Securities and Exchange Commission.
Proposed rule.
The Securities and Exchange Commission is proposing to amend the regulatory requirements in Regulation ATS under the Securities Exchange Act of 1934 (“Exchange Act”) applicable to alternative trading systems (“ATSs”) that transact in National Market System (“NMS”) stocks (hereinafter referred to as (“NMS Stock ATSs”), including so called “dark pools.” First, the Commission is proposing to amend Regulation ATS to adopt Form ATS–N to provide information about the broker-dealer that operates the NMS Stock ATS (“broker-dealer operator”) and the activities of the broker-dealer operator and its affiliates in connection with the NMS Stock ATS, and to provide detailed information about the manner of operations of the ATS. Second, the Commission is proposing to make filings on Form ATS–N public by posting certain Form ATS–N filings on the Commission's internet Web site and requiring each NMS Stock ATS that has a Web site to post on the NMS Stock ATS's Web site a direct URL hyperlink to the Commission's Web site that contains the required documents. Third, the Commission is proposing to amend Regulation ATS to provide a process for the Commission to determine whether an entity qualifies for the exemption from the definition of “exchange” under Exchange Act Rule 3a1–1(a)(2) with regard to NMS stocks and declare an NMS Stock ATS's Form ATS–N either effective or, after notice and opportunity for hearing, ineffective. Fourth, under the proposal, the Commission could suspend, limit, or revoke the exemption from the definition of “exchange” after providing notice and opportunity for hearing. Fifth, the Commission is proposing to require that an ATS's safeguards and procedures to protect subscribers' confidential trading information be written. The Commission is also proposing to make conforming changes to Regulation ATS and Exchange Act Rule 3a1–1(a). Additionally, the Commission is requesting comment about, among other things, changing the requirements of the exemption from the definition of “exchange” pursuant to Exchange Act Rule 3a1–1(a) for ATSs that facilitate transactions in securities other than NMS stocks. Lastly, the Commission is also requesting comment regarding its consideration to amend Exchange Act Rules 600 and 606 to improve transparency around the handling and routing of institutional customer orders by broker-dealers.
Comments should be received on or before February 26, 2016.
Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Use the Federal eRulemaking Portal (
• Send paper comments to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
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 such materials will be made available on the Commission's Web site. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at
Tyler Raimo, Senior Special Counsel, at (202) 551–6227; Matthew Cursio, Special Counsel, at (202) 551–5748; Marsha Dixon, Special Counsel, at (202) 551–5782; Jennifer Dodd, Special Counsel, at (202) 551–5653; David Garcia, Special Counsel, at (202) 551–5681; or Derek James, Special Counsel, at (202) 551–5792; Office of Market Supervision, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–7010.
The Commission is proposing: (1) New Form ATS–N under the Exchange Act provided by Rule 3a1–1(a) of the Exchange Act [17 CFR 240.3a1–1(a)], which NMS Stock ATSs would rely on to qualify for the exemption from the definition of “exchange”; (2) to amend Regulation ATS under the Exchange Act [17 CFR 242.300 through 242.303] to add new Rule 304 to provide new conditions for NMS Stock ATSs seeking to rely on the exemption from the definition of “exchange”; and (3) related amendments to Rule 300, 301, and 303 of Regulation ATS and Rule 3a1–1(a) under the Exchange Act [17 CFR 242.300; 17 CFR 242.301, 17 CFR 242.303; and 17 CFR 240.3a1–1]. The Commission is also proposing amendments to Rules 301(b)(10) and 303 of Regulation ATS under the Exchange Act [17 CFR 242.301(b)(10) and 17 CFR 242.303] to require all ATSs to make and keep written safeguards and written procedures to protect subscribers' confidential trading information.
Section 11A(a)(2) of the Exchange Act,
In December 1998, the Commission adopted Regulation ATS to advance the goals of the national market system and establish a regulatory framework for ATSs.
In response to the substantial changes in the way securities were traded at the time, and the regulatory disparity between registered national securities exchanges and non-exchange markets, the Commission adopted a new regulatory framework that the Commission believed would encourage market innovation, while ensuring basic investor protections,
In the seventeen years since the Commission adopted Regulation ATS, the equity markets have evolved significantly, resulting in an increased number of trading centers and a reduced concentration of trading activity in NMS stocks.
When adopting Regulation ATS, the Commission noted that the 20% volume threshold was based on current market conditions, and that if such conditions changed, or if the Commission believed that alternative trading systems with less than 20% of the trading volume were engaging in inappropriate exclusionary practices or in anticompetitive conduct, the Commission could revisit the fair access thresholds.
Although ATSs and registered national securities exchanges generally operate in a similar manner and compete as trading centers for order flow in NMS stocks, each of these types of trading centers is subject to a separate regulatory regime with a different mix of benefits and obligations, including with respect to their obligations to disclose information about their trading operations. Unlike ATSs, national securities exchanges must register with the Commission pursuant to Section 6 of the Exchange Act,
Although falling within the statutory definition of “exchange,” an ATS is exempt from that definition if it complies with Regulation ATS. Regulation ATS includes the requirement that, as an alternative to registering as a national securities exchange, an ATS must register as a broker-dealer with the Commission, which entails becoming a member of an SRO, such as the Financial Industry Regulatory Authority (“FINRA”).
The Commission is concerned that the current regulatory requirements relating to operational transparency for ATSs, particularly those that execute trades in NMS stocks, may no longer fully meet the goals of furthering the public interest and protecting investors. Today, ATSs account for approximately 15.4% of the total dollar volume in NMS stocks
The Commission is also concerned about the current lack of transparency around potential conflicts of interest that arise from the activities of the broker-dealer operator of the NMS Stock ATS and its affiliates
Transparency is a hallmark of the U.S. securities markets and a primary tool by which investors protect their own interests, and the Commission is concerned that the current lack of transparency around potential conflicts of interest of the broker-dealer operator may impede market participants from adequately protecting their interests when doing business on the NMS Stock ATS. The Commission preliminarily believes that if market participants have more information about the operations of NMS Stock ATSs and the activities of the broker-dealer operators and the broker-dealer operators' affiliates, they could better evaluate whether to do business with an ATS and make more informed decisions about where to route their orders.
The Commission has long recognized that effective competition requires transparency and access across the national market system.
The Commission preliminarily believes that a wide range of market participants would benefit from the operational transparency that would result from the proposal. For example, many brokers subscribe to NMS Stock ATSs and route their orders, and those of their customers, to NMS Stock ATSs for execution. The Commission preliminarily believes that improved transparency about the operations of NMS Stock ATSs could aid brokers with meeting their best execution obligations to their customers, as they can better assess the trading venues to which they route orders.
In addition, the Commission preliminarily believes that the proposal could also help customers of broker-dealers, whose orders are routed to an NMS Stock ATS for possible execution in the ATS, evaluate whether their broker-dealer fulfilled its duty of best-execution. The Commission preliminarily believes that institutional investors, who may subscribe to an NMS Stock ATS or whose orders may be routed to an NMS Stock ATS by their brokers, should have more information about how NMS Stock ATSs operate, including how the ATS may match and execute customer orders.
This proposal is primarily designed to provide market participants with greater transparency around the operations of
The Commission also preliminarily believes that proposing a process for the Commission to determine whether an NMS Stock ATS qualifies for the exemption from the Exchange Act definition of “exchange” would facilitate better Commission oversight of NMS Stock ATSs and thus, better protection of investors.
In this light, the Commission is proposing to amend Regulation ATS, including as follows: (1) Define in proposed Rule 300(k) of Regulation ATS the term NMS Stock ATS, amend the definition of “control” under current Rule 300(f) of Regulation ATS to specify that control means to direct the management or policies of the broker-dealer of an ATS, and amend the exemption from the definition of “exchange” in Rule 3a1–1(a) to require NMS Stock ATSs to comply with proposed Rule 304 (in addition to the other requirements of Regulation ATS) as a condition of the exemption; (2) amend Rule 301(b)(2) to require NMS Stock ATSs to file the reports and amendments mandated by proposed Rule 304, which would include filing proposed Form ATS–N, in lieu of current Form ATS, to provide detailed disclosures about an NMS Stock ATS's operations and the activities of its broker-dealer operator and its affiliates and amend Rule 301(b)(2) to require an ATS that effects transactions in both NMS stocks and non-NMS stocks to file the reports and amendments mandated by proposed Rule 304 for its NMS stock trading activity and the reports and amendments required under current Rule 301(b)(2) of Regulation ATS for its non-NMS stock trading activity; (3) amend Rule 301(b)(9) to require an ATS that trades both NMS stocks and non-NMS stocks to separately report its transactions in NMS stocks on one Form ATS–R, and its transactions in securities other than NMS stocks on another Form ATS–R; (4) provide a process for the Commission, pursuant to proposed Rule 304(a)(1), to declare a Form ATS–N effective or, after notice and opportunity for hearing, ineffective; (5) establish the requirements for amending Form ATS–N pursuant to proposed Rule 304(a)(2); (6) provide, pursuant to proposed Rule 304(a)(3), that a notice of cessation shall cause the Form ATS–N to be ineffective on the date designated by the NMS Stock ATS; (7) provide a process for the Commission, pursuant to proposed Rule 304(a)(4), to suspend, limit, or revoke the exemption of an NMS Stock ATS's Form ATS–N upon notice and after opportunity for hearing; (8) provide that the Commission, pursuant to proposed Rule 304(b), will publicly post on its Web site: each effective Form ATS–N, each properly filed Form ATS–N Amendment, and each properly filed Form ATS–N notice of cessation, as well as each order of effectiveness or ineffectiveness of a Form ATS–N, order of ineffectiveness of a Form ATS–N Amendment, and order suspending, limiting, or revoking an NMS Stock ATS's exemption, issued by the Commission; and also require each NMS Stock ATS that has a Web site to post on the NMS Stock ATS's Web site a
A fundamental component of the current ATS regulatory framework adopted by the Commission in 1998 is Exchange Act Rule 3b–16.
The Commission adopted Exchange Act Rule 3b–16(b) to explicitly exclude certain systems that the Commission believed did not meet the exchange definition.
For those systems that meet the criteria of Rule 3b–16(a) and are not excluded under Rule 3b–16(b) of the Exchange Act,
To satisfy the requirements of the Rule 3a1–1(a)(2) exemption, a system that otherwise meets the definition of an “exchange” must comply with Regulation ATS. An ATS that fails to comply with the requirements of Regulation ATS would no longer qualify for the exemption from the definition of an “exchange” provided under Exchange Act Rule 3a1–1(a)(2), and thus, risks operating as an unregistered exchange in violation of Section 5 of the Exchange Act.
Rule 300(a) of Regulation ATS defines an ATS as: “any organization, association, person, group of persons, or system: (1) [t]hat 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) [t]hat does not: (i) [s]et 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) [d]iscipline subscribers other than by exclusion
Rule 301(b)(1) of Regulation ATS requires that every ATS that is subject to Regulation ATS, pursuant to paragraph (a) of Rule 301,
In addition, Rule 301(b)(2) of Regulation ATS requires an ATS to file an initial operation report with the Commission on Form ATS
Form ATS requires, among other things, that an ATS provide information about: Classes of subscribers and differences in access to the services offered by the ATS to different groups or classes of subscribers; securities the ATS expects to trade; any entity other than the ATS involved in its operations; the manner in which the system operates; how subscribers access the trading system; procedures governing order entry and execution; and trade reporting, clearance and settlement of trades on the ATS. Regulation ATS states that information filed by an ATS on Form ATS is “deemed confidential when filed.”
In addition to providing notice of its initial operation, an ATS must notify the Commission of any changes in its operations by filing an amendment to its initial operation report. There are three types of amendments to an initial operation report.
Rule 301(b)(9) of Regulation ATS also requires ATSs to 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.
In addition to the reporting requirements under Rules 301(b)(2) and 301(b)(9) of Regulation ATS, an ATS's exemption from national securities exchange registration is conditioned on the ATS complying with the other requirements under Regulation ATS. Under Rule 301(b)(3), an ATS that (1) displays 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% or more of the aggregate average daily share volume for that NMS stock, as reported by an effective transaction reporting plan, must:
• Pursuant to Rule 301(b)(3)(ii),
• pursuant to Rule 301(b)(3)(iii),
○ equivalent to the ability of such broker-dealer to effect a transaction with other orders displayed on the exchange or by the association; and
○ at the price of the highest priced buy order or lowest priced sell order displayed for the lesser of the cumulative size of such priced orders entered therein at such price, or the size of the execution sought by such broker-dealer.
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).
Under Rule 301(b)(5)—and even if the ATS does not display subscribers' orders to any person (other than an ATS employee)—an ATS with 5% or more of the average daily volume in an NMS stock during at least four of the preceding six calendar months, as reported by an effective transaction reporting plan, must:
• Establish written standards for granting access to trading on its system;
• not unreasonably prohibit or limit any person in respect to access to services offered by such ATS by applying the above standards in an unfair or discriminatory manner;
• make and keep records of:
○ all grants of access including, for all subscribers, the reasons for granting such access; and
○ all denials or limitations of access and reasons, for each applicant, for denying or limiting access; and
• report the information required in Exhibit C of Form ATS–R regarding grants, denials, and limitations of access.
Additionally, under Rule 301(b)(6), an ATS that trades only municipal securities or corporate fixed income debt with 20% or more of the average daily volume traded in the U.S. during at least four of the preceding six calendar months, must do the following with respect to those systems that support order entry, order routing, order execution, transaction reporting, and trade comparison:
• Establish reasonable current and future capacity estimates;
• conduct periodic capacity stress tests of critical systems to determine such system's ability to process transactions in an accurate, timely, and efficient manner;
• develop and implement reasonable procedures to review and keep current its system development and testing methodology;
• review the vulnerability of its systems and data center computer operations to internal and external threats, physical hazards, and natural disasters;
• establish adequate contingency and disaster recovery plans;
• on an annual basis, perform an independent review, in accordance with
• promptly notify the Commission and its staff of material systems outages and significant systems changes.
Specifically, Regulation SCI, with regard to SCI entities (as defined in Regulation SCI;
Rule 301(b)(7)
Under Rule 301(b)(10), all ATSs must establish adequate safeguards and procedures to protect subscribers' confidential trading information, which must include the following:
• 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.
Furthermore, all ATSs must adopt and implement adequate oversight procedures to ensure that the above safeguards and procedures are followed.
Finally, Rule 301(b)(11)
The equity market structure in 1998 was starkly different than it is today. At the time Regulation ATS was proposed, there were only 8 registered national
Competitors for listed-equity (NMS) trading services also include several hundred OTC market makers and broker-dealers.
The market share percentages were calculated by Commission staff using market volume statistics reported by BATS and FINRA ATS data collected from ATSs pursuant to FINRA Rule 4552.
FINRA recently adopted a rule that requires NMS Stock ATSs to report aggregate weekly volume information and number of trades to FINRA in certain equity securities, including NMS stocks, some of which FINRA makes publicly available. Reporting is on a security-by-security basis for transactions occurring within the ATS. Each ATS is also 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 operated by the same broker-dealer.
FINRA publishes on its Web site the trading information (volume and number of trades) reported for each equity security, with appropriate disclosures that the information is based on ATS-submitted reports and not on reports produced or validated by FINRA.
Another significant aspect of the increased role of NMS Stock ATSs in equity market structure is the proliferation of ATSs that trade NMS stocks but do not publicly display quotations in the consolidated quotation data, commonly referred to as “dark pools.”
Some trading centers, such as OTC market makers, also offer dark liquidity, primarily in a principal capacity, and do not operate as ATSs. For purposes of this release, these trading centers are not defined as dark pools because they are not ATSs. These trading centers may, however, offer electronic dark liquidity services that are analogous to those offered by dark pools.
Most dark pools today, however, primarily execute trades with small sizes that are more comparable to the average size of trades on registered national securities exchanges, which is 181 shares.
In recent years, as the number of NMS Stock ATSs has increased, so has the number of dark pools. The number of active dark pools trading NMS stocks has increased from approximately 10 in 2002,
In contrast to dark pools, an ATS could be an Electronic Communication Network (“ECN”). ECNs are ATSs that provide their best-priced orders for inclusion in the consolidated quotation data, whether voluntarily or as required by Rule 301(b)(3) of Regulation ATS.
Since Regulation ATS was adopted, ATSs have gained market share in NMS stocks and have also evolved to become more complex and sophisticated trading centers. In addition, ATSs that transact in NMS stocks increasingly are operated by multi-service broker-dealers that engage in significant brokerage and dealing activities in addition to their operation of their ATSs, and the operations of NMS Stock ATSs have become increasingly intertwined with operations of their broker-dealer operator, adding to the complexity of the manner in which those ATSs operate.
Since Regulation ATS was adopted, ATSs that effect transactions in NMS stocks have grown increasingly complex in terms of the services and functionalities that they offer subscribers. Over the past 16 years, these ATSs, like registered national securities exchanges, have used advances in technology to improve the speed, capacity, and efficiency of their trading functionalities to bring together the orders in NMS stocks of multiple buyers and sellers using established, non-discretionary methods under which such orders interact and trade. Before Regulation ATS was adopted, ATSs primarily operated as ECNs, as dark pools were not prevalent during that period. Today, the vast majority of NMS Stock ATSs operate as dark pools. Furthermore, based on Commission experience, ATSs that traded NMS stocks prior to the adoption of Regulation ATS did not offer the same services and functionalities as they do today. Today, most NMS Stock ATSs, like most registered national securities exchanges, are fully-electronic, automated systems that provide a myriad of trading services to facilitate order interaction among various types of users on the NMS Stock ATS. For example, NMS Stock ATSs offer a wide range of order types, which are a primary means by which subscribers communicate their instructions for the handling of their orders on the ATS. Based on Commission experience, some NMS Stock ATSs allow subscribers to submit indications of interests, conditional orders, and various types of pegged orders, often with time-in-force, or other specifications, which are similar to those offered by exchanges, such as all or none, minimum execution quantity, immediate or cancel, good till cancelled, and day. Unlike registered national securities exchanges, however, most NMS Stock ATSs have adopted a dark trading model, and do not display any quotations in the consolidated quotation data.
Additionally, at the time Regulation ATS was adopted, SORs were not a primary point of access to ATSs that trade NMS stocks. Today, however, brokers compete to offer sophisticated technology tools to monitor liquidity at many different venues and to implement order routing strategies.
In today's highly automated trading environment, NMS Stock ATSs offer various matching systems to bring together orders and counterparties in NMS stocks. These automated matching systems, including limit order books, crossing systems, and various types of auctions, are generally pre-programmed to execute orders pursuant to established non-discretionary methods. These established non-discretionary methods dictate the terms of trading among multiple buyers and sellers entering orders into the NMS Stock ATS and generally include priority and allocation procedures. Based on Commission experience, some NMS Stock ATSs offer price-time priority, while others offer midpoint only matching with time priority, or time priority at other prices derived from the NBBO. Some NMS Stock ATSs may also offer priority mechanisms with additional overlays. For example, amongst orders at a given price, priority may be given to a certain type of order (
Some NMS Stock ATSs also offer subscribers the ability to further customize trading parameters, or the broker-dealer operator may set parameters around the interaction of various order flow. Based on Commission experience with information disclosed on Form ATS, some NMS Stock ATSs may enable subscribers to select the types of, or
The Commission also preliminarily believes that, since Regulation ATS was adopted, the operations of NMS Stock ATSs have become increasingly intertwined with operations of the broker-dealer operator, providing additional complexity to the manner in which NMS Stock ATSs operate. Given this close relationship, the Commission preliminarily believes that conflicts of interest can arise between the broker-dealer operator's interest in its NMS Stock ATS and its interest in its other non-ATS businesses. As discussed further below, at the time Regulation ATS was adopted, the Commission recognized that broker-dealer operators may perform additional functions other than the operation of their ATS, such as other trading services, and adopted Rule 301(b)(10), which requires that ATSs have safeguards and procedures to protect confidential subscriber trading information.
As discussed further below, the Commission preliminarily believes that details about the operations and trading services of ATSs, such as those described above, are useful to market participants' understanding of the terms and conditions under which their orders will be handled and executed on a given ATS.
The Commission believes that one of the most important functions it can perform for investors is to ensure that they have access to the information they need to protect and further their own interests.
Under current rules, a Form ATS is “deemed confidential when filed.”
By comparison, national securities exchanges, with which NMS Stock ATSs directly compete, are subject to comprehensive registration and rule filing requirements under Section 19(b) of the Exchange Act.
The Commission preliminarily believes that the increased complexity of NMS Stock ATS operations and the business structures of their broker-dealer operators, combined with a lack of transparency around the operation of NMS Stock ATSs and the activities of their broker-dealer operators, could inhibit a market participant's ability to assess an NMS Stock ATS as a potential trading venue. Further, the Commission recognizes that Form ATS was designed before NMS Stock ATSs operated at the level of complexity that they do today, and the equity market structure has substantially changed since Regulation ATS was adopted.
The Commission is proposing to amend Regulation ATS to adopt Form ATS–N, which would require an NMS Stock ATS to publicly disclose detailed information about its operations and the activities of the broker-dealer operator and its affiliates. The Commission is also proposing to modify the regulatory requirements that apply to NMS Stock ATSs and qualify NMS Stock ATSs for the exemption from the definition of “exchange” under Exchange Act Rule 3a1–1(a)(2) by declaring the Form ATS–N effective or ineffective.
In 2009, the Commission proposed to amend the regulatory requirements of the Exchange Act that apply to non-public trading interest in NMS stocks, including dark pools.
Three commenters expressed the view that the Commission should address the regulatory disparity between national securities exchanges and ATSs. Senator Edward E. Kaufman expressed the view that “as trading continues to become faster and more dispersed, it is that much more difficult for regulators to perform their vital oversight and surveillance functions,” and that “the Commission should consider strengthening the regulatory requirements for becoming an Alternative Trading System or starting a new trading platform for existing market centers.”
Liquidnet expressed the view that the Commission should require institutional brokers, including institutional ATSs, to disclose to their customers specific order handling practices and that Regulation ATS should be amended to enhance the review process of new ATSs and material changes to ATSs' business operations.
In 2010, the Commission issued a Concept Release that, among other things, solicited comment on whether trading centers offering undisplayed liquidity are subject to appropriate regulatory requirements for the type of business they conduct.
• Do investors have sufficient information about dark pools to make informed decisions about whether in fact they should seek access to dark pools? Should dark pools be required to provide improved transparency on their trading services and the nature of their participants? If so, what disclosures should be required and in what manner should ATSs provide such disclosures?
• Are there any other aspects of ATS regulation that should be enhanced for dark pools or for all ATSs, including ECNs?
• Are there any ways in which Regulation ATS should be modified or supplemented to appropriately reflect the significant role of ATSs in the current market structure?
The Commission received 20 comment letters that addressed these questions as they relate to the proposal.
Five commenters expressed support for Commission action to address the regulatory disparity between national securities exchanges and ATSs, particularly where such trading venues perform similar functions. Security Traders Association of New York noted that it has “called for the harmonization of regulatory oversight and the need for similar rules across venues, including exchanges, ATSs and other liquidity sources that are connected through the
However, three commenters expressed the view that in order to rectify the regulatory disparity, the Commission should lessen regulatory burdens on exchanges, rather than enhance its regulation of ATSs. Goldman Sachs urged the Commission to “consider expanding the types of rule changes that exchanges . . . can propose on an immediately effective basis,” which “would help to level the playing field between exchanges and ATSs.”
Ten commenters expressed the view that ATSs and broker-dealers should be required to provide more enhanced disclosures regarding their operations, and described specific disclosures that the Commission should require of ATSs. SIFMA stated that the Commission “should require broker-dealers to publish on their Web sites, on a monthly basis, a standardized disclosure report that provides an overview of key macro issues that are of interest to clients,” including, among other things, “order types supported on the broker-dealer's ATS (if applicable).”
Bloomberg Tradebook LLC noted that buy-side representatives with whom it met at a workshop for members of equity trading desks of asset managers stated that although they periodically send questionnaires to their brokers regarding order handling and internalization (dark pool) matching protocols, because the buy-side representatives might not be customers of all ATSs, they could not assess order interaction that occurs across the market structure.
Goldman Sachs recommended an enhanced disclosure regime for exchanges and ATSs consisting of four components. First, exchanges and ATSs would be required to “provide descriptions of the types of functionalities that they provide, such as types of orders (
Lime Brokerage, LLC recommended that the Commission should require “transparency around pricing, access criteria and membership of dark pools.”
Southeastern Asset Management, Inc. commented that brokers and trading venues should disclose to investors information such as payments, rebates, and fees related to execution venues, venue rankings by routing brokers and routing venues, and the inputs that create the routing rankings, and the transparency of customer specific order routing and execution available to the specific customer.
In addition to the ten commenters that provided specific Form ATS disclosure recommendations, one commenter provided some examples of customer questions and requests specific to dark pools that it received. Such questions and requests related to, among other things, whether the commenter's dark pool is truly dark, categorization or tagging of order flow, whether participants may opt out of or into interaction with certain flow, proprietary orders interaction with the dark pool, priority rules, requests to exclude certain types of venues for routing of orders, maintenance of confidential trading information, use of direct market data feeds by the dark pool's servers and algorithmic strategies, and co-location of servers and algorithmic strategies to exchange and ATS servers.
In response to the questions the Commission raised in the Equity Market Structure Release, one commenter raised questions relating to the transparency of ATSs' operations. The commenter asked, among other things, whether:
• Form ATS filings provide the Commission with complete and timely information about the operation of ATSs, and whether such filings are sufficiently frequent and detailed to allow the Commission to understand planned system changes by ATSs;
• the Commission has adequate tools to respond to concerns about the operations of ATSs;
• the Commission has adequate information about the relationships between ATSs and their subscribers, including how “toxicity” ratings are assigned to subscribers, and their impact on individual subscriber's access and fees, and whether it is acceptable that ATS subscribers can assign such ratings to counterparties within and outside the ATS without disclosing objective criteria;
• the Commission has adequate information about ATS pricing, noting that but for the Rule 3a1–1 exemption from exchange registration, ATSs would be required to charge fees that are fair and not unreasonably discriminatory; and
• the Commission receives enough information from ATSs about their access policies to make comprehensive assessment about competitive dynamics at work in the market.
The commenter stated its belief that responding to the Commission's questions in the Equity Market Structure Release with the commenter's own responsive questions was “entirely appropriate” because the “public cannot comment on the adequacy of Form ATS filings,” and therefore, “the Commission and its staff are uniquely qualified to assess whether the requirements of the Form and the content of actual submitted filings provide adequate and timely information.”
One commenter discussed a May 2009 Opinion Research Corporation survey of 284 executives from NYSE-listed companies, noting that only 17% of the executives were satisfied with the transparency of trading in their company's stock, and that 69% of the executives “indicated there is inadequate regulatory oversight of non-exchange trading venues, including dark pools.”
Five commenters expressed the view that Form ATS filings should be made publicly available. SIFMA opined that “[t]o enhance transparency and confidence, all ATSs should publish the Form ATS and make their forms available on their Web sites.”
Three commenters expressed their opposition to enhanced regulation of ATSs. Scottrade, Inc. stated it believed that ATSs had “brought innovation and better execution quality to the equity markets,” and that it “would not be in favor of additional regulation that would reduce competition, raise barriers to entry for ATSs or force orders to be routed to specific destinations.”
The Commission received two comment letters on its Market Structure Web site relevant to the Commission's proposal to amend Regulation ATS.
Blackrock submitted the same comment letter to the Market Structure Web site that it submitted with respect to the 2010 Equity Market Structure Release.
The Commission has considered these comments, and, for the reasons set forth throughout this release, is proposing the amendments to Regulation ATS and Exchange Act Rule 3a1–1 as described herein.
The Commission is proposing to amend Rule 300 of Regulation ATS to provide for the definition of “NMS Stock ATS” in a new paragraph (k). The purpose of proposed Rule 300(k) is to specify the type of ATS that would be subject to the heightened conditions under Exchange Act Rule 3a1–1, as described further below. Proposed Rule 300(k) would define “NMS Stock ATS” to mean an “an alternative trading system, as defined in Exchange Act Rule 300(a), that facilitates transactions in NMS stocks, as defined in Exchange Act Rule 300(g).”
These plans are filed with, and approved by, the Commission in accordance with the requirements of Rule 608 of Regulation NMS, and pursuant to Rule 601 of Regulation NMS, which requires every national securities exchange to “file a transaction reporting plan regarding transactions in listed equity and Nasdaq securities executed through its facilities” and every national securities association to “file a transaction reporting plan regarding transactions in listed equity and Nasdaq securities executed by its members otherwise than on a national securities exchange.”
As it did in the Regulation ATS Adopting Release, the Commission notes that whether the actual execution of the order takes place on the system is not a determining factor of whether a system falls under Rule 3b–6. A trading system that falls within the Commission's functional definition of “exchange” pursuant to Rule 3b–6 will still be an “exchange,” even if it matches two trades and routes them to another system or exchange for execution.
The Commission requests comment on the proposed definition of NMS Stock ATS. In particular, the Commission solicits comment on the following:
1. Do you believe the Commission should adopt a more limited or expansive definition of NMS Stock ATS? Why or why not? Please support your arguments.
2. Should the Commission create the NMS Stock ATS category? Why or why not? Please support your arguments.
3. Should the Commission modify its proposed definition in any way? If so, in what way and why? If not, why not? Please support your arguments.
Exchange Act Rule 3a1–1(a) exempts from the definition of “exchange”: (1) Any alternative trading system operated by a national securities association,
As discussed in more detail below, the Commission is now proposing to expand the conditions with which NMS Stock ATSs would be required to comply in order to use the exemption from the definition of “exchange.” To provide for these new conditions, the Commission is proposing to amend Rules 3a1–1(a)(2) and (3) to include proposed Rule 304 within the scope of Regulation ATS.
The Commission preliminarily believes that amending the conditions to the Rule 3a1–1(a) exemption would more appropriately calibrate the level of operational transparency between registered national securities exchanges and NMS Stock ATSs, which in many regards, are functionally similar trading centers, while maintaining the regulatory framework that permits NMS Stock ATSs to decide whether to register and be regulated as broker-dealers or as national securities exchanges.
The Commission has considered the alternative of requiring different levels of disclosure among NMS Stock ATSs based on volume.
The Commission requests comment on the scope of the proposed amendments to Rules 3a1–1(a)(2) and (3), which would apply the proposed new conditions of Rule 304 to all NMS Stock ATSs. In particular, the Commission solicits comment on the following:
4. Do you believe that the current conditions to the exemption from the definition of “exchange” for NMS Stock ATSs are appropriate in light of market developments since Regulation ATS was adopted in 1998? Why or why not? Please support your arguments.
5. Do you believe there is sufficient transparency with respect to the operations of NMS Stock ATSs? If not, what information do you believe should be disclosed regarding the operations of an NMS Stock ATS, how frequently should it be disclosed, and why? Does the need for, and availability of, information about the operations of NMS Stock ATSs vary among market participants? If so, how? Please explain in detail.
6. Do you believe there is sufficient transparency with respect to the activities of the broker-dealer operator and its affiliates in connection with NMS Stock ATSs? If not, what information do you believe should be disclosed regarding the activities of the broker-dealer operator and its affiliates and why? Does the need for, and availability of, information about the activities of the broker-dealer operator and its affiliates vary among market participants? If so, how? Please explain in detail.
7. Should the Commission adopt the proposal to apply the requirements of proposed Rule 304 to all NMS Stock ATSs? Why or why not? Please support your arguments.
8. Do you believe that the Commission should provide any exceptions to the application of proposed Rule 304 to NMS Stock ATSs seeking to operate pursuant to the Rule 3a1–1(a)(2) exemption? Why or why not? For example, should the requirements to comply with proposed Rule 304, including the disclosure requirements of proposed Form ATS–N, only be applicable to NMS Stock ATSs that meet certain thresholds (such dollar volume, trading volume, or number of subscribers)? If so, what should the threshold be, and why? If not, why not? Please support your arguments.
9. Do you believe that the Commission should require different levels of disclosure for any proposed Form ATS–N items based on the NMS Stock ATS's volume? If so, why, what should the different thresholds be, and which items on proposed Form ATS–N should depend on an NMS Stock ATS's volume? If not, why not? Please support your arguments.
At this time, the Commission preliminarily believes that the above operational transparency conditions to the exemption to Exchange Act Rule 3a1–1(a) should only apply to NMS Stock ATSs. The Commission, however, requests comment and data on whether its preliminary view is warranted for each category of non-NMS stock ATS.
First, approximately 27 ATSs that currently have a Forms ATS on file with the Commission disclose that they exclusively trade fixed income securities, such as corporate or municipal bonds, and approximately 2 ATSs effect transactions in both fixed income securities and other securities, including NMS stocks.
Furthermore, market participants trading fixed income securities are typically not comparing transparent trading venues against non-transparent trading venues in the same manner as market participants seeking to execute NMS stock orders. Although two affiliated national securities exchanges operate electronic systems for receiving, processing, executing, and reporting bids, offers and executions in fixed income debt securities,
The Commission recognizes, however, that trading on fixed income ATSs continues to evolve as fixed income securities are increasingly being traded on ATSs and that trading is occurring in an automated manner. Furthermore, while the specific conflicts of interest that might arise on NMS Stock ATSs operated by multiservice broker dealers may not be identical to the potential conflicts of interest that might arise on
10. Do you believe that market participants have sufficient information about the operations of fixed income ATSs to evaluate such ATSs as potential trading venues? Why or why not? Please support your arguments.
11. Do you believe that the Commission should apply proposed Rule 304, in whole or in part, to fixed income ATSs, or some subset of fixed income ATSs? Why or why not? If proposed Rule 304 should be applied only in part to fixed income ATSs, which parts should be applied and why? What, if any, specific modifications or additions to proposed Rule 304 should be made in any application of it to fixed income ATSs? Please support your arguments.
12. Do you believe that fixed income ATSs raise the same or similar operational transparency concerns that the Commission preliminarily believes to exist for NMS Stock ATSs? Why or why not? Please support your arguments. If not, do you believe that fixed income ATSs raise other operational transparency concerns that warrant inclusion of fixed income ATSs within the scope of proposed Rule 304? Why or why not? Please support your arguments.
13. Do you believe that there are potential conflicts of interest for broker-dealer operators of fixed income ATSs, or their affiliates, that may warrant inclusion of fixed income ATSs within the scope of proposed Rule 304? Why or why not? Please support your arguments. If yes, what are those potential conflicts of interest and how do those potential conflicts of interest differ from or resemble the potential conflicts of interest for broker-dealer operators of NMS Stock ATSs and their affiliates? Please be specific.
14. Do you believe that the current conditions to the exemption from the definition of “exchange” are appropriate for fixed income ATSs? Why or why not? Please support your arguments.
15. Do you believe that applying proposed Rule 304 to fixed income ATSs would place them at a competitive disadvantage with respect to non-ATS trading venues that trade fixed income securities and would not be subject to such disclosure requirements? Why or why not? Please support your arguments.
16. Should the Commission adopt a new form that is designed specifically to solicit information about the operations of fixed income ATSs or the operations of certain types of fixed income ATSs? If so, please explain, in detail, the information the new form should require. If not, why not? Please support your arguments. Do you believe that part or all of any new form designed specifically for fixed income ATSs should be made available to the public? Why or why not? Please support your arguments.
As noted above, the Commission recognizes that fixed income securities markets continue to evolve as fixed income securities are increasingly being traded on ATSs in an automated manner. Thus, under the current regulatory requirements, market participants generally do not have information about how fixed income ATSs operate as ATSs are not otherwise required to publicly disclose such information
As such, the Commission is seeking public comment on whether it should make public current Forms ATS filed by fixed income ATSs. Though the solicitations on current Form ATS are not specifically tailored to fixed income ATSs like proposed Form ATS–N would be tailored to NMS Stock ATSs, market participants could use the information to assess and compare fixed income ATSs when deciding where to trade fixed income securities. The Commission is cognizant, however, that fixed income ATSs currently file Form ATS with the understanding that the Form ATS is deemed confidential and thus, a fixed income ATS may not have chosen to operate as an alternative trading system if its Form ATS filing was originally intended to be made public. In response to any change in the regulatory requirements, a fixed income ATS may change its business model and choose to curtail its activities or cease operating as an ATS.
Accordingly, the Commission seeks comment on the following:
17. Do you believe that the current Forms ATS initial operation report, or parts thereof, filed by fixed income ATSs should be made available to the public? Why or why not? Please support your arguments.
18. Do you believe that amendments to Form ATS initial operation reports, or parts thereof, filed by fixed income ATSs should be made available to the public? Why or why not? Please support your arguments.
19. Do you believe that current Form ATS is sufficient to elicit useful information about the operations of fixed income ATSs? If so, why? If not, in what ways should Form ATS be modified to better inform the Commission about the operations of fixed income ATSs? Please explain in detail the manner in which Form ATS should be modified for fixed income ATSs.
20. Do you believe that fixed income ATSs may curtail or cease operations if the Commission rescinded the confidential treatment of Form ATS and made Forms ATS filed by fixed income ATSs public? Why or why not? Please support your arguments.
21. Do you believe that if fixed income ATSs curtail or cease operations in response to the Commission rescinding the confidentiality of the Form ATS, the limitation or exit of those ATSs from the fixed income market would impact the quality of the fixed income markets in any way? Why or why not? Please support your arguments.
The questions above relate to all fixed income securities, but the Commission is also interested in learning commenters' specific views about whether ATSs that effect transactions in fixed income securities that are government securities, as defined under the Exchange Act,
Pursuant to the Exchange Act (particularly the provisions of the Government Securities Act of 1986, as amended
The October 15 Staff Report also 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.
The October 15 Staff Report notes that the growth in high-speed electronic trading has contributed to the growing presence of Principal trading firms (“PTFs”) in the Treasury market, with these firms accounting for the majority of trading and providing the vast majority of market depth.
The October 15 Staff Report also notes that increased trading speed due to automated trading in the U.S. Treasury market has challenged the traditional risk management protocols for market participants, trading platforms, and clearing firms.
As indicated in the October 15 Staff Report, the staff of the U.S. Treasury Department, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the Commission, and the U.S. Commodity Futures Trading Commission plan to continue to analyze the events of October 15, 2014 and examine changes to the U.S. Treasury market structure. The October 15 Staff Report identified four areas for further work. One of the four areas includes the continued monitoring of trading and risk management practices across the U.S. Treasury market and a review of the current regulatory requirements applicable to the government securities market and its participants.
Based on the rapid and continued evolution of the market for government securities, the Commission is seeking comment on whether as part of its continued cooperation and coordination with other regulators, it should include ATSs whose trading activity is solely in government securities within the scope of current Regulation ATS and amend Regulation ATS to provide for enhanced operational transparency for ATSs that trade government securities.
22. Do you that believe market participants have sufficient information about the operations of ATSs that effect transactions in government securities in order to evaluate such ATSs as potential trading venues? Why or why not? Please support your arguments.
23. Do you believe that the Commission should adopt amendments to Regulation ATS to remove the exemption under Rule 301(a)(4)(ii)(A) of Regulation ATS for ATSs whose trading activity is solely in government securities? Why or why not? Please support your arguments. If so, do you believe that the Commission should make public Form ATS filings or otherwise increase the transparency requirements under Regulation ATS for ATSs whose sole trading activity is in government securities? Why or why not? Please support your arguments.
24. Do you believe that the Commission should adopt amendments to Regulation ATS to enhance the transparency requirements applicable to ATSs that effect transactions in both government securities and non-government securities? Why or why not? If so, how? Please support your arguments.
25. Do you believe that ATSs that effect transactions in government securities raise the same operational transparency concerns that the Commission preliminarily believes to exist for NMS Stock ATSs? Why or why not? Please support your arguments. If not, do you believe that ATSs that effect transactions in government securities raise other operational transparency concerns that warrant expanding the scope of Regulation ATS to encompass ATSs whose sole trading activity is in government securities or increasing the transparency requirements for ATSs that effect transactions in both government securities and non-government securities? Why or why not? Please support your arguments.
26. Do you believe that there are potential conflicts of interest for broker-dealer operators of ATSs, or their affiliates, that effect transactions in government securities that may justify greater operational transparency for ATSs that effect transactions in government securities? Why or why not? Please support your arguments. If yes, what are those potential conflicts of interest and how do those potential conflicts of interest differ from or resemble the potential conflicts of interest for broker-dealer operators of NMS Stock ATSs and their affiliates? Please be specific.
27. Do you believe that current Form ATS is sufficient to elicit information about the operations of ATSs that effect transactions in government securities? If not, in what ways should Form ATS be modified to better inform the Commission about the operations of ATSs that effect transactions in government securities? Please explain in detail the manner in which Form ATS should be modified. Do you believe that the current Forms ATS, or parts thereof, for ATSs that effect transactions in government securities and non-government securities should be made available to the public? Why or why not? Please support your arguments.
28. Do you believe that the Commission should adopt amendments to existing rules under Regulation ATS, including, Rules 301(b)(3) (order display and execution access), 301(b)(5) (fair access), and 301(b)(6) (capacity, integrity, and security of automated systems), to make those rules applicable to trading in government securities on ATSs? Why or why not? If so, how? Please provide support for your arguments. Should the Commission adopt amendments to Rule 301(b)(3) of Regulation ATS to require ATSs that trade government securities to report quotes and/or trade information for public dissemination after crossing certain volume thresholds in a government security? Should such information be reported only after a delay? Why or why not? Please support your arguments.
29. Do you believe that the Commission should apply proposed Rule 304, in whole or in part, to ATSs that effect transactions in government securities? Why or why not? Please support your arguments.
30. Do you believe that the Commission should adopt a new form that is specifically designed to solicit information about the operations of ATSs that effect transactions in government securities? If so, please explain, in detail, the information the new form should require from ATSs that effect transactions in government securities. If not, why not? Please support your arguments. Do you believe that any new form designed specifically for ATSs that effect transactions in government securities should be made available to the public? Why or why not? Please support your arguments.
31. Do you believe that broker-dealers that effect transactions in government securities may modify their business models in order to need not comply with Regulation ATS in response to enhanced regulatory or operational transparency requirements for ATSs that effect transactions in government securities? Why or why not? Please support your arguments.
There are also ATSs whose activity is solely the facilitation of trading in OTC Equity Securities.
32. Do you believe that market participants have sufficient information about the operations of OTC Equity Securities ATSs to evaluate such ATSs as potential trading venues? Why or why not? Please support your arguments.
33. Do you believe that OTC Equity Securities ATSs raise the same operational transparency concerns that the Commission preliminarily believes to exist for NMS Stock ATSs? Why or why not? Please support your arguments. If not, do you believe that OTC Equity Securities ATSs raise other operational transparency concerns that warrant inclusion of OTC Equity
34. Do you believe that there are potential conflicts of interest for broker-dealer operators of ATSs, and their affiliates, that facilitate transactions in OTC Equity Securities that may justify greater operational transparency for OTC Equity Securities ATSs? Why or why not? Please support your arguments. If yes, what are those potential conflicts of interest and how do those potential conflicts of interest differ from or resemble the potential conflicts of interest for broker-dealer operators of NMS Stock ATSs and their affiliates? Please be specific.
35. Do you believe that the Commission should apply proposed Rule 304, in whole or in part, to OTC Equity Securities ATSs? Why or why not? Please support your arguments.
36. Do you believe that applying proposed Rule 304 to OTC Equity Securities ATSs would place them at a competitive disadvantage with respect to other trading venues that facilitate transactions in OTC Equity Securities in the bilateral market, which would not be subject to such disclosure requirements? Why or why not? Please support your arguments.
37. Do you believe that current Form ATS is sufficient to elicit relevant information about the operations of OTC Equity Securities ATSs? If so, why? If not, in what ways should Form ATS be modified to better inform the Commission about the operations of OTC Equity Securities ATSs? Please explain in detail the manner in which Form ATS could be modified. Do you believe that the current filed Forms ATS, or parts thereof, for OTC Equity Securities ATSs should be made available to the public? Why or why not? Please support your arguments.
38. Do you believe that the Commission should adopt a new form that is designed specifically for OTC Equity Securities ATSs to promote operational transparency of such ATSs? If so, please explain, in detail, the information the new form should require. If not, why not? Please support your arguments. Do you believe that any new form designed specifically for OTC Equity Securities ATSs should be made available to the public? Why or why not? Please support your arguments.
Additionally, the Commission notes that there are active ATSs that trade in securities other than NMS stocks, fixed income securities, or OTC Equity Securities.
39. Do you believe that market participants have sufficient information about the operations of ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities as potential trading venues? Why or why not? Please support your arguments.
40. Do you believe that ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities raise the same operational transparency concerns that the Commission preliminarily believes to exist for NMS Stock ATSs? Why or why not? Please support your arguments.
41. Do you believe that there are potential conflicts of interest for broker-dealer operators of ATSs, and their affiliates, that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities that may justify greater operational transparency for ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities? Why or why not? Please support your arguments. If yes, what are those potential conflicts of interest and how do those potential conflicts of interest differ from or resemble the potential conflicts of interest for broker-dealer operators of NMS Stock ATSs and their affiliates? Please be specific.
42. Do you believe that the Commission should apply proposed Rule 304, in whole or in part, to ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities? Why or why not? Please support your arguments. If so, please explain the types of ATSs to which proposed Rule 304 should apply and why. If not, why not? Please support your arguments.
43. Do you believe that Form ATS is sufficient to elicit useful information about the operations of ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities? If so, why? If not, in what ways should Form ATS be modified to better inform the Commission about the operations of ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities? Please explain in detail the manner in which Form ATS could be modified. Do you believe that current filed Forms ATS, or parts thereof, for ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities should be made available to the public? Why or why not? Please support your arguments.
44. Do you believe that the Commission should adopt a new form specifically designed for ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities in order to promote operational transparency of such ATSs? If so, please explain, in detail, the information the new form should elicit from ATSs that effect or facilitate transactions in such securities. If not, why not? Please support your arguments. Do you believe that any new form designed specifically for ATSs that effect or facilitate transactions in securities other than NMS stocks, fixed income securities, or OTC Equity Securities should be made available to the public? Why or why not? Please support your arguments.
Proposed Rule 304(a) would require that, unless not required to comply with Regulation ATS pursuant to Rule 301(a) of Regulation ATS, an NMS Stock ATS must comply with Rules 300 through 304 of Regulation ATS (except Rule 301(b)(2), as discussed in Section IV.C.2 below) to be exempt from the definition of an exchange pursuant to Rule 3a1–1(a)(2).
The Commission also notes that the requirements of Rule 301(b) (except Rule 301(b)(2)) of Regulation ATS
The Commission requests comment generally on all aspects of proposed Rule 304(a).
The Commission is proposing Rule 301(b)(2)(viii) to provide that an NMS Stock ATS shall file the reports and amendments required by proposed Rule 304 and would not be subject to the requirements of Rule 301(b)(2). Existing Rule 301(b)(2) requires an ATS to file with the Commission a Form ATS initial operation report, amendments to the Form ATS initial operation report, and cessation of operations reports on Form ATS, all of which are “deemed confidential when filed.”
Proposed Rule 301(b)(2)(viii) would also provide that an ATS that effects transactions in both NMS stocks and non-NMS stocks would be subject to the requirements of proposed Rule 304 with respect to NMS stocks and Rule 301(b)(2) with respect to non-NMS stocks. The Commission recognizes that some existing ATSs that would meet the definition of NMS Stock ATS also transact in securities other than NMS stocks. For these ATSs to be eligible for the exemption under Rule 3a1–1(a)(2), the Commission preliminarily believes that it is not necessary to mandate compliance with the heightened transparency requirements under proposed Rule 304 with respect to their non-NMS stock operations. Based on Commission experience, these ATSs are designed so that the platform on which non-NMS stock order flow interacts and executes differs from the platform on which NMS stock order flow interacts and executes. Furthermore, as explained above, the Commission preliminarily believes that the operational transparency concerns for NMS Stock ATSs do not apply equally to the markets for non-NMS stocks.
The Commission also proposes to amend Rule 301(b)(9),
The Commission requests comment on the proposed amendments to Rules 301(b)(2) and 301(b)(9). In particular, the Commission solicits comment on the following:
45. Should the Commission require ATSs that trade both NMS stocks and non-NMS stocks to make filings on both proposed Form ATS–N, with respect to its NMS stock operations, and Form ATS, with respect to its non-NMS stock operations? Why or why not? Please support your arguments.
46. Should the Commission require ATSs that trade both NMS stocks and non-NMS stocks to file a Form ATS–R with respect to their NMS stock operations and a separate Form ATS–R with respect to their non-NMS stock operations? Why or why not? Please support your arguments.
47. Do you believe that ATSs that trade both NMS stocks and non-NMS stocks should be subject to proposed Rule 304, in whole or in part, for both their NMS stock operations and non-NMS stock operations? Why or why not? Please support your arguments.
Do you believe that ATSs that trade both NMS stocks and non-NMS stocks should be required to disclose their NMS stock and non-NMS stock operations solely on proposed Form ATS–N? If so, why, and what additional disclosures should be required on proposed Form ATS–N to reflect non-NMS stock operations? If not, why not? Please support your arguments.
Proposed Rule 304(a)(1)(i) would provide that no exemption from the definition of “exchange” is available to an NMS Stock ATS pursuant to Exchange Act Rule 3a1–1(a)(2) unless the NMS Stock ATS files with the Commission a Form ATS–N and the Commission declares the Form ATS–N effective. The Commission preliminarily believes that an NMS Stock ATS that is not operating on the effective date of proposed Rule 304 should not be permitted to commence operations until the Commission has had the opportunity to assess whether the NMS Stock ATS qualifies for the Rule 3a1–1(a)(2) exemption. As discussed above,
Proposed Rule 304(a)(1)(i) is also designed as a transition for currently operating ATSs that meet the proposed definition of NMS Stock ATS. Proposed Rule 304(a)(1)(i) would require an existing ATS that facilitates transactions in NMS stocks and that operates pursuant to a previously filed initial operation report on Form ATS as of the effective date of proposed Rule 304 (
The Commission considered the alternative of allowing an existing ATS that engages in Rule 3b–16 activity in NMS stocks to retain its exemption from the definition of “exchange” by virtue of its existing Form ATS, and to require only a new NMS Stock ATS to file Form ATS–N. However, the Commission preliminarily believes that this alternative would not be appropriate as it would create a significant competitive disparity between a “new” and “legacy” NMS Stock ATS, with the latter benefitting from substantially lighter disclosure requirements. More importantly, it would perpetuate the problem of limited information being available to market participants. Nevertheless, the Commission preliminarily believes that it would be appropriate to provide existing ATSs that engage in Rule 3b–16 activity with regard to NMS stocks an adjustment period after the effective date of proposed Rule 304 to file a Form ATS–N. The Commission preliminarily believes that 120 calendar days is sufficient time for a legacy NMS Stock ATS to respond to the disclosure requirements on the new Form ATS–N because an ATS that is currently operating should be knowledgeable about the operations of its system and the activities of its broker-dealer operator and its affiliates.
Proposed Rule 304(a)(1)(ii)(A) would provide that the Commission declare a Form ATS–N filed by an NMS Stock ATS operating as of the effective date of proposed Rule 304 effective or ineffective no later than 120 calendar days from filing with the Commission. Similarly, Proposed Rule 304(a)(1)(ii)(B) would provide that the Commission declare a Form ATS–N filed by an NMS Stock ATS that was not operating as of the effective date of proposed Rule 304 effective or ineffective no later than 120 calendar days from filing with the Commission. The disclosures required by proposed Form ATS–N are more comprehensive than those required on current Form ATS, particularly in terms of volume, complexity, and detail. Based on its experience over the past seventeen years of receiving and reviewing notices on Form ATS, the Commission preliminarily believes that it would receive a large amount of information provided in Form ATS–N filings. The Commission preliminarily believes that 120 calendar days would provide the Commission adequate time to carry out its oversight functions with respect to its review of Forms ATS–N
Proposed Rule 304(a)(1)(ii)(A) would further provide a process for the Commission to extend the review period for Forms ATS–N filed by NMS Stock ATSs operating as of the effective date of proposed Rule 304: (1) An additional 120 calendar days, if the Form ATS–N is unusually lengthy or raises novel or complex issues that require additional time for review, in which case the Commission will notify the NMS Stock ATS in writing within the initial 120-day review period and will briefly describe the reason for the determination that additional time for review is required; or (2) any extended review period to which the NMS Stock ATS agrees in writing. Proposed Rule 304(a)(1)(ii)(B) would include a similar provision for NMS Stock ATSs not operating as of the effective date of proposed Rule 304, except that the Commission could extend its review period up to 90 calendar days. The proposed disclosure requirements require more detailed disclosures regarding the operations of an NMS Stock ATS than do the current requirements; thereby increasing the amount of information for the Commission to review. The Commission preliminarily believes that the additional time provided by the proposed rule is appropriate because it would allow Commission and its staff to conduct a thorough review of certain lengthy, novel, or complex Form ATS–N filings and provide sufficient opportunity to discuss the filing with the NMS Stock ATS if necessary.
48. Do you believe the Commission should adopt a rule in which it is required to declare a Form ATS–N filed by an NMS Stock ATS effective or ineffective within 120 calendar days of filing? Do you believe this is an appropriate time frame in light of the amount and nature of information to be submitted on Form ATS–N? Why or why not? Does any experience with Exchange Act Rule 19b–4 filings by self-regulatory organizations, either in draft or in formal submission, inform the appropriate time frame?
49. Should the Commission adopt a process to further extend the period of review under certain circumstances? If so, what circumstances and why? Please support your arguments.
50. If the Commission does not declare a Form ATS–N filing effective or ineffective within 120 calendar days from filing with the Commission, or any extension of the 120-day period pursuant to proposed Rule 304(a)(1)(ii), do you believe the Form ATS–N should be automatically deemed effective? Why or why not? Please support your arguments.
51. If the Commission does not declare a Form ATS–N filing effective or ineffective within 120 calendar days from filing with the Commission, or any extension of the 120-day period pursuant to proposed Rule 304(a)(1)(ii), do you believe the Form ATS–N should be automatically deemed ineffective? Why or why not? Please support your arguments.
Proposed Rule 304(a)(1)(iii) would provide that the Commission will declare effective a Form ATS–N if the NMS Stock ATS qualifies for the Rule 3a1–1(a)(2) exemption. Proposed Rule 304(a)(1)(iii) would also provide that the Commission will declare ineffective a Form ATS–N 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.
Under the proposal, the Commission would use Form ATS–N to evaluate whether an entity qualifies for an exemption under Rule 3a1–1(a)(2).
Under Exchange Act Rule 3b–16, an organization, association, or group of persons shall be considered to constitute, maintain, or provide “a marketplace 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.
The entity would not fall within the definition of an “exchange” under Section 3(a)(1) of the Exchange Act and the exemption provided in Exchange Act Rule 3a1–1 would not be applicable.
The Commission also preliminarily believes that it would be necessary or appropriate in the public interest, and consistent with the protection of investors, to declare ineffective a Form ATS–N if it finds, after notice and opportunity for hearing, that one or more disclosures on Form ATS–N are materially deficient with respect to their accuracy, currency, or completeness. The requirements of proposed Form ATS–N are set forth in proposed Rule 304(c)(1), which provides that an NMS Stock ATS must respond to each item on Form ATS–N, as applicable, in detail and disclose information that is accurate, current, and complete. The Commission preliminarily believes that market participants would use information disclosed on Form ATS–N to evaluate whether a particular NMS Stock ATS would be a desirable venue to which to route their orders. In addition, the Commission intends to use the information disclosed on the Form ATS–N to exercise oversight over and monitor developments of NMS Stock ATSs. Given these potential uses, the Commission preliminarily believes that it is important that Form ATS–N contain detailed disclosures that are accurate, current, and complete.
The following non-exhaustive examples are provided to illustrate various applications of proposed Rule 304(a)(1)(iii) that could cause the Commission to declare a Form ATS–N ineffective because it contains one or more disclosures that appear to be materially deficient.
The Commission preliminarily believes that it would be necessary or appropriate in the public interest, and consistent with the protection of investors, to declare ineffective a Form ATS–N if it finds, after notice and opportunity for hearing, that one or more disclosures reveals non-compliance with federal securities laws, or the rules or regulations thereunder, including Regulation ATS. The Commission notes that the responsibility for accurate, current, and complete disclosures on Form ATS–N lies with the NMS Stock ATS.
During its review, the Commission and its staff may provide comments to the entity, and may request that the entity supplement information in the Form ATS–N or revise its disclosures on Form ATS–N.
52. Should Form ATS–N be deemed immediately effective without Commission action? Why or why not? Please support your arguments.
53. Should Form ATS–N be considered ineffective on filing with the Commission until the Commission affirmatively declares the Form ATS–N ineffective? Why or why not? Please support your arguments.
54. Should the process for making a Form ATS–N effective for a legacy NMS Stock ATS be different from the process for making a Form ATS–N effective for an NMS Stock ATS that files a Form ATS–N after the effective date of the proposed rule? Why or why not? Please support your arguments. If so, how should the processes for the two categories of NMS Stock ATSs differ?
55. Do you believe that the proposed 120 calendar days after the effective date of proposed Rule 304 is a reasonable amount of time for legacy NMS Stock ATSs to complete and file a Form ATS–N? If so, why? If not, why not, and what amount of time would be reasonable? Please support your arguments.
56. Do you believe that new NMS Stock ATSs would be at a competitive disadvantage if existing NMS Stock ATSs were not required to file a Form ATS–N? Why or why not? Please support your arguments.
57. Do you believe that the proposed 120 calendar day period from filing with the Commission is a reasonable amount of time for the Commission to declare a Form ATS–N filed by an NMS Stock ATS that was not operating as of the effective date of proposed Rule 304 effective or ineffective? Do you believe the review period would place an undue burden on the NMS Stock ATS that filed the Form ATS–N? If yes, what amount of time would be reasonable? Please support your arguments.
58. Should the Commission adopt the proposal to allow a legacy NMS Stock ATS to continue operations pursuant to an existing filed initial operation report on Form ATS pending the Commission's review of its Form ATS–N? Why or why not? Please support your arguments.
59. Do you believe that if a legacy NMS Stock ATS is allowed to continue operations during the Commission's review of its Form ATS–N the Commission should make such NMS Stock ATS's Form ATS–N publicly available upon filing? Why or why not? Please support your arguments.
60. Should the Commission permit existing NMS Stock ATSs to be exempt from the definition of “exchange” by virtue of the NMS Stock ATS's current Form ATS on file with the Commission and require only new NMS Stock ATSs to file Form ATS–N? Why or why not? Would this raise competitive concerns with respect to disparate regulatory treatment of “new” and “legacy” NMS Stock ATSs? Why or why not? Please support your arguments.
61. Do you believe that the proposed 90 calendar days for the Commission to extend the Form ATS–N review period for new NMS Stock ATSs where the Form ATS–N is unusually lengthy or raises novel or complex issues is reasonable? Do you believe it would place an undue burden on the NMS Stock ATS? If so, why, and what amount of time would be reasonable? Do you believe that the proposed 90 calendar day extension period disproportionately affects new NMS Stock ATSs? Please support your arguments.
62. Should the Commission adopt the proposal to declare ineffective a Form ATS–N 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? Please support your arguments.
63. Do you believe that the Commission's examples of reasons that the Commission might declare a proposed Form ATS–N ineffective are appropriate? If yes, why? If not, why not? Please support your arguments.
64. Do you believe that the Commission should consider any other factors in determining whether a Form ATS–N should be declared effective or ineffective? If so, what are they and why? If not, why not? Please support your arguments.
65. Should the Commission require public notice and comment before declaring a Form ATS–N effective or ineffective? Why or why not? Please support your arguments.
Proposed Rule 304(a)(1)(iv) would provide that the Commission will issue an order to declare a Form ATS–N effective or ineffective. Proposed Rule 304(a)(1)(iv) would also provide that upon the effectiveness of the Form ATS–N, the NMS Stock ATS may operate pursuant to the conditions in proposed Rule 304. Proposed Rule 304(a)(1)(iv) would also provide that if the Commission declares a Form ATS–N ineffective, the NMS Stock ATS shall be prohibited from operating as an NMS Stock ATS. Proposed Rule 304(a)(1)(iv) would provide that a Form ATS–N declared ineffective would not prevent the NMS Stock ATS from subsequently filing a new Form ATS–N.
Proposed Rule 304(a)(1)(iv) is designed to provide notice to the public that the NMS Stock ATS that filed a Form ATS–N qualifies for the exemption provided under Exchange Act Rule 3a1–1(a)(2) and may commence operations, or if the NMS
Under Proposed Rule 304(a)(1)(iv), an entity that had filed a Form ATS–N that had been declared ineffective by the Commission would be able to subsequently file a new Form ATS–N. This would allow an entity an opportunity to attempt to address any disclosure deficiencies or compliance issues that caused the first Form ATS–N to be declared ineffective.
66. Do you believe that a Commission order declaring a Form ATS–N ineffective would have an unduly prejudicial effect on an entity when it refiles Form ATS–N, even where the Commission declares effective the refiled Form ATS–N? Why or why not? Please support your arguments.
The Commission is proposing Rule 304(a)(2) to provide the requirements for filing a Form ATS–N Amendment, which would be a public document that would provide information about the operations of the NMS Stock ATS and the activities of its broker-dealer operator and its affiliates. The information required to be filed on proposed Form ATS–N is designed to enable market participants to make more informed decisions about routing their orders to the NMS Stock ATS. The Commission's proposal to require such public disclosure is designed, in part, to bring operational transparency of NMS Stock ATSs more in line with the operational transparency of national securities exchanges.
The Commission is proposing Rule 304(a)(2)(i) to require an NMS Stock ATS to amend an effective Form ATS–N in accordance with the instructions therein: (A) At least 30 calendar days prior to the date of implementation of a material change to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on Form ATS–N; (B) within 30 calendar days after the end of each calendar quarter to correct any other information that has become inaccurate for any reason and has not been previously reported to the Commission as a Form ATS–N Amendment; or (C) promptly, to correct information in any previous disclosure on Form ATS–N, after discovery that any information filed under Rule 304(a)(1)(i) or (a)(2)(i)(A) or (B) was inaccurate or incomplete when filed.
Proposed Rule 304(a)(2)(ii) would provide that the Commission will, by order, if it finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors, declare ineffective any Form ATS–N Amendment filed pursuant to Rule 304(a)(2)(i)(A) through (C) no later than 30 calendar days from filing with the Commission. If the Commission declares a Form ATS–N Amendment ineffective, the NMS Stock ATS shall be prohibited from operating pursuant to the ineffective Form ATS–N Amendment. The NMS Stock ATS could, however, continue to operate pursuant to a Form ATS–N that was previously declared effective. A Form ATS–N Amendment declared ineffective would not prevent the NMS Stock ATS from subsequently filing a new Form ATS–N Amendment that resolves the disclosure deficiency that resulted in the declaration of ineffectiveness.
Proposed Rule 304(a)(2)(i)(A) would, in part, require an NMS Stock ATS to amend an effective Form ATS–N in accordance with the instructions therein at least 30 calendar days prior to the date of implementation of a material change to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on Form ATS–N. Proposed Rule 304(a)(2)(i)(A) is designed to provide advance notice to the Commission and market participants of a material change to the operations of the NMS Stock ATS and the disclosures regarding the activities of the broker-dealer operator or its affiliates. The Commission notes that under current Rule 301(b)(2)(ii) of Regulation ATS, ATSs are 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.
The Commission preliminarily believes that a change to the operations of an NMS Stock ATS, or the disclosures regarding the activities of the broker-dealer operator and its affiliates, would be material if there is a substantial likelihood that a reasonable market participant would consider the change important when evaluating the NMS Stock ATS as a potential trading venue. When the Commission adopted Regulation ATS in 1998, it noted that ATSs “implicitly make materiality decisions in determining when to notify their subscribers of changes.”
To determine whether a change is material, and thus subject to the 30-day advance notice requirement, an NMS Stock ATS would need to consider all the relevant facts and circumstances, including the reason for the change and how it might impact the NMS Stock ATS and its subscribers, as well as market participants that may be evaluating the NMS Stock ATS as a potential trading venue. Scenarios that are particularly likely to implicate a material change are (1) a broker-dealer operator or its affiliates beginning to trade on the NMS Stock 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 NMS Stock ATS; (4) the introduction or removal of a new order type on the NMS Stock 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 NMS Stock ATS displays orders or quotes; and (8) a change of a service provider to the operations of the NMS Stock ATS that has access to subscriber confidential subscriber trading information. This list, however, is not intended to be exhaustive, and the Commission does not mean to imply that other changes to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates could not constitute a material change. Rather an NMS Stock ATS should be expected to consider the facts and circumstances of every change to determine whether advance notice is required.
67. Do you believe that the Commission's proposal to require an NMS Stock ATS to file a Form ATS–N Amendment at least 30 calendar days before implementing a material change is reasonable? Why or why not? Please support your arguments. Do you believe that the advance notice period for material change on Form ATS–N should be shorter (
68. Are the enumerated scenarios each particularly likely to constitute a material change, such that the Commission and the public should be provided with 30 calendar days advance notice pursuant to proposed Rule 304(a)(2)(i)(A)? If yes, why? If not, why not? Are there any other scenarios generally likely to constitute a material change? If so, why, and what are those scenarios? Please support your arguments.
69. Do you believe that the Commission should propose separate tiers of material changes (
70. Do you believe that any types of material changes to an NMS Stock ATS should be eligible to be implemented immediately upon filing? If so, what are such scenarios (regardless of facts and circumstances)? Please support your arguments.
71. Do you believe that certain changes to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that would be subject to disclosure on Form ATS–N should always be considered material changes? Why or why not? If so, please explain in detail those changes to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that would be subject to disclosure on Form ATS–N that should always be considered material changes.
72. Do you believe that certain changes to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates on Form ATS–N, such as order types, should be subject to Commission approval? Why or why not? If so, please identify such changes and support your argument.
73. Should the Commission require public notice and comment for determinations of ineffectiveness of Form ATS Amendments? Why or why not? Please support your arguments.
74. Do you believe that the Commission should make public on its Web site upon filing a Form ATS–N Amendment for a material change, as proposed? Why or why not? Please support your arguments. Do you believe that there should be a delay in when the Form ATS–N Amendment for a material change is made public? Why or why not? Please support your arguments.
75. Do you believe that making an NMS Stock ATS's Form ATS–N Amendment public upon filing would affect competition? Why or why not? Please support your arguments. If so, how?
Proposed Rule 304(a)(2)(i)(B) would require an NMS Stock ATS to amend an effective Form ATS–N within 30 calendar days after the end of each calendar quarter to correct any other information that has become inaccurate for any reason and has not been previously reported to the Commission as a Form ATS–N Amendment.
76. Should the Commission require NMS Stock ATSs to file a Form ATS–N Amendment for periodic changes at the end of each calendar quarter? Why or why not? Please support your arguments.
77. Do you believe that the Commission should require an NMS Stock ATS to file a Form ATS–N Amendment before implementing a periodic change? Why or why not? If so, what period of time should an NMS Stock ATS be required to wait before implementing a periodic change? Please explain in detail.
78. Do you believe that 30 calendar days after the end of each calendar quarter is a reasonable amount of time for NMS Stock ATSs to correct information that does not constitute a material change? If so, why? If not, why not, and what amount of time would be reasonable? Please support your arguments. Do you believe there are any processes the Commission should consider for correcting information on a Form ATS–N that does not constitute a material change? If so, what are such processes? Please explain in detail.
79. Do you believe that certain changes to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that would be subject to disclosure on Form ATS–N should always be considered periodic changes? Why or why not? If so, please explain in detail those changes to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that should always be considered periodic changes.
Do you believe that the Commission should make public on its Web site upon filing a Form ATS–N Amendment for a periodic change? Why or why not? Please support your arguments. Do you believe that there should be a delay in when the Form ATS–N Amendment for a periodic change is made public? Why or why not? Please support your arguments.
Proposed Rule 304(a)(2)(i)(C) would require an NMS Stock ATS to amend an effective Form ATS–N promptly to correct information in any previous disclosure on Form ATS–N after discovery that any information filed in a Form ATS–N or Form ATS–N Amendment was inaccurate or incomplete when filed.
80. Do you believe that making amendments “promptly” is a reasonable requirement for NMS Stock ATSs to correct information that was inaccurate or incomplete when filed? If so, why? If not, why not, and what amount of time would be reasonable? Please support your arguments.
81. Do you believe there are any other processes the Commission should consider for correcting information on Form ATS–N that was inaccurate at the time it was filed? If so, what are such processes? Please explain in detail.
82. Do you believe that the Commission's proposal to provide an NMS Stock ATS the opportunity to correct information that was inaccurate or incomplete when filed creates an unreasonable risk to market participants that an NMS Stock ATS might fail to provide accurate, current, and complete information on Form ATS–N when filing the form? Why or why not? Please support your arguments.
The Commission is proposing Rule 304(a)(2)(ii) to provide that the Commission will, by order, if it finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors, declare ineffective any Form ATS–N Amendment filed pursuant to Rule 304(a)(2)(i)(A) through (C) no later than 30 calendar days from filing with the Commission.
The Commission could also declare ineffective a Form ATS–N Amendment if it finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors, because the amendment describes a change that, under a “red flag” review, would not comply with the federal securities laws or the rules or regulations thereunder, including Regulation ATS. The Commission preliminarily believes that it would be hindered in protecting investors and maintaining fair and orderly markets if an NMS Stock ATS were allowed to implement or continue the use of a service, functionality, or procedure that does not comply with the federal securities laws or the rules or regulations thereunder, including Regulation ATS.
Under proposed Rule 304(a)(2)(ii), the Commission could declare a Form ATS–N Amendment ineffective within 30 calendar days from filing with the Commission. During its review of a Form ATS–N Amendment, the Commission and its staff may provide comments to the NMS Stock ATS, and may request that the NMS Stock ATS supplement information in the Form ATS–N Amendment or revise its disclosures on the Form ATS–N Amendment. Like the Commission's review of a Form ATS–N initially filed by an entity with the Commission,
Under proposed Rule 304(a)(2)(ii), if the Commission declares a Form ATS–N Amendment ineffective, the NMS Stock ATS would be prohibited from operating pursuant to the ineffective Form ATS–N Amendment. As discussed above, under proposed Rule 304(a)(2)(i), an NMS Stock ATS must amend its Form ATS–N at least 30 days before implementing a material change to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on Form ATS–N, or within 30 calendar days after the end of each calendar quarter to correct any other information that has become inaccurate for any reason and has not been previously reported to the Commission as a Form ATS–N Amendment. The Commission preliminarily believes the proposed rule strikes a proper balance between, on the one hand, providing an NMS Stock ATS with the flexibility to implement a change to its operations without unnecessary delay, and on the other hand, giving the Commission time to adequately review Form ATS–N Amendments and carry out its oversight functions and responsibilities.
Under proposed Rule 304(a)(1)(iv), an NMS Stock ATS that had filed a Form ATS–N Amendment that has been declared ineffective would be able to subsequently file a new Form ATS–N Amendment. This would allow an NMS Stock ATS to attempt to address any disclosure deficiencies or compliance issues that caused a Form ATS–N Amendment to be declared ineffective.
83. Should the Commission adopt the proposal to declare ineffective any Form ATS–N Amendment if it finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors? Why or why not? Please support your arguments.
84. Do you believe that the Commission should affirmatively declare material amendments to Form ATS–N effective? Why or why not? If so, do you believe the Commission should declare material changes to Form ATS–N effective before the NMS Stock ATS implements the material change? Why or why not? Please support your arguments.
85. Do you believe that the Commission should provide a longer time period for the Commission to review material amendments to Form ATS–N (
86. Do you believe that a Form ATS–N Amendment should become effective by operation of rule if the Commission does not affirmatively declare it ineffective? Why or why not? Please support your arguments.
87. Do you believe that the proposed 30 calendar days from filing with the Commission is a reasonable time period for the Commission to declare a Form ATS–N Amendment ineffective? Do you believe it would place an undue burden on the NMS Stock ATS that filed the Form ATS–N Amendment? If so, why, and what would be a reasonable amount of time? Please support your arguments. Do you believe that a longer period of time (
88. Do you believe the Commission should adopt a process to extend its review period for a Form ATS–N Amendment similar to the processes being proposed under proposed Rule 304(a)(1)(ii) for initial Form ATS–N filings? Why or why not? Please support your arguments. If so, how long should the extension of the review period be (
89. Should the Commission adopt the proposal that a Form ATS–N Amendment should become effective without the Commission issuing an order declaring effective the relevant Form ATS–N Amendment? Do you believe that the lack of a Commission order declaring a Form ATS–N Amendment ineffective within 30 calendar days from filing would provide an NMS Stock ATS sufficient notice that a Form ATS–N Amendment has become effective? Why or why not? Please support your arguments.
90. Do you believe that a determination of ineffectiveness of a Form ATS–N Amendment should be subject to notice and hearing, as is the case with initial determinations about Form ATS–N? Why or why not? Please support your arguments.
Proposed Rule 304(a)(3) would require an NMS Stock ATS to notice its cessation of operations on Form ATS–N at least 10 business days before the date the NMS Stock ATS ceases to operate as an NMS Stock ATS.
91. Should the Commission require an NMS Stock ATS to give notice that it intends to cease operations 10 business days or more before ceasing operations as an NMS Stock ATS? If so, why and how much advance notice is appropriate? If not, why not? Please support your arguments.
92. Should the Commission allow an NMS Stock ATS to notice its cessation of operations after it has ceased operations, as is currently the requirement under Regulation ATS, or at the same time that it ceases operations? If so, why and how long after the NMS Stock ATS has ceased operations? If not, why not? Please support your arguments.
93. Should the Commission create a process to revoke the exemption from Rule 3a1–1(a)(2) if the NMS Stock ATS reports no volume for two consecutive quarters, four consecutive quarters, eight consecutive quarters, or over some other time period? Why or why not? Are there any other circumstances under which the Commission should revoke the exemption if the NMS Stock ATS appears to be inactive? Please support your arguments.
To rely on an exemption from the Exchange Act or the rules and regulations thereunder granted by the Commission, the person seeking the exemption must comply with the conditions to the exemption established by the Commission. A person that fails to comply with those conditions would therefore fall outside of the scope of the exemption.
The Commission is proposing to amend Regulation ATS to include proposed Rule 304(a)(4), to provide a process for the Commission to suspend for a period not exceeding twelve months,
The Commission preliminarily believes that it is appropriate to provide a process by which the Commission may, by order, suspend, limit, or revoke an NMS Stock ATS's exemption from the definition of “exchange” if the NMS Stock ATS is operating in a manner such that the exemption from the definition of “exchange” for the NMS Stock ATS is not necessary or appropriate in the public interest, or consistent with the protection of investors. For example, in making a determination as to whether suspension, limitation, or revocation of an NMS Stock ATS's exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors, the Commission would take into account whether the entity no longer meets the definition of NMS Stock ATS under Rule 300(a)(k), does not comply with the conditions to the exemption (in that it fails to comply with any part of Regulation ATS, including proposed Rule 304), or otherwise violates any provision of federal securities laws.
The Commission preliminarily believes, for example, that it would be appropriate to provide for the suspension, limitation, or revocation of an NMS Stock ATS's exemption from the definition of “exchange” pursuant to Rule 3a1–1(a)(2) if the Commission finds that an NMS Stock ATS no longer meets the definition of “NMS Stock ATS.”
The Commission also preliminarily believes that it would be appropriate to provide for the suspension, limitation, or revocation of an NMS Stock ATS's exemption from the definition of exchange pursuant to Rule 3a1–1(a)(2) if, for example, the Commission finds that an NMS Stock ATS fails to comply with any part of Regulation ATS, including proposed Rule 304. As discussed in the Regulation ATS Adopting Release, instead of imposing requirements applicable to national securities exchanges, the Commission adopted enhanced regulation for ATSs that would provide more protections for investors who used the systems.
Additionally, the Commission preliminarily believes that it would be appropriate to provide for the suspension, limitation, or revocation of an NMS Stock ATS's exemption from the definition of exchange pursuant to Rule 3a1–1(a)(2) if, for example, the Commission 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, because that NMS Stock ATS has violated or is violating any provision of the federal securities laws. The Commission is concerned that market participants may be harmed by an NMS Stock ATS that is, for example, providing false or misleading information to market participants, and preliminarily believes that such an NMS Stock ATS should not be able to continue to operate pursuant to an exemption provided by the Commission.
Pursuant to proposed Rule 304(a)(4)(ii), an NMS Stock ATS whose exemption had been suspended or revoked would be prohibited from operating pursuant to the Rule 3a1–1(a)(2) exemption; and if an NMS Stock ATS were to continue to engage in Rule 3b–16 activity in NMS stocks without the exemption, it would be an
An NMS Stock ATS that has had its exemption suspended or limited may, depending on the facts and circumstances, be able to file a Form ATS–N Amendment or revise its operations to come into compliance with the conditions of the exemption or the provision of any other federal securities law that may have been the basis of the Commission's findings.
The Commission also preliminarily believes that providing a process by which the Commission can determine to suspend, limit, or revoke an NMS Stock ATS's exemption from the definition of “exchange” would provide appropriate flexibility to address the specific facts and circumstances of an NMS Stock ATS's failure to comply with Regulation ATS or the nature of the violation of federal securities laws, and the possible harm to investors as a result of the non-compliance or violation. For example, the Commission preliminarily believes that providing a process by which the Commission could limit the exemption provided in Rule 3a1–1(a)(2) would provide flexibility to address specific disclosures or activities that are the cause of the non-compliance with Regulation ATS or that violate federal securities laws. For illustration, if the Commission found that an NMS Stock ATS implemented a material change to its operations, but failed to disclose the material change on its Form ATS–N, the Commission could determine to allow the NMS Stock ATS to continue to operate as disclosed on its Form ATS–N, but prohibit the NMS Stock ATS from engaging in the undisclosed activity until the NMS Stock ATS properly amends its Form ATS–N in accordance with proposed Rule 304(a)(2). If the Commission found that an NMS Stock ATS offered an order type that resulted in violations of the Commission's rules restricting the acceptance and ranking of orders in impermissible sub-penny increments, the Commission could allow the NMS Stock ATS to continue to operate but prohibit the NMS Stock ATS from offering the order type, if it found that doing so was necessary or appropriate in the public interest, and consistent with the protection of investors. The Commission preliminarily believes that, depending on the facts and circumstances, it may be more appropriate in the public interest, and consistent with the protection of investors, to limit the scope of an NMS Stock ATS's exemption, instead of revoking or suspending the exemption and causing the NMS Stock ATS to cease operations. In comparison, the Commission preliminarily believes it would be more appropriate to revoke the exemption of an NMS Stock ATS that no longer meets the definition of NMS Stock ATS or is no longer a registered broker-dealer, as these conditions are fundamental to the exemption. Additionally, the Commission preliminarily believes that it would be necessary or appropriate in the public interest, and consistent with the protection of investors, to revoke the exemption of an NMS Stock ATS if, for example, the ATS is found to be violating the antifraud provisions of the federal securities laws. Nonetheless, the entry of an order revoking an NMS Stock ATS's exemption would not prohibit the broker-dealer operator of the NMS Stock ATS from continuing its other broker-dealer operations.
The Commission is also proposing that prior to issuing an order suspending, limiting, or revoking an NMS Stock ATS's exemption pursuant to proposed Rule 304(a)(4)(i), the Commission would provide notice and opportunity for hearing to the NMS Stock ATS, and make the findings specified in proposed 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. The Commission preliminarily believes that the proposed process of providing an NMS Stock ATS with notice and opportunity for hearing provides the NMS Stock ATS with adequate opportunity to respond before the Commission determines that the NMS Stock ATS's exemption from the definition of “exchange” is no longer appropriate in the public interest or consistent with the protection of investors. The Commission also preliminarily believes that the possibility that the Commission may suspend, limit, or revoke an NMS Stock ATS's exemption from the definition of “exchange” would not be unduly burdensome because an NMS Stock ATS would be given advance notice and have an opportunity to respond, and, depending on the facts and circumstances, revise its operations or disclosures on Form ATS–N to bring its operations or disclosures into compliance with Regulation ATS or federal securities laws. The Commission preliminarily believes that proposed Rule 304(a)(4) would provide the Commission with an appropriate tool, which is subject to notice and hearing safeguards, to protect the investing public and the public interest from an NMS Stock ATS that fails to comply with Regulation ATS or otherwise violates any provision of the federal securities laws.
94. Do you believe the proposed process for the Commission to suspend, limit, or revoke an NMS Stock ATS's exemption from the definition of “exchange” is necessary or appropriate to protect investors and other market participants and maintain fair and orderly markets? Why or why not? Please support your arguments.
95. What criteria should the Commission use in deciding whether to suspend, limit, or revoke an NMS Stock ATS's exemption as proposed? Are there alternative actions or processes the Commission should consider for suspending, limiting, or revoking the exemption? Please support your arguments and provide details.
96. Should the Commission adopt the proposal to provide flexibility as to whether to suspend, limit, or revoke an NMS Stock ATS's exemption depending on the facts and circumstances and possible harm to investors? If so, why? If not, what other criteria, if any, should
97. Do you believe there should be a maximum time frame following notice and opportunity for hearing within which the Commission should be required to act? If so, why, and what would be the appropriate time frame? If not, why not? Please support your arguments.
98. Do you believe that 12 months is the appropriate limit on the amount of time by which the Commission could suspend an NMS Stock ATS's exemption? If so, why? If not, why not, and what would be the appropriate time frame? Please support your arguments.
99. Do you believe that the Commission's proposal to declare ineffective a Form ATS–N Amendment if it finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors, is appropriate as a supplement to the proposal that the Commission suspend, limit, or revoke an NMS Stock ATS's exemption from the definition of “exchange” under proposed Rule 304(a)(4)? Why or why not? Please support your arguments.
100. Do you believe there are other processes by which the Commission should enforce the conditions to the Rule 3a1–1(a)(2) exemption? If so, what are they and why would they be preferable to the proposed process?
The Commission is proposing to make public certain Form ATS–N reports filed by NMS Stock ATSs.
First, the Commission is proposing Rule 304(b)(1) to provide that every Form ATS–N 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. Because proposed Form ATS–N is a report that is required to be filed under the Exchange Act, it would be unlawful for any person to willfully or knowingly make, or cause to be made, a false or misleading statement with respect to any material fact in Form ATS–N.
Under proposed Rule 304(b)(2), the Commission would make public via posting on the Commission's Web site, each: (i) Order of effectiveness of a Form ATS–N; (ii) order of ineffectiveness of a Form ATS–N; (iii) effective Form ATS–N; (iv) filed Form ATS–N Amendment; (v) order of ineffectiveness of a Form ATS–N Amendment; (vi) notice of cessation; and (vii) order suspending, limiting, or revoking the exemption from the definition of an “exchange” pursuant to Exchange Act Rule 3a1–1(a)(2). Proposed Rule 304(b)(3) would require each NMS Stock ATS to make public via posting on its Web site a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in proposed Rule 304(b)(2).
Once the Commission has declared a Form ATS–N effective, the Commission preliminarily believes that making Form ATS–N public would provide market participants with important information about the operations of the NMS Stock ATS and its broker-dealer operator and the broker-dealer operator's affiliates. As discussed further below, proposed Form ATS–N would provide information about the broker-dealer operator and the activities of the broker-dealer operator and its affiliates in connection with the NMS Stock ATS, including: Their operation of trading centers and other NMS Stock ATSs; products and services offered to subscribers; arrangements with unaffiliated trading centers; trading activities on the NMS Stock ATS; smart order router (or similar functionality) and algorithms used to send or receive orders or other trading interest to or from the ATS; personnel and third parties used to operate the NMS Stock ATS; differences in the availability of ATS services, functionalities, or procedures; and safeguards and procedures to protect subscribers' confidential trading information.
The Commission would not post on its Web site a filed Form ATS–N before the Commission declares that Form ATS–N effective. Under the proposal, an NMS Stock ATS that was not in
The proposal to make public each Form ATS–N Amendment upon filing with the Commission is to provide market participants with immediate transparency into the operations of an NMS Stock ATS, which would be operational and to which market participants might currently enter—or consider entering—orders for execution. The Commission preliminarily believes that making public Form ATS–N Amendments would benefit market participants by allowing them to obtain current information regarding changes to the operation of an NMS Stock ATS and its relationship with its broker-dealer operator and the broker-dealer operator's affiliates; if it would benefit their investment or trading strategies, market participants would also be able to continually evaluate that NMS Stock ATS as a potential destination to route their orders. The Commission preliminarily believes that, while Form ATS–N Amendments would be publicly posted before the Commission has completed its review, it would be useful to market participants to have immediate access to the disclosures contained in an amendment so market participants may, for example, assess and prepare for upcoming material changes on an NMS Stock ATS or more quickly understand any operational changes that have occurred over the previous quarter on the NMS Stock ATS. The Commission also proposes to make the public aware of which Form ATS–N Amendments filed by NMS Stock ATSs posted on the Commission's Web site are pending Commission review and could still be declared ineffective. The Commission believes that publicly posting filed Form ATS–N Amendments would strike the right balance of enabling market participants to better understand upcoming or recent changes to an operational NMS Stock ATS in a timely manner, while informing market participants that the Form ATS–N Amendment is pending Commission review and could still be declared ineffective.
The Commission also preliminarily believes that making public each properly filed Form ATS–N notice of cessation would provide the public with notice that the NMS Stock ATS will cease operations and that the organization, association, or group of persons no longer operates pursuant to the exemption provided under Exchange Act Rule 3a1–1(a)(2). The notice of cessation would provide market participants with the date that the NMS Stock ATS will cease operations, as designated by the NMS Stock ATS. Market participants would be able to use this information to make arrangements to select alternative routing destinations for their orders.
Furthermore, the Commission understands that many broker-dealer operators maintain Web sites for their NMS Stock ATSs. The Commission preliminarily believes that market participants would find it helpful for an NMS Stock ATS to make market participants aware that certain of the NMS Stock ATS's Form ATS–N filings are publicly posted on the Commission's Web site. Therefore, to the extent that an NMS Stock ATS has a public Web site, the Commission is proposing that Rule 304(b)(3) require each NMS Stock ATS that has a Web site to post on the NMS Stock ATS's Web site a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in proposed Rule 304(b)(2), which includes the NMS Stock ATS's Form ATS–N filings. The Commission preliminarily believes that this requirement would make it easier for market participants to review an NMS Stock ATS's Form ATS–N filings by providing an additional means for market participants to locate Form ATS–N filings that are posted on the Commission's Web site.
The Commission preliminarily believes that publicly posting Form ATS–N filings on the timelines described above is important because most market participants do not have access to information that permits them to adequately compare and contrast how some NMS Stock ATSs would handle their orders against how a given national securities exchange or other NMS Stock ATS would handle their orders. Currently, a Form ATS filed with the Commission by an NMS Stock ATS is “deemed confidential when filed” under Rule 301(b)(2)(vii) of Regulation ATS,
Additionally, the Commission preliminarily believes that, given changes with respect to NMS Stock ATSs since the adoption of Regulation ATS,
Second, when the Commission adopted Regulation ATS, it sought to “encourage candid and complete filings in order to make informed decisions and track market changes,” and believed that keeping the reports filed on Form ATS confidential would “provide[] respondents with the necessary comfort to make full and complete filings.”
101. Do you believe market participants currently have access to information about the operations of NMS Stock ATSs and the activities of their broker-dealer operators and the broker-dealer operators' affiliates, either through private disclosures from NMS Stock ATSs, from NMS Stock ATSs that voluntarily make their Forms ATS public, or from NMS Stock ATSs that issue frequently asked questions about their operations, including changes to their operations, that is sufficient to help market participants select the markets to which to route and execute their orders? Why or why not? Please support your arguments.
102. Do you believe the Commission should adopt the proposal to make public certain Form ATS–N filings by NMS Stock ATSs? Why or why not? Please support your arguments.
103. Do you believe the Commission should adopt the proposal to require an NMS Stock ATS to post on the NMS Stock ATS's Web site a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in proposed Rule 304(b)(2)? Why or why not? Please support your arguments.
104. Do you believe the Commission should require each NMS Stock ATS to directly post its Form ATS–N filings on the NMS Stock ATS's Web site? If so, why, and which Form ATS–N filings? If not, why not? Please support your arguments.
105. Do you believe the Commission should require each NMS Stock ATS to directly post Commission orders related to the effectiveness or ineffectiveness of the NMS Stock ATS's Form ATS–N, Form ATS–N Amendments, or both on the Web site of the NMS Stock ATS? If so, why, and which orders should NMS Stock ATSs be required to post? If not, why not? Please support your arguments.
106. Do you believe that the Commission should make public on its Web site the Form ATS–N of an NMS Stock ATS that was not in operation as of the effective date of proposed Rule 304 during the Commission's review period and prior to declaring the Form ATS–N effective of ineffective? Why or why not? Please support your arguments.
107. Do you believe that the Commission should make public on its Web site a Form ATS–N that it has declared ineffective? Why or why not? Please support your arguments.
108. Do you believe that the Commission should make public on its Web site a Form ATS–N filed by a legacy NMS Stock ATS during the Commission's review period and prior to its declaring the Form ATS–N effective or ineffective? Why or why not? Please support your arguments?
109. Do you believe that the Commission should adopt the proposal to make public on its Web site all Form ATS–N Amendments during the Commission's review period and prior to its determination as to whether a Form ATS–N Amendment should be declared ineffective? If so, why? If not, why not? Please support your arguments.
110. Do you believe that the Commission should adopt the proposal whereby the Commission would continue to make public on its Web site a Form ATS–N Amendment that it has declared ineffective? Why or why not? Please support your arguments.
111. Do you believe the Commission's current practice of making publicly available a list of ATSs with a Form ATS on file with the Commission puts market participants on sufficient notice of the regulatory status of NMS Stock ATSs with which they may do business? Why or why not? Please support your arguments.
112. Does the Commission's current practice of making publicly available a list of ATSs with a Form ATS on file with the Commission create the potential for market participants to misunderstand the operations of the market? If so, how? If not, why not? Please support your arguments.
113. Do you believe that market participants currently have sufficient information regarding the activities of an NMS Stock ATS's broker-dealer operator and its affiliates as they relate to the ATS, including changes to such activities, to evaluate conflicts of interest that may arise out of the position that the broker-dealer occupies as the operating entity of the NMS Stock ATS? Why or why not? Please support your arguments.
114. Do you believe the Commission's proposal to make public certain Form ATS–N filings would better enable market participants to evaluate conflicts of interest that may arise out of the position that the broker-dealer occupies as the operating entity of the NMS Stock ATS? Why or why not? Please support your arguments.
115. Do you believe that making public Form ATS–N filings would place NMS Stock ATSs at a competitive disadvantage with respect to other trading centers, including national securities exchanges? Why or why not? Please support your arguments.
116. Do you believe that making public Form ATS–N filings would incentivize NMS Stock ATSs to make more accurate, current, and complete disclosures? Why or why not? Please support your arguments.
117. Do you believe the Commission should continue to make public a Form ATS–N or Form ATS–N Amendments where the Commission has suspended, revoked, or limited the NMS Stock ATS's exemption pursuant to Rule 304(a)(4)? Why or why not? Please support your arguments.
118. Do you believe that responding to questions on proposed Form ATS–N would require an NMS Stock ATS to disclose proprietary information that could place the NMS Stock ATS or its broker-dealer operator's other business activities at a competitive disadvantage? If so, please identify the question on the Form ATS–N and specify what information in response to that question would result in the disclosure of proprietary information and describe why the disclosure could create a competitive disadvantage for the NMS Stock ATS or its broker-dealer operator's other business activities.
119. In light of the information that national securities exchanges, which compete with NMS Stock ATSs, are required to disclose regarding their operations, should NMS Stock ATSs continue to be eligible for the exemption from the definition of exchange without having to disclose such information? Why or why not? Please explain in detail.
Proposed Rule 304(c)(1) would require NMS Stock ATSs to respond to each item on Form ATS–N, as applicable, in detail and disclose information that is accurate, current, and complete. The Commission preliminarily believes that market participants would use information disclosed on proposed Form ATS–N to evaluate whether a particular NMS Stock ATS would be a desirable venue to which to route their orders. In addition, the Commission intends to use the information disclosed on the Form ATS–N to exercise oversight over and monitor developments of NMS Stock ATSs. Given these potential uses, the Commission preliminarily believes that it is important that the Form ATS–N contain detailed disclosures that are accurate, current, and complete.
The Commission notes that Regulation ATS requires NMS Stock ATSs to be registered as broker-dealers with the Commission, which entails becoming a member of FINRA and fully complying with the broker-dealer regulatory regime. FINRA Rule 3130 requires each member to designate and specifically identify to FINRA one or more principals to serve as a chief compliance officer and each member to have its chief executive officer certify annually that the member has in place processes to establish, maintain, review, test and modify written compliance policies and written supervisory procedures reasonably designed to achieve compliance with applicable FINRA rules, MSRB rules and federal securities laws and regulations, and that the chief executive officer(s) has conducted one or more meetings with the chief compliance officer(s) in the preceding 12 months to discuss such processes.
The certification shall state the following:
The undersigned is/are the chief executive officer(s) (or equivalent officer(s)) of (name of member corporation/partnership/sole proprietorship) (the “Member”). As required by FINRA Rule 3130(b), the undersigned make(s) the following certification:
1. The Member has in place processes to:
(A) establish, maintain and review policies and procedures reasonably designed to achieve compliance with applicable FINRA rules, MSRB rules and federal securities laws and regulations;
(B) modify such policies and procedures as business, regulatory and legislative changes and events dictate; and
(C) test the effectiveness of such policies and procedures on a periodic basis, the timing and extent of which is reasonably designed to ensure continuing compliance with FINRA rules, MSRB rules and federal securities laws and regulations.
2. The undersigned chief executive officer(s) (or equivalent officer(s)) has/have conducted one or more meetings with the chief compliance officer(s) in the preceding 12 months, the subject of which satisfy the obligations set forth in FINRA Rule 3130.
3. The Member's processes, with respect to paragraph 1 above, are evidenced in a report reviewed by the chief executive officer(s) (or equivalent officer(s)), chief compliance officer(s), and such other officers as the Member may deem necessary to make this certification. The final report has been submitted to the Member's board of directors and audit committee or will be submitted to the Member's board of directors and audit committee (or equivalent bodies) at the earlier of their next scheduled meetings or within 45 days of the date of execution of this certification.
4. The undersigned chief executive officer(s) (or equivalent officer(s)) has/have consulted with the chief compliance officer(s) and other officers as applicable (referenced in paragraph 3 above) and such other employees, outside consultants, lawyers and accountants, to the extent deemed appropriate, in order to attest to the statements made in this certification.
120. Do you believe that the certification required under FINRA Rule 3130 will help ensure an NMS Stock ATS's compliance with proposed Rule 304, including the requirement that disclosures on Form ATS–N are accurate, current, and complete? Why or why not? Please support your arguments.
Proposed Rule 304(c)(2) would provide that any report required to be filed with the Commission under proposed Rule 304 of Regulation ATS must be filed electronically on Form ATS–N, and include all information as prescribed in proposed Form ATS–N and the instructions thereto. The Commission's proposal contemplates the use of the electronic form filing system (“EFFS”) to file a completed Form ATS–N. Based on the widespread use and availability of the Internet, the Commission preliminarily believes that filing Form ATS–N in an electronic format would be less burdensome and a more efficient filing process for NMS Stock ATSs and the Commission, as it is likely to be less expensive and cumbersome than mailing paper forms to the Commission. The proposed Form ATS–N would require an electronic signature to help ensure the authenticity of the filing. The Commission preliminarily believes these proposed requirements would expedite communications between the Commission and its staff and the broker-dealer operator concerning the NMS Stock ATS and help to ensure that only personnel authorized by the NMS Stock ATS are filing required materials. This proposed requirement is intended to provide a uniform manner in which the Commission would receive—and the broker-dealer operator would file—the Form ATS–N made pursuant to proposed Rule 304 of Regulation ATS. Also, NMS Stock ATSs would be able to review how other filers that were allowed to become effective responded to the same questions on Form ATS–N for guidance on how to respond. Additionally, the consistent framework would make it easier and more efficient for the Commission and market participants reviewing the disclosures to promptly review, analyze, and respond, as necessary, to the information proposed to be provided.
Further, the Commission also is proposing that documents filed through the EFFS system must be in a text-searchable format without the use of optical character recognition. The Commission believes that proposing to require documents to be filed in a text-searchable format would allow the Commission and its staff and market
The Commission is proposing that proposed Form ATS–N be filed with the Commission in a structured format. The Commission preliminarily believes that proposing Form ATS–N to be filed with the Commission in a structured format could allow the Commission and market participants to better search and analyze information about NMS Stock ATSs. The Commission is proposing that Parts I (Name) and II (Broker-Dealer Operator Registration and Contact Information) of proposed Form ATS–N would be provided as fillable forms on the Commission's EFFS system. The Commission is proposing that Part III (Activities of the Broker-Dealer Operator and Affiliates) of proposed Form ATS–N would be filed in a structured format whereby the filer would provide checkbox responses to certain questions and narrative responses that are block-text tagged by Item. The Commission is proposing that Part IV (The NMS Stock ATS Manner of Operations) of proposed Form ATS–N would also be filed in a structured format in that the filer would block-text tag narrative responses by Item. The Commission is proposing that Part V (Contact Information, Signature Block, and Consent to Service) of proposed Form ATS–N would be provided as fillable forms on the Commission's EFFS system.
The Commission notes that there are a variety of methods by which information can be collected and structured for review and analysis. For example, some or all of the information provided on Form ATS–N could be structured according to a particular standard that already exists, or a new taxonomy that the Commission creates, or as a single machine-readable PDF. Given the Commission's proposal that information on Form ATS–N be filed in a structured format, the Commission seeks comment on the manner in which proposed Form ATS–N could be structured to better enable the Commission and market participants to collect and analyze the data.
121. Do you believe that the electronic filing requirement of proposed Rule 304(c)(2) is appropriate? Do you believe that the electronic filing of Form ATS–N would be less burdensome and/or a more efficient filing process for NMS Stock ATSs compared to delivering the Form ATS–N by mail on paper? Alternatively, would the submission of proposed Form ATS–N via electronic mail to one or more Commission email addresses be a more appropriate way for NMS Stock ATSs to file Form ATS–N with the Commission? Are there other alternative methods that would be preferable? If so, please describe. Is the proposal to require an electronic signature appropriate? If not, why not? Please support your arguments.
122. Should the Commission adopt the proposal that proposed Form ATS–N should be filed with the Commission in a structured format? Why or why not? If so, what standards of structuring should be used for information to be provided on proposed Form ATS–N? Please explain. If not, what format should proposed Form ATS–N take? Please identify the format and explain.
123. Are there any specific aspects of proposed Form ATS–N that should or should not be provided in a structured format? Please identify those aspects of proposed Form ATS–N that should or should not be provided in a structured format and explain why those aspects of the form should or should not be structured.
124. Should the Commission adopt the proposal to require documents to be filed in a text-searchable format on proposed Form ATS–N? Why or why not? Please support your arguments.
Proposed Form ATS–N would require that an entity identify the type of filing by marking the appropriate checkbox. The Form ATS–N filing may either be a Form ATS–N, a Form ATS–N Amendment, or a notice of cessation. In addition, proposed Form ATS–N would require the NMS Stock ATS to indicate whether a Form ATS–N Amendment is being submitted as a material amendment, periodic amendment, or correcting amendment. The Commission is also proposing that, for an Form ATS–N Amendment, the NMS Stock ATS provide a brief narrative description of the amendment so market participants can quickly understand the nature of the Form ATS–N Amendment.
Part I of proposed Form ATS–N would require the name of the broker-dealer operator and the NMS Stock ATS. Rule 301(b)(1) requires that an ATS, including an NMS Stock ATS, register as a broker-dealer under Section 15 of the Exchange Act.
125. Do you believe that Part I of proposed Form ATS–N is sufficiently clear with respect to the disclosures that would be required? If not, how should Part I of proposed Form ATS–N be revised to provide additional clarity? Please explain in detail and support your arguments.
126. Do you believe there is other information that market participants might find relevant or useful with regard to the disclosures in Part I? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
127. Do you believe that the broker-dealer operator should be required to identify the type of Form ATS–N filing (
128. Do you believe that the broker-dealer operator should be required to provide a brief summary of a Form ATS–N Amendment? Why or why not? Please support your arguments.
129. Do you believe that a broker-dealer operator should be allowed to withdraw a previously filed Form ATS–N? Why or why not? Please support your arguments. If so, when should a broker-dealer operator be permitted to withdraw a previously filed Form ATS–N? Please explain.
130. Do you believe that the broker-dealer operator should be required to disclose the date on which it commenced, or intends to commence, operation of the NMS Stock ATS in Part I of Form ATS–N? Why or why not? Please support your arguments.
131. Do you believe that the Commission should require the MPID of the NMS Stock ATS as a required disclosure on proposed Form ATS–N? Why or why not? Please support your arguments.
132. What are the potential costs and benefits of disclosing the information required by Part I of proposed Form ATS–N? Would the proposed disclosures in Part I of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information? Why or why not? Please support your arguments.
Part II of proposed Form ATS–N would require certain general information regarding the broker-dealer operator and the NMS Stock ATS. With respect to the broker-dealer operator, Part II of proposed Form ATS–N would require registration information including: its SEC File Number, Central Registration Depository (“CRD”) Number, effective date of the broker-dealer operator's registration with the Commission, the name of the national securities association with which it is a member, and the effective date of broker-dealer operator's membership with the national securities association (
Additionally, Part II of proposed Form ATS–N would require certain information regarding the legal status of the broker-dealer operator. Specifically, proposed Form ATS–N would require that the broker-dealer operator provide its legal status (
Proposed Form ATS–N would also require the address of the physical location of the NMS Stock ATS matching system and, if it is different from the physical location, the mailing address of the NMS Stock ATS. If the broker-dealer operator is a sole proprietorship and an address of the NMS Stock ATS is a private residence, the Commission would not make that information available on the Commission's Web site due to concerns about the confidentiality of personally identifiable information. Furthermore, Part II would require the NMS Stock ATS to provide a URL address for the Web site of the NMS Stock ATS, and in the signature block in Part V of proposed Form ATS–N, the representative of the broker-dealer operator would also be required to provide his or her business contact information, including the person's name and title, telephone number, and email address.
Consistent with the requirements of proposed Form ATS–N, the signature block in Part V would also require the NMS Stock ATS to consent that service of any civil action brought by, or notice of any proceeding before, the Commission or a SRO in connection with the ATS's activities may be given by registered or certified mail or email to the contact employee at the primary street address or email address, or mailing address if different, given in Part I. The signatory would further represent that the information and statements contained on the submitted Form ATS–N, including exhibits, schedules, attached documents, and any other information filed, are current, true, and complete.
Part II of proposed Form ATS–N would also require an NMS Stock ATS to attach, as Exhibit 1, a copy of any materials currently provided to subscribers or other persons, related to the operations of the NMS Stock ATS or the disclosures on Form ATS–N.
Proposed Form ATS–N also would require that the broker-dealer operator attach, as Exhibits 2A and 2B (or provide a link to the relevant URL address where the required documents can be found), a copy of the most recently filed Schedule A of the broker-dealer operator's Form BD disclosing information related to direct owners and executive officers, and a copy of the most recently filed Schedule B of the broker-dealer operator's Form BD disclosing information related to indirect owners, respectively. The proposed Form ATS–N would require information from the broker-dealer operator's Schedule A and Schedule B of Form BD to help market participants understand the persons and entities that directly and indirectly own the broker-dealer operator. The Commission is requiring that NMS Stock ATSs provide names of the direct and indirect owners of the broker-dealer operator on Form ATS–N, even though the same information is provided on Form BD, because information about the ownership of the broker-dealer operator will enable market participants to understand better any potential conflicts of interest that may arise therefrom, which is one of the central purposes of proposed Form ATS–N. Also, providing this information on Form ATS–N would facilitate the Commission's, as well as market participants', analysis of the ownership and any potential for conflicts arising therefrom by providing this information all on one form. Moreover, the Commission preliminarily believes it is appropriate for NMS Stock ATSs to provide this information using a URL address for these documents in lieu of attaching the actual documents to their Form ATS–N filings.
133. Do you believe that Part II of proposed Form ATS–N is sufficiently clear with respect to the disclosures that would be required? If not, how should Part II of proposed Form ATS–N be revised to provide additional clarity? Please explain in detail.
134. Do you believe there is other information that market participants might find relevant or useful with regard to the disclosures in Part II? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
135. Do you believe that the Commission should require the effective date of broker-dealer registration with the Commission as a required disclosure on proposed Form ATS–N? Why or why not? Please support your arguments.
136. Do you believe that the Commission should require the SEC File number of the broker-dealer operator as a required disclosure on proposed Form ATS–N? Why or why not? Please support your arguments.
137. Do you believe that the Commission should require the CRD number of the broker-dealer operator as a required disclosure on proposed Form ATS–N? Why or why not? Please support your arguments.
138. Do you believe that the Commission should require the address of the physical location of the NMS Stock ATS's matching system as a required disclosure on proposed Form ATS–N? Why or why not? Please support your arguments.
139. Do you believe that the Commission should require the mailing address of the NMS Stock ATS as a required disclosure on proposed Form ATS–N? Why or why not? Please support your arguments.
140. Do you believe that the Commission should require the Web site URL of the NMS Stock ATS as a required disclosure on proposed Form ATS–N? Why or why not? Please support your arguments.
141. Do you believe that the Commission should require NMS Stock ATSs to disclose materials provided to subscribers or other persons related to the operations of the NMS Stock ATS on proposed Form ATS–N? Why or why not? Please support your arguments. Do you believe such materials should be provided to the Commission as an Exhibit? Why or why not? Please support your arguments. Do you believe that the NMS Stock ATS should be able to provide a URL where these documents can be found in lieu of providing the documents as an Exhibit? Why or why not? Please support your arguments.
142. Do you believe it is appropriate for the Commission to not make public the address of the NMS Stock ATS that is a sole proprietorship? Why or why not? Please support your arguments.
143. Do you believe it is appropriate for the Commission to not make public the contact information of the broker-dealer operator's representative? Why or why not? Please support your arguments.
144. Do you believe that there is any information, that would be required to be disclosed in Part II of proposed Form ATS–N that the Commission should not require to be disclosed due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
145. What are the potential costs and benefits of disclosing the information required by Part II of proposed Form ATS–N? Would the proposed disclosures in Part II of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information? Why or why not? Please support your arguments.
146. Do you believe there are there certain types of materials provided to subscribers that would be responsive to Exhibit 1 that should or should not be disclosed on Form ATS–N? If so, what types of materials and why? Do you believe an NMS Stock ATS should provide in response to Exhibit 1 the materials the NMS Stock ATS provides to subscribers such as FIX protocol procedures, rules of engagement/user manuals, frequently asked questions, or marketing materials? Why or why not? Please support your arguments.
147. Do you believe the Commission should require NMS Stock ATSs to provide on Form ATS–N information on Exhibits 2A and 2B, in light of the fact that the information is already provided on Form BD?
148. Do you believe the Commission should require the NMS Stock ATS to provide disclosure about its governance structure and compliance programs and controls to comply with Regulation ATS? Why or why not? If so, what aspects of the NMS Stock ATSs' governance structure and compliance programs and controls to comply with Regulation ATS should the NMS Stock ATS be required to disclose? Please support your arguments.
The Commission preliminarily believes that to understand the operations of an NMS Stock ATS, it is necessary to understand the relationship and interactions between the NMS Stock ATS and its registered broker-dealer operator as well as the relationship and interactions between the NMS Stock ATS and the affiliates of its broker-dealer operator. As previously noted, Rule 301(b)(1) of Regulation ATS requires that an ATS, including an NMS Stock ATS, register as broker-dealer under Section 15 of the Exchange Act (the “broker dealer operator”).
The Commission is also aware that most ATSs that currently transact in NMS stocks are operated by broker-dealers that engage in significant brokerage and dealing activities in addition to their operation of an ATS(s).
Due to the frequent overlap between the operations of the broker-dealer operator or its affiliates outlined above and the operations of ATSs that trade NMS stocks, the Commission preliminarily believes that the interests of the broker-dealer operator or its affiliates sometimes compete with the interests of an ATS's subscribers, or customers of the ATS's subscribers, for executions on the ATS. Accordingly, the Commission preliminarily believes that these competing interests, at times, may give rise to potential conflicts of interest for broker-dealer operators of NMS Stock ATSs or their affiliates. Furthermore, the Commission preliminarily believes that the frequent overlap between the operation of ATSs that trade NMS stocks and the other operations of broker-dealer operators or their affiliates gives rise to the potential for information leakage of subscribers' confidential trading information to other
When evaluating an NMS Stock ATS as a possible trading venue, a market participant would likely want to know about the various activities in which a broker-dealer operator and its affiliates engage that may give rise to conflicts of interests. For example, as noted above, the broker-dealer operator of an NMS Stock ATS may operate multiple trading centers, which operate as competing trading venues for the execution of trades in NMS stocks. Many broker-dealer operators or their affiliates trade proprietarily on the NMS Stock ATS. If a broker-dealer operator that operates an NMS Stock ATS is also able to trade on that NMS Stock ATS, there may be an incentive for the broker-dealer operator to operate its NMS Stock ATS in a manner that favors the trading activity of the broker-dealer operator's business units or affiliates. A broker-dealer operator of an NMS Stock ATS may provide its other business units or affiliates, who may be subscribers to the NMS Stock ATS, with access to certain services of the NMS Stock ATS that are not provided to other subscribers, which may result in trading advantages to those business units or affiliates.
Concerns regarding potential conflicts of interests involving trading venues that execute securities transactions are not novel.
In the context of a national securities exchange's affiliation with one of its members, the Commission's concerns stem from, among other things, the potential for unfair competitive advantages that the affiliated member could have by virtue of informational or operational advantages or the ability to receive preferential treatment.
Finally, due to the overlap between the operation of NMS Stock ATSs and the other operations of broker-dealer operators, the Commission is concerned that market participants have limited information about how the operations of the broker-dealer operator's business units or its affiliates may give rise to information leakage of subscribers' confidential trading information among those business units or affiliates. For instance, if a proprietary trading desk of the broker-dealer operator is able to enter orders or other trading interest to the NMS Stock ATS, that trading desk may have means to see the incoming order flow of unaffiliated subscribers to the NMS Stock ATS. Furthermore, as demonstrated by several enforcement actions, a broker-dealer operator may at times provide some subscribers—including its business units or those of its affiliates—access to certain trading information that it does not provide to others.
Part III of proposed Form ATS–N would require that broker-dealer operators of NMS Stock ATSs include, as applicable, disclosures that pertain to the broker-dealer operator and its affiliates of an NMS Stock ATS. The Commission preliminarily believes that these proposed disclosure requirements would help ensure that market participants and the Commission are adequately informed about: (1) The operation of the NMS Stock ATS—regardless of the corporate structure of the NMS Stock ATS and that 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 NMS Stock ATS; and (2) any potential conflicts of interest the broker-dealer operator may have with respect to the operation of its NMS Stock ATS.
The Commission has also considered other alternatives to address the potential conflicts of interest between NMS Stock ATSs and their broker-dealer operators.
The Commission preliminarily believes that the above alternatives could be significantly more intrusive and substantially affect or limit the current operations of ATSs that trade NMS stocks relative to requiring additional disclosures about the operations of the broker-dealer operator and its affiliates, and therefore is not proposing such alternatives at this time. The Commission is instead proposing that NMS Stock ATSs and their broker-dealer operators provide additional disclosures, both to the Commission and the public, about how they interact.
149. Do you believe that it is necessary to have some understanding of the broader activities of the broker-dealer operator and its affiliates in order to understand and evaluate the operation of an NMS Stock ATS? Why or why not? Please support your arguments.
150. Do you believe that conflicts of interest could arise from a broker-dealer's operation of an NMS Stock ATS? Why or why not? If so, please explain what these conflicts of interest are. Do you believe that potential conflicts of interest should be disclosed to the public? Why or why not? Please support your arguments.
151. Do you believe that certain conflicts of interest arising out of the broker-dealer's operation of the NMS Stock ATS should be prohibited? Why or why not? Please support your arguments.
152. Do you believe that the Commission should adopt an alternative approach, either those described above or any other alternative, such as a prohibition, regarding potential conflicts of interest arising from a broker-dealer's operation of an NMS Stock ATS? Why or why not? Please support your arguments. If so, what approach should the Commission adopt? Please be specific.
153. Do you believe that the Commission should require information barriers between the ATS and non-ATS business units of the broker-dealer operator? Why or why not? Please support your arguments.
154. Do you believe that the Commission should require an NMS Stock ATS to operate as a “stand-alone” entity and have no affiliation with any broker-dealer that seeks to execute proprietary or agency orders in the ATS? Why or why not? Please support your arguments. Do you believe that the proposed disclosures on Form ATS–N would help broker-dealers better assess whether the routing of their customers' orders to a particular NMS Stock ATS fulfills the broker-dealer's duty of best
155. Do you believe that the proposed disclosures on Form ATS–N would help customers of broker-dealers to better evaluate whether their broker-dealer is fulfilling its duty of best-execution with respect to orders routed to NMS Stock ATSs? Why or why not? Please support your arguments.
For the purposes of the proposed disclosures regarding affiliates of the broker-dealer operator, the Commission is proposing to define the term “affiliate” to mean “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.”
The Commission also proposes to amend the existing definition of the term “control” under Regulation ATS to add the phrase “the broker-dealer of” before the two instances of the phrase “an alternative trading system” and before the phrase “the alternative trading system” in subsections (2) and (3) of the definition.
The proposed disclosures of affiliate activities under Part III of proposed Form ATS–N are designed to provide market participants and the Commission with a comprehensive understanding of the potential conflicts of interest that may arise from the broker-dealer operator's other business activities and its operation of the NMS Stock ATS. Under the proposed definition of “affiliate” and amended definition of “control,” any affiliate of the broker-dealer operator of the NMS Stock ATS would be an affiliate of the NMS Stock ATS.
156. Should the Commission adopt the proposal to define “affiliate” for purposes of proposed Form ATS–N 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? Why or why not? Please support your arguments. Do you believe that the Commission should adopt a more limited or expansive definition of an “affiliate”? Why or why not? Please support your arguments. What advantages or disadvantages might result from a more limited or expansive definition of an affiliate? Please support your arguments.
157. Do you believe that the Commission should use the definition of an “affiliated person” as defined in the Exchange Act for purposes of proposed Rule 304?
158. Do you believe that the proposed amendments to the definition of “control” under Regulation ATS are appropriate in this context? Do you believe the Commission should adopt a more limited or expansive definition of “control”? Why or why not? Please support your arguments.
159. Do you believe the voting interest or partnership interest thresholds for “control” of an entity (
160. Do you believe that the definition of “control” should deem an affiliate of the broker-dealer of the NMS Stock ATS to be an affiliate of the NMS Stock ATS, such that the ATS would be subject to all of the proposed disclosures relating these entities? Should the definition of “control” be amended? If so, how should it be amended? Please support your arguments.
161. Do you believe that the information required to be filed on proposed Form ATS–N about affiliates of the NMS Stock ATS would provide useful information to market participants? Why or why not? Please support your arguments.
162. Do you believe that the Commission should require that the MPID and/or CRD number for affiliates and business units of the broker-dealer operator be disclosed on proposed Form ATS–N? Would such disclosure help market participants identify the broker-dealer operator's affiliates and business units? Why or why not? Please support your arguments.
Part III, Item 1 of proposed Form ATS–N would require an NMS Stock ATS to disclose whether the broker-dealer operator or any of its affiliates operate or control any non-ATS trading center(s)
The Commission is aware that many broker-dealer operators of ATSs that currently trade NMS stocks facilitate the execution of NMS stock outside of their ATSs.
Furthermore, the Commission preliminarily believes that subscribers to NMS Stock ATSs currently have limited information about the various non-ATS trading centers operated by an NMS Stock ATS broker-dealer operator, or its affiliates, and the extent to which the operations of these non-ATS trading centers may interact with subscriber orders or other trading interest sent to the NMS Stock ATS. Orders or other trading interest sent by subscribers to the NMS Stock ATS may pass through the broker-dealer operator's systems or functionality before being entered into the NMS Stock ATS. Such systems and functionalities, which could include a common gateway function, algorithm, or smart order router, may be used to support the broker-dealer operator's other business units, including any non-ATS trading centers. The broker-dealer operator typically controls the logic contained in these systems or functionality that determines where an order that the broker-dealer receives will be handled or sent. The Commission preliminarily believes that it would be helpful for NMS Stock ATS subscribers to know the extent to which subscriber orders received by the broker-dealer operator may interact, or be handled in any coordinated manner, with a non-ATS trading center of that broker-dealer operator or its affiliates.
The disclosures in Part III, Item 1 of proposed Form ATS–N are designed to reduce information asymmetries between subscribers and the broker-dealer operator regarding the operation of the NMS Stock ATS and competing venues for the execution of NMS stock transactions (
163. Do you believe the Commission should require the disclosure of the information on Part III, Item 1 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
164. Do you believe Part III, Item 1 of proposed Form ATS–N captures the information regarding non-ATS trading centers operated or controlled by the broker-dealer operator or any of its affiliates that is most relevant to understanding the operations of the NMS Stock ATS? Why or why not? Please support your arguments.
165. Do you believe there is other information that market participants might find relevant or useful regarding non-ATS trading centers operated or controlled by the broker-dealer operator or any of its affiliates? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
166. Do you believe that Part III, Item 1 of proposed Form ATS–N is sufficiently clear with respect to the disclosures that would be required? If not, how should Part III, Item 1 of proposed Form ATS–N be revised to provide additional clarity? Please explain in detail.
167. Do you believe that the non-ATS trading centers operated by the broker-dealer operator or its affiliates could raise potential conflicts of interest? Why or why not? If so, do you believe that such potential conflicts of interest should be disclosed? Please support your arguments.
168. Part III, Item 1 of proposed Form ATS–N would require disclosure about the non-ATS trading center activities of affiliates of the broker-dealer operator. Do you believe that disclosure about the activities of the broker-dealer operator's affiliates in this context is necessary? Why or why not? Should disclosure of non-ATS trading center activities extend to more remote affiliates under a revised definition of “affiliate”?
169. What are the potential costs and benefits of disclosing the information required by Part III, Item 1 of proposed Form ATS–N? Do you believe the proposed disclosures in Part III, Item 1 have the potential to impact innovation? Why or why not? Do you believe that the proposed disclosures in Part III, Item 1 of proposed Form ATS–N would require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
170. Do you believe there is other information that market participants might find relevant or useful regarding the disclosure of non-ATS trading centers operated by the broker-dealer operator or its affiliates? If so, describe such information and explain whether or not such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
171. Do you believe there is any information regarding the non-ATS trading centers of the broker-dealer operator or its affiliates that should not be required to be disclosed on proposed Form ATS–N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
172. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 1 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 1?
Part III, Item 2 of proposed Form ATS–N would require an NMS Stock ATS to state whether the broker-dealer operator, or any of its affiliates, operates one or more NMS Stock ATSs other than the NMS Stock ATS named on the Form ATS–N, and, if so, to (1) Identify the NMS Stock ATS(s) and provide its MPID(s); and (2) describe any interaction or coordination between the identified NMS Stock ATS(s) and the NMS Stock ATS named on the Form ATS–N including: (i) The circumstances under which subscriber orders or other trading interest received by the broker-dealer operator or its affiliates to be sent to the NMS Stock ATS named on the Form ATS–N may be sent to any identified NMS Stock ATS(s); (ii) circumstances under which subscriber orders or other trading interest to be sent to the NMS Stock ATS named on the Form ATS–N are displayed or otherwise made known in any other identified NMS Stock ATS(s); and (iii) the circumstances under which subscriber orders or other trading interest received by the NMS Stock ATS named on the Form ATS–N may be removed and sent to any other identified NMS Stock ATS(s).
The Commission is aware that some broker-dealer operators operate multiple ATSs that trade NMS stocks and that subscriber orders or other trading interest received by such broker-dealer operators could be routed between those NMS Stock ATSs. The Commission preliminarily believes that—similar to the potential conflicts of interest that may arise or information leakage that may occur when a broker-dealer operator, or its affiliate, operates or controls a non-ATS trading center—circumstances might arise whereby a broker-dealer that operates multiple NMS Stock ATSs may place its interests ahead of the interests of subscribers of
Therefore, under Part III, Item 2 of proposed Form ATS–N, a broker-dealer operator that operates multiple NMS Stock ATSs would be required to disclose how these trading venues interact with one another, if at all. To the extent that a broker-dealer operator could allocate subscriber orders it receives among the various NMS Stock ATSs that it or its affiliates operate, the broker-dealer operator would be required to describe how it determines such allocation in response to Item 2. For example, a broker-dealer operator may send all subscriber orders that it receives first to one of its NMS Stock ATSs, and if there is no execution after a certain period of time, the orders may then be routed directly to a second NMS Stock ATS operated by the broker-dealer operator or its affiliates, or may be returned to the broker-dealer operator (or its SOR or similar functionality), and may then be routed to a non-affiliated NMS Stock ATS for execution. Similarly, an NMS Stock ATS would be required to describe the circumstances under which subscriber orders on the NMS Stock ATS might be removed from the NMS Stock ATS and routed to another NMS Stock ATS that is operated by that broker-dealer operator or its affiliates.
The Commission preliminarily believes that subscribers to NMS Stock ATSs currently have limited information about the extent to which the operations of other ATSs operated by the same broker-dealer operator, or its affiliates, may interact with their orders sent to the NMS Stock ATS. Specifically, because subscriber orders received by a broker-dealer operator could be sent to multiple NMS Stock ATSs operated by that broker-dealer operator, the Commission preliminarily believes that subscribers should be provided with a better understanding of how their orders may interact, if at all, with multiple NMS Stock ATSs operated by the same broker-dealer operator or its affiliates. The proposed disclosures in Part III, Item 2 of proposed Form ATS–N are designed to help subscribers evaluate potential conflicts of interest for the broker-dealer operator or the potential for information leakage in connection with multiple NMS Stock ATSs that the broker-dealer operator, or its affiliates, operates.
173. Do you believe the Commission should require the disclosure of the information on Part III, Item 2 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
174. Do you believe Part III, Item 2 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding any other NMS Stock ATSs (other than the one named on the Form ATS–N) operated or controlled by the broker-dealer operator or any of its affiliates? Why or why not? Please support your arguments.
175. Do you believe that Part III, Item 2 of proposed Form ATS–N is sufficiently clear with respect to the disclosures that would be required? If not, how should Part III, Item 2 of proposed Form ATS–N be revised to provide additional clarity? Please explain.
176. Do you believe that the operation of multiple NMS Stock ATSs by the broker-dealer operator or its affiliates could raise potential conflicts of interest? Why or why not? If so, do you believe that such potential conflicts of interest should be disclosed? Please support your arguments.
177. Do you believe that the information that would be solicited by Part III, Item 2 of proposed Form ATS–N would be useful to market participants in deciding whether the participate on an NMS Stock ATS? Why or why not? Please support your arguments.
178. Part III, Item 2 of proposed Form ATS–N would require disclosure of whether the affiliates of the broker-dealer operator operate an NMS Stock ATS (other than the NMS Stock ATS filing the Form ATS–N). Do you believe that disclosure about affiliates of the broker-dealer operator in this context is necessary? Why or why not? Should disclosure of affiliates that operate another NMS Stock ATS be extended to more remote affiliates under a revised definition of “affiliate”?
179. What are the potential costs and benefits of disclosing the information required by Part III, Item 2 of proposed Form ATS–N? Do you believe the disclosures in Part III, Item 2 of proposed Form ATS–N would have the potential to impact innovation? Why or why not? Would the proposed disclosures in Part III, Item 2 of proposed Form ATS–N require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
180. Do you believe there is other information that market participants might find relevant or useful regarding the operation of multiple NMS Stock ATSs by a broker-dealer operator or its affiliate? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
181. Do you believe that the Commission should require NMS Stock ATSs to disclose the names of any non-NMS stock ATSs that are operated by its broker-dealer operator or one of its broker-dealer operator's affiliates? Why or why not? If so, what information should the NMS Stock ATS be required to disclose about such non-NMS stock ATSs? Please support your arguments.
182. Do you believe there is any information regarding the multiple NMS Stock ATS operations of a broker-dealer operator that the NMS Stock ATS
183. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 2 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 2?
Part III, Item 3 of proposed Form ATS–N would require an NMS Stock ATS to disclose whether the broker-dealer operator, or any of its affiliates, offer subscribers of the NMS Stock ATS any products or services used in connection with trading on the NMS Stock ATS (
Based on the Commission's experience, broker-dealer operators of NMS Stock ATSs may, directly or indirectly through an affiliate, offer products or services to subscribers in addition to the trading services of the NMS Stock ATS. For example, a broker-dealer operator may offer subscribers the use of an order management system to allow them to connect to or send orders or other trading interest to the NMS Stock ATS. Some broker-dealer operators may also offer subscribers the use of algorithmic trading strategies, which are computer assisted trading tools that, for instance, may be used by or on behalf of institutional investors to execute orders that are typically too large to be executed all at once without excessive price impact, and divide the orders into many small orders that are fed into the marketplace over time.
184. Do you believe the Commission should require the disclosure of the information on Part III, Item 3 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
185. Do you believe Part III, Item 3 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding other products or services offered to subscribers used in connection with trading on the NMS Stock ATS by the broker-dealer operator or any of its affiliates? Why or why not? Please support your arguments.
186. Do you believe that Part III, Item 3 of proposed Form ATS–N is sufficiently clear with respect to the disclosures that would be required? If not, how should Part III, Item 3 of proposed Form ATS–N be revised to provide additional clarity? Please explain in detail.
187. Do you believe there is other information that market participants might find relevant or useful regarding other products and services offered to subscribers by broker-dealer operators or their affiliates? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
188. Do you believe that the Commission should expand the proposed disclosures in Part III, Item 3 of proposed Form ATS–N to products or services offered by the broker-dealer operator or its affiliates that are offered to subscribers, but not necessarily offered in connection with transacting on the NMS Stock ATS? Why or why not? Please explain. Do you believe there is other information that market participants might find useful regarding the products or services offered to subscribers by the broker-dealer operator or its affiliates? If so, what information should be added to the disclosure requirements? Please explain.
189. What are the potential costs and benefits of disclosing the information required by Part III, Item 3 of proposed Form ATS–N? Do you believe the disclosures in Part III, Item 3 of proposed Form ATS–N would have the potential to impact innovation? Why or why not? Would the proposed disclosures in Part III, Item 3 of proposed Form ATS–N require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
190. Do you believe there is any information regarding the products or services offered to subscribers by the broker-dealer operator that the NMS Stock ATS should not be required to disclose on proposed Form ATS–N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
191. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 3 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 3?
Part III, Item 4 of proposed Form ATS–N would require an NMS Stock ATS to disclose whether the broker-dealer operator or any of its affiliates have any formal or informal arrangement with an unaffiliated person(s), or affiliate(s) of such person, that operates a trading center
Part III, Item 4 of proposed Form ATS–N is designed to inform subscribers and the Commission about arrangements that may impact a subscriber's experience on the NMS Stock ATS and allow market participants to evaluate potential conflicts of interest of the broker-dealer operator. For example, Part III, Item 4 of proposed Form ATS–N would require an NMS Stock ATS to disclose whether its broker-dealer operator has any arrangement with another unaffiliated NMS Stock ATS pursuant to which the NMS Stock ATS would route orders or other trading interest to the unaffiliated NMS Stock ATS for possible execution prior to routing to any other destination. Similarly, Part III, Item 4 of proposed Form ATS–N would require disclosure of an arrangement pursuant to which any subscriber orders routed out of the unaffiliated NMS Stock ATS would be routed first to the NMS Stock ATS before any other trading center, and would also require disclosure of the terms of the arrangement, for example, whether the NMS Stock ATS was providing monetary compensation or some other brokerage service to the unaffiliated NMS Stock ATS in exchange for the order flow.
The Commission preliminarily believes that market participants would consider information about any arrangements between a broker-dealer operator of an NMS Stock ATS and other trading centers relevant to their evaluation of an NMS Stock ATS as a potential trading venue. The disclosure of such arrangements could reveal potential conflicts of interest of the broker-dealer operator or could identify potential sources of information leakage. For example, a potential conflict of interest could arise where an NMS Stock ATS has a preferred routing arrangement with an unaffiliated non-ATS trading center that provides that all orders sent to the NMS Stock ATS would first be routed to the unaffiliated non-ATS trading center before entering the NMS Stock ATS in exchange for monetary compensation. Such an arrangement could also pose a risk of information leakage in that the non-ATS trading center would know that those orders that it does not execute would be routed to the NMS Stock ATS.
The Commission notes that an NMS Stock ATS would not be prohibited from establishing arrangements with other trading centers, provided that such arrangements comply with other applicable laws and rules, including applicable federal securities laws and Regulation ATS. However, the Commission preliminarily believes that market participants could benefit from disclosures about such arrangements and would use such information when determining whether to subscribe, or route orders, to a particular NMS Stock ATS. Additionally, the Commission preliminarily believes that disclosure of such arrangements would help the Commission perform its oversight functions by enabling it to better evaluate an NMS Stock ATS's compliance with the requirements of Regulation ATS, such as Rule 301(b)(10).
192. Do you believe the Commission should require the disclosure of the information on Part III, Item 4 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
193. Do you believe Part III, Item 4 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding any formal or informal arrangement by the broker-dealer operator or any of its affiliates with an unaffiliated person(s), or affiliate(s) of such person, that operates a trading center
194. Do you believe that Part III, Item 4 of proposed Form ATS–N is sufficiently clear with respect to the disclosures that would be required relating to access arrangements and preferred routing arrangements with other unaffiliated trading centers? If not, how should Part III, Item 4 of proposed Form ATS–N be revised to provide additional clarity? Please explain.
195. What are the potential costs and benefits of disclosing the information required by Part III, Item 4 of proposed Form ATS–N? Do you believe the disclosures in Part III, Item 4 of proposed Form ATS–N would have the potential to impact innovation? Why or why not? Would the proposed disclosures in Part III, Item 4 of proposed Form ATS–N require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
196. Do you believe that the Commission should include access arrangements of affiliates of the broker-dealer operator in Part III, Item 4 of proposed Form ATS–N? Why or why not? Please support your arguments. Conversely, should disclosures of arrangements with other trading centers by affiliates be extended to more remote affiliates under a revised definition of “affiliate”?
197. Do you believe that the Commission should expand the proposed disclosure requirements to other arrangements beyond access and preferred routing that the broker-dealer operator or its affiliates might have with other trading centers? If so, what other arrangements do you believe should be disclosed? Please explain in detail.
198. Do you believe that the Commission should 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 centers and affiliates of those other trading centers? Why or why not? Please support your arguments.
199. Do you believe there is other information that market participants might find relevant or useful regarding the broker-dealer operator or its affiliates' arrangements with other trading centers? If so, describe such information and explain whether, and if so why, such information should be
200. Do you believe there is any information regarding the broker-dealer operator or its affiliates' arrangements with other trading centers that the NMS Stock ATS should not be required to disclose on proposed Form ATS–N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
201. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 4 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 4?
Part III, Item 5 of proposed Form ATS–N would require certain disclosures related to the trading activity of the broker-dealer operator or its affiliates on the NMS Stock ATS. Specifically, Part III, Item 5 of proposed Form ATS–N would require the NMS Stock ATS to disclose whether the broker-dealer operator, or any of its affiliates, enters orders or other trading interest on the NMS Stock ATS. If so, the NMS Stock ATS would be required to: (1) Identify each affiliate and business unit of the broker-dealer operator that may enter orders or other trading interest on the NMS Stock ATS; (2) describe the circumstances and capacity (
As noted above, Part III, Item 5(a) of proposed Form ATS–N would require the NMS Stock ATS to identify each affiliate and business unit (
Part III, Item 5(b) of proposed Form ATS–N would require an NMS Stock ATS to disclose the circumstances and capacity in which the broker-dealer operator's business units or affiliates may trade on the NMS Stock ATS, such as whether they are trading on a proprietary basis (
Part III, Item 5(c) of proposed Form ATS–N would require an NMS Stock ATS to describe the means by which the business units of the broker-dealer operator and its affiliates enter orders or other trading interest into the NMS Stock ATS. Item 5(d) would require a description of any means by which a subscriber can be excluded from interacting or trading with orders or other trading interest of the broker-dealer operator or its affiliates. Some NMS Stock ATSs that currently transact in NMS stocks may provide both direct and indirect means for subscribers to enter orders or other trading interest to the ATS. Based on its experience, the Commission understands that subscribers to some NMS Stock ATSs may enter orders or other trading interest directly to the ATS using, for example, a direct FIX connection,
Overall, the Commission preliminarily believes that the disclosures required under Part III, Item 5 of proposed Form ATS–N would be useful to many market participants. The Commission notes that market participants may vary widely in their decision making process in selecting a particular trading center to effect their trades or route their orders, and therefore, the Commission preliminarily believes that some market participants may not be concerned with the potential conflicts of interest posed by the trading activity of the broker dealer operator or its affiliates on the NMS Stock ATS. However, absent disclosure of this trading activity of the broker-dealer operator or its affiliates, subscribers and potential subscribers that take such information into account when executing their trading or investment strategies likely would neither be aware of such potential conflicts nor able to assess whether the conflicts might impact those strategies. Consequently, the Commission preliminary believes that it would be useful to market participants for an NMS Stock ATS to be required to disclose the information required in Part III, Item 5 of proposed Form ATS–N.
202. Do you believe the Commission should require the disclosure of the information on Part III, Item 5 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
203. Do you believe Part III, Item 5 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the trading activity of the broker-dealer operator or its affiliates on the NMS Stock ATS? Why or why not? Please support your arguments.
204. Do you believe that Part III, Item 5 of proposed Form ATS–N is sufficiently clear with respect to the disclosures that would be required relating to the broker-dealer operator and its affiliates trading on the NMS Stock ATS? If not, how should Part III, Item 5 of proposed Form ATS–N be revised to provide additional clarity? Please explain.
205. Do you believe proposed disclosures in Part III, Item 5 of proposed Form ATS–N should be applied to the trading activity on the NMS Stock ATS of affiliates of the broker-dealer operator? Why or why not? Should disclosures of affiliates trading on the NMS Stock ATS be extended to more remote affiliates under a revised definition of “affiliate”?
206. Do you believe that the Commission should enhance measures to prevent potential conflicts of interest posed by the broker-dealer operator or its affiliates trading on its own NMS Stock ATS, such as prohibiting proprietary trading by the broker-dealer operator or its affiliates on the NMS Stock ATS? If no, why? If yes, what measures should the Commission consider? Please explain in detail.
207. What are the potential costs and benefits of disclosing the information required by Part III, Item 5 of proposed Form ATS–N? Do you believe the disclosures in Part III, Item 5 of proposed Form ATS–N would have the potential to impact innovation or discourage broker-dealer operators or their affiliates from trading on their own NMS Stock ATS? Why or why not? Would the proposed disclosures in Part III, Item 5 of proposed Form ATS–N require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
208. Do you believe there is other information that market participants might find relevant or useful regarding the trading activity on the NMS Stock ATS by the broker-dealer operator or its affiliates? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
209. Do you believe there is any information regarding the trading activity on the NMS Stock ATS by the broker-dealer operator or its affiliates that the NMS Stock ATS should not be required to disclose on Form ATS–N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
210. Should the Commission require separate disclosures for different types of trading conducted by the broker-dealer operator on the NMS Stock 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 proprietary trading? Why or why not? Please support your arguments. If so, what types of proprietary trading should be addressed separately and why? What disclosures should the Commission require about these types of proprietary trading and why? Please explain in detail.
211. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 5 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 5?
Part III, Item 6 of proposed Form ATS–N would require the NMS Stock ATS to disclose whether the broker-dealer operator, or any of its affiliates, use a SOR(s) (or similar functionality), an algorithm(s), or both to send or receive subscriber orders or other trading interest to or from the NMS Stock ATS, and if so, to: (1) Identify the SOR(s) (or similar functionality) or algorithm(s) and identify the person(s) that operates the SOR(s) (or similar functionality) or algorithm(s), if other than the broker-dealer operator;
Today, most broker-dealers that operate an NMS Stock ATS use some form of SOR (or similar functionality) in connection with the NMS Stock ATS. A SOR (or similar functionality) can generally be understood as an automated system used to route orders or other trading interest among trading centers, including proprietary non-ATS trading centers operated by the broker-dealer operator, to carry out particular trading instructions or strategies of a broker-dealer. Smart order routers (or similar functionalities) have become an integral part of the business of many multi-service broker-dealers, given the increase in the speed of trading in today's equity markets and the large number of trading centers, including national securities exchanges, ATSs, and non-ATS trading centers, that have emerged since the adoption of Regulation ATS. In addition to the SOR (or similar functionality), orders or other trading interest may be entered on an NMS Stock ATS through the use of a trading algorithm, which is a computer assisted trading tool that, for instance, may be used by or on behalf of institutional investors to execute orders that are typically too large to be executed all at once without excessive price impact, and divide the orders into many small orders that are fed into the marketplace over time.
Broker-dealer operators of NMS Stock ATSs or their affiliates may use SORs (or similar functionality) or algorithms in a variety of ways.
The Commission preliminarily believes that the high likelihood that a SOR (or similar functionality) or algorithm could access subscribers' confidential trading information necessitates disclosure of certain information to subscribers about the use of a SOR (or similar functionality) or algorithm by the broker-dealer operator or its affiliates to route subscriber orders to or out of the NMS Stock ATS. The Commission preliminarily believes that subscribers and the Commission would benefit from increased disclosures about the use of a SOR(s) (or similar functionality) or algorithm(s) by the broker-dealer operator or its affiliates in connection with the NMS Stock ATS because of the potential for information leakage. Existing Form ATS does not specifically inquire about the use of a SOR (or similar functionality) or algorithms in connection with an ATS and based on Commission experience, the Commission is concerned that there is limited information available to subscribers about the interaction between SORs (or similar functionalities) or algorithms and affiliated ATSs that trade NMS stocks, despite the importance of SORs (or similar functionality) or algorithms to the functions and operations of such ATSs. The Commission preliminarily believes that information provided on Form ATS–N would allow market participants to better understand the operation of an NMS Stock ATS and the circumstances that may give rise to potential conflicts of interest and information leakage.
Part III, Item 6(a) of proposed Form ATS–N would require an NMS Stock ATS to identify the SOR(s) (or similar functionality) or algorithm(s) and identify the person(s) that operates the SOR (or similar functionality) and algorithm(s). Part III, Item 6(a) of proposed Form ATS–N is designed to provide subscribers with information about who operates the SOR(s) (or similar functionality) or algorithm(s) used in connection with the NMS Stock ATS, which would thereby inform subscribers about who may have access to their confidential trading information or control over the entry and removal of orders or other trading interest to and
Part III, Item 6(b) of proposed Form ATS–N would require an NMS Stock ATS to describe the interaction or coordination between the identified SOR(s) (or similar functionality) or algorithm(s) and the NMS Stock ATS, including any information or messages about orders or other trading interest (
The interaction or coordination of the SOR(s) (or similar functionality) or algorithm(s) with the NMS Stock ATS likely varies across NMS Stock ATSs. For instance, a SOR (or similar functionality) or algorithm may check for potential contra-side interest in a particular symbol on the NMS Stock ATS prior to sending the subscriber order or other trading interest into the NMS Stock ATS. Such protocol carried out by the SOR (or similar functionality) or algorithm may send only information about the symbol and side (
The Commission notes that an ATS may consist of various functionalities or mechanisms that operate collectively as a Rule 3b–16 system to bring together the orders for securities of multiple buyers and sellers using non-discretionary methods.
212. Do you believe the Commission should require the disclosure of the information on Part III, Item 6 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
213. Do you believe Part III, Item 6 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding the use of a SOR or algorithm by the broker-dealer operators, or any of its affiliates, to send or receive subscriber orders or other trading interest to or from the NMS Stock ATS? Why or why not? Please support your arguments.
214. Do you believe that Part III, Item 6 of proposed Form ATS–N is sufficiently clear with respect to the disclosures that would be required relating to the broker-dealer operator and its affiliates' use of SORs (or similar functionality) and algorithms in connection with the NMS Stock ATS? If not, how should Part III, Item 6 of proposed Form ATS–N be revised to provide additional clarity? Please explain in detail.
215. Do you believe it is appropriate for the Commission to require disclosure about the use of SORs (or similar functionalities) and algorithms by the broker-dealer operator, or its affiliates, to send or receive orders or other trading interest to or from the NMS Stock ATS? Why or why not? Please support your arguments. If so, what level of detail should be disclosed about how SORs (or similar functionalities) and algorithms determine whether to send or receive
216. What are the potential costs and benefits of disclosing the information required by Part III, Item 6 of proposed Form ATS–N? Do you believe the disclosures in Part III, Item 6 of proposed Form ATS–N would have the potential to impact innovation? Why or why not? Would the proposed disclosures in Part III, Item 6 of proposed Form ATS–N require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) about their structure and operations? Why or why not? Please support your arguments.
217. Do you believe the proposed disclosures in Part III, Item 6 of proposed Form ATS–N related to the use of SORs (or similar functionality) and algorithms should be applied to affiliates of the broker-dealer operator? Why or why not? Please support your arguments.
218. Do you believe there is other information that market participants might find relevant or useful regarding broker-dealer operators or their affiliates' SORs (or similar functionalities) and algorithms? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
219. Do you believe there is any information regarding broker-dealer operators or their affiliates' SORs (or similar functionality) and algorithms that the NMS Stock ATS should not be required to disclose on proposed Form ATS–N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
220. Do you believe that most subscribers to ATSs that transact in NMS stock access the ATSs through the SOR (or similar functionality) or algorithm of the broker-dealer operator (or its affiliates), or do they connect directly to the ATS through some other means, or both? Please explain in detail.
221. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 6 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 6?
Part III, Item 7 of proposed Form ATS–N would require an NMS Stock ATS to state whether any employee of the broker-dealer operator that services the operations of the NMS Stock ATS also services any other business unit(s) of the broker-dealer operator or any affiliate(s) of the broker-dealer operator (“shared employee”) and, if so, to (1) identify the business unit(s) and/or the affiliate(s) of the broker-dealer operator to which the shared employee(s) provides services and identify the position(s) or title(s) that the shared employee(s) holds in the business unit(s) and/or affiliate(s) of the broker-dealer operator; and (2) describe the roles and responsibilities of the shared employee(s) at the NMS Stock ATS and the business unit(s) and/or affiliate(s) of the broker-dealer operator.
Part III, Item 7 of proposed Form ATS–N is designed to provide information to market participants and the Commission about circumstances that might give rise to a potential conflict of interest and potential information leakage involving shared employees of the broker-dealer operator. Responses to Part III, Item 7 of proposed Form ATS–N would require an NMS Stock ATS to describe the roles and responsibilities of the shared employees with the NMS Stock ATS and the other business units of the broker-dealer operator or affiliates. Responses to Part III, Item 7 of proposed Form ATS–N would be required to be sufficiently detailed to provide a comprehensive understanding of the full range of the shared employee's responsibilities with the NMS Stock ATS and each relevant entity, and include disclosure of responsibilities that could enable the employee to view subscribers' confidential trading information. The Commission preliminarily believes that market participants would find information about the multiple roles or functions of shared employees disclosed in Part III, Item 7 of proposed Form ATS–N important in evaluating whether to route orders to a particular ATS. For example, to identify and understand potential sources of information leakage, market participants would likely want to know if an employee of the broker-dealer operator that is responsible for the operations of a system supporting the NMS Stock ATS is also responsible for the proprietary trading activity of an affiliate of the broker-dealer operator that trades on the NMS Stock ATS. In this example, market participants might also be interested in understanding conflicts of interest that may result from the shared employee performing multiple roles, as the shared employee could have an incentive to alter the operations of the NMS Stock ATS to benefit the broker-dealer operator or an affiliate of the NMS Stock ATS.
The Commission would preliminarily view any personnel that service the trading functions of the NMS Stock ATS, such as those performing information technology, programming, testing, or system design functions as employees that “service the operations of the NMS Stock ATS.” Other employees of the NMS Stock ATS that are otherwise necessary for the trading functions of the NMS Stock ATS would also be included in the disclosure requirement of Part III, Item 7 of proposed Form ATS–N. Clerical employees or those performing solely administrative duties such as the payroll functions for the employees of the NMS Stock ATS would preliminarily not be included within the proposed disclosure.
222. Do you believe the Commission should require the disclosure of the information on Part III, Item 7 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
223. Do you believe Part III, Item 7 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to “shared employees”? Why or why not? Please support your arguments.
224. Do you believe that Part III, Item 7 of proposed Form ATS–N is sufficiently clear with respect to the disclosures that would be required relating to shared employees of the broker-dealer operator? If not, how should Part III, Item 7 of proposed Form ATS–N be revised to provide additional clarity? Please explain.
225. Do you believe that it is sufficiently clear who would be considered a “shared employee” under Part III, Item 7 of proposed Form ATS–N? Why or why not? Is the scope of “shared employees” provided under Part III, Item 7 reasonable? Why or why not? Please explain.
226. Do you believe there is any information contained in the proposed disclosures in Part III, Item 7 of proposed Form ATS–N regarding shared employees of the broker-dealer operator that the NMS Stock ATS should not be required to disclose on proposed Form ATS–N due to concerns regarding confidentiality, business reasons, trade
227. What are the potential costs and benefits of disclosing the information required by Part III, Item 7 of proposed Form ATS–N? Do you believe the disclosures in Part III, Item 7 of proposed Form ATS–N would have the potential to impact innovation or the manner in which NMS Stock ATSs and broker-dealer operators use their employees? Why or why not? Would the proposed disclosures in Part III, Item 7 of proposed Form ATS–N require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
228. Do you believe there is other information that market participants might find relevant or useful regarding shared employees of the broker-dealer operator? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
229. Do you believe that the Commission should expand the proposed disclosures in Part III, Item 7 of proposed Form ATS–N to other employees, personnel, or independent contractors of the broker-dealer operator? Why or why not? If so, which employees, personnel, or independent contractors should be included and what information about such persons should be solicited? Please explain.
230. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 7 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 7?
Part III, Item 8 of proposed Form ATS–N would require an NMS Stock ATS to disclose whether any operation, service, or function of the NMS Stock ATS is performed by any person(s) other than the broker-dealer operator of the NMS Stock ATS, and if so to: (1) Identify the person(s) (in the case of a natural person, to identify only the position or title) performing the operation, service, or function and note whether this service provider(s) is an affiliate of the broker-dealer, if applicable; (2) describe the operation, service, or function that the identified person(s) provides and describe the role and responsibilities of that person(s); and (3) state whether the identified person(s), or any of its affiliates, may enter orders or other trading interest on the NMS Stock ATS and, if so, describe the circumstances and means by which such orders or other trading interest are entered on the NMS Stock ATS.
The Commission notes that Part III, Item 8 of proposed Form ATS–N expands on the disclosure requirements of Exhibit E on current 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.
Under Part III, Item 8(a) of proposed Form ATS–N, the NMS Stock-ATS must identify any entity that performs any operation, service, or function for the NMS Stock ATS.
The Commission intends that the proposed disclosure requirements of Items 8(a) and (b) of Part III of proposed Form ATS–N would apply to any operation, service, or function performed by any person outside of the NMS Stock ATS entity, including affiliates of the broker-dealer operator.
Items 8(a) and (b) of Part III of proposed Form ATS–N are designed to provide market participants and the Commission with information about how the NMS Stock ATS operates, potential conflicts of interest, and the potential for information leakage. In particular, the Commission preliminarily believes that this information would inform market participants, as well as the Commission, about what aspects of the NMS Stock ATS's operations are performed by third-parties that may or may not be under the control of the broker-dealer operator. For example, an NMS Stock ATS whose trading system is operated or supported by a third-party service provider may have business interests that are aligned with those of the service provider. Additionally, depending on the role and responsibilities of the third-party service provider, market participants may want to evaluate the robustness of the NMS Stock ATS's safeguards and procedures to protect confidential subscriber information.
Lastly, Part III, Item 8(c) of proposed Form ATS–N would require an NMS Stock ATS to state whether any person identified in Part III, Item 8(a) of proposed Form ATS–N or any of its affiliates may enter orders or other trading interest on the NMS Stock ATS and if so, to describe the circumstances and means by which such orders or other trading interests are entered on the NMS Stock ATS. The purpose of these disclosures is to provide market participants and the Commission with information about the potential for conflicts of interest that may result from a service provider, or its affiliates, trading on the NMS Stock ATS and the potential for information leakage. For example, the Commission preliminarily believes that a subscriber or potential subscriber likely would want to know whether a person that is not an employee of the broker-dealer operator, but is contracted to service the trading platform that contains the NMS Stock ATS's book of orders, could enter orders or other trading interest on the NMS Stock ATS. Similarly, the Commission preliminarily believes that a subscriber or a potential subscriber would also want to know whether an affiliate of the service provider could enter orders or other trading interest on the NMS Stock ATS as well and whether its means of access differ from other subscribers. Under both of these scenarios, a potential conflict of interest could result if the service provider has business interests that compete with the trading interests of other subscribers to the NMS Stock ATS.
231. Do you believe the Commission should require the disclosure of the information on Part III, Item 8 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
232. Do you believe Part III, Item 8 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding any operation, service, or function of the NMS Stock ATS performed by any person other than the broker-dealer operator? Why or why not? Please support your arguments.
233. Do you believe that Part III, Item 8 of proposed Form ATS–N is sufficiently clear with respect to the disclosures that would be required relating to service providers of the NMS Stock ATS? If not, how should Part III, Item 8 of proposed Form ATS–N be revised to provide additional clarity? Please explain.
234. What are the potential costs and benefits of disclosing the information required by Part III, Item 8 of proposed Form ATS–N? Do you believe the disclosures in Part III, Item 8 of proposed Form ATS–N would have the potential to impact innovation or discourage arrangements with other service providers? Why or why not? Would the proposed disclosures in Part III, Item 8 of proposed Form ATS–N require broker-dealer operators of NMS Stock ATSs to reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
235. Do you believe that any of the information in the proposed disclosure requirements of Part III, Item 8 of proposed Form ATS–N regarding service providers to the NMS Stock ATS should not be required to be disclosed on proposed Form ATS–N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
236. Do you believe the Commission should adopt a more limited or expansive definition of “affiliate” for purposes of this disclosure item? Why or why not? Please support your arguments.
237. Do you believe there is other information that market participants might find relevant or useful regarding any operation, service, or function of the NMS Stock ATS performed by any person other than the broker-dealer operator? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
238. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 8 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 8?
Part III, Item 9 of proposed Form ATS–N would require an NMS Stock ATS to identify and describe any service, functionality, or procedure of the NMS Stock ATS that is available or applies to the broker-dealer operator or its affiliates, that is not available or does not apply to a subscriber(s) to the NMS Stock ATS. The purpose of this disclosure is to alert market participants to the existence of system, functionality, or trading features that the broker-dealer operator or its affiliates may have that
The Commission notes that a significant difference between national securities exchanges and NMS Stock ATSs is the extent to which each trading center allows access to its services by its users. Section 6(b)(2) of the Exchange Act generally requires registered national securities exchanges to allow any qualified and registered broker-dealer to become a member of the exchange—a key element in assuring fair access to national securities exchange services.
While the Commission is not proposing to change the fair access requirements applicable to NMS Stock ATSs in this proposal, the Commission is proposing to require, among other things, disclosures on Form ATS–N that identify and describe differences among subscribers (or other persons) in the services, procedures or functionalities that an NMS Stock ATS provides, as well as disclosures that identify and describe any services, functionalities, or procedures of an NMS Stock ATS that are available to the broker-dealer operator's affiliates, but are not available to subscribers. The Commission preliminarily believes that the disclosure of these differences would allow market participants to evaluate whether such differences might put them at a disadvantage when trading on a particular NMS Stock ATS and thus, better enable market participants to decide whether submitting order flow to that NMS Stock ATS aligns with their trading or investment objectives.
The Commission notes that ATSs may treat subscribers differently with respect to the services offered by the ATS unless prohibited by applicable federal securities laws or the rules and regulations thereunder. For example, an ATS with at least 5% of the average daily volume for any covered security during four of the preceding six months is required to comply with fair access requirements under Rule 301(b)(5) of Regulation ATS,
239. Do you believe the Commission should require the disclosure of the information on Part III, Item 9 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
240. Do you believe Part III, Item 9 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to any service, functionality, or procedure of the NMS Stock ATS that is available or applies to the broker-dealer operator or its affiliates, that is not available or does not apply to a subscriber(s) to the NMS Stock ATS? Why or why not? Please support your arguments.
241. Do you believe there is other information that market participants might find relevant or useful regarding any service, functionality, or procedure of the NMS Stock ATS that is available or applies to the broker-dealer operator or its affiliates, that is not available or does not apply to a subscriber(s) to the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
242. Do you believe that Part III, Item 9 of proposed Form ATS–N is sufficiently clear with respect to the disclosures that would be required relating to the differences in services provided to the broker-dealer operator or its affiliates trading on the NMS Stock ATS? If not, how should Part III, Item 9 of proposed Form ATS–N be revised to provide additional clarity? Please explain.
243. Do you believe that the proposed disclosures in Part III, Item 9 of proposed Form ATS–N that are intended to cover differences in services, functionalities, or procedures should be applied to affiliates of the broker-dealer operator? Why or why not? Conversely, should such disclosures be extended to more remote affiliates under a revised definition of “affiliate”?
244. What are the potential costs and benefits of disclosing the information required by Part III, Item 9 of proposed Form ATS–N? Do you believe the disclosures in Part III, Item 9 of proposed Form ATS–N would have the potential to impact innovation? Why or why not? Would the proposed disclosures in Part III, Item 9 of proposed Form ATS–N require broker-dealer operators of NMS Stock ATSs to
245. Do you believe there is any information regarding differences in services, functionalities, or procedures of the NMS Stock ATS that are available to the broker-dealer operator or its affiliates and not other subscribers that should not be required disclosures on Form ATS–N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
246. Do you believe that the Commission should propose amendments to Rule 301(b)(5) of Regulation ATS to lower the trading volume threshold in Regulation ATS that triggers the fair access requirement from its current 5%? If so, what is the appropriate threshold? Please support your arguments.
247. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 9 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 9?
Part III, Item 10 of proposed Form ATS–N is based on the requirements of Rule 301(b)(10) of Regulation ATS,
As previously noted,
The protection of subscribers' confidential trading information remains a bedrock component of the regulation of ATSs, including those that trade NMS stocks, and is essential to ensuring the integrity of ATSs as execution venues. To the extent that subscribers cannot be assured that their confidential trading information will be protected by an ATS, many of the advantages or purposes for which a subscriber may choose to send its orders to an ATS (
Part III, Item 10(a) of proposed Form ATS–N would require the NMS Stock ATS to describe the means by which a subscriber can consent or withdraw consent to the disclosure of confidential trading information to any persons (including the broker-dealer operator and any of its affiliates). Disclosing the means by which a subscriber can consent or withdraw consent from the sharing of such information would allow subscribers and potential subscribers to understand what information about their orders or other trading interest will be kept confidential and how they can specify the means by which they choose to share confidential information. As the Commission noted in the adoption of Regulation ATS, subscribers should be able to give consent if they so choose to share their confidential trading information.
Part III, Item 10(b) of proposed Form ATS–N, which would require that ATSs identify any person that has access to confidential trading information, the type of information, and the circumstances under which they may access such information, is meant to provide transparency into the potential sources from which confidential trading information might be compromised. As noted above, Regulation ATS requires that access to confidential subscriber information be available only to those employees of the ATS that operate the system or are responsible for the ATS's compliance with applicable rules.
Part III, Item 10(b) of proposed Form ATS–N would also require the NMS Stock ATS to describe the confidential trading information that may be accessed by permitted persons. For example, employees that operate the NMS Stock ATS may be able to see the size, side, and symbol of an order but not the identity of the subscriber that submitted the order. The Commission preliminarily believes that subscribers and potential subscribers to the NMS Stock ATS likely would find it useful to know the range of confidential trading information that a person may have access to. Item 10(b) would also require the disclosure of the circumstances under which confidential trading information may be accessed by permitted persons. This disclosure requirement is designed to encompass the reasons for which confidential subscriber information might be accessed. For example, an NMS Stock ATS may only permit its designated employees access to confidential subscriber information when it is necessary to break certain trades or to perform system maintenance or repairs. Disclosures in Item 10(b) generally should describe whether the information is available in real-time (
Part III, Items 10(c) and (d) of proposed Form ATS–N closely track the existing requirements of Regulation ATS encompassed in Rule 301(b)(10)(i)(B) and (b)(10)(ii) respectively. The Commission preliminarily believes that market participants and the Commission would benefit from a description of the NMS Stock ATS's standards in ensuring that employees of the NMS Stock ATS cannot trade for their own account using confidential trading information and the procedures adopted by the NMS Stock ATS to ensure its safeguards and procedures are followed. The Commission notes that, pursuant to existing Rule 301(b)(10), the Commission requires ATSs to have in place such standards, policies, and procedures. As discussed in greater detail below, the Commission is proposing to amend Regulation ATS to provide that these standards, policies, and procedures be written.
248. Do you believe the Commission should require the disclosure of the information on Part III, Item 10 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
249. Do you believe Part III, Item 10 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the written safeguards and written procedures to protect the confidential trading information of subscribers to the NMS Stock ATS? Why or why not? Please support your arguments.
250. Do you believe that Part III, Item 10 of proposed Form ATS–N is sufficiently clear with respect to the disclosures that would be required relating to the NMS Stock ATS's obligations under Rule 301(b)(10) of Regulation ATS, including a description of the safeguards and procedures of the NMS Stock ATS to protect the confidential trading information of subscribers? If not, how should Part III, Item 10 of proposed Form ATS–N be revised to provide additional clarity? Please explain.
251. Do you believe that any of information in the proposed disclosure requirements of Part III, Item 10 of proposed Form ATS–N, including a description of the NMS Stock ATS's safeguards and procedures to protect the confidential trading information of subscribers, should not be required to be disclosed on proposed Form ATS–N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
252. Do you believe that the proposed disclosures in Part III, Item 10(a) of proposed Form ATS–N requiring an NMS Stock ATS to describe the means by which a subscriber can consent or withdraw consent to the disclosure of confidential trading information should be disclosed? Do ATSs that currently transact in NMS stock inform subscribers as to what trading information is considered confidential and/or provide a means for subscribers to give or withdraw consent to the disclosure of such trading information? Please explain.
253. Do you believe that the proposed disclosures in Part III, Item 10(b) of proposed Form ATS–N requiring an NMS Stock ATS to identify the positions or titles of any persons that have access to the confidential trading information of subscribers, what information they may obtain, and the circumstances under which such persons may obtain that information should be disclosed? Why or why not? Please support your arguments.
254. Do you believe there is other information that market participants might find relevant or useful regarding NMS Stock ATSs obligations under Rule 301(b)(10) and the protection of the confidential trading information of subscribers that has not been proposed in Part III, Item 10 of proposed Form ATS–N? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
255. What are the potential costs and benefits of disclosing the information required by Part III, Item 10 of proposed Form ATS–N? Would the proposed
256. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part III, Item 10 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part III, Item 10?
Given the dispersal of trading volume in NMS stocks among an increasing number of trading centers,
Part IV of proposed Form ATS–N would require that the NMS Stock ATS include as Exhibit 4 information about the operations of an NMS Stock ATS. Specifically, Part IV of proposed Form ATS–N would require detailed information about the operations of NMS Stock ATSs, including the following, which are discussed in more detail below: Subscribers; hours of operations; order types; connectivity and order entry; segmentation of order flow; display of orders and trading interest; trading services; procedures governing suspension of trading and trading during system disruptions and malfunctions; opening, reopening, closing and after-hours trading procedures; outbound routing from the NMS Stock ATS; use of market data by the NMS Stock ATS; fees; trade reporting, clearance and settlement procedures; order display and execution access; and fair access standards. The proposed disclosure requirements are designed to assist market participants in assessing an NMS Stock ATS as a trading venue. The Commission preliminarily believes that the information that would be required to be disclosed on proposed Form ATS–N would allow market participants to compare and evaluate NMS Stock ATSs, as well as compare NMS Stock ATSs with national securities exchanges, as the type and level of information required by Part IV of proposed Form ATS–N would be generally similar to the information disclosed by national securities exchanges about their operations. For example, the rules of national securities exchanges, which are publicly available,
Part IV, Item 1 of proposed Form ATS–N would require an NMS Stock ATS to disclose information regarding any eligibility requirements to access the NMS Stock ATS, terms and conditions of use, types of subscribers, arrangements with liquidity providers, and any procedures or standards to limit or deny access to the NMS Stock ATS.
Part IV, Item 1(a) of proposed Form ATS–N would require an NMS Stock ATS to describe any eligibility requirements to gain access to the services of the NMS Stock ATS. If the eligibility requirements are not the same for all subscribers and persons, an NMS Stock ATS would be required to describe any differences. This item is designed to provide potential subscribers with information about any conditions they would need to satisfy prior to accessing the NMS Stock ATS. Based on Commission experience, the eligibility process and requirements to access an NMS Stock ATS vary, and the requirements may differ depending on whether a potential subscriber is a customer of the broker-dealer operator of the NMS Stock ATS. For instance, some NMS Stock ATSs require that a potential subscriber be a broker-dealer to enter orders on the NMS Stock ATS, while other NMS Stock ATSs do not. Some NMS Stock ATSs may require potential subscribers to submit financial information as a pre-requisite to subscribing to, or maintaining their subscriber status on, the NMS Stock ATS.
257. Do you believe the Commission should require the disclosure of the information on Part IV, Item 1(a) of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
258. Do you believe Part IV, Item 1(a) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to eligibility requirements to gain access to the services of the NMS Stock ATS? Why or why not? Please support your arguments.
259. Is it sufficiently clear what information would be required by Part IV, Item 1(a) of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
260. Do you believe there is other information that market participants might find relevant or useful regarding the eligibility process or requirements to gain access to the services of the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
261. Do you believe there is any information that would be required by Part IV, Item 1(a) of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
262. Do you believe that subscribers and potential subscribers would benefit from knowing the eligibility requirements of the NMS Stock ATS? Why or why not? Please support your arguments.
263. What are the potential costs and benefits of disclosing the information required by Part IV, Item 1(a) of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 1(a) of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
264. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 1(a) of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 1(a)?
Part IV, Item 1(b) of proposed Form ATS–N would require an NMS Stock ATS to describe the terms and conditions of any contractual agreements for granting access to the NMS Stock ATS for the purpose of effecting transactions in securities or for submitting, disseminating, or displaying orders on the NMS Stock ATS, and to state whether these contractual agreements are written. Furthermore, if the terms and conditions of any contractual agreements are not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. Based on Commission experience, these contractual agreements may or may not be in writing, and the terms and conditions therein can vary among subscribers to the NMS Stock ATSs.
The Commission preliminarily believes that it would be important for all subscribers to have access to all relevant information regarding the terms and conditions for accessing the trading services of the NMS Stock ATS, which today may not always be available to all subscribers. This item would allow subscribers to understand their rights and obligations in connection with their use of the NMS Stock ATS, and allow subscribers and potential subscribers to assess whether other market participants may have access arrangements more favorable than their own. This information is designed to help market participants when evaluating which trading centers they could or would like to access, and on which terms they could seek executions on those trading centers. The Commission preliminarily believes that having such information publicly available would provide efficiencies as market participants could more easily source information about the terms and conditions under which they could trade across NMS Stock ATSs, as well as compare those terms and conditions to those of national securities exchanges. The Commission understands that some NMS Stock ATSs communicate the terms and conditions to access the NMS Stock ATS orally to subscribers, often as part of an onboarding process, and do not provide written contractual agreements. The Commission preliminarily believes that market participants would benefit from knowing whether a written contractual agreement exists that sets forth the terms and conditions for accessing and trading on the NMS Stock ATS. Furthermore, the Commission preliminarily believes that the disclosures that would be required under Item 1(b) would better inform potential subscribers about whether additional inquiry is necessary to fully understand the terms and conditions for trading on the NMS Stock ATS.
265. Do you believe the Commission should require the disclosure of the information on Part IV, Item 1(b) of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
266. Do you believe Part IV, Item 1(b) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the terms and conditions of any contractual agreements for granting access to the NMS Stock ATS? Why or why not? Please support your arguments.
267. Is it sufficiently clear what information would be required by Part IV, Item 1(b) of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
268. Do you believe there is other information that market participants might find relevant or useful regarding the terms and conditions of any contractual agreements by which access is granted to the services of the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
269. Do you believe there is any information that would be required by Part IV, Item 1(b) of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
270. Do you believe that NMS Stock ATSs commonly have written contractual agreements for granting access to the NMS Stock ATS? Why or why not, and what is the basis for such belief? If not, how is access granted? How are the terms and conditions of trading on the NMS Stock ATS communicated to subscribers? Is there commonly an onboarding process for new subscribers? What does such onboarding process entail? Please explain in detail.
271. Do you believe there are agreements between subscribers and an NMS Stock ATS that are not written? If so, what is the basis for your belief,
272. What are the potential costs and benefits of disclosing the information required by Part IV, Item 1(b) of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 1(b) of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
273. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 1(b) of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 1(b)?
Part IV, Item 1(c) of proposed Form ATS–N would require an NMS Stock ATS to describe the types of subscribers and other persons that use the services of the NMS Stock ATS (
This item would provide information about the types of subscribers to the NMS Stock ATS, or other persons that can enter orders onto the NMS Stock ATS, so that market participants and the Commission would be better informed about the type of order flow that may be present on the NMS Stock ATS. Moreover, this item would, in conjunction with the other disclosure requirements of proposed Form ATS–N regarding differences in access to services or functionality of the NMS Stock ATS, inform market participants of any privileges or restrictions that attach to different categories of subscribers so that subscribers could evaluate which privileges or restrictions might apply to them or the counterparties against which they would be trading.
274. Do you believe the Commission should require the disclosure of the information on Part IV, Item 1(c) of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
275. Do you believe Part IV, Item 1(c) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the types of subscribers and other persons that use the services of the NMS Stock ATS? Why or why not? Please support your arguments.
276. Is it sufficiently clear what information would be required by Part IV, Item 1(c) of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
277. Do you believe there is other information that market participants might find relevant or useful regarding distinctions made by the NMS Stock ATS among subscribers? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
278. Do you believe there is any information that would be required by Part IV, Item 1(c) of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
279. Do you believe that the information that would be required by Part IV, Item 1(c) of proposed Form ATS–N would aid subscribers in evaluating the order flow on the NMS Stock ATS and determining whether they wish to send their orders there for execution? Why or why not? Please support your arguments.
280. What are the potential costs and benefits of disclosing the information required by Part IV, Item 1(c) of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 1(c) of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
281. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 1(c) of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 1(c)?
Part IV, Item 1(d) of proposed Form ATS–N would require an NMS Stock ATS to describe any formal or informal arrangement the NMS Stock ATS has with a subscriber(s) or person(s) to provide liquidity to the NMS Stock ATS (
An NMS Stock ATS may want to ensure that there is sufficient liquidity in a particular NMS stock to incentivize subscribers to send order flow in that NMS stock to the NMS Stock ATS; market participants may believe they are more likely to get an execution because of such liquidity. The Commission understands that some ATSs that trade
Part IV, Item 1(d) of proposed Form ATS–N would also require an NMS Stock ATS to identify any liquidity providers that are affiliates of the broker-dealer operator. The Commission preliminarily believes that market participants would find it useful to know whether the broker-dealer operator itself, or its affiliates, have an arrangement to provide liquidity to the NMS Stock ATS. The Commission preliminarily believes that such information could reveal potential conflicts of interest, if, for example, an NMS Stock ATS were to only permit affiliates to act as liquidity providers and provided significant benefits for performing that function.
282. Do you believe the Commission should require the disclosure of the information on Part IV, Item 1(d) of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
283. Do you believe Part IV, Item 1(d) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to any formal or informal arrangement the NMS Stock ATS has with a subscriber(s) or person(s) to provide liquidity to the NMS Stock ATS? Why or why not? Please support your arguments.
284. Is it sufficiently clear what information would be required by Part IV, Item 1(d) of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
285. Do you believe there is other information that market participants might find relevant or useful regarding arrangements with subscribers or other persons to provide liquidity to the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
286. Do you believe there is any information that would be required by Part IV, Item 1(d) of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
287. Do you believe that the information that would be required by Part IV, Item 1(d) of proposed Form ATS–N would aid subscribers in evaluating the order flow on the NMS Stock ATS and determining whether they wish to send their orders there for execution? Why or why not? Please support your arguments.
288. Do you believe that the proposed requirement in Part IV, Item 1(d) of proposed Form ATS–N that the NMS Stock ATS identify any liquidity providers that are affiliates of the broker-dealer operator would aid subscribers in evaluating potential conflicts of interest of the broker-dealer operator, the order flow on the NMS Stock ATS, and determining whether they wish to send their orders there for execution? Why or why not? Please support your arguments.
289. What are the potential costs and benefits of disclosing the information required by Part IV, Item 1(d) of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 1(d) of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
290. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 1(d) of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 1(d)?
Part IV, Item 1(e) of proposed Form ATS–N would require an NMS Stock ATS to describe the circumstances by which access to the NMS Stock ATS for a subscriber or other person may be limited or denied, and describe any procedures or standards that are used to determine such action. If these circumstances, procedures, or standards are not applicable to all subscribers and persons, the NMS Stock ATS would be required to describe any differences. As an ATS, an NMS Stock ATS cannot exercise SRO powers and may not discipline subscribers other than by excluding them from trading.
291. Do you believe the Commission should require the disclosure of the information on Part IV, Item 1(e) of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
292. Do you believe Part IV, Item 1(e) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the circumstances by which access to the NMS Stock ATS for a subscriber or other person may be limited or denied? Please explain.
293. Is it sufficiently clear what information would be required by Part IV, Item 1(e) of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
294. Do you believe there is other information that market participants might find relevant or useful regarding the process by which access to an NMS Stock ATS for a subscriber may be limited or denied? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
295. Do you believe there is any information that would be required by Part IV, Item 1(e) of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
296. What are the potential costs and benefits of disclosing the information required by Part IV, Item 1(e) of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 1(e) of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
297. Do you believe there are circumstances under which NMS Stock ATSs currently limit the functionality available to subscribers due to an action or inaction on the part of a subscriber? If so, what is the basis for your belief, what are those circumstances, and what functionality is typically limited? Is it common for an NMS Stock ATS to deny access to subscribers as opposed to limiting access? Why or why not, and under what circumstances? Please be specific.
298. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 1(e) of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Items 1(e)?
Part IV, Item 2(a) of proposed Form ATS–N would require an NMS Stock ATS to provide the days and hours of operation of the NMS Stock ATS, including the times when orders or other trading interest are entered on the NMS Stock ATS and the time when pre-opening or after-hours trading occur. Also, if the times when orders or other trading interest are entered on the NMS Stock are not the same for all subscribers and persons, Part IV, Item 2(b) would require the NMS Stock ATS to describe any differences.
The Commission preliminarily believes that it is important for subscribers and the Commission to have information regarding when NMS Stock ATSs are operating and when orders can be entered on those trading centers, including when an NMS Stock ATS will accept orders outside of standard operating hours. The Commission notes that national securities exchanges' rulebooks, which are publicly available, include such information.
299. Do you believe the Commission should require the disclosure of the information on Part IV, Item 2 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
300. Do you believe Part IV, Item 2 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the days and hours of operation of the NMS Stock ATS? Why or why not? Please support your arguments.
301. Do you believe there is other information that market participants might find relevant or useful regarding the hours of operation of an NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
302. Do you believe that Part IV, Item 2 of proposed Form ATS–N is sufficiently clear with respect to the disclosures that would be required? If not, how should Part IV, Item 2 of proposed Form ATS–N be revised to provide additional clarity? Please explain in detail.
303. Do you believe there is any information that would be required by Part IV, Item 2 of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
304. What are the potential costs and benefits of disclosing the information required by Part IV, Item 2 of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 2 of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
305. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 2 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 2?
Part IV, Item 3(a) of proposed Form ATS–N would require an NMS Stock ATS to describe any types of orders that are entered on the NMS Stock ATS, their characteristics, operations, and how they are handled on the NMS Stock ATS, including: (i) Priority for each order type; (ii) conditions for each order
As discussed above, NMS Stock ATSs offer a wide range of order types and modifiers and offer different minimum order size requirements.
Subsection (ii) of Item 3(a) would require that the NMS Stock ATS describe any conditions for each order type. Such conditions would include: any price conditions, including how the order type is ranked and how price conditions affect the rank and price at which it can be executed; conditions on the display or non-display of an order; or conditions on the execution or routing of orders.
Subsection (iii) of Item 3(a) would require that the NMS Stock ATS describe order types designed not to remove liquidity (
Subsection (iv) of Item 3(a) would require that the NMS Stock ATS describe order types that adjust their price as changes to the order book occur (
Subsection (v) of Item 3(a) would require the NMS Stock ATS to describe the time-in-force instructions that can be used or not used with each order type.
Subsection (vi) of Item 3(a) would require a description of the availability of order types across all forms of connectivity to the NMS Stock ATS and differences, if any, between the availability of order types across those forms of connectivity. For example, if an NMS Stock ATS offers certain order types to persons who connect through the broker-dealer operator, such as through use of a SOR (or similar functionality) or algorithm, as opposed to persons who connect directly through a FIX connection, that difference in availability would need to be described in response to this subsection.
Subsection (vii) of Item 3(a) would require a description of whether the order type is eligible for routing to other trading centers. The response required by this item would be required to include, if it is routable, whether an order type can be used with any routing services offered.
Subsection (viii) of Item 3(a) would require the NMS Stock ATS to describe the circumstances under which order types submitted to the NMS Stock ATS may be combined with a time-in-force or another order type, modified, replaced, canceled, rejected, or removed from the NMS Stock ATS. If an NMS Stock ATS allows a subscriber to combine separate order types, or combine an order type with a time-in-force restriction, both of those instances would be responsive to subsection (viii) of Item 3(a).
Part IV, Item 3(b) of proposed Form ATS–N would require the NMS Stock ATS to describe any differences if the availability of its orders types and their terms and conditions are not the same for all subscribers and persons.
Part IV, Item 3(c) of proposed Form ATS–N would require an NMS Stock ATS to describe any requirements and handling procedures for minimum order sizes, odd-lot orders, or mixed-lot orders. If the requirements and handling procedures for minimum order sizes, odd-lot orders, or mixed-lot orders are not the same for all subscribers and persons, the NMS Stock ATS would also be required to describe any differences. These would include, for example, any order size requirements that may differ based on factors such as the type of subscriber or person that uses the services of the NMS Stock ATS, or the type of order (
The Commission preliminarily believes that a detailed description of the characteristics of the order types of an NMS Stock ATS would assist subscribers in better understanding how their orders would function and interact with other orders on the NMS Stock ATS.
The Commission also preliminarily believes that the disclosures about the characteristics and functions of order types would allow the Commission to better oversee NMS Stock ATSs, and alert the Commission as to whether the function of a particular order type may violate the federal securities laws or the rules or regulations thereunder, such as the requirement under Rule 611 of Regulation NMS that a trading center have policies and procedures reasonably designed to prevent trade-throughs of protected quotations in NMS stocks.
The Commission preliminarily believes this information would also advance the Commission's interest in the protection of investors by allowing subscribers to clearly see the types of orders available to them, as well as potential counterparties, and any differences between the order types, available among participants on the NMS Stock ATS.
As noted above, Part IV, Item 3(b) would require the NMS Stock ATS to describe any differences if the availability of its order types and their terms and conditions are not the same for all subscribers and persons. The Commission preliminarily believes that this information would be important for a market participant to better assess whether other participants on the NMS Stock ATS may receive advantageous or disadvantageous treatment as a result of the ATS's various order types and how that treatment may affect that market participant's trading interest. Information about any disparate treatment of investors also would be important for the Commission as it monitors developments in the national market system.
Part IV, Item 3(c) of proposed Form ATS–N would require an NMS Stock ATS to describe any requirements and handling procedures for minimum order sizes, odd-lot orders, or mixed-lot orders. The NMS Stock ATS would also be required to explain any differences if the requirements and handling procedures for minimum order sizes, odd-lot orders, or mixed-lot orders are not the same for all subscribers and persons. The information that would be required by Item 3(c) is designed to facilitate the entry of orders by subscribers by providing information on minimum order sizes, odd-lot orders, and mixed-lot orders. An explanation of how an NMS Stock ATS's requirements and conditions for minimum order sizes, odd-lot orders, and mixed-lot orders differ among subscribers and persons would also provide a market participant with information regarding how its trading interest would be handled vis-à-vis other market participants. The information that would be required by Item 3(c) would also be useful to the Commission's monitoring of developments in market structure.
306. Do you believe the Commission should require the disclosure of the information on Part IV, Items 3(a) through 3(c) of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
307. Do you believe Part IV, Items 3(a) through 3(c) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the types of orders that are entered to the NMS Stock ATS, their characteristics, operations, and how they are handled on the NMS Stock ATS? Please explain.
308. Is it sufficiently clear what information would be required by Part IV, Items 3(a) through 3(c) of proposed Form ATS–N? Should the items be refined in any way? If so, how? Please be specific.
309. Do you believe the proposed requirement to disclose the information that would be required by Part IV, Item 3(a) of proposed Form ATS–N could impact innovation on NMS Stock ATSs? Why or why not? Please support your arguments.
310. Do you believe there is other information that market participants might find relevant or useful regarding the types of orders that are entered to the NMS Stock ATS, their characteristics, operations, and how they are handled on the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
311. Do you believe there is any information that would be required by Part IV, Items 3(a) through 3(c) of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
312. Do you believe there are any other aspects of order types that an NMS Stock ATS should be required to disclose in a subpart to Part IV, Item 3(a) of proposed Form ATS–N that have not been identified? If so, what? Do you believe there are other order types about which the Commission should ask specifically? If so, what order types? Please explain in detail.
313. Should the Commission require greater specificity regarding the operation of order types? If so, why and how? If not, why not? Please support your arguments.
314. Do you believe that information relating to available order types would help market participants in determining the best trading venue for their orders? Why or why not? Please support your arguments.
315. Do you believe that Items 3(a) through 3(c) of Part IV of proposed Form ATS–N would advance the Commission's interest in the protection of investors by allowing market participants to consider the types of orders available to them, as well as potential counterparties, and any differences between the order types, modifiers, and size requirements
316. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Items 3(a) through 3(c) of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Items 3(a) through 3(c)?
317. What are the potential costs and benefits of disclosing the information required by Part IV, Items 3(a) through 3(c) of proposed Form ATS–N? Would the proposed disclosures in Part IV, Items 3(a) through 3(c) of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
318. Do you believe that Part IV, Item 3(a) of proposed Form ATS–N should require a description of priority for each order type? Why or why not? Please support your answer.
319. Do you believe that Part IV, Item 3(a) of proposed Form ATS–N should require a description of any conditions for each order type? Why or why not? Please support your answer.
320. Do you believe that Part IV, Item 3(a) of proposed Form ATS–N should require a description of order types designed not to remove liquidity? Why or why not? Please support your answer.
321. Do you believe that Part IV, Item 3(a) of proposed Form ATS–N should require a description of order types that adjust their price as changes to the order book occur or have a discretionary range? Why or why not? Please support your answer.
322. Do you believe that Part IV, Item 3(a) of proposed Form ATS–N should require a description of the time-in-force instructions for each order type? Why or why not? Please support your answer.
323. Do you believe that Part IV, Item 3(a) of proposed Form ATS–N should require a description of the availability of order types across all forms of connectivity to the NMS Stock ATS? Why or why not? Please support your answer.
324. Do you believe that Part IV, Item 3(a) of proposed Form ATS–N should require a description of whether order types are eligible for routing to other trading centers? Why or why not? Please support your answer.
325. Do you believe that Part IV, Item 3(a) of proposed Form ATS–N should require a description of the circumstances under which order types may be combined with a time-in-force or another order type, modified, replaced, canceled, rejected, or removed from the NMS Stock ATS? Why or why not? Please support your answer.
Part IV, Item 3(d) of proposed Form ATS–N would require an NMS Stock ATS to describe any messages sent to or received by the NMS Stock ATS indicating trading interest (
This item is designed to provide specific information about the use of IOIs, actionable IOIs, conditional orders, and similar functionalities on the NMS Stock ATS. Based on the Commission's experience, IOIs are used by NMS Stock ATSs to convey trading interest available on those trading centers. Some NMS Stock ATSs also transmit “actionable” IOIs to selected market participants for the purpose of attracting contra-side order flow to the ATS. In general, an actionable IOI is an IOI containing enough information to effectively alert the recipient about the details of the NMS Stock ATS's trading interest in a security. While an actionable IOI may not explicitly specify the price and/or size of the trading interest, the practical context in which it is submitted alerts the recipient about the side (buy or sell), size (minimum of a round lot of trading interest), and price (at or better than the NBBO, depending on the side of the order).
Conditional orders are also messages indicating a trading interest on a trading venue, and conditional orders generally function in a similar manner to IOIs. A conditional order may contain the same attributes as other order types when a subscriber enters it onto the trading venue (
The Commission preliminarily believes that understanding the manner in which NMS Stock ATSs use IOIs, actionable IOIs, conditional orders, and similar functionalities could be useful to market participants because it could impact the potential execution of a subscriber's trading interest. Also, because an actionable IOI conveys substantial information, the potential for information leakage could be a concern to NMS Stock ATS subscribers using IOIs, particularly when they are seeking to execute large-sized orders. In the Commission's experience, NMS Stock ATSs generally send IOIs and other conditional orders only to certain market participants. Accordingly, the disclosures that would be required by Item 3(d) are designed to help market participants better evaluate whether messages indicating trading interest (including IOIs, actionable IOIs, and conditional orders) are equally available to them as compared to other market participants and would be appropriate tools to accomplish their investing or trading objectives.
326. Do you believe the Commission should require the disclosure of the information on Part IV, Item 3(d) of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
327. Do you believe Part IV, Item 3(d) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to any messages sent to or received by the NMS Stock ATS indicating trading interest? Please explain.
328. Is it sufficiently clear what information would be required by Part IV, Item 3(d) of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
329. Do you believe there is other information that market participants might find relevant or useful regarding messages indicating trading interest (
330. Do you believe there are other types of messages that communicate
331. Do you believe there is any information that would be required by Part IV, Item 3(d) of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
332. Do you believe that there is potential concern for information leakage from the use of IOIs, particularly actionable IOIs on NMS Stock ATSs? If so, would disclosure about their operation on proposed Form ATS–N be an appropriate manner in which to mitigate any concern? If not, why not? Please support your arguments.
333. What are the potential costs and benefits of disclosing the information required by Part IV, Item 3(d) of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 3(d) of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
334. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 3(d) of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 3(d)?
Part IV Item 4(a) of proposed Form ATS–N would require the NMS Stock ATS to describe the means by which subscribers or other persons connect to the NMS Stock ATS and enter orders or other trading interest on the NMS Stock ATS (
Based on Commission experience reviewing Forms ATS, subscribers send orders or other trading interest to the NMS Stock ATS both directly and indirectly. A direct method of sending orders or other trading interest to an ATS that trades NMS stocks, for example, may include the use of the FIX Protocol. The FIX Protocol allows subscribers to enter orders or other trading interest into the ATS without an intermediary. To the extent that a subscriber connects to the NMS Stock ATS by way of a FIX connection and an order sent by that subscriber passes through an intermediate application or functionality on its way to the NMS Stock ATS, the NMS Stock ATS should identify the application or functionality and provide a description of its purpose.
The disclosures regarding the direct or indirect means of order entry could be important to subscribers because they would provide information about the possible methods to reach the NMS Stock ATS and applicable system requirements necessary to send orders or other trading interest to the NMS Stock ATS. This information would also alert subscribers to the NMS Stock ATS as to whether trading interest can be entered on the NMS Stock ATS through the broker-dealer operator, which would allow subscribers to assess any potential advantages that orders sent through the broker-dealer operator may have with respect to other subscribers on the NMS Stock ATS.
The disclosure of the information required for order entry on the NMS Stock ATS, such as limit price, size, and/or side of the market, would inform all subscribers to the NMS Stock ATS about how to transmit orders or other trading interest to the NMS Stock ATS. The Commission preliminarily believes that understanding this information may expedite the order entry process of subscribers. The Commission, as part of its monitoring of developments in market structure, also could use this disclosure to better understand what information allows for the interaction of trading interest.
The Commission preliminarily believes that requiring NMS Stock ATSs to disclose any differences if the terms and conditions for connecting and entering orders or other trading interest on the NMS Stock ATS are not the same for all subscribers and persons would allow market participants to source the various order entry procedures offered by NMS Stock ATSs as part of evaluating an NMS Stock ATS as a potential destination for them to route their orders for execution.
335. Do you believe the Commission should require the disclosure of the information on Part IV, Item 4(a) of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
336. Do you believe Part IV, Item 4(a) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the means by which subscribers or other persons connect to the NMS Stock ATS and enter orders or other trading interest on the NMS Stock ATS? Please explain.
337. Is it sufficiently clear what information would be required by Part IV, Item 4(a) of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
338. What are the direct and indirect means through which subscribers and other persons can send orders or other trading interest to the NMS Stock ATS? Do you believe there any means for which the Commission should specifically request information in Part IV, Item 4(a) of proposed Form ATS–N? If so, please explain how those means to send orders or other trading interest are used by subscribers and other persons.
339. Do you believe there are any methods of sending orders or other trading interest to NMS Stock ATSs that are more advantageous than others? If so, please explain how such methods provide advantages to subscribers or other persons who use them. Should those advantages, if any, be specifically disclosed?
340. Do you believe there is other information that market participants might find relevant or useful regarding the means by which subscribers can send orders or other trading interest to the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
341. Do you believe there is any information that would be required by Part IV, Item 4(a) of Proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
342. Do you believe that the information that would be required by Part IV, Item 4(a) of proposed Form ATS–N could be important to market participants in assessing any potential advantages that orders sent through the broker-dealer operator may have over other market participants on the NMS Stock ATS? Why or why not? Please support your arguments.
343. Do you believe that the information that would be required by Part IV, Item 4(a) of proposed Form ATS–N would be important to market participants when deciding whether to trade on an NMS Stock ATS and would assist them in devising appropriate trading strategies to help accomplish their investing or trading objectives? Why or why not? Please support your arguments.
344. What are the potential costs and benefits of disclosing the information required by Part IV, Item 4(a) of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 4(a) of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
345. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 4(a) of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 4(a)?
Part IV Item 4(b) of proposed Form ATS–N would require that the NMS Stock ATS describe any co-location services or any other means by which any subscriber or other persons may enhance the speed by which to send or receive orders, trading interest, or messages to or from the NMS Stock ATS and the terms and conditions of co-location services. If the terms and conditions of the co-location services are not the same for all subscribers and persons, Part IV, Item 4(b) would require the NMS Stock ATS to describe any differences. Co-location is the placement of a user's systems in close physical proximity to the trading and execution system of a trading venue to reduce latency and enhance speed. The description of co-location services that could enhance the speed of orders and messages and the terms and conditions thereof would allow subscribers to evaluate these services and determine whether they would like to subscribe to such services if available. Moreover, subscribers and potential subscribers would know that others can use a co-location service even if they determine not to use it themselves, which would assist them in devising appropriate trading strategies if they choose to participate.
The proposed requirement that the NMS Stock ATS describe any differences in the terms and conditions of an NMS Stock ATS's co-location services among subscribers or other persons also could help inform the trading strategies chosen by subscribers. Information on such connectivity and co-location options would further the Commission's understanding of the dynamics of the markets and overall market structure for NMS stocks. In addition, this information would allow the Commission to evaluate whether the NMS Stock ATS is unreasonably prohibiting or limiting any person with respect to the access to services offered by the NMS Stock ATS in contravention of Rule 301(b)(5) of Regulation ATS for those NMS Stock ATSs that have surpassed the applicable trading volume thresholds.
346. Do you believe the Commission should require the disclosure of the information on Part IV, Item 4(b) of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
347. Do you believe Part IV, Item 4(b) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to co-location services or any other means by which any subscriber or other persons may enhance the speed by which to send or receive orders, trading interest, or messages to or from the NMS Stock ATS? Please explain.
348. Is it sufficiently clear what information would be required by Part IV, Item 4(b) of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
349. Do you believe there is other information that market participants might find relevant or useful regarding co-location services by which a subscriber may enhance the speed that it may submit orders or send and receive messages? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
350. Do you believe there is any information that would be required by Part IV, Item 4(b) of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
351. Do believe that the information that would be required by Part IV, Item 4(b) of proposed Form ATS–N would be useful to market participants when deciding whether to trade on an NMS Stock ATS and would assist them in devising appropriate trading strategies to help accomplish their investing or trading objectives? Why or why not? Please support your arguments.
352. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 4(b) of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 4(b)?
353. What are the potential costs and benefits of disclosing the information required by Part IV, Item 4(b) of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 4(b) of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
Part IV, Item 5(a) of proposed Form ATS–N would require an NMS Stock ATS to describe any segmentation of orders or other trading interest on the NMS Stock ATS (
Based on Commission experience, some NMS Stock ATSs segment order flow entered on the NMS Stock ATS according to various categories and allow subscribers to select the type of persons or order flow they want to trade or not trade against. An NMS Stock ATS may segment trading interest by type of participant (
This item would require that an NMS Stock ATS disclose the segmented categories, the criteria used to segment these categories, and procedures for determining, evaluating, and changing segmented categories. This would include, for example, any modification or overriding of an existing segmented category and a description of how existing subscribers in the segmented category would be handled and notified. 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 and 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 its views of how certain trading interest should be categorized. Disclosure of the procedures and criteria 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 NMS Stock ATS. For example, a subscriber may find it useful to understand the metrics or criteria an NMS Stock ATS uses to categorize high frequency trading firms so that it can compare the criteria used by the NMS Stock 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 they desire.
In addition, disclosure of any differences in the segmentation among participants would allow subscribers to more clearly note if certain persons are, for instance, not subject to segmentation in the same way as other persons, or not subject to segmentation at all and able to trade against all order flow. All participants would have access to the same information as to how the NMS Stock ATS segments order flow, and whether the segmentation criteria are applied by the NMS Stock ATS uniformly.
354. Do you believe the Commission should require the disclosure of the information on Part IV, Item 5(a) of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
355. Do you believe Part IV, Item 5(a) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to segmentation of orders or other trading interest on the NMS Stock ATS? Please explain.
356. Is it sufficiently clear what information would be required by Part IV, Item 5(a) of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
357. Do you believe there is other information that market participants might find relevant or useful regarding segmentation of order flow on the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
358. Do you believe there is any information that would be required by Part IV, Item 5(a) of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
359. Do you believe there are any forms or types of order segmentation that would not be captured by Part IV, Item 5(a) of proposed Form ATS–N or should be addressed separately? If so, please provide a detailed explanation of how orders are segmented under such functionalities on NMS Stock ATSs.
360. What are the potential costs and benefits of disclosing the information required by Part IV, Item 5(a) of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 5(a) of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
361. Do you believe there are other ways to obtain the same information as
Part IV, Item 5(b) of proposed Form ATS–N would require the NMS Stock ATS to state whether the NMS Stock ATS informs subscribers or persons about the segmentation category that a subscriber or a person is assigned and to describe any notice provided to subscribers or persons about the segmentation category that they are assigned and the segmentation identified in Part IV, Item 5(a), including the content of any notice and the means by which any notice is communicated. Also, an NMS Stock ATS would be required to describe any differences if the notice is not the same for all subscribers and persons. As discussed above, an NMS Stock ATS can elect to segment its order flow entered on the NMS Stock ATS according to various categories and allow subscribers and other persons to select the type of persons or order flow they want to trade or not trade against. Based on the experience of the Commission and its staff, ATSs provide subscribers with limited information about how they segment order flow and do not always inform subscribers about the categories into which they are segmented. A market participant that is unaware of its segmented category may not know about the order flow it is trading against, and therefore, the Commission preliminarily believes that market participants trading on an NMS Stock ATS would want to know about their assigned segmented categories and understand how those categories were determined.
362. Do you believe the Commission should require the disclosure of the information on Part IV, Item 5(b) of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
363. Do you believe Part IV, Item 5(b) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to informing subscribers or persons about the segmentation category that a subscriber or a person is assigned? Please explain.
364. Is it sufficiently clear what information would be required by Part IV, Item 5(b) of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
365. Do you believe there is any information that would be required by Part IV, Item 5(b) of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
366. Do you believe there is any specific information that the Commission should require NMS Stock ATSs to disclose to each subscriber with regard to how it segments each subscriber's orders? If so, explain what information and why. Please support your arguments.
367. Do you believe transparency with respect to how an NMS Stock ATS notifies subscribers regarding how those subscribers' trading interests are segmented is useful to market participants when deciding whether to trade on the NMS Stock ATS and would assist them in devising appropriate trading strategies to help accomplish their investing or trading objectives? If not, why? Please support your arguments.
368. What are the potential costs and benefits of disclosing the information required by Part IV, Item 5(b) of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 5(b) of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
369. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 5(b) of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 5(b)?
Part IV, Item 5(c) of proposed Form ATS–N would require an NMS Stock ATS to describe any means and the circumstances by which a subscriber, the broker-dealer operator, or any of its affiliates may designate an order or trading interest submitted to the NMS Stock ATS to interact or not to interact with specific orders, trading interest, or persons on the NMS Stock ATS (
The Commission preliminarily believes that it is important for market participants to understand whether—and how—they may designate their orders or other trading interest to avoid interacting with specific orders, trading interest, or persons on an NMS Stock ATS. The Commission preliminarily believes that this understanding would help market participants better evaluate the NMS Stock ATS as a potential trading venue. For instance, if a market participant seeks to avoid interacting with an order type that is commonly employed as part of certain trading strategies, the Commission preliminarily believes that the disclosures required under Item 5(c) would better enable that market participant to determine whether submitting order flow to a particular NMS Stock ATS would allow it to carry out its own trading strategy. Similarly, if a market participant would find it desirable to be able to designate an order submitted to the NMS Stock ATS to interact with specific orders resting
370. Do you believe the Commission should require the disclosure of the information on Part IV, Item 5(c) of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
371. Do you believe Part IV, Item 5(c) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the means and the circumstances by which a subscriber, the broker-dealer operator, or any of its affiliates may designate an order or trading interest submitted to the NMS Stock ATS to interact or not to interact with specific orders, trading interest, or persons on the NMS Stock ATS? Please explain.
372. Do you believe there is other information that market participants might find relevant or useful regarding the means and the circumstances by which a subscriber, the broker-dealer operator, or any of its affiliates may designate an order or trading interest submitted to the NMS Stock ATS to interact or not to interact with specific orders, trading interest, or persons on the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
373. Is it sufficiently clear what information would be required by Part IV, Item 5(c) of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
374. Do you believe there is any information that would be required by Part IV, Item 5(c) of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
375. Should the requirement to describe the means by which persons, orders, or trading interest may be sought or avoided on an NMS Stock ATS be refined in any way? Please be specific.
376. Does the process for seeking or avoiding specific orders, persons, or trading interest raise any other market structure issues or concerns that the Commission should consider? Please be specific.
377. What are the potential costs and benefits of disclosing the information required by Part IV, Item 5(c) of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 5(c) of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
378. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 5(c) of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 5(c)?
Part IV, Item 6(a) of proposed Form ATS–N would require that an NMS Stock ATS describe any means and circumstances by which orders or other trading interest on the NMS Stock ATS are displayed or made known outside the NMS Stock ATS and the information about the orders and trading interest that are displayed. Also, if the display of orders or other trading interest is not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. Part IV, Item 6(b) of proposed Form ATS–N would also require the NMS Stock ATS to identify the subscriber(s) or person(s) (in the case of a natural person, to identify only the position or title) to whom the orders and trading interest are displayed or otherwise made known.
As discussed more fully above,
The Commission preliminarily believes that when an NMS Stock ATS sends electronic messages outside of the NMS Stock ATS that expose the presence of orders or other trading interest on the NMS Stock ATS, it is displaying or making known orders or other trading interest on the NMS Stock ATS. For instance, an NMS Stock ATS may send to subscribers or other persons a direct data feed from the NMS Stock ATS that contains real-time information about current quotes, orders or other trading interest on the NMS Stock ATS. Accordingly, it would be responsive to this item for the NMS Stock ATS to disclose the circumstances under which the NMS Stock ATS would send these messages, the persons that received them, and the information contained in the messages, including the symbol or any other information relating to trading interest on the NMS Stock ATS. The NMS Stock ATS would need to disclose the information required by this item, including the exact content of the information, such as symbol, price, size, attribution, or any other information made known. The Commission preliminarily believes that disclosures in response to this item are important because the information disclosed would provide market participants with advance notice of the potential display of their orders or other trading interest outside of the NMS Stock ATS.
379. Do you believe the Commission should require the disclosure of the information on Part IV, Item 6 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific
380. Do you believe Part IV, Item 6 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the means and circumstances by which orders or other trading interest on the NMS Stock ATS are displayed or made known outside the NMS Stock ATS and the information about the orders and trading interest that are displayed? Please explain.
381. What are the means through which NMS Stock ATSs currently display or make known trading interest? Do you believe any of these means raise any concerns? If so, why? Please support your arguments. Do you believe that Part IV, Item 6 of proposed Form ATS–N would mitigate any of those concerns through the disclosure of responsive information? Why or why not? Please support your arguments.
382. Is it sufficiently clear what information would be required by Part IV, Item 6 of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
383. Do you believe there is other information that market participants might find relevant or useful regarding orders or other trading interest on the NMS Stock ATS that are displayed or otherwise made known outside the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
384. Do you believe there is any information that would be required by Part IV, Item 6 of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
385. What are the potential costs and benefits of disclosing the information required by Part IV, Item 6 of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 6 of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
386. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 6 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 6?
Part IV, Item 7(a) of proposed Form ATS–N would require an NMS Stock ATS to describe the means or facilities used by the NMS Stock ATS to bring together the orders of multiple buyers and sellers, including the structure of the market (
This item is primarily designed to inform market participants and the Commission about an NMS Stock ATS's market and the facilities and mechanisms that it uses to match counterparties. Part IV, Item 7(a) of proposed Form ATS–N would require a description, with specificity, of the facilities and mechanisms into which subscribers enter orders and how orders entered into these facilities and mechanisms would interact. The Commission has previously explained that a trading center 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.
Based on Commission experience, ATSs that trade NMS stocks use various types of trading mechanisms. 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.
The Commission preliminarily believes that the disclosures required under Part IV, Item 7(a) would be useful to market participants when evaluating whether or not to route orders to a particular NMS Stock ATS. At times, market participants may route orders to a trading venue with certain characteristics to accomplish a particular trading strategy. For instance, a market participant aiming to execute a block transaction may seek out a trading platform that operates a block crossing network with specialized size discovery mechanisms and controls for information leakage. At the same time, a different market participant may seek to use an NMS Stock ATS's auction
387. Do you believe the Commission should require the disclosure of the information on Part IV, Item 7(a) of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
388. Do you believe Part IV, Item 7(a) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the means or facilities used by the NMS Stock ATS to bring together the orders of multiple buyers and sellers, including the structure of the market? Please explain.
389. Is it sufficiently clear what information would be required by Part IV, Item 7(a) of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
390. Do you believe there is other information that market participants might find relevant or useful regarding the means or facilities used by the NMS Stock ATS to bring together the orders of multiple buyers and sellers? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
391. Do you believe there is any information that would be required by Part IV, Item 7(a) of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
392. Are there particular means or facilities for bringing together the orders of multiple buyers and sellers on which the Commission should request information specifically that is not included as a component under Part IV, item 7(a) of proposed Form ATS–N?
393. What are the potential costs and benefits of disclosing the information required by Part IV, Item 7(a) of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 7(a) of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
394. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 7(a) of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 7(a)?
Part IV, Item 7(b) of Form ATS–N would require an NMS Stock ATS to describe the established, non-discretionary methods that dictate the terms of trading among multiple buyers and sellers on the facilities of the NMS Stock ATS, including rules and procedures governing the priority, pricing methodologies, allocation, matching, and execution of orders and other trading interest. If these rules and procedures are not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences.
Part IV, Item 7(b) of proposed Form ATS–N is primarily designed to inform market participants about how orders interact on an NMS Stock ATS upon being entered into the system. Item 7(b) would require a description, with specificity, of all rules and procedures relevant to order interaction and execution, such as those addressing order priority, pricing methodologies, allocation, matching, and execution of orders and other trading interest. 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 the trading of subscribers.
Based on Commission experience, NMS Stocks ATSs employ various terms and conditions under which orders interact and match. As noted above, some NMS Stock ATSs may offer price-time priority to determine how to match orders (potentially with various exceptions), while other NMS Stock ATSs may offer midpoint-only matching with time priority.
Part IV, Item 7(c) of proposed Form ATS–N would require an NMS Stock ATS to describe any trading procedures related to price protection mechanisms, short sales, locked-crossed markets, the handling of execution errors, time-stamping of orders and executions, or price improvement functionality. If the trading procedures are not the same for all subscribers and persons, the NMS Stock ATS would also be required to describe any differences. Some ATSs that trade NMS stocks apply various methods to determine an execution price based on the circumstances of the match. For example, an ATS may price an execution of a midpoint pegged order with a limit or market order at the midpoint of the NBBO. An ATS executing a match of two limit orders, or a limit and market order, might price the execution at or within the NBBO, with the possibility of offering the limit order(s) price improvement. On the other hand, an ATS that operates a block crossing network, with specialized size discovery mechanisms, might calculate a volume-weighted average price after the final size of the execution has been determined.
In the Commission's experience, NMS Stock ATSs have also adopted other trading procedures governing the execution of orders, which the NMS Stock ATS would be required to explain under Part IV, Item 7(c) of proposed
Furthermore, under Part IV, Item 7(c) of proposed Form ATS–N, an NMS Stock ATS would also be required to describe any protocols for time-stamping orders and executions to ensure compliance with the Exchange Act and the rules and regulations thereunder and any execution procedures related to price improvement. For example, if an NMS Stock ATS has procedures to reprice orders under its price protection mechanisms, to reprice short sale orders to ensure compliance with Regulation SHO, or to reprice orders due to price-sliding order types (such as certain pegged order types), it would be required to explain when it creates new timestamps for such re-priced orders.
The Commission preliminarily believes that information about how an NMS Stock ATS prices and matches orders is useful to market participants' and the Commission's understanding of that trading center's operation. The Commission preliminarily believes that the information required under Part IV, Items 7(b) and 7(c) of proposed Form ATS–N would allow market participants to evaluate the terms and conditions under which their orders will interact and execute on an NMS Stock ATS, and would thus provide them with a better opportunity to determine whether that NMS Stock ATS is the appropriate trading destination for their orders. For example, a market participant whose order would be given a higher priority on an NMS Stock ATS based on its subscriber class may choose to first route its order to that venue, whereas a market participant seeking to enter a conditional order may choose to route an order based on an NMS Stock ATS's specific priority rules governing conditional orders. Likewise, market participants likely would want to know whether an NMS Stock ATS applies price protection mechanisms, or other standards, that could re-price an order or prevent it from executing under certain conditions. In addition, the Commission preliminarily believes that the information provided in response to Items 7(a), 7(b), and 7(c) would allow the Commission to more easily evaluate whether the entity that filed the proposed Form ATS–N meets the criteria of Rule 3b-16 and the definition of an NMS Stock ATS.
395. Do you believe the Commission should require the disclosure of the information on Part IV, Items 7(b) and 7(c) of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
396. Do you believe Part IV, Item 7(b) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS related to the established, non-discretionary methods that dictate the terms of trading among multiple buyers and sellers on the facilities of the NMS Stock ATS, including rules and procedures governing the priority, pricing methodologies, allocation, matching, and execution of orders and other trading interest? Please explain.
397. Do you believe Part IV, Item 7(c) of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding the trading procedures related to price protection mechanisms, short sales, locked-crossed markets, the handling of execution errors, time-stamping of orders and executions, or price improvement functionality? Please explain.
398. Is it sufficiently clear what information would be required by Part IV, Items 7(b) and 7(c) of proposed Form ATS–N? Should these items be refined in any way? If so, how? Please be specific.
399. Do you believe there is other information that market participants might find relevant or useful regarding the established non-discretionary methods that dictate the terms of trading among multiple buyers and sellers on the market or facilities of an NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
400. Do you believe there is other information that market participants might find relevant or useful regarding trading procedures related to price protection mechanisms, short sales, locked-crossed markets, the handling of execution errors, time-stamping of orders and executions, or price improvement functionality on an NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
401. Do you believe there is any information that would be required by Part IV, Items 7(b) and 7(c) of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
402. Are there any aspects of the non-discretionary methods that dictate the terms of trading among buyers and sellers on which the Commission should specifically require information that is not included as a component under Part IV, Item 7(b) of proposed Form ATS–N?
403. What are the potential costs and benefits of disclosing the information required by Part IV, Items 7(b) and 7(c) of proposed Form ATS–N? Would the proposed disclosures in Part IV, Items 7(b) and 7(c) of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
404. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Items 7(b) and 7(c) of proposed Form ATS–N other than through disclosure on proposed Form
Part IV, Item 8 of proposed Form ATS–N would require an NMS Stock ATS to describe any procedures governing trading in the event the NMS Stock ATS suspends trading or experiences a system disruption or malfunction. In addition, if the procedures governing trading during a suspension or system disruption or malfunction are not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. This item is designed to inform market participants of whether, among other things, an NMS Stock ATS will continue to accept orders after suspension or system malfunction or disruption occurs, whether the NMS Stock ATS routes, holds, or continues to execute orders resting in the system prior to the disruption, and the type of notice the NMS Stock ATS provides to subscribers and other market participants during a suspension or system disruption or malfunction. Examples of system disruptions would include, but are not limited to, internal software problems that prevent the NMS Stock ATS's system from opening or continuing trading,
The Commission preliminarily believes that information regarding an NMS Stock ATS's procedures on how orders may be handled during a suspension of trading or system disruption or malfunction would be useful to market participants because such an event might preclude the NMS Stock ATS from accepting and/or executing time sensitive orders and could impact the price the subscriber receives. The information about how an NMS Stock ATS would handle orders under such circumstances would better inform a subscriber's trading decisions at the time of such an event and thus help that subscriber accomplish its investing or trading objectives.
Information regarding the procedures for how an NMS Stock ATS would handle orders during a suspension of trading or system disruption or malfunction would also help the Commission better monitor the securities markets. The Commission has recently noted that given the speed and interconnected nature of the U.S. securities markets, a seemingly minor systems problem at a single entity can quickly create losses and liability for market participants, and spread rapidly across the national market system, potentially creating widespread damage and harm to market participants and investors.
405. Do you believe the Commission should require the disclosure of the information on Part IV, Item 8 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
406. Do you believe Part IV, Item 8 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding any procedures governing trading in the event the NMS Stock ATS suspends trading or experiences a system disruption or malfunction? Please explain.
407. Is it sufficiently clear what information would be required by Part IV, Item 8 of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
408. Do you believe there is other information that market participants might find relevant or useful regarding procedures governing trading in the event an NMS Stock ATS suspends trading or experiences a system disruption or malfunction? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
409. Do you believe there is any information that would be required by Part IV, Item 8 of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
410. What are the potential costs and benefits of disclosing the information required by Part IV, Item 8 of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 8 of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
411. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 8 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 8?
Part IV, Item 9 of proposed Form ATS–N would require an NMS Stock ATS to describe its opening, reopening, and closing processes, if any, and any after-hours trading procedures. Part IV, Item 9(a) of proposed Form ATS–N would require an NMS Stock ATS to describe any opening and reopening processes, including how orders or other trading interest are matched and executed prior to the start of regular trading hours or following a stoppage of trading in a security during regular trading hours and how unexecuted orders or other trading interest are
Part IV, Item 9 of proposed Form ATS–N is designed to inform market participants about whether an NMS Stock ATS uses any special procedures to match orders outside of regular trading hours and/or processes to set a single opening, reopening, or closing price to, for example, maximize liquidity and accurately reflect market conditions at the opening, reopening, or close of trading. The Commission notes that it is standard practice for national securities exchanges to conduct opening, reopening, and closing auctions, or similar procedures, to start and conclude the trading day, or reopen trading in a security during the trading day.
Market participants would likely want to know about any special opening, reopening, or closing processes, and after-hours trading procedures, employed by an NMS Stock ATS. In particular, the Commission preliminarily believes that market participants would want to know which, if any, order types participate in an NMS Stock ATS's opening, reopening, and/or closing processes, and after-hours trading. The Commission preliminarily believes that such information would help market participants assess whether participating in an NMS Stock ATS's opening, reopening, or closing processes, or after-hours trading on the NMS Stock ATS, would help accomplish their investing or trading objectives and thus, cause them to route orders to the NMS Stock ATS.
The disclosures required under Part IV, Item 9 of proposed Form ATS–N are also designed to help the Commission to better oversee NMS Stock ATSs and alert the Commission about any potential regulatory issues arising from an NMS Stock ATS's opening, reopening, or closing processes, or after-hours trading procedures. For example, under Rule 611(b)(3) of Regulation NMS,
412. Do you believe the Commission should require the disclosure of the information on Part IV, Item 9 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
413. Do you believe Part IV, Item 9 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding its opening, reopening, or closing processes, if any, and any after-hours trading procedures? Please explain.
414. Do you believe there is other information that market participants might find relevant or useful regarding the opening or reopening processes, closing process, or after-hours trading procedures on the NMS Stock ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
415. Is it sufficiently clear what information would be required by Part IV, Item 9 of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
416. Do you believe there is any information that would be required by Part IV, Item 9 of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
417. Do you believe the information that would be required by Part IV, Item 9 of proposed Form ATS–N would be useful to market participants when deciding whether to trade on the NMS Stock ATS and would assist them in devising appropriate trading strategies to help accomplish their investing or trading objectives? Why or why not? Please support your arguments.
418. What are the potential costs and benefits of disclosing the information required by Part IV, Item 9 of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 9 of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
419. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 9 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 9?
Part IV, Item 10(a) of Proposed Form ATS–N would require an NMS Stock ATS to describe the circumstances under which orders or other trading interest are routed from the NMS Stock ATS to another trading center, including whether outbound routing occurs at the
Based on Commission experience, some NMS Stock ATSs, by way of their broker-dealer operator, provide outbound routing services whereby a subscriber's order or trading interest could be routed to another trading center.
The descriptions in response to Part IV, Item 10 of proposed Form ATS–N would be required to include who determines routing destinations, whether the subscriber, the broker-dealer operator, or both. This information is meant to illuminate when subscribers would have control over potential routing destinations and when the broker-dealer operator would have discretion to route away. The Commission preliminarily believes that subscribers would find it useful to be aware of any instance in which the broker-dealer operator has discretion to route trading interest so that a subscriber could better protect its interests and monitor any such routing. Item 10 of proposed Form ATS–N would also require a description of the means by which the routing is performed. Examples of the means of outbound routing could include a third-party router, an order management system or SOR (or similar functionality) or algorithm of the broker-dealer operator or any of its affiliates, or any other functionality used to outbound route trading interest.
The Commission preliminarily believes that it is important for subscribers and potential subscribers to know at whose discretion any outbound routing occurs and who would be performing the routing. The Commission preliminarily believes that such disclosures concerning outbound routing would provide subscribers and potential subscribers with the ability to gauge how their orders would be handled if they are not executed on the NMS Stock ATS. Subscribers and potential subscribers might, for example, have concerns about the leakage of confidential trading information when their orders are routed to other trading centers. Part IV, Item 10 of proposed Form ATS–N is designed to provide subscribers and potential subscribers with relevant information to evaluate the potential for leakage of their confidential trading information. In addition, subscribers and potential subscribers could have concerns about the treatment of their confidential trading information should their orders be routed by a third party or the SOR (or similar functionality) or algorithm of the broker-dealer operator. Overall, the Commission preliminarily believes that information about routing would likely be useful to market participants when deciding whether to subscribe or otherwise submit orders to an NMS Stock ATS that might be eligible for routing.
The Commission also preliminarily believes that the disclosures required by Part IV, Item 10 of proposed Form ATS–N would aid it in evaluating whether an NMS Stock ATS is in compliance with Rule 301(b)(10) of Regulation ATS.
420. Do you believe the Commission should require the disclosure of the information on Part IV, Item 10 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
421. Do you believe Part IV, Item 10 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding the circumstances under which orders or other trading interest are routed from the NMS Stock ATS to another trading center? Please explain.
422. Is it sufficiently clear what information would be required by Part IV, Item 10 of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
423. What mechanisms are available for NMS Stock ATSs to perform outbound routing? Do you believe there is any additional information that the Commission should require NMS Stock ATSs to disclose with regard to outbound routing? If so, explain what information and why. Please support your arguments.
424. Do you believe there is any information that would be required by Part IV, Item 10 of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
425. Do you believe that the disclosures required under Part IV, Item 10 of proposed Form ATS–N would provide market participants with relevant information to evaluate the potential for leakage of their confidential trading information? Why or why not? Please be specific.
426. Do you believe transparency in how an NMS Stock ATS routes orders to other trading centers is useful to market participants when deciding whether to trade on the NMS Stock ATS and would assist them in devising appropriate trading strategies to help accomplish their investing or trading objectives? Why or why not?
427. Do you believe there is other information that market participants might find relevant or useful regarding the circumstances under which orders or other trading interest are routed from the NMS Stock ATS to another trading center? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
428. What are the potential costs and benefits of disclosing the information
429. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 10 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 10?
Part IV, Item 11 of proposed Form ATS–N would require an NMS Stock ATS to disclose its sources and use of market data. Part IV, Item 11(a) of proposed Form ATS–N would require a description of the market data used by the NMS Stock ATS and the source of that market data (
The Commission preliminarily believes that market participants would likely find it useful to know the source and specific purpose for which market data is used by an NMS Stock ATS. For instance, the market data received by an NMS Stock ATS might affect the price at which orders are executed on the NMS Stock ATS.
430. Do you believe the Commission should require the disclosure of the information on Part IV, Item 11 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
431. Do you believe Part IV, Item 11 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding the sources and use of market data? Please explain.
432. Is it sufficiently clear what information would be required by Part IV, Item 11 of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
433. Do you believe there is other information that market participants might find relevant or useful regarding the sources and use of market data? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
434. Do you believe there is any information that would be required by Part IV, Item 11 of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
435. Are there any other applications for which NMS Stock ATSs use market data that the Commission should specifically identify and/or discuss under Part IV, Item 11 of Proposed Form ATS–N?
436. Do you believe that transparency regarding what market data an NMS Stock ATS uses and how the NMS Stock ATS uses that market data is useful to market participants when deciding whether to trade on the NMS Stock ATS and would assist them in devising appropriate trading strategies to help accomplish their investing or trading objectives? Why or why not?
437. Do you believe that the disclosures required under Part IV, Item 11 of Proposed Form ATS–N would assist the Commission to understand the procedures employed by an NMS Stock ATS for complying with Regulation NMS and to understand how orders are priced, handled, and routed by the NMS Stock ATS? Why or why not?
438. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 11 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 11?
439. What are the potential costs and benefits of disclosing the information required by Part IV, Item 11 of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 11 of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
Part IV, Item 12 of proposed Form ATS–N would require the NMS Stock ATS to disclose and describe its fee and rebate structure. Part IV, Item 12(a) of proposed Form ATS–N would require an NMS Stock ATS to describe any fees, rebates, or other charges of the NMS Stock ATS (
The Commission preliminarily believes that by requiring a description of an NMS Stock ATS's fees, rebates, and other charges, market participants would be able to review and evaluate the fee structure of each NMS Stock ATS. If an NMS Stock ATS has a recognized fee structure, such as a maker-taker pricing model,
The Commission also is proposing to require that NMS Stock ATSs describe any differences in their fees, rebates, or other charges among differing types of subscribers or other persons. The Commission preliminarily believes that this information would further illuminate the types of subscribers and/or trading interest that the NMS Stock ATS may be trying to attract.
Part IV, Item 12 of proposed Form ATS–N also would require that the NMS Stock ATS provide the range (
Item 12, however, does not require NMS Stock ATSs to disclose a complete schedule of their fees. In some cases, the fee schedules employed by NMS Stock ATSs are highly bespoke, and it may not be practical or desirable to require an NMS Stock ATS to disclose the fee schedule applicable to each subscriber to the NMS Stock ATS. The Commission, therefore, is proposing that the NMS Stock ATS disclose only the range of fees for each service. These disclosures are designed to give market participants an awareness of the fees charged by the NMS Stock ATS and allow market participants to understand and compare fees across NMS Stock ATSs, which could reduce the search costs of market participants in deciding where to send their orders and trading interest. The Commission preliminarily believes that the disclosures required by Part IV, Item 12 of proposed Form ATS–N would also assist the Commission in better understanding the fee structures of NMS Stock ATSs and trends in the market as part of the Commission's overall review of market structure.
440. Do you believe the Commission should require the disclosure of the information on Part IV, Item 12 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
441. Do you believe Part IV, Item 12 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding its fee and rebate structure? Please explain.
442. Is it sufficiently clear what information would be required by Part IV, Item 12 of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
443. Do you believe the Commission should require NMS Stock ATSs to publicly disclose their fees, charges, and rebates on proposed Form ATS–N? Why or why not?
444. Do you believe the Commission should require NMS Stock ATSs to disclose their complete fee schedules? Are there other ways that NMS Stock ATSs earn revenue about which the Commission should require disclosure?
445. Do you believe there is other information that market participants might find relevant or useful regarding fees, rebates and other charges? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
446. Do you believe there is any information that would be required by Part IV, Item 12 of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
447. Do you believe that the information required by Part IV, Item 12 of proposed Form ATS–N would assist market participants and the Commission in comparing fees across NMS Stock ATSs? Why or why not? Please support your arguments.
448. Do you believe that the information required by Part IV, Item 12 of proposed Form ATS–N would allow the Commission to gather further information and analyze trends in the market, including how the prevalence of different fee structures may impact different categories of market participants? Would this information assist the Commission in evaluating the potential incentives and disincentives created by different fee structures in the market for NMS stocks? Why or why not? Please support your arguments.
449. What are the potential costs and benefits of disclosing the information required by Part IV, Item 12 of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 12 of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
450. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 12 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If
Part IV, Item 13 would require an NMS Stock ATS to describe its arrangements or procedures for trade reporting, clearance, and settlement of transactions. Part IV, Item 13(a) of proposed Form ATS–N would require an NMS Stock ATS to describe any arrangements or procedures for reporting transactions on the NMS Stock ATS and if the trade reporting procedures are not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. Part IV, Item 13(b) of proposed Form ATS–N would require an NMS Stock ATS to describe any arrangements or procedures undertaken by the NMS Stock ATS to facilitate the clearance and settlement of transactions on the NMS Stock ATS. If the clearance and settlement procedures are not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. The Commission notes that Item 13 of proposed Form ATS–N would solicit similar information that is solicited pursuant to Exhibit F, subsection (d) of Form ATS, which currently requires ATSs to provide their procedures governing execution, reporting, clearance, and settlement of transactions effected through the ATS.
Trade reporting furthers the transparent, efficient, and fair operation of the securities markets.
Part IV, Item 13(b) of proposed Form ATS–N would require that an NMS Stock ATS describe any arrangements or procedures undertaken by the NMS Stock ATS to facilitate the clearance and settlement of transactions on the NMS Stock ATS. The Commission has previously stated that the integrity of the trading markets depends on the prompt and accurate clearance and settlement of securities transactions.
451. Do you believe the Commission should require the disclosure of the information on Part IV, Item 13 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
452. Do you believe Part IV, Item 13 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding its arrangements or procedures for trade reporting, clearance, and settlement of transactions? Please explain.
453. Do you believe there is other information that market participants might find relevant or useful regarding procedures for trade reporting, clearance, and settlement of transactions on the NMS Stock 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–N. Please support your arguments.
454. Is it sufficiently clear what information would be required by Part IV, Item 13 of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific
455. Do you believe there is any information that would be required by Part IV, Item 13 of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
456. Do you believe that the information required by Part IV, Item 13 of proposed Form ATS–N will assist market participants in the manner described above? Why or why not? Please support your arguments.
457. What are the potential costs and benefits of disclosing the information required by Part IV, Item 13 of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 13 of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
458. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 13 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 13?
Part IV, Item 14 of proposed Form ATS–N would require an NMS Stock ATS to provide the following information if the NMS Stock ATS displays orders in an NMS stock to any person other than employees of the NMS Stock ATS and executed 5% or more of the average daily trading
The information elicited in Part IV, Item 14 relates to an NMS Stock ATS's obligations under current Rule 301(b)(3) of Regulation ATS, which applies if an ATS displays a subscriber order in an NMS stock to any person other than ATS employees, and during at least 4 of the preceding 6 calendar months, executed 5% or more of the average daily trading volume in that NMS Stock as reported by an effective transaction reporting plan. Rule 301(b)(3)(ii) and (iii) requires qualifying ATSs to report their highest bid and lowest offer for the relevant NMS stock for inclusion in the quotation data made available by the national securities exchange or national securities association to which it reports and provide equivalent access to effect a transaction with other orders displayed on the exchange or by the association.
The information required by Part IV, Item 14 of proposed Form ATS–N is designed to elicit information about how the NMS Stock ATS complies with the requirements of Rule 301(b)(3) of Regulation ATS when applicable. The Commission preliminarily believes that the disclosure of the information required by Item 14 of proposed Form ATS–N would facilitate the Commission's oversight of NMS Stock ATSs and their compliance with Rule 301(b)(3) and help the Commission discover a potential violation of the federal securities laws and rules or regulations thereunder in a more expeditious manner than if the disclosures were not required. In part, because the thresholds required for display and access are counted for each NMS stock individually, an NMS Stock ATS would be required to disclose the ticker symbol for the relevant NMS stock to aid the Commission in evaluating its compliance. The Commission also preliminarily believes that these disclosures would help ensure that market participants and the Commission are aware when an NMS Stock ATS has become a significant source of liquidity in an NMS stock. Further, the Commission preliminarily believes that market participants would find the information disclosed in this item useful to understand how they can access applicable quotations.
459. Do you believe the Commission should require the disclosure of the information on Part IV, Item 14 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
460. Do you believe Part IV, Item 14 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding the NMS Stock ATS's obligations under current Rule 301(b)(3) of Regulation ATS? Please explain.
461. Do you believe there is other information that market participants might find relevant or useful regarding the NMS Stock ATS's obligations under current Rule 301(b)(3) of Regulation ATS? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
462. Is it sufficiently clear what information would be required by Part IV, Item 14 of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
463. Do you believe there is any information that would be required by Part IV, Item 14 of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
464. Do you believe that the information required by Part IV, Item 14 of proposed Form ATS–N will assist market participants in accessing applicable quotations and ensuring they receive equivalent access on the NMS Stock ATS? Why or why not? Please support your arguments.
465. Do you believe that the imposition of the requirements of Rule 301(b)(3) on an NMS Stock ATS crossing the relevant volume thresholds of Rule 301(b)(3)(i) and meeting the display requirement of the rule, should constitute a material change in the operations of the NMS Stock ATS such that it should be reported to the Commission in advance? Why or why not?
466. What are the potential costs and benefits of disclosing the information required by Part IV, Item 14 of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 14 of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
467. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 14 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 14?
In 2009, the Commission published a proposal to address certain practices with respect to undisplayed liquidity, which is trading interest that is available for execution at a trading center, but is not included in the consolidated quotation data that is widely disseminated to the public.
468. Do you believe that the Commission should lower the 5% trading volume threshold in Rule 301(b)(3) of Regulation ATS that triggers the public display requirement for ATSs? Why or why not? If so, what is the appropriate threshold level? Please support your arguments.
469. Do you believe that the Commission should define actionable indications of interest in the definition of “bid” and “offer” in Regulation NMS? Why or why not? Please support your arguments.
Part IV, Item 15 of proposed Form ATS–N would require an NMS Stock ATS to provide the following information if the NMS Stock ATS executes 5% or more of the average daily trading volume in an NMS stock as reported by an effective transaction reporting plan for four of the preceding six calendar months: (a) The ticker symbol for each NMS stock for each of the last 6 calendar months; and (b) a description of the written standards for granting access to trading on the NMS Stock ATS.
The Commission preliminarily believes that the disclosure of the information requested by Part IV, Item 15 of proposed Form ATS–N would facilitate the Commission's oversight of NMS Stock ATSs and their compliance with Rule 301(b)(5). Because the volume thresholds required for fair access are counted for each NMS stock individually, an NMS Stock ATS would be required to disclose the ticker symbol for the relevant NMS stock to aid the Commission in evaluating the NMS Stock ATS's compliance. The Commission also preliminarily believes that it is important for market participants to be aware of whether an NMS Stock ATS is a significant source of liquidity for an NMS stocks and therefore, must provide fair access. Although Exhibit C of Form ATS–R requires an ATS to notify the Commission when it has crossed a fair access threshold in a particular calendar quarter,
470. Do you believe the Commission should require the disclosure of the information on Part IV, Item 15 of Form ATS–N? Why or why not? If so, what level of detail should be disclosed? Please be specific.
471. Do you believe Part IV, Item 15 of proposed Form ATS–N captures the information that is most relevant to understanding the operations of the NMS Stock ATS regarding the written standards for granting access to trading on its system when it crosses the fair access thresholds of Rule 301(b)(5)(i) (and does not meet the exception set forth in Rule 301(b)(5)(iii))? Please explain.
472. Do you believe there is other information that market participants might find relevant or useful regarding the written standards for granting access to trading on its system when it crosses the fair access thresholds of Rule 301(b)(5)(i) (and does not meet the exception set forth in Rule 301(b)(5)(iii))? If so, describe such information and explain whether, and if so why, such information should be required to be provided under proposed Form ATS–N. Please support your arguments.
473. Do you believe there is any information that would be required by Part IV, Item 15 of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
474. Is it sufficiently clear what information would be required by Part IV, Item 15 of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
475. Do you believe that the disclosures under Part IV, Item 15 of proposed Form ATS–N would help market participants better evaluate trading opportunities and where to route orders in order to reach their investment objectives? Why or why not? Please support your arguments.
476. Do you believe that the imposition of the requirements of Rule
477. What are the potential costs and benefits of disclosing the information required by Part IV, Item 15 of proposed Form ATS–N? Would the proposed disclosures in Part IV, Item 15 of proposed Form ATS–N require an NMS Stock ATS to reveal too much (or not enough) information about its structure and operations? Why or why not? Please support your arguments.
478. Do you believe there are other ways to obtain the same information as would be required from NMS Stock ATSs by Part IV, Item 15 of proposed Form ATS–N other than through disclosure on proposed Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the proposed disclosures in Part IV, Item 15?
Part IV, Item 16 of proposed Form ATS–N would require an NMS Stock ATS to explain and provide certain aggregate platform-wide market quality statistics that it publishes or provides to one or more subscribers regarding the NMS Stock ATS.
The Commission preliminarily believes that some NMS Stock ATSs voluntarily publish or otherwise provide to subscribers aggregate platform-wide order flow and execution statistics that do not fall under the statistical information that is required to be disclosed under Exchange Act Rule 605,
Under Part IV, Item 16, an NMS Stock ATS would be required to explain and provide any aggregate platform-wide order flow or execution statistic that is not otherwise a required disclosure under Exchange Act Rule 605 and published or provided to one or more subscribers by the NMS Stock ATS. An example of a type of statistic that would be a required disclosure under Item 16 would be statistics related to the percentage of midpoint executions on the NMS Stock ATS that the NMS Stock ATS publishes or otherwise provides to subscribers. The NMS Stock ATS would be required to list that category under Part IV, Item 16(a) and explain how the NMS Stock ATS calculates that statistic under Item 16(b). Within 30 calendar days after the end of each calendar quarter, the NMS Stock ATS would be required to attach an Exhibit 5 containing the most recent percentage it disseminated during the previous quarter. The Commission preliminarily believes that requiring the NMS Stock ATS to provide the statistic on Form ATS–N on a quarterly basis would allow market participants to obtain insight into the nature of trading on the NMS Stock ATS on a sufficiently frequent basis while minimizing the reporting burden for the NMS Stock ATS.
The Commission preliminarily believes that an NMS Stock ATS may choose to create and publish or provide to one or more subscribers information concerning order flow and execution quality for different reasons. For example, the NMS Stock ATS may have concluded that publication of certain statistics may highlight certain characteristics of the NMS Stock ATS that would attract certain order flow. Or a subscriber may have requested that the NMS Stock ATS provide certain aggregated information concerning order flow and execution quality that the subscriber needed to assess the ATS's operations. The Commission notes that certain performance metrics and statistics may be important factors for investors and subscribers in comparing and selecting an ATS that is most appropriate for their investment objectives.
The Commission also solicits comment on whether other standardized statistical disclosures should be required from NMS Stock ATSs and the nature and extent of any such metrics or statistics that commenters believe should be disclosed.
479. Do you believe the Commission should require the disclosure of the information on Part IV, Item 16 of Form ATS–N? Why or why not? If so, what
480. Do you believe that the statistics required on Part IV, Item 16 of Form ATS–N should be provided on a more or less frequent basis? Why or why not? If so, how often should the statistics be provided (
481. Is it sufficiently clear what information would be required by Part IV, Item 16 of proposed Form ATS–N? Should the item be refined in any way? If so, how? Please be specific.
482. Do you believe that the disclosures under Part IV, Item 16 of proposed Form ATS–N would help market participants better evaluate trading opportunities and where to route orders in order to reach their investment objectives? Why or why not? Please support your arguments.
483. Do you believe that the Commission should require standardized public disclosures of performance metrics or statistics for each NMS Stock ATS? Why or why not? Please support your arguments. If so, what metrics or statistics should NMS Stock ATSs be required to disclose publicly? Please be specific.
484. What percentage of NMS Stock ATSs publish or provide market quality statistics not otherwise required under Exchange Act Rule 605? Please explain how you have calculated this number.
485. Do you believe that there are other statistics or data that an NMS Stock ATS should be required to provide on proposed Form ATS–N that would be useful to market participants that either subscribe to or are considering subscribing to the NMS Stock ATS? If so, please identify those metrics and explain how they would be useful to market participants. Please support your arguments.
486. Should the Commission require NMS Stock ATSs to disclose on Form ATS–N, statistics regarding the extent of trading by the broker-dealer operator and its affiliates on the NMS Stock ATS? Why or why not? If so, what statistics should be required to be disclosed? Please support your arguments. If you believe that an NMS Stock ATS should disclose statistics about the extent of its broker-dealer operator's and its affiliates' trading activity on the NMS Stock ATS, how often should these statistics be disclosed (
487. Do you believe there is any information that would be required by Part IV, Item 16 of proposed Form ATS–N that an NMS Stock ATS should not be required to disclose due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? Why or why not? Please support your arguments.
The Commission also notes that some industry participants have previously requested public statistics about the quality of these markets. In the 2010 Equity Market Structure Release, the Commission solicited public comment about, among other things, market structure performance and order execution quality, and how transparency could be improved in these areas.
In response, some commenters stated their concern about the lack of market quality information available to the public about ATSs and other trading centers. For example, one commenter expressed support for national securities exchanges and ATSs to disclose how often a functionality is used and more market quality statistics, such as quote-per-execution ratios, duration of quotes and number of times orders are routed out without getting filled so that investors and other market participants could better gauge execution quality.
This commenter also provided a template for disclosure of order routing and execution quality information that institutional investors could request from their broker-dealers, which included, among other things: The number of total shares routed as actionable IOIs; the percent of shares routed to the venue by the broker that resulted in executions at that venue); the average length of time (measured in milliseconds) that orders (other than IOCs) were posted to a venue before being filled or cancelled; the average size, by number of shares, of each order actually executed on the venue; the aggregate number of shares executed at the venue that were priced at or near the mid-point between the bid and the offer; and the percentage of total shares executed that were executed at or near the midpoint between the bid and the offer.
With regard to the comment that the execution quality statistics currently made public under Rules 605 and 606 are inadequate, the Commission notes that it is considering proposing to amend Rules 600 and 606 to standardize and improve transparency around how broker-dealers handle and route institutional customer orders. These
488. Do you believe that there is information that the Commission should require NMS Stock ATSs to disclose other than the information that is currently available to market participants from order execution reports pursuant to Exchange Act Rule 605? Why or why not? Please support your arguments. If so, what information should be disclosed and how would the information be useful to market participants? Please explain. Do you believe that there is information that the Commission should require a broker-dealer operator of the NMS Stock ATS to disclose other than the information that is currently available to market participants from order routing reports pursuant to Exchange Act Rules 606? Why or why not? Please support your arguments.
489. Do you believe that there are other means by which market quality metrics should be required to be made available by NMS Stock ATSs to market participants, other than as disclosures on proposed Form ATS–N? Why or why not? Please support your arguments. If so, please identify by what means and why? Please support your arguments.
490. Do you believe that an NMS Stock ATS should be required to disclose information about orders entered into its system and the ultimate disposition of such orders? Why or why not? Please support your arguments. For example, should NMS Stock ATSs disclose information regarding the average order size, average execution size, and percentage of orders marked immediate or cancel? Why or why not? Please support your arguments.
491. Do you believe that NMS Stock ATSs should be required to disclose whether the NMS Stock ATS provided order flow and execution statistics to some subscribers and not others? Why or why not? Please support your arguments.
492. Do you believe that NMS Stock ATSs should be required to disclose execution information such as the total number and percentage of shares executed at the midpoint, total number and percentage of shares executed at the national best bid, total number and percentage of shares executed at the national best offer, total number and percentage of shares executed between the national best bid and the midpoint, and total number and percentage of shares executed between the midpoint and the national best offer? Why or why not? Please support your arguments. If so, do you believe such information should be disclosed publicly on an aggregated basis or should the information be disclosed to each subscriber based on its own orders? Please support your arguments.
493. Do you believe that the joint-industry plan should be amended for publicly disseminating consolidated trade data to require real-time disclosure of the identity of NMS Stock ATSs on reports of their executed trades? Why or why not? Please support your arguments. Alternatively, should executions on NMS Stock ATSs be publicly disseminated on a delayed basis?
494. Do you believe that there are other data elements that should be provided by NMS Stock ATSs in the consolidated trade data? What are they and why should they be required? Please be specific.
Current Rule 301(b)(10) of Regulation ATS
Rule 301(b)(10), however, does not currently require that the safeguards and procedures mandated under Rule 301(b)(10) be memorialized in writing. The Commission is now proposing to amend Rule 301(b)(10) to require that such safeguards and procedures be reduced to writing.
The Commission continues to believe that safeguards and procedures to ensure the confidential treatment of ATS subscribers' trading information are important, and that the potential for misuse of such information continues to exist. The Commission preliminarily believes that requiring an ATS to reduce to writing those safeguards and procedures, as well as its oversight procedures to ensure that such safeguards and procedures are followed, would strengthen the effectiveness of the ATS's safeguards and procedures and would better enable the ATS to protect confidential subscriber trading information and implement and monitor the adequacy of, and the ATS's compliance with, its safeguards and procedures. For example, if an ATS were required to reduce its safeguards and procedures to writing, it could self-audit—or if it chose to do so, undergo a third-party audit—for compliance with those safeguards and procedures, and also assess their adequacy. In addition, the Commission preliminarily believes that reducing ATSs' safeguards and procedures under Rule 301(b)(10) to writing will help the Commission and its staff, and the staff of the SRO of which an ATS's broker-dealer operator is a member, evaluate whether an ATS has established such procedures and safeguards, whether the ATS has implemented and is abiding by them, and whether they comply with the requirements of Rule 301(b)(10). This should enable the Commission, and the applicable SRO(s), to exercise more effective oversight of ATSs regarding the ATSs' compliance with Rule 301(b)(10) and other federal securities laws, rules, and regulations. The Commission also preliminary believes that its proposal would benefit market participants because they would be able to better evaluate the implementation of such safeguards and procedures, due to the proposed rule to reduce those safeguards and procedures to writing.
495. Do you believe the Commission should require ATSs to reduce to writing their safeguards and procedures as described above? Why or why not? Should the requirement apply to all ATSs or only a subset such as NMS Stock ATSs? Please support your arguments.
496. Do you believe that requiring ATSs to reduce to writing their safeguards and procedures, as proposed, would help to ensure that subscribers' confidential trading information is protected and not misused? If not, why not? Please support your arguments.
497. Are there other conditions that the Commission should implement to achieve the goal of protecting subscribers' confidential trading information? If so, what are they and why would they be preferable? Please be specific.
498. Currently, how common is it for ATSs to reduce to writing their safeguards and procedures to protect subscribers' confidential trading information and/or their oversight procedures to ensure that those safeguards and procedures are followed? For ATSs that have not reduced their safeguards and procedures to protect subscribers' confidential trading information to writing, how do they currently ensure their compliance with the requirements of Rule 301(b)(10)? Please be specific.
499. For ATSs that have not reduced to writing their safeguards and procedures to protect subscribers' confidential trading information and/or their oversight procedures to ensure that those safeguards and procedures are followed, how long would it take to do so? Please explain.
The Commission is proposing to amend Rules 303(a)(1) and 303(a)(2) of Regulation ATS to reflect its proposed amendments to Rule 301(b)(2)
Currently, unless not required to comply with Regulation ATS pursuant to Rule 301(a)
Rule 303(a)(1) requires an ATS to preserve certain records for at least three years, the first two years in an easily accessible place.
The Commission is proposing to amend the record preservation requirements of Rule 303 to incorporate the preservation of records that would be created pursuant to the proposed requirements that NMS Stock ATSs file Forms ATS–N, Form ATS–N Amendments, and notices of cessation instead of Form ATS. Specifically, the Commission is proposing to amend Rule 303(a)(2)(ii) to require that an ATS shall preserve, for the life of the enterprise and of any successor enterprise, copies of reports filed pursuant to Rule 301(b)(2) or—in the case of an NMS
The Commission is also proposing amendments to the record preservation requirements of Rule 303(a)(1) to incorporate the Commission's proposed amendments to Rule 301(b)(10),
Finally, the Commission proposes to make a minor technical amendment to Rule 303(a). Currently, Rule 303(a) references “paragraph (b)(9) of § 242.301” when setting forth the record preservation requirements for ATSs. The Commission is proposing to change the above reference to “paragraph (b)(8) of § 242.301” because Rule 301(b)(8) sets forth the recordkeeping requirements for ATSs.
500. Do you believe the Commission should amend the recordkeeping requirements for ATSs as proposed? Why or why not?
501. Do you believe that there are any other requirements of Rule 303 that should be amended to satisfy the objectives of this proposal? If so, what are they and why?
502. Do you believe that the proposed amendments to the record preservation requirements of Rule 303 are reasonable? If not, why? Please support your arguments.
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 NMS Stock ATS, subscribers to those systems, investors, and registered national securities exchanges. The Commission seeks comment on all aspects of the proposed rule amendments and proposed form, particularly the specific questions posed above. Commenters should, when possible, provide the Commission with data to support their views. Commenters suggesting alternative approaches should provide comprehensive proposals, including any conditions or limitations that they believe should apply, the reasons for their suggested approaches, and their analysis regarding why their suggested approaches would satisfy the objectives of the proposed amendments. The Commission will carefully consider the comments it receives.
503. Do you believe that there is other information about the nature or extent of the operations of an NMS Stock ATS that should be disclosed on proposed Form ATS–N? Are there specific topics about which the Commission should request more information? If so, what information should be disclosed and why?
504. Do you believe that there are activities of an NMS Stock ATS broker-dealer operator and its affiliates that may give rise to potential conflicts of interest, other than those described, that should be disclosed on Form ATS–N? If so, what information should be disclosed and why? If so, what are they and why?
505. Is there other information or data that would be useful for a market participant to consider when evaluating an NMS Stock ATS as a potential trading center for its orders? If so, what are they and why?
Certain provisions of the proposal contain “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
• Requirements for Alternative Trading Systems That Are Not National Securities Exchanges—Rule 301, Form ATS and Form ATS–R, 17 CFR 242.301 (OMB Control No. 3235–0509);
• Rule 303 (17 CFR 242.303) Record Preservation Requirements for Alternative Trading Systems (OMB Control No. 3235–0505).
• Rule 304 and Form ATS–N (a proposed new collection of information).
We are submitting these requirements to the Office of Management and Budget (“OMB”) for review and approval in accordance with the PRA and its implementing regulations.
The proposed amendments to Regulation ATS include two new categories of obligations that would require a collection of information within the meaning of the PRA. The first category relates to Rule 301(b)(10) of Regulation ATS
Under Rule 301(b)(10) of Regulation ATS, all ATSs are currently required to: (1) Establish adequate safeguards and procedures to protect subscribers'
In addition, the Commission proposes to amend Rule 303(a)(1)
As described above, the Commission proposes that any ATS that meets the definition of an NMS Stock ATS would be required to complete Form ATS–N and file it with the Commission in a structured format.
Proposed Form ATS–N consists of five parts. First, the entity submitting the filing would indicate whether it is submitting or withdrawing an initial filing. The entity would also indicate the type of filing—whether the filing is a Form ATS–N, a Form ATS–N Amendment (whether a material amendment, periodic amendment, or correcting amendment), or a notice of cessation, and if it is a notice of cessation, the date the NMS Stock ATS will cease to operate. If the filing is a Form ATS–N Amendment, the NMS Stock ATS would also be required to provide a brief narrative description of the amendment and a redline(s) showing changes to Part III and/or Part IV of proposed Form ATS–N. Part I would require that entity to state the name of the Registered Broker Dealer of the NMS Stock ATS (
Part III of proposed Form ATS–N would require an NMS Stock ATS to provide certain disclosures related to the activities of the broker-dealer operator and its affiliates in connection with the NMS Stock ATS. Part III consists of ten items, which are summarized here, and explained in greater detail below in the discussion of the estimated burdens related to each disclosure requirement. Part III of proposed Form ATS–N would include disclosures relating to: (1) Whether the broker-dealer operator, or any of its affiliates, operate or control any non-ATS trading centers and how such non-ATS trading centers coordinate or interact with the NMS Stock ATS, if at all; (2) whether the broker-dealer operator, or any of its affiliates, operates another NMS Stock ATS and how such other NMS Stock ATS coordinates or interacts with the NMS Stock ATS completing the Form ATS–N, if at all; (3) the products and services offered by the broker-dealer operator, or any of its affiliates, to subscribers in connection with their use of the NMS Stock ATS; (4) whether the broker-dealer operator, or any of its affiliates, has any formal or informal arrangement with an unaffiliated person(s), or affiliate(s) of such person(s), that operates a trading center regarding access to the NMS Stock ATS, including preferential routing arrangements; (5) whether the broker-dealer operator or any of its affiliates enter orders or other trading interest on the NMS Stock ATS and the manner in which such trading is done; (6) whether the broker-dealer operator or any of its affiliates use a SOR(s) (or similar functionality), an algorithm(s), or both to send or receive orders or other trading interest to or from the NMS Stock ATS, and the interaction or coordination between the SOR(s) (or similar functionality) or algorithm(s) and the NMS Stock ATS; (7) whether there are any employees of the broker-dealer operator that service the operations of the NMS Stock ATS that also service any other business unit(s) of the broker-dealer operator or any affiliate(s) other than the NMS Stock ATS, and the roles and responsibilities of such shared employees; (8) whether any operation, service, or function of the NMS Stock ATS is performed by any
Part IV of proposed Form ATS–N would require an NMS Stock ATS to provide certain disclosures related to the manner of operations of the NMS Stock ATS. Part IV consists of 15 items, which are summarized here, and explained in greater detail below in the discussion of the estimated burdens related to each disclosure requirement. Part IV of proposed Form ATS–N would include disclosures relating to: (1) Subscribers to the NMS Stock ATS, including any eligibility requirements to gain access to the services of the ATS, the terms or conditions of any contractual agreement for access, the types of subscribers and other persons that use the services of the ATS, any formal or informal arrangement the NMS Stock ATS may have with a subscriber or person to provide liquidity to the ATS (including the terms and conditions of each arrangement and the identity of any liquidity provider that is an affiliate of the broker-dealer operator), the circumstances by which a subscriber or other person may be limited or denied access to the NMS Stock ATS, and any differences in the treatment of different subscribers and persons with respect to eligibility, terms and conditions of use, criteria for distinguishing among subscribers or other persons, and limitations and denials of access; (2) the days and hours of operation of the NMS Stock ATS, including the times when orders or other trading interest are entered and the time when pre-opening or after-hours trading occur, and whether there are any differences in when orders or other trading interest may be entered by different subscribers or persons; (3) the order types and modifiers entered on the NMS Stock ATS, including their characteristics, operations, how they are ranked and executed on the ATS (such as priority vis-à-vis other orders), eligibility and conditions for routing to other trading centers, the available time-in-force instructions for each order type, whether the availability and terms and conditions of each order type is the same for all subscribers and persons, any requirements and handling procedures for minimum order sizes, odd-lot orders or mixed-lot orders, including whether such requirements and procedures are the same for all subscribers and persons, and any messages sent to or received by the NMS Stock ATS indicating trading interest, including any differences in the terms and conditions for such messages for different subscribers and persons; (4) the means by which subscribers and other persons connect to the NMS Stock ATS and enter orders or other trading interest on the NMS Stock ATS (
Part V of proposed Form ATS–N would require an NMS Stock ATS to provide certain basic information about the point of contact for the NMS Stock ATS, such as the point of contact's name, title, telephone number and email
The Commission proposes that Form ATS–N would be filed electronically and require an electronic signature. Consequently, the proposed amendments to Regulation ATS would require that every NMS Stock ATS have the ability to file forms electronically with an electronic signature. The Commission preliminarily believes that most, if not all, ATSs that transact in NMS stock currently have the ability to access and submit an electronic form such that the requirement to file Form ATS–N electronically with an electronic signature would not impose new implementation costs. The burdens related to electronic submission and providing an electronic signature are included in the burden hour estimates provided below.
In addition, the Commission proposes to amend Rule 303(a)(2)(ii)
Furthermore, under this proposal, an ATS that effects transactions in both NMS stocks and non-NMS stocks would be required to file both a Form ATS–N with respect to its trading of NMS stocks and a revised Form ATS that removes discussion of those aspects of the ATS related to the trading of NMS stocks. The ATS would also be required to file two Forms ATS–R—one to report its trading volume in NMS stocks and another to report its trading volume in non-NMS stocks.
As noted above, the proposed amendments to Rule 301(b)(10) of Regulation ATS would require all ATSs to have in place written safeguards and written procedures to protect subscribers' confidential trading information. Proposed Rule 303(a)(1)(v) of Regulation ATS would require all ATSs to preserve at least one copy of those written safeguards and written procedures.
The Commission preliminarily believes that both the Commission and the SRO of which the ATS's broker dealer-operator is a member will use these written safeguards and written procedures in order to better understand how each ATS protects subscribers' confidential trading information from unauthorized disclosure and access. The Commission preliminarily believes that the information contained in the records required to be preserved by proposed Rule 303(a)(1)(v) would be used by examiners and other representatives of the Commission, state securities regulatory authorities, and SROs to evaluate whether ATSs are in compliance with Regulation ATS as well as other applicable rules and regulations. The Commission also preliminarily believes that the proposed requirements to memorialize in writing the safeguards and procedures to protect subscribers' confidential trading information would assist ATSs in more effectively complying with their existing legal requirements under Regulation ATS; in particular, the requirements to protect the confidentiality of subscribers' trading information under Rule 301(b)(10) of Regulation ATS.
Proposed Rules 301(b)(2)(viii) and 304 of Regulation ATS would require each NMS Stock ATS to file a Form ATS–N, Form ATS–N Amendments, and a notice of cessation on proposed Form ATS–N.
The Commission preliminarily believes that market participants would use the information publicly disclosed on proposed Form ATS–N to source, evaluate, and compare and contrast information about different NMS Stock ATSs, including information relating to the broker-dealer operator and any potential conflicts of interests it may have with respect to its operation of the NMS Stock ATS. The Commission also preliminarily believes that market participants would use the information publicly disclosed on proposed Form ATS–N to source, evaluate, and compare and contrast information about, among other things, an NMS Stock ATS's eligibility requirements, trading hours, order types, connection and order entry functionalities, segmentation of order flow, display of orders and other trading interests, trading platform functionality, procedures governing trading during a suspension of trading, system disruption, or system malfunction, opening, closing, and after-hours trading processes or procedures, routing procedures, market data usages and sources, fees, trade reporting, clearing, and settlement, order display and execution access standards, fair access standards, and market quality statistics published or provided to one or more subscribers. Accordingly, the Commission preliminarily believes that market participants would use the information disclosed on proposed Form ATS–N to better evaluate to which trading venue they may want to subscribe and/or route orders for execution in order to accomplish their investing or trading objectives.
The Commission preliminarily believes it will use the information
The Commission also proposes to amend Rule 303(a)(2)(ii) of Regulation ATS to provide that all ATSs must preserve copies of all reports filed pursuant to proposed Rule 304 for the life of the enterprise and any successor enterprise. The Commission preliminarily believes that the information contained in the records required to be preserved by the proposed amendment to 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 ATSs are in compliance with Regulation ATS as well as other applicable rules and regulations.
The “collection of information” requirements under the proposed amendments to Regulation ATS relating to Rule 301(b)(10) and proposed Rule 303(a)(1)(v), as described above, would apply to all ATSs, including NMS Stock ATSs. The “collection of information” requirements under the proposed amendments to Regulation ATS relating to proposed Rule 304, Form ATS–N, and the proposed amendments to Rule 303(a)(2)(ii), as described above, would apply only to NMS Stock ATSs, and the “collection of information” requirements under the proposed amendments to Rule 301(b)(9), as described above, would apply to NMS Stock ATSs that also effect trades in both NMS stocks and non-NMS stocks.
Currently, there are 84 ATSs that have filed Form ATS with the Commission. Of these 84 ATSs, 46 would meet the definition of an NMS Stock ATS.
In addition, the Commission notes that there are currently 11 ATSs that trade, or have indicated in Exhibit B to their Form ATS that they expect to trade, both NMS stocks and non-NMS stocks on the ATS.
With respect to proposed Form ATS–N, the Commission recognizes there may be entities that might file a Form ATS–N to operate an NMS Stock ATS in the future. From 2012 through the first half of 2015, there has been an average of 2 new ATSs per year that disclose that they trade or expect to trade NMS stocks on their initial operation reports, which would therefore fall within the proposed definition of an NMS Stock ATS. Similarly, some ATSs that currently trade NMS stocks may choose to cease operations rather than comply with the proposed amendments requiring them to file proposed Form ATS–N. Other ATSs may choose to cease operations in the normal course of business. From 2012 through the first half of 2015, there has been an average of 6 ATSs that trade NMS stocks that have ceased operations each year.
The Commission preliminarily believes that most ATSs that currently trade NMS stocks 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, the Commission assumes that there will be 46 respondents. The Commission preliminarily believes that this number is reasonable, as it assumes that most ATSs that currently trade NMS stocks would file a Form ATS–N with the Commission, and acknowledges that there may be some ATSs that cease operations altogether and other entities that may choose to commence operations as an NMS Stock ATS. Based on the number of initial filings and cessation of operations reports on current Form ATS for ATSs that trade NMS stocks described above, the Commission estimates that, 2 to 3 new entities will file to become an NMS Stock ATS and 4 to 6 NMS Stock ATSs will cease operations in each of the next three years.
Under current Rule 301(b)(10) of Regulation ATS,
For ATSs that currently have and preserve in written format the safeguards and procedures to protect subscribers' confidential trading information under Rule 301(b)(10) of Regulation ATS, the Commission preliminarily estimates that the average annual burden they voluntarily undertake to update and preserve those written safeguards and written procedures is 4 hours.
The Commission recognizes that proposed Rules 301(b)(10) and 303(a)(1)(v) of Regulation ATS would impose certain burdens on respondents. For ATSs that currently have and preserve in written format the safeguards and procedures to protect subscribers' confidential trading information and written oversight procedures to ensure such safeguards and procedures are followed, the Commission preliminarily believes that there will be no increased burden under the proposed amendments to Rules 301(b)(10) and 303(a)(1)(v) of Regulation ATS. The Commission preliminarily believes that the current practices of those ATSs would already be in compliance with the proposed rules. Therefore, the proposed amendments should not require those ATSs to take any measures or actions in addition to those currently undertaken.
For ATSs that have not recorded in writing their safeguards and procedures to protect subscribers' confidential trading information and oversight procedures to ensure such safeguards and procedures are followed, there will be an initial, one-time burden to memorialize them in a written document(s). The Commission preliminarily estimates that an ATS's initial, one-time burden to put in writing its safeguards and procedures to protect subscribers' confidential trading information and the oversight procedures to ensure such safeguards and procedures are followed would be approximately 8 hours,
As explained above, the Commission preliminarily estimates that the average annual, ongoing burden per ATS to update and preserve written safeguards and written procedures to protect subscribers' confidential trading information, as well as to update and preserve the written standards controlling employees of the ATS trading for their own account and the written oversight procedures, would be 4 hours.
Currently, Rule 301(b)(2)(i) of Regulation ATS
The Commission's currently approved estimate for an initial operation report on current Form ATS is 20 hours to gather the necessary information, provide the required disclosures in Exhibits A through I, and submit the Form ATS to the Commission.
The Commission recognizes that proposed Rules 301(b)(2)(viii) and 304 of Regulation ATS, including proposed Form ATS–N, would impose certain burdens on respondents.
Parts I and II of proposed Form ATS–N would require disclosure of certain general information regarding the broker-dealer operator and the NMS Stock ATS. Part I of proposed Form ATS–N would require the NMS Stock ATS to state the name of its broker-dealer operator, the name under which the NMS Stock ATS conducts business, if any, the MPID of the NMS Stock ATS, and whether it is an NMS Stock ATS operating pursuant to a previously filed initial operation report on Form ATS. Part II of proposed Form ATS–N would require the address of the physical location of the NMS Stock ATS matching system and the NMS Stock ATS's mailing address. Part II of proposed Form ATS–N would also require registration information of the broker-dealer operator, including its SEC File Number, the effective date of the broker-dealer operator's registration with the Commission, its CRD Number, the name of its national securities association, and the effective date of the broker-dealer operator's membership with the national securities association. In addition, Part II of proposed Form ATS–N would require disclosure of certain information regarding the legal status of the broker-dealer operator and would require the NMS Stock ATS to provide a URL address to its Web site. Finally, Part II would require the NMS Stock ATS to attach Exhibit 1 (a copy of any materials provided to subscribers or any other persons related to the operations of the NMS Stock ATS or the disclosures on Form ATS–N), Exhibit 2A (a copy of the most recently filed or amended Schedule A of the broker-dealer operator's Form BD disclosing information related to direct owners and executive officers), and Exhibit 2B (a copy of the most recently filed or amended Schedule B of the broker-dealer operator's Form BD disclosing information related to indirect owners). In lieu of attaching those exhibits to Form ATS–N, the NMS Stock ATSs would be able to provide a URL address to where the required documents can be found.
Under current Form ATS, an ATS is required to provide all of the information that would be required under Parts I and II of proposed Form ATS–N with the exception of: (1) Its Web site address; (2) the effective date of the broker-dealer operator's registration with the Commission; (3) the name of the national securities association and effective date of the broker-dealer operator's membership with the national securities association;
Part III, Item 1 of proposed Form ATS–N would require an NMS Stock ATS to disclose whether or not the broker-dealer operator or any of its affiliates operate or control any non-ATS trading center(s), and if so, to (1) identify the non-ATS trading center(s); and (2) describe any interaction or coordination between the identified non-ATS trading center(s) and the NMS Stock ATS including: (i) Circumstances under which subscriber orders or other trading interest sent to the NMS Stock ATS are displayed or otherwise made known to the identified non-ATS trading center(s) before entering the NMS Stock ATS; (ii) circumstances under which subscriber orders or other trading interest received by the broker-dealer operator or its affiliates may execute, in whole or in part, in the identified non-ATS trading center(s) before entering the NMS Stock ATS; and (iii) circumstances under which orders or other trading interest are removed from the NMS Stock ATS and sent to the identified non-ATS trading center(s). Under Proposed Form ATS–N, affiliates of the broker-dealer operator would only include any person that, directly or indirectly, controls, is under common control with, or is controlled by, the broker-dealer operator. The affiliates of the broker-dealer operator that might operate non-ATS trading centers under this proposal would thus be “control affiliates” that are either controlled by the broker-dealer operator or under common control with another entity. Consequently, because the broker-dealer operator would control all affiliates or would be under common control with those affiliates, the broker-dealer operator should be aware of whether its affiliates operate a non-ATS trading center or in most instances, should otherwise be able to readily obtain such information from its affiliates.
To the extent the operation of a non-ATS trading center operated or controlled by the broker-dealer operator or any of its affiliates does not interact with the NMS Stock ATS (
The Commission understands that most, but not all, broker-dealer operators of NMS Stock ATSs currently, either by themselves or through their affiliates, operate or control a non-ATS trading center. The Commission preliminarily estimates that, on average, preparing Part III, Item 1 for a Form ATS–N would add 10 hours to the current baseline for an initial operation report on current Form ATS. This would result in an aggregate initial burden of 460 hours above the baseline for all NMS Stock ATSs to complete Part III, Item 1 of proposed Form ATS–N.
Part III, Item 2 of proposed Form ATS–N would require an NMS Stock ATS to state whether the broker-dealer operator, or any of its affiliates, operates one or more NMS Stock ATSs other than the NMS Stock ATS named on the Form ATS–N, and, if so, to (1) identify the NMS Stock ATS(s) and provide its MPID(s); and (2) describe any interaction or coordination between the NMS Stock ATS(s) identified and the NMS Stock ATS named on the Form ATS–N including: (i) The circumstances under which subscriber orders or other trading interest received by the broker-dealer operator or any of its affiliates to be sent to the NMS Stock ATS named in the Form ATS–N may be sent to any identified NMS Stock ATS(s); (ii) circumstances under which subscriber orders or other trading interest to be sent to the NMS Stock ATS named on the Form ATS–N are displayed or otherwise made known in any other identified NMS Stock ATS(s); and (iii) the circumstances under which a subscriber order received by the NMS Stock ATS named on the Form ATS–N may be removed and sent to any other identified NMS Stock ATS(s). Broker-dealer operators of multiple NMS Stock ATSs would already be aware of how their NMS Stock ATSs may interact with one another and those of its affiliates by, for example, sharing order flow between each other.
Based on the currently filed Forms ATS reviewed by the Commission during the third quarter of 2015, the Commission estimates that there are 6 broker-dealer operators that operate, by themselves or through an affiliate, multiple ATSs that trade NMS stocks. The Commission notes that broker-dealer operators operating multiple NMS Stock ATSs, by themselves or with their affiliates, would be required to complete Part III, Item 2 of proposed Form ATS–N for each NMS Stock ATS. The Commission preliminarily believes that it would not be a significant burden for a broker-dealer operator to identify all of the NMS Stock ATSs operated by
Part III, Item 3 of proposed Form ATS–N would require an NMS Stock ATS to disclose whether or not the broker-dealer operator or any of its affiliates offer subscribers of the NMS Stock ATS any products or services used in connection with trading on the NMS Stock ATS (
Part III, Item 4 of proposed Form ATS–N would require an NMS Stock ATS to disclose whether or not the broker-dealer operator or any of its affiliates have any formal or informal arrangement with an unaffiliated person(s), or affiliate(s) of such person, that operates a trading center regarding access to the NMS Stock ATS, including preferential routing arrangements, and, if so, to identify the person(s) and the trading center(s) and describe the terms of the arrangement(s). The Commission understands from discussions with ATSs that some ATSs that currently trade NMS stock have arrangements with other ATSs to provide mutual access to the each other's respective ATSs. The Commission recognizes that an NMS Stock ATS could also have arrangements with other trading centers such as a non-ATS trading center or a national securities exchange. In addition, there may be NMS Stock ATSs that have no arrangements with any other trading center. As the broker-dealer operator controls all aspects of the operation of the NMS Stock ATS, the broker-dealer operator should already be aware of any such arrangements providing for mutual access or preferential routing that it has with other trading centers. Accordingly, the Commission preliminarily estimates that, on average, preparing Part III, Item 4 for a Form ATS–N would add 4 hours to the current baseline for an initial operation report on current Form ATS. This would result in an aggregate initial burden of 184 hours above the current baseline for all NMS Stock ATSs to complete Part III, Item 4 of proposed Form ATS–N.
Part III, Item 5 of proposed Form ATS–N would require certain disclosures related to the trading activity of the broker-dealer operator or its affiliates on the NMS Stock ATS. Specifically, Part III, Item 5 would require the NMS Stock ATS to disclose whether or not the broker-dealer operator or any of its affiliates enters orders or other trading interest on the NMS Stock ATS, and, if so, to provide detailed disclosures describing such trading activity.
Part III, Item 6 of proposed Form ATS–N would require an NMS Stock ATS to disclose whether the broker-dealer operator, or any of its affiliates, use a SOR(s) (or similar functionality), an algorithm(s), or both to send or receive subscriber orders or other trading interest to or from the NMS Stock ATS.
For example, in responding to Part III, Item 6(b), which would require an NMS Stock ATS to describe, among other things, any information or messages about orders or other trading interest that the SOR(s) (or similar functionality) and algorithm(s) send or receive to or from the NMS Stock ATS, an NMS Stock ATS that uses IOIs to facilitate trades on the NMS Stock ATS and that uses its SOR(s) (or similar functionality) and/or algorithm(s) to facilitate the sending of those IOIs to relevant persons would likely have a substantially greater burden in responding to Item 6(b) due to the number of messages that may be associated with an IOI and the subsequent responses to that IOI than an NMS Stock ATS that does not use IOIs. Accordingly, the Commission preliminarily estimates that, on average, preparing Part III, Item 6 for a Form ATS–N would add 10 hours to the current baseline for an initial operation report on current Form ATS. This would result in an aggregate initial burden of 460 hours above the current baseline for all NMS Stock ATSs to complete Part III, Item 6 of proposed Form ATS–N.
Part III, Item 7 of proposed Form ATS–N would require an NMS Stock ATS to disclose whether it has any shared employees,
Part III, Item 8 of proposed Form ATS–N would require an NMS Stock ATS to disclose whether any operation, service, or function of the NMS Stock ATS is performed by any person(s) other than the broker-dealer operator of the NMS Stock ATS, and if so to: (1) Identify the person(s) (in the case of a natural person, to identify only the person's position or title) performing the operation, service, or function and note whether this service provider(s) is an affiliate of the broker-dealer, if applicable; (2) describe the operation, service, or function that the identified person(s) provides and describe the role and responsibilities of that person(s); and (3) state whether the identified person(s), or any of its affiliates, may enter orders or other trading interest on the NMS Stock ATS and, if so, describe the circumstances and means by which such orders or other trading interest are entered on the NMS Stock ATS. The Commission notes that this proposed disclosure requirement is similar to the Exhibit E disclosure requirement under the current Form ATS.
Part III, Item 9 of proposed Form ATS–N would require an NMS Stock ATS to identify and describe any service, functionality, or procedure of the NMS Stock ATS available to the broker-dealer operator or its affiliates that is not available or does not apply to a subscriber(s) to the NMS Stock ATS. The Commission is not currently aware of any NMS Stock ATS that provides services, functionalities, or procedures to itself or its affiliates and not to subscribers, although the Commission recognizes that an NMS Stock ATS could do so. To the extent that the services, functionalities, or procedures of the NMS Stock ATS provided to the broker-dealer operator or its affiliates on the NMS Stock ATS differ from those provided to non-affiliated subscribers, the NMS Stock ATS would have to describe all such differences in Item 9. Depending on the extent of such differences, the hourly burden for providing these disclosures would vary. Conversely, if there are no differences between the services, functionalities, or procedures of the NMS Stock ATS that are provided to the broker-dealer operator or its affiliates relative to subscribers, Part III, Item 9 would only require the NMS Stock ATS to note this fact. Accordingly, the Commission preliminarily estimates that, on average, preparing Part III, Item 9 for a Form ATS–N would add 2 hours to the current baseline for an initial operation report on current Form ATS. This would result in an aggregate initial burden of 92 hours above the current baseline for all NMS Stock ATSs to complete Part III, Item 9 of proposed Form ATS–N.
Part III, Item 10 of proposed Form ATS–N would require certain disclosures related to the NMS Stock ATS's written safeguards and written procedures to protect the confidential trading information of subscribers pursuant to Rule 301(b)(10) of Regulation ATS.
Part IV, Item 1 of proposed Form ATS–N would require an NMS Stock ATS to disclose, among other things, information regarding: (1) Any eligibility requirements to access the NMS Stock ATS; (2) the terms and conditions of any contractual agreements for granting access to the NMS Stock ATS for the purpose of effecting transactions in securities or for submitting, disseminating, or displaying orders on the NMS Stock ATS; (3) the types of subscribers and other persons that use the services of the NMS Stock ATS; (4) any formal or informal arrangement the NMS Stock ATS has with liquidity providers; and (5) any circumstances by which access to the NMS Stock ATS can be limited or denied and the procedures or standards that are used to determine such action. For each disclosure, the NMS Stock ATS would also be required to explain whether there are any differences in how these requirements, terms, conditions, criteria, procedures, and/or standards are applied among subscribers and persons.
The Commission notes that the proposed disclosure requirements of Part IV, Item 1 of proposed Form ATS–N are, in large part, already required under current Form ATS. Exhibit A of current Form ATS requires an ATS to describe its classes of subscribers (
Depending on the complexity of the NMS Stock ATS, the different types of subscribers, and, most significantly, the extent to which the terms and conditions vary among subscribers, the disclosure burden related to Part IV, Item I of proposed Form ATS–N would likely vary. For example, an NMS Stock ATS with two classes of subscribers with identical terms and conditions of use, eligibility criteria, and the same circumstances and process regarding limiting and denying services of the NMS Stock ATS would likely have less of a burden than an NMS Stock ATS with five groups of subscribers with varying terms and conditions of use, eligibility criteria, and differing circumstances and processes for which they may be limited or denied the services of the NMS Stock ATS. Accordingly, the Commission preliminary estimates that, on average, preparing Part IV, Item 1 of a Form ATS–N would add 6 hours to the current baseline for an initial operation report on current Form ATS to respond to the more detailed questions regarding subscribers to the NMS Stock ATS. This would result in an aggregate initial burden of 276 hours above the current baseline for all NMS Stock ATSs to complete Part IV, Item 1 of proposed Form ATS–N.
Part IV, Item 2 of proposed Form ATS–N would require an NMS Stock ATS to provide the days and hours of operation of the NMS Stock ATS, including the times when orders or other trading interest are entered on to the NMS Stock ATS and the time when pre-opening or after-hours trading may occur. It would also require the NMS Stock ATS to explain differences, if any, among subscribers and persons in the times when orders or other trading interest are entered on the NMS Stock ATS. Current Form ATS does not specify similar disclosures, so the Commission preliminarily estimates that respondents would incur additional burdens above the current baseline when preparing the disclosures required under Part IV, Item 2 of proposed Form ATS–N. The NMS Stock ATS should already be aware of the hours during which it operates and whether and when it permits pre-opening or after-hours trading. Based on the experience of the Commission and its staff reviewing Form ATS and ATS–R filings, the Commission preliminarily believes that most ATSs that currently trade NMS stocks do not provide for after-hours or pre-opening trading of NMS stock. For NMS Stock ATSs for which the times when orders or other trading interest may be sent to the NMS Stock ATS are not the same for all subscribers and persons, the disclosure burden related to Part IV, Item 2 would likely increase. Accordingly, the Commission preliminarily estimates that, on average, preparing Part IV, Item 2 for a Form ATS–N would add 0.5 hours to the current baseline for an initial operation report on current Form ATS. This would result in an aggregate initial burden of 23 hours above the current baseline for all NMS Stock ATSs to complete Part IV, Item 2 of proposed Form ATS–N.
Part IV, Item 3 of proposed Form ATS would require an NMS Stock ATS to provide a detailed disclosure of the order types available on the NMS Stock ATS. Part IV Item 3(a) would require an NMS Stock ATS to describe any types of orders that are entered to the NMS Stock ATS, their characteristics, operations, and how they are handled on the NMS Stock ATS.
The Commission notes that some of the proposed disclosure requirements of Part IV, Item 3 of proposed Form ATS–N are already required under current Form ATS. Exhibit F of current Form ATS requires an ATS to describe, among other things, the manner of operation and the procedures governing order entry and execution of the ATS. Part IV, Item 3 of proposed Form ATS–N would require significantly more detail, and a greater number of disclosures, in regard to types of orders than Exhibit F of current Form ATS. ATSs that trade NMS stocks currently vary in the extent of their disclosures relating to order types as provided in Exhibit F. Some provide a relatively fulsome discussion of different order types and to whom they are made available, while other ATSs that trade NMS stocks do not provide substantial detail in this area. Depending on the extent to which an ATS that trades NMS stocks already discloses most of the information regarding order types and trading interest on Exhibit F of its Form ATS, as well as the variety and complexity of different order types available, the proposed disclosure burden of Part IV, Item 3 of proposed Form ATS–N will likely vary among NMS Stock ATSs. For example, those NMS Stock ATSs that send and receive actionable IOIs and/or conditional orders would be required to draft a detailed explanation regarding those order types for Part IV, Item 3(d), whereas NMS Stock ATSs without such order types would simply state that they do not send and receive IOIs and conditional orders. Accordingly, the Commission preliminarily estimates that, on average, preparing Part IV, Item 3 of a Form ATS–N would add 6 hours to the current baseline for an initial operation report on current Form ATS, depending on such factors as described above. This would result in an aggregate initial burden of 276 hours above the current baseline for an initial operation report on current Form ATS for all NMS
Part IV, Item 4 of proposed Form ATS–N would require an NMS Stock ATS to disclose the means by which subscribers or other persons connect and send orders to the NMS Stock ATS. Part IV, Item 4(a) would require the NMS Stock ATS to describe the means by which subscribers or other persons connect to the NMS Stock ATS and enter orders or other trading interest on the NMS Stock ATS (
The Commission notes that some of the proposed disclosure requirements of Part IV, Item 4 of proposed Form ATS–N are already required under current Form ATS. Exhibit F of current Form ATS requires an ATS to describe, among other things, the means of access to the ATS. Part IV, Item 4 of proposed Form ATS–N would expressly require significantly more detail, and a greater number of disclosures, in regard to order entry, connectivity, and co-location services than Exhibit F of current Form ATS. ATSs that currently trade NMS stocks vary in the depth of their disclosures related to order entry. Currently, most ATSs that trade NMS stocks do not provide much or any detail regarding the extent to which they provide co-location services or other speed advantages to subscribers or persons trading on the ATS. Accordingly, the Commission preliminarily estimates that respondents would incur an additional burden above the current baseline when preparing the disclosures required under Part IV, Item 4 of proposed Form ATS–N. The Commission preliminarily estimates that, on average, preparing Part IV, Item 4 for a Form ATS–N would add 5 hours to the current baseline for an initial operation report on current Form ATS to provide a more detailed description of the connection and order entry procedures, a description of any co-location or speed-advantage services, as well as any differences among subscribers and other persons with respect to these disclosures. This would result in an aggregate initial burden of 230 hours above the current baseline for all NMS Stock ATSs to complete Item 4 of Part IV of proposed Form ATS–N.
Part IV, Item 5 of proposed Form ATS–N would require an NMS Stock ATS to explain if and how it segments order flow, the type of notice about such segmentation that it provides to subscribers, and whether subscribers, the broker-dealer operator, or its affiliates may submit order preferencing instructions. Part IV, Item 5(a) would require an NMS Stock ATS to describe any segmentation of orders or other trading interest on the NMS Stock ATS (
The Commission notes that some of the proposed disclosure requirements of Part IV, Item 5 of proposed Form ATS–N are already required under current Form ATS. Exhibit F of current Form ATS requires an ATS to describe, among other things, the manner of operation and the procedures governing order entry and execution of the ATS. However, Exhibit F of current Form ATS does not expressly enumerate the level of detail that an ATS must provide in regard to its segmentation of order flow and does not expressly ask for an ATS to describe any notice to subscribers regarding segmentation or explain any means and circumstances for order preferencing, whereas Part IV, Item 5 of proposed Form ATS–N would require detailed disclosures in regard to these subjects.
Part IV, Item 6(a) of proposed Form ATS–N would require an NMS Stock ATS to describe any means and circumstances by which orders or other trading interest on the NMS Stock ATS are displayed or made known outside the NMS Stock ATS and the information about the orders and trading interest that are displayed. If the display of orders or other trading interest is not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. Part IV, Item 6(b) of proposed Form ATS–N would require the NMS Stock ATS to identify the subscriber(s) or person(s) (in the case of a natural person, the NMS Stock ATS would only identify the person's position or title) to whom the orders and trading interest are displayed or otherwise made known. Although Exhibit F of current Form ATS requires an ATS to describe, among other things, the manner of operation and the procedures governing order entry and execution of the ATS, Exhibit F does not expressly state that an ATS must explain if and how order information is displayed or otherwise made known outside the NMS Stock ATS. The Commission understands from its review of Forms ATS filings that a majority of ATSs that trade NMS stocks provide some form of IOI or conditional order that would likely need to be described in Part IV, Item 6 of proposed Form ATS–N.
Part IV, Item 7 of proposed Form ATS–N would require an NMS Stock ATS to describe its trading services in detail. Part IV, Items 7(a) and 7(b) of proposed Form ATS–N would require an NMS Stock ATS to disclose the means or facilities used by the NMS Stock ATS to bring together the orders of multiple buyers and sellers, as well as the established, non-discretionary methods that dictate the terms of trading among multiple buyers and sellers on the facilities of the NMS Stock ATS, including rules and procedures governing the priority, pricing methodologies, allocation, matching, and execution of orders and other trading interest. Part IV, Item 7(c) would require the NMS Stock ATS to describe any trading procedures related to price protection mechanisms, short sales, locked-crossed markets, the handling of execution errors, time-stamping of orders and executions, or price improvement functionality. For all disclosures required under Item 7, the NMS Stock ATS would also be required to describe any differences in the availability of a functionality regarding its trading services among subscribers and persons.
The Commission notes that some of the proposed disclosure requirements of Part IV, Item 7 of proposed Form ATS–N are already required under current Form ATS. Exhibit F of current Form ATS requires an ATS to describe, among other things, the manner of operation and the procedures governing order entry and execution of the ATS. These required disclosures in Exhibit F of Form ATS are similar to those set forth in Item 7 of proposed Form ATS–N, which would require disclosures relating to matching methodology, order interaction rules, and execution procedures of the NMS Stock ATS. Consequently, the Commission preliminarily believes that NMS Stock ATSs already have some experience completing Exhibit F that would lessen the burden related to responding to the more detailed disclosures in Items 7(a), (b), and (c) of Part IV of proposed Form ATS–N.
Furthermore, Part IV, Item 7 of proposed Form ATS–N would require an NMS Stock ATS to describe how the NMS Stock ATS meets the two prongs necessary to meet the Exchange Act's definition of “exchange” pursuant to Rule 3b–16(a) under the Exchange Act in Items 7(a) and (b).
Accordingly, the Commission preliminarily estimates that respondents would incur an additional burden above the current baseline when preparing the disclosures required under Part IV, Item 7 of proposed Form ATS–N. The Commission preliminarily estimates that, on average, preparing Part IV, Item 7 for a Form ATS–N would add 6 hours to the current baseline for an initial operation report on current Form ATS to provide a description of the NMS Stock ATS's trading services. This would result in an aggregate initial burden of 276 hours above the current baseline for all NMS Stock ATSs to complete Part IV, Item 7 of proposed Form ATS–N.
Part IV, Item 8 of proposed Form ATS–N would require an NMS Stock ATS to describe any procedures governing trading in the event the NMS Stock ATS suspends trading or experiences a system disruption or system malfunction. If the procedures governing trading during a suspension or system disruption or malfunction are not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences.
Exhibit G of Form ATS requires ATSs to describe the ATS's procedures for reviewing system capacity, security, and contingency planning procedures. The Commission preliminarily believes that the proposed disclosures in Part IV, Item 8 of proposed Form ATS–N relating to system disruptions, malfunctions, or other suspensions relate, in part, to the Exhibit G disclosures on current Form ATS. The Commission notes that some ATSs that trade NMS stocks currently provide
Accordingly, the Commission preliminarily estimates that respondents would incur an additional burden above the current baseline when preparing the disclosures required under Part IV, Item 8 of proposed Form ATS–N. The Commission preliminarily estimates that, on average, preparing Part IV, Item 8 for a Form ATS–N would add 2.5 hours to the current baseline for an initial operation report on current Form ATS to provide a detailed description of the NMS Stock ATS's procedures for system disruptions, malfunctions, or other suspensions. This would result in an aggregate initial burden of 115 hours above the current baseline for all NMS Stock ATSs to complete Part IV, Item 8 of proposed Form ATS–N.
Part IV, Item 9 of proposed Form ATS–N would require an NMS Stock ATS to describe any opening, reopening and closing processes, and any procedures for after-hours trading. Part IV, Item 9(a) of proposed Form ATS–N would require an NMS Stock ATS to describe any opening and reopening processes, including how orders or other trading interest are matched and executed prior to the start of regular trading hours or following a stoppage of trading in a security during regular trading hours and how unexecuted orders or other trading interest are handled at the time the NMS Stock ATS begins regular trading at the start of regular trading hours or following a stoppage of trading in a security during regular trading hours. The NMS Stock ATS would also be required to describe any differences between pre-opening executions, executions following a stoppage of trading in a security during regular trading hours, and executions during regular trading hours. Part IV, Items 9(b) and (c) would require an NMS Stock ATS to describe any closing process and after-hours trading procedures, respectively, the manner in which unexecuted orders or other trading interest are handled at the close of regular trading, and how orders and trading interest are matched and executed during after-hours trading. The NMS Stock ATS would also be required to describe any differences between the closing and after-hours executions versus executions during regular trading hours.
The Commission notes that some of the proposed disclosure requirements of Part IV, Item 9 of proposed Form ATS–N are incorporated by some ATSs that trade NMS stocks into Exhibit F of their current Forms ATS, which requires an ATS to describe, among other things, the manner of operation and the procedures governing order entry and execution of the ATS. Currently, ATSs that trade NMS stocks vary in the depth of their disclosures relating to opening, reopening, or closing processes, and after-hours trading procedures. The Commission notes that these opening, reopening, or closing processes, and after-hours trading procedures, may vary widely across different NMS Stock ATSs, with some, for example, allowing for pre-opening executions and routing and after-hours trading and routing, while others may not have an opening process and simply commence with regular trading without any option for after-hours trading. In any case, NMS Stock ATSs should already be aware of any opening, reopening or closing processes, and after-hours trading procedures, they may have as well as any differences in trading and execution during the opening, reopening, or closing processes, and during after-hours trading. Accordingly, the Commission preliminarily believes that preparing Part IV, Item 9 of proposed Form ATS–N for a Form ATS–N would not impose a significant additional burden above the current baseline for an initial operation report on current Form ATS. The Commission preliminarily estimates that, on average, preparing Part IV, Item 9 for a Form ATS–N would add 3 hours to the current baseline for an initial operation report on current Form ATS to describe its opening, reopening, or closing processes, and after-hours trading procedures. This would result in an aggregate initial burden of 138 hours above the current baseline for all NMS Stock ATSs to complete Part IV, Item 9 of proposed Form ATS–N.
Part IV, Item 10 of proposed Form ATS–N would require an NMS Stock ATS to describe its outbound routing functions. Part IV, Item 10(a) of proposed Form ATS–N would require an NMS Stock ATS to describe the circumstances under which orders or other trading interest are routed from the NMS Stock ATS to another trading center, including whether outbound routing occurs at the affirmative instruction of the subscriber or at the discretion of the broker-dealer operator, and the means by which routing is performed (
Part IV, Item 11 of proposed Form ATS would require an NMS Stock ATS to describe its sources and uses of market data. Part IV, Item 11(a) would require an NMS Stock ATS to describe the market data used by the NMS Stock ATS and the source of that market data (
Part IV, Item 12 of proposed Form ATS–N would require an NMS Stock ATS to make certain disclosures regarding its fees, rebates, and other charges. Part IV, Item 12(a) of proposed Form ATS–N would require an NMS Stock ATS to describe any fees, rebates, or other charges of the NMS Stock ATS (
Part IV, Item 13 of proposed Form ATS would require an NMS Stock ATS to describe any arrangements or procedures for trade reporting, clearance, and settlement on the NMS Stock ATS. Part IV, Item 13(a) of proposed Form ATS–N would require an NMS Stock ATS to describe any arrangements or procedures for reporting transactions on the NMS Stock ATS and if the trade reporting procedures are not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. Part IV, Item 13(b) of proposed Form ATS–N would require an NMS Stock ATS to describe any arrangements or procedures undertaken by the NMS Stock ATS to facilitate the clearance and settlement of transactions on the NMS Stock ATS (
Part IV, Item 14 of proposed Form ATS–N would require an NMS Stock ATS to provide the following information if the NMS Stock ATS displays orders in an NMS stock to any person other than employees of the NMS Stock ATS and executed 5% or more of the average daily trading volume in that NMS stock as reported by an effective transaction reporting plan for four of the preceding six calendar months: (a) The ticker symbol for each NMS stock for each of the last 6 calendar months; (b) a description of the manner in which the NMS Stock ATS displays such orders on a national securities exchange or through a national securities association; and (c) a description of how the NMS Stock ATS provides access to such orders displayed in the national market system equivalent to the access to other orders displayed on that exchange or association. Part IV, Item 15 of proposed Form ATS–N would require an NMS Stock ATS to provide the following
If, however, an NMS Stock ATS were to cross these 5% thresholds, a disclosure burden related to amending a Form ATS–N to complete Part IV, Items 14 and 15 of proposed Form ATS–N would result. Because Items 14 and 15 of Part IV are tied to existing obligations that arise from crossing the 5% thresholds pursuant to Rule 301(b)(3) and Rule 301(b)(5)(ii)(A) of Regulation ATS, respectively, the Commission preliminarily believes that NMS Stock ATSs should already be generally aware of the procedures they would follow if the 5% thresholds were crossed, which should reduce the burden associated with the disclosures that would be required under Items 14 and 15. The Commission notes that an NMS Stock ATS would only have to respond to Part IV, Items 14 or 15 of a Form ATS–N if the NMS Stock ATS previously operated as an ATS and triggered the applicable 5% thresholds. The Commission further notes that NMS Stock ATSs would be less likely to have to complete Item 14 as compared to Item 15 because Item 14 requires as an additional precondition that the NMS Stock ATS displays orders in an NMS stock to a person other than employees of the NMS Stock ATS. For new NMS Stock ATSs (
As explained above, the Commission notes that triggering the 5% threshold, a precondition necessary to require completion of Part IV, Items 14 and 15 of proposed Form ATS–N, currently occurs, and the Commission preliminarily estimates would continue to occur, very infrequently. Based on the review of Form ATS and Form ATS–R disclosures by the Commission and its staff, the Commission preliminarily estimates that 1 NMS Stock ATS would have to complete Item 14 and 2 NMS Stock ATSs would have to complete Item 15 in any given year. Accordingly, the Commission preliminarily estimates that the disclosures that would be required under Part IV, Items 14 and 15 of proposed Form ATS–N would result in an aggregate initial burden of 15 hours above the current baseline.
Part IV, Item 16 of proposed Form ATS–N would require an NMS Stock ATS to explain and provide certain aggregate platform-wide market quality statistics that it publishes or otherwise provides to subscribers regarding the NMS Stock ATS. Under Item 16, if the NMS Stock ATS publishes or otherwise provides to one or more subscribers aggregate platform-wide order flow and execution statistics of the NMS Stock ATS that are not otherwise required disclosures under Exchange Act Rule 605 of Regulation NMS, it would be required to: (i) List and describe the categories of the aggregate platform-wide order flow and execution statistics published or provided; (ii) describe the metrics and methodology used to calculate the aggregate platform-wide order flow and execution statistics; and (iii) attach as Exhibit 5 the most recent disclosure of the aggregate platform-wide order flow and execution statistics published or provided to one or more subscribers for each category or metric as of the end of the calendar quarter. An NMS Stock ATS would not be required to develop or publish any new statistics for purposes of making the required disclosures under Item 16; it would only be required to make the disclosures for statistics it already otherwise collects and publishes in the course of its operations. Thus, NMS Stock ATSs that do not publish or otherwise provide aggregate platform-wide market quality statistics would not incur any additional burden due to the proposed disclosure requirements of Item 16. For NMS Stock ATSs that do provide such statistics, Item 16 would impose an additional burden above the baseline because current Form ATS does not require the disclosure of market quality statistics. The Commission preliminarily estimates that preparing Part IV, Item 16 for a Form ATS–N would add 7 hours to the current baseline for an initial operation report on current Form ATS. This would result in an aggregate initial burden of 322 hours above the current baseline for all NMS Stock ATSs to complete Part IV, Item 16 of proposed Form ATS–N.
Based on the above analysis of the estimated additional burden for a proposed Form ATS–N, the Commission preliminarily estimates that a proposed Form ATS–N will, on average, require an estimated 121.3 burden hours above the current baseline for an initial operation report on current Form ATS. This results in an estimated 141.3 hours in total, including the current baseline.
This preliminary estimated burden for a Form ATS–N includes the hour burden associated with completing Part III, Item 2 and Part IV, Items 14 and 15 of proposed Form ATS–N. As explained above, however, the Commission preliminarily believes that the majority of NMS Stock ATSs would not be required to complete those items of the proposed form.
As previously noted, the Commission currently estimates that ATSs that trade NMS stocks submit 2 amendments, on average, each year.
As noted above, the Commission currently estimates that the hourly burden related to an amendment to Form ATS is 6 hours.
As previously noted, from 2012 through the first half of 2015, there have been an average of 6 ATSs that trade NMS stocks that cease operations each year.
Under proposed Rule 301(b)(2)(viii) of Regulation ATS, an ATS that effects trades in both NMS stocks and non-NMS stocks would have to submit a Form ATS–N with respect to its trading of NMS stocks and a revised Form ATS that removes discussion of those aspects of the ATS related to the trading of NMS stocks. Under the proposed amendments to Rule 301(b)(9), an ATS that effects trades in both NMS stocks and non-NMS stocks would also be required to file separate Forms ATS–R—one disclosing trading volume in NMS stocks and one disclosing trading volume in non-NMS stocks. Therefore, ATSs that are subject to these proposed requirements would incur: (1) the above baseline burdens related to filing a Form ATS–N and Form ATS–N Amendments;
Accordingly, the Commission estimates that the total hourly burden for an ATS to separately file a Form ATS for its non-NMS stock trading
The Commission estimates that the total burden for completing and filing two Form ATS–R would be 4.5 hours, which is 0.5 hours
The Commission proposes that Form ATS–N would be submitted electronically in a structured format and require an electronic signature.
To access EFFS, an NMS Stock ATS would have to submit to the Commission an External Account User Application (“EAUA”) to register each individual at the NMS Stock ATS who would access the EFFS system on behalf of the NMS Stock ATS. The Commission is including in its burden estimates the burden for completing the EAUA for each individual at an NMS Stock ATS who would request access to EFFS. The Commission estimates that initially, on average, two individuals at each NMS Stock ATS would request access to EFFS through the EAUA, and each EAUA would take 0.15 hours to complete and submit. Therefore, each NMS Stock ATS would require a total of 0.3 hours to complete the requisite EAUAs,
In addition, the Commission estimates that each NMS Stock ATS will designate 2 individuals to sign Form ATS–N each year. An individual signing a Form ATS–N must obtain a digital ID, at the cost of approximately $25 each year. Therefore, each NMS Stock ATS would pay approximately $50 annually to obtain digital IDs for the individuals with access to EFFS for purposes of signing Form ATS–N,
Proposed Rule 304(b)(3) would require each NMS Stock ATS to make public via posting on the NMS Stock ATS's Web site a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in proposed Rule 304(b)(2). The Commission preliminarily estimates that each NMS Stock ATS would incur an initial, one-time burden to program and configure its Web site in order to post the required direct URL hyperlink pursuant to proposed Rule 304(b)(3). The Commission preliminarily estimates that this initial, one-time burden would be approximately 2 hours.
As noted above, the Commission proposes to amend Rule 303(a)(2)(ii)
Rule 303(a)(ii) currently requires an ATS to preserve copies of reports filed pursuant to Rule 301(b)(2), which include all Form ATS filings, for the life of the enterprise and any successor enterprise. Because NMS Stock ATSs that solely trade NMS stocks would be filing Form ATS–N in lieu of Form ATS under this proposal, the Commission believes that the proposed amendment to Rule 303(a)(ii) would not result in any burden for those ATSs that is not already accounted for under the current baseline burden estimate for Rule 303.
All collections of information pursuant to the proposed rules would be mandatory for entities that meet the definition of NMS Stock ATS.
With respect to the proposed amendments to Rules 301(b)(2)(viii) and 304 of Regulation ATS, including proposed Form ATS–N, the Commission would make publicly available on its Web site all Forms ATS–N upon being declared effective. The Commission would also make publicly available on its Web site all properly filed Form ATS–N Amendments, and notices of cessation on Form ATS–N. The Commission would not make publicly available on its Web site Forms ATS–N that the Commission has declared ineffective, but these forms would be available for examination by the Commission and its staff, state securities authorities, and self-regulatory organizations. The proposed Form ATS amendments would also require each NMS Stock ATS that has a Web site to post on the NMS Stock ATS's Web site a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in proposed Rule 304(b)(2). The collection of information required by the proposed amendments to Rules 301(b)(10), 303(a)(1)(v), 301(b)(9), and 303(a)(2)(ii) 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 10 of Form ATS–N, however, NMS Stock ATSs would be required to describe the written safeguards and written procedures to ensure confidential treatment of trading information that would be required under the proposed amendment to Rule 301(b)(10); as explained above, the Commission would make certain Form ATS–N filings publicly available. 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.
All reports required to be made under proposed Rules 301(b)(2)(viii), 301(b)(9), and 304 of Regulation ATS, including Proposed Form ATS–N, would be required to be preserved during the life of the enterprise and any successor enterprise, pursuant to the proposed amendment to Rule 303(a)(2) of Regulation ATS.
ATSs would be required to preserve a copy of their written safeguards and written procedures to protect subscribers' confidential trading information under proposed Rule 301(b)(10) of Regulation ATS for not less than 3 years, the first 2 years in an easily accessible place, pursuant to proposed Rule 303(a)(1)(v) of Regulation ATS.
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comment to:
1. Evaluate whether the proposed collection of information is necessary for the proper performance of our functions, including whether the information shall have practical utility;
2. Evaluate the accuracy of our estimate of the burden of the proposed collection of information;
3. Determine whether there are ways to enhance the quality, utility, and clarity of the information to be collected; and
4. 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.
The Commission is concerned that the current regulatory requirements relating to operational transparency for NMS Stock ATSs may no longer fully meet the goals of furthering the public interest and protecting investors. The market for NMS stock execution services consists of registered national securities exchanges, NMS Stock ATSs, and non-ATS broker-dealers that effect OTC transactions. As of the second quarter of 2015, NMS Stock ATSs account for approximately 15.4% of the total dollar volume in NMS stocks and compete with, and operate similar to, registered national securities exchanges.
Currently, NMS Stock ATSs provide the Commission with notice of their initial operations and changes to their operations on Form ATS. Although some NMS Stock ATSs voluntarily make their Form ATS publicly available on their Web site, they are not required to do so, as Form ATS is “deemed confidential when filed.”
The Commission is concerned that the current market for NMS stock execution services does not address the problems described above. Rather, when demanding services that are typically offered by NMS Stock ATSs—particularly, dark pools—some market participants trade off the less stringent transparency requirements applicable to NMS Stock ATSs, as compared to national securities exchanges, in exchange for obtaining some perceived advantages of trading on these venues, such as keeping their orders dark prior to execution.
The Commission is proposing to amend Regulation ATS to adopt new Rule 304, which would provide a process for the Commission to determine if an NMS Stock ATS qualifies for the exemption from the definition of “exchange” pursuant to Rule 3a1–1(a)(2) and declare an NMS Stock ATS's Forms ATS–N either effective or ineffective. The proposal would also provide a process for the Commission to suspend, limit, or revoke an NMS Stock ATS's exemption from the definition of “exchange” under certain circumstances. The Commission is also proposing to amend Regulation ATS to require NMS Stock ATSs to file Form ATS–N, which would require NMS Stock ATSs to provide detailed disclosures about their trading operations and the activities of their broker-dealer operators and their affiliates. The Commission is proposing to make certain Form ATS–N filings public by posting them on the Commission's Web site and requiring each NMS Stock ATS that has a Web site to post on the NMS Stock ATS's Web site a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in proposed Rule 304(b)(2). The Commission is also proposing to amend Rule 301(b)(10) of Regulation ATS to require that all ATSs have their procedures and safeguards to protect subscribers' confidential trading information in writing. The proposed amendments seek to improve and make more consistent the information available to market participants regarding different NMS Stock ATSs' operations and the activities of their broker-dealer operators and their affiliates. The proposed amendments also aim to make the level and type of disclosures more consistent between NMS Stock ATSs. The Commission preliminarily believes that making publicly available a more consistent level of information to all market participants would help them to better evaluate NMS Stock ATSs as potential routing destinations for their orders.
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 the amendments to Regulation ATS being proposed. These costs and benefits are discussed below and have informed the policy choices described throughout this release.
The enhanced transparency and oversight of NMS Stock ATSs that the Commission preliminarily believes would result from the proposed amendments to Regulation ATS would increase the amount of information and improve the quality of information available to all market participants about the operations of NMS Stock ATSs and the activities of their broker-dealer operators and their affiliates. As a result, this information should better inform market participants making decisions about which trading venue to route their orders to. The proposed amendments would also affect the
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 trading NMS stocks. The baseline, discussed in further detail below, includes statistics on the number of NMS Stock ATSs; current reporting requirements for NMS Stock ATSs; the lack of public disclosure of NMS Stock ATSs' operations, as well as disparate levels of information available to market participants about NMS Stock ATSs' operations and the activities of their broker-dealer operators and their affiliates; and the competitive environment between registered national securities exchanges and NMS Stock ATSs, among NMS Stock ATSs, and between broker-dealers that operate NMS Stock ATSs and broker-dealers that do not operate NMS Stock ATSs.
In a concept release on equity market structure in 2010, the Commission stated that in the third quarter of 2009 there were 37 dark pools and ECNs that traded NMS stocks, and that they accounted for 18.7% of total NMS share volume.
Even though ATSs directly compete for order flow in NMS stocks with national securities exchanges, ATSs are exempt from the definition of “exchange” and therefore are not required to register as national securities exchanges with the Commission. An ATS qualifies for an exemption from the definition of “exchange” provided by Exchange Act Rule 3a1–1(a)(2) on the condition that it complies with Regulation ATS, including registering as a broker-dealer, which includes joining a self-regulatory organization, such as FINRA. Thus, ATSs can collect and execute orders in securities electronically without registering as a national securities exchanges under Section 6 of the Exchange Act.
A broker-dealer can become an ATS by filing an initial operation report on Form ATS at least 20 days before commencing operations. Form ATS requires, among other things, that the ATS provide information about: classes of subscribers and differences in access to the services offered by the ATS to different groups or classes of subscribers; the securities the ATS expects to trade; any entity other than the ATS involved in its operations; the manner in which the system operates; how subscribers access the trading system; procedures governing order entry and execution; and trade reporting and clearance and settlement of trades on the ATS. Form ATS is not approved by the Commission;
An ATS must notify the Commission of any changes in its operations by filing an amendment to its Form ATS initial operation report under three circumstances. First, an ATS must amend Form ATS at least 20 days prior to implementing any material change to the operation of the ATS.
All ATSs are currently members of FINRA and must therefore comply with all FINRA rules applicable to broker-dealers. FINRA rules require ATSs to report transaction volume. For instance, FINRA Rule 4552 requires each ATS to report to FINRA aggregate weekly trading volume on a security-by-security basis.
Regulation ATS states that information on Form ATS is “deemed confidential when filed.”
Although the Commission does not require information provided on Form ATS to be made publicly available, the Commission has observed that some NMS Stock ATSs voluntarily make publicly available their Forms ATS.
Furthermore, different information is made available to different market participants regarding the operations of NMS Stock ATSs and the activities of NMS Stock ATSs' broker-dealer operators and their affiliates. NMS Stock ATSs that either voluntarily make their Form ATS publicly available, or publish summary information of their operations, may provide to market participants more information about their operations than NMS Stock ATSs that do not make their Forms ATS or information about their operations publicly available. Furthermore, subscribers to an NMS Stock ATS may have greater access to information about the NMS Stock ATS than other market participants, including the NMS Stock ATS's subscriber manual and access to other subscriber quotes.
NMS Stock ATSs also disclose some execution quality metrics. Exchange Act Rule 605(a) requires every market center, including ATSs, to make publicly available for each calendar month a report containing standardized data on the covered orders in NMS stocks that it receives for execution from any market participant.
The differences in information that certain subscribers have about an NMS Stock ATS's operations may be manifested through channels other than having differential access to Form ATS, an NMS Stock ATS's subscriber manual, or being granted access to certain market quality statistics as provided by an NMS Stock ATS in addition to what is
Even if having greater access to the services of an NMS Stock ATS yields additional information about the operations of the NMS Stock ATS to certain subscribers, it is possible that subscribers that do not have full access to services of the NMS Stock ATS, and the resulting additional information, may still want to trade on NMS Stock ATSs in spite of their relative informational disadvantage. It is possible that had these subscribers possessed more detailed information about the operations of the NMS Stock ATS, they may have been able to make more informed—and therefore potentially different—decisions about where to route their orders for execution.
Under current Rule 301(b)(10) of Regulation ATS,
In the market for NMS stock execution services, NMS Stock ATSs not only compete with other NMS Stock ATSs, but they also compete with registered national securities exchanges. As noted previously, while registered national securities exchanges compete with NMS Stock ATSs for order flow, NMS Stock ATSs and registered national securities exchanges are subject to different regulatory regimes, including different obligations to disclose information about their trading operations and activities.
While national securities exchanges have more regulatory burdens than NMS Stock ATSs, they also enjoy certain unique benefits that are not afforded to NMS Stock ATSs. While national securities exchanges are SROs, and are thus subject to surveillance and oversight by the Commission, they can still establish norms regarding conduct, trading, and fee structures for external access. ATSs on the other hand are regulated as broker-dealers, and must comply with the rules of FINRA, which is the SRO to which all ATSs currently belong. Trading venues that elect to register as national securities exchanges may gain added prestige by establishing
Since the adoption of Regulation NMS in 2005, the market for NMS stock execution services has become more and more fragmented and competitive. Currently there are 11 registered national securities exchanges that effect transactions in NMS stocks, namely, NYSE MKT LLC (formerly NYSE AMEX and the American Stock Exchange), BATS Exchange, Inc. (“BATS–Z Exchange”), BATS Y- Exchange, Inc. (“BATS–Y Exchange”) (“BATS–Z Exchange and BATS–Y Exchange, collectively “the BATS Exchanges”), NASDAQ OMX BX, Inc. (formerly the Boston Stock Exchange), Chicago Stock Exchange, Inc., EDGA Exchange, Inc. (“EDGA”), EDGX Exchange, Inc. (“EDGX”), The Nasdaq Stock Market LLC (“Nasdaq”), New York Stock Exchange LLC (“NYSE”), NYSE Arca, Inc. (“NYSE Arca”), and NASDAQ OMX PHLX, Inc. (formerly Philadelphia Stock Exchange).
Several of these national securities exchanges (NYSE Arca, Nasdaq, BATS Z-Exchange, EDGA and EDGX) previously operated as ECNs or acquired ECNs as part of their trading platforms.
Over the past decade, with the increase in fragmentation in the market for execution services, there has been a shift in the market share of trading volume in NMS stocks across trading venues. For example, there has been a decline in market share of trading volume for exchange-listed stocks of the two traditionally dominant trading venues, NYSE and Nasdaq. The market share of the NYSE in NYSE-listed stocks fell dramatically from approximately 80% in 2005 to 20% in 2013, and for Nasdaq-listed stocks, Nasdaq's market share fell by approximately half, from 50% in 2005 to 25% in 2013.
As discussed above, NMS Stock ATSs face lower regulatory burdens than national securities exchanges. Because national securities exchanges are SROs, they are subject to certain regulatory obligations, such as enforcing their own rules and the federal securities laws with respect to their members. NMS Stock ATSs do not have such oversight and enforcement responsibilities.
NMS Stock ATSs also compete amongst each other in a niche in the market for NMS stock execution services. The rise in the number of NMS Stock ATSs has not only affected competition between national securities exchanges and ATSs for order flow of NMS stocks, it has also impacted competition among NMS Stock ATSs. Table 1 depicts the market share of total dollar volume for NMS stocks, and the total share volume for NMS stocks for individual ATSs, based on data collected from ATSs pursuant to FINRA Rule 4552 for 13 weeks of trading from late March 2015 to late June 2015. Even though there are many NMS Stock ATSs, much of the NMS stock dollar volume on ATSs is transacted by only a handful of venues. Table 1 shows that the top eight NMS Stock ATSs ranked by dollar volume accounted for 61.1% of total dollar volume transacted on ATSs and 58.9% of total share volume transacted on ATSs from late March 2015 to late June 2015.
This table shows the 38 ATSs that effected transactions in NMS stocks from March 30, 2015 to June 26, 2015, ranked in descending order by dollar volume transacted. ATS data is reported weekly, and these dates approximately correspond to the second quarter of 2015. Dollar volume transacted on an ATS is calculated by multiplying the share volume for a given NMS stock on the ATS in a given week by the average trade price for that week. Dollar volume for each NMS stock is then aggregated across all NMS stocks that traded on the given ATS in that week. Also reported in this table is the number of trades, share volume, each NMS Stock ATS's market share of all NMS Stock ATS dollar volume and NMS Stock ATS share volume in that quarter.
Table 2, which is based on data collected from NMS Stock ATSs pursuant to FINRA Rule 4552 for 13 weeks of trading from late March 2015 to late June 2015, shows the average trade size, which is share volume divided by the number of trades on each of the NMS Stock ATSs. The table reveals marked differences in the average trade size of transactions executed on the various NMS Stock ATSs. Six NMS Stock ATSs had average trade sizes in excess of 10,000 shares. This suggests that some NMS Stock ATSs may receive large block orders and execute large trades.
While these NMS Stock ATSs on average execute large size trades, the combined market share of these NMS Stock ATSs is only 7.8% when measured in dollar volume, and 3.7% when measured in share volume. The vast majority of NMS Stock ATSs have average trade sizes between 150 and 450 shares. The two NMS Stock ATSs with the highest market shares (measured either in dollar volume or share volume) have average trade sizes of 181 and 157 shares, respectively.
Though NMS Stock ATSs compete with each other in a niche in the market for NMS stock execution services, the trade sizes in Table 2 actually suggest that this niche market may not be very different from the market as a whole. The average trade size on NMS Stock ATSs is 214 shares, which is not significantly different from the average trade size of 181 shares on registered national securities exchanges.
This table shows 38 ATSs that effected transactions in NMS stocks from March 30, 2015 to June 26, 2015, ranked in descending order by average trade size. ATS data is reported weekly, and these dates correspond approximately to the second quarter of 2015. Also reported in this table is the raw number of trades, share volume, dollar volume, and each NMS Stock ATS's market share of all NMS Stock ATS dollar volume and NMS Stock ATS share volume. Dollar volume transacted on an ATS is calculated by multiplying the share volume for a given NMS stock on the ATS in a given week by the average trade price for that week. Dollar volume for each NMS stock is then aggregated across all NMS stocks that traded on the given ATS in that week.
While many NMS Stock ATSs operating today are similar with respect to the limited transparency they provide with respect to their trading model, the Commission understands that the services offered vary significantly across NMS Stock ATSs. Some NMS Stock ATSs offer mid-point matching services exclusively while others may have more complex matching algorithms. Some other NMS Stock ATSs offer preferential treatment in execution priority to some groups of subscribers, but not others, and some NMS Stock ATSs may allow subscribers to avoid trading with specific counterparties. Additionally, order types and their characteristics can also vary significantly across NMS Stock ATSs, including with respect to how particular order types interact with other order types, which could affect execution priorities. Even though an NMS Stock ATS might not be privy to detailed information about the operations of other NMS Stock ATSs, it may be able to garner general information about the differential services offered by its competitors through Web sites and forums,
Competition for NMS stock order flow not only exists between national securities exchanges and NMS Stock ATSs and among NMS Stock ATSs, but also exists between the broker-dealers that operate NMS Stock ATSs and those broker-dealer operators that do not operate NMS Stock ATSs. As discussed above, most ATSs that currently transact in NMS stocks are operated by multi-service broker-dealers that engage in significant brokerage and dealing activities in addition to their ATS operations.
The current competitive environment in which NMS Stock ATSs operate suggests that broker-dealers who operate their own NMS Stock ATS(s) may have certain trading advantages relative to broker-dealers that do not operate their own NMS Stock ATS. Broker-dealer owned NMS Stock ATSs may provide their business units or affiliates, that are also subscribers to the NMS Stock ATS, access to certain services, which may result in trading advantages, such as providing faster access to the ATS or priority in executions over other subscribers, such as broker-dealers that do not have their own ATS platform and may route their orders to these ATSs.
As discussed above, the current market for NMS stock execution services consists of competition for order flow among national securities exchanges, NMS Stock ATSs, and broker-dealers who operate or control non-ATS trading centers.
Since the adoption of Regulation ATS in 1998 and the implementation of Regulation NMS in 2005, trading costs have, on average, declined significantly in the U.S. Institutional trading costs—particularly for large capitalization stocks—are amongst the lowest in the world.
NMS Stock ATSs provide an environment whereby certain market participants can trade at low costs relative to national securities exchanges. For instance, if market participants submit to a national securities exchange a block order or a large “parent” order shredded into smaller “child” orders, they may experience “price impact” when others observe their trading and infer the presence of a large order. That is, the price at which these child orders execute may get subsequently worse from the time of the initial order submission to the time of the final execution of the order. Thus, when working these child orders, the order originator may seek to keep their executions “quiet” to minimize adverse price moves that may otherwise occur as other market participants infer that order originator is an institutional
The current market for NMS stock execution services—which includes NMS Stock ATSs—provides value to market participants. If all NMS Stock ATSs were to cease operations, market participants may incur costs associated with not being able to find an adequate trading venue that offers benefits similar to those that NMS Stock ATSs provide. For example, certain market participants may be unable to find a trading center that adequately minimizes the revelation of their trading interest. Therefore, some of the trades by these market participants, which would have been executed on NMS Stock ATSs, may no longer be executed at all if NMS Stock ATSs cease operations. Even though NMS Stock ATSs provide value to some market participants by allowing them to trade on a venue that mitigates the signaling of information regarding their trading interest while keeping their trading costs at a low level, NMS Stock ATSs are characterized by a lack of transparency regarding their operations and the activities of their broker-dealer operators and the broker-dealer operator's affiliates. Currently, disclosures on Form ATS are not required to be made public, and even when an NMS Stock ATS voluntarily discloses its Form ATS, the information provided tends to be limited. The Commission has also observed that NMS Stock ATSs vary with respect to the depth and extent of their disclosures on Form ATS, including basic aspects of their operations. This heterogeneity in terms of the level of disclosure pertaining to NMS Stock ATS operations has resulted in certain costs for market participants, in that currently a market participant has to expend some effort searching for a trading venue that would serve its investing or trading objectives. A by-product of these search costs for some market participants is uncertainty pertaining to how their orders will be handled. Because there is no current requirement for NMS Stock ATSs to disclose information about their operations to the public, some subscribers to NMS Stock ATSs—particularly subscribers to those NMS Stock ATSs that have not made their Form ATS public—may not fully know how their orders are handled. Furthermore, for a specific NMS Stock ATS, some subscribers may have been provided more information regarding how their orders will interact, match, and execute on the NMS Stock ATS, exacerbating this uncertainty.
The current market for NMS stock execution services has resulted in the fragmentation of trading volume. While this fragmentation—which has in part been due to the rise in NMS Stock ATSs—has been a factor in currently providing low trading costs for market participants,
Some academic studies have also suggested that the coexistence of national securities exchanges and NMS Stock ATSs has led to market segmentation,
The theory that market segmentation of market participants leads to price discovery relies on the assumption that because trade executions on some NMS Stock ATSs are determined by matching orders, orders of informed market participants are more likely to cluster on one side of the market (either the buy-side or the sell-side).
Several academic studies suggest that the presence of NMS Stock ATSs in the current trading environment deteriorates price discovery
Another element that may affect market quality is order internalization by broker-dealers. Academic literature has previously proposed theoretical models where broker-dealer operators have an incentive to internalize uninformed orders, by trading as principal against such orders or crossing orders as agent in a riskless principal capacity, before routing the orders to their respective ATSs.
Currently, the coexistence of national securities exchanges and NMS Stock ATSs seems to have beneficial effects on market efficiency. One academic study suggests that while not all trades that execute on NMS Stock ATSs are large block trades, those that are have been seen to be beneficial to market efficiency.
The Commission has considered the economic effects of the proposed amendments to Rule 3a1–1(a) and Regulation ATS. This section provides an overview of the broad economic considerations relevant to the proposed amendments to Rule 3a1–1(a) and Regulation ATS, and the economic effects, including the costs, benefits, and the effects on efficiency, competition, and capital formation. Additional economic effects, including benefits and costs related to specific requirements of the proposed amendments to Rule 3a1–1(a) and Regulation ATS, are also discussed.
The proposed amendments to Rule 3a1–1(a) and Regulation ATS
The Commission further understands that the proposed amendments to Regulation ATS may generate some uncertainty for NMS Stock ATSs in that, under the proposal, the Commission would declare a Form ATS–N effective or ineffective (which is not currently the case with respect to Form ATS), and this may act as a potential deterrent for ATSs wishing to transact NMS stocks, or legacy NMS Stock ATSs that would be required to file Form ATS–N. Moreover, the proposed amendments to Rule 3a1–1(a) and Regulation ATS could be costly, because NMS Stock ATSs would have to disclose detailed information about their operations and the activities of their broker-dealer operators and their affiliates. Together, these could harm the competitive dynamics in the market for NMS stock execution services, which includes competition between national securities exchanges and NMS Stock ATSs, among NMS Stock ATSs themselves, and between broker-dealers that operate NMS Stock ATSs and those that do not.
Moreover, the Commission notes that increased transparency regarding the operations of NMS Stock ATSs may impact competition between broker-dealers that operate NMS Stock ATSs and broker-dealers who trade NMS stocks but do not operate an NMS Stock ATS. Because broker-dealers who transact in NMS stocks but do not operate ATSs are not subject to the proposed operational transparency requirements, these broker-dealers may be at a competitive advantage and attract and internalize order flow that would otherwise be entered and executed on NMS Stock ATSs. Furthermore, greater operational transparency of NMS Stock ATSs could also impact competition between NMS Stock ATSs and national securities exchanges, resulting in a larger amount of order flow being executed on national securities exchanges.
Further, the Commission preliminarily believes that the proposed amendments to Rule 301(b)(10) and 303(a)(1) that would require ATSs to establish and preserve written safeguards and written procedures to protect subscribers' confidential trading information, as well as the oversight procedures to ensure such safeguards and procedures are followed should strengthen the effectiveness of those safeguards and procedures and better enable an NMS Stock ATS to protect confidential subscriber trading information and implement and monitor the adequacy of, and the ATS's compliance with, its safeguards and procedures.
The Commission has attempted, where possible, to quantify the benefits and costs anticipated by the proposed amendments to Rule 3a1–1(a) and Regulation ATS. The Commission notes, however, that many of the costs and benefits of the proposed amendments are difficult to quantify with any degree of certainty. For instance, it is unclear how many NMS Stock ATSs might cease operations (or, less likely, switch to trading in a different class of securities) if they are required to publicly disclose information about their operations on proposed Form ATS–N. It is also unclear how many NMS Stock ATSs may decide to register as national securities exchanges, as some ECNs have in previous years, as a result of the proposed amendments to Rule 3a1–1(a) and Regulation ATS.
As discussed above, the Commission is proposing to amend Rule 3a1–1(a) and Regulation ATS to require ATSs that effect transactions in NMS stocks comply with the requirements of
As noted above, an NMS Stock ATS may provide some subscribers access to certain trading information or services that it does not provide to others.
Proposed Rule 304 would also provide a process by which the Commission would declare Form ATS–N filings effective or ineffective, and a process by which the Commission would review Form ATS–N Amendments and declare ineffective a Form ATS–N Amendment if it finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors. The Commission is also proposing a process by which the Commission could suspend, limit, or revoke an NMS Stock ATS's exemption from the definition of an “exchange” under Rule 3a1–1(a)(2).
The Commission preliminarily believes that the proposed amendments to Rule 3a1–1(a) and Regulation ATS would result in better regulatory oversight of NMS Stock ATSs and increased investor protection. Form ATS discloses only limited aspects of an ATS's operations as compared to the information that would be provided on Form ATS–N by NMS Stock ATSs. Form ATS requires, for example, that an ATS provide information about: classes of subscribers and differences in access to the services offered by the ATS to different groups or classes of subscribers; securities the ATS expects to trade; any entity other than the ATS involved in its operations; the manner in which the system operates; how subscribers access the trading system; procedures governing order entry and execution; and trade reporting, clearance and settlement of trades on the ATS. On the other hand, Form ATS–N would require an NMS Stock ATS to disclose information about the manner of operations of the ATS, including: subscribers; hours of operation; types of orders; connectivity, order entry, and co-location procedures; segmentation of order flow and notice about segmentation; display of order and other trading interest; trading services, including matching methodologies, order interaction rules, and order handling and execution procedures; procedures governing suspension of trading or trading during a system disruption or malfunction; opening, closing, and after hours procedures; outbound routing services; fees; market data; trade reporting; clearance and settlement; order display and execution access (if applicable); fair access (if applicable); and market quality statistics published or provided to one or more subscribers.
In addition, current Form ATS does not require an ATS to disclose information about the activities of the broker-dealer operator and the broker-dealer operator's affiliates in connection with the ATS whereas the enhanced disclosure requirements under proposed Form ATS–N would require an NMS Stock ATS to disclose information about the activities of its broker-dealer operator and the broker-dealer operator's affiliates that may give rise to potential conflicts of interest, including: their operation of non-ATS trading centers and other NMS Stock ATSs; products and services offered to subscribers; arrangements with unaffiliated trading centers; trading activities on the NMS Stock ATS; smart order router (or similar functionality) and algorithms used to send or receive orders or other trading interest to or from the ATS; personnel and third parties used to operate the NMS Stock ATS; differences in the availability of services, functionalities, or procedures; and safeguards and procedures to protect subscribers' confidential trading information. Accordingly, the Commission preliminarily believes that the enhanced disclosure requirements under proposed Form ATS–N would result in better regulatory oversight of NMS Stock ATSs and increased investor protection by providing the Commission, relevant SROs, and market participants with significantly more information with which to analyze and evaluate how orders are handled and executed on NMS Stock ATSs.
The Commission is proposing that Form ATS–N and Form ATS–N Amendments be filed electronically in a text-searchable format. The Commission preliminarily believes that requiring Form ATS–N and Form ATS–N Amendments to be filed in a text-searchable format, coupled with the enhanced disclosure requirements under the proposal, will facilitate a more effective and thorough review and analysis of NMS Stock ATSs by regulators, which should yield greater insights into the operations of NMS Stock ATSs and the activities of their broker-dealer operators and their affiliates. For example, under the proposal, examiners at the Commission and the SRO of which an NMS Stock ATS is a member would be able to run automated processes to review information disclosed on filed Forms ATS–N and Form ATS–N Amendments in order to select NMS Stock ATSs for examination based on certain criteria for the examination. Additionally, examiners would be better able to assemble and review a larger pool of data regarding NMS Stock ATSs to better inform their examinations. Both such benefits could increase investor protection by improving the effectiveness and efficiency of the examination process.
Furthermore, the Commission preliminarily believes that the proposed process of declaring a Form ATS–N effective or ineffective and the process to review and declare, if necessary, Form ATS–N Amendments ineffective would improve the quality of the information regulators receive from NMS Stock ATSs and increase the
The Commission would make Form ATS–N Amendments public upon filing. As a result, a publicly disclosed Form ATS–N Amendment could contain potentially inaccurate or incomplete disclosures at the time it is posted on the Commission's Web page. Prior to the conclusion of its review of a Form ATS–N Amendment, the Commission would make the public aware of the fact that, though the amendment is posted on the Commission's Web site, it is still pending Commission review and could still be declared ineffective. The Commission preliminarily believes that this process would provide transparency to market participants about the operations of these ATSs and also provide market participants with information about forthcoming changes to the NMS Stock ATS while the Commission's review is pending.
The Commission preliminarily believes that the proposed review and public disclosure process for a Form ATS–N and Form ATS–N Amendments would allow the Commission to better protect investors from potentially inaccurate or incomplete disclosures that could misinform market participants about the operations of an NMS Stock ATS or the activities of its broker-dealer operator, including how their orders may be handled and executed, and thereby impact market participants' decisions about where they should route their orders.
If the Commission declares ineffective a Form ATS–N or Form ATS–N Amendment of an entity, that entity would have the opportunity to address deficiencies in the previously filed form by filing a new Form ATS–N or Form ATS–N Amendment. However, the Commission recognizes that an ineffectiveness declaration could impose costs on that entity—such as costs from having to cease operations, roll back a change in operations, or delay the start of operations—and could impose costs on the overall market for NMS stock execution services resulting from a potential reduction in competition or the removal of a sole provider of a niche service within the market. Furthermore, the removal of a sole provider of a niche service from the market could also impose costs on individual market participants, as they may have to subscribe to another NMS Stock ATS, or they may have to incur the cost of making changes to their SOR (or similar functionality) or algorithm in order to submit their orders for execution. However, NMS Stock ATSs and market participants would not incur these costs unless the Commission declares a Form ATS–N or a Form ATS–N Amendment ineffective. The Commission preliminarily believes that NMS Stock ATSs would be incentivized to comply with the requirements of Form ATS–N, as well as federal securities laws, including the other requirements of Regulation ATS, to avoid an ineffectiveness declaration, which produces benefits to the market. Therefore, the Commission preliminarily believes that there would be no undue burden imposed in connection with resubmitting Form ATS–N for these entities or from an ineffective declaration in general.
The Commission understands that both new and existing NMS Stock ATSs would incur implementation costs in order to comply with the proposed amendments to Regulation ATS. Regardless of their size and transaction volume, all NMS Stock ATSs would need to ensure that their disclosures meet the requirements of proposed Form ATS–N and that they correctly file their Form ATS–N. NMS Stock ATSs may develop internal processes to ensure correct and complete reporting on Form ATS–N, which can be viewed as a fixed setup cost, which NMS Stock ATSs may have to incur, regardless of the amount of trading activity that takes place on them. As a result, these implementation costs may fall disproportionately on lower-dollar volume NMS Stock ATSs (as opposed to ATSs transacting greater dollar volume), since all ATSs would likely incur these fixed implementation costs. However, smaller NMS Stock ATSs that are not operated by multi-service broker-dealer operators and do not engage in other brokerage or dealing activities in addition to their NMS Stock ATSs would likely incur lower implementation costs because certain sections of proposed Form ATS–N (such as several items of Part III) would not be applicable to these NMS Stock ATSs.
Relative to the baseline, the proposed amendments to Regulation ATS would also impose implementation costs for all NMS Stock ATSs, including legacy ATSs, in that they would require NMS Stock ATSs to adhere to heightened disclosure and reporting requirements regarding their operations. Existing NMS Stock ATSs should already comply with the current requirements of Regulation ATS. Therefore, the compliance costs of the proposed amendments should be incremental relative to the costs associated with the existing requirements. Specifically, the Commission preliminarily believes that the incremental costs would consist largely of providing new disclosures and updating records and retention policies necessary to comply with the proposed amendments. Based on the analysis for purposes of the PRA, the Commission preliminarily estimates that the proposed amendments to Regulation ATS relating to Rules 301(b)(2)(viii) and 304 of Regulation ATS, including Proposed Form ATS–N, could result in a one-time burden of 141.3 hours for each NMS Stock ATS,
Furthermore, the Commission preliminarily believes that there would be implementation costs for ATSs that have not reduced to writing their safeguards and procedures to protect subscribers' confidential trading information and their oversight procedures to ensure that those safeguards and procedures are followed, which are required under Rule 301(b)(10) of Regulation ATS.
In addition to the implementation costs mentioned above, there are also expected ongoing costs for NMS Stock ATSs to comply with the proposed amendments to Rule 3a1–1(a) and Regulation ATS. For instance, NMS Stock ATSs would incur ongoing costs associated with amending their Forms ATS–N 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–N Amendment, the Commission preliminarily estimates for the purposes of the PRA that it could take an NMS Stock ATS approximately 28.5 hours annually
Furthermore, the proposed amendments to Rules 301(b)(10) and 303(a)(1)(v) relating to written safeguards and written procedures to protect subscribers' confidential trading information would impose ongoing costs for all ATSs. For the purposes of the PRA, the Commission preliminarily estimates it could take approximately 4 hours annually for each ATS to update and maintain these safeguards and procedures,
Some existing NMS Stock ATSs that also transact in non-NMS stocks might incur additional costs due to the proposed amendments. As discussed above,
Currently, ATSs that transact in NMS stocks do not have the ability to access and file the Form ATS electronically. The Commission proposes that proposed Form ATS–N would be filed electronically in a structured format and would require an electronic signature. These proposed amendments to Regulation ATS would require that every NMS Stock ATS have the ability to file forms electronically with an electronic signature. The Commission's proposal contemplates the use of an online filing system, the EFFS. Based on the widespread use and availability of the Internet, the Commission preliminarily believes that filing Form ATS–N in an electronic format would be less burdensome and a more efficient filing process than the current paper process for NMS Stock ATSs and the Commission, as it is likely to be less expensive and cumbersome than mailing and filing paper forms to the Commission.
To access EFFS, an NMS Stock ATS would need to submit to the Commission an EAUA to register each individual at the NMS Stock ATS who will access the EFFS system on behalf of the NMS Stock ATS. The
In addition, the Commission preliminarily estimates that each NMS Stock ATS will designate two individuals to sign Form ATS–N each year. An individual signing a Form ATS–N must obtain a digital ID, at the cost of approximately $25.00 each year. Therefore, each NMS Stock ATS would require approximately $50.00 annually to obtain digital IDs for the individuals with access to EFFS for purposes of signing Form ATS–N,
The Commission also preliminarily estimates that NMS Stock ATSs would incur a one-time cost to make public via posting on their Web sites a direct URL hyperlink to the Commission's Web site that contains their Form ATS–N filings.
The Commission is proposing Rule 304(b) to mandate greater public disclosure of NMS Stock ATS operations by making Form ATS–N and Form ATS–N Amendments publicly available on the Commission's Web site, requiring each NMS Stock ATS that has a Web site to post a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in proposed Rule 304(b)(2), and providing for the posting of Commission orders related to the effectiveness of Form ATS–N on the Commission's Web site.
As mentioned above, the proposed amendments to Regulation ATS would make Form ATS–N publicly available, thereby improving the information available to market participants and making that information consistent. The Commission is proposing to amend Regulation ATS to require NMS Stock ATSs to file proposed Form ATS–N in lieu of Form ATS.
Despite NMS Stock ATSs' increasing operational complexities and importance as a source of liquidity for NMS stocks, the Commission preliminarily believes that many market participants have limited information about NMS Stock ATSs' order handling and execution practices. As noted above, while the current disclosures on Form ATS are “deemed confidential when filed,” some ATSs voluntarily disclose their Form ATS filings.
The Commission preliminarily believes that the public disclosure of Form ATS–N would produce economic benefits for market participants. Specifically, the Commission preliminarily believes that requiring detailed, public disclosures about the operations of NMS Stock ATSs would, among other things, better standardize the type of information market participants receive about those operations. As a result, search costs for market participants would be lower relative to the baseline, as homogenous disclosure requirements for all NMS Stock ATSs as part of the proposed amendments to Regulation ATS should facilitate market participants' comparison of NMS Stock ATSs when deciding which venue most suits their trading purposes. Accordingly, the Commission preliminarily believes the enhanced operational transparency resulting from the public disclosures on Form ATS–N should aid market participants when evaluating potential trading venues.
The market for NMS stock execution services has also evolved such that national securities exchanges and NMS Stock ATSs have increasingly become direct competitors. However, as explained above, Form ATS filings continue to be “deemed confidential when filed,” while national securities exchanges must publicly file proposed rule changes and publicly disclose their entire rulebooks.
The Commission preliminarily believes that the proposed amendments would appropriately calibrate the level of transparency between NMS Stock ATSs and national securities exchanges, fostering even greater competition for order flow of NMS stocks between those trading platforms. As noted above, the Commission also preliminarily believes that the proposed enhanced disclosure requirements for NMS Stock ATSs would calibrate the level of transparency among different NMS Stock ATSs. Moreover, requiring Form ATS–N to be made public upon being declared effective should lead to additional scrutiny of NMS Stock ATSs by market participants. Therefore, the Commission preliminarily believes that the proposal could foster even greater competition for order flow of NMS stocks among NMS Stock ATSs and between NMS Stock ATSs and national securities exchanges, which could lead to lower spreads and thereby foster greater capital formation and increased market liquidity relative to the baseline. This in turn could enhance execution quality and lower information opaqueness surrounding an NMS Stock ATS's operations.
The Commission also preliminarily believes that the proposed requirement for NMS Stock ATSs to disclose whether and how they segment their order flow, any criteria used to assign order flow, and their fee structures should provide market participants with a better understanding of the operating environment for NMS Stock ATSs. Search costs to identify which NMS Stock ATSs better serve a market participant's trading interests should be reduced relative to the baseline, as market participants may be more able to predict how their orders will be executed. Broker-dealers might also make better routing decisions for their particular interests, and the interests of their customers, which might therefore lead to better execution quality. Also, the proposed enhanced disclosure requirements for NMS Stock ATSs could better enable market participants to review trading decisions made by their broker-dealers. This in turn could lower the level of uncertainty that was present in the baseline regarding how orders would be executed on NMS Stock ATSs. As such, the Commission preliminarily believes that the proposed amendments to Regulation ATS could help market participants understand how their orders will be executed on an NMS Stock ATS and evaluate any potential conflicts of interest involving the broker-dealer operator and its affiliates when handling such orders.
At the same time, the proposed enhanced disclosure requirements for NMS Stock ATSs could benefit certain ATSs or national securities exchanges. For example, market participants would be aware of which NMS Stock ATSs may offer better execution services or better protection against the dissemination of their non-public trading information, and as a result, these ATSs might attract even more order flow. By attracting greater order flow, NMS Stock ATSs might, in turn, provide benefits to market participants by offering them a trading platform that is more liquid and, possibly, has lower trading costs.
In the adopting release for Regulation ATS, the Commission explained that it believed that the regulatory framework established by Regulation ATS would
The proposed requirement under Part IV, Item 16 of proposed Form ATS–N to explain and provide aggregate platform-wide order flow and execution statistics regarding the NMS Stock ATS, which are not otherwise required disclosures under Exchange Act Rule 605 of Regulation NMS but still published or otherwise provided to one or more subscribers by the NMS Stock ATS, could have several potential economic effects. The economic effects would depend not only on the extent to which ATSs currently provide or publish such information and the content of the information which the Commission currently does not have (such as what order flow and execution statistics NMS Stock ATSs produce, how they are calculated and whether they are standardized across ATSs, and which subscribers currently receive these statistics),
Furthermore, NMS Stock ATSs that currently provide these aggregate platform-wide order flow and execution statistics to one or more subscribers could continue to provide its subscribers with these market quality statistics, in which case, under the proposal, the NMS Stock ATS would publicly disclose these statistics and how they are calculated in proposed Form ATS–N. Another possibility is that these NMS Stock ATSs may choose to stop providing market quality statistics to subscribers so as not to have to publicly disclose information about those statistics and/or the statistics themselves in Form ATS–N. To the extent that an NMS Stock ATS continues to provide aggregate platform-wide order flow and execution statistics to subscribers only, it would publicly disclose and describe how those statistics are calculated in Form ATS–N, and all market participants, not just subscribers would have access to the information, which the Commission preliminarily believes would improve the opportunity for more market participants to benefit from this information. In addition, to the extent that subscribers that receive those market quality statistics currently do not know how the NMS Stock ATS calculates the market quality statistics, the proposal would help these subscribers better understand the statistics, and such information may be useful when evaluating an NMS Stock ATS as a possible venue to which to route orders in order to accomplish their investing or trading objectives.
However, NMS Stock ATSs that choose to publicly disclose aggregate platform-wide order flow and execution statistics regarding the NMS Stock ATS, which are not otherwise required disclosures under Exchange Act Rule 605 of Regulation NMS but still published or otherwise provided to one or more subscribers by the NMS Stock ATS would incur costs to do so. Therefore, some NMS Stock ATSs may choose to comply with the proposal by ceasing to disclose these market quality statistics to subscribers. As a result, the proposal could reduce transparency to the detriment of the subscribers who currently benefit from the receipt of certain market quality statistics regarding an NMS Stock ATS, which could in turn result in spill-over effects on the market. Furthermore, the decision of whether to continue to disclose such statistics could depend, in part, on how favorable the statistics make the ATS appear. As such, if some NMS Stock ATSs choose to stop disclosing order flow and execution statistics due to the proposed requirements of Item 16 while others decide to make those statistics public through their Form ATS–N filings, market participants may perceive the latter group of NMS Stock ATSs as having better execution quality, and these trading venues may therefore benefit by attracting even more order flow as a result of such perceptions.
As most NMS Stock ATSs are operated by broker-dealers that also engage in other brokerage and dealing activities, a broker-dealer operator of an NMS Stock ATS, or its affiliates, may have business interests that compete with the ATS's subscribers, or customers of its subscribers, which in turn may give rise to potential conflicts of interest.
In addition to the possible conflicts of interest that may arise from internalization, broker-dealer operators that control and operate multiple NMS Stock ATSs may also face conflicts of interest. This is because such broker-dealers might operate competing trading venues for the execution of orders in NMS stocks without having fully separated the functions of these competing trading centers. As a result of these overlapping functionalities, broker-dealers operating multiple NMS Stock ATSs may provide subscribers of one ATS—which could include business units of the broker-dealer or its affiliates—with access to services or information about the other ATS that it does not provide to other subscribers. The Commission preliminarily believes that the proposed enhanced disclosure requirements should provide market
The Commission is proposing that proposed Form ATS–N be filed electronically through the EFFS system in a structured data format. The Commission is proposing to make public on the Commission's Web site, among other things, an effective Form ATS–N, and each properly filed Form ATS–N Amendment upon filing with the Commission. The Commission would post the Form ATS–N or Form ATS–N Amendment in the same format that the Commission received the data.
The Commission preliminarily believes that by having NMS Stock ATSs file the proposed Form ATS–N in a structured data format, the information's usability for market participants would be enhanced. Once the data is structured, it is not only human-readable, but also becomes machine-readable such that market participants could download the information directly into databases and analyze it using various software. With structured data, what was static, text-based information that had to be manually and individually reviewed, can be searched and analyzed, facilitating the comparison and aggregation across NMS Stock ATSs.
The Commission understands that there are varying costs associated with varying degrees of structuring. The Commission preliminarily believes that its proposed structuring of proposed Form ATS–N has minimal costs and enhanced benefits for market participants' use of proposed Form ATS–N information. The Commission is proposing that Parts I (Name) and II (Broker-Dealer Operator Registration and Contact Information) of proposed Form ATS–N would be provided as fillable forms on the Commission's EFFS system. The Commission is proposing that Part III (Activities of the Broker-Dealer Operator and Affiliates) of proposed Form ATS–N would be filed in a structured format whereby the filer would provide checkbox responses to certain questions and narrative responses that are block-text tagged by Item. The Commission is proposing that Part IV (The NMS Stock ATS Manner of Operations) of proposed Form ATS–N would also be filed in a structured format in that the filer would block-text tag narrative responses by Item. The Commission is proposing that Part V (Contact Information, Signature Block, and Consent to Service) of proposed Form ATS–N would be provided as fillable forms on the Commission's EFFS system. The Commission also preliminarily believes that requiring NMS Stock ATSs to file proposed Form ATS–N in a structured format could allow market participants to avoid additional costs associated with third party sources who might otherwise extract and structure all the narrative disclosures, and then charge for access to that structured data. The Commission notes that the structuring of Form ATS–N can be in a variety of manners. For example, some or all of the information provided on Form ATS–N could be structured according to a particular standard that already exists, or a new taxonomy that the Commission creates, or as a single machine-readable PDF. The Commission seeks comment on the manner in which proposed Form ATS–N could be structured to enable the Commission and market participants to better collect and analyze the data.
From an NMS Stock ATS's perspective, the proposed amendments to Regulation ATS may beget uncertainty as to whether its proposed Form ATS–N will be deemed effective or ineffective. Greater uncertainty surrounding this proposed process may act as a deterrent for potential ATSs wishing to effect transactions in NMS stocks. The disclosures required by proposed Form ATS–N would be more comprehensive and require significantly more detail than those required on current Form ATS, which in turn could delay the start of operations for new NMS Stock ATSs. Therefore, the proposed amendments could raise the entry barrier for new entrants to the market for NMS stock execution services.
The Commission is proposing that a legacy NMS Stock ATS would be able to continue its operations pursuant to a previously filed initial operation report on Form ATS pending the Commission's review of its initial Form ATS–N. However, if after notice and opportunity for hearing, the Commission declares the Form ATS–N filed by a legacy NMS Stock ATS ineffective, the ATS would be required to cease operations. The NMS Stock ATS would then have the opportunity to address deficiencies in the previously filed form by filing a new Form ATS–N.
As explained above, NMS Stock ATSs would incur both implementation and ongoing costs to meet the regulatory requirements under proposed Rule 304. In particular, the proposed rules would require an NMS Stock ATS to file amendments on proposed Form ATS–N to notice a material change to its operations at least 30 days prior to implementing that material change. Under the proposal, if the Commission declares a material amendment ineffective after this advance notice period has expired, the NMS Stock ATS would be required to unwind the material change if it has already been implemented on the ATS or be precluded from proceeding to implement the change if it was not already implemented. This uncertainty regarding an NMS Stock ATS's ability to implement material changes may also result in some NMS Stock ATSs exiting the market.
Once an NMS Stock ATS's initial Form ATS–N is declared effective by the Commission, the information disclosed on Form ATS–N would be made available to the broader investing public. Proposed Form ATS–N Amendments would be made public upon filing, and in the case the amendments are not declared ineffective by the Commission, the Commission would no longer indicate that the Form ATS–N Amendment is under Commission review.
While the information elicited on proposed Form ATS–N would be similar to the information that national securities exchanges are required to publicly disclose, the Commission preliminarily believes that the disclosure of this previously non-public information could have some impact on the direction of order flow in the market. For instance, to the extent that an NMS Stock ATS's competitive advantage in the market is driven by its matching methodology, other operational characteristics that are currently confidential, or the non-public disclosure of certain aggregate platform-wide market quality statistics provided to subscribers, the disclosure of this information could result in other NMS Stock ATSs implementing similar methodologies, which might cause market participants to direct more order flow to those other NMS Stock ATSs. In addition, some order flow may be directed away from NMS Stock ATSs and towards national securities exchanges or broker-dealers that operate non-ATS trading centers if market participants discover that their orders could receive lower execution quality on an NMS Stock ATS relative to these other trading centers. As such, the proposal may result in lower revenues for some NMS Stock ATSs, and those ATSs may then find it unprofitable to stay in the market. The Commission preliminarily believes that fewer trading venues in the market will affect competition between existing NMS Stock ATSs and national securities exchanges as well as among existing NMS Stock ATSs, which would in turn affect market participants.
Not only could an NMS Stock ATS's competitive advantage be driven by its current matching methodology or other operational characteristics, it could also be driven by the NMS Stock ATS's ability to improve these methodologies through technological innovation or enhancements. Under the proposal, the Commission preliminarily believes that the disclosure of an NMS Stock ATS's innovations in proposed Form ATS–N Amendments could potentially result in certain NMS Stock ATSs losing their technological advantage. If NMS Stock ATSs cannot innovate fast enough to regain their competitive advantage in the market, orders may also flow away from those NMS Stock ATSs, and as a result, these trading venues may choose to exit the market if operating the ATS becomes unprofitable for the broker-dealer operator.
Both large and small NMS Stock ATSs may be affected by the detailed disclosures required under proposed Rule 304 and Form ATS–N, though, the proposal may affect the ability of each type of ATS to stay in the market differently. As noted above, to the extent that an ATS's dominance in the market—in terms of being able to attract substantial NMS stock trading volume—is driven by its matching methodology or other operational characteristics that are currently confidential, the public disclosure of this information may result in lower revenue for the NMS Stock ATS. If this is the case for a small NMS Stock ATS, or a large ATS without a substantial profit margin, the broker-dealer operator may no longer view the ATS as being profitable and may potentially exit the market altogether. Alternatively, if this is the case for a large NMS Stock ATS or a smaller NMS Stock ATS with large profit margins, while the NMS Stock ATS may not exit the market, such an ATS may need to engage in costly research in order to develop new matching methodologies to stay profitable in the market. Further, if revenue and earnings margins for operating an NMS Stock ATS are below the average for the entire market, the NMS Stock ATS risks being squeezed out by its competitors and would potentially exit the market.
The Commission expects that the implementation and ongoing costs associated with filing proposed Form ATS–N could also affect the nature of competition. As Table 1 shows, there is a significant degree of difference in the size of NMS Stock ATSs, when measured by dollar or share volume. If the costs associated with filing proposed Form ATS–N become disproportionately greater for smaller volume NMS Stock ATSs, some of these legacy NMS Stock ATSs might cease operations, and exit the market for NMS stock execution services. As explained above, based on analysis for purposes of the PRA, the Commission has calculated preliminary estimates of the implementation and ongoing costs for the proposed amendments to Regulation ATS. The Commission preliminarily believes that the estimated implementation cost is a fixed cost that would be roughly similar across NMS Stock ATSs, regardless of their dollar volume size; this implies that implementation costs will represent a larger fraction of revenue generated on a small NMS Stock ATS relative to that percentage on a large NMS Stock ATS, which could cause some smaller NMS Stock ATSs to exit the market. However, it could be the case that if the NMS Stock ATSs that decide to exit due to this fixed implementation cost only transact small dollar (or share) volume, the Commission may not expect to see a large impact on the overall competitive structure of the NMS Stock ATSs that would remain in the market. More so, the order flow that was being traded on these small NMS Stock ATSs might in fact be absorbed and redistributed amongst these larger surviving NMS Stock ATSs.
Another effect that the proposal could have on competition is that the greater disclosure requirements of NMS Stock ATSs, particular the disclosures related to the other business activities of the broker-dealer operator and its affiliates, may influence a broker-dealer operator's decisions with respect to its operations of the NMS Stock ATS. Given the proposed disclosure requirements regarding the activities of broker-dealer operators and their affiliates, a multi-service broker-dealer operator of an NMS Stock ATS may cease operating its NMS Stock ATS and send its order flow, which would have gone to the broker-dealer operator's NMS Stock ATS, to other trading centers. For example, a multi-service broker-dealer operator could internalize the order flow that it would typically send to its ATS or send that order flow to a broker-dealer that, does not operate an NMS Stock ATS, to internalize. Alternatively, the broker-dealer operator might send the order flow to a non-affiliated NMS Stock ATS that is operated by a non-multi-service broker-dealer, who would likely not encounter the same potential conflicts of interest as a multi-service broker-dealer that operates an NMS Stock ATS. Finally, the broker-dealer operator could also send its order flow to national securities exchanges for execution.
Overall, the Commission preliminarily believes that the possible exit of NMS Stock ATSs from the market, or the reduced entry of new NMS Stock ATSs, due to the requirements under proposed Rule 304 and Form ATS–N might be potentially harmful to competition in the market for NMS stock execution services. The potential exit by existing NMS Stock ATSs and the reduced entry into the market by prospective NMS Stock ATSs may impact market participants by reducing the number of NMS stock trading venues and thus, reducing a market participant's opportunities to minimize its trading costs by sending orders to different trading platforms. As such, the possible exit of NMS Stock ATSs from the market for NMS stock execution services and lower rate of entry for new NMS Stock ATSs may result in greater costs relative to the baseline cost savings that NMS Stock ATSs currently afford market participants.
As discussed above, the proposed heightened disclosure requirements for NMS Stock ATSs might cause some NMS Stock ATSs to cease operations, which could result in reduced competition among and between NMS Stock ATSs. If it is the case that the NMS Stock ATSs that face the highest cost of disclosure are the ones that have worse execution quality, the surviving NMS Stock ATSs might enhance execution quality and may allow market participants to transact at lower prices. If order flow is directed towards these surviving NMS Stock ATSs after the trading venues that face the highest cost of disclosure cease operations, then a smaller number of surviving trading venues might mean that there would be a higher likelihood that the orders of buyers and sellers on an NMS Stock ATS would interact and execute, which could improve liquidity. Even if some of the order flow from NMS Stock ATSs that cease operations does not migrate to the surviving NMS Stock ATSs, but migrates towards national securities exchanges, greater order interaction between buyers and sellers on a national securities exchange might be fostered, thereby improving price discovery. Moreover, because some NMS Stock ATSs operate as crossing networks and derive their prices from national securities exchanges, greater price discovery on a national securities exchange could spill over to affect the execution prices on the surviving NMS Stock ATSs and thereby potentially reduce market participants' trading costs. Additionally, given the fairly standardized set of information that would be publicly disclosed on proposed Form ATS–N and that trading in the market by NMS Stock ATSs may in fact be concentrated on fewer NMS Stock ATSs as a result of this proposal, market participants may process, and react more quickly to, information pertaining to changes in an NMS Stock ATS's operations when evaluating potential trading venues. As such, the proposed amendments to Regulation ATS might improve market efficiency.
Alternatively, heightened disclosure requirements pertaining to the public disclosure of proposed Form ATS–N could have a contrary effect, by increasing market participants' trading costs relative to the baseline. Institutional investors may use NMS Stock ATSs in an attempt to minimize the price impact of their trades. Even though the size of the average order on NMS Stock ATSs has been shown to be roughly equivalent to that on national securities exchanges, smaller orders on NMS Stock ATSs can be the result of shredding larger orders.
The price impact cost institutional investors face on a national securities exchange is related to the depth of the market, and the depth of the market is often related to the market capitalization of a stock and its liquidity.
The Commission is also proposing to amend existing Rules 301(b)(10)
Under Rule 301(b)(10), all ATSs must establish adequate safeguards and procedures to protect subscribers' confidential trading information and adequate oversight procedures to ensure that the safeguards and procedures established to protect such trading information are followed. However, neither Rule 301(b)(10) nor the recordkeeping requirements under Rule 303(a)(1) of Regulation ATS require that an ATS have and preserve those safeguards and procedures in writing. As explained above, the Commission preliminarily believes that the proposal to require written safeguards and written procedures would better enable ATSs—in particular, those ATSs that do not currently maintain written safeguards and procedures—to protect confidential subscriber trading information and implement and monitor the adequacy of, and the ATS's compliance with, its safeguards and procedures.
The Commission is also proposing to amend the recordkeeping rules relevant to the proposed amendments to Rule 301 and proposed Rule 304. The Commission is proposing that NMS Stock ATSs shall preserve Form ATS–N, Form ATS–N Amendments, and a Form ATS–N notice of cessation for the life of the enterprise and any successor enterprise pursuant to Rule 303(a)(2)
One alternative would be to allow NMS Stock ATSs to continue to describe their operations on current Form ATS, but either make Form ATS public by posting on the Commission's Web site or require NMS Stock ATSs to publicly disclose their initial operation reports, amendments, and cessation of operations on Form ATS. Non-NMS Stock ATSs' Form ATS filings would continue to remain confidential.
Use of current Form ATS would lower the cost of compliance for current and future NMS Stock ATSs compared to compliance costs under the proposal. However, because the content of Form ATS would not change under this alternative, market participants would continue to receive limited information regarding how orders interact, match, and execute on NMS Stock ATSs and the activities of NMS Stock ATSs' broker-dealer operators and their affiliates. Relative to the proposal, market participants' search costs in identifying which NMS Stock ATS may better serve their trading interests would increase. As a result, their trading costs may increase and the execution quality related to their orders may be reduced. The Commission expects public disclosure of Form ATS could have some harmful effects on the competitive dynamics of NMS Stock ATSs and result in some exiting the market. However, such effects would likely be smaller than those expected under the proposal because, under this alternative, Form ATS would require disclosure of less information about the operations of NMS Stock ATSs than the more expansive and granular information that NMS Stock ATSs would be required to disclose in Form ATS–N.
Requiring NMS Stock ATSs to publicly disclose initial operation reports, amendments, and cessation of operations on Form ATS would place NMS Stock ATSs under greater public scrutiny, which could improve the quality of the filings compared to the
Another alternative would be to require NMS Stock ATSs to file proposed Form ATS–N with the Commission but not make Form ATS–N publicly available. Proposed Form ATS–N would include detailed disclosures about the NMS Stock ATS's operations and the activities of its broker-dealer operator and its affiliates, and the Commission would declare filings on Form ATS–N either effective or ineffective.
This alternative would improve the quality of NMS Stock ATSs' disclosures to the Commission because proposed Form ATS–N would require more information about the operations of NMS Stock ATSs than is currently solicited on Form ATS. In addition, proposed Form ATS–N would require information about the activities of the broker-dealer operator and its affiliates, whereas current Form ATS does not require such information. This alternative, which would include a process for the Commission to determine whether an NMS Stock ATS qualifies for the exemption from the definition of “exchange,” and declare a proposed Form ATS–N effective or ineffective, would strengthen the Commission's oversight of NMS Stock ATSs.
However, this alternative would not make NMS Stock ATSs' operations more transparent for market participants. The lack of public disclosure of the means of order interaction, display and routing practices by NMS Stock ATSs could result in market participants making less informed decisions regarding where to route their orders and therefore result in lower execution quality than they would obtain under the proposal. Additionally, this alternative would not reduce the search costs for subscribers to identify potential routing destinations for their orders. Because proposed Form ATS–N would not be publicly disclosed under this alternative, the level of competition between NMS Stock ATSs would stay the same, and the lack of transparency about an NMS Stock ATS's operations and activities of the broker-dealer operator and its affiliates would be expected to persist.
Under this alternative, the Commission would require NMS Stock ATSs to file proposed Form ATS–N and would make it public, but the Commission would continue to use the current notice regime instead of declaring Form ATS–N effective or ineffective. The Commission would not determine whether an NMS Stock ATS qualifies for the exemption from the definition of “exchange,” and would not declare proposed Form ATS–N filings effective or ineffective.
Benefits of maintaining the current notice regime would include a lower demand for Commission and its staff resources to determine whether an NMS Stock ATS qualifies for the exemption from the definition of “exchange” and whether the Commission should declare a proposed Form ATS–N effective or ineffective, and to assess whether the Commission should suspend, limit, or revoke the effectiveness of an NMS Stock ATS's Form ATS–N. In addition, maintaining the current notice regime as opposed to declaring the proposed Form ATS–N effective or ineffective could be cost-effective to NMS Stock ATSs and could lower the barriers to entry for new NMS Stock ATSs compared to such barriers under the proposal.
Without a process to declare proposed Form ATS–N effective or ineffective, there would be less assurance that disclosures by NMS Stock ATSs would be accurate, current, and complete. Under this alternative, it would be more difficult for the Commission to exercise its oversight responsibilities with respect to the accuracy, currency, completeness and fair presentation of disclosures on proposed Form ATS–N than under the proposal, which would provide a process for the Commission to declare a proposed Form ATS–N effective or ineffective. Moreover, continued use of a notice regime could lessen the benefit of enhanced transparency relative to such benefit under the proposal and as a result, this alternative might not provide the same level of protection to market participants as the proposal.
Under this alternative, the Commission would require different levels of disclosure among NMS Stock ATSs based on dollar trading volume. For instance, NMS Stock ATSs with lower transaction volumes would be subject to lower levels of disclosure on proposed Form ATS–N. As a result, their compliance costs would be lower, which could lower their entry barriers relative to such barriers under the proposal. Because these small NMS Stock ATSs would not have to disclose as much information pertaining to their operations, they could have more time to innovate without disclosing such innovation to competitors. This could allow these small NMS Stock ATSs to better compete with more established NMS Stock ATSs, national securities exchanges, and broker-dealers and put more competitive pressure on the market. Furthermore, reduced regulatory burdens for small NMS Stock ATSs may result in greater innovation relative to the proposal because these small NMS Stock ATSs would not have to be concerned about disclosing proprietary information. Greater innovation for small NMS Stock ATSs could give them a greater competitive advantage in attracting order flow relative to large NMS Stock ATSs. This competitive advantage for small NMS Stock ATSs could spill over to market participants who execute on these ATSs, by increasing the execution quality of their trades.
However, under this alternative, broker-dealer operators of NMS Stock ATSs could seek to allocate order flow to multiple NMS Stock ATSs operated by either the broker-dealer or its affiliates to avoid reaching threshold volumes that would trigger additional disclosure requirements. This could create some information opaqueness in the market, which could lead to lower execution quality for market participants relative to that under the proposal. The Commission notes, however, that although Regulation ATS currently has volume thresholds for fair access and quote transparency requirements, the Commission has not observed any ATSs using such tactics to avoid crossing thresholds.
Under this alternative, the Commission would eliminate the exemption from the definition of “exchange” for NMS Stock ATSs under Exchange Act Rule 3a1–1(a) so that an NMS Stock ATS would be required to register as a national securities exchange and become an SRO. This alternative would provide market participants with the same protections that accompany the regulatory regime that applies to national securities exchanges. Without the benefit of the exemption from the definition of “exchange,” an NMS Stock
While NMS Stock ATSs would no longer need to register as broker-dealers or comply with Regulation ATS, registration as national securities exchanges would create high startup costs and high ongoing operational costs compared to what they would incur under the proposal.
Another alternative would be to amend Regulation ATS so that NMS Stock ATSs would no longer be required to file quarterly volume reports on Form ATS–R because, as noted above, FINRA rules currently require ATSs that transact in NMS stocks to report aggregate weekly volume information and the number of trades to FINRA in certain equity securities, including NMS stocks.
Instead, NMS Stock ATSs would be required to disclose, in quarterly amendments to Form ATS–N, the information that is currently captured by Form ATS–R that is not captured by FINRA reporting requirements. The Commission notes that, in addition to requiring unit volume of transactions, Form ATS–R, which is “deemed confidential when filed,”
The benefit of this alternative would be that NMS Stock ATSs would no longer be required to report quarterly on Form ATS–R information that is otherwise available. In addition, information that is currently deemed confidential on Form ATS–R would be made publicly available in quarterly amendments to Form ATS–N. NMS Stock ATSs would, however, be required to submit such quarterly amendments, which an NMS Stock ATS would not otherwise be required to do if the NMS Stock ATS did not have any other material changes to report during the quarter.
The Commission does not believe that this alternative would create significant new costs in preparing a quarterly Form ATS–N because the costs would be comparable to the costs of preparing Form ATS–R. However, as a result of the effective merging of proposed Form ATS–N and current Form ATS–R under this alternative, some of the information that would be made public on proposed Form ATS–N, such as the ATS's subscriber list and the list of persons granted, denied, or limited access during the reporting period (which is not being solicited under the proposed Form ATS–N) could be proprietary. Making such information public could harm the NMS Stock ATS as well as persons denied access.
Another alternative would be to amend Regulation ATS to require an NMS Stock ATS to operate as a “stand-alone” entity, which would exist only to operate the ATS and have no affiliation with any broker-dealer that seeks to execute proprietary or agency orders on the NMS Stock ATS. Under this alternative, NMS Stock ATSs would be required to publicly disclose proposed Form ATS–N, proposed Form ATS–N Amendments, and notices of cessation on proposed Form ATS–N, and would be limited purpose entities that could not engage in any activities other than operation of the ATS. This alternative would prohibit the broker-dealer operator of the NMS Stock ATS from engaging in any other broker-dealer activity, and would consequently prohibit the operation of an NMS Stock ATS by a multi-service broker-dealer.
The benefit of this alternative would be to eliminate potential conflicts of interest by requiring a broker-dealer that operates an NMS Stock ATS to have only a single business function, namely, operating the ATS. The broker-dealer would be required to eliminate any other functions, such as trading on a proprietary basis or routing customer orders.
However, this alternative may discourage broker-dealers from creating and operating innovative NMS Stock ATS platforms, and instead drive them to execute their own proprietary trades internally on their other broker-dealer systems. In addition, if they were no longer able to trade on a proprietary basis or route customer orders to their own NMS Stock ATS, many broker-dealers may choose to file a cessation of operations report and shut down the operations of their NMS Stock ATS.
As discussed above, NMS Stock ATSs are not required to provide fair access to the services of the NMS Stock ATS unless the ATS reaches the 5% trading volume threshold in a stock under Rule 301(b)(5) of Regulation ATS.
One of the principal aims of this proposed rulemaking is to provide market participants with more information about the activities of the broker-dealer operator, its affiliates, and the operations of the NMS Stock ATS, so they may better assess NMS Stock ATSs as potential trading venue for their orders. For example, as discussed above, the Commission is concerned that market participants have limited or different levels of information about how the NMS Stock ATSs operate, and the activities of broker-dealer operators and their affiliates.
The Commission preliminarily believes that lowering the fair access threshold for NMS Stock ATSs would require the Commission to consider lowering the fair access threshold to zero, or to some threshold between zero and 5%. If the fair access threshold remained at a threshold above zero, the benefit of this approach, as compared to the proposed disclosure requirements that would apply to all NMS Stock ATSs, could be further limited by the fact that the fair access requirements would apply only to the NMS stocks for which the NMS Stock ATS had crossed the fair access threshold. The Commission could address that situation by proposing further amendments to the fair access requirements that would extend an ATS's fair access duties to all NMS stocks once the fair access threshold had been crossed by an ATS in a certain number of NMS stocks, to revise the duties incurred when the threshold is crossed, or to simply lower the threshold to zero, which would have the effect of requiring all NMS Stock ATSs to immediately comply with the fair access requirements for all NMS stocks. However, the Commission preliminarily believes that the disclosures that would be required by proposed Form ATS–N requirements would be a cost effective and simpler approach than proposing fundamental revisions to the fair access requirements that would achieve the aim of providing market participants with information to better assess NMS Stock ATSs as potential trading venues.
Another alternative would be to amend Regulation ATS to require ATSs that trade fixed income securities and ATSs that solely trade government securities to also report information about their operations and activities of the broker-dealer operator and affiliates on Form ATS–N. Under this alternative, NMS Stock ATSs, as well as ATSs that trade fixed income securities and ATSs that solely trade government securities, would be required to publicly disclose proposed Form ATS–N, proposed Form ATS–N Amendments, and notices of cessation on proposed Form ATS–N.
The benefit of this alternative is that it may provide market participants with clearer transparency regarding the operations and activities of all types of ATSs, not just NMS stock ATSs. To the extent that there may be market participants who predominately trade orders of NMS stock, fixed income securities, and government securities on ATSs, these market participants would benefit from the added transparency regarding how these venues operate and the activities of their broker-dealer operators and affiliates.
ATSs that effect trades in fixed income securities primarily compete against other trading venues with limited or no operational transparency requirements or standards. This is not the case with NMS Stock ATSs, which provide limited information to market participants about their operations and compete directly with national securities exchanges, which are required to publicly disclose information about their operations in the form of proposed rule changes and a public rule book.
The Commission is sensitive to the potential economic effects, including the costs and benefits, of the proposed amendments to Regulation ATS. The Commission has identified above certain costs and benefits associated with the proposal and requests comment on all aspects of its preliminary economic analysis. The Commission encourages commenters to identify, discuss, analyze, and supply relevant data, information, or statistics regarding any such costs or benefits. In particular, the Commission seeks comment on the following:
506. Do you believe the Commission's analysis of the potential effects of the proposed amendments to Regulation ATS is reasonable? Why or why not? Please explain in detail.
507. Do you believe the Commission's assessment of the baseline for the economic analysis is reasonable? Why or why not? Please explain in detail.
508. Do you believe that the proposing release provides a fair representation of current practices and how those current practices would change under the proposed amendments to Regulation ATS? Why or why not? Please explain in detail.
509. Do you believe that the Commission has reasonably described how the competitive landscape for the market for NMS stock execution services would be affected under the proposed amendments to Regulation ATS? Why or why not? Please explain in detail. Does the release discuss all relevant forms of competition and whether the proposal could alter them? If not, which additional forms of competition could the proposal impact and how? Please explain in detail.
510. Do you believe that the Commission has reasonably identified all market participants that would be affected by the proposed amendments to Regulation ATS? If so, why? If not, why not, and which market participants do you believe are not reasonably excluded or would be affected by the proposed amendments? Please explain in detail.
511. Do you believe that the Commission has reasonably described how market participants would be affected by the proposed amendments to Regulation ATS? Why or why not? Please explain in detail.
512. Do you believe that the Commission has reasonably described the information market participants currently receive? If so, why? If not, why not? Please explain in detail.
513. Do you believe that the Commission has reasonably described the benefits market participants would receive from the information that would be required to be disclosed by the proposed amendments to Regulation ATS? Why or why not? Please explain in detail.
514. Do you believe that market participants currently have all relevant information concerning the activities of the broker-dealer operator of the NMS Stock ATS and its affiliates as such activities relate to the NMS Stock ATS? Why or why not? Do you believe there is information that is not required in the proposed amendments to Regulation ATS that would be beneficial to market participants? If so, please describe that information and its benefits in detail. If not, why not? Please support your arguments.
515. Do you believe that market participants currently have all relevant information concerning the subscribers to the NMS Stock ATS where their orders are executed? Why or why not? Do you believe there is information that is not required in the proposed amendments to Regulation ATS that would be beneficial to market participants? If so, please describe that information and its benefits in detail. If not, why not? Please support your arguments.
516. Do you believe that market participants currently have all relevant information concerning the trading operations of the NMS Stock ATS where their orders are executed? Why or why not? Do you believe there is information that is not required in the proposed amendments to Regulation ATS that would be beneficial to market participants? If so, please describe that information and its benefits in detail. If not, why not? Please support your arguments.
517. Do you believe that market participants currently have all relevant information concerning the services offered by the NMS Stock ATS where their orders are executed and their fee structures? Why or why not? Do you believe there is information that is not required in the proposed amendments to Regulation ATS that would be beneficial to market participants? If so, please describe that information and its benefits in detail. If not, why not? Please support your arguments.
518. Do you believe that market participants currently have all relevant information concerning the safeguards and procedures that NMS Stock ATSs have instituted to protect their confidential trading information? Why or why not? Is there information that is not required in the proposed amendments to Regulation ATS that would be beneficial to market participants? If so, please describe that information and its benefits in detail. If not, why not? Please support your arguments.
519. Do you believe that the Commission has reasonably described its analysis of the costs and benefits of each proposed amendment to Regulation ATS? Why or why not? Please explain in detail.
520. Do you believe that there are additional benefits or costs that could be quantified or otherwise monetized? Why or why not? If so, please identify these categories and, if possible, provide specific estimates or data.
521. Do you believe there are there any additional benefits that may arise from the proposed amendments to Regulation ATS? If so, what are such benefits? Please explain in detail.
522. Do you believe there are benefits described above that would not likely result from the proposed amendments to Regulation ATS? If so, please explain these benefits or lack of benefits in detail.
523. Do you believe there are any additional costs that may arise from the proposed amendments to Regulation ATS? If so, do you believe there are methods by which the Commission could reduce the costs imposed by the proposed amendments to Regulation ATS while still achieving the goals? Please explain in detail.
524. Do you believe there are any potential unintended consequences of the proposed amendments to Regulation ATS? If so, what are they? If not, why not?
525. Do you believe there are costs described above that would not likely result from the proposed amendments to Regulation ATS? Why or why not? Please support your arguments.
526. Do you believe that the proposing release appropriately describes the potential effects of the proposed amendments to Regulation
527. Do you believe that there are alternative mechanisms for achieving the Commission's goal of improving transparency of NMS Stock ATS's trading operations and regulatory oversight while promoting competition and capital formation? If so, what are such mechanisms? Please explain in detail.
528. Do you believe that market participants would change their behavior in response to the proposed amendments to Regulation ATS in any way? Why or why not? If so, which market participants would change their behavior and how? If not, why not? What would be the benefits and costs of these changes? How would these changes affect efficiency, competition, and capital formation? How would these changes affect market quality and market efficiency? Please support your arguments.
529. Do you believe there are benefits that may arise if the Commission were to apply proposed Rule 304, in whole or in part, to fixed income ATSs? If so, what are such benefits? Please explain in detail.
530. Do you believe there are costs that may arise if the Commission were to apply proposed Rule 304, in whole or in part, to fixed income ATSs? If so, what are such costs? Please explain in detail.
531. Do you believe that the proposed amendments could result in NMS Stock ATSs selecting to trade fixed income securities instead of NMS stocks, because, under the proposed amendments, Rule 304 would not apply to fixed income securities? Please explain in detail.
532. Do you believe that if the Commission were to apply proposed Rule 304 to fixed income ATSs, this could alter the nature of competition in the market for order execution services for fixed income securities? Why or why not? Please support your arguments.
533. Do you believe that if the Commission were to apply proposed Rule 304 to fixed income ATSs, this could promote greater efficiency, competition, and capital formation relative to the current proposal? If so, please explain in detail.
534. Do you believe there are benefits that may arise if the Commission should adopt amendments to Regulation ATS to remove the exemption under Rule 301(a)(4)(ii)(A) of Regulation ATS for ATSs whose trading activity is solely in government securities? If so, what are such benefits? Please explain in detail.
535. Do you believe that there are benefits that may arise if the Commission enhances the transparency requirements applicable to ATSs that effect transactions solely in government securities? If so, what are such benefits? Please explain in detail.
536. Do you believe there are costs that may arise if the Commission adopted amendments to Regulation ATS to remove the exemption under Rule 301(a)(4)(ii)(A) of Regulation ATS for ATSs whose trading activity is solely in government securities? If so, what are such costs? Please explain in detail.
537. Do you believe that there are costs that may arise if the Commission were to apply Rule 304 to ATSs that effect transactions solely in government securities? If so, what are such costs? Please explain in detail.
538. Do you believe that the proposed amendments could result in ATSs selecting to solely trade government securities instead of NMS stocks, because, under the proposal, Rule 304 would not apply to government securities? Please explain in detail.
539. Do you believe that if the Commission were to apply Rule 304 to ATSs that solely trade government securities, this could alter the nature of competition in the market for order execution services for government securities? Why or why not? Please support your arguments.
540. Do you believe that if the Commission were to apply proposed Rule 304 to ATSs that solely trade government securities, this could promote greater efficiency, competition, and capital formation relative to the current proposal? If so, please explain in detail.
541. Do you believe that requiring NMS Stock ATSs to do something more to ensure compliance with proposed Rule 304 than the certification required under FINRA Rule 3130 would have effects on regulatory oversight and investor protection? If so, please explain in detail.
542. Do some NMS Stock ATSs currently disclose aggregate platform-wide order flow and execution statistics regarding the NMS Stock ATS that are not otherwise required disclosures under Exchange Act Rule 605 of Regulation NMS to one or more subscribers by the NMS Stock ATS? If so, what order flow and execution statistics are provided? How widely disseminated is the information? To what extent do the NMS Stock ATSs disclose how they calculate the statistics? Please explain in detail.
543. Do you believe that there are benefits to market participants from having NMS Stock ATSs publicly disclose aggregate platform-wide order flow and execution statistics regarding the NMS Stock ATS that are not otherwise required disclosures under Exchange Act Rule 605 of Regulation NMS but still published or otherwise provided to one or more subscribers by the NMS Stock ATS, and from having NMS Stock ATSs describe how those statistics are calculated? If so, please explain in detail. Do you believe that there are costs to NMS Stock ATSs from having them publicly disclose those market quality statistics and describe how those statistics are calculated? If so, please explain in detail.
544. Do you believe that there are benefits to market participants if the Commission were to require NMS Stock ATSs to provide disclosure about their governance structure, compliance programs and controls to comply with Regulation ATS? If so, please explain in detail.
545. Do you believe that there are costs to NMS Stock ATSs if the Commission were to require them to provide disclosure about their governance structure, compliance programs and controls to comply with Regulation ATS? If so, please explain in detail.
546. Should proposed Form ATS–N be submitted or made publicly available on EDGAR instead of through the EFFS system and the Commission's Web site? What would be the advantages to the public or to NMS Stock ATSs of access through EDGAR instead of the Commission's proposed process?
547. Should some or all of the information in proposed Form ATS–N be submitted in a particular financial reporting language such as the FIX Protocol, eXtensible Business Reporting Language (XBRL), or some other open standard that is widely available to the public and at no cost? Should the Commission create a new taxonomy for submitting the information in proposed Form ATS–N?
548. Should the Commission require that some or all of the information in proposed Form ATS–N be tagged using standard electronic definitions of a particular taxonomy, and what would be the additional compliance costs associated with tagging the information?
549. Would requiring any of the information in the narrative responses to be submitted in a tagged format enhance the public's use of the data beyond the Commission's proposal? If so, how?
550. Could a format other than the one proposed to be accepted by the EFFS system reduce the burden on NMS Stock ATSs in filing the required disclosures with the Commission? For example, could a single machine-readable PDF reduce the filing burden on NMS Stock ATSs? If so, please identify the alternative format and the reduced filing burdens associated with it.
551. Should proposed Form ATS–N be structured in a more granular detail, and if so, how? In addition, how would the more granular detail enhance the public's use of the data beyond the Commission's proposal? What would be the costs of providing more granular detail?
552. Would the public's usability of the data be enhanced if it were structured in another format? If so, please identify the other format and describe how the public's use of the data would be enhanced by the other format. If possible, discuss factors about the other format such as how commonly available it is, whether it is viewer-independent, whether it is an open standard, how it has been adopted internationally and in other regulatory contexts, and how it supports document attachments or references as well as narrative and numeric data.
553. Do you believe that the Commission articulated all reasonable alternatives for the proposed amendments to Regulation ATS? If not, please provide additional alternatives and how their costs and benefits, as well as their potential impacts on the promotion of efficiency, competition, and capital formation, would compare to the proposed amendments.
554. Do you believe that the Commission has reasonably described the costs and benefits for the alternatives described above? If not, please provide more accurate descriptions of costs and benefits, including any data or statistics that support those costs and benefits.
555. Do you believe that the Commission has reasonably described the potential impacts on the promotion of efficiency, competition, and capital formation of the alternatives described above relative to the proposed amendments? If not, please explain in detail which impacts for which alternatives the Commission has not reasonably described, and support your arguments with any applicable data or statistics.
556. The Commission generally requests comment on the competitive or anticompetitive effects, as well as the efficiency and capital formation effects, of the proposed amendments to Regulation ATS on market participants if the proposed rules are adopted as proposed. Commenters should provide analysis and empirical data to support their views on the competitive or anticompetitive effects, as well as the efficiency and capital formation effects, of the proposed amendments to Regulation ATS.
557. The Commission generally requests comment on whether the benefits of the proposed amendments to Regulation ATS justify the costs. Please be specific and provide details. Commenters should provide analysis and empirical data to support their views on the benefits and costs of the proposed amendments to Regulation ATS.
558. Do you believe that the Commission has solicited the right set of information on proposed Form ATS–N, which will be made available to the public? Is there any other information the Commission should ask NMS Stock ATSs to provide on Form ATS–N? If so, please provide details.
For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996,
Section 3(a) of the Regulatory Flexibility Act of 1980
All ATSs, including NMS Stock ATSs, would continue to have to register as broker-dealers.
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.
Pursuant to Exchange Act, 15 U.S.C. 78a
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 to be amended as follows:
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, 78
15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2), 78i(a), 78j, 78k–1(c), 78
(k) NMS Stock ATS means an alternative trading system, as defined in § 242.300(a), that facilitates transactions in NMS stocks, as defined in § 242.300(g).
The addition reads as follows:
(b) * * *
(2) * * *
(viii) An alternative trading system that is an NMS Stock ATS shall file the reports and amendments required by § 242.304, and shall not be subject to the requirements of paragraph (b)(2) of this section. An alternative trading system that effects transactions in both NMS stocks and non-NMS stocks shall be subject to the requirements of § 242.304 of this chapter with respect to NMS stocks and paragraph (b)(2) of this section with respect to non-NMS stocks.
The addition reads as follows:
(a) * * *
(1) * * *
(v) At least one copy of the written safeguards and written procedures to protect subscribers' confidential trading information and the written oversight procedures created in the course of complying with paragraph (b)(10) of § 242.301.
(a)
(1)
(ii)
(
(
(B) The Commission will declare a Form ATS–N filed by an NMS Stock ATS that was not operating as of [effective date of the final rule] effective or ineffective no later than 120 calendar days from filing with the Commission. The Commission may extend the Form ATS–N review period for:
(
(
(iii)
(iv)
(2)
(A) At least 30 calendar days prior to the date of implementation of a material change to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on Form ATS–N;
(B) Within 30 calendar days after the end of each calendar quarter to correct any other information that has become inaccurate for any reason and has not been previously reported to the Commission as a Form ATS–N Amendment; or
(C) Promptly, to correct information in any previous disclosure on Form ATS–N, after discovery that any information filed under paragraphs (a)(1)(i) or (a)(2)(i)(A) or (B) of this section was inaccurate or incomplete when filed.
(ii)
(3)
(4)
(ii) If an NMS Stock ATS's exemption is suspended or revoked pursuant to paragraph (a)(4)(i) of this section, the NMS Stock ATS shall be prohibited from operating pursuant to the exemption from the definition an “exchange” pursuant to § 240.3a1–1(a)(2) of this chapter. If an NMS Stock ATS's exemption is limited pursuant to paragraph (a)(4)(i) of this section, the NMS Stock ATS shall be prohibited from operating in a manner otherwise inconsistent with the terms and conditions of the Commission order.
(b)
(2) The Commission would make public via posting on the Commission's Web site, each:
(i) Order of effectiveness of a Form ATS–N;
(ii) Order of ineffectiveness of a Form ATS–N;
(iii) Effective Form ATS–N;
(iv) Filed Form ATS–N Amendment;
(v) Order of ineffectiveness of a Form ATS–N Amendment;
(vi) Notice of cessation; and
(vii) Order suspending, limiting, or revoking the exemption from the definition of an “exchange” pursuant to § 240.3a1–1(a)(2) of this chapter.
(3) Each NMS Stock ATS shall make public via posting on its Web site a direct URL hyperlink to the Commission's Web site that contains the documents enumerated in paragraph (b)(2) of this section.
(c)
(2) Any report required to be filed with the Commission under this section shall be filed electronically on Form ATS–N, and include all information as prescribed in Form ATS–N and the instructions thereto and contain an electronic signature. The signatory to an electronically filed Form ATS–N shall manually sign a signature page or document, in the manner prescribed by Form ATS–N, authenticating, acknowledging, or otherwise adopting his or her signature that appears in typed form within the electronic filing. Such document shall be executed before or at the time Form ATS–N is electronically filed and shall be retained by the NMS Stock ATS in accordance with § 242.303.
15 U.S.C. 78a
This form shall be used by every NMS Stock ATS to file required reports under § 242.304(a) of this chapter.
The text of Form ATS–N will not appear in the Code of Federal Regulations.
• Form ATS–N is a public reporting form that is designed to provide the public and the Commission with information about the operations of the NMS Stock ATS and the activities of its broker-dealer operator and its affiliates. Form ATS–N is to be used by an NMS Stock ATS to qualify for the exemption from the definition of an “exchange” pursuant to Exchange Act Rule 3a1–1(a)(2), for which no other form is authorized or prescribed.
• An NMS Stock ATS must respond to each item, as applicable, in detail and disclose information that is accurate, current, and complete. An NMS Stock ATS must provide all the information required by the form, including the exhibits, and must present the information in a clear and comprehensible manner. A filing that is incomplete or similarly deficient may be returned to the NMS Stock ATS. Any filing so returned shall for all purposes be deemed not to have been filed with the Commission.
• A separate Form ATS–N is required for each NMS Stock ATS operated by the same broker-dealer operator.
• Form ATS–N: Prior to commencing operations, an NMS Stock ATS shall file a Form ATS–N and the Form ATS–N must be declared effective by the Commission. If the NMS Stock ATS is operating pursuant to a previously filed initial operation report on Form ATS as of the effective date of proposed Rule 304, such NMS Stock ATS shall file with the Commission a Form ATS–N no later than 120 calendar days after such effective date.
• Form ATS–N Amendment: An NMS Stock ATS shall amend an effective Form ATS–N: (1) at least 30 calendar days prior to the date of implementation of a material change to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on Form ATS–N; (2) within 30 calendar days after the end of each calendar quarter to correct any other information that has become inaccurate for any reason and has not been previously reported to the Commission as a Form ATS–N Amendment; or (3) promptly, to correct information in any previous disclosure on Form ATS–N, after discovery that any information filed under paragraphs (a)(1)(i) or (a)(2)(i)(A) or (B) of proposed Rule 304 was inaccurate or incomplete when filed.
• Notice of Cessation: An NMS Stock ATS shall notice its cessation of operations on Form ATS–N at least 10 business days before the date the NMS Stock ATS will cease to operate as an NMS Stock ATS.
• Withdrawal: If an NMS Stock ATS determines to withdraw a Form ATS–N, it must select the appropriate check box and provide the correct file number to withdraw the submission.
• Any report required to be submitted pursuant to Rule 304 of Regulation ATS shall be filed in an electronic format through the electronic form filing system (“EFFS”), a secure Web site operated by the Securities and Exchange Commission (“Commission”). Documents filed through the EFFS system must be in a text-searchable format without the use of optical character recognition.
• A duly authorized individual of the NMS Stock ATS shall electronically sign the completed Form ATS–N. In addition, a duly authorized individual of the NMS Stock ATS shall manually sign one copy of the completed Form ATS–N, and the manually signed signature page shall be preserved pursuant to the requirements of proposed Rule 303 of Regulation ATS.
• The individual listed on the NMS Stock ATS's response to Part V of Form ATS–N as the contact representative must be authorized to receive all incoming communications and be responsible for disseminating that information, as necessary, within the NMS Stock ATS.
• A copy of this Form ATS–N must be retained by the NMS Stock ATS and made available for inspection upon request of the SEC.
• Form ATS–N requires an NMS Stock ATS to provide the Commission with certain information regarding: (1) the operation of the NMS Stock ATS and the activities of the broker-dealer operator and its affiliates; (2) material and other changes to the operation of the NMS Stock ATS; and (3) notice upon ceasing operation of the alternative trading system. Form ATS–N is intended to provide the public with information about the operations of the NMS Stock ATS and the activities of the broker-dealer operator and its affiliates so that they may make an informed decision as to whether to participate on the NMS Stock ATS. In addition, the Form ATS–N is intended to provide the Commission with information to permit it to carry out its market oversight and investor protection functions.
• The information provided on Form ATS–N will help enable the Commission to determine whether an NMS Stock ATS is in compliance with the federal securities laws and the rules or regulations thereunder, including Regulation ATS. An NMS Stock ATS must: (1) file Form ATS–N prior to commencing operations; (2) file a Form ATS–N Amendment at least 30 calendar days prior to the date of implementation of a material change to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on Form ATS–N; (3) file a Form ATS–N Amendment within 30 calendar days after the end of each calendar quarter to correct any other information that has become inaccurate for any reason and has not been previously reported to the Commission on Form ATS–N; (4) file a Form ATS–N Amendment promptly to correct information in any previous disclosure on a Form ATS–N or a Form ATS–N Amendment after discovery that any information filed was inaccurate or incomplete when filed; and (5) notice its cessation of operations at least 10 business days before the date the NMS Stock ATS ceases to operate as an NMS Stock ATS.
• This collection of information will be reviewed by the Office of Management and Budget in accordance with the clearance requirements of 44 U.S.C. 3507. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The Commission estimates that that an NMS Stock ATS will spend approximately 141.3 hours completing the Form ATS–N, approximately 9.5 hours preparing each amendment to Form ATS–N, and approximately 2 hours preparing a notice of cessation on Form ATS–N. Any member of the public may direct to the Commission any comments concerning the accuracy of this burden estimate and any suggestions for reducing this burden.
The following terms are defined for purposes of Form ATS–N.
• AFFILIATE: Shall mean, 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.
• ALTERNATIVE TRADING SYSTEM: Shall mean any organization,
• BROKER–DEALER OPERATOR: Shall mean the registered broker-dealer of the NMS Stock ATS pursuant to 17 CFR 242.301(b)(1).
• CONTROL: Shall 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.
• NMS SECURITY: Shall mean any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in listed options. 17 CFR 242.600(b)(46).
• NMS STOCK: Shall mean any NMS security other than an option. 17 CFR 242.600(b)(47).
• NMS STOCK ATS: Shall mean an alternative trading system, as defined in Rule 300(a) under the Exchange Act, that facilitates transactions in NMS stocks, as defined in Rule 300(g) under the Exchange Act. [Proposed] 17 CFR 242.300(k).
• ORDER: Shall mean any firm indication of a willingness to buy or sell a security as either principal or agent, including any bid or offer quotation, market order, limit order or other priced order. 17 CFR 242.300(e).
• PERSON: Shall mean a natural person or a company. 15 U.S.C. 80a–2(a)(28).
• SUBSCRIBER: Shall mean any person that has entered into a contractual agreement with an alternative trading system to access an alternative trading system for the purpose of effecting transactions in securities, or for submitting, disseminating or displaying orders on such alternative trading system, including a customer, member, user, or participant in an alternative trading system. A subscriber, however, shall not include a national securities exchange or association. 17 CFR 242.300(b).
By the Commission.