Regulation of NMS Stock Alternative Trading Systems

SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 240, 242, 249 [Release No. 34–76474; File No. S7–23–15] RIN 3235–AL66 Regulation of NMS Stock Alternative Trading Systems AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: 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. DATES: Comments should be received on or before February 26, 2016. ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments

• Use the Commission’s Internet
  comment form (http://www.sec.gov/ rules/proposed); or
• Send an email to rule-comments@
  sec.gov. Please include File Number S7– 23–15 on the subject line; or
• Use the Federal eRulemaking Portal
  (http://www.regulations.gov). Follow the instructions for submitting comments. Paper Comments
• Send paper comments to Brent J.
  Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number S7–23–15. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/proposed.shtml). Comments will also be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. Studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any 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 www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT:
  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. SUPPLEMENTARY INFORMATION: 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.
  Table of Contents
  I. Introduction
  II. Current ATS Regulatory Framework
  A. Exemption From National Securities Exchange Registration B. Conditions to the ATS Exemption; Confidential Notice Regime
  III. Role of ATSs in the Current Equity
  Market Structure
  A. Significant Source of Liquidity for NMS Stocks B. Heightened Operational Complexity and Sophistication of NMS Stock ATSs
  C. Lack of Operational Transparency for
  NMS Stock ATSs
  D. Prior Comments on Operational Transparency and Regulatory Framework for NMS Stock ATSs
  IV. Proposed Amendments to Regulation
  ATS and Rule 3a1–1 To Heighten Regulatory Requirements for ATSs That Transact in NMS Stocks A. Proposed Definition of NMS Stock ATS B. Rule 3a1–1(a)(2): Proposed Amendments to the Exemption From the Definition of ‘‘Exchange’’ for NMS Stock ATSs
  C. Proposed Rule 304: Enhanced Filing
  Requirements for NMS Stock ATSs

1. Application of Existing Requirements to
   NMS Stock ATSs

1 15 U.S.C. 78k–1(a)(2).
2Public Law 94–29, 89 Stat. 97 (1975). 3 15 U.S.C. 78k–1(a)(1). 4Section 11A(a)(1)(B) of the Exchange Act, 15 U.S.C. 78k–1(a)(1)(B). 5Section 11A(a)(1)(C)(i) of the Exchange Act, 15 U.S.C. 78k–1(a)(1)(C)(i). 6Section 11A(a)(1)(C)(iv) of the Exchange Act, 15 U.S.C. 78k–1(a)(1)(C)(iv).
2. Rule 301(b)(2) and Form ATS; ATSs
That Trade in Non-NMS Stocks
3. Proposed Rule 304(a)(1)(i) and (ii): Filing
and Review of Form ATS–N
4. Proposed Rule 304(a)(1)(iii):
Declarations of Effectiveness or Ineffectiveness of Form ATS–N
5. Proposed Rule 304(a)(1)(iv): Orders
Regarding Form ATS–N Effectiveness
6. Proposed Rule 304(a)(2): Form ATS–N
Amendments
7. Proposed Rule 304(a)(3): Notice of
Cessation
8. Proposed Rule 304(a)(4): Suspension,
Limitation, or Revocation of the Exemption From the Definition of Exchange D. Rule 304(b): Public Disclosure of Form ATS–N and Related Commission Orders E. Rule 304(c)(1) and (2): Proposed Form ATS–N Requirements
V. Proposed Form ATS–N: Submission Type
and Part I of Form ATS–N
VI. Part II of Proposed Form ATS–N: Broker￾Dealer Operator Registration Information
VII. Part III of Proposed Form ATS–N:
Activities of the Broker-Dealer Operator and Its Affiliates A. The Relationship Between the Broker￾Dealer Operator’s Operation of the NMS Stock ATS and Its Other Operations

1. Background
2. Potential Conflicts of Interest for the
   Broker-Dealer Operator or Its Affiliates B. Disclosures Required Under Part III of Proposed Form ATS–N
3. Proposed Definitions of ‘‘Affiliate’’ and
   ‘‘Control’’
4. Non-ATS Trading Centers of the Broker￾Dealer Operator
5. Multiple NMS Stock ATS Operations of
   the Broker-Dealer Operator
6. Products or Services Offered to
   Subscribers by the Broker-Dealer Operator
7. Broker-Dealer Operator Arrangements
   With Unaffiliated Trading Centers
8. Trading on the NMS Stock ATS by the
   Broker-Dealer Operator and Its Affiliates
9. Broker-Dealer Operator Smart Order
   Routers (or Similar Functionalities) and Algorithms
10. Shared Employees of NMS Stock ATS
11. Service Providers to the NMS Stock ATS
12. Differences in Availability of Services,
    Functionality, or Procedures
13. Confidential Treatment of Trading
    Information
    VIII. Part IV of Proposed Form ATS–N: The
    Manner of Operations of the NMS Stock ATS A. Subscribers B. Hours of Operations
    C. Types of Orders
    D. Connectivity, Order Entry, and Co￾Location E. Segmentation of Order Flow and Notice About Segmentation F. Display of Order and Trading Interest G. Trading Services H. Suspension of Trading, System Disruption or Malfunction
    I. Opening, Reopening, and Closing
    Processes, and After Hours Procedures J. Outbound Routing K. Market Data
    L. Fees
    M. Trade Reporting, Clearance and Settlement N. Order Display and Execution Access O. Fair Access P. Market Quality Statistics Published or Provided by the NMS Stock ATS to Subscribers
    IX. Proposed Amendment to Rule 301(b)(10):
    Written Safeguards and Written Procedures To Protect Confidential Trading Information
    X. Recordkeeping Requirements
    XI. General Request for Comment
    XII. Paperwork Reduction Act
    A. Summary of Collection of Information
14. Requirements Relating to Rule 301(b)(10)
    of Regulation ATS
15. Requirements Relating to Proposed
    Rules 301(b)(2)(viii) and 304 of Regulation ATS, Including Proposed Form ATS–N B. Proposed Use of Information
16. Proposed Amendments to Rules
    301(b)(10) of Regulation ATS
17. Proposed Rules 301(b)(2)(viii), 304 of
    Regulation ATS, Including Proposed Form ATS–N, and 301(b)(9)
    C. Respondents
    D. Total Initial and Annual Reporting and Recordkeeping Burdens
18. Proposed Rules 301(b)(10) and
    303(a)(1)(v) of Regulation ATS
19. Proposed Rules 301(b)(2)(viii) and 304 of
    Regulation ATS, Including Proposed Form ATS–N E. Collection of Information Is Mandatory F. Confidentiality of Responses to Collection of Information G. Retention Period for Recordkeeping Requirements H. Request for Comments
    XIII. Economic Analysis
    A. Background
    B. Baseline
20. Current NMS Stock ATSs
21. Current Reporting Requirements for
    NMS Stock ATSs
22. Lack of Public Disclosure of NMS Stock
    ATS Operations and the Activities of the Broker-Dealer Operator and the Broker￾Dealer Operator’s Affiliates
23. NMS Stock ATS Treatment of Subscriber
    Confidential Trading Information
24. Current State of Competition Between
    NMS Stock ATSs and Registered National Securities Exchanges
25. Competition Among NMS Stock ATSs
26. Competition Between Broker-Dealers
    That Operate NMS Stock ATSs and Broker-Dealers That Do Not Operate NMS Stock ATSs
27. Effect of NMS Stock ATSs on the
    Current Market for NMS Stock Execution Services
    C. Economic Effects and Effects on
    Efficiency, Competition, and Capital Formation
28. Costs and Benefits of Proposed
    Enhanced Filing Requirements
29. Costs and Benefits of Public Disclosures
    of Proposed Form ATS–N
30. Written Safeguards and Written
    Procedures To Protect Subscribers’ Confidential Trading Information, and Proposed Recordkeeping Requirements D. Alternatives
31. Require NMS Stock ATSs To Publicly
    Disclose Current Form ATS
32. Require Proposed Form ATS–N But
    Deem Information Confidential
33. Require NMS Stock ATSs To Publicly
    Disclose Proposed Form ATS–N But Not Declare Proposed Form ATS–N Effective or Ineffective
34. Initiate Differing Levels of Public
    Disclosure Depending on NMS Stock ATS Characteristics
35. Require NMS Stock ATSs To Register as
    National Securities Exchanges and Become SROs
36. Discontinue Quarterly Volume Reports
    on Form ATS–R
37. Require NMS Stock ATSs To Operate as
    Limited Purpose Entities
38. Lower the Fair Access Threshold for
    NMS Stock ATSs
39. Apply Proposed Rule 304 to ATSs That
    Trade Fixed Income Securities and ATSs that Solely Trade Government Securities
    XIV. Consideration of Impact on the
    Economy
    XV. Regulatory Flexibility Act Certification
    XVI. Statutory Authority and Text of
    Proposed Amendments
    I. Introduction
    Section 11A(a)(2) of the Exchange
    Act,1 enacted as part of the Securities Acts Amendments of 1975 (‘‘1975 Amendments’’),2 directs the Commission, having due regard for the public interest, the protection of investors, and the maintenance of fair and orderly markets, to use its authority under the Exchange Act to facilitate the establishment of a national market system for securities in accordance with the Congressional findings and objectives set forth in Section 11A(a)(1) of the Exchange Act.3 Among the findings and objectives in Section 11A(a)(1) are that ‘‘[n]ew data processing and communications techniques create the opportunity for more efficient and effective market operations’’ 4 and ‘‘[i]t is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure . . . the economically efficient execution of securities transactions’’ 5 and the ‘‘practicability of brokers executing investors’ orders in the best markets.’’ 6 Congress also found, as noted by the Commission when it adopted Regulation ATS, that it was in the public interest to assure ‘‘fair

7See Securities Exchange Act Release No. 40760 (December 8, 1998), 63 FR 70844 (December 22,
1998) (Regulation of Exchanges and Alternative
Trading Systems, hereinafter ‘‘Regulation ATS Adopting Release’’) at 70858 n.113 and accompanying text (citing Section 11A(a)(1)(C)(ii) of the Exchange Act, 15 U.S.C. 78k–1(a)(1)(C)(ii)). The Commission also noted that a fundamental goal of a national market system was to ‘‘achieve a market characterized by economically efficient executions, fair competition, [and the] broad dissemination of basic market information.’’ See id. at 70858 n.113 (quoting S. Rep. No. 75, 94th Cong., 1st Sess. 8 (1975) at 101). 8See id. at 70858 n.110 and accompanying text (citing S. Rep. No. 75, 94th Cong., 1st Sess. 8 (1975) at 8–9). The Commission also noted that Congress explicitly rejected mandating specific components of a national market system because of uncertainty as to how technological and economic changes would affect the securities market. See id. at 70858 n.109 and accompanying text (citing S. Rep. No. 75, 94th Cong., 1st Sess. 8 (1975) at 8–9. 9See generally Regulation ATS Adopting Release, supra note 7. 10See id. at 70845. 11See id. at 70848. 12See id. at 70845. 13See id. at 70845–46 (noting that alternative trading systems prior to the adoption of Regulation ATS were private markets, which were open to only chosen subscribers, and were regulated as broker￾dealers and not like registered national securities exchanges). 14See id. at 70847. 15 17 CFR 240.3b–16. 16See Regulation ATS Adopting Release, supra note 7, at 70846, 70874. The Commission also notes that when it adopted Regulation ATS, it stated its belief that the Commission’s regulation of markets should both accommodate traditional market structures and provide sufficient flexibility to ensure that new markets promote fairness, efficiency, and transparency. See Regulation ATS Adopting Release, supra note 7, at 70846. 17See Securities Exchange Act Release No. 73639 (November 19, 2014), 79 FR 72251 (December 5, 2014), 72262 (adopting final rules for systems compliance and integrity) (‘‘SCI Adopting Release’’) at 72262 n.105 and n.106 and accompanying text (discussing the increased significance of NMS Stock ATSs). 18See infra notes 116–122 and accompanying text. 19The Commission notes that when the Commission adopted Regulation NMS, it also amended Regulation ATS to lower the threshold that triggers the Regulation ATS fair access requirements from 20% of the average daily volume in a security to 5%. See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37550 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). See also infra notes 92–95 and accompanying text (discussing the fair access requirements of Regulation ATS). 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. See Regulation ATS Adopting Release, supra note 7, at 70873 n.245. The Commission also stated its intent to monitor the impact and effect of the fair access rules, as well as the practices of ATSs, and consider changing the rules if necessary to prevent anticompetitive behavior and ensure that qualified investors have access to significant sources of liquidity in the securities markets. See id. See also infra note 107 and accompanying text (discussing amendments to Regulation ATS in connection with the adoption of Regulation SCI). 20 15 U.S.C. 78f. 21Section 3(a)(26) of the Exchange Act defines a self-regulatory organization (‘‘SRO’’) as any national securities exchange, registered securities association, registered clearing agency, or (with limitations) the Municipal Securities Rulemaking Board. See 15 U.S.C. 78c(a)(26). competition . . . between exchange markets and markets other than exchange markets.’’ 7 Congress recognized that the securities markets dynamically change and, accordingly, granted the Commission broad authority to oversee the implementation, operation, and regulation of the national market system in accordance with Congressional goals and objectives.8 In December 1998, the Commission adopted Regulation ATS to advance the goals of the national market system and establish a regulatory framework for ATSs.9 At that time, there had been a surge in a variety of alternative trading systems that traded NMS stocks and furnished services traditionally provided by national securities exchanges,10 such as matching counterparties’ orders, executing trades, operating limit order books, and facilitating active price discovery.11 The Commission observed at the time that, among other things, activity on ATSs was not fully disclosed, or accessible, to investors, and that these systems had no obligation to provide investors a fair opportunity to participate on the systems or to treat their participants fairly.12 The Commission noted in the Regulation ATS Adopting Release that while ATSs at that time operated in a manner similar to registered national securities exchanges, each type of trading center was subject to different regulatory regimes, and that these differences created disparities that affected investor protection and the operation of the markets as a whole, calling into question the fairness of the then-current regulatory requirements.13 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,14 by giving securities markets a choice to register as national securities exchanges, or to register as broker-dealers and comply with Regulation ATS. Regulation ATS was designed to permit market centers meeting the
Commission’s updated interpretation of the definition of ‘‘exchange,’’ as set forth in Exchange Act Rule 3b–16,15 to select the regulatory framework more applicable to their business models. Among other things, Regulation ATS was intended to better integrate ATSs into the national market system, and ensure that market participants have fair access to ATSs with significant volume.16 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.17 The growth in trading centers and trading activity has been fueled primarily by advances in technology for generating, routing, and executing orders. These technologies have markedly improved the speed, capacity, and sophistication of the trading mechanisms and processes that are available to market participants. Today, ATSs that trade NMS stocks have become an integral part of the national market system, as the number of these ATSs, and the volume of NMS stocks transacted on them, has increased significantly since the adoption of Regulation ATS.18 Despite the emergence of ATSs as a significant source of liquidity in NMS stocks among today’s markets, and the fact that ATSs compete with, and operate with almost the same complexity and sophistication as, registered national securities exchanges, the regulatory requirements applicable to ATSs have remained, for the most part, the same since Regulation ATS was adopted.19 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,20 and undertake self-regulatory 21 obligations over their members. Before a national securities exchange may commence operations, the Commission must approve the national securities exchange’s application for registration filed on Form 1. Section 6(b) of the Exchange Act requires, among other things, that the national securities exchange be so organized and have the capacity to carry out the purposes of the Exchange Act and to comply and enforce compliance by its members, and persons associated with its members, with the federal

22See Section 6(b)(1) of the Exchange Act, 15 U.S.C. 78f(b)(1). The Commission must also find that the national securities exchange has rules that meet certain criteria. See generally Exchange Act
Section 6(b)(2) through (10), 15 U.S.C. 78f(b)(2)
through (10).
23See generally Section 19(b) of the Exchange Act, 15 U.S.C. 78s(b). 24Section 15(b)(8) of the Exchange Act requires a broker or dealer to become a member of a registered national securities association, unless it effects transactions in securities solely on an exchange of which it is a member. 15 U.S.C. 78o(b)(8). 25See Regulation ATS Adopting Release, supra note 7, at 70863 and infra Section II.B (discussing the current requirements of Regulation ATS applicable to all ATSs). 26See 17 CFR 242.301(b)(2)(vii). 27See infra Table 1 ‘‘NMS Stock ATSs Ranked by Dollar Trading Volume—March 30, 2015 to June 26, 2015.’’ Total dollar trading volume on all exchanges and off-exchange trading in the second quarter of 2015 was approximately $16.3 trillion and approximately 397 billion shares. See id. 28Market participants may include many different types of persons seeking to transact in NMS stocks, including broker-dealers and institutional or retail investors. 29The Commission is proposing to define ‘‘affiliate’’ for purposes of proposed Form ATS–N as described and discussed further below. See infra note 378 and accompanying text. See also Instruction G to proposed Form ATS–N. 30Throughout this release, broker-dealer operators of NMS Stock ATSs that also provide brokerage or dealing services in addition to operating an NMS Stock ATS are referred to as ‘‘multi-service broker-dealers’’. 31See infra Section VII.A (discussing the relationship between NMS Stock ATSs and the other business functions of their broker-dealer operators). The Commission notes that, although it was concerned at the time of adoption of Regulation ATS about conflicts of interest that may be present when the broker-dealer operator of an ATS also performs other trading functions (see infra notes 530–532 and accompanying text discussing the Commission’s concerns regarding the potential for misuse of confidential trading information that led to the adoption of Rule 301(b)(10)), the business structure of broker-dealers that operate NMS Stock ATSs has changed since 1998. 32See infra note 375 and accompanying text. 33See, e.g., infra notes 187 and 189 and accompanying text (discussing a comment by the Consumer Federation of America about how more detailed information about ATS operations would Continued securities laws and the rules of the exchange.22 Both a national securities exchange’s registration application and the Commission’s order approving the application are public. After registering, a national securities exchange must file with the Commission any proposed changes to its rules.23 The initial application on Form 1, amendments thereto, and filings for proposed rule changes, in combination, publicly disclose important information about national securities exchanges, such as trading services and fees. As an SRO, a national securities exchange enjoys certain unique benefits, such as limited immunity from private liability with respect to its regulatory functions and the ability to receive
market data revenue, among others. 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’’).24 Unlike national securities exchanges, ATSs are not approved by the Commission, but are instead required only to provide notice of their operations by filing a Form ATS with the Commission 20 days before commencing operations as an ATS.25 Form ATS is ‘‘deemed confidential when filed,’’ 26 and it only requires an ATS to disclose limited aspects of the ATS’s operations. ATSs are neither required to file proposed rule changes with the Commission nor otherwise publicly disclose their trading services, operations, or fees. 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 27 and as noted, compete with, and operate with respect to trading in a manner similar to, registered national securities exchanges. Unlike registered national securities exchanges, however, there is limited public information available to market participants about the operations of ATSs, including how orders and other trading interest may interact, match, and execute on ATSs. The Commission is concerned that the differences between ATSs that trade NMS stocks and registered national securities exchanges with regard to operational transparency may be creating a competitive imbalance between two functionally similar trading centers that may trade the same security but are subject to different regulatory requirements. The Commission is also concerned that this difference in operational transparency disadvantages market participants by limiting their ability to adequately assess the relative merits of many trading centers.28 Specifically, the Commission is concerned that the lack of operational transparency around ATSs limits market participants’ ability to adequately discern how their orders interact, match, and execute on ATSs and to find the optimal market or markets for their orders. 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 29 in connection with the ATS. As discussed herein, an ATS must register as a broker-dealer pursuant to Rule 301(b)(1) of Regulation ATS. This broker-dealer operator, its affiliates, or both, however, may also conduct brokerage or dealing activities in
NMS stocks in addition to operating the ATS.30 Broker-dealer operators may also have affiliates that support the operations of the ATS or trade on it. The Commission notes that these multi￾service broker-dealers that engage in brokerage and dealing activities, in addition to the operation of their ATSs, have become more prevalent since the adoption of Regulation ATS and the other services multi-service broker￾dealers provide have become increasingly intertwined with the operation of their ATSs. Given the unique position that the broker-dealer operator and its affiliates occupy with regard to the operation of an ATS, potential conflicts of interest arise when the various business interests of the broker-dealer operator or its affiliates compete with the interests of market participants that access and trade on the ATS.31 Some of the recent settled actions against ATSs highlight this potential.32 As discussed further below, although the operations of most ATSs and their broker-dealer operators have become more closely connected, market participants receive limited information about the activities of the broker-dealer operator and its affiliates and the potential conflicts of interest that arise from these activities. 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.33

allow participants to assess whether it makes sense to trade on that venue, and a comment by Bloomberg Tradebook LLC that because buy-side representatives might not be customers of all ATSs, they could not assess order interaction that occurs across the market structure); and infra note 374 (citing recent enforcement actions settled by the Commission, many of which, such as the Liquidnet Settlement, the Pipeline Settlement, the UBS Settlement, and the ITG Settlement, included allegations that subscribers were fraudulently misled about the operations of certain ATSs). 34See generally Regulation ATS Adopting Release, supra note 7. 35See infra Sections XIII.B and C (analyzing the possible impact from the current lack of public disclosure of NMS Stock ATSs’ operations, as well as disparate levels of information available to market participants about NMS Stock ATS operations and the activities of their broker-dealer operators and their affiliates; the competitive environment between national securities exchanges and NMS Stock ATSs, between NMS Stock ATSs, and between broker-dealers that operate NMS Stock ATSs and broker-dealers that do not operate NMS Stock ATSs; and the anticipated costs and benefits of improving transparency). 36See, e.g., infra note 187 and accompanying text (noting that The Consumer Federation of America previously commented that Form ATS should require ATSs to provide ‘‘critical details about an ATS’s participants, segmentation, and fee structure’’ because the ‘‘information will allow market participants, regulators, and third party analysts to assess whether an ATS’s terms of access and service are such that it makes sense to trade on that venue’’). 37A broker-dealer’s duty of best execution derives from common law agency principles and fiduciary obligations, and is incorporated in SRO rules and, through judicial and Commission decisions, in the antifraud provisions of the federal securities laws. See Order Execution Obligations, Securities Exchange Act Release No. 37619A (Sept. 6, 1996), 61 FR 48290, 48322 (Sept. 12, 1996). See also Newton v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 270, 273 (3d Cir. 1998) (en banc), cert. denied, 525 U.S. 811 (1998) (finding that failure to satisfy the duty of best execution can constitute fraud because a broker-dealer, in agreeing to execute a customer’s order, makes an implied representation that it will execute it in a manner that maximizes the customer’s economic gain in the transaction, and stating that‘‘[T]he basis for the duty of best execution is the mutual understanding that the client is engaging in the trade—and retaining the services of the broker as his agent—solely for the purpose of maximizing his own economic benefit, and that the broker receives her compensation because she assists the client in reaching that goal.’’); Matter of Marc N. Geman, Securities Exchange Act Release No. 43963 (Feb. 14, 2001), aff’d, Geman v. SEC, 334 F.3d 1183 (10th Cir.
2003) (citing Newton, but deciding against finding
a violation of the duty of best execution based on the record). See also Payment for Order Flow, Securities Exchange Act Release No. 34902 (Oct. 27, 1994), 59 FR 55006, 55009 (Nov. 2, 1994). If the broker-dealer intends not to act in a manner that maximizes the customer’s economic gain when he accepts the order and does not disclose this to the customer, a trier of fact could find that the broker￾dealer’s implied representation was false. See Newton, 135 F.3d at 273–274. 38See Regulation NMS Adopting Release, supra note 19, at 37538. 39 Id. 40See, e.g., Consumer Federation of America letter, infra note 175, at 22, 37–38 (expressing support for requiring all ATSs to publicly disclose Form ATS ‘‘so that the public can see how these venues operate,’’ and opining that the Commission should ‘‘undertake an exhaustive investigation of the current order types, requiring exchanges and all ATSs . . . to disclose in easily understandable terms what their purpose is, how they are used in practice, who is using them, and why they are not discriminatory or resulting in undue benefit or harm to any traders’’); Citadel letter, infra note 214, at 4 (expressing the view that ‘‘dark pools should be subject to increased transparency,’’ and that ‘‘ATS operational information and filings should be publicly available’’); KOR Group letter, infra note 175, at 12 (opining that the fact that ‘‘ATS filings are hidden from the public while the burden is on SROs to file publicly . . . does not serve the public interest in any way’’ and that there ‘‘should not be any reasoned argument against’’ making Form ATS publicly available); Liquidnet letter #1, infra note 166, at D–5–6, –11 (stating that the Commission should require institutional brokers, including institutional ATSs, to disclose to their customers specific order handling practices, including identification of external venues to which the broker routes orders, the process for crossing orders with other orders, execution of orders as agent and principal, a detailed description of the operation and function of each ATS or trading desk operated by the broker, and a clear and detailed description of each algorithm and order type offered by the broker and expressing the view that Form ATS should be made publicly available). The Commission has long recognized that effective competition requires transparency and access across the national market system.34 The Commission preliminarily believes that the proposals discussed below could promote more efficient and effective market operations by providing more transparency to market participants about the operations of ATSs and the potential conflicts of interest of the controlling broker-dealer operator and its affiliates.35 The Commission preliminarily believes that the operational transparency rules being proposed today could increase competition among trading centers in regard to order routing and execution quality. For example, the proposed rules could reveal order interaction
procedures that may result in the differential treatment of some order types handled by an NMS Stock ATS. This improved visibility, in turn, could cause market participants to shift order flow to NMS Stock ATSs that provide better opportunities for executions. The Commission preliminarily believes that the proposal could facilitate comparisons among trading centers in NMS stocks and increase competition by informing market participants about the operations of NMS Stock ATSs. 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.36 The duty of best execution requires broker-dealers to execute customers’ trades at the most favorable terms reasonably available under the circumstances (i.e., at the best reasonably available price).37 The Commission has not viewed the duty of best execution as inconsistent with the automated routing of orders or requiring automated routing on an order-by-order basis to the market with the best quoted price at the time.38 Rather, the duty of best execution requires broker-dealers to periodically assess the quality of competing markets to assure that order flow is directed to the markets providing the most beneficial terms for their customer orders.39 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.40 The Commission preliminarily believes that additional information about how NMS Stock ATSs operate could aid these investors in evaluating the routing decisions of their brokers and understanding whether their broker routed their orders to a trading venue that best fits their needs. To illustrate this point, institutional investors would likely find it useful to know whether an NMS Stock ATS provides execution priority to customer order flow, uses strict price-time priority rules to rank and execute orders, or applies certain execution allocation methodologies for institutional orders. Such information could permit an institutional investor to compare NMS Stock ATSs against each other, as well as against national
securities exchanges, to determine which trading centers would best fit its needs. Additionally, there may be market participants, who may not currently subscribe to an NMS Stock ATS, that may wish to obtain information about how a particular NMS Stock ATS operates before sending orders to that trading venue. This proposal is primarily designed to provide market participants with greater transparency around the operations of

41See proposed Rule 304(a)(1)(i). See also infra
Section IV.C (discussing the proposed process for
Commission review of Form ATS–N and circumstances under which an NMS Stock ATS may not qualify for the exemption, as well as the benefits that the process should provide to market participants). 42See proposed Rule 304(a)(1)(iii). 43See proposed Rule 304(a)(1)(iv). 44See infra Section IV.C (discussing the proposed process for Commission review of amendments). See also proposed Rule 304(a)(2)(ii). NMS Stock ATSs and potential conflicts of interest that may arise involving the broker-dealer operator and its affiliates. The proposed rules would require public, detailed information to be disclosed about the activities of the broker-dealer operator and its affiliates in connection with the NMS Stock ATS, including: Their operation of non-ATS trading centers and other NMS Stock ATSs; the products and services offered to subscribers; any arrangements with unaffiliated trading centers; trading activities on the NMS Stock ATS of the broker-dealer operator or its affiliates; the use of smart order routers (‘‘SORs’’) (or similar functionality) and algorithms used to send or receive orders or other trading interest to or from the NMS Stock ATS; shared employees of the NMS Stock ATS and third parties used to operate the NMS Stock ATS; any differences in the availability of services, functionalities, or procedures to subscribers and the availability of those services, functionalities, or procedures to the broker-dealer operator or its affiliates; and the NMS Stock ATS’s safeguards and procedures to protect subscribers’ confidential trading information. Form ATS–N would also require detailed information about the operations of the NMS Stock ATS, including: Any eligibility requirements and any terms and conditions imposed for subscribers; the NMS Stock ATS’s hours of operation; the types of orders or other trading interest that can be entered on the NMS Stock ATS; any connectivity, order entry, and co￾location procedures or services; the segmentation of order flow (and notice given about segmentation); the display of order and other trading interest; trading services, including matching methodologies, order interaction rules, and order handling and execution procedures; procedures governing the suspension of trading and trading during a system disruption or malfunction; opening, re-opening, closing, and after hours processes or trading procedures; any outbound routing services; the NMS Stock ATS’s use of market data; fees, rebates, or other charges of the NMS Stock ATS; any trade reporting, clearance or settlement arrangements or procedures; order display and execution access and fair access information (if applicable); and market quality statistics published or provided to one or more subscribers. The Commission preliminarily believes that greater transparency in this regard would provide important information to market participants so they can evaluate whether submitting order flow to a particular NMS Stock ATS aligns with their trading or investment
objectives. Among other things, these enhanced, public disclosures also are designed to limit the potential that a broker-dealer operator of an NMS Stock ATS could provide certain subscribers with greater disclosure about the operations and system functionalities of the ATS than it provides to other market participants. 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.41 The proposed process would provide the Commission with an opportunity to review disclosures on Form ATS–N for compliance with the Form ATS–N requirements, Regulation ATS, and other applicable requirements of the federal securities laws and regulations. To qualify for the exemption from the Exchange Act definition of ‘‘exchange,’’ an NMS Stock ATS would be required to file with the Commission a Form ATS–N, in accordance with the instructions therein, and the Form ATS– N would need to be declared effective by the Commission. The Commission would 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.42 If the Commission declares a Form ATS–N ineffective, the NMS Stock ATS would be prohibited from operating as an NMS Stock ATS,43 but would not be prohibited from subsequently filing a new Form ATS–N. The Commission also preliminarily believes that proposing a process for the Commission to review and declare ineffective Form ATS–N Amendments, if it finds that such action is necessary or appropriate in the public interest and is consistent with the protection of investors, would aid the Commission’s ongoing oversight of NMS Stock ATSs.44 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

45See 17 CFR 240.3b–16.
46See Regulation ATS Adopting Release, supra note 7, at 70847. Pursuant to Section 3(a)(1) of the Exchange Act, the statutory definition of ‘‘exchange’’ means ‘‘any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange ...✖ 15 U.S.C. 78c(a)(1). 47See 15 U.S.C. 78e and 78f. A ‘‘national securities exchange’’ is an exchange registered as such under Section 6 of the Exchange Act. 48See 17 CFR 240.3b–16(a). 49See Regulation ATS Adopting Release, supra note 7, at 70852. 50See 17 CFR 240.3b–16(b). Rule 3b–16(b)(2) excludes systems that allow persons to enter orders for execution against the bids and offers of a single dealer if, as an incidental part of such activities, the system matches orders that are not displayed to any person other than the dealer and its employees; or in the course of acting as a registered market maker with an SRO, the system displays the limit orders of the market maker’s, or other broker-dealer’s, customers, and in addition, matches customer orders with those displayed limit orders and, as an incidental part of its market making activities, the system crosses or matches orders that are not displayed to any person other than the market maker and its employees. See 17 CFR 240.3b– 16(b)(2). The purpose of the exclusions in 17 CFR 240.3b–16(b)(2) was to encompass systems operated by third market makers, as well as those systems operated by dealers, primarily in debt securities, who display their own quotations to customers and other broker-dealers on a proprietary basis. Rule 3b–16(b)(2)(ii) was adopted to exclude registered market makers that display their own quotes and, in order to comply with a Commission or SRO rule, customer limit orders, and allow their customers and other broker-dealers to enter orders of execution against the displayed orders. Additionally, it was designed to allow registered market makers, as an incidental activity resulting from their market maker status, to match or cross orders for securities in which they make a market, even if those orders are not displayed. See Regulation ATS Adopting Release, supra note 7, at 70854. 51See 17 CFR 240.3b–16(e). 52See 17 CFR 240.3b–16(b). 53See 17 CFR 240.3a1–1(a)(2). 54See 17 CFR 240.3a1–1(a)(2). Rule 3a1–1 also provides two other exemptions from the definition of ‘‘exchange’’ for any ATS operated by a national securities association, and any ATS not required to comply with Regulation ATS pursuant to Rule 301(a) of Regulation ATS. See 17 CFR 240.3a1– 1(a)(1) and (3). 55See 17 CFR 242.301(b)(1). 56 15 U.S.C. 78e. 57 15 U.S.C. 78f. 58See supra note 21 (setting forth the statutory definition of SRO). 59See, e.g., Section 19 of the Exchange Act, 15 U.S.C. 78s. 60See 15 U.S.C. 78e. direct URL hyperlink
to the Commission’s Web site that contains the documents enumerated in proposed Rule 304(b)(2); (9) amend existing Rule 301(b)(10) of Regulation ATS to require all ATSs to adopt written safeguards and written procedures to protect subscribers’ confidential trading information, as well as written oversight procedures to ensure those safeguards and procedures are followed; and (10) amend Rule 303(a) to require that the written safeguards and written procedures required by proposed Rule 301(b)(10) and reports pursuant to proposed Rule 304 be preserved.
II. Current ATS Regulatory Framework
A. Exemption From National Securities Exchange Registration A fundamental component of the current ATS regulatory framework adopted by the Commission in 1998 is Exchange Act Rule 3b–16.45 Rule 3b–16 was designed to address the blurring of traditional classifications between exchanges and broker-dealers as a result of advances in technology by providing a more comprehensive and meaningful interpretation of what constitutes an exchange under Section 3(a) of the Exchange Act.46 Rule 3b–16(a) provides a functional test to assess whether a trading platform meets the definition of exchange under Section 3(a)(1) of the Exchange Act, and thus is required to register as a national securities exchange pursuant to Sections 5 and 6 of the Exchange Act.47 Under Rule 3b–16, an organization, association, or group of persons shall be considered to constitute, maintain, or provide ‘‘a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange,’’ if such organization, association, or group of persons: (1) Brings together the orders for securities of multiple buyers and sellers; and (2) uses established, non-discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade.48 The Commission adopted Exchange Act Rule 3b–16(b) to explicitly exclude certain systems that the Commission believed did not meet the exchange definition.49 Specifically, Rule 3b–16(b) excludes systems that perform only traditional broker-dealer activities, including: (1) Systems that route orders to a national securities exchange, a market operated by a national securities association, or a broker-dealer for execution, or (2) systems that allow persons to enter orders for execution against the bids and offers of a single dealer if certain additional conditions are met.50 Accordingly, a system is not included in the Commission’s interpretation of ‘‘exchange’’ if: (1) The system fails to meet the two-part test in paragraph (a) of Rule 3b–16; (2) the system falls within one of the exclusions in paragraph (b) of Rule 3b– 16; or (3) the Commission otherwise conditionally or unconditionally exempts 51 the system from the 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,52 Rule 3a1–1(a)(2) 53 provides an exemption from the definition of ‘‘exchange.’’ Specifically, Exchange Act Rule 3a1–1(a)(2) exempts from the Exchange Act Section 3(a)(1) definition of ‘‘exchange’’ an organization, association, or group of persons that complies with Regulation ATS,54 which includes, among other things, the requirement to register as a broker-dealer.55 Therefore, an organization, association, or group of persons that complies with Regulation ATS is not subject
to Section 5 of the Exchange Act,56 which requires that an ‘‘exchange’’ register with the Commission as a national securities exchange pursuant to Section 6 of the Exchange Act 57 or otherwise be exempt. Additionally, an ATS that is not required to register as a national securities exchange pursuant to Section 5 is not an SRO 58 and is not required to comply with applicable requirements.59 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.60 B. Conditions to the ATS Exemption; Confidential Notice Regime 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

61See 17 CFR 242.300(a).
62See Regulation ATS Adopting Release, supra note 7, at 70859. As the Commission noted when it adopted Regulation ATS, the Commission believes that any system that uses its market power to regulate its participants should be regulated as an SRO. The Commission noted that it would consider a trading system to be ‘‘governing the conduct of subscribers’’ outside the trading system if it imposed on subscribers, as conditions of participation in trading, any requirements for which the trading system had to examine subscribers for compliance. In addition, the Commission stated its belief that if a trading system imposed as conditions of participation, directly or indirectly, restrictions on subscribers’ activities outside of the trading system, such a trading system should be a registered exchange or operated by a national securities association, but that the limitation would not preclude an alternative trading system from imposing credit conditions on subscribers or requiring subscribers to submit financial information to the alternative trading system. See id. 63See id. 64Pursuant to Rule 301(a), certain ATSs that are subject to other appropriate regulations are not required to comply with Regulation ATS. These ATSs include those that are: Registered as an exchange under Section 6 of the Exchange Act; exempt from exchange registration based on the limited volume of transactions effected; operated by a national securities association; registered as a broker-dealer under Sections 15(b) or 15C of the Exchange Act, or is a bank, that limits its activities to certain instruments; or exempted, conditionally or unconditionally, by Commission order, after application by such alternative trading system. See 17 CFR 242.301(a). For example, an ATS that is registered as a broker-dealer, or is a bank, and limits its securities activities solely to government securities is not required to comply with Regulation ATS. See 17 CFR 242.301(a)(4). 65See 17 CFR 242.301(b)(1). 66See Section 15(b)(8) of the Exchange Act; 15 U.S.C. 78o(b)(8). See also supra 24 note and infra note 295 and accompanying text (setting forth the requirements of Section 15(b)(8) of the Exchange Act). 67See Regulation ATS Adopting Release, supra note 7, at 70903. 68Form ATS and the Form ATS Instructions are available at http://www.sec.gov/about/forms/ formats.pdf. 69See 17 CFR 242.301(b)(2)(i). 70See Regulation ATS Adopting Release, supra note 7, at 70864. 71See id. As discussed more fully below, the current notice process applicable to ATSs is very different than the process by which exchanges register with the Commission and how amendments to exchange rules are regulated. See infra notes 158–162 and accompanying text. 72See 17 CFR 242.301(b)(2)(vii). 73The Commission does note, however, that some ATSs may currently make voluntary public disclosures. See, e.g., infra note 156. 74Form ATS is used for three types of submissions: Initial operation reports; amendments to initial operation reports;
and cessation of operations reports. An ATS designates the type of submission on the form. See Form ATS. 75See 17 CFR 242.301(b)(2)(ii). A ‘‘material change,’’ includes, but is not limited to, any change to the operating platform, the types of securities traded, or the types of subscribers. In addition, the Commission has stated that ATSs implicitly make materiality decisions in determining when to notify their subscribers of changes. See Regulation ATS Adopting Release, supra note 7, at 70864. See also supra Section IV.C.6 (discussing the proposed materiality standard that would apply to the filing of amendments on Form ATS–N). 76See 17 CFR 242.301(b)(2)(iii). 77See 17 CFR 242.301(b)(2)(iv). 78See 17 CFR 242.301(b)(2)(v). 79See Regulation ATS Adopting Release, supra note 7, at 70864. 80See 17 CFR 242.301(b)(2)(vii); Form ATS at 3, General Instructions A.7. 81See 17 CFR 242.301(b)(9)(i). Form ATS–R and the Form ATS–R Instructions are available at https://www.sec.gov/about/forms/formats-r.pdf. from trading.’’ 61 Governing the conduct of or disciplining subscribers are functions performed by an SRO that the Commission believes should be regulated as such.62 Accordingly, pursuant to the definition in Rule 300(a), a trading system that performs SRO functions, or performs functions common to national securities exchanges, such as establishing listing standards, is precluded from the definition of ATS and would be required to register as a national securities exchange or be operated by a national securities association (or seek another exemption).63 Rule 301(b)(1) of Regulation ATS requires that every ATS that is subject to Regulation ATS, pursuant to paragraph (a) of Rule 301,64 be registered as a broker-dealer under
Section 15 of the Exchange Act,65 and
thus become a member of an SRO, such as FINRA.66 In the Regulation ATS Adopting Release, the Commission stated that an ATS that registers as a broker-dealer must, in addition to complying with Regulation ATS, comply with the filing and conduct obligations associated with being a registered broker-dealer, including membership in an SRO and compliance with SRO rules.67 In addition, Rule 301(b)(2) of Regulation ATS requires an ATS to file an initial operation report with the Commission on Form ATS 68 at least 20 days before commencing operations.69 The Commission stated in the Regulation ATS Adopting Release that Form ATS would provide the Commission the opportunity to identify problems that might impact investors before the system begins to operate.70 Unlike a Form 1 filed by a national securities exchange, Form ATS is not approved by the Commission. Instead, Form ATS provides the Commission with notice about its operations prior to commencing operations.71 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.’’ 72 Thus, under the current regulatory requirements, market participants generally do not have information about, for example, how orders are entered, prioritized, handled, and executed on an NMS Stock ATS, ATSs are not otherwise required to publicly disclose such information.73 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.74 First, if any material change is made to its operations, the ATS must file an amendment on Form ATS at least 20 calendar days before implementing such change.75 Second, if any information contained in the initial operation report becomes inaccurate for any reason and has not been previously reported to the Commission as an amendment on Form ATS, the ATS must file an amendment on Form ATS correcting the information within 30 calendar days after the end of the calendar quarter in which the system has operated.76 Third, an ATS must promptly file an amendment on Form ATS correcting information that it previously reported on Form ATS after discovery that any information was inaccurate when filed.77 Also, upon ceasing to operate as an ATS, an ATS is required to promptly file a cessation of operations report on Form ATS.78 As is the case with respect to initial operation reports, Form
ATS amendments and cessation of operations reports serve as notice to the Commission of changes to the ATS’s operations,79 and Rule 301(b)(2)(vii) and the instructions to the form state that Form ATS is ‘‘deemed confidential.’’ 80 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.81 Form ATS–R requires quarterly volume information for specified categories of securities, as well as a list of all securities traded on the ATS during the quarter and a list of all subscribers that were participants

82See Form ATS–R at 4, Items 1 and 2 (describing the requirements for Exhibit A and Exhibit B of Form ATS–R). ATSs must also complete and file Form ATS–R within 10 calendar days after ceasing to operate. See 17 CFR 242.301(b)(9)(ii); Form ATS–R at 2, General Instructions A.2 to Form ATS–R. 83See Form ATS–R at 6, Item 7 (explaining requirements for Exhibit C). 84See Regulation ATS Adopting Release, supra note 7, at 70878. 85See 17 CFR 242.301(b)(2)(vii); Form ATS–R at 2, General Instruction A.7. 86See 17 CFR 242.301(b)(3)(i). 87See 17 CFR 242.301(b)(3)(ii). 88See 17 CFR 242.602. 89See 17 CFR 242.301(b)(3)(iii). 90See Regulation ATS Adopting Release, supra note 7, at 70867. 91See 17 CFR 242.301(b)(4). In addition, if the national securities exchange or national securities association to which an ATS provides the prices and sizes of orders under Rules 301(b)(3)(ii) and 301(b)(3)(iii) establishes rules designed to assure consistency with standards for access to quotations displayed on such national securities exchange, or the market operated by such national securities association, the ATS shall not charge any fee to members that is contrary to, that is not disclosed in the manner required by, or that is inconsistent with any standard of equivalent access established by such rules. See id. 92 17 CFR 242.301(b)(5)(i). 93See 17 CFR 242.301(b)(5)(ii). Regulation ATS does not mandate compliance with these requirements when an ATS reaches the 5% trading threshold in an NMS stock if the following conditions are met: The ATS matches customer orders for a security with other customer orders; such customers’ orders are not displayed to any person, other than employees of the ATS; and such orders are executed at a price for such security disseminated by an effective transaction reporting plan, or derived from such prices. See 17 CFR 242.301(b)(5)(iii). 94The fair access requirements also apply for non-NMS stocks when an ATS reaches a 5% trading threshold in certain securities other than NMS stocks, including certain equity securities, municipal securities and corporate debt securities. See 17 CFR 242.301(b)(5)(i). 95See Regulation ATS Adopting Release, supra note 7, at 70874. 96See 17 CFR 242.301(b)(6)(i). during the quarter.82 Form ATS–R also requires an ATS that is subject to the fair access obligations under Rule 301(b)(5) of Regulation ATS to: (1) Provide a list of all persons granted, denied, or limited access to the ATS during the period covered by the ATS–R and (2) designate for each person: (a) Whether they were granted, denied, or limited access; (b) the date the ATS took such action; (c) the effective date of such action; and (d) the nature of any denial or limitation of access.83 In the Regulation ATS Adopting Release, the Commission stated that the information provided on Form ATS–R would permit the Commission to monitor the trading on ATSs.84 Like Form ATS, Rule 301(b)(2)(vii) and the instructions to Form ATS–R state that Form ATS–R is ‘‘deemed
confidential.’’ 85 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: 86

• Pursuant to Rule 301(b)(3)(ii),87
  provide to a national securities exchange or national securities association the prices and sizes of the orders at the highest buy price and the lowest sell price for such NMS stock, displayed to more than one person in the ATS, for inclusion in the quotation data made available by the national securities exchange or national securities association pursuant to Rule 602 under Regulation NMS; 88 and
• pursuant to Rule 301(b)(3)(iii),89
  with respect to any such order displayed pursuant to Rule 301(b)(3)(ii), provide to any broker-dealer that has access to the national securities exchange or national securities association to which the ATS provides the prices and sizes of displayed orders pursuant to Rule 301(b)(3)(ii), the ability to effect a transaction with such orders that is:
  Æ equivalent to the ability of such broker-dealer to effect a transaction with other orders displayed on the exchange or by the association; and Æ 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. These order display and execution access obligations were adopted by the Commission with the expectation they would promote additional market integration and further discourage two￾tier markets when trading in an NMS stock on an ATS reaches a certain level.90 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).91 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: 92
• 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:
  Æ all grants of access including, for all subscribers, the reasons for granting such access; and Æ 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.93 The above requirements of Rule 301(b)(5) are referred to as the ‘‘fair access’’ requirements and apply on a security-by-security basis.94 A denial of access to a market participant after an ATS reaches the above 5% fair access threshold in an NMS stock would be reasonable if it is based on objective standards.95 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: 96
• 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

97See 17 CFR 242.301(b)(6)(ii). Also, as with the fair access requirements pursuant to Rule 301(b)(5), Regulation ATS does not mandate compliance with the requirements under Rule 301(b)(6) when an ATS reaches a 20% trading threshold if the following conditions are met: The ATS matches customer orders for a security with other customer orders; such customers’ orders are not displayed to any person, other than employees of the ATS; and such orders are executed at a price for such security disseminated by an effective transaction reporting plan, or derived from such prices. See 17 CFR 242.301(b)(6)(iii). 98See SCI Adopting Release, supra note 17. 99See Regulation ATS Adopting Release, supra note 7, at 70875–76. 100Regulation SCI does not apply to ATSs that trade only municipal securities or corporate debt securities. See SCI Adopting Release, supra note 17, at 72262. Prior to the adoption of Regulation SCI, Rule 301(b)(6) of Regulation ATS imposed by rule certain aspects of Commission policy statements with respect to technology systems of significant￾volume ATSs. Specifically, Regulation SCI, with regard to SCI entities (as defined in Regulation SCI; see infra note 101), superseded and replaced the Commission’s prior Automation Review Policy (‘‘ARP’’), established by the Commission’s two policy statements, each titled ‘‘Automated Systems of Self￾Regulatory Organizations,’’ issued in 1989 and 1991, see Securities Exchange Act Release Nos. 27445 (November 16, 1989), 54 FR 48703 (November 24, 1989), and 29185 (May 9, 1991), 56 FR 22490 (May 15, 1991), including the aspects of those policy statements previously codified in Rule 301(b)(6) of Regulation ATS applicable to significant-volume ATSs that trade NMS stocks and non-NMS stocks. See SCI Adopting Release, supra note 17, at 72252. 101Regulation SCI defines ‘‘SCI entity’’ to mean ‘‘an SCI self-regulatory organization, SCI alternative trading system, plan processor, or exempt clearing agency subject to [the Commission’s Automation Review Policies].’’ See 17 CFR 242.1000. 102Regulation SCI defines ‘‘SCI alternative trading system’’ or ‘‘SCI ATS’’ to mean an ATS, which during at least four of the preceding six calendar months: (1) Had with respect to NMS stocks (a) five percent (5%) or more in any single NMS stock, and one-quarter percent (0.25%) or more in all NMS stocks, of the average daily dollar volume reported by applicable transaction reporting plans, or (b) one percent (1%) or more in all NMS stocks of the average daily dollar volume reported by applicable transaction reporting plans; or (2) had with respect to equity securities that are not NMS stocks and for which transactions are reported to a self-regulatory organization, five percent (5%) or more of the average daily dollar volume as calculated by the self-regulatory organization to which such transactions are reported. However, an SCI ATS is not required to comply with the requirements of Regulation SCI until six months after satisfying
the aforementioned criteria. See 17 CFR 242.1000. 103See SCI Adopting Release, supra note 17, at
72252. 104See id. 105See id. 106See id. 107See supra note 102. Prior to the adoption of
Regulation SCI, the requirements of Rule 301(b)(6) also applied to ATSs that, during at least 4 of the preceding 6 calendar months, had with respect to any NMS stock, 20% or more of the average daily volume reported by an effective transaction reporting plan. 108See 17 CFR 242.301(b)(7). 109See 17 CFR 242.301(b)(8). 110See 17 CFR 242.302. 111See 17 CFR 242.303. In the Regulation ATS Adopting Release, the Commission stated that these requirements to make, keep, and preserve records are necessary to create a meaningful audit trail and to permit surveillance and examination to help ensure fair and orderly markets. See Regulation ATS Adopting Release, supra note 7, at 70877–78. 112See 17 CFR 242.301(b)(10)(i). 113See 17 CFR 242.301(b)(10)(ii). 114See 17 CFR 240.301(b)(11). 115When the Commission proposed Regulation ATS, it said that ‘‘it is important that the investing public not be confused about the market role [ATSs] have chosen to assume.’’ See Securities Exchange Act Release No. 39884 (April 21, 1998), 63 FR 23504, 23523 (April 29, 1998) (‘‘Regulation ATS Proposing Release’’). The Commission expressed concern that ‘‘use of the term ‘exchange’ by a system not regulated as an exchange would be deceptive and could mislead investors that such alternative trading system is registered as a national securities exchange.’’ See id. established audit procedures and standards, of the ATS’s controls for ensuring that the above requirements are met, and conduct a review by senior management of a report containing the recommendations and conclusions of the independent review; and

• promptly notify the Commission
  and its staff of material systems outages and significant systems changes.97 Prior to the Commission’s adoption of Regulation SCI,98 the requirements of Rule 301(b)(6) also applied to ATSs with regard to their trading in NMS stocks and non-NMS equity securities.99 Regulation SCI superseded and replaced Rule 301(b)(6)’s requirements with regard to ATSs that trade NMS stocks and non-NMS stocks.100 In general, Regulation SCI requires SCI entities,101 including NMS Stock ATSs that meet the definition of an ‘‘SCI ATS,’’ 102 to establish written policies and procedures reasonably designed to ensure that their systems have levels of capacity, integrity, resiliency, availability, and security adequate to maintain their operational capability and promote the maintenance of fair and orderly markets, and that they operate in a manner that complies with the Exchange Act.103 In addition, Regulation SCI requires SCI entities, including NMS Stock ATSs that are SCI entities, to take corrective action with respect to SCI events (defined to include systems disruptions, systems compliance issues, and systems intrusions), and notify the Commission of such events.104 Regulation SCI further requires SCI entities, including NMS Stock ATSs that are SCI entities, to disseminate information about certain SCI events to affected members or participants and, for certain major SCI events, to all members or participants of the SCI entity. In addition, Regulation SCI requires SCI entities, including NMS Stock ATSs that are SCI entities, to conduct a review of their systems by objective, qualified personnel at least annually, submit quarterly reports regarding completed, ongoing, and planned material changes to their SCI systems to the Commission, and maintain certain books and records.105 It also requires SCI entities, including NMS Stock ATSs that are SCI entities, to mandate participation by designated members or participants in scheduled testing of the operation of their business continuity and disaster recovery plans, including backup systems, and to coordinate such testing on an industry￾or sector-wide basis with other SCI entities.106 Regulation SCI, as compared to the former Rule 301(b)(6), also modified the volume thresholds applicable to SCI ATSs.107 Rule 301(b)(7) 108 requires all ATSs, regardless of the volume traded on their systems, to permit the examination and inspection of their premises, systems, and records, and cooperate with the examination, inspection, or investigation of subscribers, whether such examination is being conducted by the Commission or by an SRO of which such subscriber is a member. Rule 301(b)(8) 109 requires all ATSs to make and keep current the records specified in Rule 302 of Regulation ATS 110 and preserve the records specified in Rule 303 of Regulation ATS.111 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.112 Furthermore, all ATSs must adopt and implement adequate oversight procedures to ensure that the above safeguards and procedures are followed.113 Finally, Rule 301(b)(11) 114 expressly prohibits any ATS from using the word ‘‘exchange’’ or derivations of the word ‘‘exchange,’’ such as the term ‘‘stock market,’’ in its name.115
  III. Role of ATSs in the Current Equity
  Market Structure
  A. Significant Source of Liquidity for NMS Stocks 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

116See Regulation ATS Proposing Release, supra note 115, at 23543 n.341. 117See id. at 23540 n.313 and accompanying text. 118The Commission notes that National Stock Exchange, Inc. ceased trading on its system as of the close of business on May 30, 2014. See Securities Exchange Act Release No. 72107 (May 6, 2014), 79 FR 27017 (May 12, 2014) (SR–NSX–2014–14). 119 Data compiled from Forms ATS submitted to the Commission as of November 1, 2015. 120See SCI Adopting Release, supra note 17, at 72262. 121See infra Table 1—‘‘NMS Stock ATSs Ranked by Dollar Trading Volume—March 30, 2015 to June 26, 2015.’’ Total dollar trading volume on all exchanges and off-exchange trading in the second quarter of 2015 was approximately $16.3 trillion and approximately 397 billion shares. See Market Volume Summary, https://www.batstrading.com/ market_summary/. See also infra Section XIII.B.1. Competitors for listed-equity (NMS) trading services also include several hundred OTC market makers and broker-dealers. 122The NMS Stock ATS with the greatest volume executed approximately 12.7% of NMS Stock ATS share volume and 1.9% of the total consolidated NMS stock share trading volume. 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. See infra
Table 1—‘‘NMS Stock ATSs Ranked by Dollar
Trading Volume—March 30, 2015 to June 26, 2015.’’ 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. See FINRA Rules 4552, 6160, 6170, 6480 and 6720. See also Securities Exchange Act Release No. 71341 (January 17, 2014), 79 FR 4213 (January 24, 2014) (SR–FINRA–2013–
042) (order granting approval of a proposed rule
change to require alternative trading systems to report volume information to FINRA and use a unique market participant identifier) (‘‘FINRA ATS Reporting Approval’’). 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. See id. at 4214. See also Alternative Trading System (ATS) Transparency on FINRA’s Web site, http://www.finra.org/Industry/ Compliance/MarketTransparency/ATS/. 123The term ‘‘dark pool’’ is not used or defined in the Exchange Act or Commission rules. For purposes of this release, the term refers to NMS Stock ATSs that do not publicly display quotations in the consolidated quotation data. See Regulation of Non-Public Trading Interest, Securities Exchange Act Release No. 60997 (November 13, 2009), 74 FR 61208, 61209 (November 23, 2009) (‘‘Regulation of Non-Public Trading Interest’’) (proposing rules and amendment to joint-industry plans describing the term dark pool). 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. See id. at 61209 n.8. 124See, e.g., Securities Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594, 3599 n.28 (January 21, 2010) (‘‘2010 Equity Market Structure Release’’). 125See id. at 3599. 126See Rule 600(b)(9) of Regulation NMS (defining block size with respect to an order), 17 CFR 242.600(b)(9). See also Laura Tuttle, Alternative Trading Systems: Description of ATS Trading in National Market System Stocks, at 9–10 (October 2013), http://www.sec.gov/ marketstructure/research/alternative-trading￾systems-march-2014.pdf (‘‘Tuttle: ATS Trading in NMS Stocks’’). 127See infra, Table 2—‘‘NMS Stock ATSs Ranked by Average Trade Size—March 30, 2015 to June 26, 2015.’’ 128See infra note 725 and accompanying text. 129See 2010 Equity Market Structure Release, supra note 124, 75 FR at 3599; see also infra, Table 2—‘‘NMS Stock ATSs Ranked by Average Trade Size—March 30, 2015 to June 26, 2015.’’ 130See infra note 364 and accompanying text and
Table 1—‘‘NMS Stock ATSs Ranked by Dollar
Trading Volume—March 30, 2015 to June 26, 2015.’’ 131See 2010 Equity Market Structure Release, supra note 124, at 3599. 132See Regulation of Non-Public Trading Interest, supra note 123, at 61209 n.9 and accompanying text. 133See 2010 Equity Market Structure Release, supra note 124, at 3598 n.22 and accompanying text. 134 Data compiled from Forms ATS and Forms ATS–R filed to the Commission as of the end of, and for the third quarter of, 2015. 135See 2010 Equity Market Structure Release, supra note 124, at 3598. securities exchanges,116 and the Commission estimated that there were approximately 43 systems that would be eligible to operate as ATSs.117 Currently, there are 18 registered national securities exchanges, of which there are 11 national securities exchanges that trade NMS stocks,118 and 84 ATSs with a Form ATS on file with the Commission. Currently, there are 46 ATSs that have noticed on their Form ATS that they expect to trade NMS stocks.119 As the Commission noted in the SCI Adopting Release, even smaller trading centers, such as certain high￾volume ATSs, now collectively represent a significant source of liquidity for NMS stocks, and some ATSs have similar and, in some cases, greater trading volume than some national securities exchanges.120 In the second quarter of 2015, there were 38 ATSs that reported transactions in NMS stocks, accounting for 59 billion shares traded in NMS stocks ($2.5 trillion), and represented approximately 15.0% of total share trading volume (15.4% of total dollar trading volume) on all national securities exchanges, ATSs, and non-ATS OTC trading venues combined.121 During this period, no individual ATS executed more than approximately 13% of the total share volume on NMS Stock ATSs and no more than approximately 2% of total NMS stock share volume.122 Given this dispersal of trading volume in NMS stocks among an increasing number of trading centers, NMS Stock ATSs, with their approximately 15% market share, represent a significant source of liquidity in NMS stocks. 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.’’ 123 Dark pools originally were designed to offer certain market participants, particularly institutional investors, the ability to minimize transaction costs when executing trades in large size by completing their trades without prematurely revealing the full extent of their trading interest to the broader market. The disclosure of large size trades could have an impact on the market, and reduce the likelihood of the orders being filled.124 As the Commission has previously noted, some dark pools, such as block crossing networks, offer specialized size discovery mechanisms that attempt to bring large buyers and sellers in the same stock together anonymously and to facilitate a trade between
them.125 The traditional definition of block orders are orders for more than 10,000 shares,126 however average trade sizes can far exceed this and be as high as 500,000 shares per trade.127 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.128 These dark pools that primarily match smaller orders (though the matched orders may be ‘‘child’’ orders of much larger ‘‘parent’’ orders) execute more than 90% of dark pool volume.129 The majority of this volume is executed by dark pools that are operated by multi-service broker￾dealers.130 These broker-dealers typically also offer order routing services, trade as principal in the ATS that they are operating, or both.131 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 2002,132 to 32 in 2009,133 to over 40 today.134 Furthermore, in 2009, dark pools accounted for 7.9% of NMS share volume.135 It is now estimated that of the approximately 397 billion shares traded in NMS stocks ($16.3 trillion), 14.9% of total NMS stock share volume is attributable to dark pools, with no

136See infra Section XIII.B.1.
137See Rule 600(b)(23) of Regulation NMS, 17 CFR 242.600(b)(23) (definition of ‘‘electronic communications network’’); see also 2010 Equity Market Structure Release, supra note 124, at 3599. 138See 2010 Equity Market Structure Release, supra note 124, at 3599. See infra note 494 (describing the maker-taker pricing model). 139As exemplified by some commenters’ responses and as discussed further below, market participants are interested in information about, among other things, ATS affiliations, sharing of order information, operation of smart order routers and to whom they give preference, priority rules, order types, calculation of reference prices, and segmentation. See, e.g., infra notes 186 and 190 and accompanying text (describing comments received from Blackrock, Inc. and Bloomberg Tradebook LLC). 140See, e.g., infra note 187 and accompanying text (describing a comment received from the Consumer Federation of America). 141See 2010 Equity Market Structure Release, supra note 124, 75 FR at 3602. 142See id. 143For a further discussion about the increased use of SORs (or similar functionalities) by broker￾dealer operators of NMS Stock ATSs, see infra
Section VII.B.7.
144For example, based on Commission experience, some NMS Stock ATSs, like national securities exchanges, will route a subscriber’s order to another trading center when the NMS Stock ATS cannot execute the order without trading through the NBBO, or if otherwise directed by the subscriber. single individual dark pool executing more than 1.9% of total NMS stock share volume.136 The Commission also notes that some NMS Stock ATSs, which do not provide their best priced￾orders for inclusion in the consolidated quotation data, make available to subscribers real-time information about quotes, orders, or other trading interest on the NMS Stock ATS. 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.137 In general, ECNs offer trading services (such as displayed or non-displayed order types, maker-taker pricing, and data feeds) that are analogous to registered national securities exchanges.138 B. Heightened Operational Complexity and Sophistication of NMS Stock ATSs 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.139 The Commission is concerned that market participants have limited information about the complex operations of NMS Stock ATSs and the unique relationship between an NMS Stock ATS and its broker-dealer operator and the affiliates of the broker￾dealer operator, who often provide a significant source of liquidity on the NMS Stock ATS. The Commission preliminarily believes that improving transparency of information available to market participants would enable them to better assess NMS Stock ATSs as potential trading venues.140 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.141 Using that knowledge of available liquidity, many brokers offer smart order routing technology to route orders to various trading centers to access such liquidity.142 Based on Commission experience, broker-dealer operators frequently use SORs (or similar functionality) to route orders to their NMS Stock ATSs in today’s marketplace. Furthermore, for some NMS Stock ATSs, most orders must pass through the broker-dealer operator’s SOR (or similar functionality) to enter the ATS.143 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 (e.g., agency orders), before then applying time priority. Additionally, some NMS Stock ATSs offer order routing services
similar to those offered by national securities exchanges.144 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

145A purported reason for such segmentation may be to help reduce information leakage or the possibility of trading with undesirable counterparties. 146See infra Section IX. 147See infra Section VII.A (discussing the activities of broker-dealer operators of NMS Stock ATSs and the possible conflicts of interest that may result, and the Commission’s preliminary belief that providing market participants with information about such activities will enable market participants to assess whether potential conflicts of interest exist so that they may make more informed decisions about whether to send their order flow to a particular NMS Stock ATS). 148See infra Section VII.A.1. 149See id. 150See infra Sections VII.B.6 and 9 (discussing trading on the ATS by the broker-dealer operator and its affiliates, and the relationship between an NMS Stock ATS and its service providers, and proposing to require related disclosure). 151See generally infra Sections VII and VIII. 152See, e.g., Securities Exchange Act Release No. 42208, 64 FR 70613, 70614 (December 17, 1999) (concept release reviewing regulation of market information fees and revenues). 153See supra notes 40 and 139 (citing prior comment letters expressing the view that Form ATS should be made publicly available and expressing support for making publicly available ATS filings with the Commission, and exemplifying the kinds of information about NMS Stock ATS operations that market participants, including broker-dealers and intuitional investors, seek, but to which they may not currently have access). 154See infra Section VII.A. 155See 17 CR 242.301(b)(2)(vii). The information on Form ATS is available for examination by staff, state securities authorities, and SROs. See Form ATS at 3, Instruction A.7. even specific, subscriber or order flow with which the subscriber wishes to interact. For example, some NMS Stock ATSs may enable subscribers to prevent their orders from interacting with principal order flow of the ATS’s broker-dealer operator, or may enable subscribers to prohibit execution of their order flow against that of subscribers with certain execution characteristics (e.g., so called high￾frequency traders or ‘‘HFTs’’). Subscribers may also have the option to prevent self-matching with other order flow originating from the same firm. Some NMS Stock ATSs may also segment order flow into various classifications of subscribers based upon parameters set by the broker-dealer operator, such as historical execution characteristics, or may limit access to certain crossing mechanisms based on a subscriber’s profile (e.g., the system may be programmed such that institutional order flow only executes against other institutional order flow).145 Subscribers may or may not be aware that they have been classified as a particular type of participant on the NMS Stock ATS, which may limit their ability to interact with order flow of certain other subscribers to that NMS Stock ATS. 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.146 The Commission is concerned that today, the potential for conflicts of interest as a result of a broker-dealer operator’s other business interests, including those of its affiliates, may be greater than it was at that time, particularly due to trading centers that multi-service broker-dealer operators own and operate.147 Additionally, the broker-dealer operator of an NMS Stock ATS controls all aspects of the operation of the ATS, including, among other things: Means of access; who may trade; how orders interact, match, and execute; market data used for prioritizing or executing orders; display of orders and trading interest, and determining the availability of ATS services among subscribers.148 The non-ATS operations of a broker-dealer operator and its NMS Stock ATS typically are connected in many ways. For example, in some cases, the broker-dealer operator, or its affiliates, owns, and controls access to, the technology and systems that support the trading facilities of the NMS Stock ATS, and provides and directs personnel to service the trading facilities of the ATS. As discussed in more detail below,149 the Commission is aware that most NMS Stock ATSs are operated by broker-dealers that also engage in brokerage and dealing activities, and offer their customers a variety of brokerage services, including algorithmic trading software, agency sales desk support, and automated smart order routing services, often with, or through, their affiliates. In addition, multi-service broker-dealers and their affiliates may operate, among other things, an OTC market making desk or proprietary trading desk in addition to operating an ATS, or may have other business units that actively trade NMS stocks on a principal or agency basis in the ATS or at other trading centers. Furthermore, the broker-dealer operator of an NMS Stock ATS may have arrangements with third-parties to perform certain aspects of its ATS’s operations, and affiliates of those third parties may subscribe to the NMS Stock ATS, which the Commission is concerned give rise to the potential for information leakage or conflicts of interest, of which market participants may be
unaware.150 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.151 The Commission also preliminarily believes that market participants should have access to information about the relationship between a broker-dealer, its affiliates, and the NMS Stock ATS that it operates, to adequately understand the operations of the ATS and potential conflicts of interest that may arise.
C. Lack of Operational Transparency for
NMS Stock ATSs
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.152 As noted above, although transparency has long been a hallmark of the U.S. securities markets and is one of the primary tools used by investors to protect their interests, market participants have limited knowledge of the operations of ATSs and how orders interact, match, and execute on ATSs.153 The Commission is concerned that market participants have limited information about the non-ATS activities of the broker-dealer operators of NMS Stock ATSs and potential conflicts of interest that might arise from those activities.154 The Commission is also concerned that different classes of subscribers may have different levels of information about the operations of NMS Stock ATSs and how their orders or other trading interests may interact on the NMS Stock ATS. To address these concerns, the Commission’s proposal is designed to provide better access to information about the operations of NMS Stock ATSs to all market participants, including subscribers and potential subscribers. Under current rules, a Form ATS is ‘‘deemed confidential when filed.’’ 155 As a result, market participants

156The Commission notes that some ATSs have chosen to make Form ATS filings publicly available. See, e.g., IEX ATS Form ATS Amendment, dated July 29, 2015, http:// www.iextrading.com/policy/ats/; PDQ ATS Inc’s Form ATS Amendment, dated January 30, 2015, http://www.pdqats.com/wp-content/uploads/2013/ 10/PDQ-FORM-ATS-FILING_01_30_15-Website.pdf; Liquidnet H20 ATS Form ATS Amendment, dated February 4, 2015, http://www.liquidnet.com/ uploads/ATS_(H2O)Form-Exhibits_CLEAN 4feb2015.pdf; SIGMA X Form ATS Amendment, dated May 21, 2014, http:// www.goldmansachs.com/media-relations/in-the￾news/current/pdf-media/gs-form-ats￾amendment.pdf; POSIT Form ATS Amendment, dated January 26, 2015, http://www.itg.com/ marketing/ITG_Form_ATS_for_POSIT_ 02112015.pdf. 157 15 U.S.C. 78s(b). 158See generally 15 U.S.C. 78s(a) and (b); and 17 CFR 240.19b–4. See also supra notes 20–23 and accompanying text; http://www.sec.gov/rules/ sro.shtml. 159Among other things, Form 1 requires an exchange applying for registration as a national securities exchange to disclose its procedures governing entry and display of quotations and orders in its system, procedures governing the execution, reporting, clearance and settlement of transactions in connection with the system, and fees. See Form 1, Exhibits E.2–E.4. The disclosures required in Form 1 must include sufficient detail for the Commission to determine the exchange’s rules are consistent with the Act. See generally 15 U.S.C. 78f(b)(1). Once registered, a national securities exchange must file any proposed rule or any proposed change in, addition to, or deletion from its rules. See 15 U.S.C. 78s(b)(2). 160See 15 U.S.C. 78s(b)(1). 161See 17 CFR 240.19b–4(f). 162See supra notes 20–25 and accompanying text and infra notes 342–343 and accompanying text (discussing, in more detail, the differences in the regulatory regimes for registered national securities exchanges and ATSs, including with respect to requirements related to transparency of operations). See also 17 CFR 242.301(b)(2) (requiring ATSs to file amendments on Form ATS at least 20 days prior to implementing a material change to the operation of the ATS, and within 30 calendar days after the end of each calendar quarter to update any other information that has become inaccurate and not previously reported). 163The Commission preliminarily believes that information solicited on Form ATS–N would be similar to portions of what registered national securities exchange are required to publicly disclose, and thus, that disclosure of the information would not place NMS Stock ATSs at a competitive disadvantage with respect to competing trading venues. See infra Section IV.D. The Commission notes that, while some of the questions on Form ATS–N are designed to provide information about potential conflicts of interest arising from the activities of the broker-dealer operator or its affiliates and are dissimilar to information required to be disclosed by a national securities exchange,
national securities exchanges must have rules that are consistent with the Exchange Act, and in particular Section 6. To date, national securities exchanges have implemented rules to address the potential for conflicts of interest when the national securities exchange is affiliated with a broker-dealer that is a member of the national securities exchange. See, infra, notes 369– 373 and accompanying text (discussing the Commission’s concerns regarding conflicts of interest in the context of national securities exchanges). 164See infra Section XIII.C (discussing the Commission’s preliminary belief that the proposal would help market participants make better decisions about where to route their orders, improve the efficiency of capital allocation, and execution quality, and also addressing the effect of the disclosure of proprietary information on competition). 165See Regulation of Non-Public Trading Interest, supra note 123, at 62108 (proposing rules and amendment to joint-industry plans). typically have, at best, limited access to Form ATS filings and the information contained therein. Additionally, Form ATS discloses only limited aspects of an ATS’s operations, and the Commission preliminarily believes that even where an ATS has voluntarily made public its Form ATS,156 market participants currently might not be able to obtain a complete understanding of how ATSs operate. In addition, Form ATS does not solicit information about possible circumstances that give rise to potential conflicts of interest resulting from the activities of the broker-dealer operator and its affiliates. Despite the confidentiality afforded Form ATS, based on Commission experience, including the Commission’s experience reviewing disclosures made by ATSs on Form ATS over the past 16 years, ATSs have often provided minimal, summary disclosures about their operations on Form ATS. Furthermore, the Commission preliminarily believes that the complexity of the operations of NMS Stock ATSs has increased substantially and in a manner that causes the current disclosure requirements of Form ATS to result in a potentially insufficient, and inconsistent, level of detail about the operations of NMS Stock ATSs. 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.157 Under these requirements, national securities exchanges must make public their trading rules and detail their trading operations. As discussed above, national securities exchanges register with the Commission on Form 1, and thereafter file proposed rule changes on Form 19b–4, which are not confidential, are approved by the Commission or become effective by operation of law, and are made public.158 These mandatory filings publicly disclose, among other things, details about the exchange’s trading services, operations, order types, order interaction protocols, priority procedures,
and fees.159 A national securities exchange must file such a proposed rule change any time it seeks to change its rules,160 and even non￾controversial rule changes cannot be implemented until the exchange files a Form 19b–4 with the Commission.161 In contrast, an ATS can change its operations in certain cases before notifying the Commission, and in all cases, without obtaining Commission approval or notifying ATS subscribers or the public about the change.162 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.163 As such, the Commission preliminarily believes that transparency of NMS Stock ATSs’ operations will promote competition and benefit investors by informing market participants about differences between trading venues that could impact the quality of the execution of their orders.164 The Commission preliminarily believes that requiring ATSs to respond to proposed Form ATS–N, which would require more detailed information about the ATSs’ operations and be made available to the public on the Commission’s Web site, would facilitate the public’s understanding of NMS Stock ATSs by improving the information available to market participants, enabling them to make better decisions about where to route their orders to achieve their investing or trading objectives. D. Prior Comments on Operational Transparency and Regulatory Framework for NMS Stock ATSs 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.165 Among other

166See letter to Mary L. Schapiro, Chairman, Commission, from Sen. Edward E. Kaufman, United States Senate, dated August 5, 2010 (‘‘Kaufman letter’’); letters to Elizabeth M. Murphy, Secretary, Commission, from Janet M. Kissane, Senior Vice President, Legal & Corporate Secretary Office of the General Counsel, NYSE Euronext, dated February 22, 2010 (‘‘NYSE Euronext letter #1’’); from Jeffrey D. Morgan, CAE, President and CEO, National Investor Relations Institute, dated February 16, 2010 (‘‘National Investor Relations Institute letter’’); letter to the Commission, from Seth Merrin, Chief Executive Officer; Anthony Barchetto, Head of Trading Strategy; Jay Biancamo, Global Head of Marketplace; Vlad Khandros, Market Structure Analyst; Howard Meyerson, General Counsel, Liquidnet, Inc., dated December 21, 2009 (‘‘Liquidnet letter #1’’). 167 Kaufman letter, supra note 166, attachment at 4–5. 168NYSE Euronext letter #1, supra note 166, at 3. 169National Investor Relations Institute letter, supra note 166, at 2. 170See Liquidnet letter #1, supra note 166, at D– 5–6, 11. 171See Liquidnet letter #1, supra note 166, at D– 5–6. 172 Id. at D–11. 173See 2010 Equity Market Structure Release, supra note 124, at 3614. 174See id. 175See letters from Theodore R. Lazo, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association, dated October 24, 2014 (‘‘SIFMA letter #2); Richie Prager, Hubert De Jesus, Supurna Vedbrat, and Joanne Medero, BlackRock, Inc., dated September 12, 2014 (‘‘Blackrock letter’’); Micah Hauptman, Consumer Federation of America, dated September 9, 2014 (‘‘Consumer Federation of America letter’’); Christopher Nagy and Dave Lauer, KOR Group LLC, dated April 4, 2014 (‘‘KOR Group letter’’); Bill Neuberger, Andrew Silverman, Paul Fitzgerald, and Sapna Patel, Morgan Stanley, dated March 7, 2011 (‘‘Morgan Stanley letter’’); Raymond M. Tierney III and Gary Stone, Bloomberg Tradebook LLC, dated June 28, 2013 (‘‘Bloomberg Tradebook letter’’); Greg Tusar, Goldman Sachs Execution & Clearing, L.P., and Matthew Lavicka, Goldman Sachs & Co., dated June 25, 2010 (‘‘Goldman Sachs letter’’); Jeffrey S. Wecker, Lime Brokerage LLC, dated May 21, 2010 (‘‘Lime Brokerage letter’’); Andrew C. Small, Scottrade, dated May 19, 2010 (‘‘Scottrade letter’’); Kimberly Unger, The Security Traders Association of New York, Inc., dated May 10, 2010 (‘‘Security Traders Association of New York letter’’); Stuart J. Kaswell, Managed Funds Association, dated May 7, 2010 (‘‘Managed Funds Association letter’’); Raymond M. Tierney III, Bloomberg L.P., dated May 7, 2010 (‘‘Bloomberg L.P. letter’’); James J. Angel, Georgetown University, McDonough School of Business, dated January 16, 2011 (‘‘Angel letter’’); Joan C. Conley, Nasdaq OMX Group, Inc., dated April 30, 2010 (‘‘Nasdaq OMX letter’’); Ann Vlcek, Securities Industry and Financial Markets Association, dated April 29, 2010 (‘‘SIFMA letter #1’’); Joseph M. Velli, BNY ConvergEx Group, LLC,
dated April 29, 2010 (‘‘BNY CovergEx Group letter’’); O. Mason Hawkins, Richard W. Hussey, Deborah L. Craddock, Jeffrey D. Engelberg, and W. Douglas Schrank, Southeastern Asset Management, Inc., dated April 28, 2010 (‘‘Southeastern Asset Management letter’’); Janet M. Kissane, NYSE Euronext, dated April 23, 2010 (‘‘NYSE Euronext letter #2’’); David C. Cushing, Wellington Management Company, LLP, dated April 21, 2010 (‘‘Wellington Management Company letter’’); Seth Merrin, Howard Meyerson, and Vlad Khandros, Liquidnet, Inc., dated March 26, 2010 (‘‘Liquidnet letter #2’’). things, the Commission proposed to substantially lower the trading volume threshold in Regulation ATS that triggers public display obligations for ATSs and to amend joint-industry plans for publicly disseminating consolidated trade data to require real-time disclosure of the identity of an ATS in the consolidated last-sale report. The Commission received four comments on its Regulation of Non-Public Interest proposal that directly relate to the amendments to Regulation ATS that the Commission is proposing today.166 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.’’ 167 Senator Kaufman further urged the Commission to ‘‘harmonize rules across all market centers to ensure exchanges and ATSs are competing on a level playing field that serves the interests of all investors.’’ NYSE Euronext stated that because ‘‘ATSs now represent a significant share of trading volume in NMS stocks . . . the time is ripe to move to a framework that has consistent regulatory requirements when the trading activity at issue is essentially the same.’’ 168 The National Investor Relations Institute opined that ‘‘the same regulatory oversight, market surveillance, reporting, and other investor safeguards that exist for exchanges should be in place for all trading venues to ensure maximum investor protection.’’169 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.170 Liquidnet stated that disclosures by institutional brokers, including institutional ATSs, to their customers should include, among other things, identification of external venues to which the broker routes orders, the process for crossing orders with other orders received by the broker,
execution of orders as agent and principal, a detailed description of the operation and function of each ATS or trading desk operated by the broker, a clear and detailed description of each algorithm and order type offered by the broker, categories of participant and admission criteria for each ATS or trading desk with which the customer’s order can interact, and internal processes and policies to control dissemination of the institution’s order and trade information and other confidential information.171 Liquidnet also suggested that the Commission amend ‘‘Regulation ATS to permit the Commission to delay the effective date of a new ATS commencing operation or of an existing ATS implementing a material business change if the Commission believes that information in the ATS filing is unclear or incomplete or raises an issue of potential non-compliance with applicable law or regulation,’’ and expressed support for making publicly available ATS filings with the Commission.172 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.173 Specifically, the Commission asked, among other things, for comment on the following: 174

• 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.175 The 20 comment letters offered contrasting views. 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

176Security Traders Association of New York letter, supra note 175, at 2. 177Nasdaq OMX letter, supra note 175, at 13, 16. 178NYSE Euronext letter #2, supra note 175, at 7. 179Wellington Management Company letter, supra note 175, at 3. 180Liquidnet letter #2, supra note 175, at F–7. 181 Goldman Sachs letter, supra note 175, at 10. 182Wellington Management Company letter, supra note 175, at 3. 183Liquidnet letter #2, supra note 175, at F–7. 184SIFMA letter #2, supra note 175, at 13. 185Blackrock letter, supra note 175, at 4. 186 Id. 187Consumer Federation of America letter, supra note 175, at 22. 188 Id. at 37–38. 189Bloomberg Tradebook letter, supra note 175, at 1. 190 Id. at 2–3. Reg. NMS regulatory framework.’’ 176 Nasdaq OMX expressed the view that the ‘‘Commission has flexibility to adopt a more principles-based regulatory structure’’ which it could use to ‘‘level the competitive playing field between ATSs and exchanges,’’ and that ‘‘[i]n areas where ATS and exchange activities overlap, differences in [regulatory] approach should persist only if there is a clear policy basis for those differences.’’ 177 NYSE Euronext opined that the ‘‘lighter regulatory oversight for ATSs puts transparent, regulated markets at a competitive disadvantage, to the potential detriment of investors’’ and that ‘‘now that ATSs represent a significant share of trading volume in NMS stocks, . . . the Commission should address the regulatory disparity between registered exchanges and ATSs that engage in trading activities analogous to traditional exchange trading.’’ 178 Wellington Management Company expressed the view that ‘‘regulatory requirements for types of venues should differ only to the extent the differentiated requirements are specifically designed to address clearly identifiable and compelling needs’’ and that ‘‘material disparities in regulatory requirements could make it difficult for exchanges to compete with ATSs and broker-dealers and could threaten their long-term survival.’’ 179 Liquidnet stated that ‘‘[t]o the extent that an exchange conducts the equivalent business function as a broker or an ATS, regulators should ensure that levels of regulation are consistent.’’ 180 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.’’ 181 Wellington Management Company opined that ‘‘the burden of regulation should be shared fairly by execution venues’’ and that ‘‘exchanges should be granted the ability to make certain rule changes in a manner similar to ATSs (i.e., as a notification with SEC veto authority, and not as part of a lengthy notice, comment, and approval process).’’ 182 Liquidnet
stated that ‘‘regulators should not impose unnecessary burdens on ATSs and brokers, but rather should remove unnecessary regulatory burdens from exchanges, to the extent that they exist.’’ 183 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).’’ 184 Blackrock, Inc. expressed the view that although some ATSs voluntarily publish their Form ATS filings and supplemental materials, the ‘‘particular operational features specified and degree of detail lack consistency from one [Form ATS] submission to another’’ and that ‘‘[a]dditional standardization and information are required in disclosures about ATS practices.’’ 185 Blackrock further stated that ‘‘[m]andatory ATS disclosures should include greater detail on how the platform calculates reference prices, determines order priority, matches orders between client segments, monitors execution quality, advertises orders, interacts with affiliates and is compensated by subscribers.’’ 186 The Consumer Federation of America stated that Form ATS should require ATSs to provide ‘‘critical details about an ATS’s participants, segmentation, and fee structure’’ because the ‘‘information will allow market participants, regulators, and third party analysts to assess whether an ATS’s terms of access and service are such that it makes sense to trade on that venue.’’ 187 The Consumer Federation of America further opined that ‘‘the Commission should undertake an exhaustive investigation of the current order types, requiring exchanges and all ATSs, including dark pools, to disclose in easily understandable terms what their purpose is, how they are used in practice, who is using them, and why they are not discriminatory or resulting in undue benefit or harm to any traders.’’ 188 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.189 Bloomberg Tradebook also recommended that the Commission ask exchanges and ATSs to complete a questionnaire with ‘‘Yes’’ and ‘‘No’’ checkboxes that would provide an overview of each exchange’s or ATS’s operations, and which Bloomberg Tradebook suggested could be posted on the Commission’s Web site. Bloomberg
Tradebook provided a sample questionnaire that included questions relating to, among other things, affiliations, riskless principal trades, trades effected in a proprietary capacity, sharing of orders or order information with affiliates or other trading venues and compensation for such sharing, operation of a smart order router and whether it gives preference to the exchange or ATS or an affiliate, priority rules, order types that enable customers to gain preference, and special fees or rebates which lead to a preference of one order over another.190 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 (e.g., flash/pinging orders, conditional orders), services (e.g., co-location, special priority), and data (e.g., depth-of-book quotations, per order information).’’ Second, they would ‘‘disclose the basis upon which members/subscribers access the type of order, service or data,’’ and ‘‘whether only a certain class of market participants has access.’’ Third, they would be required to disclose how commonly the functionality is used. Fourth, the exchanges and ATSs would disclose more market quality statistics ‘‘so that investors and other market

191 Goldman Sachs letter, supra note 175, at 9–10. 192Lime Brokerage letter, supra note 175, at 7. 193Managed Funds Association letter, supra note 175, at 27. 194SIFMA letter #1, supra note 175, at 7. 195See Southeastern Asset Management letter, supra note 175, at 7. 196See Liquidnet letter #2, supra note 175, at F– 1–F–2; see also supra note 129. 197See Morgan Stanley letter, supra note 175, at 12–14. Additionally, representatives from Morgan Stanley met with staff from the Commission’s Division of Trading and Market to discuss market structure issues. During that meeting, Morgan Stanley provided, among other things, examples of frequently asked questions that it believes could be standardized to provide mandated transparency about how orders are handled on dark pools. See Memorandum from the Division of Trading and Markets regarding an October 1, 2015, meeting with representatives of Morgan Stanley, https:// www.sec.gov/comments/s7-02-10/s70210.shtml. 198See Morgan Stanley letter, supra note 175. 199See Nasdaq OMX letter, supra note 175, at 14– 16. 200 Id. at 16. 201NYSE Euronext letter #2, supra note 175, at 7. 202SIFMA letter #2, supra note 175, at 13. 203Blackrock letter, supra note 175, at 4. 204Consumer Federation of America letter, supra note 175, at 22. participants could better gauge execution quality.’’ 191 Lime Brokerage, LLC recommended that the Commission should require ‘‘transparency around pricing, access criteria and membership of dark pools.’’ 192 Managed Funds Association stated that ‘‘as long as co-location is available to investors, traders and larger brokers on an equal basis, the secondary market for such services to smaller customers from their brokers should be competitive and thus, fairly priced,’’ and therefore, ‘‘we believe market centers should disclose if they or third parties offer co-location services on a priority basis other than first available.’’ 193 SIFMA stated its belief that ‘‘added disclosure about co-location and other market access arrangements would be beneficial to market participants,’’ and that ‘‘[s]uch disclosure might describe standard, high speed, co-location, or other means by which members may access an exchange or ATS, and provide market participants with details regarding the categories of market participants that use each means of access, the data capacity associated with each arrangement, and the quotation and transaction volume attributable to each arrangement.’’ 194 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.195 Liquidnet recommended that institutional ATSs make similar disclosures to those it recommended when commenting on the Regulation of
Non-Public Interest proposing rules and amendment to joint-industry plans.196 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.197 The commenter also provided some sample questions for its clients to ask of their dark pool providers. These included questions relating to the dark pools methods of access, client/subscriber base, types of orders permitted, matching of dark pool orders at the NBBO, price improvement, interaction of the dark pool’s principal and proprietary orders with client orders on the dark pool, categorization or tagging of order flow, and order types.198 The commenter also included several questions that clients should ask dark pools about the sell-side broker￾dealers and exchanges that the dark pools access. 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.199 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.’’ 200 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.’’ 201 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.’’ 202 Blackrock stated that current and historical Form ATS filings for active ATSs ‘‘should be made immediately available to the public, subject to appropriate redaction of confidential information,’’ noting that some ATS operators ‘‘have already displayed exemplary transparency by voluntarily publishing their Form ATS filings and supplemental materials.’’ 203 The Consumer Federation of America stated its support for requiring all ATSs, including dark pools, to publicly disclose their Forms ATS ‘‘so that the public can see how these venues operate.’’ 204 KOR Group LLC opined that the fact that ‘‘ATS filings are hidden from the public while the burden is on SROs to file publicly . . . does not serve the public interest in any

205 KOR Group letter, supra note 175, at 12. 206 Goldman Sachs letter, supra note 175, at 10. 207See Angel letter, supra note 175, at 13. 208See Liquidnet letter #1 supra note 166. 209See Liquidnet letter #2, supra note 175, at F– 8. 210Scottrade letter, supra note175, at 4. 211Bloomberg L.P. letter, supra note175, at 4–5. 212BNY ConvergEx Group letter, supra note175, at 18, 21. 213See id. at 21. 214See Blackrock letter, supra note 175; letter from John C. Nagel, Managing Director and Senior Deputy Counsel, Citadel LLC, dated July 21, 2014 (‘‘Citadel letter’’). See also Securities and Exchange Commission Market Structure Web site (‘‘Market Structure Web site’’), http://www.sec.gov/ marketstructure/. 215See Blackrock letter, supra notes 175, 185, 186, and 203 and accompanying text. 216See Citadel letter, supra note 214, at 4. 217See proposed Rule 300(k). 218See 17 CFR 242.300(g). 219See 17 CFR 242.600(b)(47). 220See 17 CFR 242.600(b)(46). Transaction reports for securities that are listed and registered, or admitted to unlisted trading privileges on a national securities exchange, are collected, processed, and made available pursuant to the Consolidated Tape Association (‘‘CTA’’) plan (‘‘CTA Plan’’) and the OTC/UTP Plan. See, e.g., CTA Plan (dated as of October 1, 2013), https:// www.ctaplan.com/publicdocs/ctaplan/ notifications/plans/trader-update/5929.pdf at 34 (describing the types of securities to which the CTA plan applies). See also Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchange on an Unlisted Trading Privilege Basis, http://web.archive.org/web/20070114023844/http:// www.utpdata.com/docs/UTP_PlanAmendment.pdf at 2, 10–13 (‘‘OTC/UTP Plan’’) (describing the securities for which transaction information is collected and disseminated as any Nasdaq Global Market or Nasdaq Capital Market security, as defined in then-operative NASDAQ Rule 4200). Nasdaq Rule 5005(a)(26) defines Nasdaq Global Market security as: Any security listed on Nasdaq that (1) satisfies all applicable requirements of the Rule 5100 and 5200 Series and meets the criteria set forth in the Rule 5400 Series; (2) is a right to purchase such security; (3) is a warrant to subscribe to such security; or (4) is an Index Warrant which meets the criteria set forth in Rule 5725(a). Nasdaq Rule 5005(a)(28) defines Nasdaq Capital Market security as: Any security listed on The Nasdaq Capital Market that (1) satisfies all applicable requirements of the Rule 5100, 5200 and 5500 Series but that is not a Nasdaq Global Market security; (2) is a right to purchase such security; or (3) is a warrant to subscribe to such security. 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.’’ way, and makes it easy for media and others to sensationalize and demonize what is occurring in this part of the market,’’ further opining that there ‘‘should not be any reasoned argument against’’ making Form ATS publicly available.205 Goldman Sachs recommended disclosing Form ATS publicly because ‘‘[s]uch disclosure would provide investors with useful information regarding the business practices of ATSs,’’ and supported a requirement for ‘‘ATSs to provide public notice of material changes to their business practices,’’ but also stated its opposition to ‘‘any requirement that ATSs disclose information about their matching algorithms or the nature of their subscribers’’ because such disclosure ‘‘could result in information leakage that would detrimentally impact liquidity.’’ 206 James J. Angel commented that Form ATS should be publicly available on the Commission’s Electronic Data Gathering, Analysis, and Retrieval System (‘‘EDGAR’’).207 As it had done when commenting on the Regulation of Non-Public Interest proposing rules and amendment to joint-industry plans,208 Liquidnet recommended that ATS filings with the Commission be made publicly available.209 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.’’ 210 Bloomberg L.P. stated that it had ‘‘heard exchanges argue it would be in the interest of the exchanges to regulate ATSs more aggressively,’’ but that it had ‘‘not seen evidence why that which is in the exchanges’ interest is necessarily in the public interest,’’ and suggested that the Commission should ‘‘look to investors’ needs,’’ which Bloomberg L.P. thought ‘‘do not . . . justify increasing the regulatory burdens on alternative trading systems.’’ 211 BNY ConvergEx Group stated its belief that ‘‘the current system of ATS regulation works well and structural changes are not necessary,’’ and that because ‘‘[d]ark ATSs market their services to institutional customers and prospective customers on a continuous basis . . . institutions know full well what types of customers each ATS caters to and the services they offer.’’ 212 BNY ConvergEx Group acknowledged that ‘‘some retail investors may not understand precisely how dark ATSs operate,’’ but opined that ‘‘[a]ny perceived lack of information for retail investors about an ATS’s trading services would only become an issue if the ATS was
to become subject to the Fair Access provisions of Regulation ATS,’’ and that ‘‘because retail investors are unlikely to pass the objective credit and other financial standards that would be required under a Fair Access regime to become subscribers of the ATS, this may not be a real issue.’’ 213 The Commission received two comment letters on its Market Structure Web site relevant to the Commission’s proposal to amend Regulation ATS.214 Blackrock submitted the same comment letter to the Market Structure Web site that it submitted with respect to the 2010 Equity Market Structure Release.215 Citadel expressed the view that ‘‘dark pools should be subject to increased transparency,’’ and that ‘‘ATS operational information and filings should be publicly available.’’ 216 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.
IV. Proposed Amendments to
Regulation ATS and Rule 3a1–1 to Heighten Regulatory Requirements for ATSs That Transact in NMS Stocks A. Proposed Definition of NMS Stock ATS 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).’’ 217 Rule 300(g) of Regulation ATS currently provides, and would continue to provide, that the term ‘‘NMS stock’’ has the meaning provided in Exchange Act Rule 600 of Regulation NMS; provided, however, that a debt or convertible debt security shall not be deemed an NMS stock for purposes of Regulation ATS.218 Pursuant to Exchange Act Rule 600(b), an NMS stock is any NMS security other than an option,219 and an NMS security is ‘‘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.’’ 220 Thus, under the proposed amendment to Regulation ATS, an NMS Stock ATS would include

221 17 CFR 242.300(a).
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. See Regulation ATS Adopting Release, supra note 7, at 70851–70852. 222 17 CFR 240.3a1–1(a)(1). 223 17 CFR 240.3a1–1(a)(2). 224 17 CFR 240.3a1–1(a)(3). 225 In Exchange Act Rules 3a1–1(a)(2) and (3), Regulation ATS is currently defined as ‘‘17 CFR
242.300 through 242.303.’’ The Commission is
proposing to amend these references to Regulation ATS to define Regulation ATS as ‘‘17 CFR 242.300 through 242.304.’’ 226See infra Section IV.C. Specifically, the Commission is proposing to amend Rule 3a1–1(a)(2) by changing the reference to Rule 303 to proposed Rule 304. Under the proposal, an NMS Stock ATS would not be required to file the reports and amendments that it is currently required to file on Form ATS pursuant to Rule 302(b)(2), unless the ATS also effects transactions in securities other than NMS stock and is not otherwise exempt. See proposed Rule 301(b)(2)(viii). 227See Regulation ATS Adopting Release, supra note 7, at 70856–70857. 228See, e.g., SCI Adopting Release, supra note 17, at 72264. 229See id. 230See supra Sections III.B and C. 231See infra Section XIII.D.4. any ATS that effects transactions in securities that are listed on a national securities exchange (other than options, debt or convertible debt). In addition, to meet the definition of an NMS Stock ATS, the organization, association, person, group of persons or system must meet the definition of an alternative trading system under Rule 300(a) of Regulation ATS.221 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. B. Rule 3a1–1(a)(2): Proposed Amendments to the Exemption From the Definition of ‘‘Exchange’’ for NMS Stock ATSs Exchange Act Rule 3a1–1(a) exempts from the definition of ‘‘exchange’’: (1) Any alternative trading system operated by a national securities association,222 (2) any alternative trading system that complies with Regulation ATS,223 and (3) any alternative trading system that under Rule 301(a) of Regulation ATS is not required to comply with Regulation ATS.224 Most ATSs fall within the second prong of Exchange Act Rule 3a1–1 and thus, must comply with Regulation ATS to qualify for an exemption from the statutory definition of an ‘‘exchange.’’ 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.225 Amended Rule 3a1– 1(a)(2) would condition the exemption for any ATS that meets the definition of ‘‘NMS Stock ATS’’ on compliance with Rules 300 through 303 of Regulation ATS (except Rule 301(b)(2)) and proposed Rule 304.226 The Commission is proposing to amend Rule 3a1–1(a)(3) by changing the reference to Rule 303 to proposed Rule 304. This is merely a conforming change to make clear that an NMS Stock ATS that meets the requirements of Rule 301(a) is not required to comply with Regulation ATS, which would be amended to include proposed Rule 304. Rule 3a1– 1(a)(1), which exempts any ATS that is operated by a national securities association, is not impacted by the amendments the Commission is proposing today. 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.227 The Commission notes, as it has in other contexts,228 that SRO and non-SRO markets, such as NMS Stock ATSs, are subject to different regulatory regimes, with a different mix of benefits and obligations. Pursuant to this proposal, NMS Stock ATSs would continue to be able to choose to register as national securities exchanges or as broker-dealers. The Commission is proposing, however, to increase the scope of the conditions to the exemption for the purpose of providing more transparency around the operations of NMS Stock ATSs and potential conflicts of interest resulting from the unique relationship between the broker-dealer operator and the NMS
   Stock ATS, as discussed further below. While questions have been raised in other contexts as to whether the broader regulatory framework for national securities exchanges and ATSs should be harmonized,229 the Commission preliminarily believes that the proposals are an appropriate response to concerns about the need for transparency about the operations of NMS Stock ATSs and potential conflicts of interest resulting from the activities of their broker-dealer operators and the broker-dealer operators’ affiliates. The Commission preliminarily believes that the proposals would help market participants make better informed decisions about where to route their orders for execution; the proposed disclosures would also provide the Commission with improved tools to carry out its oversight of NMS Stock ATSs. Moreover, as explained above, the Commission is concerned that market participants have limited information about the increasingly complex operations of NMS Stock ATSs,230 and need more transparency on NMS Stock ATSs to fully evaluate how their orders are handled and executed on NMS Stock ATSs. The Commission preliminarily believes that the enhanced disclosures about the operations of NMS Stock ATSs elicited by proposed Form ATS–N would provide better information about how NMS Stock ATSs operate and, thereby, enable the Commission to determine whether additional regulatory changes for either or both national securities exchanges and ATSs are necessary. The Commission has considered the alternative of requiring different levels of disclosure among NMS Stock ATSs based on volume.231 However, the Commission preliminarily believes that it is necessary and appropriate for the protection of market participants to apply the proposed heightened conditions for the Rule 3a1–1(a)(2) exemption to all NMS Stock ATSs. The Commission notes that market participants may subscribe to multiple ATSs and route orders in NMS stocks among various ATSs prior to receiving an execution. The Commission preliminarily believes that because orders in NMS stocks may be routed to any NMS Stock ATS, regardless of the volume traded on the NMS Stock ATS, all market participants would benefit from the disclosures provided pursuant to proposed Rule 304. Accordingly, the

232 Data compiled from Forms ATS and ATS–R submitted to the Commission as of November 1, 2015. 233See SCI Adopting Release, supra note 17, at 72270. 234See October 15 Staff Report, infra note 247 at 35–36. 235See SCI Adopting Release, supra note 17, at 72270. 236See Securities Exchange Act Release Nos. 55496 (March 20, 2007) 72 FR 14631 (March 28,
2007) (NYSE–2006–37) (approving the
establishment of NYSE Bonds as an electronic order-driven matching system for debt securities, including, but not limited to corporate bonds (including convertible bonds), international bank bonds, foreign government bonds, U.S. government bonds, government agency bonds, municipal bonds, and debt-based structured products under NYSE Rule 86) and 58839 (October 23, 2008) 73 FR 64645 (October 30, 2008) (NYSEALTR–2008–03) (notice of filing and immediate effectiveness of the Exchange’s proposal to relocate the Exchange’s debt trading and adopt NYSEAlternext Equities Rule 86 (now NYSEMKT—Equities Rule 86) in order to facilitate trading on the system NYSE Alternext Bonds system (now NYSEMKT Bonds)). 237For interdealer trading for ‘‘benchmark’’ U.S. Treasury securities, however, trading occurs mainly on centralized electronic trading platforms using a central limit order book, namely ATSs. See October 15 Staff Report, infra note 247 at 11. Commission believes that the proposed rules addressing greater operational transparency should apply equally to all NMS Stock ATSs. 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.232 Based on Commission experience, the equity markets, which are generally highly automated trading centers that are connected through routing networks, operate and execute orders at rapid speeds using a variety of order types. Unlike the complex trading centers of the equity markets, the Commission preliminarily believes that fixed income markets currently rely less on speed, automation, and electronic trading to execute orders and other trading interest,233 although that may be changing in some fixed income markets such as those that trade certain government securities.234 Generally, fixed income ATSs offer less complex order types to their subscribers than those offered by NMS Stock ATSs, sometimes restricting incoming orders to limit orders, and the execution of matched interest involves negotiation or a process. In addition, the municipal and corporate fixed income markets tend to be less liquid than the equity markets, with slower execution times and less complex routing strategies.235 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,236 the Commission preliminarily believes that the majority of trading in fixed income securities occurs on the bilateral market.237 As such, ATSs that effect trades in fixed income securities primarily compete against other trading venues with limited or no operational transparency requirements or standards. By contrast, NMS Stock ATSs, which provide limited information to market participants about their operations, 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.
Accordingly, the Commission preliminarily believes that any proposed revisions to the disclosure requirements for fixed income ATSs under Regulation ATS should be specifically tailored to the attributes of the fixed income market and, therefore, may require different changes to the current Regulation ATS regime and Form ATS than those being proposed herein, which are in direct response to specific transparency concerns related to the operational complexities of NMS Stock ATSs and market participants’ general inability to compare NMS Stock ATSs to one another and to national securities exchanges. 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

238For instance, the Commission preliminarily believes that non-ATS business units of broker￾dealer operators of fixed income ATSs may not trade proprietarily on their ATSs to the same extent that proprietary trading desks, or other business units, of multiservice broker-dealer operators trade on NMS Stock ATSs. 239The Commission does note, however, that some ATSs may currently make voluntary public disclosures. See, e.g., infra note 156. 240See 15 U.S.C. 78c(a)(42) (defining ‘‘government securities’’ as, among other things, ‘‘securities which are direct obligations of, or obligations guaranteed as to principal or interest by, the United States’’). 241See 17 CFR 242.301(a)(4)(i) and (ii)(A). a fixed income ATS,238 the current operations of fixed income ATSs may give rise to potential conflicts of interest between the non-ATS operations of a broker-dealer operator, or its affiliates, and the fixed income ATS. Accordingly, the Commission seeks comment on the following:
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 239 and Forms ATS filed with the Commission by fixed income ATSs are deemed confidential. 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,240 should be subject to increased regulation, operational transparency requirements, or both. Under Rule 301(a)(4) of Regulation ATS, an ATS that solely trades government securities and is registered as a broker￾dealer or is a bank is exempt from the requirement to either register as a national securities exchange or comply with Regulation ATS.241 If an ATS trades both government securities and non-government securities—such as NMS stocks, corporate or municipal fixed income securities—it must either register as a national securities exchange or comply with Regulation ATS. However, these ATSs are not subject to several requirements under Regulation ATS with regard to their trading in government securities. First, ATSs that

242See supra notes 86–90 and accompanying text. 243See supra notes 92–94 and accompanying text. 244See supra notes 96–97 and accompanying text. 245See Public Law 99–571, October 28, 1986, and Public Law 103–202, December 17, 1993. 246The Government Securities Act authorized the U.S. Treasury Department to promulgate rules governing transactions in government securities by government securities brokers and dealers. See October 15 Staff Report, infra note 247, at 9. The Commission, FINRA, and federal bank regulators— in consultation with the U.S. Treasury Department—also have the authority to issue sales practice rules for the government securities secondary market. See id. 247See Joint Staff Report: The U.S. Treasury Market on October 15, 2014 (July 13, 2015) (the ‘‘October 15 Staff Report’’), http:// www.treasury.gov/press-center/press-releases/ Documents/Joint_Staff_Report_Treasury_10-15- 2015.pdf. 248See October 15 Staff Report, supra note 247, at 8–14, 35–44. 249See id. at 11. 250See id. at 35. 251Benchmark issues are the most recently issued nominal coupon securities. See id. at 11. Nominal coupon securities pay a fixed semi-annual coupon and are currently issued at original maturities of 2, 3, 5, 7, 10, and 30 years. See id. at 11, n.6. 252See id. at 11, 35–36. The October 15 Staff Report also notes that the majority of interdealer trading of ‘‘seasoned’’ Treasury securities and the majority of dealer-to-customer trading is via bilateral transactions. See id. at 11, 35–36 n.31. 253See id. at 36. 254See id. 255See id. at 32, 35–36, 39. 256See id. at 38. 257See id. at 36. 258See id. at 36–37. 259See id. at 45. 260See id. at 47. 261See id. at 48. 262Prior to adopting any changes to Regulation ATS with regard to ATSs that trade government securities, the Commission would, as appropriate, consult with and consider the views of the Secretary of the Treasury and any other appropriate regulatory agencies. See 15 U.S.C. 78o(c)(2)(E). do not trade NMS stocks are not subject to the order display and execution access provisions under Rule 301(b)(3).242 Additionally, the government securities activities of ATSs that trade both government and other securities are not subject to either the fair access provisions of Rule 301(b)(5) 243 or the capacity, integrity, and security of automated systems provisions under Rule 301(b)(6).244 Pursuant to the Exchange Act (particularly the provisions of the Government Securities Act of 1986, as amended 245) and federal banking laws, brokers and dealers in the government securities market are regulated jointly by the Commission, the United States Department of the Treasury (‘‘U.S. Treasury Department’’), and federal banking regulators.246 Recently, staff members from 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 issued a joint report about the unusually high level of volatility and
rapid round-trip in prices that occurred in the U.S. Treasury market on October 15, 2014 (the ‘‘October 15 Staff Report’’).247 The October 15 Staff Report discusses the conditions that contributed to the October 15, 2014 developments and key findings from the analysis of data from that day. 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.248 For the secondary market in cash U.S. Treasury securities (‘‘Treasury securities’’), the October 15 Staff Report explains that trading occurs: (1) In bilateral transactions via voice or a variety of electronic means; or (2) on centralized electronic trading platforms using a central limit order book.249 The October 15 Staff Report notes that the structure of the U.S. Treasury market has ‘‘evolved notably in recent years’’ and electronic trading has become an increasingly important feature of the modern interdealer market for Treasury securities.250 Like modern-day trading in NMS stocks, the majority of interdealer trading in benchmark Treasury securities,251 which is the most liquid type of Treasury security, currently occurs on centralized electronic trading platforms using a central limit order book, namely ATSs.252 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.253 PTFs, which have direct access to electronic trading platforms for Treasury securities, now represent more than half of the trading activity on electronic interdealer trading platforms for Treasury securities.254 Similar to HFTs in the equity markets, PTFs trading on the electronically brokered interdealer market for Treasury securities often employ automated algorithmic trading strategies that rely on speed and allow the PTFs to cancel or modify existing quotes in response to perceived market activity.255 Furthermore, most PTFs trading Treasury securities on electronic platforms also restrict their activities to proprietary trading and do not hold long positions.256 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.257 The October 15 Staff Report notes that automated trading can occur at speeds that exceed the capacity of manual detection and intervention, posing a challenge to traditional risk management protocols, and forcing market participants, trading platforms, and clearing firms to develop internal risk controls and processes to manage the potential for rapidly changing market and counterparty risk
exposures.258 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.259 In connection with this, the cross-agency staff expressed support for a review of the current regulatory requirements applicable to the government securities market and its participants and suggested studying the implications of a registration requirement for firms conducting certain types of automated trading in the U.S. Treasury market and for government securities trading venues.260 The staff also recommended an assessment of the data available to the public and to the official sector on U.S. Treasury cash securities markets, which would include efforts to enhance public reporting on U.S. Treasury market venue policies and services.261 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.262

263For the purposes of this analysis and request for comment, the Commission is using the term ‘‘OTC Equity Security’’ as it is defined in FINRA’s 6400 rule series for quoting and trading in OTC Equity Securities. FINRA defines OTC Equity Security as ‘‘any equity security that is not an ‘NMS stock’ as that term is defined in Rule 600(b)(47) of SEC Regulation NMS; provided, however, that the term ‘OTC Equity Security’ shall not include any Restricted Equity Security,’’ which FINRA defines as ‘‘any equity security that meets the definition of ‘restricted security’ as contained in Securities Act Rule 144(a)(3).’’ See FINRA Rules 6420(f), (k). 264FINRA Rule 6420 defines an interdealer quotation system as ‘‘any system of general circulation to brokers or dealers which regularly disseminates quotations of identified brokers or dealers.’’ See FINRA Rule 6420(c). An example of an interdealer quotation system is the OTC Bulletin Board that FINRA operates. Specifically, the Commission seeks comment on the following:
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.263 At this time, the Commission preliminarily believes that many of its specific concerns related to the current operations of NMS Stock ATSs, which proposed Rule 304 and proposed Form ATS–N seek to address directly, are not equally applicable to OTC Equity Securities ATSs. The Commission preliminarily believes that OTC Equity Securities ATSs do not currently operate with the same complexities as NMS Stock ATSs. Additionally, trading in OTC Equity Securities is almost always facilitated through ATSs, through inter-dealer quotation systems that are not ATSs,264 or elsewhere in the bilateral market. Accordingly, trading in the market for OTC Equity Securities is typically facilitated by platforms or amongst market participants that are not subject to operational transparency requirements comparable to those imposed on national securities exchanges (i.e., the self-regulatory organization rule filing process). The Commission also preliminarily believes that OTC Equity Securities ATSs are evolving and, therefore, the Commission seeks comment on the following:
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

265The Commission notes that, based on information provided on Forms ATS and ATS–R as of November 1, 2015, 5 ATSs may trade such securities. 266As discussed above, the Commission is proposing to amend Rule 3a1–1(a) to provide for modified conditions to the exemption set forth in proposed Rule 304. See supra Section IV.B. Securities ATSs within the scope of proposed Rule 304? Why or why not? Please support your arguments.
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.265 For example, an ATS might help match orders for options contracts or facilitate trades in cooperative interests or membership units in limited liability companies. At this time, the Commission does not believe that these ATSs raise the same operational transparency concerns as NMS Stock ATSs. The products traded on these ATSs are not traded on national securities exchanges and, therefore, these ATSs are not competing against platforms with greater transparency requirements. Furthermore, the Commission preliminarily believes that ATSs that trade in securities other than NMS stocks, fixed income securities, or OTC Equity Securities do not currently operate with the same complexities as NMS Stock ATSs. For such ATSs, however, the Commission seeks comment on the following:
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.
C. Proposed Rule 304: Enhanced Filing
Requirements for NMS Stock ATSs

1. Application of Existing Requirements
   to NMS Stock ATSs
   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).266 The Commission is not proposing to change Rule 301(a) as part of this proposal, but is simply making

267Pursuant to Rule 301(a), certain ATSs that are subject to other appropriate regulations are not required to comply with Regulation ATS. These ATSs include those that are: Registered as an exchange under Section 6 of the Exchange Act; exempt from exchange registration based on limited volume; operated by a national securities association; registered as a broker-dealer, under Sections 15(b) or 15C of the Exchange Act, or that is a bank, that limits its securities activities to certain instruments; or exempted, conditionally or unconditionally, by Commission order, after application by such alternative trading system from one or more of the requirements of Rule 301(b). See 17 CFR 242.301(a). See also Regulation ATS Adopting Release, supra note 7, at 70859–63. 268See 17 CFR 242.301(b)(1), (b)(3)–(11). 269See supra Section II.B. 270See, e.g., Regulation ATS Adopting Release, supra note 7, at 70856. In adopting the existing conditions in Rule 301, the Commission determined that the exemption in Rule 3a1–1 was consistent with the protection of investors because the Commission believed that investors would benefit from the conditions governing an alternative trading system, in particular Regulation ATS’s enhanced transparency, market access, system integrity, and audit trail provisions. See id. 271See proposed Rules 301(b)(2)(i) and (vii), respectively. 272See 17 CFR 242.301(b)(2)(i) and (vii), respectively. 273See 17 CFR 242.301(b)(2). 274See supra Section IV.B. (discussing the proposed conditions to the exemption in Rule 3a1– 1(a) for ATSs that trade NMS stocks, as compared to the conditions for ATSs that trade other securities or that trade NMS stocks as well as other securities). 275See supra Section IV.B. 276See 17 CFR 242.301(b)(9). 277See Regulation ATS Adopting Release, supra note 7, at 70878. clear that Rule 301(a) continues to apply to NMS Stock ATSs, unless otherwise exempt.267 Thus, NMS Stock ATSs would still be required to comply with the existing requirements of Rules 300 through 303 of Regulation ATS, and would additionally be required to comply with proposed Rule 304. The Commission also notes that the requirements of Rule 301(b) (except Rule 301(b)(2)) of Regulation ATS 268 would continue to apply to NMS Stock ATSs. As discussed above, Rule 301(b) sets forth the conditions with which an ATS must comply to benefit from the exemption provided by Exchange Act Rule 3a1–1(a).269 The Commission continues to believe that compliance by NMS Stock ATSs with the provisions of Rule 301(b) of Regulation ATS (except Rule 301(b)(2)), as amended, is a necessary and appropriate condition to the Rule 3a1–1(a)(2) exemption from the definition of exchange in that the purpose of such condition is the protection of investors.270 The Commission would no longer require an NMS Stock ATS to comply with the reporting and amendment requirements of Rule 301(b)(2) because such conditions would be replaced with the more specific disclosure requirements of proposed
Rule 304 for NMS Stock ATSs, discussed in further detail below. The Commission is also proposing to make non-substantive amendments to Rule 301(b)(2)(i) and Rule 301(b)(2)(vii) 271 to delete outdated references to dates for phased in compliance with Regulation ATS for ATSs that were operational as of April 21, 1999, and to update the name of the Division of Trading and Markets, respectively.272 The Commission requests comment generally on all aspects of proposed Rule 304(a).
2. Rule 301(b)(2) and Form ATS; ATSs
That Trade in Non-NMS Stocks 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.’’ 273 Because the Commission is proposing rules to govern the content and manner in which an NMS Stock ATS would be required to disclose information to the public and the Commission on proposed Form ATS–N, existing Rule 301(b)(2), which applies, and will continue to apply, to ATSs that do not effect transactions in NMS stocks would be duplicative of the proposed amendments.274 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.275 As such, the Commission has tailored proposed Form ATS–N to address the specific operational transparency concerns raised by the current functionalities of the ATS platforms on which NMS stock order flow interacts and executes. Additionally, the Commission preliminarily believes that applying proposed Rule 304 to the non￾NMS stock operations of ATSs that trade both NMS stocks and non-NMS stocks would impose unequal regulatory burdens across ATSs that transact in non-NMS stocks. Under such a rule, ATSs that trade both NMS stocks and non-NMS stocks would be required to meet the heightened standards of proposed Rule 304 to be eligible for the exemption under Rule 3a1–1(a)(2) with regard to their non-NMS stock operations, whereas ATSs that only trade non-NMS stocks would not be subject to the standards under proposed Rule 304. The Commission also proposes to amend Rule 301(b)(9),276 which requires an ATS to report transaction volume on Form ATS–R on a quarterly basis and within 10 calendar days after it ceases
operation. The Commission proposes to 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 non￾NMS stocks on another Form ATS–R. The information filed on Form ATS–R permits the Commission to monitor trading on an ATS.277 As noted above, the Commission proposes to require each ATS with both NMS stock and non-NMS stock operations to file a Form ATS–N for its NMS stock operations and a separate Form ATS for its non￾NMS stock operations. Because the proposed Form ATS–N and Form ATS filings of such ATSs would describe separate functionalities—the functionalities for the trading of NMS stocks and those for the trading of non￾NMS stocks, respectively—the Commission preliminarily believes that these ATSs should file a separate Form ATS–R to report the trading activity for each functionality to avoid confusion and for regulatory efficiency. Accordingly, the Commission is proposing to require that these ATSs file a Form ATS–R to report transaction volume resulting from their NMS stock operations, as disclosed on a Form ATS–N, and a separate Form ATS–R to

278See supra Section IV.B.
279 17 CFR 242.301(b)(2).
280The Commission notes, however, that Form ATS–N is intended to provide regulatory and public transparency. As such, its review of Form ATS–N will be focused on an evaluation of the completeness and accuracy of the disclosure thereon, and compliance with federal securities laws. Even if the Commission declares a Form ATS–N effective, the Commission would not be precluded from later determining that an NMS Stock ATS had violated the federal securities laws or the rules and regulations thereunder. See infra
Section IV.C.8.
281The NMS Stock ATS would be required to continue to comply with Regulation ATS. 282 17 CFR 242.301(b)(2)(ii) through (iv). report transaction volume resulting from their non-NMS stock operations, as disclosed on Form ATS. The Commission notes that Form ATS–R would continue to be deemed confidential. 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.
3. Proposed Rule 304(a)(1)(i) and (ii):
Filing and Review of Form ATS–N 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,278 the current requirements of the Rule 3a1–1(a)(2) exemption mandate that an ATS only provide notice of its operation on a Form ATS initial operation report 20 days prior to commencing operations.279 The Commission’s review of Form ATS–N would help ensure that an NMS Stock ATS’s disclosures comply with the requirements of proposed Rule 304 and that a consistent level of information is made available to market participants in evaluating NMS Stock ATSs.280 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 (i.e., a ‘‘legacy NMS Stock ATS’’) to file a Form ATS–N with the Commission no later than 120 calendar days after the effective date of proposed Rule 304. In other words, the effectiveness of an existing Form ATS would not suffice for a legacy NMS Stock ATS to retain its exemption from the definition of ‘‘exchange’’ with respect to its Rule 3b– 16 activity in NMS stocks beyond the transition period following the effectiveness of proposed Rule 304. The Commission is also proposing in Rule 304(a)(1)(i) that a legacy NMS Stock ATS may continue to operate pursuant to a previously filed initial operation report on Form ATS pending the Commission’s review of the filed Form ATS–N.281 This provision would allow the NMS Stock ATS to continue its current operations without disruptions to the NMS Stock ATS or its current subscribers and provide the NMS Stock ATS with sufficient time to make an orderly transition from compliance under the current Regulation ATS requirements to compliance with the proposed requirements of Rule 304. The Commission notes that during the Commission’s review of the filed Form ATS–N, the NMS Stock ATS would continue to operate pursuant to its existing Form ATS initial operation report and would continue to be required to file amendments on Form ATS to provide notice of changes to the operations of its system.282 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

283As discussed above, a legacy NMS Stock ATS would be able continue to operate pursuant to a previously filed initial operation report on Form ATS pending the Commission’s review of the filed Form ATS–N. 284A submitted Form ATS–N that contains technical deficiencies, such as missing pages or one in which the entity does not respond to all questions, including all sub-questions, would not be complete and would be returned to the NMS Stock ATS. See also 17 CFR 240.0–3. Return of a Form ATS–N would not prejudice any decision by the Commission regarding effectiveness or ineffectiveness should the NMS Stock ATS resubmit a Form ATS–N. The Commission notes an NMS Stock ATS also can choose to withdraw a filed Form ATS–N. 285An NMS Stock ATS would also be required to comply with other requirements of Rules 300 through 303 of Regulation ATS (except Rule 301(b)(2)) and proposed Rule 304. 286Regulation ATS defines an ATS as any organization, association, person, group of persons, or system that constitutes 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 Exchange Act Rule 3b–16, and does not set rules governing the conduct of subscribers, other than the conduct of such subscribers’ trading on such organization, association, person, group of persons, or system, or discipline subscribers under the Exchange Act other than by exclusion from trading. See 17 CFR 242.300(a). 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. See supra note 48 and accompanying text. See also supra Section IV.A (discussing the proposed definition of ‘‘NMS Stock ATS’’). 287See proposed Rule 300(k). See also supra
Section IV.A (discussing the proposed definition of
NMS Stock ATS).
288For example, an ATS that is not an NMS Stock ATS would be subject to different conditions to be eligible for the Rule 3a1–1(a)(2) exemption. Similarly, depending on the facts and circumstances, an entity that is not an ATS may be subject to requirements as a broker-dealer, but not the conditions of Regulation ATS, or may be required to register as an exchange. filed by legacy and new NMS Stock ATSs, including its responsibilities to protect investors and maintain fair, orderly, and efficient markets.283 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. Request for Comment
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.
4. Proposed Rule 304(a)(1)(iii):
Declarations of Effectiveness or Ineffectiveness of Form ATS–N 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.284 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).285 For the Commission to declare a Form ATS–N effective, it would evaluate, among other things, whether the entity satisfies the definition of ATS,286 and more specifically, the definition of NMS Stock ATS.287 The Commission preliminarily believes that whether an entity meets the definition of ‘‘NMS Stock ATS’’ should be a threshold requirement for the Commission to declare a Form ATS–N effective, and therefore for the ATS to qualify for the Rule 3a1–1(a)(2) exemption. Proper classification of an entity would clearly indicate to market participants, as well as the Commission, the functions that entity performs and the regulatory framework and attendant obligations that attach to that entity.288 Thus, if the proposed category of NMS Stock ATS is adopted, the Commission preliminarily believes it needs to mitigate concerns that market participants may be confused or misled about whether an entity in fact meets the definition of an NMS Stock ATS. If an entity does not meet the definition, market participants may hold false expectations about how their orders may interact or be matched with other orders or they may not fully understand whether the entity with which they are doing business is required to comply with Regulation ATS. For these reasons, 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 the Form ATS–N was filed by an entity that does not meet the functional test under Exchange Act Rule 3b–16, does not perform functions commonly performed by a stock exchange, or

289See supra Section IV.A. (discussing the definition of NMS Stock ATS and the underlying definition of ATS). 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. 290Proposed Form ATS–N is designed to provide market participants and the Commission with, among other things, current information about the operations of the NMS Stock ATS and the activities of the broker-dealer operator and its affiliates. Accordingly, an NMS Stock ATS would be required to provide information on proposed Form ATS–N that reflects the operations of the NMS Stock ATS at the time its Form ATS–N is declared effective by the Commission. Any changes in the operations of the NMS Stock ATS must be disclosed by the NMS Stock ATS in a Form ATS–N Amendment. 291The Commission notes that these are some, but not necessarily all, of the types of circumstances that could result in the Commission declaring a Form ATS–N ineffective under the proposed rule. 292 In other words, if the NMS Stock ATS fails to describe which order would receive priority when two or more orders are otherwise on par, such as whether customer orders receive priority in a price priority system if a customer and non-customer order are at the same price, the disclosure would not be sufficient. 293See infra Section IV.E. and accompanying discussion. 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. 294 17 CFR 242.301(b)(1). 295 15 U.S.C. 78o(b)(8). 296 15 U.S.C. 78o–3. 297See 17 CFR 301(b)(1). Rule 301(b)(1) requires an ATS to register as a broker-dealer under Section 15 of the Exchange Act. 298See 15 U.S.C. 78o(b)(1). 299See 17 CFR 242.301(b)(1). exercises SRO powers.289 Similarly, 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 the Form ATS–N was filed by an entity that does not meet the proposed definition of ‘‘NMS Stock ATS.’’ 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.290 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.291 For instance, if an NMS Stock ATS discloses an order type on Form ATS–N but does not describe the key attributes of the order type, such as time-in-force limitations that can be placed on the ability to execute the order, the treatment of unfilled portions of orders, or conditions for cancelling orders in whole or in part, the Form ATS–N would not be sufficiently detailed. Likewise, if an NMS Stock ATS generally describes some of its priority rules, but fails to describe conditions or exceptions to its priority rules, or fails to describe any priority overlays,292 the Form ATS–N would lack sufficient detail. If a Form ATS–N states that the NMS Stock ATS has only one class of subscribers but the Commission or its staff learns through discussions (during the review period) with the NMS Stock ATS or otherwise that the NMS Stock ATS in fact has several classes of subscribers, or if the Form ATS–N states that two classes of subscribers are charged the same trading fees but the Commission or its staff learns through discussions with the NMS Stock ATS or otherwise that in fact one class receives more favorable fees than the other, the Form ATS–N would not be accurate. If a Form ATS–N includes inconsistent information, such as a statement in one
part of the form that the entity uses
private feeds to calculate the NBBO, but in another part of the form it indicates that it uses the Securities Information Processor (‘‘SIP’’), the Form ATS–N would not be accurate. 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.293 The Commission’s review of Form ATS–N would focus on an evaluation of the completeness and accuracy of the disclosures, and compliance with federal securities laws, including Regulation ATS. The Commission’s evaluation regarding compliance with federal securities laws would involve a ‘‘red-flag’’ review of the Form ATS–N disclosures for apparent non￾compliance with federal securities laws, or other rules or regulations thereunder, including Regulation ATS, and would focus on the disclosures made on the Form ATS–N. For example, as a condition to the Rule 3a1–1(a)(2) exemption, Rule 301(b)(1) of Regulation ATS requires that an ATS register as a broker-dealer under Section 15 of the Exchange Act.294 Section 15(b)(8) of the Exchange Act295 prohibits a registered broker or dealer from effecting a transaction unless the broker or dealer is a member of a securities association registered pursuant to Section 15A of the Exchange Act 296 or effects transactions solely on a national securities exchange of which it is a member. Therefore, to comply with Regulation ATS, and thus qualify for the Rule 3a1–1(a)(2) exemption, an ATS must become a member of an SRO. If an entity were to file a Form ATS–N before registering as a broker-dealer under
Section 15 of the Exchange Act, the
entity would not be in compliance with Rule 301(b)(1) of Regulation ATS.297 Moreover, if the entity were to file a Form ATS–N before becoming a member of an SRO, the entity would not be in compliance with Rule 301(b)(1) of Regulation ATS because Section 15(b)(1) provides that a Commission order granting registration is not effective until the broker-dealer has become a member of a national securities association registered pursuant to Section 15A of the Exchange Act,298 and the Commission’s order granting broker-dealer registration would not be effective.299 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 a Form ATS–N reveals non￾compliance with Regulation ATS because such non-compliance would be inconsistent with proposed Rule 304(a), which requires that an NMS Stock ATS

300The Commission notes that determining whether an NMS Stock ATS qualifies for the exemption from the definition of ‘‘exchange’’ would be based on information as it appears in Form ATS– N. If the Commission were to learn of different information, that determination may change. 301Specifically, Rule 612(a) of Regulation NMS provides that ‘‘no national securities exchange, national securities association, alternative trading system, vendor, or broker or dealer shall display, rank, or accept from any person a bid or offer, an order, or an indication of interest in any NMS stock priced in an increment smaller than $0.01 if that bid or offer, order, or indication of interest is priced equal to or greater than $1.00 per share.’’ See 17 CFR 242.612(a). 302The Commission notes, however, that Form ATS–N is intended to provide regulatory and public transparency. As such, its review of Form ATS–N will be focused on an evaluation of the completeness and accuracy of the disclosure thereon, and compliance with federal securities laws. comply with Rules 300 through 304 (except Rule 301(b)(2)) as a condition to the exemption from the definition of exchange pursuant to Rule 3a1– 1(a)(2).300 As another example, if a Form ATS–N reveals non-compliance with Rule 612 of Regulation NMS, known as the ‘‘Sub-Penny Rule,’’ which prohibits market participants, including ATSs, from displaying, ranking, or accepting orders, quotations, or indications of interest in NMS stock priced in an increment smaller than $0.01,301 the Form ATS–N would not be consistent with the proposed Rule because the NMS Stock ATS would operate in a manner that would violate the federal securities laws. 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.302 An order declaring a Form ATS–N effective would not constitute a finding that the NMS Stock ATS’s operations are consistent with the Exchange Act and the rules and regulations thereunder. Rather, the declaration of effectiveness would only address the issue of whether the NMS Stock ATS has complied with the requirements of Form ATS–N and would focus on the disclosures made on the Form ATS–N. The Commission would not be precluded from later determining that an NMS Stock ATS had violated the federal securities laws or the rules and regulations thereunder. Request for Comment
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.
5. Proposed Rule 304(a)(1)(iv): Orders
Regarding Form ATS–N Effectiveness 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

303See, e.g., supra notes 158–162 and accompanying text (discussing generally differences in disclosure requirements for national securities exchanges and ATSs). The Commission also notes that Rule 19b–4(m)(1) of the Exchange Act (17 CFR 240.19b–4(m)(1)), requires each SRO to post and maintain a current and complete version of its rules on its Web site. This requirement was designed to assure that SRO members and other interested persons have ready access to an accurate, up-to-date version of SRO rules. See Securities Exchange Act Release No. 50486 (October 5, 2004), 69 FR 60287 (October 8, 2004) (adopting amendments to Rule 19b–4 under the Act). 304The Commission notes that ATSs currently are required to file amendments to the disclosures describing their operations on Form ATS (see supra
Section II.B describing the current requirements
applicable to ATSs), and that national securities exchanges, as SROs, are required to file proposed rule changes with the Commission before implementing such changes, even if such changes are non-controversial (see generally supra note 161 and accompanying text). 305See 17 CFR 242.301(b)(2)(ii). 306See Regulation ATS Adopting Release, supra note 7, at 70864. The Commission also stated that ‘‘[i]f a system were only required to provide notice after it commenced operations, the Commission would have no notice of potential problems that might impact investors before the system begins to operate.’’ Id. Stock ATS was operating pursuant to a previously filed Form ATS, may continue to operate as an NMS Stock ATS. For an NMS Stock ATS operating before the effective date of proposed Rule 304 pursuant to a current Form ATS, the Form ATS for that NMS Stock ATS would no longer have any legal effect with respect to the regulatory status of the NMS Stock ATS upon the Commission declaring its Form ATS–N effective. As a result, the effective Form ATS–N would supersede and replace the NMS Stock ATS’s previously filed Form ATS; and the NMS Stock ATS would no longer be subject to Rule 301(b)(2) of Regulation ATS and would not be required to file a Form ATS cessation of operation report because the NMS Stock ATS would continue operations under the effective Form ATS–N. Declaring a Form ATS–N ineffective would provide the public with notice that an entity that filed a Form ATS–N does not qualify for the exemption under Exchange Act Rule 3a1–1(a)(2) and would be precluded from operating as an NMS Stock ATS. 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. Request for Comment
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.
6. Proposed Rule 304(a)(2): Form ATS–
N Amendments
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.303 Proposed Form ATS–N is also designed to provide information to the Commission that would allow it to monitor developments among NMS Stock ATSs and carry out its oversight functions of protecting investors and the public interest. Given these intended uses, the Commission believes that it is important for an NMS Stock ATS to maintain an accurate, current, and complete. 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.304 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. a. Proposed Rule 304(a)(2)(i)(A):
Material Amendments
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.305 The Commission is proposing to apply a longer time period of 30 days in proposed Rule 304(a)(2)(i)(A) due to the additional detail and information that would be provided in response to the solicitations on Form ATS–N as compared to Form ATS. As stated in the Regulation ATS Adopting Release, the Commission believes that requiring an ATS to provide the Commission advance notice of certain changes to its operation is a reasonable means for the Commission to carry out its market oversight and investor protection functions.306 The Commission preliminarily believes that the 30 calendar day advance notice period before material changes are implemented would give the Commission the opportunity to make inquiries to clarify any questions that might arise or to take appropriate action, if appropriate, regarding problems that

307See infra Section IV.D (explaining proposed public disclosure requirements for Form ATS–N filings under proposed Rule 304(b)(2)). 308See id. at 70864. 309See, e.g., Securities Exchange Act Release No. 43154 (August 15, 2000), 65 FR 51716, 51721 (August 24, 2000) (Selective Disclosure and Insider Trading) (stating that to satisfy the materiality requirement, there must be a substantial likelihood that a fact would be viewed by the reasonable investor as having significantly altered the total mix of information made available); see also Regulation C under the Securities Act of 1933, 17 CFR 230.405 (‘‘The term material, when used to qualify a requirement for the furnishing of information as to any subject, limits the information required to those matters to which there is a substantial likelihood that a reasonable investor would attach importance in determining whether to purchase the security registered.’’). may impact market participants, including investors, before the NMS Stock ATS implemented the changes. Because material changes would be publicly disclosed upon filing, the 30 calendar day advance notice would also allow market participants to evaluate the changes before implementation and assess the NMS Stock ATS as a continued, or potential, trading venue.307 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.’’ 308 The Commission is proposing to modify the conditions to the exemption to the definition of ‘‘exchange’’ under Rule 3a1–1(a)(2) for NMS Stock ATSs, which includes, among other things, the increased disclosure of information required on Form ATS–N. Because proposed Form ATS–N would be a public document, the Commission preliminarily believes that the use of this materiality standard discussed below would be appropriate as it is similar to materiality standards applied in the context of securities disclosures made pursuant to other Commission rules.309 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. Request for Comment
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 (e.g., 20 calendar days, as is the case on current Form ATS) or longer (e.g., 45 calendar days)? Please support your arguments. Do you believe it would place an undue burden on the NMS Stock ATS? If so, why, and how much advance notice, if any, would be reasonable? Please support your arguments.
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 (e.g., based on the significance or number of changes) to the operations of the NMS Stock ATS or disclosures on Form ATS–N and that a different materiality analysis should be applied depending on the tier of change to the operations of the NMS Stock ATS or disclosures on Form ATS– N? Why or why not? Please support your arguments.
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?

310The Commission notes that this requirement would be substantively identical to the current requirement under Rule 301(b)(2)(iii) of Regulation ATS. See 17 CFR 242.301(b)(2)(iii). 311That Form ATS–N Amendment, filed pursuant to proposed Rule 304(a)(2)(i)(B), would become public upon filing. See infra Section IV.D (explaining proposed public disclosure requirements for Form ATS–N filings under proposed Rule 304(b)(2)). 312The Commission notes that this requirement would be substantively identical to Rule 301(b)(2)(iv) of Regulation ATS that an ATS ‘‘promptly file an amendment on Form ATS correcting information previously reported on Form ATS after discovery that any information filed’’ in a Form ATS initial operation report or amendment ‘‘was inaccurate when filed.’’ See 17 CFR 242.301(b)(2)(iv). 313That Form ATS–N Amendment, filed pursuant to proposed Rule 304(a)(2)(i)(C), would become public upon filing. See infra Section IV.D (explaining proposed public disclosure requirements for Form ATS–N filings under proposed Rule 304(b)(2)). 314A filed Form ATS–N Amendment that contains technical deficiencies, such as missing pages or one in which the entity does not respond to all questions, including all sub-questions, would not be complete and would be returned to the NMS Stock ATS. See also 17 CFR 240.0–3. b. Proposed Rule 304(a)(2)(i)(B):
Periodic Amendments
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.310 The proposed rule would enable NMS Stock ATSs to update information from the preceding quarter that does not constitute a material change in the NMS Stock ATS’s Form ATS–N filing.311 The Commission preliminarily believes that providing a mechanism for NMS Stock ATSs to disclose changes to their operations or to update information that does not constitute a material change within 30 calendar days after the end of each calendar quarter would tailor the reporting burden on NMS Stock ATSs to the degree of significance of the change in a manner that does not compromise the Commission’s oversight of NMS Stock ATSs or its ability to protect investors and the public interest. The Commission preliminarily believes that allowing NMS Stock ATSs to implement such changes immediately would allow Stock ATSs to make periodic changes to their operations without delay, while at the same time provide disclosure about those changes to market participants and the Commission within an appropriate time frame. Request for Comment
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.
c. Proposed Rule 304(a)(2)(i)(C):
Amendment To Correct Information on Previously Filed Form ATS–N 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.312 For example, if an NMS Stock ATS discovers that information that it previously disclosed on Form ATS–N was incorrect, such as an address or contact information, or that information it previously disclosed was incomplete, such as where the NMS Stock ATS failed to fully describe the characteristics of an order type, it would be required to promptly amend its Form ATS–N. Although the Commission recognizes that a change disclosed on a Form ATS–N Amendment that is reported pursuant to proposed Rule 304(a)(2)(i)(C) would likely be already implemented by the NMS Stock ATS, the Commission believes that it would benefit market participants to receive accurate and complete information about the NMS Stock ATS so they can use the information in deciding where to route their orders.313 Request for Comment
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. d. Proposed Rule 304(a)(2)(ii):
Commission Review of Form ATS–N Amendments 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.314 The Commission could, for example, declare ineffective a Form ATS–N Amendment if one or more disclosures on the amended Form ATS–N are materially deficient with respect to their accuracy, currency, completeness, or fair presentation. The Commission is concerned that an NMS Stock ATS whose Form ATS–N filing was declared effective could file a Form

315See proposed Rule 304(c)(1).
316See supra Section IV.C.
317The Commission also preliminarily believes that the proposed process that would permit the Commission to declare Form ATS–N Amendments ineffective, even if the change disclosed in the Form ATS–N Amendments has already been implemented, would be consistent with better aligning the Commission’s oversight of NMS Stock ATSs with its oversight of national securities exchanges. The Commission notes, for example, that pursuant to Section 19(b)(3)(C) of the Exchange Act, the Commission, at any time within the 60-day period beginning on the date of filing of a proposed rule change filed by a national securities exchange, ‘‘summarily may temporarily suspend the change in the rules of the [SRO] made thereby, if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of [the Act].’’ 15 U.S.C. 78s(b)(3)(C). As a result, the Commission may suspend a national securities exchange’s proposed rule change, even if the change was eligible to be effective upon filing with the Commission. ATS–N Amendment that contains materially deficient disclosures. The Commission is also concerned that market participants could use this information in connection with their evaluation of an NMS Stock ATS and potentially be confused or misinformed about the operations of an NMS Stock ATS. The Commission preliminarily believes that a filed Form ATS–N should contain detailed disclosures that are accurate, current, and complete and therefore is proposing a mechanism for it to declare amendments ineffective as appropriate.315 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,316 the Commission notes that its review of a Form ATS–N Amendment would focus on the disclosures made on
the Form ATS–N. The Commission would not be precluded from later determining that an NMS Stock ATS had violated the federal securities laws or the rules and regulations thereunder. The Commission preliminarily believes that the 30 calendar day review period would provide the Commission with adequate time to review the Form ATS–N Amendment, discuss the changes with the broker-dealer operator as explained above and decide whether to declare the Form ATS–N Amendment ineffective. 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.317 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. Request for Comment
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 (e.g., 45 calendar days) and a shorter period of time for the NMS Stock ATS to be able to implement the material change (e.g., 10, 20, or 30 calendar days)? Why or why not? Please support your arguments. Do you believe that a longer Commission review period coupled with a shorter advance notice period would balance the burdens on an NMS Stock ATS that would be required to provide advance notice of a material change to the operations of the NMS Stock ATS with the time necessary for the Commission to review a Form ATS–N material amendment? Why or why not? Please support your arguments. Do you believe a longer Commission review period coupled with a shorter advance notice period would lead to practical challenges (e.g., confusion among market participants or difficulty to NMS Stock ATSs to unwind a change)? Please support your arguments.
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 (e.g., 45 days) for the Commission to declare a Form ATS–N Amendment ineffective would be reasonable? Why or why not? Please support your arguments. Do you believe that a longer period of time would place an undue burden on the NMS Stock ATS that filed the Form ATS–N Amendment? Why or why not? Please support your arguments.

318The Commission would post a notice of cessation upon completing its review for accuracy and completion. 319See infra Section V (discussing public disclosure of filings on Form ATS–N, including cessation of operation reports). 320 17 CFR 242.301(b)(2)(v). 321See proposed Rule 304(a)(4)(iv). 322The proposed limitation on the time frame for suspension is consistent with federal securities law provisions pursuant to which the Commission may suspend the activities or registration of a regulated entity. See, e.g., Section 15(b)(4) (15 U.S.C. 78o(b)(4)) and 15B(c)(2) (15 U.S.C. 78o–4(c)(2)). 323See generally Exchange Act Section 21C (15 U.S.C 78u–3). Use of the proposed process whereby the Commission could suspend, limit, or revoke an NMS Stock ATS’s Rule 3a1–1(a)(2) exemption would not preclude the Commission from using its general enforcement authority, or other specific enforcement authority that may be applicable such as, for example, pursuant to Section 15(b)(4) and 15(c) (15 U.S.C. 78o(b)(4); 15 U.S.C. 78o(c)). Rather, it would provide an additional means of helping to ensure that NMS Stock ATSs that no longer qualify for the Rule 3a1–1(a)(2) exemption are unable to take advantage of it. For example, if an NMS Stock ATS failed to file a Form ATS–N Amendment to disclose material changes to the operation of the NMS Stock ATS, the Commission could invoke the process to suspend, limit or revoke the NMS Stock ATS’s exemption, but would not be precluded from bringing an action against the broker-dealer operator of the NMS Stock ATS for failing to comply with Rule 304(a)(2), or violating the antifraud provisions of the federal securities laws.
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 (e.g., 10, 15, 20, or 30 calendar days) and should the process apply to material amendments, periodic amendments, amendments to correct information in any previous Form ATS– N filing that was inaccurate or incomplete when filed, or all categories of Form ATS–N Amendments? Should the process differ depending on the category of amendment? Please be specific.
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.
7. Proposed Rule 304(a)(3): Notice of
Cessation
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.318 The notice of cessation would cause the Form ATS–N to become ineffective on the date designated by the NMS Stock ATS. Requiring an NMS Stock ATS to file a Form ATS–N notice of cessation at least 10 business days before the date the NMS Stock ATS ceases operations would provide notice to the public and the Commission that the NMS Stock ATS intends to cease operations. By making the notices of cessation public, as discussed herein,319 the Commission preliminarily believes that all market participants that had routed orders to the NMS Stock ATS would be able to make arrangements to select alternative routing destinations for their orders. Regulation ATS currently requires an ATS to ‘‘promptly file a cessation of operations report on Form ATS’’ upon ceasing to operate.320 Proposed Rule 304(a)(3) would require an NMS Stock ATS to disclose on Form ATS–N the date it will cease operating at least 10 business days before doing so. The Commission preliminarily believes that the proposal to require NMS Stock ATSs to provide notice at least 10 business days before the date an NMS Stock ATS ceases to operate is a reasonable period for the NMS Stock ATS to provide market participants and the Commission with notice that it intends to cease operations, as market participants would have adequate time to find and select other routing destinations for their orders. Request for Comment
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.
8. Proposed Rule 304(a)(4): Suspension,
Limitation, or Revocation of the Exemption From the Definition of Exchange 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.321 In adopting Exchange Act Rule 3a1–1(a)(2) and Regulation ATS, the Commission established conditions under which an ATS would be exempt from the definition of ‘‘exchange,’’ and therefore would not be required to register as a national securities exchange. Rule 3a1–1(a)(2) provides that a system that meets the criteria of Rule 3b-16 is exempt from the definition of ‘‘exchange’’ on condition that the system complies with Regulation ATS. As discussed above, the Commission is proposing to expand the set of conditions that an NMS Stock ATS would need to satisfy to qualify for the exemption provided under Rule 3a1– 1(a)(2). 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,322 limit, or revoke an NMS Stock ATS’s exemption from the definition of the term exchange pursuant to Rule 3a1–1(a)(2) under certain circumstances. Regulation ATS currently does not provide a process for the Commission to suspend, limit, or revoke the exemption under which an ATS operates other than pursuant to the Commission’s general enforcement authority.323 The Commission is proposing Rule 304(a)(4)(i), which would provide that the Commission will, by order, if it finds, after notice and opportunity for hearing, that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors, suspend for

324See proposed Rule 304(a)(4)(i). 325The Commission preliminarily believes that a determination as to whether to suspend, limit, or revoke an NMS Stock ATS’s exemption would depend on the particular facts and circumstances; however, the Commission also preliminarily believes that revocation would be the appropriate course of action if the Commission finds that an entity no longer meets the definition of NMS Stock ATS or otherwise satisfies the criteria of the functional test under Rule 3b–16. 326See supra Section IV.A. (discussing the definition of NMS Stock ATS and the availability of the Rule 3a1–1(a)(2) exemption). 327See Regulation ATS Adopting Release, supra note 7, at 70857. 328See 17 CFR 242.301(b)(1). a period not exceeding twelve months, limit, or revoke an NMS Stock ATS’s exemption from the definition of ‘‘exchange’’ pursuant to Rule 3a1– 1(a)(2).324 Proposed Rule 304(a)(4)(ii) would make clear that if an NMS Stock ATS’s exemption is suspended or revoked pursuant to proposed Rule 304(a)(4)(i), the NMS Stock ATS would be prohibited from operating pursuant to the exemption from the definition of ‘‘exchange’’ provided under Rule 3a1– 1(a)(2); if an NMS Stock ATS’s exemption is limited pursuant to proposed Rule 304(a)(4)(i), the NMS Stock ATS would be prohibited from operating in a manner inconsistent with the terms and conditions of the Commission order. 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.’’ 325 If a system does not meet the functional test of an ‘‘exchange’’ under Rule 3b-16, it would not be eligible for the exemption from the definition of ‘‘exchange’’ pursuant to Rule 3a1– 1(a)(2) as it is not an ‘‘exchange’’ in the first instance.326 If an NMS Stock ATS no
longer meets the criteria of Rule 3b￾16—or meets the criteria of Rule 3b-16 but no longer effects transactions in NMS stocks—or otherwise does not meet the definition of an alternative trading system, it would not continue to be eligible for the exemption in Rule 3a1–1(a)(2) even if it had met the definition of an NMS Stock ATS at the time that the Commission declared its Form ATS–N effective. Permitting a system to operate that does not otherwise meet the definition of an NMS Stock ATS would deny investors appropriate regulatory protection and could also be misleading to investors. 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.327 To the extent that an NMS Stock ATS fails to comply with the conditions set forth in Regulation ATS, investors would no longer be protected by the conditions of Regulation ATS or the protections afforded by the provisions of the Exchange Act and the rules thereunder that apply to national securities exchanges. For example, pursuant to proposed Rule 304(a)(4)(i), the Commission would suspend, limit, or revoke an NMS Stock ATS’s exemption from the definition of ‘‘exchange’’ 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, because the NMS Stock ATS is no longer a registered broker-dealer, which is a requirement of Regulation ATS.328 The Commission would also suspend, limit, or revoke an NMS Stock ATS’s exemption if 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, for example, the ATS’s Form ATS–N contains inaccurate or incomplete responses. Proposed Form ATS–N would be a public reporting document that is designed to provide the Commission and market participants with information about the operations of the NMS Stock ATS and the circumstances under which the activities of the broker-dealer operator of the NMS Stock ATS and its affiliates may give rise to potential conflicts of interest. The Commission preliminarily believes that market participants would likely use the information provided on Form ATS–N to make decisions about where to route orders. The Commission is concerned that information provided on Form ATS–N that is inaccurate or incomplete could misinform or mislead market participants
about the operations of the NMS Stock ATS or the activities of the broker-dealer operator, including how their orders may be handled and executed, and impact their decisions about where they should route their orders. To prevent an NMS Stock ATS from potentially misinforming or misleading market participants about the operations of the system, proposed Rule 304(a)(4) would provide a process for the Commission to suspend, limit, or revoke the NMS Stock ATS’s Rule 3a1– 1(a)(2) exemption. 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

329 If the Commission revoked the exemption of an NMS Stock ATS and the NMS Stock ATS wished to continue operations, the entity could do so only if it was registered as a national securities exchange pursuant to Section 6 of the Exchange Act or was exempted by the Commission from such registration based on the limited volume of transactions effected on such exchange, or seeks another exemption. See 17 CFR 242.301(a)(1)-(2). The NMS Stock ATS would not be prohibited from filing a new Form ATS–N, pursuant to proposed Rule 304(a)(1). 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. unregistered exchange because it would no longer qualify for the exemption from the exchange definition.329 If an NMS Stock ATS’s exemption was limited pursuant to proposed Rule 304(a)(4)(iv), the NMS Stock ATS would be prohibited from operating in a manner otherwise inconsistent with the terms and conditions of the Commission order, and if it did operate in a manner inconsistent with the terms and conditions of the order, would risk operating as an unregistered national securities exchange. The exemption provided under Rule 3a1–1(a)(2) is conditional upon initial and ongoing compliance with Regulation ATS. The proposed process for suspending, limiting, or revoking an NMS Stock ATS’s exemption, in the event the Commission finds, for example, that there is a failure to adhere to the conditions of the exemption and that suspending, limiting, or revoking the exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors, is designed to protect investors in the case of potential non-compliance by an NMS Stock ATS with the conditions with which the NMS Stock ATS must adhere in order to continue to qualify for an exemption from the statutory definition of ‘‘exchange.’’ 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. Request for Comment
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

330See proposed Rule 304(b)(1) (providing 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). 331See supra Section III.C. 332See infra Section VII. 333See Alternative Trading System (‘‘ATS’’) List, http://www.sec.gov/foia/docs/atslist.htm. 334See 15 U.S.C. 78ff(a). 335 17 CFR 242.301(b)(2)(vi). 336 15 U.S.C. 78k–1, 78q(a), 78r(a), and 78ff(a). See 17 CFR 242.301(b)(2)(vi). 337See infra Section VII (discussing proposed disclosure requirements related to broker-dealer operators under Form ATS–N). 338See infra Section VIII (discussing proposed operational disclosure requirements of Form ATS–N). the Commission use in deciding whether to suspend, limit, or revoke the exemption? Please support your arguments.
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? D. Rule 304(b): Public Disclosure of Form ATS–N and Related Commission Orders The Commission is proposing to make public certain Form ATS–N reports filed by NMS Stock ATSs.330 Commission orders related to the effectiveness of Form ATS–N will also be publicly posted on the Commission’s Web site. As discussed above, there currently is limited information available to the public about the operations of ATSs that trade NMS stocks and the activities of their broker-dealer operators and the broker-dealer operators’ affiliates.331 Furthermore, as discussed further below, market participants may not be informed about potential conflicts of interest that arise as a result of the other business activities of the broker-dealer operator of the NMS Stock ATS, or its affiliates, such as trading NMS stocks on the NMS Stock ATS or operating multiple trading centers, including multiple ATSs.332 The only information the Commission currently makes publicly available regarding ATSs is a list, which is updated monthly, of ATSs with a Form ATS on file with the Commission.333 Therefore, the Commission is proposing Rule 304(b) to mandate greater public disclosure of NMS Stock ATS operations through the publication of Form ATS–N and to provide for the posting of Commission orders on the Commission’s Web site related to the effectiveness of Form ATS–N. 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.334 The Commission notes that proposed Rule 304(b)(1) is nearly identical to current Rule 301(b)(2)(vi),335 which provides that every notice or amendment filed pursuant to Rule 301(b)(2), including Form ATS, 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.336 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.337 Proposed Form ATS–N would also provide market participants with important information about the manner of operations of the NMS Stock 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 and trading during a system disruption or malfunction; opening, re-opening, closing, and after hours procedures; outbound routing services; fees; market data; trade reporting; clearance and settlement; order display and execution access; fair access; and market quality statistics published or provided to one or more subscribers.338 Accordingly, the Commission proposes to make public— via the public posting of Form ATS–N on the Commission’s Web site— information that it preliminarily believes should be easily accessible to all market participants so that market participants may better evaluate how to achieve their investing or trading objectives. 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

339See proposed Rule 304(a)(1)(iv). 340 Id. Nothing would preclude the NMS Stock ATS from later submitting a new or revised Form ATS–N for consideration by the Commission. 341Market participants would also be made aware if the Commission declares a Form ATS–N Amendment ineffective, because the Commission would also post each order of ineffectiveness of a Form ATS–N Amendment. See proposed Rule 304(b)(2)(E). 342See 17 CFR 240.301(b)(2)(vii). 343See 15 U.S.C. 78s(b). 344See supra Section III.B. 345See generally supra Section III. operation as of the effective date of proposed Rule 304 may not commence operations as an NMS Stock ATS until the Commission issues an order declaring its Form ATS–N effective.339 Additionally, if the Commission declares ineffective a Form ATS–N filed by a legacy NMS Stock ATS, that ATS would be prohibited from operating as an NMS Stock ATS going forward.340 Furthermore, while the Commission is reviewing a Form ATS–N prior to declaring it effective or ineffective, Commission staff would likely engage in discussions with the entity regarding its disclosures and could request that the entity revise or augment its disclosures to provide market participants with greater clarity regarding the entity’s operations. Accordingly, the Commission preliminarily believes that it would be premature to provide market participants with information regarding an initial Form ATS–N filing until after it is declared effective. 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.341 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,342 whereas a national securities exchange is required to both (i) make available to the public its entire rule book and (ii) publicly file all proposed rule changes pursuant to
Section 19(b) of the Exchange Act.343
The Commission preliminary believes that since the adoption of Regulation ATS, the market in execution services for NMS stocks has evolved such that trading functions of NMS Stock ATSs have become more functionally similar to those of national securities exchanges.344 Unless an NMS Stock ATS voluntarily publicizes how those functionalities operate and affect the handling of subscriber orders, there is no publicly available information for market participants to use in order to compare and contrast the trading platform of an NMS Stock ATS with that of a national securities exchange. Accordingly, through Form ATS–N, the Commission proposes to require disclosures that would provide information that market participants could use to compare and contrast the important order handling features, and other important functionalities, of an NMS Stock ATS with those of other NMS Stock ATSs or national securities exchanges. The Commission therefore proposes to make those disclosures public so that market participants would have access to important information when evaluating trading venues. Additionally, the Commission preliminarily believes that, given changes with respect to NMS Stock ATSs since the adoption of Regulation ATS,345 the reasons given in the past for maintaining the confidentiality of Form ATS filings are no longer justified for NMS Stock ATSs in light of the benefits of operational transparency for NMS Stock ATSs that are discussed above. First, when the Commission adopted Regulation ATS, it chose, at that time, to deem Form ATS confidential because ‘‘[i]nformation required on Form ATS

346See Regulation ATS Adopting Release, supra note 7, at 70864. 347See supra Section III.B. 348See infra Section XIII.C.2. 349See Regulation ATS Adopting Release, supra note 7, at 70864. may be proprietary and disclosure of such information could place alternative trading systems in a disadvantageous competitive position.’’ 346 As noted above, the Commission preliminarily believes that NMS Stock ATSs have generally evolved to the point that their trading functionalities often resemble those of national securities exchanges.347 The Commission preliminarily believes that much of the type and level of information that would have to be publicly disclosed by an NMS Stock ATS pursuant to this proposal is very similar to information that national securities exchanges must publicly disclose. For instance, proposed Form ATS–N would require an NMS Stock ATS to disclose, among other things, information about available order types and modifiers, hours of operations, connectivity, order entry, co-location, order display, matching methodologies, and order interaction procedures, all of which must be publicly disclosed by national securities exchanges. Accordingly, the Commission preliminarily believes that, in the current market environment, the disclosures mandated by Form ATS–N would not place NMS Stock ATSs at a competitive disadvantage with respect to national securities exchanges.348 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.’’ 349 Based on Commission experience, however, many Form ATS filings currently provide only rudimentary and summary information about the manner of operation of NMS Stock ATSs, which often requires the Commission and its staff to ask the ATSs follow-up questions, and results in ATSs filing follow-up amendments, to fully disclose how they operate. Thus, the Commission preliminarily believes that maintaining the confidentiality of Form ATS filings with regard to NMS Stock ATSs has not resulted uniformly in ATSs ‘‘mak[ing] full and complete filings.’’ Request for Comment
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.

350See FINRA Rule 3130(b). FINRA Rule 3120(c) sets forth the following:
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. 351This proposed requirement is consistent with electronic-reporting standards set forth in Form SCI. See SCI Adopting Release, supra note 17, at 72357 (discussing electronic filing requirements of Form SCI).
5. 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.
6. 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.
7. 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. E. Rule 304(c)(1) and (2): Proposed Form ATS–N Requirements 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.350 The Commission requests comment on whether the certification required under FINRA Rule 3130 will help ensure that the broker-dealer operator of the NMS Stock ATS complies with proposed Rule 304, including proposed Rule 304(c)(1), which would require the accurate, current, and complete disclosures on Form ATS–N. Request for Comment
8. 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.351 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

352For a Form ATS–N Amendment, the NMS Stock ATS would also be required to attach as Exhibit 3A and/or Exhibit 4A a redline(s), showing changes to Part III and/or Part IV of proposed Form ATS–N, respectively, in order to point out the amendment(s) to its prior Form ATS–N filing. The Commission preliminarily believes that requiring NMS Stock ATSs to attach redlines to their Form ATS–N Amendments would better enable market participants and the Commission to review Form ATS–N Amendments in a more efficient manner. 353 Instruction B to proposed Form ATS–N would provide that if an NMS Stock ATS determines to withdraw a Form ATS–N, it must select the appropriate checkbox and provide the correct file number to withdraw the submission. 354 17 CFR 242.301(b)(1); 15 U.S.C. 78o. 355A broker-dealer operator would be required to file a separate Form ATS–N for each NMS Stock ATS operated by the broker-dealer. See Instruction A of proposed Form ATS–N. 356An MPID, or other mechanism or mnemonic, is used to identify a market participant for the purposes of electronically accessing a national securities exchange or an ATS. See, e.g., Securities Exchange Act Release No. 63241 (November 3, 2010), 75 FR 69792 (November 15, 2010). ATSs are required to use a unique MPID for the ATS when reporting trade information to FINRA. See FINRA ATS Reporting Approval, supra note 122. participants to efficiently review and analyze information provided on proposed Form ATS–N. In particular, a text-searchable format would allow the Commission and its staff to better gather, analyze, and use data filed as exhibits, whereas a non-text-searchable format filing would require significantly more steps and labor to review and analyze data. 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. Request for Comment
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.
V. Proposed Form ATS–N: Submission
Type and Part I of Form ATS–N 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.352 For notices of cessation, proposed Form ATS–N would require the date that the NMS Stock ATS will cease to operate. A Form ATS–N filer may also withdraw a previously filed Form ATS–N.353
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.354 Today, while some broker-dealers are registered with the Commission for the sole purpose of operating as an ATS, most broker-dealer operators of ATSs engage in brokerage and/or dealing activities in addition to operating an NMS Stock ATS. In some cases, broker-dealers operate multiple NMS Stock ATSs.355 To identify the registered broker-dealer for an NMS Stock ATS and to assist the Commission in collecting and organizing its filings, proposed Form ATS–N would require the name of the registered broker-dealer for the NMS Stock ATS (i.e., the broker￾dealer operator), as it is stated on Form BD, in Part I, Item 1 of proposed Form ATS–N. The name of the registered broker-dealer for the NMS Stock ATS would also assist the Commission in ensuring that the NMS Stock ATS has appropriately registered as a broker￾dealer as part of its exemption from exchange registration under Exchange Act Rule 3a1–1(a)(2). To the extent that a ‘‘DBA’’ (doing business as) is used to identify the NMS Stock ATS to the public or the Commission, or if a registered broker-dealer operates multiple NMS Stock ATSs, proposed Form ATS–N would require the full name of the NMS Stock ATS under which business is conducted, if any, in
Part I, Item 2 of proposed Form ATS–
N. Part I, Item 3 of proposed Form ATS–N would require the NMS Stock ATS to provide its Market Participant Identifier (‘‘MPID’’) for the NMS Stock ATS.356 The Commission preliminarily

357The Commission would also keep the contact information of the broker-dealer operator’s representative confidential, subject to applicable law. 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. 358For currently operating NMS Stock ATSs that file a Form ATS–N, each ATS would only be required to provide the materials it currently provides to subscribers or other persons and would not be required to attach materials provided to subscribers or other person in the past. believes that providing the name of the NMS Stock ATS or DBA and its MPID would provide clarity to the public and Commission about the identity under which the business of the NMS Stock ATS is conducted. Proposed Form ATS– N would also require an ATS to identify whether it is currently operating pursuant to a previously filed initial operation report on Form ATS. Request for Comment
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 (i.e., Form ATS–N, Form ATS–N Amendment, notice of cessation, or withdrawal) by marking the appropriate checkbox, and for notices of cessation, provide the date that the NMS Stock ATS will cease to operate? Why or why not? Please support your arguments.
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.
VI. Part II of Proposed Form ATS–N:
Broker-Dealer Operator Registration Information
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 (e.g., FINRA). The Commission proposes to require this information to assess whether the NMS Stock ATS has complied with the requirement to register as a broker-dealer pursuant to Rule 301(b)(1) of Regulation ATS. This information also would expedite the Commission’s communications with the broker-dealer operator’s self-regulatory organization as needed. 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 (e.g., corporation, partnership, sole proprietorship) and except in the case of a sole proprietorship, the date of formation and state or country in which it is formed. The Commission is proposing to require the information related to the broker-dealer operator’s legal status to help ensure that the broker-dealer operator has appropriately filed as a legal entity (except in the case of sole proprietorships). 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.357 This information would facilitate communication with the broker-dealer operator and the NMS Stock ATS during the Commission’s review of a Form ATS–N and later as necessary as part of the Commission’s ongoing monitoring of the NMS Stock ATS. To the extent the broker-dealer operator’s contact information that is provided in Part II is made publicly available, that information would also facilitate communication between subscribers and the broker-dealer operator.
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.358 The Commission understands that some ATSs may provide to subscribers, or other persons, marketing material or other material containing important information about the ATS’s operations in FIX protocol procedures, rules of engagement/user manuals, or frequently asked questions. These documents may include information regarding, among other things, the order matching procedures, priority rules, order types, and order entry and execution procedures of the ATS, and in some instances, such documents may contain important information about an NMS Stock ATS that may not be specified in the required disclosures under proposed Form ATS–N. The Commission notes that the purpose of proposed Form

359Subpart (f) of Form ATS requires a copy of the ATS’s subscriber manual and any other materials provided to subscribers. ATS–N is to provide operational transparency with regard to the NMS Stock ATS. To the extent that the NMS Stock ATS discloses information on standardized materials provided to certain subscribers, whether an individual or on group basis, the Commission preliminarily believes the NMS Stock ATS should make this information available to all subscribers, and therefore the Commission is proposing to require these materials be filed as an attachment to Exhibit 1 to proposed Form ATS–N. The Commission further notes that this requirement is similar to the requirement of subpart (f) of Exhibit F on existing Form ATS.359 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. Request for Comment
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.

360 17 CFR 242.301(b)(1); 15 U.S.C. 78o. Additionally, as a registered entity with the Commission, a broker-dealer operating an ATS is subject to applicable federal securities laws, as well as other requirements, including the rules of any SRO of which it is a member. 361The Commission is proposing to define ‘‘affiliate’’ for purposes of Form ATS–N as described and discussed further below. See infra note 378 and accompanying text. See also Instruction G of proposed Form ATS–N. 362Some technology or functions of an ATS may be licensed from a third party. The broker-dealer operator of the ATS is nonetheless legally responsible for ensuring that all aspects of the ATS comply with applicable laws. 363For example, the broker-dealer operator determines the source of market data that the NMS Stock ATS uses to calculate the NBBO and how the NBBO will be calculated. 364The Commission notes that, based on Form BD disclosures from June of 2015, all but 7 of the 36 broker-dealer operators whose ATSs trade NMS stocks disclose business activities other than operating an ATS. The other business activities disclosed by broker-dealer operators (and the number of such broker-dealer operators providing such disclosure) include: Retailing corporate equity securities over-the-counter (22); put and call broker or dealer or option writer (18); exchange commission business other than floor activities (18); private placements of securities (17); selling corporate debt securities (17); government securities broker (15); trading securities for own account (15); municipal securities broker (13); exchange member engaged in floor activities (13); non-exchange member arranging for transactions in listed securities by exchange member (12); underwriter or selling group participant (corporate securities other than mutual funds) (13); selling interests in mortgages or other receivables (12); making inter￾dealer markets in corporate securities over-the￾counter (11); government securities dealer (11); municipal securities dealer (11); solicitor of time deposits in a financial institution (7); investment advisory services (7). This data does not include the business activities of affiliates of the broker-dealer operators. Of the 10 ATSs that traded the most NMS stock measured by total shares executed during the second quarter of 2015, 6 disclose on Form BD that they engage in proprietary trading and making inter-dealer markets in corporate securities OTC, and 7 disclose retailing corporate equities OTC. See FINRA’s ATS Transparency Data Quarterly Statistics, 2nd Quarter of 2015, http:// www.finra.org/industry/ats/ats-transparency-data￾quarterly-statistics. 365These non-ATS, OTC activities in NMS stocks may include operating as an OTC market maker, block positioner, or operating an internal broker￾dealer system. See 2010 Equity Market Structure Release, supra note 124 at 3599–3600. See also infra note 387 and accompanying text. Additionally, an affiliate of the broker-dealer operator
of an NMS Stock ATS may also operate non-ATS trading centers. 366 17 CFR 242.600(b)(78).
VII. Part III of Proposed Form ATS–N:
Activities of the Broker-Dealer Operator and Its Affiliates A. The Relationship Between the Broker-Dealer Operator’s Operation of the NMS Stock ATS and Its Other Operations

1. Background
   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’’).360 The broker-dealer operator of the ATS trading platform is legally responsible for all operational aspects of the ATS and for ensuring that the ATS operates in compliance with applicable federal securities laws and the rules and regulations thereunder, including Regulation ATS. The broker-dealer operator, and in some cases, its affiliates,361 controls access to the ATS and provides the technology and systems that support the trading on the ATS.362 Based on Commission experience, the broker-dealer operator, or in some cases, its affiliates, directs the personnel that service the ATS or otherwise manages service providers that may perform certain functions of the ATS. The broker-dealer operator, or in some cases, its affiliates, also determines, among other things: (1) What securities will trade on the ATS; (2) who may become subscribers that will participate on the ATS; (3) whether there will be segmented categories of order flow in the ATS, and if so, how the order flow will be segmented; (4) order matching methodologies and priority rules; (5) the rules governing the interaction and execution of orders; and (6) the display, if any, of orders and trading interest. Additionally, the broker-dealer operator, or in some cases, its affiliates, determines the means by which orders are entered on and subscribers access the ATS, in many cases, through the use of a smart order router that is owned and operated by the broker-dealer operator or one of its affiliates. The broker-dealer operator, or in some cases, its affiliates, also controls the market data that the ATS uses to prioritize, match, and execute orders and the transmission of and access to confidential order and execution information sent to and from the ATS.363 Based on Commission experience, the operations of the NMS Stock ATS and the other operations of the broker-dealer operator are usually closely intertwined as the broker-dealer operator generally leverages its information technology, systems, personnel, and market data, and those of its affiliates, to operate the ATS. 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).364 These multi-service broker￾dealers may offer their customers a variety of brokerage services, often with or through their affiliates, including algorithmic trading
   strategy software, agency sales desk support, and automated smart order routing services. Multi-service broker-dealers that also operate an NMS Stock ATS may use the ATS as a complement to the broker￾dealer’s other service lines and may use the ATS as an opportunity to execute orders ‘‘in house’’ before seeking contra￾side interest at other execution venues. For instance, a broker-dealer operator, or its affiliate, may operate, among other things, an OTC market making desk or proprietary trading desks in addition to operating an NMS Stock ATS.365 A multi-service broker-dealer may also execute orders in NMS stocks internally (and not within its respective NMS Stock ATS(s)) by trading as principal against such orders or crossing orders as agent in a riskless principal capacity, before routing the orders to its NMS Stock ATS(s) or another external trading center.366 Consequently, non-ATS trading centers operated by the broker￾dealer operator of an ATS (i.e., internal executions by the broker-dealer outside of an ATS), or its affiliates, often compete with the ATS as a trading venue for the execution of transactions in NMS stocks.
2. Potential Conflicts of Interest for the
   Broker-Dealer Operator or Its Affiliates 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

367 In the Regulation ATS Adopting Release, the Commission recognized the potential for abuse involving a broker-dealer that operates an ATS and offers other traditional brokerage services, and expressed concern about the potential for the misuse of confidential trading information. See Regulation ATS Adopting Release, supra note 7, at 70879. 368Such benefits or other advantages could include the NMS Stock ATS providing itself or its affiliates with faster access to the NMS Stock ATS or priority in executions over other subscribers. Unlike registered national securities exchanges, ATSs are not required to have rules that are designed not to permit unfair discrimination; however, the advantages that a broker-dealer operator may provide to itself or its affiliates may not be fully disclosed to subscribers to an ATS. 369See, e.g., Securities Exchange Act Release Nos. 50700, 69 FR 71256, 71257 (December 8, 2004) (discussing the inherent conflicts of interest between a self-regulatory organization’s regulatory obligations and the interests of its members, its market operations, its listed issuers, and, in the case of a demutualized SRO, its shareholders); 50699, 69 FR 71126 (December 8, 2004) (proposing rules that the Commission believed would help insulate the regulatory activities of an exchange or national securities association from the conflicts of interest that otherwise may arise by virtue of its market operations); 63107, 75 FR 65882 (October 26, 2010) (proposing Regulation MC under the Exchange Act to mitigate conflicts of interest regarding ownership interests and voting rights with respect to security￾based swap clearing agencies, security-based swap execution facilities, and security-based swap exchanges pursuant to the Dodd Frank Act, Pub. L. 111–203, Section 765). 370See, e.g., Securities Exchange Act Release Nos. 66808 (April 13, 2012) 77 FR 23294 (April 18, 2012) (SR–BATS–2012–013) (order approving a proposed rule change by BATS Exchange, Inc. (‘‘BATS Exchange’’) relating to its ability to receive inbound routes of equities orders through BATS Trading, Inc., BATS Exchange’s routing broker-dealer, from BATS–Y Exchange, Inc.) at 23295 n.16 and accompanying text; 59281 (January 22, 2009), 74 FR 5014 (January 28, 2009) (SR–NYSE–2008–120) (order approving a joint venture between NYSE and BIDS Holdings L.P.) (‘‘NYSE/BIDS Order’’); 54170 (July 18, 2006), 71 FR 42149 (July 25, 2006) (SR– NASDAQ–2006–006) (order approving Nasdaq’s proposal to adopt Nasdaq Rule 2140, restricting affiliations between Nasdaq and its members) (‘‘Nasdaq Affiliation Order’’); and 53382 (February 27, 2006), 71 FR 11251 (March 6, 2006) (SR–NYSE– 2005–77) (order approving the combination of the New York Stock Exchange, Inc. and Archipelago Holdings, Inc.) (‘‘NYSE/Arca Order’’). 371See 15 U.S.C. 78s(b). 372For example, registered national securities exchanges have rules that prevent the national securities exchange from being affiliated with a member of the exchange, or
with an affiliate of a member of the exchange, absent Commission approval. See, e.g., NYSE Rule 2B, which provides, in part, that: ‘‘Without prior SEC approval, the [New York Stock Exchange LLC (‘‘NYSE’’)] or any entity with which it is affiliated shall not, directly or indirectly, acquire or maintain an ownership interest in a member organization. In addition, a member organization shall not be or become an affiliate of the [NYSE], or an affiliate of any affiliate of the [NYSE] . . . .’’ See also Nasdaq Rule 2160, and BZX Rule 2.10. In cases where the Commission has approved exceptions to this prohibition, there have been limitations and conditions on the activities of the exchange and its affiliated member designed to address concerns about potential conflicts of interest and unfair competitive advantage. See, e.g., Securities Exchange Act Release No. 58375 (August 18, 2008), 73 FR 49498 (August 21, 2008) (File No. 10–182) (In the Matter of the Application of BATS Exchange, Inc. for Registration as a National Securities Exchange; Findings, Opinion, and Order of the Commission), at 49502 n.90–94 and accompanying text (approving the affiliation between BATS Exchange and its affiliated member BATS Trading in connection with the provision of routing services by BATS Trading for BATS Exchange and subject to certain limitations and conditions). 373See, e.g., Nasdaq Affiliation Order, supra note 370, at 42151. The Commission’s concern with respect to a national securities exchange’s affiliation with one of its members also stemmed from the possible conflicts of interest that could arise between a national securities exchange’s self￾regulatory obligations and its commercial interest. See id. Because ATSs are not SROs, and therefore do not have self-regulatory obligations, this particular concern is not present in the context of ATSs. 374See, e.g., In the Matter of ITG Inc. and Alternet Securities Inc., Securities Exchange Act Release No. 75672 (Aug. 12, 2015), https://www.sec.gov/ litigation/admin/2015/33-9887.pdf (order instituting administrative and cease-and-desist proceedings, making findings, and imposing remedial sanctions and a cease-and-desist order) (‘‘ITG Settlement’’); In the Matter of UBS Securities LLC, Securities Exchange Act Release No. 74060 (Jan. 15, 2015), http://www.sec.gov/litigation/ admin/2015/33-9697.pdf (order instituting administrative and cease-and-desist proceedings, making findings, and imposing remedial sanctions and a cease-and-desist order) (‘‘UBS Settlement’’); In the Matter of Lavaflow, Inc., Securities Exchange Act Release No. 72673 (Jul. 25, 2014), http:// www.sec.gov/litigation/admin/2014/34-72673.pdf (order instituting administrative and cease-and￾desist proceedings, making findings, and imposing remedial sanctions and a cease-and-desist order) (‘‘LavaFlow Settlement’’); In the Matter of Liquidnet, Inc., Securities Exchange Act Release No. 72339 (Jun. 6, 2014), http://www.sec.gov/litigation/ admin/2014/33-9596.pdf
(order instituting administrative and cease-and-desist proceedings, making findings, and imposing remedial sanctions and a cease-and-desist order) (‘‘Liquidnet business units of the broker-dealer operator or its affiliates.367 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.368 The Commission preliminarily believes that market participants that subscribe and route orders to NMS Stock ATSs would want to know how a broker-dealer operator of an NMS Stock ATS treats subscriber orders versus orders of its business units or its affiliates. The Commission preliminarily believes that customers of the broker-dealer operator, who may also be subscribers to the NMS Stock ATS, would also want to better understand the circumstances in which the broker-dealer operator may send their orders to its NMS Stock ATS, internalize their orders outside of the NMS Stock ATS, or route to another trading venue. Concerns regarding potential conflicts of interests involving trading venues that execute securities transactions are not novel.369 In the context of national securities exchanges, the Commission has expressed concern that the affiliation of a registered national securities exchange with one of its members raises potential conflicts of interest, and the potential for unfair competitive advantage.370 Because the Commission reviews the rules of registered national securities exchanges, a process which requires, among other things, that to approve certain rule changes the Commission find that the exchange’s proposed rule changes are consistent with the Exchange Act,371 each existing national securities exchange has implemented rules that restrict affiliation between the national securities exchange and its members to mitigate the potential for conflicts of interest.372 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.373 These same concerns are present in the context of trading by the broker-dealer operator, or its affiliates, on the ATS that the broker-dealer operator operates. For example, the potential exists for the broker-dealer operator of an NMS Stock ATS to place its commercial interests, or those of its affiliates, before those of subscribers that route orders to the NMS Stock ATS directly or indirectly through the broker-dealer operator of the NMS Stock ATS or its affiliates. Some of the settled enforcement actions against ATSs that trade NMS stocks highlight this potential.374 Therefore, as

Settlement’’); In the Matter of eBX, LLC, Securities Exchange Act Release No. 67969 (Oct. 3, 2012), http://www.sec.gov/litigation/admin/2012/34- 67969.pdf (order instituting administrative and cease-and-desist proceedings, making findings, and imposing remedial sanctions and a cease-and-desist order) (‘‘LeveL Settlement’’); In the Matter of Pipeline Trading Systems LLC, Fred J. Federspiel, and Alfred R. Berkeley III, Securities Exchange Act Release No. 9271 (Oct. 24, 2011) (order instituting administrative and cease-and-desist proceedings, making findings, and imposing remedial sanctions and a cease-and-desist order), https://www.sec.gov/ litigation/admin/2011/33-9271.pdf (‘‘Pipeline Settlement’’); In the Matter of INET ATS, Inc., Securities Exchange Act Release No. 53631 (Apr. 12, 2006), https://www.sec.gov/litigation/admin/ 2006/34-53631.pdf (order instituting administrative and cease-and-desist proceedings, making findings, and imposing remedial sanctions and a cease-and￾desist order); and In the Matter of BRUT, LLC, Securities Exchange Act Release No. 48718 (Oct. 30, 2003), http://www.sec.gov/litigation/admin/34- 48718.htm (order instituting administrative and cease-and-desist proceedings, making findings, and imposing remedial sanctions and a cease-and-desist order). 375See id. 376See infra Section XIII.D.7 for a further discussion of alternatives to address potential conflicts of interest. explained further below, the Commission proposes to require NMS Stock ATSs to disclose information about certain aspects of the activities of the NMS Stock ATS’s broker-dealer operator, and its affiliates, in connection with the NMS Stock ATS, to help market participants assess potential conflicts of interest that may adversely impact their trading on the NMS Stock ATS. 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.375 Accordingly, the Commission preliminarily believes that the disclosure of certain information about the activities of the broker-dealer operator and its affiliates with respect to the NMS Stock ATS would enable market participants to better assess whether the potential for
information leakage exists. The Commission preliminarily believes that such disclosures would help a market participant independently evaluate whether submitting order flow to a particular NMS Stock ATS aligns with its business interests and would help it achieve its investing or trading objectives. B. Disclosures Required Under Part III of Proposed Form ATS–N
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.376 For example, the Commission could require an NMS Stock ATS to operate as a ‘‘stand-alone’’ entity having no affiliation with any broker-dealer that seeks to execute proprietary or agency orders in the NMS Stock ATS. This alternative would eliminate any potential conflicts of interest by requiring a broker-dealer that operates an NMS Stock ATS to have only a single business function— operating the NMS Stock ATS—and eliminating any other functions, such as trading on a proprietary basis or routing customer orders. As another alternative, and short of requiring NMS Stock ATSs to operate on a stand-alone basis, the Commission could continue to permit broker-dealer operators to continue to act as a broker-dealer operator of an NMS Stock ATS and engage in non-ATS functions while imposing new requirements designed to limit potential conflicts. 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. Request for Comment
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

377See supra notes 36–40 and accompanying text (relating to the duty of best execution). 378See Instruction G to proposed Form ATS–N. 379See Instruction B to Form 1; 17 CFR 249.1. 380See 17 CFR 242.300(c) (defining affiliate of a subscriber as any person that, directly or indirectly, controls, is under common control with, or is controlled by, the subscriber, including any employee). 381 17 CFR 242.300(f). 382See id. and Instruction G to proposed Form ATS–N. 383The instructions in proposed Form ATS–N would require an NMS Stock ATS to provide the identity of affiliates and business units of the broker-dealer operator, provide the name under which each affiliate or business unit conducts business (e.g., the formal name under which a proprietary trading desk of the broker-dealer operator conducts business) and the applicable CRD number and MPID(s) under which the affiliate or business unit conducts business. 384See Form BD at 2 (defining ‘‘control affiliate’’). 385Under the Exchange Act, an ‘‘affiliated person’’ of another person means: Any person directly or indirectly owning, controlling, or holding with power to vote, 5 percent or more of the outstanding voting securities of such other person; any person 5 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other person; any person directly or indirectly controlling, controlled by, or under common control with, such other person; any officer, director, partner, copartner, or employee of such other person; if such other person is an investment company, any investment adviser thereof or any member of an advisory board thereof; and if such other person is an unincorporated investment company not having a board of directors, the depositor thereof. 15 U.S.C. 78c(a)(19); 15 U.S.C. 80a–2(a)(3). execution? 377 Why or why not? Please support your arguments.
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.

1. Proposed Definitions of ‘‘Affiliate’’
   and ‘‘Control’’
   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.’’ 378 This proposed definition is consistent with the definition of an ‘‘affiliate’’ for the purposes of Form 1 disclosures,379 and relates closely to the definition of a similar term under Regulation ATS.380 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.381 As proposed to be amended, ‘‘control’’ would mean ‘‘the power, directly or indirectly, to direct the management or policies of the broker-dealer of an alternative trading system, whether through the 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% or more of a class of voting securities or has the power to sell or direct the sale of 25% 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% or more of the capital of the broker-dealer of the alternative trading system.’’ 382 The purpose of these amendments to the definition of control under Regulation ATS is to make clear that, because an ATS must register as a broker-dealer, control of the broker-dealer of the ATS is control of the ATS, and that the broker-dealer (also referred to as the broker-dealer operator) is legally responsible for all operational aspects of the ATS and for ensuring that the ATS complies with applicable federal securities laws and the rules and regulations thereunder, including Regulation ATS. 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.383 The Commission preliminarily believes that the proposed definition of an ‘‘affiliate’’ and amended definition of ‘‘control’’ would cover entities that have a close
   relationship with the broker￾dealer operator and whose activities could raise potential conflicts of interest, or could otherwise be relevant to market participants in evaluating an NMS Stock ATS. Extending the proposed disclosures to affiliates of the broker-dealer operator could also reduce the potential for an entity to structure its organization in a way that would not provide complete disclosure of information in response to Part III of proposed Form ATS–N. The Commission notes that the proposed disclosures related to affiliates extends to persons that control, are controlled by, or are under common control with the broker-dealer operator, and, as a result, parallels the disclosures related to ‘‘control affiliates’’ that are required in Form BD, to which broker-dealer operators are already subject.384 Request for Comment
2. 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.
3. 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? 385 Why or why not? Please support your arguments. If so, do you believe that the Commission should require disclosures about the activities of affiliated persons of the NMS Stock ATS, and/or affiliated persons of an affiliated person of an NMS Stock ATS? Why or why not? Please support your arguments.
4. 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.
5. Do you believe the voting interest
   or partnership interest thresholds for ‘‘control’’ of an entity (i.e., 25% or more) should be higher or lower for purposes of Rule 304? For example, should the voting interest or partnership interest threshold for control of an entity to be presumed be 5%, 10%, 15%, 30%, or 50% for purposes of Rule 304? If so, what is the appropriate percentage threshold and why would such alternate percentage threshold be more appropriate? Please support your arguments.

386A trading center is defined under Regulation NMS as a national securities exchange or national securities association that operates an SRO trading facility, an alternative trading system, an exchange market maker, an OTC market maker, or any other broker or dealer that executes orders internally by trading as principal or crossing orders as agent. 17 CFR 242.600(b)(78). The Commission preliminarily believes that the last two components of the definition of a trading center (i.e., an OTC market maker and any other broker or dealer that executes orders internally by trading as principal or crossing orders as agent) are the trading centers for which conflicts of interests of the broker-dealer operator and its affiliates are relevant, as such trading centers operate as competing venues for the execution of NMS stock over-the-counter. 387References to non-ATS trading centers, as used herein, encompass all executions that occur off of an exchange and outside of an ATS, including when a broker-dealer is acting as an OTC market￾maker, block positioner (i.e., any broker-dealer in the business of executing, as principal or agent, block size trades for its customers), or operation of an internal broker-dealer system. See 17 CFR 242.600(b)(52) (defining ‘‘OTC market maker’’ as any dealer that holds itself out as being willing to buy and sell to its customers, or others, in the United States, an NMS stock for its own account on a regular or continuous basis otherwise than on a national securities exchange in amounts of less than block size); 17 CFR 242.600(b)(9) (defining ‘‘block size’’ as an order of at least 10,000 shares or for a quantity of stock having a market value of at least $200,000); and 17 CFR 240.17a–3(a)(16)(ii)(A) (defining ‘‘internal broker-dealer system’’ as any facility, other than a national securities exchange, an exchange exempt from registration based on limited volume, or an alternative trading system as defined in Regulation ATS that provides a mechanism, automated in full or in part, for collecting, receiving, disseminating, or displaying system orders and facilitating agreement to the basic terms of a purchase or sale of a security between a customer and the sponsor, or between two customers of the sponsor, through use of the internal broker-dealer system or through the broker or dealer sponsor of such system). See also 2010 Equity Market Structure Release, supra note 124, at 3599–3600. 388See Part III, Item 1 of proposed Form ATS–N. 389See, e.g., Laura Tuttle, Over-the-Counter Trading: Description of Non-ATS OTC Trading in National Market System Stocks (March 2014), http://www.sec.gov/dera/staff-papers/white-papers/ otc-trading-white-paper-03-2014.pdf. 390As noted above, the Commission is aware that most of the broker-dealer operators of ATSs that currently trade NMS stocks also facilitate the execution of NMS stocks in non-ATS trading centers outside of the NMS Stock ATS. See supra note 364 and accompanying text. In October of
2013, the Commission and its staff estimated that about 16.99% of total dollar volume (18.75% of share volume) of NMS stocks is executed over-the￾counter (‘‘OTC’’) without the involvement of an ATS. In contrast, the Commission and its staff estimated that ATSs comprise 11.31% of total dollar volume (12.04% of share volume). See Tuttle:
ATS Trading in NMS Stocks, supra note 126, at 2. Given that a greater percentage of OTC executions in NMS stock occur outside of ATSs rather than inside of ATSs, the Commission preliminarily believes that some disclosure of the presence of these non-ATS trading centers is appropriate. Accordingly, to the extent that an NMS Stock ATS subscriber’s orders may execute, be displayed, or otherwise made known in a non-ATS trading center operated by or affiliated with the broker-dealer operator, the Commission preliminarily believes that disclosure of such possibility would be Continued
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.
2. Non-ATS Trading Centers of the
Broker-Dealer Operator
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) 386 that is an OTC market maker or executes orders in NMS stocks internally by trading as principal or crossing orders as agent (‘‘non-ATS trading centers’’),387 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 (such as quotes, indications of interest (‘‘IOI’’), conditional orders or messages (hereinafter collectively referred to as ‘‘trading interest’’)) sent to the NMS Stock ATS are displayed or otherwise made known to the identified non-ATS trading center(s) identified in Item 1(a) 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 identified in Item 1(a) before entering the NMS Stock ATS; and (iii) circumstances under which subscriber orders or other trading interest are removed from the NMS Stock ATS and sent to the identified non-ATS trading center(s).388 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.389 As discussed above, a broker￾dealer operator is permitted to engage in broker or dealer activities independent of its operation of an ATS, such as operating proprietary trading desks; the proposed rules do not eliminate or otherwise restrict such activities. The Commission, however, is proposing to require the public disclosure on proposed Form ATS–N of such activities as they relate to the NMS Stock ATS. As noted above, the Commission preliminarily believes that circumstances could arise whereby a broker-dealer operator of an NMS Stock ATS may place the interests of its or its affiliates’ non-ATS trading center ahead of the interests of the operations of the NMS Stock ATS and its subscribers. The Commission recognizes the sensitive nature of the confidential trading information of subscribers to an ATS and the potential for its misuse. The Commission preliminarily believes that non-ATS trading centers of a broker￾dealer operator of an NMS Stock ATS or its affiliates may have incentives, and the opportunity to access, NMS Stock ATS subscriber orders received by the broker-dealer operator, which may result in information leakage. 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.390

relevant to market participants in deciding whether to subscribe or route orders to a particular NMS Stock ATS. 391See, e.g., supra note 385 and accompanying text. 392See Part III, Item 2 of proposed Form ATS–N. In addition, Form ATS–N would require the disclosure of circumstances under which subscriber orders or other trading interest received by the broker-dealer operator may execute, in whole or in
part, in a non-ATS trading center(s)
operated by the broker-dealer operator or its affiliates before entering the NMS Stock ATS; the circumstances under which subscriber orders or other trading interest would be displayed or otherwise made known to the systems or personnel operating the non-ATS trading center(s); and the circumstances under which subscriber orders or other trading interest are removed from the NMS Stock ATS and sent to the non￾ATS trading center(s) for execution. To the extent that the broker-dealer operator or its affiliates operate a non￾ATS trading center(s), but NMS Stock ATS subscribers’ orders could not execute, route, or otherwise be shared with that non-ATS trading center(s), the NMS Stock ATS could note this fact in
Part III, Item 1 of proposed Form ATS–
N.
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 (i.e., non-ATS trading centers) that the broker-dealer operator operates and the circumstances in which the broker-dealer operator may handle or choose to execute subscriber orders outside of the NMS Stock ATS that might otherwise have been sent to the NMS Stock ATS. Request for Comment
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’’? 391 Should disclosure of non-ATS trading center activities apply to a more limited set of affiliates? Why or why not? Please support your arguments.
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?
3. Multiple NMS Stock ATS Operations
of the Broker-Dealer Operator
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).392 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

393See supra note 368.
394As is the case with the proposed disclosures under Part III, Item 1 of proposed Form ATS–N in regard to non-ATS trading centers, Part III, Item 2 of proposed Form ATS–N would require an NMS Stock ATS to disclose whether any affiliates of the broker-dealer operator operates an NMS Stock ATS. This disclosure is designed to elicit certain information about the relationship of related NMS Stock ATSs, regardless of the organizational structure of the broker-dealer operator and its affiliates. 395The Commission notes that a broker-dealer operator may have valid business reasons for operating multiple NMS Stock ATSs, and the Commission is not proposing to limit the ability for a broker-dealer operator to operate multiple NMS Stock ATSs. For example, the broker-dealer operator may establish several NMS Stock ATSs so that each NMS Stock ATS offers subscribers specific trading services (block order executions) or other particular trading functionalities (e.g., an auction mechanism or a limit order book). 396See, e.g., supra note 385 and accompanying text. one or more of its NMS Stock ATSs.393 To the extent that the broker-dealer operator or its affiliates operate multiple NMS Stock ATSs, but the subscribers’ orders of the NMS Stock ATS named in the Form ATS–N filing could not execute, route, be displayed, or otherwise made known to the NMS Stock ATS(s) identified in Item 2(a) of proposed Form ATS–N, the NMS Stock ATS could note this fact in Part III, Item 2 of proposed Form ATS–N. 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.394 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.395 Accordingly, the Commission preliminary believes that the disclosures required under Part III, Item 2 of proposed Form ATS–N would provide market participants with better information about how orders would be handled by a broker-dealer operator that operates multiple NMS Stock ATSs and the potential conflicts of interest and potential for information leakage that might arise as a result of such a business structure. Request for Comment
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’’? 396 Should disclosure apply to a more limited set of affiliates? Why or why not? Please support your arguments.
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

397See Part III, Item 3 of proposed Form ATS–N. 398See Staff of the Division of Trading and Markets, Commission, ‘‘Equity Market Structure Literature Review, Part II: High Frequency Trading,’’ at 5 (March 18, 2014), http:// www.sec.gov/marketstructure/research/hft_lit_ review_march_2014.pdf. 399See supra note 386 (defining trading center). 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 explain.
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?
4. Products or Services Offered to
Subscribers by the Broker-Dealer Operator
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 (e.g., algorithmic trading products, market data feeds). If so, the NMS Stock ATS would be required to describe the products and services and identify the types of subscribers (e.g., retail, institutional, professional) to which such services or products are offered, and if the terms and conditions of the services or products are not the same for all subscribers, describe any differences.397 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.398 In some cases, a broker-dealer operator offering products or services in connection with a subscriber’s use of the NMS Stock ATS may result in the subscribers receiving more favorable terms from the broker-dealer operator with respect to their use of the NMS Stock ATS. For example, if a subscriber purchases a service offered by the broker-dealer operator of an NMS Stock ATS, the broker-dealer operator might also provide that subscriber more favorable terms for their use of the NMS Stock ATS than other subscribers who do not purchase the service. Such favorable terms could include fee discounts or access to a faster connection line to the NMS Stock ATS. Additionally, a broker-dealer operator of an NMS Stock ATS may only offer certain products and services to certain subscribers or may offer products and services on different terms to different categories of subscribers. The Commission preliminarily believes that market participants would want to know, when assessing an NMS Stock ATS as a potential trading venue, the range of services or products that the broker-dealer operator or its affiliates may offer subscribers of the NMS Stock ATS because such services or products may have an impact on the subscribers’ access to, or trading on, the NMS Stock ATS. Request for Comment
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?
5. Broker-Dealer Operator Arrangements
With Unaffiliated Trading Centers
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 399 regarding access to the NMS Stock ATS,

400See Part III, Item 4 of proposed Form ATS–N. 401The Commission notes that a broker-dealer operator may have valid business reasons for it or its affiliates to have formal or informal arrangements with an unaffiliated person(s), or affiliate(s) of such person, that operates a trading center regarding access to the NMS Stock ATS. The Commission is not proposing to limit the ability for a broker-dealer operator to have such arrangements. 402Alternatively, if an arrangement between the NMS Stock ATS and unaffiliated trading center provided that any subscriber orders routed out of the NMS Stock ATS would be first routed to the unaffiliated non-ATS trading center, the NMS Stock ATS may have an incentive to remove subscribers’ orders from the NMS Stock ATS and allow the unaffiliated non-ATS trading center the opportunity to execute those orders. 403See supra note 386 (defining trading center). 404See, e.g., supra note 385 and accompanying text. including preferential routing arrangements. If so, the NMS Stock ATSs would be required to identify the person(s) and the trading center(s) and to describe the terms of the arrangement(s).400
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.401 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.402 Part III, Item 4 of proposed Form ATS–N would also require disclosure of mutual access arrangements between an NMS Stock ATS and other trading centers whereby, for example, a broker-dealer operator or its affiliates may offer access to its NMS Stock ATS in exchange for access to the NMS Stock ATS of another broker-dealer operator. 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). Request for Comment
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 403 regarding access to the NMS Stock ATS, including preferential routing arrangements? Why or why not? Please support your arguments.
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’’? 404 Should disclosure apply to a more limited set of affiliates? Why or why not? Please support your arguments.
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

405The Commission notes that a broker-dealer operator may have valid business reasons for it or its affiliates to trade on the NMS Stock ATS. The Commission is not proposing to limit the ability for a broker-dealer operator to trade on any such NMS Stock ATS. 406See supra note 370 and accompanying text. 407See supra note 368. 408To the extent that a subscriber to the NMS Stock ATS directly sends an order to the NMS Stock ATS by way of FIX protocol, the NMS Stock ATS should identify and describe any intermediate functionality that the subscriber order may pass through on its way to the NMS Stock ATS as part of the FIX process. required to be provided under proposed Form ATS–N. Please support your arguments.
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?
6. Trading on the NMS Stock ATS by
the Broker-Dealer Operator and Its Affiliates
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 (e.g., proprietary, agency) in which each identified affiliate and business unit enters orders or other trading interest on the NMS Stock ATS; (3) describe the means by which each identified affiliate and business unit enters orders or other trading interest on the NMS Stock ATS (e.g., directly through a FIX connection to the NMS Stock ATS, or indirectly, by way of the broker-dealer operator’s SOR (or similar functionality), algorithm, intermediate application, or sales desk); and (4) describe 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 on the NMS Stock ATS.405 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 (e.g., a sales desk or proprietary trading unit) and affiliate of the broker-dealer operator that can enter orders or other trading interest on the NMS Stock ATS. The Commission preliminarily believes that disclosure of whether a broker-dealer operator of an NMS Stock ATS or its affiliates may trade on that NMS Stock ATS would be important to subscribers with respect to the potential conflicts of interest that may arise from the unique position the broker-dealer operator occupies in relation to the NMS Stock ATS. If the person that operates and controls a trading center is also able to trade on that trading center, there may be an incentive to design the operations of the trading center to favor the trading activity of the operator of the trading center or affiliates of the operator.406 The operator of a trading center that also trades on the trading center it operates would likely have informational advantages over others trading on the trading center such as a better understanding of the manner in which the system operates or who is trading on the trading center. In the most egregious case, the operator of the trading center might use the confidential trading information of other traders to advantage its own trading on that trading center, which, in context of an ATS, would violate Rule 301(b)(10). Accordingly, the Commission believes that subscribers would benefit from knowing whether and how a broker￾dealer operator or its affiliates trade on the NMS Stock ATS to which they may route orders or become a subscriber. Such information would allow
market participants to evaluate the extent of the potential conflicts of interest posed by the broker-dealer operator or its affiliates’ participation on the NMS Stock ATS and to inquire further about such trading activity if they choose.
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 (i.e., for their own accounts) or agency basis or both. This disclosure is meant to provide insight as to the nature of the trading of the broker-dealer operator and/or its affiliates. The Commission preliminarily believes that market participants would find this information useful in evaluating NMS Stock ATSs because they may perceive agency trading by the broker-dealer operator or its affiliates as posing less of a conflict of interest as compared to proprietary trading. For example, market participants may perceive a lesser potential for a conflict of interest if the broker-dealer operator discloses that the broker-dealer operator or its affiliates trade on its own NMS Stock ATS only in an agency capacity with its customers’ orders as opposed to trading on the NMS Stock ATS in a principal capacity on a proprietary basis—where the broker-dealer operator or its affiliates may have increased incentives to use their informational advantage in operating the NMS Stock ATS to advance their trading opportunities.407 Alternatively, market participants could conclude that the broker-dealer operator’s agency trading on its own NMS Stock ATS could nevertheless pose an unacceptable conflict of interest as the broker-dealer operator may be able to advantage its customers’ orders to the disadvantage of subscribers to the NMS Stock ATS. The Commission proposes to provide market participants with information regarding the nature of the trading activity of the broker-dealer operator and its affiliates on the NMS Stock ATS so that subscribers (and potential subscribers) can evaluate potential conflicts of interest that may arise from that trading activity.
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,408 while other subscribers may enter

409See infra Section VII.B.7 (discussing the use of smart order routers by broker-dealer operators of NMS Stock ATSs). 410See, e.g., supra note 385 and accompanying text. orders or other trading interest indirectly to the ATS using, for example, an algorithm, the broker-dealer operator’s smart order router,409 or the broker-dealer operator’s sales desks. As such, there are a variety of means by which business units of the broker￾dealer operator or its affiliates of the broker-dealer operator may connect to, and enter orders on, an NMS Stock ATS. The Commission preliminarily believes that market participants evaluating NMS Stock ATSs may find this information relevant in assessing any potential advantages that the broker-dealer operator or its affiliates may have over other subscribers to the NMS Stock ATS. For example, an NMS Stock ATS may permit orders or other trading interest of all of its affiliates that trade on the NMS Stock ATS to enter through a means that can be used only by the broker-dealer operator or its affiliates and not by non-affiliated subscribers to the NMS Stock ATS (e.g., bypassing the broker-dealer operator’s SOR). The Commission preliminarily believes that market participants would want to know these circumstances, as the difference in access or order entry could result in certain advantages, such as the speed at which orders could be entered or cancelled. Moreover, the Commission preliminarily believes that based on how a broker-dealer operator’s business units or affiliates access and trade on an NMS Stock ATS—or on other considerations—certain subscribers may not wish to interact with the order flow of the broker-dealer operator or its affiliates. Accordingly, the Commission preliminarily believes that it is important for market participants to have the information to elect whether and how they may avoid trading against orders or other trading interest of the broker-dealer operator or its affiliates on an NMS Stock ATS to achieve their investing or trading objectives. 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. Request for Comment
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’’? 410 Should disclosures apply to a more limited set of affiliates? Why or why not? Please support your arguments.
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?

411See supra note 362.
412See Staff of the Division of Trading and Markets, Commission, ‘‘Equity Market Structure Literature Review, Part II: High Frequency Trading,’’ at 5 (March 18, 2014), http:// www.sec.gov/marketstructure/research/ hft_lit_review_march_2014.pdf. 413The Commission notes that, similar to legacy NMS Stock ATSs, broker-dealer operators are likely to vary in their organizational structures. Accordingly, the Commission proposes to include affiliates of the broker-dealer operator that may operate a SOR(s) (or similar functionality) or algorithm(s) in Part III, Item 6 of proposed Form ATS–N to ensure that SORs (or similar functionalities) or algorithms used in connection with the NMS Stock ATSs are disclosed regardless of whether the SOR(s) (or similar functionality) or algorithm(s) is operated by an affiliate of the broker￾dealer operator.
7. Broker-Dealer Operator Smart Order
Routers (or Similar Functionalities) and Algorithms
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; 411 and (2) 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 (e.g., IOIs) that the SOR(s) (or similar functionality) or algorithm(s) send or receive to or from the NMS Stock ATS and the circumstances under which such information may be shared with any person. 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.412 Broker-dealer operators of NMS Stock ATSs or their affiliates may use SORs (or similar functionality) or algorithms in a variety of ways.413 For example, the broker-dealer operator may use the SOR (or similar functionality) to route orders on behalf of its customers and proprietary trading desks to different trading venues, or the broker-dealer operator may use the SOR as the primary means of routing subscriber orders or other trading interest to or from the NMS Stock ATS. The Commission understands, based on experience, that for some ATSs that currently transact in NMS stocks, the SOR (or similar functionality) or algorithm of the broker-dealer operator or its affiliates is the only means of access (i.e., all orders or other trading interest entered on, or
removed from, the ATS, must pass through the SOR (or similar functionality) or algorithm). A broker-dealer operator may also use a SOR (or similar functionality) or algorithm to handle all order flow received by the broker-dealer operator (or its affiliates), including both orders that a subscriber has specifically directed to the NMS Stock ATS and orders that may not be sent to the NMS Stock ATS, as well as the broker￾dealer’s own proprietary orders and those of its affiliates. For many orders, the SOR (or similar functionality) or algorithm determines whether to route the order to the NMS Stock ATS, another NMS Stock ATS or non-ATS trading center operated by the broker￾dealer operator, another broker-dealer, an unaffiliated NMS Stock ATS, or a national securities exchange. The SOR (or similar functionality) may obtain knowledge of subscriber orders or other trading interest that have been routed to the NMS Stock ATS (and may now be resting on the NMS Stock ATS) and subscriber orders that have been routed out of the NMS Stock ATS. Similarly, the system operating an algorithm used by the broker-dealer operator to enter subscriber orders based on the algorithm’s trading strategy may obtain information about subscriber orders sent to the NMS Stock ATS. The broker￾dealer operator (or its affiliates) programs and operates the SOR (or similar functionality) and/or algorithm(s), unless the broker-dealer operator contracts such functions to a third-party vendor, in which case the broker-dealer operator or third-party vendor may have access to information that passes through the SOR(s) (or similar functionality), algorithm(s) or both. 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

414Under Rule 3b–16 an organization, association, or group of persons shall be considered to constitute, maintain, or provide ‘‘a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange,’’ if such organization, association, or group of persons: (1) Brings together the orders for securities of multiple buyers and sellers; and (2) uses established, non￾discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade. 17 CFR 240.3b–16(a). 415The Commission noted in adopting Regulation ATS that the Commission ‘‘will attribute the activities of a trading facility to a system if that facility is offered by the system directly or indirectly’’ and ‘‘if an organization arranges for separate entities to provide different pieces of a trading system, which together meet the definition contained in paragraph (a) of Rule 3b–16, the organization responsible for arranging the collective efforts will be deemed to have established a trading facility.’’ See Regulation ATS Adopting Release, supra note 7, at 70852. If the SOR(s) (or similar functionality) or algorithm(s) were operated by an affiliate of the NMS Stock ATS or an entity unaffiliated with the NMS Stock ATS, the SOR(s) (or similar functionality) or algorithm(s) could still be considered a part of the NMS Stock ATS depending on the facts and circumstances. from the NMS Stock ATS. Information about the persons who operate a SOR(s) (or similar functionality) or algorithm(s) used in connection with the NMS Stock ATS and how the SOR(s) (or similar functionality) or algorithm(s) operates would allow subscribers to assess potential sources of information leakage and conflicts of interest that may arise from the operation of the SOR(s) (or similar functionality) and/or algorithm(s).
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 (e.g., IOIs) that the SOR(s) (or similar functionality) or algorithm(s) send or receive to or from the NMS Stock ATS and the circumstances under which such information may be shared with any person. Because the SOR(s) (or similar functionality) or algorithm(s) and NMS Stock ATS are typically operated by the same broker-dealer operator (rather than a third-party vendor), the Commission preliminarily believes subscribers to the NMS Stock ATS are likely to find it important to understand what information about their orders is obtained by a SOR(s) (or similar functionality) or algorithm(s) and the circumstances under which that information may be used by the broker￾dealer operator of the NMS Stock ATS, its affiliates, or other persons. The Commission is concerned that without this information, subscribers that send orders to the NMS Stock ATS by way of the broker-dealer operator’s SOR (or similar functionality) or algorithm may not be able to understand the conditions under which information about their confidential trading information may be leaked. 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 (i.e., buy or sell) of the subscriber’s order or other trading interest, but not the size, price, identity of the subscriber or other information. As another example, an NMS Stock ATS that uses IOIs as part of its platform may use its SOR (or similar functionality) or an algorithm to facilitate the sending of IOIs to relevant persons regarding orders or other trading interest resting on the NMS Stock ATS. The Commission preliminarily believes that the operations and functions of the SOR(s) (or similar functionality) or algorithm(s) in these examples would be relevant to subscribers and helpful in understanding how the NMS Stock ATS operates. 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.414 Based on Commission experience, most broker￾dealer operators that use a SOR(s) (or similar functionality) or algorithm operate the SOR(s) (or similar functionality) or algorithm(s) separate and apart from their ATS. However, to the extent that a SOR (or similar
functionality) or algorithm operates jointly with, or performs a function of, the NMS Stock ATS to bring together the orders for securities of multiple buyers and sellers using established nondiscretionary methods, the SOR (or similar functionality) or algorithm may be considered part of the NMS Stock ATS.415 For example, a SOR (or similar functionality) or algorithm that is, based on the facts and circumstances, the exclusive means for subscribers to access and enter orders or other trading interest on NMS Stock ATS for execution would be regarded as part of the operations of the NMS Stock ATS because the SOR (or similar functionality) or algorithm would function as the mechanism for orders or other trading interest to be brought together and interact in the NMS Stock ATS. The Commission preliminarily believes that information provided on proposed Form ATS–N about the use of a SOR (or similar functionality) or algorithm under Part III, Item 6 of proposed Form ATS–N would allow the Commission to better understand the operations and scope of the NMS Stock ATS. That is, the proposed disclosures would assist the Commission in determining if a SOR (or similar functionality) or algorithm is facilitating the bringing together of orders for securities of multiple buyers and sellers using established nondiscretionary methods, and would consequently be
part of the NMS Stock ATS for the
purposes of Regulation ATS.
Request for Comment
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

416See Part III, Item 7 of proposed Form ATS–N. 417The Commission notes that a broker-dealer operator may have valid business reasons for it or its affiliates having shared employees, and the Commission is not proposing to limit the ability for a broker-dealer operator to have such arrangements. orders or other trading interest to the NMS Stock ATS? Please be specific.
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?
8. Shared Employees of NMS Stock ATS
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.416
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.417 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. Request for Comment
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

418See Part III, Item 8 of proposed Form ATS–N. 419See Item 7 of Form ATS (describing the requirements for Exhibit E to Form ATS). 420The Commission notes that a broker-dealer operator may have valid business reasons for it or its affiliates to have functions of the NMS Stock ATS performed by person(s) other than the broker￾dealer operator of the NMS Stock ATS. The Commission is not proposing to limit the ability for a broker-dealer operator to have such arrangements. 421The Commission is not proposing to require than an NMS Stock ATS provide any personally identifiable information about any natural person in
Part III, Item 8(a) of proposed Form ATS–N. Part III,
Item 8(a) of proposed Form ATS–N is designed to solicit sufficient information to identify the entity or person providing the service, operation, or function to the NMS Stock ATS, such as the position or title in the case of a natural person acting as a service provider. 422The Commission notes that the examples listed above are not intended to be an exhaustive list of the types of services, and the level of detail about those services, that would be required by Part III, Item 8 of proposed Form ATS–N. The Commission preliminarily believes that the appropriate disclosure would be driven by the particular facts and circumstances of operational structure of the NMS Stock ATS. 423 If, for example, the SOR of an affiliate of the broker-dealer operator is used to route orders to and from the NMS Stock ATS, the SOR would need to be disclosed in Part III, Item 8 of proposed Form Continued secrets, burden, or any other concerns? If so, what information and why? Please support your arguments.
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?
9. Service Providers to the NMS Stock
ATS
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.418 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.419 Part III, Item 8 of proposed Form ATS–N would require more detailed information about service providers to the NMS Stock ATS than is currently required by Form ATS, including whether affiliates of service providers may trade on the NMS Stock ATS.420 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.421 For example, an NMS Stock ATS may engage a third￾party service provider to provide market data for the NMS Stock ATS to, among other things, calculate reference prices (such as the NBBO). Responses to Part III, Item 8(a) of proposed Form ATS–N would be required to include the name of the company that provides the market data. Part III, Item 8(b) of proposed Form ATS–N would require an NMS Stock ATS to provide, in detail, information about the operations, service, or function of the NMS Stock ATS that is provided by the identified third-party in Part III, Item 8(a) of proposed Form ATS–N and its roles and responsibilities with respect to that operation, service, or function. For example, a broker-dealer operator may engage a third party to host and maintain the trading platform of the NMS Stock ATS. Part III, Item 8(b) of proposed Form ATS–N would require a description of those services and the specific role and responsibilities of the company and its employees. Responses to Part III, Item 8(b) of proposed Form ATS–N would be required to be sufficiently detailed such that market participants and the Commission could understand what functions are performed by a person other than an employee of the broker-dealer operator and what those
services include. As guidance for completing this proposed disclosure item, the Commission would view an NMS Stock ATS simply stating that a third-party provides technology or hardware services to the NMS Stock ATS as not sufficiently responsive to the required disclosure. Responses to Part III, Item 8(b) of proposed Form ATS–N, in the example above, would require a detailed description of information technology services, including both hardware and software that may be provided, as well as any programming, ongoing maintenance, monitoring, and other functions the service provider would perform with respect to the NMS Stock ATS. As additional guidance, responses to Item 8 would also be required to include any service provider that provides, for example, such functions as consulting relating to the trading systems or functionality, cyber security, regulatory compliance, and record keeping services or functions of the NMS Stock ATS. Additionally, an NMS Stock ATS would be required to identify and describe the services of any service provider engaged for the purposes of the clearance and settlement of trades for the NMS Stock ATS.422 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.423 However, services provided

ATS–N and would likely also need to be disclosed in Part III, Item 6 of proposed Form ATS–N, which relates to SORs used by the broker-dealer operator or its affiliates. 424See supra Section VII.B.8 (discussing proposed requirements for disclosure pertaining to NMS Stock ATS employees that are shared employees with other business units of the broker￾dealer operator or its affiliates). to the NMS Stock ATS by employees of the broker-dealer operator would not need to be disclosed in Part III, Item 8 of proposed Form ATS–N. The activities of such persons, to the extent they are shared employees, would be disclosed pursuant to Part III, Item 7 of proposed Form ATS–N.424 The Commission also notes that it does not intend that the proposed disclosure requirements of
Part III, Item 8 of proposed Form
ATS–N would extend to operations, services, or functions that are administrative in nature and do not pose a significant risk of information leakage of confidential trading information, such as payroll functions servicing employees of the NMS Stock ATS or email services provided by an outside provider, because the Commission preliminarily believes that information about the services of such third-party services providers and their employees would not be relevant to market participants’ evaluation of an NMS Stock ATS as a trading venue and would not be necessary for the Commission’s oversight functions. 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. Request for Comment
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?
10. Differences in Availability of
Services, Functionality, or Procedures
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

425The Commission notes that it is similarly proposing to require NMS Stock ATSs to disclose differences in the treatment of subscribers on the NMS Stock ATS in a number of proposed disclosure requirements. See, e.g., proposed Items 1(a) and 1(b) of Part IV of proposed Form ATS–N. 426 15 U.S.C. 78f(b)(2). 427See 17 CFR 242.301(b)(5). See also supra notes 92–95 and accompanying text (discussing the fair access requirements of Regulation ATS). 428See id. 429See, e.g., UBS Settlement at 14, ITG Settlement at 15, Pipeline Settlement at 16, and Liquidnet Settlement at 14, supra note 374 (all noting violations of Section 17(a)(2) of the Securities Act, which prohibits, directly or indirectly, in the offer or sale of securities, obtaining money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.) 15 U.S.C. 77q(a)(2). 430See, e.g., supra note 385 and accompanying text. other subscribers do not.425 For example, an NMS Stock ATS may employ different procedures governing how orders entered on the NMS Stock ATS by the broker-dealer operator’s business units or affiliates are segmented than it does for other subscribers. The Commission preliminarily believes that the disclosure of those differences in procedures would allow market participants to evaluate whether such differences might put them at a disadvantage when competing against the broker-dealer operator or its affiliates for an execution on the 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 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.426 In contrast, the access requirements that apply to ATSs are much more limited. Because NMS Stock ATSs are exempt from the definition of an ‘‘exchange’’ so long as they comply with Regulation ATS, and thus, are not required to register as a national securities exchange pursuant to Sections 5 and 6 of the Exchange Act, NMS Stock ATSs are not required to provide fair access unless they reach a 5% trading volume threshold in a stock, which almost all NMS Stock ATSs currently do not.427 As a result, access to the services of NMS Stock ATSs is determined primarily by private negotiation, and such access to services can differ among persons that subscribe to the NMS Stock ATS. 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,428 which, among other things, requires an ATS to establish written standards for granting access to trading on its system and not unreasonably prohibiting or limiting any person with respect to access to services offered by the ATS by applying the written standards in an unfair or discriminatory manner. Thus, for example, an ATS that discloses a service to one class of subscribers (or makes the associated functionality available to only one class of subscribers) could not, if it were subject to the fair access requirements, discriminate in this manner unless it had fair and non￾discriminatory reasons for doing so. The Commission further notes that, even if an ATS is not subject to the fair access requirements, inaccurate or misleading disclosures about an ATS’s operations could result in violations of the antifraud provisions of the federal securities laws.429 Request for Comment
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’’? 430 Should disclosure apply to a more limited set of affiliates? Why or why not? Please support your arguments.
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

431 17 CFR 242.301(b)(10).
432See infra Sections IX and X (discussing the requirements of Rule 301(b)(10) and proposed amendments to require that safeguards and procedures be written and preserved). 433See Regulation ATS Adopting Release, supra note 7, at 70879. 434 Id. 435See id. (stating that many of the ATSs popular at the time Regulation ATS was adopted were anonymous and that many ECNs at that time were popular because they permitted wide dissemination of orders but provided anonymity). 436See Regulation ATS Adopting Release, supra note 7, at 70879. 437The Commission notes that there may be some NMS Stock ATSs that might not offer any means by reveal too much (or not enough) information about their structure and operations? Why or why not? Please support your arguments.
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?
11. Confidential Treatment of Trading
Information
Part III, Item 10 of proposed Form
ATS–N is based on the requirements of Rule 301(b)(10) of Regulation ATS,431 and would require an NMS Stock ATS to describe the written safeguards and written procedures to protect the confidential trading information of subscribers to the NMS Stock ATS. It would also require an NMS Stock ATS to: (a) 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); (b) identify the positions or titles of any persons that have access to the confidential trading information, describe the confidential trading information to which the persons have access, and describe the circumstances under which the persons can access confidential trading information; (c) describe the written standards controlling employees of the NMS Stock ATS trading for the employees’ accounts; and (d) describe the written oversight procedures to ensure that the safeguards and procedures described above are implemented and followed. As previously noted,432 the Commission stated when adopting Regulation ATS that Rule 301(b)(10) did not preclude a broker-dealer that operated an ATS from engaging in other broker-dealer functions. However, to prevent the misuse of private subscriber and customer trading information for the benefit of other customers or activities of the broker-dealer operator, the Commission required that ATSs have in place safeguards and procedures to protect that confidential trading information and to separate ATS functions from other broker-dealer functions.433 In adopting Rule 301(b)(10), the Commission stated that the rule was meant to ensure that information, such as the identity of subscribers and their orders, be available only to those employees of the alternative trading system who operate the system or are responsible for its compliance with applicable rules.434 Thus, a broker-dealer operator may not convert confidential trading information of ATS subscribers for use by the non￾ATS business units operated by the broker-dealer. 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 (e.g., trade anonymously and/ or to mitigate the impact of trading large positions) 435 are eliminated. Moreover, if subscribers’ confidential trading information is shared without subscribers’ consent, that information may be used by the recipient of the information to gain a competitive advantage over the subscriber. In cases where the confidential trading information of a subscriber is impermissibly shared with the personnel of the broker-dealer
operator or any of its affiliates (i.e., persons who are not responsible for the operation of the ATS or compliance with applicable rules), such an abuse is compounded by the conflicting interests of the broker￾dealer operator. That is, in such a case, the broker-dealer operator has invited subscribers to trade on its ATS and may have abused that relationship to provide itself or its affiliates with a direct competitive advantage over that subscriber. The Commission preliminarily believes that disclosure is necessary in this area so market participants can independently evaluate the robustness of the safeguards and procedures that are employed by the NMS Stock ATS to protect subscriber confidential trading information and decide for themselves whether they wish to do business with a particular NMS Stock 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.436 ATSs that transact in NMS stocks vary in terms of what types of orders, indications of interests, or other forms of trading interest are confidential on their systems and what specific information about such trading interest may be shared. For example, an ATS might provide that no IOIs submitted by subscribers will be considered confidential, but may provide subscribers with the option to restrict the information in the IOI message to just the symbol and side (i.e., buy or sell). In this example, responses to Item 10(a) would require an NMS Stock ATS to describe the means by which a subscriber or potential subscriber could control some of the information contained in the IOI message by providing consent or withdrawing such consent for the sharing of its confidential trading information.437

which a subscriber could consent to the dissemination of its confidential trading information. An NMS Stock ATS would be required to disclose this fact pursuant to Item 9(a). 438See Regulation ATS Adopting Release, supra note 7, at 70879; 17 CFR 242.301(b)(10)(i)(A). 439For example, an NMS Stock ATS that permits access to the confidential trading information of subscribers for breaking trades generally should specify, if true, that access to that information would only be of previous activity on the NMS Stock ATS for the purpose of breaking a trade. 440See infra Section IX.
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.438 The Commission preliminarily believes that requiring ATSs to disclose the list by title or position of all personnel that can access the confidential trading information of subscribers would buttress the existing obligations on ATSs to restrict access only to permitted personnel (i.e., those responsible for its operation or compliance).
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 (i.e., as trading is occurring on the platform) or whether the information relates to historical activity by one or more subscribers.439
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.440 By requiring that these standards, policies, and procedures be written and that a description of them be publicly disclosed in Part III, Item 10 of proposed Form ATS–N, NMS Stock ATSs may be encouraged to carefully consider the adequacy of their means of protecting the confidential trading information of subscribers, which may result in more robust protections of such information. Market participants would be able to evaluate the relative robustness of such standards, policies, and procedures based on the disclosures provided in
Part III, Item 10 of proposed Form ATS–
N, which would in turn allow them to better evaluate the NMS Stock ATS to which they might route orders or become a subscriber. Request for Comment
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

441See supra Section III.A (discussing the various trading venues for NMS stocks and the significance of NMS Stock ATSs as a significant source of liquidity). 442See id. 443See supra note 303. 444The SRO for an ATS has responsibility for overseeing the activities of the broker-dealer operator, which includes the activities of the NMS Stock ATS and surveilling the trading that occurs on the NMS Stock ATS. See Regulation ATS Adopting Release, supra note 7, at 70863. 445The Commission notes that Exhibit A of current Form ATS requires an ATS to describe its classes of subscribers (for example, broker-dealer, institution, or retail) and any differences in access to the services offered by the ATS to different groups or classes of subscribers. Part IV, Section 1 of proposed Form ATS–N would require similar information, but the proposed requirements of Form ATS–N are designed to solicit more detailed information than that currently solicited by Form ATS. 446See Regulation ATS Adopting Release, supra note 7, at 70859 (stating that the limitation on ATSs governing the conduct of subscribers does not preclude an ATS from requiring financial information from subscribers). 447See Liquidnet letter #1, supra note 166 and accompanying text (stating disclosures should include the admission criteria for each ATS). disclosures in Part III, Item 10 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.
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?
VIII. Part IV of Proposed Form ATS–N:
The Manner of Operations of the NMS Stock ATS Given the dispersal of trading volume in NMS stocks among an increasing number of trading centers,441 the decision of where to route orders to obtain best execution for market participants is critically important. Today, NMS Stock ATSs account for a significant source of liquidity for NMS stocks and compete with, and operate functionally similar to, registered national securities exchanges.442 Notwithstanding the importance of NMS Stock ATSs as a source of liquidity in NMS stocks and the increasing operational complexity of NMS Stock ATSs, market participants have limited information about how these markets operate. The Commission is concerned that this lack of operational transparency impedes market participants from adequately discerning how orders interact, match, and execute on NMS Stock ATSs, and may hinder market participants’ ability to obtain, or monitor for, best execution for their orders. The current disclosures on Form ATS are confidential, and even in cases where an ATS voluntarily discloses its Form ATS publicly, ATSs have often been reluctant to provide more than summary disclosures about their operations. As a result, neither the Commission nor market participants currently receive a full picture of the operations of NMS Stock ATSs. The Commission preliminarily believes that the information that would be disclosed on proposed Form ATS–N, and in particular Part IV of the Form, would significantly improve the opportunity for market participants and the Commission to understand the operations of NMS Stock ATSs.
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,443 include membership eligibility requirements, hours of operations, the operation of order types, the structure of the market (e.g., auction market, limit order matching book), priority, and opening and closing procedures, among other things. In addition, information provided on proposed Form ATS–N should assist the Commission, and the SRO for the broker-dealer operator, in exercising oversight over the broker￾dealer operator.444 A. Subscribers
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.445
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.446 The Commission preliminarily believes that market participants would find it useful to understand an NMS Stock ATS’s eligibility requirements so they may determine whether they may qualify for access to an NMS Stock ATS.447 The Commission preliminarily believes that making such information publicly available would provide efficiencies, as a market participant could source information about, and compare and contrast, the eligibility processes and requirements to access different NMS Stock ATSs. The Commission also preliminary believes that it would be better able to monitor

the extent to which NMS Stock ATSs are available to market participants and obtain a thorough understanding of NMS Stock ATS’s eligibility processes and requirements. Request for Comment
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. Request for Comment
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,

448But see supra notes 92–95 and 427–429 and accompanying text (discussing the fair access requirements of Regulation ATS). 449See Lime Brokerage letter, supra note 192 and accompanying text (stating the Commission should require ‘‘transparency around . . . membership of dark pools’’). what do those non-written agreements encompass, and how are they communicated to subscribers? Are any materials other than contracts provided to subscribers that set forth terms and conditions for granting access to the NMS Stock ATS? Please explain in detail.
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 (e.g., institutional and retail investors, broker￾dealers, proprietary trading firms). The NMS Stock ATS would also be required to state whether it accepts non-broker￾dealers as subscribers to the NMS Stock ATS and describe any criteria for distinguishing among types of subscribers, classes of subscribers, or other persons. 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.448 For example, an NMS Stock ATS may only allow certain types of subscribers, including institutional investors, retail investors, broker-dealers, or proprietary trading firms, to enter a certain type of order on the NMS Stock ATS. Additionally, NMS Stock ATSs may assign different priorities to orders based on the types of subscribers that entered the orders on the NMS Stock ATS, such as orders originating from retail brokerage accounts or proprietary traders. Furthermore, the Commission understands that subscribers may wish to preclude or limit the interaction of their orders with the orders of certain other subscribers for several reasons, such as to help reduce information leakage or the possibility of trading with counterparties that they perceive to be undesirable. Accordingly, the Commission preliminarily believes that subscribers would find it useful to know the types of subscribers or other persons transacting on the NMS Stock ATS, and with that knowledge, they would be in a better position to evaluate the order flow on the NMS Stock ATS and determine whether they may wish to send their orders to the NMS Stock ATS for execution.449 The Commission also preliminarily believes that increased transparency regarding the types of subscribers—and distinctions an NMS Stock ATS makes among subscribers or other persons when trying to access the ATS—would advance the Commission’s objective of protecting investors by giving them better information with which to protect their own interests. Request for Comment
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 (e.g., undertaking to buy or sell continuously, or to meet specified thresholds of trading or quoting activity). Item 1(d) would further require an NMS Stock ATS to describe the terms and conditions of each arrangement and identify any liquidity providers that are affiliates of the broker-dealer operator. 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

450See, e.g., The NASDAQ Stock Market LLC, Rule 4613, Market Maker Obligations. Market￾makers on a national securities exchange typically undertake, among other things, two-sided quote obligations where the market maker holds itself out as willing to buy and sell a particular security or securities for its own account on a continuous basis during trading hours. The obligations required of market makers may vary across national securities exchanges. 451Often, market makers on national securities exchanges are provided benefits for providing liquidity to the exchange, such as fee discounts, rebates, or volume incentive programs that may not be available to non-market makers. See, e.g., The NASDAQ Stock Market LLC, Rule 7014, Market Quality Incentive Programs (describing the ‘‘Qualified Market Maker Program’’ and ‘‘Lead Market Maker Program’’). The attendant benefits provided to market makers may vary across national securities exchanges. 452See supra note 286 and accompanying text. 453Form ATS–R, Exhibit C requires an ATS subject to the fair access obligations under Rule 301(b)(5) of Regulation ATS to list all persons granted, denied, or limited access to the ATS during the period covered by the ATS–R report, designating for each person (a) whether they were granted, denied, or limited access; (b) the date the alternative trading system took such action; (c) the effective date of such action; and (d) the nature of any denial on limitation of access. See Form ATS– R. NMS stocks may engage certain subscribers to provide liquidity to the NMS Stock ATS and perform similar functions to that of a market maker on a national securities exchange.450 These liquidity providers may quote in a particular NMS stock on the NMS Stock ATS during trading hours and may receive a benefit for performing this function, such as discounts on fees, rebates, or the opportunity to execute with a particular type of segmented order flow.451 The obligations required of liquidity providers and the benefits they are provided vary across NMS Stock ATSs. Accordingly, the Commission proposes to require NMS Stock ATSs to describe the terms of any formal or informal arrangement with a liquidity provider, which could entail such obligations and benefits as well as a description of the process by which a subscriber could become a liquidity provider on the NMS Stock ATS. The Commission preliminarily believes that information about liquidity providers would be useful to subscribers and market participants who, for example, may want their orders to only interact with agency orders (and not with those of a liquidity provider), or, conversely, may themselves want to become a liquidity provider on the NMS Stock ATS.
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. Request for Comment
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.452 The Commission understands that ATSs that trade NMS stocks have rules governing subscribers’ participation on the ATS, and that if a subscriber fails to comply with these rules, the ATS may limit or deny access to the NMS Stock ATS.453 These limitations can result in some subscribers having different levels of functionality or more favorable terms of access than others. The Commission preliminarily believes that it is important for subscribers to have advance notice of the circumstances under which their access to NMS Stock ATSs would be limited or denied, and the procedures or standards that would be used to govern such actions. The Commission preliminarily believes that understanding such information would provide efficiencies as a market participant could source information about potential limits to accessing an

454See, e.g., BATS Exchange Rules 1.5(c) (setting forth hours for the exchange’s After Hours Trading Session), 1.5(r) (setting forth hours for the exchange’s Pre-Opening Session), 1.5(w) (setting forth the hours for the exchange’s Regular Trading Hours), and 11.1 (setting forth the exchange’s hours of trading and trading days, and when certain order types may be entered). NMS Stock ATS, even if that market participant otherwise meets the eligibility criteria for subscribing to the NMS Stock ATS, and it would allow them to evaluate whether any limitations may result in receiving less favorable access from the NMS Stock ATS. The increased transparency regarding these procedures also may advance the Commission’s objective of protecting investors by helping the Commission to understand when NMS Stock ATSs deny or limit access to market participants. Request for Comment
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)? B. Hours of Operations
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.454 Making such information publicly available for NMS Stock ATSs would enable market participants to more easily compare when trading interest may be entered on NMS stock trading centers. This information also would allow the Commission to better understand the operations of NMS Stock ATSs. Request for Comment
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?
C. Types of Orders
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

455 Items 3(a)(i), (ii), (iii), (iv) and (vii) of proposed Form ATS–N provide further requirements of what needs to be included in responding to these items. See discussion under each item infra. 456The Commission notes that a broker-dealer operator may have valid business reasons for offering various order types to subscribers and the Commission is not proposing to limit the ability for a broker-dealer operator to have such arrangements. 457See supra Section III.B. type; (iii) order types designed not to remove liquidity (e.g., post-only orders); (iv) order types that adjust their price as changes to the order book occur (e.g., price sliding orders or pegged orders) or have a discretionary range; (v) the time￾in-force instructions that can be used or not used with each order type; (vi) the availability of order types across all forms of connectivity to the NMS Stock ATS and differences, if any, between the availability of an order type across those forms of connectivity; (vii) whether an order type is eligible for routing to other trading centers; and (viii) 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.455 If the availability of order types and their terms and conditions are not the same for all subscribers and persons, Part IV, Item 3(b) would require the NMS Stock ATS to describe any differences. In addition, Part IV, Item 3(c) of 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 must also describe 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.456 As discussed above, NMS Stock ATSs offer a wide range of order types and modifiers and offer different minimum order size requirements.457 Order types, in particular, are a primary means by which users of an NMS Stock ATS communicate their instructions for handling their orders to the NMS Stock ATS. Moreover, order types can be complex and operate in various ways, and the Commission is therefore proposing to request that NMS Stock ATSs provide the level of detail set forth in subsections (i) through (viii) of Item 3(a). The Commission believes that all market participants should have sufficient information about all aspects of the operations of order types available on an NMS Stock ATS to understand how to use order types to achieve their investing or trading objectives, as well as to understand how order types used by other market participants could affect their trading interest. Item 3(a) would require a complete and detailed description of the order types available on the NMS Stock ATS, their characteristics, operations, and how they are handled to provide transparency to market participants and the Commission. Subsection
(i) of Item 3(a) would require that the NMS Stock ATS describe the priority rules for each order type. The description would be required to include the order type’s priority on the NMS Stock ATS upon order entry as well as any subsequent change to priority (if applicable). Also, the NMS Stock ATS would need to describe whether an order type can receive a new time stamp (such as, for example, in the case of order types that adjust price), and such order type’s priority vis-a`-vis other orders on the book due to changes in the NBBO or other reference price. In addition, this subsection would also require a description of any instance in which the order type could lose execution priority to a later arriving order at the same price. 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 (e.g., post-only orders). The NMS Stock ATS would need to describe what occurs when such order is marketable against trading interest on the NMS Stock ATS when received. 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 (e.g., price-sliding orders or pegged orders) or have a discretionary range. As
part of a response, this description
would be required to include an order’s rank and price upon order entry and whether such prices or rank may change based on the NBBO or other market conditions when using such an order type. In addition, the description would have to include when the order type is executable and at what price the execution would occur, and also whether the price at which the order type can be executed ever changes. Also, if the order type can operate in different ways, the NMS Stock ATS would need to explain the default operation of the order type. 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 (e.g., if only certain subscribers or persons are eligible to use that order type).

458See Consumer Federation of America Letter, supra note 188 and accompanying text (stating the Commission should require all ATSs to disclose certain information about the order types offered on the ATS); Liquidnet letter #1, supra note 171 and accompanying text (stating institutional brokers, including institutional ATSs, should disclose the order types offered). 459See 17 CFR 242.611. 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.458 It also would allow market participants to see what order types could be used by other market participants, which could affect the probability, timing, and quality of their own executions. Moreover, the Commission preliminarily believes that requiring comprehensive disclosure of an NMS Stock ATS’s order types on proposed Form ATS–N would allow market participants to compare order types across NMS Stock ATSs and national securities exchanges. As a result, a market participant would be better able to assess the availability of order types and whether their characteristics would accomplish the market participant’s investing or trading objectives. 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.459 The Commission preliminarily believes that the disclosures that would be required by Item 3(a) would 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. The disclosures required by Item 3(a) would also facilitate the Commission’s comparison of how the characteristics of order types were described to subscribers and how they operate in practice as part of any examination of the NMS Stock ATS. 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-a`-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. Request for Comment
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

available among participants on the NMS Stock ATS? Why or why not? Please support your arguments.
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 (e.g., IOIs, actionable IOIs, or conditional orders), including information contained in the message, the means under which messages are transmitted, the circumstances in which messages are transmitted (e.g., automatically by the NMS Stock ATS or upon the subscriber’s request), and the circumstances by which they may result in an execution on the NMS Stock ATS. If the terms and conditions regarding these messages, indications of interest, and conditional orders are not the same for all subscribers and persons, the NMS Stock ATS would be required describe any differences. 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 (e.g., side, price, and size), but NMS Stock ATSs will generally not transmit those details to other subscribers or market participants. Rather, the NMS Stock ATS will tentatively match the conditional order with contra side interest and then alert the subscriber that entered the conditional order of the potential match. That subscriber may then either accept or decline the execution (i.e., ‘‘firm up’’ the conditional order). Based on Commission experience, NMS Stock ATSs typically only permit conditional orders to execute against other conditional orders, but some ATSs allow conditional orders to interact with other order types. 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. Request for Comment
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 (e.g., IOIs, actionable IOIs, or conditional orders)? 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.
330. Do you believe there are other
types of messages that communicate

460The Commission notes that, in this example, given that the intermediate application or functionality has access to a subscriber’s order information, the NMS Stock ATS should take appropriate measures to protect the confidentiality of such information pursuant to Rule 301(b)(10) of Regulation ATS. 461But see supra notes 92–95 and 427–429 and accompanying text (discussing the fair access requirements of Regulation ATS). trading interest that the Commission should specifically cite as examples in
Part IV, Item 3(d) of proposed Form
ATS–N? If so, what are those message types? Please provide a detailed explanation of each additional type of message and support your arguments as to each.
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)? D. Connectivity, Order Entry, and Co￾Location
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 (e.g., directly, through a Financial Information eXchange (‘‘FIX’’) connection to the ATS, or indirectly, through the broker-dealer operator’s SOR, or any intermediate functionality, algorithm, or sales desk). This item also would require an NMS Stock ATS to describe 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. 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.460 One example of an indirect method of sending orders or other trading interest to an NMS Stock ATS is sending orders or other trading interest to the broker-dealer operator, which may then use its SOR (or similar functionality) or algorithm to send such orders or other trading interest to the NMS Stock ATS. 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.461 The Commission would find the information required by this item useful to understanding how trading interest moves from persons to possible trading centers and in evaluating any potential conflicts of interest presented between the broker￾dealer operator and the NMS Stock ATS in how orders are entered onto 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. Request for Comment
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?

462See SIFMA letter #1, supra note 194 and accompanying text (stating its belief that ‘‘added disclosure about co-location and other market access arrangements would be beneficial to market participants’’); Morgan Stanley letter, supra note 197 and accompanying text (stating that it received questions from customers specific to dark pools related to the co-location of servers).
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.462 For instance, a subscriber could choose certain types of orders or trading strategies with the knowledge that other subscribers have enhanced speeds for submitting trading interest through the use of the NMS Stock ATS’s connectivity or co-location services. 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. Request for Comment
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.

463See Blackrock letter, supra note 186 and accompanying text (stating mandatory ATS disclosure should include greater detail on how the platform matches orders between client segments); Consumer Federation of America letter, supra note 187 and accompanying text (stating that Form ATS should require ATSs to provide ‘‘critical details about . . . segmentation’’ because ‘‘the information will allow market participants . . . to assess whether an ATS’s terms of access and service are such that it makes sense to trade on that venue’’). 464However, an ATS that crossed the fair access threshold and wished to segment its order flow could do so only in accordance with the fair access provisions of existing Rule 301(b)(5) of Regulation ATS. E. Segmentation of Order Flow and Notice About Segmentation
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 (e.g., classification by type of participant, source, nature of trading activity). Part IV, Item 5(a) would also require the NMS Stock ATS to describe the segmented categories, the criteria used to segment these categories, and procedures for determining, evaluating, and changing segmented categories. If the segmented categories, the criteria used to segment these categories, and any procedures for determining, evaluating or changing segmented categories are not the same for all subscribers and persons, this item would require an NMS Stock ATS to describe any differences. 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 (e.g., buy-side or sell-side firms, proprietary trading firms, agency￾only firms, firms above or below certain assets under management thresholds). For example, buy-side or institutional order flow may seek to only trade against other buy-side or institutional order flow, or may seek to avoid trading against proprietary trading firms or so￾called high frequency trading firms. When segmenting by source, an NMS Stock ATS may look to the underlying source of the trading interest in the case of trading interest that is intermediated, such as the trading interest of retail customers. Some NMS Stock ATSs segment by the nature of the trading activity, which could include segmenting by patterns of behavior, time horizons of traders, or the passivity or aggressiveness of trading strategies. NMS Stock ATSs might elect to use some combination of these criteria or other criteria altogether. 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.463 These disclosures would help the Commission understand the categories and manner in which persons and order flow (or both) are segmented across NMS Stock ATSs and could aid the Commission in its oversight of the markets including, for example, its evaluation of whether segmentation could facilitate or hinder market participants from achieving their investing or trading objectives. The Commission is not proposing to prohibit NMS Stock ATSs from segmenting their order flow; 464 the Commission is instead proposing only that an NMS Stock ATS disclose to market participants and the Commission how they segment their order flow. Request for Comment
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

465See supra notes 171, 186, 198, 199 and accompanying text. would be required from NMS Stock ATSs by Part IV, Item 5(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 5(a)?
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.465 The category into which a subscriber is placed also informs its decision of where to trade because it could affect the contra-side trading interest available to them to trade against. Item 5(b) is therefore designed to inform market participants about the potential information that the NMS Stock ATS may provide to inform them about such segmentation, particularly with respect to whether the NMS Stock ATS informs subscribers about how it assigns a participant to a segmented category, as well as any differences in the notice provided to subscribers. The Commission preliminarily believes that market participants would find it useful to understand how they will be alerted about segmentation on an NMS Stock ATS before deciding whether or not to subscribe to the NMS Stock ATS. Request for Comment
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 (e.g., designating an order or trading interest to be executed against a specific subscriber) and how such designations affect order priority and interaction. Part IV, Item 5(c) would require the NMS Stock ATS to describe any means by which subscribers can seek or avoid certain executions against certain orders, persons, or trading interest. In response to this item, an NMS Stock ATS would be required to disclose, for example, any circumstances by which an NMS Stock ATS allows persons to designate an order submitted to the NMS Stock ATS to interact with specific orders resting on the NMS Stock ATS. The NMS Stock ATS would need to describe this process and how such order preferencing works with other rules governing order priority and interaction. The response to this item also would also be required to include a description of any means by which a subscriber could avoid executing against any order, person, or trading interest. For instance, an NMS Stock ATS would need to describe any mechanisms by which a person could avoid executing against its own orders or orders of its affiliates 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

466See supra note 123 and accompanying text. 467See Morgan Stanley letter, supra note 197 and accompanying text (stating customers questioned it about whether its dark pool is truly dark); Bloomberg Tradebook letter, supra note 190 and accompanying text (recommending that the Commission ask ATSs to complete a questionnaire that would include questions relating to the sharing of orders or order information with affiliates or other trading venues by the ATS). on an NMS Stock ATS’s order book, the Commission preliminarily believes that the information required by Item 5(c) would inform that market participant whether—and how—it can do so on a particular NMS Stock ATS, thereby assisting that market participant when it evaluates that NMS Stock ATS as a potential trading venue. Request for Comment
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)? F. Display of Order and Trading Interest
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,466 most NMS Stock ATSs do not publicly display quotation data and are commonly referred to as ‘‘dark pools.’’ The Commission preliminarily believes that market participants generally are very sensitive to precisely how and when their trading interest is displayed or otherwise made known outside the NMS Stock ATS. The Commission is concerned that market participants currently may not know the extent to which their trading interest sent to ATSs is displayed outside those ATSs. Accordingly, for any NMS Stock ATSs that display some or all of the trading interest on their systems, Part IV, Item 6 of proposed Form ATS–N would require the NMS Stock ATS to identify the subscriber(s) or person(s) to whom orders or other trading interest information is displayed or otherwise made known, the means and circumstances by which orders or other trading interest are displayed or made known, and the contents of that information. Because NMS Stock ATSs that are also ECNs may differ in how and where orders or other trading interest are displayed, the Commission preliminarily believes this item would clarify for market participants and the Commission exactly how such display may occur. In addition, an NMS Stock ATS would need to disclose arrangements, whether formal or informal (oral or written) to the extent they exist, with third parties to display the NMS Stock ATS’s trading interest outside of the NMS Stock ATS, such as IOIs from the NMS Stock ATS’s subscribers being displayed on vendor systems, or arrangements with third parties to transmit IOIs between subscribers. 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.467 The Commission preliminarily believes that market

468See Regulation ATS Adopting Release, supra note 7, at 70849. 469See id. 470See id. 471See id. The Commission emphasized in the Regulation ATS Adopting Release that the mere interpositioning of a designated counterparty as riskless principal for settlement purposes after the purchasing and selling counterparties to a trade have been matched would not, by itself, mean that the system does not have multiple buyers and sellers. See id. Additionally, systems in which there is only a single seller, such as systems that permit issuers to sell their own securities to investors, would not be included within Rule 3b–16. See id. 472See Regulation ATS Adopting Release, supra note 7, at 70849 n.37. participants, whose trading strategies are sensitive to how and to whom their orders and trading interest are displayed, would use the information disclosed under Item 6 to evaluate whether routing orders to a particular NMS Stock ATS would be consistent with their respective strategies. Request for Comment
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? G. Trading Services
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 (e.g., crossing system, auction market, limit order matching book). If the use of these means or facilities are not the same for all subscribers and persons, the NMS Stock ATS would also be required to describe any differences. 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.468 For instance, a trading center brings together orders if it displays, or otherwise represents, trading interests entered on the system, such as a consolidated quote screen, to system users.469 Furthermore, a trading center also brings together orders if it receives subscribers’ orders centrally for future processing and execution, such as
part of a limit order matching book that
allows subscribers to display buy and sell orders in particular securities and to obtain execution against matching orders contemporaneously entered or stored in the system.470 Additionally, as explained above, to qualify for the Rule 3a1–1(a)(2) exemption from the statutory definition of ‘‘exchange,’’ an ATS must bring together the orders of multiple buyers and sellers.471 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.472 Some ATSs use an auction mechanism that matches multiple buyers and sellers by first pausing execution in a certain security for a set amount of time, during which the ATS’s system seeks out and/or concentrates liquidity for the auction; after the trading pause, orders will execute at either a single auction price or according to the priority rules for the auction’s execution. Furthermore, some ATSs use a blotter scraping functionality, which may inform the ATS’s system about the orders placed on a participant’s order management system, but not yet entered into the ATS; the ATS or broker-dealer operator oftentimes can automatically generate those orders and enter them into the ATS on behalf of the subscriber, in accordance with the relevant terms and conditions, when certain contra-side trading interest exists in the ATS. 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

473See 17 CFR 240.3b–16(a)(1).
474See Regulation ATS Adopting Release, supra note 7, at 70851–52. 475See id. at 70851. 476See id. at 70852. 477See supra Section III.B. function if that market participant believes the auction process would provide the best opportunity for price discovery or price improvement. Accordingly, the Commission preliminarily believes that disclosure of the information that would be required under Item 7(a) of proposed Form ATS– N would better enable market participants to evaluate an NMS Stock ATS as a potential destination for them to route their orders. In addition, this information also would assist the Commission to fully evaluate the facilities and mechanisms that consist of the NMS Stock ATS and whether an NMS Stock ATS meets the requirements of Rule 3b–16 that it is bringing together the orders for securities of multiple buyers and sellers.473 Request for Comment
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.474 For example, the Commission considers the use of an algorithm by an electronic trading system, which sets trading procedures and priorities, to be a trading facility that uses established, non-discretionary methods.475 Similarly, the Commission has previously stated that rules imposing execution priorities, such as time and price priority rules, would be ‘‘established, non-discretionary methods.’’ 476 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.477 Some NMS Stock ATSs might also take into account other factors to determine priority. For example, an NMS Stock ATS may assign either a lower or higher priority to an order entered by a subscriber in a certain class (e.g., orders of proprietary traders or retail investors) or routed from a particular source (e.g., orders routed by the broker-dealer operator’s SOR (or similar functionality) or algorithm) when compared to an equally priced order entered by a different subscriber or via a different source. Furthermore, in the Commission’s experience, an NMS Stock ATS might elect to apply different priority rules for matching conditional orders than it does for matching other order types.
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