside of its regular trading hours, as
established by the ATS. Notably, the
Item would require a Government
Securities ATS to provide the hours
when it is operating, which would
include functions such as accepting
orders. Accordingly, the disclosure
required is not limited to only those
hours when the matching and execution
of orders are occurring. The
Commission believes that it is important
for market participants and the
Commission to understand when a
Government Securities ATS operates
and when orders can be entered,
including when the ATS will accept
orders outside of its regular trading
hours. Making such information
publicly available would enable market
participants to more easily compare
when trading interest can be entered on
trading venues.
5. Means of Entry
Part III, Item 5 of proposed Form
ATS–G is intended to disclose the
means that can be used to directly enter
orders and trading interest into the
Government Securities ATS and any
other means for entering orders and
trading interest into the ATS (e.g., smart
order router, algorithm, order
management system, sales desk, or
aggregation functionality). The
Government Securities ATS would be
required to identify and explain the
other means for entering orders and
trading interest, indicate whether the
means are provided through the brokerdealer operator itself, through a thirdparty contracting with the broker-dealer
operator, or through an affiliate of the
broker-dealer operator, and list and
provide a summary of the terms and
conditions for entering orders or trading
interest into the ATS through these
means.
Subscribers may submit orders or
trading interest to the Government
Securities ATS both directly and
indirectly. A direct method of sending
orders or trading interest to an ATS, for
example, may include the use of a direct
market access platform or FIX Protocol
connection, which allows subscribers to
enter orders or trading interest into the
ATS without an intermediary. An
example of an indirect method of
submitting orders or trading interest to
an ATS could include the use of a smart
order router (‘‘SOR’’), algorithm or
similar functionality, website, graphical
user interface (‘‘GUI’’), aggregation
interface, or front-end system. The
means of order entry into an ATS (e.g.,
direct or indirect) could impact the
speed with which a subscriber’s order is
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handled and potentially executed and
could increase the risk of information
leakage. The government securities
markets are not interconnected markets
like those for NMS stocks and therefore
SOR technology may not be applied in
the same manner by broker-dealer
operators of Government Securities
ATSs. The Commission believes,
however, that SOR technology may be
used to send or receive orders from a
Government Securities ATS to reduce
latency or send orders to markets with
better prices for certain government
securities, and to the extent it does, the
ATS should be required to provide
information about the SOR as required.
The Commission believes that the
disclosures regarding the direct or
indirect means of order entry would
inform subscribers about the
functionalities that their orders and
trading interest pass through on their
way to the ATS and help them assess
any potential advantages that orders
sent through the broker-dealer operator
may have with respect to other
subscribers on the Government
Securities ATS. A Government
Securities ATS would be required to
identify the functionality that directly
connects to the ATS (e.g., algorithm)
and, if present, any intermediate
functionality that an ATS order passes
through on its way to the functionality
that directly connects to the ATS.234
Conversely, if ATS orders submitted
through an algorithm are sent to another
intermediate functionality, and then
submitted to the ATS by that
functionality, such information would
need to be disclosed pursuant to this
Item.235
The proposed disclosure requirements
would only require the Government
Securities ATS to ‘‘list and provide a
summary of the terms and conditions
for entering orders or trading interest
into the ATS’’ through these sources.
Therefore, the Government Securities
ATS would not need to provide a
detailed description of the programming
of the indirect means for entering order
and trading interests that could put the
ATS at a competitive disadvantage with
competitors. However, if, for example,
an ATS ‘‘throttled’’ the number of
messages allowed for a given type of
234 If an intermediate application or functionality
has access to a subscriber’s order information, the
Government Securities ATS must take appropriate
measures to protect the confidentiality of such
information pursuant to Rule 301(b)(10) of
Regulation ATS.
235 If a broker-dealer operator permits subscribers
to send orders to the ATS by excluding all other
trading venues from where such orders could be
sent, this procedure would in effect allow a
subscriber to direct an order to the ATS and would
be responsive to Part III, Item 5.
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connection, that information would be
responsive as a term or condition of that
means of entry.
Among the advantages and
disadvantages that market participants
should be able to discern from the
disclosure of Part III, Item 5(b) are any
differences in the latency of the
alternative means for entering orders
and trading interest into the
Government Securities ATS. The
Commission understands that there
might be different latencies associated
with each alternative. For instance, in
some cases, a direct connection to the
Government Securities ATS may have
reduced latencies as compared to
indirect means where orders and trading
interest pass through an intermediate
functionality. A broker-dealer operator
could also, for example, configure the
Government Securities ATS to provide
reduced latencies for certain means of
order entry used by itself or its
affiliates.236 The Commission also
believes that it is important for
subscribers to understand a means of
entry provided by an affiliate, even if it
does not provide an advantage to a
particular entity.
The Commission believes that
disclosures about a broker-dealer
operator’s use of its or an affiliate’s
direct or indirect functionality to enter
orders into the Government Securities
ATS are important to market
participants to allow them to assess the
potential for information leakage. The
indirect means of access (e.g., SOR or
algorithm) may obtain information
about subscriber orders or trading
interest that have been sent to the
Government Securities ATS (and may
now be resting on the ATS) and
subscriber orders that have been sent
out of the ATS. The high likelihood that
an indirect means of accessing the
Government Securities ATS could lead
to leakage of subscribers’ confidential
trading information necessitates
disclosure of certain information to
subscribers about the use of such
indirect means to send subscriber orders
to or out of the ATS. In addition, there
may be Government Securities ATSs
where an intermediate functionality or
entity is used by the ATS as the primary
means to bring together the orders for
securities of multiple buyers and sellers
using established nondiscretionary
methods (such as providing the means
to enter, display or execute orders) and
in this manner may be considered part
236 The proposed rule would not require that the
Government Securities ATS calculate and disclose
precise latencies for each means of entry.
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of the ATS for purposes of Regulation
ATS and Form ATS–G.237
Request for Comment
75. Are there any means for entering
orders and trading interest into the
Government Securities ATS where a
higher level of detail should be required
to explain their operation? Are there any
aspects of those means of entry that are
particularly important?
6. Connectivity and Co-Location
Part III, Item 6(a) of Form ATS–G
would ask whether the Government
Securities ATS offers co-location and
related services, and if so, would require
a summary of the terms and conditions
for such services, including the speed
and connection (e.g., fiber, copper)
options offered. Part III, Item 6(c) of
Form ATS–G would require a
Government Securities ATS to indicate
whether it provides any other means
besides co-location and related services
described in the Item to increase the
speed of communication with the ATS,
and if so, to explain the means and offer
a summary of the terms and conditions
for its use. The Commission is also
proposing to require in Part III, Item 6(e)
the Government Securities ATS to
indicate whether it offers any means to
reduce the speed of communication
with the ATS and if so, to provide a
summary of the terms and conditions
for its use.
Latency is an important feature of
trading in certain government securities
and market participants are interested in
understanding the functionalities
employed by Government Securities
ATSs to influence it.238 The Item would
require a summary of the terms and
conditions where a trading venue
employs mechanisms to increase the
latency or the length of time for orders,
trading interest, or other information to
travel from a user to the system.
Subscribers of co-location services can
experience faster or slower connection
speeds to a Government Securities ATS
237 See NMS Stock ATS Adopting Release, supra
note 1, at 38832 and 38844.
238 See October 15 Staff Report, supra note 14, at
36–37; Treasury Request for Information, supra note
10, at 3928. See also Letter from Dan Cleaves, Chief
Executive Officer, BrokerTec Americas, and Jerald
Irving, President, ICAP Securities USA LLC, to
David R. Pearl, Office of the Executive Secretary,
Treasury Department, dated April 22, 2016
(‘‘BrokerTec/ICAP Letter’’), at 3–4, available at
https://www.treasurydirect.gov/instit/statreg/
gsareg/ICAPTreasuryRFILetter.pdf; Letter from C.
Thomas Richardson, Managing Director, Head of
Electronic Trading Service, Wells Fargo Securities,
and Cronin McTigue, Managing Director, Head of
Liquid Products, Wells Fargo Securities, to Treasury
Department, dated April 21, 2016, at 6–7, available
at https://www.treasurydirect.gov/instit/statreg/
gsareg/RFIcommentWellsFargo.pdf.
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depending on factors such as the
distance of the customer servers from
the matching engine, or the use or nonuse of ‘‘coiling’’ to its matching engine
to equalize connection speeds among
subscribers, among others. Such
differences in connection speed or
latency would be required to be
disclosed under Part III, Item 6(b). The
Commission believes that the
information disclosed in Item 6 would
help market participants understand
their connectivity options to the ATS
and expedite the order entry process for
subscribers.
Request for Comment
76. Are there any aspects of the means
for increasing or reducing the speed of
communication with Government
Securities ATSs that the Commission
should specifically require under this
Item?
7. Order Types and Attributes
Part III, Item 7 would require a
Government Securities ATS to identify
and explain each order type offered by
the ATS. To provide transparency to
market participants and the
Commission, the Item would require a
complete and detailed description of the
order types available on the Government
Securities ATS, their characteristics,
operations, and how they are handled.
The Commission believes that all
market participants should have full
information about the operations of
order types available on a Government
Securities ATS for market participants
to comprehensively understand how
their orders and trading interest will be
handled and executed on the ATS.
Order types are a primary means by
which users of a Government Securities
ATS communicate their instructions for
handling their trading interest to the
ATS. Given the importance, diversity,
and complexity of order types, the
Commission is proposing to require
Government Securities ATSs to disclose
the information called for by Part III,
Item 7 on proposed Form ATS–G.
The Commission believes that market
participants should have sufficient
information about all aspects of the
operations of order types available on a
Government Securities ATS to
understand how to use order types to
achieve their trading objectives, as well
as to understand how order types used
by other market participants could affect
their trading interest. The Commission
believes that a detailed description of
the characteristics of the order types of
a Government Securities ATS would
assist subscribers in better
understanding how their orders would
function and interact with other orders
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on the ATS. It also would allow market
participants to see what order types
could be used by other market
participants, which could affect the
probability, timing, and quality of their
own executions. For example, if the
time priority of a pegged order changes
in response to changes in the reference
price, that would affect the likelihood of
execution for such an order.
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Request for Comment
77. What are the most prevalent order
types on Government Securities ATSs?
Are there more important means than
order types for subscribers to
communicate the handling of their
trading interest on Government
Securities ATSs? Does Form ATS–G
capture all of the means for subscribers
to communicate the handling of their
trading interest? Are there any aspects
of order types on Government Securities
ATSs that should be specifically
addressed in the Item? If yes, please
explain.
8. Order Sizes
Part III, Item 8 would require a
Government Securities ATS to provide
information about any requirements
related to the permissible size of trading
interest (e.g., minimum or maximum
size, odd-lot, mixed-lot, trading
increments) and specify any trading
interest size requirements and any
related handling procedures.239 This
information would inform subscribers
about the permissible size of orders and
trading interest that a subscriber could
enter on the ATS. For example, if a
Government Securities ATS has
minimum or maximum order sizes, or a
minimum increment size requirement
for order modifications, those
requirements and related handling
procedures would be responsive to the
Item. Broker-dealer operators employ
market access and risk management
controls and procedures that prevent the
entry of erroneous orders and orders
that are above a subscriber’s
predetermined threshold. If order size
requirements are imposed on
subscribers as part of a risk management
procedure, an explanation of those
procedures as they relate to the ATS
would be responsive to this Item. An
explanation of how a Government
Securities ATS’s requirements and
conditions related to the size of trading
interest differ among subscribers and
persons would also provide a market
239 The Commission is consolidating the
information requested in Part III, Item 8(a)–8(f) of
Form ATS–N into 2 subparts (Part III, Item 8(a) and
8(b)) in Form ATS–G to streamline the format of
responses. The Commission believes the
information requested is the same.
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participant with information regarding
how its trading interest would be
handled vis-a`-vis other market
participants. The information that
would be required by Item 8 would also
be useful to the Commission’s
monitoring of developments in market
structure.
Request for Comment
78. Are there any operations or
procedures, either of an ATS or a
broker-dealer operator, that could limit
the entry, or size of, a subscriber’s
orders submitted to the ATS? If so,
please describe these operations or
procedures and explain why they are
important to subscribers.
9. Indications of Interest
Part III, Item 9 of proposed Form
ATS–G is designed to provide
information about whether the
Government Securities ATS sends or
receives any messages indicating trading
interest, and if so, to identify and
explain the use of the messages,
including information contained in
messages, how and when messages are
transmitted, the type of persons that
receive the message, the possible
responses to IOIs by recipients, and the
conditions under which the messages
might result in an execution in the
ATS.240
Government Securities ATSs use IOIs
to convey trading interest available on
those trading venues. Understanding the
manner in which Government Securities
ATSs use messages that convey trading
interest, such as IOIs and similar
functionalities, could be useful to
market participants for finding a contraparty as well as understanding potential
information leakage. In the
Commission’s experience, the
information that Government Securities
ATS include in IOIs can vary, including
different combinations of symbol, size,
and/or price, and the Commission
believes that this information would be
relevant to market participants when
understanding what information about
their orders and trading interest is
communicated to others and assessing
potential information leakage.
Identifying the type of persons that
receive the message and possible
responses, moreover, could help market
240 See NMS Stock ATS Adopting Release, supra
note 1, at 38847 for additional discussion of IOIs,
actionable IOIs, conditional orders, and similar
functionalities. The Commission removed the terms
‘‘conditional orders’’ and ‘‘actionable IOIs’’ that
were included on the corresponding item on Form
ATS–N. These terms appear to be less prevalent in
the government securities market. However, the
Commission believes the term ‘‘IOI’’ used herein
would encompass both conditional orders and
actionable IOIs.
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participants understand when an IOI
would result in a match, how market
participants can use the ATS, who will
see their trading interest, how their
trading interest will be executed, and
the potential for information leakage. If
a Government Securities ATS employs a
negotiation functionality that begins
with IOIs to arrive at matches between
subscribers, the ATS would describe the
steps undertaken by the ATS from the
initial IOI to the eventual match of
trading interest.
Request for Comment
79. Are there aspects of IOIs as they
are used in Government Securities ATSs
that are not covered by this Item? What
information about IOIs or the process for
transmitting IOIs are important to
subscribers?
10. Opening and Reopening
Part III, Item 10 of proposed Form
ATS–G is designed to provide
information about whether a
Government Securities ATS uses any
special procedures to match orders at
the opening, or to set a single opening
or reopening price to, for example,
maximize liquidity and accurately
reflect market conditions at the opening
or reopening of trading. The
Commission believes that market
participants would likely want to know
about any special opening or reopening
processes employed by a Government
Securities ATS, including which order
types participate in the ATS’s opening
or reopening processes.
Information about when the
Government Securities ATS will price
and prioritize orders and trading
interest during the opening or reopening
of the ATS would provide market
participants with the information they
need to plan and execute their trading
strategies during these periods. The Item
would also, for example, require
disclosure of any procedures to match
orders to set a single opening or
reopening price to maximize liquidity
and accurately reflect market conditions
at the opening or reopening of trading.
For any orders allowed to be submitted
before an ATS opens for trading, the
Item would require an explanation of
what priority rules would apply to those
orders. The Commission believes most
participants consider important the
procedures for the pricing and priority
of orders and trading interest, and the
order types allowed because these rules
and procedures can directly impact
their execution price.
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11. Trading Services, Facilities and
Rules
Part III, Item 11(a) would require a
Government Securities ATS to provide
a summary of the structure of the ATS
marketplace and explain the means and
facilities for bringing together the orders
of multiple buyers and sellers on the
ATS. Part III, Item 11(c) would require
a Government Securities ATS to explain
the established, non-discretionary rules
and procedures of the ATS. Part III, Item
11 is designed to solicit disclosures
about the facilities, functionalities, and
mechanisms that the Government
Securities ATS uses to match the orders
and trading interest of counterparties
and facilitate transactions on the ATS
and to inform market participants and
the Commission about the type of
marketplace the ATS provides (e.g.,
crossing system, auction market, limit
order matching book, voice).
An ATS brings together orders when
orders entered into the system for a
given security have the opportunity to
interact with other orders entered into
the system for the same security.241 An
ATS can bring together orders through
various methods. For instance, an
organization, association, or group of
persons brings together orders if it
displays, or otherwise represents,
trading interests entered on the system,
such as a consolidated quote screen, to
users.242 The bringing together of orders
can also occur if subscribers’ orders are
centrally collected for future processing
and execution through, for example, a
limit order matching book that allows
subscribers to display buy and sell
orders in particular securities and to
obtain execution against matching
orders contemporaneously entered or
stored in the system.243 As explained
above, to qualify for the Exchange Act
Rule 3a1–1(a)(2) exemption from the
statutory definition of ‘‘exchange,’’ an
ATS must, among other things, bring
together the orders of multiple buyers
and sellers.244
Government Securities ATSs may
offer subscribers various types of trading
241 See Regulation ATS Adopting Release, supra
note 35, at 70849.
242 See id.
243 See id.
244 See id. As explained in the Regulation ATS
Adopting Release, systems in which there is only
a single seller, such as systems that permit issuers
to sell their own securities to investors, would not
be included within Rule 3b–16. See id. at 70849.
The Commission emphasized in the Regulation
ATS Adopting Release that the mere
interpositioning of a designated counterparty as
riskless principal for settlement purposes after the
purchasing and selling counterparties to a trade
have been matched would not, by itself, mean that
the system does not have multiple buyers and
sellers. See id.
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mechanisms to bring together orders
that would be disclosed under Part III,
Item 11. For example, many ATSs bring
together multiple buyers and sellers
using limit order matching systems.
Other ATSs use crossing mechanisms
that allow participants to enter unpriced
orders to buy and sell securities, with
the ATS’s system crossing orders at
specified times at a price derived from
another market.245 Some ATSs use an
auction mechanism (or similar workup
functionality) that matches multiple
buyers and sellers by first pausing
execution in a certain security for a set
amount of time, during which the ATS’s
system seeks out and/or concentrates
liquidity for the auction; after the
trading pause, orders will execute at
either a single auction price or
according to the priority rules for the
auction’s execution. In a workup, an
ATS may have a private phase, where
the two original contra parties
submitting orders can negotiate, and a
public phase where all subscribers can
submit orders at the workup price.
Some ATSs use a blotter scraping
functionality, which may inform the
ATS about trading interest residing on
a participant’s order management
system but not yet entered into the ATS;
the ATS or broker-dealer operator
oftentimes can automatically generate
orders from the trading interest and
enter them into the ATS on behalf of the
subscriber, in accordance with the
relevant terms and conditions, when
certain contra-side trading interest
exists in the ATS. Certain ATSs may use
a voice system to bring together orders
as well, or a combination of voice and
electronic systems. A Government
Securities ATS could also offer services
or functionalities to facilitate trading on,
or source pricing for, the Government
Securities ATS in conjunction with
related markets for government
securities that would be encompassed
under this Item.246
The Commission believes that
information about the trading facilities,
functionalities, and mechanisms offered
by a Government Securities ATS would
help market participants evaluate
whether the operations of the ATS
comports with their trading strategies.
Part III, Item 11(a) of proposed Form
ATS–G would require Government
Securities ATSs to provide a summary
245 See
id. at 70849 n.37.
246 If a Government Securities ATS offers
subscribers a functionality, for example, in
conjunction with a non-government securities
market, the Government Securities ATS would
provide information about the use of the
functionality with the ATS and non-government
securities market in Part III, Item 16 of proposed
Form ATS–G.
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of the structure of the ATS marketplace,
which would describe the type of
market the ATS operates, such as a limit
order book, auction market, or crossing
system, in a more concise manner. This
Item would require more detailed
responses when explaining the means
and facilities for bringing together the
orders of multiple buyers and sellers on
the Government Securities ATS. The
Commission is also proposing to request
information on whether the means and
facilities are the same for all subscribers
and the broker-dealer operator in Part
III, 11(b) and is formatting the subpart
request as a ‘‘yes’’ or ‘‘no’’ question.
Part III, Item 11(c) is designed to
inform market participants about the
rules and procedures used to determine
how orders and trading interest may
interact upon being entered into a
Government Securities ATS.247 The
Commission previously explained in the
Regulation ATS Adopting Release that
use of established, non-discretionary
methods could include operation of a
trading facility or the setting of rules
governing subscribers’ trading.248 For
example, the Commission considers the
use of an algorithm by an electronic
trading system, which sets trading
procedures and priorities, to be a
trading facility that uses established,
non-discretionary methods.249
Similarly, the Commission has
previously stated that rules imposing
execution priorities, such as time and
price priority rules, would be
‘‘established, non-discretionary
methods.’’ 250 As proposed, a
Government Securities ATS would be
required to address each aspect of the
non-discretionary rules and procedures
that are specifically listed as being
included in Part III, Item 11(c).
The Commission is also proposing
that a Government Securities ATS
disclose pricing methodologies used for
each type of security traded by the ATS
under Part III, Item 11(c). For example,
orders may be priced using spreads off
of a benchmark price, or spreads
between two different maturities of a
security. An ATS may also restrict the
allowable deviation from a benchmark
price, or allow for indicative pricing of
certain securities. If a transaction has
more than one leg, the ATS may price
both legs according to a price derived
247 As compared to Part III, Item 11(c) of Form
ATS–N, the Commission has added examples of
functionalities used in the government securities
market for which the Government Securities ATS
would be required to explain the non-discretionary
rules and procedures, if applicable.
248 See Regulation ATS Adopting Release, supra
note 35, at 70851–52.
249 See id. at 70851.
250 See id. at 70852.
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from one of the securities traded. In
response to this request, a Government
Securities ATS would be required to
describe the ATS’s procedures for
determining all pricing methodologies
and to the extent the pricing
methodologies differ among subscribers
and the broker-dealer operator, the ATS
must disclose those differences.
Item 11 would require Government
Securities ATSs to disclose the various
terms and conditions under which
orders interact and match. Some
Government Securities ATSs may offer
price-time priority to determine how to
match orders (potentially with various
exceptions), while others may offer
midpoint-only matching with time
priority. Some Government Securities
ATSs might also take into account other
factors to determine priority. For
example, a Government Securities ATS
may assign either a lower or higher
priority to an order entered by a
subscriber in a certain class (e.g., orders
of principal traders or retail investors)
or sent from a particular source (e.g.,
orders sent by an algorithm or similar
functionality) when compared to an
equally priced order entered by a
different subscriber or via a different
source. Furthermore, a Government
Securities ATS might elect to apply
different priority rules for matching IOIs
than it does for matching orders. An
ATS may also have rules concerning
how the ATS would handle the order of
a subscriber who seeks to execute at a
size larger than what is available at the
existing workup price. Also, if
applicable, the Item would require an
explanation of which party to a trade
would receive any price improvement
depending on the priority, order type,
and prices of the matched orders and
the percentage of price improvement the
party would receive. A broker-dealer
operator could also act as the
counterparty for each side of a
transaction that matches on its ATS.
These disclosures would allow the
Commission to better evaluate whether
the entity that filed a proposed Form
ATS–G meets the criteria of Exchange
Act Rule 3b-16 and the definition of a
Government Securities ATS.
A description of the ‘‘established,
non-discretionary rules and procedures’’
of the Government Securities ATS is a
principal requirement of Item 11(c), and
the Commission is proposing to require
that any differences among subscribers
and the broker-dealer operator related to
these methods be identified and
explained in Part III, Item 11(d).
Request for Comment
80. Are there any specific means or
facilities used to bring together multiple
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buyers and sellers on ATSs that trade
government securities and repos that
should be specifically included as an
example in this Item? Are there any
rules and procedures that govern trading
of government securities and repos that
should be specifically included as
examples in this Item?
and market participants to provide
orders or trading interest to the
Government Securities ATS that may
not be required by this Item but should
be? If any, what is the nature of those
arrangements and why are they
important to disclose publicly on Form
ATS–G?
12. Liquidity Providers
Part III, Item 12 would request
information about any formal or
informal arrangements with any
subscriber or the broker-dealer operator
to provide orders or trading interest to
the Government Securities ATS. The
Item is designed to provide information
about arrangements whereby a liquidity
provider undertakes to buy or sell
continuously, or to meet specified
thresholds of trading or quoting activity.
A Government Securities ATS may want
to ensure that there is sufficient
liquidity in a particular government
security to incentivize market
participants to send order flow in that
government security to the ATS. To do
this, the ATS may engage certain
subscribers to provide liquidity to the
Government Securities ATS and
perform similar functions to that of a
market maker on a national securities
exchange.251 The obligations required of
liquidity providers and the benefits that
they provide could vary across
Government Securities ATSs. The
Commission believes that information
about liquidity providers would be
useful to subscribers and market
participants who, for example, may
want their orders to only interact with
agency orders (and not with those of a
liquidity provider), or, conversely, may
themselves want to become liquidity
providers on the Government Securities
ATS. The Commission believes that
such arrangement could take many
forms and the function of the liquidity
provider on an ATS could depend on
the structure and trading protocols of
the ATS. Therefore, this Item could
cover, for example, arrangements or
agreements between the broker-dealer
operator and another party to trade on
the Government Securities ATS. The
proposed Item does not cover
agreements with a subscriber that has no
obligation to buy or sell government
securities or repos on the ATS.
13. Segmentation; Notice
Part III, Item 13 of proposed Form
ATS–G would require a Government
Securities ATS to disclose information
about how orders and trading interest in
the ATS can be segmented into
categories, classifications, tiers, or
levels. This Item would provide market
participants with an understanding of
the categories of order flow or types of
market participants with which they
may interact. In addition, the
information provided would allow them
to both assess the consistency of a
segmented group and determine
whether the manner in which the
trading interest is segmented comports
with their views of how certain trading
interest should be categorized.
Disclosure of the procedures and
parameters used to segment categories
would allow a market participant to
determine whether its view of what
constitutes certain trading interest it
wants to seek or avoid is classified in
the same way by the Government
Securities ATS. For example, a
subscriber may find it useful to
understand the standards a Government
Securities ATS uses to categorize high
frequency trading firms so that it can
compare the criteria used by the ATS
with its view of what constitutes a high
frequency trading firm, and thus be able
to successfully trade against or avoid
such trading interest. Similarly,
information regarding the procedures
applicable to trading among segmented
categories would allow market
participants to evaluate whether they
can successfully trade against or avoid
the segments of trading interest.
Some Government Securities ATSs
segment order flow entered in the ATS
according to various categories for
purposes of order interaction. For
example, a Government Securities ATS
could elect to segment trading interest
by type of participant (e.g., buy-side or
sell-side firms, PTFs, agency-only firms,
firms above or below certain assets
under management thresholds). When
segmenting order flow in the ATS, a
Government Securities ATS might look
to the underlying source of the trading
interest such as the trading interest of
retail customers. Some Government
Securities ATSs segment by the nature
of the trading activity, which could
include segmenting by patterns of
Request for Comment
81. Are there any arrangements
between Government Securities ATSs
251 These liquidity providers may quote in a
particular government security on the ATS during
trading hours and may receive a benefit for
performing this function, such as discounts on fees,
rebates, or the opportunity to execute with a
particular type of segmented order flow.
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behavior, time horizons of traders, or
the passivity or aggressiveness of
trading strategies. Government
Securities ATSs might use some
combination of these criteria or other
criteria altogether. The ATS might use
these segmented categories to design its
order interaction rules, allowing only
orders from certain categories to interact
with each other.
The Commission recognizes the
potential concern that describing the
precise criteria used by the ATS to
segment orders and trading interest
could result in gaming by subscribers of
those criteria and thus, the reduction of
the effectiveness of segmentation as a
control. On the other hand, the
Commission believes that market
participants are interested in
understanding how their orders and
trading interest are categorized on the
ATS and the types of market
participants that would interact with
those orders and trading interest. The
Commission believes that Part III, Item
13 of proposed Form ATS–G
appropriately balances these competing
interests by soliciting a summary of the
parameters for each segmented category.
By requiring Government Securities
ATSs to provide a summary of these
parameters on Form ATS–G, rather than
a detailed analysis of the parameters
and how they are calculated, this Item
is designed to avoid responses that
could allow the gaming or manipulation
of segmentation criteria.
The Commission believes disclosing
the origin of a customer order of a
broker-dealer could be a form of
segmentation because it can facilitate
users restricting their trading to only
certain types of market participants and
it can contribute to information leakage
and adverse selection of orders of
institutional investors, who generally
trade passively. Accordingly, the
Commission is proposing to require a
Government Securities ATS to disclose
if it identifies orders or trading interest
entered by a customer of a broker-dealer
on the ATS as a customer order.
Request for Comment
82. What information about the
segmentation of order flow by a
Government Securities ATS would be
important to persons that use the
services of the ATS?
Request for Comment
14. Counter-Party Selection
Part III, Item 14 of proposed Form
ATS–G would require Government
Securities ATSs to provide information
about whether orders or trading interest
can be designated to interact or not
interact with certain orders or trading
interest in the ATS. To analyze whether
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the ATS is an appropriate venue to
accomplish their trading objectives,
market participants have an interest in
knowing whether—and how—they may
designate their orders or trading interest
to interact or avoid interacting with
specific orders, trading interest, or
persons on the ATS. Part III, Item 14 is
designed to require disclosure of such
information.
For instance, the disclosures proposed
under this Item would allow a
participant in the Government
Securities ATS to know whether it can
interact with certain categories of orders
and trading interest on the ATS or can
designate an order submitted to the ATS
to interact only with orders of certain
other types of ATS participants. For
example, the ATS might allow
subscribers to choose from categories of
orders or categories of subscribers that
the broker-dealer operator segments in
the ATS. For example, buy-side or
institutional subscribers might seek to
trade only against other buy-side or
institutional order flow, or might seek to
avoid trading against PTFs or so-called
high frequency trading firms. Also, it
would also be responsive to this Item for
an ATS to state whether a subscriber
can restrict interacting with its own
orders, whether such restrictions are by
default or only upon subscriber request,
and any applicable limitations on such
restrictions. This Item would require
description of any procedures allowing
a subscriber to limit its counterparty on
an order-by-order basis or a participantby-participant basis, how it would go
about doing so, and how such selection
would affect the interaction and priority
of trading interest. For example, an ATS
would include in its response to this
Item whether a participant can select a
category of orders or category of
subscribers for counterparty designation
by marking its order to interact with
them or whether the broker-dealer
operator performs the action, and also,
whether the broker-dealer operator
implements the counterparty
designation during the same trading day
as the subscriber’s selection or on a date
thereafter.
83. Should proposed Form ATS–G
request more or less information about
how orders or trading interest can be
designated to interact or not interact
with certain orders or trading interest in
the Government Securities ATS? Are
there important forms of counter-party
selection that the Commission should
address?
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15. Display
Part III, Item 15 of proposed Form
ATS–G would require a Government
Securities ATS to disclose how and
when orders and trading interest bound
for or resting in the ATS may be
displayed or made known to any
person. The Commission believes that
many market participants are sensitive
to precisely how and when their trading
interest is displayed or otherwise made
known both inside and outside the
Government Securities ATS as such
information could result in other market
participants trading ahead of their
positions, and thus in inferior execution
prices. These participants could use
these disclosures to evaluate whether
sending orders to a particular
Government Securities ATS would
achieve their trading strategies.
The display of subscriber orders and
trading interest can occur in a number
of ways. For instance, a Government
Securities ATS may offer a direct data
feed from the ATS that contains realtime order information.252 Some ATSs
have arrangements, whether formal or
informal (oral or written) with third
parties to display the Government
Securities ATS’s trading interest outside
of the ATS, such as IOIs from the
subscribers being displayed on vendor
systems, or arrangements with third
parties to transmit IOIs between
subscribers. An ATS would be required
to include this type of information in its
response to this Item.
The Commission believes that
subscribers that use the services of the
Government Securities ATSs, including
customers of the broker-dealer operator,
have limited information about the
extent to which their orders and trading
interest sent to the ATS could be
displayed outside the ATS. For
instance, when a Government Securities
ATS sends electronic messages outside
of the ATS that expose the presence of
orders or other trading interest on the
ATS, it is displaying or making known
orders or other trading interest on the
ATS. An ATS would be required to
disclose the circumstances under which
the ATS sends these messages, the types
of market participants that received
them, and the information contained in
the messages, including the exact
252 In the case of a Government Securities ATS
offering a direct data feed with information about
orders or trading interest in the ATS, the ATS
would be required to disclose under Part III, Item
15 what information the data feed provides about
the orders and trading interest, the associated
timing in receiving the feed (e.g., real-time,
delayed), how a subscriber would receive the feed
(e.g., connectivity), and if all subscribers are treated
the same in receiving the feed, including whether
all subscribers are eligible to receive it and any
differences in latency receiving the feed.
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content of the information, such as
symbol, price, size, attribution, or any
other information made known. In
another example of display, subscribers’
orders or trading interests directed to
the Government Securities ATS could
pass through the broker-dealer
operator’s non-ATS systems or
functionalities before entering the ATS,
such as an algorithm or a SOR. Such
non-ATS systems and functionalities
could be used to support the brokerdealer operator’s other business units,
including any trading venues.253
Proposed Part III, Item 15(b) would also
require the ATS to describe differences
in latencies with the Government
Securities ATS displaying subscribers’
orders and trading interest due to a
functionality of the ATS. For example,
if a Government Securities ATS
transmits and displays its proprietary
data feed to certain subscribers faster
than to other subscribers as a result of
the alternative means offered by the
ATS to connect, such information
would be responsive.
In response to this Item, the
Commission is proposing that a
Government Securities ATS identify the
recipient of displayed information by
identifying the functionality of the
broker-dealer operator (e.g., SOR,
algorithm) or the type of market
participant,254 or both, that receives the
displayed information. For example, if
orders bound for the Government
Securities ATS pass through the brokerdealer operator’s common gateway, or
algorithm, the ATS would need to
disclose these functionalities as the
order was displayed to a functionality of
the broker-dealer operator that would
likely be outside the ATS. If orders
resting in the Government Securities
ATS are displayed to certain subscribers
or one or more of the broker-dealer
operator business units, the ATS would
need to identify these types of
subscribers and business units of the
broker-dealer operator by type of market
participant (e.g., institutional investors,
PTFs, market makers, affiliates, trading
desks at the broker-dealer operator,
market data vendors, clearing entities,
and potential subscribers, among
others). The Item would also require a
Government Securities ATS that offers
workups to match orders to disclose the
information that is displayed to all
subscribers or certain subscribers in
public or private phases of the workup,
253 The broker-dealer operator typically controls
the logic contained in these systems or functionality
that determines where an order that the brokerdealer operator receives will be handled or sent.
254 See Part III, Item 1 of proposed Form ATS–G
(providing examples of types of market
participants).
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as well as what characteristics of the
orders are displayed.
The proposed Item would not require
information about employees of the
Government Securities ATS in nontrading related roles, such as technical,
quality assurance, compliance or
accounting roles, among others, that
support the ATS’s operations and to
whom orders and trading interest are
made known in the performance of their
duties.255
Request for Comment
84. What information involving
government securities and repos does an
ATS display? Are there levels of
displayed information that an ATS may
offer to market participants? If so, what
are the levels and are there any specific
terms and conditions for a market
participant to access that information?
What functionalities does the ATS use
to display information in government
securities and repos? Please explain the
purpose and operation of any such
functionality.
85. For Government Securities ATSs
that display trading interest both on the
ATS and outside the ATS, what is the
process for market participants to
submit orders to interact with the
trading interest that is displayed outside
the ATS?
86. Are there any aspects in relation
to the display of trading interest on the
Government Securities ATS that should
be specifically addressed in the Item?
Are there any aspects of display that are
unique to Government Securities ATSs?
16. Interaction With Related Markets
Part III, Item 16 of proposed Form
ATS–G would require a Government
Securities ATS to provide information
about any functionality or procedure to
facilitate trading on, or source pricing
for, the Government Securities ATS that
is offered by the broker-dealer operator
or its affiliates 256 and used in
conjunction with markets for financial
instruments related to government
securities. Markets for financial
255 The Government Securities ATS, as proposed,
would be subject to the requirements of Rule
301(b)(10) and would be required to establish
adequate safeguards and procedures to protect
subscribers’ confidential trading information, which
must include: Limiting access to the confidential
trading information of subscribers to those
employees of the ATS who are operating the system
or responsible for its compliance with these or any
other applicable rules; and implementing standards
controlling employees of the ATS trading for their
own accounts. See 17 CFR 242.301(b)(10).
256 Services to facilitate trading or source pricing
for the Government Securities ATS in conjunction
with non-government securities markets that are
offered by a third-party in contract with the brokerdealer operator or affiliates would also be required
to be disclosed under this Item.
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instruments related to government
securities could include those nongovernment securities markets that trade
futures, currencies, fixed income, and
swaps, for example (‘‘Related Markets’’).
If applicable, the Government Securities
ATS would: (i) Identify the
functionality, procedures, and source of
pricing and the Related Market; (ii) state
whether the functionality, procedure,
and source of pricing is provided or
operated by the broker-dealer operator
or its affiliate, and whether the Related
Market is provided or operated by the
broker-dealer operator or its affiliate;
(iii) explain the use of the functionality,
procedures, and source of pricing with
regard to the Related Market and the
Government Securities ATS, including
how and when the functionality,
procedures, and source of pricing can be
used, by whom, and with what markets;
and (iv) state whether the functionality,
procedures, and source of pricing
identified are the same for all
subscribers and the broker-dealer
operator.
Item 16 requires the Government
Securities ATS to disclose how the
broker-dealer operator and subscribers
may use a functionality or procedure
with the Government Securities ATS
and a Related Market. Such
functionalities or procedures could
include, for example, offering order
types to facilitate transactions on the
ATS and the Related Market, or
procedures to allow subscribers to
perform multi-leg transactions involving
another market and the ATS. A
Government Securities ATS could offer,
for example, Exchange-for-Physical
(‘‘EFP’’) transactions that can involve
markets in addition to the ATS. An EFP
transaction where ATS subscribers agree
to exchange a financial product, such as
a futures contract on a government
security, for the underlying related
government security, would be
responsive to this Item. The
Commission believes that it would be
important to subscribers to understand
functionality and procedures offered
such as these, as they can impact
subscribers’ experience on the ATS.257
A Government Securities ATS would
also be required to provide information
about how the ATS uses market data
from a Related Market, through an
aggregator or otherwise, to provide the
257 To the extent that a Government Securities
ATS offers subscribers a functionality or procedure
that the subscriber can use on the ATS in
conjunction with a market for government
securities (e.g., trading venue for U.S. Treasury
Securities or options), the Government Securities
ATS should disclose information about that
functionality and procedure in Part III, Item 11 of
proposed Form ATS–G.
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services it offers.258 Among other things,
for example, the Government Securities
ATS would need to disclose in response
to this Item its use of such market data
to display, price, prioritize, execute, and
remove trading interest on the ATS.259
As part of this explanation, the
Government Securities ATS would
specify, if applicable, when the ATS
may change between its use of different
sources of market data to provide its
services. In response to Part III, Item 16
of proposed Form ATS–G, the
Government Securities ATS would
explain how, for example, market data
from a Related Market, is received by
the ATS, compiled, and delivered to the
matching engine. For example, among
other possible arrangements, the
Government Securities ATS could
explain that market data from a Related
Market is received by the broker-dealer
operator and assembled there, and
subsequently delivered to the matching
engine, or that market data is sent
directly to the matching engine, which
normalizes the data for its use. For
example, a Government Securities ATS
would disclose whether it uses market
data from the futures market to price
and execute EFP transactions and
describe how it uses that market data
under this Item.
A broker-dealer operator’s activities in
financial instruments related to
government securities or offerings of a
Related Market, such as a futures
exchange, along with its operation of an
ATS, raise the potential for information
leakage of a subscriber’s confidential
trading information, or the broker-dealer
operator could provide certain
advantages to subscribers that use a
Related Market that it operates. As such,
Item 16 would require information
about whether the functionality,
procedures, and source of pricing on the
Government Securities ATS or the
Related Markets are provided or
operated by the broker-dealer operator
or its affiliates. Finally, the Government
Securities ATS would be required to
indicate whether the functionality,
procedure, and source of pricing are the
same for all subscribers and the brokerdealer operator, and if not, to explain
any differences.
258 If a Government Securities ATS uses market
data from another market that trades government
securities, that information would be disclosed
under Part III, Item 23 of proposed Form ATS–G.
259 Disclosure of any market data used by the
Government Securities ATS for government
securities, including market data for options and
repos on government securities, would be required
under Part III, Item 23 of proposed Form ATS–G.
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Request for Comment
87. What are commenters’ views on
the relationship between markets for
government securities and Related
Markets and how investors may use
these markets together with a
Government Securities ATS to achieve
their trading objectives?
88. What aspects of government
securities markets and Related Markets,
such as the futures markets, do market
participants use for trading on a
Government Securities ATS? What
information about those markets might
be useful to a subscriber and why?
89. Trading in NMS stocks can
involve other markets for financial
instruments that are not NMS stocks,
such as options or futures on NMS
stocks, and an NMS Stock ATS that
offers a functionality or procedure that
subscribers could use with the ATS and
another market would be required to
explain it under Part II, Item 5 and Part
III, Item 11 on Form ATS–N. Should the
Commission adopt amendments to Form
ATS–N to include an item similar to
proposed Item 16 in Form ATS–G to
separate and highlight disclosures about
such a functionality?
17. Closing
Part III, Item 17 of proposed Form
ATS–G would require Government
Securities ATSs to disclose information
about differences between how orders
and trading interest are treated on the
ATS during any closing session(s) and
during regular trading hours established
by the ATS. The Item is designed to
provide market participants with
information about processes the
Government Securities ATS uses to
transition to the next trading day,
including whether the ATS offers any
particular order types during a closing
session(s) or has different procedures for
closing trading for a particular trading
session and transitioning trading to the
next trading day. The vast majority of
requests in Part III of proposed Form
ATS–G relate to trading during the
Government Securities ATS’s regular
hours. Therefore, when discussing
differences between trading during the
Government Securities ATS’s closing
session(s) and during regular hours set
by the ATS, the Government Securities
ATS would be required to discuss
differences as compared to relevant
information disclosed in Part III Items,
including, among others, order types
(Item 7), order interaction, priority,
matching, and execution procedures
(Item 11), segmentation (Item 13), and
display (Item 15). The Commission
believes this information would be
important for market participants to
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87141
understand the closing procedures
around a particular trading session, if
any, to carry out their trading
objectives.260
18. Trading Outside of Regular Trading
Hours
Part III, Item 18(a) of proposed Form
ATS–G would require a Government
Securities ATS to provide information
about its procedures for trading outside
its regular trading hours, and subpart (b)
would require the ATS indicate whether
there are any differences between
trading outside of its regular trading
hours and trading during its regular
hours. To the extent that there are
differences, the Government Securities
ATS must describe those differences.
Similar to Item 17 (requesting
differences between any closing
session(s) and regular trading hours), a
Government Securities ATS would be
required to disclose differences between
trading outside of its regular trading
hours and during regular trading hours
with respect to the relevant information
disclosed in Part III Items, including,
among others, order types (Item 7),
order interaction, priority, matching,
and execution procedures (Item 11),
segmentation (Item 13), and display
(Item 15). Many of the disclosures
discussed elsewhere in Form ATS–G
will relate to the ATS’s regular trading
hours so the ATS can simply discuss
any differences between trading during
its regular hours and trading outside its
regular trading hours in Part III, Item
18(b), if applicable. The Commission
believes that market participants would
likely want to understand unique
trading procedures that the Government
Securities ATS offers outside its regular
trading hours to assess whether
participating in such trading would help
accomplish their trading objectives.
19. Fees
Part III, Item 19 of proposed Form
ATS–G would require a Government
Securities ATS to provide information
on any fees or charges for use of the
ATS’s services, including any fees or
charges for use of the ATS’s services
that are bundled with the subscriber’s
use of non-ATS services or products
offered by the broker-dealer operator or
its affiliates, and any rebate or discount
of fees or charges. The Commission
believes that disclosures regarding fees
on proposed Form ATS–G are necessary
and important, and should not be
voluntary for Government Securities
260 The Item would, for example, require
disclosure of any procedures to match orders to set
a single closing price to maximize liquidity and
accurately reflect market conditions at the close of
trading in the ATS.
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ATSs. Fee disclosures on proposed
Form ATS–G are designed to allow all
market participants to analyze the fee
structures across Government Securities
ATSs in an expedited manner and
decide which ATS offers them the best
pricing according to the characteristics
of their order flow, the type of
participant they are (if relevant), or any
other aspects of an ATS’s fee structure
that serves to provide incentives or
disincentives for specific market
participants or trading behaviors.
Requiring disclosures of ATS fees is
warranted as, in the Commission’s
experience, fees can be a primary factor
for market participants in deciding
where to send their orders and trading
interest.
Part III, Item 19 would request that
Government Securities ATSs include in
their descriptions the structure of the
fee, variables that impact the fee, and
differentiation among types of
subscribers, and the Commission
provided examples of responsive
information included in a parenthetical
in the text of each subpart.261 The Item
also would require a range for each type
of fee (e.g., subscription, connectivity,
and market data 262) charged on the
Government Securities ATS. With
regard to the variables that impact the
fees set, ATSs would be required to be
specific and delineate how a given
variable would likely impact the fee
level (e.g., higher or lower).
The Commission recognizes that the
fee structures of Government Securities
ATSs can vary and that not all
Government Securities ATSs apply set
tiers or categories of fees for subscribers;
however, the Commission believes that
a market participant should have
sufficient information to understand the
fees for using the services of the
Government Securities ATS.
Recognizing the various fees that can be
charged by Government Securities
ATSs, the Commission is specifying in
the fee request the types of information
that a Government Securities ATS must
261 The Commission is including non-exhaustive
lists of examples of responsive information in
parentheticals in the text of the Item. For instance,
for descriptions of the structure of the fee, the
Commission is providing as examples a fixed fee,
volume-based and transaction-based fee structures.
For the description of variables that may impact the
fee, the Commission is providing as examples: The
types of securities traded, block orders, and the
form of connectivity to the ATS. For the description
of the differentiation among types of subscribers for
the fee, the Commission is providing as examples
of the types of subscribers: Broker-dealers,
institutional investors, and retail investors.
262 For example, if a Government Securities ATS
distributed a market data feed and charged a fee for
it, the ATS would be required to provide the
information responsive to Item 19 regarding that
fee.
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provide in response to the
Commission’s proposed request to
describe its fees (e.g., the structure of
the fees, variables that impact each fee,
differentiation among types of
subscribers, and the range of fees).
These disclosures are designed to
provide market participants with more
insight regarding the fees charged so
that they can better understand how fees
may apply to them and assess how such
fees may impact their trading strategies.
Although the fees charged for
Government Securities ATS services
may be individually negotiated between
the broker-dealer operator and the
subscriber, the disclosures about the
type of fees charged by the Government
Securities ATS are designed to help
market participants discern how the
ATS’s fees are organized and compare
that information across Government
Securities ATSs, which could reduce
the search costs of market participants
in deciding where to send their orders
and trading interest. The Commission
believes that Government Securities
ATSs should be required to disclose
differences in the treatment among
‘‘types of subscribers.’’ This information
would allow subscribers to observe
whether a Government Securities ATS
is offering preferential treatment for
certain types of subscribers with respect
to fees.
Part III, Item 19(b) of proposed Form
ATS–G would require a description of
any bundled fees, including a summary
of the bundled services and products
offered by the broker-dealer operator or
its affiliates, the structure of the fee,
variables that impact the fee (including,
for example, whether the particular
broker-dealer services selected would
impact the fee), differentiation among
types of subscribers, and range of fees.
Part III, Item 19(b) is designed to allow
market participants to better evaluate
fees for bundled services that include
access to the Government Securities
ATS. Government Securities ATSs
would be required to provide
information, including the relevant
services and products offered by the
broker-dealer operator and its affiliates
for each bundled fee offered, that will
provide context to market participants
with which to assess how bundled fees
could apply to them as subscribers.263
Part III, Item 19(a) of proposed Form
ATS–G covers charges to subscribers for
their ‘‘use of the Government Securities
ATS services’’ 264 and does not request
information on fees charged for nonATS services by a third party not in
contract with the broker-dealer
operator.265 The disclosure requests
under proposed Part III, Item 19 contain
a stand-alone Item—Item 19(c)—which
requests information about rebates and
discounts of fees that are identified in
subparts (a) and (b) of Item 19. Item
19(c) would require information about
rebates and discounts that is similar to
that which is required for fees (e.g., the
structure of the rebate or discount,
variables that impact the rebate or
discount, differentiation among types of
subscribers, and range of rebate or
discount).
263 See NMS Stock ATS Adopting Release, supra
note 1, at 38858 (discussing responses to Item 19(b)
depending on whether there is an explicit fee for
the ATS as part of any bundled services).
264 The NMS Stock ATS services generally
include those services used for the purpose of
effecting transactions in NMS Stock, or for
submitting, disseminating or displaying orders on
the ATS. See 17 CFR 242.300(b).
265 See NMS Stock ATS Adopting Release, supra
note 1, at 38858 (discussing what fees should be
categorized as for use of the ATS’s services).
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Request for Comment
90. An ATS that is subject to the Fair
Access Rule for a covered security is
required to comply with fair access
requirements under Rule 301(b)(5) of
Regulation ATS, which, among other
things, requires an ATS to establish
written standards for granting access to
trading on its system and not
unreasonably prohibit or limit any
person with respect to access to services
offered by the ATS by applying the
written standards in an unfair or
discriminatory manner. An ATS that
charges certain fees to one class of
subscribers but different fees to other
classes of subscribers for the same
services could not, if it were subject to
the Fair Access Rule, discriminate in
this manner unless it adopted written
reasonable standards and applied them
in a fair and non-discriminatory
manner. Should an ATS that is subject
to the Fair Access Rule and is a
meaningful source of orders and trading
interest for NMS stocks or government
securities be required to disclose the
fees that the ATS charges for access to
its services on Form ATS–N and
proposed Form ATS–G? Would such a
disclosure of the fees of an ATS that is
subject to the Fair Access Rule provide
additional transparency to subscribers
and market participants and help ensure
that the ATS does not unreasonably
prohibit or limit any person with
respect to access to the ATS’s services
by applying the written standards in an
unfair or discriminatory manner?
91. In the alternative, should the
Commission require NMS Stock ATSs
and Government Securities ATSs that
are subject to the Fair Access Rule and
that exceed even higher volume
thresholds to disclose their fee schedule
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on Form ATS–N and Form ATS–G? For
example, should only an NMS Stock
ATS and a Government Securities ATS
that exceeds 10 percent, 20 percent, 30
percent, or 40 percent average weekly or
daily trading volume in NMS stocks,
U.S. Treasury Securities, or Agency
Securities, respectively, be required to
publicly disclose their fee schedule on
Form ATS–N and Form ATS–G as
applicable?
92. What fees should the Commission
require an ATS subject to the Fair
Access Rule to disclose on Form ATS–
N or Form ATS–G?
20. Suspension of Trading
Part III, Item 20 of proposed Form
ATS–G would require a Government
Securities ATS to provide information
about any procedures for suspending or
stopping trading on the ATS, including
the suspension of trading in a U.S.
Treasury Security or an Agency
Security. This Item is designed to, for
example, inform market participants of
whether, among other things, a
Government Securities ATS will
continue to accept orders and trading
interest after a suspension or stoppage
occurs, whether the ATS cancels, holds,
or executes orders and trading interest
that were resting in the ATS before the
suspension or stoppage was initiated,
and what type of notice the ATS
provides to subscribers regarding a
suspension or stoppage. Examples of
system disruptions would include, but
are not limited to, internal software
problems that prevent the Government
Securities ATS’s system from opening
or continuing trading,266 a significant
increase in volume that exceeds the
ability of the trading system of the ATS
to process incoming orders,267 and the
failure of the ability of the trading
system of the ATS to receive external
pricing information that is used in the
system’s pricing methodology. The
Commission believes that information
regarding a Government Securities
ATS’s procedures about how orders and
trading interest might be handled by the
ATS during a suspension or stoppage of
trading would be useful to market
participants because an ATS’s
procedures might require the
cancelation of existing orders or
preclude the acceptance or execution of
orders or trading interest during a
suspension, both of which would
impact a subscriber’s orders or its ability
to trade on the ATS. This information
would better inform a subscriber’s
trading decisions at the time of such an
266 See Regulation SCI Adopting Release, supra
note 2, at 72254–55 n.28.
267 See id. at 72255 n.29.
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event and thus help that subscriber
accomplish its trading objectives. If a
Government Securities ATS establishes
different procedures for suspending or
stopping trading on the ATS depending
on whether the source of the disruption
is internal or external, a description of
both procedures would be responsive to
this request. In addition, this Item
would require disclosure of procedures
whereby a Government Securities ATS
suspends trading in U.S. Treasury
Securities or Agency Securities so that
it does not cross the relevant volume
thresholds and become subject to the
Fair Access Rule under Regulation ATS,
or Regulation SCI (as proposed herein).
The Commission also believes that
information regarding the procedures
for how a Government Securities ATS
would handle orders during a
suspension of trading or system
disruption or malfunction would help
the Commission better monitor the
securities markets.
Request for Comment
93. Should proposed Form ATS–G
request more or less information about
any procedures for suspending or
stopping trading on the Government
Securities ATS?
21. Trade Reporting
Part III, Item 21 of proposed Form
ATS–G would require a Government
Securities ATS to provide information
on any procedures and material
arrangements for reporting transactions
on the ATS. Trade reporting furthers the
transparent, efficient, and fair operation
of the securities markets.268 FINRA
member firms are required to report
transactions in U.S. Treasury Securities
and Agency Securities to TRACE.269
Part III, Item 21 would require a
Government Securities ATS to disclose
its trade reporting procedures for
reporting transactions in government
securities on the ATS to an SRO. For
example, it would be responsive to Item
21 for a Government Securities ATS to
disclose whether the ATS has a specific
procedure for reporting transactions in a
government security to the SRO at
different times based on, for example, a
subscriber’s use of a particular order
type, or the type of subscriber involved
in the transaction. Government
Securities ATSs would also be required
to disclose ‘‘material’’ arrangements for
reporting transactions on the ATS. The
268 See Regulation ATS Adopting Release, supra
note 35, at 70887 (stating the market-wide
transaction and quotation reporting plans operated
by the registered national securities exchanges are
responsible for the transparent, efficient, and fair
operations of the securities markets).
269 See supra notes 50–51 and accompanying text.
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Commission recognizes that there could
be arrangements relevant to trade
reporting, such as the specific software
used to report, that play a minor role in
the ATS’s trade reporting and need not
be disclosed. On the other hand, if an
ATS uses a third party to report
transactions occurring on the ATS or
has a backup facility that it uses for
trade reporting, that information is
likely to be responsive as a material
arrangement. By proposing to require
reporting only of material arrangements,
the Commission hopes to reduce
potential burdens on Government
Securities ATSs while providing market
participants with sufficient information
to understand how their trade
information will be reported. Also, the
Commission believes the proposed
disclosure of the trade reporting
procedures would allow the
Commission to more easily review the
compliance of the Government
Securities ATS with its applicable trade
reporting obligations as a registered
broker-dealer (as proposed herein).
22. Clearance and Settlement
Part III, Item 22 is designed to provide
information on any procedures and
material arrangements undertaken to
facilitate the clearance and settlement of
transactions on the Government
Securities ATS. The integrity of the
trading markets depends on the prompt
and accurate clearance and settlement of
securities transactions. For example,
counterparties to a trade face
counterparty credit risk, regardless of
whether they choose to clear and settle
bilaterally or through a central
counterparty, and therefore knowledge
of the clearing process promotes market
integrity.270 As a preliminary matter,
‘‘clearance and settlement’’ refers
generally to the activities that occur
following the execution of a trade.
These post-trade processes are critical to
ensuring that a buyer receives securities
and a seller receives proceeds in
accordance with the agreed-upon terms
of the trade by settlement date. The
disclosures required by this Item are
intended to cover each of the steps in
the post-trade process from the time of
execution (including whether the
Government Securities ATS is a
counterparty to a transaction and
270 See Treasury Market Practices Group (TMPG),
White Paper on Clearing and Settlement in the
Secondary Market for U.S. Treasury Securities (July
12, 2018), available at https://www.newyorkfed.org/
medialibrary/Microsites/tmpg/files/CS-DraftPaper071218.pdf. ‘‘The TMPG found that many market
participants do not understand the role of the
[interdealer brokers] platform in terms of who their
counterparty credit risk was to and the roles of
various market participants in settlement and
clearing.’’ Id. at 27.
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whether the obligations of a
counterparty are ever assigned or
novated), through trade matching and
other clearing procedures (including
whether the Government Securities ATS
requires its participants to be a member
of a registered clearing agency, whether
participants have any particular clearing
obligations, and whether transactions
are—wholly or partially—submitted to a
registered clearing agency or cleared
bilaterally using clearing banks or
clearing agents), until settlement of the
transaction (including whether
counterparties make use of custodians,
settlement banks, or a registered
clearing agency). If the Government
Securities ATS has adopted clearing and
settlement processes or imposes any
obligations on its participants in the
event of a disruption (for example, a
settlement fail, counterparty default, or
liquidity shortfall), this proposed Item
should include a discussion of these
processes and any resulting participant
obligations.
The Item requires the disclosure of
‘‘material’’ arrangements to facilitate the
clearance and settlement of transactions
on the Government Securities ATS. For
example, an arrangement under which a
third party would have a role in
clearance and settlement may constitute
a material arrangement that could
trigger the disclosure requirement under
Part III, Item 22. Limiting the
explanation required to material
arrangements would reduce the burden
on Government Securities ATSs while
at the same time still allowing market
participants to understand and more
easily compare clearing arrangements
required across Government Securities
ATSs.
Part III, Item 22 is designed to help
market participants understand the
measures the Government Securities
ATS takes to facilitate clearance and
settlement of transactions. Market
participants should know and be able to
understand any requirements a
Government Securities ATS places on
its subscribers, or other persons whose
orders are sent to the ATS, to have
clearance and settlement systems and/or
arrangements with a clearing firm. The
Commission believes market
participants would likely find the
disclosures required by this Item to be
useful in understanding the measures
undertaken by a Government Securities
ATS to facilitate clearance and
settlement of subscriber orders on the
ATS and allow them to more easily
compare the clearance arrangements
required across Government Securities
ATSs as part of deciding where to send
their trading interest. The Commission
believes that these disclosures may
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assist the Commission in better
understanding the clearance and
settlement procedures of Government
Securities ATSs and risks and trends in
the market as part of its overall review
of market structure.
Request for Comment
94. What aspects of the procedures
and material arrangements undertaken
to facilitate the clearance and settlement
of transactions on Government
Securities ATSs are important for ATSs
to disclose on proposed Form ATS–G
for the benefit of market participants?
23. Market Data
Part III, Item 23 of proposed Form
ATS–G would require a Government
Securities ATS to provide information
about the sources of market data in
government securities and repos used
by the ATS and how the ATS uses that
market data from these sources to
provide the services that it offers. The
Commission believes that market
participants would likely find it useful
to know the source and specific purpose
of the market data that the Government
Securities ATS might use as the market
data received by the ATS might affect
the price at which orders and trading
interest are prioritized and executed in
the ATS, including orders that are
pegged to an outside reference price. A
Government Securities ATS would also
be required to provide information
about how the ATS uses market data in
government securities and repos to
provide the services it offers.271 Among
other things, for example, proposed Part
III, Item 23 would require the disclosure
of the use of market data to display,
price, prioritize, execute, and remove
trading interest. As part of this
explanation, the ATS would be required
to specify, if applicable, when the ATS
may change sources of market data to
provide its services. A Government
Securities ATS would also be required
to explain how market data is received
by the ATS, compiled, and delivered to
the matching engine. For example,
among other possible arrangements, the
Government Securities ATS could
explain in response to the Item that
market data in government securities or
repos is received by the broker-dealer
operator and assembled there, and
subsequently delivered to the matching
engine, or that market data is sent
directly to the matching engine, which
normalizes the data for its use.
271 Market data reflecting options traded on
government securities that is used by the ATS
should be discussed in response to Part III, Item 16.
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Request for Comment
95. What are the sources of market
data in government securities and repos
that are available to market participants
as well as to Government Securities
ATSs and how do market participants
and ATSs use this information? What
disclosures about an ATS’s use of
market data would be important to
market participants?
24. Fair Access
Part III, Item 24 of proposed Form
ATS–G would provide a mechanism
under which a Government Securities
ATS would notify market participants
whether it has triggered the proposed
fair access threshold and, if so, whether
the ATS is subject to the Fair Access
Rule. If subject to the Fair Access Rule,
the Government Securities ATS would
be required to describe the written
standards for granting access to trading
required to comply with Rule
301(b)(5)(ii) of Regulation ATS (as
proposed to be applied herein).
If an ATS crosses the fair access
thresholds, Rule 301(b)(5)(ii)(B) requires
the ATS to ‘‘not unreasonably prohibit
or limit any person in respect to access
to services offered by such alternative
trading system by applying the [written]
standards . . . in an unfair or
discriminatory manner.’’ 272 The
Commission believes that the proposed
disclosures would facilitate its oversight
of Government Securities ATSs and
their compliance with Rule 301(b)(5) (as
proposed herein). In addition, the
proposed disclosures would allow
market participants to assess whether
fair access is in fact being applied by a
Government Securities ATS that meet
the fair access threshold, in part by
making publicly available a description
of the ATS’s written standards for
granting access.273
Request for Comment
96. Is there other information that
market participants might find
important or useful regarding the
written standards for granting access to
trading on an ATS that is subject to the
Fair Access Rule? If so, describe such
information and explain whether, and if
so why, such information should be
required to be provided under proposed
Form ATS–G, Form ATS–N, or both.
272 See 17 CFR 242.301(b)(5)(ii)(B). The
Commission is proposing that any change in a
Government Securities ATS’s response to Item 24
would be filed as a contingent amendment. See
supra note 176 and accompanying text.
273 The Commission is not including an item
similar to Part III, Item 24 of Form ATS–N (Order
Display and Execution Access) because Rule
301(b)(3) of Regulation ATS, which forms the basis
for the item, only applies to an ATS’s NMS stock
activities.
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25. Aggregate Platform-Wide Data;
Trading Statistics
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Part III, Item 25 of proposed Form
ATS–G is designed to make public
aggregate, platform-wide order flow and
execution statistics that a Government
Securities ATS already otherwise
collects and publishes, or provides to
one or more subscribers to the ATS. The
Commission believes that a Government
Securities ATS may choose to create
and publish or provide to one or more
subscribers or persons information
concerning order flow and execution
quality for different reasons. To the
extent that a Government Securities
ATS has made a determination to create
and publish or provide to subscribers
certain aggregate platform-wide order
flow and execution quality statistics, the
Commission believes that others may
also find such information useful when
evaluating the ATS as a possible venue
for their orders. Proposed Part III, Item
25 would impose the same disclosure
requirement as Part III, Item 26 of Form
ATS–N for NMS Stock ATSs.274
Item 25 would not require a
Government Securities ATS to amend
its Form ATS–G every time it receives
a data request. To comply with the
requirements under Part III, Item 25,
Form ATS–G only requires a
Government Securities ATS that
supplies aggregate platform-wide data to
update its disclosures for this Item on a
quarterly basis.275 For instance, if a
participant were to request updated or
new aggregate platform-wide statistics
in January, the Government Securities
ATS would not be required to
immediately file an updating
amendment containing these statistics
after complying with the participant’s
request. Rather, the ATS would need to
file an updating amendment within 30
days following the end of the quarter.
That updating amendment must contain
the most recently distributed version of
these statistics, as well as the most
recently distributed version of all other
aggregate platform-wide data that is
provided during that quarter. The
274 See NMS Stock ATS Adopting Release, supra
note 1, at 38861–63.
275 If, for example, a Government Securities ATS
publishes or provides a particular statistic on a
daily basis, the ATS would include in Exhibit 4 of
proposed Form ATS–G the statistic that was
published or provided to one or more subscribers
on the last trading day of the calendar quarter (e.g.,
the statistic published or provided on June 30th or
last trading day prior to June 30th). If a Government
Securities ATS publishes or provides a particular
statistic weekly, the ATS would be required to
include in Exhibit 4 of proposed Form ATS–G the
statistic that was published or provided to one or
more subscribers at the end of the week prior to the
end of the calendar quarter (e.g., the statistic
published for the last full week of June).
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Commission notes that communications
associated with the responsive statistics
are not required to be publicly filed. In
the prior example, for instance, if the
statistics provided in the quarterly
amendment are the ones provided in
January (i.e., those are the latest version
of those aggregate platform-wide
statistics the ATS distributed), the ATS
would not (and should not) also attach
to Form ATS–G the participant’s email
requesting the statistics.
Furthermore, Part III, Item 25 of
proposed Form ATS–G would only
require a Government Securities ATS to
publicly disclose aggregate platformwide data. As such, a Government
Securities ATS would not be required to
disclose individualized or custom
reports containing data relating to that
participant’s specific usage of the ATS.
For example, an individual participant’s
trade reports, order and execution
quality statistics, and other statistics
specific to a participant’s trading on the
ATS would not be covered by the
disclosure request in Part III, Item 25.
Whether a specific type of statistic
should be categorized as an order and
execution statistic or considered
aggregate, platform-wide data will
depend on the nature of the specific
statistics being compiled by the
Government Securities ATS. A
Government Securities ATS would
independently evaluate any statistics
that it compiles and distributes to
determine whether they are responsive
to this disclosure request.
Part III, Item 25 would require the
Government Securities ATS to attach
both the responsive statistics and its
explanation of the categories or metrics
of those statistics as Exhibits 4 and 5,
respectively. Also, in lieu of filing
Exhibits 4 and 5, the Government
Securities ATS could certify that the
information requested under Exhibits 4
and 5 is available at the website
provided in Part I, Item 7 of the form
and is accurate as of the date of the
filing.
Request for Comment
97. Does Part III of proposed Form
ATS–G capture the information that is
most relevant to understanding the
operations of the Government Securities
ATS? Are there any Items that
commenters believe are unnecessary? If
so, why?
98. Is there other information that
market participants might find relevant
or useful regarding the operations of
Government Securities ATSs? If so,
describe such information and explain
whether, and if so why, such
information should be required to be
provided under proposed Form ATS–G.
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99. Is there any information related to
repos that Form ATS–G should require?
100. Is there any information related
to options on government securities that
Form ATS–G should require?
101. Is there any information that
would be required by Part III of
proposed Form ATS–G that a
Government Securities ATS that should
not be required to disclose due to
concerns regarding confidentiality,
business reasons, trade secrets,
commercially sensitive information,
burden, or any other concerns?
102. Should the Commission adopt a
more limited or expansive definition of
‘‘affiliate’’ for purposes of Part III? 276
103. Would the disclosures under Part
III of proposed Form ATS–G help
market participants better evaluate
trading opportunities and decide where
to send orders to reach their trading
objectives?
104. Would the proposed disclosures
in Part III of proposed Form ATS–G
require a Government Securities ATS to
reveal too much (or not enough)
information about its structure and
operations?
105. Are there ways to obtain the
same information as would be required
from Government Securities ATSs by
Part III of proposed Form ATS–G other
than through disclosure on proposed
Form ATS–G? If so, how else could this
information be obtained?
106. Could the proposed requirement
to disclose the information that would
be required by Part III of proposed Form
ATS–G impact innovation on
Government Securities ATSs?
107. Are there any aggregate platformwide order flow and execution statistics
of the Government Securities ATS that
should not be required to be disclosed
under Item 25?
D. Part IV of Proposed Form ATS–G
Part IV of proposed Form ATS–G
would require a Government Securities
ATS to provide certain basic
information about the point of contact
for the ATS, such as the point of
contact’s name, title, telephone number,
and email address. Part IV would also
require the Government Securities ATS
to consent to service of any civil action
brought by, or any notice of any
proceeding before, the Commission or
an SRO in connection with the ATS’s
activities. The Commission is proposing
that Form ATS–G would be filed
electronically and require an electronic
signature. The signatory to each Form
ATS–G filing would be required to
represent that the information and
276 See supra note 211 for the definition of
affiliate under Form ATS–G.
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statements contained on the submitted
Form ATS–G, including exhibits,
schedules, attached documents, and any
other information filed, are current,
true, and complete. Given that the
Commission believes market
participants would use information
disclosed on Form ATS–G to evaluate
potential venues, and that the
Commission intends to use the
information to monitor developments of
Government Securities ATSs, the
Commission believes it is important that
Form ATS–G contain disclosures that
are current, true, and complete, and
therefore is proposing to require that the
signatory to Form ATS–G make such an
attestation.
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IV. EDGAR Filing Requirements;
Structured Data
The Commission is proposing that
Form ATS–G be filed electronically in a
structured format through EDGAR. By
filing in EDGAR, Government Securities
ATSs would be given the option of
filing using a web-fillable Form ATS–G
that will render into XML in EDGAR, or
to file directly in XML using the XML
schema for ATSs as published on the
Commission’s website. With both
options, the Commission would receive
the Form ATS–G disclosures in XML
format. All Form ATS–G filings made
public will be centrally located on
EDGAR for the public to access in the
same XML format in which the
Commission received the Form ATS–G
filing. Form ATS–G would be filed in
the same format as current Form ATS–
N.277 The Commission believes, as
discussed in the NMS Stock ATS
Adopting Release, its XML schema and
architecture for the web-fillable Form
ATS–G would incorporate certain
validations to ensure consistency and
completeness among filings.278 The
Commission is also proposing that Form
ATS and Form ATS–R be filed
electronically through EDGAR 279 and
both forms would be available only to
the Commission staff with the
exceptions discussed below.
Request for Comment
108. Are the proposed EDGAR filing
requirements for Form ATS–G, Form
ATS, and Form ATS–R appropriate?
Should the Commission adopt an
alternative means by which NMS Stock
ATSs file Form ATS–N instead of
EDGAR? As an alternative, should filers
be required to submit Form ATS–G,
Form ATS, and/or Form ATS–R to the
277 See NMS Stock ATS Adopting Release, supra
note 1, at Section VII.
278 See id.
279 See infra Section V.C.
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Commission through another means,
such as the Commission’s SRO Rule
Tracking System/Electronic Form Filing
System (‘‘SRTS/EFFS’’) or email?
109. Should the Commission adopt
the proposal that Form ATS–G be filed
with the Commission in a structured
format? If so, what standards of
structuring should be used for
information to be provided on proposed
Form ATS–G? If not, what format
should proposed Form ATS–G take?
Please identify the format and explain.
110. Should the Commission require
filers to submit Form ATS–G, Form
ATS, and/or Form ATS–R in the Inline
XBRL format?
V. Amendments to Regulation ATS,
Form ATS, Form ATS–R, and Form
ATS–N
A. Amendments to Rules 301(b)(5) and
301(b)(6) of Regulation ATS
The Commission is also proposing to
remove an exclusion for compliance
with the Fair Access Rule that is
applicable to ATSs that trade
equities 280 under Rule 301(b)(5) and the
Capacity, Integrity, and Security Rule
under Rule 301(b)(6). An ATS is
excluded from complying with the
requirements of the Fair Access Rule
and the Capacity, Integrity, and Security
Rule if the ATS: (a) Matches customer
orders for a security with other
customer orders; (b) such customers’
orders are not displayed to any person,
other than employees of the ATS; and
(c) such orders are executed at a price
for such security disseminated by an
effective transaction reporting plan, or
derived from such prices.281 In adopting
the exclusion, the Commission stated
that ATSs of this nature, the so-called
‘‘passive systems,’’ did not contribute
significantly to price discovery;
however, the Commission also stated
that they had the potential to and
frequently do affect the markets from
which their prices are derived, and thus,
the Commission would continue to
monitor these systems and reconsider
whether the requirements should apply
if concerns arise in the future.282
280 When adopting the exclusion, the Commission
contemplated that it would apply only to ATSs that
trade equity securities, as one of the elements of the
exclusion requires that the prices on the ATS be
based on the SIP. The third prong of each exception
states that if an ATS meets the requirement, among
others, to execute customer orders ‘‘at a price for
such security disseminated by an effective
transaction reporting plan, or derived from such
prices,’’ the ATS would not be subject to the Fair
Access Rule or Capacity, Integrity, and Security
Rule, as applicable. 17 CFR 242.301(b)(5)(iii)(c); 17
CFR 242.301(b)(6)(iii)(c).
281 17 CFR 242.301(b)(5)(iii); 17 CFR
242.301(b)(6)(iii).
282 Regulation ATS Adopting Release, supra note
35, at 70853.
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The Commission has reconsidered the
exclusion for passive systems to
compliance with the Fair Access Rule
and believes it should be removed. In
the Regulation ATS Adopting Release,
the Commission explained that fair
treatment by ATSs of subscribers is
particularly important when an ATS
captures a large percentage of trading
volume in a security because investors
lack access to viable alternatives to
trading on the ATS.283 Since the
adoption of Regulation ATS, passive
systems (as the term is used in the
Regulation ATS Adopting Release) for
NMS stocks have garnered a significant
percentage of trading volume in
securities and have come to play an
important role in matching buyers and
sellers of securities.284 The Commission
believes that eliminating the Rule
301(b)(5)(iii) exclusion would ensure
that the Fair Access Rule is applied as
intended and help ensure fair treatment
of potential and current subscribers by
any type of ATS that captures a large
percentage of trading in a security or
type of security.
The Commission is also proposing to
amend Rule 301(b)(6) to remove the
exclusion for compliance with the
Capacity, Integrity, and Security Rule
under Rule 301(b)(6)(iii).285 As part of
Regulation SCI, Rule 301(b)(6) of
Regulation ATS was amended to no
longer apply to ATSs that trade equities
because Regulation SCI superseded and
replaced the requirements of the
Capacity, Integrity, and Security Rule
with regard to ATSs that trade NMS
stocks and non-NMS stocks.286
In addition, the Commission is
proposing to amend Rules 301(b)(5) and
301(b)(6) to clarify the rule text. For
purposes of determining whether an
ATS crossed the average daily volume
thresholds for compliance with the Fair
Access Rule, Rule 301(b)(5)(i) does not
specify whether the ATS’s transaction
volume in an NMS stock or an equity
security that is not an NMS stock and
for which transactions are reported to an
SRO is calculated using the dollar or the
share volume.287 In the Regulation ATS
Adopting Release, when discussing the
Fair Access Rule, the Commission stated
that for these two types of securities, the
test should be based on the share
volume.288 Similarly, Rules 301(b)(5)(i)
283 Id.
at 70872.
NMS Stock ATS Adopting Release, supra
note 1, at 38770–71.
285 17 CFR 242.301(b)(6)(iii). See supra note 56
and accompanying text.
286 See Regulation SCI Adopting Release, supra
note 2, at 72252, 72267.
287 17 CFR 242.301(b)(5)(i)(A)–(B).
288 See Regulation ATS Adopting Release, supra
note 35, at 70873 (‘‘Accordingly, if an [ATS]
284 See
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and 301(b)(6)(i) do not specify whether,
for purposes of determining compliance
with the Fair Access Rule and the
Capacity, Integrity, and Security Rule,
the volume for municipal securities or
corporate debt securities is calculated
based on the dollar or the share
volume.289 In the Regulation ATS
Adopting Release, the Commission
intended the test applicable to debt
securities to be the dollar volume.290 To
mitigate any potential confusion, the
Commission is adding these terms to
Rules 301(b)(5)(i) and 301(b)(6)(i) to
align the rule text with the Regulation
ATS Adopting Release.291 Furthermore,
the Commission is proposing to amend
Rules 301(b)(5)(i)(C) and (D) to clarify
that the average daily dollar volume in
municipal securities and corporate debt
securities is provided by the selfregulatory organization to which such
transactions are reported. When
Regulation ATS was adopted,
transaction reporting plans for
municipal securities and corporate debt
securities were being developed.292
Today, transactions in municipal
securities are reported to the Municipal
Securities Rulemaking Board (‘‘MSRB’’)
and transactions in corporate debt
securities are reported to FINRA. These
two SROs provide the information that
can be used by ATSs to determine
whether the ATS is subject to the Fair
Access Rule for these two categories of
securities.293 The Commission believes
that this amendment will add clarity to
the rule given the established
transaction reporting regimes for
accounted for twenty percent or more of the share
volume in any equity security, it must comply with
the fair access requirements in granting access to
trading in that security.’’) (emphasis added).
289 17 CFR 242.301(b)(5)(i)(C)–(D); 17 CFR
242.301(b)(6)(i)(A)–(B).
290 See Regulation ATS Adopting Release, supra
note 35, at 70873, 70875 (requiring compliance with
the Fair Access Rule and the Capacity, Integrity,
and Security Rule if an ATS accounted for more
than 20 percent of the total ‘‘share volume’’ in a
security with respect to equity securities, and for
more than 20 percent of the ‘‘volume’’ in a security
with respect to debt securities). While Form ATS–
R requires an ATS to report total volume in terms
of both units and dollars for equity securities, it
requires an ATS to report the total settlement value
only in dollar terms for debt securities, which
include municipal securities and corporate debt
securities. See id. at 70878.
291 See proposed Rule 301(b)(5)(i)(A)–(D);
proposed Rule 301(b)(6)(i)(A)–(B).
292 See Regulation ATS Adopting Release, supra
note 35, at 70873.
293 See MSRB Rule G–14; FINRA Rule 6730.
Electronic Municipal Market Access (‘‘EMMA’’),
which is a service operated by the MSRB, and
FINRA disseminate information on transactions in
municipal securities and corporate debt securities,
respectively. See EMMA Information Facility,
available at https://www.msrb.org/Rules-andInterpretations/MSRB-Rules/Facilities/EMMAFacility.aspx; FINRA Rule 6750.
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municipal securities and corporate debt
securities.
The Commission is also proposing to
amend Rule 301(b)(5)(ii)(A) of
Regulation ATS to add the word
‘‘reasonable’’ before the word ‘‘written
standards,’’ to clarify that ATSs subject
to the Fair Access Rule are required to
have ‘‘reasonable written standards’’ for
granting access to trading on its system.
The Commission believes that the
addition is consistent with its intent as
expressed in the Regulation ATS
Adopting Release. Specifically, in
discussing the Fair Access Rule, the
Commission stated that ‘‘fair treatment
. . . is particularly important’’ when
ATSs reach significant volume in a
security, and the rule would serve to
prohibit ‘‘unreasonably’’ discriminatory
denials of access.294 The Commission
believes that adding the word
‘‘reasonable’’ to the rule text will help
make clear that the written standards
the ATS must apply in a fair and nondiscriminatory manner (pursuant to
Rule 301(b)(5)(ii)(B)) must be reasonable
in the first instance.
B. Amendment to Rule 301(b)(2)(vii)
Rule 301(b)(2)(vii) provides that all
reports filed pursuant to Rules 301(b)(2)
and 301(b)(9) are ‘‘deemed confidential’’
and ‘‘available only to the examination
of Commission staff, state securities
authorities, and the self-regulatory
organizations.’’ 295 As a result, the
Commission does not make Form ATS
and Form ATS–R disclosures available
to the public, including the types of
securities that the ATS trades or intends
to trade. Currently, the Commission
makes public on a monthly basis on the
Commission website information about
ATSs that have a Form ATS on file with
the Commission, which includes the
name of the ATS, any name(s) under
which business is conducted, and the
location of each ATS. The list also
identifies each ATS that filed a
cessation of operations report in the
prior month. While the Commission
does not approve Form ATS filings, the
list is designed to inform the public
about ATSs that have noticed their
operations with the Commission.
The Commission is proposing to
amend Rule 301(b)(2) to clarify that
being ‘‘deemed confidential’’ means
receiving confidential treatment under a
relevant Commission regulation subject
to applicable law 296 and to eliminate
confidential treatment for information
about the type(s) of securities that the
294 See
Regulation ATS Adopting Release, supra
note 35, at 70872, 70874.
295 See 17 CFR 242.301(b)(2)(vii).
296 See, e.g., 17 CFR 200.83, 240.24b–2.
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ATS trades as disclosed in the Exhibit
B, subpart (a) of Form ATS and Form
ATS–R. The Commission does not
believe that ATSs will be harmed by
these disclosures because a vast
majority of ATSs currently publicize the
types of securities in which they
transact, for example, on the website for
the ATS or the website of the ATS
broker-dealer operator. The Commission
publishes on its website a list of ATSs
that have an active Form ATS on file
with the Commission; however,
information about types of securities
traded is not provided on that list and
the Commission frequently receives
requests from the public and regulators
for more detail in the Commission’s
publication about the types of securities
traded by ATSs. The Commission
believes that disclosing this information
could help the public understand a
fundamental aspect of an ATS. To allow
for this narrow exception, the
Commission is proposing to amend Rule
301(b)(2)(vii) of Regulation ATS to state
that the content of reports filed under
Rule 301(b)(2) and Rule 301(b)(9)
‘‘(except for types of securities traded
provided on Form ATS and Form ATS–
R) will be accorded confidential
treatment subject to applicable law.’’
Request for Comment
111. Should the Commission
eliminate the exclusion from
compliance with the Fair Access Rule
under Rule 301(b)(5)(iii) and with the
Capacity, Integrity, and Security Rule
under Rule 301(b)(6)(iii)?
112. Should the Commission amend
Rule 301(b)(2)(vii) to make Form ATS,
Form ATS–R, or both public? Should
the Commission amend Rule
301(b)(2)(vii) to make any other
disclosures provided on Form ATS or
Form ATS–R public?
113. Should the Commission
eliminate confidential treatment for
information about the type(s) of
securities that the ATS trades as
disclosed on Form ATS and Form ATS–
R?
C. Modernization and Electronic Filing
of Form ATS and Form ATS–R
The Commission is proposing
revisions to Rule 301(b)(2), Form ATS,
and Form ATS–R to modernize Form
ATS and Form ATS–R and to provide
that they are filed electronically. Every
ATS subject to Rule 301(b)(2) of
Regulation ATS is required to file an
initial operation report (‘‘IOR’’),297
297 Form ATS, which provides the Commission
with notice about of an ATS’s operations and
changes to such operations, is not approved by the
Commission. See Regulation ATS Adopting
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amendments to the IOR,298 and
cessation of operations report with the
Commission on Form ATS.299 ATSs are
also required to file the information
required by Form ATS–R 300 pursuant to
Rule 301(b)(9) within 30 calendar days
after the end of each calendar quarter in
which the ATS has operated.301
First, the Commission is proposing an
amendment to Rule 301(b)(2)(vi), which
currently states that ‘‘[e]very notice or
amendment filed pursuant to this
paragraph (b)(2) shall constitute a
‘report’ ’’ within the meaning of
applicable provisions of the Exchange
Act. The Commission proposes to add a
reference to Rule 301(b)(9) to state that
Form ATS–R, as is the case with Form
ATS, constitutes a report within the
meaning of applicable provisions of the
Exchange Act.302
Next, the Commission is proposing to
require that all Forms ATS and ATS–R
are filed with the Commission
electronically. Currently, ATSs are
required to submit paper submissions of
Forms ATS and ATS–R to the
Commission.303 The Commission
proposes to amend Rule 301(b)(2)(vii) to
Release, supra note 35, at 70864. Form ATS
requires the ATS to submit the information
specified in eleven exhibits (Exhibits A through I).
Form ATS is used for three types of submissions:
An IOR; an amendment to the IOR; and a cessation
of operations report. An ATS designates the type of
submission on Form ATS. Form ATS and the Form
ATS instructions are available at https://
www.sec.gov/about/forms/formats.pdf.
298 See 17 CFR 242.301(b)(2). An ATS is required
to file an amendment on Form ATS at least 20
calendar days prior to implementing a material
change to the operation of the ATS, within 30
calendar days after the end of a quarter when
information contained in an IOR filed on Form ATS
becomes inaccurate, and promptly upon
discovering that an IOR filed on Form ATS or an
amendment on Form ATS was inaccurate when
filed.
299 See 17 CFR 242.301(b)(2)(vi).
300 See Form ATS–R. See also supra note 126.
301 See 17 CFR 242.301(b)(9)(i). An ATS must also
file Form ATS–R more frequently upon request of
the Commission. See Form ATS–R Instructions.
302 This amendment would be consistent with
Rule 301(b)(2)(vii), which states that ‘‘[a]ll reports
filed pursuant to this paragraph (b)(2) and
paragraph (b)(9)’’ of Rule 301 are, as proposed,
accorded confidential treatment subject to
applicable law. See 17 CFR 242.301(b)(2)(vii). The
instructions to Form ATS and Form ATS–R require
an ATS to submit one original and two copies of
Form ATS and Form ATS–R to the Commission.
See Form ATS and Form ATS–R Instructions. In
addition, Rule 301(b)(2)(vii) requires that an ATS
file copies of its Form ATS filings with the
examining authority of the SRO with which it is
registered (e.g., FINRA) at the same time it files
with the Commission, and upon request, the ATS
must provide its SROs surveillance personnel with
duplicate Form ATS–R filings. See 17 CFR
242.301(b)(2)(vii).
303 Rule 301(b)(2)(vii) of Regulation ATS specifies
that reports on Form ATS shall be considered filed
upon receipt by the Division of Trading and
Markets, at the Commission’s principal office in
Washington, DC. See 17 CFR 242.301(b)(2)(vii).
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require that an ATS must file a Form
ATS or a Form ATS–R in accordance
with the instructions therein. The
Commission is proposing to revise the
instructions to Form ATS and Form
ATS–R to require that they be submitted
electronically via EDGAR.304 The
Commission is also proposing to require
in Rule 301(b)(2)(vii) that reports
provided for in Rule 301(b)(2) and (b)(9)
shall be filed on Form ATS and Form
ATS–R, as applicable, and include all
information as prescribed in Form ATS
or Form ATS–R, as applicable, and the
instructions thereto.305 In addition, the
Commission is proposing to require that
any Form ATS or Form ATS–R shall be
executed at, or prior to, the time Form
ATS or Form ATS–R is filed and shall
be retained by the ATS in accordance
with Rule 303 of Regulation ATS and
Rule 302 of Regulation S–T, and the
instructions in Form ATS or Form ATS–
R, as applicable.306 The Commission
believes that, among other benefits, the
electronic filing of Forms ATS and
ATS–R would increase efficiencies and
decrease filing costs for ATSs (i.e., ATSs
would no longer be required to print
and mail paper filings) and for the
Commission’s staff when undertaking a
review of these forms. Currently, Form
ATS–N must be filed in EDGAR, and
under this proposal, Form ATS–G
would be as well. EDGAR is currently
configured to support the Commission’s
receipt and review of filings under
Regulation ATS, and requiring
electronic Form ATS and Form ATS–R
filings to be submitted via EDGAR
would be the most efficient way to
facilitate their electronic filing.307
To facilitate electronic filing, the
Commission is proposing to amend the
text of General Instructions A.4 of
Forms ATS and ATS–R to require that
all filings be submitted via EDGAR and
prepared, formatted, and submitted in
accordance with Regulation S–T and the
304 See
infra note 308 and accompanying text.
the Commission is proposing to
delete the provisions of Rule 301(b)(2)(vii) related
to paper submission. Specifically, the Commission
is deleting the sentence that the reports shall be
considered filed ‘‘upon receipt by the Division of
Trading and Markets, at the Commission’s principal
office in Washington, DC.’’ Additionally, although
the Commission will continue to require that
duplicates of filings on Form ATS be provided to
the SRO that is the examining authority for each
ATS, and that duplicates of the Form ATS–R be
made available to the surveillance personnel of
such SRO upon request, the Commission proposes
to eliminate the reference to ‘‘originals’’ in Rule
301(b)(2)(vii) because paper reports will no longer
be furnished to the Commission and there will
therefore be no ‘‘original’’ version of the reports.
306 The Commission notes that the proposed
provisions would conform to similar provisions of
Rule 304, which provide for the electronic filing of
Form ATS–N. See 17 CFR 242.304(c).
307 See supra Section IV.
305 Accordingly,
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EDGAR Filer Manual.308 The
Commission also proposes to amend
Forms ATS and ATS–R General
Instruction A.5 to state that a filing that
is defective may be rejected and not be
accepted by the EDGAR system and that
any filing so rejected shall be deemed
not be filed. This is consistent with the
requirements of Regulation S–T, which
provides the rules for EDGAR
submissions.309 The Commission also
notes that the instructions for current
Form ATS contain similar language,310
but the current instructions for Form
ATS–R do not contain such language.
The Commission believes that it would
be appropriate to reject a filing as
defective if, for example, a Form ATS or
Form ATS–R is missing exhibits or does
not comply with the electronic filing
requirements. The Commission is also
proposing to amend General Instruction
A.6 (‘‘Recordkeeping’’) of both forms to
reflect that records must be retained in
accordance with the EDGAR Filer
Manual and Rule 303 of Regulation ATS
and to conform to the recordkeeping
instructions on Form ATS–N and
proposed Form ATS–G.311
In addition, the Commission is
proposing to amend Form ATS to
require an ATS filing an amendment on
Form ATS to identify whether the Form
ATS filing is a material amendment
under Rule 301(b)(2)(ii), a periodic
amendment under Rule 301(b)(2)(iii), or
a correcting amendment under Rule
301(b)(2)(iv).312 An ATS currently
308 The Commission proposes to eliminate the
language in the Form ATS instructions and Form
ATS–R instructions requesting that an ATS type all
information because an ATS would not otherwise
have the option to handwrite any responses. The
instructions for both forms would be amended to
eliminate the option to use a ‘‘reproduction’’ of the
forms. The Commission also believes it is
redundant to state that the Form ATS or Form ATS–
R must be the ‘‘current version’’ as the ATS is
required to attest that the form is ‘‘current.’’ The
Commission also proposes to delete the
requirement to attach an execution page with
original manual signatures for Form ATS because,
as discussed above, the Form ATS and Form ATS–
R would be signed electronically and thus there
would be no need for an execution page. The
Commission also proposes to delete the instruction
that the name of the alternative trading system, CRD
number, SEC file number, and report period dates
be listed on each page, as this requirement will be
unnecessary because the Form ATS or Form ATS–
R will be submitted as a single submission. Because
Form ATS and Form ATS–R would be submitted
via EDGAR, the Commission is also proposing to
delete references to submitting the ‘‘original’’ and
‘‘copies’’ of the form to the Commission at the
Commission’s mailing address.
309 17 CFR 232. This is also consistent with the
requirements for current Form ATS–N.
310 The Form ATS Instructions state that ‘‘Form
ATS shall not be considered filed, unless it
complies with applicable requirements.’’
311 Rule 303 of Regulation ATS provides the
record preservation requirements for ATSs. See 17
CFR 242.303.
312 See Rule 301(b)(2)(ii)–(iv).
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identifies an amendment to current
Form ATS by marking the ‘‘Amendment
to Initial Operation Report’’ box on
Form ATS, and Form ATS currently
does not ask the ATS to specify whether
the amendment to Form ATS is a
material, periodic, or correcting
amendment.313 The Commission
believes that requiring an ATS to
specify the type of amendment would
better enable the Commission to
determine whether an ATS is in
compliance with Regulation ATS. The
Commission also proposes requiring an
ATS to provide the date that the ATS
ceased to operate, which is not currently
required on Form ATS. The
Commission believes that having
information about the date that the ATS
ceased to operate would enable the
Commission to determine more readily
whether an ATS is, or was, in
compliance with Regulation ATS.314
The Commission is also proposing to
amend Form ATS and Form ATS–R to
change the solicitation of information
relating to the name of the broker-dealer
operator and the registration and contact
information of the broker-dealer
operator. Because many broker-dealer
operators of ATSs engage in brokerage
and/or dealing activities in addition to
operating an ATS and some brokerdealers operate multiple ATSs, the
name of the broker-dealer operator of an
ATS often differs from the commercial
name under which the ATS conducts
business. To identify the broker-dealer
operator of an ATS and to assist the
Commission in collecting and
organizing its filings and assessing
whether the ATS has met its
requirement to register as a brokerdealer, Forms ATS and ATS–R would
require the ATS to indicate the full
name of the broker-dealer operator of
the ATS, as it is stated on Form BD, in
Item 1 of Form ATS and Form ATS–R.
To further facilitate compliance with the
requirements of Regulation ATS, as
proposed, Form ATS and Form ATS–R
would require the ATS to indicate
whether the filer is a broker-dealer
registered with the Commission and
whether the broker-dealer operator has
been authorized by a national securities
association to operate an ATS. Such
requirements would conform to the
proposed requirements of Form ATS–N
313 The Commission is also proposing to add cites
to the relevant rule text next to the check boxes on
Form ATS identifying whether the ATS is filing an
IOR, amendment to Form ATS, or a cessation of
operations report.
314 See Rule 301(b)(2)(v) (requiring an ATS to
promptly file a cessation of operations report on
Form ATS in accordance with the instructions
therein upon ceasing to operate as an alternative
trading system).
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and Form ATS–G.315 The Commission
is proposing to conform Item 1 of Form
ATS and Form ATS–R 316 to the
requirements of Form ATS–N, which is
currently filed electronically, and
proposed Form ATS–G, which the
Commission is proposing would be filed
electronically.317 The Commission
believes these requests would help the
Commission in identifying and
corresponding with ATSs.318
The Commission is proposing to
amend Form ATS–R to make it easier
for the Commission staff to identify if
the ATS has met its reporting
obligations. First, the Commission is
proposing to require an ATS to specify
whether it is filing a quarterly report
amendment under Rule 301(b)(9)(i) or a
report for an ATS that has ceased to
operate under Rule 301(b)(9)(ii) and, if
the latter, to indicate the date the ATS
ceased to operate. The Commission
believes that requiring an ATS to
indicate its type of Form ATS–R filing
would enable the Commission to more
315 See
supra note 203 and accompanying text.
ATS and Form ATS–R currently ask for
the ATS’s main street address, mailing address,
business telephone number and facsimile number,
and the contact information for the ATS’s contact
person. The Commission is proposing to move the
information requests for the name and title and
telephone number of the contact employee to the
signature block on the form, and to request an email
address for such person. The proposed signature
block would also ask for the primary street address
and mailing address of the ATS. The current
certifications required in Form ATS and Form
ATS–R, including that the information filed is
current, true, and complete, would remain
unchanged. However, the Commission is proposing
to delete the provision allowing for service of any
civil action pursuant to confirmed telegram and
instead, permit service of any civil action via email.
The signature block on Form ATS and Form ATS–
R would conform to the signature block in Form
ATS–N, as proposed. See infra notes 323–324 and
accompanying text.
317 See supra Section IV.
318 The Commission proposes to replace in Item
1 of Form ATS and Form ATS–R the requests for
the ATS’s main street address, mailing address, and
business telephone number and facsimile number
with a requirement that the ATS provide the
primary, and if any, secondary physical street
address of the ATS’s matching system, as well as
a URL address for its website if it has a website.
The Commission believes that knowing the location
of the matching system address and secondary
matching system address could be useful to the
Commission in the event of, for instance, a natural
disaster that could impact market participants’
ability to trade on the ATS and potential latency
that could be experienced due to the location of the
secondary site of the ATS. The Commission is also
requesting the full name of the national securities
association of the broker-dealer operator, the
effective date of the broker-dealer operator’s
membership with the national securities
association, and MPID of the ATS. In addition,
because any current or former names of the ATS
would be searchable on EDGAR and there will be
multiple identifiers included on the form, including
MPID, the Commission is proposing to delete the
requirement that the ATS indicate if it is changing
its name and list its former name.
316 Form
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effectively review Form ATS–R
submissions and determine whether an
ATS is in compliance with Regulation
ATS. The Commission is also proposing
to amend Form ATS–R to ask whether
the ATS was subject to the fair access
obligations under § 242.301(b)(5) during
any portion of the period covered by the
report by adding a corresponding box
for the ATS to check ‘‘yes’’ or ‘‘no.’’
Currently, Form ATS–R requires an ATS
that is subject to the Fair Access Rule to
report a list of all persons for whom
access to the ATS was granted, denied,
or limited access during the period
covered by the Form ATS–R.319 The
Commission believes that asking the
ATS to indicate whether the ATS was
subject to the Fair Access Rule during
any portion of the period covered by the
report would facilitate the
Commission’s review of Form ATS–R
submissions.
The Commission is also proposing
changes to the Form ATS–R categories
of securities to modernize them and add
more specificity with regard to all
categories of securities. Form ATS–R
currently requires ATSs to indicate the
total unit volume and total dollar
volume of government securities
transactions in the period covered by
the report. The Commission is
proposing to require that ATSs specify
the total unit volume and total dollar
volume of transactions in ‘‘U.S.
Treasury Securities’’ and ‘‘Agency
Securities’’ under the heading
‘‘Government securities.’’ 320 As
currently, ATSs would also be required
to indicate the total unit volume and
total dollar volume in government
securities overall. The Commission
believes that this change will help the
Commission facilitate compliance with
the thresholds for the Fair Access Rule
and Regulation SCI, which the
Commission is proposing would be
based on trading volume in U.S.
Treasury Securities and Agency
Securities.321 In addition, the
Commission is proposing to amend
Form ATS–R to update the descriptions
of certain categories of securities for
which volume is required to be reported
on Form ATS–R by an ATS.
Specifically, the Commission is
proposing to replace the names of the
securities categories, ‘‘Nasdaq National
Market Securities’’ and ‘‘Nasdaq
319 See Form ATS–R and Form ATS–R
Instructions, No. 8.
320 The Commission is proposing to add to the
Form ATS–R instructions the definitions of U.S.
Treasury Security and Agency Security, which
would conform to the definitions the Commission
is proposing in Rule 300(p) and Rule 300(q),
respectively.
321 See supra Section II.D and infra Section VI.
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SmallCap Market Securities,’’ reported
in Items 4 and 6 of Form ATS–R, with
‘‘Nasdaq Global Market Securities’’ and
‘‘Nasdaq Capital Market Securities,’’
respectively. The Commission believes
that replacing the description of
categories of securities that no longer
are in use with current categories of
securities would reduce potential
confusion for an ATS when completing
Form ATS–R and would enable an ATS
to reflect more accurately its trading
activities during the applicable
reporting period.
The Commission is also proposing to
add new Item 4K to Form ATS–R,
which requires ATSs to disclose the
total dollar volume of transactions in
repurchase agreements and reverse
repurchase agreements. New Item 5C
would require ATSs to list the types of
securities subject to such repurchase or
reverse repurchase agreements. In the
Commission’s experience, ATSs that
trade repurchase or reverse repurchase
agreements, which are currently
disclosed as debt securities on Item 4N
of Form ATS–R, currently provide on
Form ATS–R a break-down of nominal
trade value of each of these types of
securities. The Commission believes
that adding new Item 4K to Form ATS–
R to require that ATSs provide the total
dollar volume of transactions in
repurchase or reverse repurchase
agreements would require all ATSs that
trade repurchase or reverse repurchase
agreements to take a consistent
approach in providing this information.
The Commission is also proposing new
Item 5C, which would require ATSs to
list the types of securities subject to
repurchase or reverse repurchase
agreements reported in Item 4K of Form
ATS–R. The Commission believes that
this would provide information to the
Commission about the types of
securities that ATSs trade while
imposing a minimal burden on filers.
Finally, the Commission is proposing
to add new Item 5D, which would
require an ATS to list the types of listed
options reported in Item 4H of Form
ATS–R. Item 4H of Form ATS–R
currently requires ATSs to disclose the
total unit volume and dollar volume of
transactions in listed options. Under
new Item 5D, an ATS might indicate, for
example, that it trades equity options
and options on government securities.
The Commission believes that this
would provide the Commission with
more specific information about the
types of options that each ATS trades.
Request for Comment
114. Would the proposed changes to
Form ATS and Form ATS–R enhance
the Commission’s oversight of ATSs? Do
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commenters disagree with any of the
proposed modifications? If so, what
alternatives should the Commission
implement?
115. Form ATS–R requires an ATS to
quarterly report volume of transactions
for certain securities, all subscribers that
were participants on the ATS, and
securities that were traded on the ATS.
Should the Commission adopt
amendments to Form ATS–R to add,
change, or modify any of the requests
for information on Form ATS–R? Are
the current categories of securities and
the proposed categories of securities for
reporting transaction volume to the
Commission appropriate?
116. Form ATS requires an ATS to
report information to the Commission in
Exhibits A through I. These requests
solicit information about the ATS,
including but not limited to, types of
subscribers and differential access to
services, types of securities traded,
counsel, governance documents, service
providers, manner of operations,
including order entry, order execution
procedures, clearance and settlement
procedures, and trade reporting,
procedures for reviewing system
capacity, security, and contingency
planning, procedures to safeguard
subscriber funds and securities, and
direct owners. Should the Commission
adopt amendments to Form ATS to add,
change, or modify any of the requests
for information on Form ATS? If so,
please identify the request and explain
how it should be amended.
117. Should the Commission adopt
amendments to Form ATS to require
disclosures similar to disclosures
required on Part II of Form ATS–N and
proposed Form ATS–G, which request
information about ATS-related activities
of the broker-dealer operator and its
affiliates?
118. Should the Commission adopt
amendments to Form ATS to include
questions similar to those in Part III of
Form ATS–N and proposed Form ATS–
G, which request information about the
manner of the ATS’s operations?
119. Are there any specific items on
Form ATS–N or proposed Form ATS–G
that the Commission should incorporate
into Form ATS?
120. Should the Commission propose
amendments to Regulation ATS to
require ATSs that trade OTC equity
securities to comply with Rule 304,
including filing with the Commission a
public form with requirements similar
to Form ATS–N or proposed Form ATS–
G?
121. Should the Commission require
an ATS to disclose the LEI of its brokerdealer operator, in addition to its CRD
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Number and the proposed disclosure of
the MPID for the ATS on Form ATS?
D. Changes to Form ATS–N
The Commission is proposing to
delete the check box on the cover page
of Form ATS–N that requires an NMS
Stock ATS to select whether the NMS
Stock ATS currently operates pursuant
to a Form ATS. Rules 304 and
301(b)(2)(viii) required an NMS Stock
ATS to file a Form ATS–N no later than
February 8, 2019. After February 8,
2019, this check box became obsolete.
The Commission is also proposing new
Part I, Item 1.B, which would require
the NMS Stock ATS to indicate whether
the registered broker-dealer has been
authorized by its national securities
association to operate an ATS. The
Commission believes this would
facilitate compliance with and oversight
of the requirement that an ATS
complies with the rules of an SRO,
including to obtain approval to operate
an ATS.322 In addition, to avoid
confusion, the Commission is proposing
to delete language in the signature block
in Part IV of Form ATS–N that refers to
the signatory as ‘‘duly sworn.’’ The
Commission notes that Form ATS–N
filings, which are submitted to EDGAR,
are not required to be notarized; 323
instead, they are subject to the rules
governing electronic signatures set forth
in Rule 302 of Regulation S–T.324
The Commission is proposing to
replace the current definition of
‘‘Person’’ in Form ATS–N, which is
provided by the Investment Advisers
Act of 1940 (‘‘Advisers Act’’) 325 with
the different definition of ‘‘Person’’ as
defined under the Exchange Act.326
Because Regulation ATS is a
Commission regulation under the
Exchange Act, and NMS Stock ATSs are
subject to various Exchange Act
Rules,327 the Commission believes that
it is more appropriate to apply the
definition of ‘‘Person’’ under the
Exchange Act than the definition of
‘‘Person’’ under the Advisers Act, which
is not applicable to ATSs. Although the
definitions are not identical, the
Commission believes the differences
between the definitions are unlikely to
result in differences to the disclosures
322 See
supra note 203 and accompanying text.
Form ATS, Form ATS–N does not have
a notarization block.
324 17 CFR 232.302.
325 15 U.S.C. 80a–2(a)(28) (defining ‘‘Person’’ as
‘‘a natural person or a company’’).
326 15 U.S.C. 78c(a)(9) (defining the term
‘‘person’’ as a natural person, company,
government, or political subdivision, agency, or
instrumentality of a government).
327 See NMS Stock ATS Adopting Release, supra
note 1, at 38768.
323 Unlike
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required by Form ATS–N.328 To the
extent ATSs might have found
ambiguous the Commission’s use of the
Advisers Act definition in the context of
an Exchange Act rule, the Commission
believes that this proposed change will
mitigate any such concerns. The
Commission is also proposing to change
the definition of ‘‘NMS Stock ATS’’ to
conform to the proposed changes to the
definition in Rule 300 and state that
NMS Stock ATSs shall not trade
securities other than NMS stocks.329
In Part III, Item 1, the Commission is
proposing to remove the checkbox
‘‘NMS Stock ATS’’ under the list of
types of subscriber to an NMS Stock
ATS. A broker-dealer operator of an
NMS Stock ATS seeking to access
another NMS Stock ATS would involve
the broker-dealer operator for the NMS
Stock ATS becoming a subscriber to the
ATS, not the ATS that the broker-dealer
operates. In this scenario, an NMS Stock
ATS that accepts a broker-dealer
operator for another NMS Stock ATS
would mark the checkbox for broker
and/or dealer in Part III, Item 1 on Form
ATS–N as appropriate. The Commission
is also proposing to add insurance
companies, pension funds, and
corporations to the list of types of
subscribers in Part III, Item 1 on Form
ATS–N. The Commission believes that
adding these checkboxes will provide
more granular information on the types
of subscribers participating on an NMS
Stock ATS in an easier-to-read format.
In Part II, Item 4(b) of Form ATS–N,
the Commission is proposing to delete
the phrase ‘‘if yes to Item 4(a).’’ This
phrase was included in Form ATS–N in
error. The NMS Stock ATS would be
required to respond to Part II, Item 4(b)
regardless of its response to Part II, Item
4(a).
In Part II, Item 6(a) of Form ATS–N,
the Commission is proposing to add
language to the definition of ‘‘shared
employee’’ to clarify that the Item
solicits disclosures relating to both any
employee of the broker-dealer operator
and any employee of its affiliate that
provides services to both the operations
of the NMS Stock ATS and any other
business unit or any affiliate of the
broker-dealer operator. The proposed
amendment is designed to clarify the
existing requirements of the Item.
328 The Exchange Act’s inclusion of a
‘‘government, or political subdivision, agency or
instrumentality of a government’’ under the
definition of ‘‘Person’’ is unlikely to result in any
changes to the disclosures required by the items in
Form ATS–N that use the word ‘‘Person’’ as, in the
Commission’s experience, these entities are
generally not involved in the operations of NMS
Stock ATSs as subscribers or otherwise.
329 See supra note 93 and accompanying text.
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The Commission is proposing to add
the term ‘‘market data’’ to the examples
listed in Part III, Item 19 of the types of
fees that NMS Stock ATSs must
disclose. While most NMS Stock ATSs
do not disseminate market data, the
Commission believes that they can and
a description of an NMS Stock ATS’s
market data fees is currently required by
the Item.330 The Commission believes
that adding the example could assist
NMS Stock ATSs in responding
comprehensively to the Item. The
Commission is also including the
example in Form ATS–G as Government
Securities ATSs are primarily lit venues
that offer market data to subscribers.
The Commission is also proposing to
change the term ‘‘Order Display and
Fair Access Amendment’’ throughout
Form ATS–N to ‘‘Contingent
Amendment’’ to conform to proposed
changes to Rule 304.331 Furthermore,
the Commission is proposing several
grammatical and technical changes to
Form ATS–N to correct and clarify
certain items on the form. These
changes are listed in Section XIII infra.
Request for Comment
122. Should the Commission adopt
alternative EDGAR filing requirements
or formats for Form ATS–N (e.g., filing
in XBRL format)?
123. Would the use of the Exchange
Act definition of ‘‘Person’’ instead of the
Advisers Act definition of ‘‘Person’’
result in differences to the information
required to be disclosed by Form ATS–
N?
124. Should the Commission require
a broker-dealer operator for an NMS
Stock ATS to disclose its LEI, in
addition to its CRD Number and MPID,
which NMS Stock ATSs are currently
required to provide, on Form ATS–N?
VI. Proposed Amendments to
Regulation SCI for Government
Securities ATS
The Commission proposes to amend
Regulation SCI to expand the definition
of ‘‘SCI alternative trading system’’ to
include Government Securities ATSs
that meet a specified volume threshold.
A Government Securities ATS that
meets the proposed amended definition
of ‘‘SCI alternative trading system’’
would fall within the definition of ‘‘SCI
entity’’ and, as a result, would be
subject to the requirements of
Regulation SCI. The Commission
believes that the proposal to extend the
requirements of Regulation SCI to
330 Part III, Item 19 requires NMS Stock ATSs to
identify and describe any (emphasis added) fees or
charges for use of the Government Securities ATS
services, including the type of fees.
331 See supra note 176.
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Government Securities ATSs that trade
a significant volume in U.S. Treasury
Securities or Agency Securities would
help to address the technological
vulnerabilities, and improve the
Commission’s oversight, of the core
technology of key entities in the markets
for government securities.
The Commission adopted Regulation
SCI in November 2014 to strengthen the
technology infrastructure of the U.S.
securities markets.332 As discussed in
the Regulation SCI Adopting Release, a
number of factors contributed to the
Commission’s proposal and adoption of
Regulation SCI. These factors included:
The evolution of the markets becoming
significantly more dependent upon
sophisticated, complex, and
interconnected technology; the
successes and limitations of the
Automation Review Policy (‘‘ARP’’)
Inspection Program; a significant
number of, and lessons learned from,
recent systems issues at exchanges and
other trading venues; 333 and increased
concerns over the potential for ‘‘single
points of failure’’ in the securities
markets.334 Regulation SCI is designed
to strengthen the infrastructure of the
U.S. securities markets, reduce the
occurrence of systems issues in those
markets, improve their resiliency when
technological issues arise, and establish
an updated and formalized regulatory
framework, thereby helping to ensure
more effective Commission oversight of
such systems.335
The key market participants that are
currently subject to Regulation SCI are
called ‘‘SCI entities’’ and include certain
SROs (including stock and options
exchanges, registered clearing agencies,
FINRA and the MSRB) (‘‘SCI SROs’’);
alternative trading systems that trade
NMS and non-NMS stocks exceeding
specified volume thresholds (‘‘SCI
ATSs’’); the exclusive SIPs (‘‘plan
processors’’); and certain exempt
clearing agencies.336 Regulation SCI,
among other things, requires these SCI
entities to establish, maintain, and
enforce written policies and procedures
reasonably designed to ensure that their
key automated systems have levels of
capacity, integrity, resiliency,
availability, and security adequate to
maintain their operational capability
and promote the maintenance of fair
and orderly markets, and that such
systems operate in accordance with the
Exchange Act and the rules and
332 See Regulation SCI Adopting Release, supra
note 2, at 72252–56 for a discussion of the
background of Regulation SCI.
333 See id. at 72253–56.
334 See id. at 72277–79.
335 Id. at 72253, 72256.
336 See 17 CFR 242.1000.
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regulations thereunder and the entities’
rules and governing documents, as
applicable.337 Broadly speaking,
Regulation SCI also requires SCI entities
to take appropriate corrective action
when systems issues occur; provide
certain notifications and reports to the
Commission regarding systems
problems and systems changes; inform
members and participants about systems
issues; conduct business continuity and
disaster recovery testing and penetration
testing; conduct annual reviews of their
automated systems; and make and keep
certain books and records.338
Regulation SCI applies primarily to
the systems of, or operated on behalf of,
SCI entities that directly support any
one of six key securities market
functions—trading, clearance and
settlement, order routing, market data,
market regulation, and market
surveillance (‘‘SCI systems’’).339 With
respect to security, Regulation SCI also
applies to systems that, if breached,
would be reasonably likely to pose a
security threat to SCI systems (‘‘indirect
SCI systems’’).340 In addition, certain
systems whose function are critical to
the operation of the markets, including
those that represent single points of
failure (defined as ‘‘critical SCI
systems’’), are subject to certain
heightened requirements.341
When adopting Regulation SCI, the
Commission included within the scope
of Regulation SCI those entities ‘‘that
play a significant role in the U.S.
securities markets and/or have the
potential to impact investors, the overall
market, or the trading of individual
securities.’’ 342 The Commission
identified by function the key market
participants it believed were integral to
ensuring the stability, integrity, and
resiliency of securities market
infrastructure.343 As discussed below,
SCI ATSs are currently among those
entities that are subject to Regulation
SCI, as they are heavily reliant on
automated systems and represent a
337 See
338 See
17 CFR 242.1001; infra notes 365–374.
17 CFR 242.1001–1007; infra notes 365–
386.
339 See
17 CFR 242.1000.
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340 Id.
341 Id. See also Regulation SCI Adopting Release,
supra note 2, at 72277. Paragraph (1) of the
definition of ‘‘critical SCI systems’’ in Rule 1000 of
Regulation SCI specifically enumerates certain
systems to be within its scope, including those that
directly support functionality relating to: (i)
clearance and settlement systems of clearing
agencies; (ii) openings, reopenings, and closings on
the primary listing market; (iii) trading halts; (iv)
initial public offerings; (v) the provision of
consolidated market data; or (vi) exclusively-listed
securities. 17 CFR 242.1000(1).
342 See Regulation SCI Adopting Release, supra
note 2, at 72258.
343 See id. at 72254.
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significant pool of liquidity for NMS
and non-NMS stocks.344 However, when
the Commission adopted Regulation
SCI, the Commission applied it to ATSs
that trade NMS stocks and non-NMS
stocks, but not to fixed income ATSs.
Rather, in the context of the municipal
and corporate debt markets, the
Commission stated that fixed income
markets rely much less on automation
and electronic trading than markets that
trade NMS stocks or non-NMS stocks.345
The Commission also stated that the
municipal and corporate debt markets
tend to be less liquid than the equity
markets, with slower execution times
and less complex routing strategies.346
Although the Commission
differentiated fixed income securities
generally from equity securities when it
adopted Regulation SCI, in light of the
increasing automation of the
government securities market and the
operational similarities between many
Government Securities ATSs and NMS
Stock ATSs,347 the Commission
preliminarily believes that it would be
appropriate to apply the requirements of
Regulation SCI to Government
Securities ATSs that meet certain
volume thresholds. As the Commission
previously stated, while technological
developments provide many benefits to
the U.S. securities markets, they also
increased the risk of operational
problems that have the potential to
cause a widespread impact on the
securities market and its participants.348
The application of Regulation SCI to
Government Securities ATSs that trade
a significant volume of U.S. Treasury
Securities or Agency Securities would
further help to address those
technological vulnerabilities, and
improve the Commission’s oversight, of
344 See id. at 72262–63. Rule 1000 of Regulation
SCI defines SCI ATS to mean an ATS, which,
during at least four of the preceding six calendar
months, had: (1) With respect to NMS stocks: (i)
five percent or more in any single NMS stock, and
0.25 percent or more in all NMS stocks, of the
average daily dollar volume reported by an effective
transaction reporting plan, or (ii) one percent or
more, in all NMS stocks, of the average daily dollar
volume reported by an effective transaction
reporting plan; or (2) with respect to equity
securities that are not NMS stocks and for which
transactions are reported to an SRO, five percent or
more of the average daily dollar volume as
calculated by the SRO to which such transactions
are reported. See 17 CFR 242.1000. Rule 1000 also
states that an ATS that meets one of these
thresholds is not required to comply with
Regulation SCI until six months after satisfying the
threshold for the first time. See id.
345 See Regulation SCI Adopting Release, supra
note 2, at 72270.
346 See id.
347 See supra Section I.A.
348 See Regulation SCI Adopting Release, supra
note 2, at 72253.
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the core technology used by key U.S.
securities markets participants.
Accordingly, under this proposal, the
definition of ‘‘SCI ATSs’’ would be
expanded to include certain
Government Securities ATSs that meet
certain volume thresholds with respect
to U.S. Treasury Securities and/or
Agency Securities, as the Commission
believes such ATSs similarly rely
heavily on automated systems and
represent a significant source of orders
and trading interest in these asset
classes.349 Specifically, the definition of
‘‘SCI ATS’’ would be revised to include
those ATSs which, during at least four
of the preceding six calendar months:
Had, with respect to U.S. Treasury
Securities, five percent (5%) or more of
the average weekly dollar volume traded
in the United States as provided by the
SRO to which such transactions are
reported; or had, with respect to Agency
Securities, five percent (5%) or more of
the average daily dollar volume traded
in the United States as provided by the
SRO to which such transactions are
reported. These proposed thresholds are
the same as those being proposed for
Government Securities ATSs with
respect to the Fair Access Rule under
Regulation ATS.350
The Commission believes that the
proposed thresholds for applying
Regulation SCI to Government
Securities ATSs are appropriate
measures to identify those ATSs that
have the potential to significantly
impact investors and the market should
a systems issue occur.351 Currently, the
Commission believes that
approximately three ATSs trading U.S.
Treasury Securities and one ATS
trading Agency Securities would be
subject to Regulation SCI under the
proposed five percent volume
thresholds.352 The ATS with the largest
market volume in U.S. Treasury
Securities has around 24 percent of
349 See paragraphs (3) and (4) of the proposed
definition of ‘‘SCI ATS’’ under Rule 1000 of
Regulation SCI.
350 See supra Section II.D. (Application of Fair
Access to Government Securities ATSs).
351 Under the proposal, Regulation SCI would not
apply to Government Securities ATSs that trade
repos, including repos on U.S. Treasury Securities
and Agency Securities. Based on information
available to the Commission, the Commission does
not believe that ATSs today capture a significant
market share for trading repos nor do they rely on
the same level of automation as ATSs that trade
U.S. Treasury Securities or Agency Securities. The
Commission is requesting comment on this
preliminary assessment and whether the
Commission should amend Regulation SCI to
require Government Securities ATSs that trade
repos, including repos on U.S. Treasury Securities
and Agency Securities, to be subject to the
requirements of Regulation SCI.
352 See supra Section II.D and infra Section
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market volume, while each of the
second and third largest is slightly
above five percent market share. The
one ATS that would exceed the
proposed threshold for Agency
Securities accounts for roughly 13
percent of volume in Agency
Securities.353 If the proposed volume
thresholds were 7.5 or 10 percent,
however, only one ATS trading U.S.
Treasury Securities and one ATS
trading Agency Securities would be
subject to Regulation SCI.354 The
Commission is requesting comment on
whether these proposed volume
thresholds should be set higher or lower
for trading of U.S. Treasury Securities or
Agency Securities by a Government
Securities ATS.
The Commission believes that the
proposed volume thresholds to apply
Regulation SCI to a Government
Securities ATS that trades U.S. Treasury
Securities and Agency Securities are
reasonable as compared to volume
thresholds for applying Regulation SCI
to ATSs that trade NMS stocks and
ATSs that trade equity securities that
are not NMS stocks. First, an ATS that
trades NMS stocks is subject to
Regulation SCI if its trading volume
reaches: (i) Five percent or more in any
single NMS stock and one-quarter
percent or more in all NMS stocks of the
average daily dollar volume reported by
applicable transaction reporting plans;
or (ii) one percent or more in all NMS
stocks of the average daily dollar
volume reported by applicable
transaction reporting plans. With
respect to non-NMS equity securities, an
ATS is subject to Regulation SCI if its
trading volume is five percent or more
of the average daily dollar volume
(across all non-NMS equity securities)
as calculated by the SRO to which such
transactions are reported. The proposed
SCI volume thresholds for Government
Securities ATSs would be similar to
those for ATSs that trade non-NMS
equity securities. The Commission
believes that basing the thresholds on
volume as provided by the SRO to
which such transactions are reported is
reasonable given that there is no
transaction reporting plan for
government securities and thus, the
trading figures are based on dollar
volume traded in the United States as
provided by the SRO to which such
transactions are reported.
In addition, the Commission believes
that the proposed volume thresholds to
apply Regulation SCI to a Government
Securities ATS that trades U.S. Treasury
Securities and Agency Securities are
353 See
354 See
infra Table X.1.
id.
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reasonable compared to volume
thresholds that would subject an ATS to
Rule 301(b)(6) under Regulation ATS
(i.e., the Capacity, Integrity, and
Security Rule) for the ATS’s trading of
corporate bonds and municipal
securities. While Regulation SCI is not
applicable to ATSs that trade corporate
bonds or municipal securities, an ATS
that trades corporate bonds or
municipal securities is subject to Rule
301(b)(6) if its trading volume reaches
20 percent or more of the average daily
volume traded in the United States for
either corporate bonds or municipal
securities.355 When the Commission
adopted Regulation SCI, it decided not
to apply Regulation SCI and its lower
volume thresholds to the fixed income
markets, concluding that a systems issue
in fixed income markets would not have
had as significant or widespread an
impact as in the equities market.356
Among other things, the Commission
reasoned that the fixed income markets
at the time relied much less on
automation and electronic trading than
the equities markets, and that the
municipal securities and corporate bond
fixed income markets tended to be less
liquid than the equity markets, with
slower execution times and less
complex routing strategies.357 As
explained above, however, ATSs for
government securities now operate with
complexity similar to that of markets
that trade NMS stocks in terms of
automation and speed of trading, the
use of limit order books, order types,
algorithms, connectivity, data feeds, and
the active participation of PTFs.358
Government securities also make up
more than half of the outstanding debt
issuances in the U.S. bond market and
play a critical role in the U.S. and global
economies.359 An ATS whose
government securities volume falls
between five percent and 20 percent of
trading volume could significantly
impact investors and the market should
a systems issue occur, as discussed
below in this section. By proposing to
apply Regulation SCI to Government
Securities ATSs with a threshold of
below 20 percent the Commission seeks
355 See 17 CFR 242.301(b)(6). The requirements of
Rule 301(b)(6) are less rigorous than the
requirements of Regulation SCI. Among other
things, Rule 301(b)(6) requires an ATS to notify the
Commission staff of material systems outages and
significant systems changes and that the ATS
establish adequate contingency and disaster
recovery plans. See id. Currently, there are no ATSs
that are subject to requirements of Rule 301(b)(6) of
Regulation ATS.
356 See Regulation SCI Adopting Release, supra
note 2, at 72270.
357 See id.
358 See supra note 5.
359 See supra notes 5–7 and accompanying text.
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to impose the more stringent protections
of Regulation SCI to these ATSs because
of their importance to the U.S. securities
markets. The Commission also
recognizes that ATSs for corporate
bonds and municipal securities are
becoming increasingly electronic and as
part of this release, the Commission is
requesting comment on, among other
things, whether the 20 percent volume
threshold under Rule 301(b)(6) of
Regulation ATS should be amended to
capture ATSs that might be critical
markets for those securities.
When adopting Regulation SCI, the
Commission stated that it would
‘‘monitor and evaluate the
implementation of Regulation SCI, the
risks posed by the systems of other
market participants, and the continued
evolution of the securities markets, such
that it may consider, in the future,
extending the types of requirements in
Regulation SCI to additional categories
of market participants.’’ 360 The
Commission believes that the continued
evolution of the securities markets,
including advancements in technology,
have resulted in significant changes in
how government securities trade.361 In
particular, the structure of the U.S.
Treasury market has evolved in recent
years and electronic trading has become
an increasingly important feature of the
interdealer market for U.S. Treasury
Securities.362 As stated by various
sources, the secondary interdealer cash
markets for on-the-run U.S. Treasury
Securities have evolved such that those
markets operate with complexity similar
to that of markets that trade NMS stocks
in terms of automation and speed of
trading, the use of limit order books,
order types, algorithms, and the active
participation of PTFs on ATSs.363
Given this evolution in the U.S.
Treasury market, the Commission now
believes that there are Government
Securities ATSs that operate with
similar complexity as SCI ATSs that are
currently subject to Regulation SCI, and
that Government Securities ATSs with
significant trading volume play an
important role in the government
securities markets and face similar
technological vulnerabilities as existing
SCI entities. The Commission believes
that, without appropriate safeguards in
place for these Government Securities
ATSs, technological vulnerabilities
could lead to the potential for failures,
disruptions, delays, and intrusions,
which could place government
360 See Regulation SCI Adopting Release, supra
note 2, at 72270.
361 See supra Section I.A.
362 See supra note 14 and accompanying text.
363 See supra notes 14–15 and accompanying text.
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securities market participants at risk,
and could possibly interfere with the
maintenance of fair and orderly markets.
For example, a systems issue could
occur at a Government Securities ATS
with significant trading volume (e.g., a
systems disruption or a cybersecurity
incident that prevented the ATS from
operating or being accessible to its
subscribers), such that certain market
participants or the government
securities markets broadly could be
significantly impacted until such time
that the issue was resolved at the ATS.
In addition, applying Regulation SCI to
these Government Securities ATSs
would help the Commission improve its
oversight of the market for government
securities, thereby continuing its efforts
to address technological vulnerabilities
of the core technology systems of key
U.S. securities markets entities.
As proposed, those Government
Securities ATSs trading U.S. Treasury
Securities and/or Agency Securities that
met the volume thresholds under the
revised definition of SCI ATS would be
subject to the requirements of
Regulation SCI, as described below.364
Rule 1001(a) of Regulation SCI requires
SCI entities to have policies and
procedures reasonably designed to
ensure that their SCI systems and, for
purposes of security standards, indirect
SCI systems, have levels of capacity,
integrity, resiliency, availability, and
security adequate to maintain their
operational capability and promote the
maintenance of fair and orderly markets,
and includes certain minimum
requirements for those policies and
procedures relating to capacity
planning, stress tests, systems
development and testing methodology,
the identification of vulnerabilities,
business continuity and disaster
recovery plans (including geographic
diversity and resumption goals), market
data, and monitoring.365 Rule 1001(a)(3)
of Regulation SCI requires that SCI
entities periodically review the
effectiveness of these policies and
procedures, and take prompt action to
remedy any deficiencies.366 Rule
1001(a)(4) of Regulation SCI provides
that, for purposes of the provisions of
Rule 1001(a), an SCI entity’s policies
and procedures will be deemed to be
364 The Commission is requesting comment on
whether all of the obligations in Regulation SCI
should apply to Government Securities ATSs that
would be SCI ATSs, or whether only certain
requirements should be imposed, such as those
requiring written policies and procedures,
notification of systems problems, business
continuity and disaster recovery testing (including
testing with subscribers of ATSs), and penetration
testing.
365 17 CFR 242.1001(a)(1)–(2).
366 17 CFR 242.1001(a)(3).
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reasonably designed if they are
consistent with current SCI industry
standards, which shall be comprised of
information technology practices that
are widely available to information
technology professionals in the financial
sector and issued by an authoritative
body that is a U.S. governmental entity
or agency, association of U.S.
governmental entities or agencies, or
widely recognized organization; 367
however, Rule 1001(a)(4) of Regulation
SCI also makes clear that compliance
with such ‘‘current SCI industry
standards’’ is not the exclusive means to
comply with these requirements.
Rule 1001(b) of Regulation SCI
requires that each SCI entity establish,
maintain, and enforce written policies
and procedures reasonably designed to
ensure that its SCI systems operate in a
manner that complies with the
Exchange Act and the rules and
regulations thereunder and the entity’s
rules and governing documents, as
applicable, and specifies certain
minimum requirements for such
policies and procedures.368 Rule
1001(b)(3) of Regulation SCI requires
that SCI entities periodically review the
effectiveness of these policies and
procedures, and take prompt action to
remedy any deficiencies.369 Rule
1001(b)(4) of Regulation SCI provides
individuals with a safe harbor from
liability under Rule 1001(b) if certain
conditions are met.370
Rule 1001(c) of Regulation SCI
requires SCI entities to establish,
maintain, and enforce reasonably
designed written policies and
procedures that include the criteria for
identifying responsible SCI personnel,
the designation and documentation of
responsible SCI personnel, and
escalation procedures to quickly inform
responsible SCI personnel of potential
SCI events.371 Rule 1000 of Regulation
SCI defines ‘‘responsible SCI personnel’’
367 17 CFR 242.1001(a)(4). The Commission notes
that, concurrent with the Commission’s adoption of
Regulation SCI, Commission staff issued staff
guidance on current SCI industry standards as
referenced in Regulation SCI. The staff guidance
listed examples of publications in nine domains
describing processes, guidelines, frameworks, or
standards an SCI entity could look to in developing
reasonable policies and procedures to comply with
Rule 1001(a) of Regulation SCI. See ‘‘Staff Guidance
on Current SCI Industry Standards,’’ November 19,
2014, available at: https://www.sec.gov/rules/final/
2014/staff-guidance-current-sci-industrystandards.pdf. The domains included: Application
controls; capacity planning; computer operations
and production environment controls; contingency
planning; information security and networking;
audit; outsourcing; physical security; and systems
development methodology.
368 17 CFR 242.1001(b)(1)–(2).
369 17 CFR 242.1001(b)(3).
370 17 CFR 242.1001(b)(4).
371 17 CFR 242.1001(c).
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to mean, for a particular SCI system or
indirect SCI system impacted by an SCI
event, such senior manager(s) of the SCI
entity having responsibility for such
system, and their designee(s).372 Rule
1000 also defines ‘‘SCI event’’ to mean
an event at an SCI entity that constitutes
a system disruption, a systems
compliance issue, or a systems
intrusion.373 Rule 1001(c)(2) of
Regulation SCI requires that SCI entities
periodically review the effectiveness of
these policies and procedures, and take
prompt action to remedy any
deficiencies.374
Under Rule 1002 of Regulation SCI,
SCI entities have certain obligations
related to SCI events. Specifically, when
any responsible SCI personnel has a
reasonable basis to conclude that an SCI
event has occurred, the SCI entity must
begin to take appropriate corrective
action which must include, at a
minimum, mitigating potential harm to
investors and market integrity resulting
from the SCI event and devoting
adequate resources to remedy the SCI
event as soon as reasonably
practicable.375 Rule 1002(b) provides
the framework for notifying the
Commission of SCI events including,
among other things, to: Immediately
notify the Commission of the event;
provide a written notification within 24
hours that includes a description of the
SCI event and the system(s) affected,
with other information required to the
extent available at the time; provide
regular updates regarding the SCI event
until the event is resolved; and submit
a final detailed written report regarding
the SCI event.376 Rule 1002(c) of
Regulation SCI also requires that SCI
entities disseminate information to their
members or participants regarding SCI
events.377 These information
372 17
CFR 242.1000.
‘‘systems disruption’’ means an event in an
SCI entity’s SCI systems that disrupts, or
significantly degrades, the normal operation of an
SCI system. A ‘‘systems compliance issue’’ means
‘‘an event at an SCI entity that has caused any SCI
system of such entity to operate in a manner that
does not comply with the Act and the rules and
regulations thereunder or the entity’s rules or
governing documents, as applicable.’’ A ‘‘systems
intrusion’’ means any unauthorized entry into the
SCI systems or indirect SCI systems of an SCI
entity.’’ See 17 CFR 242.1000.
374 17 CFR 242.1001(c)(2).
375 See 17 CFR 242.1002(a).
376 See 17 CFR 242.1002(b). For any SCI event
that ‘‘has had, or the SCI entity reasonably estimates
would have, no or a de minimis impact on the SCI
entity’s operations or on market participants,’’ Rule
1002(b)(5) provides an exception to the general
Commission notification requirements under Rule
1002(b). Instead, an SCI entity must make, keep,
and preserve records relating to all such SCI events,
and submit a quarterly report to the Commission
regarding any such events that are systems
disruptions or systems intrusions.
377 See 17 CFR 242.1002(c).
373 A
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dissemination requirements are scaled
based on the nature and severity of an
event. Specifically, for ‘‘major SCI
events,’’ SCI entities are required to
promptly disseminate certain
information about the event to all of its
members or participants. For SCI events
that are not ‘‘major SCI events,’’ SCI
entities must, promptly after any
responsible SCI personnel has a
reasonable basis to conclude that an SCI
event has occurred, disseminate certain
information to those SCI entity members
and participants reasonably estimated to
have been affected by the event. In
addition, dissemination of information
to members or participants is permitted
to be delayed for systems intrusions if
such dissemination would likely
compromise the security of the SCI
entity’s systems or an investigation of
the intrusion.378
Rule 1003(a) of Regulation SCI
requires SCI entities to provide reports
to the Commission relating to system
changes, including a report each quarter
describing completed, ongoing, and
planned material changes to their SCI
systems and the security of indirect SCI
systems, during the prior, current, and
subsequent calendar quarters, including
the dates or expected dates of
commencement and completion.379
Rule 1003(b) of Regulation SCI also
requires that an SCI entity conduct an
‘‘SCI review’’ not less than once each
calendar year.380 ‘‘SCI review’’ is
defined in Rule 1000 of Regulation SCI
to mean a review, following established
procedures and standards, that is
performed by objective personnel
having appropriate experience to
conduct reviews of SCI systems and
indirect SCI systems, and which review
contains: A risk assessment with respect
to such systems of an SCI entity; and an
assessment of internal control design
and effectiveness of its SCI systems and
indirect SCI systems to include logical
and physical security controls,
development processes, and information
technology governance, consistent with
industry standards.381 Under Rule
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378 See
id. In addition, the information
dissemination requirements of Rule 1002(c) do not
apply to SCI events to the extent they relate to
market regulation or market surveillance systems,
or to any SCI event that has had, or the SCI entity
reasonably estimates would have, no or a de
minimis impact on the SCI entity’s operations or on
market participants. See 17 CFR 242.1002(c)(4).
379 See 17 CFR 242.1003(a).
380 See 17 CFR 242.1003(b).
381 See 17 CFR 242.1000. Rule 1003(b)(1) of
Regulation SCI also states that penetration test
reviews of an SCI entity’s network, firewalls, and
production systems must be conducted at a
frequency of not less than once every three years,
and assessments of SCI systems directly supporting
market regulation or market surveillance must be
conducted at a frequency based upon the risk
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1003(b)(2)–(3), SCI entities are also
required to submit a report of the SCI
review to their senior management, and
must also submit the report and any
response by senior management to the
report, to their board of directors as well
as to the Commission.382
Rule 1004 of Regulation SCI sets forth
the requirements for testing an SCI
entity’s business continuity and disaster
recovery plans with its members or
participants. This rule requires that,
with respect to an SCI entity’s business
continuity and disaster recovery plan,
including its backup systems, each SCI
entity shall: (a) Establish standards for
the designation of those members or
participants that the SCI entity
reasonably determines are, taken as a
whole, the minimum necessary for the
maintenance of fair and orderly markets
in the event of the activation of such
plans; 383 (b) designate members or
participants pursuant to the standards
established and require participation by
such designated members or
participants in scheduled functional
and performance testing of the operation
of such plans, in the manner and
frequency specified by the SCI entity,
provided that such frequency shall not
be less than once every 12 months; and
(c) coordinate the testing of such plans
on an industry- or sector-wide basis
with other SCI entities.
SCI entities are required by Rule 1005
of Regulation SCI to make, keep, and
preserve certain records related to their
compliance with Regulation SCI.384
Rule 1006 of Regulation SCI provides
for certain requirements relating to the
electronic filing, on Form SCI, of any
notification, review, description,
analysis, or report to the Commission
required to be submitted under
Regulation SCI.385 Finally, Rule 1007 of
Regulation SCI contains requirements
relating to a written undertaking when
records required to be filed or kept by
an SCI entity under Regulation SCI are
prepared or maintained by a service
bureau or other recordkeeping service
on behalf of the SCI entity.386
Request for Comment
125. Should Regulation SCI apply to
Government Securities ATSs that meet
the proposed definition of SCI ATS? If
assessment conducted as part of the SCI review, but
in no case less than once every three years. See 17
CFR 242.1003(b)(1)(i)–(ii).
382 See 17 CFR 242.1003(b)(2)–(3).
383 See 17 CFR 242.1004.
384 See 17 CFR 242.1005. Rule 1005(a) of
Regulation SCI relates to recordkeeping provisions
for SCI SROs, whereas Rule 1005(b) relates to the
recordkeeping provision for SCI entities other than
SCI SROs.
385 See 17 CFR 242.1006.
386 See 17 CFR 242.1007.
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so, are the proposed revisions to the
definition of SCI ATS appropriate?
126. What are the risks associated
with systems issues at a significant
Government Securities ATS? What
impact would a systems issue have on
the trading of government securities and
the maintenance of fair and orderly
markets? Should all the requirements
set forth in Regulation SCI apply to
Government Securities ATSs that meet
the proposed definition of SCI ATS?
127. Should Government Securities
ATSs that meet the proposed volume
thresholds for SCI ATSs be governed by
the Capacity, Integrity, and Security
Rule instead of being defined as SCI
entities? Are there Government
Securities ATSs that play a significant
role in the secondary market for U.S.
Treasury Securities but do not meet the
proposed volume thresholds for SCI
ATSs for which a different threshold
should be established to mandate
compliance with the Capacity, Integrity,
and Security Rule? If yes, what
additional regulatory requirements, if
any, should be imposed on such ATSs?
What would be the costs and benefits
associated with applying Rule 301(b)(6)
to Government Securities ATSs that are
not SCI ATSs?
128. Should the Commission amend
Regulation ATS to require Government
Securities ATSs to comply with Rule
301(b)(6) but adopt a threshold that is
lower or higher than 20 percent? For
example, should the Commission
amend Rule 301(b)(6) to subject
Government Securities ATSs, or certain
Government Securities ATSs, to the
requirements of the rule if the
Government Securities ATS reaches a 5
percent, 7.5 percent, 10 percent, or 15
percent volume threshold?
129. Do commenters believe that,
even though certain Government
Securities ATSs play a significant rule
in the U.S. securities markets, regulatory
requirements such as Regulation SCI
and the Capacity, Integrity, and Security
Rule are not necessary? If so, please
specifically explain how the policy
goals of Regulation SCI and the
Capacity, Integrity, and Security Rule
would continue to be achieved for such
systems without relevant regulation.
130. Should the volume threshold to
meet the definition of SCI ATS include
trading in U.S. Treasury Securities and
Agency Securities? Should Regulation
SCI be applied to ATSs for any other
type of government securities? Should
Regulation SCI be applied to ATSs that
trade repos or reverse repos on
government securities, including repos
or reverse repos on U.S. Treasury
Securities, Agency Securities, or both?
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131. Should the proposed five percent
threshold test for U.S. Treasury
Securities be applied to all types of U.S.
Treasury Securities or only to a subset(s)
of U.S. Treasury Securities? For
example, should the five percent
volume test only be applied to
transaction volume in on-the-run U.S.
Treasury Securities? Should the five
percent threshold only be applied to
transaction volume in all Agency
Securities or only to a subset(s) of
Agency Securities?
132. Is the five percent threshold an
appropriate threshold to capture ATSs
that are significant markets for trading
in U.S. Treasury Securities or Agency
Securities? Would the five percent
threshold capture ATSs that are not
significant markets for U.S. Treasury
Securities and Agency Securities? If
commenters believe that there should be
a percent threshold for a subset of U.S.
Treasury Securities, such as on-the-run
U.S. Treasury Securities or off-the-run
U.S. Treasury Securities, what should
that threshold be?
133. Should the Commission adopt a
percent volume threshold that is lower
than five percent for U.S. Treasury
Securities, Agency Securities, or both? If
so, what percentage threshold should
the Commission adopt for Treasury
Securities and Agency Securities? For
example, should the Commission adopt
a threshold that is four percent, three
percent, two percent, or one percent for
U.S. Treasury Securities? Should the
Commission adopt a threshold that is
four percent, three percent, two percent,
or one percent for Agency Securities?
Should there be no threshold for U.S.
Treasury Securities? Should there be no
threshold for Agency Securities? Please
support your views.
134. Should the Commission adopt a
percent volume threshold that is higher
than five percent for U.S. Treasury
Securities, Agency Securities, or both?
For example, should the Commission
adopt a threshold that is 7.5 percent, 10
percent, 15 percent, or 20 percent for
U.S. Treasury Securities? Should the
Commission adopt a threshold that is
7.5 percent, 10 percent, 15 percent, or
20 percent for Agency Securities?
135. Is it appropriate to use five
percent of average weekly dollar volume
traded in the United States as a
threshold for application of Regulation
SCI requirements to U.S. Treasury
Securities? If the average weekly dollar
volumes were to include transactions in
the secondary cash market for U.S.
Treasury Securities by non-FINRA
members, which currently are not
reported to, or collected by, the SRO
that makes public average weekly dollar
volume statistics, should the Regulation
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SCI threshold change? If so, what
should be the appropriate threshold?
Please support your views.
136. Is it appropriate to use five
percent of average daily dollar volume
traded in the United States as a
threshold for the application of
Regulation SCI requirements to Agency
Securities?
137. Is the proposed four out of six
month period an appropriate period to
measure the volume thresholds for U.S.
Treasury Securities, Agency Securities,
or both? If not, what period of time
would be appropriate?
138. Should the proposed Regulation
SCI volume threshold measurement for
Government Securities ATSs take into
account whether Government Securities
ATSs under common control share the
same technology platform? For example,
should two or more Government
Securities ATSs under common control
and operating on the same technology
platform be viewed as a single entity
required to aggregate volume for
purposes of determining whether the
threshold test has been satisfied?
139. Should only certain provisions of
Regulation SCI apply to Government
Securities ATSs that meet the proposed
definition of SCI ATS? For example,
should they only be subject to certain
aspects of Regulation SCI? If so, which
provisions should apply? Do
commenters believe that different or
unique requirements should apply to
the systems of such Government
Securities ATSs? What should they be
and why?
140. In what instances, if at all,
should the systems of Government
Securities ATSs that meet the proposed
definition of SCI ATS be defined as
‘‘critical SCI systems’’? Please describe.
141. Which subscribers or types of
subscribers should Government
Securities ATSs that meet the proposed
definition of SCI ATS consider as
‘‘designated members or participants’’
that should be required to participate in
the annual mandatory business
continuity and disaster recovery testing?
Please describe.
142. Should Government Securities
ATSs that meet the proposed definition
of SCI ATS not be defined as SCI
entities but should be required to
comply with provisions comparable to
provisions of Regulation SCI?
143. What are the current practices of
Government Securities ATSs with
respect to the subject matter covered by
Regulation SCI? To what extent do
Government Securities ATSs have
practices that are consistent with the
requirements under Regulation SCI? To
what extent do Government Securities
ATSs’ practices differ from the
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requirements under Regulation SCI?
Please describe and be specific. Would
the application of Regulation SCI or the
Capacity, Integrity, and Security Rule
weaken ATSs’ existing capacity,
integrity, and security programs?
144. Are there characteristics specific
to the government securities market that
would make applying Regulation SCI
broadly or any specific provision of
Regulation SCI to Government
Securities ATSs unduly burdensome
and inappropriate?
145. As commenters think about
whether and how to apply Regulation
SCI to Government Securities ATSs, are
there any lessons commenters can draw
from the market stress during Spring
2020, including, for example, lessons
learned regarding business continuity or
capacity planning?
VII. General Request for Comment
The Commission is requesting
comments from all members of the
public. The Commission particularly
requests comment from the point of
view of persons who operate ATSs that
would meet the proposed definition of
Government Securities ATS, subscribers
to those systems, and investors. The
Commission seeks comment on all
aspects of the proposed rule
amendments and proposed form,
particularly the specific questions posed
above. Commenters are requested to
provide empirical data in support of any
arguments or analyses. With respect to
any comments, the Commission notes
that they are of the greatest assistance to
its rulemaking initiative if accompanied
by supporting data and analysis of the
issues addressed in those comments and
by alternatives to the Commission’s
proposals where appropriate.
VIII. Concept Release on Electronic
Corporate Bond and Municipal
Securities Market
The SEC Fixed Income Market
Structure Advisory Committee
(‘‘FIMSAC’’), formed by the Commission
in 2017, was established to provide the
Commission ‘‘with diverse perspectives
on the structure and operations of the
U.S. fixed income markets, as well as
advice and recommendations on matters
related to fixed income market
structure.’’ 387 In 2018, the Committee
made a recommendation to the
Commission concerning the regulation
of corporate and municipal debt trading
platforms.388 The FIMSAC’s core
387 FIMSAC Charter art. 3 (November 15, 2017),
available at https://www.sec.gov/files/fimsaccharter.pdf.
388 See FIMSAC, Recommendation for the SEC to
Review the Framework for the Oversight of
Electronic Trading Platforms for Corporate and
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concern was the lack of regulatory
harmonization among fixed income
electronic trading platforms, recognizing
that some firms were regulated as ATSs,
while some were regulated as brokerdealers or not at all. The FIMSAC stated
that the varying regulatory treatment
among fixed income electronic trading
platforms is based on differences in
trading protocols or business models.
The FIMSAC concluded that these
distinctions in regulatory oversight
complicate efforts to improve the
efficiency and resiliency of the fixed
income electronic trading markets.
Furthermore, the FIMSAC stated that
without a unifying regulatory
framework for all fixed income
electronic trading platforms, market
structures will likely fragment further as
regulators adopt new regulations that
apply to only one type of platform.
As such, the FIMSAC recommended,
among other things, that the
Commission form, together with FINRA
and the MSRB, a joint working group to
review the regulatory framework for
oversight of fixed income electronic
trading platforms.389 Furthermore, when
the Commission adopted the enhanced
transparency rules for NMS Stock ATSs,
the Commission stated that in light of
the recent recommendations of the
FIMSAC, and comments received on the
proposal to amend Regulation ATS for
NMS Stock ATSs, the Commission
would review the regulatory framework
for fixed income electronic trading
platforms, including to consider
whether the Commission should
propose amendments to Regulation ATS
(and any other applicable rules) to
account for operational and regulatory
Municipal Bonds (July 16, 2018), available at
https://www.sec.gov/spotlight/fixed-incomeadvisory-committee/fimsac-electronic-tradingplatforms-recommendation.pdf. For purposes of
this concept release, corporate debt securities
(‘‘corporate debt’’) and municipal debt securities
(‘‘municipal debt’’) are collectively referred to as
‘‘fixed income securities,’’ which do not include
government securities.
389 Specifically, the FIMSAC recommended that
the SEC, FINRA, and MSRB form a joint working
group to conduct a review of the regulatory
framework for oversight of electronic trading
platforms used in the corporate and municipal bond
markets: (i) To ensure that the regulatory framework
best promotes the growth of fair and effective fixed
income electronic trading markets; (ii) to ensure
that no regulatory gaps or inconsistencies in the
application of such regulation exist that increase
the potential for investor harm, systemic risk or
unfair competition; (iii) to consider whether
Regulation ATS (and any other applicable rules)
should be amended to account for differences in
protocols and market structures commonly used to
trade fixed income as compared to equities; (iv) to
ensure that regulation is not unfairly promoting or
impeding specific trading protocols and business
models over others; and (v) to consider whether any
existing regulation impacting the fixed income
electronic trading markets is unnecessary from a
cost-benefit perspective. See id.
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differences among fixed income
electronic trading platforms.390
While the trading protocols generally
differ from those used in the interdealer
secondary cash markets for on-the-run
U.S. Treasury Securities, trading of
corporate debt and municipal debt often
does occur on ATSs and other electronic
platforms. These electronic platforms
might offer various protocols for
bringing together buyers and sellers in
fixed income securities, including
auctions, central limit order books,
negotiation functionalities, and request
for quote platforms (‘‘RFQ platforms’’).
The Commission is soliciting public
comment to obtain information about
fixed income electronic trading
platforms, including their operations,
services, fees, market data, and
participants.391 This information could
help the Commission and other
regulators evaluate potential regulatory
gaps that may exist among these
platforms with respect to access to
markets, system integrity, surveillance,
and transparency, among other things.
The Commission expects that the
comments it receives will ultimately
inform regulatory policy. The
Commission requests comment on the
following:
146. Given the technological
developments in the fixed income
electronic trading markets and
electronic trading of fixed income
securities, do commenters believe that
the current regulatory framework for
fixed income electronic trading
platforms best promotes the growth of
fair and efficient markets for investors?
If not, what regulatory approach(es)
would best address the needs of the
market and market participants? Does
the current regulatory structure for
national securities exchanges, brokerdealers, and ATSs cover the full range
of fixed income electronic trading
platforms operating today? If not, please
explain any gaps in the regulatory
structure and to which platforms it does
not apply.
147. Exchange Act Rule 3b–16(a) sets
forth a functional test of whether a
system meets the definition of an
exchange. Specifically, Rule 3b–16(a)
provides that an organization,
association, or group of persons meets
the Exchange Act definition of
‘‘exchange’’ if it: (1) Brings together the
390 See Regulation NMS Stock ATS Adopting
Release, supra note 1, at 38783–84.
391 While this concept release is focused on
electronic trading platforms for corporate debt and
municipal debt, to the extent commenters believe
comments are relevant to electronic trading
platforms for other types of debt securities,
including government securities, that information
would be helpful to the Commission.
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orders for securities of multiple buyers
and sellers; and (2) uses established,
non-discretionary methods (whether by
providing a trading facility or by setting
rules) under which such orders interact
with each other, and the buyers and
sellers entering such orders agree to the
terms of a trade. Is the Commission’s
approach under Exchange Act Rule 3b–
16(a) appropriate for fixed income
electronic trading platforms? If not,
what elements of the definition of
exchange under Rule 3b–16(a) do
commenters believe that the
Commission should consider changing
and why? For example, should or
should not the element of ‘‘orders’’ in
Rule 3b–16(a) be included in the
definition of exchange with regard to
fixed income electronic trading
platforms?
148. Are there particular elements of
the definition of exchange under
Exchange Act Rule 3b–16(a) that should
or should not be changed with respect
to fixed income electronic trading
platforms, or more specifically, the
corporate debt markets or municipal
debt markets? What are commenters’
views on the potential consequences of
expanding or limiting the definition of
exchange under Rule 3b–16(a) with
regard to these trading platforms or
markets? For instance, what are
commenters’ views on how changing
Rule 3b–16(a) could benefit or harm
investors and the market participants
that use fixed income electronic trading
platforms? Should the Commission,
rather than amending Rule 3b–16(a),
issue guidance on the elements of Rule
3b–16(a) regarding considerations
relevant to the definition of exchange in
the context of a fixed income platform?
If so, what elements of Rule 3b–16(a)
should the Commission issue guidance
on and why? For example, should the
Commission issue guidance on what is
considered an ‘‘order’’ under Rule 3b–
16(a)? Given the technological changes
in the securities industry since
Regulation ATS was adopted in 1998,
should the Commission revise, or
provide additional, examples in
Regulation ATS of systems that fall
within or outside the definition of
exchange under Rule 3b–16? 392
149. As noted above, fixed income
electronic trading platforms offer a
variety of different trading protocols and
business models, and the FIMSAC
expressed concern about varying
regulatory treatment among these
trading platforms. What do commenters
believe are the key common
characteristics of a fixed income
392 See Regulation ATS Adopting Release, supra
note 35, at 70854–56.
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electronic trading platform that should
merit their common regulation under
the securities laws?
150. As noted above, securities
intermediaries generally are regulated
either as exchanges or as brokers or
dealers. What do commenters believe
are the key regulatory standards that
should apply to fixed income electronic
trading platforms? Are there aspects of
the current regulatory structure, other
than regulatory treatment, that should
not apply to these trading platforms?
Are there other standards not addressed
in the current regulation that should be
considered? How could the current
regulatory structure for these trading
platforms be improved?
151. What do commenters believe are
the key inconsistencies in the regulation
of fixed income electronic trading
platforms? Do these inconsistencies
create risks to the integrity of the market
for fixed income securities, and if so,
how? Do these inconsistencies create
burdens on competition among market
participants, and if so, how?
152. Is the current regulatory
framework for fixed income electronic
trading platforms unfairly promoting or
impeding specific trading platforms or
trading protocols over others, and if so,
how? How, if at all, is the current
regulatory structure hindering
automation of the markets?
153. The Commission, FINRA, and
the MSRB all have important roles in
the regulation of corporate and
municipal debt markets. Do commenters
believe that the combined regulation of
these markets is effective? If not, how
could collective regulation of these
markets be improved?
154. Should the Commission consider
a definition of exchange that is unique
for fixed income electronic trading
platforms? If so, what should that
definition be and what aspects of the
fixed income electronic trading markets
should the definition address or not
address? What are commenters’ views
on how such a definition would be
advantageous or disadvantageous to
market participants that use fixed
income electronic trading platforms and
investors? How would a definition of
exchange tailored for fixed income
electronic trading platforms promote
fair and orderly markets? How could
such a definition be crafted in a way
that would account for potential
changes in technology that could be
applied to fixed income markets and
trading in the future? Would a separate
definition of exchange for fixed income
electronic trading platforms conflict, or
create investor confusion, with regard to
a definition of exchange for other asset
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classes, such as government securities,
NMS stock, or OTC equity securities?
155. Some electronic platform
providers offer their customers a suite of
different types of electronic trading
protocols (e.g., auctions, request for
quotes, central limit order books) that
are designed to find and match
counterparties. These electronic
platform providers might also offer
voice protocols or a hybrid of voice and
electronic protocols and pricing data
and facilitate trade reporting and
clearing services. Do electronic platform
providers such as these provide fixed
income market participants with a
marketplace for buying and selling fixed
income products? Should all the
protocols and services offered by
electronic platform providers be
considered together for purposes of the
definition of exchange under federal
securities laws?
156. Are the current conditions to the
exemption from the definition of an
‘‘exchange’’ under Regulation ATS
appropriate for ATSs that trade
corporate or municipal debt securities
(‘‘Fixed Income ATSs’’)? For example,
should Fixed Income ATSs that file a
confidential Form ATS with the
Commission be subject to the similar
operational transparency rules as an
NMS Stock ATS that files a public Form
ATS–N with the Commission and
disclose similar detailed information
about the ATS’s manner of operations
and ATS-related activities of the brokerdealer operator and its affiliates? If yes,
what types of disclosures should such a
form solicit? What type of disclosures
should such a form not solicit? How
should the form compare to Form ATS–
N?
157. Should the Commission continue
to require Fixed Income ATSs to file a
Form ATS but make Form ATS public?
If so, how, if at all, should Form ATS
be amended?
158. Rule 304 of Regulation ATS
provides a process for the Commission
to review Form ATS–N before it
becomes effective and the NMS Stock
ATS can operate pursuant to the
exemption under Exchange Act Rule
3a1–1(a)(2). Rule 304 also provides the
Commission with the opportunity to
declare the Form ATS–N ineffective
after notice and opportunity for hearing.
Fixed Income ATSs operate pursuant to
the same exemption provided under
Exchange Act Rule 3a1–1(a)(2) as NMS
Stock ATSs but are not subject to Rule
304. Should the Commission amend
Regulation ATS to apply Rule 304 of
Regulation ATS to Fixed Income ATSs?
159. Today, ATSs can only transact in
securities; however, an ATS may, in
addition to its Rule 3b–16 activity,
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conduct secondary transactions in
securities in manners that may not meet
a criteria of Exchange Act Rule 3b–16(a).
Should the Commission amend
Regulation ATS to require Fixed Income
ATSs to only operate in a manner that
meets the criteria of Rule 3b–16(a)?
What would be the advantages and
disadvantages to investors and the
Commission should the Commission
require this?
160. The Fair Access Rule applies
when an ATS, during at least four of the
preceding six months, had five percent
or more of the average daily volume of
municipal securities traded in the
United States or had five percent or
more of the average daily volume of
corporate debt securities traded in the
United States. Do commenters believe
that the current fair access threshold
under Rule 301(b)(5) of Regulation ATS
for Fixed Income ATSs continues to be
appropriate to capture ATSs with a
significant percentage of the trading
volume in corporate debt and municipal
debt? If not, do commenters believe that
access to Fixed Income ATSs is an
important goal that the Commission
should consider in regulating such
platforms? If so, are there circumstances
in which a Fixed Income ATS should be
able to limit access to its system, or
alternatively, should be required to
grant access to its system? Are the
current requirements of the Fair Access
Rule appropriate for Fixed Income
ATSs? Should the definition of
exchange and Regulation ATS be
amended so that the Fair Access Rule
applies to transactions in fixed income
securities occurring through various
platforms offered by a broker-dealer and
its affiliates in which the broker-dealer
also operates a Fixed Income ATS?
Should the Fair Access Rule apply to
platforms that trade fixed income
securities but are not Fixed Income
ATSs?
161. The current Capacity, Integrity,
and Security Rule under Rule 301(b)(6)
of Regulation ATS applies when an
ATS, during at least four of the
preceding six months, had 20 percent or
more of the average daily volume of
municipal securities traded in the
United States or had 20 percent or more
of the average daily volume of corporate
debt securities traded in the United
States. Do commenters believe that the
current Capacity, Integrity, and Security
Rule continues to be appropriate to
capture ATSs with a significant
percentage of the trading volume in
corporate debt and municipal debt?
Should the Commission amend Rule
301(b)(6) to lower the current 20 percent
threshold? If so, should the Commission
adopt a threshold of, for example, 5
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percent, 7.5 percent, 10 percent or 15
percent? Please support your views. Do
commenters believe that the Capacity,
Integrity, and Security Rule
requirements are appropriate for Fixed
Income ATSs? Should the requirements
apply to all Fixed Income ATSs? Should
the Capacity, Integrity, and Security
Rule requirements apply to non-ATS
platforms for corporate bonds and
municipal securities operated by a
broker-dealer that also operates a Fixed
Income ATS? Should the Capacity,
Integrity, and Security Rule apply to
platforms that trade corporate bonds
and municipal securities but are not
Fixed Income ATSs?
162. ATSs that trade equity
securities—both NMS stocks and nonNMS stocks—are no longer subject to
the Capacity, Integrity, and Security
Rule under Rule 301(b)(6) of Regulation
ATS. Rather they are now subject to the
requirements of Regulation SCI.393
Should the Fixed Income ATSs be
subject to Regulation SCI rather than the
Capacity, Integrity, and Security Rule
under Regulation ATS? If yes, should
the same threshold tests for applying
Regulation SCI to an ATS be applied to
Fixed Income ATSs when determining
if a given Fixed Income ATS is an ‘‘SCI
ATS?’’ If not, what trading volume or
other threshold should apply to Fixed
Income ATS?
163. Do commenters believe that it is
clear when a fixed income electronic
trading platform meets the definition of
a broker-dealer under the Exchange Act?
Should the Commission provide
guidance? Are there particular fact
patterns that commenters believe would
be helpful for the guidance to address?
164. Should broker-dealers offering
customers protocols or facilities to buy
and sell fixed income securities that
pursuant to an exemption from the
definition of an exchange, such as
Regulation ATS? Should such platforms
be required to register as something
other than a broker-dealer or national
securities exchange? Should such
systems be subject to the same
operational transparency requirements
for broker-dealers, national securities
exchanges, or ATSs? What aspects of
these systems would be important to
market participants who may use these
platforms? Do commenters believe that
there is sufficient oversight of these
platforms by the Commission? If not,
how should the Commission enhance
oversight of these platforms?
166. As commenters think about
whether and how to change the
regulatory framework for fixed income
electronic trading platforms, are there
any lessons commenters can draw from
the market stress during Spring 2020,
including, for example, lessons learned
regarding business continuity or
capacity planning?
IX. Paperwork Reduction Act
Certain provisions of the proposed
rule amendments contain ‘‘collection of
information’’ requirements within the
meaning of the Paperwork Reduction
Act of 1995 (‘‘PRA’’).394 The
Commission is submitting these
collections of information to the Office
of Management and Budget (‘‘OMB’’) for
review in accordance with 44 U.S.C
3507(d) and 5 CFR 1320.11. An agency
may not conduct or sponsor, and a
person is not required to respond to, a
collection of information unless the
agency displays a currently valid
control number. The title of the new
collection of information is ‘‘Form ATS–
G.’’ The titles of the existing collections
of information are:
OMB control
No.
Rule
Rule title
Rule 304 of Regulation ATS .....................
Rule 301 of Regulation ATS .....................
Rule 302 of Regulation ATS .....................
Regulation ATS Rule 304 and Form ATS–N ...............................................................
Regulation ATS Rule 301 Amendments ......................................................................
Rule 302 (17 CFR 242.302) Recordkeeping Requirements for Alternative Trading
Systems.
Rule 303 (17 CFR 242.303) Record Preservation Requirements for Alternative
Trading Systems.
Form BD and Rule 15b1–1 Application for Registration as a Broker-Dealer .............
Form ID ........................................................................................................................
Regulation SCI and Form SCI .....................................................................................
Rule 303 of Regulation ATS .....................
Rule 15b1–1 under the Exchange Act .....
Rule 10(b) of Regulation S–T ...................
Rules 1001 through 1007 of Regulation
SCI.
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would not meet the Exchange Act
definition of ‘‘exchange’’ otherwise be
subject to the same operational
transparency rules as ATSs? If yes,
should these broker-dealers be required
to: (1) File a form with the Commission
similar to the confidential Form ATS; or
(2) file a form with the Commission
similar to public Form ATS–N for NMS
Stock ATSs? Alternatively, should these
broker-dealers be subject to operational
transparency requirements that are
different than ATSs? If so, what form of
operational transparency is appropriate?
What type of information would be
important for the broker-dealer to
disclose to its customers about the
platform that it operates? Do
commenters have concerns that
increased operational transparency
requirements for these broker-dealers
might cause an undue burden on
competition for them? Do commenters
think that increasing operational
transparency for these broker-dealers
would benefit competition in the
market?
165. Do commenters believe that there
are fixed income electronic trading
platforms that are not registered as
either a broker-dealer or a national
securities exchange and that do not
operate as an ATS but perform similar
market functions as a broker-dealer,
national securities exchange, or an ATS?
If so, please explain what these systems
are and how they may be different or the
same as a broker-dealer, national
securities exchange, or ATS that
operates as a fixed income electronic
trading platform. Do commenters
believe that such platforms should or
should not be required to register with
the Commission? Do commenters
believe that such platforms should or
should not be required to operate
A. Summary of Collection of
Information
The proposed amendments to
Regulation ATS include five new
393 See supra notes 286 and 345 and
accompanying text.
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categories of obligations that would
require a collection of information
within the meaning of the PRA: (1)
Requiring Currently Exempted
394 44
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3235–0763
3235–0509
3235–0510
3235–0505
3235–0012
3235–0328
3235–0703
Government Securities ATSs to comply
with the applicable provisions of Rule
301(b) of Regulation ATS; 395 (2)
applying the requirements of proposed
395 17 CFR 242.301. The applicable provisions are
Rules 301(b)(1), 301(b)(8), 301(b)(9), and 301(b)(10).
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Form ATS–G to Government Securities
ATSs, including both Currently
Exempted Government Securities ATSs
and Legacy Government Securities
ATSs that operate pursuant to a Form
ATS on file with the Commission as of
the Compliance Date; (3) amending
applying the requirements of Regulation
SCI to the trading of U.S. Treasury
Securities and Agency Securities on
Government Securities ATSs. The
proposed new collections of information
are summarized in the following table
below:
ATSs that are not
NMS Stock ATSs or
Government Securities ATSs
Legacy Filers 396
Currently Exempted
Government Securities ATSs
NMS Stock ATSs
Broker-dealer registration (Rule 301(b)(1)) ....
Fair Access Rule (Rule 301(b)(5)) .................
Existing requirement ..
New requirement .......
New requirement .......
New requirement .......
Existing requirement ..
Existing requirement ..
Recordkeeping
requirements
(Rule
301(b)(8)).
Form ATS–R reporting (Rule 301(b)(9)) ........
Existing requirement ..
New requirement .......
Existing requirement ..
Existing requirement.
Existing requirement
for ATSs that trade
certain securities.
Existing requirement.
Revised requirements
of Form ATS–R.
Existing requirement ..
New requirement .......
Revised requirements
of Form ATS–R.
Existing requirement ..
Revised requirements
of Form ATS–R.
Existing requirement.
Existing requirement ..
Existing requirement ..
New requirement
under Rule 304.
New requirement .......
New requirement .......
New requirement
under Rule 304.
New requirement .......
New requirement .......
Existing requirement ..
Existing requirement ..
Revised requirements
of Form ATS–N,
filed pursuant to
Rule 304.
Existing requirement ..
Existing requirement.
Existing requirement.
Revised requirements
of Form ATS, filed
pursuant to Rule
301(b)(2).
Existing requirement
for ATSs that trade
certain securities.
Written safeguards and written procedures to
ensure the confidential treatment of trading
information (Rule 301(b)(10)).
Recordkeeping requirements (Rule 302) .......
Record preservation requirements (Rule 303)
Form ATS/Form ATS–G/Form ATS–N filing
requirements (Rules 301(b)(2) and 304).
Regulation SCI ...............................................
1. Requirements Relating to Application
of Rule 301(b) of Regulation ATS to
Currently Exempted Government
Securities ATSs
The Commission is proposing to
amend Regulation ATS to remove the
exemption from compliance for ATSs
that solely trade government securities
or repos and, therefore, require these
ATSs to comply with the information
collection requirements of Regulation
ATS.397
2. Requirements Relating to Proposed
Amendments to Rules 301(b)(2)(viii)
and 304 of Regulation ATS, Including
Proposed Form ATS–G, and
Amendments to Rule 301(b)(9)
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Regulation ATS to apply the Fair Access
Rule to Government Securities ATSs
that have significantly large trading
volume in U.S. Treasury Securities or
Agency Securities; (4) amending Form
ATS and Form ATS–R to provide that
such forms be filed electronically; (5)
The Commission proposes that any
ATS that meets the definition of
Government Securities ATS would be
required to complete Form ATS–G and
file it with the Commission in a
structured format via EDGAR.398 The
proposal would also require each
Government Securities ATS to make
public via posting on its website (i) a
direct URL hyperlink to the
Commission’s website that contains
New requirement .......
Form ATS–G filings and (ii) the most
recently disseminated Covered Form.399
Proposed Form ATS–G would require
that the responding entity provide
information about the type of filing on
the cover page.400 Part I of proposed
Form ATS–G would require information
about the broker-dealer operator.401
Proposed Part II would require a
Government Securities ATS to disclose
information about the ATS-related
activities of the broker-dealer operator
and its affiliates.402 Proposed Part III
would require the Government
Securities ATS to provide certain
disclosures about the manner of
operations of the ATS.403 Proposed Part
IV would require the Government
Securities ATS to provide contact
information and consent to service of
any civil action brought by, or any
notice of any proceeding before, the
Commission or an SRO in connection
with the ATS’s activities.404
A Government Securities ATS would
be required by Rule 301(b)(9) to file a
Form ATS–R filing for the ATS to report
its trading volume in government
securities and repos.405 An ATS that is
399 See
396 See
text accompanying infra note 422 for the
definition of ‘‘Legacy Filers.’’
397 These requirements are listed on the table
above and described in detail in supra Sections II.C
and II.E.
398 See generally supra Sections II.F; II.H.
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supra Section II.G.
supra Section III.A.1.
401 See supra Section III.A.2.
402 See supra Section III.B.
403 See supra Section III.C.
404 See supra Section III.D.
405 See supra Section II.H.
400 See
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not an NMS Stock ATS or Government
Securities ATS would be subject to Rule
301(b)(2) and file a Form ATS, and, in
accordance with Rule 301(b)(9), a Form
ATS–R.406
3. Requirements Relating to Proposed
Amendments to Rule 301(b)(5)
The Commission is proposing to
amend Regulation ATS to require an
ATS that has a significantly large
percentage of volume of trading in U.S.
Treasury Securities or Agency Securities
to comply with the Fair Access Rule.407
Under proposed Rule 301(b)(5), an ATS
that reaches a certain volume of trading
in U.S. Treasury Securities or Agency
Securities would be required to, among
others things, establish written
standards for granting access to trading
on their systems and apply these
standards fairly, and is prohibited from
unreasonably prohibiting or limiting
any person with respect to trading in the
stated securities. Government Securities
ATSs that meet the fair access
thresholds would also need to comply
with Rule 303(a)(1)(iii),408 which
requires that, for a period of not less
than three years, the first two years in
an easily accessible place, an ATS
preserve at least one copy of its
406 See
id.
CFR 242.301(b)(5). See supra Section II.D.
408 17 CFR 242.303(a)(1)(iii).
407 17
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standards for access to trading, all
documents relevant to its decision to
grant, deny, or limit access to any
person, and all other documents made
or received by the ATS in the course of
complying with Rule 301(b)(5).409
4. Requirements Related to Proposed
Amendments to Rule 301(b)(2), Form
ATS, and Form ATS–R
Rule 301(b)(2) of Regulation ATS
requires that every ATS subject to
Regulation ATS file an initial operation
report,410 amendments to its initial
operation report,411 and a cessation of
operations report on Form ATS.412
ATSs are required to file quarterly
transaction reports on Form ATS–R
pursuant to Rule 301(b)(9).413 The
Commission proposes to require
respondents to submit these reports
electronically.414 The Commission is
also proposing changes to modernize
Form ATS and Form ATS–R.415
5. Requirements Related to
Amendments to Regulation SCI
The Commission is proposing to
expand the definition of ‘‘SCI ATS’’
under Regulation SCI to include
Government Securities ATSs that meet
certain volume thresholds with respect
to U.S. Treasury Securities and/or
Agency Securities. Under the proposal,
a Government Securities ATS that meets
the proposed amended definition of
‘‘SCI ATS’’ would fall within the
definition of ‘‘SCI entity’’ and, as a
result, would be subject to the
requirements of Regulation SCI.416
B. Proposed Use of Information
1. Proposed Amendments To Apply
Rule 301(b) of Regulation ATS to
Currently Exempted Government
Securities ATSs
Records requested by Rule 301(b)(8),
as well as Rules 302 and 303, and
information provided pursuant to the
proposed broker-dealer registration
requirements under Section 15 or
Section 15C(a)(1)(A) of the Exchange
Act, including Form BD and SRO
membership requirements, would allow
the Commission and SROs to examine
Currently Exempted Government
Securities ATSs for compliance with the
conditions of exemption provided under
Exchange Act Rule 3a1–1(a) and
Regulation ATS.417 Information
disclosed on Form ATS–R by Currently
Exempted Government Securities ATSs
under proposed Rule 301(b)(9) would
permit the Commission to monitor the
trading on these ATSs for compliance
with the Exchange Act and applicable
rules thereunder and enforce the Fair
Access Rule. Information contained in
the records required to be preserved
pursuant to proposed Rules 301(b)(10)
and 303(a)(1)(v) would be used by the
Commission, state securities regulatory
authorities, and SROs to better
understand how each Currently
Exempted Government Securities ATS
protects subscribers’ confidential
trading information.
2. Proposed Amendments to Rule
301(b)(5) of Regulation ATS
The Commission will use the
information related to the Fair Access
Rule for Government Securities ATSs to
monitor the growth and development of
Government Securities ATSs. In
addition, the Commission believes that
this information will help the
Commission oversee Government
Securities ATSs to evaluate for
compliance with the Fair Access Rule,
which the Commission believes will
ensure that qualified market
participants have fair access to the
nation’s securities markets.
3. Proposed Amendments to Rule
301(b)(2), Form ATS, and Form ATS–R
The Commission uses the information
provided pursuant to Rule 301 to
monitor the growth and development of
ATSs and oversee ATSs for the purpose
of protecting investors. In particular, the
information collected and reported to
the Commission by ATSs enables the
Commission to evaluate the operation of
ATSs with regard to national market
system goals, and to monitor the
competitive effects of these systems to
ascertain whether the regulatory
framework remains appropriate with
respect to such systems. Without the
information required by Rule 301, the
Commission would be limited in its
ability to comply with its statutory
obligations, including to provide for the
protection of investors and to promote
the maintenance of fair and orderly
markets.
4. Proposed Application of Regulation
SCI to Government Securities ATSs
The Commission would use
information provided pursuant to
Regulation SCI to, among other things,
advance the goal of improving
Commission review and oversight of
U.S. securities market infrastructure and
help promote the maintenance of fair
and orderly markets.418
5. Proposed Rules 301(b)(2)(viii) and
304 of Regulation ATS, Including
Proposed Form ATS–G, and Proposed
Rule 301(b)(9)
The Commission believes that market
participants would use the information
publicly disclosed on proposed Form
ATS–G to compare and evaluate
information about different Government
Securities ATSs. In addition, the
Commission would use the information
disclosed on proposed Form ATS–G and
Form ATS–R to oversee the growth and
development of Government Securities
ATSs. The Commission believes that the
information contained in the records
required to be preserved by Rule
303(a)(2)(ii) would be used by
examiners and other representatives of
the Commission, state securities
regulatory authorities, and SROs to
evaluate whether Government Securities
ATSs are in compliance with Regulation
ATS as well as other applicable rules
and regulations.
C. Respondents
The below table describes the
applicable respondents for each
category of ‘‘collection of information’’
requirements:
‘‘Collection of information’’ requirement
Applicable respondents
Applicable sections of Rule 301(b), Rule 302, and Rule 303 ..................
Currently Exempted Government Securities ATSs and any Government
Securities ATSs that are established in the future.419
All Government Securities ATSs.420
Rule 301(b)(2)(viii), Rule 304 and Form ATS–G, and Rule 301(b)(9) ....
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409 See
supra note 123.
17 CFR 242.301(b)(2)(vi).
411 See 17 CFR 242.301(b)(2)(ii).
412 See 17 CFR 242.301(b)(2)(v).
413 See 17 CFR 242.301(b)(9)(i). An ATS must also
file Form ATS–R more frequently upon request of
the Commission. See Form ATS–R Instructions.
414 See supra Section IV.
415 See id.
410 See
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416 For further details regarding the requirements
of Regulation SCI, see Regulation SCI Adopting
Release, supra note 2.
417 See supra note 101 and accompanying text.
418 See Regulation SCI Adopting Release, supra
note 2, at Section V.B.
419 The ‘‘collection of information’’ requirements
relating to Rule 301(b), Rule 302, and Rule 303 have
previously been established for Legacy Government
Securities ATSs that have previously disclosed on
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their Form ATS their intention to trade government
securities or repos. See FR Doc. 2014–02143, 79 FR
6236 (February 3, 2014) (Submission for OMB
Review, Extension: Rule 301 and Forms ATS and
ATS–R; SEC File No. 270–451; OMB Control No.
3235–0509) (‘‘Rule 301 OMB Update’’).
420 The ‘‘collection of information’’ requirements
relating to Rule 304 and Form ATS–G would
replace the requirements of current Rule 301(b)(2).
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‘‘Collection of information’’ requirement
Applicable respondents
Form ATS .................................................................................................
Form ATS–R .............................................................................................
Rule 301(b)(5) and Regulation SCI ..........................................................
All ATSs that file a Form ATS.
All ATSs that file a Form ATS, Form ATS–N, or Form ATS–G.
All Government Securities ATSs that reach the volume thresholds.
The Commission estimates that there
are 7 Currently Exempted Government
Securities ATSs that would be newly
subject to the requirements of the
exemption under Rule 3a1–1(a)(2) and
required to comply with the applicable
sections of Rule 301(b), Rule 302, and
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Rule 303.421 Of these 7 Currently
Exempted Government Securities ATSs,
the Commission estimates that 1 is
currently operated by a bank and would
be newly subject to broker-dealer
421 The Commission estimates that 5 ATSs that do
not have a Form ATS on file with the Commission
limit their trading activity to government securities
and 2 ATSs limit their trading activity to repos.
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registration requirements under Section
15 or Section 15C(a)(1)(A) of the
Exchange Act.
In addition, there are 19 ATSs
operating pursuant to a Form ATS
currently on file with the Commission
that have noticed that they trade
government securities or repos (‘‘Legacy
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The following chart summarizes the
Commission’s estimated number of
respondents:
Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Proposed Rules
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Filers’’).422 Accordingly, the
Commission estimates that 26
Government Securities ATSs would be
required to comply with Regulation
ATS, including Rule 304, Form ATS–G,
and the proposed amendments related
to Rule 301(b)(9).423 Under the proposed
amendments to Regulation ATS, 17
broker-dealers, each of which operates a
Legacy Filer, would be required to file
a Form ATS to disclose information
about their activities in securities other
than NMS stock, government securities,
or repos, if any.424 Consequently, these
17 broker-dealers would have to amend
Forms ATS to remove discussion of
those aspects of the ATS related to the
trading of government securities and
repos, and on an ongoing basis, file
separate Forms ATS–R to report trading
volume in government securities or
repos.425
The Commission believes that of the
19 Legacy Filers, most would continue
to operate notwithstanding the proposed
amendments to Regulation ATS. For the
purposes of this analysis of the
paperwork burden associated with the
proposed amendments to Regulation
ATS, and to make a complete account
of the impact on potential respondents,
the Commission assumes that there will
be 26 respondents. The Commission
believes that this number is reasonable,
as it assumes that most Legacy Filers
would file a Form ATS–G with the
Commission, and acknowledges that
422 Based on data compiled from Forms ATS
submitted to the Commission as of July 1, 2020, 18
ATSs have disclosed on their Form ATS their
intention to trade government securities, and 3
ATSs have disclosed their intention to trade repos.
2 of the 3 Government Securities ATSs that have
noticed their intention to trade repos have also
noticed their intention to trade government
securities.
423 These 26 ATSs include 19 Legacy Filers that
operate pursuant to a Form ATS as of June 1, 2020
and 7 Currently Exempted Government Securities
ATSs that would be newly subject to the
requirements of the Exchange Act Rule 3a1–1(a)(2)
exemption. As discussed below, the Commission
recognizes that there may be new entities that will
seek to become Government Securities ATSs, that
would be required to comply with Regulation ATS,
including proposed amendments to Rule 304, Rule
301(b)(9), and Form ATS–G.
424 As of July 1, 2020, 2 of the 19 Legacy Filers
trade only government securities or repos.
Therefore, 2 broker-dealers that operate these
Legacy Filers would not be subject to the proposed
requirement to amend Form ATS and file separate
Forms ATS–R.
425 See proposed Rule 301(b)(9).
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there may be some entities that may
choose to commence operations as a
Government Securities ATS and others
that cease operations altogether. In the
Commission’s experience with
implementation of Form ATS–N, a
small number of NMS Stock ATSs either
filed a cessation of operations report
before they were required to file an
initial Form ATS–N or did not file an
initial Form ATS–N. These ATSs may
have ceased operations and did not file
a cessation of operations report or
determined not to file initial Form ATS–
N for a variety of business reasons,
including to not comply with the new
requirements of Form ATS–N. The
Commission observes that from 2015
through the end of 2019, there was an
average of 1 new ATS per year that
disclosed that it trades or expects to
trade government securities or repos on
its initial operation report on Form ATS
and 1 Government Securities ATS that
ceased operations each year. Based on
this information, the Commission
estimates that 1 new entity will file to
become a Government Securities ATS
and 1 Government Securities ATS will
cease operations in each of the next
three years.
Currently, there are 53 ATSs that file
Form ATS. As of July 1, 2020, 2 of these
trade only government securities or
repos and, as proposed, would only be
required to file a Form ATS–G and
amendments to Form ATS–G after the
Compliance Date. Accordingly, the
Commission estimates that 51 ATSs will
continue to file Form ATS amendments.
The Commission also estimates that 34
NMS Stock ATSs will continue to file
Form ATS–N. In addition, the
Commission estimates 94 ATSs will be
required to file Form ATS–R, including
87 ATSs that currently file Form ATS–
R and 7 Currently Exempted
Government Securities ATSs.426
The Commission estimates that of the
26 Government Securities ATSs, 3 will
meet the proposed volume thresholds
426 The numbers of respondents are based on data
compiled from Forms ATS and ATS–R filed with
the Commission as of July 1, 2020. One brokerdealer operates both a Legacy Filer and an NMS
Stock ATS. For purposes of estimating the burden
applicable to this Legacy Filer and NMS Stock ATS,
the Commission counts each ATS operated by a
broker-dealer as a separate respondent because each
such ATS has separate filing obligations. See infra
Section IX.D.4.
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87163
and be subject to the Fair Access Rule
and Regulation SCI.427 The Commission
believes that this number is reasonable
based on the Commission’s review of
the Forms ATS–R of Legacy Filers.
D. Total Initial and Annual Reporting
and Recordkeeping Burdens
1. Rule 301(b) of Regulation ATS to
Currently Exempted Government
Securities ATSs
a. Application of Rule 301(b)(1) to
Currently Exempted Government
Securities ATSs
The Commission recognizes that
applying Rule 301(b)(1) to Currently
Exempted Government Securities ATSs
would impose a new burden on
Currently Exempted Government
Securities ATSs that are banks, as
proposed Rule 301(b)(1) would require
these ATSs to register as broker-dealers
under Section 15 or Section 15C(a)(1)(A)
of the Exchange Act. Based upon the
existing burdens for completing and
filing Form BD and amending Form BD
when information originally reported on
Form BD changes or becomes
inaccurate, the Commission estimates
that burdens for registering with the
Commission as a broker-dealer under
Section 15 or Section 15C(a)(1)(A) 428
would impose the following initial and
annual burdens:
427 See supra Sections II.D and VI. The
Commission believes that 3 Government Securities
ATSs and 1 Government Securities ATS will meet
the proposed volume threshold for U.S. Treasury
Securities and Agency Securities, respectively. The
Commission estimates that the Government
Securities ATS that will meet the threshold for
Agency Securities will also meet the threshold for
U.S. Treasury Securities. Accordingly, the
Commission estimates that, as proposed, 3
Government Securities ATSs will be subject to the
Fair Access Rule and Regulation SCI. In addition,
the Commission believes that 1 of the 3 Government
Securities ATSs that would be subject to Regulation
SCI is currently an SCI entity.
428 The Commission believes that the burden to
register as a government securities broker or dealer
would be, for the purposes for this PRA analysis,
the same as the burden to register as a broker-dealer
because the information the ATS is required to
provide in Form BD and amended Form BD is
similar regardless of whether the ATS is registering
under Section 15 or Section 15C(a)(1)(A). Sole
government securities broker-dealers must indicate
that they are registering as a government securities
broker or dealer under Section 15C of the Exchange
Act on Item 2.C of Form BD. Otherwise, the
information required to be provided on Form BD is
identical.
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Burden
Initial burden
Filing and amending Form BD .................................................................
Per ATS: 2.75 hours 429 ................
Industry: 2.75 hours 430 .................
b. Application of Rules 301(b)(8), 302,
and 303 of Regulation ATS to Currently
Exempted Government SecuritiesATSs
The Commission recognizes that
applying Rule 301(b)(8) to Currently
Exempted Government Securities ATSs
would impose a new burden on
Currently Exempted Government
Securities ATSs, which are currently
not required to comply with these
requirements. Rule 301(b)(8) would
require Currently Exempted
Government Securities ATSs to comply
with the requirements of Rules 302 and
303 of Regulation ATS. Based on the
Annual burden
Per ATS: 1 hour431
Industry: 1 hour 432
Commission’s currently approved
estimates for ATSs, including Legacy
Filers,433 the Commission estimates that
the proposed application of Rules
301(b)(8), 302, and 303 to Currently
Exempted Government Securities ATSs
would impose the following annual
burdens:
Burden
Annual burden
Recordkeeping requirements under Rule 302 ................................................................................
Record preservation requirements under Rule 303 ........................................................................
Total—Rule 301(b)(8) ..............................................................................................................
c. Application of Rule 301(b)(9) to
Currently Exempted Government
Securities ATSs
The Commission recognizes that the
proposed application of Rule 301(b)(9)
to Currently Exempted Government
Securities ATSs would impose a burden
on these respondents, as Currently
Exempted Government Securities ATSs
are currently not required to comply
with these requirements. The
Per ATS: 45 hours 434
Industry: 315 hours 435
Per ATS: 15 hours 436
Industry: 105 hours 437
Per ATS: 60 hours
Industry: 420 hours
Commission estimates that the proposed
application of Rule 301(b)(9) to
Currently Exempted Government
Securities ATSs would impose the
following annual burden:
Burden
Annual burden
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Form ATS–R ...................................................................................................................................
429 See FR Doc. 2019–16601, 84 FR 38086 (August
5, 2019) (Submission for OMB Review, Extension:
Rule 15b1–1/Form BD; SEC File No. 270–19; OMB
Control No. 3235–0012).
430 Compliance Manager at 2.75 hours × 1 bankoperated Currently Exempted Government
Securities ATS = 2.75 burden hours. The
Commission recognizes that the time necessary to
complete Form BD would vary depending on the
nature and complexity of the Currently Exempted
Government Securities ATS.
431 The Commission estimates that the additional
annual burden hours necessary for a Currently
Exempted Government Securities ATS to complete
and file an amended Form BD would be
approximately 0.33 hours. The Commission
received an average of 10,959 Form BD
amendments per year from fiscal year 2016 to 2019.
As of 2019, there were 3,700 broker-dealers
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registered with the Commission. Based on this
estimate, the Commission estimates that Currently
Exempted Government Securities ATSs would file
3 amendments per year.
432 Compliance Manager at 0.33 hours × 3
amendments × 1 Currently Exempted Government
Securities ATS = 1 burden hour.
433 As the requirements of Rules 301(b)(8), 302,
and 303 would be identical for Currently Exempted
Government Securities ATSs and Legacy Filers, the
Commission believes that the hourly burden would
be the same for Currently Exempted Government
Securities ATSs as it is for Legacy Filers.
434 Compliance Clerk at 45 hours = 45 burden
hours. See FR Doc. 2019–19237, 84 FR 47028
(September 6, 2019) (Submission for OMB Review,
Extension: Rule 302; SEC File No. 270–453; OMB
Control No. 3235–0510).
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Per ATS: 19 hours.438
Industry: 133 hours.439
435 45 hours × 7 Currently Exempted Government
Securities ATSs = 315 burden hours.
436 Compliance Clerk at 15 hours = 15 burden
hours. See FR Doc. 2016–16040, 81 FR 44338,
44339 (Submission for OMB Review, Extension:
Rule 303; SEC File No. 270–450; OMB Control No.
3235–0505).
437 15 hours × 7 Currently Exempted Government
Securities ATSs = 105 burden hours.
438 Attorney at 3 hours + Compliance Manager at
0.25 hours Clerk at 1.5 hours = 4.75 burden hours.
See infra notes 525, 526, and 528. The annual
burden per Currently Exempted Government
Securities ATS would be 4.75 hours × 4 filings =
19 burden hours.
439 The aggregate annual burden would be 4.75
hours × 4 filings × 7 Currently Exempted
Government Securities ATSs = 133 burden hours.
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The Commission’s currently approved
estimate for the average compliance
burden for each Form ATS–R filing,
including Form ATS–R filings by
Legacy Filers, is 4 hours.440 The
Commission is proposing amendments
to Form ATS–R, which would add an
additional burden of 0.75 hours per
filing,441 and therefore the average
d. Application of Rules 301(b)(10) and
303(a)(1)(v) to Currently Exempted
Government Securities ATSs
The Commission recognizes that
Rules 301(b)(10) and 303(a)(1)(v) of
Regulation ATS would impose certain
new burdens on respondents as
Burden
Initial burden
Written safeguards and written procedures requirement under Rules 301(b)(10) and
303(a)(1)(v).
Per ATS: 10 hours.443 ......................................
Industry: 70 hours 444 .......................................
440 Attorney at 3 hours + Compliance Clerk at 1
hour = 4 burden hours. See Rule 301 OMB Update,
supra note 419, at 6237.
441 See supra Section V.C and infra Section IX.D.4
(discussing proposed changes to Form ATS–R
applicable to all ATSs).
442 See NMS Stock ATS Adopting Release, supra
note 1, at 38868.
443 The Commission estimates that a Currently
Exempted Government Securities ATS’s initial,
one-time burden would be approximately 10 hours
(Attorney at 9 hours + Compliance Clerk at 1 hour
= 10 burden hours) based on the Commission’s
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compliance burden for each Form ATS–
R filing would be 4.75 hours.
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Currently Exempted Government
Securities ATSs are not currently
subject to these requirements. Based on
the currently-approved burdens for
Legacy Filers,442 the Commission
estimates that the proposed application
of Rules 301(b)(10) and 303(a)(1)(v) to
Currently Exempted Government
Securities ATSs would impose the
following initial and annual burdens:
Annual burden
highest approximation of the additional burden per
ATS, but that the burden could range between 5
and 10 hours (Attorney at 4–9 hours + Compliance
Clerk at 1 hour = 5–10 burden hours). See id.
444 (Attorney at 9 hours + Compliance Clerk at 1
hour) × 7 Currently Exempted Government
Securities ATSs = 70 burden hours.
445 Attorney at 2 hours + Compliance Clerk at 2
hours = 4 burden hours. See NMS Stock ATS
Adopting Release, supra note 1, at 38868.
446 4 hours × 7 Currently Exempted Government
Securities ATSs = 28 burden hours.
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Per ATS: 4 hours.445
Industry: 28 hours 446
2. Proposed Amendments to Rules
301(b)(2)(viii) and 304 of Regulation
ATS, Including Proposed Form ATS–G
a. Baseline Measurements
The Commission estimates that the
proposed amendments to Rules
301(b)(2)(viii) and 304 would impose
the following initial and annual baseline
burdens to Legacy Filers, which are
equivalent to the currently approved
estimates for Form ATS and Form ATS–
R:
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Baseline burden
Initial baseline burden
Initial operation report on Form ATS .......................................................
Form ATS amendments (twice per year) 448 ...........................................
Per ATS: 20 hours 447 ...................
Industry: 380 hours ......................
N/A ................................................
Cessation of operations report on Form ATS ..........................................
N/A ................................................
Form ATS–R ............................................................................................
N/A ................................................
Total—baseline burden .....................................................................
Per ATS: 20 hours ........................
Industry: 380 hours
Currently Exempted Government
Securities ATSs are not currently
required to comply with the
requirements of Rule 301(b)(2). The
Commission estimates that the proposed
amendments to Rules 301(b)(2)(viii) and
304 would impose initial and annual
baseline burdens equivalent to those for
Legacy Filers described above.
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b. Burdens
The Commission believes that
although many of the disclosures
required by proposed Form ATS–G are
currently required by Form ATS,
proposed Form ATS–G would require a
Government Securities ATS to provide
significantly more detail in those
disclosures than currently is required by
Form ATS, as well as additional
disclosures not currently mandated by
Form ATS.453 In addition, because
Currently Exempted Government
Securities ATSs are not required to
complete a Form ATS, the Commission
447 Attorney at 13 hours + Compliance Clerk at 7
hours = 20 burden hours. See Rule 301 OMB
Update, supra note 419, at 6237.
448 During the fiscal year of 2019, the Commission
received 39 amendments from the 19 Legacy Filers.
Accordingly, the Commission estimates that Legacy
Filers amend their Form ATS on average twice per
year.
449 The Commission estimates the current average
compliance burden for each amendment to Form
ATS is: Attorney at 4.5 hours + Compliance Clerk
at 1.5 hours = 6 burden hours. 2 Form ATS
amendments filed annually × 6 hours per Form ATS
amendment = 12 burden hours per ATS. See id.
450 Attorney at 1.5 hours + Compliance Clerk at
0.5 hours = 2 burden hours. See id.
451 2 hours × approximately 1 cessation of
operations report on Form ATS per year = 2 burden
hours. See supra Section IX.D.
452 Attorney at 3 hours + Compliance Clerk at 1
hour = 4 burden hours. See Rule 301 OMB Update,
supra note 419, at 6237. 4 Form ATS–R filings
annually × 4 hours per Form ATS–R filing = 16
burden hours.
453 In establishing the estimates below with
respect to proposed Form ATS–G, the Commission
has considered its estimate of the burden for an
SRO to amend a Form 19b–4. Specifically, the
Commission estimated that 34 hours is the amount
of time required to complete an average rule filing;
129 hours is the amount of time required to
complete a complex rule filing; and 3 hours is the
amount of time required to complete an average
amendment to a rule filing. See Securities Exchange
Act Release No. 50486 (October 4, 2004), 69 FR
60287, 60294 (October 8, 2004).
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estimates that Currently Exempted
Government Securities ATSs will incur
a burden equivalent to the current
baseline burdens on Legacy Filers as a
result of the proposal.454
i. Analysis of Estimated Additional
Burden for Proposed Form ATS–G
Although Form ATS–G is tailored to
describe operations relevant to
Government Securities ATSs, the
information requests on Form ATS–N
and Form ATS–G are, for the most part,
very similar. In the Commission’s
experience implementing Form ATS–N,
the Commission believes that the
estimates calculated in the NMS Stock
ATS Adopting Release continue to be
reasonable estimates of the burden
hours imposed by Form ATS–N, and
therefore, reasonable estimates of the
burden hours imposed by Form ATS–
G.455 As discussed below, due to
requests unique to Form ATS–G, the
Commission estimates that Form ATS–
G would require 5.75 more burden
hours than Form ATS–N. Accordingly,
the Commission estimates that the
additional burden hours for filing a
Form ATS–G would result in a total
additional burden of 114.15 hours per
Government Securities ATS above the
current 20-burden hour baseline for an
initial operation report on Form ATS.456
The below chart compares the estimated
burdens for Form ATS–G to the
454 See
supra Section IX.D.2.a.
NMS Stock ATS Adopting Release, supra
note 1, at 38869–81.
456 108.4 additional burden hours for filing a
Form ATS–N that the Commission estimated in the
NMS Stock ATS Adopting Release + 5.75 hours
added to the burden for requests unique to Form
ATS–G = 114.15 additional burden hours. See NMS
Stock ATS Adopting Release, supra note 1, at
Section IX.D.2. The NMS Stock ATS Adopting
Release stated that the Commission estimated that
Form ATS–N would add an additional 107.4 hours
to the baseline for each ATS. See id. at n.1228 and
accompanying text. However, the actual total of the
estimated burden hours of the items in Form ATS–
N in the NMS Stock ATS Adopting Release is 108.4
(not 107.4). See id. at 38868–81. Therefore, the
Commission is using the estimated total of 108.4
additional burden hours for Form ATS–N as basis
for estimating the additional burden hours for Form
ATS–G.
455 See
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Annual baseline burden
N/A.
Per ATS: 12 hours.449
Industry: 228 hours.
Per ATS: 2 hours.450
Industry: 2 hours.451
Per ATS: 16 hours.452
Industry: 304 hours.
Per ATS: 30 hours.
Industry: 534 hours.
currently-approved estimates for Form
ATS–N: 457
Rule/item
ATS–G
(hours)
ATS–N
(hours)
Part I 458 ..................................
Part I Total ...........................
Part II, 1(a) ..............................
Part II, 1(b) ..............................
Part II, 1(c) ..............................
Part II, 1(d) 459 .........................
Part II, 2(a) ..............................
Part II, 2(b) ..............................
Part II, 2(c) ..............................
Part II, 2(d) 461 .........................
Part II, 3 ..................................
Part II, 4 ..................................
Part II, 5 ..................................
Part II, 6 ..................................
Part II, 7 ..................................
Part II Total ..........................
Part III, 1 .................................
Part III, 2 .................................
Part III, 3 .................................
Part III, 4 .................................
Part III, 5 .................................
Part III, 6 .................................
Part III, 7 .................................
Part III, 8 .................................
Part III, 9 .................................
Part III, 10 ...............................
Part III, 11 ...............................
Part III, 12 ...............................
Part III, 13 ...............................
Part III, 14 ...............................
Part III, 15 460 ..........................
Part III, 16 462 ..........................
Part III, 17 ...............................
Part III, 18 ...............................
Part III, 19 ...............................
Part III, 20 ...............................
Part III, 21 & 22 .......................
Part III, 23 ...............................
Part III, 24 (only applies to select respondents) 463 ............
Part III, 25 464 ..........................
Part III, 26 ...............................
Part III Total .........................
Part IV Total ........................
0.75
0.75
4.25
0.25
1
1.5
6.25
0.25
1
1.5
1.5
4
3
5
1.5
31
0.5
1
1
0.5
10.5
2.5
4
1
1
1.25
6
1
6
2
4.5
6
1.25
1.25
6
2.5
0.5
5
0.5
0.5
4.25
0.25
1
0.5
6.25
0.25
1
0.5
1.5
4
3
5
1.5
29
0.5
1
1
0.5
10.5
2.5
4
1
1
1.25
6
1
6
2
5
2
1.25
1.25
6
2.5
0.5
5
10
7
0
82.25
0
5
5
7
78.75
0
Total .................................
114.15
108.4
457 See id. Items for which the burden hours differ
between Form ATS–G and Form ATS–N are
italicized.
458 See infra note 465 and accompanying text.
459 See supra note 466 and accompanying text.
460 See supra note 467 and accompanying text.
461 See supra note 466 and accompanying text.
462 See supra note 468 and accompanying text.
463 See supra note 470 and accompanying text.
Other than as described below, the information
required by Part III, Item 24 of Form ATS–G is
similar to the information required by Part III, Item
25 of Form ATS–N.
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87167
Part I of proposed Form ATS–G is
identical to Part I for Form ATS–N, as
proposed, except that Part I, Item 5 of
Form ATS–G requires a Government
Securities ATS to select the types of
securities the ATS trades (i.e., U.S.
Treasury Securities, Agency Securities,
repos, or other). If the ATS selects
‘‘other,’’ it would be required to list the
types of securities it trades. The
Commission believes that the
information required by the proposed
disclosure under Part I, Item 5 is already
required under Exhibit B of current
Form ATS, which requires an ATS to
provide, among other things, lists of
securities and the types of securities the
ATS trades or expects to trade.
Consequently, the Commission believes
that preparing this Item would not
impose a significant additional burden
above the baseline. The Commission
estimates that, on average, preparing
Part I, Item 5 for proposed Form ATS–
G would add 0.25 hours above the
baseline for each Government Securities
ATS, resulting in an aggregate initial
burden of 6.5 hours above the baseline
for all Government Securities ATSs.465
Part II of proposed Form ATS–G is
identical to Part II for Form ATS–N
except for Part II, Items 1(d) and 2(d) of
Form ATS–G. Part II, Items 1(d) and 2(d)
of Form ATS–G would additionally
require a Government Securities ATS to
identify the trading venue operated or
controlled by its broker-dealer operator
or its affiliate, respectively, to which
orders and trading interest in the ATS
could be sent, and explain under what
circumstances orders and trading
interest are sent from the ATS to the
trading venue. These requirements are
similar to Part III, Item 16 of Form ATS–
N, which requires an NMS Stock ATS
to provide disclosures surrounding
orders and trading interest in the ATS
being routed to a destination outside the
ATS. The Commission therefore
estimates that, on average, preparing
these narratives in Part II, Items 1(d) and
2(d) would each add one hour to the
approved estimated burden hours to
prepare Part II, Items 1 and 2 of Form
ATS–N, resulting in an aggregate burden
of 52 hours above the baseline for all
Government Securities ATSs.466
Part III of proposed Form ATS–G
requires a Government Securities ATS
to provide information similar to that in
which an NMS Stock ATS is currently
required to provide under Part III of
Form ATS–N with certain exceptions.
Unlike Form ATS–N, Part III, Item 15 of
proposed Form ATS–G does not ask
whether the ATS is an Electronic
Communication Network as defined in
Regulation NMS. Accordingly, the
Commission believes that Item 15 of
proposed Form ATS–G would impose a
lesser burden than the approved
estimated burden for Item 15 of Form
ATS–N. The Commission estimates that,
on average, preparing Part III, Item 15
for Form ATS–G would add 4.5 hours
to the baseline, resulting in an aggregate
initial burden of 117 hours above the
baseline for all Government Securities
ATSs.467
Part III, Item 16 of Form ATS–N asks
about order routing; the Commission is
not including such a question in Form
ATS–G. Instead, Part III, Item 16 of
Form ATS–G would require a
Government Securities ATS to disclose
its functionalities or procedures to
facilitate trading on or source pricing for
the Government Securities ATS using
related markets. As the broker-dealer
operator controls all aspects of the
operation of the Government Securities
ATS, the Commission believes that the
broker-dealer operator should already be
aware of the ATS’s trading and pricing
practices. Therefore, preparing this Item
would not impose a substantial burden
on the respondents. The Commission
estimates that, on average, preparing
Part III, Item 16 for Form ATS–G would
add a total of 6 hours to the baseline per
respondent, resulting in an aggregate
initial burden of 156 hours above the
baseline for all Government Securities
ATSs.468
As proposed, Form ATS–G would not,
unlike Form ATS–N, include a question
pertaining to order display and
execution access.469 However, similar to
Part III, Item 25 of Form ATS–N, Part III,
Item 24 of proposed Form ATS–G
would require a Government Securities
ATS to disclose whether the ATS has
triggered the proposed fair access
thresholds and, if applicable, describe
the written standards for granting access
to trading on the ATS to comply with
Rule 301(b)(5)(ii)(A) of Regulation ATS.
Historically, Government Securities
ATSs have crossed these thresholds
very rarely, with at most 3 Government
Securities ATSs crossing either of the
applicable thresholds in any given year,
and the Commission believes this would
continue to occur very infrequently.
Consistent with the burden hours for
completing Part III, Item 25 of Form
ATS–N, the Commission estimates that
preparing Part III, Item 24 in a proposed
Form ATS–G would add 5 hours for
each class of securities.470 Because Part
III, Item 24 of Form ATS–G requires the
Government Securities ATS to provide
the fair access disclosures for two
categories of government securities—
U.S. Treasury Securities and Agency
Securities—the Commission estimates
that preparing this Item would add an
additional 5 hours per respondent and
a total of 10 hours above the baseline for
each respondent for which both
thresholds are applicable.471 The
Commission believes that 3 ATSs
crossed the proposed fair access
threshold for U.S. Treasury Securities,
and 1 ATS crossed the proposed fair
access threshold for Agency Securities
in four of the preceding six calendar
months. Accordingly, the Commission
estimates that the preparing Part III,
Item 24 for proposed Form ATS–G
would result in an aggregate initial
burden of 20 hours above the
baseline.472
In total, Government Securities ATSs
would incur the following initial
burden, on average, to prepare proposed
Form ATS–G:
464 The information required by Part III, Item 25
of Form ATS–G is identical to the information
required by Part III, Item 26 of Form ATS–G.
465 Compliance Clerk at 0.25 hours = 0.25 burden
hours. 0.25 hours × 26 Government Securities ATSs
= 6.5 burden hours.
466 Attorney at 0.25 hours + Compliance Manager
at 0.25 hours + Sr. Systems Analyst at 0.5 hours =
1 burden hour. The burden hours to answer ‘‘yes’’
or ‘‘no’’ questions whether orders and trading
interest in the Government Securities ATS can be
sent to a trading venue operated or controlled by
the broker-dealer operator or its affiliate in
proposed Part II, Items 1(d) and 2(d) of Form ATS–
G, respectively, are accounted for in the approved
estimated burden for preparing Part II of Form
ATS–N. See infra note 475. The aggregate hours
would be: 26 Government Securities ATSs × (1 hour
(for Part II, Item 1(d)) + 1 hour (for Part II, Item
2(d))) = 52 burden hours.
467 (Attorney at 0.9 hours + Compliance Manager
at 1.8 hours + Sr. Systems Analyst at 1.8 hours) ×
26 Government Securities ATSs = 117 burden
hours. In contrast, the Commission estimated that
Part III, Item 5 of Form ATS–N would require 5
hours per ATS to complete. See NMS Stock ATS
Adopting Release, supra note 1, at n.1211.
468 (Attorney at 2 hours + Compliance Manager at
2.5 hours + Sr. Systems Analyst at 1.5 hours) × 26
Government Securities ATSs = 156 burden hours.
This is an additional 4 hours per ATS from the
additional 2-hour burden for Part III, Item 16
estimated for Form ATS–N. See NMS Stock ATS
Adopting Release, supra note 1, at n.1212.
469 See Part III, Item 24 of Form ATS–N. In the
NMS Stock ATS Adopting Release, the Commission
estimated this Item would impose a 5-hour
additional burden per ATS. See NMS Stock ATS
Adopting Release, supra note 1, at n.1225.
470 Attorney at 2 hours + Compliance Manager at
1 hour + Sr. Systems Analyst at 2 hours = 5 burden
hours. See NMS Stock ATS Adopting Release,
supra note 1, at 38880.
471 (Attorney at 2 hours + Compliance Manager at
1 hour + Sr. Systems Analyst at 2 hours) × 2
categories of government securities = 10 burden
hours.
472 (5 hours × 3 Government Securities ATSs that
crossed the fair access threshold for U.S. Treasury
Securities) + (5 hours × 1 Government Securities
ATS that crossed the fair access threshold for
Agency Securities) = 20 burden hours.
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Burden
Initial burden
Baseline for initial operation report on Form ATS ..........................................................................
Part I ................................................................................................................................................
Part II ...............................................................................................................................................
Part III ..............................................................................................................................................
Access to EDGAR (applicable only to select respondents) ...........................................................
Total—Form ATS–G ................................................................................................................
khammond on DSKJM1Z7X2PROD with PROPOSALS2
ii. Estimated Burden Above the Current
Baseline for a Form ATS–G, Form ATS–
G Amendment, and Notice of Cessation
on Form ATS–G
structure of their systems, and the
extent of their other broker-dealer
operator or affiliate activities.
Per ATS: 20 hours.
Industry: 520 hours.
Per ATS: 0.75 hours.473
Industry: 19.5 hours.474
Per ATS: 31 hours.475
Industry: 806 hours.476
Per ATS: 82.25 hours.477
Industry: 1,898.5 hours.478
Per ATS: 0.15 hours.
Industry: 0.15. hours.
Per ATS: 134.15 hours.
Industry: 3,244.15 hours.
(a) Proposed Form ATS–G
Based on the above analysis, the
Commission estimates that proposed
Form ATS–G would, on average, require
approximately 114.15 burden hours
above the baseline per respondent. This
would result in an estimated 134.15
burden hours in total per respondent,
including the baseline.479 Government
Securities ATSs vary in terms of their
structure and the manner in which they
operate. Legacy Filers also vary with
respect to the depth and extent of their
disclosures on Form ATS.
Consequently, the Commission believes
that the estimated hour burdens herein
regarding proposed Form ATS–G would
likely vary among both Legacy Filers
and Currently Exempted Government
Securities ATSs, depending on such
factors as the extent of their current
disclosures on Form ATS (as
applicable), the complexity and
(b) Form ATS–G Amendments
As previously stated, the Commission
estimates that Legacy Filers submit 2
amendments to Form ATS, on average,
each year.480 In addition to the same
three general categories of required
amendments as Rule 301(b)(2) of
Regulation ATS currently requires for
Form ATS,481 proposed Form ATS–G
requires contingent amendments. Due to
the greater detail and number of
disclosures required by proposed Form
ATS–G, the Commission believes that
respondents may file more amendments
to proposed Form ATS–G than Legacy
Filers currently do on Form ATS. For
example, proposed Form ATS–G
requests information about the ATSrelated activities of the broker-dealer
operator and its affiliates in Part II of
proposed Form ATS–G, which are not
required disclosures under current Form
ATS. To the extent information
provided in response to these requests
changes, a Government Securities ATS
must file a Form ATS–G amendment. As
with amendments to Form ATS, the
burden on Government Securities ATS
associated with updating From ATS–G
to reflect current ATS functionality will
vary depending on the frequency and
scope of changes made by the ATS.
Making complete and comprehensible
disclosures of material changes to the
Government Securities ATS’s
operations, such as the introduction of
a new order type and its attributes or
changes to segmentation procedures and
parameters, would require more time
and resources from a Government
Securities ATS than providing complete
and comprehensible disclosures of a
simple change to the physical or website
address of the ATS. Accordingly, the
Commission is estimating that
Government Securities ATSs will file 3
amendments to Form ATS–G per year.
The Commission estimates that
Government Securities ATSs would
incur the following annual burdens to
amend their Form ATS–G:
473 Per respondent burden hours to prepare all
items in Part I of Form ATS–G, except Part I, Item
5, would be identical to those of Part I for Form
ATS–N. Therefore, the burden hours to prepare all
items in Part I, except Part I, Item 5, would be:
Compliance Clerk at 0.5 hours = 0.5 burden hours.
See NMS Stock ATS Adopting Release, supra note
1, at 38869. In aggregate, burden hours per
Government Securities ATS to prepare Part I of
Form ATS–G would be: Compliance Clerk at 0.75
hours = 0.75 burden hours.
474 Compliance Clerk at 0.75 hours × 26
Government Securities ATSs = 19.5 burden hours.
475 Per respondent burden hours to prepare all
items in Part II of Form ATS–G, excluding the
narratives in Part II, Items 1(d) and 2(d), would be
identical to those of Part II for Form ATS–N.
Therefore, the burden hours to prepare all items in
Part II of Form ATS–G, except Part II, Items 1(d)
and 2(d), would be: Attorney at 15 hours +
Compliance Manager at 11 hours + Sr. Marketing
Manager at 2 hours = 28 burden hours. See NMS
Stock ATS Adopting Release, supra note 1, at
38869–73. Per respondent burden hours to prepare
Part II of Form ATS–G, including the burden hours
to prepare the narratives for Items 1(d) and 2(d),
supra note 466, would be: Attorney at 15.5 hours
+ Compliance Manager at 12.5 hours + Sr. Systems
Analyst at 1 hour + Sr. Marketing Manager at 2
hours = 31 burden hours.
476 31 hours × 26 Government Securities ATSs =
806 burden hours.
477 In aggregate, burden hours per Government
Securities ATS to prepare Part III of Form ATS–G
would be: Attorney at 23.5 hours + Compliance
Manager at 28.2 hours + Sr. Systems Analyst at
30.55 hours = 82.25 burden hours. This estimate
takes into account Part III, Items 24(a) and 24(b),
which apply only to select respondents.
478 (72.25 hours × 26 Government Securities ATSs
subject to Part III (other than Items 24(a) and 24(b)))
+ (5 hours × 3 Government Securities ATSs subject
to Part III, Item 24(a)) + (5 hours × 1 Government
Securities ATS subject to Part III, Item 24(b)) =
1,898.5 burden hours.
479 (Current Baseline at 20 hours) + (Part I at 0.75
hours) + (Part II at 31 hours) + (Part III at an average
of 82.25 hours) + (Access to EDGAR at 0.15 hours,
see infra Section IX.D.2.b.iv) = 134.15 burden
hours. The aggregate totals by professionals,
including the baseline, are estimated to be
approximately 55 hours for an Attorney, 37.85
hours for a Compliance Manager, 31.55 hours for a
Sr. Systems Analyst, 2 hours for a Sr. Marketing
Manager, and 7.75 hours for a Compliance Clerk.
This estimated burden for a Form ATS–G includes
the hour burden associated with completing Part III,
Item 24 of proposed Form ATS–G. The Commission
believes that the majority of Government Securities
ATSs would not be required to complete these
items of the proposed form.
480 See supra note 448.
481 See 17 CFR 242.301(b)(2).
482 Current ATSs file approximately 2
amendments per year, for a total burden of 12
hours. See note 449 and accompanying text. To
calculate the total burden imposed by Form ATS–
G amendment requirements, the Commission is
estimating a baseline filing requirement for each
Form ATS–G amendment equivalent to 6 hours per
amendment × 3 Form ATS–G amendments = 18
total baseline burden hours.
483 This would result in a total estimated hourly
burden, including the baseline, of 9.4 hours for a
Form ATS–G amendment. The annual burden per
ATS would be: 9.4 hours × 3 amendments per year
= 28.2 burden hours. The aggregate total by
professional would be: 16.5 hours for an Attorney,
6 hours for a Compliance Manager, and 5.7 hours
for a Compliance Clerk.
484 78 Form ATS–G amendments per year × 9.4
hours = 733.2 burden hours.
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Burden
Annual burden
Baseline burden related to Form ATS amendment ........................................................................
Per ATS: 18 hours (6 hours × 3 Form ATS
amendments).482
Industry: 468 hours.
Per ATS: 9 hours (3 hours × 3 Form ATS–G
amendments).
Industry: 234 hours.
Per ATS: 1.2 hours (0.4 hours × 3 Form ATS–
G amendments).
Industry: 31.2 hours.
Form ATS–G amendment above the baseline ...............................................................................
Preparing a brief summary and Exhibit 3 .......................................................................................
Total—Form ATS–G amendment ............................................................................................
As stated above, the Commission
estimates that the hourly burden related
to an amendment to Form ATS is 6
hours and that Currently Exempted
Government Securities ATSs would
have a baseline hourly burden of 6
hours to put them in the same position
as Legacy Filers.485 The Commission
estimates that the average hourly burden
above this baseline of 6 hours for each
Form ATS–G amendment would be 3
hours to accommodate the more
voluminous and detailed disclosures
required by Form ATS–G as compared
to Form ATS.486 The Commission
estimates that the 26 Government
Securities ATSs will file 3 Form ATS–
G amendments each year, for a total of
78 Form ATS–G amendments. In
addition, a Government Securities ATS
would also be required to provide a
brief summary of the amendment at the
top of Form ATS–G 487 and submit as
Exhibit 3 one marked document that
indicates changes to ‘‘yes’’ or ‘‘no’’
answers or additions to or deletions to
Parts I, II, and III. The Commission
estimates that drafting the summary and
preparing the marked documents
showing the amendments the
Government Securities ATS is making
would add an additional burden of 0.4
hours.488
(c) Notice of Cessation on Proposed
Form ATS–G
As previously noted, from 2015
through 2019, there has been an average
of 1 Legacy Government Securities ATS
that ceased operations each year.489
Although it is unclear how many
Government Securities ATSs might
cease operations each year going
forward, for purposes of making a PRA
burden estimate, the Commission is
estimating that this average would
generally remain the same for
Government Securities ATSs using
Form ATS–G because economic
conditions, business reasons, and other
Per ATS: 28.2 hours.483
Industry: 733.2 hours.484
factors may cause some Government
Securities ATSs to cease operations.
Accordingly, the Commission estimates
that 1 Government Securities ATS may
file a cessation of operation report on
proposed Form ATS–G each year. The
Commission believes that the burden for
filing a cessation of operation report on
proposed Form ATS–G would not be
significantly greater than that for filing
a cessation of operation report on
current Form ATS. Both Form ATS and
proposed Form ATS–G require that the
ATS check the appropriate box
indicating that the ATS is ceasing
operations; however, proposed Form
ATS–G also requires that the
Government Securities ATS provide the
date that the ATS expects to cease
operating. The Commission therefore
estimates that Government Securities
ATSs that file a cessation of operation
report would incur the following annual
burden:
Burden
Annual burden
Cessation of operation report on Form ATS–G ..............................................................................
iii. Estimated Burden for Legacy Filers
To File a Form ATS To Disclose
Information Related to Trading Activity
in Other Securities on an ATS
A broker-dealer that operates an ATS
that currently trades government
securities or repos and securities other
than government securities or repos
would incur: (1) The above baseline
burdens related to filing a Form ATS–
485 See
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87169
supra note 449.
at 1 hour + Compliance Manager at
2 hours = 3 burden hours. The Commission believes
that information required under Form ATS–N
amendment is similar to that required under
proposed Form ATS–G amendment and, therefore,
estimates that the burden for Form ATS–G
amendment would be the same as the approved
estimated burden for Form ATS–N amendment. See
NMS Stock ATS Adopting Release, supra note 1, at
38881.
487 See Exhibit 3 to Form ATS–G.
486 Attorney
Per ATS: 2 hours.490
Industry: 2 hours.491
G and Form ATS–G amendments; 492 (2)
the additional burden of filing an
amendment to Form ATS to only
disclose information related to trading
activity in securities other than
government securities or repos on an
ATS 493 and amending the Form ATS on
an ongoing basis; 494 and (3) the burden
of completing and filing 2 Forms ATS–
R—one disclosing trading volume in
government securities or repos and one
disclosing trading volume in securities
other than government securities or
repos.495 As of July 1, 2020, of the 19
Legacy Filers, 17 ATSs trade, or have
indicated that they expect to trade, in
Exhibit B to their Form ATS, both
government securities or repos and nongovernment securities on the ATS.496
488 Compliance Clerk at 0.4 hours = 0.4 burden
hours. The Commission believes that most word
processing software provides for this functionality.
See NMS Stock ATS Adopting Release, supra note
1, at 38882.
489 See supra Section IX.C.
490 Attorney at 1.5 hours + Compliance Clerk at
0.5 hours = 2 burden hours. See supra note 450.
491 2 hours × 1 Government Securities ATS = 2
burden hours.
492 See supra Section IX.D.2.b.ii.A and B.
493 See supra note 151 and accompanying text.
494 See supra Section IX.D.2.a and accompanying
text for the baseline estimates for submitting an IOR
for Form ATS and amendments to Form ATS.
495 See supra Section IX.D.2.a and accompanying
text for the baseline estimate for submitting a Form
ATS–R.
496 One of the 2 Legacy Filers also trade, or have
indicated that it expects to trade, government
securities in addition to repos and non-government
securities. Therefore, 17 broker-dealers, each of
which is a Legacy Filer, are subject to the burden
in this section. The broker-dealer for 1 Legacy Filer
Continued
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Broker-dealers that operate Legacy
Filers would incur the following initial
securities other than government
securities or repos on the ATS:
Burden
Initial burden
Form ATS amendment to remove references to government securities
and repos.
Form ATS–G (excluding access to EDGAR) ...........................................
Form ATS amendment for non-Government Securities ATS ..................
Per Broker-Dealer: 10 hours 497 ...
Industry: 170 hours.
Per Broker-Dealer: 134 hours .......
Industry: 2,278 hours.
N/A ................................................
Form ATS–G amendment ........................................................................
N/A ................................................
Two Forms ATS–R (one for Government Securities ATS and one for
non-Government Securities ATS).
N/A ................................................
Total—burden for broker-dealers that operate Legacy Filers that
trade securities other than government securities or repos.
Per Broker-Dealer: 144 hours .......
Industry: 2,448 hours 501 ...............
Annual burden
N/A.
N/A.
Per Broker-Dealer: 13 hours.498
Industry: 221 hours.
Per Broker-Dealer: 28.2 hours.499
Industry: 479.4 hours.
Per Broker-Dealer: 21 hours.500
Industry: 357 hours.
Per Broker-Dealer: 62.2 hours.
Industry: 1,057.4 hours.
Government Securities ATSs would
be required to submit Form ATS–G
filings through the Commission’s
EDGAR system. Based on the
widespread use and availability of the
internet, the Commission believes that
filing Form ATS–G in an electronic
format would be a less burdensome and
more efficient filing process for
Government Securities ATSs and the
Commission, as it is likely to be less
expensive and cumbersome than
mailing and filing paper forms to the
Commission.502 For a Form ATS–G filer
to gain access to submit filings on the
EDGAR system, the filer must submit a
Form ID as required by Rule 10(b) of
Regulation S–T 503 and following the
processes detailed in Volume I of the
EDGAR Filer Manual. Once a Form ID
has been successfully completed and
processed, EDGAR will establish a
Central Index Key (‘‘CIK’’) number,
which permits each authorized user to
create EDGAR access code, which will
enable the Government Securities ATS
to use EDGAR.
All registered broker-dealers have
been assigned a CIK number and do not
need to submit a Form ID to access
EDGAR.504 Because all Legacy Filers
and Currently Exempted Government
Securities ATSs other than those that
are operated by banks are operated by
either registered broker-dealers under
Section 15 or government securities
brokers or dealers under Section
15C(a)(1)(A), the Commission estimates
that there will be no burden associated
with gaining access to EDGAR for
Legacy Filers and Currently Exempted
Government Securities ATSs that are
not operated by banks.505
Based on the number of initial filings
and cessation of operations reports on
current Form ATS for Legacy Filers, the
Commission estimates that 1 to 2 new
entities would file proposed Form ATS–
G to become a Government Securities
ATS in each of the next three years. The
Commission estimates that among these
new entities, 1 new entity per year will
be operated by an entity that has not
previously registered as a broker-dealer,
a government securities broker, or a
government securities dealer or that
does not otherwise already have access
to EDGAR. The Commission therefore
estimates that an estimated 1 bankoperated Currently Exempted
Government Securities ATS and 1 new
entity would incur the following initial
and annual burdens, respectively, by
currently also operates an NMS Stock ATS that files
a Form ATS–N and a Form ATS–R to report
transactions in NMS stocks. As proposed, this
broker-dealer would be required to file 3 Forms
ATS–R and maintain a Form ATS–G, Form ATS–
N, and Form ATS for its transactions in government
securities and repos, NMS stocks, and other
securities, respectively. The burden related to the
NMS Stock ATS filings was reflected in the NMS
Stock ATS Adopting Release. See NMS Stock ATS
Adopting Release, supra note 1, at 38882–83.
497 In the NMS Stock ATS Adopting Release, the
Commission estimated that the burden for an ATS
to separately file a Form ATS for its non-NMS stock
trading activity and Form ATS–N for its NMS stock
trading activity will be 20 burden hours to amend
its initial operation report on Form ATS for its nonNMS stock trading activity. See NMS Stock ATS
Adopting Release, supra note 1, at 38882. In the
Commission’s experience implementing Form
ATS–N, it found that the actual burden for a brokerdealer to amend the initial operation report on
Form ATS to remove references to NMS stocks was
much less than the estimated 20 hour burden. The
Commission believes that this burden would be
similar for broker-dealers operating Government
Securities ATSs. Accordingly, the Commission is
estimating that filing a Form ATS amendment to
remove references to government securities or repos
would be 10 hours. Attorney at 6.5 hours +
Compliance Clerk at 3.5 hours = 10 burden hours.
Such estimated hourly burden may be less than the
estimated 10 burden hours, as the description of
such ATS’s trading activity in securities other than
government securities or repos should already be
contained in the existing Form ATS.
498 2 Form ATS amendments per year × 6.5 hours
= 13 burden hours. The Commission estimates that,
as proposed, the burden to file a Form ATS
amendment is 6.5 hours, including the baseline
burden and additional burden discussed in Section
X.D.4. See supra note 449 and infra note 524.
499 3 Form ATS–G amendments per year × 9.4
hours = 28.2 burden hours.
500 In addition, the Commission estimates that the
total burden for a broker-dealer to complete Forms
ATS–R for both its Government Securities ATS and
non-Government Securities ATS would be 5.25
hours per quarter (Attorney at 3.5 hours +
Compliance Manager at 0.25 hours + Compliance
Clerk at 1.5 hours = 5.25 burden hours), which is
1.25 hours above the baseline burden of 4 hours for
currently filing a Form ATS–R (Attorney at 0.5
hours + Compliance Manager at 0.25 hours +
Compliance Clerk at 0.5 hours = 1.25 burden
hours). See infra notes 525, 526, and 528. See supra
note 452 and accompanying text for the baseline
estimate for submitting a Form ATS–R. The
Commission believes that broker-dealers required to
file two Forms ATS–R would incur an additional
burden of 0.5 hours above the baseline because they
would be required to divide their trading statistics
between two forms and file each form separately
(Attorney at 0.5 hours = 0.5 burden hours). The
Commission does not believe that those brokerdealers would incur any additional burden to
collect the required information because they
currently assemble that information when preparing
the current Form ATS–R filings.
501 (Form ATS amendment at 10 hours + Form
ATS–G at 134 hours) × 17 broker-dealers = 2,448
aggregate burden hours. Broker-dealers that operate
Legacy Filers do not have burden associated with
gaining access to EDGAR, and therefore, burden for
gaining access to EDGAR is not accounted for in the
burden to complete Form ATS–G. See infra text
accompanying note 505.
502 All estimated burden hours with regard to
completing Parts I through IV of proposed Form
ATS–G include the estimated burden associated
with the requirement that Government Securities
ATSs file Form ATS–G in a structured XML format
on EDGAR, including narrative responses that are
block-text tagged, or use the web-fillable form.
503 17 CFR 232.10(b).
504 A broker-dealer that has never used EDGAR to
make electronic submissions may use its assigned
CIK number to receive access codes that will allow
that broker-dealer operator to submit Form ATS–G
filings on EDGAR without needing to apply for a
Form ID.
505 The Commission further believes that 1 of the
19 Legacy Filers is operated by a broker-dealer that
also operates an NMS Stock ATS, and therefore, the
broker-dealer currently has access to and files
through EDGAR.
iv. Access to EDGAR
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and annual burdens to disclose
information related to trading activity in
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submitting a Form ID to gain access to
the EDGAR system:
Burden
Initial burden
Access to EDGAR ....................................................................................
Per ATS: 0.15 hours 506 ................
Industry: 0.15 hours 507 .................
v. Public Posting on Covered ATS’s
Website
Proposed Rule 304(b)(3)(i) would
require each Government Securities
ATS to make public via posting on the
ATS’s website a direct URL hyperlink to
the Commission’s website that contains
the documents enumerated in proposed
Rule 304(b)(2).510 Proposed Rule
304(b)(3)(ii) would require each Covered
ATS to make public via posting on its
website the most recently disseminated
Covered Form. The Commission
estimates that Government Securities
ATSs and NMS Stock ATSs would incur
Annual burden
the following initial and annual burdens
to comply with the proposed
requirements to program and configure
their websites to post the required direct
URL hyperlink and the most recently
disseminated Covered Form pursuant to
proposed Rule 304(b)(3):
Burden
Initial burden
Public posting of hyperlink to the Commission’s website on Government Securities ATS’s website.
Public posting of the most recently disseminated Covered Form on
Covered ATS’s website.
Per ATS: 2 hours ..........................
Industry: 52 hours 511
Per ATS: 4 hours ..........................
Industry: 240 hours 512 ..................
vi. Recordkeeping Requirements
Rule 303(a)(2)(ii) requires an ATS to
preserve copies of reports filed pursuant
to Rule 301(b)(2) or 304, which includes
all Form ATS filings, and, as proposed,
all Form ATS–G filings, for the life of
the enterprise and any successor
enterprise. Because Legacy Filers that
trade only government securities or
repos would file Form ATS–G in lieu of
Form ATS under this proposal, the
Commission believes that Rule
303(a)(2)(ii) would not result in any
burden for those ATSs that is not
already accounted for under the
baseline burden estimate for Rule
303.514 For the 17 Legacy Filers that
trade, or have indicated that they expect
Per ATS: 0.15 hours.508
Industry: 0.15 hours.509
Annual burden
N/A.
Per ATS: 12 hours.
Industry: 720 hours.513
to trade in Exhibit B to their Form ATS,
government securities or repos and
securities other than government
securities or repos, the Commission
estimates that the annual burden above
the baseline estimate for preserving
records relating to compliance with
Rule 303(a)(2)(ii) would be the
following:
Burden
Annual burden
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Record preservation requirement under Rule 303(a)(2)(ii) .............................................................
506 Compliance Manager at 0.15 hours = 0.15
burden hours. See FR Doc. 2019–04008, 84 FR 8126
(March 6, 2019) (Submission for OMB Review,
Extension: Form ID; SEC File No. 270–291; OMB
Control No. 3235–0328).
507 Compliance Manager at 0.15 hours × 1 bankoperated Currently Exempted Government
Securities ATS = 0.15 burden hours.
508 See supra note 506.
509 Compliance Manager at 0.15 hours × 1 new
entity that has not previously registered as a brokerdealer, a government securities broker, or a
government securities dealer or that does not
otherwise already have access to EDGAR = 0.15
burden hours.
510 NMS Stock ATSs are already required to
comply with Rule 304(b)(3)(i).
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511 Sr. Systems Analyst at 2 hours × 26
Government Securities ATSs = 52 burden hours.
The Commission estimates that this initial, onetime burden would be 2 hours, in part because
many broker-dealer operators currently maintain a
website for their Government Securities ATSs.
512 The Commission estimates that Covered ATSs
would each incur an initial burden of 4 hours to
post its Covered Form on its website. The initial
burden would be: Sr. Systems Analyst at 4 hours
× (26 Government Securities ATSs + 34 NMS Stock
ATSs) = 240 burden hours.
513 The Commission estimates that the ongoing
burden would be 4 hours for each amendment to
Covered Form and that Covered ATSs would each
file 3 amendments to Covered Form per year. See
supra Section IX.D.2.b.ii.(b). See also NMS Stock
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Per ATS: 3 hours.
Industry: 51 hours.515
ATS Adopting Release, supra note 1, at 38881.
Therefore, the annual burden would be: Sr. Systems
Analyst at 4 hours × 3 amendments × (26
Government Securities ATSs + 34 NMS Stock
ATSs) = 720 burden hours.
514 To comply with all of the record preservation
requirements of Rule 303, the Commission
currently estimates that ATSs spend approximately
1,380 hours per year. See supra note 436, 78 FR
43943. At an average cost per burden hour of
$104.20, the resultant total related cost of
compliance is $143,796 per year (1,380 burden
hours × $104.20/hour). See id.
515 Compliance Clerk at 3 hours × 17 Legacy
Filers = 51 aggregate burden hours.
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3. Proposed Amendments to Rule
301(b)(5) of Regulation ATS
The Commission recognizes that
applying the Fair Access Rule to the
trading of U.S. Treasury Securities and
Agency Securities would impose certain
burdens upon the respondents.
Currently, Rule 301(b)(5) only applies to
the trading of NMS stocks, equity
securities that are not NMS stocks and
for which transactions are reported to an
SRO, municipal securities, and
corporate debt securities, and therefore,
it currently imposes no burden on
Government Securities ATSs.516 The
Commission estimates that 3
Government Securities ATSs would
meet the volume thresholds that trigger
fair access obligations for U.S. Treasury
Securities and Agency Securities, and
that the average compliance burden of
establishing written fair access
standards for each entity would be 10
hours. As a result of the proposed
amendments to Rule 301(b)(5), certain
Government Securities ATSs would
incur the following annual burden: 517
Burden
Annual burden
Establishing written standards for granting access under Rule 301(b)(5) .....................................
Making and keeping records of grants and denials of access under Rule 301(b)(5) ....................
Total—Rule 301(b)(5) ..............................................................................................................
4. Proposed Amendments to Rule
301(b)(2), Form ATS, and Form ATS–R
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The Commission believes that the
proposed amendments to Rule 301(b)(2),
516 17
CFR 242.301(b)(5).
estimated burdens are the same as the
Commission’s currently approved estimates for
compliance with Rule 301(b)(5) because the
requirements of the Fair Access Rule would be
identical for Government Securities ATSs and ATSs
that are currently subject to Rule 301(b)(5). See Rule
301 OMB Update, supra note 419, at 3238.
517 These
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Per ATS: 10 hours.
Industry: 30 hours.518
Per ATS: 10 hours.
Industry: 30 hours.519
Per ATS: 20 hours.
Industry: 60 hours.
Form ATS, and Form ATS–R would
impose the following initial and annual
burden to applicable respondents
described further below: 520
518 Attorney at 10 hours × 3 responses = 30
burden hours.
519 Attorney at 10 hours × 3 responses = 30
burden hours.
520 The Commission notes that it is proposing
changes to Form ATS–N to delete a question related
to legacy status, and to include a checkbox asking
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if the registered broker-dealer is authorized by a
national securities association to operate an ATS.
See supra Section V.D. The Commission believes
that because this information should be readily
available to a filer and requires only marking a
checkbox, this will have no impact on the estimated
burden of Form ATS–N.
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Burden
Initial burden
Electronic filing (access to EDGAR) ........................................................
Per ATS: 0.15 hours .....................
Industry: 0.15 hours.
N/A.
Per ATS: 20 hours ........................
Industry: 1,020 hours.
Per ATS: 0.5 hours .......................
Industry: 25.5 hours.
Per ATS: 20.5 hours .....................
Industry: 1,045.5 hours.
N/A.
Amendment on Form ATS:
Current approved burden for Form ATS amendment ......................
N/A ................................................
Changes to Part I on Form ATS .......................................................
N/A ................................................
Per ATS: 12 hours.
Industry: 612 hours.
Per ATS: 1 hour.
Industry: 51 hours.
Total for amendment to Form ATS, as proposed to be amended.
Form ATS–R:
Current approved burden for Form ATS–R (4 per year) ..................
N/A ................................................
Per ATS: 13 hours.
Industry: 663 hours.
N/A ................................................
Changes to Part I on Form ATS–R ..................................................
N/A ................................................
Indicating the type of filing and whether the ATS is subject to the
fair access requirements on Form ATS–R.
Providing additional detail (e.g., trading volume and types of securities/options) on Form ATS–R.
N/A ................................................
Per ATS: 16 hours.
Industry: 1,504 hours.
Per ATS: 2 hours.
Industry: 188 hours.
Per ATS: 0.4 hours.
Industry: 37.6 hours.
Per ATS: 0.6 hours.
Industry: 36 hours.
Total burden for filing Form ATS–R, as proposed to be
amended.
N/A ................................................
Initial operation report on Form ATS:
Current approved burden for initial Form ATS .................................
Changes to Part I on Form ATS .......................................................
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Total for initial Form ATS, as proposed to be amended ..................
The Commission is proposing that
Form ATS and Form ATS–R would be
filed electronically. However, the
Commission believes that electronic
submission of Form ATS and Form
ATS–R would impose no additional
burden on existing ATSs. All ATSs that
file a Form ATS or Form ATS–R are
registered broker-dealers and therefore
do not need to submit a Form ID to
access EDGAR.
The Commission estimates that the
burden associated with receiving access
to EDGAR by submitting a Form ID is
0.15 burden hours per response. Based
on the number of initial filings and
cessation of operations reports on
current Form ATS for by existing ATSs,
the Commission estimates that 4 new
entities would file a new Form ATS in
each of the next three years. The
Commission estimates that among these
new entities, 1 new entity per year will
be operated by an entity that has not
previously registered as a broker-dealer,
a government securities broker, or a
government securities dealer or that
does not otherwise already have access
to EDGAR. The total estimated hourly
burden and aggregate initial burden for
new ATSs gaining access to EDGAR is
therefore 0.15 hours.521
The Commission is also proposing
changes to Part I of Form ATS and Form
Manager at 0.15 hours × 1 ATS =
0.15 burden hours.
521 Compliance
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522 The Commission notes that the additional
disclosures are substantially similar to those on
Form ATS–N and the additional burden is the same
as estimated in the NMS Stock ATS Adopting
Release. See NMS Stock ATS Adopting Release,
supra note 1, at 38869.
523 Compliance Clerk at 0.5 hours × 51 ATSs
filing Form ATS = 25.5 burden hours.
524 Compliance Clerk at 0.5 hours × 2 average
amendments filed on Form ATS per year × 51 ATSs
filing Form ATS = 51 burden hours.
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Annual burden
N/A ................................................
ATS–R. As stated above, Legacy Filers
are subject to a baseline burden of 20
hours for filing Form ATS, a baseline
burden of 6 hours for amending Form
ATS per filing, and a baseline burden of
4 hours per quarter for filing Form ATS–
R. The proposed changes contain
substantially the same information as
current Form ATS and Form ATS–R.
However, the proposed changes would
not include several information requests
that appear on the current forms, and
would include additional information
requests, such as the website of the
ATS, the MPID of the ATS, and
information related to the national
securities association of the brokerdealer operator. The Commission
estimates that the changes to Part I on
Form ATS–R and Form ATS will add an
additional burden of 0.5 hours above the
baseline burden 522 and an aggregate
burden of 25.5 additional initial burden
hours for ATSs filing Form ATS,523 51
additional annual burden hours for
amending Form ATS,524 and 188
Sfmt 4702
87173
N/A.
N/A.
Per ATS: 19 hours.
Industry: 1,766 hours.
additional annual burden hours for
ATSs filing Form ATS–R.525
In addition, the Commission is
proposing that ATSs provide additional
detail on Form ATS–R. The Commission
is proposing that ATSs differentiate
trading volume in U.S. Treasury
Securities and Agency Securities on
Form ATS–R. The Commission believes
that ATSs will be aware which of the
securities they trade are U.S. Treasury
Securities and which are Agency
Securities, and that this requirement
will impose no additional burden on
Government Securities ATSs, but rather
eliminate the need for ATSs to combine
all of its trading in government
securities in a single category. The
Commission is also proposing that ATSs
provide total dollar volume in
transactions in repos. In the
Commission’s experience, ATSs
currently provide this detail on Form
ATS–R, but the Commission would
include a new item requiring this
disclosure. The Commission would
require ATSs to provide a list of the
types of securities subject to such
repurchase and reverse repurchase
agreements, as well as to provide a list
of the types of listed options they trade.
The Commission believes that ATSs are
aware of this information and that this
should impose very little burden on the
525 Compliance Clerk at 0.5 hours × 4 filings
annually × 94 ATSs filing Form ATS–R = 188
burden hours.
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ATSs. The Commission estimates that
checking these boxes would impose an
additional burden of 0.15 hours for an
aggregate additional annual burden of
36 hours.526
The Commission is also proposing
changes to Form ATS–R to require an
ATS to indicate the type of the filing
(and if applicable the date of cessation)
and whether the ATS is subject to fair
access obligations.527 The ATS would
be aware of the type of filing it is
making and whether it is subject to the
fair access requirements, so this
requirement will impose very little
additional burden. The Commission
estimates that checking these boxes
would impose an additional burden of
0.1 hours for an aggregate additional
annual burden of 37.6 hours.528
The Commission is also proposing
changes to Form ATS to specify the type
of amendment that the ATS is filing.
The Commission believes this will
create no additional burden as ATSs
currently have to check what type of
filing they are submitting. This
proposed change would merely change
which box the ATS would have to
check. In the case of a cessation of
operations filing, the Commission is
proposing that the ATS would need to
provide the date of cessation. The
Commission believes that providing this
information would impose minimal
burden because this is information of
which the ATS will be aware and will
take little time to input on Form ATS.
5. Proposed Amendments to Regulation
SCI
Currently, Regulation SCI imposes no
burden on Government Securities ATSs.
The Commission believes that the
approved paperwork burden estimates
Burden
Initial burden
Compliance with Regulation SCI (existing SCI entities) ..........................
Per ATS: 1,017.15 hours ..............
Industry: 1,017.15 hours ...............
Per ATS: 2,034.3 hours ................
Industry: 4,068.6 hours .................
Per ATS: 2,458.65 hours.
Industry: 2,458.65 hours.
Per ATS: 2,458.65 hours.
Industry: 4,917.3 hours.
Industry: 5,085.75 hours 530 ..........
Industry: 7,375.95 hours 531.
Compliance with Regulation SCI (not existing SCI entities) ....................
Total—compliance with Regulation SCI ...........................................
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per entity under Regulation SCI
generally would be applicable to these
Government Securities ATSs, because
they would be subject to the same
requirements and burdens as other SCI
entities.529 At the same time, the
Commission believes that the burden
estimates also should take into account
the extent to which Government
Securities ATSs may already be SCI
entities or may be affiliated with SCI
entities that already comply with the
requirements of Regulation SCI. The
Commission estimates that proposed
amendments to Regulation SCI would
impose the following initial and annual
burdens to certain (1) Government
Securities ATSs that are existing SCI
entities or affiliated with SCI entities
and (2) Government Securities ATSs
that are not currently SCI entities or
affiliated with existing SCI entities:
The Commission estimates that 3
Government Securities ATSs would be
subject to these requirements, including
1 Government Securities ATS that is an
existing SCI entity. In particular, the
Commission believes that the 2 entities
that are not currently SCI entities would
have the same estimated initial
paperwork burdens as those estimated
for new SCI entities and the same
ongoing paperwork burdens as all other
SCI entities.532 The Commission also
believes that because 1 of these ATSs is
an existing SCI entity or affiliated with
an SCI entity that is already required to
implement the requirements of
Regulation SCI, this entity would not
have initial burdens equivalent to those
estimated for new SCI entities. At the
same time, because this entity would be
trading securities in a different segment
of the securities market and is likely to
have new or distinct SCI systems for
government securities, the Commission
believes that this ATS would have some
initial burden that would be a
percentage of that which entirely new
SCI entities have. In particular, the
Commission estimates that the initial
burdens for a Government Securities
ATS that is currently an SCI entity or
affiliated with an SCI entity would be 50
percent of the estimated initial burdens
for entirely new SCI entities. For
example, the Commission believes that
such ATS would need to develop and
draft the policies and procedures
required by Rule 1001(a) for new SCI
526 Compliance Manager at 0.15 hours × 4 filings
annually × 60 non-NMS Stock ATSs that file Form
ATS–R = 36 burden hours.
527 See supra Section V.C.
528 Compliance Manager at 0.1 hours × 4 filings
annually × 94 ATSs that file Form ATS–R = 37.6
burden hours.
529 See Proposed Collection; Comment Request;
Extension: Regulation SCI, Form SCI; SEC File No.
270–653, OMB Control No. 3235–0703, 83 FR 34179
(‘‘2018 SCI PRA Extension’’).
530 (1,017.15 initial burden hours for compliance
with Regulation SCI × 1 Government Securities ATS
affiliated with a current SCI entity) + (2,034.3 initial
burden hours for compliance with Regulation SCI
× 2 Government Securities ATSs not affiliated with
current SCI entities) = 5,085.75 burden hours. In the
Supporting Statement for the Paperwork Reduction
Act Information Collection Submission for
Regulation SCI, the Commission estimated that the
total one-time initial burden for an SCI entity that
is not an SRO or a plan processor to comply with
Regulation SCI would be 2,034.3 hours. See
Extension Without Change of a Currently Approved
Collection: Regulation SCI and Form SCI; ICR
Reference No. 201807–3235–001; OMB Control No.
3235–0703 (September 26, 2018) available at:
https://www.reginfo.gov/public/do/
PRAViewDocument?ref_nbr=201807-3235-001
(‘‘2018 SCI PRA Supporting Statement’’).
531 2,458.65 ongoing burden hours for compliance
with Regulation SCI × 3 Government Securities
ATSs = 7,375.95 burden hours. In the Supporting
Statement for the Paperwork Reduction Act
Information Collection Submission for Regulation
SCI, the Commission estimated that the total
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Annual burden
systems utilized for the trading of
government securities, but unlike
completely new SCI entities, this entity
would already have Rule 1001(a)
policies and procedures in place for
other types of SCI systems that it could
utilize as a model and modify as needed
for new SCI systems.533 The
Commission also believes that the
estimated ongoing paperwork burden
estimates for all SCI entities would be
applicable to this entity as well.534
E. Collection of Information Is
Mandatory
All collections of information
pursuant to the proposed rules would be
mandatory for entities that meet the
definition of ATS.
ongoing annual burden for an SCI entity that is not
an SRO or a plan processor to comply with
Regulation SCI would be 2458.65 hours. See 2018
SCI PRA Supporting Statement, supra note 530.
532 See 2018 SCI PRA Extension, supra note 529.
533 As an example, the estimate of an initial
recordkeeping burden was 694 hours per new
respondent to comply with the policies and
procedures requirement of Rule 1001(a). Id. at
34180. The Commission estimates that, for a
Government Securities ATS that is already an SCI
entity or affiliated with an SCI entity, the initial
burden for Rule 1001(a) would be 50 percent of this
estimated amount, or 347 hours.
534 The ongoing paperwork burden estimates in
the 2018 SCI PRA Extension do not distinguish
among different categories of SCI entities, but rather
provide an average for all SCI entities.
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F. Confidentiality of Responses to
Collection of Information
With respect to the proposed
amendments to Rules 301(b)(2)(viii) and
304 of Regulation ATS, including
proposed Form ATS–G, the Commission
would make publicly available on its
website all effective Forms ATS–G, all
properly filed Form ATS–G
amendments to effective Forms ATS–G,
and notices of cessation on Forms ATS–
G.535 The Commission would not make
publicly available on its website Forms
ATS–G that the Commission has
declared ineffective, but these forms
would be available for examination by
the Commission and its staff, state
securities authorities, and SRO(s) of
which the Government Securities ATS’s
broker-dealer operator is a member. The
other collections of information
required by the proposed application of
Rules 301(b) to Currently Exempted
Government Securities ATSs and the
proposed amendments to Rule 301(b)(2),
Form ATS, Form ATS–R, the Fair
Access Rule, and Regulation SCI would
not be made public, but would be used
for regulatory purposes by the
Commission and the SRO(s) of which
the ATS’s broker-dealer operator is a
member. In Part III, Item 24 of proposed
Form ATS–G, however, Government
Securities ATSs subject to the Fair
Access Rule would be required to
describe the written standards for
granting access to trading on the ATS
pursuant to Rule 301(b)(5)(ii)(A). To the
extent that the Commission receives
confidential information pursuant to
this collection of information, such
information would be kept confidential,
subject to the provisions of applicable
law.
G. Retention Period for Recordkeeping
Requirements
All reports required to be made under
Rules 301(b)(2)(viii), 301(b)(9), and 304
of Regulation ATS, including proposed
Form ATS–G, will be required to be
preserved during the life of the
enterprise and any successor enterprise.
As proposed, Currently Exempted
Government Securities ATSs would also
be required to preserve a copy of their
written safeguards and written
procedures to protect subscribers’
confidential trading information under
Rule 301(b)(10) of Regulation ATS for
not less than three years, the first two
years in an easily accessible place,
pursuant to Rule 303(a)(1)(v) of
Regulation ATS.536 Currently Exempted
535 See
supra Section II.G.
Filers are currently subject to the
recordkeeping requirements of Rule 301(b)(10). See
supra Section IX.A.
Government Securities ATSs would be
required to preserve for not less than
three years, the first two years in an
easily accessible place, a copy of all
records required to be made pursuant to
Rule 302, all notices provided by such
ATSs to subscribers generally, and at
least one copy of its standards for access
to trading, all documents relevant to its
decision to grant, deny, or limit access
to any person, and all other documents
made or received in the course of
complying with Rule 301(b)(5).537 An
SCI entity must keep all documents
relating to compliance with Regulation
SCI for a period of not less than five
years, the first two years in a place that
is readily accessible by the Commission
or its representatives for inspection and
examination.538
H. Request for Comments
Pursuant to 44 U.S.C. 3506(c)(2)(B),
the Commission solicits comments to:
167. Evaluate whether the proposed
collection of information is necessary
for the proper performance of the
Commission’s functions, including
whether the information shall have
practical utility;
168. Evaluate the accuracy of the
Commission’s estimates of the burden of
the proposed collection of information;
169. Determine whether there are
ways to enhance the quality, utility, and
clarity of the information to be
collected;
170. Evaluate whether there are ways
to minimize the burden of collection of
information on those who are to
respond, including through the use of
automated collection techniques or
other forms of information technology;
and
171. Evaluate whether the proposed
amendments would have any effects on
any other collection of information not
previously identified in this section.
Persons submitting comments on the
collection of information requirements
should direct them to the Office of
Management and Budget, Attention:
Desk Officer for the Securities and
Exchange Commission, Office of
Information and Regulatory Affairs,
Washington, DC 20503, and should also
send a copy of their comments to
Vanessa Countryman, Secretary,
Securities and Exchange Commission,
100 F Street NE, Washington, DC
20549–1090, with reference to File
Number S7–12–20. Requests for
materials submitted to OMB by the
Commission with regard to this
collection of information should be in
writing, with reference to File Number
536 Legacy
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537 See
538 See
PO 00000
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17 CFR 242.1005(b)(2).
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S7–12–20 and be submitted to the
Securities and Exchange Commission,
Office of FOIA/PA Services, 100 F Street
NE, Washington, DC 20549–2736. As
OMB is required to make a decision
concerning the collection of information
between 30 and 60 days after
publication, a comment to OMB is best
assured of having its full effect if OMB
receives it within 30 days of
publication.
X. Economic Analysis
The Commission is sensitive to the
economic consequences and effects,
including the costs and benefits, of its
rules. The following economic analysis
identifies and considers the costs and
benefits—including the effects on
efficiency, competition, and capital
formation—that may result from, among
other things, (i) the proposed
amendments to Regulation ATS to
require Government Securities ATSs to
publicly disclose on Form ATS–G their
manner of operations and the ATSrelated activities of the broker-dealer
operator and its affiliates, (ii) the
proposed amendments to Regulation
ATS to apply the Fair Access Rule to
Government Securities ATSs that meet
certain volume thresholds in U.S.
Treasury Securities or Agency
Securities, and (iii) the proposal to
amend Regulation SCI to apply its
requirements to ATSs that meet certain
volume thresholds in U.S. Treasury
Securities or Agency Securities.539
This discussion of the economic
effects of the proposed amendments to
Regulation ATS and Regulation SCI
(collectively referred to as ‘‘proposed
amendments’’) begins with a baseline
analysis of the market for government
securities and the current regulations
that apply to ATSs that trade
government securities or repos. The
economic analysis then discusses the
likely economic effects of the proposed
amendments, including the costs and
benefits as well as their effects on
efficiency, competition, and capital
formation. The economic analysis also
includes a discussion of the potential
539 Exchange Act Section 3(f) requires the
Commission, when it is engaged in rulemaking
pursuant to the Exchange Act and is required to
consider or determine whether an action is
necessary or appropriate in the public interest, to
consider, in addition to the protection of investors,
whether the action will promote efficiency,
competition, and capital formation. See 15 U.S.C.
78c(f). In addition, Exchange Act Section 23(a)(2)
requires the Commission, when making rules
pursuant to the Exchange Act, to consider among
other matters the impact that any such rule would
have on competition and not to adopt any rule that
would impose a burden on competition that is not
necessary or appropriate in furtherance of the
purposes of the Exchange Act. See 15 U.S.C.
78w(a)(2).
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costs and benefits of reasonable
alternatives to the proposed
amendments. The Commission requests
comment on all aspects of the economic
effects of the proposed amendments and
of reasonable alternatives.
A. Introduction
Government Securities ATSs have
grown to levels of sophistication similar
to those of NMS Stock ATSs, but
Regulation ATS currently only applies
in a limited manner—if at all—to
Government Securities ATSs.540 The
Commission believes that removing the
exemption for Currently Exempted
Government Securities ATSs and
amending Regulation ATS for
Government Securities ATSs would: (1)
Extend the investor protections of
Regulation ATS to subscribers of
Currently Exempted Government
Securities ATSs; (2) enhance the
regulatory oversight of Government
Securities ATSs and allow the
Commission to better monitor trading
and their role in the government
securities and repo market; (3) enhance
the operational transparency of
Government Securities ATSs through
public disclosures on Form ATS–G and;
and (4) help ensure the fair treatment of
potential and current subscribers to
Government Securities ATSs with
significant volume in U.S. Treasury
Securities and Agency Securities.
The Commission believes that the
proposed amendments to Regulation
SCI for Government Securities ATSs
would help address technological
vulnerabilities and reduce the chance of
a system issue disrupting trading on a
significant government securities
platform.541 The proposed amendments
would also help improve system uptime and would reduce the frequency,
severity, and duration of systems issues
that directly inhibit execution facilities
or order matching, which could help
prevent interruptions in the price
discovery process and liquidity flows
and, thus may help prevent periods
with pricing inefficiencies from
occurring.
The Commission believes that the
proposed amendments would enhance
the operational transparency and the
Commission’s oversight of ATSs that
trade U.S. Treasury Securities. As
described in the October 15 Staff Report,
on July 13, 2015, the market for U.S.
Treasury securities and futures
experienced an unprecedented roundtrip in prices between 9:33 a.m. and
540 See supra Section I.B for a discussion of the
current regulatory framework for Government
Securities ATSs.
541 See infra Section X.C.1.b.
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9:45 a.m., resulting in a 37 basis point
trading range for the day.542 The market
continued to function with high
volatility and trading volumes, but
liquidity conditions became
significantly strained. After this event,
the Treasury Department issued a
Request for Information on the
evolution of the U.S. Treasury market
structure.543 In response to the Treasury
Request for Information, many entities
called for greater transparency and
public access to data regarding the
functioning of U.S. Treasury markets.544
Enhancing operational transparency and
public disclosures is expected to
improve market efficiency, which
should help address concerns raised by
the ‘‘flash rally.’’ Enhancing the
Commission’s ability to monitor
transactions volume at a detailed level
would permit more focused surveillance
to address potential concerns about
market function.
The Commission recognizes that
Government Securities ATSs would
incur implementation and ongoing
compliance costs as a result of the
proposed amendments, which require
Government Securities ATSs to
establish and update policies and
procedures, gather information for new
disclosures, update systems to comply
with recordkeeping requirements, and
make other adjustments to comply with
the requirements of the proposed
amendments.545 The Commission
recognizes that the proposed
amendments could have effects on
competition for order flow in the market
for government securities and repo
execution services, the efficiency with
which market participants achieve their
trading objectives, and capital
formation.546 The Commission believes
that the enhancement in operational
transparency of Government Securities
ATSs could promote competition for
order flow and incentivize Government
Securities ATSs to innovate.547 The
Commission also believes that the
proposed amendments could lower
search costs and increase trading venue
542 See
543 See
October 15 Staff Report, supra note 14.
Treasury Request for Information, supra
note 10.
544 See Press Release, U.S. Securities and
Exchange Commission, Statement on Trade
Reporting in the U.S. Treasury Market (May 16,
2016), available at https://www.sec.gov/news/
pressrelease/2016-90.html. See also Michael J.
Fleming, Advent of Trade Reporting for U.S.
Treasury Securities (January 17, 2017), Federal
Reserve Bank of New York, Liberty Street
Economics, available at https://
libertystreeteconomics.newyorkfed.org/2017/01/
advent-of-trade-reporting-for-us-treasurysecurities.html.
545 See infra Section X.C.2.
546 See infra Section X.C.3.
547 See supra note 546.
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options for market participants resulting
in lower trading costs and better
efficiency with which they achieve their
trading objectives.548 Furthermore, the
Commission believes that extending
Regulation SCI to include Government
Securities ATSs with significant volume
in U.S. Treasury Securities and Agency
Securities would reduce the frequency,
severity, and duration of such effects
resulting from systems issues, thereby
enhancing price efficiency of
government securities and promoting
capital formation.549
B. Baseline
The baseline against which economic
costs and benefits, as well as the impact
of the proposed amendments on
efficiency, competition, and capital
formation, are measured is the current
market and regulatory framework for the
market for government securities and
repo execution services. The baseline
describes how ATSs play an important
role in the current state of competition
in the market for trading government
securities. Competition among ATSs is
influenced by current reporting
requirements for Government Securities
ATSs, including operational and
transaction reporting requirements,
which creates a potentially uneven
competitive landscape. Similarly, the
limited public information about
Government Securities ATSs’ operations
results in information asymmetries.
Current regulation of Government
Securities ATSs’ treatment of subscriber
confidential trading information could
lead to potential abuse of such
information.
The Fair Access Rule of Regulation
ATS does not currently apply to ATSs
that trade government securities, and
there is no mechanism to prevent
Government Securities ATSs from
unreasonably denying or limiting
subscribers’ access to an ATS that is a
significant market for government
securities, which could increase their
trading costs.550 Furthermore,
Regulation SCI does not currently apply
to the government securities activities of
548 See
id.
infra Section X.C.3.c for a discussion
about the price discovery and price efficiency of
U.S. Treasury Securities, risk-free rate benchmarks,
pricing of risky securities, and capital formation.
See also October 15 Staff Report, supra note 14, for
a discussion about price discovery being especially
important in the secondary market for on-the-run
U.S. Treasury Securities because the transaction
prices are used as risk-free rate benchmarks to price
other securities transactions.
550 See supra Sections I.B and II.D discussing the
Fair Access Rule requirements. See infra Section
X.B.5 discussing why market forces alone may not
be sufficient to prevent a Government Securities
ATS from unreasonably denying access to some
market participants.
549 See
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an ATS. The Commission believes that,
without appropriate safeguards in place
for these Government Securities ATSs,
technological vulnerabilities could lead
to the potential for failures, disruptions,
delays, and intrusions, which could
place government securities market
participants at risk, harm price
discovery, and reduce price
efficiency.551 In Section X.B.7, we
discuss the current regulatory
framework and competition for order
flow in the market for government
securities and their implications on
market efficiency.
The economic analysis that follows is
based only on transactions reported to
TRACE.552 Due to the lack of data on
activities of ATSs operated by nonFINRA members, the quantitative
analysis of transactional activity does
not include ATSs that are not FINRA
members.553 Furthermore, the economic
analysis does not include repo
transactions and activities of options on
government securities because there is a
lack of available data.554
The parties that would be affected by
the proposed amendments include:
Existing Government Securities ATSs,
which comprise Legacy Filers and
Currently Exempted Government
Securities ATSs; potential new
Government Securities ATSs; brokerdealers that operate or are affiliated with
Government Securities ATSs; non-ATS
trading venues that compete for order
flow in the electronic market with
Government Securities ATSs and the
broker-dealers that operate these nonATS trading venues. The proposed
amendments would also affect current
and potential subscribers of Government
Securities ATSs including: Primary
dealers in government securities, nonprimary broker-dealers in government
securities, PTFs that trade on
Government Securities ATSs, and
institutional investors that directly trade
in the electronic market for government
securities; and institutional investors
that transact in the dealer-to-customer
market.555
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551 See
supra Section VI.
data is based on available
information that is currently reported to FINRA.
553 See infra Section X.B.2.b.
554 Based on information provided to the
Commission on Form ATS filings as of July 1, 2020,
three ATSs have noticed their intention to trade
repos on government securities while no ATS has
noticed its intention to trade options on government
securities.
555 PTFs refers to principal trading firms. See
supra Section I.A.
552 Transaction
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1. Current State of Competition in the
Market for Trading Government
Securities
Government Securities ATSs play a
significant competitive role in the
market for government securities
execution services as Government
Securities ATSs account for
approximately 43 percent and 13
percent of overall trading volume in the
U.S. Treasury and Agency Securities
market, respectively.556 Government
Securities ATSs compete on fees and
technological features for subscribers
and, ultimately, customer order flow
through interdealer transactions.
Government Securities ATSs account
for 57 percent of overall trading volume
in the on-the-run U.S. Treasury
Securities market.557 In the off-the-run
Treasury Securities market, Government
Securities ATSs account for 20 percent
of trading volume.558
Government securities represent a
large proportion of the entire U.S. fixed
income market in terms of outstanding
debt and daily trading volume.559
According to the United States
Treasury, as of the end of 2019, the total
amount outstanding of marketable
Treasury Securities is approximately
$17 trillion.560 Furthermore, the
Financial Accounts of the United States
Z.1 released by the Federal Reserve
Board show that the amount
outstanding of Agency- and GSE-Backed
Securities is about $9.4 trillion,
collectively accounting for
approximately 60 percent of the $47.386
trillion U.S. fixed income market.561
According to data published by SIFMA,
over the last six months of 2019, the
average daily trading volume in
government securities was about $835
billion, or roughly 95 percent of all
fixed income trading volume in the
U.S.562
556 Based on the regulatory version of TRACE for
U.S. Treasury and Agency Securities from 7/1/2019
to 12/31/2019.
557 On-the-run Treasury Securities have much
more trading activity than off-the-run Treasury
Securities. See supra note 10.
558 Based on the regulatory version of TRACE for
U.S. Treasury Securities from 7/1/2019 to 12/31/
2019.
559 See supra note 6.
560 See Monthly Statement of the Public Debt of
the United States, dated December 31, 2019,
available at https://www.treasurydirect.gov/govt/
reports/pd/mspd/2019/opds122019.pdf.
561 See Federal Reserve Board L.208 Debt
Securities, available at https://
www.federalreserve.gov/releases/z1/20200611/
html/l208.htm.
562 See SIFMA Fixed Income Trading Volume,
available at https://www.sifma.org/resources/
research/us-fixed-income-trading-volume/. The
stated figures include Treasury Securities, Agency
MBS, and Federal Agency Securities. The sixmonth average is the mean of the average daily
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The most actively traded government
securities are U.S. Treasury Securities.
U.S. Treasury Securities serve many
important roles, including as a means of
financing the U.S. federal government,
as instruments for monetary policy
implementation, as hedging and
collateral instruments, as a liquid asset
used to satisfy regulatory requirements,
and as risk-free benchmarks for pricing
other financial instruments. In
December 2019, the average daily
trading in U.S. government securities
totaled $754.3 billion, which is further
broken down as follows: $523.2 billion
in U.S. Treasury Securities; $227.1
billion in Agency Mortgage-Backed
Securities (MBSs); and $4.0 billion in
other Agency Securities.563
Overall, trading in the market for
government securities is characterized
by many competing trading venues with
various trading functionalities, order
types, and trading venue fees. However,
the Commission believes that lack of
public disclosure about the operations
and potential conflicts of interest of
Government Securities ATSs could
hinder competition among these ATSs
and between the Government Securities
ATSs and non-ATS trading venues in
the market for government securities
and repo execution services. Although
the Commission recognizes that nonATS trading venues compete with
Government Securities ATSs in the
market for government securities and
repo execution services, non-ATS
trading venues, unlike ATSs, cannot
offer certain execution protocols, such
as crossing mechanisms, auctions, and
central limit order books, which
generally meet the definition of an
exchange.564
Government Securities ATSs compete
with other Government Securities ATSs,
non-ATS interdealer broker trading
platforms, and dealers that operate
various trading protocols for order flow
in the market for government securities
and repo execution services. Trading of
government securities occurs on a
diverse set of trading venues—such as
trading volume for these instruments over the
period from July to December 2019.
563 Based on the regulatory version of TRACE for
U.S. Treasury Securities and TRACE for Agency
Securities. Trading volume is reported as par
volume in dollars. Par volume is the volume
measured in the face value ($100) of bond in
dollars. See also FINRA TRACE Fact Book,
available at https://www.finra.org/filing-reporting/
trace/trace-fact-book.
564 See supra Section I.B. ATS and non-ATS
trading venues both offer execution services. Orders
matched on non-ATS trading venues generally
result from a broker-dealer exercising discretionary
activity while an ATS, which is an exchange,
matches the orders of multiple buyers and sellers
in securities using established non-discretionary
methods.
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ATSs and non-ATS interdealer
brokers—and directly between market
participants, including bilateral dealerto-dealer (interdealer) and dealer-tocustomer transactions. Participants in
the government securities market
include dealers, PTFs, hedge funds, and
large institutional investors. In the
dealer-to-dealer market, trading
platforms offer a variety of trading
protocols, for example, central limit
order books, quote streaming, and
request for quotes.
Government Securities ATSs play an
important role in the U.S. Treasury
Securities market.565 Government
Securities ATSs facilitate significant
liquidity provision for U.S. Treasury
and Agency Securities markets,
particularly those that operate in the
secondary interdealer markets for onthe-run U.S. Treasury Securities.566 The
majority of trading in on-the-run
markets occurs on Government
Securities ATSs.567 Although
Government Securities ATSs trade a
significant share of volume in off-therun U.S. Treasury Securities, their share
of trading volume in the off-the-run U.S.
Treasury Securities is smaller than their
share of on-the-run U.S. Treasury
Securities trading.568 Traditionally,
participation in the interdealer trading
market is open to only bank- and nonbank dealers; however, the interdealer
trading market now includes non-dealer
participants, most notably PTFs in the
on-the-run U.S. Treasury Securities
market.569
In the dealer-to-customer market,
customers (e.g., investment companies,
pension funds, insurance companies,
corporations, or retail investors) 570
trade with dealers either through
traditional voice-assisted brokers or
through electronic systems.571
Customers submit orders either over the
phone via an electronic voice system or
on trading platforms that facilitate
matching buy and sell orders through
single or multi-dealer electronic
systems, such as RFQ platforms.572 The
Commission understands that in the
dealer-to-customer market for
government securities, dealers do not
usually redirect customer order flow to
Government Securities ATSs.573
Instead, the dealers cross or fill the
orders internally and they trade on
ATSs to manage their inventory levels.
Due to a lack of available data, the
extent to which dealers internalize
customer orders is unclear.
Competition among dealers for
customer order flow happens in
multiple ways. One of the clearest ways
that dealers compete with each other is
via their quotes. One comment letter
submitted in response to the Treasury
Request for Information said that dealers
in the U.S. Treasury Securities market
also compete along other dimensions
such as by offering: Better customer
service, better allocations on the
issuance of other securities, access to
research, and favorable financing
terms.574
Some Government Securities ATSs
are operated by, or affiliated with,
multi-service broker-dealers that also fill
customer orders for dealer-to-customer
trades. These broker-dealer operators or
their affiliates may compete for
customer order flow along with
subscribers to their own Government
Securities ATSs.
Competition among Government
Securities ATSs and between
Government Securities ATSs and nonATS trading venues could affect market
participants’ trading costs in the
government securities market. Trading
costs may include bid-ask spreads,575
search costs in the selection of trading
venues, and trading venue fees. When
deciding which trading venue most
suits their trading purposes, market
participants may consider various ATS
operational facets, such as order
handling, order types, order
segmentation, trading functionalities,
and any potential conflicts of interest
that may arise from the ATS-related
activities of the broker-dealer operator
or its affiliates. Trading venue fees
could be a primary factor for market
participants in deciding to which
trading venue to send their orders.576
The Commission recognizes that the fee
structures of ATSs can vary and may
depend on, among other things, the
types of subscribers and services.577 In
the selection of trading venues, market
participants may consider which ATS
fee structure offers the best pricing
according to order flow and market
participant characteristics.578
TABLE X.1—ATS MARKET SHARE ANALYSIS
Treasury
securities
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Num. of Gov. Sec. ATS ........................................................................................................
Gov. Sec. ATS volume share ...............................................................................................
Above 10% Market Share:
Num. of Gov. Sec. ATS ........................................................................................................
565 See infra Section X.B.1.a for a discussion of
the on-the-run U.S. Treasury Securities market and
infra Section X.B.1.b for a discussion of the off-therun U.S. Treasury Securities market. See supra
notes 9 and 10 for the definition of the on-the-run
and the off-the-run U.S. Treasury Securities,
respectively.
566 See supra Section I.B.
567 See infra Section X.B.1.a for a discussion of
the on-the-run U.S. Treasury Securities market.
568 See infra Section X.B.1.b for a discussion of
the off-the-run U.S. Treasury Securities market.
569 See infra Section X.B.1.a for a discussion
about PTF participation in the on-the-run U.S.
Treasury Securities market.
570 See Treasury Request for Information, supra
note 10, at 3928.
571 See October 15 Staff Report, supra note 14, at
11, 55.
572 See id. at 36, n.31; Treasury Request for
Information, supra note 10, at 3928.
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573 In Tables X.2, X.3, and X.4, dealer transactions
on Government Securities ATSs represent a
significant portion of overall Government Securities
ATS trading volume, whereas customer transactions
account for a small portion of overall Government
Securities ATS trading volume. The Commission
understands that some portion of dealer
transactions on Government Securities ATSs
represents customer orders because dealers may fill
customer orders internally and trade on ATSs to
manage their inventory levels.
574 See Letter from Jim Greco, CEO, Direct Match,
to David R. Pearl, Office of the Executive Secretary,
U.S. Department of the Treasury, dated April 22,
2016, at 5, available at https://
www.treasurydirect.gov/instit/statreg/gsareg/
RFIcommentletterDirectMatch.pdf (‘‘Direct Match
Letter’’).
575 The estimated average daily relative quoted
spread for interdealer transactions for on-the-run
U.S. Treasury Securities is small, approximately 0.8
bps for 2-year Treasury Securities and 2.4 bps for
10-year Treasury Securities. The estimated average
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Agency
securities
Number of
unique ATSs
19
43.1%
6
13.1%
19
1
1
2
daily relative quoted spread for interdealer
transactions for off-the-run U.S. Treasury Securities,
approximately 1.7 bps for 2-year Treasury
Securities and 5.4 bps for 10-year Treasury
Securities, is larger compared to that of on-the-run
Treasury Securities. Though, spreads have
narrowed in the past couple of years with a change
to a smaller minimum trading increment of 1⁄8 of
1⁄32 of $1. The average daily relative quoted spread
is computed as the daily average of the difference
between the intraday offer and bid prices divided
by the corresponding price mid-quote. See also
Paolo Pasquariello & Clara Vega, The On-the-Run
Liquidity Phenomenon, 92 J. Fin. Econ. 1 (2009);
Tobias Adria, Michael Fleming, & Or Shachar,
Market Liquidity after the Financial Crisis (June, 28,
2017), Federal Reserve Bank of New York, Liberty
Street Economics, available at https://
libertystreeteconomics.newyorkfed.org/2017/06/
market-liquidity-after-the-financial-crisis.html.
576 See supra Section III.C.19.
577 See id.
578 See id.
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TABLE X.1—ATS MARKET SHARE ANALYSIS—Continued
Treasury
securities
Gov. Sec. ATS volume share ...............................................................................................
Above 5% Market Share:
Num. of Gov. Sec. ATS ........................................................................................................
Gov. Sec. ATS volume share ...............................................................................................
Above 4% Market Share:
Num. of Gov. Sec. ATS ........................................................................................................
Gov. Sec. ATS volume share ...............................................................................................
Above 3% Market Share:
Num. of Gov. Sec. ATS ........................................................................................................
Gov. Sec. ATS volume share ...............................................................................................
Above 2% Market Share:
Num. of Gov. Sec. ATS ........................................................................................................
Gov. Sec. ATS volume share ...............................................................................................
Agency
securities
Number of
unique ATSs
24.1%
12.7%
3
35.0%
1
12.7%
3
3
35.0%
1
12.7%
3
4
38.1%
1
12.7%
4
5
40.5%
1
12.7%
5
Each panel reports the volume share (%) for Government Securities ATSs and the number of Government Securities ATSs above the specified market share level. Treasury Securities include nominal bonds, TIPS and STRIPS. Agency Securities include Agency Debentures, Agency
Collateralized Mortgage Obligations, and Agency Pass-Through Mortgage Backed Securities.579 Trading volume is measured in dollar volume in
par value. Data is based on the regulatory version of TRACE for U.S. Treasury Securities and TRACE for Agency Securities from July 1, 2019 to
December 31, 2019.
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The Commission estimates that 19
Legacy Filers 580 and 7 Currently
Exempted Government Securities
ATSs 581 would be subject to the
proposed amendments to Regulation
ATS. However, only 19 of these 26
Government Securities ATSs reported
transactions on government securities to
TRACE over the six-month period
between July and December 2019.
Of the 19 Government Securities
ATSs that report transactions to TRACE,
the volume is concentrated in only a
few ATSs, and predominantly in one
ATS. Table X.1 reports the number of
Government Securities ATSs and the
trading volume share of Government
Securities ATSs for multiple volume
share levels, using government
securities transactions reported to
TRACE during the six-month period
between July and December 2019. Over
the six-month period in 2019, 19
Government Securities ATSs accounted
for approximately 43 percent of overall
U.S. Treasury Securities trading volume.
In the market for U.S. Treasury
Securities, 3 Government Securities
ATSs each have at least five percent of
overall U.S. Treasury Securities trading
volume. The Government Securities
ATS with the largest market volume in
U.S. Treasury Securities has
approximately 24 percent of total U.S.
579 Agency Pass-through Mortgage Backed
Securities include those traded in specified pool
transactions and those to be announced.
580 Based on data compiled from Form ATS filed
with the Commission as of July 1, 2020, the
Commission has 19 Form ATSs on file from Legacy
Filers.
581 The Commission believes that 7 Currently
Exempted Government Securities ATSs transact
exclusively in government securities or repos, and
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Treasury Securities trading volume,
whereas each of the Government
Securities ATSs with the second and
third largest market volume has a
trading volume that is slightly above
five percent of total U.S. Treasury
Securities. In the market for Agency
Securities, 6 Government Securities
ATSs accounted for 13 percent of
overall Agency Securities trading
volume. One Government Securities
ATS has at least five percent of overall
Agency Securities trading volume.
In the subsections below, Section
X.B.1.a and Section X.B.1.b discuss
competition among trading venues and
market participants in the on-the-run
and off-the-run U.S. Treasury Securities
market, respectively. Section X.B.1.c
discusses competition among trading
venues and market participants in the
Agency Securities market.
In the on-the-run U.S. Treasury
Securities market, Government
Securities ATSs compete with other
Government Securities ATSs and nonATS trading venues for PTF, dealer, and
ultimately, customer order flows.582
While there are multiple avenues to
trade on-the-run government securities,
the majority of trading goes through
Government Securities ATSs. Table X.2
reports the trading volume shares for
Government Securities ATSs, non-ATS
interdealer brokers, and bilateral
secondary market transactions over the
six month period between July and
December 2019. As shown in Table X.2,
19 Government Securities ATSs and 24
non-ATS interdealer brokers reported
on-the-run U.S. Treasury Securities
transactions to TRACE during the six
month period in 2019. Government
Securities ATSs accounted for
approximately 57 percent of total
trading volume and approximately 67
percent of total interdealer trading
volume in the on-the-run U.S. Treasury
Securities market over the six month
period in 2019.583 A substantial amount
of trading is concentrated on the largest
Government Securities ATS in terms of
trading volume, accounting for
approximately 64 percent of the total
Government Securities ATS trading
volume and approximately 37 percent of
the total trading volume for on-the-run
U.S. Treasury Securities. This largest
Government Securities ATS in terms of
trading volume serves as the primary
location for price discovery in the cash
market for on-the-run U.S. Treasury
Securities. This ATS’s transaction
prices, along with prices in the U.S.
Treasury Securities futures market, are
used by many market participants to
determine risk-free benchmarks for
pricing other financial products.584
are not required to file a Form ATS. See also supra
Section IX.C for the estimated number or
respondents to the ‘‘collection of information’’
requirements.
582 In Table X.2, the reported trading volume
share of Government Securities ATSs in the
secondary market trading for on-the-run U.S.
Treasury Securities is small. Government Securities
ATSs compete for customer order flow through
interdealer transactions on ATSs. The Commission
understands that dealers fill customer trades
internally and trade on Government Securities
ATSs to manage their inventory levels. See supra
note 9.
583 (ATS dealer volume/(dealer volume from ATS
+ dealer volume from non-ATS interdealer brokers
+ bilateral dealer-to-dealer volume) × 100) = ATS
share of dealer volume (%).
584 See October 15 Staff Report, supra note 14, at
15, 17–18, 45.
a. On-the-Run U.S. Treasury Securities
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TABLE X.2—ON-THE-RUN U.S. TREASURY SECURITIES TRADING VOLUME
Number of
venues
ATSs ............................................................................................................................................
Customer trades ...................................................................................................................
Dealer trades ........................................................................................................................
PTF trades ............................................................................................................................
Non-ATS Interdealer Brokers ......................................................................................................
Customer trades ...................................................................................................................
Dealer trades ........................................................................................................................
Bilateral dealer-to-dealer trades ..................................................................................................
Bilateral dealer-to-customer trades .............................................................................................
19
12
18
13
24
22
23
422
348
Volume
995,669
74,094
377,166
544,409
72,963
31,389
41,574
145,734
520,818
Volume share
(%)
57.4
4.3
21.7
31.4
4.2
1.8
2.4
8.4
30.0
This table reports trading volume and volume share for ATSs, Non-ATS interdealer brokers, bilateral dealer-to-dealer transactions, and bilateral
dealer-to-customer transactions for on-the-run U.S. Treasury Securities. On-the-run U.S. Treasury Securities are the most recently issued nominal coupon securities. Nominal coupon securities pay a fixed semi-annual coupon and are currently issued at original maturities of 2, 3, 5, 7, 10,
20, and 30 years. Treasury Bills and Floating Rate Notes are excluded. For bilateral transactions, the number of venues denotes the number of
distinct MPIDs.585 Volume is the average weekly dollar volume in par value (in millions of dollars) over the 6-month period, from July 1, 2019 to
December 31, 2019.586 Number of Venues is the number of different trading venues in each category and the number of MPIDs for bilateral
transactions. Market Share (%) is the measure of the dollar volume as a percent of total dollar volume.587 The volume of ATSs and non-ATS
interdealer brokers are broken out by Customer trades, Dealer trades, and PTF trades within each group.588 Data is based on the regulatory
version of TRACE for U.S. Treasury Securities from July 1, 2019 to December 31, 2019.
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In addition to competing for
subscribers through the fees they charge,
Government Securities ATSs also
compete with each other via the
technological features and order options
they offer to subscribers. As highlighted
in the October 15 Staff Report,589
Government Securities ATSs in the
secondary electronic cash market for onthe-run U.S. Treasury Securities have
evolved such that they operate with a
complexity in terms of automation and
speed of trading that is similar to that
observed on NMS Stock ATSs. Four
Government Securities ATSs operate as
anonymous central limit order book
systems and offer features to allow
participants to interact with specific
counterparty groups on the ATS, such
as low latency and high-speed
connectivity via direct market data feeds
and co-location services, a variety of
order types and algorithms to pursue
aggressive and passive trading
strategies, and order flow segmentation.
585 Dealers are counted using the number of
distinct MPIDs. See also supra Section III.A.2.
586 FINRA reports volume as par volume, where
par volume is the volume measured by the face
value of the bond, in dollars. See also FINRA
TRACE Fact Book, available at https://
www.finra.org/filing-reporting/trace/trace-factbook.
587 Total dollar volume (in par value) is
calculated as the sum of dollar volume for ATSs,
non-ATS interdealer brokers, bilateral dealer-todealer transactions, and bilateral dealer-to-customer
transactions.
588 We identify ATS trades and non-ATS
interdealer broker trades using MPID in the
regulatory version of TRACE for U.S. Treasury
Securities. The regulatory version of TRACE for
U.S. Treasury Securities includes an identifier for
customer and interdealer trades. Furthermore, we
use MPID for non-FINRA member subscriber
counterparties in the regulatory version of TRACE
for U.S. Treasury Securities to identify PTF trades
on ATSs.
589 See October 15 Staff Report, supra note 14, at
35–36.
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Unlike NMS Stock ATSs, whose brokerdealer operators connect to national
securities exchanges to route orders,
broker-dealer operators of Government
Securities ATSs usually do not offer to
route subscribers’ orders to other trading
venues.
Historically, Government Securities
ATSs in the market for on-the-run U.S.
Treasury Securities only allowed bank
and non-bank dealers to trade. Dealers
had primarily traded directly with
customers in the dealer-to-customer
market and traded with other brokerdealers on Government Securities ATSs
as a source of orders and trading interest
or to balance their inventory risk.
However, beginning in 2003,
Government Securities ATSs started
allowing firms that were neither banks
nor dealers, such as hedge funds,
insurance companies and PTFs to trade
directly in interdealer transactions on
Government Securities ATSs.590 This
change has allowed some traders who
were previously restricted to the dealerto-customer trading venues to access
Government Securities ATSs, where
they can trade anonymously.
With the growth of high-speed
electronic trading, the presence of PTFs
has greatly increased in the secondary
cash market for on-the-run U.S.
Treasury Securities. In 2008, PTFs
accounted for 25 percent of the trading
volume on ATSs.591 Based on Table X.2,
over the six month period in 2019, PTFs
traded on 13 Government Securities
590 See
Direct Match Letter, supra note 574, at 6–
7.
591 See Alexandra Scaggs & Susanne Barton,
Treasuries Wilder Than Ever as Ultrafast Bond
Traders Rise Up, Bloomberg, October 12, 2015,
https://www.bloomberg.com/news/articles/2015-1012/treasuries-wilder-than-ever-as-ultra-fast-bondtraders-rise-up (citing the Tabb Group Report).
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ATSs accounting for approximately 55
percent 592 of total Government
Securities ATS trading volume. PTFs
have also become the primary liquidity
providers.593 As of the end of 2019,
there are over 100 PTFs operating on
ATSs that trade U.S. Treasury
Securities, primarily on four
Government Securities ATSs.594 Similar
to HFTs in the equity markets, PTFs
trading on the electronic market for U.S.
Treasury Securities often employ
automated algorithmic trading strategies
that rely on speed and allow the PTFs
to quickly execute trades, or cancel or
modify quotes in response to perceived
market events.595 Furthermore, most
PTFs trading U.S. Treasury Securities
on electronic trading venues also restrict
their activities to principal trading and
do not hold positions long term.596
In the secondary markets for on-therun U.S. Treasury Securities, dealer
transactions account for a significant
portion of overall Government
Securities ATS trading volume. In Table
X.2, dealers account for approximately
38 percent 597 of overall Government
Securities ATS trading volume. The
Commission understands that some
portion of dealer transactions on
Government Securities ATSs represents
customer orders because dealers may fill
customer trades internally and trade on
Government Securities ATSs to manage
their inventory levels.
592 (ATS PTF volume/ATS volume) × 100 = PTF
share of ATS volume (%).
593 TRACE for Treasury data. See also October 15
Staff Report, supra note 14, at 21, 23, 38–39.
594 FINRA PTF participant list as of 12/31/2019.
595 See October 15 Staff Report, supra note 14, at
32, 35–36, 39.
596 See id. at 38.
597 (ATS dealer volume/ATS volume) × 100 =
dealer volume share of ATS volume (%).
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b. Off-the-Run U.S. Treasury Securities
Government Securities ATSs play a
significant role in secondary market
trading for off-the-run U.S. Treasury
Securities.598 Government Securities
ATSs account for approximately 51
percent 599 and 20 percent of the total
interdealer trading volume and the total
trading volume, respectively, in the offthe-run U.S. Treasury Securities market.
However, Government Securities ATSs’
share of trading volume in the off-therun U.S. Treasury Securities market is
smaller than that of Government
Securities ATSs in the on-the-run U.S.
Treasury Securities market. As U.S.
Treasury Securities transition from onthe-run status to off-the-run, their
trading activity shifts away from
electronic venues, such as Government
Securities ATSs, and toward the
bilateral secondary trading market.
In the off-the-run U.S. Treasury
Securities market, Government
Securities ATSs compete with other
Government Securities ATSs and nonATS trading venues for PTF, dealer, and
ultimately, customer order flows.600
Table X.3 reports the trading volume
shares for Government Securities ATSs,
non-ATS interdealer brokers, and
bilateral secondary market transactions
in the off-the-run Treasury Securities
market over the six month period
between July and December 2019. Based
on Table X.3, 19 Government Securities
ATSs and 24 non-ATS interdealer
brokers reported off-the-run U.S.
Treasury Securities transactions to
TRACE during the six month period in
2019. Although Government Securities
ATSs’ share of trading volume in the
off-the-run U.S. Treasury Securities
market is smaller than that of
Government Securities ATSs in the on-
87181
the-run U.S. Treasury Securities market,
Government Securities ATSs still play a
significant role in the trading of off-therun U.S. Treasury Securities, accounting
for approximately 20 percent of the
overall trading volume and 51
percent 601 of overall interdealer trading
volume. Furthermore, in the secondary
trading market for off-the-run U.S.
Treasury Securities, dealers account for
approximately 80 percent 602 of
Government Securities ATS trading
volume whereas PTFs account for
approximately 7 percent 603 of
Government Securities ATS trading
volume. The Commission understands
that some portion of dealer transactions
on Government Securities ATSs
represents customer orders because
dealers may fill customer trades
internally and trade on Government
Securities ATSs to manage their
inventory levels.
TABLE X.3—OFF-THE-RUN U.S. TREASURY SECURITIES TRADING VOLUME
Number of
venues
ATSs ............................................................................................................................................
Customer trades ...................................................................................................................
Dealer trades ........................................................................................................................
PTF trades ............................................................................................................................
Non-ATS Interdealer Brokers ......................................................................................................
Customer trades ...................................................................................................................
Dealer trades ........................................................................................................................
Bilateral dealer-to-dealer trades ..................................................................................................
Bilateral dealer-to-customer trades .............................................................................................
19
11
16
11
24
22
23
684
628
Volume
121,601
15,813
96,994
8,794
35,932
7,160
28,773
62,899
381,009
Volume share
(%)
20.2
2.6
16.1
1.5
6.0
1.2
4.8
10.5
63.3
This table reports trading volume and volume share for ATSs, Non-ATS interdealer brokers, bilateral dealer-to-dealer transactions, and bilateral
dealer-to-customer transactions for off-the-run U.S. Treasury Securities. Off-the-run or ‘‘seasoned’’ U.S. Treasury Securities include TIPS,
STRIPS, and nominal coupon securities issues that preceded the current on-the-run nominal coupon securities. Number of Venues is the number
of different trading venues in each category and the number of MPIDs for bilateral transactions.604 Volume is the average weekly dollar volume
in par value (in millions of dollars) over the 6-month period, from July 1, 2019 to December 31, 2019.605 Market Share (%) is the measure of the
dollar volume as a percent of the total dollar volume.606 The volume of ATSs and non-ATS interdealer brokers are broken out by Customer
trades, Dealer trades, and PTF trades within each group.607 Data is based on the regulatory version of TRACE for U.S. Treasury Securities from
July 1, 2019 to December 31, 2019.
c. Agency Securities
Government Securities ATSs play a
significant role in secondary market
trading for Agency Securities.608
However, Government Securities ATSs’
share of trading volume in Agency
Securities market is smaller than that of
Government Securities ATSs in the U.S.
598 See
supra note 10.
dealer volume/(dealer volume from ATS
+ dealer volume from non-ATS interdealer brokers
+ bilateral dealer-to-dealer volume) × 100) = ATS
share of dealer volume (%).
600 In Table X.3, the reported trading volume
share of Government Securities ATSs in the
secondary market trading for off-the-run U.S.
Treasury Securities is small. See also supra note
582.
601 (ATS dealer volume/(dealer volume from ATS
+ dealer volume from non-ATS interdealer brokers
+ bilateral dealer-to-dealer volume) × 100) = ATS
share of dealer volume (%).
602 (ATS dealer volume/ATS volume) × 100 =
dealer volume share of ATS volume (%).
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599 (ATS
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Treasury Securities market. Government
Securities ATSs account for
approximately 45 percent 609 and 13
percent of the total interdealer trading
volume and the total trading volume,
respectively, in the Agency Securities
market.
In the Agency Securities market,
Government Securities ATSs compete
with other Government Securities ATSs
and non-ATS trading venues for dealer
and ultimately, customer order flows.610
Table X.4 reports the trading volume
shares for Government Securities ATSs,
non-ATS interdealer brokers, and
bilateral secondary market transactions
in the Agency Securities market over the
six month period between July and
603 (ATS PTF volume/ATS volume) × 100 = PTF
share of ATS volume (%).
604 See supra note 585.
605 See supra note 586.
606 See supra note 587.
607 We identify ATS trades and non-ATS
interdealer broker trades using MPID in the
regulatory version of TRACE for U.S. Treasury
Securities. The regulatory version of TRACE for
U.S. Treasury Securities includes an identifier for
customer and interdealer trades. Furthermore, we
use MPID for non-FINRA member subscriber
counterparties in the regulatory version of TRACE
for U.S. Treasury Securities to identify PTF trades
on ATSs.
608 Agency Securities are those issued by U.S.
Government sponsored enterprises (‘‘GSEs’’) such
as Federal Home Loan Banks (‘‘FHLBs’’), the
Federal National Mortgage Association (‘‘Fannie
Mae’’), and the Federal Home Loan Mortgage
Corporation (‘‘Freddie Mac’’). See supra Section
I.A.
609 (ATS dealer volume/(dealer volume from ATS
+ dealer volume from non-ATS interdealer brokers
+ bilateral dealer-to-dealer volume) × 100) = ATS
share of dealer volume (%).
610 The trading volume share of Government
Securities ATSs in the secondary market trading for
Agency Securities is small. See infra Table X.4. See
also supra note 582.
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December 2019. As shown in Table X.4,
6 Government Securities ATSs and 10
non-ATS interdealer brokers reported
Agency Securities transactions to
TRACE during the six month period in
2019. Although Government Securities
ATSs’ share of trading volume in the
Agency Securities market is smaller
than that of Government Securities
ATSs in the U.S. Treasury Securities
market, Government Securities ATSs
still play a significant role in trading of
Agency Securities, accounting for
approximately 13 percent of the overall
trading volume and 45 percent 611 of
overall interdealer trading volume. In
the secondary market trading of Agency
Securities, dealers account for
approximately 87 percent 612 of overall
Government Securities ATS trading
volume. The Commission understands
that some portion of dealer transactions
on Government Securities ATSs
represents customer orders because
dealers may fill customer trades
internally and trade on Government
Securities ATSs to manage their
inventory levels.
TABLE X.4—AGENCY SECURITIES TRADING VOLUME
Number of
venues
ATSs ............................................................................................................................................
Customer trades ...................................................................................................................
Dealer trades ........................................................................................................................
Non-ATS Interdealer Brokers ......................................................................................................
Customer trades ...................................................................................................................
Dealer trades ........................................................................................................................
Bilateral dealer-to-dealer trades ..................................................................................................
Bilateral dealer-to-customer trades .............................................................................................
6
5
6
10
9
10
552
551
Volume
35,063
4,462
30,601
10,967
1,169
9,798
27,229
194,143
Volume share
(%)
13.1
1.7
11.4
4.1
0.4
3.7
10.2
72.6
This table reports trading volume and volume share for ATSs, Non-ATS interdealer brokers, bilateral dealer-to-dealer transactions, and bilateral
dealer-to-customer transactions for U.S. Agency Securities. Agency Securities include Agency Debentures, Agency Collateralized Mortgage Obligations, and Agency Pass-Through Mortgage Backed Securities.613 Number of Venues is the number of different trading venues in each category and the number of MPIDs for bilateral transactions.614 Volume is the average daily dollar volume in par value (in millions of dollars) over
the 6-month period, from July 1, 2019 to December 31, 2019.615 Market Share (%) is the measure of the dollar volume as a percent of the total
dollar volume.616 The volume of ATSs and non-ATS interdealer brokers are broken out by Customer trades and Dealer trades within each
group.617 Data is based on the regulatory version of TRACE for Agency Securities from July 1, 2019 to December 31, 2019.
2. Reporting Requirements for
Government Securities ATSs
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a. Operational Reporting Requirements
All 19 Legacy Filers are subject to the
requirements of Regulation ATS,
whereas the seven Currently Exempted
Government Securities ATSs are not.
These differences in reporting
requirements can lead to an uneven
competitive landscape for Government
Securities ATSs. For instance, Currently
Exempted Government Securities ATSs
are not required to file Form ATS or
Form ATS–R with the Commission or
comply with certain recordkeeping
requirements.618 In contrast, ATSs that
trade government securities or repos as
well as non-government securities—
such as corporate or municipal fixed
income securities—must either register
as a national securities exchange or
comply with Regulation ATS pursuant
to the exemption provided under
Exchange Act Rule 3a1–1(a)(2).619 These
Legacy Filers must also comply with
certain reporting requirements, such as
updating the Form ATS pursuant to
Rule 301(b)(2) of Regulation ATS, and
611 (ATS dealer volume/(dealer volume from ATS
+ dealer volume from non-ATS interdealer brokers
+ bilateral dealer-to-dealer volume) × 100) = ATS
share of dealer volume (%).
612 (ATS dealer volume/ATS volume) × 100 =
dealer volume share of ATS volume (%).
613 See supra note 579.
614 See supra note 585.
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recordkeeping requirements pursuant to
Rule 301(b)(8).620
The Commission recognizes that all of
the 19 Legacy Filers currently incur
reporting costs to comply with
Regulation ATS.621 These costs include
filing Form ATS as both an initial
operation report and, whenever there is
a material change in operations, as a
confidential filing with the Commission.
The Commission may use this
information in monitoring,
examinations and enforcement. These
reporting requirements for Legacy Filers
(which do not apply to the Currently
Exempted Government Securities ATSs)
may contribute to an uneven
competitive landscape. Furthermore, all
but one of the Currently Exempted
Government Securities ATSs and all of
the Legacy Filers are registered brokerdealers that incur costs of registering
with the Commission as well as SRO
membership and face operational
regulatory reporting requirements. The
Commission estimates that one of the
Currently Exempted Government
Securities ATSs is bank-operated.622
This bank-operated Currently Exempted
Government Securities ATS is not
615 See
supra note 586.
supra note 587.
617 We identify ATS trades and non-ATS
interdealer broker trades using MPID in the
regulatory version of TRACE for Agency Securities.
The regulatory version of TRACE for Agency
Securities includes an identifier for customer and
interdealer trades.
616 See
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required to register as a broker-dealer
with the Commission and thus, does not
have to file Form BD with the
Commission or be subject to FINRA
rules. As a result, the bank-operated
Currently Exempted Government
Securities ATS incurs different
regulatory compliance costs, which may
contribute to the uneven competitive
landscape.
b. Transaction Reporting Requirements
Currently Exempted Government
Securities ATSs are not required to
report their transaction volume in
government securities to the
Commission on a quarterly basis via
Form ATS–R. However, Legacy Filers
are required to confidentially report
their transaction dollar volume in
government securities to the
Commission on a quarterly basis via
Form ATS–R within 30 days after the
end of each calendar quarter. Trading
volume on Currently Exempted
Government Securities ATSs is not
reported to the Commission. However,
all transactions in government securities
618 See supra Section I.B (discussing regulatory
framework for Government Securities ATSs).
619 See id. NMS Stock ATSs also must file Form
ATS–N. See also supra Section V.D.
620 See id.
621 See supra Sections IX.C and IX.D.1.b.
622 See supra Section IX.C.
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by ATSs operated by FINRA-members
are reported to TRACE.623
However, the transaction reporting
requirements to TRACE do not apply to
transactions executed by non-FINRA
members, such as some primary dealer
banks, and the information on those
U.S. Treasury Securities transactions is
not disseminated publicly via TRACE.
The estimated one bank-operated
Currently Exempted Government
Securities ATS does not currently report
government securities transactions to
TRACE. Nevertheless, starting in March
2020, FINRA has published aggregated
market volume in U.S. Treasury
Securities on a weekly basis.624 Monthly
volume reports for other TRACE-Eligible
Securities, including Agency Securities,
are also available from FINRA since
2013.625 These two publicly available
aggregate market statistics for trading in
U.S. Treasury Securities and Agency
Securities, respectively, can provide a
common source of information to
determine the market share of
Government Securities ATSs in the
relevant market.
In addition to TRACE reporting,
which applies to broker-dealers who are
FINRA members, government securities
primary dealers are required to report
their positions and cumulative
transaction volumes in government
securities to the Federal Reserve Bank of
New York on a weekly basis via Form
FR2004.626 Based on comment letters
received in response to the Treasury
Request for Information, certain
Government Securities ATSs also make
real-time U.S. Treasury Securities
transactions data on their platforms
available to subscribers and to other
market participants through
subscriptions to third party data
vendors.627
623 See supra notes 50–51 and accompanying text
discussing TRACE reporting requirements for
Government Securities ATSs.
624 The weekly TRACE Treasury aggregate trading
statistics are available at https://www.finra.org/
filing-reporting/trace/data/trace-treasuryaggregates.
625 These reports are available at https://
www.finra.org/filing-reporting/trace/contentlicensing/volume-reports. FINRA also publishes
more detailed breakdowns of trading volume in
MBSs into agency and non-agency categories. These
reports are available at https://tps.finra.org/idcindex.html.
626 The data is aggregated and published weekly
in the Federal Reserve Bank of New York’s press
release, ‘‘Weekly Release of Primary Dealer
Transactions.’’
627 See BrokerTec/ICAP Letter, supra note 238, at
7.
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3. Information Asymmetries Due to
Limited Public Information About
Operations of Government Securities
ATSs
Market participants do not receive a
complete snapshot of the operations and
activities of all ATSs that trade
government securities because a
Currently Exempted Government
Securities ATS is not required to file a
Form ATS or Form ATS–G and a Legacy
Filer is not required to publicly disclose
its Form ATS or to file a publicly
available Form ATS–G.628 This
disparity in requirements could lead to
information asymmetries amongst
different classes of subscribers.
Certain Government Securities ATSs
may make voluntary disclosures
regarding their operations, creating
disparate levels of transparency. For
example, subscribers to a particular
Government Securities ATS may have
greater access to information about the
ATS, including the ATS’s subscriber
manual and other subscriber quotes,
than other market participants. There
could also be differences in the
information available to different classes
of subscribers to a Government
Securities ATS. Because there is no
required disclosure of order execution
statistics for government securities
trading, different classes of subscribers
to a Government Securities ATS could
receive differing levels of information
regarding execution quality on the ATS.
This could lead to potential
inefficiencies as market participants
with limited access to information
struggle to compete with those who
have greater access to information, and
this could also be the case with respect
to other information about the
operations of Government Securities
ATSs. In all cases, subscribers who have
greater access to information offered by
the Government Securities ATS may be
able to make better choices about their
trading decisions relative to subscribers
who have limited access to information
about the operations of the ATS.
4. Government Securities ATSs
Treatment of Subscriber Confidential
Trading Information
Because Currently Exempted
Government Securities ATSs are not
required to comply with Regulation
ATS, they are not subject to Rule
301(b)(10) and Rule 303(a)(1), which
means that they are not required to
establish written safeguards and written
procedures to protect subscribers’
confidential trading information
628 See
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17 CFR 242.301(b)(2)(vii).
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pursuant to Regulation ATS.629 To the
extent that a Currently Exempted
Government Securities ATS does not
have these procedures, or has them but
such procedures are not adequate, the
integrity of a subscriber’s confidential
trading information could be at risk of
unauthorized disclosure and subject to
potential misuse. ATSs are not required
to file their written safeguards and
written procedures with the
Commission. Therefore, absent an
examination by the Commission staff
regarding the adequacy of the written
safeguards and written procedures, the
Commission is not able to determine the
specific Government Securities ATSs
that currently have adequate written
safeguards and written procedures to
protect subscribers’ confidential trading
information. At the same time, based on
the experience of the Commission, the
Commission believes that some
Government Securities ATSs currently
have, and maintain in writing,
safeguards and procedures to protect
subscribers’ confidential trading
information, as well as the oversight
procedures to ensure such safeguards
and procedures are followed.
5. Fair Access Rule
The Fair Access Rule of Regulation
ATS does not currently apply to ATSs
that trade government securities because
government securities are not a category
of securities covered under the rule. As
a result, there is no legal mechanism to
prevent Government Securities ATSs
from unreasonably denying or limiting
subscribers’ access to an ATS that is a
significant market for government
securities.630 Access to a Government
Securities ATS may not be critical when
market participants are able to
substitute the execution services of one
ATS with those of another. However,
when a Government Securities ATS has
a significant share of trading volume in
government securities, unfairly
discriminatory actions may hurt
investors lacking access to the system
because viable alternatives to trading on
such a system may be limited.
Furthermore, market forces alone may
not be sufficient to prevent a
Government Securities ATS from
unreasonably denying access to some
market participants. In the absence of
the Fair Access Rule, for example, a
Government Securities ATS with a
significant volume in government
securities may only allow certain types
629 In contrast, Legacy Filers are currently subject
to Rule 301(b)(10) and Rule 303(a)(1) of Regulation
ATS. See supra Section IX.A.
630 See supra Sections I.B and II.D discussing the
Fair Access Rule requirements.
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of market participants to access the ATS
and exclude others without establishing
reasonable written standards.631 In this
case, the ATS may cater to the
preferences of subscribers that favor the
exclusion, while failing to internalize
the negative externality that this may
impose on the excluded market
participants who could have more
limited trading venue options, resulting
in higher trading costs and the
reduction in efficiency with which they
achieve trading objectives. This failure
to internalize an externality could lead
to market failure.
6. Regulation SCI
The provisions of Regulation SCI and
Rule 301(b)(6) of Regulation ATS do not
apply to the government securities
activities of an ATS and therefore
Currently Exempted Government
Securities ATSs and Legacy Filers are
not subject to either.632 Among the three
ATSs that trade government securities
and satisfy the proposed volume
thresholds for government securities
that would trigger application of
Regulation SCI, one Government
Securities ATS is operated by a brokerdealer that also operates an NMS Stock
ATS that is an SCI entity because the
NMS Stock ATS meets Regulation SCI
volume thresholds for NMS stocks. As
an existing SCI entity, this NMS Stock
ATS has the policies and procedures in
place for systems related to trading of
NMS stocks as required by Regulation
SCI. The Commission believes that the
broker-dealer operator for the
Government Securities ATS of the
existing SCI entity could have already
capitalized on operational synergies
from operating both an NMS Stock ATS
and a Government Securities ATS, and
could have implemented some of the
same policies and procedures of the
NMS Stock ATS required by Regulation
SCI, modified as needed for systems
related to trading of government
securities and repos.
More generally, although most
Government Securities ATSs are not
subject to the requirements of
Regulation SCI with respect to their
government securities activities, a
comment letter received in response to
the Treasury Request for Information
stated that many Government Securities
ATSs adopted system testing and
631 An ATS subject to the Fair Access Rule could
not offer a service or level of service to only one
subscriber or class of subscribers unless the ATS
has established written standards that do not
unreasonably prohibit or limit access of
permissioned subscribers to the service or level of
service.
632 See supra Section I.B discussing Rule
301(b)(6) and its current application to ATSs.
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control procedures that followed the
recommended best practices of the
Treasury Market Practices Group.633
The Treasury Market Practices Group
promotes a robust control environment
for government securities trading, using
internal controls and risk
management.634 However, these best
practices are meant only as useful
operational guideposts rather than
binding rules, and each trading venue
can choose if it wants to comply and
how to comply, which could provide
weak safeguards to protect against the
risks of system failures. In contrast,
Regulation SCI establishes a formalized
regulatory framework to ensure more
effective Commission oversight.
While the Commission recognizes that
Government Securities ATSs have some
incentives to maintain robust systems in
order to remain competitive, the
Commission believes that market forces
alone are insufficient to significantly
reduce systems issues in the market for
trading and execution services in
government securities. In particular, the
Commission believes that Government
Securities ATSs do not fully internalize
the costs associated with systems issues,
because systems issues pose significant
negative externalities on the market.
That is, systems issues have
ramifications on the market for
government securities beyond the
impact on the Government Securities
ATS responsible for the systems issues.
If a trading system of a Government
Securities ATS with significant trading
volume fails, this failure not only forces
the ATS to forgo revenue but also can
diminish trading in government
securities during the disruption. In
particular, the failure of such trading
system can increase trading costs of
market participants that have optimized
their trading strategy under the
assumption that all Government
Securities ATSs with significant volume
are fully operational.
The Commission also believes that
some Government Securities ATSs that
trade a large volume of government
securities play a significant role in the
government securities market,
particularly those that trade on-the-run
U.S. Treasury Securities, because the
633 See Letter from Mike Zolik, Nate Kalich, and
Larry Magargal, Ronin Capital LLC, to David R.
Pearl, Office of the Executive Secretary, U.S.
Department of the Treasury, dated March 19, 2016,
at 31–33, available at https://
www.treasurydirect.gov/instit/statreg/gsareg/
RoninCapital.pdf.
634 See Treasury Market Practices Group, Best
Practices For Treasury, Agency Debt, and Agency
Mortgage-Backed Securities Markets (July 2019),
available at https://www.newyorkfed.org/
medialibrary/Microsites/tmpg/files/TMPG_
BestPractices_071119.pdf.
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prices from these transactions serve as
risk-free rate benchmarks for pricing
other financial products. Without
appropriate safeguards in place for
Government Securities ATSs,
technological vulnerabilities continue to
exist and could lead to the potential for
costly failures, disruptions, delays,
intrusions, and the reduction in systems
up-time, which could harm the price
discovery process and price efficiency
of government securities.635
Furthermore, based on the staff’s
experience receiving reports of systems
issues concerning NMS Stock SCI ATSs,
the Commission believes that the
frequency and the duration of systems
issues have decreased and systems uptime has improved over time since the
adoption of Regulation SCI. Because
Government Securities ATSs operate
with similar complexity as NMS Stock
SCI ATSs,636 the Commission believes
that extending Regulation SCI to
Government Securities ATSs with
significant volume would also help
reduce the frequency and the duration
of systems issues and improve systems
up-time for those Government Securities
ATSs.637
7. Implications for Efficiency
The intensity of competition among
trading venues, the availability of
information regarding Government
Securities ATS operational facets, the
number of trading venue options
available to market participants, and the
risk of potential market disruptions due
to systems issues could affect market
participants’ trading costs and the
efficiency with which market
participants achieve their trading or
investment objectives. The Commission
believes that there is currently limited
publicly available information regarding
the operations of Government Securities
ATSs and that some subscribers to these
ATSs may be privy to more detailed
635 See infra Section X.C.3.c. On January 11, 2019,
the largest trading platform in on-the-run U.S.
Treasury Securities, experienced a system outage
approximately from 2 p.m. to 3:30 p.m. ET. While
the outage resulted in a modest reduction in market
volume, had it occurred at a time other than late
on a Friday afternoon when trading activity is
normally already low, the outage could have
resulted in more adverse consequences on the
overall market. See also Elizabeth Stanton, Nick
Baker, & Matthew Leising, Treasuries Hit by OneHour Outage on Biggest Electronic Platform,
Bloomberg, January 13, 2019, https://
www.bloomberg.com/news/articles/2019-01-11/
brokertec-inter-dealer-treasury-broker-suffersoutage.
636 See supra Section VI.
637 See infra Section X.C.1.b discussing the
benefits of the proposed amendments to Regulation
SCI. Infra Section X.C.2.b discusses the costs of
these proposed amendments, while infra Section
X.C.3 discusses the effects of these amendments on
efficiency, competition, and capital formation.
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information about how their orders are
executed, sent, and/or prioritized
compared to other subscribers.638
Market participants in the government
securities market with limited
information regarding ATS operational
facets, such as order handling, fee
structure, and any potential conflicts of
interest that may arise from the ATSrelated activities of the broker-dealer
operator or its affiliates, could face
difficulty in comparing Government
Securities ATSs when deciding which
venue most suits their trading purposes
and could incur higher search costs in
the selection of trading venues. This
would result in higher trading costs for
market participants and reduce the
efficiency with which market
participants achieve their trading
objectives.
Government Securities ATSs and nonATS trading venues compete for order
flows in the government securities
market.639 The Commission believes
that the limited publicly available
information regarding Government
Securities ATS operational
characteristics, such as fee structure,
order types, and trading functionalities,
reduces the incentives of ATSs and nonATS trading venues to compete more
vigorously, innovate systems
technology, improve execution quality,
and lower fees. This could also reduce
the efficiency with which market
participants achieve their trading
objectives. Currently, government
securities are not subject to the Fair
Access Rule.640 To the extent that there
are market participants who are
unreasonably denied access to an ATS
with a significant volume in U.S.
Treasury Securities or Agency
Securities, this could limit trading
venue options for these market
participants, resulting in higher trading
costs and the reduction in efficiency
with which they achieve their trading
objectives.
The provisions of Regulation SCI do
not apply to systems related to the
trading of government securities.641
Market disruptions due to systems
issues at an ATS with a significant
volume in U.S. Treasury Securities or
Agency Securities could interrupt the
price discovery process and liquidity
flows in the market for government
638 See
supra Section X.B.3.
supra Sections X.B.1.a, X.B.1.b, and
X.B.1.c for discussion on competition in the on-therun U.S. Treasury Securities, off-the-run U.S.
Treasury Securities, and Agency Securities,
respectively.
640 See supra Section X.B.5 for a discussion about
the Fair Access Rule.
641 See supra Section X.B.6 for a discussion about
Regulation SCI practices.
639 See
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securities, which would result in
periods of pricing inefficiencies for
government securities and risky
securities. Diminished price discovery
in the secondary market for on-the-run
U.S. Treasury Securities could also
reduce price efficiency of risky
securities because the transaction prices
of on-the-run U.S. Treasury Securities
are used as risk-free rate benchmarks to
price risky securities transactions.642
Price efficiency of risky securities is
important because prices that accurately
convey information about fundamental
value improve the efficiency with which
capital is allocated across projects and
entities.
C. Economic Effects and Effects on
Efficiency, Competition, and Capital
Formation
The Commission has considered the
economic effects of the proposed
amendments to extend Regulation ATS
and Regulation SCI to include
Government Securities ATSs.643 The
Commission believes these proposed
amendments would (i) help prevent the
potential for abuse of ATS subscriber
confidential trading information; 644 (ii)
improve the ability of the Commission
or an SRO to detect and investigate
potential irregularities that might occur
in the market for government securities
and repo execution services; 645 (iii)
increase the Commission’s knowledge
regarding the operations of and
potential conflicts of interest on
Government Securities ATSs and help
identify whether they operate in a
manner consistent with the federal
securities laws; 646 (iv) help market
participants make better-informed
decisions about where to send their
orders in order to achieve their trading
or investment objectives, which could
lower trading costs and enhance order
execution quality; 647 (v) allow some
642 As noted in the October 15 Staff Report, supra
note 14, price discovery is especially important in
the secondary market for on-the-run U.S. Treasury
Securities because the transaction prices are used
as risk-free rate benchmarks to price other securities
transactions.
643 Government Securities ATSs account for
significant portion of interdealer and overall
volume in the government securities market. See
supra Section X.B.1 for Tables X.1, X.2, X.3, and
X.4. See also supra Section X.A for a discussion
about the need for greater transparency and public
data availability regarding the functioning of U.S.
Treasury markets.
644 See infra Section X.C.1.a.i. See also supra
Section X.A for a discussion about the need for
greater transparency and public data availability
regarding the functioning of U.S. Treasury markets.
645 See supra note 644.
646 See infra Section X.C.1.a.ii. See also supra
Section X.A for a discussion about the need for
greater transparency and public data availability
regarding the functioning of U.S. Treasury markets.
647 See supra note 644.
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market participants to access and
increase options in the selection of
trading venues, which could lower their
trading costs; 648 and (vi) help reduce
market disruptions due to systems
issues 649 and prevent interruptions in
the price discovery process and
liquidity flows.650
Government Securities ATSs would
incur implementation and ongoing
compliance costs to comply with the
proposed Regulation ATS and
Regulation SCI amendments. Market
participants in the government
securities and repo market could face
higher trading costs (e.g., higher fees)
from Government Securities ATSs to the
extent that compliance costs of
Regulation ATS and SCI amendments
are passed on to them.
The compliance costs of the proposed
amendments include, among other
things, costs associated with
establishing and updating policies and
procedures to protect subscriber
confidential information, updating
systems to comply with recordkeeping
requirements, gathering information for
new disclosures, filing Form ATS–G,
and establishing fair access
standards.651 The Commission also
believes that Currently Exempted
Government Securities ATSs would
incur costs to comply with Regulation
ATS in addition to those incurred by
Legacy Filers.652 Government Securities
ATSs that meet the specified volume
thresholds would also incur compliance
costs as SCI entities,653 such as costs
associated with documentation,
mandatory reporting and dissemination
of SCI events, reporting of material
systems changes, recordkeeping, and
implementing the policies and
procedures related to systems capacity,
integrity, resiliency, availability,
security, and compliance. Regulation
SCI also imposes some indirect
requirements on other market
participants interacting with SCI entities
(e.g., third-party vendors providing SCI
systems to SCI entities and members of
SCI entities participating in testing of
business continuity and disaster
recovery plans).654
In addition to compliance costs, some
market participants could incur indirect
648 See
infra Section X.C.1.a.iii.
infra Section X.C.1.b.
650 See infra Sections X.C.1.b and X.C.3.c.
651 See infra Section X.C.2.a for a discussion of
compliance costs associated with the proposed
amendments to Regulation ATS.
652 See infra Section X.C.2.a.i for a discussion of
compliance costs for Currently Exempted
Government Securities ATSs.
653 See infra Section X.C.2.b for a discussion of
compliance costs associated with the proposed
amendments to Regulation SCI.
654 See supra note 653.
649 See
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costs from the proposed amendments. A
Government Securities ATS could incur
indirect costs if its competitive position
in the market were adversely affected as
a result of the public disclosure
requirement of Form ATS–G. However,
such costs to one ATS would constitute
transfers to other ATSs rather than a net
social cost, and the Commission
believes that the risk of such transfers is
likely to be low.655 Furthermore, as
discussed in Section X.C.2.a.ii, some
subscribers of a Government Securities
ATS could incur indirect costs if the
subscribers were to lose their
informational advantage regarding the
operational facets of the ATS over other
subscribers as a result of the public
disclosure requirement of Form ATS–G.
The Commission believes that the
amendments could foster competition
for order flow in the market for
government securities and repo
execution services, help market
participants make better informed
decisions about where to send their
orders to achieve their trading or
investment objectives, enhance
execution quality, and improve
efficiency and capital allocation.
Moreover, the Commission believes that
the risk of the proposed amendments
adversely affecting competition in the
market for government securities and
repo execution services, the incentive
for Government Securities ATSs to
innovate, and the efficiency with which
market participants achieve trading
objectives, is likely to be low.656
In addition to the economic effects
discussed below, the proposed
amendment to Exchange Act Rule 3a1–
1(b) would require a Government
Securities ATS to register as a national
securities exchange if the ATS meets
certain volume thresholds and the
Commission finds that the exemption
would not be necessary or appropriate
in the public interest or consistent with
the protection of investors.657 The
Commission believes that the proposed
amendment to Exchange Act Rule 3a1–
1(b) would enhance the Commission’s
ability to regulate certain large volume
ATSs upon registration as a national
securities exchange, which would
improve the Commission’s market
surveillance and help protect
655 See infra Section X.C.2.a.ii for a discussion
about transfer cost and why the Commission
believes the risk of incurring such transfer cost is
likely to be low.
656 See infra Section X.C.3.
657 The Commission estimates that currently,
there is no Government Securities ATS that meets
the volume thresholds specified in the provisions
of Exchange Act Rule 3a1–1(b). See supra Section
II.A.
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investors.658 A Government Securities
ATS that the Commission required to
register as a national securities exchange
would incur costs corresponding with a
registered national securities exchange,
including costs related to the
requirement to be so organized to, and
have the capacity to carry out the
purposes of the Exchange Act including
its own ability to enforce member
compliance with securities laws.659
The Commission has attempted,
where possible, to quantify the benefits
and costs anticipated to result from the
proposed amendments to Regulation
ATS and Regulation SCI.
However, as explained in more detail
below, because the Commission does
not have, and in certain cases does not
believe it can reasonably obtain data
that may inform the Commission on
certain economic effects, the
Commission is unable to quantify
certain economic effects. Further, even
in cases where the Commission has
some data, it may not be practicable to
perform a quantitative analysis due to
the number and type of assumptions
necessary to quantify certain economic
effects, which likely would render any
such quantification unreliable.
Therefore, certain parts of the
discussion below are qualitative in
nature and focus on the direction of the
various effects of the proposed
amendments. The inability to quantify
certain benefits and costs, however,
does not mean that the overall benefits
and costs of the final rules are
insignificant.
1. Benefits
The Commission assessed the
anticipated economic benefits from the
various components of the proposed
amendments to Regulation ATS and
SCI. The Commission believes that the
proposed amendments to Regulation
ATS would help improve the oversight
of Government Securities ATSs 660 by
the Commission and SROs. The
extension of Regulation ATS to include
Currently Exempted Government
Securities ATSs would help protect
investors and help the Commission
better oversee these ATSs. In addition,
the public disclosure of operational
facets of Government Securities ATSs
via Form ATS–G under Rule 304 of
Regulation ATS could lower search
658 See Regulation ATS Adopting Release, supra
note 35, at 70903–07 for a discussion of benefits
and costs for registering as a national securities
exchange.
659 See supra note 658.
660 Government Securities ATSs account for
significant portion of interdealer and overall
volume in the government securities market. See
supra note 641.
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costs in the selection of trading venues
and result in lower trading costs for
market participants. Requiring Form
ATS–G to be filed on EDGAR in a
structured format would improve the
usability, accessibility, and reliability of
Form ATS–G disclosures for market
participants and for the Commission
and SROs; EDGAR filing requirements
for Forms ATS and ATS–R, along with
other amendments related to Forms
ATS, ATS–R, and ATS–N, would
similarly enhance Commission and SRO
oversight of Form ATS, ATS–R, and
ATS–N filers, thereby protecting
investors and helping ensure the
adequacy and reliability of information
on the market. To the extent that there
are market participants excluded from
trading on Government Securities ATSs,
the Commission believes that the
extension of the Fair Access Rule for
government securities could increase
trading venue options and lower trading
costs for those market participants.
Finally, the Commission believes the
proposed amendments to Regulation
SCI would help prevent interruptions in
the price discovery process and
liquidity flows, and thus would help
prevent periods with pricing
inefficiencies from occurring.661
a. Extension of Regulation ATS to
Currently Exempted Government
Securities ATSs and Amendment to
Regulation ATS for All Government
Securities ATSs
The proposed extension of Regulation
ATS would extend Regulation ATS to
include Currently Exempted
Government Securities ATSs; extend
Rule 304 of Regulation ATS to include
all Government Securities ATSs and
amend Rule 304; and apply the Fair
Access Rule. Each of these changes
would produce a number of benefits.
i. Extension of Regulation ATS To
Include Currently Exempted
Government Securities ATSs
The Commission believes that the
proposed amendments to require
Currently Exempted Government
Securities ATSs to comply with certain
provisions of Regulation ATS would
help protect investors and enhance the
oversight of Currently Exempted
Government Securities ATSs by the
Commission and SROs.
The Commission believes that
requiring Currently Exempted
Government Securities ATSs to adopt
written safeguards and written
procedures to protect subscribers’
confidential trading information and to
661 See infra Section X.C.1.b. See also supra
Section X.B.6.
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separate ATS functions from other
broker-dealer functions would help
prevent the potential for abuse of
subscriber confidential trading
information. The trading information of
subscribers to Currently Exempted
Government Securities ATSs could be
subject to the same potential abuse as at
other ATSs, such as sharing confidential
subscriber trading information with
other customers or the operator of the
ATS using the confidential trading
information of other subscribers to
advantage its own trading on the ATS.
The Commission, however, lacks
information on the extent to which the
confidential trading information of
subscribers to Currently Exempted
Government Securities ATSs is
currently being abused.662 Nonetheless,
the Commission believes that the
establishment of written safeguards and
written procedures to separate Currently
Exempted Government Securities ATS
system functions from other brokerdealer functions, including principal
trading, and to limit access to
subscribers’ confidential trading
information to those employees of the
ATS who are operating the system or are
responsible for its compliance with
applicable rules would help protect
investors by reducing the chance that a
subscriber’s confidential information is
accessed or shared inappropriately.
The Commission believes that
requiring Currently Exempted
Government Securities ATSs to comply
with the recordkeeping and reporting
requirements of Regulation ATS would
improve the Commission’s ability to
monitor Currently Exempted
Government Securities ATSs and
improve its oversight of the market for
government securities execution
services. Each quarter, a Currently
Exempted Government Securities ATS
would be required to file a confidential
Form ATS–R with the Commission,
which would include transaction
volume statistics, the identity of
participants on the ATS, and the
securities traded on the ATS. This
information would allow the
Commission to better monitor the types
of investors that trade on these ATSs
and the role they play in the
662 Although the Commission currently lacks this
information, we describe above a potential scenario
where the confidential trading information of a
subscriber could be impermissibly shared with the
personnel of the broker-dealer operator or any of its
affiliates, and the broker-dealer operator, in turn,
could potentially abuse that relationship to provide
itself or its affiliates with a direct competitive
advantage over that subscriber. See supra Section
III.B.6.
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government securities and repo
market.663
The requirement for a Currently
Exempted Government Securities ATS
to keep and preserve records of
subscribers to the ATS, daily summaries
of trading in the ATS, and timesequenced records of order information
in the ATS would help create a
meaningful audit trail of activities on
the ATS. The preserved records of
customer orders and transactions are
expected to improve the ability of the
Commission or an SRO to detect and
investigate potential irregularities that
might occur in the market for
government securities and repos, which
would help promote a fair and orderly
market for government securities.
The Commission believes that the
extension of Regulation ATS to include
bank-operated Currently Exempted
Government Securities ATSs would
improve transaction transparency,
which would enhance the Commission’s
or SRO’s market surveillance and help
protect investors.664 In addition, the
improvement in transaction
transparency could facilitate price
discovery and price formation. Under
the proposal, bank-operated Currently
Exempted Government Securities ATSs
would be required to register as brokerdealers and become members of an SRO
and report transactions in government
securities to TRACE,665 which FINRA
would publicly disseminate. This would
result in the transaction reporting and
public dissemination of government
securities transactions executed by
bank-operated Currently Exempted
Government Securities ATSs, which are
currently not reported to TRACE. The
Commission believes that the
improvement in transaction
transparency could facilitate market
surveillance by the Commission and
FINRA and help protect investors and
enhance price discovery and price
formation.666 The Commission believes
that the magnitude of benefits from the
increase in transaction transparency
depends on the portion of transactions
executed by the bank-operated
Currently Exempted Government
Securities ATSs, which are currently
not reported to TRACE.667 However, the
Commission is unable to estimate the
magnitude of this benefit because the
Commission does not have transaction
data executed by the estimated one
bank-operated Currently Exempted
Government Securities ATS that exists,
which would not be subject to
transaction reporting obligations.
ii. Extension of Rule 304 of Regulation
ATS To Include All Government
Securities ATSs and Amendments to
Rule 304
The Commission believes that the
proposed extension of Rule 304 to
Currently Exempted Government
Securities ATSs and Legacy Filers
would enhance the regulatory oversight
of and the operational transparency of
Government Securities ATSs, which
account for significant trading volume
of government securities,668 and also
could lower search costs, reduce trading
costs, and improve the quality of order
execution for market participants.
Furthermore, the Commission believes
that requiring Covered ATSs 669 to post
their Forms ATS–N and Forms ATS–G
on their websites would help facilitate
public access to the forms for market
participants who may use Form ATS–N
or Form ATS–G to obtain information
regarding operational facets of an ATS
or to compare ATSs in the selection of
trading venues.670
First, the Commission believes that
the information disclosed in Form ATS–
G, and the ability of the Commission to
declare Form ATS–G ineffective, would
improve the quality of information the
Commission receives and significantly
enhance the Commission’s knowledge
of the operations of Government
Securities ATSs, the activities of its
broker-dealer operator and its affiliates,
and its safeguards and procedures to
protect the confidential trading
information of subscribers. Based in part
on the Commission’s experience with
Form ATS–N for NMS Stock ATSs, the
Commission believes that extending
Rule 304 to include all Government
Securities ATSs would result in better
regulatory oversight of these ATSs and
help protect investors.671 Second, the
Commission believes that the proposed
public disclosure of Form ATS–G would
enhance the operational transparency of
all Government Securities ATSs.672
Similar to Form ATS–N for NMS Stock
ATSs, the Commission believes that
Form ATS–G would provide market
participants in the government
securities markets with more uniform
668 See
663 See
supra Section X.A for a discussion about
the need for greater transparency and public data
availability regarding the functioning of U.S.
Treasury markets.
664 See supra note 662.
665 See supra note 50.
666 See supra note 662.
667 See supra Section IX.D.1.
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supra note 643.
ATSs as defined in the proposed rule
currently would include 26 Government Securities
ATSs and 34 NMS Stock ATSs if the proposed rule
were in effect today. See supra note 95. See also
supra Section II.B.
670 See Rule 304(b)(3)(ii).
671 See supra note 663.
672 See id.
669 Covered
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information regarding how orders are
handled and any potential conflicts of
interest that may arise from the ATSrelated activities of the broker-dealer
operator or its affiliates. The
Commission believes that there is
currently limited publicly available
information regarding the operations of
Government Securities ATSs and that
some subscribers of a Government
Securities ATS may be privy to more
detailed information about how their
orders are executed, sent and/or
prioritized than other subscribers. The
Commission believes that the proposed
public disclosure of Form ATS–G would
help equalize information distribution
among market participants, lower search
costs, and assist market participants in
selecting a Government Securities ATSs
for their orders, which could lower their
trading costs and improve the quality of
their order execution.
The Commission believes that the
increase in amount, and the
improvement in quality, of information
regarding Government Securities ATSs
via Form ATS–G filings would help
improve the regulatory oversight of the
ATSs and help protect investors. Form
ATS–G would improve the amount and
quality of information the Commission
receives regarding Government
Securities ATSs because Form ATS–G
would require Government Securities
ATSs to disclose more detailed
information regarding their operations
than Form ATS does for Legacy Filers.
For Currently Exempted Government
Securities ATSs, the Commission would
receive this detailed information about
how those systems operate for the first
time. For example, compared to Form
ATS, Form ATS–G requires detailed
information regarding the types of
orders offered, how they interact and
match, and how customer order flow is
segmented. Form ATS–G would require
Government Securities ATSs to report
on the activities of the broker-dealer
operator and its affiliates in connection
with the ATS, which Form ATS does
not require. The Commission’s recent
experience with Form ATS–N informs
this belief. Since February 2019, the
Commission has reviewed initial Form
ATS–N filings and amendments thereto
and engaged in direct conversation with
all NMS Stock ATSs about their Form
ATS–N filings. When new NMS Stock
ATSs seek to begin operations, the
initial Form ATS–N provides the
Commission with detailed information
about how the ATS will operate. With
this knowledge, the Commission is
better able to oversee compliance and
evaluate how NMS Stock ATSs as a
group are evolving. The Commission
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believes that similar information
disclosed in proposed Form ATS–G
would also help make the examination
process of Government Securities ATSs
more effective and efficient, improving
the ability of the Commission and the
ATS’s SRO to examine for compliance
with the federal securities laws.
The Commission believes that the
Commission’s process to declare Form
ATS–G ineffective that is set forth in the
proposed amendments would help
ensure the quality of information
disclosed in Form ATS–G, which would
improve the efficiency in the regulatory
oversight of Government Securities
ATS, with attendant benefits to market
participants who utilize Form ATS–G.
The Commission’s review of Form ATS–
G would not be merit-based; instead, it
would focus on the completeness and
comprehensibility of the disclosures.673
The proposed amendments would
provide a process for the Commission to
declare a Form ATS–G ineffective if the
form contained material deficiencies
with respect to, among other things, its
accuracy, currency, or completeness.674
The Commission believes that the
process would incentivize Government
Securities ATSs to file accurate, current,
and complete public disclosures about
their operations and accordingly would
improve the quality of information
disclosed by the ATSs as compared to
the information currently filed on Form
ATS by Legacy Filers. In the
Commission’s experience, working with
NMS Stock ATSs on their Form ATS–
N filings has helped ensure that such
disclosures are complete and
comprehensible. Many NMS Stock
ATSs have opted to seek the
Commission staff’s input about pending
material amendments prior to filing,
which has contributed to clearer and
more effective disclosures.
The Commission believes that the
public disclosure of Form ATS–G could
lower search costs, reduce trading costs,
and improve the quality of order
execution for market participants.675
673 See supra note 166. To emphasize that the
Commission is not conducting a merit-based review
of Form ATS–G disclosures filed with the
Commission, the Commission is proposing to
include a legend on the Form ATS–G cover page
stating that the Commission has not passed upon
the merits or accuracy of the disclosures in the
filing. See supra Section III.A.1.
674 A Government Securities ATS would not
qualify for the exemption from the definition of
‘‘exchange’’ unless its Form ATS–G becomes
effective.
675 The proposed Rule 304(b)(3)(i) would require
Government Securities ATSs to make Form ATS–
G public via posting on their websites a direct URL
hyperlink to the Commission’s website that
contains their Form ATS–G filing. The proposed
Rule 304(b)(3)(ii) would require all Covered ATSs
(26 Government Securities ATSs and 34 NMS Stock
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Specifically, the Commission believes
that requiring detailed public
disclosures about the operations of
Government Securities ATSs would,
among other things, better standardize
the type of information market
participants receive about those
operations including how orders are
handled, fee structures, or any potential
conflicts of interest that may arise from
the activities of the broker-dealer
operator or its affiliates. Based on the
Commission’s experience with its
review of initial Form ATS–N filings,
the Commission believes that Form
ATS–G would result in more
standardized public information about
Government Securities ATSs. As a
result, search costs for market
participants could be lower, as
consistent disclosure requirements for
all Government Securities ATSs as part
of the proposed amendments to
Regulation ATS should facilitate market
participants’ comparison of Government
Securities ATSs when deciding which
venue best suits their trading purposes.
The Commission believes the enhanced
operational transparency resulting from
the public disclosures of Form ATS–G
would aid market participants when
evaluating potential trading venues,
which could lower their trading costs
and improve the quality of their order
execution. Furthermore, based on the
Commission’s experience, fees can be a
primary factor for market participants in
deciding where to send their orders.676
Fee disclosures on proposed Form ATS–
G would help market participants
compare and analyze the fee structures
across Government Securities ATSs in
an expedited manner and decide which
ATS offers them the best pricing
according to the characteristics of their
order flow and the type of participant
they are, which would lower their
search costs and trading costs.
However, the Commission is unable
to quantify these benefits to market
participants because the Commission
lacks data on the amount of information
that is currently available to different
market participants regarding
Government Securities ATS operations
and the activities of its broker-dealer
operators and their affiliates. The
magnitude of the anticipated benefits
discussed above would also depend on
a number of factors, including the extent
to which market participants would
change their behavior as a result of
ATSs) to make the most recently disseminated
Covered Forms (Form ATS–G and Form ATS–N)
public via posting the forms on their websites. See
supra Section II.B for the definition of the terms
‘‘Covered ATS’’ and ‘‘Covered Form.’’ See also
supra note 95.
676 See supra Section III.C.19.
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receiving the public disclosure of more
comprehensive and uniform
information of this type in Form ATS–
G. It is inherently difficult to predict
how different market participants will
use the information contained in Form
ATS–G in evaluating and choosing the
Government Securities ATSs that best
serve their trading objectives.
With respect to the filing location and
format of Form ATS–G, the Commission
believes requiring all Government
Securities ATSs to file Form ATS–G on
the EDGAR system in a structured,
machine-readable custom eXtensible
Markup Language (‘‘custom XML’’)
format would benefit market
participants by improving the usability,
accessibility, and reliability of the Form
ATS–G disclosures.677 By requiring a
structured format and a publicly
accessible filing location for Form ATS–
G, the Commission would enable market
participants to download the disclosed
information directly into their databases
and analyze the information using
various tools and applications. This
would make it easier for market
participants to aggregate the information
and compare multiple Government
Securities ATSs to help select the venue
that best suits their trading purposes,
thereby potentially avoiding the cost of
paying a third party data vendor to
extract and structure the disclosed
information on their behalf.
The Commission also believes
requiring all Government Securities
ATSs to submit Form ATS–G in a
custom XML format would facilitate
more effective and thorough review and
analysis of Government Securities ATSs
by the Commission, which should yield
greater insights into the operations of
Government Securities ATSs and the
activities of their operators and
affiliates. Additionally, Commission
staff would be better able to assemble
and review a larger pool of data
regarding Government Securities ATSs.
The Commission believes that both of
these outcomes would benefit market
participants by facilitating the
Commission’s examination process and
thus would help protect investors and
ensure the sufficiency of information in
the market related to Government
Securities ATSs.
Requiring all Government Securities
ATSs to file Form ATS–G on EDGAR
would benefit market participants by
ensuring that the Form ATS–G
disclosures are in a centralized, publicly
accessible filing location with validation
677 See supra Section IV. The custom XML format
requirement would be specified in the EDGAR Filer
Manual and in the Instructions to Form ATS–G. See
Instruction A.5 to proposed Form ATS–G.
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capabilities. Providing a centralized
filing location would prevent market
participants from incurring additional
costs to locate and retrieve different
Forms ATS–G from different filing
locations. Similarly, because EDGAR is
a publicly accessible system, an EDGAR
requirement would prevent market
participants from incurring additional
costs that would arise if an operator or
other party were to place any barriers to
access Form ATS–G (such as a website
registration requirement). Because
EDGAR provides basic validation
capabilities, an EDGAR requirement
would reduce the incidence of nondiscretionary errors on Forms ATS–G,
thereby improving the quality of Form
ATS–G disclosures.
iii. Application of Fair Access Rule to
Government Securities ATSs
The Commission believes that the
proposed application of the Fair Access
Rule could increase trading venue
options available to market participants
who are currently excluded, which
could lower their trading costs, to the
extent that there are market participants
currently excluded from trading on
Government Securities ATSs that meet
the specified volume thresholds. The
Commission believes that requiring
Government Securities ATSs that meet
the volume thresholds to establish and
objectively apply fair access standards
could help prevent certain market
participants from being denied access to
an ATS that trades a significant portion
of the market for U.S. Treasury
Securities and Agency Securities, to the
extent there are any such market
participants. Denials of access are of
particular concern when an ATS
captures a significant percentage of
trading volume in a particular type of
securities. The Commission also
believes that Form ATS–R information
regarding fair access grants, denials, and
limitations of access to Government
Securities ATSs would improve the
Commission’s ability to oversee those
ATSs to evaluate for compliance with
the Fair Access Rule.
Under the proposal, if a Government
Securities ATS meets the fair access
volume thresholds, the ATS would be
required to apply the same access
standards to all persons in a subscriber
group. As a result, for example, there
would be a mechanism to prevent a
Government Securities ATS that met the
volume threshold from unreasonably
denying access to one hedge fund while
granting access to another similar hedge
fund. The Commission believes that to
the extent there are any market
participants currently excluded from
trading on Government Securities ATSs,
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the proposed change would address any
unreasonable exclusion practices by
Government Securities ATSs that have a
significant market share, which would
increase trading platform options and
lower trading costs for previously
excluded market participants.
b. Extension of Regulation SCI to
Government Securities ATSs
The Commission believes the
proposed amendments to Regulation
SCI would promote the establishment of
more robust systems that are less likely
to experience a system disruption by
requiring Government Securities ATSs
that meet the definition of SCI entity to
establish and enforce written policies
and procedures to ensure that their SCI
systems have adequate levels of
capacity, integrity, resiliency,
availability, and security to maintain the
SCI entity’s operational capability.678
The Commission believes that the
proposed extension of Regulation SCI
could help strengthen the infrastructure
and improve the resiliency of the
automated systems of Government
Securities ATSs that are important to
the government securities markets. The
Commission expects requiring
Government Securities ATSs that meet
certain volume thresholds to comply
with Regulation SCI could help prevent
system issues from occurring and
reduce the severity and duration of any
effects when such issues do occur. The
Commission believes that this would
help facilitate the price discovery
process and liquidity flows in
government securities market. Price
discovery in the secondary market for
on-the-run U.S. Treasury Securities is
important because the transaction prices
of on-the-run U.S. Treasury Securities
are used as risk-free rate benchmarks to
price other securities transactions.679
The Commission also believes that the
requirement for a Government
Securities ATS that would be an SCI
ATS to establish procedures to
disseminate information about SCI
events to responsible SCI personnel,
ATS participants, and the Commission
would help reduce the duration and
severity of any system distributions that
do occur.680 The procedures would
improve the ability of such an ATS to
quickly provide the affected parties with
critical information in the event that it
experiences a system disruption. This
678 See
supra Section VI.
noted in the October 15 Staff Report, supra
note 14, price discovery is especially important in
the secondary market for on-the-run U.S. Treasury
Securities because the transaction prices are used
as risk-free rate benchmarks to price other securities
transactions.
680 See supra note 678.
679 As
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could allow the affected parties to
respond more quickly and appropriately
to the incident, which could help
shorten the duration and reduce the
effects of a system event. Additionally,
the Commission believes that the
requirement for a Government
Securities ATS that meets the definition
of SCI ATS to conduct testing of its
business continuity and disaster
recovery plans with its designated
participants and other industry SCI
entities would help detect and improve
the coordination of responses to system
issues that could affect multiple trading
venues and participants in the
government securities and repo
market.681 This testing should help
prevent these system disruptions from
occurring and help reduce the severity
of their effects, if they do occur.
As discussed in Section X.B.6, one
Government Securities ATS operated by
a broker-dealer operator of an NMS
Stock ATS that is a SCI entity could
already have utilized some of the
policies and procedures of the NMS
Stock ATS required by Regulation SCI
and modified them as needed for
systems related to trading of U.S.
Treasury Securities and Agency
Securities.682 However, the Commission
believes that imposing the requirements
of Regulation SCI on systems related to
trading of U.S. Treasury Securities and
Agency Securities could further
strengthen these policies and
procedures, which would help improve
the robustness of SCI systems and SCI
indirect systems.
c. Amendments to Rule 301(b)(2), Form
ATS, Form ATS–R, and Form ATS–N
The Commission believes that the
proposed amendments to modernize
Form ATS and Form ATS–R would
enhance the efficiency of the
Commission in overseeing ATSs as well
as the efficiency of filing Forms ATS
and ATS–R for ATSs. Such amendments
would apply to all ATSs that file Form
ATS and/or Form ATS–R. Requiring an
ATS to specify the type of amendment
on Form ATS and to provide the
cessation date, which is not currently
required, would better enable the
Commission to determine whether an
ATS is in compliance with Regulation
ATS.
The Commission believes that the
proposed amendments to Form ATS–R
would help facilitate the Commission’s
review and provide the Commission
with more specificity for all categories
681 See
id.
supra Section X.B.6 for a discussion of
Government Securities ATSs of existing SCI
entities.
682 See
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of securities that ATSs trade. The
Commission believes that requiring the
ATS to indicate whether it was subject
to the Fair Access Rule during any
portion of the period covered by the
report would facilitate the
Commission’s review of Form ATS–R
submissions. The Commission believes
that this change would help the
Commission facilitate compliance with
the trading volume-based thresholds for
the Fair Access Rule and Regulation
SCI.683 The Commission believes that
updating the descriptions of certain
categories of securities for which
volume is required to be reported on
Form ATS–R by an ATS would reduce
potential confusion for an ATS when
completing Form ATS–R and would
enable an ATS to reflect more accurately
its trading activities during the
applicable reporting period.684
Furthermore, adding new Item 4K of
Form ATS–R would result in consistent
reporting of the total dollar volume of
transactions in repurchase or reverse
repurchase agreements that ATSs trade.
New Item 5C of Form ATS–R would
provide the Commission with
information regarding the types of
securities subject to repurchase or
reverse repurchase agreements reported
in Item 4K of Form ATS–R. The
Commission believes that adding new
Item 5D would provide the Commission
with more specific information about
the types of options (equity options and
options on government securities) that
each ATS trades, which would help
enhance the regulatory oversight of
ATSs.
The Commission is also proposing to
require Forms ATS and ATS–R, which
are currently required to be sent to the
Commission in paper form, to be filed
on EDGAR.685 All ATSs subject to
Regulation ATS are required to file a
Form ATS–R, and, as proposed, all
ATSs that do not trade NMS stocks or
government securities would file a Form
ATS. As discussed above, requiring
forms to be filed on EDGAR would
provide a centralized filing location
with validation capabilities for
submitted filings.686 The Commission
believes that an EDGAR requirement
would also increase filing efficiencies
for ATSs by removing the need to print
683 See
supra Sections II.D and VI.
supra Section V.C for a discussion of the
proposal to replace the names of the securities
categories, ‘‘Nasdaq National Market Securities’’
and ‘‘Nasdaq SmallCap Market Securities,’’ reported
in Items 4 and 6 of Form ATS–R, with ‘‘Nasdaq
Global Market Securities’’ and ‘‘Nasdaq Capital
Market Securities,’’ respectively.
685 See supra note 308.
686 See supra Section X.C.1.a.ii.
684 See
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and mail paper versions of Forms ATS
and ATS–R.
The Commission is also proposing
several revisions to Form ATS–N,
including: deletion of a checkbox
requiring NMS Stock ATSs to indicate
whether they currently operate pursuant
to a Form ATS; addition of a
requirement to indicate whether the
registered broker-dealer has been
authorized by its national securities
association to operate an ATS; deletion
of signature block language that refers to
the signatory as ‘‘duly sworn’’; and
changes to the Form’s definitions of
‘‘Person’’ (to reflect the Exchange Act
definition, not the Advisers Act
definition) and ‘‘NMS Stock ATS’’ (to
reflect the proposed changes to Rule
300).687 Certain of these proposed
changes represent technical
clarifications that are unlikely to
materially impact the disclosures on
Form ATS–N, but would facilitate the
preparation and filing of Form ATS–N.
With respect to the proposed
requirement for Form ATS–N filers to
indicate whether the registered brokerdealer has been authorized by its SRO
to operate an ATS, the Commission
believes this would benefit market
participants by facilitating the
Commission’s oversight of an NMS
Stock ATS operator’s compliance with
SRO rules (including the need to obtain
approval to operate an ATS), thereby
likely decreasing the incidence of noncompliance with those rules.
2. Costs
Government Securities ATSs would
incur both initial implementation and
ongoing compliance costs due to the
proposed amendments to Regulation
ATS and Regulation SCI. In addition,
market participants in the government
securities and repo market could face
higher trading costs (e.g., higher fees)
from Government Securities ATSs, to
the extent that compliance costs from
Regulation ATS and Regulation SCI
amendments are passed on to market
participants. The Commission estimates
that Government Securities ATSs would
incur the following approximate
aggregate PRA compliance costs and
FINRA membership related costs
associated with the proposed
amendments to Regulation ATS.688
687 See
supra Section V.D.
Commission is unable to estimate costs
associated with FINRA rules, such as FINRA
examination and surveillance, trade reporting
obligations, and certain investor protection rules,
for the bank-operated Currently Exempted
Government Securities ATS. See infra Section
X.C.2.a.i for a discussion about compliance costs
associated with FINRA rules for the bank-operated
Currently Exempted Government Securities ATS.
Furthermore, to comply with the Fair Access Rule,
688 The
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TABLE X.5—REGULATION ATS
Aggregate
initial costs
Regulation ATS
i. Regulation ATS for Currently Exempted Government Securities ATSs 689 .........................................................
ii. Rule 304 for all Government Securities ATSs 692 ...............................................................................................
iii. Rule 301(b)(2) and Forms ATS and ATS–R 695 .................................................................................................
iv. Fair Access Rule 698 ...........................................................................................................................................
The Commission also believes that
Government Securities ATSs with
significant volume in U.S. Treasury
Securities or Agency Securities would
incur the following approximate
Aggregate
annual costs
690 $344,000
691 $156,000
693 1,194,000
694 514,000
696 1,800
697 46,000
........................
699 25,000
aggregate PRA and non-PRA compliance
costs associated with Regulation SCI:
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TABLE X.6—REGULATION SCI
Regulation SCI 700
Aggregate initial costs
PRA costs 701 .....................................................
Non-PRA costs 702 ..............................................
$1,631,000 .......................................................
960,000 ∼ $7.2 million .....................................
Aggregate annual costs
In addition to compliance costs, some
market participants could experience
indirect costs from the proposal. For
example, a Government Securities ATS
could incur indirect costs if its
competitive position in the market were
adversely affected as a result of the
public disclosure requirement of Form
ATS–G. However, such costs to one
ATS would constitute transfers to other
ATSs rather than a net social cost, and
the Commission believes that the risk of
such transfers is likely to be low.703
The proposed extension of Regulation
ATS would generate a number of costs
for Currently Exempted Government
Securities ATSs and Legacy Filers
associated with extending Regulation
ATS to include Currently Exempted
Government Securities ATSs; extending
the Commission recognizes that Government
Securities ATSs could incur non-PRA compliance
costs (e.g., costs associated with changing fee
structures and adapting the operating model to
grant access to market participants), for which the
Commission is unable to provide cost estimates. See
infra Section X.C.2.a.iii for a discussion about nonPRA compliance costs associated with the Fair
Access Rule for Government Securities ATSs.
689 The Commission estimates 7 Currently
Exempted Government Securities ATSs would be
subject to the proposed amendments to Regulation
ATS. See also supra Section IX.C.
690 This cost includes the approximate initial cost
of $275,000 for registering as a broker-dealer with
the Commission and becoming a FINRA member for
1 estimated bank-operated Currently Exempted
Government Securities ATS to comply with Rule
301(b)(1). See also infra Section X.C.2.a.i for a
discussion of the initial cost of registering as a
broker-dealer with the Commission via Form BD
and becoming a FINRA member for a bank-operated
Currently Exempted Government Securities ATS to
comply with Rule 301(b)(1).
691 This cost includes the approximate ongoing
annual cost of $50,000 for registering as a brokerdealer with the Commission and maintaining
FINRA membership for 1 estimated bank-operated
Currently Exempted Government Securities ATS to
comply with Rule 301(b)(1). See also infra Section
X.C.2.a.i for a discussion of the ongoing annual cost
of registering as a broker-dealer with the
Commission via Form BD and becoming a FINRA
member for a bank-operated Currently Exempted
Government Securities ATS to comply with Rule
301(b)(1).
692 The Commission estimates 26 Government
Securities ATSs would be subject to the proposed
amendments to Regulation ATS. See also supra
Section IX.C.
693 This cost does not include the aggregate initial
PRA costs associated with Rule 304(b)(3)(ii) for 34
NMS Stock ATSs. See infra Section X.C.2.a.ii for a
discussion about the aggregate initial PRA costs to
comply with the proposed amendments to Rule 304
of Regulation ATS. See also infra notes 726 and
728.
694 This cost does not include the aggregate
ongoing annual PRA costs associated with Rule
304(b)(3)(ii) for 34 NMS Stock ATSs. See infra
Section X.C.2.a.ii for a discussion about the
aggregate ongoing annual PRA costs to comply with
the proposed amendments to Rule 304 of
Regulation ATS. See also infra notes 727 and 729.
695 The Commission estimates 1 bank-operated
Currently Exempted Government Securities ATS
would initially be required to file a Form ID to gain
access to EDGAR as a result of the proposed
amendments. See also supra Section IX.D.2.b.iv. In
addition, the Commission notes that it is proposing
changes to Form ATS–N to delete a question related
to legacy status, and to include a checkbox asking
if the registered broker-dealer is authorized by a
national securities association to operate an ATS;
the Commission believes that because this
information should be readily available to a filer
and requires only marking a checkbox, this would
not impose additional monetary costs above the
baseline for Form ATS–N filers. See also supra note
520.
696 See infra Section X.C.2.c for a discussion
about the aggregate initial PRA costs to comply with
the proposed amendments to Rule 301(b)(2), Form
ATS, and Form ATS–R.
697 See infra Section X.C.2.c for a discussion
about the aggregate ongoing annual PRA costs to
comply with the proposed amendments to Rule
301(b)(2), Form ATS, and Form ATS–R.
a. Extension of Regulation ATS to
Currently Exempted Government
Securities ATSs and Amendment to
Regulation ATS for All Government
Securities ATSs
$2,413,000.
640,800 ∼ $4.8 million.
Rule 304 of Regulation ATS to include
all Government Securities ATSs and
amending Rule 304; and applying the
Fair Access Rule.704
i. Extension of Regulation ATS To
Include Currently Exempted
Government Securities ATSs
The Commission estimates that,
together, 7 Currently Exempted
Government Securities ATSs would
incur the aggregate initial PRA costs of
approximately $27,000 705 and the
698 The Commission estimates 3 Government
Securities ATSs would be subject to the Fair Access
Rule. See also supra Section IX.D.3.
699 See infra Section X.C.2.a.iii for a discussion
about the aggregate ongoing annual PRA costs to
comply with the Fair Access Rule.
700 The Commission estimates 3 Government
Securities ATSs would be subject to Regulation SCI.
See also supra Section IX.D.5. The costs tabulated
in this table do not include costs for market
participants interacting with SCI entities (e.g., thirdparty vendors providing SCI systems and/or
indirect SCI systems to SCI entities, members or
participants of SCI entities participating in testing
of business continuity and disaster recovery plans).
See also infra Section X.C.2.b.
701 These cost estimates are based on the 2018 SCI
PRA Extension. See 2018 SCI PRA Extension, supra
note 529. See also supra Section IX.D.5 discussing
PRA burden estimates related to compliance with
Regulation SCI.
702 See infra note 767. See also infra Section X.2.b
and Regulation SCI Adopting Release, supra note 2,
at 72416.
703 See infra Section X.C.2.a.ii for a discussion
about transfer costs and why the Commission
believes the risk of incurring such transfer costs is
likely to be low.
704 See supra Section X.C.2 for a discussion and
table regarding the summary of PRA compliance
costs associated with the proposed amendments to
Regulations ATS.
705 $27,146 (estimated aggregate initial cost of
compliance with Rule 301(b)(10) for 7 Currently
Exempted Government Securities ATSs). See infra
note 719. The Commission estimates the wage rate
associated with these burden hours based on salary
information for the securities industry compiled by
SIFMA. The estimated wage figure for attorneys, for
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aggregate ongoing annual PRA costs of
approximately $77,000 706 to comply
with the applicable rules of Regulation
ATS (other than the costs to comply
with Rule 304, which are discussed
below).707 In addition, the Commission
estimates that 1 bank-operated Currently
Exempted Government Securities ATS
would incur the additional initial costs
of approximately $275,000 708 and the
ongoing annual costs of approximately
$50,000 709 to register as a broker-dealer
with the Commission via Form BD and
become a member of FINRA under the
proposed Rule 301(b)(1).710
Currently Exempted Government
Securities ATSs would incur ongoing
annual PRA costs to comply with
recordkeeping requirements of Rules
302 and 303 of Regulation ATS.711
Currently Exempted Government
Securities ATSs would also incur
ongoing annual PRA costs associated
with filing information required by
Form ATS–R with the Commission each
quarter to comply with Rule 301(b)(9).
The requirements to establish written
safeguards and procedures to protect the
Burden
Initial PRA costs
Recordkeeping under Rule 302 .........................
Recordkeeping under Rule 303 .........................
Filing Form ATS–R under Rule 301(b)(9) ..........
Written safeguards and procedures under
Rules 301(b)(10) and 303(a)(1)(v).
N/A ...................................................................
N/A ...................................................................
N/A ...................................................................
Per ATS: $3,878,718 Industry: $27,146 719 ......
confidential trading information of ATS
subscribers under Rules 301(b)(10) and
303(a)(1)(v) would impose one-time
initial PRA costs on Currently Exempted
Government Securities ATSs. In
addition, Currently Exempted
Government Securities ATSs would
incur ongoing annual PRA costs to
update and preserve the written
safeguards.
Table X.7 tabulates initial and
ongoing annual PRA costs associated
with Rules 302, 303, 301(b)(9),
301(b)(10), and 303(a)(1)(v):
Annual PRA costs
Per
Per
Per
Per
ATS:
ATS:
ATS:
ATS:
$3,195,712 Industry: $22,365.713
$1,065,714 Industry: $7,455.715
$5,817,716 Industry: $40,719.717
$988,720 Industry: $6,916.721
The Commission believes that
Currently Exempted Government
Securities ATSs that are banks (i.e.,
bank-operated Currently Exempted
Government Securities ATSs) would
incur additional compliance costs
related to registering with the
Commission as broker-dealers, which
entails becoming members of an SRO,
such as FINRA, compared to those not
operated by banks. In addition, as
members of FINRA, bank-operated
Currently Exempted Government
Securities ATSs would incur costs
related to FINRA examination and
surveillance, trade reporting obligations,
and certain investor protection rules.722
It is the Commission’s understanding
that bank-operated Currently Exempted
Government Securities ATSs may adopt
a structure where the ATS is operated
by a bank affiliate that is a registered
broker-dealer, rather than by the bank
itself.723 In this case, the bank affiliates
operating ATSs would be required to
register as broker-dealers with the
Commission via Form BD and become
members of an SRO under the proposed
Rule 301(b)(1). The Commission
estimates that 1 bank-operated Currently
Exempted Government Securities ATS
would register as a broker-dealer with
the Commission via Form BD and
example, is based on published rates for attorneys,
modified to account for a 1,800 hour work-year and
multiplied by 5.35 to account for bonuses, firm size,
employee benefits, and overhead yielding an
effective hourly rate for 2013 of $380 for attorneys.
See Securities Industry and Financial Markets
Association, Management & Professional Earnings
in the Securities Industry—2013, available at
https://www.sifma.org/resources/research/
managementand-professional-earnings-in-thesecuritiesindustry-2013/. These estimates are
adjusted for an inflation rate of 11.34 percent based
on the Bureau of Labor Statistics data on CPI–U
between October 2013 and May 2020. Therefore, the
current inflation adjusted effective hourly wage
rates for attorneys are estimated at $423 ($380 ×
1.1134). We discuss other costs of compliance with
the proposed rules below.
706 $22,365 (estimated aggregate ongoing cost of
compliance with Rule 302 for 7 Currently Exempted
Government Securities ATSs) + $7,455 (estimated
aggregate ongoing cost of compliance with Rule 303
for 7 Currently Exempted Government Securities
ATSs) + $40,719 (estimated aggregate ongoing cost
of compliance with Rule 301(b)(9) for 7 Currently
Exempted Government Securities ATSs) + $6,916
(estimated aggregate ongoing cost of compliance
with Rule 301(b)(10) for 7 Currently Exempted
Government Securities ATSs) = $77,455. For an
explanation of each of these costs, see infra
notes713, 715, 717, and 721. Costs of compliance
with Rule 301(b)(5), as applicable, are discussed
below. See infra note 757.
707 These aggregated compliance costs associated
with the PRA include the costs to comply with Rule
301(b)(1), Rule 301(b)(2), Rule 301(b)(9), Rule
301(b)(10), Rule 302, and Rule 303(a)(1)(v). These
aggregated compliance costs associated with the
PRA do not include the compliance costs associated
with Rule 301(b)(2)(viii), Rule 304 of Regulation
ATS, the Fair Access Rule, and Regulation SCI.
708 The Commission estimates that 1 bankoperated Currently Exempted Government
Securities ATS would incur the aggregate initial
cost for registering as a broker-dealer with the
Commission via Form BD and becoming a FINRA
member under Rule 301(b)(1) of approximately
$275,000. See also infra note 724.
709 The Commission estimates that 1 bankoperated Currently Exempted Government
Securities ATS would incur the aggregate ongoing
cost associated with Form BD and maintaining
FINRA membership under Rule 301(b)(1) of
approximately $50,000. See also infra note 725.
710 See supra note 429 and accompanying text for
hourly burden. The initial PRA costs would be:
Compliance Manager at $315 × 2.75 hours × 1
estimated bank-operated Currently Exempted
Government Securities ATS = $866.25. See supra
note 430. The ongoing annual PRA costs would be:
(Compliance Manager at $315 × 0.33 hours) × 3
amendments × 1 estimated bank-operated Currently
Exempted Government Securities ATS = $311.85.
See supra note 432.
711 Rule 301(b)(8) would require Currently
Exempted Government Securities ATSs to comply
with the requirements of Rules 302 and 303 of
Regulation ATS. Legacy Filers already comply with
Rules 302 and 303 of Regulation ATS. See also
supra Section IX.D.1.b.
712 Compliance Clerk at $71 × 45 hours = $3,195.
See supra note 434. This burden is equal to the
Commission’s estimate of the annual costs that a
Legacy Filer currently bears for fulfilling the
requirements of Rule 302.
713 $3,195 × 7 Currently Exempted Government
Securities ATSs = $22,365.
714 Compliance Clerk at $71 × 15 hours = $1,065.
See supra note 436. This burden is equal to the
Commission’s estimate of the annual costs that a
Legacy Filer currently bears for fulfilling the
requirements of Rule 303.
715 $1,065 × 7 Currently Exempted Government
Securities ATSs = $7,455.
716 (Attorney at $423 × 12 hours) + (Compliance
Manager at $315 × 1 hour) + (Compliance Clerk at
$71 × 6 hours) = $5,817. See supra note 438. This
burden is equal to the burden that Legacy Filers
bear for complying with Rule 301(b)(9). See supra
Section IX.D.1.c.
717 $5,817 × 7 Currently Exempted Government
Securities ATSs = $40,719.
718 (Attorney at $423 × 9 hours) + (Compliance
Clerk at $71 × 1 hour) = $3,878. See supra note 443.
719 $3,878 × 7 Currently Exempted Government
Securities ATSs = $27,146.
720 (Attorney at $423 × 2 hours) + (Compliance
Clerk at $71 × 2 hours) = $988. See supra note 445.
This burden is equal to the Commission’s estimate
of the annual costs that a Legacy Filer currently
bears to comply with the rule under the proposal.
721 $988 × 7 Currently Exempted Government
Securities ATSs = $6,916.
722 See supra notes 108–110.
723 See supra Section II.C for a discussion of
bank-operated Currently Exempted Government
Securities ATS. Because a bank-operated
Government Securities ATS could comply with the
proposed requirements by, for example,
restructuring so that an existing affiliate operates
the ATS, the Commission does not consider costs
that would be associated with creating a new bankaffiliated entity to be part of the incremental costs
of the proposal.
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become a member of an SRO under the
proposed Rule 301(b)(1).
The Commission estimates an initial
cost of approximately $275,000 to
register as a broker-dealer with the
Commission via Form BD and become a
member of FINRA.724 Additionally, the
Commission estimates an ongoing
annual cost of approximately $50,000 to
maintain the broker-dealer registration
with the Commission and FINRA
membership.725 The Commission
believes that these costs related to
broker-dealer registration and FINRA
membership are relevant primarily to
bank-operated Currently Exempted
Government Securities ATSs. However,
these estimates are uncertain because
the Commission does not have
information on the estimated 1 bankoperated Currently Exempted
Government Securities ATS, such as the
number of registering persons,
profitability, the degree of reliance on
outside legal or consulting costs
necessary for effectively completing the
application to be a member of FINRA,
and the current sample size of one may
be too small to be a reliable indicator of
industry costs. For example, the initial
registration costs for FINRA
membership is higher for entities with
a larger number of associated persons
being registered. The ongoing costs to
remain a FINRA member vary based on
the profitability and the size (i.e., the
number of registered persons and the
number of branch offices) of the entity.
Furthermore, the Commission is unable
to provide estimated costs related to
FINRA examination and surveillance,
trade reporting obligations, and certain
investor protection rules because these
costs are based on compliance with
FINRA rules. The costs associated with
FINRA examination and surveillance,
trade reporting obligations, and certain
investor protection rules may depend on
various factors, such as the costs of
updating systems for trade reporting
requirements and the costs of complying
with FINRA rules (including drafting
policies and procedures as may be
required for the bank-operated Currently
Exempted Government Securities ATS),
724 See Exchange Act Release No. 33–9974
(October 30, 2015), 80 FR 71388, 71509 (November
16, 2015) (‘‘Regulation Crowdfunding Adopting
Release’’). In addition to the initial costs to become
a member of FINRA, this cost includes the
paperwork related initial costs of $866.25 for filing
Form BD with the Commission. See also supra note
708.
725 In addition to the ongoing annual costs to
maintain a membership with FINRA, this cost
includes the costs of paperwork related ongoing
annual costs of $311.85 to amend Form BD with the
Commission. See supra note 709. See also
Regulation Crowdfunding Adopting Release, supra
note 724, at 71509.
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for which the Commission does not
have information. The Commission
invites comments on costs that a bankoperated Government Securities ATS
could incur in relation to FINRA
membership, FINRA examination and
surveillance, trade reporting, and
certain investor protection rules.
ii. Extension of Rule 304 of Regulation
ATS To Include All Government
Securities ATSs and Amendments to
Rule 304
The Commission estimates that all 26
Government Securities ATSs would
incur the aggregate initial PRA costs of
approximately $1,143,000 726 to
complete Form ATS–G and to make
Form ATS–G public. The Commission
estimates that all 26 Government
Securities ATSs would incur the
aggregate ongoing annual PRA costs of
approximately $331,000 727 to amend
their Forms ATS–G. In addition, the
Commission estimates that some Legacy
Filers would incur PRA costs associated
with amending Form ATS and filing
Form ATS–R. As discussed below, the
Commission estimates that 17 Legacy
Filers would incur the aggregated initial
PRA costs of approximately $51,000 728
for amending Form ATS and the
aggregated ongoing annual PRA costs of
approximately $183,000 729 for
amending Form ATS and Form ATS–R.
Furthermore, the Commission estimates
that 34 NMS Stock ATSs would incur
the aggregated initial and ongoing
annual PRA costs of approximately
726 $1,097,773 (estimated aggregate initial cost
associated with completing Form ATS–G required
by Rule 301(b)(2)(viii) and Rule 304 for 26
Government Securities ATSs) + $15,028 (estimated
aggregate initial cost associated with making public
posting on ATS’s website of direct URL hyperlink
to the Commission’s website that contains Form
ATS–G, as required by Rule 304(b)(3)(i) for 26
Government Securities ATSs) + $30,056 (estimated
aggregate initial cost associated with making public
posting on ATS’s website of the most recently
disseminated Form ATS–G, as required by Rule
304(b)(3)(ii) for 26 Government Securities ATSs) =
$1,142,857. See also infra notes 733, 747, and 749.
727 $241,129 (estimated aggregate ongoing cost
associated with amending Form ATS–G required by
Rule 301(b)(2)(viii) and Rule 304 for 26 Government
Securities ATSs) + $90,168 (estimated aggregate
ongoing cost associated with making public posting
on ATS’s website of the most recently disseminated
Form ATS–G, as required by Rule 304(b)(3)(ii) for
26 Government Securities ATSs) = $331,297. See
also infra notes 735 and 749.
728 $50,966 (estimated aggregate initial cost
associated with amending Form ATS, as required
by Rule 301(b)(2)(viii) for 17 Legacy Filers). See also
infra note 742.
729 $69,547 (estimated aggregate ongoing cost
associated with amending Form ATS required by
Rule 301(b)(2)(viii) for 17 Legacy Filers) + $113,271
(estimated aggregate ongoing cost associated with
amending Form ATS–R, as required by Rule
301(b)(9) for 17 Legacy Filers) = $182,818. See also
infra notes 733 and 744.
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$39,000 730 and $118,000,731
respectively, to make the most recently
disseminated Forms ATS–N public via
posting on the ATSs’ websites. The
Commission also believes that some
subscribers of Government Securities
ATSs could incur indirect costs
resulting from the public disclosure
requirement of Form ATS–G.
The proposed amendments to
Regulation ATS would impose PRA
costs on all Government Securities
ATSs in that they would require
Government Securities ATSs to adhere
to heightened disclosure and reporting
requirements regarding their operations.
The Commission expects the PRA costs
of the proposed amendments to be
incremental relative to the PRA costs
associated with the existing
requirements. Specifically, the
Commission believes that the
incremental PRA costs would consist
largely of providing new disclosures
and updating records and retention
policies necessary to comply with the
proposed amendments. The
Commission estimates that all 26
Government Securities ATSs would
need to comply with the proposed
amendments to Regulation ATS relating
to Rules 301(b)(2)(viii) and 304, which
require the filing of proposed Form
ATS–G. Some of the information
requests on Form ATS–G would be
applicable to only Government
Securities ATSs that meet the applicable
volume thresholds.732 This would result
in the aggregate initial PRA cost of
$1,097,773 for all Government
Securities ATSs to complete Form ATS–
G and comply with proposed Rules
301(b)(2)(viii) and 304 of Regulation
ATS.733
730 $39,304 (estimated aggregate initial cost
associated with making public posting on ATS’s
website of the most recently disseminated Form
ATS–N, as required by Rule 304(b)(3)(ii) for 34
NMS Stock ATSs). See also infra note 749.
731 $117,912 (estimated aggregate ongoing cost
associated with making public posting on ATS’s
website of the most recently disseminated Form
ATS–N, as required by Rule 304(b)(3)(ii) for 34
NMS Stock ATSs). See also infra note 749.
732 See supra Section IX.D.2.b.i.
733 Aggregate costs to complete Part I of Form
ATS–G: (Compliance Clerk at $71 × 0.75 hours) ×
26 Government Securities ATSs = $1,384.50 (see
supra note 473). Aggregate costs to complete Part
II of Form ATS–G: ((Attorney at $423 × 18.5 hours)
+ (Compliance Manager at $315 × 9.5 hours) + (Sr.
Systems Analyst at $289 × 1 hour) + (Sr. Marketing
Manager at $311 × 2 hours)) × 26 Government
Securities ATSs = $304,954 (see supra note 475).
Aggregate costs to complete Part III items applicable
to all respondents: ((Attorney at $423 × 19.5 hours)
+ (Compliance Manager at $315 × 26.2 hours) + (Sr.
Systems Analyst at $289 × 26.55 hours) × 26
Government Securities ATSs = $628,535 (see supra
note 477). Aggregate costs to complete Part III, Item
24(a): ((Attorney at $423 × 2 hours) + (Compliance
Manager at $315 × 1 hour) + (Sr. Systems Analyst
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In addition to the initial PRA costs
mentioned above, Government
Securities ATSs would also incur
ongoing PRA costs to comply with the
proposed amendments to Rule 3a1–1(a)
and Regulation ATS. For instance,
Government Securities ATSs would
incur ongoing PRA costs associated with
amending their Form ATS–G prior to
material changes in their operations, or
to correct any information that has
become inaccurate. Regardless of the
reason for filing a Form ATS–G
amendment, the Commission estimates
that a Government Securities ATS
would incur approximately $9,274 to
prepare and file its Form ATS–G
amendments.734 This would result in
the aggregate ongoing annual PRA cost
of $241,129 for all Government
Securities ATSs to amend their Forms
ATS–G and comply with proposed
Rules 301(b)(2)(viii) and 304 of
Regulation ATS.735
Requiring Form ATS–G to be filed on
EDGAR would impose only a minimal
cost, at most, on Government Securities
ATSs. The Commission believes
requiring proposed Form ATS–G to be
filed on EDGAR would impose the
aggregate initial PRA cost of
approximately $47 for 1 bank-operated
Currently Exempted Government
Securities ATS,736 and the aggregate
ongoing annual PRA costs of
approximately $47 for 1 new
Government Securities ATS per year
that may be operated by an entity
without prior access to EDGAR.737
Because all Legacy Filers are operated
by registered broker-dealers, there
would be no burden associated with
gaining access to EDGAR for Legacy
Filers.738 The Commission estimates
at $289 × 2 hours)) × 3 ATSs subject to the
requirement = $5,217. Aggregate costs to complete
Part III, Item 24(b): (Attorney at $423 × 2 hours) +
(Compliance Manager at $315 × 1 hour) + (Sr.
Systems Analyst at $289 × 2 hours)) × 1 ATS subject
to the requirement = $1,739. ($1,385 (Part I) +
$304,954 (Part II) + $628,535 (Part III items
applicable to all filers) + $5,217 (Part III, Item 24(a))
+ $1,739 (Part III, Item 24(b)) + $155,896 (baseline)
+ $47 (access to EDGAR) = $1,097,773 total
aggregate costs.
734 See supra note 483. (Attorney at $423 × 16.5
hours) + (Compliance Manager at $315 × 6 hours)
+ (Compliance Clerk at $71 × 5.7 hours) = $9,274.2.
735 28.2 total hours (see supra note 484) × 26
Government Securities ATSs = 733.2 hours.
$9,274.20 × 26 Government Securities ATSs =
$241,129.
736 (Compliance Manager at $315 × 0.15 hours) ×
1 bank-operated Currently Exempted Government
Securities ATS = $47.25. See supra note 509. This
cost is reflected in the aggregate initial costs
discussed earlier in this section.
737 (Compliance Manager at $315 × 0.15 hours) ×
1 new Government Securities ATS = $47.25. See
supra note 509. This cost is reflected in the
aggregate ongoing annual costs discussed earlier in
this section.
738 See supra Section IX.C.
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that 1 Currently Exempted Government
Securities ATS is operated by a bank,
not a registered broker-dealer; as such,
there would be a total cost of
approximately $47 associated with
gaining access to EDGAR (assuming the
bank operator is not subject to other
EDGAR filing requirements).739
Requiring Form ATS–G to be filed in
a custom XML format would not impose
any incremental costs on filers as
compared to an unstructured format
such as HTML. All Government
Securities ATSs would be given the
option of filing Form ATS–G using a
web-fillable form that will render into
XML in EDGAR, or to file directly in
XML using the custom XML schema for
ATSs as published on the Commission’s
website.740 Given the availability of the
web-fillable form, the XML requirement
would not impose upon any
Government Securities ATS the need to
license XML-based filing preparation
software or establish XML-based filing
processes.
Some existing broker-dealers that
operate ATSs that transact in securities
other than government securities or
repos in addition to operating the
Government Securities ATSs might
incur additional costs to comply with
the proposed amendments. Pursuant to
the proposed amendments to Regulation
ATS, a Government Securities ATS
could not trade securities other than
government securities or repos.741
Accordingly, broker-dealers that operate
an ATS that currently trades
government securities and repos and
securities other than government
securities or repos, would incur
additional PRA costs compared to a
Currently Exempted Government
Securities ATS, which only trades
government securities or repos, because
the former would be required to file
both an initial Form ATS–G and amend
their Form ATS. The Commission
estimates that 17 Legacy Filers would
need to file an initial Form ATS–G in
regard to their trading activity in
government securities or repos and an
amendment to a Form ATS to remove
references to government securities or
repos and that the aggregate initial PRA
cost for those ATSs to file would be
$823,288 742 and that the aggregate
739 (Compliance Manager at $315 × 0.15 hours) ×
1 bank-operated Currently Exempted Government
Securities ATS = $47.25. See supra notes 515 and
516.
740 See supra Section IV. This reflects the current
filing methods for Form ATS–N.
741 See proposed Rule 300(l).
742 The Commission estimates that the total
hourly burden for a broker-dealer to separately file
an amended Form ATS for the non-Government
Securities ATS and initial Form ATS–G for the
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ongoing annual PRA cost to file an
amendment to Form ATS and initial
Form ATS–G would be $227,208.743
Furthermore, the broker-dealers
operating these Government Securities
ATSs would also be required to file a
pair of Forms ATS–R four times
annually. The Commission estimates
that the aggregate ongoing annual PRA
cost of filing two Forms ATS–R for
broker-dealers that operate one ATS that
trades government securities or repos
and a second ATS that trades securities
other than government securities and
repos would be $113,271.744
A Government Securities ATS would
incur costs associated with
programming and website configuration
to make Form ATS–G public via posting
on its website a direct URL hyperlink to
the Commission’s website that contains
its Form ATS–G filing, as required by
Rule 304(b)(3)(i).745 The Commission
estimates that the initial one-time PRA
cost would be approximately $578 746
per Government Securities ATS and the
aggregate PRA cost for all Government
Securities ATSs would be
approximately $15,028.747 Furthermore,
all Covered ATSs (26 Government
Securities ATSs and 34 NMS Stock
ATSs) would incur costs associated
with programming and website
Government Securities ATS would be 10 burden
hours to amend its initial operation report on Form
ATS for its trading activity related to securities
other than NMS stock and government securities or
repos, and approximately 134 burden hours to file
its initial Form ATS–G. See also supra notes 497
and 501. ((Attorney at $423 × 61.5 hours) +
(Compliance Manager at $315 × 37.7 hours) + (Sr.
Systems Analyst at $289 × 31.55 hours) + (Sr.
Marketing Manager at $311 × 2 hours) +
(Compliance Clerk at $71 × 11.25 hours)) × 17
Legacy Filers that would continue to file a Form
ATS = $823,288. Of $823,288, the cost of $50,966
is attributable to the aggregate initial costs for
amending Form ATS to remove references to
government securities or repos for 17 Legacy Filers.
743 The Commission estimates that a broker-dealer
operator that operates an ATS that currently trades
government securities or repos and securities other
than government securities or repos would face an
annual burden of 13 hours to file amendments to
Form ATS and 28.2 hours to file amendments to
Form ATS–G. See also supra notes 498 and 499.
((Attorney at $423 × 25.5 hours) + (Compliance
Manager at $315 × 6 hours) + (Compliance Clerk at
$71 × 9.7 hours)) × 17 Legacy Filers that would
continue to file a Form ATS = $227,208. Of
$227,208, the cost of $69,547 is attributable to the
aggregate ongoing costs to amend Form ATS for 17
Legacy Filers.
744 The Commission estimates that a broker-dealer
would face a total burden of 5.25 hours to prepare
two Form ATS–Rs. See supra note 500. ((Attorney
at $423 × 14 hours) + (Compliance Manager at $315
× 1 hour) + (Compliance Clerk at $71 × 6 hours))
× 17 Legacy Filers that would continue to file a
Form ATS = $113,271.
745 NMS Stock ATSs are already required to
comply with Rule 304(b)(3)(i). See supra Section
IX.D.2.b.v.
746 See supra Section IX.D.2.b.v.
747 (Sr. Systems Analyst at $289 × 2 hours) × 26
Government Securities ATSs = $15,028.
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configuration to make the most recently
disseminated Forms ATS–G and Forms
ATS–N public via posting on their
websites, as required by Rule
304(b)(3)(ii).748 The Commission
estimates that the initial PRA cost
would be $1,156 per Covered ATS and
$69,360 for all Covered ATSs and that
the ongoing annual PRA cost would be
$3,468 per Covered ATS and $208,080
for all Covered ATSs.749
Under the proposal, when a
Government Securities ATS ceases
operations, it would be required to file
a cessation of operations on Form ATS–
G. Currently Exempted Government
Securities ATSs are not required to
notify the Commission when they cease
operations. If a Currently Exempted
Government Securities ATS were to
cease operations, the Commission
estimates that each Currently Exempted
Government Securities ATS would
incur a one-time PRA cost of $670 to
prepare and file a cessation of
operations on Form ATS–G with the
Commission.750 The Commission also
estimates that one new Government
Securities ATS would file a Form ATS–
G per year 751 and make the Form ATS–
G public by posting a direct URL
hyperlink on its website to the
Commission’s website,752 resulting in
the PRA cost of $47,264.753
Regardless of their size and
transaction volume, all Government
Securities ATSs would need to ensure
that their disclosures meet the
requirements of proposed Form ATS–G
and that they correctly file their Form
ATS–G. Government Securities ATSs
may develop internal processes to
ensure correct and complete reporting
on Form ATS–G, which would result in
a fixed setup PRA cost. These PRA costs
748 See
supra Section IX.D.2.b.v.
all Covered ATSs, the aggregate initial cost
would be: (Sr. Systems Analyst at $289 × 4 hours)
× (26 Government Securities ATSs + 34 NMS Stock
ATSs) = $30,056 (estimated aggregate initial costs
for 26 Government Securities ATSs) + $39,304
(estimated aggregate initial costs for 34 NMS Stock
ATSs) = $69,360. See supra note 512. For all
Covered ATSs, the aggregate ongoing cost would be:
(Sr. Systems Analyst at $289 × 12 hours) × (26
Government Securities ATSs + 34 NMS Stock
ATSs) = $90,168 (estimated aggregate ongoing costs
for 26 Government Securities ATSs) + $117,912
(estimated aggregate ongoing costs for 34 NMS
Stock ATSs) = $208,080. See supra note 513.
750 Currently Exempted Government Securities
ATSs are currently not required to notify the
Commission when they cease operations. (Attorney
at $423 × 1.5 hours) + (Compliance Clerk at $71 ×
0.5 hours) = $670. See supra note 490.
751 See supra Section IX.C.
752 See supra Section IX.D.2.b.v.
753 (Attorney at $423 × 55 hours) + (Compliance
Manager at $315 × 39.85 hours) + (Sr. Systems
Analyst at $289 × 35.55 hours) + (Sr. Marketing
Manager at $311 × 2 hours) + (Compliance Clerk at
$71 × 7.75 hours) = $47,264.
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749 For
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may fall disproportionately on smaller
Government Securities ATSs in terms of
PRA costs relative to transaction volume
(as opposed to larger Government
Securities ATSs in terms of PRA costs
relative to transaction volume), because
all Government Securities ATSs would
be likely to incur these fixed PRA costs.
However, smaller Government
Securities ATSs that are not operated by
multi-service broker-dealer operators
and that generally do not engage in
other brokerage or dealing activities in
addition to their ATSs would likely
incur lower PRA costs because certain
sections of proposed Form ATS–G
would not be applicable to these
Government Securities ATSs.
The PRA costs could also vary across
Government Securities ATSs depending
on the complexity of the ATS and the
services that it offers. For example,
some Government Securities ATSs may
not segment subscriber order flow or
offer counter-party selection protocols.
These ATSs would not be required to
complete Part III, Items 13 and 14 of
proposed Form ATS–G. As a result,
such Government Securities ATSs could
incur lower PRA costs because these
ATSs would apply lesser burden hours
to complete their Form ATS–G.
In addition to the PRA compliance
costs discussed above, the Commission
believes that the proposed ability for the
Commission to be able to declare a Form
ATS–G or Form ATS–G amendment
ineffective would generate direct costs
for Government Securities ATSs.754 If
the Commission declares a Government
Securities ATS’s Form ATS–G or Form
ATS–G amendment ineffective, then the
ATS might have to cease operations, roll
back a change in operations, or delay
the start of operations until it is able to
address the deficiencies in the
previously filed form by filing a new
Form ATS–G or Form ATS–G
amendment. An ineffective Form ATS–
G filing could also impose indirect costs
on the overall market for government
securities execution services resulting
from a potential reduction in
competition or the removal of a sole
provider of a niche service within the
market.755
However, the Commission believes
that there would not be a substantial
burden imposed in connection with
resubmitting Form ATS–G or a Form
ATS–G amendment for these entities or
from an ineffective declaration in
general. Because Government Securities
754 See
Rule 304(a)(1)(iv)(B).
infra Section X.C.3.a.i.b for a discussion
about the impact of a declaration of ineffectiveness
on competition in the market for government
securities and repo execution services.
755 See
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ATSs and market participants would
not incur these costs unless the
Commission declares a Form ATS–G or
amendment ineffective, Government
Securities ATSs would be incentivized
to comply with the requirements of
Form ATS–G, as well as federal
securities laws, including the other
requirements of Regulation ATS, to
avoid an ineffectiveness declaration.
The Commission believes that these
incentives would encourage
Government Securities ATSs to initially
submit a more accurate and complete
Form ATS–G and amendments, which
would reduce the likelihood that they
are declared ineffective.
Additionally, currently operating
Government Securities ATSs would not
have to bear the costs of immediately
ceasing operations under the proposal
without having an effective Form ATS–
G on file with the Commission because
Legacy Filers would be able to continue
operations pursuant to a previously
filed initial operation report on Form
ATS and Currently Exempted
Government Securities ATSs would also
be able to continue operations pending
the Commission’s review of its initial
Form ATS–G. However, if after notice
and opportunity for hearing, the
Commission declares an initial Form
ATS–G filed by a Legacy Filer or
Currently Exempted Government
Securities ATS ineffective, the ATS
would be required to cease operations.
The Government Securities ATS would
then have the opportunity to address
deficiencies in the previously filed form
by filing a new initial Form ATS–G.
The proposed amendments could
generate indirect costs for some
subscribers by causing Government
Securities ATSs to stop sharing
information that they might currently
offer to only some subscribers, but the
Commission believes that this risk could
be low because ATSs could have a
commercial incentive to continue
disclosing it. Form ATS–G would
require Government Securities ATSs to
publicly disclose any platform-wide
order execution metrics that they share
with any subscriber. In order to avoid
publicly disclosing this information, an
ATS could stop sharing the information
with subscribers. The trading costs of
subscribers that currently use this
information to help make trading
decisions could increase if the
information is no longer available to
them. The Commission believes that the
risk of ATSs disclosing less information
than they currently do depends on
several factors, such as the commercial
purpose for releasing such information.
If the subscribers that receive such
information demand the information as
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a condition of subscribing, ATSs would
have a commercial incentive to continue
disclosing it.
The Commission also believes that the
public disclosure of Form ATS–G could
generate indirect costs, in the form of
transfers, for some subscribers to
Government Securities ATSs that might
currently have more information
regarding some ATS features, such as
order priority and matching procedures,
than other subscribers. The public
disclosure of these features might
reduce informed subscribers’
information advantage over other
subscribers on the Government
Securities ATS and increase their
trading costs. In this regard, the
Commission recognizes that the benefit
of the proposal enjoyed by some
subscribers in receiving the proposed
information may be seen as a cost by
those subscribers who currently receive
such information.
Some Government Securities ATSs
could experience indirect costs from the
public disclosure of Form ATS–G
though the Commission believes these
costs actually amount to transfers. To
the extent that a Government Securities
ATS in part relies on certain operational
characteristics (e.g., order types, trading
functionalities) to attract customer order
flow and generate trading revenues, it is
possible that the public disclosure of
these characteristics in Form ATS–G
could make it easier for other trading
venues to adopt the operational
characteristics, which could lower
trading volume and reduce revenue of
the disclosing ATS. Such costs to the
disclosing ATS would constitute
transfers to competing ATSs rather than
a net social cost. However, the
Commission believes that the risk of
such transfers may be low because it is
not likely the responsive information to
the proposed Form ATS–G would
include information regarding
operational facets such that the public
disclosure of the information would
adversely affect the competitive position
of the disclosing ATS in the market for
government securities and repo
execution services.756
iii. Application of Fair Access Rule to
Government Securities ATSs
The Commission estimates that three
Government Securities ATSs would
incur the aggregate ongoing annual PRA
costs of approximately $25,000 757 to
comply with the proposed Fair Access
Rule. In addition, the Commission
756 See
supra note 196 and accompanying text.
757 ((Attorney at $423 × 10 hours) × 3 Government
Securities ATSs) + ((Attorney at $423 × 10 hours)
× 3 Government Securities ATSs) = $25,380. See
supra notes 518 and 519.
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believes that the proposed application
of the Fair Access Rule to U.S. Treasury
Securities and Agency Securities could
impose non-PRA compliance costs on
Government Securities ATSs and
market participants could incur indirect
costs resulting from Government
Securities ATSs being subject to the Fair
Access Rule.758
Government Securities ATSs that
meet certain volume thresholds for U.S.
Treasury Securities, Agency Securities,
or both would incur costs to establish
written standards for granting access to
their systems.759 The Commission
estimates that three Government
Securities ATSs would meet the volume
thresholds that trigger the Fair Access
Rule and that the average ongoing
annual PRA cost of establishing written
fair access standards for each entity
would be $4,230.760 Accordingly, the
Commission estimates that the aggregate
ongoing annual PRA cost for
Government Securities ATSs to
establish written fair access standards
would be approximately $12,690.761
Government Securities ATSs that
meet the fair access volume thresholds
would incur costs to make and keep
records of (1) all grants of access
including, for all subscribers, the
reasons for granting such access; and (2)
all denials or limitations of access and
reasons, for each applicant, for denying
or limiting access. They would also
incur costs to disclose on Exhibit C of
Form ATS–R a list of all persons
granted, denied, or granted limited
758 In addition to the costs discussed here and in
the following section about the extension of
Regulation SCI to Government Securities ATSs,
ATSs may incur costs to subscribe to, and program
their internal systems to process, TRACE trade
reports for Agency Securities. FINRA currently
publishes the weekly aggregate volume data for U.S.
Treasury Securities on which ATSs would base
their fair access calculations for U.S. Treasury
Securities. See supra Section II.D. But ATSs would
need to subscribe to TRACE to obtain the trade
reports necessary to calculate the threshold for
Agency Securities. See id. The Commission believes
that the vast majority—and likely, all—brokerdealer operators of Government Securities ATSs
that trade Agency Securities currently subscribe to
TRACE, however, the Commission is requesting
comment on the extent to which Government
Securities ATSs (both Currently Exempted
Government Securities ATSs and those subject to
current Regulation ATS) have access to TRACE
trade reports for Agency Securities. See supra note
146.
759 See supra Section IX.D.3 for a discussion of
this proposal.
760 Attorney at $423 × 10 hours = $4,230. See
supra note 518. This cost is equal to the
Commission’s estimate for compliance with Rule
301(b)(5) because the requirements of the Fair
Access Rule would be identical for Government
Securities ATSs and ATSs that are currently subject
to Rule 301(b)(5). See Rule 301 OMB Update, supra
note 419, at 3238.
761 $4,230 × 3 Government Securities ATSs =
$12,690.
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access to the system during the relevant
period.762 The Commission estimates
that the average ongoing annual
reporting PRA cost for each Government
Securities ATS that is subject to these
requirements would be $4,230.763 Thus,
the Commission estimates that the
aggregate ongoing annual PRA cost for
three Government Securities ATSs to
keep these records would be $12,690.764
The Commission believes the
proposed extension of the Fair Access
Rule to U.S. Treasury Securities and
Agency Securities could impose nonPRA compliance costs on Government
Securities ATSs. Under the proposal,
Government Securities ATSs that meet
the specified volume thresholds could
no longer treat subscribers differently
with respect to access to the services of
the ATS without a reasonable basis. For
example, a Government Securities ATS
could not offer one class of subscriber
a service (e.g., an order interaction
procedure, order type, or connectivity
method) without offering the service to
all subscribers unless the Government
Securities ATS had a reasonable basis
for the differential treatment. In
addition, a Government Securities ATS
could not charge fees that may
unreasonably prohibit certain market
participants from accessing the services
of the ATS. To the extent that
Government Securities ATSs must
change fee structures or access and
adapt their operating model due to the
Fair Access Rule, those Government
Securities ATSs would incur costs
related to changing business operations.
The Commission, however, is unable
to quantify the potential non-PRA
compliance costs discussed above. In
particular, the Commission lacks data
on the extent to which Government
Securities ATSs that meet the fair access
volume thresholds currently grant
access to the ATS services to all
subscribers on the same terms, and on
the specific types of services and
subscribers in question. In addition, the
Commission lacks similar data for other
trading venues in the market for
government securities that may offer
differential access to services. Thus, the
Commission is not able to estimate the
costs associated with changing fee
structures and adapting operating
models. In turn, the Commission is not
able to estimate the loss of revenues that
Government Securities ATSs that meet
the fair access volume thresholds could
762 The burdens associated with filing Form ATS–
R are discussed above in Section IX.D.3.
763 Attorney at $423 × 10 hours = $4,230. See
supra note 519.
764 3 responses × 10 hours = 30 hours. $4,230 ×
3 Government Securities ATSs = $12,690.
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incur as a result of the proposed
extension of the Fair Access Rule.
The Commission believes that market
participants could incur indirect costs
related to Government Securities ATSs
being subject to the Fair Access Rule.
Government Securities ATSs that are
close to satisfying the volume
thresholds for certain government
securities could limit the trading in
those government securities on their
ATSs over some period to stay below
the volume thresholds and avoid being
subject to the Fair Access Rule. The
order flow that was being executed on
those Government Securities ATSs
might be absorbed and redistributed
amongst other Government Securities
ATSs. If a Government Securities ATS
that is the sole provider of a niche
service limits the trading in certain
government securities to avoid being
subject to the Fair Access Rule, it could
require some market participants to seek
execution on other trading venues,
which could result in higher trading
costs.
b. Extension of Regulation SCI to
Government Securities ATSs
The Commission estimates that three
Government Securities ATSs (two
Currently Exempted Government
Securities ATSs and one Legacy Filer)
that meet the specified volume
thresholds would incur both PRA and
non-PRA direct and indirect compliance
costs as SCI entities. The Commission
estimates that two Currently Exempted
Government Securities ATSs would
incur the aggregate initial PRA costs of
approximately $1,305,000 and the
aggregate ongoing annual PRA costs of
approximately $1,609,000 to comply
with Regulation SCI.765 Furthermore,
the Commission estimates that one
Legacy Filer would incur the initial PRA
costs of approximately $326,000 and the
ongoing annual PRA costs of
approximately $804,000 to comply with
Regulation SCI.766 The Commission also
estimates that three Government
Securities ATSs would incur the
aggregate initial non-PRA costs of
between approximately $960,000 and
$7.2 million, and the aggregate ongoing
annual non-PRA costs of between
approximately $640,800 and $4.8
million to comply with Regulation
SCI.767 In addition, as discussed below,
765 These cost estimates are based on the 2018 SCI
PRA Extension. See 2018 SCI PRA Extension, supra
note 529. See also supra Section IX.D.5 discussing
PRA burden estimates related to compliance with
Regulation SCI.
766 See supra note 765.
767 Based on the Regulation SCI Adopting Release
in 2014, the Commission estimates that a
Government Securities ATS would incur an initial
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the Commission believes that the
proposed amendments to Regulation
SCI would impose indirect compliance
costs on market participants interacting
with SCI entities.
Under the proposal, the definition of
SCI ATSs would be expanded to include
Government Securities ATSs that meet
certain volume thresholds for U.S.
Treasury Securities and/or Agency
Securities would be subject to the
requirements of Regulation SCI. Because
Regulation SCI imposes some indirect
requirements on other market
participants interacting with SCI entities
(e.g., third-party vendors providing SCI
systems and/or indirect SCI systems 768
to SCI entities, members or participants
of SCI entities participating in testing of
business continuity and disaster
recovery plans), those market
participants would also incur indirect
costs from Government Securities ATSs
being defined as SCI entities. Also,
market participants (including brokerdealers and institutional investors who
use Government Securities ATSs) in the
government securities and repo market
may face increased trading costs (in the
form of higher fees) from SCI entities, to
the extent that increased compliance
costs are passed on to market
participants.
The Commission believes that the
2018 estimates of initial PRA burdens
for new SCI entities and ongoing PRA
burdens for all SCI entities under
Regulation SCI are largely applicable to
Government Securities ATSs.769 The
Commission believes that Government
Securities ATSs could be divided into
two groups: 770 Government Securities
ATSs that are existing SCI entities; and
Government Securities ATSs that are
entirely new SCI entities currently not
subject to Regulation SCI. For the first
group (Government Securities ATSs that
cost of between approximately $320,000 and $2.4
million. Thus, 3 Government Securities ATSs
would incur the aggregate initial cost of between
approximately $960,000 and $7.2 million.
Additionally, a Government Securities ATS would
incur an ongoing annual cost of between
approximately $213,600 and $1.6 million. Thus,
three Government Securities ATSs would incur the
aggregate ongoing annual cost of between
approximately $640,800 and $4.8 million. See also
Regulation SCI Adopting Release, supra note 2, at
72416.
768 The term ‘‘indirect SCI systems’’ is defined to
mean ‘‘any systems of, or operated by or on behalf
of, an SCI entity that, if breached, would be
reasonably likely to pose a security threat to SCI
systems.’’ See Regulation SCI Adopting Release,
supra note 2.
769 See 2018 SCI PRA Extension, supra note 529.
770 We divide Government Securities ATSs into
two groups in discussing PRA costs because
Government Securities ATSs operated by a brokerdealer operator of an NMS Stock ATS that is a SCI
entity would have lower initial PRA costs. See also
2018 SCI PRA Extension, supra note 529.
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87197
are existing SCI entities), the
Commission believes that such entities
would incur approximately 50 percent
of the Commission’s initial PRA burden
estimates for an entirely new SCI
entities. Furthermore, for the second
group (Government Securities ATSs that
are new SCI entities currently not
subject to Regulation SCI), the
Commission believes that such entities
would incur the same estimated initial
PRA burdens as those estimated for new
SCI entities in the 2018 SCI PRA
Extension. The Commission also
believes that the same ongoing PRA
burdens for all SCI entities estimated in
the 2018 SCI PRA Extension are
applicable to Government Securities
ATSs in both the first and the second
group.
Among the three Government
Securities ATSs that satisfy the volume
thresholds, the Commission believes
that one Government Securities ATS
(referred as the first group above) would
incur approximately 50 percent of
initial PRA burden estimates for an
entirely new SCI entity included in the
2018 SCI PRA Extension, and two
Government Securities ATSs (referred
as the second group above) would incur
the same estimated initial PRA burdens
as those estimated for new SCI entities
included in the 2018 PRA Extension. In
addition, the Commission believes that
all three Government Securities ATSs
would incur the same ongoing PRA
burdens as all other SCI entities
included in the 2018 SCI PRA
Extension.
Government Securities ATSs would
also incur non-PRA direct compliance
costs as SCI entities. The Regulation SCI
Adopting Release in 2014 estimated that
an SCI entity would incur an initial cost
of between approximately $320,000 and
$2.4 million. Additionally, an SCI entity
would incur an ongoing annual cost of
between approximately $213,600 and
$1.6 million. The Commission believes
that these non-PRA costs are largely
applicable to Government Securities
ATSs. However, the Commission is
uncertain about the actual level of costs
Government Securities ATSs would
incur because these costs may differ
from the types of SCI entities considered
in the Regulation SCI Adopting Release,
which did not include fixed income
ATSs.771 The Commission is also
uncertain about the actual level of costs
Government Securities ATSs would
incur because the actual costs could
differ based on various factors, such as
771 See Regulation SCI Adopting Release, supra
note 2. In the Regulation SCI Adopting Release,
fixed income ATSs are excluded from the
regulation.
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complexity of SCI entities’ systems and
the degree to which SCI entities employ
third-party systems. The Commission
believes that Government Securities
ATSs with relatively simpler systems
would incur lower compliance costs
compared to those with more complex
systems.772 Also, any SCI systems
operated by a third-party on behalf of an
SCI entity would be subject to the
requirements of Regulation SCI. The
Commission believes that Government
Securities ATSs with higher
dependency on SCI systems operated by
third-party vendors could incur higher
compliance costs compared to those
with lower dependency on third-party
systems.773
Additionally, the Commission
believes that some Government
Securities ATSs’ participants required
to participate in the testing of business
continuity and disaster recovery plans
would incur Regulation SCI-related
connectivity costs of approximately
$10,000 apiece.774 To the extent that
larger members or participants of SCI
Government Securities ATSs already
maintain connections to backup
facilities including for testing purposes,
the compliance costs associated with
the business continuity and disaster
recovery plans testing requirements in
Rule 1004 for those larger member or
participants could be limited.
The Commission believes that market
participants could incur indirect costs
related to compliance requirements for
Government Securities ATSs as SCI
entities. Government Securities ATSs
that are close to satisfying the volume
thresholds for certain government
securities could limit the trading in
those government securities on their
ATSs over some period to stay below
the volume thresholds and avoid being
subject to Regulation SCI. The order
flow that was being executed on those
Government Securities ATSs might be
absorbed and redistributed amongst
other Government Securities ATSs. If a
Government Securities ATS that is the
sole provider of a niche service limits
the trading in certain government
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772 See
id. The Regulation SCI Adopting Release
explains that compliance costs would depend on
the complexity of SCI entities’ systems and they
would be higher for SCI entities with more complex
systems.
773 See id. The Regulation SCI Adopting Release
discusses that compliance costs could in part
depend on the extent to which an SCI entity utilize
third-party systems because ensuring compliance of
systems operated by a third-party with Regulation
SCI may be more costly than ensuring compliance
of internal systems with Regulation SCI.
774 See id. The Regulation SCI Adopting Release
estimated connectivity costs as part of business
continuity and disaster recovery plans to be
approximately $10,000 per SCI entity member or
participant.
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securities to avoid being subject to
Regulation SCI, it could require some
market participants to seek execution on
other trading venues, which could result
in higher trading costs.
The Commission believes that the
costs to comply with Regulation SCI
discussed above would also fall on
third-party vendors employed by
Government Securities ATSs to provide
services used in their SCI systems. The
costs for third-party vendors imposed by
Regulation SCI could depend on the
extent to which Government Securities
ATSs use third-party systems that fall
under the definition of SCI systems and
the portion of third-party vendors
operating SCI systems on behalf of
larger Government Securities ATSs
already comply with the requirements
of Regulation SCI. It is possible that
some third-party vendors operating SCI
systems on behalf of larger Government
Securities ATSs that already complies
with the requirements of Regulation SCI
because they also operate the SCI
systems for other SCI (e.g., SCI ATSs,
SCI SROs). The additional compliance
costs from the proposed amendments of
Regulation SCI for these third-party
vendors would be minimal. However, at
this time, it is difficult to estimate the
cost for third-party vendors because the
Commission does not know the extent
to which Government Securities ATSs
use third-party systems that fall under
the definition of SCI systems.
c. Amendments to Rule 301(b)(2), Form
ATS, Form ATS–R, and Form ATS–N
The proposal to amend Rule 301(b)(2)
and Forms ATS and ATS–R would
impose initial and ongoing annual PRA
costs on all ATSs including Government
Securities ATSs.775 For the proposed
amendments to Part I of Form ATS, the
Commission estimates that Form ATS
filers would incur aggregate PRA costs
of approximately $1,800 for initial Form
ATS filings, as well as aggregate annual
PRA costs of approximately $3,600 for
Form ATS amendments.776 In addition,
the proposed Form ATS–R amendment
that would require filers to indicate the
type of filing (and if applicable the date
of cessation) and whether the ATS is
775 See supra Section IX.D. The estimated
aggregate ongoing annual PRA cost associated with
filing Form ATS–R for 7 Currently Exempted
Government Securities ATSs is reflected in the cost
associated with Rule 301(b)(9) in supra note 706.
The estimated aggregate ongoing annual PRA cost
associated with filing Form ATS and Form ATS–
R for 17 Legacy Filers is reflected in the cost
associated with Rule 301(b)(2)(viii) and Rule
301(b)(9) in supra note 729. See also supra Section
V.C.
776 See supra notes 522 and 523. Compliance
Clerk at $71 × 25.5 hours = $1810.50; Compliance
Clerk at $71 × 51 hours = $3,621.
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subject to fair access obligations would
impose aggregate annual PRA costs of
approximately $11,800.777 Furthermore,
the proposed Form ATS–R amendment
that would require additional details on
Form ATS–R, such as total dollar
volume in transactions in repos, would
impose aggregate annual PRA costs of
approximately $11,300.778
The proposal to require Forms ATS
and ATS–R to be filed on EDGAR is not
expected to impose any incremental
costs on any Government Securities
ATS. As discussed above, because all
ATSs that are currently subject to Form
ATS and ATS–R filing requirements
(including Legacy Filers) are operated
by registered broker-dealers, those ATSs
would not incur any burden to gain
access to EDGAR. Any new ATS entities
that are not operated by a registered
broker-dealer (including bank-operated
Currently Exempted Government
Securities ATSs) and do not otherwise
have access to EDGAR would need to
submit a Form ID and thus incur the
estimated 0.15 hour burden in order to
file Form ATS–G, and would
consequently already have access to
EDGAR when filing a Form ATS–R.779
Beyond the cost of gaining access to
EDGAR, the Commission does not
expect that the EDGAR filing
requirement would impose any
incremental costs on any Form ATS and
ATS–R filer (including Government
Securities ATSs) with respect to
ongoing filing requirements (such as
quarterly reports on Form ATS–R or
amendments to a Form ATS).
The proposed changes to Form ATS–
N include a new requirement for NMS
Stock ATSs to indicate via checkbox
whether the broker-dealer operator of
the NMS Stock ATS is authorized by a
national securities association to operate
an ATS. The Commission believes that
because this information should be
readily available to a filer and requires
only marking a checkbox, the
requirement would not impose any
material additional costs relative to the
current baseline.780
3. Efficiency, Competition, and Capital
Formation
The Commission considered the
effects of the amendments on efficiency,
competition, and capital formation. The
Commission believes that the
amendments could foster competition
for order flow in the market for
government securities and repo
777 See supra note 531. Compliance Manager at
$315 × 37.6 hours = $11,844.
778 See supra note 529. Compliance Manager at
$315 × 36 hours = $11,340.
779 See supra Sections IX.D.4 and X.C.2.a.ii.
780 See supra Section V.D and note 520.
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execution services, enhance the
efficiency with which market
participants achieve their trading
objectives or investment objectives, and
promote price efficiency and capital
formation.
The Commission believes that the
proposed amendments to Regulation
ATS could promote competition in the
markets for government securities and
repo execution services. The
Commission believes that the proposal
to extend Regulation ATS to include
Currently Exempted Government
Securities ATSs would enable ATSs
wishing to effect transactions in
government securities or repos to
compete for order flow on a more level
competitive landscape with the same
regulatory requirements.781 The
Commission also believes that the
public disclosure of Form ATS–G could
promote competition for order flow in
the market for government securities
and repo execution services via
lowering fees and improving order
handling procedures. Furthermore,
greater competition for order flow could
in turn incentivize Government
Securities ATSs to innovate, including,
in particular, in technology related to
execution services to compete on
execution services to attract more
subscribers and order flow.
The Commission believes that the
proposed amendments to Regulation
ATS could enhance the efficiency with
which market participants achieve their
trading objectives. The Commission
believes the proposed amendments to
Regulation ATS would increase
transparency regarding the operations of
Government Securities ATSs and the
activities of its broker-dealer operator
and its affiliates and lower search costs
for market participants in the selection
of trading venues in the market for
government securities and repos.
Furthermore, the fair access
requirements could increase trading
venue options for market participants
resulting in lower trading costs and
better efficiency with which they
achieve their trading objectives.
The Commission believes that
extending Regulation SCI to include
Government Securities ATSs with
significant volume could promote price
efficiency and capital formation.
Extending Regulation SCI to include
Government Securities ATSs could
reduce the frequency, severity, and
duration of such effects resulting from
systems issues, thereby facilitating price
781 See supra Section X.B.2 for discussion about
the current regulatory requirements for bankoperated Currently Exempted Government
Securities ATSs, Currently Exempted Government
Securities ATSs, and Legacy Filers.
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discovery process in government
securities and promote capital
formation.782
As discussed in more detail below,
the Commission believes that the risk of
the proposed amendments adversely
affecting competition in the market for
government securities and repo
execution services, the incentive for
Government Securities ATSs to
innovate, and the efficiency with which
market participants achieve trading
objectives, is likely to be low.
a. Competition
The Commission believes that the
proposed amendments of Regulation
ATS and Regulation SCI could affect
competition for order flow and the
decision of ATSs to enter or exit the
market for government securities and
repo execution services.783
i. Regulation ATS
The Commission believes that the
proposed amendments to Regulation
ATS could foster competition for order
flow in the market for government
securities and repo execution services.
The proposed extension of Regulation
ATS to include Currently Exempted
Government Securities ATSs would
enable ATSs wishing to effect
transactions in government securities or
repos to compete for order flow on a
more level competitive landscape. The
Commission believes that the public
disclosure of Form ATS–G could
promote competition and incentivize
Government Securities ATSs to
innovate. Furthermore, the Commission
does not believe that allowing the
Commission to declare Form ATS–G
ineffective and PRA compliance costs
imposed on Government Securities
ATSs would result in significant
adverse impact on competition in the
market for government securities and
repo execution services.
(a) Competitive Landscape
The Commission believes that the
proposed extension of Regulation ATS
to include Currently Exempted
Government Securities ATSs would
help eliminate a Government Securities
ATS’s competitive advantage or
782 See infra Section X.C.3.c for a discussion
about the price discovery and price efficiency of
U.S. Treasury Securities, risk-free rate benchmarks,
pricing of risky securities, and capital formation.
See also October 15 Staff Report, supra note 14, for
a discussion about price discovery being especially
important in the secondary market for on-the-run
U.S. Treasury Securities because the transaction
prices are used as risk-free rate benchmarks to price
other securities transactions.
783 See supra Section X.C.1.a for a discussion
about benefits from the requirements of Regulation
ATS and Section X.C.2.a for a discussion about
costs of the requirements of Regulation ATS.
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competitive disadvantage that may arise
due to uneven regulatory requirements
in the market for government securities
and repo execution services. For
example, Legacy Filers could be at a
competitive disadvantage to Currently
Exempted Government Securities ATSs,
which do not currently incur
compliance costs associated with the
requirements of Regulation ATS.784
Furthermore, due to reporting
requirements of Regulation ATSs, it
could be more difficult or costly for a
Legacy Filer to implement significant
operational changes to compete with
Currently Exempted Government
Securities ATSs if the Legacy Filer’s
competitive advantage is driven by
operational facets that would be
reported on Form ATS. The proposed
extension of Regulation ATS would
subject Currently Exempted
Government Securities ATSs, bankoperated Currently Exempted
Government Securities ATSs, and
Legacy Filers to the same regulatory
requirements.
(b) Declaration of Ineffectiveness
The proposal to allow the
Commission to declare Form ATS–G
and amendments to Form ATS–G
ineffective could lead some Currently
Exempted Government Securities ATSs
and Legacy Filers to exit the market for
government securities and repo
execution services. However, based on
the Commission’s experience with NMS
Stock ATSs that filed an initial Form
ATS–N, the Commission believes this
would be an unlikely result.785 If the
Commission declares an initial Form
ATS–G or amendment ineffective, the
Government Securities ATS would
either have to cease operations 786 or, in
the case of an amendment, roll back any
changes it made and operate pursuant to
its previous Form ATS–G that is
effective until it is able to address the
deficiencies and file a new Form ATS–
784 Presently, Currently Exempted Government
Securities ATSs, bank-operated Currently Exempted
Government Securities ATSs, and Legacy Filers
compete for order flow in the market for
government securities and repo execution services
on an uneven competitive landscape with different
regulatory requirements. See supra Section X.B.2
for a discussion about the differences in regulatory
requirements between Legacy Filers and Currently
Exempted Government Securities ATSs under the
current regulatory framework. See also supra
Section I.B.
785 Unlike the current rules applicable to NMS
Stock ATSs under Rule 304 of Regulation ATS with
respect to ineffectiveness, the Commission does not
have a process to declare a Form ATS ineffective
because of the quality of the disclosures and cause
the ATS cease operating pursuant the exemption.
See Rule 304(a)(1)(iv)(B).
786 See Rule 304(a)(1)(iv)(B).
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G that becomes effective.787 Some
broker-dealer operators of Legacy Filers
may find that the costs of addressing
deficiencies in Form ATS–G outweigh
the benefits of continuing to operate the
ATS, particularly if the ATS does not
constitute a significant source of profit
for a broker-dealer operator. The ability
of the Commission to declare Form
ATS–G ineffective could also raise
barriers to entry for new Government
Securities ATSs, as it could create
uncertainty as to whether the
Commission would declare its initial
Form ATS–G effective or ineffective and
as to the cost of avoiding an ineffective
declaration. If a new Government
Securities ATS’s initial Form ATS–G is
declared ineffective, it would require
time and additional expenditures to
address the deficiencies delaying the
commencing of operations, which may
deter some potential ATSs from
operating in this space.
(c) Public Disclosure
The increase in transparency due to
the public disclosure of Form ATS–G
could foster greater competition for
order flow in the market for government
securities and repo execution services.
The increase in competition could lower
trading venue fees, improve the
efficiency of order handling procedures,
and promote innovation. For instance,
because the public disclosure of Form
ATS–G would make it easier for market
participants to compare fees across
Government Securities ATSs, market
participants could choose to send their
orders to ATSs that offer lower fees, and
Government Securities ATSs may lower
their fees to attract subscribers and
compete for order flow. If non-ATS
trading venues compete with
Government Securities ATSs for trade
execution services, the increased
operational transparency of Government
Securities ATSs could also incentivize
non-ATS trading venues to reduce their
fees to compete with Government
Securities ATSs for order flow.
Because the public disclosure of Form
ATS–G would make it easier for market
participants to compare order handling
procedures and execution statistics—if
they are made available—across trading
platforms,788 market participants may
be more likely to send their orders to
ATSs that offer better execution
services. Greater competition for order
flow could in turn incentivize
Government Securities ATSs to
innovate, including, in particular,
787 See
id.
supra Section X.C.1.a.ii for a discussion
about benefits from public disclosure via Form
ATS–G.
788 See
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technology related to execution services
to improve the quality of trade
execution services and to compete on
execution services to attract more
subscribers and order flow.
The public disclosure of a
Government Securities ATS’s
previously non-public information
regarding innovative operational facets
could adversely impact competition for
order flow in the market for government
securities and repo execution services
and could also lower the incentives for
Government Securities ATSs to
innovate. However, the Commission
believes that the risk of this is likely to
be low. If the competitive advantage of
a Government Securities ATS in the
market is driven by certain operational
innovations, the disclosure of this
information could result in other
competing Government Securities ATSs
with similar operational platforms
implementing similar methodologies,
which could cause market participants
to direct more order flow to those other
Government Securities ATSs. This
could potentially reduce the incentives
for Government Securities ATSs to
innovate if publicly disclosing new
innovations results in the disclosing
ATS earning less revenue from new
innovations it develops. Furthermore,
some Government Securities ATSs may
choose to exit the market if their
profitability declines. Fewer
opportunities to profit from innovation
could also raise barriers to entry for new
Government Securities ATSs. However,
the Commission believes that the risk of
this may be low because it is not likely
the responsive information to the
proposed Form ATS–G would include
information regarding operational facets
such that the public disclosure of the
information would adversely affect the
competitive position of the disclosing
Government Securities ATS in the
market for government securities and
repo execution services.789
(d) Compliance Costs
The Commission believes that the
direct compliance costs associated with
the amendments to Regulation ATS are
generally represented by PRA costs.790
The Commission does not believe that
initial and ongoing PRA compliance
789 See
supra note 196 and accompanying text.
supra Section X.C.2 for a discussion about
compliance costs associated with the amendments
to Regulation ATS. The effect of compliance costs
associated with the extension of Regulation ATS to
include the Currently Exempted Government
Securities ATSs on competition is discussed in
Section X.C.3.a.i.a. The effect of indirect costs
associated with the declaration of ineffectiveness
for Form ATS–G and the public disclosure of Form
ATS–G on competition is discussed in Section
X.C.3.a.i.b and X.C.3.a.i.c, respectively.
790 See
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costs associated with the amendments
to Regulation ATS would have a
significant adverse impact on
competition in the market for
government securities and repo
execution services. If Government
Securities ATSs find that PRA costs
outweigh the benefits of operating a
Government Securities ATS, these costs
could act as a deterrent or a barrier to
entry for potential ATSs wishing to
effect transactions in government
securities or could cause some
Government Securities ATSs to exit the
market for government securities or repo
execution services. However, the
Commission does not believe that the
PRA costs imposed by the proposed
amendments to Regulation ATS would
be significant enough to make this a
likely possibility.791
The Commission believes that the
PRA compliance costs could have
different effects on the rates at which
small and large Government Securities
ATSs may exit the market. The
Commission believes that most of the
estimated PRA costs are fixed costs,
which all Government Securities ATSs
may incur, regardless of the amount of
trading activity that takes place on
them. The PRA costs would represent a
larger fraction of revenue generated for
a small Government Securities ATS
relative to that for a large Government
Securities ATS.792 This could adversely
affect small Government Securities
ATSs in competing against larger
Government Securities ATSs and could
lead to small ATSs exiting the market
for government securities and repo
execution services. However, smaller
Government Securities ATSs that are
not operated by multi-service brokerdealer operators are likely to incur
lower PRA costs because certain
sections of proposed Form ATS–G
would not be applicable to these
Government Securities ATSs.793 The
PRA costs could also vary across
Government Securities ATSs depending
on the complexity of the ATS and the
services that it offers.794 For example,
some Government Securities ATSs may
not segment subscriber order flow or
offer counter-party selection protocols.
These ATSs would not be required to
complete Part III, Items 13 and 14 of
proposed Form ATS–G. As a result,
791 See supra Sections X.C.2.a and X.C.2.c for
discussions on the PRA costs associated with the
amendments to Regulation ATS.
792 See supra Section X.C.2.a.ii for a discussion
about the impact of PRA costs for small
Government Securities ATSs.
793 See supra note 792.
794 See supra Section X.C.2.a.ii for a discussion
about PRA costs and the complexity of the ATS and
the services that it offers.
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such Government Securities ATSs could
incur lower PRA costs because these
ATSs would complete their Form ATS–
G with fewer burden hours. To the
extent that small Government Securities
ATSs engage in providing simpler
services, these small Government
Securities ATSs are likely to incur lower
compliance costs. Furthermore, to the
extent that the Government Securities
ATSs that decide to cease operating as
ATSs due to this fixed PRA compliance
cost only transact small dollar volume,
the Commission does not believe that
there would be a significant impact on
the overall competitive structure for the
remaining Government Securities ATSs.
The order flow that was being executed
on those small Government Securities
ATSs may be absorbed and redistributed
amongst those larger remaining
Government Securities ATSs. On the
other hand, if the PRA costs cause a
small Government Securities ATS that
is the sole provider of a niche service to
cease operating as an ATS, it could
require some market participants to seek
execution on other trading venues that
may not minimize their trading costs to
the same extent.
ii. Regulation SCI
The Commission does not believe that
the requirements imposed by Regulation
SCI would have significant adverse
effect on competition for order flow in
the market for government securities
and repo execution services and the
efficiency with which market
participants achieve their trading
objectives.
The Commission does not believe that
the compliance costs imposed by the
proposed amendments of Regulation
SCI would have significant adverse
effect on competition among SCI
Government Securities ATSs, non-SCI
Government Securities ATSs, and nonATS trading venues due to mitigating
factors. The compliance costs imposed
by the proposed amendments of
Regulation SCI could have some impact
on competition in the market for
government securities and repo
execution services. Specifically, because
non-SCI Government Securities ATSs
do not have to incur the compliance
costs associated with Regulation SCI,
non-SCI Government Securities ATSs
and non-ATS trading venues may gain
a competitive advantage in the market
for government securities and repo
execution services over SCI Government
Securities ATSs with which they
compete. To the extent that SCI
Government Securities ATSs pass on
the compliance costs to their subscribers
in the form of higher fees, SCI
Government Securities ATSs could lose
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order flow or their subscribers to other
non-SCI Government Securities ATSs
and non-ATS trading venues with lower
fees. The Commission believes that the
adverse competitive effect, however,
would be mitigated to some extent
because an SCI Government Securities
ATS likely would have more robust
systems, fewer disruptive systems
issues, and better up-time compared to
non-SCI Government Securities
ATSs.795 Furthermore, any adverse
competitive effect could be minor to the
extent that an SCI Government
Securities ATS is large and has a more
stable and established subscriber base
than other ATSs and non-ATS trading
venues. Although non-ATS trading
venues may compete with SCI
Government Securities ATSs in the
market for government securities and
repo execution services, non-ATS
trading venues cannot offer the same
services as ATSs without becoming
ATSs, regardless of whether Regulation
SCI applies to the ATS.796
The costs imposed by the
amendments to Regulation SCI could
also affect barriers to entry for new
Government Securities ATSs and thus
could adversely affect competition.
Specifically, the Commission
acknowledges that Regulation SCI
would increase the costs for those that
meet the volume thresholds. This would
increase the expected compliance costs
of market entrants who expect to
eventually be SCI Government
Securities ATSs. To the extent that an
increase in these costs reduces the
number of potential new entrants, the
potential competition from new entrants
would be lower.
The compliance costs associated with
participating in business continuity and
disaster recovery plan testing may affect
competition among subscribers of SCI
Government Securities ATSs and also
could raise barriers to entry for new
subscribers. Because some subscribers
would incur compliance costs
associated with Rule 1004 and others
would not, it could adversely impact the
ability for those subscribers of SCI
Government Securities ATSs to
compete. However, it is difficult to
gauge the extent of impact on
competition because the Commission
does not have sufficient information, for
example, on whether certain subscribers
of SCI Government Securities ATSs
currently maintain connections to
backup facilities including for testing
795 See
supra Section X.B.6.
supra Section X.B.1 for a discussion about
the differences in execution services between ATSs
and non-ATS trading venues. See also supra note
564.
796 See
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87201
purposes. If larger subscribers of SCI
Government Securities ATSs already
maintain connections to backup
facilities including for testing purposes,
the adverse impact on competition
would be mitigated to some extent
because the compliance costs associated
with the business continuity and
disaster recovery plans testing
requirements in Rule 1004 would be
limited for those larger subscribers. The
Commission believes that new
subscribers are less likely to be
designated immediately to participate in
business continuity and disaster
recovery plan testing than are existing
larger subscribers because new
subscribers may not initially satisfy the
ATS’s designation standards as they
establish their businesses.
As discussed in Section X.C.2.b, it is
difficult to estimate the costs of the
proposed amendments of Regulation
SCI for third-party vendors that operate
SCI systems or indirect SCI systems 797
on behalf of SCI Government Securities
ATSs. To the extent that the proposed
amendments of Regulation SCI impose
compliance costs on third-party vendors
that operate SCI systems or indirect SCI
systems on behalf of SCI Government
Securities ATSs, the compliance costs
could affect the competition among
third-party vendors in the market for
SCI systems or indirect SCI systems. To
the extent that the costs associated with
Regulation SCI for third-party vendors
outweigh the benefits of continuing to
operate SCI systems or indirect SCI
systems on behalf of SCI Government
Securities ATSs, these third-party
vendors could exit the market for SCI
systems or indirect systems. In this
respect, Regulation SCI could adversely
impact such vendors and reduce the
ability for some third-party vendors to
compete in the market for SCI systems
and indirect SCI systems, with attendant
costs to SCI Government Securities
ATSs. To the extent that this happens,
SCI Government Securities ATSs would
incur costs from having to find a new
vendor, form a new business
relationship, and adapt their systems to
those of the new vendor. SCI
Government Securities ATSs may also
elect to perform the relevant functions
internally. To the extent that the current
third-party vendors are the most
efficient means of performing certain
functions for SCI Government Securities
ATSs, and to the extent that any thirdparty vendor exits the market, finding
new vendors or performing the
functions internally would represent a
797 See supra note 767 and accompanying text for
the definition of indirect SCI systems.
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b. Market Participants’ Trading
Efficiency
The Commission believes that the
proposed amendments of Regulation
ATS including the Fair Access Rule and
Regulation SCI could affect the
efficiency with which market
participants achieve trading objectives,
and in the subsections below, we
discuss both positive and potential
negative effects.
i. Positive Effects on Market
Participants’ Trading Efficiency
The enhancement in Government
Securities ATS operational transparency
via public disclosure of Form ATS–G
would help market participants select
the trading venue that best meets their
trading needs (e.g., order types, trading
functionalities) and lower search costs
in the selection of trading venues,
which would help market participants
achieve their trading objectives more
efficiently. Market participants may
consider various factors, such as order
types, trading functionalities, and fees,
in deciding where to send their orders
to achieve their trading objectives. The
public disclosure of Form ATS–G would
enable market participants to compare
Government Securities ATSs in an
expedited manner and find an ATS that
would help them achieve their trading
objectives more efficiently.
The Commission believes that the
public disclosure of Form ATS–G that
contains the information related to
operational characteristics of
Government Securities ATSs could
foster greater competition for order flow
in the market for government securities
and repo execution services and result
in lower trading costs and better
execution quality for market
participants, which would help achieve
their trading objectives more efficiently.
For example, because the public
disclosure of Form ATS–G would make
it easier for market participants to
compare fees and order handling
procedures and execution statistics—if
they are made available—across
Government Securities ATSs,798 market
participants would be more likely to
send their orders to ATSs that offer
lower fees or better execution services.
To the extent that non-ATS trading
venues compete with Government
Securities ATSs for trade execution
services, the increased operational
transparency of these ATSs could also
798 See
supra Section X.C.1.a.ii for a discussion
about benefits from public disclosure via Form
ATS–G.
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incentivize non-ATS trading venues to
reduce their fees or improve the
efficiency of order handling procedures
to compete with Government Securities
ATSs for order flow. This would lower
market participants’ trading costs and
enhance order execution quality, which
would help achieve their trading
objectives more efficiently.
The Commission believes that the
proposed application of Fair Access
Rule could help market participants
achieve their trading objectives more
efficiently. Market participants who
may have been denied access to a
Government Securities ATS that would
now be subject to the Fair Access Rule
may be able to access the ATS as a
result of the proposal because the
previous reasons for denial of access by
the ATS no longer comport with the
reasonable standards under the Fair
Access Rule. To the extent that there are
market participants excluded from
trading on Government Securities ATSs,
this could increase trading venue
options for those market participants
and result in lower trading costs or
better execution for their orders, which
would help achieve their trading
objectives more efficiently.
ii. Negative Effects on Market
Participants’ Trading Efficiency
The Commission does not believe that
the compliance costs imposed by the
proposed amendments of Regulation
SCI would have a significant adverse
effect on the efficiency with which
market participants achieve their
trading objectives. It is possible that SCI
Government Securities ATSs would
pass on the compliance costs to their
subscribers in the form of higher venue
fees. However, the adverse effect of
higher fees on the efficiency with which
market participants achieve their
trading objectives could be mitigated to
some extent because an SCI Government
Securities ATS likely would have more
robust systems, fewer disruptive
systems issues, and better up-time
compared to non-SCI Government
Securities ATSs.
Through exits and entries, the number
of ATSs competing in the market for
government securities and repos could
change and this could impact market
participants’ trading costs and thus the
efficiency with which market
participants achieve their trading
objectives. The Commission does not
believe that requirements and costs
imposed by the proposed amendments
to Regulation ATS and Regulation SCI
would result in Government Securities
ATSs exiting and adversely impact the
efficiency with which market
participants achieve their trading
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objectives.799 The Commission
recognizes that the public disclosure of
Form ATS–G required by Regulation
ATS and the costs associated with
Regulation SCI could dissuade potential
entrants from entering the market.800 To
the extent that these effects reduce the
number of potential new entrants, the
potential competition from new entrants
would be lower and this could
adversely affect market participants’
trading costs and thus the efficiency
with which market participants achieve
their trading objectives.
The Commission believes that the
proposed amendments of the Fair
Access Rule and Regulation SCI could
adversely affect the efficiency with
which market participants achieve their
trading objectives. Government
Securities ATSs that are close to
satisfying the volume threshold for
certain government securities could
limit the trading in those securities over
some period to stay below the volume
thresholds and avoid being subject to
the Fair Access Rule and Regulation
SCI. The order flow that was being
executed on those Government
Securities ATSs might be absorbed and
redistributed amongst other Government
Securities ATSs. If a Government
Securities ATS that is the sole provider
of a niche service limits the trading in
certain government securities to avoid
being subject to the Fair Access Rule
and Regulation SCI, it could require
some market participants to seek
execution on other trading venues,
which could result in higher trading
costs and reduce the efficiency with
which they achieve their trading
objectives.
c. Price Efficiency and Capital
Formation
The Commission believes that the
proposed extension of Regulation SCI to
include systems that trade government
securities and repos could promote
price efficiency and capital formation by
reducing the potential for systems
disruptions on ATSs that capture a
significant portion of the trading volume
in the market for U.S. Treasury or
Agency Securities. Although the
Commission acknowledges that
extending Regulation SCI to
Government Securities ATSs would not
eliminate all systems issues,801 the
Commission believes that extending
Regulation SCI would help prevent
market disruptions due to systems
issues, which could help prevent
799 See
supra Section X.C.3.a.
supra Sections X.C.3.a.i.c and X.C.3.a.ii.
801 See supra Section X.B.6 for a discussion about
market disruption and system up-time.
800 See
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interruptions in the price discovery
process and liquidity flows and thus
could help prevent periods with pricing
inefficiencies from occurring in the
government securities market.
Specifically, the Commission believes
that extending Regulation SCI would
help improve systems up-time 802 for
SCI Government Securities ATSs and
would also promote more robust
systems that directly support execution
facilities, order matching, and the
dissemination of market data.803 This
would help facilitate the price discovery
process and liquidity flows in the
secondary market for on-the-run U.S.
Treasury Securities and could also
enhance price efficiency of risky
securities because the transaction prices
of on-the-run U.S. Treasury Securities
are used as risk-free rate benchmarks to
price risky securities transactions.804
Price efficiency of risky securities is
important because prices that accurately
convey information about fundamental
value improve the efficiency in
allocating capital across projects and
entities, which helps promote capital
formation.
On the other hand, the Commission
believes that the proposed amendments
of the Fair Access Rule and Regulation
SCI could adversely affect capital
formation. Government Securities ATSs
that are close to satisfying the volume
threshold for certain government
securities could limit the trading in
those securities over some period to stay
below the volume thresholds and avoid
being subject to the Fair Access Rule
and Regulation SCI. To the extent that
Government Securities ATSs limit the
trading in certain government securities
to avoid being subject to the Fair Access
Rule and Regulation SCI, this could
limit or reduce liquidity provision and
liquidity flows in those government
securities, which would adversely affect
the price discovery process and price
efficiency in those government
securities harming capital formation.805
D. Reasonable Alternatives
The Commission considered several
alternatives to the proposal: (1) Require
Currently Exempted Government
Securities ATSs to file Form ATS, but
not publicly disclose Form ATS; (2)
require Government Securities ATSs to
file proposed Form ATS–G, but treat the
802 Systems up-time is a measure of the time that
a computer system is running and available.
803 Based on the Commission’s understanding,
Government Securities ATSs disseminate their
Treasury trades via private feeds and third-party
vendors. These prices also serve as benchmarks for
pricing other financial products.
804 See October 15 Staff Report, supra note 14.
805 See id.
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information as confidential; (3) require
differing levels of public disclosure by
Government Securities ATSs depending
on their trading volume; (4) extend the
transparency requirements of Regulation
ATS to all non-ATS trading government
securities; (5) alter the volume
thresholds for the Fair Access Rule and
Regulation SCI; (6) apply Rule 301(b)(6)
of Regulation ATS to Government
Securities ATSs; (7) require Forms
ATS–G, ATS, and ATS–R to be
submitted in the Inline XBRL format;
and (8) require Forms ATS–G, ATS, and
ATS–R to be filed on EFFS/SRTS or on
individual ATS websites.
1. Require Currently Exempted
Government Securities ATSs To File a
Non-Public Form ATS
One alternative could require
Currently Exempted Government
Securities ATSs to file Form ATS and
subsequent amendments with the
Commission, instead of filing Form
ATS–G. This alternative would allow
Legacy Filers to continue to file current
Form ATS. However, Form ATS would
be deemed confidential for all
Government Securities ATSs and would
not have to be publicly disclosed. Under
this alternative, compliance costs would
be lower because Legacy Filers would
not bear the additional costs of
preparing and amending Form ATS–G.
Furthermore, Currently Exempted
Government Securities ATSs would not
incur additional costs associated with
amending Form ATS–G to address any
deficiencies to avoid an ineffectiveness
determination because Rule 304 of
Regulation ATS does not apply to Form
ATS filings. However, this alternative
would reduce regulators’ insight into
Government Securities ATSs compared
to the proposal because Form ATS
would require the disclosure of less
information about the operations of
Government Securities ATSs and the
activities of their broker-dealer
operators and their affiliates, as
compared to Form ATS–G.
The lack of public disclosure of Form
ATS under the alternative could result
in market participants making less
informed decisions regarding where to
send their orders and thus result in
lower execution quality than they
would obtain under the proposal.
Additionally, this alternative could
result in higher search costs for
subscribers to identify potential trading
venues for their orders. Because
Government Securities ATSs would not
have to publicly disclose their fees or
details about their operations, there
would be less competition among
Government Securities ATSs and
between Government Securities ATSs
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87203
and non-ATS trading venues compared
to the proposal. To the extent that there
is less competition for order flow in the
market for government securities and
repo execution services, there could be
less incentive to innovate for
Government Securities ATSs.
2. Require Proposed Form ATS–G Be
Filed but Treat the Information as
Confidential
Another alternative approach the
Commission could take would be to
require Government Securities ATSs to
file the proposed Form ATS–G with the
Commission, but not make Form ATS–
G public. The proposed Form ATS–G
would include detailed disclosures
about the operational facet of a
Government Securities ATS and the
activities of its broker-dealer operator
and its affiliates, and the Commission
would have the ability to declare Form
ATS–G filings ineffective. Although this
alternative would allow the Commission
to review the disclosures of Government
Securities ATSs, this alternative would
make Government Securities ATSs’
operations less transparent for market
participants, which could result in
market participants making less
informed decisions regarding where to
send their orders and thus result in
lower execution quality than they
would obtain under the proposal.
Because Form ATS–G would not be
publicly disclosed under this
alternative, there would be less
competition among Government
Securities ATSs and between
Government Securities ATSs and nonATS trading venues, as compared to the
proposal. To the extent that a
Government Securities ATS’s
competitive advantage in attracting
order flow and generating trading
revenues is in part driven by certain
operational characteristics, the
confidentiality of Form ATS–G could
help maintain that Government
Securities ATS’s competitive advantage
in the market for government securities
and repo execution services compared
to the proposal. However, the
Commission believes that it is not likely
the responsive information to the
proposed Form ATS–G would include
information regarding operational facets
such that the public disclosure of the
information would adversely affect the
competitive position of the disclosing
Government Securities ATS in the
market for government securities and
repo execution services.806
806 See supra note 789 and accompanying text.
See also supra note 196 and accompanying text.
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3. Initiate Differing Levels of Public
Disclosure Depending on Government
Securities ATS Dollar Volume
The Commission could require
different levels of disclosure among
Government Securities ATSs based on
dollar volume in government securities.
In particular, this alternative would
subject Government Securities ATSs
with lower dollar volumes to lower
levels of disclosure on the proposed
Form ATS–G. This alternative could
provide smaller Government Securities
ATSs with a competitive advantage over
larger ones because smaller Government
Securities ATSs would incur lower
compliance costs relative to the
proposal, which could translate into
lower entry barriers relative to such
barriers under the proposal. Because
these small Government Securities
ATSs would not have to disclose as
much information pertaining to their
operational facets to their competitors,
they would have a competitive
advantage over more established
Government Securities ATSs and nonATS government securities trading
venues. This approach therefore would
promote competition in the market. It
also would promote innovation because
these small Government Securities
ATSs would not be deterred from
innovating by the possibility of having
to disclose certain operational facets.
This approach could also benefit market
participants who execute on these ATSs
by improving the execution quality of
their trades. However, this alternative
could incentivize small Government
Securities ATSs to limit the trading in
government securities on their ATSs to
stay small and not trigger additional
disclosure requirements. To the extent
that this happens, it could limit market
participants’ options for trading venues,
which could result in higher trading
costs or worse execution quality. Lower
execution quality or higher trading costs
for market participants would reduce
the efficiency with which they achieve
their trading objectives as compared to
the proposal.
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4. Extend the Transparency
Requirements of Regulation ATS to All
Non-ATS Trading Venues for
Government Securities
As another alternative, the
Commission could extend the
transparency requirements (i.e., filing
Form ATS–G) of Regulation ATS to nonATS trading venues for government
securities. Under this alternative,
investors would receive information
about the operations and the activities
of the broker-dealer operators and
affiliates of all non-ATS trading venues
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for government securities. While the
disclosure requirements of individual
venues would be similar to what is
required under the proposal, investors
would be able to access detailed
information on non-ATS trading venues
that use a variety of protocols.807 This
could help market participants make
better-informed decisions about where
to send their orders to achieve their
trading or investment objectives as
compared to under the proposal.
However, non-ATS trading venues,
unlike ATSs, cannot offer certain
execution protocols, such as crossing
mechanisms, auctions, and central limit
order books, which generally meet the
definition of an exchange.808 Thus, nonATS trading venues may not be as
technologically advanced and may not
have the same level of automation,
speed, and complexity as ATSs that
would be required to comply with
Regulation ATS under the proposal.
Thus, the public disclosure of
information from such non-ATS trading
venues concerning their trading
protocols could be less valuable to
market participants.
Under this alternative, non-ATS
trading venues effecting transactions in
government securities would incur the
compliance costs discussed in Section
X.C.2.a to comply with Regulation ATS.
Additionally, the public disclosure of
details regarding the operational facets
of non-ATS trading venues could
adversely impact competition for order
flow and raise barriers to entry in the
market for government securities and
repo execution services, and could also
lower the incentives for non-ATS
trading venues to innovate. However,
the Commission believes that the risk of
this is likely to be low.809
5. Alter the Volume Thresholds for the
Fair Access Rule and Regulation SCI
Another alternative for the
Commission is to alter the volume
thresholds for the Fair Access Rule and
Regulation SCI.810 A higher volume
807 See
supra Section X.B.1.
supra Section X.B.1 for a discussion about
the differences in execution services between ATSs
and non-ATS trading venues. See also supra note
564.
809 See supra Section X.C.3.a.i.c for a discussion
about the risk that the responsive information to the
proposed Form ATS–G would include information
regarding operational facets such that the public
disclosure of the information would adversely affect
the competitive position of the disclosing ATS and
why the Commission believes that this risk likely
to be low. See also supra note 196 and
accompanying text.
810 The Commission estimates that 3 ATSs trading
U.S. Treasury Securities and 1 ATS trading Agency
Securities would be subject to the Fair Access Rule
under the proposal. Furthermore, the Commission
estimates that 3 Government Securities ATSs would
808 See
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threshold for the Fair Access Rule
would result in a smaller number of
Government Securities ATSs that are
subject to the Fair Access Rule than
under the proposal.811 With fewer
Government Securities ATSs subject to
the Fair Access Rule, some market
participants may not be able to trade on
as many Government Securities ATSs as
they could have under the proposal.
This could result in higher trading costs
or worse execution quality for those
market participants than under the
proposal. With a higher volume
threshold for the Fair Access Rule,
fewer Government Securities ATSs
would incur compliance costs discussed
in Section X.C.2.a.iii to comply with the
Fair Access Rule than under the
proposal. This could lower barriers to
entry in the market for government
securities execution services and
increase competition compared to the
proposal, resulting in lower trading
costs or better execution quality for
investors.
A lower volume threshold for the Fair
Access Rule would allow market
participants to access a greater number
of Government Securities ATSs and
provide them with more options in the
selection of trading venues than under
the proposal.812 Thus, compared to the
proposal, investors could better access
the trading venue that best meets their
trading objectives resulting in lower
trading costs or better execution for
their orders, which would help achieve
their trading objectives more efficiently.
With a lower volume threshold for the
Fair Access Rule, ATSs would incur
greater compliance costs discussed in
Section X.C.2.a.iii to comply with the
Fair Access Rule than under the
proposal. The Commission also believes
that there would be a greater likelihood
of small Government Securities ATSs
exiting the market and thus decreasing
competition for government securities
execution services, which could
meet the volume thresholds for Regulation SCI
under the proposal. See also supra Sections II.D and
IX.C.
811 If the proposed volume thresholds were 10
percent, the Commission estimates only 1 ATS
trading U.S. Treasury Securities and 1 ATS trading
Agency Securities would be subject to the Fair
Access Rule. See Table X.1 in supra Section X.B.1.
See also supra Section II.D.
812 If the proposed volume thresholds were three
percent, the Commission estimates 4 ATSs trading
U.S. Treasury Securities and 1 ATS trading Agency
Securities would be subject to the Fair Access Rule.
See also supra Section II.D. Furthermore, if the
proposed volume thresholds were two percent, the
Commission estimates 5 ATSs trading U.S. Treasury
Securities and 1 ATS trading Agency Securities
would be subject to the Fair Access Rule. See Table
X.1 in supra Section X.B.1.
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adversely affect trading costs and
execution quality.
A lower volume threshold would
include a greater number of small
Government Securities ATSs to be
subject to the Fair Access Rule
compared to the proposal. To avoid
being subject to the Fair Access Rule,
small Government Securities ATSs that
are close to satisfying the volume
threshold for certain government
securities could limit the trading in
those government securities on their
ATSs over some period to stay below
the volume threshold. The order flow
that was being executed on those small
Government Securities ATSs might be
absorbed and redistributed amongst
other Government Securities ATSs. If a
Government Securities ATS that is the
sole provider of a niche service limits
the trading in certain government
securities to avoid being subject to the
Fair Access Rule, it could require some
market participants to seek execution on
other trading venues, which could result
in higher trading costs. A lower volume
threshold for the Fair Access Rule could
cause a greater number of small ATSs to
exit the market for government
securities and repo execution services
resulting in a lower number of ATSs
and less competition compared to the
proposal. If there are fewer options in
the selection of trading venues,
investors could face higher trading costs
or lower execution quality for their
orders compared to the proposal.
A higher volume threshold for
Regulation SCI would result in a smaller
number of Government Securities ATSs
that are subject to Regulation SCI than
under the proposal.813 Compared to the
proposal, a higher volume threshold for
Regulation SCI could exclude
Government Securities ATSs that play a
significant role (i.e., capture a
significant portion of trading volume) in
the market for government securities
execution services and have the
potential to impact investors, the overall
market, and the trading of government
securities should an SCI event occur.
With a higher volume threshold for
Regulation SCI, the Commission
believes that a smaller number of
Government Securities ATSs would
incur compliance costs discussed in
Section X.C.2.b to comply with
Regulation SCI requirements than under
the proposal. This could lower barriers
813 If the proposed volume thresholds were 10
percent, the Commission estimates 2 Government
Securities ATSs would be subject to Regulation SCI,
whereas under the proposed volume threshold of
five percent, the Commission estimates 3
Government Securities ATSs would be subject to
Regulation SCI. See Table X.1 in supra Section
X.B.1.
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to entry in the market for government
securities execution services and
increase competition compared to the
proposal, resulting in lower trading
costs or better execution quality for
investors.
A lower volume threshold for
Regulation SCI likely would promote
the establishment of more robust
systems, help reduce the duration and
severity of any system distributions, and
help prevent system issues from
occurring on small Government
Securities ATSs that met the volume
thresholds, which could help prevent
interruptions in the price discovery
process and liquidity flows and thus
may help prevent periods with pricing
inefficiencies from occurring compared
to the proposal.814 With a lower volume
threshold for Regulation SCI, more
Government Securities ATSs would
incur compliance costs discussed in
Section X.C.2.b to comply with
Regulation SCI requirements than under
the proposal. A greater number of small
Government Securities ATSs could exit
the market for government securities
and repos and hence decrease
competition resulting in higher trading
costs or worse execution quality for
investors compared to the proposal. A
lower volume threshold would cause a
greater number of small Government
Securities ATSs to be subject to
Regulation SCI requirements compared
to the proposal. To avoid being subject
to Regulation SCI, small Government
Securities ATSs that are close to
satisfying the volume threshold for
certain government securities could
limit the trading in those government
securities on their ATSs over some
period to stay below the volume
threshold. The order flow that was being
executed on those small Government
Securities ATSs might be absorbed and
redistributed amongst other Government
Securities ATSs. If a Government
Securities ATS that is the sole provider
of a niche service limits the trading in
certain government securities to avoid
being subject to Regulation SCI, it could
require some market participants to seek
execution on other trading venues,
which could result in higher trading
costs. The Commission believes that
compliance costs associated with
Regulation SCI could cause a greater
number of small ATSs to exit the market
for government securities execution
services resulting in a lower number of
814 If the proposed volume thresholds were three
percent, the Commission estimates 4 Government
Securities ATSs would be subject to Regulation SCI.
If the proposed volume thresholds were two
percent, the Commission estimates 5 Government
Securities ATSs would be subject to Regulation SCI.
See Table X.1 in supra Section X.B.1.
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87205
ATSs and less competition compared to
the proposal. To the extent that there are
fewer options in the selection of trading
venues, investors could face higher
trading costs and/or lower execution
quality for their orders compared to the
proposal.
6. Apply Rule 301(b)(6) of Regulation
ATS to Government Securities ATSs
Another alternative for the
Commission is to apply Rule
301(b)(6) 815 of Regulation ATS to
Government Securities ATSs instead of
extending Regulation SCI.816 The
Commission believes that the
application of the Capacity, Integrity,
and Security Rule to certain
Government Securities ATSs could help
enhance the price discovery process and
price efficiency of government securities
by reducing disruptions in trading due
to failures or capacity issues with
respect to automated systems that
support order entry, order routing, order
execution, transaction reporting, and
trade comparison of the ATSs. Under
this alternative, Government Securities
ATSs would be subject to the Capacity,
Integrity, and Security Rule in Rule
301(b)(6). The scope and requirements
of the Capacity, Integrity, and Security
Rule would be narrower than those of
Regulation SCI. For example, Rule
301(b)(6) of Regulation ATS would
apply to narrower set of systems, as
compared to Regulation SCI. Rule
301(b)(6) of Regulation ATS applies
only to systems that support order entry,
order routing, order execution,
transaction reporting, and trade
comparison, which is narrower than the
definition of SCI system. Thus, the
Commission believes that this
alternative would reduce the potential
benefits discussed in Sections X.C.1.b
and X.C.3.c, as compared to the
proposal. Furthermore, the Commission
believes that compliance costs
associated with the Capacity, Integrity,
and Security Rule would be
significantly less than those under the
proposal because the scope and
requirements of the Capacity, Integrity,
and Security Rule would be narrower
than those of Regulation SCI. For
example, the Capacity, Integrity, and
Security Rule would not require
815 As also explained above, Rule 301(b)(6)
addresses the capacity, integrity, and security
requirements of automated systems for ATSs that
meet certain volume thresholds. See supra note
355.
816 Applying the dollar volume threshold of 20
percent or more of the average daily volume traded
in the United States during at least four of the
preceding six calendar months, the Commission
estimates one Government Securities ATS would be
subject to Rule 301(b)(6) of Regulation ATS. See
supra note 57.
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Government Securities ATSs to
maintain a backup facility to comply
with the requirements of Regulation SCI
related to business continuity and
disaster recovery plans. As compared to
the proposal, the significantly lower
compliance costs of this alternative
could result in lower trading costs for
market participants to the extent that
Government Securities ATSs pass on
these compliance costs to their
subscribers. Furthermore, the lower
compliance costs of this alternative
could lower barriers to entry in the
market for government securities
execution services and increase
competition compared to the proposal,
resulting in lower trading costs or better
execution quality for investors.
As another alternative, the
Commission could apply the Capacity,
Integrity, and Security Rule in Rule
301(b)(6) to smaller Government
Securities ATSs and extend Regulation
SCI to larger Government Securities
ATSs as proposed. For example, the
Commission could require a
Government Securities ATS that falls
within a volume range for U.S. Treasury
Securities of 5 percent and 10 percent
to comply with Rule 301(b)(6) of
Regulation ATS and a Government
Securities ATS that exceeds a 10
percent volume threshold for U.S.
Treasury Securities to be subject to
Regulation SCI.817 Under this
alternative, the Commission believes
that smaller Government Securities
ATSs subject to Rule 301(b)(6) would
incur additional compliance costs, as
compared to the proposal where these
smaller Government Securities ATSs
would be subject to neither Regulation
SCI or Rule 301(b)(6). Smaller
Government Securities ATSs subject to
Rule 301(b)(6) would incur compliance
costs associated with, among other
things, upgrading systems to an
adequate capacity level, the
independent review of their systems on
an annual basis, recordkeeping
requirements, and notification
requirements.818 The application of
Rule 301(b)(6) to smaller Government
Securities ATSs could result in higher
trading costs (e.g., in the form of higher
817 If the proposed U.S. Treasury Security volume
threshold range for Rule 301(b)(6) were set to be
greater than 5 percent and less than or equal to 10
percent, the Commission estimates 2 Government
Securities ATSs would be subject to Rule 301(b)(6)
of Regulation ATS. If the proposed U.S. Treasury
Security volume threshold range for Regulation SCI
were set to be greater than 10 percent, the
Commission estimates 1 Government Securities
ATS would be subject to Regulation SCI.
818 See Regulation ATS Adopting Release, supra
note 35, at 70907 for a discussion of costs
associated with the Capacity, Integrity, and Security
Rule.
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fees) to the extent that the Government
Securities ATSs pass on the additional
compliance costs associated with Rule
301(b)(6) to their subscribers. However,
the Commission believes that the
requirements of Rule 301(b)(6) would
not impose significant costs and thus
would not result in a significant
increase in trading costs for market
participants, as compared to the
proposal.
7. Require Forms ATS–G, ATS, and
ATS–R to be Submitted in the Inline
XBRL Format
The proposal would require Form
ATS–G to be submitted in a custom
XML format. Alternatively, the
Commission could require these forms
to be submitted in the Inline eXtensible
Business Reporting Language (‘‘Inline
XBRL’’) format, a derivation of XML that
is designed for business reporting
information and is both machinereadable and human-readable.819 This
alternative could include numerical
detail tagging of quantitative disclosures
(e.g., platform-wide statistics) and text
block tagging for narrative disclosures
(e.g., trade reporting arrangements).820
Compared to the proposal, the Inline
XBRL alternative for Forms ATS–G,
ATS, and ATS–R would provide more
sophisticated validation, presentation,
and reference features for filers and data
users. However, the Inline XBRL
alternative would also impose initial
implementation costs (e.g., training staff
to prepare filings in Inline XBRL,
licensing Inline XBRL filing preparation
software) upon filers that do not have
prior experience structuring data in the
Inline XBRL format. By contrast,
because the proposal would allow filers
to submit Form ATS–G using a webfillable Form, filers that lack experience
structuring data in XML would not
incur implementation costs.
8. Require Forms ATS–G, ATS, and
ATS–R To Be Filed on EFFS or on
Individual ATS Websites
The proposal would require Forms
ATS–G, ATS, and ATS–R to be filed on
the EDGAR system. Alternatively, the
Commission could require a different
filing location for these forms, such as
819 Such a requirement would be implemented by
revising Regulation S–T (17 CFR 232) and including
an Instruction to Forms ATS–G, ATS, and ATS–R
which cites to Regulation S–T. In conjunction with
the EDGAR Filer Manual, Regulation S–T governs
the electronic submission of documents filed with
the Commission. Modifying a structured format
requirement for a Commission filing or series of
filings can generally be accomplished through
changes to Regulation S–T, and would not require
dispersed changes to the various rules and forms
that would be impacted by the format modification.
820 See supra Sections III.C.25.a and III.C.21.
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the Commission’s Electronic Form
Filing System (EFFS) or the individual
ATSs’ websites. Because SCI entities use
EFFS to file Form SCI, any Government
Securities ATS that is an SCI entity or
affiliate thereof will have experience
using EFFS and could benefit from such
familiarity in filing Form ATS–G.821
However, to the extent any such
Government Securities ATSs are
operated by a broker-dealer that files its
annual reports on EDGAR or that
operates an NMS Stock ATS and files
Form ATS–N on EDGAR, there would
be no familiarity benefit under an EFFS
alternative relative to the proposed
EDGAR requirement.822 In addition, for
Government Securities ATSs that are
not SCI entities or affiliates thereof and
do not have prior EFFS experience, this
alternative would impose the burden of
submitting an External Account User
Application to request access to
EFFS.823 Unlike EDGAR, EFFS does not
support the open-source XML format,
instead relying on a proprietary XML
implementation (XFDL) that requires a
data user to license a commercial
proprietary viewer. The EFFS
alternative would therefore impose
additional costs on data users compared
to the proposal.
Similarly, requiring Forms ATS–G,
ATS, and ATS–R to be posted on the
individual ATSs’ websites rather than
EDGAR would impose additional direct
costs on data users, who would need to
navigate to and manually retrieve data
from different ATSs’ websites to
aggregate, compare, and analyze the
data. In addition, individual websites
would not provide the validation
capabilities that an EDGAR requirement
would enable, and would thus impose
on data users the indirect costs
associated with lower reliability of the
data. An individual website requirement
would provide a small benefit to bankoperated Government Securities ATSs
relative to the proposal’s EDGAR
requirement, as those entities would not
be required to incur the 0.15 hour
821 See General Instructions A and E to Form SCI.
The Commission believes there is one Government
Securities ATS that is operated by a broker-dealer
that operates an NMS Stock ATS that is an SCI
entity, and would therefore have experience using
both EFFS (Form SCI) and EDGAR (Form ATS–N).
See supra Section X.B.6.
822 See 17 CFR 240.17a–5(d)(6) and the
Commission’s guidance at https://www.sec.gov/
divisions/marketreg/electronic-filing-broker-dealerannual-reports-instructions.htm. See also
Instruction A.5 to Form ATS–N.
823 In 2015, the Commission calculated this
burden as 0.15 hours per individual requesting
access on the ATS’s behalf. See NMS Stock ATS
Proposing Release, supra note 62, at 81106.
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burden of submitting a Form ID in order
to begin making EDGAR filings.824
E. Request for Comments
The Commission is sensitive to the
potential economic effects, including
costs and benefits, of the proposed
amendments to Regulation ATS and
Regulation SCI. The Commission has
identified certain costs and benefits
associated with the proposal and
requests comment on all aspects of its
preliminary economic analysis,
including with respect to the specific
questions below. The Commission
encourages commenters to identify,
discuss, analyze, and supply relevant
data, information, or statistics regarding
any such costs or benefits.
172. Does the baseline accurately
reflect the current state of the market
and reporting? Please provide any
information necessary to correct the
baseline.
173. Is the assessment of the current
state of competition in the market for
trading government securities
reasonable? Why or why not?
174. Can commenters provide any
additional information on trading
activities of non-FINRA-member ATSs?
175. Is subscribers’ confidential
trading information at risk because
Currently Exempted Government
Securities ATSs are not required to
comply with Regulation ATS, they are
not subject to Rule 201(b)(10) and Rule
303(a)(1)?
176. Have commenters encountered
any problems with the current
operational reporting requirements or
the required method of intake?
177. The provisions of Regulation SCI
and Rule 301(b)(6) of Regulation ATS do
not apply to the government securities
activities of an ATS. Therefore, a
Currently Exempted Government
Securities ATS would not be subject to
the rules and procedures of Regulation
SCI, and a Legacy Filer would only be
subject to them if its transaction volume
in non-government securities exceeded
the thresholds. Although most
Government Securities ATSs are not
subject to these requirements with
respect to their government securities
activities, a comment letter received in
response to the Treasury Request for
Information stated that many
Government Securities ATSs adopted
system testing and control procedures
that followed the recommended best
practices of the Treasury Market
Practices Group. Is voluntary adoption
of best practices sufficient to mitigate
systemic risks?
824 The Commission believes that one Currently
Exempted Government Securities ATS is operated
by a bank. See supra Section IX.D.2.b.iv.
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178. Do differences in operational
transparency around Government
Securities ATSs impede market
participants’ ability to evaluate whether
submitting order flow to a particular
Government Securities ATS aligns with
its business interests and objectives?
179. Are there any costs and benefits
of the proposed rules that are not
discussed in the economic analysis? If
so, please describe the types of costs
and benefits and provide a dollar
estimate of these costs and benefits.
180. Would removing the exemption
for Currently Exempted Government
Securities ATS and proposing
amendments to Regulation ATS for
Government Securities ATSs enhance
the Commission’s oversight of these
ATSs and ability to monitor trading and
their role in the government securities
and repo market?
181. Would removing the exemption
for Currently Exempted Government
Securities ATS and proposing
amendments to Regulation ATS for
Government Securities ATSs enhance
investor protection?
182. Would removing the exemption
for Currently Exempted Government
Securities ATS result in enhancements
to operational transparency regarding
the manner of operations and the ATSrelated activities of Currently Exempted
Government Securities ATS by way of
public disclosures on Form ATS–G?
Would the proposed enhancements
improve market participants’ ability to
evaluate a Government Securities ATS
as a destination for its orders?
183. Would requiring Forms ATS–G,
ATS, and ATS–R to be filed in a custom
XML format yield the benefits described
above, such as improving the usability
of the disclosures through facilitation of
automated analyses? Do commenters
believe the custom XML format
requirement for these forms would not
impose incremental costs on filers,
given the availability of a web-fillable
form into which filers can input their
disclosures? If not, how would the costs
be more accurately characterized? How
would the costs and benefits of other
format requirements, such as an Inline
XBRL requirement, compare to those
associated with the proposed custom
XML format requirement?
184. Would requiring Forms ATS–G,
ATS, and ATS–R to be filed on EDGAR
yield the benefits described above, such
as the availability of the disclosures in
a centralized filing location that is
publicly accessible (for Form ATS–G)
and provides validation capabilities (for
all three forms)? Would the EDGAR
requirement impose, at most, a minimal
cost on filers? How would the costs and
benefits of other location requirements,
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such as EFFS or the individual ATSs’
websites, compare to those associated
with the proposed EDGAR requirement?
185. Would removing the exemption
for Currently Exempted Government
Securities ATS and proposing
amendment to Regulation ATS for
Government Securities ATSs help
ensure the fair treatment of potential
and current subscribers to a Currently
Exempted Government Securities ATS
that consist of a large percentage of
trading volume in U.S. Treasury
Securities and Agency Securities?
186. Could requiring Government
Securities ATSs that meet the volume
thresholds to establish and objectively
apply the fair access standards help
prevent certain market participants from
being unfairly denied access to an ATS
that trades a significant portion of the
market for U.S. Treasury Securities and
Agency Securities? Are any market
participants currently being denied fair
access?
187. Would information from Form
ATS–R regarding fair access grants,
denials, and limitations of access to
Government Securities ATSs improve
the Commission’s ability to oversee
those ATSs to evaluate for compliance
with the Fair Access Rule?
188. Would the proposed
amendments to extend Regulation SCI
to include ATSs that trade a significant
volume of U.S. Treasury Securities or
Agency Securities help reduce market
disruptions due to systems issues and
help improve system up-time, which
would help prevent interruptions in the
price discovery process and liquidity
flows and thus, may help prevent
periods with pricing inefficiencies from
occurring?
189. Would the proposed extension of
Regulation SCI strengthen the
infrastructure and improve the
resiliency of the automated systems of
Government Securities ATSs that are
important to the U.S. securities markets?
190. Would the proposed
amendments to Regulation SCI promote
the establishment of more robust
systems that are less likely to experience
a system disruption? If so, do
commenters believe that this could
lower trading costs and enhance
liquidity and price discovery?
191. Would the requirement for a
Government Securities ATS that would
be an SCI ATS to establish procedures
to disseminate information about SCI
events to responsible SCI personnel,
ATS participants, and the Commission
help reduce the duration and severity of
any system distributions that do occur?
192. Would the requirement for a
Government Securities ATS that meets
the definition of SCI ATS to conduct
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testing of its business continuity and
disaster recovery plans with its
designated participants and other
industry SCI entities help detect and
improve the coordination of responses
to system issues that could affect
multiple trading venues and
participants in the government
securities and repo market? What would
the cost to designated participants be?
193. Are the Commission’s cost
estimates, in general, reasonable?
194. What are commenters’ views on
costs related to a bank-operated
Currently Exempted Government
Securities ATS complying with the
broker-dealer registration requirements
under Rule 301(b)(1), as proposed? Is
the estimated initial cost of
approximately $275,000 to register as a
broker-dealer with the commission via
Form BD and become a member of
FINRA reasonable?
195. Is the estimated ongoing annual
cost of approximately $50,000 to
maintain the broker-dealer registration
with the Commission and FINRA
reasonable?
196. What are the costs a bankoperated Currently Exempted
Government Securities ATS would
incur for effectively completing the
application to be a member of FINRA?
What other costs related to FINRA
examination and surveillance, trade
reporting obligations, and investor
protection rules may be incurred by a
bank-operated Currently Exempted
Government Securities ATS? Please
provide a description of these costs and
cost estimates or a range of potential
costs.
197. Would there be a substantial
burden imposed on Government
Securities ATSs in connection with
resubmitting Form ATS–G or a Form
ATS–G amendment? Please provide
estimates if available.
198. Could the public disclosure of
Form ATS–G generate indirect costs for
some subscribers to Government
Securities ATSs that might currently
have more information regarding some
ATS features, such as order priority and
matching procedures, than other
subscribers or market participants?
199. Are the 2018 estimates (the 2018
SCI PRA Extension) of initial paperwork
burdens for new SCI entities and
ongoing paperwork burdens for all SCI
entities under Regulation SCI largely
applicable to Government Securities
ATSs?
200. Would Government Securities
ATSs also incur non-paperwork related
direct compliance costs as SCI entities?
The Regulation SCI Adopting Release in
2014 estimated that an SCI entity would
incur an initial cost of between
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approximately $320,000 and $2.4
million. Additionally, an SCI entity
would incur an ongoing annual cost of
between approximately $213,600 and
$1.6 million. Are these estimated costs
applicable to Government Securities
ATSs? How might the actual level of
costs Government Securities ATSs
would incur differ from the estimates in
the Regulation SCI Adopting Release
because they differ from existing SCI
entities? How might other factors, such
as the complexity of SCI entities’
systems and the degree to which SCI
entities employ third-party systems,
affect the estimated costs? Please
provide cost estimates or a range for cost
estimates, if possible.
201. Could the increase in ATS
operational transparency from the
proposed amendments to Regulation
ATS lower the trading costs and
improve the execution quality of market
participants, which would enhance the
efficiency with which they achieve their
trading objectives?
202. Could the increase in ATS
operational transparency from the
proposed amendments to Regulation
ATS increase competition among
trading venues in the market for
government securities execution
services by causing them to decrease
their trading fees in order to attract
order flow?
203. Could the proposed Regulation
ATS and Regulation SCI amendments
result in some existing Government
Securities ATSs exiting the market for
government securities execution
services or raise the barriers to entry for
new Government Securities ATSs? If so,
what would be the effects on
competition?
204. To the extent that amendments to
Regulation ATS and Regulation SCI
reduce the trading costs of U.S. Treasury
Securities, would the reductions in
trading costs be significant enough to
decrease their yields, lowering the riskfree rate? As a result, would this
decrease the cost of capital for firms and
promote capital formation?
205. Would the alternative to require
Currently Exempted Government
Securities ATSs to file Form ATS, but
not require Form ATS to be publicly
disclosed make Government Securities
ATSs’ operations less transparent for
market participants and result in larger
the search costs for subscribers?
206. Do commenters agree with the
Commission’s analysis of the alternative
to require proposed Form ATS–G be
filed but treat the information as
confidential?
207. Do commenters agree with the
Commission’s analysis of alternative to
initiate differing levels of public
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disclosure expending on Government
Securities ATS dollar volume?
208. Do commenters agree with the
Commission’s analysis of the alternative
to extend the proposed transparency
requirements of Regulation ATS to all
non-ATSs trading venues for
government securities?
209. Do commenters agree with the
Commission’s analysis of the alternative
to alter the proposed volume thresholds
for the Fair Access Rule and Regulation
SCI?
210. Do commenters agree with the
Commission’s analysis of the
alternatives to apply Rule 301(b)(6) of
Regulation ATS to Government
Securities ATSs?
211. Do commenters agree with the
Commission’s analysis of the alternative
to require Form ATS–G to be filed in a
filing location other than EDGAR, such
as EFFS or individual ATS websites?
XI. Consideration of Impact on the
Economy
For purposes of the Small Business
Regulatory Enforcement Fairness Act of
1996,825 the Commission requests
comment on the potential effect of the
proposed amendments and Form ATS–
G on the United States economy on an
annual basis. The Commission also
requests comment on any potential
increases in costs or prices for
consumers or individual industries, and
any potential effect on competition,
investment, or innovation. Commenters
are requested to provide empirical data
and other factual support for their views
to the extent possible.
XII. Regulatory Flexibility Act
Certification
Section 3(a) of the Regulatory
Flexibility Act of 1980 826 (‘‘RFA’’)
requires the Commission to undertake
an initial regulatory flexibility analysis
of the impact of the proposed rule
amendments on small entities unless
the Commission certifies that the rule, if
adopted, would not have a significant
economic impact on a substantial
number of small entities.827 For
purposes of Commission rulemaking in
connection with the RFA,828 a small
825 5
U.S.C. 603.
U.S.C. 603(a).
827 5 U.S.C. 605(b).
828 Although Section 601(b) of the RFA defines
the term ‘‘small entity,’’ the statute permits agencies
to formulate their own definitions. The Commission
has adopted definitions for the term ‘‘small entity’’
for the purposes of Commission rulemaking in
accordance with the RFA. Those definitions, as
relevant to this proposed rulemaking, are set forth
in Rule 0–10 under the Exchange Act, 17 CFR
240.0–10. See Securities Exchange Act Release No.
18451 (January 28, 1982), 47 FR 5215 (February 4,
1982) (File No. AS–305).
826 5
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entity includes a broker or dealer that:
(1) Had total capital (net worth plus
subordinated liabilities) of less than
$500,000 on the date in the prior fiscal
year as of which its audited financial
statements were prepared pursuant to
Rule 17a–5(d) under the Exchange
Act,829 or, if not required to file such
statements, a broker-dealer with total
capital (net worth plus subordinated
liabilities) of less than $500,000 on the
last day of the preceding fiscal year (or
in the time that it has been in business,
if shorter); and (2) is not affiliated with
any person (other than a natural person)
that is not a small business or small
organization.830
All Government Securities ATSs
would be required to register as brokerdealers, including those that are
currently exempt from such
requirement.831 The Commission
examined recent FOCUS data for the 19
broker-dealers that currently operate
ATSs that indicated on their Form ATS
that they trade government securities
and repos and concluded that 2 of the
broker-dealer operators of these ATSs
had total capital of less than $500,000
on the last day of the preceding fiscal
year (or in the time that it has been in
business, if shorter).832 The Commission
notes that these broker-dealer operators
have never reported any transaction
volume in any security, including a
government security or repo, to the
Commission on Form ATS–R. Given
that these ATSs have never reported any
transaction volume in government
securities to the Commission, the
Commission believes that these ATSs
would likely not submit a Form ATS–
G if the proposed amendments to
Regulation ATS are adopted. The
Commission has also recently examined
recent FOCUS data for the 6 brokerdealers that are Currently Exempted
829 17
CFR 240.17a–5(d).
17 CFR 240.0–10(c). See also 17 CFR
240.0–10(i) (providing that a broker or dealer is
affiliated with another person if: Such broker or
dealer controls, is controlled by, or is under
common control with such other person; a person
shall be deemed to control another person if that
person has the right to vote 25 percent or more of
the voting securities of such other person or is
entitled to receive 25 percent or more of the net
profits of such other person or is otherwise able to
direct or cause the direction of the management or
policies of such other person; or such broker or
dealer introduces transactions in securities, other
than registered investment company securities or
interests or participations in insurance company
separate accounts, to such other person, or
introduces accounts of customers or other brokers
or dealers, other than accounts that hold only
registered investment company securities or
interests or participations in insurance company
separate accounts, to such other person that carries
such accounts on a fully disclosed basis).
831 See supra Section II.C. See also 17 CFR
242.301(b)(1).
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Government Securities ATSs and
concluded that none of the brokerdealer operators of ATSs that currently
trade government securities had total
capital of less than $500,000 on the last
day of the preceding fiscal year (or in
the time that it has been in business, if
shorter). Consequently, the Commission
certifies that the proposed amendments
to Regulation ATS would not, if
adopted, have a significant economic
impact on a substantial number of small
entities.
The Commission encourages written
comments regarding this certification.
The Commission solicits comment as to
whether the proposed amendments
could have impacts on small entities
that have not been considered. The
Commission requests that commenters
describe the nature of any impacts on
small entities and provide empirical
data to support the extent of such effect.
Such comments will be placed in the
same public file as comments on the
proposed amendments to Regulation
ATS. Persons wishing to submit written
comments should refer to the
instructions for submitting comments in
the front of this release.
XIII. Statutory Authority and Text of
Proposed Amendments
Pursuant to Exchange Act, 15 U.S.C.
78a et seq., and particularly Sections
3(b), 5, 6, 15, 15C, 17(a), 17(b), 19, 23(a),
and 36 thereof (15 U.S.C. 78c(b), 78e,
78f, 78o, 78o–5, 78q(a), 78q(b), 78s,
78w(a), and 78mm), the Commission
proposes amendments to Form ATS–G
under the Exchange Act, Regulation
ATS under the Exchange Act, and 17
CFR 232, 240, 242 and 249.
List of Subjects in 17 CFR Parts 232,
240, 242, and 249
Administrative practices and
procedure, Brokers, Confidential
business information, Fraud, Reporting
and recordkeeping requirements,
Securities.
For the reasons stated in the
preamble, title 17, chapter II of the Code
of Federal Regulations is proposed as
follows:
PART 232—REGULATION S–T—
GENERAL RULES AND REGULATIONS
FOR ELECTRONIC FILINGS
87209
2. Amend § 232.101 by adding
paragraphs (a)(1)(xxii) through (xxiv) to
read as follows:
■
§ 232.101 Mandated electronic
submissions and exceptions.
(a) * * *
(1) * * *
(xxii) Form ATS (§ 249.637 of this
chapter).
(xxiii) Form ATS–R (§ 249.638 of this
chapter).
(xxiv) Form ATS–G (§ 249.642 of this
chapter).
*
*
*
*
*
PART 240—GENERAL RULES AND
REGULATIONS, SECURITIES ACT OF
1934
3. The general authority citation for
part 240 continues to read as follows:
■
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f,
78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m,
78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 78q,
78q–1, 78s, 78u–5, 78w, 78x, 78dd, 78ll,
78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b–
3, 80b–4, 80b–11, and 7201 et seq.; and 8302;
7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18
U.S.C. 1350; Pub. L. 111–203, 939A, 124 Stat.
1376 (2010); and Pub. L. 112–106, secs. 503
and 602, 126 Stat. 326 (2012), unless
otherwise noted.
*
*
*
*
*
4. Amend § 240.3a1–1 by adding
paragraphs (b)(3)(viii) and (ix) to read as
follows:
■
§ 240.3a1–1 Exemption from the definition
of ‘‘Exchange’’ under Section 3(a)(1) of the
Act.
(a) * * *
(b) * * *
(3) * * *
(viii) U.S. Treasury Securities, which
shall have the same meaning as in
§ 242.300(p), and for which transactions
are reported to a self-regulatory
organization.
(ix) Agency Securities, which shall
have the same meaning as in
§ 242.300(q), and for which transactions
are reported to a self-regulatory
organization.
PART 242—REGULATIONS M, SHO,
ATS, AC, NMS, AND SBSR AND
CUSTOMER MARGIN REQUIREMENTS
FOR SECURITY FUTURES
5. The authority citation for part 242
continues to read as follows:
■
1. The general authority citation for
part 232 continues to read as follows:
■
Authority: 15 U.S.C. 77c, 77f, 77g, 77h,
77j, 77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m,
78n, 78o(d), 78w(a), 78ll, 80a–6(c), 80a–8,
80a–29, 80a–30, 80a–37, 7201 et seq.; and 18
U.S.C. 1350, unless otherwise noted.
*
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*
*
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*
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*
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Authority: 15 U.S.C. 77g, 77q(a), 77s(a),
78b, 78c, 78g(c)(2), 78i(a), 78j, 78k–1(c), 78l,
78m, 78n, 78o(b), 78o(c), 78o(g), 78q(a),
78q(b), 78q(h), 78w(a), 78dd–1, 78mm, 80a–
23, 80a–29, and 80a–37.
*
■
*
*
*
*
6. Amend § 242.300 by:
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a. Adding ‘‘An NMS Stock ATS shall
not trade securities other than NMS
stocks.’’ at the end of paragraph (k); and
■ b. Adding paragraphs (l) through (q) to
read as follows:
■
§ 242.300
Definitions.
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*
*
*
*
*
(l) Government Securities ATS means
an alternative trading system, as defined
in paragraph (a) of this section, that
trades government securities, as defined
in section 3(a)(42) of the Act (15 U.S.C.
78c(a)(42)) or repurchase and reverse
repurchase agreements on government
securities. A Government Securities
ATS shall not trade securities other than
government securities or repurchase and
reverse repurchase agreements on
government securities.
(m) Covered ATS means an NMS
Stock ATS or Government Securities
ATS, as applicable.
(n) Covered Form means a filing on
Form ATS–N or Form ATS–G, as
applicable.
(o) Legacy Government Securities ATS
means a Government Securities ATS
operating as of [date 120 calendar days
after the date of publication of the final
rule in the Federal Register].
(p) U.S. Treasury Security means a
security issued by the U.S. Department
of the Treasury.
(q) Agency Security means a debt
security issued or guaranteed by a U.S.
executive agency, as defined in 5 U.S.C.
105, or government-sponsored
enterprise, as defined in 2 U.S.C. 622(8).
■ 7. Amend § 242.301 by:
■ a. Removing and reserving paragraphs
(a)(4)(ii)(A) through (C);
■ b. In paragraph (b)(1), adding ‘‘or
section 15C(a)(1)(A) of the Act (15
U.S.C. 78o–5(a)(1)(A))’’ after the phrase
‘‘section 15 of the Act, (15 U.S.C. 78o)’’;
■ c. In paragraph (b)(2)(vi), adding the
words ‘‘and information filed pursuant
to paragraph (b)(9)’’ after the words
‘‘pursuant to this paragraph (b)(2)’’;
■ d. Revising paragraph (b)(2)(vii);
■ e. Revising paragraph (b)(2)(viii);
■ f. In paragraph (b)(5)(i)(A), adding the
word ‘‘share’’ after the phrase ‘‘average
daily’’;
■ g. In paragraph (b)(5)(i)(B), adding the
word ‘‘share’’ after the phrase ‘‘average
daily trading’’;
■ h. In paragraphs (b)(5)(i)(C) and (D),
adding the word ‘‘dollar’’ after the
phrase ‘‘average daily’’;
■ i. In paragraph (b)(5)(i)(C), adding the
phrase ‘‘as provided by the selfregulatory organization to which such
transactions are reported’’ after the
phrase ‘‘in the United States’’;
■ j. In paragraph (b)(5)(i)(C), removing
the word ‘‘or’’ after the phrase ‘‘average
daily volume traded in the United
States’’;
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k. In paragraph (b)(5)(i)(D), adding the
phrase ‘‘as provided by the selfregulatory organization to which such
transactions are reported’’ after the
phrase ‘‘in the United States’’;
■ l. In paragraph (b)(5)(i)(D), removing
‘‘.’’ after the phrase ‘‘in the United
States’’ and adding in its place ‘‘;’’;
■ m. Adding paragraphs (b)(5)(i)(E) and
(F);
■ n. In paragraph (b)(5)(ii)(A), adding
the word ‘‘reasonable’’ before the phrase
‘‘written standards’’;
■ o. Removing paragraph (b)(5)(iii);
■ p. In paragraphs (b)(6)(i)(A) and (B),
adding the word ‘‘dollar’’ after the
phrase ‘‘average daily’’;
■ q. Removing paragraph (b)(6)(iii);
■ r. In paragraph (b)(9)(i), removing the
word ‘‘Separately’’ and the phrase ‘‘for
transactions in NMS stocks, as defined
in paragraph (g) of this section, and
transactions in securities other than
NMS stocks’’, and capitalizing the word
‘‘File’’; and
■ s. In paragraph (b)(9)(ii), removing the
word ‘‘Separately’’ and the phrase ‘‘for
transactions in NMS stocks and
transactions in securities other than
NMS stocks’’, and capitalizing the word
‘‘File’’.
The additions and revisions read as
follows:
■
§ 242.301 Requirements for alternative
trading systems.
*
*
*
*
*
(b) * * *
(2) * * *
(vii) An ATS must file a Form ATS or
Form ATS–R in accordance with the
instructions therein. The reports
provided for in paragraphs (b)(2) and
(b)(9) of this section shall be filed on
Form ATS or Form ATS–R, as
applicable, and include all information
as prescribed in Form ATS or Form
ATS–R, as applicable, and the
instructions thereto. Any such
document shall be executed at, or prior
to, the time Form ATS or Form ATS–R
is filed and shall be retained by the ATS
in accordance with §§ 242.303 and
§ 232.302 of this chapter, and the
instructions in Form ATS or Form ATS–
R, as applicable. Duplicates of the
reports provided for in paragraphs
(b)(2)(i) through (v) of this section must
be filed with surveillance personnel
designated as such by any selfregulatory organization that is the
designated examining authority for the
alternative trading system pursuant to
§ 240.17d–1 of this chapter
simultaneously with filing with the
Commission. Duplicates of the reports
required by paragraph (b)(9) of this
section shall be provided to surveillance
personnel of such self-regulatory
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authority upon request. All reports filed
pursuant to this paragraph (b)(2) and
paragraph (b)(9) of this section (except
for types of securities traded provided
on Form ATS and Form ATS–R) will be
accorded confidential treatment subject
to applicable law.
(viii) A Legacy Government Securities
ATS operating pursuant to an initial
operation report on Form ATS on file
with the Commission as of [date 120
calendar days after the date of
publication of the final rule in the
Federal Register] shall be subject to the
requirements of paragraphs (b)(2)(i)
through (vii) of this section until that
ATS files an initial Form ATS–G with
the Commission pursuant to
§ 242.304(a)(1)(iv)(A). Thereafter, the
Legacy Government Securities ATS
shall file reports pursuant to § 242.304
and shall not be subject to the
requirements of paragraphs (b)(2)(i)
through (vii) of this section. A Legacy
Government Securities ATS that was
formerly not required to comply with
Regulation ATS (§ 242.300 through
242.304) pursuant to an exemption prior
to [the effective date of the final rule],
shall file reports pursuant to § 242.304
and shall not be subject to the
requirements of paragraphs (b)(2)(i)
through (vii) of this section. As of [date
120 calendar days after the date of
publication of the final rule in the
Federal Register], an entity seeking to
operate as a Government Securities ATS
shall not be subject to the requirements
of paragraphs (b)(2)(i) through (vii) of
this section and shall file reports
pursuant to § 242.304. An NMS Stock
ATS or entity seeking to operate as an
NMS Stock ATS shall not be subject to
the requirements of paragraphs (b)(2)(i)
through (vii) of this section and shall
file reports pursuant to § 242.304. An
ATS that is not an NMS Stock ATS or
Government Securities ATS shall be
subject to paragraph (b)(2) of this
section. An NMS Stock ATS or a
Government Securities ATS that is
operated by a broker-dealer that is the
registered broker-dealer for more than
one ATS must independently comply
with Regulation ATS, including the
filing requirements of § 242.304 of this
chapter.
*
*
*
*
*
(5) Fair access.
(i) * * *
(E) With respect to U.S. Treasury
Securities, 5 percent or more of the
average weekly dollar volume traded in
the United States as provided by the
self-regulatory organization to which
such transactions are reported; or
(F) With respect to Agency Securities,
5 percent or more of the average daily
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dollar volume traded in the United
States as provided by the self-regulatory
organization to which such transactions
are reported.
*
*
*
*
*
■ 8. Amend § 242.304 by:
■ a. Revising the section heading;
■ b. In paragraph (a), removing ‘‘an
NMS Stock ATS’’ before the phrase
‘‘must comply’’ and adding in its place
‘‘a Covered ATS’’;
■ c. In the title to paragraph (a)(1),
removing ‘‘Form ATS–N’’ and adding in
its place ‘‘Covered Form’’;
■ d. In paragraph (a)(1)(i), adding
‘‘applicable’’ after the phrase ‘‘files with
the Commission an’’ and adding a
sentence at the end of the paragraph;
■ e. In paragraph (a)(1)(ii)(A)(1),
removing the phrase ‘‘the Form ATS–N
is unusually lengthy or raises novel or
complex issues that require additional
time for review’’ and adding in its place
‘‘the Commission determines that a
longer period is appropriate’’;
■ f. In paragraphs (a)(1)(i) through (iii),
■ 1. Removing each reference to ‘‘NMS
Stock ATS’’ and adding in its place
‘‘Covered ATS’’;
■ 2. Removing each reference to ‘‘an
NMS Stock ATS’’ and adding in its
place ‘‘a Covered ATS’’; and
■ 3. Removing each reference to ‘‘Form
ATS–N’’ and adding in its place
‘‘Covered Form’’;
■ g. In the title to paragraph (a)(2),
removing ‘‘Form ATS–N’’ and adding in
its place ‘‘Covered Form’’;
■ h. In paragraph (a)(2)(i),
■ 1. Removing ‘‘An NMS Stock ATS’’
before the phrase ‘‘shall amend’’ and
replacing it with ‘‘A Covered ATS’’; and
■ 2. Removing ‘‘Form ATS–N’’ after the
phrase ‘‘shall amend a’’ and replacing it
with ‘‘Covered Form’’;
■ i. In paragraph (a)(2)(i)(A), removing
‘‘NMS Stock ATS’’ after the phrase
‘‘change to the operations of the’’ and
replacing it with ‘‘Covered ATS’’;
■ j. In paragraph (a)(2)(i)(A) through (C),
removing each reference to ‘‘Form ATS–
N’’ and adding in its place ‘‘Covered
Form’’;
■ k. In paragraphs (a)(2)(ii), (a)(3), (a)(4),
(b), and (c),
■ 1. Removing each reference to ‘‘NMS
Stock ATS’’ and adding in its place
‘‘Covered ATS’’;
■ 2. Removing each reference to ‘‘an
NMS Stock ATS’’ and adding in its
place ‘‘a Covered ATS’’; and
■ 3. Removing each reference to ‘‘Form
ATS–N’’ and adding in its place
‘‘Covered Form’’;
■ l. In paragraph (a)(1)(iv),
■ 1. Removing each reference to ‘‘Form
ATS–N’’ and adding in its place ‘‘Form
ATS–G’’; and
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2. Removing each reference to
‘‘Legacy NMS Stock ATS’’ and adding
in its place ‘‘Legacy Government
Securities ATS’’;
■ m. In paragraph (a)(1)(iv)(A),
■ 1. Adding the phrase ‘‘operating
pursuant to an initial operation report
on Form ATS on file with the
Commission as of [date 120 calendar
days after the date of publication of the
final rule in the Federal Register]’’
immediately preceding the phrase,
‘‘shall supersede and replace’’;
■ 2. Removing ‘‘January 7, 2019’’ and
adding in its place ‘‘[date 120 calendar
days after the date of publication of the
final rule in the Federal Register]’’; and
■ 3. Removing ‘‘February 8, 2019’’ and
adding in its place ‘‘[date 150 calendar
days after the date of publication of the
final rule in the Federal Register]’’;
■ n. In paragraph (a)(1)(iv)(B)(1),
removing the phrase ‘‘the initial Form
ATS–N is unusually lengthy or raises
novel or complex issues that require
additional time for review’’ and adding
in its place ‘‘the Commission
determines that a longer period is
appropriate’’;
■ o. In paragraph (a)(2)(i)(D),
■ 1. Adding ‘‘or Part III, Item 24 on
Form ATS–G’’ immediately preceding
the phrase, ‘‘has become inaccurate or
incomplete’’; and
■ 2. Removing the phrase ‘‘Order
Display and Fair Access Amendment’’
and adding in its place ‘‘Contingent
Amendment’’;
■ p. In paragraph (b)(2)(iii)(B), removing
the phrase ‘‘Order Display and Fair
Access’’ wherever it appears and adding
in its place the word ‘‘Contingent’’; and
■ q. Revising paragraph (b)(3).
The additions and revisions read as
follows:
■
§ 242.304
Covered ATSs.
(a) * * *
(1) * * *
(i) * * * Notwithstanding the
foregoing, a Legacy Government
Securities ATS that was formerly not
required to comply with Regulation
ATS (§ 242.300 through 242.304)
pursuant to an exemption prior to [the
effective date of the final rule], may
continue to operate pursuant to
Regulation ATS until its initial Form
ATS–G becomes effective.
*
*
*
*
*
(b) * * *
(3) Each Covered ATS shall make
public via posting on its website:
(i) A direct URL hyperlink to the
Commission’s website that contains the
documents enumerated in paragraph
(b)(2) of this section; and
(ii) The most recently disseminated
Covered Form (excluding Part IV)
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within one business day after
publication on the Commission’s
website, except for any amendment that
the Commission has declared ineffective
or that has been withdrawn. The most
recently disseminated Covered Form
shall be maintained on the Covered
ATS’s website until:
(A) The Covered ATS ceases
operations; or
(B) The exemption of the Covered
ATS is revoked or suspended, in which
cases, the Covered ATS shall remove the
Covered Form from its website within
one business day of such cessation,
revocation or suspension, as applicable.
*
*
*
*
*
■ 9. Amend § 242.1000 by:
■ a. Adding, in alphabetical order, a
definition for ‘‘Agency Securities’’;
■ b. At the end of paragraph (1)(ii),
under the definition of ‘‘SCI alternative
trading system or SCI ATS’’, removing
the word, ‘‘or’’;
■ c. Under the definition of ‘‘SCI
alternative trading system or SCI ATS’’,
redesignating paragraph (3) as paragraph
(5);
■ d. Under the definition of ‘‘SCI
alternative trading system or SCI ATS’’,
adding a new paragraph (3) and
paragraph (4); and
■ e. In newly redesignated paragraph
(5), removing ‘‘paragraphs (1) or (2)’’
and adding in its place ‘‘paragraphs (1),
(2), (3), or (4)’’; and
■ f. Adding, in alphabetical order, a
definition for ‘‘U.S. Treasury
Securities’’.
The additions read as follows:
§ 242.1000
Definitions.
*
*
*
*
*
Agency Security has the meaning set
forth in § 242.300(q).
*
*
*
*
*
SCI alternative trading system or SCI
ATS * * *
(3) Had with respect to U.S. Treasury
Securities, five percent (5%) or more of
the average weekly dollar volume traded
in the United States as provided by the
self-regulatory organization to which
such transactions are reported; or
(4) Had with respect to Agency
Securities, five percent (5%) or more of
the average daily dollar volume traded
in the United States as provided by the
self-regulatory organization to which
such transactions are reported.
*
*
*
*
*
U.S. Treasury Security has the
meaning set forth in § 242.300(p).
*
*
*
*
*
PART 249—FORMS, SECURITIES
EXCHANGE ACT OF 1934
10. The general authority citation for
part 249 continues to read as follows:
■
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Authority: 15 U.S.C. 78a et seq. and 7201
et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C. 1350;
Sec. 953(b), Pub. L. 111–203, 124 Stat. 1904;
Sec. 102(a)(3), Pub. L. 112–106, 126 Stat. 309
(2012); Sec. 107, Pub. L. 112–106, 126 Stat.
313 (2012), and Sec. 72001, Pub. L. 114–94,
129 Stat. 1312 (2015), unless otherwise
noted.
*
*
*
*
*
■ 11. Amend Form ATS (referenced in
§ 249.637) by:
■ a. In the General Instructions, revising
Items A.3 through A.6;
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b. In the General Instructions, revising
the fifth and seventh paragraphs of Item
A.7;
■ c. At the top of page 1 of the form,
removing ‘‘INITIAL OPERATION
REPORT’’, ‘‘AMENDMENT TO INITIAL
OPERATION REPORT’’, ‘‘CESSATION
OF OPERATIONS REPORT’’ and
accompanying check boxes and adding
text under a new heading ‘‘Type of
Filing (select one)’’;
■ d. Revising Item 1;
■ e. Removing the text on page 1 of the
form beginning ‘‘EXECUTION’’, the
■
signature block below, the instruction
that states ‘‘This page must always be
completed in full with original, manual
signature and notarization. Affix notary
stamp or seal where applicable.’’ and
‘‘DO NOT WRITE BELOW THIS LINE—
FOR OFFICIAL USE ONLY’’ and adding
in its place text under a new heading
‘‘CONTACT INFORMATION,
SIGNATURE BLOCK, AND CONSENT
TO SERVICE’’; and
■ f. On page 2 of the form, removing the
following text:
BILLING CODE 8011–01–P
Note: The text of Form ATS does not and
this amendment will not appear in the Code
of Federal Regulations
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12. Amend Form ATS–R (referenced
in § 249.634) by:
■ a. In the General Instructions, revising
Items A.3 through A.6;
■ b. In the General Instructions, revising
the fifth and seventh paragraphs of Item
A.7;
■ c. In the Explanation of Terms, adding
the definitions of ‘‘Agency Securities’’
and ‘‘U.S. Treasury Securities’’;
■
d. On page 1 of the form, immediately
before Section 1, adding text under a
new heading ‘‘Type of Filing’’;
■ e. Revising Item 1;
■ f. Removing text on page 1 of the form
beginning ‘‘EXECUTION’’, the signature
block below, the instruction that states
‘‘This page must always be completed in
full with original, manual signature and
notarization. Affix notary stamp or seal
where applicable.’’ and ‘‘DO NOT
WRITE BELOW THIS LINE – FOR
OFFICIAL USE ONLY’’ and adding in
its place text under a new heading
‘‘CONTACT INFORMATION,
SIGNATURE BLOCK, AND CONSENT
TO SERVICE’’;
■ g. On page 2 and 3 of the form,
removing the following text:
h. Revising Item 4;
i. Adding Items 5.C and 5.D;
j. Revising Items 6.B through 6.C, and
■
k. Adding Item 8.
The additions and revisions read as
follows:
Note: The text of Form ATS–R does not
and this amendment will not appear in the
Code of Federal Regulations.
■
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■
■
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13. Amend Form ATS–N (referenced
in § 149.640) by:
■ a. On page 1 of the form, removing the
following:
• Does the NMS Stock ATS currently
operate pursuant to a Form ATS?
b Yes
No
■ b. On page 1 of the form, revising text
under ‘‘Type of Filing (select one)’’,
■ c. Revising Part I, Item 1;
■ d, Revising Part I, Item 10;
■ e. Revising Part II, Item 4.b;
f. Revising Part II, Item 6.a;
g. Revising Part III, Item 1;
h. Revising Part III, Item 4.a;
i. Revising Part III, Item 6.b;
j. Revising Part III, Item 7.a;
k. Revising Part III, Item 10;
l. Revising Part III, Item 13.a;
m. Revising Part III, Item 17.a;
n. Revising Part III, Item 18;
o. Revising Part III, Item 19.a;
p. Revising Part IV;
q. In FORM ATS–N INSTRUCTIONS,
revising Item A.4;
r. In FORM ATS–N INSTRUCTIONS,
revising Items A.6 through A.7;
■ s. In FORM ATS–N INSTRUCTIONS,
revising Item D; and
■ t. In FORM ATS–N INSTRUCTIONS,
under Item E, revising the definitions of
‘‘NMS STOCK ATS’’ and ‘‘PERSON’’.
The revisions read as follows:
■
Note: The text of Form ATS–N does not
and this amendment will not appear in the
Code of Federal Regulations.
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■
■
■
■
■
■
■
■
■
■
■
■
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14. Add §249.642 to subpart G to read
as follows:
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§ 249.642 Form ATS–G, information
required of Government Securities ATSs
pursuant to §242.304(a) of this chapter.
required reports under § 242.304(a) of
this chapter.
This form shall be usd by every
Government Securities ATS to file
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■
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By the Commission.
Dated: September 28, 2020.
Vanessa A. Countryman,
Secretary.
EP31DE20.044</GPH>
[FR Doc. 2020–21781 Filed 12–22–20; 4:15 pm]
BILLING CODE 8011–01–C
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]]>Agencies
[Federal Register Volume 85, Number 251 (Thursday, December 31, 2020)]
[Proposed Rules]
[Pages 87106-87253]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21781]
[[Page 87105]]
Vol. 85
Thursday,
No. 251
December 31, 2020
Part III
Securities and Exchange Commission
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17 CFR Parts 240, 242 and 249
Regulation ATS for ATSs That Trade U.S. Government Securities, NMS
Stock, and Other Securities; Regulation SCI for ATSs That Trade U.S.
Treasury Securities and Agency Securities; and Electronic Corporate
Bond and Municipal Securities Markets; Proposed Rule
Federal Register / Vol. 85 , No. 251 / Thursday, December 31, 2020 /
Proposed Rules
[[Page 87106]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 240, 242 and 249
[Release No. 34-90019; File No. S7-12-20]
RIN 3235-AM45
Regulation ATS for ATSs That Trade U.S. Government Securities,
NMS Stock, and Other Securities; Regulation SCI for ATSs That Trade
U.S. Treasury Securities and Agency Securities; and Electronic
Corporate Bond and Municipal Securities Markets
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule; request for comment; concept release.
-----------------------------------------------------------------------
SUMMARY: The Securities and Exchange Commission is proposing amendments
to Regulation ATS under the Securities Exchange Act of 1934 (``Exchange
Act'') for alternative trading systems (``ATSs''). The Commission is
proposing to amend Regulation ATS for ATSs that trade government
securities as defined under Section 3(a)(42) of the Exchange Act
(``government securities'') or repurchase and reverse repurchase
agreements on government securities (``Government Securities ATSs'')
to: Eliminate the exemption from compliance with Regulation ATS for an
ATS that limits its securities activities to government securities or
repurchase and reverse repurchase agreements on government securities,
and registers as a broker-dealer or is a bank; require the filing of
public Form ATS-G, which would require a Government Securities ATS to
disclose information about its manner of operations and the ATS-related
activities of the registered broker-dealer or government securities
broker or government securities dealer that operates the ATS and its
affiliates; require, among other things, public posting of certain Form
ATS-G filings and to provide a process for the Commission to review
Form ATS-G filings and, after notice and opportunity for hearing,
declare Form ATS-G filings ineffective; and apply the fair access rule
under Rule 301(b)(5) of Regulation ATS to Government Securities ATSs
that meet certain volume thresholds in U.S. Treasury Securities or in a
debt security issued or guaranteed by a U.S. executive agency, or
government-sponsored enterprise (``Agency Securities''). The Commission
is also proposing changes to correct and modernize Regulation ATS, Form
ATS, Form ATS-N, and Form ATS-R. In addition, the Commission is
proposing to amend Regulation Systems Compliance and Integrity to apply
it to ATSs that meet certain volume thresholds in U.S. Treasury
Securities or Agency Securities. Finally, the Commission is issuing a
concept release on the regulatory framework for electronic platforms
that trade corporate debt and municipal securities.
DATES: Comments should be received on or before March 1, 2021.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/proposed.shtml); or
Send an email to [email protected]. Please include
File Number S7-12-20 on the subject line.
Paper Comments
Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-12-20. This file number
should be included on the subject line if email is used. To help the
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's internet website (https://www.sec.gov/rules/proposed.shtml). Comments are also available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. All comments received will be posted without change.
Persons submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any materials will
be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.
FOR FURTHER INFORMATION CONTACT: Regulation ATS: Tyler Raimo, Assistant
Director, at (202) 551-6227; Matthew Cursio, Special Counsel, at (202)
551-5748; David Garcia, Special Counsel, at (202) 551-5681; Megan
Mitchell, Special Counsel, at (202) 551-4887; and Joanne Kim, Law
Clerk, at (202) 551-4393, and for Regulation SCI: David Liu, Special
Counsel, at (312) 353-6265 and Sara Hawkins, Special Counsel, at (202)
551-5523, Office of Market Supervision, Division of Trading and
Markets, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The Commission is proposing to: (1) Amend
Rule 300 (17 CFR 242.300) and Rule 301 (17 CFR 242.301) of Regulation
ATS under the Exchange Act to eliminate the current exemption from
compliance with Rules 300 through 304 (17 CFR 242.300 through 242.304)
(``Regulation ATS'') under the Exchange Act for an ATS that limits its
securities activities to government securities or repurchase and
reverse repurchase agreements on government securities, and registers
as a broker-dealer or is a bank and require such ATS to comply with
applicable provisions of Regulation ATS; (2) amend Rule 3a1-1(b) (17
CFR 242.3a1-1(b)) under the Exchange Act to require a Government
Securities ATS, which otherwise qualifies for the Rule 3a1-1(a)
exemption, to register as a national securities exchange if the ATS
meets certain, specified volume levels in U.S. Treasury Securities and
Agency Securities, and the Commission determines that such exemption is
not necessary or appropriate in the public interest or consistent with
the protection of investors; (3) include Government Securities ATSs
within the scope of Rule 304 (17 CFR 242.304) of Regulation ATS,\1\
which would provide new requirements for Government Securities ATSs
seeking to use the exemption from the definition of ``exchange'' under
Regulation ATS; (4) require that Government Securities ATSs use new
Form ATS-G in accordance with Rule 3a1-1(a) (17 CFR 240.3a1-1(a)); (5)
amend Rule 301(b)(5) (17 CFR 242.301(b)(5)) of Regulation ATS (``Fair
Access Rule'') to require Government Securities ATSs that meet certain
trading volume thresholds in transactions in U.S. Treasury Securities
or Agency Securities to comply with the Fair Access Rule; (6) amend
Rule 301 of Regulation ATS and Form ATS and Form ATS-R to provide that
such forms must be electronically filed; and (7) amend Rule 1000 (17
CFR 242.1000) of Regulation Systems Compliance and Integrity
(``Regulation SCI'') under the Exchange Act by expanding the definition
of ``SCI alternative trading system'' to include Government
[[Page 87107]]
Securities ATSs that meet a specified volume threshold in transactions
in U.S. Treasury Securities or Agency Securities, and as a result
subject these Government Securities ATSs to the requirements of
Regulation SCI.\2\
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\1\ The Commission adopted Rule 304 on July 18, 2018. See
Securities Exchange Act Release No. 83663 (July 18, 2018), 83 FR
38768 (August 7, 2018) (``NMS Stock ATS Adopting Release'').
\2\ The Commission adopted Regulation SCI on November 19, 2014.
See Securities Exchange Act Release No. 73639 (November 19, 2014),
79 FR 72252 (December 5, 2014) (``Regulation SCI Adopting
Release'').
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Table of Contents
I. Government Securities ATS: Background
A. ATS Markets for U.S. Government Securities
B. Current Regulatory Framework for Government Securities ATSs
C. Prior Comments Received About Government Securities Markets
II. Proposed Amendments to Regulation ATS for Government Securities
ATSs
A. Proposed Amendment to Exchange Act Rule 3a1-1(b)
B. Proposed Definitions for Government Securities ATSs Rules
C. Proposed Elimination of the Exemption for ATSs That Limit
Securities Activities to Government Securities and Repos
D. Application of Fair Access to Government Securities ATSs
E. Filing Requirements for Broker-Dealers That Operate ATSs That
Trade Government Securities and Non-Government Securities
F. Enhanced Filing Requirements for Government Securities ATSs
G. Public Disclosure of Form ATS-G and Related Commission Orders
H. Form ATS-G Requirements
III. Proposed Form ATS-G for Government Securities ATSs
A. Cover Page and Part I of Form ATS-G
1. Cover Page
2. Part I of Form ATS-G: Identifying Information
B. Part II of Form ATS-G: ATS-Related Activities of the Broker-
Dealer Operator and Affiliates
1. Broker-Dealer Operator and Its Affiliate Trading Activities
on the Government Securities ATS
2. Order Interaction With Broker-Dealer Operator; Affiliates
3. Arrangements With Other Trading Venues
4. Other Products and Services
5. Activities of Service Providers
6. Protection of Confidential Trading Information
C. Part III Form ATS-G: Manner of ATS Operations
1. Types of ATS Subscribers
2. Eligibility for ATS Services
3. Exclusion From ATS Services
4. Hours of Operations
5. Means of Entry
6. Connectivity and Co-Location
7. Order Types and Attributes
8. Order Sizes
9. Indications of Interest
10. Opening and Reopening
11. Trading Services, Facilities and Rules
12. Liquidity Providers
13. Segmentation; Notice
14. Counter-Party Selection
15. Display
16. Interaction With Related Markets
17. Closing
18. Trading Outside of Regular Trading Hours
19. Fees
20. Suspension of Trading
21. Trade Reporting
22. Clearance and Settlement
23. Market Data
24. Fair Access
25. Aggregate Platform-Wide Data; Trading Statistics
D. Part IV of Proposed Form ATS-G
IV. EDGAR Filing Requirements; Structured Data
V. Amendments to Regulation ATS, Form ATS, Form ATS-R, and Form ATS-
N
A. Amendments to Rules 301(b)(5) and 301(b)(6) of Regulation ATS
B. Amendment to Rule 301(b)(2)(vii)
C. Modernization and Electronic Filing of Form ATS and Form ATS-
R
D. Changes to Form ATS-N
VI. Proposed Amendments to Regulation SCI for Government Securities
ATS
VII. General Request for Comment
VIII. Concept Release on Electronic Corporate Bond and Municipal
Securities Market
IX. Paperwork Reduction Act
A. Summary of Collection of Information
1. Requirements Relating to Application of Rule 301(b) of
Regulation ATS to Currently Exempted Government Securities ATSs
2. Requirements Relating To Proposed Amendments to Rules
301(b)(2)(viii) and 304 of Regulation ATS, Including Proposed Form
ATS-G, and Amendments to Rule 301(b)(9)
3. Requirements Relating To Proposed Amendments to Rule
301(b)(5)
4. Requirements Related To Proposed Amendments to Rule
301(b)(2), Form ATS, and Form ATS-R
5. Requirements Related to Amendments to Regulation SCI
B. Proposed Use of Information
1. Proposed Amendments To Apply Rule 301(b) of Regulation ATS to
Currently Exempted Government Securities ATSs
2. Proposed Amendments to Rule 301(b)(5) of Regulation ATS
3. Proposed Amendments to Rule 301(b)(2), Form ATS, and Form
ATS-R
4. Proposed Application of Regulation SCI to Government
Securities ATSs
5. Proposed Rules 301(b)(2)(viii) and 304 of Regulation ATS,
Including Proposed Form ATS-G, and Proposed Rule 301(b)(9)
C. Respondents
D. Total Initial and Annual Reporting and Recordkeeping Burdens
1. Rule 301(b) of Regulation ATS to Currently Exempted
Government Securities ATSs
2. Proposed Amendments to Rules 301(b)(2)(viii) and 304 of
Regulation ATS, Including Proposed Form ATS-G
3. Proposed Amendments to Rule 301(b)(5) of Regulation ATS
4. Proposed Amendments to Rule 301(b)(2), Form ATS, and Form
ATS-R
5. Proposed Amendments to Regulation SCI
E. Collection of Information Is Mandatory
F. Confidentiality of Responses to Collection of Information
G. Retention Period for Recordkeeping Requirements
H. Request for Comments
X. Economic Analysis
A. Introduction
B. Baseline
1. Current State of Competition in the Market for Trading
Government Securities
2. Reporting Requirements for Government Securities ATSs
3. Information Asymmetries Due to Limited Public Information
About Operations of Government Securities ATSs
4. Government Securities ATSs Treatment of Subscriber
Confidential Trading Information
5. Fair Access Rule
6. Regulation SCI
7. Implications for Efficiency
C. Economic Effects and Effects on Efficiency, Competition, and
Capital Formation
1. Benefits
2. Costs
3. Efficiency, Competition, and Capital Formation
D. Reasonable Alternatives
1. Require Currently Exempted Government Securities ATSs To File
a Non-Public Form ATS
2. Require Proposed Form ATS-G Be Filed But Treat the
Information as Confidential
3. Initiate Differing Levels of Public Disclosure Depending on
Government Securities ATS Dollar Volume
4. Extend the Transparency Requirements of Regulation ATS to All
Non-ATS Trading Venues for Government Securities
5. Alter the Volume Thresholds for the Fair Access Rule and
Regulation SCI
6. Apply Rule 301(b)(6) of Regulation ATS to Government
Securities ATSs
7. Require Forms ATS-G, ATS, and ATS-R To Be Submitted in the
Inline XBRL Format
8. Require Forms ATS-G, ATS, and ATS-R To Be Filed on EFFS or on
Individual ATS Websites
E. Request for Comments
XI. Consideration of Impact on the Economy
XII. Regulatory Flexibility Act Certification
XIII. Statutory Authority and Text of Proposed Amendments
I. Government Securities ATS: Background
A. ATS Markets for U.S. Government Securities
An ATS is a trading system for securities that meets the definition
of ``exchange'' under federal securities laws but is not required to
register with the Commission as a national securities exchange if it
complies with the conditions to an exemption provided under Regulation
ATS. Since Regulation ATS was adopted in 1998, ATSs have become
increasingly important venues
[[Page 87108]]
for trading government securities.\3\ Currently, ATSs, particularly
those that operate in the secondary interdealer markets for on-the-run
U.S. Treasury Securities, have become a significant source of orders
and trading interest for government securities.\4\ ATSs for government
securities now operate with complexity similar to that of markets that
trade NMS stocks in terms of automation and speed of trading, the use
of limit order books, order types, algorithms, connectivity, data
feeds, and the active participation of principal trading firms
(``PTFs'') on ATSs.\5\ Furthermore, government securities \6\ make up
more than half of the outstanding debt issuances in the U.S. bond
market \7\ and play a critical role in the U.S. and global economies.
Over the last six months of 2019, the average daily trading volume in
government securities was approximately $835 billion, or roughly 95
percent of all fixed income trading volume in the U.S.\8\
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\3\ A venue for trading government securities can include, among
other things, an exchange, an ATS, an OTC market maker, or any other
broker or dealer operated platform for executing trading interest
internally by trading as principal or crossing orders as agent.
\4\ See infra Section X.B.1.
\5\ See NMS Stock ATS Adopting Release, supra note 1, at 38771
for a discussion about the current operational complexities of ATSs
that trade National Market System stocks (``NMS Stock ATSs'').
\6\ Under the Exchange Act, government securities are defined
as, among other things, securities which are direct obligations of,
or obligations guaranteed as to principal or interest by, the United
States. See 15 U.S.C. 78c(42)(A). Government securities include U.S.
Treasury securities, debt securities issued or guaranteed by a U.S.
executive agency, as defined in 5 U.S.C. 105, or government-
sponsored enterprise, as defined in 2 U.S.C. 622(8), and Agency
Mortgage-Backed Securities. Government securities also include (i)
securities which are issued or guaranteed by the Tennessee Valley
Authority or by corporations in which the United States has a direct
or indirect interest and which are designated by the Secretary of
the Treasury for exemption as necessary or appropriate in the public
interest or for the protection of investors; (ii) securities issued
or guaranteed as to principal or interest by any corporation the
securities of which are designated, by statute specifically naming
such corporation, to constitute exempt securities within the meaning
of the laws administered by the Commission; and (iii) any put, call,
straddle, option, or privilege on one of the aforementioned (subject
to limited exceptions). 15 U.S.C. 78c(42)(B)-(C).
\7\ See infra Section X.B.1.
\8\ See SIFMA Fixed Income Trading Volume, available at https://www.sifma.org/resources/research/us-fixed-income-trading-volume/.
This includes U.S. Treasury Securities, Agency Mortgage-Backed
Securities, and Federal Agency Securities. The six-month average is
the mean of the average daily trading volume for these instruments
from July to December 2019.
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The most liquid and commonly traded government securities are U.S.
Treasury Securities, which are direct obligations of the U.S.
Government issued by the U.S. Department of the Treasury (``Treasury
Department''). The Treasury Department issues several different types
of securities, including Treasury bills, nominal coupons notes and
bonds, Floating Rate Notes, and Treasury Inflation Protected
Securities. For each security type, the most recently issued (``on-the-
run'') securities are generally considered most liquid in the secondary
market.\9\ Market participants commonly refer to securities issued
prior to ``on-the-run'' securities as ``off-the-run'' securities.\10\
Market participants use U.S. Treasury Securities as an investment
instrument, hedging vehicle, and to source orders and trading interest,
among other things. U.S. banks commonly own U.S. Treasury Securities
due to their low risk and strong liquidity characteristics.
Additionally, U.S. Treasury Securities are often used as collateral in
lending arrangements or as margin on other financial transactions.
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\9\ On-the-run U.S. Treasury Securities are the most recently
issued nominal coupon securities. Nominal coupon securities pay a
fixed semi-annual coupon and are currently issued at original
maturities of 2, 3, 5, 7, 10, 20, and 30 years. These standard
maturities are commonly referred to as ``benchmark'' securities
because the yields for these securities are used as references to
price a number of private market transactions.
\10\ Off-the-run or ``seasoned'' U.S. Treasury Securities are
the issues that preceded the current on-the-run securities. The U.S.
Treasury Securities market also comprises futures and options on
U.S. Treasury Securities, and securities financing transactions in
which U.S. Treasury Securities are used as collateral. See
Department of the Treasury Release No. 2015-0013 (January 22, 2016),
Notice Seeking Public Comment on the Evolution of the Treasury
Market Structure, 81 FR 3928, 3928 (``Treasury Request for
Information''). For the purpose of this proposal, the Commission
focuses on the secondary cash market.
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For U.S. Treasury Securities, the secondary market is generally
bifurcated between the dealer-to-customer market, in which dealers
trade with their customers (e.g., investment companies, pension funds,
insurance companies, corporations, or retail) and the interdealer
market, in which dealers and specialty firms trade with one
another.\11\ Trading in the U.S. Treasury Securities dealer-to-customer
market is generally--and has historically been--conducted through
bilateral transactions. Customers, also referred to as ``end users,''
have not traditionally traded directly with other end users.\12\
Rather, end users primarily trade with dealers, and dealers use the
interdealer market as a source of orders and trading interest to help
facilitate their trading with clients in the dealer-to-customer market.
Such trading often occurs either over the phone or on trading venues
that facilitate the matching of buy and sell orders through electronic
systems. Broker-dealers also internalize a portion of their customer
flow, although the extent to which broker-dealers internalize is
unclear.\13\
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\11\ See id.
\12\ See id.
\13\ See id. For the purposes of this proposal, internalization
refers to a broker filling a customer order either from the firm's
own inventory or by matching the order with other customer order
flow, instead of sending the order to an interdealer market for
execution. See id. at 3928 n.5.
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In the interdealer market, the majority of trading in on-the-run
U.S. Treasury Securities currently occurs on ATSs using central limit
order books supported by advanced electronic trading technology.\14\
For off-the-run U.S. Treasury Securities,\15\ the majority of
interdealer trading occurs via bilateral transactions through
traditional voice-assisted brokers and electronic trading platforms
that offer various trading protocols to bring together buyers and
sellers,\16\ though, some interdealer trading of off-the-run U.S.
Treasury Securities does occur on ATSs.\17\ Furthermore, interdealer
trading for on-the-run U.S. Treasury Securities is generally
concentrated within a very small number of ATSs, especially when
compared to the market for NMS stocks, which is dispersed among many
trading venues. Specifically, over the past several years, the majority
of overall trading in the interdealer secondary market for on-the-run
U.S. Treasury Securities has
[[Page 87109]]
occurred on ATSs.\18\ For example, during the 4th quarter of 2019, one
ATS accounted for $15.60 trillion in total dollar volume in all U.S.
government securities, the majority of which were on-the-run U.S.
Treasury Securities.\19\
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\14\ See Joint Staff Report: The U.S. Treasury Market on October
15, 2014, at 11, 35-36, available at https://www.sec.gov/files/treasury-market-volatility-10-14-2014-joint-report.pdf (``October 15
Staff Report''). The October 15 Staff Report is a joint report about
the unusually high level of volatility and rapid round-trip in
prices that occurred in the U.S. Treasuries market on October 15,
2014. Among other things, the October 15 Staff Report provides an
overview of the market structure, liquidity, and applicable
regulations of the U.S. Treasury market, as well as the broad
changes to the structure of the U.S. Treasury market that have
occurred over the past two decades.
\15\ Also, as noted in the October 15 Staff Report issued by the
U.S. Department of the Treasury, Board of Governors of the Federal
Reserve System, Federal Reserve Bank of New York, the Commission,
and U.S. Commodity Futures Trading Commission, trading in off-the-
run U.S. Treasury Securities has always been less active than
trading in on-the-run U.S. Treasury Securities, and price discovery
in the cash markets primarily occurs in on-the-run securities. See
id.
\16\ See id. at 35.
\17\ While trading in on-the-run securities likely accounts for
more than half of total daily trading volumes, off-the-run U.S.
Treasury Securities make up over 95 percent of the outstanding
marketable U.S. Treasury Securities. See James Clark, Chris Cameron,
and Gabriel Mann, Examining Liquidity in On-the-Run and Off-the-Run
Treasury Securities, Treasury Notes Blog, https://www.treasury.gov/connect/blog/Pages/Examining-Liquidity-in-On-the-Run-and-Off-the-Run-Treasury-Securities.aspx.
\18\ See text accompanying infra note 583; Table X.2 and
accompanying text.
\19\ For an additional discussion of trading volume in the U.S.
bond market as a whole and U.S. Treasury Securities, see infra
Section X.B.
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Another type of government securities is Agency Securities. Agency
Securities include securities issued by or guaranteed by U.S.
Government corporations and U.S. Government sponsored enterprises
(``GSEs'').\20\ For example, the Government National Mortgage
Association (``Ginnie Mae'') is a U.S. Government corporation that
issues mortgage-backed securities guaranteed by the full faith and
credit of the U.S. Government. The assets collateralized into the
securities issued by Ginnie Mae are federally insured and guaranteed
mortgage loans. Agency Securities issued by GSEs include those issued
by the Federal Home Loan Banks (``FHLBs''), the Federal National
Mortgage Association (``Fannie Mae''), the Federal Home Loan Mortgage
Corporation (``Freddie Mac''), and the Student Loan Marketing
Association (``Sallie Mae'').\21\ Agency Securities issued by GSEs are
not normally backed by the full faith and credit of the U.S. Government
and therefore, may present some default and credit risk.
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\20\ See U.S. Department of the Treasury Resource Center,
``Fixed Income: Agency Securities,'' available at https://www.treasury.gov/resource-center/faqs/Markets/Pages/fixedfederal.aspx.
\21\ See id. The housing sector GSEs are Fannie Mae, Freddie
Mac, and the FHLB institutions, the latter of which issue debt
through the joint Office of Finance. Sallie Mae is a higher
education sector GSE that currently is in the transition process to
full privatization. See id.
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Agency Securities, while often not backed by the full faith and
credit of the U.S. Government, are generally considered to be very
liquid and offer state and local tax advantages to the holder. Market
participants frequently use ATSs to buy and sell Agency Securities,
although, based on the Commission's review of Form ATS-R filings,
transaction volume of Agency Securities is not as large as that of U.S.
Treasury Securities on ATSs.\22\ Investors, banks, and other market
participants often acquire Agency Securities in the secondary market to
support various investing strategies, such as hedging against other
more risky investments in a given portfolio.
---------------------------------------------------------------------------
\22\ Additionally, repurchase and reverse repurchase agreements
on government securities are also traded on some ATSs.
---------------------------------------------------------------------------
Trading of both U.S. Treasury Securities and Agency Securities has
become increasingly electronic, and ATSs that trade government
securities have evolved into very complex markets. This is particularly
true for the trading of on-the-run U.S. Treasury Securities,\23\ but is
also the case for the trading of other U.S. Treasury Securities and
Agency Securities.\24\ For example, based on the Commission's review of
Form ATS filings by ATSs that trade government securities, and
discussions with market participants for government securities, the
Commission believes that Government Securities ATSs often offer
subscribers a variety of order types to pursue both aggressive and
passive trading strategies, and low latency, high-speed connectivity to
the ATS. These ATSs frequently use automated systems, such as a central
limit order book, to match orders anonymously on a price/time priority
basis, and offer subscribers direct data feeds and co-location
services. Some Government Securities ATSs also segment orders into
categories by participants or allow participants the ability to
interact with specific counterparty groups on the ATS and facilitate
order interaction and execution.\25\
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\23\ The growth of electronic trading has contributed to a
marked shift in the composition of the interdealer cash market for
U.S. Treasury Securities over time. Traditionally, interdealer
brokers only allowed primary dealers to access their trading venues.
After 1992, however, interdealer brokers expanded access to all
entities that were netting members of the Government Securities
Clearing Corporation (which is now the Fixed Income Clearing
Corporation's Government Securities Division). Thereafter, other
entities gained access to these trading venues through their prime
brokers, who themselves had access, and in recent years the trading
venues granted direct access to an even wider range of participants,
including non-dealer PTFs, which account for more than half of the
trading activity in the futures and electronically brokered
interdealer cash markets. See October 15 Staff Report, supra note
14, at 36. See also Treasury Request for Information, supra note 10,
at 3928.
\24\ See James Collin Harkrader and Michael Puglia, Fixed Income
Market Structure: Treasuries vs. Agency MBS, Board of Governors of
the Federal Reserve System: FEDS NOTES (August 25, 2020), available
at https://www.federalreserve.gov/econres/notes/feds-notes/fixed-income-market-structure-treasuries-vs-agency-mbs-20200825.htm
(``August 25th FEDS Notes'') (explaining the recent evolution of the
government securities market structure).
\25\ This evolution in the interdealer secondary cash markets
for U.S. Treasury Securities was also highlighted in the October 15
Staff Report, see October 15 Staff Report, supra note 14, the
Treasury Request for Information, see Treasury Request for
Information, supra note 10, at 3928, and public comment received by
the Commission, see infra Section I.C.
---------------------------------------------------------------------------
With regard to the interdealer secondary markets for on-the-run
U.S. Treasury Securities, the continued growth of electronic trading
has contributed to an increased presence of PTFs in the
marketplace.\26\ Currently, PTFs account for the majority of trading
and provide significant top-of-the-book liquidity for on-the-run U.S.
Treasury Securities on electronic interdealer trading venues.\27\ From
July 1, 2019 to December 31, 2019, PTFs traded on 13 Government
Securities ATSs accounting for approximately 55 percent of total
Government Securities ATS trading volume.\28\ PTFs usually have direct
access to electronic interdealer trading venues for U.S. Treasury
Securities, and as is the case with the equity markets, PTFs trading on
the electronic interdealer trading venues for on-the-run U.S. Treasury
Securities often employ automated algorithmic trading strategies that
rely on speed and allow the PTFs to cancel or modify quotes in response
to perceived market events.\29\ Furthermore, most PTFs trading U.S.
Treasury Securities on these trading venues for on-the-run U.S.
Treasury Securities also restrict their activities to principal trading
and do not hold positions long term \30\ while dealers use the
interdealer market as a source of orders and trading interest to help
facilitate their trading with clients in the dealer-to-customer market.
As explained in the October 15 Staff Report, the increase in trading by
PTFs in the interdealer market may affect the amount of liquidity
available to end users in the dealer-to-customer market.\31\
---------------------------------------------------------------------------
\26\ PTFs are not, however, very active in the electronic
markets for Agency Securities. See August 25th FEDS Notes, supra
note 24 (``Though parts of the agency MBS market have moved from
voice-based to screen-based trading since the early 2000s,
algorithmic high-frequency electronic trading still does not
comprise a meaningful share of average daily volume and the market
remains devoid of PTF participation.'').
\27\ See October 15 Staff Report, supra note 14, at 36; Remarks
of Deputy Secretary Justin Muzinich at the 2019 U.S. Treasury Market
Structure Conference (September 23, 2019), available at https://home.treasury.gov/news/press-releases/sm782 (``Muzinich Remarks'').
\28\ See infra Table X.2. (ATS PTF volume/ATS volume) x 100 =
PTF share of ATS volume (%).
\29\ See October 15 Staff Report, supra note 14, at 32, 35-36,
39.
\30\ See id. at 38.
\31\ See id. at 37.
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B. Current Regulatory Framework for Government Securities ATSs
Despite the critical role of government securities in the U.S. and
global economy, the significant volume in government securities
transacted on ATSs, and these ATSs' growing importance to investors and
overall securities market structure, an ATS that limits its securities
activities to government securities or repurchase and reverse
repurchase agreements on
[[Page 87110]]
government securities (``repos''), and registers as a broker-dealer or
is a bank (``Currently Exempted Government Securities ATS'') is exempt
from exchange registration and is not required to comply with
Regulation ATS. Furthermore, ATSs that trade both government securities
and non-government debt securities (e.g., corporate bonds) are not
subject to all the provisions of Regulation ATS, such as the Fair
Access Rule, and are not subject to Regulation SCI.
Regulation ATS and its related rules provide an exemption from the
definition of ``exchange'' under Section 3(a)(1) of the Exchange
Act,\32\ coupled with alternate regulatory requirements with which ATSs
must comply to achieve and maintain their eligibility for the
exemption. Exchange Act Rule 3b-16(a) provides a functional test to
assess whether a trading platform meets the definition of ``exchange''
under Section 3(a)(1) of the Exchange Act.\33\ Under Rule 3b-16(a), an
organization, association, or group of persons shall be considered to
constitute, maintain, or provide a market place or facilities for
bringing together purchasers and sellers of securities or for otherwise
performing with respect to securities the functions commonly performed
by a stock exchange, if such organization, association, or group of
persons: (1) Brings together the orders for securities of multiple
buyers and sellers; and (2) uses established, non-discretionary methods
(whether by providing a trading facility or by setting rules) under
which such orders interact with each other, and the buyers and sellers
entering such orders agree to the terms of a trade.\34\ Accordingly, an
entity that provides a marketplace for bringing together buyers and
sellers for government securities, regardless of the applied
technology, would need to consider whether its activities meet the
definition of an ``exchange'' under the federal securities laws.\35\
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\32\ 15 U.S.C. 78c(a)(1). Pursuant to Section 3(a)(1) of the
Exchange Act, the statutory definition of ``exchange'' means any
organization, association, or group of persons, whether incorporated
or unincorporated, which constitutes, maintains, or provides a
market place or facilities for bringing together purchasers and
sellers of securities or for otherwise performing with respect to
securities the functions commonly performed by a stock exchange as
that term is generally understood, and includes the market place and
the market facilities maintained by such exchange.
\33\ See 15 U.S.C. 78e and 78f.
\34\ 17 CFR 240.3b-16(a). Exchange Act Rule 3b-16(b) explicitly
excludes from that definition certain systems that do not meet the
definition of ``exchange,'' such as order routers and systems that
allow persons to enter orders for execution against the bids and
offers of a single dealer. See 17 CFR 240.3b-16(b). See also NMS
Stock ATS Adopting Release, supra note 1, at n.32 and accompanying
text.
\35\ For example, whether or not a particular system is an
exchange does not turn solely on the level of automation used;
``orders'' can be given over the telephone, as well as
electronically. See Securities Exchange Act Release No. 40760
(December 8, 1998), 63 FR 70844, 70850 (December 22, 1998)
(``Regulation ATS Adopting Release'').
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Section 5 of the Exchange Act \36\ requires an organization,
association, or group of persons that meets the definition of
``exchange'' under Section 3(a)(1) of the Exchange Act,\37\ unless
otherwise exempt, to register with the Commission as a national
securities exchange pursuant to Section 6 of the Exchange Act.\38\
Exchange Act Rule 3a1-1(a)(2) \39\ provides an exemption from national
securities exchange registration for ATSs, which are systems that meet
the Rule 3b-16(a) criteria and do not perform self-regulatory
activities.\40\ As a result of the exemption, an organization,
association, or group of persons that meets the definition of an
exchange and complies with Regulation ATS is not required by Section 5
of the Exchange Act to register as a national securities exchange
pursuant to Section 6 of Exchange Act and is not a self-regulatory
organization (``SRO''), and therefore, is not required to comply with
regulatory requirements applicable to national securities exchanges and
SROs.\41\
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78e.
\37\ 15 U.S.C. 78c(a)(1).
\38\ 15 U.S.C. 78f.
\39\ See 17 CFR 240.3a1-1(a)(2).
\40\ See 17 CFR 242.300(a). Rule 300(a) of Regulation ATS
defines an ATS as any organization, association, person, group of
persons, or system: (1) That constitutes, maintains, or provides a
market place or facilities for bringing together purchasers and
sellers of securities or for otherwise performing with respect to
securities the functions commonly performed by a stock exchange
within the meaning of Rule 3b-16; and (2) that does not: (i) Set
rules governing the conduct of subscribers other than the conduct of
such subscribers' trading on such organization, association, person,
group of persons, or system; or (ii) discipline subscribers other
than by exclusion from trading.
\41\ See 15 U.S.C. 78e (Section 5 of the Exchange Act); 78f
(Section 6 of the Exchange Act); and 78s (Section 19 of the Exchange
Act). See also NMS Stock ATS Adopting Release, supra note 1, at
78772. An ATS that fails to comply with Regulation ATS would no
longer qualify for the exemption provided under Rule 3a1-1(a)(2) and
thus risks operating as an unregistered exchange in violation of
Section 5 of the Exchange Act. See 15 U.S.C. 78e. See also NMS Stock
ATS Adopting Release, supra note 1, at 78772.
---------------------------------------------------------------------------
The vast majority of ATSs that operate today do so pursuant to the
exemption provided by Exchange Act Rule 3a1-1(a)(2), which requires the
ATSs to comply with Regulation ATS and register as broker-dealers.
Currently Exempted Government Securities ATSs, however, operate
pursuant to Exchange Act Rule 3a1-1(a)(3) \42\ and Rule
301(a)(4)(ii)(A).\43\ These provisions currently exempt an ATS from
compliance with the requirements in Rule 301(b) of Regulation ATS \44\
if, in relevant part, the ATS is registered as a broker-dealer under
Sections 15(b) \45\ or 15C \46\ of the Exchange Act, or is a bank, and
limits its securities activities to government securities, as defined
in Section 3(a)(42) of the Exchange Act, repos, any puts, calls,
straddles, options, or privileges on government securities, other than
puts, calls, straddles, options, or privileges that: (1) Are traded on
one or more national securities exchanges; or (2) for which quotations
are disseminated through an automated quotation system operated by a
registered securities association, and commercial paper.\47\
Accordingly, such Currently Exempted Government Securities ATSs are not
required to register as a national securities exchange or comply with
Regulation ATS.\48\ To the Commission's knowledge, most Currently
Exempted Government Securities ATSs operating pursuant to this
exemption limit their securities activities solely to government
securities and register as broker-dealers with the Commission.\49\
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\42\ 17 CFR 240.3a1-1(a)(3).
\43\ 17 CFR 242.301(a)(4)(ii)(A).
\44\ 17 CFR 242.301(b).
\45\ See 15 U.S.C. 78o(b) (Section 15(b) of the Exchange Act
pertains to the registration and regulation of brokers and dealers).
\46\ See 15 U.S.C. 78o-5 (Section 15C of the Exchange Act
pertains to government securities brokers and dealers).
\47\ See 15 U.S.C. 78c(a)(42). The Commission notes that the
definition of ``government securities'' in Section 3(a)(42) of the
Exchange Act includes certain puts, calls, straddles, options, or
privileges on government securities, other than puts, straddles,
options, or privileges that: (1) Are traded on one or more national
securities exchanges; or (2) for which quotations are disseminated
through an automated quotation system operated by a registered
securities association. See supra note 6. Therefore, references to
``government securities'' throughout this proposal include such
puts, calls, straddles, options, or privileges on government
securities.
\48\ See 17 CFR 242.301(a)(4)(i) and (ii)(A). Although not
required to register as a national securities exchange or comply
with Regulation ATS, a Currently Exempted Government Securities ATS
may need to register as a broker-dealer under Section 15(b) or as a
government securities broker or government securities dealer
pursuant to Exchange Act Section 15C, and comply with associated
regulatory requirements. See, e.g., 17 CFR, Subchapter A--
Regulations under Section 15C of the Securities Exchange Act of
1934.
\49\ Some ATSs that are eligible for the exemption voluntarily
comply with Regulation ATS, even though ATSs that trade only
government securities are not required to comply with Regulation ATS
at all.
---------------------------------------------------------------------------
ATSs that trade government securities or repos and other
securities--such as corporate bonds or municipal securities--cannot use
this exemption
[[Page 87111]]
because these ATSs do not limit their securities activities solely to
government securities or repos. Such ATSs must either register as a
national securities exchange or comply with Regulation ATS pursuant to
Exchange Act Rule 3a1-1(a)(2), which includes, among other things,
registering as a broker-dealer under Section 15 of the Exchange Act. As
a registered broker-dealer, an ATS must also, in addition to complying
with Regulation ATS, comply with broker-dealer filing and conduct
obligations, including becoming a member of an SRO, such as the
Financial Industry Regulatory Authority (``FINRA''). Among other
things, Government Securities ATSs that are currently subject to
Regulation ATS must report transactions in U.S. Treasury Securities and
Agency Securities to the Trade Reporting and Compliance Engine
(``TRACE''),\50\ and FINRA publicly disseminates data about these
transactions. Currently, FINRA publishes weekly aggregated transaction
information on U.S. Treasury Securities and disseminates certain
transaction information on Agency Securities immediately upon receipt
of a transaction report.\51\
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\50\ See FINRA Rule 6730(a)(1) requires FINRA members to report
transactions in TRACE-Eligible Securities, which FINRA Rule 6710
defines to include U.S. Treasury Securities and Agency Securities.
For each transaction in U.S. Treasury Securities and Agency
Securities, a FINRA member would be required to report the CUSIP
number or similar numeric identifier or FINRA symbol; size (volume)
of the transaction; price of the transaction (or elements necessary
to calculate price); symbol indicating whether transaction is a buy
or sell; date of trade execution (``as/of'' trades only); contra-
party's identifier; capacity (principal or agent); time of
execution; reporting side executing broker as ``give-up'' (if any);
contra side introducing broker (in case of ``give-up'' trade); the
commission (total dollar amount), if applicable; date of settlement;
if the member is reporting a transaction that occurred on an ATS,
the ATS's separate Market Participant Identifier (``MPID''); and
trade modifiers as required. For when-issued transactions in U.S.
Treasury Securities, a FINRA member would be required to report the
yield in lieu of price. See FINRA Rule 6730(c).
\51\ FINRA Rule 6750(a) requires FINRA to disseminate
information on all transactions on certain securities, including
Agency Securities (but excluding U.S. Treasury Securities),
immediately upon receipt of the transaction report. FINRA is
permitted to publish or distribute weekly aggregated transaction
information and statistics on U.S. Treasury Securities, and has
stated that it intends to publish weekly volume information
aggregated by U.S. Treasury subtype (e.g., Bills, Floating Rate
Notes, Treasury Inflation-Protected Securities, and Nominal
Coupons). See Securities Exchange Release No. 87837 (December 20,
2019), 84 FR 71986 (December 30, 2019) (approving a proposed rule
change to allow FINRA to publish or distribute aggregated
transaction information and statistics on U.S. Treasury Securities).
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In addition to registering as a broker-dealer, an ATS that trades
government securities or repos and securities other than government
securities or repos must file notices with the Commission on Form ATS
(which are ``deemed confidential'' and ``available only to the
examination of Commission staff, state securities authorities, and the
self-regulatory organizations'') to disclose their operations to the
Commission pursuant to Rule 301(b)(2); cooperate with the Commission's
or an SRO's inspection, examination, or investigation of the ATS or any
of the ATS's subscribers pursuant to Rule 301(b)(7); make, keep
current, and preserve certain records as prescribed under Rule 302 and
Rule 303 of Regulation ATS pursuant to Rule 301(b)(8); periodically
report certain information about trading activities on Form ATS-R
pursuant to Rule 301(b)(9); adopt written safeguards and written
procedures to protect subscriber confidential trading information and
separate ATS functions from other broker-dealer functions, including
principal and customer trading pursuant to Rule 301(b)(10); and not use
in its name the word ``exchange,'' or derivations of the word
``exchange'' pursuant to Rule 301(b)(11).\52\
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\52\ See 17 CFR 242.301(b)(1); 301(b)(2); and 301(b)(7) through
(b)(11). The order display and execution access provisions under
Rule 301(b)(3) and the related fee restrictions of Rule 301(b)(4) of
Regulation ATS only apply to an ATS's NMS stock activities. See 17
CFR 242.301(b)(3)-(4).
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Such Government Securities ATSs, however, are subject to only
certain provisions of Regulation ATS because not all the provisions of
Regulation ATS are applicable to trading in government securities. In
particular, government securities are not included in any category of
securities under the Fair Access Rule.\53\ Today, the categories of
securities under the Fair Access Rule include NMS stocks, equity
securities that are not NMS stocks and for which transactions are
reported to an SRO, municipal securities, and corporate debt
securities.\54\ Under the Fair Access Rule, an ATS that meets the
average daily volume threshold for a category of securities during at
least four of the preceding six calendar months must: (1) Establish
written standards for granting access to trading on its system; (2) not
unreasonably prohibit or limit any person in respect to access to
services offered by such ATS by applying the above written standards in
an unfair or discriminatory manner; and (3) make and keep certain
records. In addition, Regulation SCI does not apply to ATSs with
respect to their trading in government securities.\55\ The capacity,
integrity, and security of automated systems provisions of Rule
301(b)(6) under Regulation ATS (``Capacity, Integrity, and Security
Rule'') \56\ also do not apply to the government securities activities
of an ATS.\57\
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\53\ 17 CFR 242.301(b)(5).
\54\ See id.
\55\ See infra Section VI (describing the types of entities that
are currently subject to the requirements of Regulation SCI).
\56\ 17 CFR 242.301(b)(6).
\57\ Rule 301(b)(6) requires an ATS that trades only municipal
securities or corporate debt securities with 20 percent or more of
the average daily volume traded in the United States during at least
four of the preceding six calendar months to comply with the
Capacity, Integrity, and Security Rule. Prior to the Commission's
adoption of Regulation SCI, the requirements of Rule 301(b)(6) also
applied to ATSs with regard to their trading in NMS stocks and non-
NMS stocks; however, Regulation SCI superseded and replaced the
requirements of Rule 301(b)(6) with regard to ATSs that trade NMS
stocks and non-NMS stocks. See infra Section VI (describing each
requirement of Regulation SCI).
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Finally, Government Securities ATSs that trade only government
securities or repos are not required to comply with rules applicable to
ATSs that trade NMS stocks, including Rule 304 of Regulation ATS.\58\
Rule 304 requires only NMS Stock ATSs to file a public Form ATS-N,
which discloses the manner of the NMS Stock ATS's operations and the
ATS-related activities of the broker-dealer operator and its
affiliates. Form ATS-N disclosures are subject to review by the
Commission and an NMS Stock ATS is prohibited from operating unless the
Form ATS-N is effective. ATSs that transact in government securities or
repos are also not required to comply with the order display and
execution access provisions under Rule 301(b)(3) \59\ and the related
fee restrictions of Rule 301(b)(4),\60\ both of which only apply to an
ATS's NMS stock activities.
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\58\ 17 CFR 242.304.
\59\ Rule 301(b)(3) only applies to ATSs that (1) display
subscriber orders in an NMS stock to any person (other than an
employee of the ATS) and (2) during at least four of the preceding
six calendar months, had an average daily trading volume of 5
percent or more of the aggregate average daily share volume for that
NMS stock, as reported by an effective transaction reporting plan.
See 17 CFR 242.301(b)(3).
\60\ Under Rule 301(b)(4), an ATS must not charge any fee to
broker-dealers that access the ATS through a national securities
exchange or national securities association that is inconsistent
with the equivalent access to the ATS that is required under Rule
301(b)(3)(iii), and thus, the requirements of Rule 301(b)(4) also
only apply to ATSs that transact in NMS stock and trigger the order
display requirements of Rule 301(b)(3). See 17 CFR 242.301(b)(4).
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C. Prior Comments Received About Government Securities Markets
On July 18, 2018, the Commission adopted amendments to Regulation
ATS and Exchange Act Rule 3a1-1 to enhance operational transparency of,
[[Page 87112]]
and increase Commission oversight for, NMS Stock ATSs.\61\ In the
Commission's proposal for these amendments, the Commission solicited
comment about whether the proposal should apply to other types of ATSs,
including Currently Exempted Government Securities ATSs and Government
Securities ATSs. The Commission also acknowledged the observations made
in the October 15 Staff Report about the significance of the government
securities markets and the rapid and continuing evolution of the
electronic secondary market in U.S. Treasury Securities. The Commission
solicited comment about removing the exemption for Currently Exempted
Government Securities ATSs and amending Regulation ATS to apply
provisions of Regulation ATS to Government Securities ATSs, including
the Fair Access Rule.\62\
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\61\ See NMS Stock ATS Adopting Release, supra note 1.
\62\ See Securities Exchange Act Release No. 76474 (November 18,
2015), 80 FR 80998, 81018-20 (December 28, 2015) (``NMS Stock ATS
Proposing Release'').
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The Commission received several comments regarding Government
Securities ATSs.\63\ Commenters generally supported increasing
operational transparency for Government Securities ATSs.\64\ Several
commenters suggested that the current exemption should be eliminated or
that Regulation ATS should be amended to apply to Currently Exempted
Government Securities ATSs,\65\ and several commenters stated that the
proposal relating to the oversight of NMS Stock ATSs should be expanded
to include Government Securities ATSs.\66\ One commenter, however,
stated that Government Securities ATSs should not be subject to
increased regulation, as such requirements would place such ATSs at a
disadvantage with respect to non-ATS trading venues that trade
government securities.\67\ Another commenter stated that Government
Securities ATSs should be excluded from the scope of the Form ATS-N-
like requirements because of the different trading characteristics they
offer and the relatively recent entry of ATSs into this space.\68\ The
commenter also stated that any additional regulatory proposals with
respect to Government Securities ATSs should be informed by the results
of any review of the U.S. Treasury Securities market structure in
connection with the October 15 Staff Report.\69\
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\63\ All comments received on the NMS Stock ATS Proposing
Release regarding Government Securities ATS are available at:
https://www.sec.gov/comments/s7-23-15/s72315.shtml.
\64\ See, e.g., Letter from Venu Palaparthi, Senior Vice
President, Virtu Financial, to Brent J. Fields, Secretary,
Commission, dated December 2, 2015 (``Virtu Letter''), at 2; Letter
from Dennis M. Kelleher, President and Chief Executive Officer,
Stephen W. Hall, Legal Director & Securities Specialist, and Allen
Dreschel, Attorney, Better Markets, Inc., to Brent J. Fields,
Secretary, Commission, dated February 26, 2016 (``Better Markets
Letter''), at 8; and Letter from Theodore R. Lazo, Managing Director
and Associate General Counsel, Securities Industry and Financial
Markets Association, to Brent J. Fields, Secretary, Commission,
dated March 7, 2016 (``SIFMA Letter''), at 36. See also Letter from
Jonathan A. Clark, Chief Executive Officer, and James C. Dolan,
Chief Compliance Office, Luminex Trading & Analytics LLC, to Brent
J. Fields, Secretary, Commission, dated February 23, 2016 (``Luminex
Letter''), at 3 (supporting public disclosure of Form ATS for all
ATSs); Letter from David W. Blass, General Counsel, Investment
Company Institute, to Brent J. Fields, Secretary, Commission, dated
February 25, 2016 (``ICI Letter''), at 11-12; and Letter from Marc
R. Bryant, Senior Vice President and Deputy General Counsel,
Fidelity Investments, to Brent J. Fields, Secretary, Commission,
dated February 26, 2016 (``Fidelity Letter''), at 7 (generally
supporting improving transparency into the operations of non-NMS
Stock ATSs by providing public disclosure of Form ATS).
\65\ See Virtu Letter, supra note 64, at 2 (stating that
Regulation ATS should be amended to include electronic platforms for
government securities because greater public transparency and
enhanced monitoring of trading activity in these securities would
result in greater investor confidence with respect to U.S. Treasury
Securities markets); Letter from Rick A. Fleming, Investor Advocate,
Office of the Investor Advocate, Commission, to Brent J. Fields,
Secretary, Commission, dated September 9, 2016 (``OIA Letter''), at
16-19 (supporting the elimination of the exemption for Currently
Exempted Government Securities ATSs and making their Form ATS public
as an interim step); and Letter from Adam C. Cooper, Senior Managing
Director and Chief Legal Officer, Citadel LLC, to Brent J. Fields,
Secretary, Commission, dated March 1, 2016 (``Citadel Letter''), at
4. Another commenter also did not object to applying the
requirements of Regulation ATS to systems that cross trades in
government securities. See Letter from Howard Meyerson, General
Counsel, Liquidnet, Inc., to Brent J. Fields, Secretary, Commission,
dated February 26, 2016 (``Liquidnet Letter''), at 3.
\66\ See, e.g., Letter from Kurt N. Schacht, Managing Director,
Standards & Advocacy, CFA Institute, and James C. Allen, Head,
Capital Markets Policy, CFA Institute, to Brent J. Fields,
Secretary, Commission, dated February 26, 2016, at 3-4 (stating that
there is not a compelling case that public disclosure of relatively
fundamental organizational structure would harm trading venues and
should, therefore, be hidden from market participants); Letter from
Micah Hauptman, Financial Services Counsel, Consumer Federation of
America, to Brent J. Fields, Secretary, Commission, dated February
26, 2016, at Section II.A (stating that requiring all ATSs to
publicly disclose their Form ATS-N should foster greater competition
for order flow among ATSs on terms that are beneficial to
investors); Better Markets Letter, supra note 64, at 8 (stating that
all investors in securities deserve equally robust protections
against conflicts of interest and assurances of access to
transparent information relating to their trading venues, and that
all trading venues should be able to conduct their businesses on a
level regulatory playing field regardless of the types of securities
trading they seek to offer to investors); Letter from Dave Lauer,
Chairman, Healthy Markets Association, to Brent J. Fields,
Secretary, Commission, dated February 26, 2016 (``HMA Letter''), at
5-6 (stating that while market characteristics across asset classes
are different and such differences may render information that is
extremely material for one asset class irrelevant to trading in
another asset class, those circumstances are generally rare);
Citadel Letter, supra note 65, at 4; and Letter from Stuart J.
Kaswell, Executive Vice President, Managing Director, and General
Counsel, Managed Funds Association, and Ji[rcaron][iacute]
Kr[oacute]l, Deputy Chief Executive Officer, Global Head of
Government Affairs, Alternative Investment Management Association,
to Brent J. Fields, Secretary, Commission, dated February 26, 2016
(``MFA/AIMA Letter''), at 2-4.
\67\ See Letter from John A. McCarthy, General Counsel, KCG
Holdings, Inc., to Brent J. Fields, Secretary, Commission, dated
March 15, 2016 (``KCG Letter''), at 13. See also Liquidnet Letter,
supra note 65, at 3 (stating that the enhanced transparency
requirements should be limited to the trading of equity securities).
This commenter, however, did not object to the requirements of
Regulation ATS applying to ATSs that cross trades in government
securities. See id.
\68\ See SIFMA Letter, supra note 64, at 35-36. This commenter,
however, generally supported increased transparency for Government
Securities ATSs, although it stated that disclosure to give effect
to this goal should be tailored to the unique characteristics of the
government securities market, and that it would support making
current Form ATS for Government Securities ATSs publicly available
as an interim step. Id. at 36. Another commenter stated that the
disclosure required by Form ATS-N might not be appropriate for
securities other than NMS stocks at this time in their development,
and recommended that the Commission carefully study these other
markets before proceeding with an enhanced disclosure regime for
ATSs that offer trading exclusively in non-NMS stocks. See ICI
Letter, supra note 64, at 11. However, this commenter did not
explicitly comment on Government Securities ATSs, or whether ATSs
that currently transact solely in government securities should or
should not be required to comply with the Regulation ATS
requirements or be subject to any transparency requirements at this
time. Id.
\69\ See SIFMA Letter, supra note 64, at 35. See also October 15
Staff Report, supra note 14, at 47 (stating that the authors of the
report, among other items, support a review of the current
regulatory requirements applicable to the government securities
market and its participants).
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Of the several commenters that expressed support for expanding the
ATS-N disclosure regime to include Government Securities ATSs,\70\ one
commenter in particular described the importance of the U.S. Treasury
Securities market and the depth, liquidity, and significant volume in
recently issued benchmark or on-the-run U.S. Treasury Securities
transacted on ATSs.\71\ This commenter also stated that the U.S.
Treasury Securities market has undergone significant changes with the
transition to electronic trading and the entry of new liquidity
providers.\72\ The commenter stated that removing the exemption for
Government Securities ATSs would subject them to appropriate oversight
and that market participants using these ATSs would benefit from
increased operational transparency
[[Page 87113]]
regarding subscriber segmentation, potential conflicts of interest,
order types, and fees.\73\
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\70\ See supra note 64.
\71\ See Citadel Letter, supra note 65, at 4.
\72\ See id.
\73\ See id.
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Another commenter stated that many of the concerns surrounding
potential conflicts of interest that arise between an ATS and the
activities of its broker-dealer operator and affiliates are equally
relevant with respect to Government Securities ATSs as with NMS Stock
ATSs.\74\ This commenter stated that there is little information
available to investors and the public about Government Securities ATSs
and that Form ATS-N-like disclosures for these ATSs could greatly
enhance public transparency of these markets.\75\ Another commenter
stated that making the Form ATS public for Government Securities ATSs
would enhance transparency and provide important disclosures to market
participants and the public about increasingly important venues of cash
trading in government securities.\76\ In addition, of the commenters
who stated that Government Securities ATSs should be subject to similar
obligations as NMS Stock ATSs,\77\ one commenter specifically asserted
that Government Securities ATSs should be subject to the Fair Access
Rule to prevent them from arbitrarily excluding specific market
participants.\78\ This commenter stated that these requirements would
not only promote market safety, stability, and integrity, but would
also improve conditions for investors through increased transparency,
more competition, better pricing, and new sources of orders and trading
interest.\79\ Moreover, this commenter supported a comprehensive review
of the current regulatory framework for electronic trading platforms
for government securities in an effort to improve market transparency,
fairness, and resiliency. This commenter stated that requiring
electronic trading platforms for government securities to comply with
the systems compliance and integrity standards in Regulation SCI, among
other things, would promote a transparent, efficient, and resilient
market.\80\
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\74\ See MFA/AIMA Letter, supra note 66, at 3.
\75\ See id. This commenter also stated that at a minimum, a
trading venue should clearly disclose the manner of its operations.
See id. at 4.
\76\ See OIA Letter, supra note 65, at 19.
\77\ See supra note 64.
\78\ See Citadel Letter, supra note 65, at 4. This commenter
also stated that government securities trading venues that do not
currently meet the definition of ATS, such as trading venues that
use request for quote systems, should be subject to equivalent
regulation as well. Id. at 5.
\79\ See id. at 4.
\80\ See id.
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II. Proposed Amendments to Regulation ATS for Government Securities
ATSs
The Commission recognizes that Form ATS and the requirements of
Regulation ATS were designed before Government Securities ATSs operated
as electronic platforms with the automation, speed, and complexity that
they do today, and that market conditions for government securities
have substantially changed since the adoption of Regulation ATS in
1998. The Commission has carefully considered prior comments it
received relating to Government Securities ATSs, the significant role
of Government Securities ATSs in today's government securities market
structure, and the complexity of Government Securities ATS operations,
and is proposing the amendments described below.\81\
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\81\ See infra Sections II.A-H and III.
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A. Proposed Amendment to Exchange Act Rule 3a1-1(b)
The Commission is proposing to amend the existing classes of
securities set forth in Exchange Act Rule 3a1-1(b)(3) \82\ to add U.S.
Treasury Securities and Agency Securities for which transactions are
reported to an SRO.\83\ As a result of the proposed change, the
Commission could require a Government Securities ATS, which otherwise
meets the conditions to the Rule 3a1-1(a) exemption,\84\ to register as
a national securities exchange if the ATS meets specified volume levels
in U.S. Treasury Securities or Agency Securities \85\ and the
Commission finds that the exemption would not be necessary or
appropriate in the public interest or consistent with the protection of
investors.\86\
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\82\ 17 CFR 240.3a1-1(b).
\83\ The Commission is proposing to specify that Rule 3a1-1(b)
would apply to U.S. Treasury Securities and Agency Securities for
which transactions are reported to an SRO to allow the Commission
and market participants to calculate the volume level threshold
provided under the rule.
\84\ See supra note 40 and accompanying text.
\85\ The volume thresholds are met if during three of the
preceding four calendar quarters, the ATS had (i) fifty percent or
more of the average daily dollar trading volume in any security and
five percent or more of the average daily dollar trading volume in
any class of securities; or (ii) forty percent or more of the
average daily dollar trading volume in any class of securities. See
17 CFR 240.3a1-1(b)(1).
\86\ See 17 CFR 240.3a1-1(b)(2).
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The Commission would provide a Government Securities ATS with
notice and an opportunity to respond before determining the exemption
from national securities exchange registration is not necessary or
appropriate in the public interest or consistent with the protection of
investors. The Commission would take into account the requirements for
exchange registration under Section 6 of the Exchange Act and the
objectives of the national market system. This amendment would extend
the existing provision under Rule 3a1-1(b) applicable to ATSs that
trade NMS stocks, corporate debt, municipal securities, and OTC equity
securities to ATSs that trade U.S. Treasury Securities or Agency
Securities and enhance the Commission's ability to regulate certain
large volume ATSs whose registration as a national securities exchange,
and the associated increased obligations that arise therefrom, may be
in the public interest.
Request for Comment
1. Should the Commission amend Exchange Act Rule 3a1-1(b) to add
U.S. Treasury Securities and Agency Securities to the list of existing
classes of securities set forth in Rule 3a1-1(b)(3)?
B. Proposed Definitions for Government Securities ATSs Rules
The Commission is proposing to amend Rule 300 of Regulation ATS to
define ``Government Securities ATS'' to mean an alternative trading
system, as defined in Rule 300(a), that trades government securities,
as defined in section 3(a)(42) of the Exchange Act (15 U.S.C.
78c(a)(42)),\87\ or repurchase and reverse repurchase agreements on
government securities.\88\ To meet the definition of a Government
Securities ATS, the organization, association, person, group of
persons, or system must meet the definition of an alternative trading
system under Rule 300(a) of Regulation ATS.\89\ The Commission is also
proposing that a Government Securities ATS shall not trade securities
other than government securities or repos \90\ and that trading of
securities other than government securities or repos would require the
separate filing of either a Form ATS or a Form ATS-N, depending on the
types of securities traded.\91\ This amendment would not, however,
impose new compliance requirements on such ATSs other than complying
with Rule 304 and
[[Page 87114]]
filing Form ATS-G.\92\ Under the proposal, if a registered broker-
dealer or government securities broker or government securities dealer
that operates the ATS (``broker-dealer operator'') that currently
operates an ATS for government securities and non-government securities
such as, for example, corporate bonds, the broker-dealer operator would
operate two separate ATSs: (1) A Government Securities ATS that would
trade government securities, which would be subject to Rule 304, and
file disclosures on proposed Form ATS-G and (2) a non-Government
Securities ATS that would trade corporate bonds, which would not be
subject to Rule 304, and file disclosures on its existing Form ATS, as
amended to remove references to government securities. To provide that
the same approach applies to broker-dealers that operate NMS Stock ATSs
and non-NMS Stock ATSs, and to clarify requirements applicable to NMS
Stock ATSs, the Commission is proposing to amend the definition of
``NMS Stock ATS'' to state that an NMS Stock ATS shall not trade
securities other than NMS stocks.\93\ Today, securities other than NMS
stocks are not traded in any NMS Stock ATS and the proposed amendment
to the definition of NMS Stock ATS would have no impact on any existing
ATS nor on the requirements applicable to existing NMS Stock ATSs.\94\
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\87\ The definition of government security in section 3(a)(42)
of the Exchange Act encompasses ``any put, call, straddle, option,
or privilege'' on any government security listed in subsections (A)-
(C) of the definition, other than any put, call, straddle, option or
privilege that is traded on one or more national securities
exchanges, or for which quotations are disseminated through an
automated quotation system operated by a registered securities
association. 15 U.S.C. 78c(a)(42)(D).
\88\ See proposed Rule 300(l).
\89\ 17 CFR 242.300(a). See Regulation ATS Adopting Release,
supra note 35, at 70851-52.
\90\ See proposed Rule 300(l).
\91\ An ATS that does not trade NMS stocks or government
securities, as proposed, must file Form ATS.
\92\ Broker-dealers that operate Government Securities ATSs that
are currently subject to Regulation ATS already must have
established written safeguards and written procedures to protect
subscribers' confidential trading information, pursuant to Rule
301(b)(10), and already must make and keep records pursuant to Rule
301(b)(8) that are tailored to the types of securities the ATS
trades and the subscribers that trade those securities on the ATS.
The Commission believes the proposal is broadly consistent with the
manner in which broker-dealers that operate NMS Stock ATSs and non-
NMS Stock ATSs currently comply with Regulation ATS. For further
discussion, see infra Section II.E.
\93\ See proposed Rule 300(k).
\94\ Broker-dealer operators of NMS Stock ATSs are currently
required to file a Form ATS-N for NMS Stock ATS operations and a
separate Form ATS for any non-NMS Stock ATS operations. See current
Rule 301(b)(2)(viii). This would not change under this proposal.
---------------------------------------------------------------------------
The Commission is also proposing to amend Rule 300 of Regulation
ATS to define the terms ``Covered ATS'' and ``Covered Form.'' \95\ The
proposed terms would be used throughout Rule 304 because Government
Securities ATSs, in addition to NMS Stock ATSs, would be subject to
Rule 304 of Regulation ATS.\96\ ``Covered ATS'' would mean an NMS Stock
ATS or Government Securities ATS and ``Covered Form'' would mean a
filing on Form ATS-N or Form ATS-G, as applicable. To facilitate the
orderly transition to the heightened requirements for Government
Securities ATSs that are currently operating, the Commission is
defining such ATSs as ``Legacy Government Securities ATSs.'' \97\ The
Commission believes these proposed definitions are non-substantive and
enhance the readability of the rule text.
---------------------------------------------------------------------------
\95\ See proposed Rule 300(m)-(n).
\96\ See infra Section II.F-H.
\97\ See proposed Rule 300(o). Legacy Government Securities ATSs
would include all Government Securities ATSs operating as of [the
date 120 calendar days after the date of publication of the final
rule in the Federal Register] (``Compliance Date''), including both
(1) Currently Exempted Government Securities ATSs and (2) Government
Securities ATSs operating pursuant to a Form ATS on file with
Commission as of the Compliance Date.
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The Commission is also proposing to add definitions of ``U.S.
Treasury Security'' and ``Agency Security'' for purposes of Regulation
ATS.\98\ ``U.S. Treasury Security'' would mean a security issued by the
U.S. Department of the Treasury. ``Agency Security'' would mean a debt
security issued or guaranteed by a U.S. executive agency, as defined in
5 U.S.C. 105, or government-sponsored enterprise, as defined in 2
U.S.C. 622(8). The proposed definitions are designed to provide the
scope of securities a Government Securities ATS must include when
calculating whether the fair access requirements set forth in Rule
301(b)(5) are applicable and to facilitate compliance with the Fair
Access Rule.\99\ In addition, the Commission is proposing to use these
definitions in the proposed amendment to Exchange Act Rule 3a1-1(b)(3)
to provide the scope of securities for which the Commission could
remove the exemption from national securities exchange if certain
volume thresholds are met.\100\
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\98\ See proposed Rule 300(p)-(q).
\99\ See infra Section II.D. The proposed definitions are
similar to those in FINRA's rules. See FINRA Rule 6710(l) and FINRA
Rule 6710(p).
\100\ See supra Section II.A.
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Request for Comment
2. Should the Commission adopt a more limited or expansive
definition of Government Securities ATS than the definition that is
being proposed?
3. Should the Commission cite to the section 3(a)(42) (15 U.S.C.
78c(a)(42)) definition of government securities for purposes of
defining Government Securities ATS? Should the securities encompassed
by the definition (e.g., certain options on government securities) be
considered ``government securities'' for purposes of this regulation?
4. Should the Commission modify the proposed definitions of U.S.
Treasury Securities and Agency Securities in any way?
5. The proposed amendments to the definitions of NMS Stock ATS and
Government Securities ATS are not designed to limit a broker-dealer
operator for an NMS Stock ATS or Government Securities ATS with respect
to other types of securities that the broker-dealer operator may wish
to trade in an ATS that is subject to Rule 301(b)(2) of Regulation ATS
or how the broker-dealer operator may elect to structure the operations
of its ATS businesses. Would the proposed amendments to the definitions
of NMS Stock ATS and Government Securities ATS impose any operational
or other burdens on the broker-dealer operator, other than those
related to filing Form ATS, Form ATS-R, Form ATS-G or Form ATS-N, as
applicable?
C. Proposed Elimination of the Exemption for ATSs That Limit Securities
Activities to Government Securities and Repos
The Commission is proposing amendments to Regulation ATS that would
require a Currently Exempted Government Securities ATS that seeks to
operate pursuant to the exemption from the definition of an
``exchange'' under Exchange Act Rule 3a1-1(a)(2), and thus not be
required to be registered as a national securities exchange, to comply
with Regulation ATS. A Currently Exempted Government Securities ATS
that opts to comply with Regulation ATS would then be subject to the
conditions to the exemption from exchange registration that are
designed to provide its subscribers with investor protections and
enable Commission oversight, including the surveillance and examination
of ATSs, and to help assure fair and orderly markets.\101\ The
Commission is also proposing to subject Currently Exempted Government
Securities ATSs to the enhanced public transparency requirements of
Rule 304 and Form ATS-G.
---------------------------------------------------------------------------
\101\ See Regulation ATS Adopting Release, supra note 35, at
70878. See also infra notes 121-131 and accompanying text.
---------------------------------------------------------------------------
At present, Exchange Act Rule 3a1-1(a)(3) and Rule 301(a)(4) of
Regulation ATS exempt from the definition of an ``exchange'' under
Section 3(a)(1) of the Exchange Act an ATS that is operated by a
registered broker-dealer or a bank that solely trades government
securities or repos.\102\ The Commission is proposing to amend
Regulation ATS to eliminate the exemption under Rule
[[Page 87115]]
301(a)(4) of Regulation ATS for ATSs that solely trade government
securities and repos. As a result of this proposed amendment, any
system that meets the definition of an ``exchange'' under Section
3(a)(1) of the Exchange Act and Rule 3b-16(a) thereunder and solely
trades government securities or repos would no longer be exempt from
the definition of an ``exchange'' and would either have to register as
a national securities exchange or operate pursuant to an exemption to
such registration, such as the exemption under Regulation ATS.\103\
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\102\ See 17 CFR 240.3a1-1(a)(3) and 17 CFR 242.301(a)(4).
\103\ The Commission is proposing to delete the text of Rule
301(a)(4)(ii)(A)-(C) and replace each paragraph with the term
``Reserved.'' The Commission is not proposing to eliminate Rule
301(a)(4)(ii)(D), which exempts an ATS from compliance with
Regulation ATS if the ATS limits its securities activities to
commercial paper. Accordingly, the only ATSs that would continue to
be exempt under Rule 301(a)(4) would be ATSs that are registered
broker-dealers or are banks and limit their securities activities to
commercial paper.
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The Commission is also proposing to amend Rule 301(b)(1) of
Regulation ATS, which currently requires an ATS to register as a
broker-dealer under Section 15 of the Exchange Act,\104\ to allow an
ATS to register either as a broker-dealer under Exchange Act Section 15
or a government securities broker or government securities dealer under
Exchange Act Section 15C(a)(1)(A).\105\ Registration pursuant to
Section 15C(a)(1)(A) specifically applies to government securities
brokers and dealers other than registered broker-dealers or financial
institutions.\106\ Registration as a broker-dealer under Section 15 or
government securities broker or government securities dealer under
Section 15C(a)(1)(A) of the Exchange Act is important because, among
other things, it requires membership in an SRO, such as FINRA.\107\
Because ATSs that register as broker-dealers or government securities
brokers or dealers do not have self-regulatory responsibilities, the
Commission believes it is important for these ATSs to be members of an
SRO and thus subject to SRO examination and surveillance,\108\ trade
reporting obligations,\109\ and certain investor protection rules.\110\
Like ATSs registered as broker-dealers under Section 15, an ATS
registered as a government securities broker or government securities
dealer under Section 15C(a)(1)(A) would be subject to oversight and
surveillance by an SRO.\111\
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\104\ 15 U.S.C. 78o.
\105\ See 15 U.S.C. 78o-5. Exchange Act Section 15C(a)(1)(A)
makes it unlawful for a government securities broker or government
securities dealer (other than a registered broker or dealer or a
financial institution) to make use of the mails or any means or
instrumentality of interstate commerce to effect a transaction in
any government securities unless the government securities broker or
government securities dealer is registered with Commission pursuant
to Exchange Act Section 15C(a)(2). See 15 U.S.C. 78o-5(a)(1)(A).
Section 15C(e) in turn generally requires that a government
securities broker or government securities dealer that is registered
or required to be registered under Section 15C(a)(1)(A) must be a
member of a registered national securities exchange or registered
securities association such as FINRA.
\106\ Broker-dealers that limit their activity to government
securities require specialized registration under Section 15C of the
Exchange Act and do not have to register as general-purpose broker-
dealers under Section 15(b). See 15 U.S.C. 78o-5.
\107\ See Regulation ATS Adopting Release, supra note 35, at
70863 (discussing the importance of an ATS being a member of an SRO
because ATSs registered as broker-dealers will not have self-
regulatory responsibilities). As noted above, Section 15C(e)
generally requires SRO membership for a government securities broker
or government securities dealer that is registered or required to be
registered under Section 15C(a)(1)(A). Similarly, Section 15(b)(8)
generally requires a registered broker-dealer to be a member of a
registered securities association such as FINRA.
\108\ See, e.g., FINRA Rule 1000 Series, FINRA Rules 4140, 4510,
4520, 4530, and 8210.
\109\ See, e.g., FINRA Rule 6730.
\110\ See, e.g., FINRA Rules 3110, 4370, 5210, 5220, 5230, 5310,
and 5340.
\111\ See Regulation ATS Adopting Release, supra note 35, at
70863.
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In contrast, SRO membership is not required for a bank or other
financial institution that registers as a government securities broker
or dealer.\112\ Accordingly, the amendment to Regulation ATS would not
permit a bank or other financial institution to satisfy the broker-
dealer registration requirement by registering as a government
securities broker or government securities dealer under Section
15C(a)(1)(B) of the Exchange Act.\113\ The Commission believes it is
important for an ATS to be a member of an SRO, and unlike registrants
under Sections 15 and 15C(a)(1)(A), a bank or other financial
institution that registers under Section 15C(a)(1)(B) is not required
to be a member of an SRO.\114\
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\112\ As proposed, Currently Exempted Government Securities ATSs
that are operated by banks would be required to structure their
business to either comply with Regulation ATS or register as a
national securities exchange. For example, to comply with Regulation
ATS, the Government Securities ATS might move its ATS operations
into a new or existing broker-dealer affiliate of the bank. Unlike
registered broker-dealers (Section 15(b)(8)) and government
securities brokers or government securities dealers that are
registered or required to be registered under Section 15C(a)(1)(A)
(Section 15C(e)), there is no statutory requirement of SRO
membership for banks. Because banks typically operate in reliance on
exceptions from broker or dealer status, they are not required to
become a member of an SRO, such as FINRA. In this regard, Exchange
Act Section 3(a)(4)(B)(iii)(II) excludes from the definition of
``broker'' a bank that effects transactions in ``exempted
securities'' such as government securities. 15 U.S.C.
78c(a)(4)(B)(iii)(II). See Exchange Act Section 3(a)(12) (defining
``exempted securities'' to include ``government securities' as
defined in Section 3(a)(42) of the Exchange Act). Exchange Act
Section 3(a)(5)(C)(i)(II) similarly excepts from the definition of
``dealer'' a bank that buys or sells exempted securities. 15 U.S.C.
78c(a)(5)(C)(i)(II).
\113\ Exchange Act Section 15C(a)(1)(B) makes it unlawful for
any government securities broker or government securities dealer
that is a registered broker or dealer or a financial institution to
make use of the mails or any means or instrumentality of interstate
commerce to effect any transaction in, or to induce or attempt to
induce the purchase or sale of, any government security unless such
government securities broker or government securities dealer has
filed with the appropriate regulatory agency written notice that it
is a government securities broker or government securities dealer.
15 U.S.C. 78o-5(a)(1)(B)(i).
\114\ See Exchange Act Sections 3(a)(6) (defining ``bank'') and
3(a)(46) (defining ``financial institution'').
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As a result, a bank-operated ATS that trades only government
securities or repos would be unable to rely on the exemption provided
by Regulation ATS, as proposed to be amended, and could not otherwise
operate unless registered as a national securities exchange pursuant to
Section 5 of the Exchange Act. However, this is the case currently with
respect to bank-operated ATSs that trade securities other than
government securities, and it is the Commission's understanding that
these ATSs often are operated by bank affiliates that are themselves
registered broker-dealers, rather than by the banks themselves. The
Commission believes that a bank that operates an ATS that trades only
government securities might adopt a similar registered affiliate
structure for its government securities operations. The Commission is
requesting comment, however, on whether it should amend Rule 301(b)(1)
to make the Regulation ATS exemption available to entities registered
under Section 15C(a)(1)(B), and whether some transition period is
required if a bank decides to restructure the operation of its
Government Securities ATS. Eliminating the exemption from the
definition of ``exchange'' for broker-dealers and banks that operate an
ATS for solely government securities or repos would bring these markets
within the Commission's regulatory framework for exchanges and, as
discussed in more detail above, enhance regulatory oversight, protect
investors, and help ensure fair and orderly markets for government
securities and repos.\115\ Additionally, this proposal seeks to bring
greater transparency to a very important market, and removing the
exemption under Rule 301(a)(4) of
[[Page 87116]]
Regulation ATS would accomplish this goal.
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\115\ See supra text accompanying note 101 (describing that the
proposed amendments would provide better Commission oversight of and
public transparency over Currently Exempted Government Securities
ATSs).
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In addition to Rule 301(b)(1) of Regulation ATS, with which most
Currently Exempted Government Securities ATSs currently comply,\116\ a
Currently Exempted Government Securities ATS would be required to
comply with the conditions of the Regulation ATS exemption, as proposed
to be amended. This includes Rule 304, which would require that
Government Securities ATSs file Form ATS-G. Government Securities ATSs
would not, however, be subject to the order display and execution
access provisions under Rule 301(b)(3) or the fees provision of Rule
301(b)(4) that are applicable only to NMS Stock ATSs.\117\ As discussed
further below, the Commission is proposing to require Government
Securities ATSs that meet a certain volume threshold to comply with the
Fair Access Rule with respect to trading in U.S. Treasury Securities
and Agency Securities.\118\ Because the Commission is proposing to
apply Regulation SCI to certain Government Securities ATSs that trade
U.S. Treasury Securities and/or Agency Securities, the Capacity,
Integrity, and Security Rule under Rule 301(b)(6) would not apply to
the trading of government securities on ATSs.\119\
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\116\ See supra text accompanying note 49 (stating that most
Currently Exempted Government Securities ATSs register as broker-
dealers with the Commission).
\117\ See 17 CFR 242.301(b)(3)-(4).
\118\ See infra Section II.D.
\119\ See infra Section VI.
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The Commission believes that it is important to apply these
conditions to the exemption to Currently Exempted Government Securities
ATSs because the conditions are designed to protect investors and to
facilitate Commission oversight. Therefore, the Commission is proposing
that a Currently Exempted Government Securities ATS must:
Permit the examination and inspection of its premises,
systems, and records, and cooperate with the examination, inspection,
or investigation of subscribers, whether such examination is being
conducted by the Commission or by an SRO of which such subscriber is a
member, pursuant to Rule 301(b)(7).\120\ The Commission believes that
because subscribers to whom the Commission's inspection authority does
not extend could use a Currently Exempted Government Securities ATS to
manipulate the market in a security, it is important that these ATSs
cooperate in all inspections, examinations, and investigations.\121\
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\120\ See 17 CFR 242.301(b)(7). See also Regulation ATS Adopting
Release, supra note 35, Section IV.A.2.f.
\121\ See Regulation ATS Adopting Release, supra note 35, at
70877.
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Make and keep certain records specified in Rule 302 \122\
and preserve records specified in Rule 303,\123\ pursuant to Rule
301(b)(8).\124\ The recordkeeping requirements would require the
Currently Exempted Government Securities ATSs to create a meaningful
audit trail and allow the Commission to examine whether the ATS is in
compliance with federal securities laws.\125\
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\122\ Rule 302 requires all ATSs to make and keep current
certain records, including: A record of subscribers to the ATS;
daily summaries of trading in the ATS; and time-sequenced records of
order information in the ATS. See 17 CFR 242.302.
\123\ Rule 303, and specifically Rule 303(a)(1), requires an ATS
to preserve: All records required to be made pursuant to Rule 302;
all notices provided to subscribers, including notices addressing
hours of operations, system malfunctions, changes to system
procedures, and instructions pertaining to access to the ATS;
documents made or received in the course of complying with the
Capacity, Integrity, and Security Rule in Rule 301(b)(6), if
applicable; and, if the ATS is subject to the Fair Access Rule under
Rule 301(b)(5), a record of its access standards. Rule 303(a)(2)
requires that certain other records must be kept for the life of the
ATS and any successor enterprise, including partnership articles or
articles of incorporation (as applicable), and copies of reports
filed pursuant to Rule 301(b)(2), which includes current Form ATS,
and records made pursuant to Rule 301(b)(5). In particular, reports
required to be maintained for the life of the ATS or any successor
enterprise include initial operation reports, amendments, and
cessation of operations reports, filed on Form ATS.
\124\ See 17 CFR 242.301(b)(8). See also Regulation ATS Adopting
Release, supra note 35, Section IV.A.2.g.
\125\ See Regulation ATS Adopting Release, supra note 35, at
70878.
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Periodically report certain information about transactions
on the ATS and information about certain activities on Form ATS-R
within 30 calendar days after the end of each calendar quarter in which
the market has operated pursuant to Rule 301(b)(9).\126\ The
information reported on Form ATS-R by Currently Exempted Government
Securities ATSs will permit the Commission to monitor the trading on
these ATSs for compliance with the Exchange Act and applicable rules
thereunder and enforce the Fair Access Rule.\127\
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\126\ See 17 CFR 242.301(b)(9). See also infra Section II.E;
Regulation ATS Adopting Release, supra note 35, Section IV.A.2.h
(Rule 301(b)(9)). Form ATS-R requires the ATS to report, among other
things, the aggregate quarterly volume data for specified categories
of securities, a list of all securities traded on the ATS during the
quarter, and a list of all subscribers that were participants during
the quarter. In addition, Form ATS-R requires an ATS that is subject
to the fair access obligations under Rule 301(b)(5) of Regulation
ATS to report a list of all persons granted, denied, or limited
access to the ATS during the period covered by the Form ATS-R and
designate for each person: (a) Whether access was granted, denied,
or limited; (b) the date the ATS took such action; (c) the effective
date of such action; and (d) the nature of any denial or limitation
of access. Rule 301(b)(9) requires an ATS to complete and file Form
ATS-R within 10 calendar days after ceasing to operate. See Form
ATS-R.
\127\ See Regulation ATS Adopting Release, supra note 35, at
70874 and 70878.
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Adopt written safeguards and written procedures to protect
confidential trading information and to separate ATS functions from
other broker-dealer functions, including principal and customer trading
pursuant to Rule 301(b)(10).\128\ The Commission believes that applying
the requirements of Rule 301(b)(10) to Currently Exempted Government
Securities ATSs will help prevent the potential for abuse of subscriber
confidential trading information.\129\
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\128\ See 17 CFR 242.301(b)(10); NMS Stock ATS Adopting Release,
supra note 1, Section VI.
\129\ See NMS Stock ATS Adopting Release, supra note 1, at
38864.
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Not use in its name the word ``exchange,'' or any
derivation of the word ``exchange'' pursuant to Rule 301(b)(11).\130\
The Commission believes that the use of the word ``exchange'' by an
ATS, including a Currently Exempted Government Securities ATS, would be
deceptive and could lead investors to believe incorrectly that such ATS
is registered as a national securities exchange.\131\
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\130\ See 17 CFR 242.301(b)(11); Regulation ATS Adopting
Release, supra note 35, Section II.C.
\131\ See Securities Exchange Act Release No. 39884 (April 17,
1998), 63 FR 23504, 23523 (April 29, 1998) (``Regulation ATS
Proposing Release'').
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Request for Comment
6. Should the Commission amend Regulation ATS to eliminate the
exemption from compliance with Regulation ATS under Rule
301(a)(4)(ii)(A) for all Currently Exempted Government Securities ATS,
including those operated by banks?
7. Should the proposed elimination of the exemption from compliance
with Regulation ATS only apply to Government Securities ATSs that trade
a certain type of government security (e.g., only U.S. Treasury
Securities or only Agency Securities)? Should the proposed elimination
of the exemption from compliance with Regulation ATS only apply to
Government Securities ATSs that trade government securities (and not
repos)? If so, for which type of Government Securities ATS should the
exemption be eliminated?
8. Should Government Securities ATSs seeking to operate pursuant to
the exemption provided by Regulation ATS have the alternative option to
satisfy broker-dealer registration with the
[[Page 87117]]
Commission pursuant to Section 15C(a)(1)(A)?
9. Should the Commission adopt any alternatives to requiring
Government Securities ATSs to register with the Commission as broker-
dealers under Section 15 or Section 15C(a)(1)(A)? For example, should
the Commission amend Rule 301(b)(1) of Regulation ATS to include an
alternative for a bank to register as a government securities broker or
dealer pursuant to Section 15C(a)(1)(B), which would not require the
bank to become a member of an SRO?
10. Should there be a transition period for Currently Exempted
Government Securities ATSs that are currently operated by banks to
comply with the proposed amendments to Rule 301(b)(1), including ATSs
provided and operated by an affiliate of the bank? If so, how long
should the transition period be?
11. Should there be a transition period for Currently Exempted
Government Securities ATSs to comply with all or some of the
requirements of Regulation ATS? If so, which requirements would require
such a transition period, and how long should such transition period
be?
12. Should the Commission amend Regulation ATS to remove the
exemption from Regulation ATS for ATSs that limit their securities
activities to commercial paper? Do market participants use ATSs to
trade commercial paper? If so, how is commercial paper traded on an
ATS? Should the Commission remove any other exemption from Regulation
ATS available under Rule 301?
13. Should the Commission require Currently Exempted Government
Securities ATSs to comply with all of the requirements of Regulation
ATS applicable to all ATSs that are currently required to comply with
Regulation ATS? If not, which requirements should a Currently Exempted
Government Securities ATS not be required to comply with and why?
D. Application of Fair Access to Government Securities ATSs
The Commission believes that the proposal to amend Regulation ATS
to include U.S. Treasury Securities and Agency Securities as categories
of securities under the Fair Access Rule would promote fair and orderly
markets given the importance of Government Securities ATSs. When
Regulation ATS was adopted, the Commission explained that the fair
treatment by ATSs of potential and current subscribers is particularly
important when an ATS captures a large percentage of trading volume in
a security, because viable alternatives to trading on such a system are
limited.\132\ The Commission further explained that if an ATS has a
significantly large percentage of the volume of trading in a security
or type of security, unfairly discriminatory actions can hurt investors
lacking access to that ATS.
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\132\ See Regulation ATS Adopting Release, supra note 35, at
70872.
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Currently, Rule 301(b)(5) only applies to the trading of NMS
stocks, equity securities that are not NMS stocks and for which
transactions are reported to an SRO, municipal securities, and
corporate debt securities, but not to trading in government
securities.\133\ An ATS subject to the Fair Access Rule must, among
other things, establish written standards for granting access to
trading on systems and apply these standards fairly, and is prohibited
from unreasonably prohibiting or limiting any person with respect to
trading in the stated security when that trading exceeds certain volume
thresholds.\134\ These requirements are designed to ensure that
qualified market participants have fair access to the nation's
securities markets.
---------------------------------------------------------------------------
\133\ See 17 CFR 242.301(b)(5)(i).
\134\ See supra Section I.B.
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Government Securities ATSs have become a significant source of
orders and trading interest in U.S. Treasury Securities and Agency
Securities for investors.\135\ Regulation ATS, however, does not
provide a mechanism to prevent unfair denials or limitations of access
by Government Securities ATSs that trade U.S. Treasury Securities or
Agency Securities or regulatory oversight of such denials or
limitations of access. The Commission believes that today, the
principles undergirding the Fair Access Rule are equally relevant to a
Government Securities ATS and amending the Fair Access Rule to include
the trading of U.S. Treasury Securities and Agency Securities would
help ensure the fair treatment of potential and current subscribers to
ATSs that consist of a large percentage of trading volume in these two
types of securities.\136\
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\135\ See infra Section X.B.1.
\136\ Under the proposal, the Fair Access Rule would not apply
to Government Securities ATSs that trade repos, including repos on
U.S. Treasury Securities and Agency Securities. Based on information
available to the Commission, the Commission does not believe that
ATSs today capture a significant market share for trading repos or
that these markets are as liquid as the markets for securities
currently covered by the Fair Access Rule. The Commission also notes
FINRA does not require ATSs to report transactions for repos. The
Commission is requesting comment on its preliminary assessment and
on whether the Commission should amend Regulation ATS to require
Government Securities ATSs that trade repos, including repos on U.S.
Treasury Securities and Agency Securities, to be subject to the
requirements of the Fair Access Rule.
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Under the proposed amendments to Rule 301(b)(5), a Government
Securities ATS would be subject to the Fair Access Rule if during at
least four of the preceding six calendar months, the Government
Securities ATS had, (1) with respect to U.S. Treasury Securities, five
percent or more of the average weekly dollar volume traded in the
United States as provided by the self-regulatory organization to which
such transactions are reported, and (2) with respect to Agency
Securities, five percent or more of the average daily dollar volume
traded in the United States as provided by the self-regulatory
organization to which such transactions are reported.\137\
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\137\ Dollar volume is measured in par value, where par value is
the face value or nominal value of a bond. The Commission notes that
TRACE Security Activity Report and TRACE Fact Book report volume in
the same unit, ``par value volume'' or ``par value traded.'' See
FINRA Rule 7730(g)(7). See also FINRA, TRACE Fact Book, available at
https://www.finra.org/filing-reporting/trace/trace-fact-book.
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The Commission is proposing five percent volume thresholds for
subjecting a Government Securities ATS to the Fair Access Rule.
Specifically, a Government Securities ATS would be subject to the Fair
Access Rule for its trading of U.S. Treasury Securities if its volume
surpasses the five percent threshold for U.S. Treasury Securities.
Similarly, a Government Securities ATS would be subject to the Fair
Access Rule for its trading in Agency Securities if its volume
surpasses the five percent threshold for Agency Securities.\138\ When
the Commission adopted Rule 301(b)(5), the Fair Access Rule threshold
was 20 percent of the average daily trading volume.\139\ Currently, the
Fair Access Rule applies on a security-by-security basis for NMS stocks
and equity securities that are not NMS stocks, and on a category basis
for corporate bonds and municipal securities. The original volume
threshold was reduced to five percent for all categories of securities
when the Commission adopted Regulation NMS, and the Commission proposes
to apply
[[Page 87118]]
five percent volume thresholds for the trading of U.S. Treasury
Securities and Agency Securities.\140\
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\138\ As such, a Government Securities ATS with high trading
volume in U.S. Treasury Securities and low trading volume in Agency
Securities might only be subject to the Fair Access Rule for U.S.
Treasury Securities. Likewise, a Government Securities ATS with high
Agency Securities trading volume and low U.S. Treasury Securities
trading volume might only be subject to the Fair Access Rule for
Agency Securities. A Government Securities ATS that surpasses each
of the two thresholds would be subject to the Fair Access Rule for
U.S. Treasury Securities and Agency Securities.
\139\ See Regulation ATS Adopting Release, supra note 35, at
70873.
\140\ See Securities and Exchange Act Release No. 51808 (June 9,
2005) 70 FR 37496, 37550 (June 29, 2005) (File No. S7-10-04).
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The proposed thresholds include only such securities for which
transactions are reported to an SRO. FINRA publishes weekly aggregate
data on U.S. Treasury Securities based on the mandatory transaction
reports of its members to TRACE, and disseminates transactions data
about Agency Securities immediately upon receipt of a transaction
report.\141\ Because weekly dollar volume data about transactions in
U.S. Treasury Securities and daily dollar volume data about
transactions in Agency Securities are publicly available via TRACE,
Government Securities ATSs will be able to readily calculate whether
they meet the applicable thresholds.
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\141\ See supra notes 50-51.
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The Commission believes that separate volume thresholds for U.S.
Treasury Securities and Agency Securities would advance the investor
protection goals of the Fair Access Rule. U.S. Treasury Securities and
Agency Securities make up the vast amount of government securities
traded on ATSs today, and also constitute different sources of
potential orders and trading interest for market participants.\142\ The
proposed volume thresholds would help ensure that the Fair Access Rule
applies to the category of security for which an ATS has significant
trading volume. If a Government Securities ATS has significant trading
volume in U.S. Treasury Securities but not Agency Securities, for
example, the proposed rule would help ensure that investors are
provided fair access to the ATS's services with respect to U.S.
Treasury Securities, even if the ATS's combined trading volume in both
U.S. Treasury Securities and Agency Securities would not exceed a five
percent volume threshold. The Commission believes that it would be
unnecessary and overly burdensome to require a Government Securities
ATS to comply with the Fair Access Rule for a category of government
security for which that ATS does not have significant volume.
Additionally, given that U.S. Treasury Securities and Agency Securities
are types of debt securities, the Commission believes that it is
appropriate to determine these five percent volume thresholds on a
category basis because doing so would be consistent with the Fair
Access Rule's application to other categories of fixed income
securities (i.e., corporate bonds and municipal securities).
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\142\ See infra Section X.B.1. See also supra Section I.A.
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The Commission believes that the proposed five percent volume
threshold test is consistent with the Commission's current threshold
for identifying significant markets for purposes of the Fair Access
Rule and is appropriate for determining whether a Government Securities
ATS should be subject to the Fair Access Rule for trading in the
categories of U.S. Treasury Securities and Agency Securities.
Currently, the Commission estimates that three ATSs trading U.S.
Treasury Securities and one ATS trading Agency Securities would be
subject to the Fair Access Rule under the proposed five percent volume
thresholds.\143\ The ATS with the largest market volume in U.S.
Treasury Securities has approximately 24 percent of market volume,
while the second and third largest are both slightly above five percent
market share. The one ATS that would exceed the proposed threshold for
Agency Securities accounts for roughly 13 percent of volume in Agency
Securities. If the Commission were to propose a four percent volume
threshold, the number of ATSs that would be subject to the Fair Access
Rule for U.S. Treasury Securities and Agency Securities would not
change, but if the Commission proposed a three percent volume threshold
test, the Commission estimates a total of four ATSs would be subject to
the Fair Access Rule for U.S. Treasury Securities and the number of
ATSs subject to the Fair Access Rule for Agency Securities would remain
at one.\144\
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\143\ See infra Table X.1.
\144\ See id.
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If the proposed volume thresholds were 10 percent, however, only
one ATS trading U.S. Treasury Securities and one ATS trading Agency
Securities would be subject to the Fair Access Rule.\145\ The
Commission believes that the proposed five percent volume thresholds--
in addition to being consistent with the current volume threshold for
categories of debt securities under the Fair Access Rule--are
appropriately designed to capture those ATSs that are significant
liquidity venues for U.S. Treasury Securities or Agency Securities.
That said, as further specified below, the Commission is requesting
comment on whether these proposed volume thresholds should be set
higher or lower for ATSs trading government securities.
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\145\ See id.
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The proposed fair access volume threshold for U.S. Treasury
Securities would have a different data benchmark than that for Agency
Securities. The former would be based on average weekly dollar volume
traded, and the latter would be based on average daily volume traded.
This proposed difference is because FINRA only provides weekly
aggregated transaction information on U.S. Treasury Securities but
provides individual trade reports for Agency Securities transactions.
Currently, FINRA neither provides individual trade reports nor
aggregate daily volume data for U.S. Treasury Securities transactions
to TRACE subscribers (or to the public). Thus, Government Securities
ATSs will only have weekly-volume data upon which to make fair access
determinations for U.S. Treasury Securities. FINRA, however, provides
individual trade reports for all Agency Securities transactions to
TRACE subscribers, and therefore,\146\ Government Securities ATSs will
be able determine the average daily trading volume for a given month by
aggregating these trade reports. Accordingly, the Commission proposes
an average daily volume threshold for Agency Securities, which is
consistent with the current volume thresholds in 301(b)(5).\147\
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\146\ The Commission believes that the vast majority--and
likely, all--broker-dealer operators of Government Securities ATSs
that trade Agency Securities currently subscribe to TRACE. The
Commission is, however, requesting public comment on the extent to
which Government Securities ATSs (both Currently Exempted Government
Securities ATSs and those subject to current Regulation ATS) have
access to TRACE trade reports for Agency Securities.
\147\ See supra notes 138-140.
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Lastly, the Commission is proposing that a Government Securities
ATS would only be required to comply with the Fair Access Rule only if
it has met at least one of the applicable volume thresholds during at
least four of the preceding six calendar months.\148\ This is the same
time period for evaluating the applicability of the Fair Access Rule to
ATSs that trade U.S. Treasury Securities or Agency Securities that is
currently applied to ATSs that trade NMS stocks, equity securities that
are not NMS stocks and for which transactions are reported to an SRO,
municipal securities, and corporate debt securities. Because of the
similarity of Government Securities ATSs to the other ATSs, the
Commission believes that the range of time is an appropriate
[[Page 87119]]
period to evaluate the trading volume of an ATS and strikes an
appropriate balance; the threshold will not be triggered by atypical
periods of increased trading or a few occurrences of very large trades,
but will be timely triggered after an ATS attains a significant role in
the market.
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\148\ However, if, for example, during the six month period from
January to June, the Government Securities ATS met the threshold for
U.S. Treasury Securities only during January and April and met the
threshold for Agency Securities only during February and May, the
Government Securities ATS would not be subject to the Fair Access
Rule in July because the ATS would not have met the threshold for
either type of security during at least four of the preceding six
months in either U.S. Treasury Securities or Agency Securities.
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Request for Comment
14. Should any other type of government securities be included as a
category of securities under Rule 301(b)(5)? Should the Commission
apply Rule 301(b)(5) to all Government Securities ATSs? What would be
the costs and benefits associated with such a requirement?
15. Should the proposed five percent fair access threshold for U.S.
Treasury Securities be applied to all types of U.S. Treasury Securities
or only to a subset(s) of U.S. Treasury Securities? For example, should
the five percent fair access threshold be applied to transaction volume
in only on-the-run U.S. Treasury Securities? Should the five percent
fair access threshold should be applied to all Agency Securities or
only to a subset(s) of Agency Securities?
16. Should the proposed five percent fair access threshold for U.S.
Treasury Securities be set higher or lower than five percent? If so,
what should that percentage threshold should be? Should there be no
threshold? Please support your views. Is the five percent threshold an
appropriate threshold to capture ATSs that are significant markets for
trading in U.S. Treasury Securities or Agency Securities? Would the
five percent threshold capture ATSs that are not significant markets
for U.S. Treasury Securities and Agency Securities? If there should be
a percent threshold for a subset of U.S. Treasury Securities, for
example on-the-run U.S. Treasury Securities or off-the-run U.S.
Treasury Securities, what should that threshold should be?
17. Would the proposed four out of six month period be an
appropriate period to measure the volume thresholds for U.S. Treasury
Securities, Agency Securities, or both? If not, what period of time
would be appropriate?
18. Would it be appropriate to use five percent of average weekly
dollar volume traded in the United States as a fair access threshold
for U.S. Treasury Securities?
19. If the average weekly dollar volumes were to include
transactions for U.S Treasury Securities by non-FINRA members, which
currently are not reported to, or collected by, the SRO that makes
public average weekly dollar volume statistics, should the fair access
threshold change? If so, what should be the appropriate threshold?
20. Would it be appropriate to use five percent of average daily
dollar volume traded in the United States as a fair access threshold
for Agency Securities? Do ATSs that trade Agency Securities currently
subscribe to TRACE and, therefore, receive TRACE trade reports for
Agency Securities? If not, what percentage of these ATSs do not
currently subscribe to TRACE?
21. Should the requirements under the Fair Access Rule be amended
specifically for Government Securities ATS? If so, how?
22. Should the proposed five percent fair access threshold for U.S.
Treasury Securities be applied on a security-by-security basis?
23. Should the proposed fair access volume threshold measurement
for Government Securities ATSs, and current fair access threshold
measurements applicable to ATSs that trade NMS stock, OTC equity
securities, corporate bonds, and municipal securities, take into
account whether the ATSs are under common control share the same
technology platform? A broker-dealer may be the registered broker-
dealer for multiple types of ATSs that trade different types of
securities (e.g., an NMS Stock ATS and a non-NMS Stock ATS) or a
broker-dealer may also be the registered broker-dealer for multiple
ATSs that trade the same type of securities but are separate and
distinct from each other (e.g., a broker-dealer registered for, and
operates, two NMS Stock ATSs that each maintains a separate book of
orders that are governed by distinct priority and order interaction
rules). In both instances, each of the ATSs operated by the broker-
dealer operator is separate from each other and must independently
comply with Regulation ATS. Should two or more ATSs under common
control and operated by the same broker-dealer be viewed as a single
ATS required to aggregate volume of transactions for purposes of
determining whether the fair access threshold has been satisfied? If
yes, what factors should be considered when determining the fair access
threshold test for multiple ATSs operated by the same broker-dealer,
and why?
E. Filing Requirements for Broker-Dealers That Operate ATSs That Trade
Government Securities and Non-Government Securities
The Commission is proposing to revise Rule 301(b)(2)(viii) \149\ of
Regulation ATS to provide that a Legacy Government Securities ATS that
is operating pursuant to a Form ATS as of the Compliance Date will
continue to be subject to the Rule 301(b)(2) requirements to file a
Form ATS. However, once the ATS files a Form ATS-G, it will no longer
be subject to Rule 301(b)(2)(i) through (vii) and will instead be
subject to the reporting requirements under Rule 304, which provides
the rules for filing of Form ATS-G. The Commission is also proposing to
provide that as of the Compliance Date, an entity seeking to operate as
a Government Securities ATS will not be subject to the requirements of
Rule 301(b)(2)(i) through (vii) and will instead be required to file
reports under Rule 304. In addition, the Commission is proposing rules
to make clear that a Currently Exempted Government Securities ATS would
be subject to Rule 304 and would not be subject to Rule 301(b)(2)(i)
through (viii). Other than changes to refer to Government Securities
ATSs, the relevant compliance dates, and the treatment of Currently
Exempted Government Securities ATSs, these rules are identical to the
existing rules that were applied to Legacy NMS Stock ATSs operating
during the Commission review period for Form ATS-N and would avoid
Government Securities ATSs from being subject to potentially
duplicative requirements in Rule 304 and Rule 301(b)(2).
---------------------------------------------------------------------------
\149\ 17 CFR 242.301(b)(2)(viii). Current Rule 301(b)(2)(viii)
provides that NMS Stock ATSs must file with the Commission the
reports and amendments required by Rule 304 and that NMS Stock ATSs
are not subject to Rule 301(b)(2). NMS Stock ATSs or entities
seeking to operate as NMS Stock ATSs would continue to file reports
pursuant to Rule 304. Because the Commission review period for all
Forms ATS-N filed by Legacy NMS Stock ATSs ended in October 2019,
the Commission is proposing to delete references in Rule
301(b)(2)(viii) to Legacy NMS Stock ATSs. The Commission is also
proposing to consolidate the current provisions of Rule
301(b)(2)(viii) applicable to NMS Stock ATSs to state that NMS Stock
ATSs or entities seeking to operate as an NMS Stock ATS shall not be
subject to the requirements of Rule 301(b)(2)(i) through (vii) and
would be subject to Rule 304.
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The Commission is proposing to amend Rule 301(b)(2)(viii) to make
clear that NMS Stock ATSs and Government Securities ATSs are required
to file reports pursuant to Sec. 242.304 and ATSs that are not NMS
Stock ATSs or Government Securities ATSs are subject to Rule 301(b)(2).
A broker-dealer may be the registered broker-dealer for multiple types
of ATSs that trade different types of securities (e.g., NMS Stock ATS
and non-NMS Stock ATS) or a broker-dealer may be the registered broker-
dealer for multiple ATSs that trade the same type of securities but are
separate and distinct from each other (e.g., a broker-dealer registered
for, and
[[Page 87120]]
operates, two NMS Stock ATSs, each of which maintains a separate book
of orders that is governed by distinct priority and order interaction
rules for one type of security). In both instances, each of the ATSs is
separate from the other and must independently comply with Regulation
ATS.\150\ The Commission is proposing to add to Rule 301(b)(2)(viii) to
provide that an NMS Stock ATS or a Government Securities ATS that is
operated by a broker-dealer that is the registered broker-dealer for
more than one ATS must independently comply with Regulation ATS,
including the filing requirements of Rule 304. The Commission believes
that the proposed language makes clear that the proposal would not
require compliance with the heightened transparency requirements of
Regulation ATS for ATSs that are not NMS Stock ATSs or Government
Securities ATSs. Under the proposal, a broker-dealer operator, for
example, for an ATS that noticed on its initial operation report on
Form ATS that the ATS trades government securities and corporate debt
securities would be the broker-dealer operator for two types of ATSs
that would be separate from each other with regard to trading these
securities and independently comply with Regulation ATS. These two
types of ATSs would be (1) a Government Securities ATS that would file
a Form ATS-G with respect to government securities and (2) a non-
Government Securities ATS that would file a Form ATS with respect to
corporate debt.\151\ In addition, each of the two ATSs would be
required to comply with the conditions to Regulation ATS, including,
among other things, each adopting written safeguards and written
procedures to protect subscriber confidential trading information for
the ATS pursuant to Rule 301(b)(10) and each making and keeping records
for the ATS pursuant to Rule 301(b)(8).\152\
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\150\ See Rule 3a1-1(a)(2) (providing that an organization,
association, or group of persons shall be exempt from the definition
of ``exchange'' if it is in compliance with Regulation ATS) and Rule
301(a) (providing that an ATS shall comply with the requirements of
Rule 301(b)).
\151\ Under the proposed rules, a broker-dealer operator for an
ATS that currently trades government securities and corporate bonds,
for example, would file a Form ATS-G to disclose its government
securities activities for the Government Securities ATS. The broker-
dealer operator would disclose the corporate bond activities of its
existing ATS by filing with the Commission a material amendment to
its Form ATS pursuant to Rule 301(b)(2)(ii) of Regulation ATS to
remove information regarding government securities activities. See
Regulation ATS Adopting Release, supra note 35, at 70864 (discussing
circumstances under which an ATS would file a material amendment to
Form ATS pursuant to Rule 301(b)(2), which, among other things,
includes changes to the operating platform, the types of securities
traded, or types of subscribers).
\152\ See supra note 92 and accompanying text.
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The Commission also is proposing to amend Rule 301(b)(9) of
Regulation ATS.\153\ This rule requires an ATS to report transaction
volume in various types of securities, including government securities
and repos, on Form ATS-R on a quarterly basis and within 10 calendar
days after it ceases operation.\154\ As discussed above, the Commission
is proposing to define ``Government Securities ATS'' and to clarify the
definition of ``NMS Stock ATS'' to make clear that a Government
Securities ATS cannot trade securities other than government securities
or repos and that an NMS Stock ATS cannot trade securities other than
NMS stocks.\155\ For example, a Government Securities ATS operated by a
broker-dealer that is also the registered broker-dealer for a non-
Government Securities ATS would be separate from the non-Government
Securities ATS and would be required to file a Form ATS-R for the
Government Securities ATS. The broker-dealer would be required to file
a separate Form ATS-R for the non-Government Securities ATS. The
Commission is proposing to amend Rule 301(b)(9) by removing language
stating that an ATS must ``separately file'' a Form ATS-R for
transactions in NMS stocks and for transactions in securities other
than NMS stocks to simplify the text and convey that each ATS, whether
operated by a broker-dealer that operates multiple types of ATS, must
file a Form ATS-R. This is consistent with the current Form ATS-R
filing process for a broker-dealer that operates an NMS Stock ATS and
non-NMS Stock ATS.\156\
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\153\ See 17 CFR 242.301(b)(9).
\154\ The information filed on Form ATS-R permits the Commission
to monitor trading on an ATS. See Regulation ATS Adopting Release,
supra note 35, at 70878.
\155\ See supra note 94 and accompanying text.
\156\ See NMS Stock ATS Adopting Release, supra note 1, Section
III.B.5.
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Request for Comment
24. Should an NMS Stock ATS or Government Securities ATS that is
operated by a broker-dealer that is a registered broker-dealer for more
than one ATS be subject to Rule 304 independently from any other ATS
for which its broker-dealer is registered?
25. Should a broker-dealer that is the registered broker-dealer for
more than one ATS be required to file separate Forms ATS-R for each of
the ATSs it operates?
F. Enhanced Filing Requirements for Government Securities ATSs
The Commission is proposing a process for the Commission to review
disclosures on Form ATS-G and declare a Form ATS-G ineffective if the
Commission finds, after notice and opportunity for hearing, that such
action is necessary and appropriate in the public interest and the
protection of investors. The proposed effectiveness process is not
merit based and is the same effectiveness process that is currently
applicable to NMS Stock ATSs. The effectiveness process is designed to
facilitate the Commission's oversight of Government Securities ATSs, as
the process has facilitated the review of NMS Stock ATSs, and address,
for example, material deficiencies with respect to the accuracy,
currency, and completeness of disclosures on Form ATS-G.
The Commission is proposing to amend Rule 304(a) to require that a
Covered ATS, which will include a Government Securities ATS, must
comply with Rules 300 through 304 of Regulation ATS as applicable to be
exempt pursuant to Rule 3a1-1(a)(2).\157\ As proposed, all Government
Securities ATSs would be required to comply with Rule 304, as amended,
to, among other things, file Form ATS-G with the Commission. The
Commission is proposing to apply to Government Securities ATSs the
existing provisions of current Rule 304(a) for the filing and
Commission review of an initial Covered Form, which will include Form
ATS-G,\158\ with a modification to the circumstances under which the
Commission can extend the review period for an initial Covered
Form.\159\ The Commission believes this process is appropriate for the
same reasons stated in the NMS Stock ATS Adopting Release.\160\ The
Commission believes that this review process will facilitate the
Commission's oversight of Government Securities ATSs and help ensure
that information is disclosed in a complete and comprehensible manner.
The differences between Form ATS-G and Form ATS-N would not warrant a
different review and effectiveness process and the Commission is
proposing to apply the same provisions
[[Page 87121]]
that are applicable to NMS Stock ATSs to Government Securities ATSs,
which include the following:
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\157\ As proposed, references to ``NMS Stock ATSs'' throughout
Rule 304 would be changed to refer to ``Covered ATSs,'' which would
encompass Government Securities ATSs. See supra Section II.B.
\158\ See infra notes 161-167 and accompanying text.
\159\ See infra notes 168-170 and accompanying text.
\160\ See NMS Stock ATS Adopting Release, supra note 1, Section
IV, at 38782.
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No exemption is available to a Government Securities ATS
pursuant to Exchange Act Rule 3a1-1(a)(2) unless the Government
Securities ATS files with the Commission an initial Form ATS-G,\161\
and the initial Form ATS-G is effective.\162\
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\161\ The Commission staff may reject a Form ATS-G filing that
is defective because, for example, it is missing sections or missing
responses to any sub-questions, or does not comply with the
electronic filing requirements. This is a separate process from the
determination to declare a Form ATS-G ineffective. See NMS Stock ATS
Adopting Release, supra note 1, at 38791.
\162\ See Rule 304(a)(1)(i). Because NMS Stock ATSs must file a
Form ATS-N and Government Securities ATSs must file a Form ATS-G,
the Commission is proposing a change to current Rule 304(a)(1)(i) to
state that no exemption is available to a Covered ATS pursuant to
Sec. 240.3a1-1(a)(2) unless the Covered ATS files with the
Commission an ``applicable'' initial Covered Form.
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To permit the Commission, by order, to declare ineffective
an initial Form ATS-G no later than 120 calendar days from the date of
filing with the Commission, or, if applicable, the end of the extended
Commission review period.\163\ During the Commission review period, the
Government Securities ATS shall amend its initial Form ATS-G by filing
updating amendments and correcting amendments, as applicable.\164\
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\163\ See proposed Rule 304(a)(1)(ii). As proposed, the
Commission may extend the initial Form ATS-G review period for: (1)
An additional 90 calendar days, if the Commission determines that a
longer period is appropriate, in which case the Commission will
notify the Government Securities ATS in writing within the initial
120-calendar day review period and will briefly describe the reason
for the determination for which additional time for review is
required; or (2) any extended review period to which a duly
authorized representative of the Government Securities ATS agrees in
writing. See infra note 169.
\164\ As proposed, to make material changes to its initial Form
ATS-G during the Commission review period, the Government Securities
ATS shall withdraw its filed initial Form ATS-G and may refile an
initial Form ATS-G pursuant to Rule 304(a)(1). See Rule
304(a)(1)(ii)(B).
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An initial Form ATS-G, as amended, will become effective,
unless declared ineffective, upon the earlier of: (1) The completion of
review by the Commission and publication pursuant to Rule 304(b)(2)(i);
or (2) the expiration of the Commission review period, or, if
applicable, the end of the extended review period.\165\
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\165\ See proposed Rule 304(a)(1)(iii)(A).
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The Commission will, by order, declare an initial Form
ATS-G ineffective if it finds, after notice and opportunity for
hearing, that such action is necessary or appropriate in the public
interest, and is consistent with the protection of investors.\166\ If
the Commission declares an initial Form ATS-G ineffective, the
Government Securities ATS shall be prohibited from operating as a
Government Securities ATS pursuant to Exchange Act Rule 3a1-1(a)(2). An
initial Form ATS-G declared ineffective does not prevent the Government
Securities ATS from subsequently filing a new Form ATS-G.\167\
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\166\ Like the review process for Form ATS-N, the Commission's
review of Form ATS-G would not be merit-based; instead it would
focus on the completeness and comprehensibility of the disclosures.
See NMS Stock ATS Adopting Release, supra note 1, at 38790. In the
NMS Stock ATS Adopting Release, the Commission discussed the
circumstances under which the Commission would declare a Form ATS-N
amendment ineffective. Such circumstances would also apply to the
Commission's review of an amendment to Form ATS-G filed by a
Government Securities ATS. For example, the Commission believes it
would be necessary or appropriate in the public interest, and
consistent with the protection of investors, to declare ineffective
a Form ATS-G if, for example, the Commission finds, after notice and
opportunity for hearing, the Form ATS-G was filed by an entity that
does not meet the definition of a Government Securities ATS; one or
more disclosures reveal non-compliance with federal securities laws,
or the rules or regulations thereunder, including Regulation ATS; or
one or more disclosures on Form ATS-G are materially deficient with
respect to their completeness or comprehensibility. For further
discussion, see id. at Section IV.B.2.
\167\ See Rule 304(a)(1)(iii)(B).
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The Commission is proposing to amend Rule 304(a)(1)(ii)(A)(1),
which currently provides that the Commission may extend the initial
Form ATS-N review period for an additional 90 calendar days if the Form
ATS-N is unusually lengthy or raises novel or complex issues that
require additional time for review.\168\ The Commission is extending
the rule to Form ATS-G, and furthermore, the Commission believes that
it is appropriate to extend the Commission review period for a Covered
Form if it finds that an extension is appropriate.\169\ For example, if
an ATS's disclosures on an initial Form ATS-G are difficult to
understand or appear to be incomplete, the Commission may need
additional time to discuss the disclosures with the ATS to ascertain
whether to declare the Form ATS-G ineffective, even if the form is not
unusually lengthy or does not raise novel or complex issues. Rather
than moving to declare an initial Form ATS-G ineffective because of
material deficiencies with respect to completeness and
comprehensibility, the Commission could extend the review period to
allow the filer to resolve the deficiencies. The Commission is
therefore proposing that the Commission may extend the initial Covered
Form review period by an additional 90 calendar days if it determines a
longer period is appropriate. The proposed standard is the same
standard for extending the Commission review period for SRO rule
filings under Section 19 of the Exchange Act.\170\ As under current
Rule 304(a)(1)(ii)(A)(1), in such case, the Commission will notify the
Covered ATS in writing within the initial 120-calendar day review
period and will briefly describe the reason for the determination for
which additional time for review is required.
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\168\ See Rule 304(a)(1)(ii)(A)(1). As proposed, the Commission
may also extend the initial Covered Form review period for any
extended review period to which a duly authorized representative of
the Covered Form agrees in writing. See Rule 304(a)(1)(ii)(A)(2).
\169\ In the Commission's experience reviewing Forms ATS-N, the
Commission review period was extended (either by the Commission or
by the agreement of a duly authorized representative of the ATS) for
31 of the 35 Forms ATS-N that the Commission has reviewed and
published. In its review of each Form ATS-N, the Commission staff
engaged in extensive conversations with the NMS Stock ATS with
regard to the NMS Stock ATS's disclosures on its initial Form ATS-N.
\170\ See 15 U.S.C. 78s(b)(2).
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The Commission is also proposing that Legacy Government Securities
ATSs that have a Form ATS on file with the Commission as of the
Compliance Date be subject to identical rules (other than changes to
terminology) during the transition from operating pursuant to a Form
ATS to operating pursuant to a Form ATS-G as those that were applied to
Legacy NMS Stock ATSs during the Commission's review period. In
addition, to allow a Currently Exempted Government Securities ATS to
continue to operate without disruption while its initial Form ATS-G is
under Commission review, the Commission is proposing to amend Rule
304(a)(1)(i) to provide that a Currently Exempted Government Securities
ATS may continue to operate pursuant to Regulation ATS until its
initial Form ATS-G becomes effective. The Commission believes that all
Legacy Government Securities ATSs--whether they are operating pursuant
to a Form ATS or whether they have operated as a Currently Exempted
Government Securities ATS--should be permitted to continue to operate
during the Commission review period. The Commission is therefore
proposing that Legacy Government Securities ATSs can operate pursuant
to Form ATS-G on a provisional basis during the Commission review
period. A Government Securities ATS would file with the Commission an
initial Form ATS-G no earlier than the Compliance Date \171\ and no
later than the date 150
[[Page 87122]]
calendar days after the date of publication of the final rule in the
Federal Register. An initial Form ATS-G filed by a Legacy Government
Securities ATS would supersede and replace a previously filed Form ATS
of the Legacy Government Securities ATS. A Legacy Government Securities
ATS that fails to comply with the requirements of Regulation ATS by
filing Form ATS-G by the 150th calendar day and continues operating as
a Government Securities ATS would no longer qualify for the exemption
provided under Rule 3a1-1(a)(2), and thus, risks operating as an
unregistered exchange in violation of Section 5 of the Exchange Act. If
a Legacy Government Securities ATS that has a Form ATS on file with the
Commission to trade, for example, government securities and corporate
bonds fails to file a Form ATS-G by the 150th calendar day, the ATS
must either file a cessation of operations report on Form ATS or file a
material amendment on Form ATS to remove information related to
government securities.
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\171\ See supra note 97.
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For the same reasons discussed above,\172\ the Commission is
proposing to amend Rule 304(a)(1)(iv)(B) to provide that the Commission
can extend the initial Form ATS-G review period by an additional 120
calendar days if it determines that a longer period is appropriate,
even if the form is not unusually lengthy or does not raise novel or
complex issues.
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\172\ See supra notes 168-170 and accompanying text.
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Other than the proposed changes to the circumstances under which
the Commission may extend the Commission review period, the Commission
is also proposing that the process for the Commission review and
ineffectiveness determination for an initial Form ATS-G filed by a
Legacy Government Securities ATS would be the same as the process for
an initial Form ATS-N filed by a Legacy NMS Stock ATS.\173\ Given the
intended uses of proposed Form ATS-G to allow the Commission to monitor
developments and carry out its oversight functions over Government
Securities ATSs and to enable market participants to make more informed
decisions about how their orders will be handled by the ATSs, the
Commission believes that it is important for a Government Securities
ATS to maintain an accurate, current, and complete Form ATS-G.\174\
Providing the Commission with the opportunity to review Form ATS-G
disclosures would help ensure that information is disclosed in a
complete and comprehensible manner.\175\
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\173\ See Rule 304(a)(1)(iv)(B), which, as proposed, will
provide that the Commission may, by order, as provided in Rule
304(a)(1)(iii), declare an initial Form ATS-G filed by a Legacy
Government Securities ATS ineffective no later than 120 calendar
days from the date of filing with the Commission, or, if applicable,
the end of the extended review period. As proposed, the Commission
may extend the initial Form ATS-G review period for a Legacy
Government Securities ATS for: (1) An additional 120 calendar days
if the Commission determines that a longer period is appropriate, in
which case the Commission will notify the Legacy Government
Securities ATS in writing within the initial 120-calendar day review
period and will briefly describe the reason for the determination
for which additional time for review is required; or (2) any
extended review period to which a duly-authorized representative of
the Legacy Government Securities ATS agrees in writing. See supra
note 172.
\174\ See NMS Stock ATS Proposing Release, supra note 62, at
81025 (discussing the proposed process for amendments to, and
Commission review of, Form ATS-N).
\175\ See NMS Stock ATS Adopting Release, supra note 1, Section
IV.A.3.
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As the intended uses of Form ATS-G and Form ATS-N disclosures are
similar, the Commission is proposing the same filing requirements that
are currently applicable to Form ATS-N amendments filed by NMS Stock
ATSs to Form ATS-G amendments filed by Government Securities ATSs. A
Government Securities ATS would be required to amend Form ATS-G:
At least 30 calendar days prior to the date of
implementation of a material change to the operations of the Government
Securities ATS or to the activities of the broker-dealer operator or
its affiliates that are subject to disclosure on the Form ATS-G, other
than changes related to order display or fair access, which will be
contingent amendments reported pursuant to Rule 304(a)(2)(i)(D).\176\
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\176\ See Rule 304(a)(2)(i)(A). Scenarios that are particularly
likely to implicate a material change include: (1) A broker-dealer
operator or its affiliates beginning to trade on the Government
Securities ATS; (2) a change to the broker-dealer operator's
policies and procedures governing the written safeguards and written
procedures to protect the confidential trading information of
subscribers pursuant to Rule 301(b)(10)(i) of Regulation ATS; (3) a
change to the types of participants on the Government Securities
ATS; (4) the introduction or removal of a new order type on the
Government Securities ATS; (5) a change to the order interaction and
priority procedures; (6) a change to the segmentation of orders and
participants; (7) a change to the manner in which the Government
Securities ATS displays orders or trading interest; and (8) a change
of a service provider to the operations of the Government Securities
ATS that has access to subscribers' confidential trading
information. This list is not intended to be exhaustive, and does
not mean to imply that other changes to the operations of a
Government Securities ATS or the activities of the broker-dealer
operator or its affiliates could not constitute material changes.
Further, the Government Securities ATS should generally consider
whether the cumulative effect of a series of changes to the
operations of the Government Securities ATS or the activities of the
broker-dealer operator or its affiliates with regard to the
Government Securities ATS is material. In addition, in determining
whether a change is material, an ATS generally should consider
whether such change would affect: (1) The competitive dynamics among
ATS subscribers; (2) the execution quality or performance of the
orders of any subscriber or category of subscribers; (3) the fees
that any subscriber or category of subscribers would pay to access
and/or use the ATS; (4) the nature or composition of counter-parties
with which any subscriber or category of subscribers interact; and
(5) the relative speed of access or execution of any subscriber or
group of subscribers. For further discussion, see NMS Stock ATS
Adopting Release, supra note 1, Section IV.B.1.a.
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No later than 30 calendar days after the end of each
calendar quarter to correct information that has become inaccurate or
incomplete for any reason and was not required to be reported to the
Commission as a material amendment, correcting amendment, or contingent
amendment.\177\
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\177\ See Rule 304(a)(2)(i)(B).
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Promptly to correct information in any previous disclosure
on the Form ATS-G, after discovery that any information previously
filed on a Form ATS-G was materially inaccurate or incomplete when
filed.\178\
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\178\ See Rule 304(a)(2)(i)(C). For a discussion of when an ATS
should file a correcting amendment, see NMS Stock ATS Adopting
Release, supra note 1, at 38806.
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No later than seven calendar days after information
required to be disclosed in Part III, Item 24 on Form ATS-G, which
addresses fair access, has become inaccurate or incomplete. Because the
order display and execution access rule under Rule 301(b)(3) does not
apply to Government Securities ATSs, Form ATS-G does not include a
requirement to disclose information pertaining to order display and
execution access. Accordingly, Rule 304(a)(2)(i)(D) will only apply to
the fair access disclosure on Form ATS-G.\179\
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\179\ The Commission is proposing to revise Rule 304 to replace
references to ``Order Display and Fair Access Amendments'' with
``Contingent Amendments.'' The term ``Contingent Amendment'' would
apply to the relevant amendments under Rule 304(a)(2)(i)(D) to both
Form ATS-N and Form ATS-G.
Like amendments to Form ATS-N, the Commission will, by order, declare
ineffective any Form ATS-G amendment filed pursuant to Rule
304(a)(2)(i)(A) through (D), no later than 30 calendar days from filing
with the Commission, if it finds that such action is necessary or
appropriate in the public interest and is consistent with the
protection of investors.\180\
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\180\ See Rule 304(a)(2)(ii).
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The Commission is further proposing to apply current Rule 304(a)(3)
to require a Government Securities ATS to notice its cessation of
operations on a Form ATS-G at least 10 business days prior to the date
it will cease to operate
[[Page 87123]]
as a Government Securities ATS and to cause the Form ATS-G to become
ineffective on the date designated by the Government Securities ATS. In
addition, the Commission is proposing to apply Rule 304(a)(4) to
Government Securities ATSs, which would provide that the Commission
will, by order, if it finds, after notice and opportunity for hearing,
that such action is necessary or appropriate in the public interest and
is consistent with the protection of investors, suspend for a period
not exceeding twelve months,\181\ limit, or revoke the exemption for a
Covered ATS pursuant to Rule 3a1-1(a)(2).\182\ Rule 304(a)(4)(ii) would
provide that if the exemption for a Government Securities ATS is
suspended or revoked pursuant to Rule 304(a)(4)(i), the Government
Securities ATS would be prohibited from operating pursuant to the Rule
3a1-1(a)(2) exemption.\183\ If the exemption for a Government
Securities ATS is limited pursuant to Rule 304(a)(4)(i), the Government
Securities ATS shall be prohibited from operating in a manner otherwise
inconsistent with the terms and conditions of the Commission order.
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\181\ The proposed limitation on the time frame for suspension
is consistent with federal securities law provisions pursuant to
which the Commission may suspend the activities or registration of a
regulated entity. See, e.g., Exchange Act Section 15(b)(4) (15
U.S.C. 78o(b)(4)) and 15B(c)(2) (15 U.S.C. 78o-4(c)(2)). See NMS
Stock ATS Proposing Release, supra note 62, at 81031 n.322.
\182\ See proposed Rule 304(a)(4)(i).
\183\ See Rule 304(a)(4). In making a determination as to
whether suspension, limitation, or revocation of a Government
Securities ATS's exemption is necessary or appropriate in the public
interest, and is consistent with the protection of investors, the
Commission would, for example, take into account whether the entity
no longer meets the definition of Government Securities ATS under
Rule 300(l), does not comply with the conditions to the exemption
(in that it fails to comply with any part of Regulation ATS,
including Rule 304), or otherwise violates any provision of federal
securities laws. For further discussion of such examples as applied
to NMS Stock ATSs, see NMS Stock ATS Proposing Release, supra note
62, at 81032.
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In addition, Rule 304(a)(4) would provide that prior to issuing an
order suspending, limiting, or revoking a Government Securities ATS's
exemption pursuant to Rule 304(a)(4)(i), the Commission will provide
notice and opportunity for hearing to the Government Securities ATS,
and make the findings specified in Rule 304(a)(4)(i) described above,
that, in the Commission's opinion, the suspension, limitation, or
revocation is necessary or appropriate in the public interest and is
consistent with the protection of investors.\184\
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\184\ Pursuant to the Commission's current information sharing
practices with the Department of the Treasury, the Commission
expects to provide the Department of the Treasury with prompt notice
in certain cases, such as when the Commission is requiring
registration for certain large volume Government Securities ATSs
under Rule 3a1-1(b), declaring a Form ATS-G ineffective under Rule
304(a)(1)(iii)(b), or suspending, limiting, or revoking the
exemption of a Government Securities ATS under Rule 304(a)(4).
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Request for Comment
26. Should Government Securities ATSs be required to file proposed
Form ATS-G instead of Form ATS?
27. Should Form ATS, or parts thereof, for ATSs that effect
transactions in government securities or repos and securities other
than government securities or repos be made available to the public? Is
current Form ATS sufficient to elicit information for the public about
the operations of Government Securities ATSs?
28. Do commenters believe that broker-dealers that effect
transactions in government securities or repos generally, or U.S.
Treasury Securities or Agency Securities, specifically, might choose to
modify their business models so that they would not be required to
comply with enhanced regulatory or operational transparency
requirements for Government Securities ATSs?
29. Should Government Securities ATSs be subject to Rule 304(a), in
whole or in part?
30. Should Rule 304(a) be amended to provide that an initial
Covered Form be made effective by Commission order or any other means
instead of upon publication by the Commission?
31. Should Rule 304(a) only apply to Government Securities ATSs
that trade a certain type of government security (e.g., U.S. Treasury
Securities, Agency Securities)? If so, to which type of Government
Securities ATS should Rule 304 apply (e.g., Government Securities ATSs
that trade U.S. Treasury Securities or Government Securities ATSs that
trade Agency Securities)?
32. Should the Commission require a Currently Exempted Government
Securities ATS to file Form ATS-G and comply with the requirements of
Rule 304 to qualify for the exemption from the definition of exchange?
33. Would the proposal to require a Currently Exempted Government
Securities ATS to file Form ATS-G by the date 150 calendar days after
the date of publication of the final rule in the Federal Register
provide the ATS sufficient time to transition to compliance with
Regulation ATS and the proposed requirements under Rule 304? Would the
proposal to require a Legacy Government Securities ATS to file a Form
ATS-G by the date 150 calendar days after the date of publication of
the final rule in the Federal Register provide the ATS sufficient time
to transition to compliance with Rule 304?
34. Should the Commission be permitted to extend the initial
Covered Form review period if it finds that it is appropriate to extend
such review period?
35. Should a Legacy Government Securities ATS be allowed to
continue operations during the Commission's review of its initial Form
ATS-G? Should the Commission make a Legacy Government Securities ATS's
Form ATS-G publicly available upon filing?
36. Are there any aspects of Rule 304(a)(2) relating to the filing
and review of amendments that should be modified specifically for Form
ATS-G amendments filed by Government Securities ATSs?
37. What changes or types of changes to an ATS's operations or the
activities of the broker-dealer operator or its affiliates do
commenters believe are particularly likely to be material as so to
require a material amendment to Form ATS-G?
38. Currently, and as proposed, Rule 304(a)(2) does not provide for
the Commission to extend the length of the Commission review period for
amendments to a Covered Form.\185\ The Commission has 30 days to review
the amendment, engage in discussion with the ATS, and, if necessary or
appropriate in the public interest, and consistent with the protection
of investors, declare the amendment ineffective. If, however, after the
end of the Commission review period for an amendment, the Commission
finds that, in light of such amendment, it is necessary or appropriate
in the public interest and consistent with the protection of investors,
the Commission may, after notice and opportunity for hearing, suspend,
limit, or revoke a Covered ATS's exemption from the definition of
``exchange'' pursuant to Rule 3a1-1(a)(2). Should the Commission amend
Rule 304(a)(2) to allow the Commission to extend the length of the
Commission review period for amendments to a Covered Form? If so, under
what circumstances should the Commission be permitted to extend the
length of the Commission review period for a Covered Form amendment and
how long should an extension be (e.g., 15, 30, 45 calendar days)?
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\185\ Based on the Commission's review of Form ATS-N filings,
the Commission has observed that material amendments are often
complex and the Commission staff has frequently engaged in extensive
dialogue with the ATS regarding such disclosures. To date, the
Commission has not declared a Form ATS-N amendment ineffective.
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[[Page 87124]]
39. Should the Commission consider any other factors in determining
whether a Form ATS-G filed by a Government Securities ATS should become
effective or ineffective? If so, what are they and why?
40. Is the process for the Commission to suspend, limit, or revoke
an NMS Stock ATS's exemption from the definition of ``exchange'' to
Government Securities ATSs necessary or appropriate to protect
investors?
G. Public Disclosure of Form ATS-G and Related Commission Orders
The Commission is also proposing to make public certain Form ATS-G
reports filed by Government Securities ATSs by applying existing Rule
304(b) to Covered Forms, which would include Form ATS-G.\186\
Commission orders related to the effectiveness of Form ATS-G would also
be publicly posted on the Commission's website. Applying existing Rule
304(b) to Government Securities ATSs would mandate greater public
disclosure of the operations of these ATSs through the publication of
Form ATS-G and related filings available on the Commission's
website.\187\ Accordingly, the Commission is proposing the following:
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\186\ See proposed revisions to Rule 304(b)(1) (providing that
every Form ATS-G filed pursuant to Rule 304 shall constitute a
``report'' within the meaning of Sections 11A, 17(a), 18(a), and
32(a) and any other applicable provisions of the Exchange Act).
\187\ See infra Section III.
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Similar to Form ATS-N, every Form ATS-G filed pursuant to
Rule 304 shall constitute a ``report'' within the meaning of Sections
11A, 17(a), 18(a), and 32(a) and any other applicable provisions of the
Exchange Act.\188\
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\188\ See Rule 304(b)(1).
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The Commission will make public via posting on the
Commission's website, each: (1) Effective initial Form ATS-G, as
amended; (2) order of ineffective initial Form ATS-G; (3) Form ATS-G
amendment to an effective Form ATS-G; (4) order of ineffective Form
ATS-G amendment; (5) notice of cessation; and (6) order suspending,
limiting, or revoking the exemption for a Government Securities ATS
from the definition of an ``exchange'' pursuant to Exchange Act Rule
3a1-1(a)(2).\189\
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\189\ See Rule 301(b)(2).
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The Commission is proposing to apply Rule 304(b)(3) to require each
Government Securities ATS that has a website to post a direct URL
hyperlink to the Commission's website that contains the documents
enumerated in Rule 304(b)(2), which include the Government Securities
ATS's Form ATS-G filings.
In addition, to promote further transparency, the Commission is
proposing to amend Rule 304(b)(3) to require each Covered ATS to post
on its website the most recently disseminated Covered Form (excluding
Part IV, which is non-public information) within one business day after
publication on the Commission's website, except for any amendment that
the Commission has declared ineffective or that has been withdrawn. The
most recently disseminated Covered Form shall be maintained on the
Covered ATS's website until: (a) The Covered ATS ceases operations; or
(b) the exemption of the Covered ATS is revoked or suspended, in which
cases the Covered ATS shall remove the Covered Form from its website
within one business day of such cessation, revocation or suspension, as
applicable.\190\ A Covered ATS that has submitted a Covered Form or
amendment thereto that is under Commission review prior to
dissemination could monitor the Commission's website to ensure that the
ATS's website reflects the most current version of the form.\191\
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\190\ If the broker-dealer operator has not created a website
specific for the ATS, the broker-dealer operator would place the
Covered Form, the hyperlink to the Commission's website, and any
other information related to the Covered Form (e.g., aggregate
platform-wide data or direct/indirect ownership information) on the
broker-dealer operator's website in a conspicuous place for the
public to view.
\191\ The Commission believes that Covered ATSs could reasonably
anticipate when an initial Covered Form and amendments thereto would
be disseminated. Filers receive an automated notice when a filing is
accepted by EDGAR. Once accepted, amendments to a Covered Form
(other than material amendments) would be disseminated. Material
amendments would be made public following the expiration of the 30-
calendar day Commission review period. Although an initial Covered
Form may be disseminated at any time within the 120-calendar day
Commission review period or any extension thereof, the Commission
expects to engage in dialogue with the Covered ATS during such
review period so that the ATS could reasonably anticipate when its
initial Covered Form would be disseminated.
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Request for Comment
41. Should the requirements of Rule 304(b) apply to Form ATS-G
reports filed by Government Securities ATSs, in whole or in part?
Should the Commission modify Rule 304(b) in any way for all Covered
ATSs?
42. Rule 304(b)(2) currently provides that the Commission make Form
ATS-N filings available on its website. The Commission disseminates
Form ATS-N and amendments thereto through the Commission's Electronic
Data Gathering, Analysis, and Retrieval system (``EDGAR''). Should Rule
304(b) be amended so that only filers of a Covered Form make filings
public, rather than the Commission (by EDGAR or by any other form of
filing)?
43. Should Rule 304(b) be amended to require Covered ATSs to post
the Covered Form on their websites? Should Covered ATSs be required to
post the Covered Form on their websites in addition to or instead of
posting a hyperlink to the Commission website?
44. Should Rule 304(b) only apply to Government Securities ATSs
that trade a type of government securities (e.g., U.S. Treasury
Securities, Agency Securities)? If so, to which type of Government
Securities ATS should Rule 304 apply?
45. Are there any other requirements that should apply to making
public a Form ATS-G report filed by a Government Securities ATS? Please
support your arguments, and if so, please list and explain such
procedures in detail.
46. Should Rule 304(b) apply to Form ATS-G reports filed by a
Currently Exempted Government Securities ATS? If not, which aspects of
Rule 304(b) should not apply and why?
H. Form ATS-G Requirements
The Commission is proposing to apply existing Rule 304(c) to
Covered ATSs, which would include Government Securities ATSs. As
proposed, Rule 304(c) would require Government Securities ATSs to file
a Form ATS-G in accordance with the instructions therein. Other than
references to Government Securities ATSs and Form ATS-G and the
relevant compliance dates, the proposed instructions to Form ATS-G are
identical to the instructions to Form ATS-N. They require, among other
things, that a Government Securities ATS provide all the information
required by Form ATS-G, including responses to each Item, as
applicable, and the Exhibits, and disclose information that is
accurate, current, and complete.\192\ Given that the Commission expects
market participants will use Form ATS-G to decide where to send their
orders for execution, the Commission believes that it is important that
Form ATS-G filings comply with the instructions and that the
information provided on Form ATS-G is accurate, current, and complete.
The Commission is also proposing that Form ATS-G, like Form ATS-N,\193\
be filed electronically in a structured format through EDGAR.\194\
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\192\ See Instructions to proposed Form ATS-G.
\193\ See NMS Stock ATS Adopting Release, supra note 1, Section
VII.
\194\ See infra Section IV.
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[[Page 87125]]
The Commission is proposing to apply Rule 304(c)(2) to Government
Securities ATSs, which would provide that any report required under
Rule 304 shall be filed on a Form ATS-G, and include all information as
prescribed in the Form ATS-G and the instructions to the Form ATS-G.
Rule 304(c)(2) would provide that a Form ATS-G be executed at, or prior
to, the time the Form ATS-G is filed and shall be retained by the
Government Securities ATS in accordance with Rules 302 and 303, and the
instructions in the Form ATS-G. In the Regulation ATS Adopting Release,
the Commission stated that the requirements to make and preserve
records set forth in Regulation ATS are necessary to create a
meaningful audit trail and permit surveillance and examination to help
ensure fair and orderly markets \195\ and that expanding Rule 304(c) to
encompass Form ATS-G would further these goals for Government
Securities ATSs.
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\195\ See Regulation ATS Adopting Release, supra note 35, at
70877-78.
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Request for Comment
47. Should Rule 304(c) be applied, in whole or in part, to
Government Securities ATSs?
48. Should Rule 304(c) only apply to Government Securities ATSs
that trade a certain type of government security (e.g., U.S. Treasury
Securities, Agency Securities)? If so, to which type of Government
Securities ATS should it apply?
III. Proposed Form ATS-G for Government Securities ATSs
As outlined above, the Commission proposes to require Government
Securities ATSs to file a proposed Form ATS-G, which would be a public
report that provides detailed information about the manner of
operations of the ATS and about the ATS-related activities of the
broker-dealer operator and its affiliates. Despite the significant role
of ATSs in the government securities market structure and the
complexity of their operations, most market participants have limited
access to information that permits them to adequately compare and
contrast how their orders would be handled by different Government
Securities ATSs. The Commission believes that proposed Form ATS-G's
public disclosures would provide important information to market
participants that would help them better understand these operational
facets of Government Securities ATSs and select the best trading venue
based on their needs. In addition, in the Commission's experience
reviewing disclosures on Form ATS-N, the Commission observed that the
information responsive to the form is not proprietary or commercially
sensitive. Because the disclosures that would be required on proposed
Form ATS-G are similar to those of Form ATS-N, the Commission believes
that likewise, the vast majority of responsive information would not be
proprietary or commercially sensitive.\196\
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\196\ See infra Section III.
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The Commission also believes that the proposed disclosures on Form
ATS-G about the conflicts of interest that might arise from the
business structures of the Government Securities ATS and the ATS-
related activities of the broker-dealer operator and its affiliates
would help subscribers protect their interests when using the services
of the ATS.\197\ As the Commission has previously stated, the broker-
dealer operator controls all aspects of the ATS's operations and the
broker-dealer operator's non-ATS and ATS functions may overlap.\198\
Currently, market participants have limited information about conflicts
of interest that might arise from the non-ATS activities of the broker-
dealer operator of a Government Securities ATS, and different classes
of subscribers may have different levels of information about the
operations of the ATS.\199\ Because of overlap between a broker-
dealer's ATS operations and its other operations, there is a risk of
information leakage of subscribers' confidential trading information to
other business units of the broker-dealer operator or its affiliates.
The Commission believes that some market participants would want to
consider the trading activity of the broker-dealer operator, or its
affiliates, when evaluating potential conflicts of interest on a
Government Securities ATS and may also like to know the range of
services and products that the broker-dealer operator or its affiliates
offer subscribers for use on the ATS because such services or products
may have an impact on the subscribers' access to, or trading on, the
ATS. Some commenters have also stated that there are close similarities
between the operations of NMS Stock ATSs and some Government Securities
ATSs, particularly with respect to U.S. Treasury Securities, and that
trading in U.S. Treasury Securities may present potential conflicts of
interest similar to those for NMS Stock ATSs.\200\ The Commission also
believes that the disclosures on proposed Form ATS-G would better
inform the Commission and other regulators about the activities of
Government Securities ATSs and their role in the government securities
markets, which in turn, would facilitate better oversight of these ATSs
and the markets to the benefit of investors.
---------------------------------------------------------------------------
\197\ See infra Section III.B.
\198\ See NMS Stock ATS Proposing Release, supra note 62, at
81010, 81041.
\199\ See id. at 81010.
\200\ See MFA/AIMA Letter, supra note 66, at 3; OIA Letter,
supra note 65, at 18-19.
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Given the similarities of operations between NMS Stock ATSs and
Government Securities ATSs, almost all requests for information on
proposed Form ATS-G are similar to or derived from Form ATS-N; however,
certain requests have been tailored for Government Securities ATSs. The
differences between the forms include that: Form ATS-G does not have an
item corresponding to Part III, Item 16 (Routing) of Form ATS-N; Form
ATS-G does not have an item corresponding to Part III, Item 24 (Order
Display and Execution Access) of Form ATS-N as the associated rule is
inapplicable to government securities; and Form ATS-G added proposed
Part III, Item 16 requiring information about non-government securities
markets (e.g., futures, currencies, swaps, corporate bonds) used in
conjunction with the ATS. The Commission is requesting comment on each
of the requests for information on proposed Form ATS-G and information
about the operations of Government Securities ATSs and ATS-related
activities of the broker-dealer operator and its affiliates that would
be important to subscribers and market participants.
A. Cover Page and Part I of Form ATS-G
1. Cover Page
To make clear that the Commission is not conducting a merit-based
review of Form ATS-G disclosures filed with the Commission, the
Commission proposes to include a legend on the Form ATS-G cover page
stating that the Commission has not passed upon the merits or accuracy
of the disclosures in the filing. On the cover page of proposed Form
ATS-G, the ATS would be required to identify whether it is a Legacy
Government Securities ATS currently operating as of the Compliance Date
(either pursuant to a Form ATS or an exemption under Exchange Act Rule
3a1-1(a)(3)). In addition, the Government Securities
[[Page 87126]]
ATS would indicate the type of filing by marking the appropriate
checkbox.\201\
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\201\ The proposed cover page would provide that a filing may be
an initial Form ATS-G, or a Form ATS-G material amendment, updating
amendment, correcting amendment, or contingent amendment.
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If the Government Securities ATS is filing an amendment, the ATS
would be required to indicate the Part and Item number of the Form ATS-
G that is the subject of the change(s), provide a brief summary of the
change(s), and state whether or not the change(s) applies to all
subscribers and the broker-dealer operator.\202\ In addition, the
Government Securities ATS would be required to provide the EDGAR
accession number for the Form ATS-G filing to be amended so that market
participants can identify the filing that is being amended. The
Commission is proposing to apply Rule 304(b)(2)(iii) to Form ATS-G to
provide that the Commission would make public the cover page of a filed
Form ATS-G material amendment upon filing and then make public the
entirety of the material amendment following the expiration of the
review period pursuant to Rule 304(a)(2)(ii). For updating and
correcting amendments, which would be made public upon filing, the
Commission believes that the information in the narrative could assist
market participants in understanding the general nature of the change
that the Government Securities ATS is implementing.
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\202\ See Instruction A.7.g of Form ATS-G. If a change subject
to the amendment would equally apply to all subscribers and the
broker-dealer operator, the Government Securities ATS would indicate
that the change applies to all subscribers and the broker-dealer
equally. If a change would apply differently among subscribers or
types of subscribers, between subscribers and the broker-dealer
operator, or between the broker-dealer operator and its affiliates
(which may be subscribers to the ATS), the Government Securities ATS
would state so and describe the differences in treatment. This is
the same as how NMS Stock ATSs describe whether or not a change
applies to all subscribers and the broker-dealer operator in
amendments on Form ATS-N.
---------------------------------------------------------------------------
If the filing is a cessation of operations, the Commission is
proposing that the Government Securities ATS provide the date that the
ATS will cease to operate. The Commission is also proposing to include
a checkbox where the ATS could indicate whether it wishes to withdraw a
previously-filed Form ATS-G filing and provide the EDGAR accession
number for the filing to be withdrawn. The instructions to Form ATS-G
would state that a Government Securities ATS may withdraw an initial
Form ATS-G or an amendment before the end of the applicable Commission
review period. In addition, the Commission is proposing that a
Government Securities ATS may withdraw a notice of cessation of
operations at any time before the date that the ATS indicated it
intended to cease operating.
2. Part I of Form ATS-G: Identifying Information
Part I of Form ATS-G, as proposed, would be substantively the same
as that for Form ATS-N, as proposed to be amended,\203\ except that
unlike Form ATS-N, Form ATS-G would require an ATS to identify whether
it trades U.S. Treasury Securities, Agency Securities, repos, or other
securities. To parallel the Form ATS-N requirement, the Commission is
proposing that Form ATS-G would require an ATS to identify the
registered broker-dealer that operates the ATS. Part I, Item 1.a of
Form ATS-G would require the ATS to state whether the filer is a
broker-dealer registered with the Commission. The Commission is also
proposing that the Government Securities ATS provide the name of the
registered broker-dealer or government securities broker or government
securities dealer for the Government Securities ATS (i.e., the broker-
dealer operator), as it is stated on Form BD, in Part I, Item 2 of Form
ATS-G. Part I, Item 1.b of Form ATS-G would require the ATS to indicate
whether the broker-dealer operator has been authorized by a national
securities association to operate an ATS.\204\ To comply with
Regulation ATS, and thus qualify for the Rule 3a1-1(a)(2) exemption, an
ATS must register as a broker-dealer and thus become a member of an
SRO. As a member of the SRO, the ATS must comply with the rules of the
SRO, including obtaining any required approvals by the SRO in
connection with operating an ATS in accordance with applicable SRO
rules.\205\ The Commission believes that proposed Part I, Item 1.b
would facilitate compliance with and Commission oversight of this
requirement.
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\203\ The Commission is proposing changes to Form ATS-N, which
are described infra Section V.D.
\204\ The Commission is proposing herein to add this subpart to
Form ATS-N. See infra Section V.D.
\205\ See 15 U.S.C. 78o(b)(8). See also NMS Stock ATS Adopting
Release, supra note 1, at 38773.
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To the extent that a commercial or ``DBA'' (doing business as) name
or names are used to identify the Government Securities ATS to the
public, the Commission, or its SRO, or if a registered broker-dealer
operates multiple Government Securities ATSs, Form ATS-G would require
the full name(s) of the Government Securities ATS under which business
is conducted, if different, in Part I, Item 3 of Form ATS-G. Part I,
Item 4 of Form ATS-G would require the Government Securities ATS to
provide the broker-dealer operator's SEC File Number and Central
Registration Depository (``CRD'') Number. Part I, Item 5 of Form ATS-G
would require the Government Securities ATS to select the types of
securities the ATS trades (i.e., U.S. Treasury Securities, Agency
Securities, repos, or other). If the ATS selects ``other,'' it would be
required to list the types of government securities that it
trades.\206\ Part I, Item 6 of Form ATS-G would require the Government
Securities ATS to provide the full name of the national securities
association of the broker-dealer operator, the effective date of the
broker-dealer operator's membership with the national securities
association, and its MPID. Pursuant to FINRA rules, each ATS is
required to use a unique MPID in its reporting to FINRA, such that its
volume reporting is distinguishable from other transaction volume
reported by the broker-dealer operator of the ATS, including volume
reported for other ATSs or trading desks operated by the broker-dealer
operator.\207\ The broker-dealer operator would provide the unique MPID
for the Government Securities ATS and assess the functionalities
related to trading under that MPID and describe them, as applicable, in
response to the information requests on Form ATS-G. Providing the name
of the Government Securities ATS or DBAs and its MPID would identify
the ATS to the public and Commission. The Commission believes that the
name, identity of the broker-dealer operator, any ``DBA'' name, and the
ATS's MPID are basic information critical to market participants for
identifying the ATS and should be disclosed.
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\206\ The types of securities traded would be limited to
government securities (15 U.S.C. 78c(a)(42)) and repos on government
securities. See proposed Rule 300(l).
\207\ See FINRA Rules 6160, 6170, 6480, and 6720.
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Proposed Part I, Item 7 of Form ATS-G would require the Government
Securities ATS to provide a URL address for the website of the ATS and
proposed Part I, Item 8 of Form ATS-G would require the ATS to provide
the physical street address, if any, of a secondary location for the
ATS that may be used in the event that the primary physical location is
not available.
Proposed Part I, Items 9 and 10 would require a Government
Securities ATS to attach its most recently filed or amended Schedule A
of the broker-dealer operator's Form BD disclosing information related
to direct owners and
[[Page 87127]]
executive officers, and its most recently filed or amended Schedule B
of the broker-dealer operator's Form BD disclosing information related
to indirect owners as Exhibits 1 and 2, respectively. In lieu of
attaching those schedules, the Government Securities ATS can indicate,
via a checkbox, that the information under those schedules is available
on its website and is accurate as of the date of the filing of the Form
ATS-G.\208\ In addition, the Commission is proposing Part I, Item 11 of
Form ATS-G to require the Government Securities ATS, for filings made
pursuant to Rule 304(a)(2)(i) (i.e., Form ATS-G amendments), to attach
as Exhibit 3 a marked document to indicate changes to ``yes'' or ``no''
answers and additions or deletions from any item in Part I, Part II,
and Part III, as applicable.
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\208\ Like Form ATS-N, Part I, Items 9 and 10 and Part III, Item
25 (see infra Section III.A.2 and Section III.C.25) are the only
requests for information that would allow a Government Securities
ATS to cross-reference to information on the Government Securities
ATS's website instead of providing it in the form disclosures. Like
Form ATS-N, Form ATS-G disclosures would be the vehicle for
disseminating to the public information about the operations of the
Government Securities ATS and the ATS-related activities of the
broker-dealer operator and its affiliates under Rule 304, which are
required to be kept current, accurate, and complete by the ATS.
Accordingly, Government Securities ATSs would be required to provide
information required by the form in the Form ATS-G disclosures and
not cross-reference to other sources.
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Request for Comment
49. A Legal Entity Identifier (``LEI'') is a 20-character reference
code that uniquely identifies legally distinct entities that engage in
financial transactions \209\ and is used by numerous domestic and
international regulatory regimes. Although several existing ATS broker-
dealer operators currently have an LEI, not all broker-dealers have an
LEI. An LEI can be obtained for a $65 initial cost and a $50 per year
renewal cost.\210\ Should the Commission require a Government
Securities ATS to disclose the LEI of its broker-dealer operator, in
addition to its CRD Number and the MPID for the Government Securities
ATS, on Form ATS-G?
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\209\ See Securities Act Release No. 10425, 82 FR 50988 at 51005
(November 2, 2017) (stating that LEIs are intended to improve market
transparency by providing clear identification of participants).
\210\ Prices retrieved from Bloomberg Finance, L.P., https://lei.bloomberg.com/docs/faq#what-fees-are-involved. Bloomberg is one
of twelve Legal Entity Identifier issuers that are accredited to
issue LEIs specifically to U.S. entities.
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B. Part II of Form ATS-G: ATS-Related Activities of the Broker-Dealer
Operator and Affiliates
The Commission believes that the interests of the broker-dealer
operator or its affiliates sometimes compete against the interests of
those that use the ATS's services. These competing interests, at times,
may give rise to conflicts of interest for the broker-dealer operator
and its affiliates or the potential for information leakage of
subscribers' confidential trading information. Proposed Part II of Form
ATS-G is designed to provide subscribers and market participants with
information about these competing interests, and inform them about: (1)
The operation of the Government Securities ATS--regardless of the
corporate structure of the ATS--and of its broker-dealer operator, or
any arrangements the broker-dealer operator may have made, whether
contractual or otherwise, pertaining to the operation of its Government
Securities ATS; and (2) ATS-related activities of the broker-dealer
operator and its affiliates that may give rise to conflicts of interest
for the broker-dealer operator and its affiliates or the potential for
information leakage of subscribers' confidential trading information.
The Commission believes that these disclosures would enable subscribers
to protect their interests while participating on the ATS. At the same
time, the Commission also believes that Form ATS-G should not require
public disclosure of activities or affiliate relationships of the
broker-dealer operator that do not relate to the Government Securities
ATS and thus, do not present a potential conflict of interest.
The proposed definitions of ``affiliate'' and ``control,'' which
are identical to those in Form ATS-N,\211\ are intended to encompass
all relevant affiliate relationships between the broker-dealer operator
and other entities that the Commission believes would help market
participants' evaluation of potential conflicts of interest.\212\
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\211\ Proposed Form ATS-G would define ``affiliate'' as, with
respect to a specified person, any person that, directly or
indirectly, controls, is under common control with, or is controlled
by, the specified person. ``Control'' would be defined to mean the
power, directly or indirectly, to direct the management or policies
of the broker-dealer of an alternative trading system, whether
through ownership of securities, by contract, or otherwise. A person
is presumed to control the broker-dealer of an alternative trading
system if that person: (1) Is a director, general partner, or
officer exercising executive responsibility (or having similar
status or performing similar functions); (2) directly or indirectly
has the right to vote 25 percent or more of a class of voting
securities or has the power to sell or direct the sale of 25 percent
or more of a class of voting securities of the broker-dealer of the
alternative trading system; or (3) in the case of a partnership, has
contributed, or has the right to receive upon dissolution, 25
percent or more of the capital of the broker-dealer of the
alternative trading system. In this proposal, the Commission is
proposing to update the definition of person for the purposes of
Forms ATS-N and ATS-G. See infra Section V.D.
\212\ See NMS Stock ATS Adopting Release, supra note 1, at
38818-19.
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1. Broker-Dealer Operator and Its Affiliate Trading Activities on the
Government Securities ATS
The Commission is proposing that Part II, Items 1(a) and 2(a) of
Form ATS-G ask whether business units of the broker-dealer operator or
its affiliates, respectively, are permitted to enter or direct the
entry of orders and trading interest into the Government Securities
ATS. If the person that operates and controls an ATS is also able to
trade on that ATS, there may be an incentive to design the operations
of the ATS to favor the trading activity of the operator of the ATS or
affiliates of the operator. The operator of an ATS that also trades on
the ATS it operates would likely have informational advantages over
others trading on the ATS, such as a better understanding of the manner
in which the system operates or who is trading on the ATS. In the most
egregious case, the operator of the ATS might use the confidential
trading information of other traders to advantage its own trading on or
off of the ATS.\213\ Part II, Items 1(a) and 2(a) of Form ATS-G
disclosures are designed to inform market participants about whether
the Government Securities ATS permits the broker-dealer operator or its
affiliates to trade on the ATS. If the Government Securities ATS
permits the broker-dealer operator or its affiliates to enter orders
and trading interest on the ATS, whether on an agency or principal
basis, the ATS would be required to only list the business units or
affiliates that actually enter or direct the entry of orders and
trading interest into the ATS. The Commission believes that if a
business unit or affiliate of the broker-dealer operator enters or
directs the entry of orders and trading interest into the Government
Securities ATS, market participants would find it useful to know that
they may be trading with those business units, affiliates, or client
orders entered by those entities. The Commission believes that
disclosure of whether a broker-dealer operator of a Government
Securities ATS or its affiliates may trade on that ATS would
[[Page 87128]]
be important to subscribers given the conflicts of interest that may
arise from the unique position the broker-dealer operator occupies in
relation to the ATS.
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\213\ For a further discussion about how a conflict of interest
related to trading by the broker-dealer operator on its own ATS
could be harmful to other subscribers, see NMS Stock ATS Adopting
Release, supra note 1, at 38771, 38824-29.
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Part II, Items 1(a) and 2(a) of proposed Form ATS-G would require
the Government Securities ATS to list the business unit or affiliate
if, for example, a trading desk of the broker-dealer operator or an
affiliate uses a direct connection to the ATS or algorithm to submit
orders or trading interest into the ATS. Likewise, if an affiliated
asset manager of the broker-dealer operator uses the services of a
third-party broker-dealer to direct orders to the Government Securities
ATS (i.e., the asset manager instructs the third-party broker-dealer to
send its orders to the ATS), the ATS would be required to list that
affiliated asset manager under Item 2(a). However, if that affiliated
asset manager submits orders to a third-party broker-dealer, and that
third-party broker-dealer using its own discretion, directs the orders
of the asset manager into the affiliated Government Securities ATS, the
ATS would not be required to list the affiliated asset manager under
Item 2(a); under such circumstances, the affiliate would not be
``directing'' orders to the ATS because the third-party broker-dealer
is using its discretion to direct the affiliate's orders and thus, it
would not be required to be listed under Item 2(a).
The proposed requests also specify the type of information that
must be provided with regard to business units or affiliates of the
broker-dealer operator. Specifically, Item 1(a) would require the
Government Securities ATS to name and describe each type of business
unit of the broker-dealer operator that enters or directs the entry of
orders and trading interest into the ATS (e.g., Government Securities
ATS, type of trading desks, market maker, sales or client desk) and,
for each business unit, to provide the applicable MPID and list the
capacity of its orders and trading interest (e.g., principal, agency,
riskless principal). Item 2(a) would require the Government Securities
ATS to name and describe each type of affiliate that enters or directs
the entry of orders and trading interest into the ATS (e.g., broker-
dealers, investment companies, hedge funds, market makers, PTFs) and,
for each of those affiliates, provide the applicable MPID and list the
capacity of its orders and trading interest (e.g., principal, agency,
riskless principal). The Commission believes that market participants
will find it useful to know both the types of broker-dealer operator
business units and affiliates that can trade in the Government
Securities ATS, and their trading activities.\214\
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\214\ Although the narrative responses to Items 1(a) and 2(a)
could typically be kept up-to-date via updating amendments to Form
ATS-G, the Commission also notes that in most cases, if the ``yes''
or ``no'' response to Items 1(a) or 2(a) changes (e.g., the
Government Securities ATS changes its operations to allow affiliates
to trade whereas they could not do so prior, or vice versa), the
Government Securities ATS would be required to file a material
amendment. See NMS Stock ATS Adopting Release, supra note 1, at
38826.
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Part II, Items 1(c) and 2(c) of proposed Form ATS-G would require
Government Securities ATSs to disclose the broker-dealer operator's or
any of its affiliates' role as a liquidity provider on the ATS, if
applicable. These Items would require the Government Securities ATS to
disclose--in the form of a ``yes'' or ``no'' response--whether there
are any formal or informal arrangements with any of the sources of
orders or trading interest of the broker-dealer operator or affiliates
identified in Item 1(a) and Item 2(a), respectively, to provide orders
or other trading interest to the ATS (e.g., undertaking to buy or sell
continuously, or to meet specified thresholds of trading or quoting
activity). If the Government Securities ATS answers ``yes,'' it must
identify the business unit(s) or affiliate(s) and respond to the Item
with information about liquidity providers on the ATS.\215\ The
Commission believes that highlighting whether the broker-dealer
operator or affiliate acts as a liquidity provider on the Government
Securities ATS would help market participants evaluate the potential
for conflicts of interest or information leakage on the trading
platform.
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\215\ This request is contained in Part III, Item 12. See infra
Section III.C.12.
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Finally, Part II, Item 1(d) and Item 2(d) of proposed Form ATS-G
would require the Government Securities ATSs to disclose information
about sending orders and trading interest to a trading venue operated
or controlled by the broker-dealer operator or any of its affiliates,
respectively. These Items would require the Government Securities ATS
to disclose--in the form of a ``yes'' or ``no'' response--whether
orders and trading interest in the ATS can be sent to a trading venue
operated or controlled by the broker-dealer operator or any of its
affiliates. If the Government Securities ATS answers ``yes,'' it must
identify the trading venue and explain when and how the order or
trading interest are sent from the ATS to the trading venue. NMS Stock
ATSs are required to provide on Form ATS-N Part III, Item 16
information related to the routing of orders from the ATS if they
indicated that the ATS sent trading interest to a trading center
operated by the broker-dealer operator or any of its affiliates in Part
II, Items 1(d) and 2(d). Because the routing of government securities
among trading centers is not as prevalent as in the market for NMS
stocks, the Commission is not proposing to require on Form ATS-G the
same information about routing that would otherwise be covered under
Part III, Item 16 of Form ATS-N. Instead, the Commission is requiring a
Government Securities ATS to disclose information about the trading
venue where orders and trading interest may be sent and when and how
orders and trading interest are sent in Part II, Items 1(d) and 2(d) of
Form ATS-G. The Commission believes that such information would help
market participants evaluate whether the ATS sending orders to a
trading venue operated or controlled by the broker-dealer operator or
its affiliates poses a conflict of interest and is consistent with its
trading objectives.
Request for Comment
50. What information about trading by the broker-dealer operator
and its affiliates related to the Government Securities ATS is
important to market participants?
51. Are there potential conflicts of interest for broker-dealer
operators of Government Securities ATSs or their affiliates that may
justify greater operational transparency for Government Securities
ATSs?
52. Should the Commission require separate disclosures for
different types of trading by the broker-dealer operator on the
Government Securities ATS, such as trading by the broker-dealer
operator for the purpose of correcting error trades executed on the
ATS, as compared to other types of principal trading? If so, what types
of principal trading should be addressed separately and why? What
disclosures should the Commission require about principal trading and
why?
53. Should the Commission limit or expand in any way the proposed
disclosure requirements to require disclosure of arrangements regarding
access by the broker-dealer operator or its affiliates to both other
trading venues and affiliates of those other trading venues?
54. Form ATS-N requires, and Form ATS-G as proposed would require,
that a Covered ATS name the affiliate(s) of the broker-dealer operator
permitted to enter or direct the entry of orders and trading interest
into the Covered ATS. The Covered ATS is required to describe the type
of affiliates on the Covered Form. Should the Commission amend
[[Page 87129]]
Form ATS-N, and not require in Form ATS-G, that the name(s) of
affiliate(s) be disclosed?
55. Should the Commission require Government Securities ATSs to
disclose the percentage of trading on the ATS attributable to each or
all of the broker-dealer operator's business units, affiliates or both?
Should Form ATS-G require a Government Securities ATS to disclose
specific trade volume data for its trading with business units of the
broker-dealer operator or its affiliates? If so, how should that volume
be measured (e.g., executed trades, dollar volume)? Should the
Commission amend Form ATS-N to require such trading percentages or data
for NMS Stock ATSs that execute orders with business units of the
broker-dealer operator or its affiliates?
56. Would the disclosure of information about trading by the
broker-dealer operator and its affiliates in the ATS be sufficient to
address potential conflicts of interest? If disclosure alone is
insufficient, are there other measures the Commission could take to
mitigate potential conflicts of interest regarding trading? Should the
Commission prohibit some or all trading by the broker-dealer operator
and its affiliates in the ATS?
2. Order Interaction With Broker-Dealer Operator; Affiliates
Part II, Item 3 of proposed Form ATS-G would request information
about the interaction of orders and trading interest between
unaffiliated subscribers to the Government Securities ATS and orders
and trading interest of the broker-dealer operator and its affiliates
in the ATS. Part II, Item 3(a) of proposed Form ATS-G would require a
Government Securities ATS to disclose whether a subscriber can opt out
of interacting with orders and trading interest of the broker-dealer
operator in the ATS, and Part II, Item 3(b) would require a Government
Securities ATS to disclose whether a subscriber can opt out of
interacting with the orders and trading interest of an affiliate of the
broker-dealer operator in the ATS.\216\ Part II, Item 3(c) of proposed
Form ATS-G would require the Government Securities ATS to disclose
whether the terms and conditions of the opt-out processes for the
broker-dealer operator and affiliates required to be identified in
Items 3(a) and (b) are the same for all subscribers. The Commission
believes that proposed Part II, Item 3 would be important to
unaffiliated market participants trading on an ATS because, given the
potential for informational advantages by the broker-dealer operator or
its affiliates,\217\ some unaffiliated subscribers may not wish to
interact with the order flow of the broker-dealer operator or its
affiliates. This disclosure could also help subscribers understand
whether and how they may avoid trading with the broker-dealer operator
and its affiliates should they elect to use the services of the
Government Securities ATS.
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\216\ For example, if a broker-dealer operator uses algorithms
to submit subscriber orders into the ATS, any steps that either the
broker-dealer operator or the subscriber needs to take so that the
ATS prevents those orders from trading with the broker-dealer
operator or its affiliates would be required disclosures under Items
3(a) and 3(b), respectively.
\217\ See supra Section III.B.1.
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Request for Comment
57. Should proposed Form ATS-G request more or less information
about how a market participant can limit its interaction on a
Government Securities ATS with the broker-dealer operator or its
affiliates? If commenters believe Form ATS-G should request more
information, please provide specific information that would be useful
along with an explanation of its utility.
3. Arrangements With Other Trading Venues
Part II, Item 4 of proposed Form ATS-G is designed to provide for
the disclosure of formal or informal arrangements (e.g., mutual,
reciprocal, or preferential access arrangements) \218\ between the
broker-dealer operator or an affiliate of the broker-dealer operator
and a trading venue (e.g., ATS, OTC market maker, futures or options
market) \219\ to access the Government Securities ATS services (e.g.,
arrangements to effect transactions or to submit, disseminate, or
display orders and trading interest in the ATS).
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\218\ See NMS Stock ATS Adopting Release, supra note 1, at 38831
n.769-70 and accompanying text. As the Commission discussed in the
NMS Stock ATS Adopting Release, the disclosures required by Part II,
Item 4 of proposed Form ATS-G are not so broad as to require the
Government Securities ATS to list each unaffiliated subscriber that
accesses its system. See id. at 38831.
\219\ The Commission is using the term ``trading venue'' for
proposed Form ATS-G instead of the term ``Trading Center,'' which is
used in Form ATS-N, because ``Trading Center'' is a defined term for
purposes of Regulation NMS (17 CFR 600(b)(78)). A trading venue for
government securities can include, among other things, an ATS, an
OTC market maker, a futures or options market, or any other broker-
or dealer-operated platform for executing trading interest
internally by trading as principal or crossing orders as agent.
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Proposed Part II, Item 4 would require disclosure of an arrangement
between the broker-operator for the Government Securities ATS or
affiliate of the broker-dealer operator and a broker-dealer operator of
an unaffiliated Government Securities ATS under which the broker-dealer
operator would send orders or other trading interest to the
unaffiliated Government Securities ATS for possible execution before
sending them to any other destination. Item 4 also would require
disclosure of the inverse arrangement pursuant to which any subscriber
orders sent out of the unaffiliated Government Securities ATS would be
sent first to the Government Securities ATS before any other trading
venue. Item 4 would also require a summary of the terms and conditions
of the arrangement such as, for example, whether the broker-dealer
operator of the Government Securities ATS is providing monetary
compensation or some other brokerage service to the unaffiliated
Government Securities ATS. To the extent that a broker-dealer operator
has an arrangement with another trading venue operated by the broker-
dealer operator or an affiliate, or an unaffiliated trading venue, the
Commission believes that market participants are likely to consider
information about such arrangements relevant to their evaluation of a
Government Securities ATS as a potential trading venue and such an
arrangement may raise concerns about conflicts of interest or
information leakage. The Commission is therefore proposing disclosure
of such arrangements in Part II, Item 4 of proposed Form ATS-G.\220\
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\220\ In the NMS Stock ATS Adopting Release, the Commission
provided examples of when potential conflicts of interest and
information leakage could occur as a result of preferential routing
arrangements (e.g., an affiliate is contractually obligated to route
all unexecuted orders to ATS) or routing arrangements with
affiliates (e.g., all orders routed by the NMS Stock ATS must first
be routed to an the affiliate(s)). Specifically, the former might
result in information leakage should the arrangement provide that
all orders not executed by the affiliate are to be sent to the NMS
Stock ATS and the latter could provide incentive for the NMS Stock
ATS to route orders to an affiliate instead of trying to execute the
order in the ATS. The Commission believes that these issues could
arise in the government securities markets, as well, so those
examples are also applicable to this proposal. See id. at 38831
n.771.
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Request for Comment
58. What type of arrangements might a broker-dealer operator of a
Government Securities ATS have with a trading venue for government
securities or repos? Please explain and describe what information, if
any, market participants may wish to know about such an arrangement.
4. Other Products and Services
Part II, Item 5(a) of proposed Form ATS-G is designed to disclose
whether the broker-dealer operator offers subscribers any products or
services for
[[Page 87130]]
the purpose of effecting transactions or submitting, disseminating, or
displaying orders and trading interest in the Government Securities ATS
(e.g., algorithmic trading products that send orders to the ATS, order
management or order execution systems, data feeds regarding orders and
trading interest in, or executions occurring on, the ATS, order hedging
or aggregation functionality), and if applicable, to indicate whether
the terms and conditions of the services or products required to be
identified in Part II, Item 5(a) are the same for all subscribers and
the broker-dealer operator.\221\
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\221\ For example, if a broker-dealer operator offers
subscribers alternative algorithms to handle orders, including
sending such orders to the Government Securities ATS, and there is a
difference in the latency in which each of the alternatives
transmits information, such differences in latency would need to be
disclosed in Part II, Item 5 of proposed Form ATS-G.
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Customers of a broker-dealer operator could be both subscribers to
its ATS and customers of the broker-dealer operator and the broker-
dealer operator may offer its customers trading products and services
in addition to its ATS services. In certain cases, the product and
service offered might be used by the customer in conjunction with the
customer's use of the ATS. Broker-dealer operators of Government
Securities ATSs may, directly or indirectly through an affiliate, offer
products or services to subscribers for the purpose of, for example,
submitting orders, or receiving information about displayed interest,
in the ATS.\222\ For example, a Government Securities ATS would be
required to disclose any aggregation functionality that the broker-
dealer operator or its affiliate(s) offers to subscribers, which, for
example, could be used by subscribers to interface with the ATS to send
or receive orders and trading interest to and from other markets,
including U.S. Treasury Securities markets, over-the-counter spot
markets, or futures markets. The Commission believes that subscribers
to the Government Securities ATS would be interested in understanding
the use of an aggregation functionality with the ATS and how it can
help achieve their trading strategies. If the broker-dealer operator or
its affiliate offered a product for effecting transactions or
submitting, disseminating, or displaying orders and trading interest in
the Government Securities ATS that was used in conjunction with related
financial markets for non-government securities (e.g., futures,
currencies, swaps, corporate bonds), the ATS would summarize the terms
and conditions for use of such a product in this item and explain the
product's use under Part III, Item 16.
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\222\ See NMS Stock ATS Proposing Release, supra note 62, at
81048. See also NMS Stock ATS Adopting Release, supra note 1, at
38832 n.779. For example, order hedging functionalities could
encompass a product or service offered by the broker-dealer operator
to a customer that the customer may use as a subscriber to the
broker-dealer operator's ATS to hedge exposures of trading interest
in or outside the ATS. A broker-dealer operator that offers such a
functionality for use with the ATS would describe the terms and
conditions for a subscriber to use the functionality in Part II,
Item 5 and explain its use with regard to the ATS in Part III of
Form ATS-G. For example, if the order hedging functionality affects
order interaction in the ATS, the ATS would explain the
functionality in Part III, Item 11(c). If the order hedging
functionality involves futures and trading interest in the ATS, the
Government Securities ATS would explain the related procedures under
Part III, Item 16.
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The Commission believes subscribers want to know the products or
services that the broker-dealer operator or its affiliates may offer
for the purpose of effecting transactions, or submitting,
disseminating, or displaying orders and trading interest on the
Government Securities ATS because such products or services may impact
the subscribers' access to, or trading on, the ATS.\223\ In some cases,
a broker-dealer operator offering products or services in connection
with a subscriber's use of the Government Securities ATS may result in
the subscribers receiving more favorable terms from the broker-dealer
operator with respect to their use of the ATS. For example, if a
subscriber purchases a service offered by the broker-dealer operator of
a Government Securities ATS, the broker-dealer operator might also
provide that subscriber more favorable terms for its use of the ATS
than other subscribers who do not purchase the service. Such favorable
terms could include fee discounts or access to a faster connection line
to the Government Securities ATS. Additionally, a broker-dealer
operator of a Government Securities ATS may offer certain products and
services only to certain subscribers or may offer products and services
on different terms to different categories of subscribers. The
Commission believes that subscribers would want to know, when assessing
a Government Securities ATS as a potential trading venue, the range of
services or products that the broker-dealer operator or its affiliates
offers subscribers of the ATS, and any differences in treatment among
subscribers, because such services or products may impact the
subscribers' access to, or trading on, the ATS.
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\223\ Services for the purpose of effecting transactions, or
submitting, disseminating, or displaying orders and trading interest
on the Government Securities ATS that are offered by a third-party
in contract with the broker-dealer operator or affiliates would also
be responsive to this Item.
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To the extent that a customer is a subscriber to the Government
Securities ATS and is offered use of products and services by the
broker-dealer operator or its affiliate for the purpose of effecting
transactions or submitting, disseminating, or displaying orders and
trading interest in the ATS, Part II, Item 5 of proposed Form ATS-G
would require disclosures about those products or services. For
example, if a broker-dealer operator offers its customers an order
management system that can also be used by customer-subscribers to the
Government Securities ATS to manage orders in the ATS (e.g., adjust the
pricing or size of an ATS order in relation to an order resting in or
outside the ATS, modify order instructions to execute or cancel at a
specified time or under certain market conditions), the ATS would be
required to identify the order management system, provide a summary of
the terms and conditions for its use, and identify the Part and Item
number in Form ATS-G for where the order management system is
explained. In addition, any services offered by the broker-dealer
operator for subscribers to mitigate risk, such as limits on gross or
net notional exposures by a subscriber, identification of duplicative
orders in the ATS, or other checks offered related to order entry or
authorizations to trade in the ATS, would be identified in this Item
and explained further in Part III, Item 8 (Order Sizes). However, the
proposed requests in Part II, Item 5 would not encompass trading
products or services offered by the broker-dealer operator to customers
that are not for the purpose of effecting transactions or submitting,
disseminating, or displaying orders and trading interest in the
Government Securities ATS.
To alleviate any concerns regarding the potential disclosure of
commercially sensitive information in this disclosure request, the
proposed disclosure request would require the Government Securities ATS
to provide only a summary of the terms and conditions for the products
and services disclosed and to explain how the product or service is
used with the ATS in the applicable Item number in Part III of proposed
Form ATS-G. The Commission believes that requiring only a summary
narrative would normally not require the broker-dealer operator to
disclose commercially sensitive information.
[[Page 87131]]
Request for Comment
59. What types of products and services do broker-dealer operators
of Government Securities ATS or affiliates of the broker-dealer
operator offer to subscribers and how are such products and services
used in connection with the ATS?
60. What information about the products and services offered by
broker-dealer operators would be helpful to market participants?
61. Should the Commission expand Part II, Item 5 of proposed Form
ATS-G to require disclosure of products or services offered by the
broker-dealer operator or its affiliates to subscribers, but not
necessarily offered in connection with transacting on the Government
Securities ATS?
5. Activities of Service Providers
a. Shared Employees
Part II, Item 6(a) of proposed Form ATS-G is designed to solicit
disclosures relating to any employee of the ATS's broker-dealer
operator or employee of its affiliate that provides services for both
the operations of the Government Securities ATS and any other business
unit or any affiliate of the broker-dealer operator (``shared
employee'') that has access to subscriber confidential trading
information. The Commission believes that disclosures about shared
employees with access to subscriber confidential trading information
would help market participants evaluate circumstances when there is the
potential for information leakage. For example, the Commission believes
that market participants would likely want to know if an employee of
the broker-dealer operator (or employee of an affiliate of the broker-
dealer operator) that is responsible for the operations of a system
containing subscriber confidential trading information from the
Government Securities ATS is also responsible for supporting, for
instance, the principal trading activity of the broker-dealer operator,
or another trading venue operated by the broker-dealer, or a trading
venue that is an affiliate of the broker-dealer operator.
Request for Comment
62. Should the Commission expand the proposed disclosures in Part
II, Item 6(a) to other employees, personnel, or independent contractors
of the broker-dealer operator? If so, which employees, personnel, or
independent contractors should be included and what information about
such persons should be solicited?
b. Third-Party Service Providers
Part II, Item 6(b) of proposed Form ATS-G is designed to provide
disclosures relating to any entity, other than the broker-dealer
operator, that supports the services or functionalities of the
Government Securities ATS. Information about the roles and
responsibilities of service providers to the ATS is important because
it could inform market participants about the potential for information
leakage on the Government Securities ATS.\224\ The Commission is not
proposing that the third-party service provider requests encompass
purely administrative items, such as human resources support, or basic
overhead items, such as phone services and other utilities. The
information solicited in this disclosure is meant to provide
information about the extent to which a third party may be able to
influence or control the operations of the ATS through involvement with
its operations (such as operating the ATS's proprietary data feeds sent
to subscribers). For example, any service provider for clearance and
settlement of transactions on the ATS, consulting relating to the
trading systems or functionality, regulatory compliance, and
recordkeeping for the Government Securities ATS would be responsive to
this request.\225\
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\224\ Legacy Government Securities ATSs that operate pursuant to
a Form ATS on file with the Commission are currently subject to the
disclosure requirement of Exhibit E of Form ATS, which requires ATSs
to disclose the name of any entity other than the ATS that will be
involved in the operation of the ATS, including the execution,
trading, clearing, and settling of transactions on behalf of the
ATS; and to provide a description of the role and responsibilities
of each entity. See Item 7 of Form ATS (describing the requirements
for Exhibit E of Form ATS). Proposed Part II, Item 6(b) would expand
upon this requirement.
\225\ If a summary of the role and responsibilities of the
service provider is disclosed in response to Part III of Form ATS-G,
the Government Securities ATS need only list the applicable Item
number in response to this Item. If there are services or
functionalities that are not applicable to Part III, the ATS would
identify the service provider, the services and functionalities, and
also provide a summary of the role and responsibilities of the
service provider in proposed Part II, Item 6(b).
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Furthermore, the proposed requests under Part II, Items 6(c)-(d)
would require the Government Securities ATS to disclose whether any
service providers or their affiliates use the services of the ATS. If
they do, the ATS would be required to identify the service providers,
the service(s) used, and whether there is any disparate treatment
between those service providers and other subscribers. Thus, a
Government Securities ATS would only be required to obtain and disclose
information about third-party vendors and their affiliates that
actively use the services of the ATS; the ATS should be aware of all
parties that use its services under its current recordkeeping
obligations. The Commission believes that market participants, when
analyzing potential conflicts of interest or information leakage, would
find it very useful to understand whether potential counterparties with
whom they are trading, and who also service the operation of the
Government Securities ATS, have access to different or unique ATS-
related services. Part II, Item 6(d) of proposed Form ATS-G would
require the Government Securities ATS to identify and explain any
differences in ATS services to a service provider and all other
subscribers. Additionally, depending on the role and responsibilities
of the third-party service provider, market participants may wish to
consider evaluating the robustness of the Government Securities ATS's
safeguards and procedures to protect confidential subscriber
information.
This request for summary information is designed to provide market
participants with a general understanding of the types of technology or
hardware provided by the service provider as part of its
responsibilities, and how that hardware or technology is used by the
Government Securities ATS. The purpose of this disclosure is to provide
information that subscribers can use to better understand whether the
service provider might be able to access subscriber confidential
trading information, so Government Securities ATSs should draft their
disclosure with the goal of conveying such information. Simply stating
that a third party provides technology or hardware to the ATS would not
be responsive to the required summary of the service provider's role,
but, on the other hand, the ATS would not have to provide information
about the manufacturer of its hardware components.
Request for Comment
63. Are there any critical services or functionalities (e.g.,
matching engine, market data) that, if provided by a third party,
should be required to be described in a higher level of detail than the
proposed ``summary'' level? If so, which services and functionalities?
6. Protection of Confidential Trading Information
Part II, Item 7(a) of proposed Form ATS-G would require a
Government Securities ATS to describe its written safeguards and
written procedures to protect the confidential trading information of
subscribers to the ATS,
[[Page 87132]]
including: (i) Written standards controlling employees of the ATS that
trade for employees' accounts; and (ii) written oversight procedures to
ensure that the safeguards and procedures described above are
implemented and followed. The protection of confidential trading
information is a bedrock component of the regulation of ATSs and is
essential to ensuring the integrity of ATSs as execution venues. If
such information is not protected, many of the advantages or purposes
for which a subscriber may choose to send its orders to an ATS (e.g.,
to trade anonymously and/or to mitigate the impact of trading in large
positions) are eliminated. In cases where the confidential trading
information of a subscriber is impermissibly shared with the personnel
of the broker-dealer operator or any of its affiliates, such an abuse
is also compounded by the conflicting interests of the broker-dealer
operator. That is, in such a case, the broker-dealer operator has
invited subscribers to trade on its ATS and may have abused that
relationship to provide itself or its affiliates with a direct
competitive advantage over that subscriber. Accordingly, the Commission
believes that disclosures informing market participants about broker-
dealer operators' written safeguards and written procedures to protect
confidential trading information are necessary so market participants
can independently evaluate the robustness of the safeguards and
procedures and decide for themselves whether they wish to do business
with a particular Government Securities ATS.
The Commission is proposing Part II, Items 7(b) and (c) to require
a Government Securities ATS to disclose whether a subscriber can
consent and withdraw consent, respectively, to the disclosure of its
confidential trading information to any person (not including those
employees of the ATS who are operating the system or responsible for
its compliance with applicable rules). Subscribers should be able to
give consent if they so choose to share their confidential trading
information.\226\ ATSs that transact in government securities vary in
terms of the types of orders, indications of interests (``IOIs''), or
other forms of trading interest that are confidential on their systems
and what information about such trading interest may be shared. For
example, an ATS might provide that no IOIs submitted by subscribers
will be considered confidential, but may provide subscribers with the
option to restrict the information in the IOI message to just the
symbol and side (i.e., buy or sell). For this example, Part II, Items
7(b) and 7(c) of proposed Form ATS-G would require the Government
Securities ATS to describe the means by which a subscriber could
control some of the information contained in the IOI message by
providing consent or withdrawing such consent for the sharing of its
confidential trading information.\227\ For example, a subscriber can
consent to its open trading interest being displayed to certain
subscribers that the subscriber believes are less likely to misuse or
exploit such information, or that have open trading interest on the
contra side in the same symbol. If a Government Securities ATS allows
subscribers to consent in this manner, the ATS would mark ``yes'' to
Part II, Item 7(b). Continuing the example, if the subscriber can
subsequently withdraw its consent to this display of its open trading
interest, the Government Securities ATS would mark ``yes'' to Part II,
Item 7(c).
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\226\ See Regulation ATS Adopting Release, supra note 35, at
70879.
\227\ See id. The Commission believes that there may be some
Government Securities ATSs that might not offer any means by which a
subscriber could consent to the dissemination of its confidential
trading information. A Government Securities ATS would be required
to disclose this fact pursuant to Item 7(a). See id. at 70891 n.437.
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Finally, the Commission is proposing Part II, Item 7(d) to require
a Government Securities ATS to provide a summary of the roles and
responsibilities of any persons that have access to confidential
trading information, the confidential trading information that is
accessible by them, and the basis for the access. In responding to this
Item, the Government Securities ATS would initially need to describe
what it considers to be confidential trading information. For example,
the ATS would need to disclose whether only pre-trade order information
would be considered confidential trading information, or whether post-
trade information would also be treated as confidential trading
information, and for what period of time. Furthermore, to explain the
basis for the access, the Government Securities ATS would need to
provide the basis for a person to have access to the confidential
trading information and any limitations placed on that person's access.
Request for Comment--Part II
64. Should the Commission require the disclosure of the information
in Part II of Form ATS-G? If so, what level of detail should be
disclosed?
65. Would Part II of proposed Form ATS-G capture the information
that is most relevant to understanding the Government Securities ATS
and its relationship with the broker-dealer operator and the broker-
dealer operator's affiliates? Please support your arguments.
66. Would the proposed disclosures in Part II require broker-dealer
operators of Government Securities ATSs to reveal too much (or not
enough) information about their structure and operations?
67. Is there other information about the activities of the broker-
dealer operator and its affiliates that market participants might find
relevant or useful in their assessment of use of the ATS? If so,
describe such information and explain whether or not such information
should be required to be provided under proposed Form ATS-G.
68. Should the proposed disclosures in Part II not be required to
be disclosed on proposed Form ATS-G due to concerns regarding
confidentiality, business reasons, trade secrets, burden, or any other
concerns? If so, what information and why?
69. Are there ways to obtain the same information as would be
required from Government Securities ATSs by Part II other than through
disclosure on proposed Form ATS-G? If so, how else could this
information be obtained and would such alternative means be preferable
to the proposed disclosures in Part II?
70. Should Government Securities ATSs be required to publicly
disclose in their entirety on Form ATS-G their written safeguards and
written procedures to protect the confidential trading information of
subscribers? Should the Commission require less information be
disclosed about the written safeguards and procedures?
71. Would the information about written safeguards and written
procedures to protect the confidential trading information of
subscribers described in Form ATS-G be sufficient for subscribers to
independently evaluate such safeguards and procedures and thus evaluate
the ATS as a destination for their orders? Should the Commission
prohibit the disclosure of confidential subscriber information in some
circumstances?
C. Part III Form ATS-G: Manner of ATS Operations
Part III of proposed Form ATS-G is designed to provide public
disclosures to help market participants understand, among other things,
how subscribers' orders and trading interest are handled, matched, and
executed on the Government Securities ATS. Part III of
[[Page 87133]]
Form ATS-G is modeled after Form ATS-N with few differences. Form ATS-G
does not have an item corresponding to Part III, Item 16 (Routing) of
Form ATS-N nor does it have an item corresponding to Part III, Item 24
(Order Display and Execution Access) of Form ATS-N as the associated
rule is inapplicable to government securities. And, because of the
close relationship between government securities markets and markets
for other financial instruments (e.g., futures), the Commission is
proposing Part III, Item 16 of Form ATS-G to specifically highlight for
market participants how the broker-dealer operator and subscribers may
use a functionality or procedure to facilitate trading on, or source of
pricing for, the Government Securities ATS in conjunction with a
related market (e.g., futures).\228\ In Form ATS-G, the Commission has
included ``yes'' or ``no'' questions, which the Commission believes
would allow market participants to find information more efficiently
and facilitate comparisons across Government Securities ATSs. The
Commission also has included a requirement to identify and explain any
differences in the treatment of subscribers and the broker-dealer
operator that the Commission believes would help market participants
discern any benefit or disadvantage they may receive in comparison to
other market participants or the broker-dealer operator.\229\ The
Commission believes that the disclosure about differences in treatment
of subscribers is important to market participants and would better
allow them to decide whether submitting order flow to that Government
Securities ATS aligns with their trading objectives.
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\228\ On Form ATS-N, an NMS Stock ATS that offers a
functionality or procedure that subscribers could use on the ATS in
conjunction with a related market (e.g., futures, options) would
disclose this information under Part II, Item 5 and Part III, Item
11.
\229\ For example, in Part III, Item 5, if a Government
Securities ATS designed its operations to allow only certain types
of subscribers to enter orders into the ATS through direct means
(e.g., FIX protocol) and other types of subscribers to enter orders
into the ATS through indirect means (e.g., SOR or algorithm), the
ATS would describe these means of entry in Part III, Items 5(a) and
5(c), respectively. If, for example, the Government Securities ATS
were to treat a subscriber that enters orders directly into the ATS
differently from other subscribers that also enter orders directly
into the ATS with respect to means of order entry, the ATS would
describe that different treatment in Part III, Item 5(b).
Differences in treatment of subscribers and the broker-dealer
operator are disclosed in the same way on Form ATS-N.
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1. Types of ATS Subscribers
Part III, Item 1 of proposed Form ATS-G is designed to provide
information on the type(s) of subscribers that can use the Government
Securities ATS services. The Item would provide market participants
with information about the type of order flow in the Government
Securities ATS based on the types of subscribers that use it.
Government Securities ATSs may design their system for trading by
retail investors, institutional investors, dealers, or any other type
of market participant. The Commission is providing a list of market
participants in Part III, Item 1 of proposed Form ATS-G that, in the
Commission's experience, are commonly used.\230\ The list includes:
Retail investors, asset managers, brokers, dealers, investment
companies, hedge funds, market makers, PTFs, insurance companies,
pension funds, corporations, and banks. The list is non-exhaustive and
a Government Securities ATS would be required to list any type of
subscriber that can use the ATS's services.\231\ In addition to
disclosing its subscribers, a Government Securities ATS may use Part
III, Item 1 to disclose any types of participants whose trading
interest may reach the ATS. For example, for an ATS that only allows
brokers or dealers as subscribers, the ATS could identify the types of
customers for which the brokers or dealers send orders to the ATS.
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\230\ As compared to Form ATS-N, the Commission is modifying the
checkboxes listing types of subscribers to remove types that are not
applicable to the government securities market and adding insurance
companies, pension funds, and corporations to the list of
checkboxes. The Commission is also proposing to add these checkboxes
to Form ATS-N. See infra Section V.D. The Commission believes that
adding these checkboxes will provide more granular information on
the types of subscribers participating on an ATS in an easier-to-
read format.
\231\ See NMS Stock ATS Adopting Release, supra note 1, at
38820-21 (discussing the definition of ``subscriber'' and the
persons encompassed thereunder).
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Request for Comment
72. Should Form ATS-G include information about the types of
subscribers to the ATS? Based on Commission experience, some ATSs only
accept broker-dealers as subscribers to the ATS and various types of
market participants send orders into the ATS through the broker-dealer
subscriber. Should the Commission require the identification of the
types of market participants whose orders may be sent to the ATS,
whether directly or indirectly, by a broker-dealer subscriber to the
Government Securities ATS? Should the Commission require the same
information from NMS Stock ATSs by amending Form ATS-N? Would this
information be useful to understanding the type of order flow in the
ATS?
2. Eligibility for ATS Services
Part III, Item 2 of proposed Form ATS-G is designed to provide
market participants with information about whether the Government
Securities ATS requires subscribers to be registered broker-dealers or
enter a written agreement to use the ATS services, and whether there
are any other conditions that the ATS requires a person to satisfy
before accessing the ATS services. This Item would require the
conditions a person must satisfy ``before accessing the ATS services.''
On the other hand, Part III, Item 3 of proposed Form ATS-G (discussed
infra), would require disclosures about any conditions that would
exclude a subscriber, in whole or in part, from using the Government
Securities ATS as a result of subscriber behavior while already
actively participating in the ATS.\232\
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\232\ For example, if a Government Securities ATS has a practice
of excluding subscribers that do not meet certain percentage
thresholds for submitting firm-up orders in response to receiving an
IOI or conditional order sent to them by the ATS, then this practice
would be subject to disclosure under Part III, Item 3 of proposed
Form ATS-G (``Exclusion from ATS Services'') and not Part III, Item
2 (``Eligibility for ATS Services'').
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The Commission believes that the disclosures required by Part III,
Item 2 would allow market participants to understand the conditions
that they would need to satisfy to participate on the Government
Securities ATS. If the Government Securities ATS indicates that it does
have conditions that a person must satisfy before accessing the ATS
services, the request would require the ATS to list and provide a
``summary'' of those conditions. Some Government Securities ATSs may
only have the eligibility requirement that a person be a client of the
broker-dealer operator. In that case, any eligibility requirements to
become a client of the broker-dealer operator would be responsive to
this Item. For example, if a subscriber must be a customer of the
broker-dealer operator, the Government Securities ATS would provide a
summary of conditions the subscriber, as a customer, would need to
satisfy (e.g., know your customer) before its orders can be entered
into the ATS. If the Government Securities ATS requires subscribers to
be members of a third party for purposes of clearance and settlement,
such as the Fixed Income Clearing Corporation's Government
[[Page 87134]]
Securities Division, such information would be responsive.
Request for Comment
73. What eligibility requirements to access a Government Securities
ATS are important to a potential subscriber or participant to the ATS
and why?
3. Exclusion From ATS Services
Based on the Commission's experience, ATSs often have rules
governing subscribers' participation on the ATS, and if a subscriber
fails to comply with these rules, the ATS may limit or deny access to
the ATS.\233\ Part III, Item 3 of proposed Form ATS-G would require the
Government Securities ATS to provide information about whether the ATS
can exclude, in whole or in part, any subscriber from the ATS services,
and if so, to list and provide a summary of the conditions for
excluding (or limiting) a participant from using the ATS. The
disclosures are designed to provide subscribers with information about
when the Government Securities ATS can exclude, in whole or in part, a
subscriber from the services of the ATSs and help them reasonably
anticipate the types of activities that may cause them to be excluded
(or limited) from using the services of the ATS. The Commission
believes that allowing for a summary of conditions for excluding (or
limiting) a participant would alert subscribers about the types of
activities that may cause them to be excluded (or limited) from using
the services of the Government Securities ATS while allowing the ATS to
reasonably control the activities and quality of flow on its platform
and not allowing subscribers to game a more detailed description of
conditions for excluding.
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\233\ These limitations can result in some subscribers having
different levels of functionality or more favorable terms of access
than others. For example, in the Commission's experience, some ATSs
exclude subscribers that frequently fail to respond with a firm-up
order after receiving an IOI or request for quote.
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Request for Comment
74. Is there any subscriber behavior for which ATSs commonly
exclude a subscriber in whole or in part? What is that behavior(s) and
what form of exclusion is commonly employed (e.g., disqualification
from ATS, limitation of services)?
4. Hours of Operations
Part III, Item 4 is intended to provide market participants with
information about the days and hours of operations of the Government
Securities ATS, including the times when orders or trading interest can
be entered on the ATS, and any hours of operations outside of its
regular trading hours, as established by the ATS. Notably, the Item
would require a Government Securities ATS to provide the hours when it
is operating, which would include functions such as accepting orders.
Accordingly, the disclosure required is not limited to only those hours
when the matching and execution of orders are occurring. The Commission
believes that it is important for market participants and the
Commission to understand when a Government Securities ATS operates and
when orders can be entered, including when the ATS will accept orders
outside of its regular trading hours. Making such information publicly
available would enable market participants to more easily compare when
trading interest can be entered on trading venues.
5. Means of Entry
Part III, Item 5 of proposed Form ATS-G is intended to disclose the
means that can be used to directly enter orders and trading interest
into the Government Securities ATS and any other means for entering
orders and trading interest into the ATS (e.g., smart order router,
algorithm, order management system, sales desk, or aggregation
functionality). The Government Securities ATS would be required to
identify and explain the other means for entering orders and trading
interest, indicate whether the means are provided through the broker-
dealer operator itself, through a third-party contracting with the
broker-dealer operator, or through an affiliate of the broker-dealer
operator, and list and provide a summary of the terms and conditions
for entering orders or trading interest into the ATS through these
means.
Subscribers may submit orders or trading interest to the Government
Securities ATS both directly and indirectly. A direct method of sending
orders or trading interest to an ATS, for example, may include the use
of a direct market access platform or FIX Protocol connection, which
allows subscribers to enter orders or trading interest into the ATS
without an intermediary. An example of an indirect method of submitting
orders or trading interest to an ATS could include the use of a smart
order router (``SOR''), algorithm or similar functionality, website,
graphical user interface (``GUI''), aggregation interface, or front-end
system. The means of order entry into an ATS (e.g., direct or indirect)
could impact the speed with which a subscriber's order is handled and
potentially executed and could increase the risk of information
leakage. The government securities markets are not interconnected
markets like those for NMS stocks and therefore SOR technology may not
be applied in the same manner by broker-dealer operators of Government
Securities ATSs. The Commission believes, however, that SOR technology
may be used to send or receive orders from a Government Securities ATS
to reduce latency or send orders to markets with better prices for
certain government securities, and to the extent it does, the ATS
should be required to provide information about the SOR as required.
The Commission believes that the disclosures regarding the direct
or indirect means of order entry would inform subscribers about the
functionalities that their orders and trading interest pass through on
their way to the ATS and help them assess any potential advantages that
orders sent through the broker-dealer operator may have with respect to
other subscribers on the Government Securities ATS. A Government
Securities ATS would be required to identify the functionality that
directly connects to the ATS (e.g., algorithm) and, if present, any
intermediate functionality that an ATS order passes through on its way
to the functionality that directly connects to the ATS.\234\
Conversely, if ATS orders submitted through an algorithm are sent to
another intermediate functionality, and then submitted to the ATS by
that functionality, such information would need to be disclosed
pursuant to this Item.\235\
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\234\ If an intermediate application or functionality has access
to a subscriber's order information, the Government Securities ATS
must take appropriate measures to protect the confidentiality of
such information pursuant to Rule 301(b)(10) of Regulation ATS.
\235\ If a broker-dealer operator permits subscribers to send
orders to the ATS by excluding all other trading venues from where
such orders could be sent, this procedure would in effect allow a
subscriber to direct an order to the ATS and would be responsive to
Part III, Item 5.
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The proposed disclosure requirements would only require the
Government Securities ATS to ``list and provide a summary of the terms
and conditions for entering orders or trading interest into the ATS''
through these sources. Therefore, the Government Securities ATS would
not need to provide a detailed description of the programming of the
indirect means for entering order and trading interests that could put
the ATS at a competitive disadvantage with competitors. However, if,
for example, an ATS ``throttled'' the number of messages allowed for a
given type of
[[Page 87135]]
connection, that information would be responsive as a term or condition
of that means of entry.
Among the advantages and disadvantages that market participants
should be able to discern from the disclosure of Part III, Item 5(b)
are any differences in the latency of the alternative means for
entering orders and trading interest into the Government Securities
ATS. The Commission understands that there might be different latencies
associated with each alternative. For instance, in some cases, a direct
connection to the Government Securities ATS may have reduced latencies
as compared to indirect means where orders and trading interest pass
through an intermediate functionality. A broker-dealer operator could
also, for example, configure the Government Securities ATS to provide
reduced latencies for certain means of order entry used by itself or
its affiliates.\236\ The Commission also believes that it is important
for subscribers to understand a means of entry provided by an
affiliate, even if it does not provide an advantage to a particular
entity.
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\236\ The proposed rule would not require that the Government
Securities ATS calculate and disclose precise latencies for each
means of entry.
---------------------------------------------------------------------------
The Commission believes that disclosures about a broker-dealer
operator's use of its or an affiliate's direct or indirect
functionality to enter orders into the Government Securities ATS are
important to market participants to allow them to assess the potential
for information leakage. The indirect means of access (e.g., SOR or
algorithm) may obtain information about subscriber orders or trading
interest that have been sent to the Government Securities ATS (and may
now be resting on the ATS) and subscriber orders that have been sent
out of the ATS. The high likelihood that an indirect means of accessing
the Government Securities ATS could lead to leakage of subscribers'
confidential trading information necessitates disclosure of certain
information to subscribers about the use of such indirect means to send
subscriber orders to or out of the ATS. In addition, there may be
Government Securities ATSs where an intermediate functionality or
entity is used by the ATS as the primary means to bring together the
orders for securities of multiple buyers and sellers using established
nondiscretionary methods (such as providing the means to enter, display
or execute orders) and in this manner may be considered part of the ATS
for purposes of Regulation ATS and Form ATS-G.\237\
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\237\ See NMS Stock ATS Adopting Release, supra note 1, at 38832
and 38844.
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Request for Comment
75. Are there any means for entering orders and trading interest
into the Government Securities ATS where a higher level of detail
should be required to explain their operation? Are there any aspects of
those means of entry that are particularly important?
6. Connectivity and Co-Location
Part III, Item 6(a) of Form ATS-G would ask whether the Government
Securities ATS offers co-location and related services, and if so,
would require a summary of the terms and conditions for such services,
including the speed and connection (e.g., fiber, copper) options
offered. Part III, Item 6(c) of Form ATS-G would require a Government
Securities ATS to indicate whether it provides any other means besides
co-location and related services described in the Item to increase the
speed of communication with the ATS, and if so, to explain the means
and offer a summary of the terms and conditions for its use. The
Commission is also proposing to require in Part III, Item 6(e) the
Government Securities ATS to indicate whether it offers any means to
reduce the speed of communication with the ATS and if so, to provide a
summary of the terms and conditions for its use.
Latency is an important feature of trading in certain government
securities and market participants are interested in understanding the
functionalities employed by Government Securities ATSs to influence
it.\238\ The Item would require a summary of the terms and conditions
where a trading venue employs mechanisms to increase the latency or the
length of time for orders, trading interest, or other information to
travel from a user to the system. Subscribers of co-location services
can experience faster or slower connection speeds to a Government
Securities ATS depending on factors such as the distance of the
customer servers from the matching engine, or the use or non-use of
``coiling'' to its matching engine to equalize connection speeds among
subscribers, among others. Such differences in connection speed or
latency would be required to be disclosed under Part III, Item 6(b).
The Commission believes that the information disclosed in Item 6 would
help market participants understand their connectivity options to the
ATS and expedite the order entry process for subscribers.
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\238\ See October 15 Staff Report, supra note 14, at 36-37;
Treasury Request for Information, supra note 10, at 3928. See also
Letter from Dan Cleaves, Chief Executive Officer, BrokerTec
Americas, and Jerald Irving, President, ICAP Securities USA LLC, to
David R. Pearl, Office of the Executive Secretary, Treasury
Department, dated April 22, 2016 (``BrokerTec/ICAP Letter''), at 3-
4, available at https://www.treasurydirect.gov/instit/statreg/gsareg/ICAPTreasuryRFILetter.pdf; Letter from C. Thomas Richardson,
Managing Director, Head of Electronic Trading Service, Wells Fargo
Securities, and Cronin McTigue, Managing Director, Head of Liquid
Products, Wells Fargo Securities, to Treasury Department, dated
April 21, 2016, at 6-7, available at https://www.treasurydirect.gov/instit/statreg/gsareg/RFIcommentWellsFargo.pdf.
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Request for Comment
76. Are there any aspects of the means for increasing or reducing
the speed of communication with Government Securities ATSs that the
Commission should specifically require under this Item?
7. Order Types and Attributes
Part III, Item 7 would require a Government Securities ATS to
identify and explain each order type offered by the ATS. To provide
transparency to market participants and the Commission, the Item would
require a complete and detailed description of the order types
available on the Government Securities ATS, their characteristics,
operations, and how they are handled. The Commission believes that all
market participants should have full information about the operations
of order types available on a Government Securities ATS for market
participants to comprehensively understand how their orders and trading
interest will be handled and executed on the ATS. Order types are a
primary means by which users of a Government Securities ATS communicate
their instructions for handling their trading interest to the ATS.
Given the importance, diversity, and complexity of order types, the
Commission is proposing to require Government Securities ATSs to
disclose the information called for by Part III, Item 7 on proposed
Form ATS-G.
The Commission believes that market participants should have
sufficient information about all aspects of the operations of order
types available on a Government Securities ATS to understand how to use
order types to achieve their trading objectives, as well as to
understand how order types used by other market participants could
affect their trading interest. The Commission believes that a detailed
description of the characteristics of the order types of a Government
Securities ATS would assist subscribers in better understanding how
their orders would function and interact with other orders
[[Page 87136]]
on the ATS. It also would allow market participants to see what order
types could be used by other market participants, which could affect
the probability, timing, and quality of their own executions. For
example, if the time priority of a pegged order changes in response to
changes in the reference price, that would affect the likelihood of
execution for such an order.
Request for Comment
77. What are the most prevalent order types on Government
Securities ATSs? Are there more important means than order types for
subscribers to communicate the handling of their trading interest on
Government Securities ATSs? Does Form ATS-G capture all of the means
for subscribers to communicate the handling of their trading interest?
Are there any aspects of order types on Government Securities ATSs that
should be specifically addressed in the Item? If yes, please explain.
8. Order Sizes
Part III, Item 8 would require a Government Securities ATS to
provide information about any requirements related to the permissible
size of trading interest (e.g., minimum or maximum size, odd-lot,
mixed-lot, trading increments) and specify any trading interest size
requirements and any related handling procedures.\239\ This information
would inform subscribers about the permissible size of orders and
trading interest that a subscriber could enter on the ATS. For example,
if a Government Securities ATS has minimum or maximum order sizes, or a
minimum increment size requirement for order modifications, those
requirements and related handling procedures would be responsive to the
Item. Broker-dealer operators employ market access and risk management
controls and procedures that prevent the entry of erroneous orders and
orders that are above a subscriber's predetermined threshold. If order
size requirements are imposed on subscribers as part of a risk
management procedure, an explanation of those procedures as they relate
to the ATS would be responsive to this Item. An explanation of how a
Government Securities ATS's requirements and conditions related to the
size of trading interest differ among subscribers and persons would
also provide a market participant with information regarding how its
trading interest would be handled vis-[agrave]-vis other market
participants. The information that would be required by Item 8 would
also be useful to the Commission's monitoring of developments in market
structure.
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\239\ The Commission is consolidating the information requested
in Part III, Item 8(a)-8(f) of Form ATS-N into 2 subparts (Part III,
Item 8(a) and 8(b)) in Form ATS-G to streamline the format of
responses. The Commission believes the information requested is the
same.
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Request for Comment
78. Are there any operations or procedures, either of an ATS or a
broker-dealer operator, that could limit the entry, or size of, a
subscriber's orders submitted to the ATS? If so, please describe these
operations or procedures and explain why they are important to
subscribers.
9. Indications of Interest
Part III, Item 9 of proposed Form ATS-G is designed to provide
information about whether the Government Securities ATS sends or
receives any messages indicating trading interest, and if so, to
identify and explain the use of the messages, including information
contained in messages, how and when messages are transmitted, the type
of persons that receive the message, the possible responses to IOIs by
recipients, and the conditions under which the messages might result in
an execution in the ATS.\240\
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\240\ See NMS Stock ATS Adopting Release, supra note 1, at 38847
for additional discussion of IOIs, actionable IOIs, conditional
orders, and similar functionalities. The Commission removed the
terms ``conditional orders'' and ``actionable IOIs'' that were
included on the corresponding item on Form ATS-N. These terms appear
to be less prevalent in the government securities market. However,
the Commission believes the term ``IOI'' used herein would encompass
both conditional orders and actionable IOIs.
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Government Securities ATSs use IOIs to convey trading interest
available on those trading venues. Understanding the manner in which
Government Securities ATSs use messages that convey trading interest,
such as IOIs and similar functionalities, could be useful to market
participants for finding a contra-party as well as understanding
potential information leakage. In the Commission's experience, the
information that Government Securities ATS include in IOIs can vary,
including different combinations of symbol, size, and/or price, and the
Commission believes that this information would be relevant to market
participants when understanding what information about their orders and
trading interest is communicated to others and assessing potential
information leakage. Identifying the type of persons that receive the
message and possible responses, moreover, could help market
participants understand when an IOI would result in a match, how market
participants can use the ATS, who will see their trading interest, how
their trading interest will be executed, and the potential for
information leakage. If a Government Securities ATS employs a
negotiation functionality that begins with IOIs to arrive at matches
between subscribers, the ATS would describe the steps undertaken by the
ATS from the initial IOI to the eventual match of trading interest.
Request for Comment
79. Are there aspects of IOIs as they are used in Government
Securities ATSs that are not covered by this Item? What information
about IOIs or the process for transmitting IOIs are important to
subscribers?
10. Opening and Reopening
Part III, Item 10 of proposed Form ATS-G is designed to provide
information about whether a Government Securities ATS uses any special
procedures to match orders at the opening, or to set a single opening
or reopening price to, for example, maximize liquidity and accurately
reflect market conditions at the opening or reopening of trading. The
Commission believes that market participants would likely want to know
about any special opening or reopening processes employed by a
Government Securities ATS, including which order types participate in
the ATS's opening or reopening processes.
Information about when the Government Securities ATS will price and
prioritize orders and trading interest during the opening or reopening
of the ATS would provide market participants with the information they
need to plan and execute their trading strategies during these periods.
The Item would also, for example, require disclosure of any procedures
to match orders to set a single opening or reopening price to maximize
liquidity and accurately reflect market conditions at the opening or
reopening of trading. For any orders allowed to be submitted before an
ATS opens for trading, the Item would require an explanation of what
priority rules would apply to those orders. The Commission believes
most participants consider important the procedures for the pricing and
priority of orders and trading interest, and the order types allowed
because these rules and procedures can directly impact their execution
price.
[[Page 87137]]
11. Trading Services, Facilities and Rules
Part III, Item 11(a) would require a Government Securities ATS to
provide a summary of the structure of the ATS marketplace and explain
the means and facilities for bringing together the orders of multiple
buyers and sellers on the ATS. Part III, Item 11(c) would require a
Government Securities ATS to explain the established, non-discretionary
rules and procedures of the ATS. Part III, Item 11 is designed to
solicit disclosures about the facilities, functionalities, and
mechanisms that the Government Securities ATS uses to match the orders
and trading interest of counterparties and facilitate transactions on
the ATS and to inform market participants and the Commission about the
type of marketplace the ATS provides (e.g., crossing system, auction
market, limit order matching book, voice).
An ATS brings together orders when orders entered into the system
for a given security have the opportunity to interact with other orders
entered into the system for the same security.\241\ An ATS can bring
together orders through various methods. For instance, an organization,
association, or group of persons brings together orders if it displays,
or otherwise represents, trading interests entered on the system, such
as a consolidated quote screen, to users.\242\ The bringing together of
orders can also occur if subscribers' orders are centrally collected
for future processing and execution through, for example, a limit order
matching book that allows subscribers to display buy and sell orders in
particular securities and to obtain execution against matching orders
contemporaneously entered or stored in the system.\243\ As explained
above, to qualify for the Exchange Act Rule 3a1-1(a)(2) exemption from
the statutory definition of ``exchange,'' an ATS must, among other
things, bring together the orders of multiple buyers and sellers.\244\
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\241\ See Regulation ATS Adopting Release, supra note 35, at
70849.
\242\ See id.
\243\ See id.
\244\ See id. As explained in the Regulation ATS Adopting
Release, systems in which there is only a single seller, such as
systems that permit issuers to sell their own securities to
investors, would not be included within Rule 3b-16. See id. at
70849. The Commission emphasized in the Regulation ATS Adopting
Release that the mere interpositioning of a designated counterparty
as riskless principal for settlement purposes after the purchasing
and selling counterparties to a trade have been matched would not,
by itself, mean that the system does not have multiple buyers and
sellers. See id.
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Government Securities ATSs may offer subscribers various types of
trading mechanisms to bring together orders that would be disclosed
under Part III, Item 11. For example, many ATSs bring together multiple
buyers and sellers using limit order matching systems. Other ATSs use
crossing mechanisms that allow participants to enter unpriced orders to
buy and sell securities, with the ATS's system crossing orders at
specified times at a price derived from another market.\245\ Some ATSs
use an auction mechanism (or similar workup functionality) that matches
multiple buyers and sellers by first pausing execution in a certain
security for a set amount of time, during which the ATS's system seeks
out and/or concentrates liquidity for the auction; after the trading
pause, orders will execute at either a single auction price or
according to the priority rules for the auction's execution. In a
workup, an ATS may have a private phase, where the two original contra
parties submitting orders can negotiate, and a public phase where all
subscribers can submit orders at the workup price. Some ATSs use a
blotter scraping functionality, which may inform the ATS about trading
interest residing on a participant's order management system but not
yet entered into the ATS; the ATS or broker-dealer operator oftentimes
can automatically generate orders from the trading interest and enter
them into the ATS on behalf of the subscriber, in accordance with the
relevant terms and conditions, when certain contra-side trading
interest exists in the ATS. Certain ATSs may use a voice system to
bring together orders as well, or a combination of voice and electronic
systems. A Government Securities ATS could also offer services or
functionalities to facilitate trading on, or source pricing for, the
Government Securities ATS in conjunction with related markets for
government securities that would be encompassed under this Item.\246\
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\245\ See id. at 70849 n.37.
\246\ If a Government Securities ATS offers subscribers a
functionality, for example, in conjunction with a non-government
securities market, the Government Securities ATS would provide
information about the use of the functionality with the ATS and non-
government securities market in Part III, Item 16 of proposed Form
ATS-G.
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The Commission believes that information about the trading
facilities, functionalities, and mechanisms offered by a Government
Securities ATS would help market participants evaluate whether the
operations of the ATS comports with their trading strategies. Part III,
Item 11(a) of proposed Form ATS-G would require Government Securities
ATSs to provide a summary of the structure of the ATS marketplace,
which would describe the type of market the ATS operates, such as a
limit order book, auction market, or crossing system, in a more concise
manner. This Item would require more detailed responses when explaining
the means and facilities for bringing together the orders of multiple
buyers and sellers on the Government Securities ATS. The Commission is
also proposing to request information on whether the means and
facilities are the same for all subscribers and the broker-dealer
operator in Part III, 11(b) and is formatting the subpart request as a
``yes'' or ``no'' question.
Part III, Item 11(c) is designed to inform market participants
about the rules and procedures used to determine how orders and trading
interest may interact upon being entered into a Government Securities
ATS.\247\ The Commission previously explained in the Regulation ATS
Adopting Release that use of established, non-discretionary methods
could include operation of a trading facility or the setting of rules
governing subscribers' trading.\248\ For example, the Commission
considers the use of an algorithm by an electronic trading system,
which sets trading procedures and priorities, to be a trading facility
that uses established, non-discretionary methods.\249\ Similarly, the
Commission has previously stated that rules imposing execution
priorities, such as time and price priority rules, would be
``established, non-discretionary methods.'' \250\ As proposed, a
Government Securities ATS would be required to address each aspect of
the non-discretionary rules and procedures that are specifically listed
as being included in Part III, Item 11(c).
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\247\ As compared to Part III, Item 11(c) of Form ATS-N, the
Commission has added examples of functionalities used in the
government securities market for which the Government Securities ATS
would be required to explain the non-discretionary rules and
procedures, if applicable.
\248\ See Regulation ATS Adopting Release, supra note 35, at
70851-52.
\249\ See id. at 70851.
\250\ See id. at 70852.
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The Commission is also proposing that a Government Securities ATS
disclose pricing methodologies used for each type of security traded by
the ATS under Part III, Item 11(c). For example, orders may be priced
using spreads off of a benchmark price, or spreads between two
different maturities of a security. An ATS may also restrict the
allowable deviation from a benchmark price, or allow for indicative
pricing of certain securities. If a transaction has more than one leg,
the ATS may price both legs according to a price derived
[[Page 87138]]
from one of the securities traded. In response to this request, a
Government Securities ATS would be required to describe the ATS's
procedures for determining all pricing methodologies and to the extent
the pricing methodologies differ among subscribers and the broker-
dealer operator, the ATS must disclose those differences.
Item 11 would require Government Securities ATSs to disclose the
various terms and conditions under which orders interact and match.
Some Government Securities ATSs may offer price-time priority to
determine how to match orders (potentially with various exceptions),
while others may offer midpoint-only matching with time priority. Some
Government Securities ATSs might also take into account other factors
to determine priority. For example, a Government Securities ATS may
assign either a lower or higher priority to an order entered by a
subscriber in a certain class (e.g., orders of principal traders or
retail investors) or sent from a particular source (e.g., orders sent
by an algorithm or similar functionality) when compared to an equally
priced order entered by a different subscriber or via a different
source. Furthermore, a Government Securities ATS might elect to apply
different priority rules for matching IOIs than it does for matching
orders. An ATS may also have rules concerning how the ATS would handle
the order of a subscriber who seeks to execute at a size larger than
what is available at the existing workup price. Also, if applicable,
the Item would require an explanation of which party to a trade would
receive any price improvement depending on the priority, order type,
and prices of the matched orders and the percentage of price
improvement the party would receive. A broker-dealer operator could
also act as the counterparty for each side of a transaction that
matches on its ATS. These disclosures would allow the Commission to
better evaluate whether the entity that filed a proposed Form ATS-G
meets the criteria of Exchange Act Rule 3b-16 and the definition of a
Government Securities ATS.
A description of the ``established, non-discretionary rules and
procedures'' of the Government Securities ATS is a principal
requirement of Item 11(c), and the Commission is proposing to require
that any differences among subscribers and the broker-dealer operator
related to these methods be identified and explained in Part III, Item
11(d).
Request for Comment
80. Are there any specific means or facilities used to bring
together multiple buyers and sellers on ATSs that trade government
securities and repos that should be specifically included as an example
in this Item? Are there any rules and procedures that govern trading of
government securities and repos that should be specifically included as
examples in this Item?
12. Liquidity Providers
Part III, Item 12 would request information about any formal or
informal arrangements with any subscriber or the broker-dealer operator
to provide orders or trading interest to the Government Securities ATS.
The Item is designed to provide information about arrangements whereby
a liquidity provider undertakes to buy or sell continuously, or to meet
specified thresholds of trading or quoting activity. A Government
Securities ATS may want to ensure that there is sufficient liquidity in
a particular government security to incentivize market participants to
send order flow in that government security to the ATS. To do this, the
ATS may engage certain subscribers to provide liquidity to the
Government Securities ATS and perform similar functions to that of a
market maker on a national securities exchange.\251\ The obligations
required of liquidity providers and the benefits that they provide
could vary across Government Securities ATSs. The Commission believes
that information about liquidity providers would be useful to
subscribers and market participants who, for example, may want their
orders to only interact with agency orders (and not with those of a
liquidity provider), or, conversely, may themselves want to become
liquidity providers on the Government Securities ATS. The Commission
believes that such arrangement could take many forms and the function
of the liquidity provider on an ATS could depend on the structure and
trading protocols of the ATS. Therefore, this Item could cover, for
example, arrangements or agreements between the broker-dealer operator
and another party to trade on the Government Securities ATS. The
proposed Item does not cover agreements with a subscriber that has no
obligation to buy or sell government securities or repos on the ATS.
---------------------------------------------------------------------------
\251\ These liquidity providers may quote in a particular
government security on the ATS during trading hours and may receive
a benefit for performing this function, such as discounts on fees,
rebates, or the opportunity to execute with a particular type of
segmented order flow.
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Request for Comment
81. Are there any arrangements between Government Securities ATSs
and market participants to provide orders or trading interest to the
Government Securities ATS that may not be required by this Item but
should be? If any, what is the nature of those arrangements and why are
they important to disclose publicly on Form ATS-G?
13. Segmentation; Notice
Part III, Item 13 of proposed Form ATS-G would require a Government
Securities ATS to disclose information about how orders and trading
interest in the ATS can be segmented into categories, classifications,
tiers, or levels. This Item would provide market participants with an
understanding of the categories of order flow or types of market
participants with which they may interact. In addition, the information
provided would allow them to both assess the consistency of a segmented
group and determine whether the manner in which the trading interest is
segmented comports with their views of how certain trading interest
should be categorized. Disclosure of the procedures and parameters used
to segment categories would allow a market participant to determine
whether its view of what constitutes certain trading interest it wants
to seek or avoid is classified in the same way by the Government
Securities ATS. For example, a subscriber may find it useful to
understand the standards a Government Securities ATS uses to categorize
high frequency trading firms so that it can compare the criteria used
by the ATS with its view of what constitutes a high frequency trading
firm, and thus be able to successfully trade against or avoid such
trading interest. Similarly, information regarding the procedures
applicable to trading among segmented categories would allow market
participants to evaluate whether they can successfully trade against or
avoid the segments of trading interest.
Some Government Securities ATSs segment order flow entered in the
ATS according to various categories for purposes of order interaction.
For example, a Government Securities ATS could elect to segment trading
interest by type of participant (e.g., buy-side or sell-side firms,
PTFs, agency-only firms, firms above or below certain assets under
management thresholds). When segmenting order flow in the ATS, a
Government Securities ATS might look to the underlying source of the
trading interest such as the trading interest of retail customers. Some
Government Securities ATSs segment by the nature of the trading
activity, which could include segmenting by patterns of
[[Page 87139]]
behavior, time horizons of traders, or the passivity or aggressiveness
of trading strategies. Government Securities ATSs might use some
combination of these criteria or other criteria altogether. The ATS
might use these segmented categories to design its order interaction
rules, allowing only orders from certain categories to interact with
each other.
The Commission recognizes the potential concern that describing the
precise criteria used by the ATS to segment orders and trading interest
could result in gaming by subscribers of those criteria and thus, the
reduction of the effectiveness of segmentation as a control. On the
other hand, the Commission believes that market participants are
interested in understanding how their orders and trading interest are
categorized on the ATS and the types of market participants that would
interact with those orders and trading interest. The Commission
believes that Part III, Item 13 of proposed Form ATS-G appropriately
balances these competing interests by soliciting a summary of the
parameters for each segmented category. By requiring Government
Securities ATSs to provide a summary of these parameters on Form ATS-G,
rather than a detailed analysis of the parameters and how they are
calculated, this Item is designed to avoid responses that could allow
the gaming or manipulation of segmentation criteria.
The Commission believes disclosing the origin of a customer order
of a broker-dealer could be a form of segmentation because it can
facilitate users restricting their trading to only certain types of
market participants and it can contribute to information leakage and
adverse selection of orders of institutional investors, who generally
trade passively. Accordingly, the Commission is proposing to require a
Government Securities ATS to disclose if it identifies orders or
trading interest entered by a customer of a broker-dealer on the ATS as
a customer order.
Request for Comment
82. What information about the segmentation of order flow by a
Government Securities ATS would be important to persons that use the
services of the ATS?
14. Counter-Party Selection
Part III, Item 14 of proposed Form ATS-G would require Government
Securities ATSs to provide information about whether orders or trading
interest can be designated to interact or not interact with certain
orders or trading interest in the ATS. To analyze whether the ATS is an
appropriate venue to accomplish their trading objectives, market
participants have an interest in knowing whether--and how--they may
designate their orders or trading interest to interact or avoid
interacting with specific orders, trading interest, or persons on the
ATS. Part III, Item 14 is designed to require disclosure of such
information.
For instance, the disclosures proposed under this Item would allow
a participant in the Government Securities ATS to know whether it can
interact with certain categories of orders and trading interest on the
ATS or can designate an order submitted to the ATS to interact only
with orders of certain other types of ATS participants. For example,
the ATS might allow subscribers to choose from categories of orders or
categories of subscribers that the broker-dealer operator segments in
the ATS. For example, buy-side or institutional subscribers might seek
to trade only against other buy-side or institutional order flow, or
might seek to avoid trading against PTFs or so-called high frequency
trading firms. Also, it would also be responsive to this Item for an
ATS to state whether a subscriber can restrict interacting with its own
orders, whether such restrictions are by default or only upon
subscriber request, and any applicable limitations on such
restrictions. This Item would require description of any procedures
allowing a subscriber to limit its counterparty on an order-by-order
basis or a participant-by-participant basis, how it would go about
doing so, and how such selection would affect the interaction and
priority of trading interest. For example, an ATS would include in its
response to this Item whether a participant can select a category of
orders or category of subscribers for counterparty designation by
marking its order to interact with them or whether the broker-dealer
operator performs the action, and also, whether the broker-dealer
operator implements the counterparty designation during the same
trading day as the subscriber's selection or on a date thereafter.
Request for Comment
83. Should proposed Form ATS-G request more or less information
about how orders or trading interest can be designated to interact or
not interact with certain orders or trading interest in the Government
Securities ATS? Are there important forms of counter-party selection
that the Commission should address?
15. Display
Part III, Item 15 of proposed Form ATS-G would require a Government
Securities ATS to disclose how and when orders and trading interest
bound for or resting in the ATS may be displayed or made known to any
person. The Commission believes that many market participants are
sensitive to precisely how and when their trading interest is displayed
or otherwise made known both inside and outside the Government
Securities ATS as such information could result in other market
participants trading ahead of their positions, and thus in inferior
execution prices. These participants could use these disclosures to
evaluate whether sending orders to a particular Government Securities
ATS would achieve their trading strategies.
The display of subscriber orders and trading interest can occur in
a number of ways. For instance, a Government Securities ATS may offer a
direct data feed from the ATS that contains real-time order
information.\252\ Some ATSs have arrangements, whether formal or
informal (oral or written) with third parties to display the Government
Securities ATS's trading interest outside of the ATS, such as IOIs from
the subscribers being displayed on vendor systems, or arrangements with
third parties to transmit IOIs between subscribers. An ATS would be
required to include this type of information in its response to this
Item.
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\252\ In the case of a Government Securities ATS offering a
direct data feed with information about orders or trading interest
in the ATS, the ATS would be required to disclose under Part III,
Item 15 what information the data feed provides about the orders and
trading interest, the associated timing in receiving the feed (e.g.,
real-time, delayed), how a subscriber would receive the feed (e.g.,
connectivity), and if all subscribers are treated the same in
receiving the feed, including whether all subscribers are eligible
to receive it and any differences in latency receiving the feed.
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The Commission believes that subscribers that use the services of
the Government Securities ATSs, including customers of the broker-
dealer operator, have limited information about the extent to which
their orders and trading interest sent to the ATS could be displayed
outside the ATS. For instance, when a Government Securities ATS sends
electronic messages outside of the ATS that expose the presence of
orders or other trading interest on the ATS, it is displaying or making
known orders or other trading interest on the ATS. An ATS would be
required to disclose the circumstances under which the ATS sends these
messages, the types of market participants that received them, and the
information contained in the messages, including the exact
[[Page 87140]]
content of the information, such as symbol, price, size, attribution,
or any other information made known. In another example of display,
subscribers' orders or trading interests directed to the Government
Securities ATS could pass through the broker-dealer operator's non-ATS
systems or functionalities before entering the ATS, such as an
algorithm or a SOR. Such non-ATS systems and functionalities could be
used to support the broker-dealer operator's other business units,
including any trading venues.\253\ Proposed Part III, Item 15(b) would
also require the ATS to describe differences in latencies with the
Government Securities ATS displaying subscribers' orders and trading
interest due to a functionality of the ATS. For example, if a
Government Securities ATS transmits and displays its proprietary data
feed to certain subscribers faster than to other subscribers as a
result of the alternative means offered by the ATS to connect, such
information would be responsive.
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\253\ The broker-dealer operator typically controls the logic
contained in these systems or functionality that determines where an
order that the broker-dealer operator receives will be handled or
sent.
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In response to this Item, the Commission is proposing that a
Government Securities ATS identify the recipient of displayed
information by identifying the functionality of the broker-dealer
operator (e.g., SOR, algorithm) or the type of market participant,\254\
or both, that receives the displayed information. For example, if
orders bound for the Government Securities ATS pass through the broker-
dealer operator's common gateway, or algorithm, the ATS would need to
disclose these functionalities as the order was displayed to a
functionality of the broker-dealer operator that would likely be
outside the ATS. If orders resting in the Government Securities ATS are
displayed to certain subscribers or one or more of the broker-dealer
operator business units, the ATS would need to identify these types of
subscribers and business units of the broker-dealer operator by type of
market participant (e.g., institutional investors, PTFs, market makers,
affiliates, trading desks at the broker-dealer operator, market data
vendors, clearing entities, and potential subscribers, among others).
The Item would also require a Government Securities ATS that offers
workups to match orders to disclose the information that is displayed
to all subscribers or certain subscribers in public or private phases
of the workup, as well as what characteristics of the orders are
displayed.
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\254\ See Part III, Item 1 of proposed Form ATS-G (providing
examples of types of market participants).
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The proposed Item would not require information about employees of
the Government Securities ATS in non-trading related roles, such as
technical, quality assurance, compliance or accounting roles, among
others, that support the ATS's operations and to whom orders and
trading interest are made known in the performance of their
duties.\255\
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\255\ The Government Securities ATS, as proposed, would be
subject to the requirements of Rule 301(b)(10) and would be required
to establish adequate safeguards and procedures to protect
subscribers' confidential trading information, which must include:
Limiting access to the confidential trading information of
subscribers to those employees of the ATS who are operating the
system or responsible for its compliance with these or any other
applicable rules; and implementing standards controlling employees
of the ATS trading for their own accounts. See 17 CFR
242.301(b)(10).
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Request for Comment
84. What information involving government securities and repos does
an ATS display? Are there levels of displayed information that an ATS
may offer to market participants? If so, what are the levels and are
there any specific terms and conditions for a market participant to
access that information? What functionalities does the ATS use to
display information in government securities and repos? Please explain
the purpose and operation of any such functionality.
85. For Government Securities ATSs that display trading interest
both on the ATS and outside the ATS, what is the process for market
participants to submit orders to interact with the trading interest
that is displayed outside the ATS?
86. Are there any aspects in relation to the display of trading
interest on the Government Securities ATS that should be specifically
addressed in the Item? Are there any aspects of display that are unique
to Government Securities ATSs?
16. Interaction With Related Markets
Part III, Item 16 of proposed Form ATS-G would require a Government
Securities ATS to provide information about any functionality or
procedure to facilitate trading on, or source pricing for, the
Government Securities ATS that is offered by the broker-dealer operator
or its affiliates \256\ and used in conjunction with markets for
financial instruments related to government securities. Markets for
financial instruments related to government securities could include
those non-government securities markets that trade futures, currencies,
fixed income, and swaps, for example (``Related Markets''). If
applicable, the Government Securities ATS would: (i) Identify the
functionality, procedures, and source of pricing and the Related
Market; (ii) state whether the functionality, procedure, and source of
pricing is provided or operated by the broker-dealer operator or its
affiliate, and whether the Related Market is provided or operated by
the broker-dealer operator or its affiliate; (iii) explain the use of
the functionality, procedures, and source of pricing with regard to the
Related Market and the Government Securities ATS, including how and
when the functionality, procedures, and source of pricing can be used,
by whom, and with what markets; and (iv) state whether the
functionality, procedures, and source of pricing identified are the
same for all subscribers and the broker-dealer operator.
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\256\ Services to facilitate trading or source pricing for the
Government Securities ATS in conjunction with non-government
securities markets that are offered by a third-party in contract
with the broker-dealer operator or affiliates would also be required
to be disclosed under this Item.
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Item 16 requires the Government Securities ATS to disclose how the
broker-dealer operator and subscribers may use a functionality or
procedure with the Government Securities ATS and a Related Market. Such
functionalities or procedures could include, for example, offering
order types to facilitate transactions on the ATS and the Related
Market, or procedures to allow subscribers to perform multi-leg
transactions involving another market and the ATS. A Government
Securities ATS could offer, for example, Exchange-for-Physical
(``EFP'') transactions that can involve markets in addition to the ATS.
An EFP transaction where ATS subscribers agree to exchange a financial
product, such as a futures contract on a government security, for the
underlying related government security, would be responsive to this
Item. The Commission believes that it would be important to subscribers
to understand functionality and procedures offered such as these, as
they can impact subscribers' experience on the ATS.\257\
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\257\ To the extent that a Government Securities ATS offers
subscribers a functionality or procedure that the subscriber can use
on the ATS in conjunction with a market for government securities
(e.g., trading venue for U.S. Treasury Securities or options), the
Government Securities ATS should disclose information about that
functionality and procedure in Part III, Item 11 of proposed Form
ATS-G.
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A Government Securities ATS would also be required to provide
information about how the ATS uses market data from a Related Market,
through an aggregator or otherwise, to provide the
[[Page 87141]]
services it offers.\258\ Among other things, for example, the
Government Securities ATS would need to disclose in response to this
Item its use of such market data to display, price, prioritize,
execute, and remove trading interest on the ATS.\259\ As part of this
explanation, the Government Securities ATS would specify, if
applicable, when the ATS may change between its use of different
sources of market data to provide its services. In response to Part
III, Item 16 of proposed Form ATS-G, the Government Securities ATS
would explain how, for example, market data from a Related Market, is
received by the ATS, compiled, and delivered to the matching engine.
For example, among other possible arrangements, the Government
Securities ATS could explain that market data from a Related Market is
received by the broker-dealer operator and assembled there, and
subsequently delivered to the matching engine, or that market data is
sent directly to the matching engine, which normalizes the data for its
use. For example, a Government Securities ATS would disclose whether it
uses market data from the futures market to price and execute EFP
transactions and describe how it uses that market data under this Item.
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\258\ If a Government Securities ATS uses market data from
another market that trades government securities, that information
would be disclosed under Part III, Item 23 of proposed Form ATS-G.
\259\ Disclosure of any market data used by the Government
Securities ATS for government securities, including market data for
options and repos on government securities, would be required under
Part III, Item 23 of proposed Form ATS-G.
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A broker-dealer operator's activities in financial instruments
related to government securities or offerings of a Related Market, such
as a futures exchange, along with its operation of an ATS, raise the
potential for information leakage of a subscriber's confidential
trading information, or the broker-dealer operator could provide
certain advantages to subscribers that use a Related Market that it
operates. As such, Item 16 would require information about whether the
functionality, procedures, and source of pricing on the Government
Securities ATS or the Related Markets are provided or operated by the
broker-dealer operator or its affiliates. Finally, the Government
Securities ATS would be required to indicate whether the functionality,
procedure, and source of pricing are the same for all subscribers and
the broker-dealer operator, and if not, to explain any differences.
Request for Comment
87. What are commenters' views on the relationship between markets
for government securities and Related Markets and how investors may use
these markets together with a Government Securities ATS to achieve
their trading objectives?
88. What aspects of government securities markets and Related
Markets, such as the futures markets, do market participants use for
trading on a Government Securities ATS? What information about those
markets might be useful to a subscriber and why?
89. Trading in NMS stocks can involve other markets for financial
instruments that are not NMS stocks, such as options or futures on NMS
stocks, and an NMS Stock ATS that offers a functionality or procedure
that subscribers could use with the ATS and another market would be
required to explain it under Part II, Item 5 and Part III, Item 11 on
Form ATS-N. Should the Commission adopt amendments to Form ATS-N to
include an item similar to proposed Item 16 in Form ATS-G to separate
and highlight disclosures about such a functionality?
17. Closing
Part III, Item 17 of proposed Form ATS-G would require Government
Securities ATSs to disclose information about differences between how
orders and trading interest are treated on the ATS during any closing
session(s) and during regular trading hours established by the ATS. The
Item is designed to provide market participants with information about
processes the Government Securities ATS uses to transition to the next
trading day, including whether the ATS offers any particular order
types during a closing session(s) or has different procedures for
closing trading for a particular trading session and transitioning
trading to the next trading day. The vast majority of requests in Part
III of proposed Form ATS-G relate to trading during the Government
Securities ATS's regular hours. Therefore, when discussing differences
between trading during the Government Securities ATS's closing
session(s) and during regular hours set by the ATS, the Government
Securities ATS would be required to discuss differences as compared to
relevant information disclosed in Part III Items, including, among
others, order types (Item 7), order interaction, priority, matching,
and execution procedures (Item 11), segmentation (Item 13), and display
(Item 15). The Commission believes this information would be important
for market participants to understand the closing procedures around a
particular trading session, if any, to carry out their trading
objectives.\260\
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\260\ The Item would, for example, require disclosure of any
procedures to match orders to set a single closing price to maximize
liquidity and accurately reflect market conditions at the close of
trading in the ATS.
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18. Trading Outside of Regular Trading Hours
Part III, Item 18(a) of proposed Form ATS-G would require a
Government Securities ATS to provide information about its procedures
for trading outside its regular trading hours, and subpart (b) would
require the ATS indicate whether there are any differences between
trading outside of its regular trading hours and trading during its
regular hours. To the extent that there are differences, the Government
Securities ATS must describe those differences. Similar to Item 17
(requesting differences between any closing session(s) and regular
trading hours), a Government Securities ATS would be required to
disclose differences between trading outside of its regular trading
hours and during regular trading hours with respect to the relevant
information disclosed in Part III Items, including, among others, order
types (Item 7), order interaction, priority, matching, and execution
procedures (Item 11), segmentation (Item 13), and display (Item 15).
Many of the disclosures discussed elsewhere in Form ATS-G will relate
to the ATS's regular trading hours so the ATS can simply discuss any
differences between trading during its regular hours and trading
outside its regular trading hours in Part III, Item 18(b), if
applicable. The Commission believes that market participants would
likely want to understand unique trading procedures that the Government
Securities ATS offers outside its regular trading hours to assess
whether participating in such trading would help accomplish their
trading objectives.
19. Fees
Part III, Item 19 of proposed Form ATS-G would require a Government
Securities ATS to provide information on any fees or charges for use of
the ATS's services, including any fees or charges for use of the ATS's
services that are bundled with the subscriber's use of non-ATS services
or products offered by the broker-dealer operator or its affiliates,
and any rebate or discount of fees or charges. The Commission believes
that disclosures regarding fees on proposed Form ATS-G are necessary
and important, and should not be voluntary for Government Securities
[[Page 87142]]
ATSs. Fee disclosures on proposed Form ATS-G are designed to allow all
market participants to analyze the fee structures across Government
Securities ATSs in an expedited manner and decide which ATS offers them
the best pricing according to the characteristics of their order flow,
the type of participant they are (if relevant), or any other aspects of
an ATS's fee structure that serves to provide incentives or
disincentives for specific market participants or trading behaviors.
Requiring disclosures of ATS fees is warranted as, in the Commission's
experience, fees can be a primary factor for market participants in
deciding where to send their orders and trading interest.
Part III, Item 19 would request that Government Securities ATSs
include in their descriptions the structure of the fee, variables that
impact the fee, and differentiation among types of subscribers, and the
Commission provided examples of responsive information included in a
parenthetical in the text of each subpart.\261\ The Item also would
require a range for each type of fee (e.g., subscription, connectivity,
and market data \262\) charged on the Government Securities ATS. With
regard to the variables that impact the fees set, ATSs would be
required to be specific and delineate how a given variable would likely
impact the fee level (e.g., higher or lower).
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\261\ The Commission is including non-exhaustive lists of
examples of responsive information in parentheticals in the text of
the Item. For instance, for descriptions of the structure of the
fee, the Commission is providing as examples a fixed fee, volume-
based and transaction-based fee structures. For the description of
variables that may impact the fee, the Commission is providing as
examples: The types of securities traded, block orders, and the form
of connectivity to the ATS. For the description of the
differentiation among types of subscribers for the fee, the
Commission is providing as examples of the types of subscribers:
Broker-dealers, institutional investors, and retail investors.
\262\ For example, if a Government Securities ATS distributed a
market data feed and charged a fee for it, the ATS would be required
to provide the information responsive to Item 19 regarding that fee.
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The Commission recognizes that the fee structures of Government
Securities ATSs can vary and that not all Government Securities ATSs
apply set tiers or categories of fees for subscribers; however, the
Commission believes that a market participant should have sufficient
information to understand the fees for using the services of the
Government Securities ATS. Recognizing the various fees that can be
charged by Government Securities ATSs, the Commission is specifying in
the fee request the types of information that a Government Securities
ATS must provide in response to the Commission's proposed request to
describe its fees (e.g., the structure of the fees, variables that
impact each fee, differentiation among types of subscribers, and the
range of fees). These disclosures are designed to provide market
participants with more insight regarding the fees charged so that they
can better understand how fees may apply to them and assess how such
fees may impact their trading strategies. Although the fees charged for
Government Securities ATS services may be individually negotiated
between the broker-dealer operator and the subscriber, the disclosures
about the type of fees charged by the Government Securities ATS are
designed to help market participants discern how the ATS's fees are
organized and compare that information across Government Securities
ATSs, which could reduce the search costs of market participants in
deciding where to send their orders and trading interest. The
Commission believes that Government Securities ATSs should be required
to disclose differences in the treatment among ``types of
subscribers.'' This information would allow subscribers to observe
whether a Government Securities ATS is offering preferential treatment
for certain types of subscribers with respect to fees.
Part III, Item 19(b) of proposed Form ATS-G would require a
description of any bundled fees, including a summary of the bundled
services and products offered by the broker-dealer operator or its
affiliates, the structure of the fee, variables that impact the fee
(including, for example, whether the particular broker-dealer services
selected would impact the fee), differentiation among types of
subscribers, and range of fees. Part III, Item 19(b) is designed to
allow market participants to better evaluate fees for bundled services
that include access to the Government Securities ATS. Government
Securities ATSs would be required to provide information, including the
relevant services and products offered by the broker-dealer operator
and its affiliates for each bundled fee offered, that will provide
context to market participants with which to assess how bundled fees
could apply to them as subscribers.\263\
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\263\ See NMS Stock ATS Adopting Release, supra note 1, at 38858
(discussing responses to Item 19(b) depending on whether there is an
explicit fee for the ATS as part of any bundled services).
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Part III, Item 19(a) of proposed Form ATS-G covers charges to
subscribers for their ``use of the Government Securities ATS services''
\264\ and does not request information on fees charged for non-ATS
services by a third party not in contract with the broker-dealer
operator.\265\ The disclosure requests under proposed Part III, Item 19
contain a stand-alone Item--Item 19(c)--which requests information
about rebates and discounts of fees that are identified in subparts (a)
and (b) of Item 19. Item 19(c) would require information about rebates
and discounts that is similar to that which is required for fees (e.g.,
the structure of the rebate or discount, variables that impact the
rebate or discount, differentiation among types of subscribers, and
range of rebate or discount).
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\264\ The NMS Stock ATS services generally include those
services used for the purpose of effecting transactions in NMS
Stock, or for submitting, disseminating or displaying orders on the
ATS. See 17 CFR 242.300(b).
\265\ See NMS Stock ATS Adopting Release, supra note 1, at 38858
(discussing what fees should be categorized as for use of the ATS's
services).
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Request for Comment
90. An ATS that is subject to the Fair Access Rule for a covered
security is required to comply with fair access requirements under Rule
301(b)(5) of Regulation ATS, which, among other things, requires an ATS
to establish written standards for granting access to trading on its
system and not unreasonably prohibit or limit any person with respect
to access to services offered by the ATS by applying the written
standards in an unfair or discriminatory manner. An ATS that charges
certain fees to one class of subscribers but different fees to other
classes of subscribers for the same services could not, if it were
subject to the Fair Access Rule, discriminate in this manner unless it
adopted written reasonable standards and applied them in a fair and
non-discriminatory manner. Should an ATS that is subject to the Fair
Access Rule and is a meaningful source of orders and trading interest
for NMS stocks or government securities be required to disclose the
fees that the ATS charges for access to its services on Form ATS-N and
proposed Form ATS-G? Would such a disclosure of the fees of an ATS that
is subject to the Fair Access Rule provide additional transparency to
subscribers and market participants and help ensure that the ATS does
not unreasonably prohibit or limit any person with respect to access to
the ATS's services by applying the written standards in an unfair or
discriminatory manner?
91. In the alternative, should the Commission require NMS Stock
ATSs and Government Securities ATSs that are subject to the Fair Access
Rule and that exceed even higher volume thresholds to disclose their
fee schedule
[[Page 87143]]
on Form ATS-N and Form ATS-G? For example, should only an NMS Stock ATS
and a Government Securities ATS that exceeds 10 percent, 20 percent, 30
percent, or 40 percent average weekly or daily trading volume in NMS
stocks, U.S. Treasury Securities, or Agency Securities, respectively,
be required to publicly disclose their fee schedule on Form ATS-N and
Form ATS-G as applicable?
92. What fees should the Commission require an ATS subject to the
Fair Access Rule to disclose on Form ATS-N or Form ATS-G?
20. Suspension of Trading
Part III, Item 20 of proposed Form ATS-G would require a Government
Securities ATS to provide information about any procedures for
suspending or stopping trading on the ATS, including the suspension of
trading in a U.S. Treasury Security or an Agency Security. This Item is
designed to, for example, inform market participants of whether, among
other things, a Government Securities ATS will continue to accept
orders and trading interest after a suspension or stoppage occurs,
whether the ATS cancels, holds, or executes orders and trading interest
that were resting in the ATS before the suspension or stoppage was
initiated, and what type of notice the ATS provides to subscribers
regarding a suspension or stoppage. Examples of system disruptions
would include, but are not limited to, internal software problems that
prevent the Government Securities ATS's system from opening or
continuing trading,\266\ a significant increase in volume that exceeds
the ability of the trading system of the ATS to process incoming
orders,\267\ and the failure of the ability of the trading system of
the ATS to receive external pricing information that is used in the
system's pricing methodology. The Commission believes that information
regarding a Government Securities ATS's procedures about how orders and
trading interest might be handled by the ATS during a suspension or
stoppage of trading would be useful to market participants because an
ATS's procedures might require the cancelation of existing orders or
preclude the acceptance or execution of orders or trading interest
during a suspension, both of which would impact a subscriber's orders
or its ability to trade on the ATS. This information would better
inform a subscriber's trading decisions at the time of such an event
and thus help that subscriber accomplish its trading objectives. If a
Government Securities ATS establishes different procedures for
suspending or stopping trading on the ATS depending on whether the
source of the disruption is internal or external, a description of both
procedures would be responsive to this request. In addition, this Item
would require disclosure of procedures whereby a Government Securities
ATS suspends trading in U.S. Treasury Securities or Agency Securities
so that it does not cross the relevant volume thresholds and become
subject to the Fair Access Rule under Regulation ATS, or Regulation SCI
(as proposed herein).
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\266\ See Regulation SCI Adopting Release, supra note 2, at
72254-55 n.28.
\267\ See id. at 72255 n.29.
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The Commission also believes that information regarding the
procedures for how a Government Securities ATS would handle orders
during a suspension of trading or system disruption or malfunction
would help the Commission better monitor the securities markets.
Request for Comment
93. Should proposed Form ATS-G request more or less information
about any procedures for suspending or stopping trading on the
Government Securities ATS?
21. Trade Reporting
Part III, Item 21 of proposed Form ATS-G would require a Government
Securities ATS to provide information on any procedures and material
arrangements for reporting transactions on the ATS. Trade reporting
furthers the transparent, efficient, and fair operation of the
securities markets.\268\ FINRA member firms are required to report
transactions in U.S. Treasury Securities and Agency Securities to
TRACE.\269\
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\268\ See Regulation ATS Adopting Release, supra note 35, at
70887 (stating the market-wide transaction and quotation reporting
plans operated by the registered national securities exchanges are
responsible for the transparent, efficient, and fair operations of
the securities markets).
\269\ See supra notes 50-51 and accompanying text.
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Part III, Item 21 would require a Government Securities ATS to
disclose its trade reporting procedures for reporting transactions in
government securities on the ATS to an SRO. For example, it would be
responsive to Item 21 for a Government Securities ATS to disclose
whether the ATS has a specific procedure for reporting transactions in
a government security to the SRO at different times based on, for
example, a subscriber's use of a particular order type, or the type of
subscriber involved in the transaction. Government Securities ATSs
would also be required to disclose ``material'' arrangements for
reporting transactions on the ATS. The Commission recognizes that there
could be arrangements relevant to trade reporting, such as the specific
software used to report, that play a minor role in the ATS's trade
reporting and need not be disclosed. On the other hand, if an ATS uses
a third party to report transactions occurring on the ATS or has a
backup facility that it uses for trade reporting, that information is
likely to be responsive as a material arrangement. By proposing to
require reporting only of material arrangements, the Commission hopes
to reduce potential burdens on Government Securities ATSs while
providing market participants with sufficient information to understand
how their trade information will be reported. Also, the Commission
believes the proposed disclosure of the trade reporting procedures
would allow the Commission to more easily review the compliance of the
Government Securities ATS with its applicable trade reporting
obligations as a registered broker-dealer (as proposed herein).
22. Clearance and Settlement
Part III, Item 22 is designed to provide information on any
procedures and material arrangements undertaken to facilitate the
clearance and settlement of transactions on the Government Securities
ATS. The integrity of the trading markets depends on the prompt and
accurate clearance and settlement of securities transactions. For
example, counterparties to a trade face counterparty credit risk,
regardless of whether they choose to clear and settle bilaterally or
through a central counterparty, and therefore knowledge of the clearing
process promotes market integrity.\270\ As a preliminary matter,
``clearance and settlement'' refers generally to the activities that
occur following the execution of a trade. These post-trade processes
are critical to ensuring that a buyer receives securities and a seller
receives proceeds in accordance with the agreed-upon terms of the trade
by settlement date. The disclosures required by this Item are intended
to cover each of the steps in the post-trade process from the time of
execution (including whether the Government Securities ATS is a
counterparty to a transaction and
[[Page 87144]]
whether the obligations of a counterparty are ever assigned or
novated), through trade matching and other clearing procedures
(including whether the Government Securities ATS requires its
participants to be a member of a registered clearing agency, whether
participants have any particular clearing obligations, and whether
transactions are--wholly or partially--submitted to a registered
clearing agency or cleared bilaterally using clearing banks or clearing
agents), until settlement of the transaction (including whether
counterparties make use of custodians, settlement banks, or a
registered clearing agency). If the Government Securities ATS has
adopted clearing and settlement processes or imposes any obligations on
its participants in the event of a disruption (for example, a
settlement fail, counterparty default, or liquidity shortfall), this
proposed Item should include a discussion of these processes and any
resulting participant obligations.
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\270\ See Treasury Market Practices Group (TMPG), White Paper on
Clearing and Settlement in the Secondary Market for U.S. Treasury
Securities (July 12, 2018), available at https://www.newyorkfed.org/medialibrary/Microsites/tmpg/files/CS-DraftPaper-071218.pdf. ``The
TMPG found that many market participants do not understand the role
of the [interdealer brokers] platform in terms of who their
counterparty credit risk was to and the roles of various market
participants in settlement and clearing.'' Id. at 27.
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The Item requires the disclosure of ``material'' arrangements to
facilitate the clearance and settlement of transactions on the
Government Securities ATS. For example, an arrangement under which a
third party would have a role in clearance and settlement may
constitute a material arrangement that could trigger the disclosure
requirement under Part III, Item 22. Limiting the explanation required
to material arrangements would reduce the burden on Government
Securities ATSs while at the same time still allowing market
participants to understand and more easily compare clearing
arrangements required across Government Securities ATSs.
Part III, Item 22 is designed to help market participants
understand the measures the Government Securities ATS takes to
facilitate clearance and settlement of transactions. Market
participants should know and be able to understand any requirements a
Government Securities ATS places on its subscribers, or other persons
whose orders are sent to the ATS, to have clearance and settlement
systems and/or arrangements with a clearing firm. The Commission
believes market participants would likely find the disclosures required
by this Item to be useful in understanding the measures undertaken by a
Government Securities ATS to facilitate clearance and settlement of
subscriber orders on the ATS and allow them to more easily compare the
clearance arrangements required across Government Securities ATSs as
part of deciding where to send their trading interest. The Commission
believes that these disclosures may assist the Commission in better
understanding the clearance and settlement procedures of Government
Securities ATSs and risks and trends in the market as part of its
overall review of market structure.
Request for Comment
94. What aspects of the procedures and material arrangements
undertaken to facilitate the clearance and settlement of transactions
on Government Securities ATSs are important for ATSs to disclose on
proposed Form ATS-G for the benefit of market participants?
23. Market Data
Part III, Item 23 of proposed Form ATS-G would require a Government
Securities ATS to provide information about the sources of market data
in government securities and repos used by the ATS and how the ATS uses
that market data from these sources to provide the services that it
offers. The Commission believes that market participants would likely
find it useful to know the source and specific purpose of the market
data that the Government Securities ATS might use as the market data
received by the ATS might affect the price at which orders and trading
interest are prioritized and executed in the ATS, including orders that
are pegged to an outside reference price. A Government Securities ATS
would also be required to provide information about how the ATS uses
market data in government securities and repos to provide the services
it offers.\271\ Among other things, for example, proposed Part III,
Item 23 would require the disclosure of the use of market data to
display, price, prioritize, execute, and remove trading interest. As
part of this explanation, the ATS would be required to specify, if
applicable, when the ATS may change sources of market data to provide
its services. A Government Securities ATS would also be required to
explain how market data is received by the ATS, compiled, and delivered
to the matching engine. For example, among other possible arrangements,
the Government Securities ATS could explain in response to the Item
that market data in government securities or repos is received by the
broker-dealer operator and assembled there, and subsequently delivered
to the matching engine, or that market data is sent directly to the
matching engine, which normalizes the data for its use.
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\271\ Market data reflecting options traded on government
securities that is used by the ATS should be discussed in response
to Part III, Item 16.
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Request for Comment
95. What are the sources of market data in government securities
and repos that are available to market participants as well as to
Government Securities ATSs and how do market participants and ATSs use
this information? What disclosures about an ATS's use of market data
would be important to market participants?
24. Fair Access
Part III, Item 24 of proposed Form ATS-G would provide a mechanism
under which a Government Securities ATS would notify market
participants whether it has triggered the proposed fair access
threshold and, if so, whether the ATS is subject to the Fair Access
Rule. If subject to the Fair Access Rule, the Government Securities ATS
would be required to describe the written standards for granting access
to trading required to comply with Rule 301(b)(5)(ii) of Regulation ATS
(as proposed to be applied herein).
If an ATS crosses the fair access thresholds, Rule 301(b)(5)(ii)(B)
requires the ATS to ``not unreasonably prohibit or limit any person in
respect to access to services offered by such alternative trading
system by applying the [written] standards . . . in an unfair or
discriminatory manner.'' \272\ The Commission believes that the
proposed disclosures would facilitate its oversight of Government
Securities ATSs and their compliance with Rule 301(b)(5) (as proposed
herein). In addition, the proposed disclosures would allow market
participants to assess whether fair access is in fact being applied by
a Government Securities ATS that meet the fair access threshold, in
part by making publicly available a description of the ATS's written
standards for granting access.\273\
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\272\ See 17 CFR 242.301(b)(5)(ii)(B). The Commission is
proposing that any change in a Government Securities ATS's response
to Item 24 would be filed as a contingent amendment. See supra note
176 and accompanying text.
\273\ The Commission is not including an item similar to Part
III, Item 24 of Form ATS-N (Order Display and Execution Access)
because Rule 301(b)(3) of Regulation ATS, which forms the basis for
the item, only applies to an ATS's NMS stock activities.
---------------------------------------------------------------------------
Request for Comment
96. Is there other information that market participants might find
important or useful regarding the written standards for granting access
to trading on an ATS that is subject to the Fair Access Rule? If so,
describe such information and explain whether, and if so why, such
information should be required to be provided under proposed Form ATS-
G, Form ATS-N, or both.
[[Page 87145]]
25. Aggregate Platform-Wide Data; Trading Statistics
Part III, Item 25 of proposed Form ATS-G is designed to make public
aggregate, platform-wide order flow and execution statistics that a
Government Securities ATS already otherwise collects and publishes, or
provides to one or more subscribers to the ATS. The Commission believes
that a Government Securities ATS may choose to create and publish or
provide to one or more subscribers or persons information concerning
order flow and execution quality for different reasons. To the extent
that a Government Securities ATS has made a determination to create and
publish or provide to subscribers certain aggregate platform-wide order
flow and execution quality statistics, the Commission believes that
others may also find such information useful when evaluating the ATS as
a possible venue for their orders. Proposed Part III, Item 25 would
impose the same disclosure requirement as Part III, Item 26 of Form
ATS-N for NMS Stock ATSs.\274\
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\274\ See NMS Stock ATS Adopting Release, supra note 1, at
38861-63.
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Item 25 would not require a Government Securities ATS to amend its
Form ATS-G every time it receives a data request. To comply with the
requirements under Part III, Item 25, Form ATS-G only requires a
Government Securities ATS that supplies aggregate platform-wide data to
update its disclosures for this Item on a quarterly basis.\275\ For
instance, if a participant were to request updated or new aggregate
platform-wide statistics in January, the Government Securities ATS
would not be required to immediately file an updating amendment
containing these statistics after complying with the participant's
request. Rather, the ATS would need to file an updating amendment
within 30 days following the end of the quarter. That updating
amendment must contain the most recently distributed version of these
statistics, as well as the most recently distributed version of all
other aggregate platform-wide data that is provided during that
quarter. The Commission notes that communications associated with the
responsive statistics are not required to be publicly filed. In the
prior example, for instance, if the statistics provided in the
quarterly amendment are the ones provided in January (i.e., those are
the latest version of those aggregate platform-wide statistics the ATS
distributed), the ATS would not (and should not) also attach to Form
ATS-G the participant's email requesting the statistics.
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\275\ If, for example, a Government Securities ATS publishes or
provides a particular statistic on a daily basis, the ATS would
include in Exhibit 4 of proposed Form ATS-G the statistic that was
published or provided to one or more subscribers on the last trading
day of the calendar quarter (e.g., the statistic published or
provided on June 30th or last trading day prior to June 30th). If a
Government Securities ATS publishes or provides a particular
statistic weekly, the ATS would be required to include in Exhibit 4
of proposed Form ATS-G the statistic that was published or provided
to one or more subscribers at the end of the week prior to the end
of the calendar quarter (e.g., the statistic published for the last
full week of June).
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Furthermore, Part III, Item 25 of proposed Form ATS-G would only
require a Government Securities ATS to publicly disclose aggregate
platform-wide data. As such, a Government Securities ATS would not be
required to disclose individualized or custom reports containing data
relating to that participant's specific usage of the ATS. For example,
an individual participant's trade reports, order and execution quality
statistics, and other statistics specific to a participant's trading on
the ATS would not be covered by the disclosure request in Part III,
Item 25. Whether a specific type of statistic should be categorized as
an order and execution statistic or considered aggregate, platform-wide
data will depend on the nature of the specific statistics being
compiled by the Government Securities ATS. A Government Securities ATS
would independently evaluate any statistics that it compiles and
distributes to determine whether they are responsive to this disclosure
request.
Part III, Item 25 would require the Government Securities ATS to
attach both the responsive statistics and its explanation of the
categories or metrics of those statistics as Exhibits 4 and 5,
respectively. Also, in lieu of filing Exhibits 4 and 5, the Government
Securities ATS could certify that the information requested under
Exhibits 4 and 5 is available at the website provided in Part I, Item 7
of the form and is accurate as of the date of the filing.
Request for Comment
97. Does Part III of proposed Form ATS-G capture the information
that is most relevant to understanding the operations of the Government
Securities ATS? Are there any Items that commenters believe are
unnecessary? If so, why?
98. Is there other information that market participants might find
relevant or useful regarding the operations of Government Securities
ATSs? If so, describe such information and explain whether, and if so
why, such information should be required to be provided under proposed
Form ATS-G.
99. Is there any information related to repos that Form ATS-G
should require?
100. Is there any information related to options on government
securities that Form ATS-G should require?
101. Is there any information that would be required by Part III of
proposed Form ATS-G that a Government Securities ATS that should not be
required to disclose due to concerns regarding confidentiality,
business reasons, trade secrets, commercially sensitive information,
burden, or any other concerns?
102. Should the Commission adopt a more limited or expansive
definition of ``affiliate'' for purposes of Part III? \276\
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\276\ See supra note 211 for the definition of affiliate under
Form ATS-G.
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103. Would the disclosures under Part III of proposed Form ATS-G
help market participants better evaluate trading opportunities and
decide where to send orders to reach their trading objectives?
104. Would the proposed disclosures in Part III of proposed Form
ATS-G require a Government Securities ATS to reveal too much (or not
enough) information about its structure and operations?
105. Are there ways to obtain the same information as would be
required from Government Securities ATSs by Part III of proposed Form
ATS-G other than through disclosure on proposed Form ATS-G? If so, how
else could this information be obtained?
106. Could the proposed requirement to disclose the information
that would be required by Part III of proposed Form ATS-G impact
innovation on Government Securities ATSs?
107. Are there any aggregate platform-wide order flow and execution
statistics of the Government Securities ATS that should not be required
to be disclosed under Item 25?
D. Part IV of Proposed Form ATS-G
Part IV of proposed Form ATS-G would require a Government
Securities ATS to provide certain basic information about the point of
contact for the ATS, such as the point of contact's name, title,
telephone number, and email address. Part IV would also require the
Government Securities ATS to consent to service of any civil action
brought by, or any notice of any proceeding before, the Commission or
an SRO in connection with the ATS's activities. The Commission is
proposing that Form ATS-G would be filed electronically and require an
electronic signature. The signatory to each Form ATS-G filing would be
required to represent that the information and
[[Page 87146]]
statements contained on the submitted Form ATS-G, including exhibits,
schedules, attached documents, and any other information filed, are
current, true, and complete. Given that the Commission believes market
participants would use information disclosed on Form ATS-G to evaluate
potential venues, and that the Commission intends to use the
information to monitor developments of Government Securities ATSs, the
Commission believes it is important that Form ATS-G contain disclosures
that are current, true, and complete, and therefore is proposing to
require that the signatory to Form ATS-G make such an attestation.
IV. EDGAR Filing Requirements; Structured Data
The Commission is proposing that Form ATS-G be filed electronically
in a structured format through EDGAR. By filing in EDGAR, Government
Securities ATSs would be given the option of filing using a web-
fillable Form ATS-G that will render into XML in EDGAR, or to file
directly in XML using the XML schema for ATSs as published on the
Commission's website. With both options, the Commission would receive
the Form ATS-G disclosures in XML format. All Form ATS-G filings made
public will be centrally located on EDGAR for the public to access in
the same XML format in which the Commission received the Form ATS-G
filing. Form ATS-G would be filed in the same format as current Form
ATS-N.\277\ The Commission believes, as discussed in the NMS Stock ATS
Adopting Release, its XML schema and architecture for the web-fillable
Form ATS-G would incorporate certain validations to ensure consistency
and completeness among filings.\278\ The Commission is also proposing
that Form ATS and Form ATS-R be filed electronically through EDGAR
\279\ and both forms would be available only to the Commission staff
with the exceptions discussed below.
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\277\ See NMS Stock ATS Adopting Release, supra note 1, at
Section VII.
\278\ See id.
\279\ See infra Section V.C.
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Request for Comment
108. Are the proposed EDGAR filing requirements for Form ATS-G,
Form ATS, and Form ATS-R appropriate? Should the Commission adopt an
alternative means by which NMS Stock ATSs file Form ATS-N instead of
EDGAR? As an alternative, should filers be required to submit Form ATS-
G, Form ATS, and/or Form ATS-R to the Commission through another means,
such as the Commission's SRO Rule Tracking System/Electronic Form
Filing System (``SRTS/EFFS'') or email?
109. Should the Commission adopt the proposal that Form ATS-G be
filed with the Commission in a structured format? If so, what standards
of structuring should be used for information to be provided on
proposed Form ATS-G? If not, what format should proposed Form ATS-G
take? Please identify the format and explain.
110. Should the Commission require filers to submit Form ATS-G,
Form ATS, and/or Form ATS-R in the Inline XBRL format?
V. Amendments to Regulation ATS, Form ATS, Form ATS-R, and Form ATS-N
A. Amendments to Rules 301(b)(5) and 301(b)(6) of Regulation ATS
The Commission is also proposing to remove an exclusion for
compliance with the Fair Access Rule that is applicable to ATSs that
trade equities \280\ under Rule 301(b)(5) and the Capacity, Integrity,
and Security Rule under Rule 301(b)(6). An ATS is excluded from
complying with the requirements of the Fair Access Rule and the
Capacity, Integrity, and Security Rule if the ATS: (a) Matches customer
orders for a security with other customer orders; (b) such customers'
orders are not displayed to any person, other than employees of the
ATS; and (c) such orders are executed at a price for such security
disseminated by an effective transaction reporting plan, or derived
from such prices.\281\ In adopting the exclusion, the Commission stated
that ATSs of this nature, the so-called ``passive systems,'' did not
contribute significantly to price discovery; however, the Commission
also stated that they had the potential to and frequently do affect the
markets from which their prices are derived, and thus, the Commission
would continue to monitor these systems and reconsider whether the
requirements should apply if concerns arise in the future.\282\
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\280\ When adopting the exclusion, the Commission contemplated
that it would apply only to ATSs that trade equity securities, as
one of the elements of the exclusion requires that the prices on the
ATS be based on the SIP. The third prong of each exception states
that if an ATS meets the requirement, among others, to execute
customer orders ``at a price for such security disseminated by an
effective transaction reporting plan, or derived from such prices,''
the ATS would not be subject to the Fair Access Rule or Capacity,
Integrity, and Security Rule, as applicable. 17 CFR
242.301(b)(5)(iii)(c); 17 CFR 242.301(b)(6)(iii)(c).
\281\ 17 CFR 242.301(b)(5)(iii); 17 CFR 242.301(b)(6)(iii).
\282\ Regulation ATS Adopting Release, supra note 35, at 70853.
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The Commission has reconsidered the exclusion for passive systems
to compliance with the Fair Access Rule and believes it should be
removed. In the Regulation ATS Adopting Release, the Commission
explained that fair treatment by ATSs of subscribers is particularly
important when an ATS captures a large percentage of trading volume in
a security because investors lack access to viable alternatives to
trading on the ATS.\283\ Since the adoption of Regulation ATS, passive
systems (as the term is used in the Regulation ATS Adopting Release)
for NMS stocks have garnered a significant percentage of trading volume
in securities and have come to play an important role in matching
buyers and sellers of securities.\284\ The Commission believes that
eliminating the Rule 301(b)(5)(iii) exclusion would ensure that the
Fair Access Rule is applied as intended and help ensure fair treatment
of potential and current subscribers by any type of ATS that captures a
large percentage of trading in a security or type of security.
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\283\ Id. at 70872.
\284\ See NMS Stock ATS Adopting Release, supra note 1, at
38770-71.
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The Commission is also proposing to amend Rule 301(b)(6) to remove
the exclusion for compliance with the Capacity, Integrity, and Security
Rule under Rule 301(b)(6)(iii).\285\ As part of Regulation SCI, Rule
301(b)(6) of Regulation ATS was amended to no longer apply to ATSs that
trade equities because Regulation SCI superseded and replaced the
requirements of the Capacity, Integrity, and Security Rule with regard
to ATSs that trade NMS stocks and non-NMS stocks.\286\
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\285\ 17 CFR 242.301(b)(6)(iii). See supra note 56 and
accompanying text.
\286\ See Regulation SCI Adopting Release, supra note 2, at
72252, 72267.
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In addition, the Commission is proposing to amend Rules 301(b)(5)
and 301(b)(6) to clarify the rule text. For purposes of determining
whether an ATS crossed the average daily volume thresholds for
compliance with the Fair Access Rule, Rule 301(b)(5)(i) does not
specify whether the ATS's transaction volume in an NMS stock or an
equity security that is not an NMS stock and for which transactions are
reported to an SRO is calculated using the dollar or the share
volume.\287\ In the Regulation ATS Adopting Release, when discussing
the Fair Access Rule, the Commission stated that for these two types of
securities, the test should be based on the share volume.\288\
Similarly, Rules 301(b)(5)(i)
[[Page 87147]]
and 301(b)(6)(i) do not specify whether, for purposes of determining
compliance with the Fair Access Rule and the Capacity, Integrity, and
Security Rule, the volume for municipal securities or corporate debt
securities is calculated based on the dollar or the share volume.\289\
In the Regulation ATS Adopting Release, the Commission intended the
test applicable to debt securities to be the dollar volume.\290\ To
mitigate any potential confusion, the Commission is adding these terms
to Rules 301(b)(5)(i) and 301(b)(6)(i) to align the rule text with the
Regulation ATS Adopting Release.\291\ Furthermore, the Commission is
proposing to amend Rules 301(b)(5)(i)(C) and (D) to clarify that the
average daily dollar volume in municipal securities and corporate debt
securities is provided by the self-regulatory organization to which
such transactions are reported. When Regulation ATS was adopted,
transaction reporting plans for municipal securities and corporate debt
securities were being developed.\292\ Today, transactions in municipal
securities are reported to the Municipal Securities Rulemaking Board
(``MSRB'') and transactions in corporate debt securities are reported
to FINRA. These two SROs provide the information that can be used by
ATSs to determine whether the ATS is subject to the Fair Access Rule
for these two categories of securities.\293\ The Commission believes
that this amendment will add clarity to the rule given the established
transaction reporting regimes for municipal securities and corporate
debt securities.
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\287\ 17 CFR 242.301(b)(5)(i)(A)-(B).
\288\ See Regulation ATS Adopting Release, supra note 35, at
70873 (``Accordingly, if an [ATS] accounted for twenty percent or
more of the share volume in any equity security, it must comply with
the fair access requirements in granting access to trading in that
security.'') (emphasis added).
\289\ 17 CFR 242.301(b)(5)(i)(C)-(D); 17 CFR
242.301(b)(6)(i)(A)-(B).
\290\ See Regulation ATS Adopting Release, supra note 35, at
70873, 70875 (requiring compliance with the Fair Access Rule and the
Capacity, Integrity, and Security Rule if an ATS accounted for more
than 20 percent of the total ``share volume'' in a security with
respect to equity securities, and for more than 20 percent of the
``volume'' in a security with respect to debt securities). While
Form ATS-R requires an ATS to report total volume in terms of both
units and dollars for equity securities, it requires an ATS to
report the total settlement value only in dollar terms for debt
securities, which include municipal securities and corporate debt
securities. See id. at 70878.
\291\ See proposed Rule 301(b)(5)(i)(A)-(D); proposed Rule
301(b)(6)(i)(A)-(B).
\292\ See Regulation ATS Adopting Release, supra note 35, at
70873.
\293\ See MSRB Rule G-14; FINRA Rule 6730. Electronic Municipal
Market Access (``EMMA''), which is a service operated by the MSRB,
and FINRA disseminate information on transactions in municipal
securities and corporate debt securities, respectively. See EMMA
Information Facility, available at https://www.msrb.org/Rules-and-Interpretations/MSRB-Rules/Facilities/EMMA-Facility.aspx; FINRA Rule
6750.
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The Commission is also proposing to amend Rule 301(b)(5)(ii)(A) of
Regulation ATS to add the word ``reasonable'' before the word ``written
standards,'' to clarify that ATSs subject to the Fair Access Rule are
required to have ``reasonable written standards'' for granting access
to trading on its system. The Commission believes that the addition is
consistent with its intent as expressed in the Regulation ATS Adopting
Release. Specifically, in discussing the Fair Access Rule, the
Commission stated that ``fair treatment . . . is particularly
important'' when ATSs reach significant volume in a security, and the
rule would serve to prohibit ``unreasonably'' discriminatory denials of
access.\294\ The Commission believes that adding the word
``reasonable'' to the rule text will help make clear that the written
standards the ATS must apply in a fair and non-discriminatory manner
(pursuant to Rule 301(b)(5)(ii)(B)) must be reasonable in the first
instance.
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\294\ See Regulation ATS Adopting Release, supra note 35, at
70872, 70874.
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B. Amendment to Rule 301(b)(2)(vii)
Rule 301(b)(2)(vii) provides that all reports filed pursuant to
Rules 301(b)(2) and 301(b)(9) are ``deemed confidential'' and
``available only to the examination of Commission staff, state
securities authorities, and the self-regulatory organizations.'' \295\
As a result, the Commission does not make Form ATS and Form ATS-R
disclosures available to the public, including the types of securities
that the ATS trades or intends to trade. Currently, the Commission
makes public on a monthly basis on the Commission website information
about ATSs that have a Form ATS on file with the Commission, which
includes the name of the ATS, any name(s) under which business is
conducted, and the location of each ATS. The list also identifies each
ATS that filed a cessation of operations report in the prior month.
While the Commission does not approve Form ATS filings, the list is
designed to inform the public about ATSs that have noticed their
operations with the Commission.
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\295\ See 17 CFR 242.301(b)(2)(vii).
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The Commission is proposing to amend Rule 301(b)(2) to clarify that
being ``deemed confidential'' means receiving confidential treatment
under a relevant Commission regulation subject to applicable law \296\
and to eliminate confidential treatment for information about the
type(s) of securities that the ATS trades as disclosed in the Exhibit
B, subpart (a) of Form ATS and Form ATS-R. The Commission does not
believe that ATSs will be harmed by these disclosures because a vast
majority of ATSs currently publicize the types of securities in which
they transact, for example, on the website for the ATS or the website
of the ATS broker-dealer operator. The Commission publishes on its
website a list of ATSs that have an active Form ATS on file with the
Commission; however, information about types of securities traded is
not provided on that list and the Commission frequently receives
requests from the public and regulators for more detail in the
Commission's publication about the types of securities traded by ATSs.
The Commission believes that disclosing this information could help the
public understand a fundamental aspect of an ATS. To allow for this
narrow exception, the Commission is proposing to amend Rule
301(b)(2)(vii) of Regulation ATS to state that the content of reports
filed under Rule 301(b)(2) and Rule 301(b)(9) ``(except for types of
securities traded provided on Form ATS and Form ATS-R) will be accorded
confidential treatment subject to applicable law.''
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\296\ See, e.g., 17 CFR 200.83, 240.24b-2.
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Request for Comment
111. Should the Commission eliminate the exclusion from compliance
with the Fair Access Rule under Rule 301(b)(5)(iii) and with the
Capacity, Integrity, and Security Rule under Rule 301(b)(6)(iii)?
112. Should the Commission amend Rule 301(b)(2)(vii) to make Form
ATS, Form ATS-R, or both public? Should the Commission amend Rule
301(b)(2)(vii) to make any other disclosures provided on Form ATS or
Form ATS-R public?
113. Should the Commission eliminate confidential treatment for
information about the type(s) of securities that the ATS trades as
disclosed on Form ATS and Form ATS-R?
C. Modernization and Electronic Filing of Form ATS and Form ATS-R
The Commission is proposing revisions to Rule 301(b)(2), Form ATS,
and Form ATS-R to modernize Form ATS and Form ATS-R and to provide that
they are filed electronically. Every ATS subject to Rule 301(b)(2) of
Regulation ATS is required to file an initial operation report
(``IOR''),\297\
[[Page 87148]]
amendments to the IOR,\298\ and cessation of operations report with the
Commission on Form ATS.\299\ ATSs are also required to file the
information required by Form ATS-R \300\ pursuant to Rule 301(b)(9)
within 30 calendar days after the end of each calendar quarter in which
the ATS has operated.\301\
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\297\ Form ATS, which provides the Commission with notice about
of an ATS's operations and changes to such operations, is not
approved by the Commission. See Regulation ATS Adopting Release,
supra note 35, at 70864. Form ATS requires the ATS to submit the
information specified in eleven exhibits (Exhibits A through I).
Form ATS is used for three types of submissions: An IOR; an
amendment to the IOR; and a cessation of operations report. An ATS
designates the type of submission on Form ATS. Form ATS and the Form
ATS instructions are available at https://www.sec.gov/about/forms/formats.pdf.
\298\ See 17 CFR 242.301(b)(2). An ATS is required to file an
amendment on Form ATS at least 20 calendar days prior to
implementing a material change to the operation of the ATS, within
30 calendar days after the end of a quarter when information
contained in an IOR filed on Form ATS becomes inaccurate, and
promptly upon discovering that an IOR filed on Form ATS or an
amendment on Form ATS was inaccurate when filed.
\299\ See 17 CFR 242.301(b)(2)(vi).
\300\ See Form ATS-R. See also supra note 126.
\301\ See 17 CFR 242.301(b)(9)(i). An ATS must also file Form
ATS-R more frequently upon request of the Commission. See Form ATS-R
Instructions.
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First, the Commission is proposing an amendment to Rule
301(b)(2)(vi), which currently states that ``[e]very notice or
amendment filed pursuant to this paragraph (b)(2) shall constitute a
`report' '' within the meaning of applicable provisions of the Exchange
Act. The Commission proposes to add a reference to Rule 301(b)(9) to
state that Form ATS-R, as is the case with Form ATS, constitutes a
report within the meaning of applicable provisions of the Exchange
Act.\302\
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\302\ This amendment would be consistent with Rule
301(b)(2)(vii), which states that ``[a]ll reports filed pursuant to
this paragraph (b)(2) and paragraph (b)(9)'' of Rule 301 are, as
proposed, accorded confidential treatment subject to applicable law.
See 17 CFR 242.301(b)(2)(vii). The instructions to Form ATS and Form
ATS-R require an ATS to submit one original and two copies of Form
ATS and Form ATS-R to the Commission. See Form ATS and Form ATS-R
Instructions. In addition, Rule 301(b)(2)(vii) requires that an ATS
file copies of its Form ATS filings with the examining authority of
the SRO with which it is registered (e.g., FINRA) at the same time
it files with the Commission, and upon request, the ATS must provide
its SROs surveillance personnel with duplicate Form ATS-R filings.
See 17 CFR 242.301(b)(2)(vii).
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Next, the Commission is proposing to require that all Forms ATS and
ATS-R are filed with the Commission electronically. Currently, ATSs are
required to submit paper submissions of Forms ATS and ATS-R to the
Commission.\303\ The Commission proposes to amend Rule 301(b)(2)(vii)
to require that an ATS must file a Form ATS or a Form ATS-R in
accordance with the instructions therein. The Commission is proposing
to revise the instructions to Form ATS and Form ATS-R to require that
they be submitted electronically via EDGAR.\304\ The Commission is also
proposing to require in Rule 301(b)(2)(vii) that reports provided for
in Rule 301(b)(2) and (b)(9) shall be filed on Form ATS and Form ATS-R,
as applicable, and include all information as prescribed in Form ATS or
Form ATS-R, as applicable, and the instructions thereto.\305\ In
addition, the Commission is proposing to require that any Form ATS or
Form ATS-R shall be executed at, or prior to, the time Form ATS or Form
ATS-R is filed and shall be retained by the ATS in accordance with Rule
303 of Regulation ATS and Rule 302 of Regulation S-T, and the
instructions in Form ATS or Form ATS-R, as applicable.\306\ The
Commission believes that, among other benefits, the electronic filing
of Forms ATS and ATS-R would increase efficiencies and decrease filing
costs for ATSs (i.e., ATSs would no longer be required to print and
mail paper filings) and for the Commission's staff when undertaking a
review of these forms. Currently, Form ATS-N must be filed in EDGAR,
and under this proposal, Form ATS-G would be as well. EDGAR is
currently configured to support the Commission's receipt and review of
filings under Regulation ATS, and requiring electronic Form ATS and
Form ATS-R filings to be submitted via EDGAR would be the most
efficient way to facilitate their electronic filing.\307\
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\303\ Rule 301(b)(2)(vii) of Regulation ATS specifies that
reports on Form ATS shall be considered filed upon receipt by the
Division of Trading and Markets, at the Commission's principal
office in Washington, DC. See 17 CFR 242.301(b)(2)(vii).
\304\ See infra note 308 and accompanying text.
\305\ Accordingly, the Commission is proposing to delete the
provisions of Rule 301(b)(2)(vii) related to paper submission.
Specifically, the Commission is deleting the sentence that the
reports shall be considered filed ``upon receipt by the Division of
Trading and Markets, at the Commission's principal office in
Washington, DC.'' Additionally, although the Commission will
continue to require that duplicates of filings on Form ATS be
provided to the SRO that is the examining authority for each ATS,
and that duplicates of the Form ATS-R be made available to the
surveillance personnel of such SRO upon request, the Commission
proposes to eliminate the reference to ``originals'' in Rule
301(b)(2)(vii) because paper reports will no longer be furnished to
the Commission and there will therefore be no ``original'' version
of the reports.
\306\ The Commission notes that the proposed provisions would
conform to similar provisions of Rule 304, which provide for the
electronic filing of Form ATS-N. See 17 CFR 242.304(c).
\307\ See supra Section IV.
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To facilitate electronic filing, the Commission is proposing to
amend the text of General Instructions A.4 of Forms ATS and ATS-R to
require that all filings be submitted via EDGAR and prepared,
formatted, and submitted in accordance with Regulation S-T and the
EDGAR Filer Manual.\308\ The Commission also proposes to amend Forms
ATS and ATS-R General Instruction A.5 to state that a filing that is
defective may be rejected and not be accepted by the EDGAR system and
that any filing so rejected shall be deemed not be filed. This is
consistent with the requirements of Regulation S-T, which provides the
rules for EDGAR submissions.\309\ The Commission also notes that the
instructions for current Form ATS contain similar language,\310\ but
the current instructions for Form ATS-R do not contain such language.
The Commission believes that it would be appropriate to reject a filing
as defective if, for example, a Form ATS or Form ATS-R is missing
exhibits or does not comply with the electronic filing requirements.
The Commission is also proposing to amend General Instruction A.6
(``Recordkeeping'') of both forms to reflect that records must be
retained in accordance with the EDGAR Filer Manual and Rule 303 of
Regulation ATS and to conform to the recordkeeping instructions on Form
ATS-N and proposed Form ATS-G.\311\
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\308\ The Commission proposes to eliminate the language in the
Form ATS instructions and Form ATS-R instructions requesting that an
ATS type all information because an ATS would not otherwise have the
option to handwrite any responses. The instructions for both forms
would be amended to eliminate the option to use a ``reproduction''
of the forms. The Commission also believes it is redundant to state
that the Form ATS or Form ATS-R must be the ``current version'' as
the ATS is required to attest that the form is ``current.'' The
Commission also proposes to delete the requirement to attach an
execution page with original manual signatures for Form ATS because,
as discussed above, the Form ATS and Form ATS-R would be signed
electronically and thus there would be no need for an execution
page. The Commission also proposes to delete the instruction that
the name of the alternative trading system, CRD number, SEC file
number, and report period dates be listed on each page, as this
requirement will be unnecessary because the Form ATS or Form ATS-R
will be submitted as a single submission. Because Form ATS and Form
ATS-R would be submitted via EDGAR, the Commission is also proposing
to delete references to submitting the ``original'' and ``copies''
of the form to the Commission at the Commission's mailing address.
\309\ 17 CFR 232. This is also consistent with the requirements
for current Form ATS-N.
\310\ The Form ATS Instructions state that ``Form ATS shall not
be considered filed, unless it complies with applicable
requirements.''
\311\ Rule 303 of Regulation ATS provides the record
preservation requirements for ATSs. See 17 CFR 242.303.
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In addition, the Commission is proposing to amend Form ATS to
require an ATS filing an amendment on Form ATS to identify whether the
Form ATS filing is a material amendment under Rule 301(b)(2)(ii), a
periodic amendment under Rule 301(b)(2)(iii), or a correcting amendment
under Rule 301(b)(2)(iv).\312\ An ATS currently
[[Page 87149]]
identifies an amendment to current Form ATS by marking the ``Amendment
to Initial Operation Report'' box on Form ATS, and Form ATS currently
does not ask the ATS to specify whether the amendment to Form ATS is a
material, periodic, or correcting amendment.\313\ The Commission
believes that requiring an ATS to specify the type of amendment would
better enable the Commission to determine whether an ATS is in
compliance with Regulation ATS. The Commission also proposes requiring
an ATS to provide the date that the ATS ceased to operate, which is not
currently required on Form ATS. The Commission believes that having
information about the date that the ATS ceased to operate would enable
the Commission to determine more readily whether an ATS is, or was, in
compliance with Regulation ATS.\314\
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\312\ See Rule 301(b)(2)(ii)-(iv).
\313\ The Commission is also proposing to add cites to the
relevant rule text next to the check boxes on Form ATS identifying
whether the ATS is filing an IOR, amendment to Form ATS, or a
cessation of operations report.
\314\ See Rule 301(b)(2)(v) (requiring an ATS to promptly file a
cessation of operations report on Form ATS in accordance with the
instructions therein upon ceasing to operate as an alternative
trading system).
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The Commission is also proposing to amend Form ATS and Form ATS-R
to change the solicitation of information relating to the name of the
broker-dealer operator and the registration and contact information of
the broker-dealer operator. Because many broker-dealer operators of
ATSs engage in brokerage and/or dealing activities in addition to
operating an ATS and some broker-dealers operate multiple ATSs, the
name of the broker-dealer operator of an ATS often differs from the
commercial name under which the ATS conducts business. To identify the
broker-dealer operator of an ATS and to assist the Commission in
collecting and organizing its filings and assessing whether the ATS has
met its requirement to register as a broker-dealer, Forms ATS and ATS-R
would require the ATS to indicate the full name of the broker-dealer
operator of the ATS, as it is stated on Form BD, in Item 1 of Form ATS
and Form ATS-R. To further facilitate compliance with the requirements
of Regulation ATS, as proposed, Form ATS and Form ATS-R would require
the ATS to indicate whether the filer is a broker-dealer registered
with the Commission and whether the broker-dealer operator has been
authorized by a national securities association to operate an ATS. Such
requirements would conform to the proposed requirements of Form ATS-N
and Form ATS-G.\315\ The Commission is proposing to conform Item 1 of
Form ATS and Form ATS-R \316\ to the requirements of Form ATS-N, which
is currently filed electronically, and proposed Form ATS-G, which the
Commission is proposing would be filed electronically.\317\ The
Commission believes these requests would help the Commission in
identifying and corresponding with ATSs.\318\
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\315\ See supra note 203 and accompanying text.
\316\ Form ATS and Form ATS-R currently ask for the ATS's main
street address, mailing address, business telephone number and
facsimile number, and the contact information for the ATS's contact
person. The Commission is proposing to move the information requests
for the name and title and telephone number of the contact employee
to the signature block on the form, and to request an email address
for such person. The proposed signature block would also ask for the
primary street address and mailing address of the ATS. The current
certifications required in Form ATS and Form ATS-R, including that
the information filed is current, true, and complete, would remain
unchanged. However, the Commission is proposing to delete the
provision allowing for service of any civil action pursuant to
confirmed telegram and instead, permit service of any civil action
via email. The signature block on Form ATS and Form ATS-R would
conform to the signature block in Form ATS-N, as proposed. See infra
notes 323-324 and accompanying text.
\317\ See supra Section IV.
\318\ The Commission proposes to replace in Item 1 of Form ATS
and Form ATS-R the requests for the ATS's main street address,
mailing address, and business telephone number and facsimile number
with a requirement that the ATS provide the primary, and if any,
secondary physical street address of the ATS's matching system, as
well as a URL address for its website if it has a website. The
Commission believes that knowing the location of the matching system
address and secondary matching system address could be useful to the
Commission in the event of, for instance, a natural disaster that
could impact market participants' ability to trade on the ATS and
potential latency that could be experienced due to the location of
the secondary site of the ATS. The Commission is also requesting the
full name of the national securities association of the broker-
dealer operator, the effective date of the broker-dealer operator's
membership with the national securities association, and MPID of the
ATS. In addition, because any current or former names of the ATS
would be searchable on EDGAR and there will be multiple identifiers
included on the form, including MPID, the Commission is proposing to
delete the requirement that the ATS indicate if it is changing its
name and list its former name.
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The Commission is proposing to amend Form ATS-R to make it easier
for the Commission staff to identify if the ATS has met its reporting
obligations. First, the Commission is proposing to require an ATS to
specify whether it is filing a quarterly report amendment under Rule
301(b)(9)(i) or a report for an ATS that has ceased to operate under
Rule 301(b)(9)(ii) and, if the latter, to indicate the date the ATS
ceased to operate. The Commission believes that requiring an ATS to
indicate its type of Form ATS-R filing would enable the Commission to
more effectively review Form ATS-R submissions and determine whether an
ATS is in compliance with Regulation ATS. The Commission is also
proposing to amend Form ATS-R to ask whether the ATS was subject to the
fair access obligations under Sec. 242.301(b)(5) during any portion of
the period covered by the report by adding a corresponding box for the
ATS to check ``yes'' or ``no.'' Currently, Form ATS-R requires an ATS
that is subject to the Fair Access Rule to report a list of all persons
for whom access to the ATS was granted, denied, or limited access
during the period covered by the Form ATS-R.\319\ The Commission
believes that asking the ATS to indicate whether the ATS was subject to
the Fair Access Rule during any portion of the period covered by the
report would facilitate the Commission's review of Form ATS-R
submissions.
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\319\ See Form ATS-R and Form ATS-R Instructions, No. 8.
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The Commission is also proposing changes to the Form ATS-R
categories of securities to modernize them and add more specificity
with regard to all categories of securities. Form ATS-R currently
requires ATSs to indicate the total unit volume and total dollar volume
of government securities transactions in the period covered by the
report. The Commission is proposing to require that ATSs specify the
total unit volume and total dollar volume of transactions in ``U.S.
Treasury Securities'' and ``Agency Securities'' under the heading
``Government securities.'' \320\ As currently, ATSs would also be
required to indicate the total unit volume and total dollar volume in
government securities overall. The Commission believes that this change
will help the Commission facilitate compliance with the thresholds for
the Fair Access Rule and Regulation SCI, which the Commission is
proposing would be based on trading volume in U.S. Treasury Securities
and Agency Securities.\321\ In addition, the Commission is proposing to
amend Form ATS-R to update the descriptions of certain categories of
securities for which volume is required to be reported on Form ATS-R by
an ATS. Specifically, the Commission is proposing to replace the names
of the securities categories, ``Nasdaq National Market Securities'' and
``Nasdaq
[[Page 87150]]
SmallCap Market Securities,'' reported in Items 4 and 6 of Form ATS-R,
with ``Nasdaq Global Market Securities'' and ``Nasdaq Capital Market
Securities,'' respectively. The Commission believes that replacing the
description of categories of securities that no longer are in use with
current categories of securities would reduce potential confusion for
an ATS when completing Form ATS-R and would enable an ATS to reflect
more accurately its trading activities during the applicable reporting
period.
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\320\ The Commission is proposing to add to the Form ATS-R
instructions the definitions of U.S. Treasury Security and Agency
Security, which would conform to the definitions the Commission is
proposing in Rule 300(p) and Rule 300(q), respectively.
\321\ See supra Section II.D and infra Section VI.
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The Commission is also proposing to add new Item 4K to Form ATS-R,
which requires ATSs to disclose the total dollar volume of transactions
in repurchase agreements and reverse repurchase agreements. New Item 5C
would require ATSs to list the types of securities subject to such
repurchase or reverse repurchase agreements. In the Commission's
experience, ATSs that trade repurchase or reverse repurchase
agreements, which are currently disclosed as debt securities on Item 4N
of Form ATS-R, currently provide on Form ATS-R a break-down of nominal
trade value of each of these types of securities. The Commission
believes that adding new Item 4K to Form ATS-R to require that ATSs
provide the total dollar volume of transactions in repurchase or
reverse repurchase agreements would require all ATSs that trade
repurchase or reverse repurchase agreements to take a consistent
approach in providing this information. The Commission is also
proposing new Item 5C, which would require ATSs to list the types of
securities subject to repurchase or reverse repurchase agreements
reported in Item 4K of Form ATS-R. The Commission believes that this
would provide information to the Commission about the types of
securities that ATSs trade while imposing a minimal burden on filers.
Finally, the Commission is proposing to add new Item 5D, which
would require an ATS to list the types of listed options reported in
Item 4H of Form ATS-R. Item 4H of Form ATS-R currently requires ATSs to
disclose the total unit volume and dollar volume of transactions in
listed options. Under new Item 5D, an ATS might indicate, for example,
that it trades equity options and options on government securities. The
Commission believes that this would provide the Commission with more
specific information about the types of options that each ATS trades.
Request for Comment
114. Would the proposed changes to Form ATS and Form ATS-R enhance
the Commission's oversight of ATSs? Do commenters disagree with any of
the proposed modifications? If so, what alternatives should the
Commission implement?
115. Form ATS-R requires an ATS to quarterly report volume of
transactions for certain securities, all subscribers that were
participants on the ATS, and securities that were traded on the ATS.
Should the Commission adopt amendments to Form ATS-R to add, change, or
modify any of the requests for information on Form ATS-R? Are the
current categories of securities and the proposed categories of
securities for reporting transaction volume to the Commission
appropriate?
116. Form ATS requires an ATS to report information to the
Commission in Exhibits A through I. These requests solicit information
about the ATS, including but not limited to, types of subscribers and
differential access to services, types of securities traded, counsel,
governance documents, service providers, manner of operations,
including order entry, order execution procedures, clearance and
settlement procedures, and trade reporting, procedures for reviewing
system capacity, security, and contingency planning, procedures to
safeguard subscriber funds and securities, and direct owners. Should
the Commission adopt amendments to Form ATS to add, change, or modify
any of the requests for information on Form ATS? If so, please identify
the request and explain how it should be amended.
117. Should the Commission adopt amendments to Form ATS to require
disclosures similar to disclosures required on Part II of Form ATS-N
and proposed Form ATS-G, which request information about ATS-related
activities of the broker-dealer operator and its affiliates?
118. Should the Commission adopt amendments to Form ATS to include
questions similar to those in Part III of Form ATS-N and proposed Form
ATS-G, which request information about the manner of the ATS's
operations?
119. Are there any specific items on Form ATS-N or proposed Form
ATS-G that the Commission should incorporate into Form ATS?
120. Should the Commission propose amendments to Regulation ATS to
require ATSs that trade OTC equity securities to comply with Rule 304,
including filing with the Commission a public form with requirements
similar to Form ATS-N or proposed Form ATS-G?
121. Should the Commission require an ATS to disclose the LEI of
its broker-dealer operator, in addition to its CRD Number and the
proposed disclosure of the MPID for the ATS on Form ATS?
D. Changes to Form ATS-N
The Commission is proposing to delete the check box on the cover
page of Form ATS-N that requires an NMS Stock ATS to select whether the
NMS Stock ATS currently operates pursuant to a Form ATS. Rules 304 and
301(b)(2)(viii) required an NMS Stock ATS to file a Form ATS-N no later
than February 8, 2019. After February 8, 2019, this check box became
obsolete. The Commission is also proposing new Part I, Item 1.B, which
would require the NMS Stock ATS to indicate whether the registered
broker-dealer has been authorized by its national securities
association to operate an ATS. The Commission believes this would
facilitate compliance with and oversight of the requirement that an ATS
complies with the rules of an SRO, including to obtain approval to
operate an ATS.\322\ In addition, to avoid confusion, the Commission is
proposing to delete language in the signature block in Part IV of Form
ATS-N that refers to the signatory as ``duly sworn.'' The Commission
notes that Form ATS-N filings, which are submitted to EDGAR, are not
required to be notarized; \323\ instead, they are subject to the rules
governing electronic signatures set forth in Rule 302 of Regulation S-
T.\324\
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\322\ See supra note 203 and accompanying text.
\323\ Unlike Form ATS, Form ATS-N does not have a notarization
block.
\324\ 17 CFR 232.302.
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The Commission is proposing to replace the current definition of
``Person'' in Form ATS-N, which is provided by the Investment Advisers
Act of 1940 (``Advisers Act'') \325\ with the different definition of
``Person'' as defined under the Exchange Act.\326\ Because Regulation
ATS is a Commission regulation under the Exchange Act, and NMS Stock
ATSs are subject to various Exchange Act Rules,\327\ the Commission
believes that it is more appropriate to apply the definition of
``Person'' under the Exchange Act than the definition of ``Person''
under the Advisers Act, which is not applicable to ATSs. Although the
definitions are not identical, the Commission believes the differences
between the definitions are unlikely to result in differences to the
disclosures
[[Page 87151]]
required by Form ATS-N.\328\ To the extent ATSs might have found
ambiguous the Commission's use of the Advisers Act definition in the
context of an Exchange Act rule, the Commission believes that this
proposed change will mitigate any such concerns. The Commission is also
proposing to change the definition of ``NMS Stock ATS'' to conform to
the proposed changes to the definition in Rule 300 and state that NMS
Stock ATSs shall not trade securities other than NMS stocks.\329\
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\325\ 15 U.S.C. 80a-2(a)(28) (defining ``Person'' as ``a natural
person or a company'').
\326\ 15 U.S.C. 78c(a)(9) (defining the term ``person'' as a
natural person, company, government, or political subdivision,
agency, or instrumentality of a government).
\327\ See NMS Stock ATS Adopting Release, supra note 1, at
38768.
\328\ The Exchange Act's inclusion of a ``government, or
political subdivision, agency or instrumentality of a government''
under the definition of ``Person'' is unlikely to result in any
changes to the disclosures required by the items in Form ATS-N that
use the word ``Person'' as, in the Commission's experience, these
entities are generally not involved in the operations of NMS Stock
ATSs as subscribers or otherwise.
\329\ See supra note 93 and accompanying text.
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In Part III, Item 1, the Commission is proposing to remove the
checkbox ``NMS Stock ATS'' under the list of types of subscriber to an
NMS Stock ATS. A broker-dealer operator of an NMS Stock ATS seeking to
access another NMS Stock ATS would involve the broker-dealer operator
for the NMS Stock ATS becoming a subscriber to the ATS, not the ATS
that the broker-dealer operates. In this scenario, an NMS Stock ATS
that accepts a broker-dealer operator for another NMS Stock ATS would
mark the checkbox for broker and/or dealer in Part III, Item 1 on Form
ATS-N as appropriate. The Commission is also proposing to add insurance
companies, pension funds, and corporations to the list of types of
subscribers in Part III, Item 1 on Form ATS-N. The Commission believes
that adding these checkboxes will provide more granular information on
the types of subscribers participating on an NMS Stock ATS in an
easier-to-read format.
In Part II, Item 4(b) of Form ATS-N, the Commission is proposing to
delete the phrase ``if yes to Item 4(a).'' This phrase was included in
Form ATS-N in error. The NMS Stock ATS would be required to respond to
Part II, Item 4(b) regardless of its response to Part II, Item 4(a).
In Part II, Item 6(a) of Form ATS-N, the Commission is proposing to
add language to the definition of ``shared employee'' to clarify that
the Item solicits disclosures relating to both any employee of the
broker-dealer operator and any employee of its affiliate that provides
services to both the operations of the NMS Stock ATS and any other
business unit or any affiliate of the broker-dealer operator. The
proposed amendment is designed to clarify the existing requirements of
the Item.
The Commission is proposing to add the term ``market data'' to the
examples listed in Part III, Item 19 of the types of fees that NMS
Stock ATSs must disclose. While most NMS Stock ATSs do not disseminate
market data, the Commission believes that they can and a description of
an NMS Stock ATS's market data fees is currently required by the
Item.\330\ The Commission believes that adding the example could assist
NMS Stock ATSs in responding comprehensively to the Item. The
Commission is also including the example in Form ATS-G as Government
Securities ATSs are primarily lit venues that offer market data to
subscribers. The Commission is also proposing to change the term
``Order Display and Fair Access Amendment'' throughout Form ATS-N to
``Contingent Amendment'' to conform to proposed changes to Rule
304.\331\ Furthermore, the Commission is proposing several grammatical
and technical changes to Form ATS-N to correct and clarify certain
items on the form. These changes are listed in Section XIII infra.
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\330\ Part III, Item 19 requires NMS Stock ATSs to identify and
describe any (emphasis added) fees or charges for use of the
Government Securities ATS services, including the type of fees.
\331\ See supra note 176.
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Request for Comment
122. Should the Commission adopt alternative EDGAR filing
requirements or formats for Form ATS-N (e.g., filing in XBRL format)?
123. Would the use of the Exchange Act definition of ``Person''
instead of the Advisers Act definition of ``Person'' result in
differences to the information required to be disclosed by Form ATS-N?
124. Should the Commission require a broker-dealer operator for an
NMS Stock ATS to disclose its LEI, in addition to its CRD Number and
MPID, which NMS Stock ATSs are currently required to provide, on Form
ATS-N?
VI. Proposed Amendments to Regulation SCI for Government Securities ATS
The Commission proposes to amend Regulation SCI to expand the
definition of ``SCI alternative trading system'' to include Government
Securities ATSs that meet a specified volume threshold. A Government
Securities ATS that meets the proposed amended definition of ``SCI
alternative trading system'' would fall within the definition of ``SCI
entity'' and, as a result, would be subject to the requirements of
Regulation SCI. The Commission believes that the proposal to extend the
requirements of Regulation SCI to Government Securities ATSs that trade
a significant volume in U.S. Treasury Securities or Agency Securities
would help to address the technological vulnerabilities, and improve
the Commission's oversight, of the core technology of key entities in
the markets for government securities.
The Commission adopted Regulation SCI in November 2014 to
strengthen the technology infrastructure of the U.S. securities
markets.\332\ As discussed in the Regulation SCI Adopting Release, a
number of factors contributed to the Commission's proposal and adoption
of Regulation SCI. These factors included: The evolution of the markets
becoming significantly more dependent upon sophisticated, complex, and
interconnected technology; the successes and limitations of the
Automation Review Policy (``ARP'') Inspection Program; a significant
number of, and lessons learned from, recent systems issues at exchanges
and other trading venues; \333\ and increased concerns over the
potential for ``single points of failure'' in the securities
markets.\334\ Regulation SCI is designed to strengthen the
infrastructure of the U.S. securities markets, reduce the occurrence of
systems issues in those markets, improve their resiliency when
technological issues arise, and establish an updated and formalized
regulatory framework, thereby helping to ensure more effective
Commission oversight of such systems.\335\
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\332\ See Regulation SCI Adopting Release, supra note 2, at
72252-56 for a discussion of the background of Regulation SCI.
\333\ See id. at 72253-56.
\334\ See id. at 72277-79.
\335\ Id. at 72253, 72256.
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The key market participants that are currently subject to
Regulation SCI are called ``SCI entities'' and include certain SROs
(including stock and options exchanges, registered clearing agencies,
FINRA and the MSRB) (``SCI SROs''); alternative trading systems that
trade NMS and non-NMS stocks exceeding specified volume thresholds
(``SCI ATSs''); the exclusive SIPs (``plan processors''); and certain
exempt clearing agencies.\336\ Regulation SCI, among other things,
requires these SCI entities to establish, maintain, and enforce written
policies and procedures reasonably designed to ensure that their key
automated systems have levels of capacity, integrity, resiliency,
availability, and security adequate to maintain their operational
capability and promote the maintenance of fair and orderly markets, and
that such systems operate in accordance with the Exchange Act and the
rules and
[[Page 87152]]
regulations thereunder and the entities' rules and governing documents,
as applicable.\337\ Broadly speaking, Regulation SCI also requires SCI
entities to take appropriate corrective action when systems issues
occur; provide certain notifications and reports to the Commission
regarding systems problems and systems changes; inform members and
participants about systems issues; conduct business continuity and
disaster recovery testing and penetration testing; conduct annual
reviews of their automated systems; and make and keep certain books and
records.\338\
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\336\ See 17 CFR 242.1000.
\337\ See 17 CFR 242.1001; infra notes 365-374.
\338\ See 17 CFR 242.1001-1007; infra notes 365-386.
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Regulation SCI applies primarily to the systems of, or operated on
behalf of, SCI entities that directly support any one of six key
securities market functions--trading, clearance and settlement, order
routing, market data, market regulation, and market surveillance (``SCI
systems'').\339\ With respect to security, Regulation SCI also applies
to systems that, if breached, would be reasonably likely to pose a
security threat to SCI systems (``indirect SCI systems'').\340\ In
addition, certain systems whose function are critical to the operation
of the markets, including those that represent single points of failure
(defined as ``critical SCI systems''), are subject to certain
heightened requirements.\341\
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\339\ See 17 CFR 242.1000.
\340\ Id.
\341\ Id. See also Regulation SCI Adopting Release, supra note
2, at 72277. Paragraph (1) of the definition of ``critical SCI
systems'' in Rule 1000 of Regulation SCI specifically enumerates
certain systems to be within its scope, including those that
directly support functionality relating to: (i) clearance and
settlement systems of clearing agencies; (ii) openings, reopenings,
and closings on the primary listing market; (iii) trading halts;
(iv) initial public offerings; (v) the provision of consolidated
market data; or (vi) exclusively-listed securities. 17 CFR
242.1000(1).
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When adopting Regulation SCI, the Commission included within the
scope of Regulation SCI those entities ``that play a significant role
in the U.S. securities markets and/or have the potential to impact
investors, the overall market, or the trading of individual
securities.'' \342\ The Commission identified by function the key
market participants it believed were integral to ensuring the
stability, integrity, and resiliency of securities market
infrastructure.\343\ As discussed below, SCI ATSs are currently among
those entities that are subject to Regulation SCI, as they are heavily
reliant on automated systems and represent a significant pool of
liquidity for NMS and non-NMS stocks.\344\ However, when the Commission
adopted Regulation SCI, the Commission applied it to ATSs that trade
NMS stocks and non-NMS stocks, but not to fixed income ATSs. Rather, in
the context of the municipal and corporate debt markets, the Commission
stated that fixed income markets rely much less on automation and
electronic trading than markets that trade NMS stocks or non-NMS
stocks.\345\ The Commission also stated that the municipal and
corporate debt markets tend to be less liquid than the equity markets,
with slower execution times and less complex routing strategies.\346\
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\342\ See Regulation SCI Adopting Release, supra note 2, at
72258.
\343\ See id. at 72254.
\344\ See id. at 72262-63. Rule 1000 of Regulation SCI defines
SCI ATS to mean an ATS, which, during at least four of the preceding
six calendar months, had: (1) With respect to NMS stocks: (i) five
percent or more in any single NMS stock, and 0.25 percent or more in
all NMS stocks, of the average daily dollar volume reported by an
effective transaction reporting plan, or (ii) one percent or more,
in all NMS stocks, of the average daily dollar volume reported by an
effective transaction reporting plan; or (2) with respect to equity
securities that are not NMS stocks and for which transactions are
reported to an SRO, five percent or more of the average daily dollar
volume as calculated by the SRO to which such transactions are
reported. See 17 CFR 242.1000. Rule 1000 also states that an ATS
that meets one of these thresholds is not required to comply with
Regulation SCI until six months after satisfying the threshold for
the first time. See id.
\345\ See Regulation SCI Adopting Release, supra note 2, at
72270.
\346\ See id.
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Although the Commission differentiated fixed income securities
generally from equity securities when it adopted Regulation SCI, in
light of the increasing automation of the government securities market
and the operational similarities between many Government Securities
ATSs and NMS Stock ATSs,\347\ the Commission preliminarily believes
that it would be appropriate to apply the requirements of Regulation
SCI to Government Securities ATSs that meet certain volume thresholds.
As the Commission previously stated, while technological developments
provide many benefits to the U.S. securities markets, they also
increased the risk of operational problems that have the potential to
cause a widespread impact on the securities market and its
participants.\348\ The application of Regulation SCI to Government
Securities ATSs that trade a significant volume of U.S. Treasury
Securities or Agency Securities would further help to address those
technological vulnerabilities, and improve the Commission's oversight,
of the core technology used by key U.S. securities markets
participants.
---------------------------------------------------------------------------
\347\ See supra Section I.A.
\348\ See Regulation SCI Adopting Release, supra note 2, at
72253.
---------------------------------------------------------------------------
Accordingly, under this proposal, the definition of ``SCI ATSs''
would be expanded to include certain Government Securities ATSs that
meet certain volume thresholds with respect to U.S. Treasury Securities
and/or Agency Securities, as the Commission believes such ATSs
similarly rely heavily on automated systems and represent a significant
source of orders and trading interest in these asset classes.\349\
Specifically, the definition of ``SCI ATS'' would be revised to include
those ATSs which, during at least four of the preceding six calendar
months: Had, with respect to U.S. Treasury Securities, five percent
(5%) or more of the average weekly dollar volume traded in the United
States as provided by the SRO to which such transactions are reported;
or had, with respect to Agency Securities, five percent (5%) or more of
the average daily dollar volume traded in the United States as provided
by the SRO to which such transactions are reported. These proposed
thresholds are the same as those being proposed for Government
Securities ATSs with respect to the Fair Access Rule under Regulation
ATS.\350\
---------------------------------------------------------------------------
\349\ See paragraphs (3) and (4) of the proposed definition of
``SCI ATS'' under Rule 1000 of Regulation SCI.
\350\ See supra Section II.D. (Application of Fair Access to
Government Securities ATSs).
---------------------------------------------------------------------------
The Commission believes that the proposed thresholds for applying
Regulation SCI to Government Securities ATSs are appropriate measures
to identify those ATSs that have the potential to significantly impact
investors and the market should a systems issue occur.\351\ Currently,
the Commission believes that approximately three ATSs trading U.S.
Treasury Securities and one ATS trading Agency Securities would be
subject to Regulation SCI under the proposed five percent volume
thresholds.\352\ The ATS with the largest market volume in U.S.
Treasury Securities has around 24 percent of
[[Page 87153]]
market volume, while each of the second and third largest is slightly
above five percent market share. The one ATS that would exceed the
proposed threshold for Agency Securities accounts for roughly 13
percent of volume in Agency Securities.\353\ If the proposed volume
thresholds were 7.5 or 10 percent, however, only one ATS trading U.S.
Treasury Securities and one ATS trading Agency Securities would be
subject to Regulation SCI.\354\ The Commission is requesting comment on
whether these proposed volume thresholds should be set higher or lower
for trading of U.S. Treasury Securities or Agency Securities by a
Government Securities ATS.
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\351\ Under the proposal, Regulation SCI would not apply to
Government Securities ATSs that trade repos, including repos on U.S.
Treasury Securities and Agency Securities. Based on information
available to the Commission, the Commission does not believe that
ATSs today capture a significant market share for trading repos nor
do they rely on the same level of automation as ATSs that trade U.S.
Treasury Securities or Agency Securities. The Commission is
requesting comment on this preliminary assessment and whether the
Commission should amend Regulation SCI to require Government
Securities ATSs that trade repos, including repos on U.S. Treasury
Securities and Agency Securities, to be subject to the requirements
of Regulation SCI.
\352\ See supra Section II.D and infra Section X.B.1a.
\353\ See infra Table X.1.
\354\ See id.
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The Commission believes that the proposed volume thresholds to
apply Regulation SCI to a Government Securities ATS that trades U.S.
Treasury Securities and Agency Securities are reasonable as compared to
volume thresholds for applying Regulation SCI to ATSs that trade NMS
stocks and ATSs that trade equity securities that are not NMS stocks.
First, an ATS that trades NMS stocks is subject to Regulation SCI if
its trading volume reaches: (i) Five percent or more in any single NMS
stock and one-quarter percent or more in all NMS stocks of the average
daily dollar volume reported by applicable transaction reporting plans;
or (ii) one percent or more in all NMS stocks of the average daily
dollar volume reported by applicable transaction reporting plans. With
respect to non-NMS equity securities, an ATS is subject to Regulation
SCI if its trading volume is five percent or more of the average daily
dollar volume (across all non-NMS equity securities) as calculated by
the SRO to which such transactions are reported. The proposed SCI
volume thresholds for Government Securities ATSs would be similar to
those for ATSs that trade non-NMS equity securities. The Commission
believes that basing the thresholds on volume as provided by the SRO to
which such transactions are reported is reasonable given that there is
no transaction reporting plan for government securities and thus, the
trading figures are based on dollar volume traded in the United States
as provided by the SRO to which such transactions are reported.
In addition, the Commission believes that the proposed volume
thresholds to apply Regulation SCI to a Government Securities ATS that
trades U.S. Treasury Securities and Agency Securities are reasonable
compared to volume thresholds that would subject an ATS to Rule
301(b)(6) under Regulation ATS (i.e., the Capacity, Integrity, and
Security Rule) for the ATS's trading of corporate bonds and municipal
securities. While Regulation SCI is not applicable to ATSs that trade
corporate bonds or municipal securities, an ATS that trades corporate
bonds or municipal securities is subject to Rule 301(b)(6) if its
trading volume reaches 20 percent or more of the average daily volume
traded in the United States for either corporate bonds or municipal
securities.\355\ When the Commission adopted Regulation SCI, it decided
not to apply Regulation SCI and its lower volume thresholds to the
fixed income markets, concluding that a systems issue in fixed income
markets would not have had as significant or widespread an impact as in
the equities market.\356\ Among other things, the Commission reasoned
that the fixed income markets at the time relied much less on
automation and electronic trading than the equities markets, and that
the municipal securities and corporate bond fixed income markets tended
to be less liquid than the equity markets, with slower execution times
and less complex routing strategies.\357\ As explained above, however,
ATSs for government securities now operate with complexity similar to
that of markets that trade NMS stocks in terms of automation and speed
of trading, the use of limit order books, order types, algorithms,
connectivity, data feeds, and the active participation of PTFs.\358\
Government securities also make up more than half of the outstanding
debt issuances in the U.S. bond market and play a critical role in the
U.S. and global economies.\359\ An ATS whose government securities
volume falls between five percent and 20 percent of trading volume
could significantly impact investors and the market should a systems
issue occur, as discussed below in this section. By proposing to apply
Regulation SCI to Government Securities ATSs with a threshold of below
20 percent the Commission seeks to impose the more stringent
protections of Regulation SCI to these ATSs because of their importance
to the U.S. securities markets. The Commission also recognizes that
ATSs for corporate bonds and municipal securities are becoming
increasingly electronic and as part of this release, the Commission is
requesting comment on, among other things, whether the 20 percent
volume threshold under Rule 301(b)(6) of Regulation ATS should be
amended to capture ATSs that might be critical markets for those
securities.
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\355\ See 17 CFR 242.301(b)(6). The requirements of Rule
301(b)(6) are less rigorous than the requirements of Regulation SCI.
Among other things, Rule 301(b)(6) requires an ATS to notify the
Commission staff of material systems outages and significant systems
changes and that the ATS establish adequate contingency and disaster
recovery plans. See id. Currently, there are no ATSs that are
subject to requirements of Rule 301(b)(6) of Regulation ATS.
\356\ See Regulation SCI Adopting Release, supra note 2, at
72270.
\357\ See id.
\358\ See supra note 5.
\359\ See supra notes 5-7 and accompanying text.
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When adopting Regulation SCI, the Commission stated that it would
``monitor and evaluate the implementation of Regulation SCI, the risks
posed by the systems of other market participants, and the continued
evolution of the securities markets, such that it may consider, in the
future, extending the types of requirements in Regulation SCI to
additional categories of market participants.'' \360\ The Commission
believes that the continued evolution of the securities markets,
including advancements in technology, have resulted in significant
changes in how government securities trade.\361\ In particular, the
structure of the U.S. Treasury market has evolved in recent years and
electronic trading has become an increasingly important feature of the
interdealer market for U.S. Treasury Securities.\362\ As stated by
various sources, the secondary interdealer cash markets for on-the-run
U.S. Treasury Securities have evolved such that those markets operate
with complexity similar to that of markets that trade NMS stocks in
terms of automation and speed of trading, the use of limit order books,
order types, algorithms, and the active participation of PTFs on
ATSs.\363\
---------------------------------------------------------------------------
\360\ See Regulation SCI Adopting Release, supra note 2, at
72270.
\361\ See supra Section I.A.
\362\ See supra note 14 and accompanying text.
\363\ See supra notes 14-15 and accompanying text.
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Given this evolution in the U.S. Treasury market, the Commission
now believes that there are Government Securities ATSs that operate
with similar complexity as SCI ATSs that are currently subject to
Regulation SCI, and that Government Securities ATSs with significant
trading volume play an important role in the government securities
markets and face similar technological vulnerabilities as existing SCI
entities. The Commission believes that, without appropriate safeguards
in place for these Government Securities ATSs, technological
vulnerabilities could lead to the potential for failures, disruptions,
delays, and intrusions, which could place government
[[Page 87154]]
securities market participants at risk, and could possibly interfere
with the maintenance of fair and orderly markets. For example, a
systems issue could occur at a Government Securities ATS with
significant trading volume (e.g., a systems disruption or a
cybersecurity incident that prevented the ATS from operating or being
accessible to its subscribers), such that certain market participants
or the government securities markets broadly could be significantly
impacted until such time that the issue was resolved at the ATS. In
addition, applying Regulation SCI to these Government Securities ATSs
would help the Commission improve its oversight of the market for
government securities, thereby continuing its efforts to address
technological vulnerabilities of the core technology systems of key
U.S. securities markets entities.
As proposed, those Government Securities ATSs trading U.S. Treasury
Securities and/or Agency Securities that met the volume thresholds
under the revised definition of SCI ATS would be subject to the
requirements of Regulation SCI, as described below.\364\ Rule 1001(a)
of Regulation SCI requires SCI entities to have policies and procedures
reasonably designed to ensure that their SCI systems and, for purposes
of security standards, indirect SCI systems, have levels of capacity,
integrity, resiliency, availability, and security adequate to maintain
their operational capability and promote the maintenance of fair and
orderly markets, and includes certain minimum requirements for those
policies and procedures relating to capacity planning, stress tests,
systems development and testing methodology, the identification of
vulnerabilities, business continuity and disaster recovery plans
(including geographic diversity and resumption goals), market data, and
monitoring.\365\ Rule 1001(a)(3) of Regulation SCI requires that SCI
entities periodically review the effectiveness of these policies and
procedures, and take prompt action to remedy any deficiencies.\366\
Rule 1001(a)(4) of Regulation SCI provides that, for purposes of the
provisions of Rule 1001(a), an SCI entity's policies and procedures
will be deemed to be reasonably designed if they are consistent with
current SCI industry standards, which shall be comprised of information
technology practices that are widely available to information
technology professionals in the financial sector and issued by an
authoritative body that is a U.S. governmental entity or agency,
association of U.S. governmental entities or agencies, or widely
recognized organization; \367\ however, Rule 1001(a)(4) of Regulation
SCI also makes clear that compliance with such ``current SCI industry
standards'' is not the exclusive means to comply with these
requirements.
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\364\ The Commission is requesting comment on whether all of the
obligations in Regulation SCI should apply to Government Securities
ATSs that would be SCI ATSs, or whether only certain requirements
should be imposed, such as those requiring written policies and
procedures, notification of systems problems, business continuity
and disaster recovery testing (including testing with subscribers of
ATSs), and penetration testing.
\365\ 17 CFR 242.1001(a)(1)-(2).
\366\ 17 CFR 242.1001(a)(3).
\367\ 17 CFR 242.1001(a)(4). The Commission notes that,
concurrent with the Commission's adoption of Regulation SCI,
Commission staff issued staff guidance on current SCI industry
standards as referenced in Regulation SCI. The staff guidance listed
examples of publications in nine domains describing processes,
guidelines, frameworks, or standards an SCI entity could look to in
developing reasonable policies and procedures to comply with Rule
1001(a) of Regulation SCI. See ``Staff Guidance on Current SCI
Industry Standards,'' November 19, 2014, available at: https://www.sec.gov/rules/final/2014/staff-guidance-current-sci-industry-standards.pdf. The domains included: Application controls; capacity
planning; computer operations and production environment controls;
contingency planning; information security and networking; audit;
outsourcing; physical security; and systems development methodology.
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Rule 1001(b) of Regulation SCI requires that each SCI entity
establish, maintain, and enforce written policies and procedures
reasonably designed to ensure that its SCI systems operate in a manner
that complies with the Exchange Act and the rules and regulations
thereunder and the entity's rules and governing documents, as
applicable, and specifies certain minimum requirements for such
policies and procedures.\368\ Rule 1001(b)(3) of Regulation SCI
requires that SCI entities periodically review the effectiveness of
these policies and procedures, and take prompt action to remedy any
deficiencies.\369\ Rule 1001(b)(4) of Regulation SCI provides
individuals with a safe harbor from liability under Rule 1001(b) if
certain conditions are met.\370\
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\368\ 17 CFR 242.1001(b)(1)-(2).
\369\ 17 CFR 242.1001(b)(3).
\370\ 17 CFR 242.1001(b)(4).
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Rule 1001(c) of Regulation SCI requires SCI entities to establish,
maintain, and enforce reasonably designed written policies and
procedures that include the criteria for identifying responsible SCI
personnel, the designation and documentation of responsible SCI
personnel, and escalation procedures to quickly inform responsible SCI
personnel of potential SCI events.\371\ Rule 1000 of Regulation SCI
defines ``responsible SCI personnel'' to mean, for a particular SCI
system or indirect SCI system impacted by an SCI event, such senior
manager(s) of the SCI entity having responsibility for such system, and
their designee(s).\372\ Rule 1000 also defines ``SCI event'' to mean an
event at an SCI entity that constitutes a system disruption, a systems
compliance issue, or a systems intrusion.\373\ Rule 1001(c)(2) of
Regulation SCI requires that SCI entities periodically review the
effectiveness of these policies and procedures, and take prompt action
to remedy any deficiencies.\374\
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\371\ 17 CFR 242.1001(c).
\372\ 17 CFR 242.1000.
\373\ A ``systems disruption'' means an event in an SCI entity's
SCI systems that disrupts, or significantly degrades, the normal
operation of an SCI system. A ``systems compliance issue'' means
``an event at an SCI entity that has caused any SCI system of such
entity to operate in a manner that does not comply with the Act and
the rules and regulations thereunder or the entity's rules or
governing documents, as applicable.'' A ``systems intrusion'' means
any unauthorized entry into the SCI systems or indirect SCI systems
of an SCI entity.'' See 17 CFR 242.1000.
\374\ 17 CFR 242.1001(c)(2).
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Under Rule 1002 of Regulation SCI, SCI entities have certain
obligations related to SCI events. Specifically, when any responsible
SCI personnel has a reasonable basis to conclude that an SCI event has
occurred, the SCI entity must begin to take appropriate corrective
action which must include, at a minimum, mitigating potential harm to
investors and market integrity resulting from the SCI event and
devoting adequate resources to remedy the SCI event as soon as
reasonably practicable.\375\ Rule 1002(b) provides the framework for
notifying the Commission of SCI events including, among other things,
to: Immediately notify the Commission of the event; provide a written
notification within 24 hours that includes a description of the SCI
event and the system(s) affected, with other information required to
the extent available at the time; provide regular updates regarding the
SCI event until the event is resolved; and submit a final detailed
written report regarding the SCI event.\376\ Rule 1002(c) of Regulation
SCI also requires that SCI entities disseminate information to their
members or participants regarding SCI events.\377\ These information
[[Page 87155]]
dissemination requirements are scaled based on the nature and severity
of an event. Specifically, for ``major SCI events,'' SCI entities are
required to promptly disseminate certain information about the event to
all of its members or participants. For SCI events that are not ``major
SCI events,'' SCI entities must, promptly after any responsible SCI
personnel has a reasonable basis to conclude that an SCI event has
occurred, disseminate certain information to those SCI entity members
and participants reasonably estimated to have been affected by the
event. In addition, dissemination of information to members or
participants is permitted to be delayed for systems intrusions if such
dissemination would likely compromise the security of the SCI entity's
systems or an investigation of the intrusion.\378\
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\375\ See 17 CFR 242.1002(a).
\376\ See 17 CFR 242.1002(b). For any SCI event that ``has had,
or the SCI entity reasonably estimates would have, no or a de
minimis impact on the SCI entity's operations or on market
participants,'' Rule 1002(b)(5) provides an exception to the general
Commission notification requirements under Rule 1002(b). Instead, an
SCI entity must make, keep, and preserve records relating to all
such SCI events, and submit a quarterly report to the Commission
regarding any such events that are systems disruptions or systems
intrusions.
\377\ See 17 CFR 242.1002(c).
\378\ See id. In addition, the information dissemination
requirements of Rule 1002(c) do not apply to SCI events to the
extent they relate to market regulation or market surveillance
systems, or to any SCI event that has had, or the SCI entity
reasonably estimates would have, no or a de minimis impact on the
SCI entity's operations or on market participants. See 17 CFR
242.1002(c)(4).
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Rule 1003(a) of Regulation SCI requires SCI entities to provide
reports to the Commission relating to system changes, including a
report each quarter describing completed, ongoing, and planned material
changes to their SCI systems and the security of indirect SCI systems,
during the prior, current, and subsequent calendar quarters, including
the dates or expected dates of commencement and completion.\379\ Rule
1003(b) of Regulation SCI also requires that an SCI entity conduct an
``SCI review'' not less than once each calendar year.\380\ ``SCI
review'' is defined in Rule 1000 of Regulation SCI to mean a review,
following established procedures and standards, that is performed by
objective personnel having appropriate experience to conduct reviews of
SCI systems and indirect SCI systems, and which review contains: A risk
assessment with respect to such systems of an SCI entity; and an
assessment of internal control design and effectiveness of its SCI
systems and indirect SCI systems to include logical and physical
security controls, development processes, and information technology
governance, consistent with industry standards.\381\ Under Rule
1003(b)(2)-(3), SCI entities are also required to submit a report of
the SCI review to their senior management, and must also submit the
report and any response by senior management to the report, to their
board of directors as well as to the Commission.\382\
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\379\ See 17 CFR 242.1003(a).
\380\ See 17 CFR 242.1003(b).
\381\ See 17 CFR 242.1000. Rule 1003(b)(1) of Regulation SCI
also states that penetration test reviews of an SCI entity's
network, firewalls, and production systems must be conducted at a
frequency of not less than once every three years, and assessments
of SCI systems directly supporting market regulation or market
surveillance must be conducted at a frequency based upon the risk
assessment conducted as part of the SCI review, but in no case less
than once every three years. See 17 CFR 242.1003(b)(1)(i)-(ii).
\382\ See 17 CFR 242.1003(b)(2)-(3).
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Rule 1004 of Regulation SCI sets forth the requirements for testing
an SCI entity's business continuity and disaster recovery plans with
its members or participants. This rule requires that, with respect to
an SCI entity's business continuity and disaster recovery plan,
including its backup systems, each SCI entity shall: (a) Establish
standards for the designation of those members or participants that the
SCI entity reasonably determines are, taken as a whole, the minimum
necessary for the maintenance of fair and orderly markets in the event
of the activation of such plans; \383\ (b) designate members or
participants pursuant to the standards established and require
participation by such designated members or participants in scheduled
functional and performance testing of the operation of such plans, in
the manner and frequency specified by the SCI entity, provided that
such frequency shall not be less than once every 12 months; and (c)
coordinate the testing of such plans on an industry- or sector-wide
basis with other SCI entities.
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\383\ See 17 CFR 242.1004.
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SCI entities are required by Rule 1005 of Regulation SCI to make,
keep, and preserve certain records related to their compliance with
Regulation SCI.\384\ Rule 1006 of Regulation SCI provides for certain
requirements relating to the electronic filing, on Form SCI, of any
notification, review, description, analysis, or report to the
Commission required to be submitted under Regulation SCI.\385\ Finally,
Rule 1007 of Regulation SCI contains requirements relating to a written
undertaking when records required to be filed or kept by an SCI entity
under Regulation SCI are prepared or maintained by a service bureau or
other recordkeeping service on behalf of the SCI entity.\386\
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\384\ See 17 CFR 242.1005. Rule 1005(a) of Regulation SCI
relates to recordkeeping provisions for SCI SROs, whereas Rule
1005(b) relates to the recordkeeping provision for SCI entities
other than SCI SROs.
\385\ See 17 CFR 242.1006.
\386\ See 17 CFR 242.1007.
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Request for Comment
125. Should Regulation SCI apply to Government Securities ATSs that
meet the proposed definition of SCI ATS? If so, are the proposed
revisions to the definition of SCI ATS appropriate?
126. What are the risks associated with systems issues at a
significant Government Securities ATS? What impact would a systems
issue have on the trading of government securities and the maintenance
of fair and orderly markets? Should all the requirements set forth in
Regulation SCI apply to Government Securities ATSs that meet the
proposed definition of SCI ATS?
127. Should Government Securities ATSs that meet the proposed
volume thresholds for SCI ATSs be governed by the Capacity, Integrity,
and Security Rule instead of being defined as SCI entities? Are there
Government Securities ATSs that play a significant role in the
secondary market for U.S. Treasury Securities but do not meet the
proposed volume thresholds for SCI ATSs for which a different threshold
should be established to mandate compliance with the Capacity,
Integrity, and Security Rule? If yes, what additional regulatory
requirements, if any, should be imposed on such ATSs? What would be the
costs and benefits associated with applying Rule 301(b)(6) to
Government Securities ATSs that are not SCI ATSs?
128. Should the Commission amend Regulation ATS to require
Government Securities ATSs to comply with Rule 301(b)(6) but adopt a
threshold that is lower or higher than 20 percent? For example, should
the Commission amend Rule 301(b)(6) to subject Government Securities
ATSs, or certain Government Securities ATSs, to the requirements of the
rule if the Government Securities ATS reaches a 5 percent, 7.5 percent,
10 percent, or 15 percent volume threshold?
129. Do commenters believe that, even though certain Government
Securities ATSs play a significant rule in the U.S. securities markets,
regulatory requirements such as Regulation SCI and the Capacity,
Integrity, and Security Rule are not necessary? If so, please
specifically explain how the policy goals of Regulation SCI and the
Capacity, Integrity, and Security Rule would continue to be achieved
for such systems without relevant regulation.
130. Should the volume threshold to meet the definition of SCI ATS
include trading in U.S. Treasury Securities and Agency Securities?
Should Regulation SCI be applied to ATSs for any other type of
government securities? Should Regulation SCI be applied to ATSs that
trade repos or reverse repos on government securities, including repos
or reverse repos on U.S. Treasury Securities, Agency Securities, or
both?
[[Page 87156]]
131. Should the proposed five percent threshold test for U.S.
Treasury Securities be applied to all types of U.S. Treasury Securities
or only to a subset(s) of U.S. Treasury Securities? For example, should
the five percent volume test only be applied to transaction volume in
on-the-run U.S. Treasury Securities? Should the five percent threshold
only be applied to transaction volume in all Agency Securities or only
to a subset(s) of Agency Securities?
132. Is the five percent threshold an appropriate threshold to
capture ATSs that are significant markets for trading in U.S. Treasury
Securities or Agency Securities? Would the five percent threshold
capture ATSs that are not significant markets for U.S. Treasury
Securities and Agency Securities? If commenters believe that there
should be a percent threshold for a subset of U.S. Treasury Securities,
such as on-the-run U.S. Treasury Securities or off-the-run U.S.
Treasury Securities, what should that threshold be?
133. Should the Commission adopt a percent volume threshold that is
lower than five percent for U.S. Treasury Securities, Agency
Securities, or both? If so, what percentage threshold should the
Commission adopt for Treasury Securities and Agency Securities? For
example, should the Commission adopt a threshold that is four percent,
three percent, two percent, or one percent for U.S. Treasury
Securities? Should the Commission adopt a threshold that is four
percent, three percent, two percent, or one percent for Agency
Securities? Should there be no threshold for U.S. Treasury Securities?
Should there be no threshold for Agency Securities? Please support your
views.
134. Should the Commission adopt a percent volume threshold that is
higher than five percent for U.S. Treasury Securities, Agency
Securities, or both? For example, should the Commission adopt a
threshold that is 7.5 percent, 10 percent, 15 percent, or 20 percent
for U.S. Treasury Securities? Should the Commission adopt a threshold
that is 7.5 percent, 10 percent, 15 percent, or 20 percent for Agency
Securities?
135. Is it appropriate to use five percent of average weekly dollar
volume traded in the United States as a threshold for application of
Regulation SCI requirements to U.S. Treasury Securities? If the average
weekly dollar volumes were to include transactions in the secondary
cash market for U.S. Treasury Securities by non-FINRA members, which
currently are not reported to, or collected by, the SRO that makes
public average weekly dollar volume statistics, should the Regulation
SCI threshold change? If so, what should be the appropriate threshold?
Please support your views.
136. Is it appropriate to use five percent of average daily dollar
volume traded in the United States as a threshold for the application
of Regulation SCI requirements to Agency Securities?
137. Is the proposed four out of six month period an appropriate
period to measure the volume thresholds for U.S. Treasury Securities,
Agency Securities, or both? If not, what period of time would be
appropriate?
138. Should the proposed Regulation SCI volume threshold
measurement for Government Securities ATSs take into account whether
Government Securities ATSs under common control share the same
technology platform? For example, should two or more Government
Securities ATSs under common control and operating on the same
technology platform be viewed as a single entity required to aggregate
volume for purposes of determining whether the threshold test has been
satisfied?
139. Should only certain provisions of Regulation SCI apply to
Government Securities ATSs that meet the proposed definition of SCI
ATS? For example, should they only be subject to certain aspects of
Regulation SCI? If so, which provisions should apply? Do commenters
believe that different or unique requirements should apply to the
systems of such Government Securities ATSs? What should they be and
why?
140. In what instances, if at all, should the systems of Government
Securities ATSs that meet the proposed definition of SCI ATS be defined
as ``critical SCI systems''? Please describe.
141. Which subscribers or types of subscribers should Government
Securities ATSs that meet the proposed definition of SCI ATS consider
as ``designated members or participants'' that should be required to
participate in the annual mandatory business continuity and disaster
recovery testing? Please describe.
142. Should Government Securities ATSs that meet the proposed
definition of SCI ATS not be defined as SCI entities but should be
required to comply with provisions comparable to provisions of
Regulation SCI?
143. What are the current practices of Government Securities ATSs
with respect to the subject matter covered by Regulation SCI? To what
extent do Government Securities ATSs have practices that are consistent
with the requirements under Regulation SCI? To what extent do
Government Securities ATSs' practices differ from the requirements
under Regulation SCI? Please describe and be specific. Would the
application of Regulation SCI or the Capacity, Integrity, and Security
Rule weaken ATSs' existing capacity, integrity, and security programs?
144. Are there characteristics specific to the government
securities market that would make applying Regulation SCI broadly or
any specific provision of Regulation SCI to Government Securities ATSs
unduly burdensome and inappropriate?
145. As commenters think about whether and how to apply Regulation
SCI to Government Securities ATSs, are there any lessons commenters can
draw from the market stress during Spring 2020, including, for example,
lessons learned regarding business continuity or capacity planning?
VII. General Request for Comment
The Commission is requesting comments from all members of the
public. The Commission particularly requests comment from the point of
view of persons who operate ATSs that would meet the proposed
definition of Government Securities ATS, subscribers to those systems,
and investors. The Commission seeks comment on all aspects of the
proposed rule amendments and proposed form, particularly the specific
questions posed above. Commenters are requested to provide empirical
data in support of any arguments or analyses. With respect to any
comments, the Commission notes that they are of the greatest assistance
to its rulemaking initiative if accompanied by supporting data and
analysis of the issues addressed in those comments and by alternatives
to the Commission's proposals where appropriate.
VIII. Concept Release on Electronic Corporate Bond and Municipal
Securities Market
The SEC Fixed Income Market Structure Advisory Committee
(``FIMSAC''), formed by the Commission in 2017, was established to
provide the Commission ``with diverse perspectives on the structure and
operations of the U.S. fixed income markets, as well as advice and
recommendations on matters related to fixed income market structure.''
\387\ In 2018, the Committee made a recommendation to the Commission
concerning the regulation of corporate and municipal debt trading
platforms.\388\ The FIMSAC's core
[[Page 87157]]
concern was the lack of regulatory harmonization among fixed income
electronic trading platforms, recognizing that some firms were
regulated as ATSs, while some were regulated as broker-dealers or not
at all. The FIMSAC stated that the varying regulatory treatment among
fixed income electronic trading platforms is based on differences in
trading protocols or business models. The FIMSAC concluded that these
distinctions in regulatory oversight complicate efforts to improve the
efficiency and resiliency of the fixed income electronic trading
markets. Furthermore, the FIMSAC stated that without a unifying
regulatory framework for all fixed income electronic trading platforms,
market structures will likely fragment further as regulators adopt new
regulations that apply to only one type of platform.
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\387\ FIMSAC Charter art. 3 (November 15, 2017), available at
https://www.sec.gov/files/fimsac-charter.pdf.
\388\ See FIMSAC, Recommendation for the SEC to Review the
Framework for the Oversight of Electronic Trading Platforms for
Corporate and Municipal Bonds (July 16, 2018), available at https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-electronic-trading-platforms-recommendation.pdf. For purposes of
this concept release, corporate debt securities (``corporate debt'')
and municipal debt securities (``municipal debt'') are collectively
referred to as ``fixed income securities,'' which do not include
government securities.
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As such, the FIMSAC recommended, among other things, that the
Commission form, together with FINRA and the MSRB, a joint working
group to review the regulatory framework for oversight of fixed income
electronic trading platforms.\389\ Furthermore, when the Commission
adopted the enhanced transparency rules for NMS Stock ATSs, the
Commission stated that in light of the recent recommendations of the
FIMSAC, and comments received on the proposal to amend Regulation ATS
for NMS Stock ATSs, the Commission would review the regulatory
framework for fixed income electronic trading platforms, including to
consider whether the Commission should propose amendments to Regulation
ATS (and any other applicable rules) to account for operational and
regulatory differences among fixed income electronic trading
platforms.\390\
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\389\ Specifically, the FIMSAC recommended that the SEC, FINRA,
and MSRB form a joint working group to conduct a review of the
regulatory framework for oversight of electronic trading platforms
used in the corporate and municipal bond markets: (i) To ensure that
the regulatory framework best promotes the growth of fair and
effective fixed income electronic trading markets; (ii) to ensure
that no regulatory gaps or inconsistencies in the application of
such regulation exist that increase the potential for investor harm,
systemic risk or unfair competition; (iii) to consider whether
Regulation ATS (and any other applicable rules) should be amended to
account for differences in protocols and market structures commonly
used to trade fixed income as compared to equities; (iv) to ensure
that regulation is not unfairly promoting or impeding specific
trading protocols and business models over others; and (v) to
consider whether any existing regulation impacting the fixed income
electronic trading markets is unnecessary from a cost-benefit
perspective. See id.
\390\ See Regulation NMS Stock ATS Adopting Release, supra note
1, at 38783-84.
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While the trading protocols generally differ from those used in the
interdealer secondary cash markets for on-the-run U.S. Treasury
Securities, trading of corporate debt and municipal debt often does
occur on ATSs and other electronic platforms. These electronic
platforms might offer various protocols for bringing together buyers
and sellers in fixed income securities, including auctions, central
limit order books, negotiation functionalities, and request for quote
platforms (``RFQ platforms''). The Commission is soliciting public
comment to obtain information about fixed income electronic trading
platforms, including their operations, services, fees, market data, and
participants.\391\ This information could help the Commission and other
regulators evaluate potential regulatory gaps that may exist among
these platforms with respect to access to markets, system integrity,
surveillance, and transparency, among other things. The Commission
expects that the comments it receives will ultimately inform regulatory
policy. The Commission requests comment on the following:
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\391\ While this concept release is focused on electronic
trading platforms for corporate debt and municipal debt, to the
extent commenters believe comments are relevant to electronic
trading platforms for other types of debt securities, including
government securities, that information would be helpful to the
Commission.
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146. Given the technological developments in the fixed income
electronic trading markets and electronic trading of fixed income
securities, do commenters believe that the current regulatory framework
for fixed income electronic trading platforms best promotes the growth
of fair and efficient markets for investors? If not, what regulatory
approach(es) would best address the needs of the market and market
participants? Does the current regulatory structure for national
securities exchanges, broker-dealers, and ATSs cover the full range of
fixed income electronic trading platforms operating today? If not,
please explain any gaps in the regulatory structure and to which
platforms it does not apply.
147. Exchange Act Rule 3b-16(a) sets forth a functional test of
whether a system meets the definition of an exchange. Specifically,
Rule 3b-16(a) provides that an organization, association, or group of
persons meets the Exchange Act definition of ``exchange'' if it: (1)
Brings together the orders for securities of multiple buyers and
sellers; and (2) uses established, non-discretionary methods (whether
by providing a trading facility or by setting rules) under which such
orders interact with each other, and the buyers and sellers entering
such orders agree to the terms of a trade. Is the Commission's approach
under Exchange Act Rule 3b-16(a) appropriate for fixed income
electronic trading platforms? If not, what elements of the definition
of exchange under Rule 3b-16(a) do commenters believe that the
Commission should consider changing and why? For example, should or
should not the element of ``orders'' in Rule 3b-16(a) be included in
the definition of exchange with regard to fixed income electronic
trading platforms?
148. Are there particular elements of the definition of exchange
under Exchange Act Rule 3b-16(a) that should or should not be changed
with respect to fixed income electronic trading platforms, or more
specifically, the corporate debt markets or municipal debt markets?
What are commenters' views on the potential consequences of expanding
or limiting the definition of exchange under Rule 3b-16(a) with regard
to these trading platforms or markets? For instance, what are
commenters' views on how changing Rule 3b-16(a) could benefit or harm
investors and the market participants that use fixed income electronic
trading platforms? Should the Commission, rather than amending Rule 3b-
16(a), issue guidance on the elements of Rule 3b-16(a) regarding
considerations relevant to the definition of exchange in the context of
a fixed income platform? If so, what elements of Rule 3b-16(a) should
the Commission issue guidance on and why? For example, should the
Commission issue guidance on what is considered an ``order'' under Rule
3b-16(a)? Given the technological changes in the securities industry
since Regulation ATS was adopted in 1998, should the Commission revise,
or provide additional, examples in Regulation ATS of systems that fall
within or outside the definition of exchange under Rule 3b-16? \392\
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\392\ See Regulation ATS Adopting Release, supra note 35, at
70854-56.
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149. As noted above, fixed income electronic trading platforms
offer a variety of different trading protocols and business models, and
the FIMSAC expressed concern about varying regulatory treatment among
these trading platforms. What do commenters believe are the key common
characteristics of a fixed income
[[Page 87158]]
electronic trading platform that should merit their common regulation
under the securities laws?
150. As noted above, securities intermediaries generally are
regulated either as exchanges or as brokers or dealers. What do
commenters believe are the key regulatory standards that should apply
to fixed income electronic trading platforms? Are there aspects of the
current regulatory structure, other than regulatory treatment, that
should not apply to these trading platforms? Are there other standards
not addressed in the current regulation that should be considered? How
could the current regulatory structure for these trading platforms be
improved?
151. What do commenters believe are the key inconsistencies in the
regulation of fixed income electronic trading platforms? Do these
inconsistencies create risks to the integrity of the market for fixed
income securities, and if so, how? Do these inconsistencies create
burdens on competition among market participants, and if so, how?
152. Is the current regulatory framework for fixed income
electronic trading platforms unfairly promoting or impeding specific
trading platforms or trading protocols over others, and if so, how?
How, if at all, is the current regulatory structure hindering
automation of the markets?
153. The Commission, FINRA, and the MSRB all have important roles
in the regulation of corporate and municipal debt markets. Do
commenters believe that the combined regulation of these markets is
effective? If not, how could collective regulation of these markets be
improved?
154. Should the Commission consider a definition of exchange that
is unique for fixed income electronic trading platforms? If so, what
should that definition be and what aspects of the fixed income
electronic trading markets should the definition address or not
address? What are commenters' views on how such a definition would be
advantageous or disadvantageous to market participants that use fixed
income electronic trading platforms and investors? How would a
definition of exchange tailored for fixed income electronic trading
platforms promote fair and orderly markets? How could such a definition
be crafted in a way that would account for potential changes in
technology that could be applied to fixed income markets and trading in
the future? Would a separate definition of exchange for fixed income
electronic trading platforms conflict, or create investor confusion,
with regard to a definition of exchange for other asset classes, such
as government securities, NMS stock, or OTC equity securities?
155. Some electronic platform providers offer their customers a
suite of different types of electronic trading protocols (e.g.,
auctions, request for quotes, central limit order books) that are
designed to find and match counterparties. These electronic platform
providers might also offer voice protocols or a hybrid of voice and
electronic protocols and pricing data and facilitate trade reporting
and clearing services. Do electronic platform providers such as these
provide fixed income market participants with a marketplace for buying
and selling fixed income products? Should all the protocols and
services offered by electronic platform providers be considered
together for purposes of the definition of exchange under federal
securities laws?
156. Are the current conditions to the exemption from the
definition of an ``exchange'' under Regulation ATS appropriate for ATSs
that trade corporate or municipal debt securities (``Fixed Income
ATSs'')? For example, should Fixed Income ATSs that file a confidential
Form ATS with the Commission be subject to the similar operational
transparency rules as an NMS Stock ATS that files a public Form ATS-N
with the Commission and disclose similar detailed information about the
ATS's manner of operations and ATS-related activities of the broker-
dealer operator and its affiliates? If yes, what types of disclosures
should such a form solicit? What type of disclosures should such a form
not solicit? How should the form compare to Form ATS-N?
157. Should the Commission continue to require Fixed Income ATSs to
file a Form ATS but make Form ATS public? If so, how, if at all, should
Form ATS be amended?
158. Rule 304 of Regulation ATS provides a process for the
Commission to review Form ATS-N before it becomes effective and the NMS
Stock ATS can operate pursuant to the exemption under Exchange Act Rule
3a1-1(a)(2). Rule 304 also provides the Commission with the opportunity
to declare the Form ATS-N ineffective after notice and opportunity for
hearing. Fixed Income ATSs operate pursuant to the same exemption
provided under Exchange Act Rule 3a1-1(a)(2) as NMS Stock ATSs but are
not subject to Rule 304. Should the Commission amend Regulation ATS to
apply Rule 304 of Regulation ATS to Fixed Income ATSs?
159. Today, ATSs can only transact in securities; however, an ATS
may, in addition to its Rule 3b-16 activity, conduct secondary
transactions in securities in manners that may not meet a criteria of
Exchange Act Rule 3b-16(a). Should the Commission amend Regulation ATS
to require Fixed Income ATSs to only operate in a manner that meets the
criteria of Rule 3b-16(a)? What would be the advantages and
disadvantages to investors and the Commission should the Commission
require this?
160. The Fair Access Rule applies when an ATS, during at least four
of the preceding six months, had five percent or more of the average
daily volume of municipal securities traded in the United States or had
five percent or more of the average daily volume of corporate debt
securities traded in the United States. Do commenters believe that the
current fair access threshold under Rule 301(b)(5) of Regulation ATS
for Fixed Income ATSs continues to be appropriate to capture ATSs with
a significant percentage of the trading volume in corporate debt and
municipal debt? If not, do commenters believe that access to Fixed
Income ATSs is an important goal that the Commission should consider in
regulating such platforms? If so, are there circumstances in which a
Fixed Income ATS should be able to limit access to its system, or
alternatively, should be required to grant access to its system? Are
the current requirements of the Fair Access Rule appropriate for Fixed
Income ATSs? Should the definition of exchange and Regulation ATS be
amended so that the Fair Access Rule applies to transactions in fixed
income securities occurring through various platforms offered by a
broker-dealer and its affiliates in which the broker-dealer also
operates a Fixed Income ATS? Should the Fair Access Rule apply to
platforms that trade fixed income securities but are not Fixed Income
ATSs?
161. The current Capacity, Integrity, and Security Rule under Rule
301(b)(6) of Regulation ATS applies when an ATS, during at least four
of the preceding six months, had 20 percent or more of the average
daily volume of municipal securities traded in the United States or had
20 percent or more of the average daily volume of corporate debt
securities traded in the United States. Do commenters believe that the
current Capacity, Integrity, and Security Rule continues to be
appropriate to capture ATSs with a significant percentage of the
trading volume in corporate debt and municipal debt? Should the
Commission amend Rule 301(b)(6) to lower the current 20 percent
threshold? If so, should the Commission adopt a threshold of, for
example, 5
[[Page 87159]]
percent, 7.5 percent, 10 percent or 15 percent? Please support your
views. Do commenters believe that the Capacity, Integrity, and Security
Rule requirements are appropriate for Fixed Income ATSs? Should the
requirements apply to all Fixed Income ATSs? Should the Capacity,
Integrity, and Security Rule requirements apply to non-ATS platforms
for corporate bonds and municipal securities operated by a broker-
dealer that also operates a Fixed Income ATS? Should the Capacity,
Integrity, and Security Rule apply to platforms that trade corporate
bonds and municipal securities but are not Fixed Income ATSs?
162. ATSs that trade equity securities--both NMS stocks and non-NMS
stocks--are no longer subject to the Capacity, Integrity, and Security
Rule under Rule 301(b)(6) of Regulation ATS. Rather they are now
subject to the requirements of Regulation SCI.\393\ Should the Fixed
Income ATSs be subject to Regulation SCI rather than the Capacity,
Integrity, and Security Rule under Regulation ATS? If yes, should the
same threshold tests for applying Regulation SCI to an ATS be applied
to Fixed Income ATSs when determining if a given Fixed Income ATS is an
``SCI ATS?'' If not, what trading volume or other threshold should
apply to Fixed Income ATS?
---------------------------------------------------------------------------
\393\ See supra notes 286 and 345 and accompanying text.
---------------------------------------------------------------------------
163. Do commenters believe that it is clear when a fixed income
electronic trading platform meets the definition of a broker-dealer
under the Exchange Act? Should the Commission provide guidance? Are
there particular fact patterns that commenters believe would be helpful
for the guidance to address?
164. Should broker-dealers offering customers protocols or
facilities to buy and sell fixed income securities that would not meet
the Exchange Act definition of ``exchange'' otherwise be subject to the
same operational transparency rules as ATSs? If yes, should these
broker-dealers be required to: (1) File a form with the Commission
similar to the confidential Form ATS; or (2) file a form with the
Commission similar to public Form ATS-N for NMS Stock ATSs?
Alternatively, should these broker-dealers be subject to operational
transparency requirements that are different than ATSs? If so, what
form of operational transparency is appropriate? What type of
information would be important for the broker-dealer to disclose to its
customers about the platform that it operates? Do commenters have
concerns that increased operational transparency requirements for these
broker-dealers might cause an undue burden on competition for them? Do
commenters think that increasing operational transparency for these
broker-dealers would benefit competition in the market?
165. Do commenters believe that there are fixed income electronic
trading platforms that are not registered as either a broker-dealer or
a national securities exchange and that do not operate as an ATS but
perform similar market functions as a broker-dealer, national
securities exchange, or an ATS? If so, please explain what these
systems are and how they may be different or the same as a broker-
dealer, national securities exchange, or ATS that operates as a fixed
income electronic trading platform. Do commenters believe that such
platforms should or should not be required to register with the
Commission? Do commenters believe that such platforms should or should
not be required to operate pursuant to an exemption from the definition
of an exchange, such as Regulation ATS? Should such platforms be
required to register as something other than a broker-dealer or
national securities exchange? Should such systems be subject to the
same operational transparency requirements for broker-dealers, national
securities exchanges, or ATSs? What aspects of these systems would be
important to market participants who may use these platforms? Do
commenters believe that there is sufficient oversight of these
platforms by the Commission? If not, how should the Commission enhance
oversight of these platforms?
166. As commenters think about whether and how to change the
regulatory framework for fixed income electronic trading platforms, are
there any lessons commenters can draw from the market stress during
Spring 2020, including, for example, lessons learned regarding business
continuity or capacity planning?
IX. Paperwork Reduction Act
Certain provisions of the proposed rule amendments contain
``collection of information'' requirements within the meaning of the
Paperwork Reduction Act of 1995 (``PRA'').\394\ The Commission is
submitting these collections of information to the Office of Management
and Budget (``OMB'') for review in accordance with 44 U.S.C 3507(d) and
5 CFR 1320.11. An agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless the
agency displays a currently valid control number. The title of the new
collection of information is ``Form ATS-G.'' The titles of the existing
collections of information are:
---------------------------------------------------------------------------
\394\ 44 U.S.C. 3501 et seq.
------------------------------------------------------------------------
OMB control
Rule Rule title No.
------------------------------------------------------------------------
Rule 304 of Regulation ATS..... Regulation ATS Rule 304 3235-0763
and Form ATS-N.
Rule 301 of Regulation ATS..... Regulation ATS Rule 301 3235-0509
Amendments.
Rule 302 of Regulation ATS..... Rule 302 (17 CFR 3235-0510
242.302) Recordkeeping
Requirements for
Alternative Trading
Systems.
Rule 303 of Regulation ATS..... Rule 303 (17 CFR 3235-0505
242.303) Record
Preservation
Requirements for
Alternative Trading
Systems.
Rule 15b1-1 under the Exchange Form BD and Rule 15b1-1 3235-0012
Act. Application for
Registration as a
Broker-Dealer.
Rule 10(b) of Regulation S-T... Form ID................ 3235-0328
Rules 1001 through 1007 of Regulation SCI and Form 3235-0703
Regulation SCI. SCI.
------------------------------------------------------------------------
A. Summary of Collection of Information
The proposed amendments to Regulation ATS include five new
categories of obligations that would require a collection of
information within the meaning of the PRA: (1) Requiring Currently
Exempted Government Securities ATSs to comply with the applicable
provisions of Rule 301(b) of Regulation ATS; \395\ (2) applying the
requirements of proposed
[[Page 87160]]
Form ATS-G to Government Securities ATSs, including both Currently
Exempted Government Securities ATSs and Legacy Government Securities
ATSs that operate pursuant to a Form ATS on file with the Commission as
of the Compliance Date; (3) amending Regulation ATS to apply the Fair
Access Rule to Government Securities ATSs that have significantly large
trading volume in U.S. Treasury Securities or Agency Securities; (4)
amending Form ATS and Form ATS-R to provide that such forms be filed
electronically; (5) applying the requirements of Regulation SCI to the
trading of U.S. Treasury Securities and Agency Securities on Government
Securities ATSs. The proposed new collections of information are
summarized in the following table below:
---------------------------------------------------------------------------
\395\ 17 CFR 242.301. The applicable provisions are Rules
301(b)(1), 301(b)(8), 301(b)(9), and 301(b)(10).
----------------------------------------------------------------------------------------------------------------
ATSs that are not
Legacy Filers Currently Exempted NMS Stock ATSs or
\396\ Government NMS Stock ATSs Government
Securities ATSs Securities ATSs
----------------------------------------------------------------------------------------------------------------
Broker-dealer registration (Rule Existing New requirement... Existing Existing
301(b)(1)). requirement. requirement. requirement.
Fair Access Rule (Rule New requirement... New requirement... Existing Existing
301(b)(5)). requirement. requirement for
ATSs that trade
certain
securities.
Recordkeeping requirements (Rule Existing New requirement... Existing Existing
301(b)(8)). requirement. requirement. requirement.
Form ATS-R reporting (Rule Revised New requirement... Revised Revised
301(b)(9)). requirements of requirements of requirements of
Form ATS-R. Form ATS-R. Form ATS-R.
Written safeguards and written Existing New requirement... Existing Existing
procedures to ensure the requirement. requirement. requirement.
confidential treatment of
trading information (Rule
301(b)(10)).
Recordkeeping requirements (Rule Existing New requirement... Existing Existing
302). requirement. requirement. requirement.
Record preservation requirements Existing New requirement... Existing Existing
(Rule 303). requirement. requirement. requirement.
Form ATS/Form ATS-G/Form ATS-N New requirement New requirement Revised Revised
filing requirements (Rules under Rule 304. under Rule 304. requirements of requirements of
301(b)(2) and 304). Form ATS-N, filed Form ATS, filed
pursuant to Rule pursuant to Rule
304. 301(b)(2).
Regulation SCI.................. New requirement... New requirement... Existing Existing
requirement. requirement for
ATSs that trade
certain
securities.
----------------------------------------------------------------------------------------------------------------
1. Requirements Relating to Application of Rule 301(b) of Regulation
ATS to Currently Exempted Government Securities ATSs
---------------------------------------------------------------------------
\396\ See text accompanying infra note 422 for the definition of
``Legacy Filers.''
---------------------------------------------------------------------------
The Commission is proposing to amend Regulation ATS to remove the
exemption from compliance for ATSs that solely trade government
securities or repos and, therefore, require these ATSs to comply with
the information collection requirements of Regulation ATS.\397\
---------------------------------------------------------------------------
\397\ These requirements are listed on the table above and
described in detail in supra Sections II.C and II.E.
---------------------------------------------------------------------------
2. Requirements Relating to Proposed Amendments to Rules
301(b)(2)(viii) and 304 of Regulation ATS, Including Proposed Form ATS-
G, and Amendments to Rule 301(b)(9)
The Commission proposes that any ATS that meets the definition of
Government Securities ATS would be required to complete Form ATS-G and
file it with the Commission in a structured format via EDGAR.\398\ The
proposal would also require each Government Securities ATS to make
public via posting on its website (i) a direct URL hyperlink to the
Commission's website that contains Form ATS-G filings and (ii) the most
recently disseminated Covered Form.\399\
---------------------------------------------------------------------------
\398\ See generally supra Sections II.F; II.H.
\399\ See supra Section II.G.
---------------------------------------------------------------------------
Proposed Form ATS-G would require that the responding entity
provide information about the type of filing on the cover page.\400\
Part I of proposed Form ATS-G would require information about the
broker-dealer operator.\401\ Proposed Part II would require a
Government Securities ATS to disclose information about the ATS-related
activities of the broker-dealer operator and its affiliates.\402\
Proposed Part III would require the Government Securities ATS to
provide certain disclosures about the manner of operations of the
ATS.\403\ Proposed Part IV would require the Government Securities ATS
to provide contact information and consent to service of any civil
action brought by, or any notice of any proceeding before, the
Commission or an SRO in connection with the ATS's activities.\404\
---------------------------------------------------------------------------
\400\ See supra Section III.A.1.
\401\ See supra Section III.A.2.
\402\ See supra Section III.B.
\403\ See supra Section III.C.
\404\ See supra Section III.D.
---------------------------------------------------------------------------
A Government Securities ATS would be required by Rule 301(b)(9) to
file a Form ATS-R filing for the ATS to report its trading volume in
government securities and repos.\405\ An ATS that is not an NMS Stock
ATS or Government Securities ATS would be subject to Rule 301(b)(2) and
file a Form ATS, and, in accordance with Rule 301(b)(9), a Form ATS-
R.\406\
---------------------------------------------------------------------------
\405\ See supra Section II.H.
\406\ See id.
---------------------------------------------------------------------------
3. Requirements Relating to Proposed Amendments to Rule 301(b)(5)
The Commission is proposing to amend Regulation ATS to require an
ATS that has a significantly large percentage of volume of trading in
U.S. Treasury Securities or Agency Securities to comply with the Fair
Access Rule.\407\ Under proposed Rule 301(b)(5), an ATS that reaches a
certain volume of trading in U.S. Treasury Securities or Agency
Securities would be required to, among others things, establish written
standards for granting access to trading on their systems and apply
these standards fairly, and is prohibited from unreasonably prohibiting
or limiting any person with respect to trading in the stated
securities. Government Securities ATSs that meet the fair access
thresholds would also need to comply with Rule 303(a)(1)(iii),\408\
which requires that, for a period of not less than three years, the
first two years in an easily accessible place, an ATS preserve at least
one copy of its
[[Page 87161]]
standards for access to trading, all documents relevant to its decision
to grant, deny, or limit access to any person, and all other documents
made or received by the ATS in the course of complying with Rule
301(b)(5).\409\
---------------------------------------------------------------------------
\407\ 17 CFR 242.301(b)(5). See supra Section II.D.
\408\ 17 CFR 242.303(a)(1)(iii).
\409\ See supra note 123.
---------------------------------------------------------------------------
4. Requirements Related to Proposed Amendments to Rule 301(b)(2), Form
ATS, and Form ATS-R
Rule 301(b)(2) of Regulation ATS requires that every ATS subject to
Regulation ATS file an initial operation report,\410\ amendments to its
initial operation report,\411\ and a cessation of operations report on
Form ATS.\412\ ATSs are required to file quarterly transaction reports
on Form ATS-R pursuant to Rule 301(b)(9).\413\ The Commission proposes
to require respondents to submit these reports electronically.\414\ The
Commission is also proposing changes to modernize Form ATS and Form
ATS-R.\415\
---------------------------------------------------------------------------
\410\ See 17 CFR 242.301(b)(2)(vi).
\411\ See 17 CFR 242.301(b)(2)(ii).
\412\ See 17 CFR 242.301(b)(2)(v).
\413\ See 17 CFR 242.301(b)(9)(i). An ATS must also file Form
ATS-R more frequently upon request of the Commission. See Form ATS-R
Instructions.
\414\ See supra Section IV.
\415\ See id.
---------------------------------------------------------------------------
5. Requirements Related to Amendments to Regulation SCI
The Commission is proposing to expand the definition of ``SCI ATS''
under Regulation SCI to include Government Securities ATSs that meet
certain volume thresholds with respect to U.S. Treasury Securities and/
or Agency Securities. Under the proposal, a Government Securities ATS
that meets the proposed amended definition of ``SCI ATS'' would fall
within the definition of ``SCI entity'' and, as a result, would be
subject to the requirements of Regulation SCI.\416\
---------------------------------------------------------------------------
\416\ For further details regarding the requirements of
Regulation SCI, see Regulation SCI Adopting Release, supra note 2.
---------------------------------------------------------------------------
B. Proposed Use of Information
1. Proposed Amendments To Apply Rule 301(b) of Regulation ATS to
Currently Exempted Government Securities ATSs
Records requested by Rule 301(b)(8), as well as Rules 302 and 303,
and information provided pursuant to the proposed broker-dealer
registration requirements under Section 15 or Section 15C(a)(1)(A) of
the Exchange Act, including Form BD and SRO membership requirements,
would allow the Commission and SROs to examine Currently Exempted
Government Securities ATSs for compliance with the conditions of
exemption provided under Exchange Act Rule 3a1-1(a) and Regulation
ATS.\417\ Information disclosed on Form ATS-R by Currently Exempted
Government Securities ATSs under proposed Rule 301(b)(9) would permit
the Commission to monitor the trading on these ATSs for compliance with
the Exchange Act and applicable rules thereunder and enforce the Fair
Access Rule. Information contained in the records required to be
preserved pursuant to proposed Rules 301(b)(10) and 303(a)(1)(v) would
be used by the Commission, state securities regulatory authorities, and
SROs to better understand how each Currently Exempted Government
Securities ATS protects subscribers' confidential trading information.
---------------------------------------------------------------------------
\417\ See supra note 101 and accompanying text.
---------------------------------------------------------------------------
2. Proposed Amendments to Rule 301(b)(5) of Regulation ATS
The Commission will use the information related to the Fair Access
Rule for Government Securities ATSs to monitor the growth and
development of Government Securities ATSs. In addition, the Commission
believes that this information will help the Commission oversee
Government Securities ATSs to evaluate for compliance with the Fair
Access Rule, which the Commission believes will ensure that qualified
market participants have fair access to the nation's securities
markets.
3. Proposed Amendments to Rule 301(b)(2), Form ATS, and Form ATS-R
The Commission uses the information provided pursuant to Rule 301
to monitor the growth and development of ATSs and oversee ATSs for the
purpose of protecting investors. In particular, the information
collected and reported to the Commission by ATSs enables the Commission
to evaluate the operation of ATSs with regard to national market system
goals, and to monitor the competitive effects of these systems to
ascertain whether the regulatory framework remains appropriate with
respect to such systems. Without the information required by Rule 301,
the Commission would be limited in its ability to comply with its
statutory obligations, including to provide for the protection of
investors and to promote the maintenance of fair and orderly markets.
4. Proposed Application of Regulation SCI to Government Securities ATSs
The Commission would use information provided pursuant to
Regulation SCI to, among other things, advance the goal of improving
Commission review and oversight of U.S. securities market
infrastructure and help promote the maintenance of fair and orderly
markets.\418\
---------------------------------------------------------------------------
\418\ See Regulation SCI Adopting Release, supra note 2, at
Section V.B.
---------------------------------------------------------------------------
5. Proposed Rules 301(b)(2)(viii) and 304 of Regulation ATS, Including
Proposed Form ATS-G, and Proposed Rule 301(b)(9)
The Commission believes that market participants would use the
information publicly disclosed on proposed Form ATS-G to compare and
evaluate information about different Government Securities ATSs. In
addition, the Commission would use the information disclosed on
proposed Form ATS-G and Form ATS-R to oversee the growth and
development of Government Securities ATSs. The Commission believes that
the information contained in the records required to be preserved by
Rule 303(a)(2)(ii) would be used by examiners and other representatives
of the Commission, state securities regulatory authorities, and SROs to
evaluate whether Government Securities ATSs are in compliance with
Regulation ATS as well as other applicable rules and regulations.
C. Respondents
The below table describes the applicable respondents for each
category of ``collection of information'' requirements:
---------------------------------------------------------------------------
\419\ The ``collection of information'' requirements relating to
Rule 301(b), Rule 302, and Rule 303 have previously been established
for Legacy Government Securities ATSs that have previously disclosed
on their Form ATS their intention to trade government securities or
repos. See FR Doc. 2014-02143, 79 FR 6236 (February 3, 2014)
(Submission for OMB Review, Extension: Rule 301 and Forms ATS and
ATS-R; SEC File No. 270-451; OMB Control No. 3235-0509) (``Rule 301
OMB Update'').
\420\ The ``collection of information'' requirements relating to
Rule 304 and Form ATS-G would replace the requirements of current
Rule 301(b)(2).
------------------------------------------------------------------------
``Collection of information''
requirement Applicable respondents
------------------------------------------------------------------------
Applicable sections of Rule 301(b), Currently Exempted Government
Rule 302, and Rule 303. Securities ATSs and any
Government Securities ATSs
that are established in the
future.\419\
Rule 301(b)(2)(viii), Rule 304 and Form All Government Securities
ATS-G, and Rule 301(b)(9). ATSs.\420\
[[Page 87162]]
Form ATS............................... All ATSs that file a Form ATS.
Form ATS-R............................. All ATSs that file a Form ATS,
Form ATS-N, or Form ATS-G.
Rule 301(b)(5) and Regulation SCI...... All Government Securities ATSs
that reach the volume
thresholds.
------------------------------------------------------------------------
The following chart summarizes the Commission's estimated number of
respondents:
[GRAPHIC] [TIFF OMITTED] TP31DE20.000
The Commission estimates that there are 7 Currently Exempted
Government Securities ATSs that would be newly subject to the
requirements of the exemption under Rule 3a1-1(a)(2) and required to
comply with the applicable sections of Rule 301(b), Rule 302, and Rule
303.\421\ Of these 7 Currently Exempted Government Securities ATSs, the
Commission estimates that 1 is currently operated by a bank and would
be newly subject to broker-dealer registration requirements under
Section 15 or Section 15C(a)(1)(A) of the Exchange Act.
---------------------------------------------------------------------------
\421\ The Commission estimates that 5 ATSs that do not have a
Form ATS on file with the Commission limit their trading activity to
government securities and 2 ATSs limit their trading activity to
repos.
---------------------------------------------------------------------------
In addition, there are 19 ATSs operating pursuant to a Form ATS
currently on file with the Commission that have noticed that they trade
government securities or repos (``Legacy
[[Page 87163]]
Filers'').\422\ Accordingly, the Commission estimates that 26
Government Securities ATSs would be required to comply with Regulation
ATS, including Rule 304, Form ATS-G, and the proposed amendments
related to Rule 301(b)(9).\423\ Under the proposed amendments to
Regulation ATS, 17 broker-dealers, each of which operates a Legacy
Filer, would be required to file a Form ATS to disclose information
about their activities in securities other than NMS stock, government
securities, or repos, if any.\424\ Consequently, these 17 broker-
dealers would have to amend Forms ATS to remove discussion of those
aspects of the ATS related to the trading of government securities and
repos, and on an ongoing basis, file separate Forms ATS-R to report
trading volume in government securities or repos.\425\
---------------------------------------------------------------------------
\422\ Based on data compiled from Forms ATS submitted to the
Commission as of July 1, 2020, 18 ATSs have disclosed on their Form
ATS their intention to trade government securities, and 3 ATSs have
disclosed their intention to trade repos. 2 of the 3 Government
Securities ATSs that have noticed their intention to trade repos
have also noticed their intention to trade government securities.
\423\ These 26 ATSs include 19 Legacy Filers that operate
pursuant to a Form ATS as of June 1, 2020 and 7 Currently Exempted
Government Securities ATSs that would be newly subject to the
requirements of the Exchange Act Rule 3a1-1(a)(2) exemption. As
discussed below, the Commission recognizes that there may be new
entities that will seek to become Government Securities ATSs, that
would be required to comply with Regulation ATS, including proposed
amendments to Rule 304, Rule 301(b)(9), and Form ATS-G.
\424\ As of July 1, 2020, 2 of the 19 Legacy Filers trade only
government securities or repos. Therefore, 2 broker-dealers that
operate these Legacy Filers would not be subject to the proposed
requirement to amend Form ATS and file separate Forms ATS-R.
\425\ See proposed Rule 301(b)(9).
---------------------------------------------------------------------------
The Commission believes that of the 19 Legacy Filers, most would
continue to operate notwithstanding the proposed amendments to
Regulation ATS. For the purposes of this analysis of the paperwork
burden associated with the proposed amendments to Regulation ATS, and
to make a complete account of the impact on potential respondents, the
Commission assumes that there will be 26 respondents. The Commission
believes that this number is reasonable, as it assumes that most Legacy
Filers would file a Form ATS-G with the Commission, and acknowledges
that there may be some entities that may choose to commence operations
as a Government Securities ATS and others that cease operations
altogether. In the Commission's experience with implementation of Form
ATS-N, a small number of NMS Stock ATSs either filed a cessation of
operations report before they were required to file an initial Form
ATS-N or did not file an initial Form ATS-N. These ATSs may have ceased
operations and did not file a cessation of operations report or
determined not to file initial Form ATS-N for a variety of business
reasons, including to not comply with the new requirements of Form ATS-
N. The Commission observes that from 2015 through the end of 2019,
there was an average of 1 new ATS per year that disclosed that it
trades or expects to trade government securities or repos on its
initial operation report on Form ATS and 1 Government Securities ATS
that ceased operations each year. Based on this information, the
Commission estimates that 1 new entity will file to become a Government
Securities ATS and 1 Government Securities ATS will cease operations in
each of the next three years.
Currently, there are 53 ATSs that file Form ATS. As of July 1,
2020, 2 of these trade only government securities or repos and, as
proposed, would only be required to file a Form ATS-G and amendments to
Form ATS-G after the Compliance Date. Accordingly, the Commission
estimates that 51 ATSs will continue to file Form ATS amendments. The
Commission also estimates that 34 NMS Stock ATSs will continue to file
Form ATS-N. In addition, the Commission estimates 94 ATSs will be
required to file Form ATS-R, including 87 ATSs that currently file Form
ATS-R and 7 Currently Exempted Government Securities ATSs.\426\
---------------------------------------------------------------------------
\426\ The numbers of respondents are based on data compiled from
Forms ATS and ATS-R filed with the Commission as of July 1, 2020.
One broker-dealer operates both a Legacy Filer and an NMS Stock ATS.
For purposes of estimating the burden applicable to this Legacy
Filer and NMS Stock ATS, the Commission counts each ATS operated by
a broker-dealer as a separate respondent because each such ATS has
separate filing obligations. See infra Section IX.D.4.
---------------------------------------------------------------------------
The Commission estimates that of the 26 Government Securities ATSs,
3 will meet the proposed volume thresholds and be subject to the Fair
Access Rule and Regulation SCI.\427\ The Commission believes that this
number is reasonable based on the Commission's review of the Forms ATS-
R of Legacy Filers.
---------------------------------------------------------------------------
\427\ See supra Sections II.D and VI. The Commission believes
that 3 Government Securities ATSs and 1 Government Securities ATS
will meet the proposed volume threshold for U.S. Treasury Securities
and Agency Securities, respectively. The Commission estimates that
the Government Securities ATS that will meet the threshold for
Agency Securities will also meet the threshold for U.S. Treasury
Securities. Accordingly, the Commission estimates that, as proposed,
3 Government Securities ATSs will be subject to the Fair Access Rule
and Regulation SCI. In addition, the Commission believes that 1 of
the 3 Government Securities ATSs that would be subject to Regulation
SCI is currently an SCI entity.
---------------------------------------------------------------------------
D. Total Initial and Annual Reporting and Recordkeeping Burdens
1. Rule 301(b) of Regulation ATS to Currently Exempted Government
Securities ATSs
a. Application of Rule 301(b)(1) to Currently Exempted Government
Securities ATSs
The Commission recognizes that applying Rule 301(b)(1) to Currently
Exempted Government Securities ATSs would impose a new burden on
Currently Exempted Government Securities ATSs that are banks, as
proposed Rule 301(b)(1) would require these ATSs to register as broker-
dealers under Section 15 or Section 15C(a)(1)(A) of the Exchange Act.
Based upon the existing burdens for completing and filing Form BD and
amending Form BD when information originally reported on Form BD
changes or becomes inaccurate, the Commission estimates that burdens
for registering with the Commission as a broker-dealer under Section 15
or Section 15C(a)(1)(A) \428\ would impose the following initial and
annual burdens:
---------------------------------------------------------------------------
\428\ The Commission believes that the burden to register as a
government securities broker or dealer would be, for the purposes
for this PRA analysis, the same as the burden to register as a
broker-dealer because the information the ATS is required to provide
in Form BD and amended Form BD is similar regardless of whether the
ATS is registering under Section 15 or Section 15C(a)(1)(A). Sole
government securities broker-dealers must indicate that they are
registering as a government securities broker or dealer under
Section 15C of the Exchange Act on Item 2.C of Form BD. Otherwise,
the information required to be provided on Form BD is identical.
[[Page 87164]]
----------------------------------------------------------------------------------------------------------------
Burden Initial burden Annual burden
----------------------------------------------------------------------------------------------------------------
Filing and amending Form BD....................... Per ATS: 2.75 hours \429\.... Per ATS: 1 hour\431\
Industry: 2.75 hours \430\... Industry: 1 hour \432\
----------------------------------------------------------------------------------------------------------------
b. Application of Rules 301(b)(8), 302, and 303 of Regulation ATS to
Currently Exempted Government Securities ATSs
---------------------------------------------------------------------------
\429\ See FR Doc. 2019-16601, 84 FR 38086 (August 5, 2019)
(Submission for OMB Review, Extension: Rule 15b1-1/Form BD; SEC File
No. 270-19; OMB Control No. 3235-0012).
\430\ Compliance Manager at 2.75 hours x 1 bank-operated
Currently Exempted Government Securities ATS = 2.75 burden hours.
The Commission recognizes that the time necessary to complete Form
BD would vary depending on the nature and complexity of the
Currently Exempted Government Securities ATS.
\431\ The Commission estimates that the additional annual burden
hours necessary for a Currently Exempted Government Securities ATS
to complete and file an amended Form BD would be approximately 0.33
hours. The Commission received an average of 10,959 Form BD
amendments per year from fiscal year 2016 to 2019. As of 2019, there
were 3,700 broker-dealers registered with the Commission. Based on
this estimate, the Commission estimates that Currently Exempted
Government Securities ATSs would file 3 amendments per year.
\432\ Compliance Manager at 0.33 hours x 3 amendments x 1
Currently Exempted Government Securities ATS = 1 burden hour.
---------------------------------------------------------------------------
The Commission recognizes that applying Rule 301(b)(8) to Currently
Exempted Government Securities ATSs would impose a new burden on
Currently Exempted Government Securities ATSs, which are currently not
required to comply with these requirements. Rule 301(b)(8) would
require Currently Exempted Government Securities ATSs to comply with
the requirements of Rules 302 and 303 of Regulation ATS. Based on the
Commission's currently approved estimates for ATSs, including Legacy
Filers,\433\ the Commission estimates that the proposed application of
Rules 301(b)(8), 302, and 303 to Currently Exempted Government
Securities ATSs would impose the following annual burdens:
---------------------------------------------------------------------------
\433\ As the requirements of Rules 301(b)(8), 302, and 303 would
be identical for Currently Exempted Government Securities ATSs and
Legacy Filers, the Commission believes that the hourly burden would
be the same for Currently Exempted Government Securities ATSs as it
is for Legacy Filers.
------------------------------------------------------------------------
Burden Annual burden
------------------------------------------------------------------------
Recordkeeping requirements under Rule 302.... Per ATS: 45 hours \434\
Industry: 315 hours \435\
Record preservation requirements under Rule Per ATS: 15 hours \436\
303. Industry: 105 hours \437\
--------------------------
Total--Rule 301(b)(8).................... Per ATS: 60 hours
Industry: 420 hours
------------------------------------------------------------------------
c. Application of Rule 301(b)(9) to Currently Exempted Government
Securities ATSs
---------------------------------------------------------------------------
\434\ Compliance Clerk at 45 hours = 45 burden hours. See FR
Doc. 2019-19237, 84 FR 47028 (September 6, 2019) (Submission for OMB
Review, Extension: Rule 302; SEC File No. 270-453; OMB Control No.
3235-0510).
\435\ 45 hours x 7 Currently Exempted Government Securities ATSs
= 315 burden hours.
\436\ Compliance Clerk at 15 hours = 15 burden hours. See FR
Doc. 2016-16040, 81 FR 44338, 44339 (Submission for OMB Review,
Extension: Rule 303; SEC File No. 270-450; OMB Control No. 3235-
0505).
\437\ 15 hours x 7 Currently Exempted Government Securities ATSs
= 105 burden hours.
---------------------------------------------------------------------------
The Commission recognizes that the proposed application of Rule
301(b)(9) to Currently Exempted Government Securities ATSs would impose
a burden on these respondents, as Currently Exempted Government
Securities ATSs are currently not required to comply with these
requirements. The Commission estimates that the proposed application of
Rule 301(b)(9) to Currently Exempted Government Securities ATSs would
impose the following annual burden:
---------------------------------------------------------------------------
\438\ Attorney at 3 hours + Compliance Manager at 0.25 hours
Clerk at 1.5 hours = 4.75 burden hours. See infra notes 525, 526,
and 528. The annual burden per Currently Exempted Government
Securities ATS would be 4.75 hours x 4 filings = 19 burden hours.
\439\ The aggregate annual burden would be 4.75 hours x 4
filings x 7 Currently Exempted Government Securities ATSs = 133
burden hours.
------------------------------------------------------------------------
Burden Annual burden
------------------------------------------------------------------------
Form ATS-R................................... Per ATS: 19 hours.\438\
Industry: 133 hours.\439\
------------------------------------------------------------------------
[[Page 87165]]
The Commission's currently approved estimate for the average
compliance burden for each Form ATS-R filing, including Form ATS-R
filings by Legacy Filers, is 4 hours.\440\ The Commission is proposing
amendments to Form ATS-R, which would add an additional burden of 0.75
hours per filing,\441\ and therefore the average compliance burden for
each Form ATS-R filing would be 4.75 hours.
d. Application of Rules 301(b)(10) and 303(a)(1)(v) to Currently
Exempted Government Securities ATSs
The Commission recognizes that Rules 301(b)(10) and 303(a)(1)(v) of
Regulation ATS would impose certain new burdens on respondents as
Currently Exempted Government Securities ATSs are not currently subject
to these requirements. Based on the currently-approved burdens for
Legacy Filers,\442\ the Commission estimates that the proposed
application of Rules 301(b)(10) and 303(a)(1)(v) to Currently Exempted
Government Securities ATSs would impose the following initial and
annual burdens:
------------------------------------------------------------------------
Burden Initial burden Annual burden
------------------------------------------------------------------------
Written safeguards and written Per ATS: 10 Per ATS: 4
procedures requirement under hours.\443\. hours.\445\
Rules 301(b)(10) and Industry: 70 hours Industry: 28 hours
303(a)(1)(v). \444\. \446\
------------------------------------------------------------------------
---------------------------------------------------------------------------
\440\ Attorney at 3 hours + Compliance Clerk at 1 hour = 4
burden hours. See Rule 301 OMB Update, supra note 419, at 6237.
\441\ See supra Section V.C and infra Section IX.D.4 (discussing
proposed changes to Form ATS-R applicable to all ATSs).
\442\ See NMS Stock ATS Adopting Release, supra note 1, at
38868.
\443\ The Commission estimates that a Currently Exempted
Government Securities ATS's initial, one-time burden would be
approximately 10 hours (Attorney at 9 hours + Compliance Clerk at 1
hour = 10 burden hours) based on the Commission's highest
approximation of the additional burden per ATS, but that the burden
could range between 5 and 10 hours (Attorney at 4-9 hours +
Compliance Clerk at 1 hour = 5-10 burden hours). See id.
\444\ (Attorney at 9 hours + Compliance Clerk at 1 hour) x 7
Currently Exempted Government Securities ATSs = 70 burden hours.
\445\ Attorney at 2 hours + Compliance Clerk at 2 hours = 4
burden hours. See NMS Stock ATS Adopting Release, supra note 1, at
38868.
\446\ 4 hours x 7 Currently Exempted Government Securities ATSs
= 28 burden hours.
---------------------------------------------------------------------------
2. Proposed Amendments to Rules 301(b)(2)(viii) and 304 of Regulation
ATS, Including Proposed Form ATS-G
a. Baseline Measurements
The Commission estimates that the proposed amendments to Rules
301(b)(2)(viii) and 304 would impose the following initial and annual
baseline burdens to Legacy Filers, which are equivalent to the
currently approved estimates for Form ATS and Form ATS-R:
[[Page 87166]]
----------------------------------------------------------------------------------------------------------------
Baseline burden Initial baseline burden Annual baseline burden
----------------------------------------------------------------------------------------------------------------
Initial operation report on Form ATS.............. Per ATS: 20 hours \447\...... N/A.
Industry: 380 hours.........
Form ATS amendments (twice per year) \448\........ N/A.......................... Per ATS: 12 hours.\449\
Industry: 228 hours.
Cessation of operations report on Form ATS........ N/A.......................... Per ATS: 2 hours.\450\
Industry: 2 hours.\451\
Form ATS-R........................................ N/A.......................... Per ATS: 16 hours.\452\
Industry: 304 hours.
Total--baseline burden........................ Per ATS: 20 hours............ Per ATS: 30 hours.
Industry: 380 hours.......... Industry: 534 hours.
----------------------------------------------------------------------------------------------------------------
Currently Exempted Government Securities ATSs are not currently
required to comply with the requirements of Rule 301(b)(2). The
Commission estimates that the proposed amendments to Rules
301(b)(2)(viii) and 304 would impose initial and annual baseline
burdens equivalent to those for Legacy Filers described above.
---------------------------------------------------------------------------
\447\ Attorney at 13 hours + Compliance Clerk at 7 hours = 20
burden hours. See Rule 301 OMB Update, supra note 419, at 6237.
\448\ During the fiscal year of 2019, the Commission received 39
amendments from the 19 Legacy Filers. Accordingly, the Commission
estimates that Legacy Filers amend their Form ATS on average twice
per year.
\449\ The Commission estimates the current average compliance
burden for each amendment to Form ATS is: Attorney at 4.5 hours +
Compliance Clerk at 1.5 hours = 6 burden hours. 2 Form ATS
amendments filed annually x 6 hours per Form ATS amendment = 12
burden hours per ATS. See id.
\450\ Attorney at 1.5 hours + Compliance Clerk at 0.5 hours = 2
burden hours. See id.
\451\ 2 hours x approximately 1 cessation of operations report
on Form ATS per year = 2 burden hours. See supra Section IX.D.
\452\ Attorney at 3 hours + Compliance Clerk at 1 hour = 4
burden hours. See Rule 301 OMB Update, supra note 419, at 6237. 4
Form ATS-R filings annually x 4 hours per Form ATS-R filing = 16
burden hours.
---------------------------------------------------------------------------
b. Burdens
The Commission believes that although many of the disclosures
required by proposed Form ATS-G are currently required by Form ATS,
proposed Form ATS-G would require a Government Securities ATS to
provide significantly more detail in those disclosures than currently
is required by Form ATS, as well as additional disclosures not
currently mandated by Form ATS.\453\ In addition, because Currently
Exempted Government Securities ATSs are not required to complete a Form
ATS, the Commission estimates that Currently Exempted Government
Securities ATSs will incur a burden equivalent to the current baseline
burdens on Legacy Filers as a result of the proposal.\454\
---------------------------------------------------------------------------
\453\ In establishing the estimates below with respect to
proposed Form ATS-G, the Commission has considered its estimate of
the burden for an SRO to amend a Form 19b-4. Specifically, the
Commission estimated that 34 hours is the amount of time required to
complete an average rule filing; 129 hours is the amount of time
required to complete a complex rule filing; and 3 hours is the
amount of time required to complete an average amendment to a rule
filing. See Securities Exchange Act Release No. 50486 (October 4,
2004), 69 FR 60287, 60294 (October 8, 2004).
\454\ See supra Section IX.D.2.a.
---------------------------------------------------------------------------
i. Analysis of Estimated Additional Burden for Proposed Form ATS-G
Although Form ATS-G is tailored to describe operations relevant to
Government Securities ATSs, the information requests on Form ATS-N and
Form ATS-G are, for the most part, very similar. In the Commission's
experience implementing Form ATS-N, the Commission believes that the
estimates calculated in the NMS Stock ATS Adopting Release continue to
be reasonable estimates of the burden hours imposed by Form ATS-N, and
therefore, reasonable estimates of the burden hours imposed by Form
ATS-G.\455\ As discussed below, due to requests unique to Form ATS-G,
the Commission estimates that Form ATS-G would require 5.75 more burden
hours than Form ATS-N. Accordingly, the Commission estimates that the
additional burden hours for filing a Form ATS-G would result in a total
additional burden of 114.15 hours per Government Securities ATS above
the current 20-burden hour baseline for an initial operation report on
Form ATS.\456\ The below chart compares the estimated burdens for Form
ATS-G to the currently-approved estimates for Form ATS-N: \457\
---------------------------------------------------------------------------
\455\ See NMS Stock ATS Adopting Release, supra note 1, at
38869-81.
\456\ 108.4 additional burden hours for filing a Form ATS-N that
the Commission estimated in the NMS Stock ATS Adopting Release +
5.75 hours added to the burden for requests unique to Form ATS-G =
114.15 additional burden hours. See NMS Stock ATS Adopting Release,
supra note 1, at Section IX.D.2. The NMS Stock ATS Adopting Release
stated that the Commission estimated that Form ATS-N would add an
additional 107.4 hours to the baseline for each ATS. See id. at
n.1228 and accompanying text. However, the actual total of the
estimated burden hours of the items in Form ATS-N in the NMS Stock
ATS Adopting Release is 108.4 (not 107.4). See id. at 38868-81.
Therefore, the Commission is using the estimated total of 108.4
additional burden hours for Form ATS-N as basis for estimating the
additional burden hours for Form ATS-G.
\457\ See id. Items for which the burden hours differ between
Form ATS-G and Form ATS-N are italicized.
------------------------------------------------------------------------
ATS-G ATS-N
Rule/item (hours) (hours)
------------------------------------------------------------------------
Part I \458\........................................ 0.75 0.5
Part I Total...................................... 0.75 0.5
Part II, 1(a)....................................... 4.25 4.25
Part II, 1(b)....................................... 0.25 0.25
Part II, 1(c)....................................... 1 1
Part II, 1(d) \459\................................. 1.5 0.5
Part II, 2(a)....................................... 6.25 6.25
Part II, 2(b)....................................... 0.25 0.25
Part II, 2(c)....................................... 1 1
Part II, 2(d) \461\................................. 1.5 0.5
Part II, 3.......................................... 1.5 1.5
Part II, 4.......................................... 4 4
Part II, 5.......................................... 3 3
Part II, 6.......................................... 5 5
Part II, 7.......................................... 1.5 1.5
Part II Total..................................... 31 29
Part III, 1......................................... 0.5 0.5
Part III, 2......................................... 1 1
Part III, 3......................................... 1 1
Part III, 4......................................... 0.5 0.5
Part III, 5......................................... 10.5 10.5
Part III, 6......................................... 2.5 2.5
Part III, 7......................................... 4 4
Part III, 8......................................... 1 1
Part III, 9......................................... 1 1
Part III, 10........................................ 1.25 1.25
Part III, 11........................................ 6 6
Part III, 12........................................ 1 1
Part III, 13........................................ 6 6
Part III, 14........................................ 2 2
Part III, 15 \460\.................................. 4.5 5
Part III, 16 \462\.................................. 6 2
Part III, 17........................................ 1.25 1.25
Part III, 18........................................ 1.25 1.25
Part III, 19........................................ 6 6
Part III, 20........................................ 2.5 2.5
Part III, 21 & 22................................... 0.5 0.5
Part III, 23........................................ 5 5
Part III, 24 (only applies to select respondents) 10 5
\463\..............................................
Part III, 25 \464\.................................. 7 5
Part III, 26........................................ 0 7
Part III Total.................................... 82.25 78.75
Part IV Total..................................... 0 0
-------------------
Total........................................... 114.15 108.4
------------------------------------------------------------------------
---------------------------------------------------------------------------
\458\ See infra note 465 and accompanying text.
\459\ See supra note 466 and accompanying text.
\460\ See supra note 467 and accompanying text.
\461\ See supra note 466 and accompanying text.
\462\ See supra note 468 and accompanying text.
\463\ See supra note 470 and accompanying text. Other than as
described below, the information required by Part III, Item 24 of
Form ATS-G is similar to the information required by Part III, Item
25 of Form ATS-N.
\464\ The information required by Part III, Item 25 of Form ATS-
G is identical to the information required by Part III, Item 26 of
Form ATS-G.
---------------------------------------------------------------------------
[[Page 87167]]
Part I of proposed Form ATS-G is identical to Part I for Form ATS-
N, as proposed, except that Part I, Item 5 of Form ATS-G requires a
Government Securities ATS to select the types of securities the ATS
trades (i.e., U.S. Treasury Securities, Agency Securities, repos, or
other). If the ATS selects ``other,'' it would be required to list the
types of securities it trades. The Commission believes that the
information required by the proposed disclosure under Part I, Item 5 is
already required under Exhibit B of current Form ATS, which requires an
ATS to provide, among other things, lists of securities and the types
of securities the ATS trades or expects to trade. Consequently, the
Commission believes that preparing this Item would not impose a
significant additional burden above the baseline. The Commission
estimates that, on average, preparing Part I, Item 5 for proposed Form
ATS-G would add 0.25 hours above the baseline for each Government
Securities ATS, resulting in an aggregate initial burden of 6.5 hours
above the baseline for all Government Securities ATSs.\465\
---------------------------------------------------------------------------
\465\ Compliance Clerk at 0.25 hours = 0.25 burden hours. 0.25
hours x 26 Government Securities ATSs = 6.5 burden hours.
---------------------------------------------------------------------------
Part II of proposed Form ATS-G is identical to Part II for Form
ATS-N except for Part II, Items 1(d) and 2(d) of Form ATS-G. Part II,
Items 1(d) and 2(d) of Form ATS-G would additionally require a
Government Securities ATS to identify the trading venue operated or
controlled by its broker-dealer operator or its affiliate,
respectively, to which orders and trading interest in the ATS could be
sent, and explain under what circumstances orders and trading interest
are sent from the ATS to the trading venue. These requirements are
similar to Part III, Item 16 of Form ATS-N, which requires an NMS Stock
ATS to provide disclosures surrounding orders and trading interest in
the ATS being routed to a destination outside the ATS. The Commission
therefore estimates that, on average, preparing these narratives in
Part II, Items 1(d) and 2(d) would each add one hour to the approved
estimated burden hours to prepare Part II, Items 1 and 2 of Form ATS-N,
resulting in an aggregate burden of 52 hours above the baseline for all
Government Securities ATSs.\466\
---------------------------------------------------------------------------
\466\ Attorney at 0.25 hours + Compliance Manager at 0.25 hours
+ Sr. Systems Analyst at 0.5 hours = 1 burden hour. The burden hours
to answer ``yes'' or ``no'' questions whether orders and trading
interest in the Government Securities ATS can be sent to a trading
venue operated or controlled by the broker-dealer operator or its
affiliate in proposed Part II, Items 1(d) and 2(d) of Form ATS-G,
respectively, are accounted for in the approved estimated burden for
preparing Part II of Form ATS-N. See infra note 475. The aggregate
hours would be: 26 Government Securities ATSs x (1 hour (for Part
II, Item 1(d)) + 1 hour (for Part II, Item 2(d))) = 52 burden hours.
---------------------------------------------------------------------------
Part III of proposed Form ATS-G requires a Government Securities
ATS to provide information similar to that in which an NMS Stock ATS is
currently required to provide under Part III of Form ATS-N with certain
exceptions. Unlike Form ATS-N, Part III, Item 15 of proposed Form ATS-G
does not ask whether the ATS is an Electronic Communication Network as
defined in Regulation NMS. Accordingly, the Commission believes that
Item 15 of proposed Form ATS-G would impose a lesser burden than the
approved estimated burden for Item 15 of Form ATS-N. The Commission
estimates that, on average, preparing Part III, Item 15 for Form ATS-G
would add 4.5 hours to the baseline, resulting in an aggregate initial
burden of 117 hours above the baseline for all Government Securities
ATSs.\467\
---------------------------------------------------------------------------
\467\ (Attorney at 0.9 hours + Compliance Manager at 1.8 hours +
Sr. Systems Analyst at 1.8 hours) x 26 Government Securities ATSs =
117 burden hours. In contrast, the Commission estimated that Part
III, Item 5 of Form ATS-N would require 5 hours per ATS to complete.
See NMS Stock ATS Adopting Release, supra note 1, at n.1211.
---------------------------------------------------------------------------
Part III, Item 16 of Form ATS-N asks about order routing; the
Commission is not including such a question in Form ATS-G. Instead,
Part III, Item 16 of Form ATS-G would require a Government Securities
ATS to disclose its functionalities or procedures to facilitate trading
on or source pricing for the Government Securities ATS using related
markets. As the broker-dealer operator controls all aspects of the
operation of the Government Securities ATS, the Commission believes
that the broker-dealer operator should already be aware of the ATS's
trading and pricing practices. Therefore, preparing this Item would not
impose a substantial burden on the respondents. The Commission
estimates that, on average, preparing Part III, Item 16 for Form ATS-G
would add a total of 6 hours to the baseline per respondent, resulting
in an aggregate initial burden of 156 hours above the baseline for all
Government Securities ATSs.\468\
---------------------------------------------------------------------------
\468\ (Attorney at 2 hours + Compliance Manager at 2.5 hours +
Sr. Systems Analyst at 1.5 hours) x 26 Government Securities ATSs =
156 burden hours. This is an additional 4 hours per ATS from the
additional 2-hour burden for Part III, Item 16 estimated for Form
ATS-N. See NMS Stock ATS Adopting Release, supra note 1, at n.1212.
---------------------------------------------------------------------------
As proposed, Form ATS-G would not, unlike Form ATS-N, include a
question pertaining to order display and execution access.\469\
However, similar to Part III, Item 25 of Form ATS-N, Part III, Item 24
of proposed Form ATS-G would require a Government Securities ATS to
disclose whether the ATS has triggered the proposed fair access
thresholds and, if applicable, describe the written standards for
granting access to trading on the ATS to comply with Rule
301(b)(5)(ii)(A) of Regulation ATS. Historically, Government Securities
ATSs have crossed these thresholds very rarely, with at most 3
Government Securities ATSs crossing either of the applicable thresholds
in any given year, and the Commission believes this would continue to
occur very infrequently. Consistent with the burden hours for
completing Part III, Item 25 of Form ATS-N, the Commission estimates
that preparing Part III, Item 24 in a proposed Form ATS-G would add 5
hours for each class of securities.\470\ Because Part III, Item 24 of
Form ATS-G requires the Government Securities ATS to provide the fair
access disclosures for two categories of government securities--U.S.
Treasury Securities and Agency Securities--the Commission estimates
that preparing this Item would add an additional 5 hours per respondent
and a total of 10 hours above the baseline for each respondent for
which both thresholds are applicable.\471\ The Commission believes that
3 ATSs crossed the proposed fair access threshold for U.S. Treasury
Securities, and 1 ATS crossed the proposed fair access threshold for
Agency Securities in four of the preceding six calendar months.
Accordingly, the Commission estimates that the preparing Part III, Item
24 for proposed Form ATS-G would result in an aggregate initial burden
of 20 hours above the baseline.\472\
---------------------------------------------------------------------------
\469\ See Part III, Item 24 of Form ATS-N. In the NMS Stock ATS
Adopting Release, the Commission estimated this Item would impose a
5-hour additional burden per ATS. See NMS Stock ATS Adopting
Release, supra note 1, at n.1225.
\470\ Attorney at 2 hours + Compliance Manager at 1 hour + Sr.
Systems Analyst at 2 hours = 5 burden hours. See NMS Stock ATS
Adopting Release, supra note 1, at 38880.
\471\ (Attorney at 2 hours + Compliance Manager at 1 hour + Sr.
Systems Analyst at 2 hours) x 2 categories of government securities
= 10 burden hours.
\472\ (5 hours x 3 Government Securities ATSs that crossed the
fair access threshold for U.S. Treasury Securities) + (5 hours x 1
Government Securities ATS that crossed the fair access threshold for
Agency Securities) = 20 burden hours.
---------------------------------------------------------------------------
In total, Government Securities ATSs would incur the following
initial burden, on average, to prepare proposed Form ATS-G:
[[Page 87168]]
------------------------------------------------------------------------
Burden Initial burden
------------------------------------------------------------------------
Baseline for initial operation report on Form Per ATS: 20 hours.
ATS. Industry: 520 hours.
Part I....................................... Per ATS: 0.75 hours.\473\
Industry: 19.5
hours.\474\
Part II...................................... Per ATS: 31 hours.\475\
Industry: 806 hours.\476\
Part III..................................... Per ATS: 82.25
hours.\477\
Industry: 1,898.5
hours.\478\
Access to EDGAR (applicable only to select Per ATS: 0.15 hours.
respondents). Industry: 0.15. hours.
--------------------------
Total--Form ATS-G........................ Per ATS: 134.15 hours.
Industry: 3,244.15 hours.
------------------------------------------------------------------------
ii. Estimated Burden Above the Current Baseline for a Form ATS-G, Form
ATS-G Amendment, and Notice of Cessation on Form ATS-G
---------------------------------------------------------------------------
\473\ Per respondent burden hours to prepare all items in Part I
of Form ATS-G, except Part I, Item 5, would be identical to those of
Part I for Form ATS-N. Therefore, the burden hours to prepare all
items in Part I, except Part I, Item 5, would be: Compliance Clerk
at 0.5 hours = 0.5 burden hours. See NMS Stock ATS Adopting Release,
supra note 1, at 38869. In aggregate, burden hours per Government
Securities ATS to prepare Part I of Form ATS-G would be: Compliance
Clerk at 0.75 hours = 0.75 burden hours.
\474\ Compliance Clerk at 0.75 hours x 26 Government Securities
ATSs = 19.5 burden hours.
\475\ Per respondent burden hours to prepare all items in Part
II of Form ATS-G, excluding the narratives in Part II, Items 1(d)
and 2(d), would be identical to those of Part II for Form ATS-N.
Therefore, the burden hours to prepare all items in Part II of Form
ATS-G, except Part II, Items 1(d) and 2(d), would be: Attorney at 15
hours + Compliance Manager at 11 hours + Sr. Marketing Manager at 2
hours = 28 burden hours. See NMS Stock ATS Adopting Release, supra
note 1, at 38869-73. Per respondent burden hours to prepare Part II
of Form ATS-G, including the burden hours to prepare the narratives
for Items 1(d) and 2(d), supra note 466, would be: Attorney at 15.5
hours + Compliance Manager at 12.5 hours + Sr. Systems Analyst at 1
hour + Sr. Marketing Manager at 2 hours = 31 burden hours.
\476\ 31 hours x 26 Government Securities ATSs = 806 burden
hours.
\477\ In aggregate, burden hours per Government Securities ATS
to prepare Part III of Form ATS-G would be: Attorney at 23.5 hours +
Compliance Manager at 28.2 hours + Sr. Systems Analyst at 30.55
hours = 82.25 burden hours. This estimate takes into account Part
III, Items 24(a) and 24(b), which apply only to select respondents.
\478\ (72.25 hours x 26 Government Securities ATSs subject to
Part III (other than Items 24(a) and 24(b))) + (5 hours x 3
Government Securities ATSs subject to Part III, Item 24(a)) + (5
hours x 1 Government Securities ATS subject to Part III, Item 24(b))
= 1,898.5 burden hours.
---------------------------------------------------------------------------
(a) Proposed Form ATS-G
Based on the above analysis, the Commission estimates that proposed
Form ATS-G would, on average, require approximately 114.15 burden hours
above the baseline per respondent. This would result in an estimated
134.15 burden hours in total per respondent, including the
baseline.\479\ Government Securities ATSs vary in terms of their
structure and the manner in which they operate. Legacy Filers also vary
with respect to the depth and extent of their disclosures on Form ATS.
Consequently, the Commission believes that the estimated hour burdens
herein regarding proposed Form ATS-G would likely vary among both
Legacy Filers and Currently Exempted Government Securities ATSs,
depending on such factors as the extent of their current disclosures on
Form ATS (as applicable), the complexity and structure of their
systems, and the extent of their other broker-dealer operator or
affiliate activities.
---------------------------------------------------------------------------
\479\ (Current Baseline at 20 hours) + (Part I at 0.75 hours) +
(Part II at 31 hours) + (Part III at an average of 82.25 hours) +
(Access to EDGAR at 0.15 hours, see infra Section IX.D.2.b.iv) =
134.15 burden hours. The aggregate totals by professionals,
including the baseline, are estimated to be approximately 55 hours
for an Attorney, 37.85 hours for a Compliance Manager, 31.55 hours
for a Sr. Systems Analyst, 2 hours for a Sr. Marketing Manager, and
7.75 hours for a Compliance Clerk. This estimated burden for a Form
ATS-G includes the hour burden associated with completing Part III,
Item 24 of proposed Form ATS-G. The Commission believes that the
majority of Government Securities ATSs would not be required to
complete these items of the proposed form.
---------------------------------------------------------------------------
(b) Form ATS-G Amendments
As previously stated, the Commission estimates that Legacy Filers
submit 2 amendments to Form ATS, on average, each year.\480\ In
addition to the same three general categories of required amendments as
Rule 301(b)(2) of Regulation ATS currently requires for Form ATS,\481\
proposed Form ATS-G requires contingent amendments. Due to the greater
detail and number of disclosures required by proposed Form ATS-G, the
Commission believes that respondents may file more amendments to
proposed Form ATS-G than Legacy Filers currently do on Form ATS. For
example, proposed Form ATS-G requests information about the ATS-related
activities of the broker-dealer operator and its affiliates in Part II
of proposed Form ATS-G, which are not required disclosures under
current Form ATS. To the extent information provided in response to
these requests changes, a Government Securities ATS must file a Form
ATS-G amendment. As with amendments to Form ATS, the burden on
Government Securities ATS associated with updating From ATS-G to
reflect current ATS functionality will vary depending on the frequency
and scope of changes made by the ATS. Making complete and
comprehensible disclosures of material changes to the Government
Securities ATS's operations, such as the introduction of a new order
type and its attributes or changes to segmentation procedures and
parameters, would require more time and resources from a Government
Securities ATS than providing complete and comprehensible disclosures
of a simple change to the physical or website address of the ATS.
Accordingly, the Commission is estimating that Government Securities
ATSs will file 3 amendments to Form ATS-G per year. The Commission
estimates that Government Securities ATSs would incur the following
annual burdens to amend their Form ATS-G:
---------------------------------------------------------------------------
\480\ See supra note 448.
\481\ See 17 CFR 242.301(b)(2).
\482\ Current ATSs file approximately 2 amendments per year, for
a total burden of 12 hours. See note 449 and accompanying text. To
calculate the total burden imposed by Form ATS-G amendment
requirements, the Commission is estimating a baseline filing
requirement for each Form ATS-G amendment equivalent to 6 hours per
amendment x 3 Form ATS-G amendments = 18 total baseline burden
hours.
\483\ This would result in a total estimated hourly burden,
including the baseline, of 9.4 hours for a Form ATS-G amendment. The
annual burden per ATS would be: 9.4 hours x 3 amendments per year =
28.2 burden hours. The aggregate total by professional would be:
16.5 hours for an Attorney, 6 hours for a Compliance Manager, and
5.7 hours for a Compliance Clerk.
\484\ 78 Form ATS-G amendments per year x 9.4 hours = 733.2
burden hours.
[[Page 87169]]
------------------------------------------------------------------------
Burden Annual burden
------------------------------------------------------------------------
Baseline burden related to Form ATS amendment Per ATS: 18 hours (6
hours x 3 Form ATS
amendments).\482\
Industry: 468 hours.
Form ATS-G amendment above the baseline...... Per ATS: 9 hours (3 hours
x 3 Form ATS-G
amendments).
Industry: 234 hours.
Preparing a brief summary and Exhibit 3...... Per ATS: 1.2 hours (0.4
hours x 3 Form ATS-G
amendments).
Industry: 31.2 hours.
--------------------------
Total--Form ATS-G amendment.............. Per ATS: 28.2 hours.\483\
Industry: 733.2
hours.\484\
------------------------------------------------------------------------
As stated above, the Commission estimates that the hourly burden
related to an amendment to Form ATS is 6 hours and that Currently
Exempted Government Securities ATSs would have a baseline hourly burden
of 6 hours to put them in the same position as Legacy Filers.\485\ The
Commission estimates that the average hourly burden above this baseline
of 6 hours for each Form ATS-G amendment would be 3 hours to
accommodate the more voluminous and detailed disclosures required by
Form ATS-G as compared to Form ATS.\486\ The Commission estimates that
the 26 Government Securities ATSs will file 3 Form ATS-G amendments
each year, for a total of 78 Form ATS-G amendments. In addition, a
Government Securities ATS would also be required to provide a brief
summary of the amendment at the top of Form ATS-G \487\ and submit as
Exhibit 3 one marked document that indicates changes to ``yes'' or
``no'' answers or additions to or deletions to Parts I, II, and III.
The Commission estimates that drafting the summary and preparing the
marked documents showing the amendments the Government Securities ATS
is making would add an additional burden of 0.4 hours.\488\
---------------------------------------------------------------------------
\485\ See supra note 449.
\486\ Attorney at 1 hour + Compliance Manager at 2 hours = 3
burden hours. The Commission believes that information required
under Form ATS-N amendment is similar to that required under
proposed Form ATS-G amendment and, therefore, estimates that the
burden for Form ATS-G amendment would be the same as the approved
estimated burden for Form ATS-N amendment. See NMS Stock ATS
Adopting Release, supra note 1, at 38881.
\487\ See Exhibit 3 to Form ATS-G.
\488\ Compliance Clerk at 0.4 hours = 0.4 burden hours. The
Commission believes that most word processing software provides for
this functionality. See NMS Stock ATS Adopting Release, supra note
1, at 38882.
---------------------------------------------------------------------------
(c) Notice of Cessation on Proposed Form ATS-G
As previously noted, from 2015 through 2019, there has been an
average of 1 Legacy Government Securities ATS that ceased operations
each year.\489\ Although it is unclear how many Government Securities
ATSs might cease operations each year going forward, for purposes of
making a PRA burden estimate, the Commission is estimating that this
average would generally remain the same for Government Securities ATSs
using Form ATS-G because economic conditions, business reasons, and
other factors may cause some Government Securities ATSs to cease
operations. Accordingly, the Commission estimates that 1 Government
Securities ATS may file a cessation of operation report on proposed
Form ATS-G each year. The Commission believes that the burden for
filing a cessation of operation report on proposed Form ATS-G would not
be significantly greater than that for filing a cessation of operation
report on current Form ATS. Both Form ATS and proposed Form ATS-G
require that the ATS check the appropriate box indicating that the ATS
is ceasing operations; however, proposed Form ATS-G also requires that
the Government Securities ATS provide the date that the ATS expects to
cease operating. The Commission therefore estimates that Government
Securities ATSs that file a cessation of operation report would incur
the following annual burden:
---------------------------------------------------------------------------
\489\ See supra Section IX.C.
\490\ Attorney at 1.5 hours + Compliance Clerk at 0.5 hours = 2
burden hours. See supra note 450.
\491\ 2 hours x 1 Government Securities ATS = 2 burden hours.
------------------------------------------------------------------------
Burden Annual burden
------------------------------------------------------------------------
Cessation of operation report on Form ATS-G.. Per ATS: 2 hours.\490\
Industry: 2 hours.\491\
------------------------------------------------------------------------
iii. Estimated Burden for Legacy Filers To File a Form ATS To Disclose
Information Related to Trading Activity in Other Securities on an ATS
A broker-dealer that operates an ATS that currently trades
government securities or repos and securities other than government
securities or repos would incur: (1) The above baseline burdens related
to filing a Form ATS-G and Form ATS-G amendments; \492\ (2) the
additional burden of filing an amendment to Form ATS to only disclose
information related to trading activity in securities other than
government securities or repos on an ATS \493\ and amending the Form
ATS on an ongoing basis; \494\ and (3) the burden of completing and
filing 2 Forms ATS-R--one disclosing trading volume in government
securities or repos and one disclosing trading volume in securities
other than government securities or repos.\495\ As of July 1, 2020, of
the 19 Legacy Filers, 17 ATSs trade, or have indicated that they expect
to trade, in Exhibit B to their Form ATS, both government securities or
repos and non-government securities on the ATS.\496\
[[Page 87170]]
Broker-dealers that operate Legacy Filers would incur the following
initial and annual burdens to disclose information related to trading
activity in securities other than government securities or repos on the
ATS:
---------------------------------------------------------------------------
\492\ See supra Section IX.D.2.b.ii.A and B.
\493\ See supra note 151 and accompanying text.
\494\ See supra Section IX.D.2.a and accompanying text for the
baseline estimates for submitting an IOR for Form ATS and amendments
to Form ATS.
\495\ See supra Section IX.D.2.a and accompanying text for the
baseline estimate for submitting a Form ATS-R.
\496\ One of the 2 Legacy Filers also trade, or have indicated
that it expects to trade, government securities in addition to repos
and non-government securities. Therefore, 17 broker-dealers, each of
which is a Legacy Filer, are subject to the burden in this section.
The broker-dealer for 1 Legacy Filer currently also operates an NMS
Stock ATS that files a Form ATS-N and a Form ATS-R to report
transactions in NMS stocks. As proposed, this broker-dealer would be
required to file 3 Forms ATS-R and maintain a Form ATS-G, Form ATS-
N, and Form ATS for its transactions in government securities and
repos, NMS stocks, and other securities, respectively. The burden
related to the NMS Stock ATS filings was reflected in the NMS Stock
ATS Adopting Release. See NMS Stock ATS Adopting Release, supra note
1, at 38882-83.
----------------------------------------------------------------------------------------------------------------
Burden Initial burden Annual burden
----------------------------------------------------------------------------------------------------------------
Form ATS amendment to remove references to Per Broker-Dealer: 10 hours N/A.
government securities and repos. \497\.
Industry: 170 hours..........
Form ATS-G (excluding access to EDGAR)............ Per Broker-Dealer: 134 hours. N/A.
Industry: 2,278 hours........
Form ATS amendment for non-Government Securities N/A.......................... Per Broker-Dealer: 13
ATS. hours.\498\
Industry: 221 hours.
Form ATS-G amendment.............................. N/A.......................... Per Broker-Dealer: 28.2
hours.\499\
Industry: 479.4 hours.
Two Forms ATS-R (one for Government Securities ATS N/A.......................... Per Broker-Dealer: 21
and one for non-Government Securities ATS). hours.\500\
Industry: 357 hours.
-------------------------------------------------------------
Total--burden for broker-dealers that operate Per Broker-Dealer: 144 hours. Per Broker-Dealer: 62.2
Legacy Filers that trade securities other Industry: 2,448 hours \501\.. hours.
than government securities or repos. Industry: 1,057.4 hours.
----------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------
\497\ In the NMS Stock ATS Adopting Release, the Commission
estimated that the burden for an ATS to separately file a Form ATS
for its non-NMS stock trading activity and Form ATS-N for its NMS
stock trading activity will be 20 burden hours to amend its initial
operation report on Form ATS for its non-NMS stock trading activity.
See NMS Stock ATS Adopting Release, supra note 1, at 38882. In the
Commission's experience implementing Form ATS-N, it found that the
actual burden for a broker-dealer to amend the initial operation
report on Form ATS to remove references to NMS stocks was much less
than the estimated 20 hour burden. The Commission believes that this
burden would be similar for broker-dealers operating Government
Securities ATSs. Accordingly, the Commission is estimating that
filing a Form ATS amendment to remove references to government
securities or repos would be 10 hours. Attorney at 6.5 hours +
Compliance Clerk at 3.5 hours = 10 burden hours. Such estimated
hourly burden may be less than the estimated 10 burden hours, as the
description of such ATS's trading activity in securities other than
government securities or repos should already be contained in the
existing Form ATS.
\498\ 2 Form ATS amendments per year x 6.5 hours = 13 burden
hours. The Commission estimates that, as proposed, the burden to
file a Form ATS amendment is 6.5 hours, including the baseline
burden and additional burden discussed in Section X.D.4. See supra
note 449 and infra note 524.
\499\ 3 Form ATS-G amendments per year x 9.4 hours = 28.2 burden
hours.
\500\ In addition, the Commission estimates that the total
burden for a broker-dealer to complete Forms ATS-R for both its
Government Securities ATS and non-Government Securities ATS would be
5.25 hours per quarter (Attorney at 3.5 hours + Compliance Manager
at 0.25 hours + Compliance Clerk at 1.5 hours = 5.25 burden hours),
which is 1.25 hours above the baseline burden of 4 hours for
currently filing a Form ATS-R (Attorney at 0.5 hours + Compliance
Manager at 0.25 hours + Compliance Clerk at 0.5 hours = 1.25 burden
hours). See infra notes 525, 526, and 528. See supra note 452 and
accompanying text for the baseline estimate for submitting a Form
ATS-R. The Commission believes that broker-dealers required to file
two Forms ATS-R would incur an additional burden of 0.5 hours above
the baseline because they would be required to divide their trading
statistics between two forms and file each form separately (Attorney
at 0.5 hours = 0.5 burden hours). The Commission does not believe
that those broker-dealers would incur any additional burden to
collect the required information because they currently assemble
that information when preparing the current Form ATS-R filings.
\501\ (Form ATS amendment at 10 hours + Form ATS-G at 134 hours)
x 17 broker-dealers = 2,448 aggregate burden hours. Broker-dealers
that operate Legacy Filers do not have burden associated with
gaining access to EDGAR, and therefore, burden for gaining access to
EDGAR is not accounted for in the burden to complete Form ATS-G. See
infra text accompanying note 505.
---------------------------------------------------------------------------
iv. Access to EDGAR
Government Securities ATSs would be required to submit Form ATS-G
filings through the Commission's EDGAR system. Based on the widespread
use and availability of the internet, the Commission believes that
filing Form ATS-G in an electronic format would be a less burdensome
and more efficient filing process for Government Securities ATSs and
the Commission, as it is likely to be less expensive and cumbersome
than mailing and filing paper forms to the Commission.\502\ For a Form
ATS-G filer to gain access to submit filings on the EDGAR system, the
filer must submit a Form ID as required by Rule 10(b) of Regulation S-T
\503\ and following the processes detailed in Volume I of the EDGAR
Filer Manual. Once a Form ID has been successfully completed and
processed, EDGAR will establish a Central Index Key (``CIK'') number,
which permits each authorized user to create EDGAR access code, which
will enable the Government Securities ATS to use EDGAR.
---------------------------------------------------------------------------
\502\ All estimated burden hours with regard to completing Parts
I through IV of proposed Form ATS-G include the estimated burden
associated with the requirement that Government Securities ATSs file
Form ATS-G in a structured XML format on EDGAR, including narrative
responses that are block-text tagged, or use the web-fillable form.
\503\ 17 CFR 232.10(b).
---------------------------------------------------------------------------
All registered broker-dealers have been assigned a CIK number and
do not need to submit a Form ID to access EDGAR.\504\ Because all
Legacy Filers and Currently Exempted Government Securities ATSs other
than those that are operated by banks are operated by either registered
broker-dealers under Section 15 or government securities brokers or
dealers under Section 15C(a)(1)(A), the Commission estimates that there
will be no burden associated with gaining access to EDGAR for Legacy
Filers and Currently Exempted Government Securities ATSs that are not
operated by banks.\505\
---------------------------------------------------------------------------
\504\ A broker-dealer that has never used EDGAR to make
electronic submissions may use its assigned CIK number to receive
access codes that will allow that broker-dealer operator to submit
Form ATS-G filings on EDGAR without needing to apply for a Form ID.
\505\ The Commission further believes that 1 of the 19 Legacy
Filers is operated by a broker-dealer that also operates an NMS
Stock ATS, and therefore, the broker-dealer currently has access to
and files through EDGAR.
---------------------------------------------------------------------------
Based on the number of initial filings and cessation of operations
reports on current Form ATS for Legacy Filers, the Commission estimates
that 1 to 2 new entities would file proposed Form ATS-G to become a
Government Securities ATS in each of the next three years. The
Commission estimates that among these new entities, 1 new entity per
year will be operated by an entity that has not previously registered
as a broker-dealer, a government securities broker, or a government
securities dealer or that does not otherwise already have access to
EDGAR. The Commission therefore estimates that an estimated 1 bank-
operated Currently Exempted Government Securities ATS and 1 new entity
would incur the following initial and annual burdens, respectively, by
[[Page 87171]]
submitting a Form ID to gain access to the EDGAR system:
----------------------------------------------------------------------------------------------------------------
Burden Initial burden Annual burden
----------------------------------------------------------------------------------------------------------------
Access to EDGAR................................... Per ATS: 0.15 hours \506\.... Per ATS: 0.15 hours.\508\
Industry: 0.15 hours \507\... Industry: 0.15 hours.\509\
----------------------------------------------------------------------------------------------------------------
v. Public Posting on Covered ATS's Website
---------------------------------------------------------------------------
\506\ Compliance Manager at 0.15 hours = 0.15 burden hours. See
FR Doc. 2019-04008, 84 FR 8126 (March 6, 2019) (Submission for OMB
Review, Extension: Form ID; SEC File No. 270-291; OMB Control No.
3235-0328).
\507\ Compliance Manager at 0.15 hours x 1 bank-operated
Currently Exempted Government Securities ATS = 0.15 burden hours.
\508\ See supra note 506.
\509\ Compliance Manager at 0.15 hours x 1 new entity that has
not previously registered as a broker-dealer, a government
securities broker, or a government securities dealer or that does
not otherwise already have access to EDGAR = 0.15 burden hours.
---------------------------------------------------------------------------
Proposed Rule 304(b)(3)(i) would require each Government Securities
ATS to make public via posting on the ATS's website a direct URL
hyperlink to the Commission's website that contains the documents
enumerated in proposed Rule 304(b)(2).\510\ Proposed Rule 304(b)(3)(ii)
would require each Covered ATS to make public via posting on its
website the most recently disseminated Covered Form. The Commission
estimates that Government Securities ATSs and NMS Stock ATSs would
incur the following initial and annual burdens to comply with the
proposed requirements to program and configure their websites to post
the required direct URL hyperlink and the most recently disseminated
Covered Form pursuant to proposed Rule 304(b)(3):
---------------------------------------------------------------------------
\510\ NMS Stock ATSs are already required to comply with Rule
304(b)(3)(i).
----------------------------------------------------------------------------------------------------------------
Burden Initial burden Annual burden
----------------------------------------------------------------------------------------------------------------
Public posting of hyperlink to the Commission's Per ATS: 2 hours............. N/A.
website on Government Securities ATS's website. Industry: 52 hours \511\.....
Public posting of the most recently disseminated Per ATS: 4 hours............. Per ATS: 12 hours.
Covered Form on Covered ATS's website. Industry: 240 hours \512\.... Industry: 720 hours.\513\
----------------------------------------------------------------------------------------------------------------
vi. Recordkeeping Requirements
---------------------------------------------------------------------------
\511\ Sr. Systems Analyst at 2 hours x 26 Government Securities
ATSs = 52 burden hours. The Commission estimates that this initial,
one-time burden would be 2 hours, in part because many broker-dealer
operators currently maintain a website for their Government
Securities ATSs.
\512\ The Commission estimates that Covered ATSs would each
incur an initial burden of 4 hours to post its Covered Form on its
website. The initial burden would be: Sr. Systems Analyst at 4 hours
x (26 Government Securities ATSs + 34 NMS Stock ATSs) = 240 burden
hours.
\513\ The Commission estimates that the ongoing burden would be
4 hours for each amendment to Covered Form and that Covered ATSs
would each file 3 amendments to Covered Form per year. See supra
Section IX.D.2.b.ii.(b). See also NMS Stock ATS Adopting Release,
supra note 1, at 38881. Therefore, the annual burden would be: Sr.
Systems Analyst at 4 hours x 3 amendments x (26 Government
Securities ATSs + 34 NMS Stock ATSs) = 720 burden hours.
---------------------------------------------------------------------------
Rule 303(a)(2)(ii) requires an ATS to preserve copies of reports
filed pursuant to Rule 301(b)(2) or 304, which includes all Form ATS
filings, and, as proposed, all Form ATS-G filings, for the life of the
enterprise and any successor enterprise. Because Legacy Filers that
trade only government securities or repos would file Form ATS-G in lieu
of Form ATS under this proposal, the Commission believes that Rule
303(a)(2)(ii) would not result in any burden for those ATSs that is not
already accounted for under the baseline burden estimate for Rule
303.\514\ For the 17 Legacy Filers that trade, or have indicated that
they expect to trade in Exhibit B to their Form ATS, government
securities or repos and securities other than government securities or
repos, the Commission estimates that the annual burden above the
baseline estimate for preserving records relating to compliance with
Rule 303(a)(2)(ii) would be the following:
---------------------------------------------------------------------------
\514\ To comply with all of the record preservation requirements
of Rule 303, the Commission currently estimates that ATSs spend
approximately 1,380 hours per year. See supra note 436, 78 FR 43943.
At an average cost per burden hour of $104.20, the resultant total
related cost of compliance is $143,796 per year (1,380 burden hours
x $104.20/hour). See id.
\515\ Compliance Clerk at 3 hours x 17 Legacy Filers = 51
aggregate burden hours.
------------------------------------------------------------------------
Burden Annual burden
------------------------------------------------------------------------
Record preservation requirement under Rule Per ATS: 3 hours.
303(a)(2)(ii). Industry: 51 hours.\515\
------------------------------------------------------------------------
[[Page 87172]]
3. Proposed Amendments to Rule 301(b)(5) of Regulation ATS
The Commission recognizes that applying the Fair Access Rule to the
trading of U.S. Treasury Securities and Agency Securities would impose
certain burdens upon the respondents. Currently, Rule 301(b)(5) only
applies to the trading of NMS stocks, equity securities that are not
NMS stocks and for which transactions are reported to an SRO, municipal
securities, and corporate debt securities, and therefore, it currently
imposes no burden on Government Securities ATSs.\516\ The Commission
estimates that 3 Government Securities ATSs would meet the volume
thresholds that trigger fair access obligations for U.S. Treasury
Securities and Agency Securities, and that the average compliance
burden of establishing written fair access standards for each entity
would be 10 hours. As a result of the proposed amendments to Rule
301(b)(5), certain Government Securities ATSs would incur the following
annual burden: \517\
---------------------------------------------------------------------------
\516\ 17 CFR 242.301(b)(5).
\517\ These estimated burdens are the same as the Commission's
currently approved estimates for compliance with Rule 301(b)(5)
because the requirements of the Fair Access Rule would be identical
for Government Securities ATSs and ATSs that are currently subject
to Rule 301(b)(5). See Rule 301 OMB Update, supra note 419, at 3238.
------------------------------------------------------------------------
Burden Annual burden
------------------------------------------------------------------------
Establishing written standards for granting Per ATS: 10 hours.
access under Rule 301(b)(5). Industry: 30 hours.\518\
Making and keeping records of grants and Per ATS: 10 hours.
denials of access under Rule 301(b)(5). Industry: 30 hours.\519\
--------------------------
Total--Rule 301(b)(5).................... Per ATS: 20 hours.
Industry: 60 hours.
------------------------------------------------------------------------
4. Proposed Amendments to Rule 301(b)(2), Form ATS, and Form ATS-R
---------------------------------------------------------------------------
\518\ Attorney at 10 hours x 3 responses = 30 burden hours.
\519\ Attorney at 10 hours x 3 responses = 30 burden hours.
---------------------------------------------------------------------------
The Commission believes that the proposed amendments to Rule
301(b)(2), Form ATS, and Form ATS-R would impose the following initial
and annual burden to applicable respondents described further below:
\520\
---------------------------------------------------------------------------
\520\ The Commission notes that it is proposing changes to Form
ATS-N to delete a question related to legacy status, and to include
a checkbox asking if the registered broker-dealer is authorized by a
national securities association to operate an ATS. See supra Section
V.D. The Commission believes that because this information should be
readily available to a filer and requires only marking a checkbox,
this will have no impact on the estimated burden of Form ATS-N.
[[Page 87173]]
----------------------------------------------------------------------------------------------------------------
Burden Initial burden Annual burden
----------------------------------------------------------------------------------------------------------------
Electronic filing (access to EDGAR)............... Per ATS: 0.15 hours.......... N/A.
Industry: 0.15 hours.........
Initial operation report on Form ATS:
Current approved burden for initial Form ATS.. Per ATS: 20 hours............ N/A.
Industry: 1,020 hours........
Changes to Part I on Form ATS................. Per ATS: 0.5 hours........... N/A.
Industry: 25.5 hours.........
Total for initial Form ATS, as proposed to be Per ATS: 20.5 hours.......... N/A.
amended. Industry: 1,045.5 hours......
-------------------------------------------------------------
Amendment on Form ATS:
Current approved burden for Form ATS amendment N/A.......................... Per ATS: 12 hours.
Industry: 612 hours.
Changes to Part I on Form ATS................. N/A.......................... Per ATS: 1 hour.
Industry: 51 hours.
-------------------------------------------------------------
Total for amendment to Form ATS, as N/A.......................... Per ATS: 13 hours.
proposed to be amended. Industry: 663 hours.
Form ATS-R:
Current approved burden for Form ATS-R (4 per N/A.......................... Per ATS: 16 hours.
year). Industry: 1,504 hours.
Changes to Part I on Form ATS-R............... N/A.......................... Per ATS: 2 hours.
Industry: 188 hours.
Indicating the type of filing and whether the N/A.......................... Per ATS: 0.4 hours.
ATS is subject to the fair access Industry: 37.6 hours.
requirements on Form ATS-R.
Providing additional detail (e.g., trading N/A.......................... Per ATS: 0.6 hours.
volume and types of securities/options) on Industry: 36 hours.
Form ATS-R.
-------------------------------------------------------------
Total burden for filing Form ATS-R, as N/A.......................... Per ATS: 19 hours.
proposed to be amended. Industry: 1,766 hours.
----------------------------------------------------------------------------------------------------------------
The Commission is proposing that Form ATS and Form ATS-R would be
filed electronically. However, the Commission believes that electronic
submission of Form ATS and Form ATS-R would impose no additional burden
on existing ATSs. All ATSs that file a Form ATS or Form ATS-R are
registered broker-dealers and therefore do not need to submit a Form ID
to access EDGAR.
The Commission estimates that the burden associated with receiving
access to EDGAR by submitting a Form ID is 0.15 burden hours per
response. Based on the number of initial filings and cessation of
operations reports on current Form ATS for by existing ATSs, the
Commission estimates that 4 new entities would file a new Form ATS in
each of the next three years. The Commission estimates that among these
new entities, 1 new entity per year will be operated by an entity that
has not previously registered as a broker-dealer, a government
securities broker, or a government securities dealer or that does not
otherwise already have access to EDGAR. The total estimated hourly
burden and aggregate initial burden for new ATSs gaining access to
EDGAR is therefore 0.15 hours.\521\
---------------------------------------------------------------------------
\521\ Compliance Manager at 0.15 hours x 1 ATS = 0.15 burden
hours.
---------------------------------------------------------------------------
The Commission is also proposing changes to Part I of Form ATS and
Form ATS-R. As stated above, Legacy Filers are subject to a baseline
burden of 20 hours for filing Form ATS, a baseline burden of 6 hours
for amending Form ATS per filing, and a baseline burden of 4 hours per
quarter for filing Form ATS-R. The proposed changes contain
substantially the same information as current Form ATS and Form ATS-R.
However, the proposed changes would not include several information
requests that appear on the current forms, and would include additional
information requests, such as the website of the ATS, the MPID of the
ATS, and information related to the national securities association of
the broker-dealer operator. The Commission estimates that the changes
to Part I on Form ATS-R and Form ATS will add an additional burden of
0.5 hours above the baseline burden \522\ and an aggregate burden of
25.5 additional initial burden hours for ATSs filing Form ATS,\523\ 51
additional annual burden hours for amending Form ATS,\524\ and 188
additional annual burden hours for ATSs filing Form ATS-R.\525\
---------------------------------------------------------------------------
\522\ The Commission notes that the additional disclosures are
substantially similar to those on Form ATS-N and the additional
burden is the same as estimated in the NMS Stock ATS Adopting
Release. See NMS Stock ATS Adopting Release, supra note 1, at 38869.
\523\ Compliance Clerk at 0.5 hours x 51 ATSs filing Form ATS =
25.5 burden hours.
\524\ Compliance Clerk at 0.5 hours x 2 average amendments filed
on Form ATS per year x 51 ATSs filing Form ATS = 51 burden hours.
\525\ Compliance Clerk at 0.5 hours x 4 filings annually x 94
ATSs filing Form ATS-R = 188 burden hours.
---------------------------------------------------------------------------
In addition, the Commission is proposing that ATSs provide
additional detail on Form ATS-R. The Commission is proposing that ATSs
differentiate trading volume in U.S. Treasury Securities and Agency
Securities on Form ATS-R. The Commission believes that ATSs will be
aware which of the securities they trade are U.S. Treasury Securities
and which are Agency Securities, and that this requirement will impose
no additional burden on Government Securities ATSs, but rather
eliminate the need for ATSs to combine all of its trading in government
securities in a single category. The Commission is also proposing that
ATSs provide total dollar volume in transactions in repos. In the
Commission's experience, ATSs currently provide this detail on Form
ATS-R, but the Commission would include a new item requiring this
disclosure. The Commission would require ATSs to provide a list of the
types of securities subject to such repurchase and reverse repurchase
agreements, as well as to provide a list of the types of listed options
they trade. The Commission believes that ATSs are aware of this
information and that this should impose very little burden on the
[[Page 87174]]
ATSs. The Commission estimates that checking these boxes would impose
an additional burden of 0.15 hours for an aggregate additional annual
burden of 36 hours.\526\
---------------------------------------------------------------------------
\526\ Compliance Manager at 0.15 hours x 4 filings annually x 60
non-NMS Stock ATSs that file Form ATS-R = 36 burden hours.
---------------------------------------------------------------------------
The Commission is also proposing changes to Form ATS-R to require
an ATS to indicate the type of the filing (and if applicable the date
of cessation) and whether the ATS is subject to fair access
obligations.\527\ The ATS would be aware of the type of filing it is
making and whether it is subject to the fair access requirements, so
this requirement will impose very little additional burden. The
Commission estimates that checking these boxes would impose an
additional burden of 0.1 hours for an aggregate additional annual
burden of 37.6 hours.\528\
---------------------------------------------------------------------------
\527\ See supra Section V.C.
\528\ Compliance Manager at 0.1 hours x 4 filings annually x 94
ATSs that file Form ATS-R = 37.6 burden hours.
---------------------------------------------------------------------------
The Commission is also proposing changes to Form ATS to specify the
type of amendment that the ATS is filing. The Commission believes this
will create no additional burden as ATSs currently have to check what
type of filing they are submitting. This proposed change would merely
change which box the ATS would have to check. In the case of a
cessation of operations filing, the Commission is proposing that the
ATS would need to provide the date of cessation. The Commission
believes that providing this information would impose minimal burden
because this is information of which the ATS will be aware and will
take little time to input on Form ATS.
5. Proposed Amendments to Regulation SCI
Currently, Regulation SCI imposes no burden on Government
Securities ATSs. The Commission believes that the approved paperwork
burden estimates per entity under Regulation SCI generally would be
applicable to these Government Securities ATSs, because they would be
subject to the same requirements and burdens as other SCI
entities.\529\ At the same time, the Commission believes that the
burden estimates also should take into account the extent to which
Government Securities ATSs may already be SCI entities or may be
affiliated with SCI entities that already comply with the requirements
of Regulation SCI. The Commission estimates that proposed amendments to
Regulation SCI would impose the following initial and annual burdens to
certain (1) Government Securities ATSs that are existing SCI entities
or affiliated with SCI entities and (2) Government Securities ATSs that
are not currently SCI entities or affiliated with existing SCI
entities:
---------------------------------------------------------------------------
\529\ See Proposed Collection; Comment Request; Extension:
Regulation SCI, Form SCI; SEC File No. 270-653, OMB Control No.
3235-0703, 83 FR 34179 (``2018 SCI PRA Extension'').
\530\ (1,017.15 initial burden hours for compliance with
Regulation SCI x 1 Government Securities ATS affiliated with a
current SCI entity) + (2,034.3 initial burden hours for compliance
with Regulation SCI x 2 Government Securities ATSs not affiliated
with current SCI entities) = 5,085.75 burden hours. In the
Supporting Statement for the Paperwork Reduction Act Information
Collection Submission for Regulation SCI, the Commission estimated
that the total one-time initial burden for an SCI entity that is not
an SRO or a plan processor to comply with Regulation SCI would be
2,034.3 hours. See Extension Without Change of a Currently Approved
Collection: Regulation SCI and Form SCI; ICR Reference No. 201807-
3235-001; OMB Control No. 3235-0703 (September 26, 2018) available
at: https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=201807-3235-001 (``2018 SCI PRA Supporting
Statement'').
\531\ 2,458.65 ongoing burden hours for compliance with
Regulation SCI x 3 Government Securities ATSs = 7,375.95 burden
hours. In the Supporting Statement for the Paperwork Reduction Act
Information Collection Submission for Regulation SCI, the Commission
estimated that the total ongoing annual burden for an SCI entity
that is not an SRO or a plan processor to comply with Regulation SCI
would be 2458.65 hours. See 2018 SCI PRA Supporting Statement, supra
note 530.
----------------------------------------------------------------------------------------------------------------
Burden Initial burden Annual burden
----------------------------------------------------------------------------------------------------------------
Compliance with Regulation SCI (existing SCI Per ATS: 1,017.15 hours...... Per ATS: 2,458.65 hours.
entities). Industry: 1,017.15 hours..... Industry: 2,458.65 hours.
Compliance with Regulation SCI (not existing SCI Per ATS: 2,034.3 hours....... Per ATS: 2,458.65 hours.
entities). Industry: 4,068.6 hours...... Industry: 4,917.3 hours.
-------------------------------------------------------------
Total--compliance with Regulation SCI......... Industry: 5,085.75 hours Industry: 7,375.95 hours
\530\. \531\.
----------------------------------------------------------------------------------------------------------------
The Commission estimates that 3 Government Securities ATSs would be
subject to these requirements, including 1 Government Securities ATS
that is an existing SCI entity. In particular, the Commission believes
that the 2 entities that are not currently SCI entities would have the
same estimated initial paperwork burdens as those estimated for new SCI
entities and the same ongoing paperwork burdens as all other SCI
entities.\532\ The Commission also believes that because 1 of these
ATSs is an existing SCI entity or affiliated with an SCI entity that is
already required to implement the requirements of Regulation SCI, this
entity would not have initial burdens equivalent to those estimated for
new SCI entities. At the same time, because this entity would be
trading securities in a different segment of the securities market and
is likely to have new or distinct SCI systems for government
securities, the Commission believes that this ATS would have some
initial burden that would be a percentage of that which entirely new
SCI entities have. In particular, the Commission estimates that the
initial burdens for a Government Securities ATS that is currently an
SCI entity or affiliated with an SCI entity would be 50 percent of the
estimated initial burdens for entirely new SCI entities. For example,
the Commission believes that such ATS would need to develop and draft
the policies and procedures required by Rule 1001(a) for new SCI
systems utilized for the trading of government securities, but unlike
completely new SCI entities, this entity would already have Rule
1001(a) policies and procedures in place for other types of SCI systems
that it could utilize as a model and modify as needed for new SCI
systems.\533\ The Commission also believes that the estimated ongoing
paperwork burden estimates for all SCI entities would be applicable to
this entity as well.\534\
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\532\ See 2018 SCI PRA Extension, supra note 529.
\533\ As an example, the estimate of an initial recordkeeping
burden was 694 hours per new respondent to comply with the policies
and procedures requirement of Rule 1001(a). Id. at 34180. The
Commission estimates that, for a Government Securities ATS that is
already an SCI entity or affiliated with an SCI entity, the initial
burden for Rule 1001(a) would be 50 percent of this estimated
amount, or 347 hours.
\534\ The ongoing paperwork burden estimates in the 2018 SCI PRA
Extension do not distinguish among different categories of SCI
entities, but rather provide an average for all SCI entities.
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E. Collection of Information Is Mandatory
All collections of information pursuant to the proposed rules would
be mandatory for entities that meet the definition of ATS.
[[Page 87175]]
F. Confidentiality of Responses to Collection of Information
With respect to the proposed amendments to Rules 301(b)(2)(viii)
and 304 of Regulation ATS, including proposed Form ATS-G, the
Commission would make publicly available on its website all effective
Forms ATS-G, all properly filed Form ATS-G amendments to effective
Forms ATS-G, and notices of cessation on Forms ATS-G.\535\ The
Commission would not make publicly available on its website Forms ATS-G
that the Commission has declared ineffective, but these forms would be
available for examination by the Commission and its staff, state
securities authorities, and SRO(s) of which the Government Securities
ATS's broker-dealer operator is a member. The other collections of
information required by the proposed application of Rules 301(b) to
Currently Exempted Government Securities ATSs and the proposed
amendments to Rule 301(b)(2), Form ATS, Form ATS-R, the Fair Access
Rule, and Regulation SCI would not be made public, but would be used
for regulatory purposes by the Commission and the SRO(s) of which the
ATS's broker-dealer operator is a member. In Part III, Item 24 of
proposed Form ATS-G, however, Government Securities ATSs subject to the
Fair Access Rule would be required to describe the written standards
for granting access to trading on the ATS pursuant to Rule
301(b)(5)(ii)(A). To the extent that the Commission receives
confidential information pursuant to this collection of information,
such information would be kept confidential, subject to the provisions
of applicable law.
---------------------------------------------------------------------------
\535\ See supra Section II.G.
---------------------------------------------------------------------------
G. Retention Period for Recordkeeping Requirements
All reports required to be made under Rules 301(b)(2)(viii),
301(b)(9), and 304 of Regulation ATS, including proposed Form ATS-G,
will be required to be preserved during the life of the enterprise and
any successor enterprise. As proposed, Currently Exempted Government
Securities ATSs would also be required to preserve a copy of their
written safeguards and written procedures to protect subscribers'
confidential trading information under Rule 301(b)(10) of Regulation
ATS for not less than three years, the first two years in an easily
accessible place, pursuant to Rule 303(a)(1)(v) of Regulation ATS.\536\
Currently Exempted Government Securities ATSs would be required to
preserve for not less than three years, the first two years in an
easily accessible place, a copy of all records required to be made
pursuant to Rule 302, all notices provided by such ATSs to subscribers
generally, and at least one copy of its standards for access to
trading, all documents relevant to its decision to grant, deny, or
limit access to any person, and all other documents made or received in
the course of complying with Rule 301(b)(5).\537\ An SCI entity must
keep all documents relating to compliance with Regulation SCI for a
period of not less than five years, the first two years in a place that
is readily accessible by the Commission or its representatives for
inspection and examination.\538\
---------------------------------------------------------------------------
\536\ Legacy Filers are currently subject to the recordkeeping
requirements of Rule 301(b)(10). See supra Section IX.A.
\537\ See supra Section II.C.
\538\ See 17 CFR 242.1005(b)(2).
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H. Request for Comments
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comments to:
167. Evaluate whether the proposed collection of information is
necessary for the proper performance of the Commission's functions,
including whether the information shall have practical utility;
168. Evaluate the accuracy of the Commission's estimates of the
burden of the proposed collection of information;
169. Determine whether there are ways to enhance the quality,
utility, and clarity of the information to be collected;
170. Evaluate whether there are ways to minimize the burden of
collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology; and
171. Evaluate whether the proposed amendments would have any
effects on any other collection of information not previously
identified in this section.
Persons submitting comments on the collection of information
requirements should direct them to the Office of Management and Budget,
Attention: Desk Officer for the Securities and Exchange Commission,
Office of Information and Regulatory Affairs, Washington, DC 20503, and
should also send a copy of their comments to Vanessa Countryman,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090, with reference to File Number S7-12-20.
Requests for materials submitted to OMB by the Commission with regard
to this collection of information should be in writing, with reference
to File Number S7-12-20 and be submitted to the Securities and Exchange
Commission, Office of FOIA/PA Services, 100 F Street NE, Washington, DC
20549-2736. As OMB is required to make a decision concerning the
collection of information between 30 and 60 days after publication, a
comment to OMB is best assured of having its full effect if OMB
receives it within 30 days of publication.
X. Economic Analysis
The Commission is sensitive to the economic consequences and
effects, including the costs and benefits, of its rules. The following
economic analysis identifies and considers the costs and benefits--
including the effects on efficiency, competition, and capital
formation--that may result from, among other things, (i) the proposed
amendments to Regulation ATS to require Government Securities ATSs to
publicly disclose on Form ATS-G their manner of operations and the ATS-
related activities of the broker-dealer operator and its affiliates,
(ii) the proposed amendments to Regulation ATS to apply the Fair Access
Rule to Government Securities ATSs that meet certain volume thresholds
in U.S. Treasury Securities or Agency Securities, and (iii) the
proposal to amend Regulation SCI to apply its requirements to ATSs that
meet certain volume thresholds in U.S. Treasury Securities or Agency
Securities.\539\
---------------------------------------------------------------------------
\539\ Exchange Act Section 3(f) requires the Commission, when it
is engaged in rulemaking pursuant to the Exchange Act and is
required to consider or determine whether an action is necessary or
appropriate in the public interest, to consider, in addition to the
protection of investors, whether the action will promote efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f). In
addition, Exchange Act Section 23(a)(2) requires the Commission,
when making rules pursuant to the Exchange Act, to consider among
other matters the impact that any such rule would have on
competition and not to adopt any rule that would impose a burden on
competition that is not necessary or appropriate in furtherance of
the purposes of the Exchange Act. See 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------
This discussion of the economic effects of the proposed amendments
to Regulation ATS and Regulation SCI (collectively referred to as
``proposed amendments'') begins with a baseline analysis of the market
for government securities and the current regulations that apply to
ATSs that trade government securities or repos. The economic analysis
then discusses the likely economic effects of the proposed amendments,
including the costs and benefits as well as their effects on
efficiency, competition, and capital formation. The economic analysis
also includes a discussion of the potential
[[Page 87176]]
costs and benefits of reasonable alternatives to the proposed
amendments. The Commission requests comment on all aspects of the
economic effects of the proposed amendments and of reasonable
alternatives.
A. Introduction
Government Securities ATSs have grown to levels of sophistication
similar to those of NMS Stock ATSs, but Regulation ATS currently only
applies in a limited manner--if at all--to Government Securities
ATSs.\540\ The Commission believes that removing the exemption for
Currently Exempted Government Securities ATSs and amending Regulation
ATS for Government Securities ATSs would: (1) Extend the investor
protections of Regulation ATS to subscribers of Currently Exempted
Government Securities ATSs; (2) enhance the regulatory oversight of
Government Securities ATSs and allow the Commission to better monitor
trading and their role in the government securities and repo market;
(3) enhance the operational transparency of Government Securities ATSs
through public disclosures on Form ATS-G and; and (4) help ensure the
fair treatment of potential and current subscribers to Government
Securities ATSs with significant volume in U.S. Treasury Securities and
Agency Securities.
---------------------------------------------------------------------------
\540\ See supra Section I.B for a discussion of the current
regulatory framework for Government Securities ATSs.
---------------------------------------------------------------------------
The Commission believes that the proposed amendments to Regulation
SCI for Government Securities ATSs would help address technological
vulnerabilities and reduce the chance of a system issue disrupting
trading on a significant government securities platform.\541\ The
proposed amendments would also help improve system up-time and would
reduce the frequency, severity, and duration of systems issues that
directly inhibit execution facilities or order matching, which could
help prevent interruptions in the price discovery process and liquidity
flows and, thus may help prevent periods with pricing inefficiencies
from occurring.
---------------------------------------------------------------------------
\541\ See infra Section X.C.1.b.
---------------------------------------------------------------------------
The Commission believes that the proposed amendments would enhance
the operational transparency and the Commission's oversight of ATSs
that trade U.S. Treasury Securities. As described in the October 15
Staff Report, on July 13, 2015, the market for U.S. Treasury securities
and futures experienced an unprecedented round-trip in prices between
9:33 a.m. and 9:45 a.m., resulting in a 37 basis point trading range
for the day.\542\ The market continued to function with high volatility
and trading volumes, but liquidity conditions became significantly
strained. After this event, the Treasury Department issued a Request
for Information on the evolution of the U.S. Treasury market
structure.\543\ In response to the Treasury Request for Information,
many entities called for greater transparency and public access to data
regarding the functioning of U.S. Treasury markets.\544\ Enhancing
operational transparency and public disclosures is expected to improve
market efficiency, which should help address concerns raised by the
``flash rally.'' Enhancing the Commission's ability to monitor
transactions volume at a detailed level would permit more focused
surveillance to address potential concerns about market function.
---------------------------------------------------------------------------
\542\ See October 15 Staff Report, supra note 14.
\543\ See Treasury Request for Information, supra note 10.
\544\ See Press Release, U.S. Securities and Exchange
Commission, Statement on Trade Reporting in the U.S. Treasury Market
(May 16, 2016), available at https://www.sec.gov/news/pressrelease/2016-90.html. See also Michael J. Fleming, Advent of Trade Reporting
for U.S. Treasury Securities (January 17, 2017), Federal Reserve
Bank of New York, Liberty Street Economics, available at https://libertystreeteconomics.newyorkfed.org/2017/01/advent-of-trade-reporting-for-us-treasury-securities.html.
---------------------------------------------------------------------------
The Commission recognizes that Government Securities ATSs would
incur implementation and ongoing compliance costs as a result of the
proposed amendments, which require Government Securities ATSs to
establish and update policies and procedures, gather information for
new disclosures, update systems to comply with recordkeeping
requirements, and make other adjustments to comply with the
requirements of the proposed amendments.\545\ The Commission recognizes
that the proposed amendments could have effects on competition for
order flow in the market for government securities and repo execution
services, the efficiency with which market participants achieve their
trading objectives, and capital formation.\546\ The Commission believes
that the enhancement in operational transparency of Government
Securities ATSs could promote competition for order flow and
incentivize Government Securities ATSs to innovate.\547\ The Commission
also believes that the proposed amendments could lower search costs and
increase trading venue options for market participants resulting in
lower trading costs and better efficiency with which they achieve their
trading objectives.\548\ Furthermore, the Commission believes that
extending Regulation SCI to include Government Securities ATSs with
significant volume in U.S. Treasury Securities and Agency Securities
would reduce the frequency, severity, and duration of such effects
resulting from systems issues, thereby enhancing price efficiency of
government securities and promoting capital formation.\549\
---------------------------------------------------------------------------
\545\ See infra Section X.C.2.
\546\ See infra Section X.C.3.
\547\ See supra note 546.
\548\ See id.
\549\ See infra Section X.C.3.c for a discussion about the price
discovery and price efficiency of U.S. Treasury Securities, risk-
free rate benchmarks, pricing of risky securities, and capital
formation. See also October 15 Staff Report, supra note 14, for a
discussion about price discovery being especially important in the
secondary market for on-the-run U.S. Treasury Securities because the
transaction prices are used as risk-free rate benchmarks to price
other securities transactions.
---------------------------------------------------------------------------
B. Baseline
The baseline against which economic costs and benefits, as well as
the impact of the proposed amendments on efficiency, competition, and
capital formation, are measured is the current market and regulatory
framework for the market for government securities and repo execution
services. The baseline describes how ATSs play an important role in the
current state of competition in the market for trading government
securities. Competition among ATSs is influenced by current reporting
requirements for Government Securities ATSs, including operational and
transaction reporting requirements, which creates a potentially uneven
competitive landscape. Similarly, the limited public information about
Government Securities ATSs' operations results in information
asymmetries. Current regulation of Government Securities ATSs'
treatment of subscriber confidential trading information could lead to
potential abuse of such information.
The Fair Access Rule of Regulation ATS does not currently apply to
ATSs that trade government securities, and there is no mechanism to
prevent Government Securities ATSs from unreasonably denying or
limiting subscribers' access to an ATS that is a significant market for
government securities, which could increase their trading costs.\550\
Furthermore, Regulation SCI does not currently apply to the government
securities activities of
[[Page 87177]]
an ATS. The Commission believes that, without appropriate safeguards in
place for these Government Securities ATSs, technological
vulnerabilities could lead to the potential for failures, disruptions,
delays, and intrusions, which could place government securities market
participants at risk, harm price discovery, and reduce price
efficiency.\551\ In Section X.B.7, we discuss the current regulatory
framework and competition for order flow in the market for government
securities and their implications on market efficiency.
---------------------------------------------------------------------------
\550\ See supra Sections I.B and II.D discussing the Fair Access
Rule requirements. See infra Section X.B.5 discussing why market
forces alone may not be sufficient to prevent a Government
Securities ATS from unreasonably denying access to some market
participants.
\551\ See supra Section VI.
---------------------------------------------------------------------------
The economic analysis that follows is based only on transactions
reported to TRACE.\552\ Due to the lack of data on activities of ATSs
operated by non-FINRA members, the quantitative analysis of
transactional activity does not include ATSs that are not FINRA
members.\553\ Furthermore, the economic analysis does not include repo
transactions and activities of options on government securities because
there is a lack of available data.\554\
---------------------------------------------------------------------------
\552\ Transaction data is based on available information that is
currently reported to FINRA.
\553\ See infra Section X.B.2.b.
\554\ Based on information provided to the Commission on Form
ATS filings as of July 1, 2020, three ATSs have noticed their
intention to trade repos on government securities while no ATS has
noticed its intention to trade options on government securities.
---------------------------------------------------------------------------
The parties that would be affected by the proposed amendments
include: Existing Government Securities ATSs, which comprise Legacy
Filers and Currently Exempted Government Securities ATSs; potential new
Government Securities ATSs; broker-dealers that operate or are
affiliated with Government Securities ATSs; non-ATS trading venues that
compete for order flow in the electronic market with Government
Securities ATSs and the broker-dealers that operate these non-ATS
trading venues. The proposed amendments would also affect current and
potential subscribers of Government Securities ATSs including: Primary
dealers in government securities, non-primary broker-dealers in
government securities, PTFs that trade on Government Securities ATSs,
and institutional investors that directly trade in the electronic
market for government securities; and institutional investors that
transact in the dealer-to-customer market.\555\
---------------------------------------------------------------------------
\555\ PTFs refers to principal trading firms. See supra Section
I.A.
---------------------------------------------------------------------------
1. Current State of Competition in the Market for Trading Government
Securities
Government Securities ATSs play a significant competitive role in
the market for government securities execution services as Government
Securities ATSs account for approximately 43 percent and 13 percent of
overall trading volume in the U.S. Treasury and Agency Securities
market, respectively.\556\ Government Securities ATSs compete on fees
and technological features for subscribers and, ultimately, customer
order flow through interdealer transactions. Government Securities ATSs
account for 57 percent of overall trading volume in the on-the-run U.S.
Treasury Securities market.\557\ In the off-the-run Treasury Securities
market, Government Securities ATSs account for 20 percent of trading
volume.\558\
---------------------------------------------------------------------------
\556\ Based on the regulatory version of TRACE for U.S. Treasury
and Agency Securities from 7/1/2019 to 12/31/2019.
\557\ On-the-run Treasury Securities have much more trading
activity than off-the-run Treasury Securities. See supra note 10.
\558\ Based on the regulatory version of TRACE for U.S. Treasury
Securities from 7/1/2019 to 12/31/2019.
---------------------------------------------------------------------------
Government securities represent a large proportion of the entire
U.S. fixed income market in terms of outstanding debt and daily trading
volume.\559\ According to the United States Treasury, as of the end of
2019, the total amount outstanding of marketable Treasury Securities is
approximately $17 trillion.\560\ Furthermore, the Financial Accounts of
the United States Z.1 released by the Federal Reserve Board show that
the amount outstanding of Agency- and GSE-Backed Securities is about
$9.4 trillion, collectively accounting for approximately 60 percent of
the $47.386 trillion U.S. fixed income market.\561\ According to data
published by SIFMA, over the last six months of 2019, the average daily
trading volume in government securities was about $835 billion, or
roughly 95 percent of all fixed income trading volume in the U.S.\562\
---------------------------------------------------------------------------
\559\ See supra note 6.
\560\ See Monthly Statement of the Public Debt of the United
States, dated December 31, 2019, available at https://www.treasurydirect.gov/govt/reports/pd/mspd/2019/opds122019.pdf.
\561\ See Federal Reserve Board L.208 Debt Securities, available
at https://www.federalreserve.gov/releases/z1/20200611/html/l208.htm.
\562\ See SIFMA Fixed Income Trading Volume, available at
https://www.sifma.org/resources/research/us-fixed-income-trading-volume/. The stated figures include Treasury Securities, Agency MBS,
and Federal Agency Securities. The six-month average is the mean of
the average daily trading volume for these instruments over the
period from July to December 2019.
---------------------------------------------------------------------------
The most actively traded government securities are U.S. Treasury
Securities. U.S. Treasury Securities serve many important roles,
including as a means of financing the U.S. federal government, as
instruments for monetary policy implementation, as hedging and
collateral instruments, as a liquid asset used to satisfy regulatory
requirements, and as risk-free benchmarks for pricing other financial
instruments. In December 2019, the average daily trading in U.S.
government securities totaled $754.3 billion, which is further broken
down as follows: $523.2 billion in U.S. Treasury Securities; $227.1
billion in Agency Mortgage-Backed Securities (MBSs); and $4.0 billion
in other Agency Securities.\563\
---------------------------------------------------------------------------
\563\ Based on the regulatory version of TRACE for U.S. Treasury
Securities and TRACE for Agency Securities. Trading volume is
reported as par volume in dollars. Par volume is the volume measured
in the face value ($100) of bond in dollars. See also FINRA TRACE
Fact Book, available at https://www.finra.org/filing-reporting/trace/trace-fact-book.
---------------------------------------------------------------------------
Overall, trading in the market for government securities is
characterized by many competing trading venues with various trading
functionalities, order types, and trading venue fees. However, the
Commission believes that lack of public disclosure about the operations
and potential conflicts of interest of Government Securities ATSs could
hinder competition among these ATSs and between the Government
Securities ATSs and non-ATS trading venues in the market for government
securities and repo execution services. Although the Commission
recognizes that non-ATS trading venues compete with Government
Securities ATSs in the market for government securities and repo
execution services, non-ATS trading venues, unlike ATSs, cannot offer
certain execution protocols, such as crossing mechanisms, auctions, and
central limit order books, which generally meet the definition of an
exchange.\564\
---------------------------------------------------------------------------
\564\ See supra Section I.B. ATS and non-ATS trading venues both
offer execution services. Orders matched on non-ATS trading venues
generally result from a broker-dealer exercising discretionary
activity while an ATS, which is an exchange, matches the orders of
multiple buyers and sellers in securities using established non-
discretionary methods.
---------------------------------------------------------------------------
Government Securities ATSs compete with other Government Securities
ATSs, non-ATS interdealer broker trading platforms, and dealers that
operate various trading protocols for order flow in the market for
government securities and repo execution services. Trading of
government securities occurs on a diverse set of trading venues--such
as
[[Page 87178]]
ATSs and non-ATS interdealer brokers--and directly between market
participants, including bilateral dealer-to-dealer (interdealer) and
dealer-to-customer transactions. Participants in the government
securities market include dealers, PTFs, hedge funds, and large
institutional investors. In the dealer-to-dealer market, trading
platforms offer a variety of trading protocols, for example, central
limit order books, quote streaming, and request for quotes.
Government Securities ATSs play an important role in the U.S.
Treasury Securities market.\565\ Government Securities ATSs facilitate
significant liquidity provision for U.S. Treasury and Agency Securities
markets, particularly those that operate in the secondary interdealer
markets for on-the-run U.S. Treasury Securities.\566\ The majority of
trading in on-the-run markets occurs on Government Securities
ATSs.\567\ Although Government Securities ATSs trade a significant
share of volume in off-the-run U.S. Treasury Securities, their share of
trading volume in the off-the-run U.S. Treasury Securities is smaller
than their share of on-the-run U.S. Treasury Securities trading.\568\
Traditionally, participation in the interdealer trading market is open
to only bank- and non-bank dealers; however, the interdealer trading
market now includes non-dealer participants, most notably PTFs in the
on-the-run U.S. Treasury Securities market.\569\
---------------------------------------------------------------------------
\565\ See infra Section X.B.1.a for a discussion of the on-the-
run U.S. Treasury Securities market and infra Section X.B.1.b for a
discussion of the off-the-run U.S. Treasury Securities market. See
supra notes 9 and 10 for the definition of the on-the-run and the
off-the-run U.S. Treasury Securities, respectively.
\566\ See supra Section I.B.
\567\ See infra Section X.B.1.a for a discussion of the on-the-
run U.S. Treasury Securities market.
\568\ See infra Section X.B.1.b for a discussion of the off-the-
run U.S. Treasury Securities market.
\569\ See infra Section X.B.1.a for a discussion about PTF
participation in the on-the-run U.S. Treasury Securities market.
---------------------------------------------------------------------------
In the dealer-to-customer market, customers (e.g., investment
companies, pension funds, insurance companies, corporations, or retail
investors) \570\ trade with dealers either through traditional voice-
assisted brokers or through electronic systems.\571\ Customers submit
orders either over the phone via an electronic voice system or on
trading platforms that facilitate matching buy and sell orders through
single or multi-dealer electronic systems, such as RFQ platforms.\572\
The Commission understands that in the dealer-to-customer market for
government securities, dealers do not usually redirect customer order
flow to Government Securities ATSs.\573\ Instead, the dealers cross or
fill the orders internally and they trade on ATSs to manage their
inventory levels. Due to a lack of available data, the extent to which
dealers internalize customer orders is unclear.
---------------------------------------------------------------------------
\570\ See Treasury Request for Information, supra note 10, at
3928.
\571\ See October 15 Staff Report, supra note 14, at 11, 55.
\572\ See id. at 36, n.31; Treasury Request for Information,
supra note 10, at 3928.
\573\ In Tables X.2, X.3, and X.4, dealer transactions on
Government Securities ATSs represent a significant portion of
overall Government Securities ATS trading volume, whereas customer
transactions account for a small portion of overall Government
Securities ATS trading volume. The Commission understands that some
portion of dealer transactions on Government Securities ATSs
represents customer orders because dealers may fill customer orders
internally and trade on ATSs to manage their inventory levels.
---------------------------------------------------------------------------
Competition among dealers for customer order flow happens in
multiple ways. One of the clearest ways that dealers compete with each
other is via their quotes. One comment letter submitted in response to
the Treasury Request for Information said that dealers in the U.S.
Treasury Securities market also compete along other dimensions such as
by offering: Better customer service, better allocations on the
issuance of other securities, access to research, and favorable
financing terms.\574\
---------------------------------------------------------------------------
\574\ See Letter from Jim Greco, CEO, Direct Match, to David R.
Pearl, Office of the Executive Secretary, U.S. Department of the
Treasury, dated April 22, 2016, at 5, available at https://www.treasurydirect.gov/instit/statreg/gsareg/RFIcommentletterDirectMatch.pdf (``Direct Match Letter'').
---------------------------------------------------------------------------
Some Government Securities ATSs are operated by, or affiliated
with, multi-service broker-dealers that also fill customer orders for
dealer-to-customer trades. These broker-dealer operators or their
affiliates may compete for customer order flow along with subscribers
to their own Government Securities ATSs.
Competition among Government Securities ATSs and between Government
Securities ATSs and non-ATS trading venues could affect market
participants' trading costs in the government securities market.
Trading costs may include bid-ask spreads,\575\ search costs in the
selection of trading venues, and trading venue fees. When deciding
which trading venue most suits their trading purposes, market
participants may consider various ATS operational facets, such as order
handling, order types, order segmentation, trading functionalities, and
any potential conflicts of interest that may arise from the ATS-related
activities of the broker-dealer operator or its affiliates. Trading
venue fees could be a primary factor for market participants in
deciding to which trading venue to send their orders.\576\ The
Commission recognizes that the fee structures of ATSs can vary and may
depend on, among other things, the types of subscribers and
services.\577\ In the selection of trading venues, market participants
may consider which ATS fee structure offers the best pricing according
to order flow and market participant characteristics.\578\
---------------------------------------------------------------------------
\575\ The estimated average daily relative quoted spread for
interdealer transactions for on-the-run U.S. Treasury Securities is
small, approximately 0.8 bps for 2-year Treasury Securities and 2.4
bps for 10-year Treasury Securities. The estimated average daily
relative quoted spread for interdealer transactions for off-the-run
U.S. Treasury Securities, approximately 1.7 bps for 2-year Treasury
Securities and 5.4 bps for 10-year Treasury Securities, is larger
compared to that of on-the-run Treasury Securities. Though, spreads
have narrowed in the past couple of years with a change to a smaller
minimum trading increment of \1/8\ of \1/32\ of $1. The average
daily relative quoted spread is computed as the daily average of the
difference between the intraday offer and bid prices divided by the
corresponding price mid-quote. See also Paolo Pasquariello & Clara
Vega, The On-the-Run Liquidity Phenomenon, 92 J. Fin. Econ. 1
(2009); Tobias Adria, Michael Fleming, & Or Shachar, Market
Liquidity after the Financial Crisis (June, 28, 2017), Federal
Reserve Bank of New York, Liberty Street Economics, available at
https://libertystreeteconomics.newyorkfed.org/2017/06/market-liquidity-after-the-financial-crisis.html.
\576\ See supra Section III.C.19.
\577\ See id.
\578\ See id.
Table X.1--ATS Market Share Analysis
----------------------------------------------------------------------------------------------------------------
Treasury Agency Number of
securities securities unique ATSs
----------------------------------------------------------------------------------------------------------------
Num. of Gov. Sec. ATS....................................... 19 6 19
Gov. Sec. ATS volume share.................................. 43.1% 13.1%
Above 10% Market Share:
Num. of Gov. Sec. ATS....................................... 1 1 2
[[Page 87179]]
Gov. Sec. ATS volume share.................................. 24.1% 12.7%
Above 5% Market Share:
Num. of Gov. Sec. ATS....................................... 3 1 3
Gov. Sec. ATS volume share.................................. 35.0% 12.7%
Above 4% Market Share:
Num. of Gov. Sec. ATS....................................... 3 1 3
Gov. Sec. ATS volume share.................................. 35.0% 12.7%
Above 3% Market Share:
Num. of Gov. Sec. ATS....................................... 4 1 4
Gov. Sec. ATS volume share.................................. 38.1% 12.7%
Above 2% Market Share:
Num. of Gov. Sec. ATS....................................... 5 1 5
Gov. Sec. ATS volume share.................................. 40.5% 12.7%
----------------------------------------------------------------------------------------------------------------
Each panel reports the volume share (%) for Government Securities ATSs and the number of Government Securities
ATSs above the specified market share level. Treasury Securities include nominal bonds, TIPS and STRIPS.
Agency Securities include Agency Debentures, Agency Collateralized Mortgage Obligations, and Agency Pass-
Through Mortgage Backed Securities.\579\ Trading volume is measured in dollar volume in par value. Data is
based on the regulatory version of TRACE for U.S. Treasury Securities and TRACE for Agency Securities from
July 1, 2019 to December 31, 2019.
---------------------------------------------------------------------------
\579\ Agency Pass-through Mortgage Backed Securities include
those traded in specified pool transactions and those to be
announced.
---------------------------------------------------------------------------
The Commission estimates that 19 Legacy Filers \580\ and 7
Currently Exempted Government Securities ATSs \581\ would be subject to
the proposed amendments to Regulation ATS. However, only 19 of these 26
Government Securities ATSs reported transactions on government
securities to TRACE over the six-month period between July and December
2019.
---------------------------------------------------------------------------
\580\ Based on data compiled from Form ATS filed with the
Commission as of July 1, 2020, the Commission has 19 Form ATSs on
file from Legacy Filers.
\581\ The Commission believes that 7 Currently Exempted
Government Securities ATSs transact exclusively in government
securities or repos, and are not required to file a Form ATS. See
also supra Section IX.C for the estimated number or respondents to
the ``collection of information'' requirements.
---------------------------------------------------------------------------
Of the 19 Government Securities ATSs that report transactions to
TRACE, the volume is concentrated in only a few ATSs, and predominantly
in one ATS. Table X.1 reports the number of Government Securities ATSs
and the trading volume share of Government Securities ATSs for multiple
volume share levels, using government securities transactions reported
to TRACE during the six-month period between July and December 2019.
Over the six-month period in 2019, 19 Government Securities ATSs
accounted for approximately 43 percent of overall U.S. Treasury
Securities trading volume. In the market for U.S. Treasury Securities,
3 Government Securities ATSs each have at least five percent of overall
U.S. Treasury Securities trading volume. The Government Securities ATS
with the largest market volume in U.S. Treasury Securities has
approximately 24 percent of total U.S. Treasury Securities trading
volume, whereas each of the Government Securities ATSs with the second
and third largest market volume has a trading volume that is slightly
above five percent of total U.S. Treasury Securities. In the market for
Agency Securities, 6 Government Securities ATSs accounted for 13
percent of overall Agency Securities trading volume. One Government
Securities ATS has at least five percent of overall Agency Securities
trading volume.
In the subsections below, Section X.B.1.a and Section X.B.1.b
discuss competition among trading venues and market participants in the
on-the-run and off-the-run U.S. Treasury Securities market,
respectively. Section X.B.1.c discusses competition among trading
venues and market participants in the Agency Securities market.
a. On-the-Run U.S. Treasury Securities
In the on-the-run U.S. Treasury Securities market, Government
Securities ATSs compete with other Government Securities ATSs and non-
ATS trading venues for PTF, dealer, and ultimately, customer order
flows.\582\ While there are multiple avenues to trade on-the-run
government securities, the majority of trading goes through Government
Securities ATSs. Table X.2 reports the trading volume shares for
Government Securities ATSs, non-ATS interdealer brokers, and bilateral
secondary market transactions over the six month period between July
and December 2019. As shown in Table X.2, 19 Government Securities ATSs
and 24 non-ATS interdealer brokers reported on-the-run U.S. Treasury
Securities transactions to TRACE during the six month period in 2019.
Government Securities ATSs accounted for approximately 57 percent of
total trading volume and approximately 67 percent of total interdealer
trading volume in the on-the-run U.S. Treasury Securities market over
the six month period in 2019.\583\ A substantial amount of trading is
concentrated on the largest Government Securities ATS in terms of
trading volume, accounting for approximately 64 percent of the total
Government Securities ATS trading volume and approximately 37 percent
of the total trading volume for on-the-run U.S. Treasury Securities.
This largest Government Securities ATS in terms of trading volume
serves as the primary location for price discovery in the cash market
for on-the-run U.S. Treasury Securities. This ATS's transaction prices,
along with prices in the U.S. Treasury Securities futures market, are
used by many market participants to determine risk-free benchmarks for
pricing other financial products.\584\
---------------------------------------------------------------------------
\582\ In Table X.2, the reported trading volume share of
Government Securities ATSs in the secondary market trading for on-
the-run U.S. Treasury Securities is small. Government Securities
ATSs compete for customer order flow through interdealer
transactions on ATSs. The Commission understands that dealers fill
customer trades internally and trade on Government Securities ATSs
to manage their inventory levels. See supra note 9.
\583\ (ATS dealer volume/(dealer volume from ATS + dealer volume
from non-ATS interdealer brokers + bilateral dealer-to-dealer
volume) x 100) = ATS share of dealer volume (%).
\584\ See October 15 Staff Report, supra note 14, at 15, 17-18,
45.
[[Page 87180]]
Table X.2--On-the-Run U.S. Treasury Securities Trading Volume
----------------------------------------------------------------------------------------------------------------
Number of Volume share
venues Volume (%)
----------------------------------------------------------------------------------------------------------------
ATSs............................................................ 19 995,669 57.4
Customer trades............................................. 12 74,094 4.3
Dealer trades............................................... 18 377,166 21.7
PTF trades.................................................. 13 544,409 31.4
Non-ATS Interdealer Brokers..................................... 24 72,963 4.2
Customer trades............................................. 22 31,389 1.8
Dealer trades............................................... 23 41,574 2.4
Bilateral dealer-to-dealer trades............................... 422 145,734 8.4
Bilateral dealer-to-customer trades............................. 348 520,818 30.0
----------------------------------------------------------------------------------------------------------------
This table reports trading volume and volume share for ATSs, Non-ATS interdealer brokers, bilateral dealer-to-
dealer transactions, and bilateral dealer-to-customer transactions for on-the-run U.S. Treasury Securities. On-
the-run U.S. Treasury Securities are the most recently issued nominal coupon securities. Nominal coupon
securities pay a fixed semi-annual coupon and are currently issued at original maturities of 2, 3, 5, 7, 10,
20, and 30 years. Treasury Bills and Floating Rate Notes are excluded. For bilateral transactions, the number
of venues denotes the number of distinct MPIDs.\585\ Volume is the average weekly dollar volume in par value
(in millions of dollars) over the 6-month period, from July 1, 2019 to December 31, 2019.\586\ Number of
Venues is the number of different trading venues in each category and the number of MPIDs for bilateral
transactions. Market Share (%) is the measure of the dollar volume as a percent of total dollar volume.\587\
The volume of ATSs and non-ATS interdealer brokers are broken out by Customer trades, Dealer trades, and PTF
trades within each group.\588\ Data is based on the regulatory version of TRACE for U.S. Treasury Securities
from July 1, 2019 to December 31, 2019.
In addition to competing for subscribers through the fees they
charge, Government Securities ATSs also compete with each other via the
technological features and order options they offer to subscribers. As
highlighted in the October 15 Staff Report,\589\ Government Securities
ATSs in the secondary electronic cash market for on-the-run U.S.
Treasury Securities have evolved such that they operate with a
complexity in terms of automation and speed of trading that is similar
to that observed on NMS Stock ATSs. Four Government Securities ATSs
operate as anonymous central limit order book systems and offer
features to allow participants to interact with specific counterparty
groups on the ATS, such as low latency and high-speed connectivity via
direct market data feeds and co-location services, a variety of order
types and algorithms to pursue aggressive and passive trading
strategies, and order flow segmentation. Unlike NMS Stock ATSs, whose
broker-dealer operators connect to national securities exchanges to
route orders, broker-dealer operators of Government Securities ATSs
usually do not offer to route subscribers' orders to other trading
venues.
---------------------------------------------------------------------------
\585\ Dealers are counted using the number of distinct MPIDs.
See also supra Section III.A.2.
\586\ FINRA reports volume as par volume, where par volume is
the volume measured by the face value of the bond, in dollars. See
also FINRA TRACE Fact Book, available at https://www.finra.org/filing-reporting/trace/trace-fact-book.
\587\ Total dollar volume (in par value) is calculated as the
sum of dollar volume for ATSs, non-ATS interdealer brokers,
bilateral dealer-to-dealer transactions, and bilateral dealer-to-
customer transactions.
\588\ We identify ATS trades and non-ATS interdealer broker
trades using MPID in the regulatory version of TRACE for U.S.
Treasury Securities. The regulatory version of TRACE for U.S.
Treasury Securities includes an identifier for customer and
interdealer trades. Furthermore, we use MPID for non-FINRA member
subscriber counterparties in the regulatory version of TRACE for
U.S. Treasury Securities to identify PTF trades on ATSs.
\589\ See October 15 Staff Report, supra note 14, at 35-36.
---------------------------------------------------------------------------
Historically, Government Securities ATSs in the market for on-the-
run U.S. Treasury Securities only allowed bank and non-bank dealers to
trade. Dealers had primarily traded directly with customers in the
dealer-to-customer market and traded with other broker-dealers on
Government Securities ATSs as a source of orders and trading interest
or to balance their inventory risk. However, beginning in 2003,
Government Securities ATSs started allowing firms that were neither
banks nor dealers, such as hedge funds, insurance companies and PTFs to
trade directly in interdealer transactions on Government Securities
ATSs.\590\ This change has allowed some traders who were previously
restricted to the dealer-to-customer trading venues to access
Government Securities ATSs, where they can trade anonymously.
---------------------------------------------------------------------------
\590\ See Direct Match Letter, supra note 574, at 6-7.
---------------------------------------------------------------------------
With the growth of high-speed electronic trading, the presence of
PTFs has greatly increased in the secondary cash market for on-the-run
U.S. Treasury Securities. In 2008, PTFs accounted for 25 percent of the
trading volume on ATSs.\591\ Based on Table X.2, over the six month
period in 2019, PTFs traded on 13 Government Securities ATSs accounting
for approximately 55 percent \592\ of total Government Securities ATS
trading volume. PTFs have also become the primary liquidity
providers.\593\ As of the end of 2019, there are over 100 PTFs
operating on ATSs that trade U.S. Treasury Securities, primarily on
four Government Securities ATSs.\594\ Similar to HFTs in the equity
markets, PTFs trading on the electronic market for U.S. Treasury
Securities often employ automated algorithmic trading strategies that
rely on speed and allow the PTFs to quickly execute trades, or cancel
or modify quotes in response to perceived market events.\595\
Furthermore, most PTFs trading U.S. Treasury Securities on electronic
trading venues also restrict their activities to principal trading and
do not hold positions long term.\596\
---------------------------------------------------------------------------
\591\ See Alexandra Scaggs & Susanne Barton, Treasuries Wilder
Than Ever as Ultrafast Bond Traders Rise Up, Bloomberg, October 12,
2015, https://www.bloomberg.com/news/articles/2015-10-12/treasuries-wilder-than-ever-as-ultra-fast-bond-traders-rise-up (citing the Tabb
Group Report).
\592\ (ATS PTF volume/ATS volume) x 100 = PTF share of ATS
volume (%).
\593\ TRACE for Treasury data. See also October 15 Staff Report,
supra note 14, at 21, 23, 38-39.
\594\ FINRA PTF participant list as of 12/31/2019.
\595\ See October 15 Staff Report, supra note 14, at 32, 35-36,
39.
\596\ See id. at 38.
---------------------------------------------------------------------------
In the secondary markets for on-the-run U.S. Treasury Securities,
dealer transactions account for a significant portion of overall
Government Securities ATS trading volume. In Table X.2, dealers account
for approximately 38 percent \597\ of overall Government Securities ATS
trading volume. The Commission understands that some portion of dealer
transactions on Government Securities ATSs represents customer orders
because dealers may fill customer trades internally and trade on
Government Securities ATSs to manage their inventory levels.
---------------------------------------------------------------------------
\597\ (ATS dealer volume/ATS volume) x 100 = dealer volume share
of ATS volume (%).
---------------------------------------------------------------------------
[[Page 87181]]
b. Off-the-Run U.S. Treasury Securities
Government Securities ATSs play a significant role in secondary
market trading for off-the-run U.S. Treasury Securities.\598\
Government Securities ATSs account for approximately 51 percent \599\
and 20 percent of the total interdealer trading volume and the total
trading volume, respectively, in the off-the-run U.S. Treasury
Securities market. However, Government Securities ATSs' share of
trading volume in the off-the-run U.S. Treasury Securities market is
smaller than that of Government Securities ATSs in the on-the-run U.S.
Treasury Securities market. As U.S. Treasury Securities transition from
on-the-run status to off-the-run, their trading activity shifts away
from electronic venues, such as Government Securities ATSs, and toward
the bilateral secondary trading market.
---------------------------------------------------------------------------
\598\ See supra note 10.
\599\ (ATS dealer volume/(dealer volume from ATS + dealer volume
from non-ATS interdealer brokers + bilateral dealer-to-dealer
volume) x 100) = ATS share of dealer volume (%).
---------------------------------------------------------------------------
In the off-the-run U.S. Treasury Securities market, Government
Securities ATSs compete with other Government Securities ATSs and non-
ATS trading venues for PTF, dealer, and ultimately, customer order
flows.\600\ Table X.3 reports the trading volume shares for Government
Securities ATSs, non-ATS interdealer brokers, and bilateral secondary
market transactions in the off-the-run Treasury Securities market over
the six month period between July and December 2019. Based on Table
X.3, 19 Government Securities ATSs and 24 non-ATS interdealer brokers
reported off-the-run U.S. Treasury Securities transactions to TRACE
during the six month period in 2019. Although Government Securities
ATSs' share of trading volume in the off-the-run U.S. Treasury
Securities market is smaller than that of Government Securities ATSs in
the on-the-run U.S. Treasury Securities market, Government Securities
ATSs still play a significant role in the trading of off-the-run U.S.
Treasury Securities, accounting for approximately 20 percent of the
overall trading volume and 51 percent \601\ of overall interdealer
trading volume. Furthermore, in the secondary trading market for off-
the-run U.S. Treasury Securities, dealers account for approximately 80
percent \602\ of Government Securities ATS trading volume whereas PTFs
account for approximately 7 percent \603\ of Government Securities ATS
trading volume. The Commission understands that some portion of dealer
transactions on Government Securities ATSs represents customer orders
because dealers may fill customer trades internally and trade on
Government Securities ATSs to manage their inventory levels.
---------------------------------------------------------------------------
\600\ In Table X.3, the reported trading volume share of
Government Securities ATSs in the secondary market trading for off-
the-run U.S. Treasury Securities is small. See also supra note 582.
\601\ (ATS dealer volume/(dealer volume from ATS + dealer volume
from non-ATS interdealer brokers + bilateral dealer-to-dealer
volume) x 100) = ATS share of dealer volume (%).
\602\ (ATS dealer volume/ATS volume) x 100 = dealer volume share
of ATS volume (%).
\603\ (ATS PTF volume/ATS volume) x 100 = PTF share of ATS
volume (%).
Table X.3--Off-the-Run U.S. Treasury Securities Trading Volume
----------------------------------------------------------------------------------------------------------------
Number of Volume share
venues Volume (%)
----------------------------------------------------------------------------------------------------------------
ATSs............................................................ 19 121,601 20.2
Customer trades............................................. 11 15,813 2.6
Dealer trades............................................... 16 96,994 16.1
PTF trades.................................................. 11 8,794 1.5
Non-ATS Interdealer Brokers..................................... 24 35,932 6.0
Customer trades............................................. 22 7,160 1.2
Dealer trades............................................... 23 28,773 4.8
Bilateral dealer-to-dealer trades............................... 684 62,899 10.5
Bilateral dealer-to-customer trades............................. 628 381,009 63.3
----------------------------------------------------------------------------------------------------------------
This table reports trading volume and volume share for ATSs, Non-ATS interdealer brokers, bilateral dealer-to-
dealer transactions, and bilateral dealer-to-customer transactions for off-the-run U.S. Treasury Securities.
Off-the-run or ``seasoned'' U.S. Treasury Securities include TIPS, STRIPS, and nominal coupon securities
issues that preceded the current on-the-run nominal coupon securities. Number of Venues is the number of
different trading venues in each category and the number of MPIDs for bilateral transactions.\604\ Volume is
the average weekly dollar volume in par value (in millions of dollars) over the 6-month period, from July 1,
2019 to December 31, 2019.\605\ Market Share (%) is the measure of the dollar volume as a percent of the total
dollar volume.\606\ The volume of ATSs and non-ATS interdealer brokers are broken out by Customer trades,
Dealer trades, and PTF trades within each group.\607\ Data is based on the regulatory version of TRACE for
U.S. Treasury Securities from July 1, 2019 to December 31, 2019.
c. Agency Securities
---------------------------------------------------------------------------
\604\ See supra note 585.
\605\ See supra note 586.
\606\ See supra note 587.
\607\ We identify ATS trades and non-ATS interdealer broker
trades using MPID in the regulatory version of TRACE for U.S.
Treasury Securities. The regulatory version of TRACE for U.S.
Treasury Securities includes an identifier for customer and
interdealer trades. Furthermore, we use MPID for non-FINRA member
subscriber counterparties in the regulatory version of TRACE for
U.S. Treasury Securities to identify PTF trades on ATSs.
---------------------------------------------------------------------------
Government Securities ATSs play a significant role in secondary
market trading for Agency Securities.\608\ However, Government
Securities ATSs' share of trading volume in Agency Securities market is
smaller than that of Government Securities ATSs in the U.S. Treasury
Securities market. Government Securities ATSs account for approximately
45 percent \609\ and 13 percent of the total interdealer trading volume
and the total trading volume, respectively, in the Agency Securities
market.
---------------------------------------------------------------------------
\608\ Agency Securities are those issued by U.S. Government
sponsored enterprises (``GSEs'') such as Federal Home Loan Banks
(``FHLBs''), the Federal National Mortgage Association (``Fannie
Mae''), and the Federal Home Loan Mortgage Corporation (``Freddie
Mac''). See supra Section I.A.
\609\ (ATS dealer volume/(dealer volume from ATS + dealer volume
from non-ATS interdealer brokers + bilateral dealer-to-dealer
volume) x 100) = ATS share of dealer volume (%).
---------------------------------------------------------------------------
In the Agency Securities market, Government Securities ATSs compete
with other Government Securities ATSs and non-ATS trading venues for
dealer and ultimately, customer order flows.\610\ Table X.4 reports the
trading volume shares for Government Securities ATSs, non-ATS
interdealer brokers, and bilateral secondary market transactions in the
Agency Securities market over the six month period between July and
[[Page 87182]]
December 2019. As shown in Table X.4, 6 Government Securities ATSs and
10 non-ATS interdealer brokers reported Agency Securities transactions
to TRACE during the six month period in 2019. Although Government
Securities ATSs' share of trading volume in the Agency Securities
market is smaller than that of Government Securities ATSs in the U.S.
Treasury Securities market, Government Securities ATSs still play a
significant role in trading of Agency Securities, accounting for
approximately 13 percent of the overall trading volume and 45 percent
\611\ of overall interdealer trading volume. In the secondary market
trading of Agency Securities, dealers account for approximately 87
percent \612\ of overall Government Securities ATS trading volume. The
Commission understands that some portion of dealer transactions on
Government Securities ATSs represents customer orders because dealers
may fill customer trades internally and trade on Government Securities
ATSs to manage their inventory levels.
---------------------------------------------------------------------------
\610\ The trading volume share of Government Securities ATSs in
the secondary market trading for Agency Securities is small. See
infra Table X.4. See also supra note 582.
\611\ (ATS dealer volume/(dealer volume from ATS + dealer volume
from non-ATS interdealer brokers + bilateral dealer-to-dealer
volume) x 100) = ATS share of dealer volume (%).
\612\ (ATS dealer volume/ATS volume) x 100 = dealer volume share
of ATS volume (%).
Table X.4--Agency Securities Trading Volume
----------------------------------------------------------------------------------------------------------------
Number of Volume share
venues Volume (%)
----------------------------------------------------------------------------------------------------------------
ATSs............................................................ 6 35,063 13.1
Customer trades............................................. 5 4,462 1.7
Dealer trades............................................... 6 30,601 11.4
Non-ATS Interdealer Brokers..................................... 10 10,967 4.1
Customer trades............................................. 9 1,169 0.4
Dealer trades............................................... 10 9,798 3.7
Bilateral dealer-to-dealer trades............................... 552 27,229 10.2
Bilateral dealer-to-customer trades............................. 551 194,143 72.6
----------------------------------------------------------------------------------------------------------------
This table reports trading volume and volume share for ATSs, Non-ATS interdealer brokers, bilateral dealer-to-
dealer transactions, and bilateral dealer-to-customer transactions for U.S. Agency Securities. Agency
Securities include Agency Debentures, Agency Collateralized Mortgage Obligations, and Agency Pass-Through
Mortgage Backed Securities.\613\ Number of Venues is the number of different trading venues in each category
and the number of MPIDs for bilateral transactions.\614\ Volume is the average daily dollar volume in par
value (in millions of dollars) over the 6-month period, from July 1, 2019 to December 31, 2019.\615\ Market
Share (%) is the measure of the dollar volume as a percent of the total dollar volume.\616\ The volume of ATSs
and non-ATS interdealer brokers are broken out by Customer trades and Dealer trades within each group.\617\
Data is based on the regulatory version of TRACE for Agency Securities from July 1, 2019 to December 31, 2019.
2. Reporting Requirements for Government Securities ATSs
---------------------------------------------------------------------------
\613\ See supra note 579.
\614\ See supra note 585.
\615\ See supra note 586.
\616\ See supra note 587.
\617\ We identify ATS trades and non-ATS interdealer broker
trades using MPID in the regulatory version of TRACE for Agency
Securities. The regulatory version of TRACE for Agency Securities
includes an identifier for customer and interdealer trades.
---------------------------------------------------------------------------
a. Operational Reporting Requirements
All 19 Legacy Filers are subject to the requirements of Regulation
ATS, whereas the seven Currently Exempted Government Securities ATSs
are not. These differences in reporting requirements can lead to an
uneven competitive landscape for Government Securities ATSs. For
instance, Currently Exempted Government Securities ATSs are not
required to file Form ATS or Form ATS-R with the Commission or comply
with certain recordkeeping requirements.\618\ In contrast, ATSs that
trade government securities or repos as well as non-government
securities--such as corporate or municipal fixed income securities--
must either register as a national securities exchange or comply with
Regulation ATS pursuant to the exemption provided under Exchange Act
Rule 3a1-1(a)(2).\619\ These Legacy Filers must also comply with
certain reporting requirements, such as updating the Form ATS pursuant
to Rule 301(b)(2) of Regulation ATS, and recordkeeping requirements
pursuant to Rule 301(b)(8).\620\
---------------------------------------------------------------------------
\618\ See supra Section I.B (discussing regulatory framework for
Government Securities ATSs).
\619\ See id. NMS Stock ATSs also must file Form ATS-N. See also
supra Section V.D.
\620\ See id.
---------------------------------------------------------------------------
The Commission recognizes that all of the 19 Legacy Filers
currently incur reporting costs to comply with Regulation ATS.\621\
These costs include filing Form ATS as both an initial operation report
and, whenever there is a material change in operations, as a
confidential filing with the Commission. The Commission may use this
information in monitoring, examinations and enforcement. These
reporting requirements for Legacy Filers (which do not apply to the
Currently Exempted Government Securities ATSs) may contribute to an
uneven competitive landscape. Furthermore, all but one of the Currently
Exempted Government Securities ATSs and all of the Legacy Filers are
registered broker-dealers that incur costs of registering with the
Commission as well as SRO membership and face operational regulatory
reporting requirements. The Commission estimates that one of the
Currently Exempted Government Securities ATSs is bank-operated.\622\
This bank-operated Currently Exempted Government Securities ATS is not
required to register as a broker-dealer with the Commission and thus,
does not have to file Form BD with the Commission or be subject to
FINRA rules. As a result, the bank-operated Currently Exempted
Government Securities ATS incurs different regulatory compliance costs,
which may contribute to the uneven competitive landscape.
---------------------------------------------------------------------------
\621\ See supra Sections IX.C and IX.D.1.b.
\622\ See supra Section IX.C.
---------------------------------------------------------------------------
b. Transaction Reporting Requirements
Currently Exempted Government Securities ATSs are not required to
report their transaction volume in government securities to the
Commission on a quarterly basis via Form ATS-R. However, Legacy Filers
are required to confidentially report their transaction dollar volume
in government securities to the Commission on a quarterly basis via
Form ATS-R within 30 days after the end of each calendar quarter.
Trading volume on Currently Exempted Government Securities ATSs is not
reported to the Commission. However, all transactions in government
securities
[[Page 87183]]
by ATSs operated by FINRA-members are reported to TRACE.\623\
---------------------------------------------------------------------------
\623\ See supra notes 50-51 and accompanying text discussing
TRACE reporting requirements for Government Securities ATSs.
---------------------------------------------------------------------------
However, the transaction reporting requirements to TRACE do not
apply to transactions executed by non-FINRA members, such as some
primary dealer banks, and the information on those U.S. Treasury
Securities transactions is not disseminated publicly via TRACE. The
estimated one bank-operated Currently Exempted Government Securities
ATS does not currently report government securities transactions to
TRACE. Nevertheless, starting in March 2020, FINRA has published
aggregated market volume in U.S. Treasury Securities on a weekly
basis.\624\ Monthly volume reports for other TRACE-Eligible Securities,
including Agency Securities, are also available from FINRA since
2013.\625\ These two publicly available aggregate market statistics for
trading in U.S. Treasury Securities and Agency Securities,
respectively, can provide a common source of information to determine
the market share of Government Securities ATSs in the relevant market.
---------------------------------------------------------------------------
\624\ The weekly TRACE Treasury aggregate trading statistics are
available at https://www.finra.org/filing-reporting/trace/data/trace-treasury-aggregates.
\625\ These reports are available at https://www.finra.org/filing-reporting/trace/content-licensing/volume-reports. FINRA also
publishes more detailed breakdowns of trading volume in MBSs into
agency and non-agency categories. These reports are available at
https://tps.finra.org/idc-index.html.
---------------------------------------------------------------------------
In addition to TRACE reporting, which applies to broker-dealers who
are FINRA members, government securities primary dealers are required
to report their positions and cumulative transaction volumes in
government securities to the Federal Reserve Bank of New York on a
weekly basis via Form FR2004.\626\ Based on comment letters received in
response to the Treasury Request for Information, certain Government
Securities ATSs also make real-time U.S. Treasury Securities
transactions data on their platforms available to subscribers and to
other market participants through subscriptions to third party data
vendors.\627\
---------------------------------------------------------------------------
\626\ The data is aggregated and published weekly in the Federal
Reserve Bank of New York's press release, ``Weekly Release of
Primary Dealer Transactions.''
\627\ See BrokerTec/ICAP Letter, supra note 238, at 7.
---------------------------------------------------------------------------
3. Information Asymmetries Due to Limited Public Information About
Operations of Government Securities ATSs
Market participants do not receive a complete snapshot of the
operations and activities of all ATSs that trade government securities
because a Currently Exempted Government Securities ATS is not required
to file a Form ATS or Form ATS-G and a Legacy Filer is not required to
publicly disclose its Form ATS or to file a publicly available Form
ATS-G.\628\ This disparity in requirements could lead to information
asymmetries amongst different classes of subscribers.
---------------------------------------------------------------------------
\628\ See 17 CFR 242.301(b)(2)(vii).
---------------------------------------------------------------------------
Certain Government Securities ATSs may make voluntary disclosures
regarding their operations, creating disparate levels of transparency.
For example, subscribers to a particular Government Securities ATS may
have greater access to information about the ATS, including the ATS's
subscriber manual and other subscriber quotes, than other market
participants. There could also be differences in the information
available to different classes of subscribers to a Government
Securities ATS. Because there is no required disclosure of order
execution statistics for government securities trading, different
classes of subscribers to a Government Securities ATS could receive
differing levels of information regarding execution quality on the ATS.
This could lead to potential inefficiencies as market participants with
limited access to information struggle to compete with those who have
greater access to information, and this could also be the case with
respect to other information about the operations of Government
Securities ATSs. In all cases, subscribers who have greater access to
information offered by the Government Securities ATS may be able to
make better choices about their trading decisions relative to
subscribers who have limited access to information about the operations
of the ATS.
4. Government Securities ATSs Treatment of Subscriber Confidential
Trading Information
Because Currently Exempted Government Securities ATSs are not
required to comply with Regulation ATS, they are not subject to Rule
301(b)(10) and Rule 303(a)(1), which means that they are not required
to establish written safeguards and written procedures to protect
subscribers' confidential trading information pursuant to Regulation
ATS.\629\ To the extent that a Currently Exempted Government Securities
ATS does not have these procedures, or has them but such procedures are
not adequate, the integrity of a subscriber's confidential trading
information could be at risk of unauthorized disclosure and subject to
potential misuse. ATSs are not required to file their written
safeguards and written procedures with the Commission. Therefore,
absent an examination by the Commission staff regarding the adequacy of
the written safeguards and written procedures, the Commission is not
able to determine the specific Government Securities ATSs that
currently have adequate written safeguards and written procedures to
protect subscribers' confidential trading information. At the same
time, based on the experience of the Commission, the Commission
believes that some Government Securities ATSs currently have, and
maintain in writing, safeguards and procedures to protect subscribers'
confidential trading information, as well as the oversight procedures
to ensure such safeguards and procedures are followed.
---------------------------------------------------------------------------
\629\ In contrast, Legacy Filers are currently subject to Rule
301(b)(10) and Rule 303(a)(1) of Regulation ATS. See supra Section
IX.A.
---------------------------------------------------------------------------
5. Fair Access Rule
The Fair Access Rule of Regulation ATS does not currently apply to
ATSs that trade government securities because government securities are
not a category of securities covered under the rule. As a result, there
is no legal mechanism to prevent Government Securities ATSs from
unreasonably denying or limiting subscribers' access to an ATS that is
a significant market for government securities.\630\ Access to a
Government Securities ATS may not be critical when market participants
are able to substitute the execution services of one ATS with those of
another. However, when a Government Securities ATS has a significant
share of trading volume in government securities, unfairly
discriminatory actions may hurt investors lacking access to the system
because viable alternatives to trading on such a system may be limited.
Furthermore, market forces alone may not be sufficient to prevent a
Government Securities ATS from unreasonably denying access to some
market participants. In the absence of the Fair Access Rule, for
example, a Government Securities ATS with a significant volume in
government securities may only allow certain types
[[Page 87184]]
of market participants to access the ATS and exclude others without
establishing reasonable written standards.\631\ In this case, the ATS
may cater to the preferences of subscribers that favor the exclusion,
while failing to internalize the negative externality that this may
impose on the excluded market participants who could have more limited
trading venue options, resulting in higher trading costs and the
reduction in efficiency with which they achieve trading objectives.
This failure to internalize an externality could lead to market
failure.
---------------------------------------------------------------------------
\630\ See supra Sections I.B and II.D discussing the Fair Access
Rule requirements.
\631\ An ATS subject to the Fair Access Rule could not offer a
service or level of service to only one subscriber or class of
subscribers unless the ATS has established written standards that do
not unreasonably prohibit or limit access of permissioned
subscribers to the service or level of service.
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6. Regulation SCI
The provisions of Regulation SCI and Rule 301(b)(6) of Regulation
ATS do not apply to the government securities activities of an ATS and
therefore Currently Exempted Government Securities ATSs and Legacy
Filers are not subject to either.\632\ Among the three ATSs that trade
government securities and satisfy the proposed volume thresholds for
government securities that would trigger application of Regulation SCI,
one Government Securities ATS is operated by a broker-dealer that also
operates an NMS Stock ATS that is an SCI entity because the NMS Stock
ATS meets Regulation SCI volume thresholds for NMS stocks. As an
existing SCI entity, this NMS Stock ATS has the policies and procedures
in place for systems related to trading of NMS stocks as required by
Regulation SCI. The Commission believes that the broker-dealer operator
for the Government Securities ATS of the existing SCI entity could have
already capitalized on operational synergies from operating both an NMS
Stock ATS and a Government Securities ATS, and could have implemented
some of the same policies and procedures of the NMS Stock ATS required
by Regulation SCI, modified as needed for systems related to trading of
government securities and repos.
---------------------------------------------------------------------------
\632\ See supra Section I.B discussing Rule 301(b)(6) and its
current application to ATSs.
---------------------------------------------------------------------------
More generally, although most Government Securities ATSs are not
subject to the requirements of Regulation SCI with respect to their
government securities activities, a comment letter received in response
to the Treasury Request for Information stated that many Government
Securities ATSs adopted system testing and control procedures that
followed the recommended best practices of the Treasury Market
Practices Group.\633\ The Treasury Market Practices Group promotes a
robust control environment for government securities trading, using
internal controls and risk management.\634\ However, these best
practices are meant only as useful operational guideposts rather than
binding rules, and each trading venue can choose if it wants to comply
and how to comply, which could provide weak safeguards to protect
against the risks of system failures. In contrast, Regulation SCI
establishes a formalized regulatory framework to ensure more effective
Commission oversight.
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\633\ See Letter from Mike Zolik, Nate Kalich, and Larry
Magargal, Ronin Capital LLC, to David R. Pearl, Office of the
Executive Secretary, U.S. Department of the Treasury, dated March
19, 2016, at 31-33, available at https://www.treasurydirect.gov/instit/statreg/gsareg/RoninCapital.pdf.
\634\ See Treasury Market Practices Group, Best Practices For
Treasury, Agency Debt, and Agency Mortgage-Backed Securities Markets
(July 2019), available at https://www.newyorkfed.org/medialibrary/Microsites/tmpg/files/TMPG_BestPractices_071119.pdf.
---------------------------------------------------------------------------
While the Commission recognizes that Government Securities ATSs
have some incentives to maintain robust systems in order to remain
competitive, the Commission believes that market forces alone are
insufficient to significantly reduce systems issues in the market for
trading and execution services in government securities. In particular,
the Commission believes that Government Securities ATSs do not fully
internalize the costs associated with systems issues, because systems
issues pose significant negative externalities on the market. That is,
systems issues have ramifications on the market for government
securities beyond the impact on the Government Securities ATS
responsible for the systems issues. If a trading system of a Government
Securities ATS with significant trading volume fails, this failure not
only forces the ATS to forgo revenue but also can diminish trading in
government securities during the disruption. In particular, the failure
of such trading system can increase trading costs of market
participants that have optimized their trading strategy under the
assumption that all Government Securities ATSs with significant volume
are fully operational.
The Commission also believes that some Government Securities ATSs
that trade a large volume of government securities play a significant
role in the government securities market, particularly those that trade
on-the-run U.S. Treasury Securities, because the prices from these
transactions serve as risk-free rate benchmarks for pricing other
financial products. Without appropriate safeguards in place for
Government Securities ATSs, technological vulnerabilities continue to
exist and could lead to the potential for costly failures, disruptions,
delays, intrusions, and the reduction in systems up-time, which could
harm the price discovery process and price efficiency of government
securities.\635\
---------------------------------------------------------------------------
\635\ See infra Section X.C.3.c. On January 11, 2019, the
largest trading platform in on-the-run U.S. Treasury Securities,
experienced a system outage approximately from 2 p.m. to 3:30 p.m.
ET. While the outage resulted in a modest reduction in market
volume, had it occurred at a time other than late on a Friday
afternoon when trading activity is normally already low, the outage
could have resulted in more adverse consequences on the overall
market. See also Elizabeth Stanton, Nick Baker, & Matthew Leising,
Treasuries Hit by One-Hour Outage on Biggest Electronic Platform,
Bloomberg, January 13, 2019, https://www.bloomberg.com/news/articles/2019-01-11/brokertec-inter-dealer-treasury-broker-suffers-outage.
---------------------------------------------------------------------------
Furthermore, based on the staff's experience receiving reports of
systems issues concerning NMS Stock SCI ATSs, the Commission believes
that the frequency and the duration of systems issues have decreased
and systems up-time has improved over time since the adoption of
Regulation SCI. Because Government Securities ATSs operate with similar
complexity as NMS Stock SCI ATSs,\636\ the Commission believes that
extending Regulation SCI to Government Securities ATSs with significant
volume would also help reduce the frequency and the duration of systems
issues and improve systems up-time for those Government Securities
ATSs.\637\
---------------------------------------------------------------------------
\636\ See supra Section VI.
\637\ See infra Section X.C.1.b discussing the benefits of the
proposed amendments to Regulation SCI. Infra Section X.C.2.b
discusses the costs of these proposed amendments, while infra
Section X.C.3 discusses the effects of these amendments on
efficiency, competition, and capital formation.
---------------------------------------------------------------------------
7. Implications for Efficiency
The intensity of competition among trading venues, the availability
of information regarding Government Securities ATS operational facets,
the number of trading venue options available to market participants,
and the risk of potential market disruptions due to systems issues
could affect market participants' trading costs and the efficiency with
which market participants achieve their trading or investment
objectives. The Commission believes that there is currently limited
publicly available information regarding the operations of Government
Securities ATSs and that some subscribers to these ATSs may be privy to
more detailed
[[Page 87185]]
information about how their orders are executed, sent, and/or
prioritized compared to other subscribers.\638\ Market participants in
the government securities market with limited information regarding ATS
operational facets, such as order handling, fee structure, and any
potential conflicts of interest that may arise from the ATS-related
activities of the broker-dealer operator or its affiliates, could face
difficulty in comparing Government Securities ATSs when deciding which
venue most suits their trading purposes and could incur higher search
costs in the selection of trading venues. This would result in higher
trading costs for market participants and reduce the efficiency with
which market participants achieve their trading objectives.
---------------------------------------------------------------------------
\638\ See supra Section X.B.3.
---------------------------------------------------------------------------
Government Securities ATSs and non-ATS trading venues compete for
order flows in the government securities market.\639\ The Commission
believes that the limited publicly available information regarding
Government Securities ATS operational characteristics, such as fee
structure, order types, and trading functionalities, reduces the
incentives of ATSs and non-ATS trading venues to compete more
vigorously, innovate systems technology, improve execution quality, and
lower fees. This could also reduce the efficiency with which market
participants achieve their trading objectives. Currently, government
securities are not subject to the Fair Access Rule.\640\ To the extent
that there are market participants who are unreasonably denied access
to an ATS with a significant volume in U.S. Treasury Securities or
Agency Securities, this could limit trading venue options for these
market participants, resulting in higher trading costs and the
reduction in efficiency with which they achieve their trading
objectives.
---------------------------------------------------------------------------
\639\ See supra Sections X.B.1.a, X.B.1.b, and X.B.1.c for
discussion on competition in the on-the-run U.S. Treasury
Securities, off-the-run U.S. Treasury Securities, and Agency
Securities, respectively.
\640\ See supra Section X.B.5 for a discussion about the Fair
Access Rule.
---------------------------------------------------------------------------
The provisions of Regulation SCI do not apply to systems related to
the trading of government securities.\641\ Market disruptions due to
systems issues at an ATS with a significant volume in U.S. Treasury
Securities or Agency Securities could interrupt the price discovery
process and liquidity flows in the market for government securities,
which would result in periods of pricing inefficiencies for government
securities and risky securities. Diminished price discovery in the
secondary market for on-the-run U.S. Treasury Securities could also
reduce price efficiency of risky securities because the transaction
prices of on-the-run U.S. Treasury Securities are used as risk-free
rate benchmarks to price risky securities transactions.\642\ Price
efficiency of risky securities is important because prices that
accurately convey information about fundamental value improve the
efficiency with which capital is allocated across projects and
entities.
---------------------------------------------------------------------------
\641\ See supra Section X.B.6 for a discussion about Regulation
SCI practices.
\642\ As noted in the October 15 Staff Report, supra note 14,
price discovery is especially important in the secondary market for
on-the-run U.S. Treasury Securities because the transaction prices
are used as risk-free rate benchmarks to price other securities
transactions.
---------------------------------------------------------------------------
C. Economic Effects and Effects on Efficiency, Competition, and Capital
Formation
The Commission has considered the economic effects of the proposed
amendments to extend Regulation ATS and Regulation SCI to include
Government Securities ATSs.\643\ The Commission believes these proposed
amendments would (i) help prevent the potential for abuse of ATS
subscriber confidential trading information; \644\ (ii) improve the
ability of the Commission or an SRO to detect and investigate potential
irregularities that might occur in the market for government securities
and repo execution services; \645\ (iii) increase the Commission's
knowledge regarding the operations of and potential conflicts of
interest on Government Securities ATSs and help identify whether they
operate in a manner consistent with the federal securities laws; \646\
(iv) help market participants make better-informed decisions about
where to send their orders in order to achieve their trading or
investment objectives, which could lower trading costs and enhance
order execution quality; \647\ (v) allow some market participants to
access and increase options in the selection of trading venues, which
could lower their trading costs; \648\ and (vi) help reduce market
disruptions due to systems issues \649\ and prevent interruptions in
the price discovery process and liquidity flows.\650\
---------------------------------------------------------------------------
\643\ Government Securities ATSs account for significant portion
of interdealer and overall volume in the government securities
market. See supra Section X.B.1 for Tables X.1, X.2, X.3, and X.4.
See also supra Section X.A for a discussion about the need for
greater transparency and public data availability regarding the
functioning of U.S. Treasury markets.
\644\ See infra Section X.C.1.a.i. See also supra Section X.A
for a discussion about the need for greater transparency and public
data availability regarding the functioning of U.S. Treasury
markets.
\645\ See supra note 644.
\646\ See infra Section X.C.1.a.ii. See also supra Section X.A
for a discussion about the need for greater transparency and public
data availability regarding the functioning of U.S. Treasury
markets.
\647\ See supra note 644.
\648\ See infra Section X.C.1.a.iii.
\649\ See infra Section X.C.1.b.
\650\ See infra Sections X.C.1.b and X.C.3.c.
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Government Securities ATSs would incur implementation and ongoing
compliance costs to comply with the proposed Regulation ATS and
Regulation SCI amendments. Market participants in the government
securities and repo market could face higher trading costs (e.g.,
higher fees) from Government Securities ATSs to the extent that
compliance costs of Regulation ATS and SCI amendments are passed on to
them.
The compliance costs of the proposed amendments include, among
other things, costs associated with establishing and updating policies
and procedures to protect subscriber confidential information, updating
systems to comply with recordkeeping requirements, gathering
information for new disclosures, filing Form ATS-G, and establishing
fair access standards.\651\ The Commission also believes that Currently
Exempted Government Securities ATSs would incur costs to comply with
Regulation ATS in addition to those incurred by Legacy Filers.\652\
Government Securities ATSs that meet the specified volume thresholds
would also incur compliance costs as SCI entities,\653\ such as costs
associated with documentation, mandatory reporting and dissemination of
SCI events, reporting of material systems changes, recordkeeping, and
implementing the policies and procedures related to systems capacity,
integrity, resiliency, availability, security, and compliance.
Regulation SCI also imposes some indirect requirements on other market
participants interacting with SCI entities (e.g., third-party vendors
providing SCI systems to SCI entities and members of SCI entities
participating in testing of business continuity and disaster recovery
plans).\654\
---------------------------------------------------------------------------
\651\ See infra Section X.C.2.a for a discussion of compliance
costs associated with the proposed amendments to Regulation ATS.
\652\ See infra Section X.C.2.a.i for a discussion of compliance
costs for Currently Exempted Government Securities ATSs.
\653\ See infra Section X.C.2.b for a discussion of compliance
costs associated with the proposed amendments to Regulation SCI.
\654\ See supra note 653.
---------------------------------------------------------------------------
In addition to compliance costs, some market participants could
incur indirect
[[Page 87186]]
costs from the proposed amendments. A Government Securities ATS could
incur indirect costs if its competitive position in the market were
adversely affected as a result of the public disclosure requirement of
Form ATS-G. However, such costs to one ATS would constitute transfers
to other ATSs rather than a net social cost, and the Commission
believes that the risk of such transfers is likely to be low.\655\
Furthermore, as discussed in Section X.C.2.a.ii, some subscribers of a
Government Securities ATS could incur indirect costs if the subscribers
were to lose their informational advantage regarding the operational
facets of the ATS over other subscribers as a result of the public
disclosure requirement of Form ATS-G.
---------------------------------------------------------------------------
\655\ See infra Section X.C.2.a.ii for a discussion about
transfer cost and why the Commission believes the risk of incurring
such transfer cost is likely to be low.
---------------------------------------------------------------------------
The Commission believes that the amendments could foster
competition for order flow in the market for government securities and
repo execution services, help market participants make better informed
decisions about where to send their orders to achieve their trading or
investment objectives, enhance execution quality, and improve
efficiency and capital allocation. Moreover, the Commission believes
that the risk of the proposed amendments adversely affecting
competition in the market for government securities and repo execution
services, the incentive for Government Securities ATSs to innovate, and
the efficiency with which market participants achieve trading
objectives, is likely to be low.\656\
---------------------------------------------------------------------------
\656\ See infra Section X.C.3.
---------------------------------------------------------------------------
In addition to the economic effects discussed below, the proposed
amendment to Exchange Act Rule 3a1-1(b) would require a Government
Securities ATS to register as a national securities exchange if the ATS
meets certain volume thresholds and the Commission finds that the
exemption would not be necessary or appropriate in the public interest
or consistent with the protection of investors.\657\ The Commission
believes that the proposed amendment to Exchange Act Rule 3a1-1(b)
would enhance the Commission's ability to regulate certain large volume
ATSs upon registration as a national securities exchange, which would
improve the Commission's market surveillance and help protect
investors.\658\ A Government Securities ATS that the Commission
required to register as a national securities exchange would incur
costs corresponding with a registered national securities exchange,
including costs related to the requirement to be so organized to, and
have the capacity to carry out the purposes of the Exchange Act
including its own ability to enforce member compliance with securities
laws.\659\
---------------------------------------------------------------------------
\657\ The Commission estimates that currently, there is no
Government Securities ATS that meets the volume thresholds specified
in the provisions of Exchange Act Rule 3a1-1(b). See supra Section
II.A.
\658\ See Regulation ATS Adopting Release, supra note 35, at
70903-07 for a discussion of benefits and costs for registering as a
national securities exchange.
\659\ See supra note 658.
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The Commission has attempted, where possible, to quantify the
benefits and costs anticipated to result from the proposed amendments
to Regulation ATS and Regulation SCI.
However, as explained in more detail below, because the Commission
does not have, and in certain cases does not believe it can reasonably
obtain data that may inform the Commission on certain economic effects,
the Commission is unable to quantify certain economic effects. Further,
even in cases where the Commission has some data, it may not be
practicable to perform a quantitative analysis due to the number and
type of assumptions necessary to quantify certain economic effects,
which likely would render any such quantification unreliable.
Therefore, certain parts of the discussion below are qualitative in
nature and focus on the direction of the various effects of the
proposed amendments. The inability to quantify certain benefits and
costs, however, does not mean that the overall benefits and costs of
the final rules are insignificant.
1. Benefits
The Commission assessed the anticipated economic benefits from the
various components of the proposed amendments to Regulation ATS and
SCI. The Commission believes that the proposed amendments to Regulation
ATS would help improve the oversight of Government Securities ATSs
\660\ by the Commission and SROs. The extension of Regulation ATS to
include Currently Exempted Government Securities ATSs would help
protect investors and help the Commission better oversee these ATSs. In
addition, the public disclosure of operational facets of Government
Securities ATSs via Form ATS-G under Rule 304 of Regulation ATS could
lower search costs in the selection of trading venues and result in
lower trading costs for market participants. Requiring Form ATS-G to be
filed on EDGAR in a structured format would improve the usability,
accessibility, and reliability of Form ATS-G disclosures for market
participants and for the Commission and SROs; EDGAR filing requirements
for Forms ATS and ATS-R, along with other amendments related to Forms
ATS, ATS-R, and ATS-N, would similarly enhance Commission and SRO
oversight of Form ATS, ATS-R, and ATS-N filers, thereby protecting
investors and helping ensure the adequacy and reliability of
information on the market. To the extent that there are market
participants excluded from trading on Government Securities ATSs, the
Commission believes that the extension of the Fair Access Rule for
government securities could increase trading venue options and lower
trading costs for those market participants. Finally, the Commission
believes the proposed amendments to Regulation SCI would help prevent
interruptions in the price discovery process and liquidity flows, and
thus would help prevent periods with pricing inefficiencies from
occurring.\661\
---------------------------------------------------------------------------
\660\ Government Securities ATSs account for significant portion
of interdealer and overall volume in the government securities
market. See supra note 641.
\661\ See infra Section X.C.1.b. See also supra Section X.B.6.
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a. Extension of Regulation ATS to Currently Exempted Government
Securities ATSs and Amendment to Regulation ATS for All Government
Securities ATSs
The proposed extension of Regulation ATS would extend Regulation
ATS to include Currently Exempted Government Securities ATSs; extend
Rule 304 of Regulation ATS to include all Government Securities ATSs
and amend Rule 304; and apply the Fair Access Rule. Each of these
changes would produce a number of benefits.
i. Extension of Regulation ATS To Include Currently Exempted Government
Securities ATSs
The Commission believes that the proposed amendments to require
Currently Exempted Government Securities ATSs to comply with certain
provisions of Regulation ATS would help protect investors and enhance
the oversight of Currently Exempted Government Securities ATSs by the
Commission and SROs.
The Commission believes that requiring Currently Exempted
Government Securities ATSs to adopt written safeguards and written
procedures to protect subscribers' confidential trading information and
to
[[Page 87187]]
separate ATS functions from other broker-dealer functions would help
prevent the potential for abuse of subscriber confidential trading
information. The trading information of subscribers to Currently
Exempted Government Securities ATSs could be subject to the same
potential abuse as at other ATSs, such as sharing confidential
subscriber trading information with other customers or the operator of
the ATS using the confidential trading information of other subscribers
to advantage its own trading on the ATS. The Commission, however, lacks
information on the extent to which the confidential trading information
of subscribers to Currently Exempted Government Securities ATSs is
currently being abused.\662\ Nonetheless, the Commission believes that
the establishment of written safeguards and written procedures to
separate Currently Exempted Government Securities ATS system functions
from other broker-dealer functions, including principal trading, and to
limit access to subscribers' confidential trading information to those
employees of the ATS who are operating the system or are responsible
for its compliance with applicable rules would help protect investors
by reducing the chance that a subscriber's confidential information is
accessed or shared inappropriately.
---------------------------------------------------------------------------
\662\ Although the Commission currently lacks this information,
we describe above a potential scenario where the confidential
trading information of a subscriber could be impermissibly shared
with the personnel of the broker-dealer operator or any of its
affiliates, and the broker-dealer operator, in turn, could
potentially abuse that relationship to provide itself or its
affiliates with a direct competitive advantage over that subscriber.
See supra Section III.B.6.
---------------------------------------------------------------------------
The Commission believes that requiring Currently Exempted
Government Securities ATSs to comply with the recordkeeping and
reporting requirements of Regulation ATS would improve the Commission's
ability to monitor Currently Exempted Government Securities ATSs and
improve its oversight of the market for government securities execution
services. Each quarter, a Currently Exempted Government Securities ATS
would be required to file a confidential Form ATS-R with the
Commission, which would include transaction volume statistics, the
identity of participants on the ATS, and the securities traded on the
ATS. This information would allow the Commission to better monitor the
types of investors that trade on these ATSs and the role they play in
the government securities and repo market.\663\
---------------------------------------------------------------------------
\663\ See supra Section X.A for a discussion about the need for
greater transparency and public data availability regarding the
functioning of U.S. Treasury markets.
---------------------------------------------------------------------------
The requirement for a Currently Exempted Government Securities ATS
to keep and preserve records of subscribers to the ATS, daily summaries
of trading in the ATS, and time-sequenced records of order information
in the ATS would help create a meaningful audit trail of activities on
the ATS. The preserved records of customer orders and transactions are
expected to improve the ability of the Commission or an SRO to detect
and investigate potential irregularities that might occur in the market
for government securities and repos, which would help promote a fair
and orderly market for government securities.
The Commission believes that the extension of Regulation ATS to
include bank-operated Currently Exempted Government Securities ATSs
would improve transaction transparency, which would enhance the
Commission's or SRO's market surveillance and help protect
investors.\664\ In addition, the improvement in transaction
transparency could facilitate price discovery and price formation.
Under the proposal, bank-operated Currently Exempted Government
Securities ATSs would be required to register as broker-dealers and
become members of an SRO and report transactions in government
securities to TRACE,\665\ which FINRA would publicly disseminate. This
would result in the transaction reporting and public dissemination of
government securities transactions executed by bank-operated Currently
Exempted Government Securities ATSs, which are currently not reported
to TRACE. The Commission believes that the improvement in transaction
transparency could facilitate market surveillance by the Commission and
FINRA and help protect investors and enhance price discovery and price
formation.\666\ The Commission believes that the magnitude of benefits
from the increase in transaction transparency depends on the portion of
transactions executed by the bank-operated Currently Exempted
Government Securities ATSs, which are currently not reported to
TRACE.\667\ However, the Commission is unable to estimate the magnitude
of this benefit because the Commission does not have transaction data
executed by the estimated one bank-operated Currently Exempted
Government Securities ATS that exists, which would not be subject to
transaction reporting obligations.
---------------------------------------------------------------------------
\664\ See supra note 662.
\665\ See supra note 50.
\666\ See supra note 662.
\667\ See supra Section IX.D.1.
---------------------------------------------------------------------------
ii. Extension of Rule 304 of Regulation ATS To Include All Government
Securities ATSs and Amendments to Rule 304
The Commission believes that the proposed extension of Rule 304 to
Currently Exempted Government Securities ATSs and Legacy Filers would
enhance the regulatory oversight of and the operational transparency of
Government Securities ATSs, which account for significant trading
volume of government securities,\668\ and also could lower search
costs, reduce trading costs, and improve the quality of order execution
for market participants. Furthermore, the Commission believes that
requiring Covered ATSs \669\ to post their Forms ATS-N and Forms ATS-G
on their websites would help facilitate public access to the forms for
market participants who may use Form ATS-N or Form ATS-G to obtain
information regarding operational facets of an ATS or to compare ATSs
in the selection of trading venues.\670\
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\668\ See supra note 643.
\669\ Covered ATSs as defined in the proposed rule currently
would include 26 Government Securities ATSs and 34 NMS Stock ATSs if
the proposed rule were in effect today. See supra note 95. See also
supra Section II.B.
\670\ See Rule 304(b)(3)(ii).
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First, the Commission believes that the information disclosed in
Form ATS-G, and the ability of the Commission to declare Form ATS-G
ineffective, would improve the quality of information the Commission
receives and significantly enhance the Commission's knowledge of the
operations of Government Securities ATSs, the activities of its broker-
dealer operator and its affiliates, and its safeguards and procedures
to protect the confidential trading information of subscribers. Based
in part on the Commission's experience with Form ATS-N for NMS Stock
ATSs, the Commission believes that extending Rule 304 to include all
Government Securities ATSs would result in better regulatory oversight
of these ATSs and help protect investors.\671\ Second, the Commission
believes that the proposed public disclosure of Form ATS-G would
enhance the operational transparency of all Government Securities
ATSs.\672\ Similar to Form ATS-N for NMS Stock ATSs, the Commission
believes that Form ATS-G would provide market participants in the
government securities markets with more uniform
[[Page 87188]]
information regarding how orders are handled and any potential
conflicts of interest that may arise from the ATS-related activities of
the broker-dealer operator or its affiliates. The Commission believes
that there is currently limited publicly available information
regarding the operations of Government Securities ATSs and that some
subscribers of a Government Securities ATS may be privy to more
detailed information about how their orders are executed, sent and/or
prioritized than other subscribers. The Commission believes that the
proposed public disclosure of Form ATS-G would help equalize
information distribution among market participants, lower search costs,
and assist market participants in selecting a Government Securities
ATSs for their orders, which could lower their trading costs and
improve the quality of their order execution.
---------------------------------------------------------------------------
\671\ See supra note 663.
\672\ See id.
---------------------------------------------------------------------------
The Commission believes that the increase in amount, and the
improvement in quality, of information regarding Government Securities
ATSs via Form ATS-G filings would help improve the regulatory oversight
of the ATSs and help protect investors. Form ATS-G would improve the
amount and quality of information the Commission receives regarding
Government Securities ATSs because Form ATS-G would require Government
Securities ATSs to disclose more detailed information regarding their
operations than Form ATS does for Legacy Filers. For Currently Exempted
Government Securities ATSs, the Commission would receive this detailed
information about how those systems operate for the first time. For
example, compared to Form ATS, Form ATS-G requires detailed information
regarding the types of orders offered, how they interact and match, and
how customer order flow is segmented. Form ATS-G would require
Government Securities ATSs to report on the activities of the broker-
dealer operator and its affiliates in connection with the ATS, which
Form ATS does not require. The Commission's recent experience with Form
ATS-N informs this belief. Since February 2019, the Commission has
reviewed initial Form ATS-N filings and amendments thereto and engaged
in direct conversation with all NMS Stock ATSs about their Form ATS-N
filings. When new NMS Stock ATSs seek to begin operations, the initial
Form ATS-N provides the Commission with detailed information about how
the ATS will operate. With this knowledge, the Commission is better
able to oversee compliance and evaluate how NMS Stock ATSs as a group
are evolving. The Commission believes that similar information
disclosed in proposed Form ATS-G would also help make the examination
process of Government Securities ATSs more effective and efficient,
improving the ability of the Commission and the ATS's SRO to examine
for compliance with the federal securities laws.
The Commission believes that the Commission's process to declare
Form ATS-G ineffective that is set forth in the proposed amendments
would help ensure the quality of information disclosed in Form ATS-G,
which would improve the efficiency in the regulatory oversight of
Government Securities ATS, with attendant benefits to market
participants who utilize Form ATS-G. The Commission's review of Form
ATS-G would not be merit-based; instead, it would focus on the
completeness and comprehensibility of the disclosures.\673\ The
proposed amendments would provide a process for the Commission to
declare a Form ATS-G ineffective if the form contained material
deficiencies with respect to, among other things, its accuracy,
currency, or completeness.\674\ The Commission believes that the
process would incentivize Government Securities ATSs to file accurate,
current, and complete public disclosures about their operations and
accordingly would improve the quality of information disclosed by the
ATSs as compared to the information currently filed on Form ATS by
Legacy Filers. In the Commission's experience, working with NMS Stock
ATSs on their Form ATS-N filings has helped ensure that such
disclosures are complete and comprehensible. Many NMS Stock ATSs have
opted to seek the Commission staff's input about pending material
amendments prior to filing, which has contributed to clearer and more
effective disclosures.
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\673\ See supra note 166. To emphasize that the Commission is
not conducting a merit-based review of Form ATS-G disclosures filed
with the Commission, the Commission is proposing to include a legend
on the Form ATS-G cover page stating that the Commission has not
passed upon the merits or accuracy of the disclosures in the filing.
See supra Section III.A.1.
\674\ A Government Securities ATS would not qualify for the
exemption from the definition of ``exchange'' unless its Form ATS-G
becomes effective.
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The Commission believes that the public disclosure of Form ATS-G
could lower search costs, reduce trading costs, and improve the quality
of order execution for market participants.\675\ Specifically, the
Commission believes that requiring detailed public disclosures about
the operations of Government Securities ATSs would, among other things,
better standardize the type of information market participants receive
about those operations including how orders are handled, fee
structures, or any potential conflicts of interest that may arise from
the activities of the broker-dealer operator or its affiliates. Based
on the Commission's experience with its review of initial Form ATS-N
filings, the Commission believes that Form ATS-G would result in more
standardized public information about Government Securities ATSs. As a
result, search costs for market participants could be lower, as
consistent disclosure requirements for all Government Securities ATSs
as part of the proposed amendments to Regulation ATS should facilitate
market participants' comparison of Government Securities ATSs when
deciding which venue best suits their trading purposes. The Commission
believes the enhanced operational transparency resulting from the
public disclosures of Form ATS-G would aid market participants when
evaluating potential trading venues, which could lower their trading
costs and improve the quality of their order execution. Furthermore,
based on the Commission's experience, fees can be a primary factor for
market participants in deciding where to send their orders.\676\ Fee
disclosures on proposed Form ATS-G would help market participants
compare and analyze the fee structures across Government Securities
ATSs in an expedited manner and decide which ATS offers them the best
pricing according to the characteristics of their order flow and the
type of participant they are, which would lower their search costs and
trading costs.
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\675\ The proposed Rule 304(b)(3)(i) would require Government
Securities ATSs to make Form ATS-G public via posting on their
websites a direct URL hyperlink to the Commission's website that
contains their Form ATS-G filing. The proposed Rule 304(b)(3)(ii)
would require all Covered ATSs (26 Government Securities ATSs and 34
NMS Stock ATSs) to make the most recently disseminated Covered Forms
(Form ATS-G and Form ATS-N) public via posting the forms on their
websites. See supra Section II.B for the definition of the terms
``Covered ATS'' and ``Covered Form.'' See also supra note 95.
\676\ See supra Section III.C.19.
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However, the Commission is unable to quantify these benefits to
market participants because the Commission lacks data on the amount of
information that is currently available to different market
participants regarding Government Securities ATS operations and the
activities of its broker-dealer operators and their affiliates. The
magnitude of the anticipated benefits discussed above would also depend
on a number of factors, including the extent to which market
participants would change their behavior as a result of
[[Page 87189]]
receiving the public disclosure of more comprehensive and uniform
information of this type in Form ATS-G. It is inherently difficult to
predict how different market participants will use the information
contained in Form ATS-G in evaluating and choosing the Government
Securities ATSs that best serve their trading objectives.
With respect to the filing location and format of Form ATS-G, the
Commission believes requiring all Government Securities ATSs to file
Form ATS-G on the EDGAR system in a structured, machine-readable custom
eXtensible Markup Language (``custom XML'') format would benefit market
participants by improving the usability, accessibility, and reliability
of the Form ATS-G disclosures.\677\ By requiring a structured format
and a publicly accessible filing location for Form ATS-G, the
Commission would enable market participants to download the disclosed
information directly into their databases and analyze the information
using various tools and applications. This would make it easier for
market participants to aggregate the information and compare multiple
Government Securities ATSs to help select the venue that best suits
their trading purposes, thereby potentially avoiding the cost of paying
a third party data vendor to extract and structure the disclosed
information on their behalf.
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\677\ See supra Section IV. The custom XML format requirement
would be specified in the EDGAR Filer Manual and in the Instructions
to Form ATS-G. See Instruction A.5 to proposed Form ATS-G.
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The Commission also believes requiring all Government Securities
ATSs to submit Form ATS-G in a custom XML format would facilitate more
effective and thorough review and analysis of Government Securities
ATSs by the Commission, which should yield greater insights into the
operations of Government Securities ATSs and the activities of their
operators and affiliates. Additionally, Commission staff would be
better able to assemble and review a larger pool of data regarding
Government Securities ATSs. The Commission believes that both of these
outcomes would benefit market participants by facilitating the
Commission's examination process and thus would help protect investors
and ensure the sufficiency of information in the market related to
Government Securities ATSs.
Requiring all Government Securities ATSs to file Form ATS-G on
EDGAR would benefit market participants by ensuring that the Form ATS-G
disclosures are in a centralized, publicly accessible filing location
with validation capabilities. Providing a centralized filing location
would prevent market participants from incurring additional costs to
locate and retrieve different Forms ATS-G from different filing
locations. Similarly, because EDGAR is a publicly accessible system, an
EDGAR requirement would prevent market participants from incurring
additional costs that would arise if an operator or other party were to
place any barriers to access Form ATS-G (such as a website registration
requirement). Because EDGAR provides basic validation capabilities, an
EDGAR requirement would reduce the incidence of non-discretionary
errors on Forms ATS-G, thereby improving the quality of Form ATS-G
disclosures.
iii. Application of Fair Access Rule to Government Securities ATSs
The Commission believes that the proposed application of the Fair
Access Rule could increase trading venue options available to market
participants who are currently excluded, which could lower their
trading costs, to the extent that there are market participants
currently excluded from trading on Government Securities ATSs that meet
the specified volume thresholds. The Commission believes that requiring
Government Securities ATSs that meet the volume thresholds to establish
and objectively apply fair access standards could help prevent certain
market participants from being denied access to an ATS that trades a
significant portion of the market for U.S. Treasury Securities and
Agency Securities, to the extent there are any such market
participants. Denials of access are of particular concern when an ATS
captures a significant percentage of trading volume in a particular
type of securities. The Commission also believes that Form ATS-R
information regarding fair access grants, denials, and limitations of
access to Government Securities ATSs would improve the Commission's
ability to oversee those ATSs to evaluate for compliance with the Fair
Access Rule.
Under the proposal, if a Government Securities ATS meets the fair
access volume thresholds, the ATS would be required to apply the same
access standards to all persons in a subscriber group. As a result, for
example, there would be a mechanism to prevent a Government Securities
ATS that met the volume threshold from unreasonably denying access to
one hedge fund while granting access to another similar hedge fund. The
Commission believes that to the extent there are any market
participants currently excluded from trading on Government Securities
ATSs, the proposed change would address any unreasonable exclusion
practices by Government Securities ATSs that have a significant market
share, which would increase trading platform options and lower trading
costs for previously excluded market participants.
b. Extension of Regulation SCI to Government Securities ATSs
The Commission believes the proposed amendments to Regulation SCI
would promote the establishment of more robust systems that are less
likely to experience a system disruption by requiring Government
Securities ATSs that meet the definition of SCI entity to establish and
enforce written policies and procedures to ensure that their SCI
systems have adequate levels of capacity, integrity, resiliency,
availability, and security to maintain the SCI entity's operational
capability.\678\ The Commission believes that the proposed extension of
Regulation SCI could help strengthen the infrastructure and improve the
resiliency of the automated systems of Government Securities ATSs that
are important to the government securities markets. The Commission
expects requiring Government Securities ATSs that meet certain volume
thresholds to comply with Regulation SCI could help prevent system
issues from occurring and reduce the severity and duration of any
effects when such issues do occur. The Commission believes that this
would help facilitate the price discovery process and liquidity flows
in government securities market. Price discovery in the secondary
market for on-the-run U.S. Treasury Securities is important because the
transaction prices of on-the-run U.S. Treasury Securities are used as
risk-free rate benchmarks to price other securities transactions.\679\
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\678\ See supra Section VI.
\679\ As noted in the October 15 Staff Report, supra note 14,
price discovery is especially important in the secondary market for
on-the-run U.S. Treasury Securities because the transaction prices
are used as risk-free rate benchmarks to price other securities
transactions.
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The Commission also believes that the requirement for a Government
Securities ATS that would be an SCI ATS to establish procedures to
disseminate information about SCI events to responsible SCI personnel,
ATS participants, and the Commission would help reduce the duration and
severity of any system distributions that do occur.\680\ The procedures
would improve the ability of such an ATS to quickly provide the
affected parties with critical information in the event that it
experiences a system disruption. This
[[Page 87190]]
could allow the affected parties to respond more quickly and
appropriately to the incident, which could help shorten the duration
and reduce the effects of a system event. Additionally, the Commission
believes that the requirement for a Government Securities ATS that
meets the definition of SCI ATS to conduct testing of its business
continuity and disaster recovery plans with its designated participants
and other industry SCI entities would help detect and improve the
coordination of responses to system issues that could affect multiple
trading venues and participants in the government securities and repo
market.\681\ This testing should help prevent these system disruptions
from occurring and help reduce the severity of their effects, if they
do occur.
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\680\ See supra note 678.
\681\ See id.
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As discussed in Section X.B.6, one Government Securities ATS
operated by a broker-dealer operator of an NMS Stock ATS that is a SCI
entity could already have utilized some of the policies and procedures
of the NMS Stock ATS required by Regulation SCI and modified them as
needed for systems related to trading of U.S. Treasury Securities and
Agency Securities.\682\ However, the Commission believes that imposing
the requirements of Regulation SCI on systems related to trading of
U.S. Treasury Securities and Agency Securities could further strengthen
these policies and procedures, which would help improve the robustness
of SCI systems and SCI indirect systems.
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\682\ See supra Section X.B.6 for a discussion of Government
Securities ATSs of existing SCI entities.
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c. Amendments to Rule 301(b)(2), Form ATS, Form ATS-R, and Form ATS-N
The Commission believes that the proposed amendments to modernize
Form ATS and Form ATS-R would enhance the efficiency of the Commission
in overseeing ATSs as well as the efficiency of filing Forms ATS and
ATS-R for ATSs. Such amendments would apply to all ATSs that file Form
ATS and/or Form ATS-R. Requiring an ATS to specify the type of
amendment on Form ATS and to provide the cessation date, which is not
currently required, would better enable the Commission to determine
whether an ATS is in compliance with Regulation ATS.
The Commission believes that the proposed amendments to Form ATS-R
would help facilitate the Commission's review and provide the
Commission with more specificity for all categories of securities that
ATSs trade. The Commission believes that requiring the ATS to indicate
whether it was subject to the Fair Access Rule during any portion of
the period covered by the report would facilitate the Commission's
review of Form ATS-R submissions. The Commission believes that this
change would help the Commission facilitate compliance with the trading
volume-based thresholds for the Fair Access Rule and Regulation
SCI.\683\ The Commission believes that updating the descriptions of
certain categories of securities for which volume is required to be
reported on Form ATS-R by an ATS would reduce potential confusion for
an ATS when completing Form ATS-R and would enable an ATS to reflect
more accurately its trading activities during the applicable reporting
period.\684\ Furthermore, adding new Item 4K of Form ATS-R would result
in consistent reporting of the total dollar volume of transactions in
repurchase or reverse repurchase agreements that ATSs trade. New Item
5C of Form ATS-R would provide the Commission with information
regarding the types of securities subject to repurchase or reverse
repurchase agreements reported in Item 4K of Form ATS-R. The Commission
believes that adding new Item 5D would provide the Commission with more
specific information about the types of options (equity options and
options on government securities) that each ATS trades, which would
help enhance the regulatory oversight of ATSs.
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\683\ See supra Sections II.D and VI.
\684\ See supra Section V.C for a discussion of the proposal to
replace the names of the securities categories, ``Nasdaq National
Market Securities'' and ``Nasdaq SmallCap Market Securities,''
reported in Items 4 and 6 of Form ATS-R, with ``Nasdaq Global Market
Securities'' and ``Nasdaq Capital Market Securities,'' respectively.
---------------------------------------------------------------------------
The Commission is also proposing to require Forms ATS and ATS-R,
which are currently required to be sent to the Commission in paper
form, to be filed on EDGAR.\685\ All ATSs subject to Regulation ATS are
required to file a Form ATS-R, and, as proposed, all ATSs that do not
trade NMS stocks or government securities would file a Form ATS. As
discussed above, requiring forms to be filed on EDGAR would provide a
centralized filing location with validation capabilities for submitted
filings.\686\ The Commission believes that an EDGAR requirement would
also increase filing efficiencies for ATSs by removing the need to
print and mail paper versions of Forms ATS and ATS-R.
---------------------------------------------------------------------------
\685\ See supra note 308.
\686\ See supra Section X.C.1.a.ii.
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The Commission is also proposing several revisions to Form ATS-N,
including: deletion of a checkbox requiring NMS Stock ATSs to indicate
whether they currently operate pursuant to a Form ATS; addition of a
requirement to indicate whether the registered broker-dealer has been
authorized by its national securities association to operate an ATS;
deletion of signature block language that refers to the signatory as
``duly sworn''; and changes to the Form's definitions of ``Person'' (to
reflect the Exchange Act definition, not the Advisers Act definition)
and ``NMS Stock ATS'' (to reflect the proposed changes to Rule
300).\687\ Certain of these proposed changes represent technical
clarifications that are unlikely to materially impact the disclosures
on Form ATS-N, but would facilitate the preparation and filing of Form
ATS-N. With respect to the proposed requirement for Form ATS-N filers
to indicate whether the registered broker-dealer has been authorized by
its SRO to operate an ATS, the Commission believes this would benefit
market participants by facilitating the Commission's oversight of an
NMS Stock ATS operator's compliance with SRO rules (including the need
to obtain approval to operate an ATS), thereby likely decreasing the
incidence of non-compliance with those rules.
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\687\ See supra Section V.D.
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2. Costs
Government Securities ATSs would incur both initial implementation
and ongoing compliance costs due to the proposed amendments to
Regulation ATS and Regulation SCI. In addition, market participants in
the government securities and repo market could face higher trading
costs (e.g., higher fees) from Government Securities ATSs, to the
extent that compliance costs from Regulation ATS and Regulation SCI
amendments are passed on to market participants. The Commission
estimates that Government Securities ATSs would incur the following
approximate aggregate PRA compliance costs and FINRA membership related
costs associated with the proposed amendments to Regulation ATS.\688\
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\688\ The Commission is unable to estimate costs associated with
FINRA rules, such as FINRA examination and surveillance, trade
reporting obligations, and certain investor protection rules, for
the bank-operated Currently Exempted Government Securities ATS. See
infra Section X.C.2.a.i for a discussion about compliance costs
associated with FINRA rules for the bank-operated Currently Exempted
Government Securities ATS. Furthermore, to comply with the Fair
Access Rule, the Commission recognizes that Government Securities
ATSs could incur non-PRA compliance costs (e.g., costs associated
with changing fee structures and adapting the operating model to
grant access to market participants), for which the Commission is
unable to provide cost estimates. See infra Section X.C.2.a.iii for
a discussion about non-PRA compliance costs associated with the Fair
Access Rule for Government Securities ATSs.
\689\ The Commission estimates 7 Currently Exempted Government
Securities ATSs would be subject to the proposed amendments to
Regulation ATS. See also supra Section IX.C.
\690\ This cost includes the approximate initial cost of
$275,000 for registering as a broker-dealer with the Commission and
becoming a FINRA member for 1 estimated bank-operated Currently
Exempted Government Securities ATS to comply with Rule 301(b)(1).
See also infra Section X.C.2.a.i for a discussion of the initial
cost of registering as a broker-dealer with the Commission via Form
BD and becoming a FINRA member for a bank-operated Currently
Exempted Government Securities ATS to comply with Rule 301(b)(1).
\691\ This cost includes the approximate ongoing annual cost of
$50,000 for registering as a broker-dealer with the Commission and
maintaining FINRA membership for 1 estimated bank-operated Currently
Exempted Government Securities ATS to comply with Rule 301(b)(1).
See also infra Section X.C.2.a.i for a discussion of the ongoing
annual cost of registering as a broker-dealer with the Commission
via Form BD and becoming a FINRA member for a bank-operated
Currently Exempted Government Securities ATS to comply with Rule
301(b)(1).
\692\ The Commission estimates 26 Government Securities ATSs
would be subject to the proposed amendments to Regulation ATS. See
also supra Section IX.C.
\693\ This cost does not include the aggregate initial PRA costs
associated with Rule 304(b)(3)(ii) for 34 NMS Stock ATSs. See infra
Section X.C.2.a.ii for a discussion about the aggregate initial PRA
costs to comply with the proposed amendments to Rule 304 of
Regulation ATS. See also infra notes 726 and 728.
\694\ This cost does not include the aggregate ongoing annual
PRA costs associated with Rule 304(b)(3)(ii) for 34 NMS Stock ATSs.
See infra Section X.C.2.a.ii for a discussion about the aggregate
ongoing annual PRA costs to comply with the proposed amendments to
Rule 304 of Regulation ATS. See also infra notes 727 and 729.
\695\ The Commission estimates 1 bank-operated Currently
Exempted Government Securities ATS would initially be required to
file a Form ID to gain access to EDGAR as a result of the proposed
amendments. See also supra Section IX.D.2.b.iv. In addition, the
Commission notes that it is proposing changes to Form ATS-N to
delete a question related to legacy status, and to include a
checkbox asking if the registered broker-dealer is authorized by a
national securities association to operate an ATS; the Commission
believes that because this information should be readily available
to a filer and requires only marking a checkbox, this would not
impose additional monetary costs above the baseline for Form ATS-N
filers. See also supra note 520.
\696\ See infra Section X.C.2.c for a discussion about the
aggregate initial PRA costs to comply with the proposed amendments
to Rule 301(b)(2), Form ATS, and Form ATS-R.
\697\ See infra Section X.C.2.c for a discussion about the
aggregate ongoing annual PRA costs to comply with the proposed
amendments to Rule 301(b)(2), Form ATS, and Form ATS-R.
\698\ The Commission estimates 3 Government Securities ATSs
would be subject to the Fair Access Rule. See also supra Section
IX.D.3.
\699\ See infra Section X.C.2.a.iii for a discussion about the
aggregate ongoing annual PRA costs to comply with the Fair Access
Rule.
[[Page 87191]]
Table X.5--Regulation ATS
------------------------------------------------------------------------
Aggregate Aggregate
Regulation ATS initial costs annual costs
------------------------------------------------------------------------
i. Regulation ATS for Currently Exempted \690\ $344,000 \691\ $156,000
Government Securities ATSs \689\.......
ii. Rule 304 for all Government \693\ \694\ 514,000
Securities ATSs \692\.................. 1,194,000
iii. Rule 301(b)(2) and Forms ATS and \696\ 1,800 \697\ 46,000
ATS-R \695\............................
iv. Fair Access Rule \698\.............. .............. \699\ 25,000
------------------------------------------------------------------------
The Commission also believes that Government Securities ATSs with
significant volume in U.S. Treasury Securities or Agency Securities
would incur the following approximate aggregate PRA and non-PRA
compliance costs associated with Regulation SCI:
Table X.6--Regulation SCI
------------------------------------------------------------------------
Aggregate initial Aggregate annual
Regulation SCI \700\ costs costs
------------------------------------------------------------------------
PRA costs \701\............. $1,631,000.......... $2,413,000.
Non-PRA costs \702\......... 960,000 ~ $7.2 640,800 ~ $4.8
million. million.
------------------------------------------------------------------------
In addition to compliance costs, some market participants could
experience indirect costs from the proposal. For example, a Government
Securities ATS could incur indirect costs if its competitive position
in the market were adversely affected as a result of the public
disclosure requirement of Form ATS-G. However, such costs to one ATS
would constitute transfers to other ATSs rather than a net social cost,
and the Commission believes that the risk of such transfers is likely
to be low.\703\
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\700\ The Commission estimates 3 Government Securities ATSs
would be subject to Regulation SCI. See also supra Section IX.D.5.
The costs tabulated in this table do not include costs for market
participants interacting with SCI entities (e.g., third-party
vendors providing SCI systems and/or indirect SCI systems to SCI
entities, members or participants of SCI entities participating in
testing of business continuity and disaster recovery plans). See
also infra Section X.C.2.b.
\701\ These cost estimates are based on the 2018 SCI PRA
Extension. See 2018 SCI PRA Extension, supra note 529. See also
supra Section IX.D.5 discussing PRA burden estimates related to
compliance with Regulation SCI.
\702\ See infra note 767. See also infra Section X.2.b and
Regulation SCI Adopting Release, supra note 2, at 72416.
\703\ See infra Section X.C.2.a.ii for a discussion about
transfer costs and why the Commission believes the risk of incurring
such transfer costs is likely to be low.
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a. Extension of Regulation ATS to Currently Exempted Government
Securities ATSs and Amendment to Regulation ATS for All Government
Securities ATSs
The proposed extension of Regulation ATS would generate a number of
costs for Currently Exempted Government Securities ATSs and Legacy
Filers associated with extending Regulation ATS to include Currently
Exempted Government Securities ATSs; extending Rule 304 of Regulation
ATS to include all Government Securities ATSs and amending Rule 304;
and applying the Fair Access Rule.\704\
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\704\ See supra Section X.C.2 for a discussion and table
regarding the summary of PRA compliance costs associated with the
proposed amendments to Regulations ATS.
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i. Extension of Regulation ATS To Include Currently Exempted Government
Securities ATSs
The Commission estimates that, together, 7 Currently Exempted
Government Securities ATSs would incur the aggregate initial PRA costs
of approximately $27,000 \705\ and the
[[Page 87192]]
aggregate ongoing annual PRA costs of approximately $77,000 \706\ to
comply with the applicable rules of Regulation ATS (other than the
costs to comply with Rule 304, which are discussed below).\707\ In
addition, the Commission estimates that 1 bank-operated Currently
Exempted Government Securities ATS would incur the additional initial
costs of approximately $275,000 \708\ and the ongoing annual costs of
approximately $50,000 \709\ to register as a broker-dealer with the
Commission via Form BD and become a member of FINRA under the proposed
Rule 301(b)(1).\710\
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\705\ $27,146 (estimated aggregate initial cost of compliance
with Rule 301(b)(10) for 7 Currently Exempted Government Securities
ATSs). See infra note 719. The Commission estimates the wage rate
associated with these burden hours based on salary information for
the securities industry compiled by SIFMA. The estimated wage figure
for attorneys, for example, is based on published rates for
attorneys, modified to account for a 1,800 hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead yielding an effective hourly rate for 2013 of
$380 for attorneys. See Securities Industry and Financial Markets
Association, Management & Professional Earnings in the Securities
Industry--2013, available at https://www.sifma.org/resources/research/managementand-professional-earnings-in-the-securitiesindustry-2013/. These estimates are adjusted for an
inflation rate of 11.34 percent based on the Bureau of Labor
Statistics data on CPI-U between October 2013 and May 2020.
Therefore, the current inflation adjusted effective hourly wage
rates for attorneys are estimated at $423 ($380 x 1.1134). We
discuss other costs of compliance with the proposed rules below.
\706\ $22,365 (estimated aggregate ongoing cost of compliance
with Rule 302 for 7 Currently Exempted Government Securities ATSs) +
$7,455 (estimated aggregate ongoing cost of compliance with Rule 303
for 7 Currently Exempted Government Securities ATSs) + $40,719
(estimated aggregate ongoing cost of compliance with Rule 301(b)(9)
for 7 Currently Exempted Government Securities ATSs) + $6,916
(estimated aggregate ongoing cost of compliance with Rule 301(b)(10)
for 7 Currently Exempted Government Securities ATSs) = $77,455. For
an explanation of each of these costs, see infra notes713, 715, 717,
and 721. Costs of compliance with Rule 301(b)(5), as applicable, are
discussed below. See infra note 757.
\707\ These aggregated compliance costs associated with the PRA
include the costs to comply with Rule 301(b)(1), Rule 301(b)(2),
Rule 301(b)(9), Rule 301(b)(10), Rule 302, and Rule 303(a)(1)(v).
These aggregated compliance costs associated with the PRA do not
include the compliance costs associated with Rule 301(b)(2)(viii),
Rule 304 of Regulation ATS, the Fair Access Rule, and Regulation
SCI.
\708\ The Commission estimates that 1 bank-operated Currently
Exempted Government Securities ATS would incur the aggregate initial
cost for registering as a broker-dealer with the Commission via Form
BD and becoming a FINRA member under Rule 301(b)(1) of approximately
$275,000. See also infra note 724.
\709\ The Commission estimates that 1 bank-operated Currently
Exempted Government Securities ATS would incur the aggregate ongoing
cost associated with Form BD and maintaining FINRA membership under
Rule 301(b)(1) of approximately $50,000. See also infra note 725.
\710\ See supra note 429 and accompanying text for hourly
burden. The initial PRA costs would be: Compliance Manager at $315 x
2.75 hours x 1 estimated bank-operated Currently Exempted Government
Securities ATS = $866.25. See supra note 430. The ongoing annual PRA
costs would be: (Compliance Manager at $315 x 0.33 hours) x 3
amendments x 1 estimated bank-operated Currently Exempted Government
Securities ATS = $311.85. See supra note 432.
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Currently Exempted Government Securities ATSs would incur ongoing
annual PRA costs to comply with recordkeeping requirements of Rules 302
and 303 of Regulation ATS.\711\ Currently Exempted Government
Securities ATSs would also incur ongoing annual PRA costs associated
with filing information required by Form ATS-R with the Commission each
quarter to comply with Rule 301(b)(9). The requirements to establish
written safeguards and procedures to protect the confidential trading
information of ATS subscribers under Rules 301(b)(10) and 303(a)(1)(v)
would impose one-time initial PRA costs on Currently Exempted
Government Securities ATSs. In addition, Currently Exempted Government
Securities ATSs would incur ongoing annual PRA costs to update and
preserve the written safeguards.
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\711\ Rule 301(b)(8) would require Currently Exempted Government
Securities ATSs to comply with the requirements of Rules 302 and 303
of Regulation ATS. Legacy Filers already comply with Rules 302 and
303 of Regulation ATS. See also supra Section IX.D.1.b.
---------------------------------------------------------------------------
Table X.7 tabulates initial and ongoing annual PRA costs associated
with Rules 302, 303, 301(b)(9), 301(b)(10), and 303(a)(1)(v):
------------------------------------------------------------------------
Burden Initial PRA costs Annual PRA costs
------------------------------------------------------------------------
Recordkeeping under Rule 302 N/A................. Per ATS:
$3,195,\712\
Industry:
$22,365.\713\
Recordkeeping under Rule 303 N/A................. Per ATS:
$1,065,\714\
Industry:
$7,455.\715\
Filing Form ATS-R under Rule N/A................. Per ATS:
301(b)(9). $5,817,\716\
Industry:
$40,719.\717\
Written safeguards and Per ATS: Per ATS: $988,\720\
procedures under Rules $3,878,\718\ Industry:
301(b)(10) and 303(a)(1)(v). Industry: $27,146 $6,916.\721\
\719\.
------------------------------------------------------------------------
The Commission believes that Currently Exempted Government
Securities ATSs that are banks (i.e., bank-operated Currently Exempted
Government Securities ATSs) would incur additional compliance costs
related to registering with the Commission as broker-dealers, which
entails becoming members of an SRO, such as FINRA, compared to those
not operated by banks. In addition, as members of FINRA, bank-operated
Currently Exempted Government Securities ATSs would incur costs related
to FINRA examination and surveillance, trade reporting obligations, and
certain investor protection rules.\722\ It is the Commission's
understanding that bank-operated Currently Exempted Government
Securities ATSs may adopt a structure where the ATS is operated by a
bank affiliate that is a registered broker-dealer, rather than by the
bank itself.\723\ In this case, the bank affiliates operating ATSs
would be required to register as broker-dealers with the Commission via
Form BD and become members of an SRO under the proposed Rule 301(b)(1).
The Commission estimates that 1 bank-operated Currently Exempted
Government Securities ATS would register as a broker-dealer with the
Commission via Form BD and
[[Page 87193]]
become a member of an SRO under the proposed Rule 301(b)(1).
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\712\ Compliance Clerk at $71 x 45 hours = $3,195. See supra
note 434. This burden is equal to the Commission's estimate of the
annual costs that a Legacy Filer currently bears for fulfilling the
requirements of Rule 302.
\713\ $3,195 x 7 Currently Exempted Government Securities ATSs =
$22,365.
\714\ Compliance Clerk at $71 x 15 hours = $1,065. See supra
note 436. This burden is equal to the Commission's estimate of the
annual costs that a Legacy Filer currently bears for fulfilling the
requirements of Rule 303.
\715\ $1,065 x 7 Currently Exempted Government Securities ATSs =
$7,455.
\716\ (Attorney at $423 x 12 hours) + (Compliance Manager at
$315 x 1 hour) + (Compliance Clerk at $71 x 6 hours) = $5,817. See
supra note 438. This burden is equal to the burden that Legacy
Filers bear for complying with Rule 301(b)(9). See supra Section
IX.D.1.c.
\717\ $5,817 x 7 Currently Exempted Government Securities ATSs =
$40,719.
\718\ (Attorney at $423 x 9 hours) + (Compliance Clerk at $71 x
1 hour) = $3,878. See supra note 443.
\719\ $3,878 x 7 Currently Exempted Government Securities ATSs =
$27,146.
\720\ (Attorney at $423 x 2 hours) + (Compliance Clerk at $71 x
2 hours) = $988. See supra note 445. This burden is equal to the
Commission's estimate of the annual costs that a Legacy Filer
currently bears to comply with the rule under the proposal.
\721\ $988 x 7 Currently Exempted Government Securities ATSs =
$6,916.
\722\ See supra notes 108-110.
\723\ See supra Section II.C for a discussion of bank-operated
Currently Exempted Government Securities ATS. Because a bank-
operated Government Securities ATS could comply with the proposed
requirements by, for example, restructuring so that an existing
affiliate operates the ATS, the Commission does not consider costs
that would be associated with creating a new bank-affiliated entity
to be part of the incremental costs of the proposal.
---------------------------------------------------------------------------
The Commission estimates an initial cost of approximately $275,000
to register as a broker-dealer with the Commission via Form BD and
become a member of FINRA.\724\ Additionally, the Commission estimates
an ongoing annual cost of approximately $50,000 to maintain the broker-
dealer registration with the Commission and FINRA membership.\725\ The
Commission believes that these costs related to broker-dealer
registration and FINRA membership are relevant primarily to bank-
operated Currently Exempted Government Securities ATSs. However, these
estimates are uncertain because the Commission does not have
information on the estimated 1 bank-operated Currently Exempted
Government Securities ATS, such as the number of registering persons,
profitability, the degree of reliance on outside legal or consulting
costs necessary for effectively completing the application to be a
member of FINRA, and the current sample size of one may be too small to
be a reliable indicator of industry costs. For example, the initial
registration costs for FINRA membership is higher for entities with a
larger number of associated persons being registered. The ongoing costs
to remain a FINRA member vary based on the profitability and the size
(i.e., the number of registered persons and the number of branch
offices) of the entity. Furthermore, the Commission is unable to
provide estimated costs related to FINRA examination and surveillance,
trade reporting obligations, and certain investor protection rules
because these costs are based on compliance with FINRA rules. The costs
associated with FINRA examination and surveillance, trade reporting
obligations, and certain investor protection rules may depend on
various factors, such as the costs of updating systems for trade
reporting requirements and the costs of complying with FINRA rules
(including drafting policies and procedures as may be required for the
bank-operated Currently Exempted Government Securities ATS), for which
the Commission does not have information. The Commission invites
comments on costs that a bank-operated Government Securities ATS could
incur in relation to FINRA membership, FINRA examination and
surveillance, trade reporting, and certain investor protection rules.
---------------------------------------------------------------------------
\724\ See Exchange Act Release No. 33-9974 (October 30, 2015),
80 FR 71388, 71509 (November 16, 2015) (``Regulation Crowdfunding
Adopting Release''). In addition to the initial costs to become a
member of FINRA, this cost includes the paperwork related initial
costs of $866.25 for filing Form BD with the Commission. See also
supra note 708.
\725\ In addition to the ongoing annual costs to maintain a
membership with FINRA, this cost includes the costs of paperwork
related ongoing annual costs of $311.85 to amend Form BD with the
Commission. See supra note 709. See also Regulation Crowdfunding
Adopting Release, supra note 724, at 71509.
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ii. Extension of Rule 304 of Regulation ATS To Include All Government
Securities ATSs and Amendments to Rule 304
The Commission estimates that all 26 Government Securities ATSs
would incur the aggregate initial PRA costs of approximately $1,143,000
\726\ to complete Form ATS-G and to make Form ATS-G public. The
Commission estimates that all 26 Government Securities ATSs would incur
the aggregate ongoing annual PRA costs of approximately $331,000 \727\
to amend their Forms ATS-G. In addition, the Commission estimates that
some Legacy Filers would incur PRA costs associated with amending Form
ATS and filing Form ATS-R. As discussed below, the Commission estimates
that 17 Legacy Filers would incur the aggregated initial PRA costs of
approximately $51,000 \728\ for amending Form ATS and the aggregated
ongoing annual PRA costs of approximately $183,000 \729\ for amending
Form ATS and Form ATS-R. Furthermore, the Commission estimates that 34
NMS Stock ATSs would incur the aggregated initial and ongoing annual
PRA costs of approximately $39,000 \730\ and $118,000,\731\
respectively, to make the most recently disseminated Forms ATS-N public
via posting on the ATSs' websites. The Commission also believes that
some subscribers of Government Securities ATSs could incur indirect
costs resulting from the public disclosure requirement of Form ATS-G.
---------------------------------------------------------------------------
\726\ $1,097,773 (estimated aggregate initial cost associated
with completing Form ATS-G required by Rule 301(b)(2)(viii) and Rule
304 for 26 Government Securities ATSs) + $15,028 (estimated
aggregate initial cost associated with making public posting on
ATS's website of direct URL hyperlink to the Commission's website
that contains Form ATS-G, as required by Rule 304(b)(3)(i) for 26
Government Securities ATSs) + $30,056 (estimated aggregate initial
cost associated with making public posting on ATS's website of the
most recently disseminated Form ATS-G, as required by Rule
304(b)(3)(ii) for 26 Government Securities ATSs) = $1,142,857. See
also infra notes 733, 747, and 749.
\727\ $241,129 (estimated aggregate ongoing cost associated with
amending Form ATS-G required by Rule 301(b)(2)(viii) and Rule 304
for 26 Government Securities ATSs) + $90,168 (estimated aggregate
ongoing cost associated with making public posting on ATS's website
of the most recently disseminated Form ATS-G, as required by Rule
304(b)(3)(ii) for 26 Government Securities ATSs) = $331,297. See
also infra notes 735 and 749.
\728\ $50,966 (estimated aggregate initial cost associated with
amending Form ATS, as required by Rule 301(b)(2)(viii) for 17 Legacy
Filers). See also infra note 742.
\729\ $69,547 (estimated aggregate ongoing cost associated with
amending Form ATS required by Rule 301(b)(2)(viii) for 17 Legacy
Filers) + $113,271 (estimated aggregate ongoing cost associated with
amending Form ATS-R, as required by Rule 301(b)(9) for 17 Legacy
Filers) = $182,818. See also infra notes 733 and 744.
\730\ $39,304 (estimated aggregate initial cost associated with
making public posting on ATS's website of the most recently
disseminated Form ATS-N, as required by Rule 304(b)(3)(ii) for 34
NMS Stock ATSs). See also infra note 749.
\731\ $117,912 (estimated aggregate ongoing cost associated with
making public posting on ATS's website of the most recently
disseminated Form ATS-N, as required by Rule 304(b)(3)(ii) for 34
NMS Stock ATSs). See also infra note 749.
---------------------------------------------------------------------------
The proposed amendments to Regulation ATS would impose PRA costs on
all Government Securities ATSs in that they would require Government
Securities ATSs to adhere to heightened disclosure and reporting
requirements regarding their operations. The Commission expects the PRA
costs of the proposed amendments to be incremental relative to the PRA
costs associated with the existing requirements. Specifically, the
Commission believes that the incremental PRA costs would consist
largely of providing new disclosures and updating records and retention
policies necessary to comply with the proposed amendments. The
Commission estimates that all 26 Government Securities ATSs would need
to comply with the proposed amendments to Regulation ATS relating to
Rules 301(b)(2)(viii) and 304, which require the filing of proposed
Form ATS-G. Some of the information requests on Form ATS-G would be
applicable to only Government Securities ATSs that meet the applicable
volume thresholds.\732\ This would result in the aggregate initial PRA
cost of $1,097,773 for all Government Securities ATSs to complete Form
ATS-G and comply with proposed Rules 301(b)(2)(viii) and 304 of
Regulation ATS.\733\
---------------------------------------------------------------------------
\732\ See supra Section IX.D.2.b.i.
\733\ Aggregate costs to complete Part I of Form ATS-G:
(Compliance Clerk at $71 x 0.75 hours) x 26 Government Securities
ATSs = $1,384.50 (see supra note 473). Aggregate costs to complete
Part II of Form ATS-G: ((Attorney at $423 x 18.5 hours) +
(Compliance Manager at $315 x 9.5 hours) + (Sr. Systems Analyst at
$289 x 1 hour) + (Sr. Marketing Manager at $311 x 2 hours)) x 26
Government Securities ATSs = $304,954 (see supra note 475).
Aggregate costs to complete Part III items applicable to all
respondents: ((Attorney at $423 x 19.5 hours) + (Compliance Manager
at $315 x 26.2 hours) + (Sr. Systems Analyst at $289 x 26.55 hours)
x 26 Government Securities ATSs = $628,535 (see supra note 477).
Aggregate costs to complete Part III, Item 24(a): ((Attorney at $423
x 2 hours) + (Compliance Manager at $315 x 1 hour) + (Sr. Systems
Analyst at $289 x 2 hours)) x 3 ATSs subject to the requirement =
$5,217. Aggregate costs to complete Part III, Item 24(b): (Attorney
at $423 x 2 hours) + (Compliance Manager at $315 x 1 hour) + (Sr.
Systems Analyst at $289 x 2 hours)) x 1 ATS subject to the
requirement = $1,739. ($1,385 (Part I) + $304,954 (Part II) +
$628,535 (Part III items applicable to all filers) + $5,217 (Part
III, Item 24(a)) + $1,739 (Part III, Item 24(b)) + $155,896
(baseline) + $47 (access to EDGAR) = $1,097,773 total aggregate
costs.
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[[Page 87194]]
In addition to the initial PRA costs mentioned above, Government
Securities ATSs would also incur ongoing PRA costs to comply with the
proposed amendments to Rule 3a1-1(a) and Regulation ATS. For instance,
Government Securities ATSs would incur ongoing PRA costs associated
with amending their Form ATS-G prior to material changes in their
operations, or to correct any information that has become inaccurate.
Regardless of the reason for filing a Form ATS-G amendment, the
Commission estimates that a Government Securities ATS would incur
approximately $9,274 to prepare and file its Form ATS-G
amendments.\734\ This would result in the aggregate ongoing annual PRA
cost of $241,129 for all Government Securities ATSs to amend their
Forms ATS-G and comply with proposed Rules 301(b)(2)(viii) and 304 of
Regulation ATS.\735\
---------------------------------------------------------------------------
\734\ See supra note 483. (Attorney at $423 x 16.5 hours) +
(Compliance Manager at $315 x 6 hours) + (Compliance Clerk at $71 x
5.7 hours) = $9,274.2.
\735\ 28.2 total hours (see supra note 484) x 26 Government
Securities ATSs = 733.2 hours. $9,274.20 x 26 Government Securities
ATSs = $241,129.
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Requiring Form ATS-G to be filed on EDGAR would impose only a
minimal cost, at most, on Government Securities ATSs. The Commission
believes requiring proposed Form ATS-G to be filed on EDGAR would
impose the aggregate initial PRA cost of approximately $47 for 1 bank-
operated Currently Exempted Government Securities ATS,\736\ and the
aggregate ongoing annual PRA costs of approximately $47 for 1 new
Government Securities ATS per year that may be operated by an entity
without prior access to EDGAR.\737\ Because all Legacy Filers are
operated by registered broker-dealers, there would be no burden
associated with gaining access to EDGAR for Legacy Filers.\738\ The
Commission estimates that 1 Currently Exempted Government Securities
ATS is operated by a bank, not a registered broker-dealer; as such,
there would be a total cost of approximately $47 associated with
gaining access to EDGAR (assuming the bank operator is not subject to
other EDGAR filing requirements).\739\
---------------------------------------------------------------------------
\736\ (Compliance Manager at $315 x 0.15 hours) x 1 bank-
operated Currently Exempted Government Securities ATS = $47.25. See
supra note 509. This cost is reflected in the aggregate initial
costs discussed earlier in this section.
\737\ (Compliance Manager at $315 x 0.15 hours) x 1 new
Government Securities ATS = $47.25. See supra note 509. This cost is
reflected in the aggregate ongoing annual costs discussed earlier in
this section.
\738\ See supra Section IX.C.
\739\ (Compliance Manager at $315 x 0.15 hours) x 1 bank-
operated Currently Exempted Government Securities ATS = $47.25. See
supra notes 515 and 516.
---------------------------------------------------------------------------
Requiring Form ATS-G to be filed in a custom XML format would not
impose any incremental costs on filers as compared to an unstructured
format such as HTML. All Government Securities ATSs would be given the
option of filing Form ATS-G using a web-fillable form that will render
into XML in EDGAR, or to file directly in XML using the custom XML
schema for ATSs as published on the Commission's website.\740\ Given
the availability of the web-fillable form, the XML requirement would
not impose upon any Government Securities ATS the need to license XML-
based filing preparation software or establish XML-based filing
processes.
---------------------------------------------------------------------------
\740\ See supra Section IV. This reflects the current filing
methods for Form ATS-N.
---------------------------------------------------------------------------
Some existing broker-dealers that operate ATSs that transact in
securities other than government securities or repos in addition to
operating the Government Securities ATSs might incur additional costs
to comply with the proposed amendments. Pursuant to the proposed
amendments to Regulation ATS, a Government Securities ATS could not
trade securities other than government securities or repos.\741\
Accordingly, broker-dealers that operate an ATS that currently trades
government securities and repos and securities other than government
securities or repos, would incur additional PRA costs compared to a
Currently Exempted Government Securities ATS, which only trades
government securities or repos, because the former would be required to
file both an initial Form ATS-G and amend their Form ATS. The
Commission estimates that 17 Legacy Filers would need to file an
initial Form ATS-G in regard to their trading activity in government
securities or repos and an amendment to a Form ATS to remove references
to government securities or repos and that the aggregate initial PRA
cost for those ATSs to file would be $823,288 \742\ and that the
aggregate ongoing annual PRA cost to file an amendment to Form ATS and
initial Form ATS-G would be $227,208.\743\ Furthermore, the broker-
dealers operating these Government Securities ATSs would also be
required to file a pair of Forms ATS-R four times annually. The
Commission estimates that the aggregate ongoing annual PRA cost of
filing two Forms ATS-R for broker-dealers that operate one ATS that
trades government securities or repos and a second ATS that trades
securities other than government securities and repos would be
$113,271.\744\
---------------------------------------------------------------------------
\741\ See proposed Rule 300(l).
\742\ The Commission estimates that the total hourly burden for
a broker-dealer to separately file an amended Form ATS for the non-
Government Securities ATS and initial Form ATS-G for the Government
Securities ATS would be 10 burden hours to amend its initial
operation report on Form ATS for its trading activity related to
securities other than NMS stock and government securities or repos,
and approximately 134 burden hours to file its initial Form ATS-G.
See also supra notes 497 and 501. ((Attorney at $423 x 61.5 hours) +
(Compliance Manager at $315 x 37.7 hours) + (Sr. Systems Analyst at
$289 x 31.55 hours) + (Sr. Marketing Manager at $311 x 2 hours) +
(Compliance Clerk at $71 x 11.25 hours)) x 17 Legacy Filers that
would continue to file a Form ATS = $823,288. Of $823,288, the cost
of $50,966 is attributable to the aggregate initial costs for
amending Form ATS to remove references to government securities or
repos for 17 Legacy Filers.
\743\ The Commission estimates that a broker-dealer operator
that operates an ATS that currently trades government securities or
repos and securities other than government securities or repos would
face an annual burden of 13 hours to file amendments to Form ATS and
28.2 hours to file amendments to Form ATS-G. See also supra notes
498 and 499. ((Attorney at $423 x 25.5 hours) + (Compliance Manager
at $315 x 6 hours) + (Compliance Clerk at $71 x 9.7 hours)) x 17
Legacy Filers that would continue to file a Form ATS = $227,208. Of
$227,208, the cost of $69,547 is attributable to the aggregate
ongoing costs to amend Form ATS for 17 Legacy Filers.
\744\ The Commission estimates that a broker-dealer would face a
total burden of 5.25 hours to prepare two Form ATS-Rs. See supra
note 500. ((Attorney at $423 x 14 hours) + (Compliance Manager at
$315 x 1 hour) + (Compliance Clerk at $71 x 6 hours)) x 17 Legacy
Filers that would continue to file a Form ATS = $113,271.
---------------------------------------------------------------------------
A Government Securities ATS would incur costs associated with
programming and website configuration to make Form ATS-G public via
posting on its website a direct URL hyperlink to the Commission's
website that contains its Form ATS-G filing, as required by Rule
304(b)(3)(i).\745\ The Commission estimates that the initial one-time
PRA cost would be approximately $578 \746\ per Government Securities
ATS and the aggregate PRA cost for all Government Securities ATSs would
be approximately $15,028.\747\ Furthermore, all Covered ATSs (26
Government Securities ATSs and 34 NMS Stock ATSs) would incur costs
associated with programming and website
[[Page 87195]]
configuration to make the most recently disseminated Forms ATS-G and
Forms ATS-N public via posting on their websites, as required by Rule
304(b)(3)(ii).\748\ The Commission estimates that the initial PRA cost
would be $1,156 per Covered ATS and $69,360 for all Covered ATSs and
that the ongoing annual PRA cost would be $3,468 per Covered ATS and
$208,080 for all Covered ATSs.\749\
---------------------------------------------------------------------------
\745\ NMS Stock ATSs are already required to comply with Rule
304(b)(3)(i). See supra Section IX.D.2.b.v.
\746\ See supra Section IX.D.2.b.v.
\747\ (Sr. Systems Analyst at $289 x 2 hours) x 26 Government
Securities ATSs = $15,028.
\748\ See supra Section IX.D.2.b.v.
\749\ For all Covered ATSs, the aggregate initial cost would be:
(Sr. Systems Analyst at $289 x 4 hours) x (26 Government Securities
ATSs + 34 NMS Stock ATSs) = $30,056 (estimated aggregate initial
costs for 26 Government Securities ATSs) + $39,304 (estimated
aggregate initial costs for 34 NMS Stock ATSs) = $69,360. See supra
note 512. For all Covered ATSs, the aggregate ongoing cost would be:
(Sr. Systems Analyst at $289 x 12 hours) x (26 Government Securities
ATSs + 34 NMS Stock ATSs) = $90,168 (estimated aggregate ongoing
costs for 26 Government Securities ATSs) + $117,912 (estimated
aggregate ongoing costs for 34 NMS Stock ATSs) = $208,080. See supra
note 513.
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Under the proposal, when a Government Securities ATS ceases
operations, it would be required to file a cessation of operations on
Form ATS-G. Currently Exempted Government Securities ATSs are not
required to notify the Commission when they cease operations. If a
Currently Exempted Government Securities ATS were to cease operations,
the Commission estimates that each Currently Exempted Government
Securities ATS would incur a one-time PRA cost of $670 to prepare and
file a cessation of operations on Form ATS-G with the Commission.\750\
The Commission also estimates that one new Government Securities ATS
would file a Form ATS-G per year \751\ and make the Form ATS-G public
by posting a direct URL hyperlink on its website to the Commission's
website,\752\ resulting in the PRA cost of $47,264.\753\
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\750\ Currently Exempted Government Securities ATSs are
currently not required to notify the Commission when they cease
operations. (Attorney at $423 x 1.5 hours) + (Compliance Clerk at
$71 x 0.5 hours) = $670. See supra note 490.
\751\ See supra Section IX.C.
\752\ See supra Section IX.D.2.b.v.
\753\ (Attorney at $423 x 55 hours) + (Compliance Manager at
$315 x 39.85 hours) + (Sr. Systems Analyst at $289 x 35.55 hours) +
(Sr. Marketing Manager at $311 x 2 hours) + (Compliance Clerk at $71
x 7.75 hours) = $47,264.
---------------------------------------------------------------------------
Regardless of their size and transaction volume, all Government
Securities ATSs would need to ensure that their disclosures meet the
requirements of proposed Form ATS-G and that they correctly file their
Form ATS-G. Government Securities ATSs may develop internal processes
to ensure correct and complete reporting on Form ATS-G, which would
result in a fixed setup PRA cost. These PRA costs may fall
disproportionately on smaller Government Securities ATSs in terms of
PRA costs relative to transaction volume (as opposed to larger
Government Securities ATSs in terms of PRA costs relative to
transaction volume), because all Government Securities ATSs would be
likely to incur these fixed PRA costs. However, smaller Government
Securities ATSs that are not operated by multi-service broker-dealer
operators and that generally do not engage in other brokerage or
dealing activities in addition to their ATSs would likely incur lower
PRA costs because certain sections of proposed Form ATS-G would not be
applicable to these Government Securities ATSs.
The PRA costs could also vary across Government Securities ATSs
depending on the complexity of the ATS and the services that it offers.
For example, some Government Securities ATSs may not segment subscriber
order flow or offer counter-party selection protocols. These ATSs would
not be required to complete Part III, Items 13 and 14 of proposed Form
ATS-G. As a result, such Government Securities ATSs could incur lower
PRA costs because these ATSs would apply lesser burden hours to
complete their Form ATS-G.
In addition to the PRA compliance costs discussed above, the
Commission believes that the proposed ability for the Commission to be
able to declare a Form ATS-G or Form ATS-G amendment ineffective would
generate direct costs for Government Securities ATSs.\754\ If the
Commission declares a Government Securities ATS's Form ATS-G or Form
ATS-G amendment ineffective, then the ATS might have to cease
operations, roll back a change in operations, or delay the start of
operations until it is able to address the deficiencies in the
previously filed form by filing a new Form ATS-G or Form ATS-G
amendment. An ineffective Form ATS-G filing could also impose indirect
costs on the overall market for government securities execution
services resulting from a potential reduction in competition or the
removal of a sole provider of a niche service within the market.\755\
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\754\ See Rule 304(a)(1)(iv)(B).
\755\ See infra Section X.C.3.a.i.b for a discussion about the
impact of a declaration of ineffectiveness on competition in the
market for government securities and repo execution services.
---------------------------------------------------------------------------
However, the Commission believes that there would not be a
substantial burden imposed in connection with resubmitting Form ATS-G
or a Form ATS-G amendment for these entities or from an ineffective
declaration in general. Because Government Securities ATSs and market
participants would not incur these costs unless the Commission declares
a Form ATS-G or amendment ineffective, Government Securities ATSs would
be incentivized to comply with the requirements of Form ATS-G, as well
as federal securities laws, including the other requirements of
Regulation ATS, to avoid an ineffectiveness declaration. The Commission
believes that these incentives would encourage Government Securities
ATSs to initially submit a more accurate and complete Form ATS-G and
amendments, which would reduce the likelihood that they are declared
ineffective.
Additionally, currently operating Government Securities ATSs would
not have to bear the costs of immediately ceasing operations under the
proposal without having an effective Form ATS-G on file with the
Commission because Legacy Filers would be able to continue operations
pursuant to a previously filed initial operation report on Form ATS and
Currently Exempted Government Securities ATSs would also be able to
continue operations pending the Commission's review of its initial Form
ATS-G. However, if after notice and opportunity for hearing, the
Commission declares an initial Form ATS-G filed by a Legacy Filer or
Currently Exempted Government Securities ATS ineffective, the ATS would
be required to cease operations. The Government Securities ATS would
then have the opportunity to address deficiencies in the previously
filed form by filing a new initial Form ATS-G.
The proposed amendments could generate indirect costs for some
subscribers by causing Government Securities ATSs to stop sharing
information that they might currently offer to only some subscribers,
but the Commission believes that this risk could be low because ATSs
could have a commercial incentive to continue disclosing it. Form ATS-G
would require Government Securities ATSs to publicly disclose any
platform-wide order execution metrics that they share with any
subscriber. In order to avoid publicly disclosing this information, an
ATS could stop sharing the information with subscribers. The trading
costs of subscribers that currently use this information to help make
trading decisions could increase if the information is no longer
available to them. The Commission believes that the risk of ATSs
disclosing less information than they currently do depends on several
factors, such as the commercial purpose for releasing such information.
If the subscribers that receive such information demand the information
as
[[Page 87196]]
a condition of subscribing, ATSs would have a commercial incentive to
continue disclosing it.
The Commission also believes that the public disclosure of Form
ATS-G could generate indirect costs, in the form of transfers, for some
subscribers to Government Securities ATSs that might currently have
more information regarding some ATS features, such as order priority
and matching procedures, than other subscribers. The public disclosure
of these features might reduce informed subscribers' information
advantage over other subscribers on the Government Securities ATS and
increase their trading costs. In this regard, the Commission recognizes
that the benefit of the proposal enjoyed by some subscribers in
receiving the proposed information may be seen as a cost by those
subscribers who currently receive such information.
Some Government Securities ATSs could experience indirect costs
from the public disclosure of Form ATS-G though the Commission believes
these costs actually amount to transfers. To the extent that a
Government Securities ATS in part relies on certain operational
characteristics (e.g., order types, trading functionalities) to attract
customer order flow and generate trading revenues, it is possible that
the public disclosure of these characteristics in Form ATS-G could make
it easier for other trading venues to adopt the operational
characteristics, which could lower trading volume and reduce revenue of
the disclosing ATS. Such costs to the disclosing ATS would constitute
transfers to competing ATSs rather than a net social cost. However, the
Commission believes that the risk of such transfers may be low because
it is not likely the responsive information to the proposed Form ATS-G
would include information regarding operational facets such that the
public disclosure of the information would adversely affect the
competitive position of the disclosing ATS in the market for government
securities and repo execution services.\756\
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\756\ See supra note 196 and accompanying text.
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iii. Application of Fair Access Rule to Government Securities ATSs
The Commission estimates that three Government Securities ATSs
would incur the aggregate ongoing annual PRA costs of approximately
$25,000 \757\ to comply with the proposed Fair Access Rule. In
addition, the Commission believes that the proposed application of the
Fair Access Rule to U.S. Treasury Securities and Agency Securities
could impose non-PRA compliance costs on Government Securities ATSs and
market participants could incur indirect costs resulting from
Government Securities ATSs being subject to the Fair Access Rule.\758\
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\757\ ((Attorney at $423 x 10 hours) x 3 Government Securities
ATSs) + ((Attorney at $423 x 10 hours) x 3 Government Securities
ATSs) = $25,380. See supra notes 518 and 519.
\758\ In addition to the costs discussed here and in the
following section about the extension of Regulation SCI to
Government Securities ATSs, ATSs may incur costs to subscribe to,
and program their internal systems to process, TRACE trade reports
for Agency Securities. FINRA currently publishes the weekly
aggregate volume data for U.S. Treasury Securities on which ATSs
would base their fair access calculations for U.S. Treasury
Securities. See supra Section II.D. But ATSs would need to subscribe
to TRACE to obtain the trade reports necessary to calculate the
threshold for Agency Securities. See id. The Commission believes
that the vast majority--and likely, all--broker-dealer operators of
Government Securities ATSs that trade Agency Securities currently
subscribe to TRACE, however, the Commission is requesting comment on
the extent to which Government Securities ATSs (both Currently
Exempted Government Securities ATSs and those subject to current
Regulation ATS) have access to TRACE trade reports for Agency
Securities. See supra note 146.
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Government Securities ATSs that meet certain volume thresholds for
U.S. Treasury Securities, Agency Securities, or both would incur costs
to establish written standards for granting access to their
systems.\759\ The Commission estimates that three Government Securities
ATSs would meet the volume thresholds that trigger the Fair Access Rule
and that the average ongoing annual PRA cost of establishing written
fair access standards for each entity would be $4,230.\760\
Accordingly, the Commission estimates that the aggregate ongoing annual
PRA cost for Government Securities ATSs to establish written fair
access standards would be approximately $12,690.\761\
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\759\ See supra Section IX.D.3 for a discussion of this
proposal.
\760\ Attorney at $423 x 10 hours = $4,230. See supra note 518.
This cost is equal to the Commission's estimate for compliance with
Rule 301(b)(5) because the requirements of the Fair Access Rule
would be identical for Government Securities ATSs and ATSs that are
currently subject to Rule 301(b)(5). See Rule 301 OMB Update, supra
note 419, at 3238.
\761\ $4,230 x 3 Government Securities ATSs = $12,690.
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Government Securities ATSs that meet the fair access volume
thresholds would incur costs to make and keep records of (1) all grants
of access including, for all subscribers, the reasons for granting such
access; and (2) all denials or limitations of access and reasons, for
each applicant, for denying or limiting access. They would also incur
costs to disclose on Exhibit C of Form ATS-R a list of all persons
granted, denied, or granted limited access to the system during the
relevant period.\762\ The Commission estimates that the average ongoing
annual reporting PRA cost for each Government Securities ATS that is
subject to these requirements would be $4,230.\763\ Thus, the
Commission estimates that the aggregate ongoing annual PRA cost for
three Government Securities ATSs to keep these records would be
$12,690.\764\
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\762\ The burdens associated with filing Form ATS-R are
discussed above in Section IX.D.3.
\763\ Attorney at $423 x 10 hours = $4,230. See supra note 519.
\764\ 3 responses x 10 hours = 30 hours. $4,230 x 3 Government
Securities ATSs = $12,690.
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The Commission believes the proposed extension of the Fair Access
Rule to U.S. Treasury Securities and Agency Securities could impose
non-PRA compliance costs on Government Securities ATSs. Under the
proposal, Government Securities ATSs that meet the specified volume
thresholds could no longer treat subscribers differently with respect
to access to the services of the ATS without a reasonable basis. For
example, a Government Securities ATS could not offer one class of
subscriber a service (e.g., an order interaction procedure, order type,
or connectivity method) without offering the service to all subscribers
unless the Government Securities ATS had a reasonable basis for the
differential treatment. In addition, a Government Securities ATS could
not charge fees that may unreasonably prohibit certain market
participants from accessing the services of the ATS. To the extent that
Government Securities ATSs must change fee structures or access and
adapt their operating model due to the Fair Access Rule, those
Government Securities ATSs would incur costs related to changing
business operations.
The Commission, however, is unable to quantify the potential non-
PRA compliance costs discussed above. In particular, the Commission
lacks data on the extent to which Government Securities ATSs that meet
the fair access volume thresholds currently grant access to the ATS
services to all subscribers on the same terms, and on the specific
types of services and subscribers in question. In addition, the
Commission lacks similar data for other trading venues in the market
for government securities that may offer differential access to
services. Thus, the Commission is not able to estimate the costs
associated with changing fee structures and adapting operating models.
In turn, the Commission is not able to estimate the loss of revenues
that Government Securities ATSs that meet the fair access volume
thresholds could
[[Page 87197]]
incur as a result of the proposed extension of the Fair Access Rule.
The Commission believes that market participants could incur
indirect costs related to Government Securities ATSs being subject to
the Fair Access Rule. Government Securities ATSs that are close to
satisfying the volume thresholds for certain government securities
could limit the trading in those government securities on their ATSs
over some period to stay below the volume thresholds and avoid being
subject to the Fair Access Rule. The order flow that was being executed
on those Government Securities ATSs might be absorbed and redistributed
amongst other Government Securities ATSs. If a Government Securities
ATS that is the sole provider of a niche service limits the trading in
certain government securities to avoid being subject to the Fair Access
Rule, it could require some market participants to seek execution on
other trading venues, which could result in higher trading costs.
b. Extension of Regulation SCI to Government Securities ATSs
The Commission estimates that three Government Securities ATSs (two
Currently Exempted Government Securities ATSs and one Legacy Filer)
that meet the specified volume thresholds would incur both PRA and non-
PRA direct and indirect compliance costs as SCI entities. The
Commission estimates that two Currently Exempted Government Securities
ATSs would incur the aggregate initial PRA costs of approximately
$1,305,000 and the aggregate ongoing annual PRA costs of approximately
$1,609,000 to comply with Regulation SCI.\765\ Furthermore, the
Commission estimates that one Legacy Filer would incur the initial PRA
costs of approximately $326,000 and the ongoing annual PRA costs of
approximately $804,000 to comply with Regulation SCI.\766\ The
Commission also estimates that three Government Securities ATSs would
incur the aggregate initial non-PRA costs of between approximately
$960,000 and $7.2 million, and the aggregate ongoing annual non-PRA
costs of between approximately $640,800 and $4.8 million to comply with
Regulation SCI.\767\ In addition, as discussed below, the Commission
believes that the proposed amendments to Regulation SCI would impose
indirect compliance costs on market participants interacting with SCI
entities.
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\765\ These cost estimates are based on the 2018 SCI PRA
Extension. See 2018 SCI PRA Extension, supra note 529. See also
supra Section IX.D.5 discussing PRA burden estimates related to
compliance with Regulation SCI.
\766\ See supra note 765.
\767\ Based on the Regulation SCI Adopting Release in 2014, the
Commission estimates that a Government Securities ATS would incur an
initial cost of between approximately $320,000 and $2.4 million.
Thus, 3 Government Securities ATSs would incur the aggregate initial
cost of between approximately $960,000 and $7.2 million.
Additionally, a Government Securities ATS would incur an ongoing
annual cost of between approximately $213,600 and $1.6 million.
Thus, three Government Securities ATSs would incur the aggregate
ongoing annual cost of between approximately $640,800 and $4.8
million. See also Regulation SCI Adopting Release, supra note 2, at
72416.
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Under the proposal, the definition of SCI ATSs would be expanded to
include Government Securities ATSs that meet certain volume thresholds
for U.S. Treasury Securities and/or Agency Securities would be subject
to the requirements of Regulation SCI. Because Regulation SCI imposes
some indirect requirements on other market participants interacting
with SCI entities (e.g., third-party vendors providing SCI systems and/
or indirect SCI systems \768\ to SCI entities, members or participants
of SCI entities participating in testing of business continuity and
disaster recovery plans), those market participants would also incur
indirect costs from Government Securities ATSs being defined as SCI
entities. Also, market participants (including broker-dealers and
institutional investors who use Government Securities ATSs) in the
government securities and repo market may face increased trading costs
(in the form of higher fees) from SCI entities, to the extent that
increased compliance costs are passed on to market participants.
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\768\ The term ``indirect SCI systems'' is defined to mean ``any
systems of, or operated by or on behalf of, an SCI entity that, if
breached, would be reasonably likely to pose a security threat to
SCI systems.'' See Regulation SCI Adopting Release, supra note 2.
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The Commission believes that the 2018 estimates of initial PRA
burdens for new SCI entities and ongoing PRA burdens for all SCI
entities under Regulation SCI are largely applicable to Government
Securities ATSs.\769\ The Commission believes that Government
Securities ATSs could be divided into two groups: \770\ Government
Securities ATSs that are existing SCI entities; and Government
Securities ATSs that are entirely new SCI entities currently not
subject to Regulation SCI. For the first group (Government Securities
ATSs that are existing SCI entities), the Commission believes that such
entities would incur approximately 50 percent of the Commission's
initial PRA burden estimates for an entirely new SCI entities.
Furthermore, for the second group (Government Securities ATSs that are
new SCI entities currently not subject to Regulation SCI), the
Commission believes that such entities would incur the same estimated
initial PRA burdens as those estimated for new SCI entities in the 2018
SCI PRA Extension. The Commission also believes that the same ongoing
PRA burdens for all SCI entities estimated in the 2018 SCI PRA
Extension are applicable to Government Securities ATSs in both the
first and the second group.
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\769\ See 2018 SCI PRA Extension, supra note 529.
\770\ We divide Government Securities ATSs into two groups in
discussing PRA costs because Government Securities ATSs operated by
a broker-dealer operator of an NMS Stock ATS that is a SCI entity
would have lower initial PRA costs. See also 2018 SCI PRA Extension,
supra note 529.
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Among the three Government Securities ATSs that satisfy the volume
thresholds, the Commission believes that one Government Securities ATS
(referred as the first group above) would incur approximately 50
percent of initial PRA burden estimates for an entirely new SCI entity
included in the 2018 SCI PRA Extension, and two Government Securities
ATSs (referred as the second group above) would incur the same
estimated initial PRA burdens as those estimated for new SCI entities
included in the 2018 PRA Extension. In addition, the Commission
believes that all three Government Securities ATSs would incur the same
ongoing PRA burdens as all other SCI entities included in the 2018 SCI
PRA Extension.
Government Securities ATSs would also incur non-PRA direct
compliance costs as SCI entities. The Regulation SCI Adopting Release
in 2014 estimated that an SCI entity would incur an initial cost of
between approximately $320,000 and $2.4 million. Additionally, an SCI
entity would incur an ongoing annual cost of between approximately
$213,600 and $1.6 million. The Commission believes that these non-PRA
costs are largely applicable to Government Securities ATSs. However,
the Commission is uncertain about the actual level of costs Government
Securities ATSs would incur because these costs may differ from the
types of SCI entities considered in the Regulation SCI Adopting
Release, which did not include fixed income ATSs.\771\ The Commission
is also uncertain about the actual level of costs Government Securities
ATSs would incur because the actual costs could differ based on various
factors, such as
[[Page 87198]]
complexity of SCI entities' systems and the degree to which SCI
entities employ third-party systems. The Commission believes that
Government Securities ATSs with relatively simpler systems would incur
lower compliance costs compared to those with more complex
systems.\772\ Also, any SCI systems operated by a third-party on behalf
of an SCI entity would be subject to the requirements of Regulation
SCI. The Commission believes that Government Securities ATSs with
higher dependency on SCI systems operated by third-party vendors could
incur higher compliance costs compared to those with lower dependency
on third-party systems.\773\
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\771\ See Regulation SCI Adopting Release, supra note 2. In the
Regulation SCI Adopting Release, fixed income ATSs are excluded from
the regulation.
\772\ See id. The Regulation SCI Adopting Release explains that
compliance costs would depend on the complexity of SCI entities'
systems and they would be higher for SCI entities with more complex
systems.
\773\ See id. The Regulation SCI Adopting Release discusses that
compliance costs could in part depend on the extent to which an SCI
entity utilize third-party systems because ensuring compliance of
systems operated by a third-party with Regulation SCI may be more
costly than ensuring compliance of internal systems with Regulation
SCI.
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Additionally, the Commission believes that some Government
Securities ATSs' participants required to participate in the testing of
business continuity and disaster recovery plans would incur Regulation
SCI-related connectivity costs of approximately $10,000 apiece.\774\ To
the extent that larger members or participants of SCI Government
Securities ATSs already maintain connections to backup facilities
including for testing purposes, the compliance costs associated with
the business continuity and disaster recovery plans testing
requirements in Rule 1004 for those larger member or participants could
be limited.
---------------------------------------------------------------------------
\774\ See id. The Regulation SCI Adopting Release estimated
connectivity costs as part of business continuity and disaster
recovery plans to be approximately $10,000 per SCI entity member or
participant.
---------------------------------------------------------------------------
The Commission believes that market participants could incur
indirect costs related to compliance requirements for Government
Securities ATSs as SCI entities. Government Securities ATSs that are
close to satisfying the volume thresholds for certain government
securities could limit the trading in those government securities on
their ATSs over some period to stay below the volume thresholds and
avoid being subject to Regulation SCI. The order flow that was being
executed on those Government Securities ATSs might be absorbed and
redistributed amongst other Government Securities ATSs. If a Government
Securities ATS that is the sole provider of a niche service limits the
trading in certain government securities to avoid being subject to
Regulation SCI, it could require some market participants to seek
execution on other trading venues, which could result in higher trading
costs.
The Commission believes that the costs to comply with Regulation
SCI discussed above would also fall on third-party vendors employed by
Government Securities ATSs to provide services used in their SCI
systems. The costs for third-party vendors imposed by Regulation SCI
could depend on the extent to which Government Securities ATSs use
third-party systems that fall under the definition of SCI systems and
the portion of third-party vendors operating SCI systems on behalf of
larger Government Securities ATSs already comply with the requirements
of Regulation SCI. It is possible that some third-party vendors
operating SCI systems on behalf of larger Government Securities ATSs
that already complies with the requirements of Regulation SCI because
they also operate the SCI systems for other SCI (e.g., SCI ATSs, SCI
SROs). The additional compliance costs from the proposed amendments of
Regulation SCI for these third-party vendors would be minimal. However,
at this time, it is difficult to estimate the cost for third-party
vendors because the Commission does not know the extent to which
Government Securities ATSs use third-party systems that fall under the
definition of SCI systems.
c. Amendments to Rule 301(b)(2), Form ATS, Form ATS-R, and Form ATS-N
The proposal to amend Rule 301(b)(2) and Forms ATS and ATS-R would
impose initial and ongoing annual PRA costs on all ATSs including
Government Securities ATSs.\775\ For the proposed amendments to Part I
of Form ATS, the Commission estimates that Form ATS filers would incur
aggregate PRA costs of approximately $1,800 for initial Form ATS
filings, as well as aggregate annual PRA costs of approximately $3,600
for Form ATS amendments.\776\ In addition, the proposed Form ATS-R
amendment that would require filers to indicate the type of filing (and
if applicable the date of cessation) and whether the ATS is subject to
fair access obligations would impose aggregate annual PRA costs of
approximately $11,800.\777\ Furthermore, the proposed Form ATS-R
amendment that would require additional details on Form ATS-R, such as
total dollar volume in transactions in repos, would impose aggregate
annual PRA costs of approximately $11,300.\778\
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\775\ See supra Section IX.D. The estimated aggregate ongoing
annual PRA cost associated with filing Form ATS-R for 7 Currently
Exempted Government Securities ATSs is reflected in the cost
associated with Rule 301(b)(9) in supra note 706. The estimated
aggregate ongoing annual PRA cost associated with filing Form ATS
and Form ATS-R for 17 Legacy Filers is reflected in the cost
associated with Rule 301(b)(2)(viii) and Rule 301(b)(9) in supra
note 729. See also supra Section V.C.
\776\ See supra notes 522 and 523. Compliance Clerk at $71 x
25.5 hours = $1810.50; Compliance Clerk at $71 x 51 hours = $3,621.
\777\ See supra note 531. Compliance Manager at $315 x 37.6
hours = $11,844.
\778\ See supra note 529. Compliance Manager at $315 x 36 hours
= $11,340.
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The proposal to require Forms ATS and ATS-R to be filed on EDGAR is
not expected to impose any incremental costs on any Government
Securities ATS. As discussed above, because all ATSs that are currently
subject to Form ATS and ATS-R filing requirements (including Legacy
Filers) are operated by registered broker-dealers, those ATSs would not
incur any burden to gain access to EDGAR. Any new ATS entities that are
not operated by a registered broker-dealer (including bank-operated
Currently Exempted Government Securities ATSs) and do not otherwise
have access to EDGAR would need to submit a Form ID and thus incur the
estimated 0.15 hour burden in order to file Form ATS-G, and would
consequently already have access to EDGAR when filing a Form ATS-
R.\779\ Beyond the cost of gaining access to EDGAR, the Commission does
not expect that the EDGAR filing requirement would impose any
incremental costs on any Form ATS and ATS-R filer (including Government
Securities ATSs) with respect to ongoing filing requirements (such as
quarterly reports on Form ATS-R or amendments to a Form ATS).
---------------------------------------------------------------------------
\779\ See supra Sections IX.D.4 and X.C.2.a.ii.
---------------------------------------------------------------------------
The proposed changes to Form ATS-N include a new requirement for
NMS Stock ATSs to indicate via checkbox whether the broker-dealer
operator of the NMS Stock ATS is authorized by a national securities
association to operate an ATS. The Commission believes that because
this information should be readily available to a filer and requires
only marking a checkbox, the requirement would not impose any material
additional costs relative to the current baseline.\780\
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\780\ See supra Section V.D and note 520.
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3. Efficiency, Competition, and Capital Formation
The Commission considered the effects of the amendments on
efficiency, competition, and capital formation. The Commission believes
that the amendments could foster competition for order flow in the
market for government securities and repo
[[Page 87199]]
execution services, enhance the efficiency with which market
participants achieve their trading objectives or investment objectives,
and promote price efficiency and capital formation.
The Commission believes that the proposed amendments to Regulation
ATS could promote competition in the markets for government securities
and repo execution services. The Commission believes that the proposal
to extend Regulation ATS to include Currently Exempted Government
Securities ATSs would enable ATSs wishing to effect transactions in
government securities or repos to compete for order flow on a more
level competitive landscape with the same regulatory requirements.\781\
The Commission also believes that the public disclosure of Form ATS-G
could promote competition for order flow in the market for government
securities and repo execution services via lowering fees and improving
order handling procedures. Furthermore, greater competition for order
flow could in turn incentivize Government Securities ATSs to innovate,
including, in particular, in technology related to execution services
to compete on execution services to attract more subscribers and order
flow.
---------------------------------------------------------------------------
\781\ See supra Section X.B.2 for discussion about the current
regulatory requirements for bank-operated Currently Exempted
Government Securities ATSs, Currently Exempted Government Securities
ATSs, and Legacy Filers.
---------------------------------------------------------------------------
The Commission believes that the proposed amendments to Regulation
ATS could enhance the efficiency with which market participants achieve
their trading objectives. The Commission believes the proposed
amendments to Regulation ATS would increase transparency regarding the
operations of Government Securities ATSs and the activities of its
broker-dealer operator and its affiliates and lower search costs for
market participants in the selection of trading venues in the market
for government securities and repos. Furthermore, the fair access
requirements could increase trading venue options for market
participants resulting in lower trading costs and better efficiency
with which they achieve their trading objectives.
The Commission believes that extending Regulation SCI to include
Government Securities ATSs with significant volume could promote price
efficiency and capital formation. Extending Regulation SCI to include
Government Securities ATSs could reduce the frequency, severity, and
duration of such effects resulting from systems issues, thereby
facilitating price discovery process in government securities and
promote capital formation.\782\
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\782\ See infra Section X.C.3.c for a discussion about the price
discovery and price efficiency of U.S. Treasury Securities, risk-
free rate benchmarks, pricing of risky securities, and capital
formation. See also October 15 Staff Report, supra note 14, for a
discussion about price discovery being especially important in the
secondary market for on-the-run U.S. Treasury Securities because the
transaction prices are used as risk-free rate benchmarks to price
other securities transactions.
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As discussed in more detail below, the Commission believes that the
risk of the proposed amendments adversely affecting competition in the
market for government securities and repo execution services, the
incentive for Government Securities ATSs to innovate, and the
efficiency with which market participants achieve trading objectives,
is likely to be low.
a. Competition
The Commission believes that the proposed amendments of Regulation
ATS and Regulation SCI could affect competition for order flow and the
decision of ATSs to enter or exit the market for government securities
and repo execution services.\783\
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\783\ See supra Section X.C.1.a for a discussion about benefits
from the requirements of Regulation ATS and Section X.C.2.a for a
discussion about costs of the requirements of Regulation ATS.
---------------------------------------------------------------------------
i. Regulation ATS
The Commission believes that the proposed amendments to Regulation
ATS could foster competition for order flow in the market for
government securities and repo execution services. The proposed
extension of Regulation ATS to include Currently Exempted Government
Securities ATSs would enable ATSs wishing to effect transactions in
government securities or repos to compete for order flow on a more
level competitive landscape. The Commission believes that the public
disclosure of Form ATS-G could promote competition and incentivize
Government Securities ATSs to innovate. Furthermore, the Commission
does not believe that allowing the Commission to declare Form ATS-G
ineffective and PRA compliance costs imposed on Government Securities
ATSs would result in significant adverse impact on competition in the
market for government securities and repo execution services.
(a) Competitive Landscape
The Commission believes that the proposed extension of Regulation
ATS to include Currently Exempted Government Securities ATSs would help
eliminate a Government Securities ATS's competitive advantage or
competitive disadvantage that may arise due to uneven regulatory
requirements in the market for government securities and repo execution
services. For example, Legacy Filers could be at a competitive
disadvantage to Currently Exempted Government Securities ATSs, which do
not currently incur compliance costs associated with the requirements
of Regulation ATS.\784\ Furthermore, due to reporting requirements of
Regulation ATSs, it could be more difficult or costly for a Legacy
Filer to implement significant operational changes to compete with
Currently Exempted Government Securities ATSs if the Legacy Filer's
competitive advantage is driven by operational facets that would be
reported on Form ATS. The proposed extension of Regulation ATS would
subject Currently Exempted Government Securities ATSs, bank-operated
Currently Exempted Government Securities ATSs, and Legacy Filers to the
same regulatory requirements.
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\784\ Presently, Currently Exempted Government Securities ATSs,
bank-operated Currently Exempted Government Securities ATSs, and
Legacy Filers compete for order flow in the market for government
securities and repo execution services on an uneven competitive
landscape with different regulatory requirements. See supra Section
X.B.2 for a discussion about the differences in regulatory
requirements between Legacy Filers and Currently Exempted Government
Securities ATSs under the current regulatory framework. See also
supra Section I.B.
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(b) Declaration of Ineffectiveness
The proposal to allow the Commission to declare Form ATS-G and
amendments to Form ATS-G ineffective could lead some Currently Exempted
Government Securities ATSs and Legacy Filers to exit the market for
government securities and repo execution services. However, based on
the Commission's experience with NMS Stock ATSs that filed an initial
Form ATS-N, the Commission believes this would be an unlikely
result.\785\ If the Commission declares an initial Form ATS-G or
amendment ineffective, the Government Securities ATS would either have
to cease operations \786\ or, in the case of an amendment, roll back
any changes it made and operate pursuant to its previous Form ATS-G
that is effective until it is able to address the deficiencies and file
a new Form ATS-
[[Page 87200]]
G that becomes effective.\787\ Some broker-dealer operators of Legacy
Filers may find that the costs of addressing deficiencies in Form ATS-G
outweigh the benefits of continuing to operate the ATS, particularly if
the ATS does not constitute a significant source of profit for a
broker-dealer operator. The ability of the Commission to declare Form
ATS-G ineffective could also raise barriers to entry for new Government
Securities ATSs, as it could create uncertainty as to whether the
Commission would declare its initial Form ATS-G effective or
ineffective and as to the cost of avoiding an ineffective declaration.
If a new Government Securities ATS's initial Form ATS-G is declared
ineffective, it would require time and additional expenditures to
address the deficiencies delaying the commencing of operations, which
may deter some potential ATSs from operating in this space.
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\785\ Unlike the current rules applicable to NMS Stock ATSs
under Rule 304 of Regulation ATS with respect to ineffectiveness,
the Commission does not have a process to declare a Form ATS
ineffective because of the quality of the disclosures and cause the
ATS cease operating pursuant the exemption. See Rule
304(a)(1)(iv)(B).
\786\ See Rule 304(a)(1)(iv)(B).
\787\ See id.
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(c) Public Disclosure
The increase in transparency due to the public disclosure of Form
ATS-G could foster greater competition for order flow in the market for
government securities and repo execution services. The increase in
competition could lower trading venue fees, improve the efficiency of
order handling procedures, and promote innovation. For instance,
because the public disclosure of Form ATS-G would make it easier for
market participants to compare fees across Government Securities ATSs,
market participants could choose to send their orders to ATSs that
offer lower fees, and Government Securities ATSs may lower their fees
to attract subscribers and compete for order flow. If non-ATS trading
venues compete with Government Securities ATSs for trade execution
services, the increased operational transparency of Government
Securities ATSs could also incentivize non-ATS trading venues to reduce
their fees to compete with Government Securities ATSs for order flow.
Because the public disclosure of Form ATS-G would make it easier
for market participants to compare order handling procedures and
execution statistics--if they are made available--across trading
platforms,\788\ market participants may be more likely to send their
orders to ATSs that offer better execution services. Greater
competition for order flow could in turn incentivize Government
Securities ATSs to innovate, including, in particular, technology
related to execution services to improve the quality of trade execution
services and to compete on execution services to attract more
subscribers and order flow.
---------------------------------------------------------------------------
\788\ See supra Section X.C.1.a.ii for a discussion about
benefits from public disclosure via Form ATS-G.
---------------------------------------------------------------------------
The public disclosure of a Government Securities ATS's previously
non-public information regarding innovative operational facets could
adversely impact competition for order flow in the market for
government securities and repo execution services and could also lower
the incentives for Government Securities ATSs to innovate. However, the
Commission believes that the risk of this is likely to be low. If the
competitive advantage of a Government Securities ATS in the market is
driven by certain operational innovations, the disclosure of this
information could result in other competing Government Securities ATSs
with similar operational platforms implementing similar methodologies,
which could cause market participants to direct more order flow to
those other Government Securities ATSs. This could potentially reduce
the incentives for Government Securities ATSs to innovate if publicly
disclosing new innovations results in the disclosing ATS earning less
revenue from new innovations it develops. Furthermore, some Government
Securities ATSs may choose to exit the market if their profitability
declines. Fewer opportunities to profit from innovation could also
raise barriers to entry for new Government Securities ATSs. However,
the Commission believes that the risk of this may be low because it is
not likely the responsive information to the proposed Form ATS-G would
include information regarding operational facets such that the public
disclosure of the information would adversely affect the competitive
position of the disclosing Government Securities ATS in the market for
government securities and repo execution services.\789\
---------------------------------------------------------------------------
\789\ See supra note 196 and accompanying text.
---------------------------------------------------------------------------
(d) Compliance Costs
The Commission believes that the direct compliance costs associated
with the amendments to Regulation ATS are generally represented by PRA
costs.\790\ The Commission does not believe that initial and ongoing
PRA compliance costs associated with the amendments to Regulation ATS
would have a significant adverse impact on competition in the market
for government securities and repo execution services. If Government
Securities ATSs find that PRA costs outweigh the benefits of operating
a Government Securities ATS, these costs could act as a deterrent or a
barrier to entry for potential ATSs wishing to effect transactions in
government securities or could cause some Government Securities ATSs to
exit the market for government securities or repo execution services.
However, the Commission does not believe that the PRA costs imposed by
the proposed amendments to Regulation ATS would be significant enough
to make this a likely possibility.\791\
---------------------------------------------------------------------------
\790\ See supra Section X.C.2 for a discussion about compliance
costs associated with the amendments to Regulation ATS. The effect
of compliance costs associated with the extension of Regulation ATS
to include the Currently Exempted Government Securities ATSs on
competition is discussed in Section X.C.3.a.i.a. The effect of
indirect costs associated with the declaration of ineffectiveness
for Form ATS-G and the public disclosure of Form ATS-G on
competition is discussed in Section X.C.3.a.i.b and X.C.3.a.i.c,
respectively.
\791\ See supra Sections X.C.2.a and X.C.2.c for discussions on
the PRA costs associated with the amendments to Regulation ATS.
---------------------------------------------------------------------------
The Commission believes that the PRA compliance costs could have
different effects on the rates at which small and large Government
Securities ATSs may exit the market. The Commission believes that most
of the estimated PRA costs are fixed costs, which all Government
Securities ATSs may incur, regardless of the amount of trading activity
that takes place on them. The PRA costs would represent a larger
fraction of revenue generated for a small Government Securities ATS
relative to that for a large Government Securities ATS.\792\ This could
adversely affect small Government Securities ATSs in competing against
larger Government Securities ATSs and could lead to small ATSs exiting
the market for government securities and repo execution services.
However, smaller Government Securities ATSs that are not operated by
multi-service broker-dealer operators are likely to incur lower PRA
costs because certain sections of proposed Form ATS-G would not be
applicable to these Government Securities ATSs.\793\ The PRA costs
could also vary across Government Securities ATSs depending on the
complexity of the ATS and the services that it offers.\794\ For
example, some Government Securities ATSs may not segment subscriber
order flow or offer counter-party selection protocols. These ATSs would
not be required to complete Part III, Items 13 and 14 of proposed Form
ATS-G. As a result,
[[Page 87201]]
such Government Securities ATSs could incur lower PRA costs because
these ATSs would complete their Form ATS-G with fewer burden hours. To
the extent that small Government Securities ATSs engage in providing
simpler services, these small Government Securities ATSs are likely to
incur lower compliance costs. Furthermore, to the extent that the
Government Securities ATSs that decide to cease operating as ATSs due
to this fixed PRA compliance cost only transact small dollar volume,
the Commission does not believe that there would be a significant
impact on the overall competitive structure for the remaining
Government Securities ATSs. The order flow that was being executed on
those small Government Securities ATSs may be absorbed and
redistributed amongst those larger remaining Government Securities
ATSs. On the other hand, if the PRA costs cause a small Government
Securities ATS that is the sole provider of a niche service to cease
operating as an ATS, it could require some market participants to seek
execution on other trading venues that may not minimize their trading
costs to the same extent.
---------------------------------------------------------------------------
\792\ See supra Section X.C.2.a.ii for a discussion about the
impact of PRA costs for small Government Securities ATSs.
\793\ See supra note 792.
\794\ See supra Section X.C.2.a.ii for a discussion about PRA
costs and the complexity of the ATS and the services that it offers.
---------------------------------------------------------------------------
ii. Regulation SCI
The Commission does not believe that the requirements imposed by
Regulation SCI would have significant adverse effect on competition for
order flow in the market for government securities and repo execution
services and the efficiency with which market participants achieve
their trading objectives.
The Commission does not believe that the compliance costs imposed
by the proposed amendments of Regulation SCI would have significant
adverse effect on competition among SCI Government Securities ATSs,
non-SCI Government Securities ATSs, and non-ATS trading venues due to
mitigating factors. The compliance costs imposed by the proposed
amendments of Regulation SCI could have some impact on competition in
the market for government securities and repo execution services.
Specifically, because non-SCI Government Securities ATSs do not have to
incur the compliance costs associated with Regulation SCI, non-SCI
Government Securities ATSs and non-ATS trading venues may gain a
competitive advantage in the market for government securities and repo
execution services over SCI Government Securities ATSs with which they
compete. To the extent that SCI Government Securities ATSs pass on the
compliance costs to their subscribers in the form of higher fees, SCI
Government Securities ATSs could lose order flow or their subscribers
to other non-SCI Government Securities ATSs and non-ATS trading venues
with lower fees. The Commission believes that the adverse competitive
effect, however, would be mitigated to some extent because an SCI
Government Securities ATS likely would have more robust systems, fewer
disruptive systems issues, and better up-time compared to non-SCI
Government Securities ATSs.\795\ Furthermore, any adverse competitive
effect could be minor to the extent that an SCI Government Securities
ATS is large and has a more stable and established subscriber base than
other ATSs and non-ATS trading venues. Although non-ATS trading venues
may compete with SCI Government Securities ATSs in the market for
government securities and repo execution services, non-ATS trading
venues cannot offer the same services as ATSs without becoming ATSs,
regardless of whether Regulation SCI applies to the ATS.\796\
---------------------------------------------------------------------------
\795\ See supra Section X.B.6.
\796\ See supra Section X.B.1 for a discussion about the
differences in execution services between ATSs and non-ATS trading
venues. See also supra note 564.
---------------------------------------------------------------------------
The costs imposed by the amendments to Regulation SCI could also
affect barriers to entry for new Government Securities ATSs and thus
could adversely affect competition. Specifically, the Commission
acknowledges that Regulation SCI would increase the costs for those
that meet the volume thresholds. This would increase the expected
compliance costs of market entrants who expect to eventually be SCI
Government Securities ATSs. To the extent that an increase in these
costs reduces the number of potential new entrants, the potential
competition from new entrants would be lower.
The compliance costs associated with participating in business
continuity and disaster recovery plan testing may affect competition
among subscribers of SCI Government Securities ATSs and also could
raise barriers to entry for new subscribers. Because some subscribers
would incur compliance costs associated with Rule 1004 and others would
not, it could adversely impact the ability for those subscribers of SCI
Government Securities ATSs to compete. However, it is difficult to
gauge the extent of impact on competition because the Commission does
not have sufficient information, for example, on whether certain
subscribers of SCI Government Securities ATSs currently maintain
connections to backup facilities including for testing purposes. If
larger subscribers of SCI Government Securities ATSs already maintain
connections to backup facilities including for testing purposes, the
adverse impact on competition would be mitigated to some extent because
the compliance costs associated with the business continuity and
disaster recovery plans testing requirements in Rule 1004 would be
limited for those larger subscribers. The Commission believes that new
subscribers are less likely to be designated immediately to participate
in business continuity and disaster recovery plan testing than are
existing larger subscribers because new subscribers may not initially
satisfy the ATS's designation standards as they establish their
businesses.
As discussed in Section X.C.2.b, it is difficult to estimate the
costs of the proposed amendments of Regulation SCI for third-party
vendors that operate SCI systems or indirect SCI systems \797\ on
behalf of SCI Government Securities ATSs. To the extent that the
proposed amendments of Regulation SCI impose compliance costs on third-
party vendors that operate SCI systems or indirect SCI systems on
behalf of SCI Government Securities ATSs, the compliance costs could
affect the competition among third-party vendors in the market for SCI
systems or indirect SCI systems. To the extent that the costs
associated with Regulation SCI for third-party vendors outweigh the
benefits of continuing to operate SCI systems or indirect SCI systems
on behalf of SCI Government Securities ATSs, these third-party vendors
could exit the market for SCI systems or indirect systems. In this
respect, Regulation SCI could adversely impact such vendors and reduce
the ability for some third-party vendors to compete in the market for
SCI systems and indirect SCI systems, with attendant costs to SCI
Government Securities ATSs. To the extent that this happens, SCI
Government Securities ATSs would incur costs from having to find a new
vendor, form a new business relationship, and adapt their systems to
those of the new vendor. SCI Government Securities ATSs may also elect
to perform the relevant functions internally. To the extent that the
current third-party vendors are the most efficient means of performing
certain functions for SCI Government Securities ATSs, and to the extent
that any third-party vendor exits the market, finding new vendors or
performing the functions internally would represent a
[[Page 87202]]
reduction in efficiency for SCI Government Securities ATSs.
---------------------------------------------------------------------------
\797\ See supra note 767 and accompanying text for the
definition of indirect SCI systems.
---------------------------------------------------------------------------
b. Market Participants' Trading Efficiency
The Commission believes that the proposed amendments of Regulation
ATS including the Fair Access Rule and Regulation SCI could affect the
efficiency with which market participants achieve trading objectives,
and in the subsections below, we discuss both positive and potential
negative effects.
i. Positive Effects on Market Participants' Trading Efficiency
The enhancement in Government Securities ATS operational
transparency via public disclosure of Form ATS-G would help market
participants select the trading venue that best meets their trading
needs (e.g., order types, trading functionalities) and lower search
costs in the selection of trading venues, which would help market
participants achieve their trading objectives more efficiently. Market
participants may consider various factors, such as order types, trading
functionalities, and fees, in deciding where to send their orders to
achieve their trading objectives. The public disclosure of Form ATS-G
would enable market participants to compare Government Securities ATSs
in an expedited manner and find an ATS that would help them achieve
their trading objectives more efficiently.
The Commission believes that the public disclosure of Form ATS-G
that contains the information related to operational characteristics of
Government Securities ATSs could foster greater competition for order
flow in the market for government securities and repo execution
services and result in lower trading costs and better execution quality
for market participants, which would help achieve their trading
objectives more efficiently. For example, because the public disclosure
of Form ATS-G would make it easier for market participants to compare
fees and order handling procedures and execution statistics--if they
are made available--across Government Securities ATSs,\798\ market
participants would be more likely to send their orders to ATSs that
offer lower fees or better execution services. To the extent that non-
ATS trading venues compete with Government Securities ATSs for trade
execution services, the increased operational transparency of these
ATSs could also incentivize non-ATS trading venues to reduce their fees
or improve the efficiency of order handling procedures to compete with
Government Securities ATSs for order flow. This would lower market
participants' trading costs and enhance order execution quality, which
would help achieve their trading objectives more efficiently.
---------------------------------------------------------------------------
\798\ See supra Section X.C.1.a.ii for a discussion about
benefits from public disclosure via Form ATS-G.
---------------------------------------------------------------------------
The Commission believes that the proposed application of Fair
Access Rule could help market participants achieve their trading
objectives more efficiently. Market participants who may have been
denied access to a Government Securities ATS that would now be subject
to the Fair Access Rule may be able to access the ATS as a result of
the proposal because the previous reasons for denial of access by the
ATS no longer comport with the reasonable standards under the Fair
Access Rule. To the extent that there are market participants excluded
from trading on Government Securities ATSs, this could increase trading
venue options for those market participants and result in lower trading
costs or better execution for their orders, which would help achieve
their trading objectives more efficiently.
ii. Negative Effects on Market Participants' Trading Efficiency
The Commission does not believe that the compliance costs imposed
by the proposed amendments of Regulation SCI would have a significant
adverse effect on the efficiency with which market participants achieve
their trading objectives. It is possible that SCI Government Securities
ATSs would pass on the compliance costs to their subscribers in the
form of higher venue fees. However, the adverse effect of higher fees
on the efficiency with which market participants achieve their trading
objectives could be mitigated to some extent because an SCI Government
Securities ATS likely would have more robust systems, fewer disruptive
systems issues, and better up-time compared to non-SCI Government
Securities ATSs.
Through exits and entries, the number of ATSs competing in the
market for government securities and repos could change and this could
impact market participants' trading costs and thus the efficiency with
which market participants achieve their trading objectives. The
Commission does not believe that requirements and costs imposed by the
proposed amendments to Regulation ATS and Regulation SCI would result
in Government Securities ATSs exiting and adversely impact the
efficiency with which market participants achieve their trading
objectives.\799\ The Commission recognizes that the public disclosure
of Form ATS-G required by Regulation ATS and the costs associated with
Regulation SCI could dissuade potential entrants from entering the
market.\800\ To the extent that these effects reduce the number of
potential new entrants, the potential competition from new entrants
would be lower and this could adversely affect market participants'
trading costs and thus the efficiency with which market participants
achieve their trading objectives.
---------------------------------------------------------------------------
\799\ See supra Section X.C.3.a.
\800\ See supra Sections X.C.3.a.i.c and X.C.3.a.ii.
---------------------------------------------------------------------------
The Commission believes that the proposed amendments of the Fair
Access Rule and Regulation SCI could adversely affect the efficiency
with which market participants achieve their trading objectives.
Government Securities ATSs that are close to satisfying the volume
threshold for certain government securities could limit the trading in
those securities over some period to stay below the volume thresholds
and avoid being subject to the Fair Access Rule and Regulation SCI. The
order flow that was being executed on those Government Securities ATSs
might be absorbed and redistributed amongst other Government Securities
ATSs. If a Government Securities ATS that is the sole provider of a
niche service limits the trading in certain government securities to
avoid being subject to the Fair Access Rule and Regulation SCI, it
could require some market participants to seek execution on other
trading venues, which could result in higher trading costs and reduce
the efficiency with which they achieve their trading objectives.
c. Price Efficiency and Capital Formation
The Commission believes that the proposed extension of Regulation
SCI to include systems that trade government securities and repos could
promote price efficiency and capital formation by reducing the
potential for systems disruptions on ATSs that capture a significant
portion of the trading volume in the market for U.S. Treasury or Agency
Securities. Although the Commission acknowledges that extending
Regulation SCI to Government Securities ATSs would not eliminate all
systems issues,\801\ the Commission believes that extending Regulation
SCI would help prevent market disruptions due to systems issues, which
could help prevent
[[Page 87203]]
interruptions in the price discovery process and liquidity flows and
thus could help prevent periods with pricing inefficiencies from
occurring in the government securities market. Specifically, the
Commission believes that extending Regulation SCI would help improve
systems up-time \802\ for SCI Government Securities ATSs and would also
promote more robust systems that directly support execution facilities,
order matching, and the dissemination of market data.\803\ This would
help facilitate the price discovery process and liquidity flows in the
secondary market for on-the-run U.S. Treasury Securities and could also
enhance price efficiency of risky securities because the transaction
prices of on-the-run U.S. Treasury Securities are used as risk-free
rate benchmarks to price risky securities transactions.\804\ Price
efficiency of risky securities is important because prices that
accurately convey information about fundamental value improve the
efficiency in allocating capital across projects and entities, which
helps promote capital formation.
---------------------------------------------------------------------------
\801\ See supra Section X.B.6 for a discussion about market
disruption and system up-time.
\802\ Systems up-time is a measure of the time that a computer
system is running and available.
\803\ Based on the Commission's understanding, Government
Securities ATSs disseminate their Treasury trades via private feeds
and third-party vendors. These prices also serve as benchmarks for
pricing other financial products.
\804\ See October 15 Staff Report, supra note 14.
---------------------------------------------------------------------------
On the other hand, the Commission believes that the proposed
amendments of the Fair Access Rule and Regulation SCI could adversely
affect capital formation. Government Securities ATSs that are close to
satisfying the volume threshold for certain government securities could
limit the trading in those securities over some period to stay below
the volume thresholds and avoid being subject to the Fair Access Rule
and Regulation SCI. To the extent that Government Securities ATSs limit
the trading in certain government securities to avoid being subject to
the Fair Access Rule and Regulation SCI, this could limit or reduce
liquidity provision and liquidity flows in those government securities,
which would adversely affect the price discovery process and price
efficiency in those government securities harming capital
formation.\805\
---------------------------------------------------------------------------
\805\ See id.
---------------------------------------------------------------------------
D. Reasonable Alternatives
The Commission considered several alternatives to the proposal: (1)
Require Currently Exempted Government Securities ATSs to file Form ATS,
but not publicly disclose Form ATS; (2) require Government Securities
ATSs to file proposed Form ATS-G, but treat the information as
confidential; (3) require differing levels of public disclosure by
Government Securities ATSs depending on their trading volume; (4)
extend the transparency requirements of Regulation ATS to all non-ATS
trading government securities; (5) alter the volume thresholds for the
Fair Access Rule and Regulation SCI; (6) apply Rule 301(b)(6) of
Regulation ATS to Government Securities ATSs; (7) require Forms ATS-G,
ATS, and ATS-R to be submitted in the Inline XBRL format; and (8)
require Forms ATS-G, ATS, and ATS-R to be filed on EFFS/SRTS or on
individual ATS websites.
1. Require Currently Exempted Government Securities ATSs To File a Non-
Public Form ATS
One alternative could require Currently Exempted Government
Securities ATSs to file Form ATS and subsequent amendments with the
Commission, instead of filing Form ATS-G. This alternative would allow
Legacy Filers to continue to file current Form ATS. However, Form ATS
would be deemed confidential for all Government Securities ATSs and
would not have to be publicly disclosed. Under this alternative,
compliance costs would be lower because Legacy Filers would not bear
the additional costs of preparing and amending Form ATS-G. Furthermore,
Currently Exempted Government Securities ATSs would not incur
additional costs associated with amending Form ATS-G to address any
deficiencies to avoid an ineffectiveness determination because Rule 304
of Regulation ATS does not apply to Form ATS filings. However, this
alternative would reduce regulators' insight into Government Securities
ATSs compared to the proposal because Form ATS would require the
disclosure of less information about the operations of Government
Securities ATSs and the activities of their broker-dealer operators and
their affiliates, as compared to Form ATS-G.
The lack of public disclosure of Form ATS under the alternative
could result in market participants making less informed decisions
regarding where to send their orders and thus result in lower execution
quality than they would obtain under the proposal. Additionally, this
alternative could result in higher search costs for subscribers to
identify potential trading venues for their orders. Because Government
Securities ATSs would not have to publicly disclose their fees or
details about their operations, there would be less competition among
Government Securities ATSs and between Government Securities ATSs and
non-ATS trading venues compared to the proposal. To the extent that
there is less competition for order flow in the market for government
securities and repo execution services, there could be less incentive
to innovate for Government Securities ATSs.
2. Require Proposed Form ATS-G Be Filed but Treat the Information as
Confidential
Another alternative approach the Commission could take would be to
require Government Securities ATSs to file the proposed Form ATS-G with
the Commission, but not make Form ATS-G public. The proposed Form ATS-G
would include detailed disclosures about the operational facet of a
Government Securities ATS and the activities of its broker-dealer
operator and its affiliates, and the Commission would have the ability
to declare Form ATS-G filings ineffective. Although this alternative
would allow the Commission to review the disclosures of Government
Securities ATSs, this alternative would make Government Securities
ATSs' operations less transparent for market participants, which could
result in market participants making less informed decisions regarding
where to send their orders and thus result in lower execution quality
than they would obtain under the proposal. Because Form ATS-G would not
be publicly disclosed under this alternative, there would be less
competition among Government Securities ATSs and between Government
Securities ATSs and non-ATS trading venues, as compared to the
proposal. To the extent that a Government Securities ATS's competitive
advantage in attracting order flow and generating trading revenues is
in part driven by certain operational characteristics, the
confidentiality of Form ATS-G could help maintain that Government
Securities ATS's competitive advantage in the market for government
securities and repo execution services compared to the proposal.
However, the Commission believes that it is not likely the responsive
information to the proposed Form ATS-G would include information
regarding operational facets such that the public disclosure of the
information would adversely affect the competitive position of the
disclosing Government Securities ATS in the market for government
securities and repo execution services.\806\
---------------------------------------------------------------------------
\806\ See supra note 789 and accompanying text. See also supra
note 196 and accompanying text.
---------------------------------------------------------------------------
[[Page 87204]]
3. Initiate Differing Levels of Public Disclosure Depending on
Government Securities ATS Dollar Volume
The Commission could require different levels of disclosure among
Government Securities ATSs based on dollar volume in government
securities. In particular, this alternative would subject Government
Securities ATSs with lower dollar volumes to lower levels of disclosure
on the proposed Form ATS-G. This alternative could provide smaller
Government Securities ATSs with a competitive advantage over larger
ones because smaller Government Securities ATSs would incur lower
compliance costs relative to the proposal, which could translate into
lower entry barriers relative to such barriers under the proposal.
Because these small Government Securities ATSs would not have to
disclose as much information pertaining to their operational facets to
their competitors, they would have a competitive advantage over more
established Government Securities ATSs and non-ATS government
securities trading venues. This approach therefore would promote
competition in the market. It also would promote innovation because
these small Government Securities ATSs would not be deterred from
innovating by the possibility of having to disclose certain operational
facets. This approach could also benefit market participants who
execute on these ATSs by improving the execution quality of their
trades. However, this alternative could incentivize small Government
Securities ATSs to limit the trading in government securities on their
ATSs to stay small and not trigger additional disclosure requirements.
To the extent that this happens, it could limit market participants'
options for trading venues, which could result in higher trading costs
or worse execution quality. Lower execution quality or higher trading
costs for market participants would reduce the efficiency with which
they achieve their trading objectives as compared to the proposal.
4. Extend the Transparency Requirements of Regulation ATS to All Non-
ATS Trading Venues for Government Securities
As another alternative, the Commission could extend the
transparency requirements (i.e., filing Form ATS-G) of Regulation ATS
to non-ATS trading venues for government securities. Under this
alternative, investors would receive information about the operations
and the activities of the broker-dealer operators and affiliates of all
non-ATS trading venues for government securities. While the disclosure
requirements of individual venues would be similar to what is required
under the proposal, investors would be able to access detailed
information on non-ATS trading venues that use a variety of
protocols.\807\ This could help market participants make better-
informed decisions about where to send their orders to achieve their
trading or investment objectives as compared to under the proposal.
However, non-ATS trading venues, unlike ATSs, cannot offer certain
execution protocols, such as crossing mechanisms, auctions, and central
limit order books, which generally meet the definition of an
exchange.\808\ Thus, non-ATS trading venues may not be as
technologically advanced and may not have the same level of automation,
speed, and complexity as ATSs that would be required to comply with
Regulation ATS under the proposal. Thus, the public disclosure of
information from such non-ATS trading venues concerning their trading
protocols could be less valuable to market participants.
---------------------------------------------------------------------------
\807\ See supra Section X.B.1.
\808\ See supra Section X.B.1 for a discussion about the
differences in execution services between ATSs and non-ATS trading
venues. See also supra note 564.
---------------------------------------------------------------------------
Under this alternative, non-ATS trading venues effecting
transactions in government securities would incur the compliance costs
discussed in Section X.C.2.a to comply with Regulation ATS.
Additionally, the public disclosure of details regarding the
operational facets of non-ATS trading venues could adversely impact
competition for order flow and raise barriers to entry in the market
for government securities and repo execution services, and could also
lower the incentives for non-ATS trading venues to innovate. However,
the Commission believes that the risk of this is likely to be low.\809\
---------------------------------------------------------------------------
\809\ See supra Section X.C.3.a.i.c for a discussion about the
risk that the responsive information to the proposed Form ATS-G
would include information regarding operational facets such that the
public disclosure of the information would adversely affect the
competitive position of the disclosing ATS and why the Commission
believes that this risk likely to be low. See also supra note 196
and accompanying text.
---------------------------------------------------------------------------
5. Alter the Volume Thresholds for the Fair Access Rule and Regulation
SCI
Another alternative for the Commission is to alter the volume
thresholds for the Fair Access Rule and Regulation SCI.\810\ A higher
volume threshold for the Fair Access Rule would result in a smaller
number of Government Securities ATSs that are subject to the Fair
Access Rule than under the proposal.\811\ With fewer Government
Securities ATSs subject to the Fair Access Rule, some market
participants may not be able to trade on as many Government Securities
ATSs as they could have under the proposal. This could result in higher
trading costs or worse execution quality for those market participants
than under the proposal. With a higher volume threshold for the Fair
Access Rule, fewer Government Securities ATSs would incur compliance
costs discussed in Section X.C.2.a.iii to comply with the Fair Access
Rule than under the proposal. This could lower barriers to entry in the
market for government securities execution services and increase
competition compared to the proposal, resulting in lower trading costs
or better execution quality for investors.
---------------------------------------------------------------------------
\810\ The Commission estimates that 3 ATSs trading U.S. Treasury
Securities and 1 ATS trading Agency Securities would be subject to
the Fair Access Rule under the proposal. Furthermore, the Commission
estimates that 3 Government Securities ATSs would meet the volume
thresholds for Regulation SCI under the proposal. See also supra
Sections II.D and IX.C.
\811\ If the proposed volume thresholds were 10 percent, the
Commission estimates only 1 ATS trading U.S. Treasury Securities and
1 ATS trading Agency Securities would be subject to the Fair Access
Rule. See Table X.1 in supra Section X.B.1. See also supra Section
II.D.
---------------------------------------------------------------------------
A lower volume threshold for the Fair Access Rule would allow
market participants to access a greater number of Government Securities
ATSs and provide them with more options in the selection of trading
venues than under the proposal.\812\ Thus, compared to the proposal,
investors could better access the trading venue that best meets their
trading objectives resulting in lower trading costs or better execution
for their orders, which would help achieve their trading objectives
more efficiently. With a lower volume threshold for the Fair Access
Rule, ATSs would incur greater compliance costs discussed in Section
X.C.2.a.iii to comply with the Fair Access Rule than under the
proposal. The Commission also believes that there would be a greater
likelihood of small Government Securities ATSs exiting the market and
thus decreasing competition for government securities execution
services, which could
[[Page 87205]]
adversely affect trading costs and execution quality.
---------------------------------------------------------------------------
\812\ If the proposed volume thresholds were three percent, the
Commission estimates 4 ATSs trading U.S. Treasury Securities and 1
ATS trading Agency Securities would be subject to the Fair Access
Rule. See also supra Section II.D. Furthermore, if the proposed
volume thresholds were two percent, the Commission estimates 5 ATSs
trading U.S. Treasury Securities and 1 ATS trading Agency Securities
would be subject to the Fair Access Rule. See Table X.1 in supra
Section X.B.1.
---------------------------------------------------------------------------
A lower volume threshold would include a greater number of small
Government Securities ATSs to be subject to the Fair Access Rule
compared to the proposal. To avoid being subject to the Fair Access
Rule, small Government Securities ATSs that are close to satisfying the
volume threshold for certain government securities could limit the
trading in those government securities on their ATSs over some period
to stay below the volume threshold. The order flow that was being
executed on those small Government Securities ATSs might be absorbed
and redistributed amongst other Government Securities ATSs. If a
Government Securities ATS that is the sole provider of a niche service
limits the trading in certain government securities to avoid being
subject to the Fair Access Rule, it could require some market
participants to seek execution on other trading venues, which could
result in higher trading costs. A lower volume threshold for the Fair
Access Rule could cause a greater number of small ATSs to exit the
market for government securities and repo execution services resulting
in a lower number of ATSs and less competition compared to the
proposal. If there are fewer options in the selection of trading
venues, investors could face higher trading costs or lower execution
quality for their orders compared to the proposal.
A higher volume threshold for Regulation SCI would result in a
smaller number of Government Securities ATSs that are subject to
Regulation SCI than under the proposal.\813\ Compared to the proposal,
a higher volume threshold for Regulation SCI could exclude Government
Securities ATSs that play a significant role (i.e., capture a
significant portion of trading volume) in the market for government
securities execution services and have the potential to impact
investors, the overall market, and the trading of government securities
should an SCI event occur. With a higher volume threshold for
Regulation SCI, the Commission believes that a smaller number of
Government Securities ATSs would incur compliance costs discussed in
Section X.C.2.b to comply with Regulation SCI requirements than under
the proposal. This could lower barriers to entry in the market for
government securities execution services and increase competition
compared to the proposal, resulting in lower trading costs or better
execution quality for investors.
---------------------------------------------------------------------------
\813\ If the proposed volume thresholds were 10 percent, the
Commission estimates 2 Government Securities ATSs would be subject
to Regulation SCI, whereas under the proposed volume threshold of
five percent, the Commission estimates 3 Government Securities ATSs
would be subject to Regulation SCI. See Table X.1 in supra Section
X.B.1.
---------------------------------------------------------------------------
A lower volume threshold for Regulation SCI likely would promote
the establishment of more robust systems, help reduce the duration and
severity of any system distributions, and help prevent system issues
from occurring on small Government Securities ATSs that met the volume
thresholds, which could help prevent interruptions in the price
discovery process and liquidity flows and thus may help prevent periods
with pricing inefficiencies from occurring compared to the
proposal.\814\ With a lower volume threshold for Regulation SCI, more
Government Securities ATSs would incur compliance costs discussed in
Section X.C.2.b to comply with Regulation SCI requirements than under
the proposal. A greater number of small Government Securities ATSs
could exit the market for government securities and repos and hence
decrease competition resulting in higher trading costs or worse
execution quality for investors compared to the proposal. A lower
volume threshold would cause a greater number of small Government
Securities ATSs to be subject to Regulation SCI requirements compared
to the proposal. To avoid being subject to Regulation SCI, small
Government Securities ATSs that are close to satisfying the volume
threshold for certain government securities could limit the trading in
those government securities on their ATSs over some period to stay
below the volume threshold. The order flow that was being executed on
those small Government Securities ATSs might be absorbed and
redistributed amongst other Government Securities ATSs. If a Government
Securities ATS that is the sole provider of a niche service limits the
trading in certain government securities to avoid being subject to
Regulation SCI, it could require some market participants to seek
execution on other trading venues, which could result in higher trading
costs. The Commission believes that compliance costs associated with
Regulation SCI could cause a greater number of small ATSs to exit the
market for government securities execution services resulting in a
lower number of ATSs and less competition compared to the proposal. To
the extent that there are fewer options in the selection of trading
venues, investors could face higher trading costs and/or lower
execution quality for their orders compared to the proposal.
---------------------------------------------------------------------------
\814\ If the proposed volume thresholds were three percent, the
Commission estimates 4 Government Securities ATSs would be subject
to Regulation SCI. If the proposed volume thresholds were two
percent, the Commission estimates 5 Government Securities ATSs would
be subject to Regulation SCI. See Table X.1 in supra Section X.B.1.
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6. Apply Rule 301(b)(6) of Regulation ATS to Government Securities ATSs
Another alternative for the Commission is to apply Rule 301(b)(6)
\815\ of Regulation ATS to Government Securities ATSs instead of
extending Regulation SCI.\816\ The Commission believes that the
application of the Capacity, Integrity, and Security Rule to certain
Government Securities ATSs could help enhance the price discovery
process and price efficiency of government securities by reducing
disruptions in trading due to failures or capacity issues with respect
to automated systems that support order entry, order routing, order
execution, transaction reporting, and trade comparison of the ATSs.
Under this alternative, Government Securities ATSs would be subject to
the Capacity, Integrity, and Security Rule in Rule 301(b)(6). The scope
and requirements of the Capacity, Integrity, and Security Rule would be
narrower than those of Regulation SCI. For example, Rule 301(b)(6) of
Regulation ATS would apply to narrower set of systems, as compared to
Regulation SCI. Rule 301(b)(6) of Regulation ATS applies only to
systems that support order entry, order routing, order execution,
transaction reporting, and trade comparison, which is narrower than the
definition of SCI system. Thus, the Commission believes that this
alternative would reduce the potential benefits discussed in Sections
X.C.1.b and X.C.3.c, as compared to the proposal. Furthermore, the
Commission believes that compliance costs associated with the Capacity,
Integrity, and Security Rule would be significantly less than those
under the proposal because the scope and requirements of the Capacity,
Integrity, and Security Rule would be narrower than those of Regulation
SCI. For example, the Capacity, Integrity, and Security Rule would not
require
[[Page 87206]]
Government Securities ATSs to maintain a backup facility to comply with
the requirements of Regulation SCI related to business continuity and
disaster recovery plans. As compared to the proposal, the significantly
lower compliance costs of this alternative could result in lower
trading costs for market participants to the extent that Government
Securities ATSs pass on these compliance costs to their subscribers.
Furthermore, the lower compliance costs of this alternative could lower
barriers to entry in the market for government securities execution
services and increase competition compared to the proposal, resulting
in lower trading costs or better execution quality for investors.
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\815\ As also explained above, Rule 301(b)(6) addresses the
capacity, integrity, and security requirements of automated systems
for ATSs that meet certain volume thresholds. See supra note 355.
\816\ Applying the dollar volume threshold of 20 percent or more
of the average daily volume traded in the United States during at
least four of the preceding six calendar months, the Commission
estimates one Government Securities ATS would be subject to Rule
301(b)(6) of Regulation ATS. See supra note 57.
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As another alternative, the Commission could apply the Capacity,
Integrity, and Security Rule in Rule 301(b)(6) to smaller Government
Securities ATSs and extend Regulation SCI to larger Government
Securities ATSs as proposed. For example, the Commission could require
a Government Securities ATS that falls within a volume range for U.S.
Treasury Securities of 5 percent and 10 percent to comply with Rule
301(b)(6) of Regulation ATS and a Government Securities ATS that
exceeds a 10 percent volume threshold for U.S. Treasury Securities to
be subject to Regulation SCI.\817\ Under this alternative, the
Commission believes that smaller Government Securities ATSs subject to
Rule 301(b)(6) would incur additional compliance costs, as compared to
the proposal where these smaller Government Securities ATSs would be
subject to neither Regulation SCI or Rule 301(b)(6). Smaller Government
Securities ATSs subject to Rule 301(b)(6) would incur compliance costs
associated with, among other things, upgrading systems to an adequate
capacity level, the independent review of their systems on an annual
basis, recordkeeping requirements, and notification requirements.\818\
The application of Rule 301(b)(6) to smaller Government Securities ATSs
could result in higher trading costs (e.g., in the form of higher fees)
to the extent that the Government Securities ATSs pass on the
additional compliance costs associated with Rule 301(b)(6) to their
subscribers. However, the Commission believes that the requirements of
Rule 301(b)(6) would not impose significant costs and thus would not
result in a significant increase in trading costs for market
participants, as compared to the proposal.
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\817\ If the proposed U.S. Treasury Security volume threshold
range for Rule 301(b)(6) were set to be greater than 5 percent and
less than or equal to 10 percent, the Commission estimates 2
Government Securities ATSs would be subject to Rule 301(b)(6) of
Regulation ATS. If the proposed U.S. Treasury Security volume
threshold range for Regulation SCI were set to be greater than 10
percent, the Commission estimates 1 Government Securities ATS would
be subject to Regulation SCI.
\818\ See Regulation ATS Adopting Release, supra note 35, at
70907 for a discussion of costs associated with the Capacity,
Integrity, and Security Rule.
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7. Require Forms ATS-G, ATS, and ATS-R to be Submitted in the Inline
XBRL Format
The proposal would require Form ATS-G to be submitted in a custom
XML format. Alternatively, the Commission could require these forms to
be submitted in the Inline eXtensible Business Reporting Language
(``Inline XBRL'') format, a derivation of XML that is designed for
business reporting information and is both machine-readable and human-
readable.\819\ This alternative could include numerical detail tagging
of quantitative disclosures (e.g., platform-wide statistics) and text
block tagging for narrative disclosures (e.g., trade reporting
arrangements).\820\ Compared to the proposal, the Inline XBRL
alternative for Forms ATS-G, ATS, and ATS-R would provide more
sophisticated validation, presentation, and reference features for
filers and data users. However, the Inline XBRL alternative would also
impose initial implementation costs (e.g., training staff to prepare
filings in Inline XBRL, licensing Inline XBRL filing preparation
software) upon filers that do not have prior experience structuring
data in the Inline XBRL format. By contrast, because the proposal would
allow filers to submit Form ATS-G using a web-fillable Form, filers
that lack experience structuring data in XML would not incur
implementation costs.
---------------------------------------------------------------------------
\819\ Such a requirement would be implemented by revising
Regulation S-T (17 CFR 232) and including an Instruction to Forms
ATS-G, ATS, and ATS-R which cites to Regulation S-T. In conjunction
with the EDGAR Filer Manual, Regulation S-T governs the electronic
submission of documents filed with the Commission. Modifying a
structured format requirement for a Commission filing or series of
filings can generally be accomplished through changes to Regulation
S-T, and would not require dispersed changes to the various rules
and forms that would be impacted by the format modification.
\820\ See supra Sections III.C.25.a and III.C.21.
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8. Require Forms ATS-G, ATS, and ATS-R To Be Filed on EFFS or on
Individual ATS Websites
The proposal would require Forms ATS-G, ATS, and ATS-R to be filed
on the EDGAR system. Alternatively, the Commission could require a
different filing location for these forms, such as the Commission's
Electronic Form Filing System (EFFS) or the individual ATSs' websites.
Because SCI entities use EFFS to file Form SCI, any Government
Securities ATS that is an SCI entity or affiliate thereof will have
experience using EFFS and could benefit from such familiarity in filing
Form ATS-G.\821\ However, to the extent any such Government Securities
ATSs are operated by a broker-dealer that files its annual reports on
EDGAR or that operates an NMS Stock ATS and files Form ATS-N on EDGAR,
there would be no familiarity benefit under an EFFS alternative
relative to the proposed EDGAR requirement.\822\ In addition, for
Government Securities ATSs that are not SCI entities or affiliates
thereof and do not have prior EFFS experience, this alternative would
impose the burden of submitting an External Account User Application to
request access to EFFS.\823\ Unlike EDGAR, EFFS does not support the
open-source XML format, instead relying on a proprietary XML
implementation (XFDL) that requires a data user to license a commercial
proprietary viewer. The EFFS alternative would therefore impose
additional costs on data users compared to the proposal.
---------------------------------------------------------------------------
\821\ See General Instructions A and E to Form SCI. The
Commission believes there is one Government Securities ATS that is
operated by a broker-dealer that operates an NMS Stock ATS that is
an SCI entity, and would therefore have experience using both EFFS
(Form SCI) and EDGAR (Form ATS-N). See supra Section X.B.6.
\822\ See 17 CFR 240.17a-5(d)(6) and the Commission's guidance
at https://www.sec.gov/divisions/marketreg/electronic-filing-broker-dealer-annual-reports-instructions.htm. See also Instruction A.5 to
Form ATS-N.
\823\ In 2015, the Commission calculated this burden as 0.15
hours per individual requesting access on the ATS's behalf. See NMS
Stock ATS Proposing Release, supra note 62, at 81106.
---------------------------------------------------------------------------
Similarly, requiring Forms ATS-G, ATS, and ATS-R to be posted on
the individual ATSs' websites rather than EDGAR would impose additional
direct costs on data users, who would need to navigate to and manually
retrieve data from different ATSs' websites to aggregate, compare, and
analyze the data. In addition, individual websites would not provide
the validation capabilities that an EDGAR requirement would enable, and
would thus impose on data users the indirect costs associated with
lower reliability of the data. An individual website requirement would
provide a small benefit to bank-operated Government Securities ATSs
relative to the proposal's EDGAR requirement, as those entities would
not be required to incur the 0.15 hour
[[Page 87207]]
burden of submitting a Form ID in order to begin making EDGAR
filings.\824\
---------------------------------------------------------------------------
\824\ The Commission believes that one Currently Exempted
Government Securities ATS is operated by a bank. See supra Section
IX.D.2.b.iv.
---------------------------------------------------------------------------
E. Request for Comments
The Commission is sensitive to the potential economic effects,
including costs and benefits, of the proposed amendments to Regulation
ATS and Regulation SCI. The Commission has identified certain costs and
benefits associated with the proposal and requests comment on all
aspects of its preliminary economic analysis, including with respect to
the specific questions below. The Commission encourages commenters to
identify, discuss, analyze, and supply relevant data, information, or
statistics regarding any such costs or benefits.
172. Does the baseline accurately reflect the current state of the
market and reporting? Please provide any information necessary to
correct the baseline.
173. Is the assessment of the current state of competition in the
market for trading government securities reasonable? Why or why not?
174. Can commenters provide any additional information on trading
activities of non-FINRA-member ATSs?
175. Is subscribers' confidential trading information at risk
because Currently Exempted Government Securities ATSs are not required
to comply with Regulation ATS, they are not subject to Rule 201(b)(10)
and Rule 303(a)(1)?
176. Have commenters encountered any problems with the current
operational reporting requirements or the required method of intake?
177. The provisions of Regulation SCI and Rule 301(b)(6) of
Regulation ATS do not apply to the government securities activities of
an ATS. Therefore, a Currently Exempted Government Securities ATS would
not be subject to the rules and procedures of Regulation SCI, and a
Legacy Filer would only be subject to them if its transaction volume in
non-government securities exceeded the thresholds. Although most
Government Securities ATSs are not subject to these requirements with
respect to their government securities activities, a comment letter
received in response to the Treasury Request for Information stated
that many Government Securities ATSs adopted system testing and control
procedures that followed the recommended best practices of the Treasury
Market Practices Group. Is voluntary adoption of best practices
sufficient to mitigate systemic risks?
178. Do differences in operational transparency around Government
Securities ATSs impede market participants' ability to evaluate whether
submitting order flow to a particular Government Securities ATS aligns
with its business interests and objectives?
179. Are there any costs and benefits of the proposed rules that
are not discussed in the economic analysis? If so, please describe the
types of costs and benefits and provide a dollar estimate of these
costs and benefits.
180. Would removing the exemption for Currently Exempted Government
Securities ATS and proposing amendments to Regulation ATS for
Government Securities ATSs enhance the Commission's oversight of these
ATSs and ability to monitor trading and their role in the government
securities and repo market?
181. Would removing the exemption for Currently Exempted Government
Securities ATS and proposing amendments to Regulation ATS for
Government Securities ATSs enhance investor protection?
182. Would removing the exemption for Currently Exempted Government
Securities ATS result in enhancements to operational transparency
regarding the manner of operations and the ATS-related activities of
Currently Exempted Government Securities ATS by way of public
disclosures on Form ATS-G? Would the proposed enhancements improve
market participants' ability to evaluate a Government Securities ATS as
a destination for its orders?
183. Would requiring Forms ATS-G, ATS, and ATS-R to be filed in a
custom XML format yield the benefits described above, such as improving
the usability of the disclosures through facilitation of automated
analyses? Do commenters believe the custom XML format requirement for
these forms would not impose incremental costs on filers, given the
availability of a web-fillable form into which filers can input their
disclosures? If not, how would the costs be more accurately
characterized? How would the costs and benefits of other format
requirements, such as an Inline XBRL requirement, compare to those
associated with the proposed custom XML format requirement?
184. Would requiring Forms ATS-G, ATS, and ATS-R to be filed on
EDGAR yield the benefits described above, such as the availability of
the disclosures in a centralized filing location that is publicly
accessible (for Form ATS-G) and provides validation capabilities (for
all three forms)? Would the EDGAR requirement impose, at most, a
minimal cost on filers? How would the costs and benefits of other
location requirements, such as EFFS or the individual ATSs' websites,
compare to those associated with the proposed EDGAR requirement?
185. Would removing the exemption for Currently Exempted Government
Securities ATS and proposing amendment to Regulation ATS for Government
Securities ATSs help ensure the fair treatment of potential and current
subscribers to a Currently Exempted Government Securities ATS that
consist of a large percentage of trading volume in U.S. Treasury
Securities and Agency Securities?
186. Could requiring Government Securities ATSs that meet the
volume thresholds to establish and objectively apply the fair access
standards help prevent certain market participants from being unfairly
denied access to an ATS that trades a significant portion of the market
for U.S. Treasury Securities and Agency Securities? Are any market
participants currently being denied fair access?
187. Would information from Form ATS-R regarding fair access
grants, denials, and limitations of access to Government Securities
ATSs improve the Commission's ability to oversee those ATSs to evaluate
for compliance with the Fair Access Rule?
188. Would the proposed amendments to extend Regulation SCI to
include ATSs that trade a significant volume of U.S. Treasury
Securities or Agency Securities help reduce market disruptions due to
systems issues and help improve system up-time, which would help
prevent interruptions in the price discovery process and liquidity
flows and thus, may help prevent periods with pricing inefficiencies
from occurring?
189. Would the proposed extension of Regulation SCI strengthen the
infrastructure and improve the resiliency of the automated systems of
Government Securities ATSs that are important to the U.S. securities
markets?
190. Would the proposed amendments to Regulation SCI promote the
establishment of more robust systems that are less likely to experience
a system disruption? If so, do commenters believe that this could lower
trading costs and enhance liquidity and price discovery?
191. Would the requirement for a Government Securities ATS that
would be an SCI ATS to establish procedures to disseminate information
about SCI events to responsible SCI personnel, ATS participants, and
the Commission help reduce the duration and severity of any system
distributions that do occur?
192. Would the requirement for a Government Securities ATS that
meets the definition of SCI ATS to conduct
[[Page 87208]]
testing of its business continuity and disaster recovery plans with its
designated participants and other industry SCI entities help detect and
improve the coordination of responses to system issues that could
affect multiple trading venues and participants in the government
securities and repo market? What would the cost to designated
participants be?
193. Are the Commission's cost estimates, in general, reasonable?
194. What are commenters' views on costs related to a bank-operated
Currently Exempted Government Securities ATS complying with the broker-
dealer registration requirements under Rule 301(b)(1), as proposed? Is
the estimated initial cost of approximately $275,000 to register as a
broker-dealer with the commission via Form BD and become a member of
FINRA reasonable?
195. Is the estimated ongoing annual cost of approximately $50,000
to maintain the broker-dealer registration with the Commission and
FINRA reasonable?
196. What are the costs a bank-operated Currently Exempted
Government Securities ATS would incur for effectively completing the
application to be a member of FINRA? What other costs related to FINRA
examination and surveillance, trade reporting obligations, and investor
protection rules may be incurred by a bank-operated Currently Exempted
Government Securities ATS? Please provide a description of these costs
and cost estimates or a range of potential costs.
197. Would there be a substantial burden imposed on Government
Securities ATSs in connection with resubmitting Form ATS-G or a Form
ATS-G amendment? Please provide estimates if available.
198. Could the public disclosure of Form ATS-G generate indirect
costs for some subscribers to Government Securities ATSs that might
currently have more information regarding some ATS features, such as
order priority and matching procedures, than other subscribers or
market participants?
199. Are the 2018 estimates (the 2018 SCI PRA Extension) of initial
paperwork burdens for new SCI entities and ongoing paperwork burdens
for all SCI entities under Regulation SCI largely applicable to
Government Securities ATSs?
200. Would Government Securities ATSs also incur non-paperwork
related direct compliance costs as SCI entities? The Regulation SCI
Adopting Release in 2014 estimated that an SCI entity would incur an
initial cost of between approximately $320,000 and $2.4 million.
Additionally, an SCI entity would incur an ongoing annual cost of
between approximately $213,600 and $1.6 million. Are these estimated
costs applicable to Government Securities ATSs? How might the actual
level of costs Government Securities ATSs would incur differ from the
estimates in the Regulation SCI Adopting Release because they differ
from existing SCI entities? How might other factors, such as the
complexity of SCI entities' systems and the degree to which SCI
entities employ third-party systems, affect the estimated costs? Please
provide cost estimates or a range for cost estimates, if possible.
201. Could the increase in ATS operational transparency from the
proposed amendments to Regulation ATS lower the trading costs and
improve the execution quality of market participants, which would
enhance the efficiency with which they achieve their trading
objectives?
202. Could the increase in ATS operational transparency from the
proposed amendments to Regulation ATS increase competition among
trading venues in the market for government securities execution
services by causing them to decrease their trading fees in order to
attract order flow?
203. Could the proposed Regulation ATS and Regulation SCI
amendments result in some existing Government Securities ATSs exiting
the market for government securities execution services or raise the
barriers to entry for new Government Securities ATSs? If so, what would
be the effects on competition?
204. To the extent that amendments to Regulation ATS and Regulation
SCI reduce the trading costs of U.S. Treasury Securities, would the
reductions in trading costs be significant enough to decrease their
yields, lowering the risk-free rate? As a result, would this decrease
the cost of capital for firms and promote capital formation?
205. Would the alternative to require Currently Exempted Government
Securities ATSs to file Form ATS, but not require Form ATS to be
publicly disclosed make Government Securities ATSs' operations less
transparent for market participants and result in larger the search
costs for subscribers?
206. Do commenters agree with the Commission's analysis of the
alternative to require proposed Form ATS-G be filed but treat the
information as confidential?
207. Do commenters agree with the Commission's analysis of
alternative to initiate differing levels of public disclosure expending
on Government Securities ATS dollar volume?
208. Do commenters agree with the Commission's analysis of the
alternative to extend the proposed transparency requirements of
Regulation ATS to all non-ATSs trading venues for government
securities?
209. Do commenters agree with the Commission's analysis of the
alternative to alter the proposed volume thresholds for the Fair Access
Rule and Regulation SCI?
210. Do commenters agree with the Commission's analysis of the
alternatives to apply Rule 301(b)(6) of Regulation ATS to Government
Securities ATSs?
211. Do commenters agree with the Commission's analysis of the
alternative to require Form ATS-G to be filed in a filing location
other than EDGAR, such as EFFS or individual ATS websites?
XI. Consideration of Impact on the Economy
For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996,\825\ the Commission requests comment on the potential
effect of the proposed amendments and Form ATS-G on the United States
economy on an annual basis. The Commission also requests comment on any
potential increases in costs or prices for consumers or individual
industries, and any potential effect on competition, investment, or
innovation. Commenters are requested to provide empirical data and
other factual support for their views to the extent possible.
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\825\ 5 U.S.C. 603.
---------------------------------------------------------------------------
XII. Regulatory Flexibility Act Certification
Section 3(a) of the Regulatory Flexibility Act of 1980 \826\
(``RFA'') requires the Commission to undertake an initial regulatory
flexibility analysis of the impact of the proposed rule amendments on
small entities unless the Commission certifies that the rule, if
adopted, would not have a significant economic impact on a substantial
number of small entities.\827\ For purposes of Commission rulemaking in
connection with the RFA,\828\ a small
[[Page 87209]]
entity includes a broker or dealer that: (1) Had total capital (net
worth plus subordinated liabilities) of less than $500,000 on the date
in the prior fiscal year as of which its audited financial statements
were prepared pursuant to Rule 17a-5(d) under the Exchange Act,\829\
or, if not required to file such statements, a broker-dealer with total
capital (net worth plus subordinated liabilities) of less than $500,000
on the last day of the preceding fiscal year (or in the time that it
has been in business, if shorter); and (2) is not affiliated with any
person (other than a natural person) that is not a small business or
small organization.\830\
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\826\ 5 U.S.C. 603(a).
\827\ 5 U.S.C. 605(b).
\828\ Although Section 601(b) of the RFA defines the term
``small entity,'' the statute permits agencies to formulate their
own definitions. The Commission has adopted definitions for the term
``small entity'' for the purposes of Commission rulemaking in
accordance with the RFA. Those definitions, as relevant to this
proposed rulemaking, are set forth in Rule 0-10 under the Exchange
Act, 17 CFR 240.0-10. See Securities Exchange Act Release No. 18451
(January 28, 1982), 47 FR 5215 (February 4, 1982) (File No. AS-305).
\829\ 17 CFR 240.17a-5(d).
\830\ See 17 CFR 240.0-10(c). See also 17 CFR 240.0-10(i)
(providing that a broker or dealer is affiliated with another person
if: Such broker or dealer controls, is controlled by, or is under
common control with such other person; a person shall be deemed to
control another person if that person has the right to vote 25
percent or more of the voting securities of such other person or is
entitled to receive 25 percent or more of the net profits of such
other person or is otherwise able to direct or cause the direction
of the management or policies of such other person; or such broker
or dealer introduces transactions in securities, other than
registered investment company securities or interests or
participations in insurance company separate accounts, to such other
person, or introduces accounts of customers or other brokers or
dealers, other than accounts that hold only registered investment
company securities or interests or participations in insurance
company separate accounts, to such other person that carries such
accounts on a fully disclosed basis).
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All Government Securities ATSs would be required to register as
broker-dealers, including those that are currently exempt from such
requirement.\831\ The Commission examined recent FOCUS data for the 19
broker-dealers that currently operate ATSs that indicated on their Form
ATS that they trade government securities and repos and concluded that
2 of the broker-dealer operators of these ATSs had total capital of
less than $500,000 on the last day of the preceding fiscal year (or in
the time that it has been in business, if shorter).\832\ The Commission
notes that these broker-dealer operators have never reported any
transaction volume in any security, including a government security or
repo, to the Commission on Form ATS-R. Given that these ATSs have never
reported any transaction volume in government securities to the
Commission, the Commission believes that these ATSs would likely not
submit a Form ATS-G if the proposed amendments to Regulation ATS are
adopted. The Commission has also recently examined recent FOCUS data
for the 6 broker-dealers that are Currently Exempted Government
Securities ATSs and concluded that none of the broker-dealer operators
of ATSs that currently trade government securities had total capital of
less than $500,000 on the last day of the preceding fiscal year (or in
the time that it has been in business, if shorter). Consequently, the
Commission certifies that the proposed amendments to Regulation ATS
would not, if adopted, have a significant economic impact on a
substantial number of small entities.
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\831\ See supra Section II.C. See also 17 CFR 242.301(b)(1).
---------------------------------------------------------------------------
The Commission encourages written comments regarding this
certification. The Commission solicits comment as to whether the
proposed amendments could have impacts on small entities that have not
been considered. The Commission requests that commenters describe the
nature of any impacts on small entities and provide empirical data to
support the extent of such effect. Such comments will be placed in the
same public file as comments on the proposed amendments to Regulation
ATS. Persons wishing to submit written comments should refer to the
instructions for submitting comments in the front of this release.
XIII. Statutory Authority and Text of Proposed Amendments
Pursuant to Exchange Act, 15 U.S.C. 78a et seq., and particularly
Sections 3(b), 5, 6, 15, 15C, 17(a), 17(b), 19, 23(a), and 36 thereof
(15 U.S.C. 78c(b), 78e, 78f, 78o, 78o-5, 78q(a), 78q(b), 78s, 78w(a),
and 78mm), the Commission proposes amendments to Form ATS-G under the
Exchange Act, Regulation ATS under the Exchange Act, and 17 CFR 232,
240, 242 and 249.
List of Subjects in 17 CFR Parts 232, 240, 242, and 249
Administrative practices and procedure, Brokers, Confidential
business information, Fraud, Reporting and recordkeeping requirements,
Securities.
For the reasons stated in the preamble, title 17, chapter II of the
Code of Federal Regulations is proposed as follows:
PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS
0
1. The general authority citation for part 232 continues to read as
follows:
Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3,
77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll, 80a-6(c),
80a-8, 80a-29, 80a-30, 80a-37, 7201 et seq.; and 18 U.S.C. 1350,
unless otherwise noted.
* * * * *
0
2. Amend Sec. 232.101 by adding paragraphs (a)(1)(xxii) through (xxiv)
to read as follows:
Sec. 232.101 Mandated electronic submissions and exceptions.
(a) * * *
(1) * * *
(xxii) Form ATS (Sec. 249.637 of this chapter).
(xxiii) Form ATS-R (Sec. 249.638 of this chapter).
(xxiv) Form ATS-G (Sec. 249.642 of this chapter).
* * * * *
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1934
0
3. The general authority citation for part 240 continues to read as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm,
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et
seq.; and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C.
1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, secs. 503 and 602, 126 Stat. 326 (2012), unless otherwise
noted.
* * * * *
0
4. Amend Sec. 240.3a1-1 by adding paragraphs (b)(3)(viii) and (ix) to
read as follows:
Sec. 240.3a1-1 Exemption from the definition of ``Exchange'' under
Section 3(a)(1) of the Act.
(a) * * *
(b) * * *
(3) * * *
(viii) U.S. Treasury Securities, which shall have the same meaning
as in Sec. 242.300(p), and for which transactions are reported to a
self-regulatory organization.
(ix) Agency Securities, which shall have the same meaning as in
Sec. 242.300(q), and for which transactions are reported to a self-
regulatory organization.
PART 242--REGULATIONS M, SHO, ATS, AC, NMS, AND SBSR AND CUSTOMER
MARGIN REQUIREMENTS FOR SECURITY FUTURES
0
5. The authority citation for part 242 continues to read as follows:
Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2),
78i(a), 78j, 78k-1(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g),
78q(a), 78q(b), 78q(h), 78w(a), 78dd-1, 78mm, 80a-23, 80a-29, and
80a-37.
* * * * *
0
6. Amend Sec. 242.300 by:
[[Page 87210]]
0
a. Adding ``An NMS Stock ATS shall not trade securities other than NMS
stocks.'' at the end of paragraph (k); and
0
b. Adding paragraphs (l) through (q) to read as follows:
Sec. 242.300 Definitions.
* * * * *
(l) Government Securities ATS means an alternative trading system,
as defined in paragraph (a) of this section, that trades government
securities, as defined in section 3(a)(42) of the Act (15 U.S.C.
78c(a)(42)) or repurchase and reverse repurchase agreements on
government securities. A Government Securities ATS shall not trade
securities other than government securities or repurchase and reverse
repurchase agreements on government securities.
(m) Covered ATS means an NMS Stock ATS or Government Securities
ATS, as applicable.
(n) Covered Form means a filing on Form ATS-N or Form ATS-G, as
applicable.
(o) Legacy Government Securities ATS means a Government Securities
ATS operating as of [date 120 calendar days after the date of
publication of the final rule in the Federal Register].
(p) U.S. Treasury Security means a security issued by the U.S.
Department of the Treasury.
(q) Agency Security means a debt security issued or guaranteed by a
U.S. executive agency, as defined in 5 U.S.C. 105, or government-
sponsored enterprise, as defined in 2 U.S.C. 622(8).
0
7. Amend Sec. 242.301 by:
0
a. Removing and reserving paragraphs (a)(4)(ii)(A) through (C);
0
b. In paragraph (b)(1), adding ``or section 15C(a)(1)(A) of the Act (15
U.S.C. 78o-5(a)(1)(A))'' after the phrase ``section 15 of the Act, (15
U.S.C. 78o)'';
0
c. In paragraph (b)(2)(vi), adding the words ``and information filed
pursuant to paragraph (b)(9)'' after the words ``pursuant to this
paragraph (b)(2)'';
0
d. Revising paragraph (b)(2)(vii);
0
e. Revising paragraph (b)(2)(viii);
0
f. In paragraph (b)(5)(i)(A), adding the word ``share'' after the
phrase ``average daily'';
0
g. In paragraph (b)(5)(i)(B), adding the word ``share'' after the
phrase ``average daily trading'';
0
h. In paragraphs (b)(5)(i)(C) and (D), adding the word ``dollar'' after
the phrase ``average daily'';
0
i. In paragraph (b)(5)(i)(C), adding the phrase ``as provided by the
self-regulatory organization to which such transactions are reported''
after the phrase ``in the United States'';
0
j. In paragraph (b)(5)(i)(C), removing the word ``or'' after the phrase
``average daily volume traded in the United States'';
0
k. In paragraph (b)(5)(i)(D), adding the phrase ``as provided by the
self-regulatory organization to which such transactions are reported''
after the phrase ``in the United States'';
0
l. In paragraph (b)(5)(i)(D), removing ``.'' after the phrase ``in the
United States'' and adding in its place ``;'';
0
m. Adding paragraphs (b)(5)(i)(E) and (F);
0
n. In paragraph (b)(5)(ii)(A), adding the word ``reasonable'' before
the phrase ``written standards'';
0
o. Removing paragraph (b)(5)(iii);
0
p. In paragraphs (b)(6)(i)(A) and (B), adding the word ``dollar'' after
the phrase ``average daily'';
0
q. Removing paragraph (b)(6)(iii);
0
r. In paragraph (b)(9)(i), removing the word ``Separately'' and the
phrase ``for transactions in NMS stocks, as defined in paragraph (g) of
this section, and transactions in securities other than NMS stocks'',
and capitalizing the word ``File''; and
0
s. In paragraph (b)(9)(ii), removing the word ``Separately'' and the
phrase ``for transactions in NMS stocks and transactions in securities
other than NMS stocks'', and capitalizing the word ``File''.
The additions and revisions read as follows:
Sec. 242.301 Requirements for alternative trading systems.
* * * * *
(b) * * *
(2) * * *
(vii) An ATS must file a Form ATS or Form ATS-R in accordance with
the instructions therein. The reports provided for in paragraphs (b)(2)
and (b)(9) of this section shall be filed on Form ATS or Form ATS-R, as
applicable, and include all information as prescribed in Form ATS or
Form ATS-R, as applicable, and the instructions thereto. Any such
document shall be executed at, or prior to, the time Form ATS or Form
ATS-R is filed and shall be retained by the ATS in accordance with
Sec. Sec. 242.303 and Sec. 232.302 of this chapter, and the
instructions in Form ATS or Form ATS-R, as applicable. Duplicates of
the reports provided for in paragraphs (b)(2)(i) through (v) of this
section must be filed with surveillance personnel designated as such by
any self-regulatory organization that is the designated examining
authority for the alternative trading system pursuant to Sec. 240.17d-
1 of this chapter simultaneously with filing with the Commission.
Duplicates of the reports required by paragraph (b)(9) of this section
shall be provided to surveillance personnel of such self-regulatory
authority upon request. All reports filed pursuant to this paragraph
(b)(2) and paragraph (b)(9) of this section (except for types of
securities traded provided on Form ATS and Form ATS-R) will be accorded
confidential treatment subject to applicable law.
(viii) A Legacy Government Securities ATS operating pursuant to an
initial operation report on Form ATS on file with the Commission as of
[date 120 calendar days after the date of publication of the final rule
in the Federal Register] shall be subject to the requirements of
paragraphs (b)(2)(i) through (vii) of this section until that ATS files
an initial Form ATS-G with the Commission pursuant to Sec.
242.304(a)(1)(iv)(A). Thereafter, the Legacy Government Securities ATS
shall file reports pursuant to Sec. 242.304 and shall not be subject
to the requirements of paragraphs (b)(2)(i) through (vii) of this
section. A Legacy Government Securities ATS that was formerly not
required to comply with Regulation ATS (Sec. 242.300 through 242.304)
pursuant to an exemption prior to [the effective date of the final
rule], shall file reports pursuant to Sec. 242.304 and shall not be
subject to the requirements of paragraphs (b)(2)(i) through (vii) of
this section. As of [date 120 calendar days after the date of
publication of the final rule in the Federal Register], an entity
seeking to operate as a Government Securities ATS shall not be subject
to the requirements of paragraphs (b)(2)(i) through (vii) of this
section and shall file reports pursuant to Sec. 242.304. An NMS Stock
ATS or entity seeking to operate as an NMS Stock ATS shall not be
subject to the requirements of paragraphs (b)(2)(i) through (vii) of
this section and shall file reports pursuant to Sec. 242.304. An ATS
that is not an NMS Stock ATS or Government Securities ATS shall be
subject to paragraph (b)(2) of this section. An NMS Stock ATS or a
Government Securities ATS that is operated by a broker-dealer that is
the registered broker-dealer for more than one ATS must independently
comply with Regulation ATS, including the filing requirements of Sec.
242.304 of this chapter.
* * * * *
(5) Fair access.
(i) * * *
(E) With respect to U.S. Treasury Securities, 5 percent or more of
the average weekly dollar volume traded in the United States as
provided by the self-regulatory organization to which such transactions
are reported; or
(F) With respect to Agency Securities, 5 percent or more of the
average daily
[[Page 87211]]
dollar volume traded in the United States as provided by the self-
regulatory organization to which such transactions are reported.
* * * * *
0
8. Amend Sec. 242.304 by:
0
a. Revising the section heading;
0
b. In paragraph (a), removing ``an NMS Stock ATS'' before the phrase
``must comply'' and adding in its place ``a Covered ATS'';
0
c. In the title to paragraph (a)(1), removing ``Form ATS-N'' and adding
in its place ``Covered Form'';
0
d. In paragraph (a)(1)(i), adding ``applicable'' after the phrase
``files with the Commission an'' and adding a sentence at the end of
the paragraph;
0
e. In paragraph (a)(1)(ii)(A)(1), removing the phrase ``the Form ATS-N
is unusually lengthy or raises novel or complex issues that require
additional time for review'' and adding in its place ``the Commission
determines that a longer period is appropriate'';
0
f. In paragraphs (a)(1)(i) through (iii),
0
1. Removing each reference to ``NMS Stock ATS'' and adding in its place
``Covered ATS'';
0
2. Removing each reference to ``an NMS Stock ATS'' and adding in its
place ``a Covered ATS''; and
0
3. Removing each reference to ``Form ATS-N'' and adding in its place
``Covered Form'';
0
g. In the title to paragraph (a)(2), removing ``Form ATS-N'' and adding
in its place ``Covered Form'';
0
h. In paragraph (a)(2)(i),
0
1. Removing ``An NMS Stock ATS'' before the phrase ``shall amend'' and
replacing it with ``A Covered ATS''; and
0
2. Removing ``Form ATS-N'' after the phrase ``shall amend a'' and
replacing it with ``Covered Form'';
0
i. In paragraph (a)(2)(i)(A), removing ``NMS Stock ATS'' after the
phrase ``change to the operations of the'' and replacing it with
``Covered ATS'';
0
j. In paragraph (a)(2)(i)(A) through (C), removing each reference to
``Form ATS-N'' and adding in its place ``Covered Form'';
0
k. In paragraphs (a)(2)(ii), (a)(3), (a)(4), (b), and (c),
0
1. Removing each reference to ``NMS Stock ATS'' and adding in its place
``Covered ATS'';
0
2. Removing each reference to ``an NMS Stock ATS'' and adding in its
place ``a Covered ATS''; and
0
3. Removing each reference to ``Form ATS-N'' and adding in its place
``Covered Form'';
0
l. In paragraph (a)(1)(iv),
0
1. Removing each reference to ``Form ATS-N'' and adding in its place
``Form ATS-G''; and
0
2. Removing each reference to ``Legacy NMS Stock ATS'' and adding in
its place ``Legacy Government Securities ATS'';
0
m. In paragraph (a)(1)(iv)(A),
0
1. Adding the phrase ``operating pursuant to an initial operation
report on Form ATS on file with the Commission as of [date 120 calendar
days after the date of publication of the final rule in the Federal
Register]'' immediately preceding the phrase, ``shall supersede and
replace'';
0
2. Removing ``January 7, 2019'' and adding in its place ``[date 120
calendar days after the date of publication of the final rule in the
Federal Register]''; and
0
3. Removing ``February 8, 2019'' and adding in its place ``[date 150
calendar days after the date of publication of the final rule in the
Federal Register]'';
0
n. In paragraph (a)(1)(iv)(B)(1), removing the phrase ``the initial
Form ATS-N is unusually lengthy or raises novel or complex issues that
require additional time for review'' and adding in its place ``the
Commission determines that a longer period is appropriate'';
0
o. In paragraph (a)(2)(i)(D),
0
1. Adding ``or Part III, Item 24 on Form ATS-G'' immediately preceding
the phrase, ``has become inaccurate or incomplete''; and
0
2. Removing the phrase ``Order Display and Fair Access Amendment'' and
adding in its place ``Contingent Amendment'';
0
p. In paragraph (b)(2)(iii)(B), removing the phrase ``Order Display and
Fair Access'' wherever it appears and adding in its place the word
``Contingent''; and
0
q. Revising paragraph (b)(3).
The additions and revisions read as follows:
Sec. 242.304 Covered ATSs.
(a) * * *
(1) * * *
(i) * * * Notwithstanding the foregoing, a Legacy Government
Securities ATS that was formerly not required to comply with Regulation
ATS (Sec. 242.300 through 242.304) pursuant to an exemption prior to
[the effective date of the final rule], may continue to operate
pursuant to Regulation ATS until its initial Form ATS-G becomes
effective.
* * * * *
(b) * * *
(3) Each Covered ATS shall make public via posting on its website:
(i) A direct URL hyperlink to the Commission's website that
contains the documents enumerated in paragraph (b)(2) of this section;
and
(ii) The most recently disseminated Covered Form (excluding Part
IV) within one business day after publication on the Commission's
website, except for any amendment that the Commission has declared
ineffective or that has been withdrawn. The most recently disseminated
Covered Form shall be maintained on the Covered ATS's website until:
(A) The Covered ATS ceases operations; or
(B) The exemption of the Covered ATS is revoked or suspended, in
which cases, the Covered ATS shall remove the Covered Form from its
website within one business day of such cessation, revocation or
suspension, as applicable.
* * * * *
0
9. Amend Sec. 242.1000 by:
0
a. Adding, in alphabetical order, a definition for ``Agency
Securities'';
0
b. At the end of paragraph (1)(ii), under the definition of ``SCI
alternative trading system or SCI ATS'', removing the word, ``or'';
0
c. Under the definition of ``SCI alternative trading system or SCI
ATS'', redesignating paragraph (3) as paragraph (5);
0
d. Under the definition of ``SCI alternative trading system or SCI
ATS'', adding a new paragraph (3) and paragraph (4); and
0
e. In newly redesignated paragraph (5), removing ``paragraphs (1) or
(2)'' and adding in its place ``paragraphs (1), (2), (3), or (4)''; and
0
f. Adding, in alphabetical order, a definition for ``U.S. Treasury
Securities''.
The additions read as follows:
Sec. 242.1000 Definitions.
* * * * *
Agency Security has the meaning set forth in Sec. 242.300(q).
* * * * *
SCI alternative trading system or SCI ATS * * *
(3) Had with respect to U.S. Treasury Securities, five percent (5%)
or more of the average weekly dollar volume traded in the United States
as provided by the self-regulatory organization to which such
transactions are reported; or
(4) Had with respect to Agency Securities, five percent (5%) or
more of the average daily dollar volume traded in the United States as
provided by the self-regulatory organization to which such transactions
are reported.
* * * * *
U.S. Treasury Security has the meaning set forth in Sec.
242.300(p).
* * * * *
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
0
10. The general authority citation for part 249 continues to read as
follows:
[[Page 87212]]
Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C.
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111-203, 124
Stat. 1904; Sec. 102(a)(3), Pub. L. 112-106, 126 Stat. 309 (2012);
Sec. 107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001,
Pub. L. 114-94, 129 Stat. 1312 (2015), unless otherwise noted.
* * * * *
0
11. Amend Form ATS (referenced in Sec. 249.637) by:
0
a. In the General Instructions, revising Items A.3 through A.6;
0
b. In the General Instructions, revising the fifth and seventh
paragraphs of Item A.7;
0
c. At the top of page 1 of the form, removing ``INITIAL OPERATION
REPORT'', ``AMENDMENT TO INITIAL OPERATION REPORT'', ``CESSATION OF
OPERATIONS REPORT'' and accompanying check boxes and adding text under
a new heading ``Type of Filing (select one)'';
0
d. Revising Item 1;
0
e. Removing the text on page 1 of the form beginning ``EXECUTION'', the
signature block below, the instruction that states ``This page must
always be completed in full with original, manual signature and
notarization. Affix notary stamp or seal where applicable.'' and ``DO
NOT WRITE BELOW THIS LINE--FOR OFFICIAL USE ONLY'' and adding in its
place text under a new heading ``CONTACT INFORMATION, SIGNATURE BLOCK,
AND CONSENT TO SERVICE''; and
0
f. On page 2 of the form, removing the following text:
BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TP31DE20.001
The revisions read as follows:
Note: The text of Form ATS does not and this amendment will not
appear in the Code of Federal Regulations
[[Page 87213]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.002
[[Page 87214]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.003
[[Page 87215]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.004
[[Page 87216]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.005
0
12. Amend Form ATS-R (referenced in Sec. 249.634) by:
0
a. In the General Instructions, revising Items A.3 through A.6;
0
b. In the General Instructions, revising the fifth and seventh
paragraphs of Item A.7;
0
c. In the Explanation of Terms, adding the definitions of ``Agency
Securities'' and ``U.S. Treasury Securities'';
0
d. On page 1 of the form, immediately before Section 1, adding text
under a new heading ``Type of Filing'';
0
e. Revising Item 1;
0
f. Removing text on page 1 of the form beginning ``EXECUTION'', the
signature block below, the instruction that states ``This page must
always be completed in full with original, manual signature and
notarization. Affix notary stamp or seal where applicable.'' and ``DO
NOT WRITE BELOW THIS LINE - FOR OFFICIAL USE ONLY'' and adding in its
place text under a new heading ``CONTACT INFORMATION, SIGNATURE BLOCK,
AND CONSENT TO SERVICE'';
0
g. On page 2 and 3 of the form, removing the following text:
[GRAPHIC] [TIFF OMITTED] TP31DE20.050
0
h. Revising Item 4;
0
i. Adding Items 5.C and 5.D;
0
j. Revising Items 6.B through 6.C, and
0
k. Adding Item 8.
The additions and revisions read as follows:
Note: The text of Form ATS-R does not and this amendment will
not appear in the Code of Federal Regulations.
[[Page 87217]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.006
[[Page 87218]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.007
[[Page 87219]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.008
[[Page 87220]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.009
[[Page 87221]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.010
[[Page 87222]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.011
0
13. Amend Form ATS-N (referenced in Sec. 149.640) by:
0
a. On page 1 of the form, removing the following:
Does the NMS Stock ATS currently operate pursuant to a
Form ATS?
[square] Yes No
0
b. On page 1 of the form, revising text under ``Type of Filing (select
one)'',
0
c. Revising Part I, Item 1;
0
d, Revising Part I, Item 10;
0
e. Revising Part II, Item 4.b;
0
f. Revising Part II, Item 6.a;
0
g. Revising Part III, Item 1;
0
h. Revising Part III, Item 4.a;
0
i. Revising Part III, Item 6.b;
0
j. Revising Part III, Item 7.a;
0
k. Revising Part III, Item 10;
0
l. Revising Part III, Item 13.a;
0
m. Revising Part III, Item 17.a;
0
n. Revising Part III, Item 18;
0
o. Revising Part III, Item 19.a;
0
p. Revising Part IV;
0
q. In FORM ATS-N INSTRUCTIONS, revising Item A.4;
0
r. In FORM ATS-N INSTRUCTIONS, revising Items A.6 through A.7;
0
s. In FORM ATS-N INSTRUCTIONS, revising Item D; and
0
t. In FORM ATS-N INSTRUCTIONS, under Item E, revising the definitions
of ``NMS STOCK ATS'' and ``PERSON''.
The revisions read as follows:
Note: The text of Form ATS-N does not and this amendment will
not appear in the Code of Federal Regulations.
[GRAPHIC] [TIFF OMITTED] TP31DE20.012
[[Page 87223]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.013
[[Page 87224]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.014
[[Page 87225]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.015
[[Page 87226]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.016
[[Page 87227]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.017
[[Page 87228]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.018
[[Page 87229]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.019
0
14. Add Sec. 249.642 to subpart G to read as follows:
Note: The text of Form ATS-G does not and this amendment will
not appear in the Code of Federal Regulations.
Sec. 249.642 Form ATS-G, information required of Government
Securities ATSs pursuant to Sec. 242.304(a) of this chapter.
This form shall be usd by every Government Securities ATS to file
required reports under Sec. 242.304(a) of this chapter.
[[Page 87230]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.020
[[Page 87231]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.021
[[Page 87232]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.022
[[Page 87233]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.023
[[Page 87234]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.024
[[Page 87235]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.025
[[Page 87236]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.026
[[Page 87237]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.027
[[Page 87238]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.028
[[Page 87239]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.029
[[Page 87240]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.030
[[Page 87241]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.031
[[Page 87242]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.032
[[Page 87243]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.033
[[Page 87244]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.034
[[Page 87245]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.035
[[Page 87246]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.036
[[Page 87247]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.037
[[Page 87248]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.038
[[Page 87249]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.039
[[Page 87250]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.040
[[Page 87251]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.041
[[Page 87252]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.042
[[Page 87253]]
[GRAPHIC] [TIFF OMITTED] TP31DE20.043
[GRAPHIC] [TIFF OMITTED] TP31DE20.044
By the Commission.
Dated: September 28, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-21781 Filed 12-22-20; 4:15 pm]
BILLING CODE 8011-01-C
