[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.

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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 (http://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 (http://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.
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    \22\ Additionally, repurchase and reverse repurchase agreements 
on government securities are also traded on some ATSs.
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    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.
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    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\
---------------------------------------------------------------------------

    \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'').
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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'').
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \70\ See supra note 64.
    \71\ See Citadel Letter, supra note 65, at 4.
    \72\ See id.
    \73\ See id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \81\ See infra Sections II.A-H and III.
---------------------------------------------------------------------------

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.
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    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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'').
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

     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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

     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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

     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\
---------------------------------------------------------------------------

    \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'').
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \132\ See Regulation ATS Adopting Release, supra note 35, at 
70872.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \141\ See supra notes 50-51.
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    \142\ See infra Section X.B.1. See also supra Section I.A.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \143\ See infra Table X.1.
    \144\ See id.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \145\ See id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \172\ See supra notes 168-170 and accompanying text.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

     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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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?
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \215\ This request is contained in Part III, Item 12. See infra 
Section III.C.12.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \237\ See NMS Stock ATS Adopting Release, supra note 1, at 38832 
and 38844.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
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    \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).
---------------------------------------------------------------------------

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).
---------------------------------------------------------------------------

    \266\ See Regulation SCI Adopting Release, supra note 2, at 
72254-55 n.28.
    \267\ See id. at 72255 n.29.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \274\ See NMS Stock ATS Adopting Release, supra note 1, at 
38861-63.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \276\ See supra note 211 for the definition of affiliate under 
Form ATS-G.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \277\ See NMS Stock ATS Adopting Release, supra note 1, at 
Section VII.
    \278\ See id.
    \279\ See infra Section V.C.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \283\ Id. at 70872.
    \284\ See NMS Stock ATS Adopting Release, supra note 1, at 
38770-71.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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 http://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.
---------------------------------------------------------------------------

    \295\ See 17 CFR 242.301(b)(2)(vii).
---------------------------------------------------------------------------

    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.''
---------------------------------------------------------------------------

    \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 http://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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \319\ See Form ATS-R and Form ATS-R Instructions, No. 8.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \368\ 17 CFR 242.1001(b)(1)-(2).
    \369\ 17 CFR 242.1001(b)(3).
    \370\ 17 CFR 242.1001(b)(4).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \383\ See 17 CFR 242.1004.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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:
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \392\ See Regulation ATS Adopting Release, supra note 35, at 
70854-56.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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).
---------------------------------------------------------------------------

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 
http://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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \680\ See supra note 678.
    \681\ See id.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \682\ See supra Section X.B.6 for a discussion of Government 
Securities ATSs of existing SCI entities.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \687\ See supra Section V.D.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.

---------------------------------------------------------------------------

[[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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \756\ See supra note 196 and accompanying text.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \780\ See supra Section V.D and note 520.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

(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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

(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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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]]


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[[Page 87214]]


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[[Page 87215]]


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[[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]]


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[[Page 87218]]


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[[Page 87219]]


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[[Page 87220]]


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[[Page 87221]]


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[[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]]


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[[Page 87224]]


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[[Page 87225]]


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[[Page 87226]]


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[[Page 87227]]


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[[Page 87228]]


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[[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]]

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[[Page 87231]]


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[[Page 87232]]


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[[Page 87249]]


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[[Page 87250]]


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[[Page 87253]]


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[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