Regulation of NMS Stock Alternative Trading Systems

1 17 CFR 249.640.
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 232, 240, 242, and 249 [Release No. 34–83663; File No. S7–23–15] RIN 3235–AL66 Regulation of NMS Stock Alternative Trading Systems AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: The Securities and Exchange Commission is adopting amendments to regulatory requirements in Regulation ATS under the Securities Exchange Act of 1934 (‘‘Exchange Act’’) applicable to alternative trading systems (‘‘ATSs’’) that trade National Market System (‘‘NMS’’) stocks (hereinafter referred to as ‘‘NMS Stock ATSs’’), including so called ‘‘dark pools.’’ First, we are adopting new Form ATS–N, which will require NMS Stock ATSs to disclose information about their manner of operations, the broker-dealer that operates the ATS (‘‘broker-dealer operator’’), and the ATS-related activities of the broker-dealer operator and its affiliates. Second, as amended, the regulations will require public posting of certain Form ATS–N filings on the Commission’s website, which will be accomplished through the Commission’s Electronic Data Gathering, Analysis, and Retrieval system (‘‘EDGAR’’) and require each NMS Stock ATS that has a website to post on its website a direct URL hyperlink to the Commission’s website. Third, the amendments that we are adopting today provide a process for the Commission to review Form ATS–N filings and, after notice and opportunity for hearing, declare an NMS Stock ATS’s Form ATS–N ineffective. Fourth, the regulations, as amended, will require all ATSs subject to the regulations to place in writing its safeguards and procedures to protect subscribers’ confidential trading information. We are also adopting conforming amendments. DATES:
Effective Date: October 9, 2018.
Compliance Dates: The applicable compliance dates are discussed in the
section of the release titled ‘‘VIII.
Effective Date and Compliance Date.’’ 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 Megan Mitchell, Special Counsel, at (202) 551–4887; Office of Market Supervision, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–7010. SUPPLEMENTARY INFORMATION: We are adopting: (1) Amendments to 17 CFR
242.300 through 242.303 (‘‘Regulation
ATS’’) to add new 17 CFR 242.304 (‘‘Rule 304’’) under the Exchange Act to provide new conditions for NMS Stock ATSs seeking to rely on the exemption from the definition of ‘‘exchange’’ provided by 17 CFR 240.3a1–1(a) (‘‘Rule 3a1–1(a)’’) of the Exchange Act; (2) new Form ATS–N 1 under the Exchange Act, which NMS Stock ATSs will file to comply with the new conditions provided under Rule 304; and (3) related amendments to 17 CFR 242.300; 17 CFR 242.301, 17 CFR 242.303, and 17 CFR 240.3a1–1 under the Exchange Act (respectively, ‘‘Rule 300,’’ ‘‘Rule 301,’’ and ‘‘Rule 303’’ of Regulation ATS, and ‘‘Rule 3a1–1’’). We are also adopting amendments to 17 CFR 242.301(b)(10) and 17 CFR 242.303 (‘‘Rules 301(b)(10) and 303 of Regulation ATS’’) under the Exchange Act 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. Background
A. Role of ATSs in the Current Equity Market Structure

Significant Source of Liquidity for NMS
Stocks
Operational Complexity; Conflict of
Interests
B. Exemption for Alternative Trading Systems
C. Conditions to the ATS Exemption;
Confidential Notice Regime D. Concerns Regarding the Lack of Operational Transparency
III. Heightened Regulatory Requirements for
NMS Stock ATSs
A. Exchange Act Rule 3a1–1(a) Exemption:
New Conditions for NMS Stock ATSs
Comments on the Rule 304
Requirements; Effectiveness a. Comments on Form ATS–N Requirement b. Comments on Effects on ATSs Relative to National Securities Exchanges
c. Comments on Effectiveness Requirement
Comments on Extending Rule 304 to
Non-NMS Stock ATSs
B. Amendments to Existing Regulation ATS Rules for NMS Stock ATSs
Rule 300(k): Definition of NMS Stock
ATS
Rule 301(a): Exemption From
Compliance With Regulation ATS
Rule 301(a)(5): Exemptions From Certain
Requirements of Regulation ATS Pursuant to Application to the Commission
Rule 301(b)(2): Form ATS Reporting
Requirements No Longer Apply to NMS Stock ATSs
Rule 301(b)(9): Form ATS–R Quarterly
Reports
Rule 303: Recordkeeping Requirements
for Form ATS–N
Comments Recommending Changes To
Other Existing Regulation ATS Rules
IV. Form ATS–N Filing Process; Effectiveness
Review
A. Initial Form ATS–N
Rule 304(a)(1)(i): Filing and
Effectiveness Requirement
Rule 304(a)(1)(ii): Commission Review
Period
Rule 304(a)(1)(iii): Effectiveness;
Ineffectiveness Determination a. Comments on the Standard of Review To Accept Filings on Form ATS–N b. Comments on the Review for Declarations of Ineffectiveness
c. Effectiveness, Ineffectiveness Process
d. Effectiveness; Ineffectiveness Determinations Under Rule 301(a)(1)(iii)
Rule 304(a)(1)(iv): Transition for Legacy
NMS Stock ATSs a. Rule 304(a)(1)(iv)(A): Initial Filing Requirements b. Rule 304(a)(1)(iv)(B): Commission Review Period; Ineffectiveness Determination
c. Rule 304(a)(1)(iv)(C): Amendments to
Initial Form ATS–N
B. Rule 304(a)(2): Form ATS–N Amendments
Rule 304(a)(2)(i): Filing Requirements
a. Material Changes
(i) Comments on Advance Notice (ii) Comments on Materiality (iii) Order Display and Fair Access Amendments b. Updating Amendments
c. Correcting Amendments
Rule 304(a)(2)(ii): Commission Review
Period; Ineffectiveness Determination
C. Rule 304(a)(3): Notice of Cessation
D. Rule 304(a)(4): Suspension, Limitation, or Revocation of the Exemption From the Definition of Exchange E. Rule 304(b): Public Disclosure of Form ATS–N and Related Commission Orders
Rule 304(b)(1): Form ATS–N ‘‘Report’’
Rule 304(b)(2): Making Public Form
ATS–N Filings and Commission Orders a. Public Disclosure of Effective Initial Form ATS–N, As Amended b. Public Disclosure of Orders of an Ineffective Initial Form ATS–N
c. Public Disclosure of Form ATS–N
Amendments d. Public Disclosure of Ineffective Form ATS–N Amendment e. Public Disclosure of Notices of Cessation f. Public Disclosure of Each Order Suspending, Limiting, or Revoking the Rule 3a1–1(a)(2) Exemption
Rule 304(b)(3): Disclosure of Form ATS–
N on the NMS Stock ATS’s Website
V. Form ATS–N Disclosures
A. Form ATS–N Disclosure Requirements and Definitions
Rule 304(c): Disclosure Requirements
Terminology
a. Definitions for Form ATS–N (i) Proposed Defined Terms (ii) New Defined Terms b. Comments on the Definition of ‘‘Subscriber’’ B. Cover Page and Part I of Form ATS–N:
Identifying Information
Cover Page
Part I of Form ATS–N: Identifying
Information a. Part I: Identifying Information b. Comments on Proposed Exhibit 1
c. ATS Governance Structure and
Compliance Programs and Controls
C. Part II of Form ATS–N: ATS-Related
Activities of the Broker-Dealer Operator and Affiliates
Broker-Dealer Operator and its Affiliate
Trading Activities on the NMS Stock ATS a. Proposed Requests and Response to Comments b. Adopted Part II, Item 1 and 2 of Form ATS–N; ATS-Related Trading Activities of the Broker-Dealer Operator and its Affiliates
Order Interaction with Broker-Dealer
Operator; Affiliates
Arrangements with Trading Centers
Other Products and Services
Activities of Service Providers
a. Shared Employees b. Third-Party Service Providers
Protection of Confidential Trading
Information
Differences in Availability of Services,
Functionalities, or Procedures
Other Recommendations From
Commenters
D. Part III Form ATS–N: Manner of ATS Operations
Types of ATS Subscribers
Eligibility for ATS Services
Exclusion From ATS Services
Hours of Operations
Means of Entry
Connectivity and Co-Location
Order Types and Attributes
Order Sizes
Conditional Order and Indications of
Interest
Opening and Reopening
Trading Services, Facilities and Rules
Liquidity Providers
Segmentation; Notice
Counter-Party Selection
Display
Routing
Closing
Trading Outside of Regular Trading
Hours
Fees
Suspension of Trading
Trade Reporting
Clearance and Settlement
Market Data
Order Display and Execution Access
Fair Access
Aggregate Platform-Wide Data; Trading
Statistics a. Disseminated Aggregated Platform-Wide Data b. Other Standardized Statistical Disclosures
VI. Amendments to Rule 301(b)(10) and Rule
303(a)(1) for Written Safeguards and Written Procedures To Protect Confidential Trading Information
VII. EDGAR Filing Requirements; Structured
Data
VIII. Effective Date and Compliance Date
IX. Paperwork Reduction Act
A. Summary of Collection of Information
Requirements Relating to Rule 301(b)(10)
and 303(a)(1) of Regulation ATS
Requirements Relating to Rules
301(b)(2)(viii) and 304 of Regulation ATS, Including Form ATS–N B. Proposed Use of Information
Amendments to Rule 301(b)(10) and
303(a)(1) of Regulation ATS
Rules 301(b)(2)(viii), 304 of Regulation
ATS, Including Form ATS–N, and 301(b)(9)
C. Respondents
D. Total Initial and Annual Reporting and Recordkeeping Burdens
Rules 301(b)(10) and 303(a)(1)(v) of
Regulation ATS a. Baseline Measurements b. Burdens
Rules 301(b)(2)(viii) and 304 of
Regulation ATS, Including Form ATS–N a. Baseline Measurements b. Burdens (i) Analysis of Estimated Additional Burden for Form ATS–N (a) Part I (b) Part II (c) Part III (ii) Estimated Burden Above the Current Baseline for an Initial Form ATS–N, Form ATS–N Amendment, and Notice of Cessation on Form ATS–N (a) Initial Form ATS–N (b) Form ATS–N Amendments (c) Notice of Cessation on Form ATS–N (iii) ATSs That Trade Both NMS and NonNMS Stocks (iv) Access to EDGAR (v) Recordkeeping Requirements E. Collection of Information Is Mandatory F. Confidentiality of Responses to Collection of Information G. Retention Period for Recordkeeping Requirements
X. Economic Analysis
A. Background
B. Baseline
Current NMS Stock ATSs
Current Reporting Requirements for
NMS Stock ATSs
Lack of Standardized Public Disclosure
NMS Stock ATS Treatment of Subscriber
Confidential Trading Information
Competition
a. Competition Between NMS Stock ATSs and Registered National Securities Exchanges b. Competition Among NMS Stock ATSs
c. Competition Between Broker-Dealers
That Operate NMS Stock ATSs and Broker-Dealers That Do Not Operate NMS Stock ATSs
Effect of NMS Stock ATSs on the
Current Market for NMS Stock Execution Services a. Trading Costs b. Price Discovery
c. Market Efficiency
C. Economic Effects and Effects on
Efficiency, Competition, and Capital Formation
Economic Effects of Enhanced Filing
Requirements of Form ATS–N a. Benefits b. Costs
Economic Effects of Public Disclosure of
Form ATS–N a. Benefits
(i) Benefits of Public Disclosure of Standardized Information of Operations of NMS Stock ATSs (ii) Benefits of Public Disclosure of the ATS-Related Activities of the BrokerDealer Operator and Its Affiliates (iii) Benefits of Public Disclosure of Aggregate Platform-Wide Order Flow and Execution Statistics (iv) Benefits of Filing Form ATS–N in a Structured Format b. Costs (i) Costs to NMS Stock ATSs (ii) Price Impact Costs (iii) Filing in Structured Format
Economic Effects of Written Safeguards
and Written Procedures To Protect Subscribers’ Confidential Trading Information a. Benefits b. Costs
Impact on Efficiency, Competition, and
Capital Formation a. Competition (i) Entry of New and Continuation of Legacy NMS Stock ATSs (a) Enhance Filing Requirements of Form ATS–N (b) Implementation and Ongoing Compliance Costs (c) Public Disclosure of Form ATS–N (ii) Effects on Changes in Number of NMS Stock ATSs on Market Participant Trading Costs (iii) Innovation b. Efficiency
c. Capital Formation
D. Reasonable Alternatives
Require NMS Stock ATSs To Publicly
Disclose Current Form ATS
Require Form ATS–N but Deem
Information Confidential
Require NMS Stock ATSs To Publicly
Disclose Form ATS–N but not Declare Form ATS–N Ineffective
Initiate Differing Levels of Public
Disclosure Depending on NMS Stock ATS Characteristics
Require NMS Stock ATSs To Register as
National Securities Exchanges and Become SROs
Discontinue Quarterly Volume Reports
on Form ATS–R
Require NMS Stock ATSs To Operate as
Limited Purpose Entities
Prohibit Broker-Dealer Operators and
Affiliates From Trading on the NMS Stock ATS
Lower the Fair Access Threshold for
NMS Stock ATSs
Requirements To Disclose Aggregate
Platform-Wide Order Flow and Execution Statistics to All Subscribers
Specify Alternative Structured Formats
for Form ATS–N
Specify Other Filings Methods for Form
ATS–N

2The 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 Securities Exchange Act Release No. 76474 (Nov. 18, 2015), 80 FR 80998, 81008 n.123 (Dec. 28, 2015) (‘‘Proposal’’). Currently, NMS Stock ATSs operate predominantly as dark pools. See infra Section II.A.1. A ‘‘trading center’’ means a national securities exchange or national securities association that operates an SRO trading facility, an ATS, 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). 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 adopting release, these trading centers are not defined as dark pools because they are not ATSs. 3Securities Exchange Act Release No. 40760 (December 8, 1998), 63 FR 70844, 70863 (December 22, 1998) (Regulation of Exchanges and Alternative Trading Systems) (‘‘Regulation ATS Adopting Release’’). 4See Proposal, supra note 2. Section 11A(a)(2) of the Exchange Act (15 U.S.C. 78k–1(a)(2)) enacted as
part of the Securities Acts Amendments of 1975
(‘‘1975 Amendments’’) (Pub. L. 94–29, 89 Stat. 97 (1975)) 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. See 15
U.S.C. 78k–1(a)(1). See also Regulation ATS Adopting Release, supra note 3, at 70858; Proposal, supra note 2, at 80999–81000. 5Comments received on the Proposal are available on the Commission’s website, available at:
https://www.sec.gov/comments/s7-23-15/ s72315.shtml. See Appendix A for a citation key to comment letters cited in this release. 6 If any of the provisions of these rules, or the application thereof to any person or circumstance, is held to be invalid, such invalidity shall not affect other provisions or application of such provisions to other persons or circumstances that can be given effect without the invalid provision or application. 7See Securities Exchange Act Release No. 39884 (April 21, 1998), 63 FR 23504, 23523 (April 29,
1998) (‘‘Regulation ATS Proposing Release’’) at
23543 n.341.
8See id. at 23540 n.313 and accompanying text. 9 Data compiled from Forms ATS submitted to the Commission as of March 31, 2018. NYSE National, Inc. (f.k.a. National Stock Exchange, Inc.) was not trading as of March 31, 2018 but filed a proposed rule change with the Commission for its proposed relaunch. See Securities Exchange Act Release No. 82819 (March 7, 2018) 83 FR 11098 (March 13, 2018) (NYSENAT– 2018–02) (notice of proposed ruled change). The Commission has approved the proposed rule change. See Securities Exchange Act Release No. 83289 (May 17, 2018) 83 FR 23968 (May 23, 2018) (NYSENAT–2018–02) (order approving proposed ruled change). In contrast to dark pools, an ATS could be an Electronic Communication Network (‘‘ECN’’), which 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. See 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 13, at 3599. In general, ECNs offer trading services (such as displayed or non-displayed order types, maker-taker pricing, and data feeds) that are analogous to national securities exchanges. See id. Currently, however, based on Form ATS filings, there are no NMS Stock ATSs operating as ECNs. 10See infra Table 1—‘‘NMS Stock ATSs Ranked by Dollar Trading Volume—January 1, 2018 to March 30, 2018’’ (citing Trade and Quote (TAQ) Data). 11 Data compiled from Forms ATS and Forms ATS–R filed with the Commission as of the end of, and for the first quarter of 2018. 12See infra Table 1—‘‘NMS Stock ATSs Ranked by Dollar Trading Volume—January 1, 2018 to March 30, 2018.’’ See id. (citing Trade and Quote (TAQ) Data). During 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), which 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. See Proposal, supra note 2, at 81008 n.121 and accompanying text. Competitors for listed-equity (NMS) trading services also include several hundred OTC market makers and broker-dealers. 13See Regulation of Non-Public Trading Interest, Securities Exchange Act Release No. 60997 (November 13, 2009) 74 FR 61208, 61209 n.9 (November 23, 2009) (‘‘Regulation of Non-Public Trading Interest’’). In 2009, there were 32 active dark pools trading in NMS stocks. See Securities Exchange Act Release
XI. Regulatory Flexibility Act Certification
I. Introduction
NMS Stock ATSs, including trading centers commonly referred to as dark pools,2 have become an integral part of the national market system. Since the adoption of Regulation ATS in 1998,3 the number of these ATSs, and the volume of NMS stocks traded on them, has significantly increased. NMS Stock ATSs, which meet the definition of an exchange but are not required to register as national securities exchanges, compete with, and operate with complexity akin to, national securities exchanges. Many NMS Stock ATSs are operated by multi-service brokerdealers, whose business activities have become increasingly intertwined with those of the ATS, adding further complexity to their operations of NMS Stock ATSs and creating the potential for conflicts between the interests of the broker-dealer operator and the ATS’s subscribers. Despite their role in the equity markets, little information is widely available to market participants about NMS Stock ATSs, which restricts their ability to adequately assess these ATSs as potential routing destinations. On November 18, 2015, we proposed to amend Regulation ATS with the stated goals of enhancing operational transparency for NMS Stock ATSs to enable market participants to make more informed order routing decisions, and to facilitate better Commission oversight of these trading venues.4 To achieve these goals, we proposed to require NMS Stock ATSs to publicly report on new Form ATS–N information about how the ATS operates and activities of the broker-dealer operator and its affiliates that relate to the ATS; and provide a process for the Commission to determine whether an NMS Stock ATS qualifies for the exemption from the definition of ‘‘exchange,’’ in which the Commission would, by order, declare a Form ATS– N effective or, after notice and opportunity for hearing, ineffective. We received 32 comment letters on the Proposal from a variety of interested persons, including ATSs, a national securities exchange, broker-dealers, institutional investors, industry trade groups, the Commission’s Investor Advocate, and the Attorney General of the State of New York.5 Commenters generally support the goals of the Proposal, although some commenters express concern about various specific elements, and recommend certain modifications or clarifications. We are adopting Form ATS–N and amendments to Regulation ATS and Exchange Act Rule 3a1–1(a) with modifications from the Proposal, as discussed below.6
II. Background
A. Role of ATSs in the Current Equity Market Structure

Significant Source of Liquidity for
NMS Stocks
At the time Regulation ATS was proposed, there were 8 registered national securities exchanges,7 and the Commission estimated that there were approximately 43 systems that would be eligible to operate as ATSs.8 As of March 31, 2018, there were 21 registered national securities exchanges and 87 ATSs with a Form ATS on file with the Commission. Of these, there were 12 national securities exchanges that trade NMS stocks and 41 ATSs that had noticed on Form ATS that they expect to trade NMS stocks.9 Approximately
502.8 billion shares ($25.4 trillion) were
traded in NMS stocks during the first quarter of 2018.10 During this period, the 33 ATSs that reported transactions in NMS stocks 11 accounted for 57.3 billion shares (approximately $2.9 trillion in dollar volume), representing 11.4% of the combined total share trading volume (11.5% of the total dollar volume) in NMS stocks on all national securities exchanges, ATSs, and non-ATS OTC trading centers.12 By comparison, the number of active dark pools trading NMS stocks in 2002 was approximately 10,13 and in 2009, dark

No. 61358 (January 14, 2010), 75 FR 3594 (January 21, 2010) (‘‘2010 Equity Market Structure Release’’)), at 3598 n.22 and accompanying text. 14See id. at 3598. 15The NMS Stock ATS with the greatest volume executed approximately 20.1% of NMS Stock ATS share volume and 2.3% of the total consolidated NMS stock share trading volume. The market share percentages were calculated by Commission staff using aggregate trade data reported by ATSs to the FINRA equity trade reporting facilities and made available on FINRA’s website and TAQ Data. See infra Table 1—‘‘NMS Stock ATSs Ranked by Dollar Trading Volume— January 1, 2018 to March 30, 2018.’’ Pursuant to FINRA rules, each ATS is required to use a unique MPID in its reporting to FINRA, such that its volume reporting is distinguishable from other transaction volume reported by the broker-dealer operator of the ATS, including volume reported for other ATSs operated by the same broker-dealer. See FINRA Rules 6160, 6170, 6480, and 6720. FINRA aggregates on a weekly basis ATS data reported by ATSs to the FINRA equity trade reporting facilities. The data can be viewed on a security-by-security basis or by ATS. See FINRA Rules 6110 and 6610. See also Securities Exchange Act Release No. 76931 (January 19, 2016), 81 FR 4076 (January 25, 2016) (SR–FINRA–2016–002) (notice of filing and immediate effectiveness of a proposed rule change relating to ATS volume and trading information) (‘‘FINRA ATS Reporting Notice’’). 16ATSs that traded NMS stocks prior to the adoption of Regulation ATS did not offer the same services and functionalities that they do today. See Proposal, supra note 2, at 81009. 17See id. at 81009–81010. 18Market participants may include many different types of persons seeking to transact in NMS stocks, including broker-dealers and institutional or retail investors. See id. at 81001 n.28 and accompanying text. 19See Proposal, supra note 2, at 81010, 81041– 81043. 20See id. 21See id. at 81010. 22See id. Some technology or functions of an ATS may be licensed from a third party. The brokerdealer operator of the ATS is nonetheless legally responsible for ensuring that all aspects of the ATS comply with applicable laws. See id. at 81041 n.362. 23See id. at 81041. 24See id. For 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. 25Throughout the Proposal and this release, broker-dealer operators of NMS Stock ATSs that provide brokerage or dealing services in addition to operating an ATS are referred to as ‘‘multi-service broker-dealers.’’ See id. at 81001 n.30. 26See infra Section V.D.19. 27These non-ATS, OTC activities in NMS stocks may include operating as an OTC market maker or block positioner or operating an internal brokerdealer system. See 2010 Equity Market Structure Release, supra note 13, at 3599–3600. Additionally, an affiliate of the broker-dealer operator of an NMS Stock ATS may also
operate non-ATS trading centers. 28See id. See also infra Section V.C (discussing comments on the proposed disclosure requirements of Form ATS–N). 29See 17 CFR 240.3b-16. See generally Regulation ATS Adopting Release, supra note 3. See also Proposal, supra note 2, at 81004 (discussing the current exemption from the definition of exchange available to ATSs). pools accounted for 7.9% of NMS share volume.14 Additionally, no individual ATS executed more than 20.1% of the total share volume on NMS Stock ATSs or more than 2.3% of total NMS stock share volume during the first quarter of
2018.15 Given this dispersal of trading
volume in NMS stocks among an increasing number of trading centers, NMS Stock ATSs, with their approximately 11.4% market share, represent a significant source of liquidity in NMS stocks.
2. Operational Complexity; Conflict of
Interests
NMS Stock ATSs have grown increasingly complex in terms of the services and functionalities that they offer subscribers, and they have used advances in technology to improve the speed, capacity, and efficiency of the trading functionalities that they offer to execute orders in NMS stocks.16 Additionally, NMS Stock ATSs today offer a wide range of order types, matching systems to bring together orders and counterparties in NMS stocks, order interaction protocols, or opportunities to customize trading parameters, such as parameters that allow subscribers to preference interaction of their order flow with that of certain other specific subscribers or types of subscribers.17 A variety of market participants use these ATSs to display or execute orders and trading interest in NMS stocks, including broker-dealers that route customer orders to ATSs for execution and potential price improvement, and asset managers that seek to execute large size orders without suffering adverse price impact.18 The relationships between brokerdealer operators 19 and the ATSs they operate have also become more complex and intertwined since the adoption of Regulation ATS.20 The broker-dealer operator of an NMS Stock ATS controls all aspects of the operation of the ATS, including, among other things: the means of access to the ATS; who may trade on the ATS; how orders are matched and executed; and any differences in access to services among subscribers.21 The broker-dealer operator, or its affiliate, may also own, and control access to, the technology and systems that support the trading facilities of the NMS Stock ATS, or provide and control the personnel servicing the ATS’s trading facilities.22 Additionally, the broker-dealer operator, or in some cases, its affiliates, determines the means by which orders are entered on 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.23 The broker-dealer operator, or in some cases, its affiliates, also controls the market data that the ATS uses to match, and execute orders and the transmission of, and access to, confidential order and execution information sent to and from the ATS.24 The operations of the NMS Stock ATS and the other operations of the brokerdealer operator are usually closely intertwined, and the broker-dealer operator may leverage its information technology, systems, personnel, and market data, and those of its affiliates, to operate the ATS. Furthermore, ATSs that trade NMS stocks are increasingly operated by multi-service broker-dealers that engage in significant brokerage and dealing activities in addition to operation of their ATS.25 These other business activities may include, among others, providing algorithmic trading software, agency sales desk support, and automated smart order routing services, often with, or through, their affiliates. As indicated by commenters, the fees charged to subscribers for their use of an
NMS Stock ATS operated by a multiservice broker-dealer are generally bundled with other services offered by the broker-dealer operator to subscribers.26 Multi-service brokerdealers that also operate NMS Stock ATSs may use the ATS as a complement to the broker-dealer’s other service lines. For instance, the broker-dealer operator of an NMS Stock ATS, or its affiliate, may also operate an OTC market making desk or principal trading desk,27 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.28 Some of these brokerdealer operators that operate multiple NMS Stock ATSs may use their ATSs as an opportunity to execute orders ‘‘in house’’ before seeking contra-side interest at other execution venues. A multi-service broker-dealer may also execute orders in NMS stocks internally (and not within its ATS) 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 or another external trading center. Consequently, the nonATS trading centers operated by the broker-dealer operator of an NMS Stock ATS, or its affiliates, may compete with the ATS for the execution of transactions in NMS stocks. B. Exemption for Alternative Trading Systems Exchange Act Rule 3b–16(a) 29 provides a functional test to assess

30See 15 U.S.C. 78f.
31See 17 CFR 240.3b–16(a).
32See Regulation ATS Adopting Release, supra note 3, at 70852. Specifically, Rule 3b–16(b) excludes from the definition of exchange 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 brokerdealer 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. 33See 17 CFR 240.3b–16(e). 34 15 U.S.C. 78e. 35Pursuant 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). 36 15 U.S.C. 78f. A ‘‘national securities exchange’’ is an exchange registered as such under Section 6 of the Exchange Act. A trading platform that meets the definition of ‘‘exchange’’ under Section 3(a)(1) of the Exchange and fails to register with the Commission as a national securities exchange pursuant to Section 6 of the Exchange Act, unless exempt, risks operating as an unregistered exchange in violation of Section 5 of the Exchange Act. See, e.g., Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, Securities Exchange Act Release No. 81207 (July 25,
2017) https://www.sec.gov/litigation/investreport/
34-81207.pdf (‘‘DAO Report’’) (finding that certain tokens offered and sold by a ‘‘virtual’’ organization were securities, and confirming that issuers of distributed ledger or blockchain technology-based securities must register offers and sales of such securities unless a valid exemption applies, and that securities exchanges providing for trading in these securities must register unless they are exempt). Specifically, we confirmed that a system that meets the criteria of Rule 3b–16(a), and is not excluded under Rule 3b-16(b), must register as a national securities exchange pursuant to Sections 5 and 6 of the Exchange Act or operate pursuant to an appropriate exemption. See id. at Section III.D. See also In the Matter of BTC Trading, Corp. and Ethan Burnside, Respondents, Securities Exchange Act Release No. 73783 (December 8, 2014), https:// www.sec.gov/litigation/admin/2014/33-9685.pdf (order instituting administrative and cease-anddesist proceedings, making findings, and imposing remedial sanctions and a cease-and-desist order and alleging, among other things, that an operator of two online venues through which account holders could trade securities using virtual currencies violated
Section 5 of the Exchange Act by failing to register
the trading venues as exchanges). 37Section 3(a)(26) of the Exchange Act defines a self-regulatory organization 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). See also Proposal, supra note 2, at 81000–81001 nn. 20–26 and accompanying text (discussing certain differences between certain obligations and benefits applicable to national securities exchanges and those applicable to ATSs). 38See, e.g., 15 U.S.C. 78f and 78s. 39See 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).
40See generally Section 19(b) of the Exchange Act, 15 U.S.C. 78s(b), and Exchange Act Rule 19b– 4, 17 CFR 240.19b–4. 41See 17 CFR 240.3a1–1(a)(2). 42See id. 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). Rule 3a1–1(b) provides an exception to the Rule 3a1–1(a) exemptions pursuant to which the Commission may require a trading system that is a substantial market to register as a national securities exchange, if the Commission finds doing so is necessary or appropriate in the public interest or consistent with the protection of investors. See 17 CFR 240.3a1–1(b). See also Regulation ATS Adopting Release, supra note 3, at 70857–70858. 43See 17 CFR 242.300(a); 17 CFR 242.301(a); and 242.301(b)(1). In addition to the other requirements of Regulation ATS, to qualify for the Rule 3a1–1(a) exemption, an organization, association, or group of persons must otherwise meet the definition of ‘‘exchange.’’ 44See generally Sections 5, 6, and 19 of the Exchange Act, 15 U.S.C. 78e, 78f, and 78s. 45See 15 U.S.C. 78e. whether a trading platform meets the definition of exchange, and if so, triggers the requirement to register as a national securities exchange pursuant to
Section 5 of the Exchange Act 30 and
comply with the requirements applicable to exchanges. Under Rule 3b–16(a), ‘‘an organization, association, or group of persons shall be considered to constitute, maintain, or provide ‘a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange,’ if such organization, association, or group of persons: (1) Brings together the orders for securities of multiple buyers and sellers; and (2) uses established, non-discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade.’’ 31 Exchange Act Rule 3b– 16(b) explicitly excluded certain systems that the Commission believed were not exchanges.32 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 33 the system from the definition.
Section 5 of the Exchange Act 34
requires an organization, association, or group of persons that meets the definition of ‘‘exchange’’ under Section 3(a)(1) of the Exchange Act,35 unless otherwise exempt, to register with the Commission as a national securities exchange pursuant to Section 6 of the Exchange Act.36 Registered national securities exchanges are also SROs,37 and must comply with regulatory requirements applicable to both national securities exchanges and SROs.38 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 securities laws and the rules of the exchange.39 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.40 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 the trading services they offer and fees they charge for those services. Exchange Act Rule 3a1–1(a)(2) 41 exempts from the Exchange Act Section 3(a)(1) definition of ‘‘exchange’’ an organization, association, or group of persons that complies with Regulation ATS,42 which requires, among other things, meeting the definition of an ATS and registering as a broker-dealer.43 As a result of the exemption, an organization, association, or group of persons that meets the definition of an exchange and complies with Regulation ATS is not required by Section 5 of the Exchange Act to register as a national securities exchange pursuant to Section 6 of the Exchange Act, is not an SRO, and, therefore, is not required to comply with regulatory requirements applicable to national securities exchanges and SROs.44 An ATS that fails to comply with the requirements of Regulation ATS would no longer qualify for the exemption provided under Rule 3a1– 1(a)(2), and thus, risks operating as an unregistered exchange in violation of
Section 5 of the Exchange Act.45
C. 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

46See 17 CFR 242.300(a). 47See Regulation ATS Adopting Release, supra note 3, at 70859. As we noted when we adopted Regulation ATS, any system that uses its market power to regulate its participants should be regulated as an SRO. We stated 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, we stated our 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 ATS from imposing credit conditions on subscribers or requiring subscribers to submit financial information to the ATS. See id. 48See id. 49Pursuant 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 a national securities exchange under Section 6 of the Exchange Act; exempt from national securities 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 are banks, that limits their activities to certain instruments; or exempted, conditionally or unconditionally, by Commission order, after application by such ATS. See 17 CFR 242.301(a). 50See 17 CFR 242.301(b)(1). 51Section 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). See also Regulation ATS Adopting Release, supra note 3, at 70903 (discussing some of the regulatory obligations of registered brokerdealers, such as membership in an SRO and compliance with that SRO’s rules). For example, a broker-dealer that is a FINRA member must file an application for approval of a material change to its business operations (as defined in FINRA Rule 1011(k)). See FINRA Rule 1017(a). Among other obligations, a broker-dealer operator of an NMS Stock ATS that is a FINRA member is subject to trade reporting requirements pursuant to FINRA rules. See, e.g., supra note 15 (discussing FINRA trade reporting requirements applicable to NMS Stock ATSs). 52Form ATS and the Form ATS Instructions are available at http://www.sec.gov/about/forms/ formats.pdf. 53See 17 CFR 242.301(b)(2)(i). 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. See Regulation ATS Adopting Release,
supra note 3, at 70864; Proposal, supra note 2, at 81005 n.70 and accompanying text. 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 an ATS’s operations prior to commencing operations. See Regulation ATS Adopting Release, supra note 3, at 70864. 54See Proposal, supra note 2, at 81005. 55 17 CFR 242.301(b)(2)(vii). See Form ATS. 56As we noted in the Proposal, some ATSs may currently make voluntary public disclosures. See Proposal, supra note 2, at 81011, n.156. See also infra note 559 and accompanying text (discussing comments regarding voluntary postings of Form ATS by NMS Stock ATSs). 57Form 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. 58See 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 3, at 70864. See also infra Section IV.B.1.a.ii (discussing the materiality standard that would apply to the filing of amendments on Form ATS–N). 59See 17 CFR 242.301(b)(2)(iii). 60See 17 CFR 242.301(b)(2)(iv). 61See 17 CFR 242.301(b)(2)(v). 62See Regulation ATS Adopting Release, supra note 3, at 70864. 63See 17 CFR 242.301(b)(2)(vii); Form ATS at 3, General Instructions A.7. Under the final rules, NMS Stock ATSs that trade only NMS stocks will not be required to file Form ATS in accordance with Rules 301(b)(2)(i) through (vii), but instead will be required to comply with the requirements of new Rule 304 and file Form ATS–N. See infra
Section III.B.4. See also infra Sections IV.A, B, and
C. 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 from trading.’’ 46 Governing the conduct of or disciplining subscribers are functions performed by an SRO that we believe should be regulated as such.47 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).48 Rule 301(b)(1) of Regulation ATS requires that every ATS that is subject to Regulation ATS, pursuant to paragraph (a) of Rule 301,49 be registered as a broker-dealer under
Section 15 of the Exchange Act.50 As a
registered broker-dealer, an ATS must also, in addition to complying with Regulation ATS, comply with brokerdealer filing and conduct obligations, including becoming a member of an SRO, such as the Financial Industry Regulatory Authority (‘‘FINRA’’), and comply with SRO rules.51 An ATS must also comply with Rule 301(b)(2) of Regulation ATS, which currently requires all ATSs to file an initial operation report with the Commission on Form ATS 52 at least 20 days before commencing operations.53 Form ATS requirements include 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 procedures governing execution, reporting, clearance, and settlement of transactions effected through the ATS.54 Regulation ATS states that information filed by an ATS on Form ATS is ‘‘deemed confidential when filed’’ 55 and ATSs are not otherwise required to publicly disclose such information.56 ATSs must notify the Commission of any changes in their operations by filing an amendment to its Form ATS initial operation report. There are three types of amendments to an initial operation report.57 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.58 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.59 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.60 Also, upon ceasing to operate as an ATS, an ATS is required to promptly file a cessation of operations report on Form ATS.61 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,62 and Rule 301(b)(2)(vii) and the Instructions to the form state that Form ATS is ‘‘deemed confidential.’’ 63 Rule 301(b)(9) of Regulation ATS also requires an ATS 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

64See 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. 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. See Regulation ATS Adopting Release, supra note 3, at 70878. 65See Form ATS–R at 4, Items 1 and 2 (describing the requirements for Exhibit A and Exhibit B of Form ATS–R). Form ATS–R also requires an ATS that is subject to the fair access obligations under Rule 301(b)(5) of Regulation ATS to provide as Exhibit C, a list of all persons granted, denied, or limited access to the ATS during the period covered by the Form ATS–R and designate for each person (a) whether it was 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. 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. 66See 17 CFR 242.301(b)(2)(vii); Form ATS–R at 2, General Instruction A.7. 67See generally infra Section III. See also Section III.B.5. 68See 17 CFR 242.301(b)(3)(i). 69See 17 CFR 242.301(b)(3)(ii). 70See 17 CFR 242.301(b)(3)(iii). 71See 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. 72 17 CFR 242.301(b)(5)(i). 73See 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). 74The 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). 75See Regulation ATS Adopting Release, supra note 3, at 70874. 76See Securities Exchange Act Release No. 73639 (November 19, 2014), 79 FR 72251 (December 5,
2014) (adopting final rules for systems compliance
and integrity) (‘‘SCI Adopting Release’’). 77See 17 CFR 242.301(b)(6). 78Regulation SCI does not apply to ATSs that trade municipal securities or corporate debt securities. See SCI Adopting Release, supra note 76, at 72262. 79Regulation 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. 80Regulation 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. 81See SCI Adopting Release, supra note 76, 79 FR at 72252. 82See 17 CFR 242.301(b)(7). has operated.64 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 during the quarter.65 As with respect to Form ATS, Rule 301(b)(2)(vii) and the instructions to Form ATS–R state that Form ATS–R is ‘‘deemed confidential.’’ 66 Under the amendments we are adopting, the requirements of Rule 301(b)(9) will continue to apply to all ATSs, including NMS Stock ATSs, as will the other requirements of Regulation ATS other than the Form ATS reporting requirements of Rule 301(b)(2).67 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 comply with certain order display and execution access obligations.68 An ATS that meets these criteria must comply with Rule 301(b)(3)(ii), which requires the ATS to provide to a national securities exchange or national securities association (each an SRO), for inclusion in the quotation data made available by the SRO to vendors, the prices and sizes of its orders at the highest buy price and lowest sell price for that NMS stock that
are displayed to more than one subscriber.69 An ATS that meets the volume threshold also is required to comply with Rule 301(b)(3)(iii), which sets forth certain access standards regarding the orders that the ATS is required to provide to an SRO pursuant to Rule 301(b)(3)(ii).70 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).71 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: 72 Establish written standards for granting access to trading on its system; not unreasonably prohibit or limit any person in respect to access to services offered by such ATS by applying the above standards in an unfair or discriminatory manner; make and keep records of all grants of access including, for all subscribers, the reasons for granting such access, and all denials or limitations of access and reasons, for each applicant, for denying or limiting access; and report the information required in Exhibit C of Form ATS–R regarding grants, denials, and limitations of access.73 These requirements are referred to as the ‘‘fair access’’ requirements and apply on a security-by-security basis.74 A denial of access to a market participant after an ATS reaches the 5% fair access threshold in an NMS stock would be reasonable if it is based on objective standards.75 Prior to the Commission’s adoption of Regulation SCI,76 NMS Stock ATSs were required to comply with Rule 301(b)(6), which requires certain ATSs trading 20% or more of the volume in any equity security or debt securities to comply with standards regarding the capacity, integrity, and security of their automated systems.77 Regulation SCI superseded and replaced Rule 301(b)(6)’s requirements with regard to ATSs that trade NMS stocks and equity securities that are not NMS stocks 78 and requires SCI entities,79 including NMS Stock ATSs that meet the definition of an ‘‘SCI ATS,’’ 80 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.81 Rule 301(b)(7) 82 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

83See 17 CFR 242.301(b)(8).
84See 17 CFR 242.302.
85See 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 3, at 70877–78. 86See 17 CFR 242.301(b)(10)(i). 87See 17 CFR 242.301(b)(10)(ii). 88See 17 CFR 240.301(b)(11). 89When we proposed Regulation ATS, we said that ‘‘it is important that the investing public not be confused about the market role [ATSs] have chosen to assume.’’ See Regulation ATS Proposing Release, supra note 7 at 23523. We 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. 90See, e.g., CFA Institute Letter at 2; ICI Letter at 3; Better Markets Letter at 2; Investor Advocate Letter at 14; Luminex Letter at 1. 91See, e.g., SIFMA Letter at 2; Investor Advocate Letter at 4; LeveL ATS Letter at 2. Other commenters also recognized that the role of NMS Stock ATSs has changed since the adoption of Regulation ATS. See, e.g., Schneiderman Letter at 1; Virtu Letter at 2; UBS Letter at 1; Fidelity Letter at 1; ICI Letter at 2–3; STANY Letter at 2–3. 92See, e.g., Consumer Federation of America Letter at 4; ICI Letter at 2; HMA Letter at 18; Schneiderman Letter at 1–2; Better Markets Letter at 2; CFA Institute Letter at 2; SIFMA Letter at 8. See also infra Section V.D (describing comments on proposed disclosures required by Form ATS–N). 93See, e.g., CBOE Letter at 1; CFA Institute Letter at 3; Consumer Federation of America Letter at 2; ICI Letter at 3. See also Investor Advocate Letter at 14; Luminex Letter at 1; Consumer Federation of America Letter at 4; UBS Letter at 5–7; AI Letter at
2. One commenter critiques both the current
regulatory regime for ATSs, as well as the Proposal, but describes issues with the lack of transparency and states that the Proposal represents an important enhancement in the oversight of ATSs. See Better Markets Letter at 1–2. 94 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 3, at
70879. See also Proposal, supra note 2, at 81041–
81042 n.367 and accompanying text.
95See, e.g., Consumer Federation of America Letter at 4; LeveL ATS Letter at 3; Fidelity Letter at 2 n.4. See also KCG Letter at 2; Luminex Letter at 3–4; Liquidnet Letter at 11. Not all NMS Stock ATSs, however, are operated by multi-service broker-dealers. See, e.g., BIDS Letter at 1. This commenter describes itself as the owner and broker-dealer operator of an NMS Stock ATS that does not engage in any proprietary trading and does not have any trading affiliates. The rules being adopted today would not require a broker-dealer that operates an NMS Stock ATSs to limit it business only to operating the ATS. We believe that the Form ATS–N disclosures will inform market participants about the ATS-related activities of the broker-dealer operator and its affiliates that give rise to potential conflicts between the interests of the broker-dealer operator and subscribers that use the services of the NMS Stock ATS. See infra Sections X.D.7 (discussing the alternative of requiring NMS Stock ATSs to operate as limited purpose entities) and V.C.8 (discussing comments stating that the Commission should prohibit conflicts of interest arising from the other business activities of the broker-dealer operator of an NMS Stock ATS, and those of its affiliates, and the Commission’s response to those comments). See also HMA Letter at 3 and attachment The Dark Side of the Pools: What Investors Should Learn from Regulator’s Action, September 15, 2015, at 10; Investor Advocate Letter at 8; Better Markets Letter at 2; infra Section V.C (discussing comments related to disclosures about the activities of an NMS Stock ATS’s broker-dealer affiliate and those of its affiliates). 96See, e.g., Schneiderman Letter at 2; Better Markets Letter at 2–3; Consumer Federation of America Letter at 5; and HMA Letter at 12, 16–17. See also CFA Institute Letter at 2; Fidelity Letter at 4; Investor Advocate Letter at 5; Citadel Letter at 1– 7. One commenter, however, observes that in the recent settlements cited in the Proposal, there were conflicts of interest related to commercial relationships that had nothing to do with affiliates, and believes that all differential treatment of subscribers should be disclosed and recommends limiting disclosures regarding affiliate relationships. See Markit Letter at 8. Under the requirements we are adopting today, NMS Stock ATSs must disclose on Form ATS–N differences in treatment of subscribers and the broker-dealer operator and affiliate, and we have, in response to commenters, revised questions of Form ATS–N to narrow the scope of information related to affiliates to be disclosed. See infra Sections V.C and D. See also Proposal, supra note 2, at 81042–81043 n.374 (citing prior settled enforcement actions against ATSs that trade NMS stocks). Since the Proposal, we have entered additional settlements Continued the Commission or by an SRO of which such subscriber is a member. Rule 301(b)(8) 83 requires all ATSs to make and keep current the records
specified in Rule 302 of Regulation ATS 84 and preserve the records specified in Rule 303 of Regulation ATS.85 Under Rule 301(b)(10), all ATSs must establish adequate safeguards and procedures to protect subscribers’ confidential trading information, which includes 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 Regulation ATS or any other applicable rules; and implementing standards controlling employees of the ATS trading for their own accounts.86 Furthermore, all ATSs must adopt and implement adequate oversight procedures to ensure that the above safeguards and procedures are followed.87 Finally, Rule 301(b)(11) 88 expressly prohibits any ATS from using the word ‘‘exchange’’ or derivations of the word ‘‘exchange,’’ such as the term ‘‘stock market,’’ in its name.89 D. Concerns Regarding the Lack of Operational Transparency Despite their role in the equity markets and complexity of their operations, NMS Stock ATSs are not required under Regulation ATS to publicly disclose information about their operations. We are concerned that little information is widely available to market participants about NMS Stock ATSs, and that the lack of, or differential access to, information about operations of NMS Stock ATSs inhibits the ability of market participants to assess NMS Stock ATSs as potential trading venues. These concerns are shared by several commenters.90 Commenters also concur with our belief that NMS Stock ATSs today play a significant role in equity market structure, and that their role has changed since Regulation ATS was adopted in 1998.91 In addition, commenters reinforce our belief that NMS Stock ATSs have become more operationally complex, that the potential for conflicts of interest has risen as a result of that complexity, and that the conditions to the exemption for NMS Stock ATSs should be modified.92 Commenters also express concern about the lack of operational transparency for NMS Stock ATSs.93 Given the complexities of NMS Stock ATS operations, the lack of information about the ATS’s order types, priority rules, segmentation procedures, use of market data, and fees, for example, may impede the ability of market participants to adequately understand how their orders in NMS stocks would interact, match, and execute. We are also concerned that the lack of available information about the ATSrelated activities of the broker-dealer operator and its affiliates may hinder the ability of market participants to evaluate potential conflicts of interest, and thus limit their ability to protect their interests. Because of overlap between a broker-dealer’s ATS operations and its other operations, there is a risk of information leakage of subscribers’ confidential trading information to other business units of the broker-dealer operator or its affiliates.94 Several commenters describe NMS Stock ATS operational structures that
exemplify the kinds of relationships about which the Commission expressed concern, or otherwise reinforce our belief that the complex relationship between an NMS Stock ATS and its broker-dealer operator, or its affiliates, creates potential conflicts of interest.95 Further, in recognizing the current potential for conflicts of interest that exist as a result of the complexity of the operations of NMS Stock ATSs, the relationship many have with their broker-dealer operator or its affiliates, and the lack of transparency about those operations and potential conflicts, many commenters also highlight recent enforcement actions brought by the Commission.96

regarding NMS Stock ATSs. See In the Matter of Barclays Capital Inc., Securities Exchange Act Release No. 77001 (Jan. 31, 2016), https:// www.sec.gov/litigation/admin/2016/33-10010.pdf (order instituting administrative and cease-anddesist proceedings, making findings, and imposing remedial sanctions and a cease-and-desist order); In the Matter of Credit Suisse Securities (USA) LLC, Securities Act Release No. 77002 (Jan. 31, 2016), https://www.sec.gov/litigation/admin/2016/33- 10013.pdf (order instituting administrative and cease-and-desist proceedings, making findings, and imposing remedial sanctions and a cease-and-desist order) (‘‘Crossfinder Settlement’’); In the Matter of Credit Suisse Securities (USA) LLC, Securities Act Release No. 77003 (Jan. 31, 2016), https:// www.sec.gov/litigation/admin/2016/33-10014.pdf (order instituting administrative and cease-anddesist proceedings, making findings, and imposing remedial sanctions and a cease-and-desist order); In the Matter of Deutsche Bank Securities Inc., Securities Exchange Act Release No. 79576 (Dec. 16, 2016), https://www.sec.gov/litigation/admin/ 2016/33-10272.pdf (order instituting administrative and cease-and-desist proceedings, making findings, and imposing remedial sanctions and a cease-anddesist order). 97See infra notes 34–40 and accompanying text (discussing the regulatory framework applicable to national securities exchanges, including that national securities exchanges are self-regulatory organizations (‘‘SROs’’)). See also Regulation ATS Adopting Release, supra note 3; infra Section II.B (discussing the current requirements of Regulation ATS applicable to all ATSs). 98See Proposal, supra note 2, at 81042 n.372 and accompanying text. 99See 15 U.S.C. 78s(b). 100See id. 101See Proposal, supra note 2, at 81010. 102See id. at 81042. We believe 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. 103 17 CFR 240.3a1–1(a)(2). 104 In Exchange Act Rules 3a1–1(a)(2) and (3), Regulation ATS is currently defined as ‘‘17 CFR
242.300 through 242.303.’’ We are amending the
references to Regulation ATS to define Regulation ATS as ‘‘17 CFR 242.300 through 242.304.’’ We also proposed conforming Rule 3a1–1(a)(3) by changing the reference to Rule 303 to Rule 304 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. No changes were proposed to Rule 3a1–1(a)(1), which exempts any ATS that is operated by a national securities association. 105Proposed Rule 304(a) provided 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)) to be exempt from the definition of an ‘‘exchange’’ pursuant to Exchange Act Rule 3a1–1(a)(2). We are adopting proposed Rule 304(a) with certain modifications. As adopted, Rule 304(a) will state, ‘‘[u]nless not required to comply with Regulation ATS pursuant to § 242.301(a), an NMS Stock ATS must comply with §§ 242.300 through 242.304 (except §§ 242.301(b)(2)(i) through (vii)) to be exempt pursuant to § 240.3a-1(a)(2)’’ (emphasis added). The adopted rule text specifies the subparagraphs of Rule 301(b)(2) with which an NMS Stock ATS would not be required to comply. We believe that specifying the applicable subsections of Rule 301(b)(2) provides greater clarity, because Rule 301(b)(2)(viii) will apply to NMS Stock ATSs that also trade non-NMS stocks. The reference to Rule 301(b)(2) in the proposed rule text could be confusing to market participants because it does not make clear that Rule 301(b)(2)(viii) applies to certain NMS Stock ATSs. We believe that the added specificity in the adopted rule clarifies that only Rules 301(b)(2)(i) through (vii) will not be applicable to NMS Stock ATSs. See infra Section III.B.4. In addition, to reduce any potential ambiguity and improve readability, the adopted rule text deletes the language that states that the NMS Stock ATS would need to comply with the requirements to be exempt ‘‘from the definition of an ‘exchange’’’ pursuant to Exchange Act Rule 3a1–1(a)(2). NMS Stock ATSs, which meet the definition of ‘‘exchange’’ but are not required to register with the Commission as national securities exchanges, compete with national securities exchanges and operate with similar complexity. Unlike national securities exchanges, NMS Stock ATSs are not required to, among other things, publicly disclose their operations and fees.97 In addition, because we review the rules of national securities exchanges, a process which requires, among other things, that to approve certain rule changes, the Commission find 98 that the national securities exchange’s proposed rule changes are consistent with the Exchange Act,99 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. We
believe that the regulatory differences between NMS Stock ATSs and national securities exchanges with regard to disclosure obligations may create a competitive imbalance between two functionally similar trading centers that trade the same security. 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.100 We believe that one of the most important functions the Commission can perform for investors is to ensure that they have access to the information they need to protect and further their own interests.101 The amendments that we are adopting to Regulation ATS and Exchange Act Rule 3a1–1 are designed to address the concerns identified above and provide benefits to a wide range of market participants. Public disclosures on Form ATS–N will provide market participants with information about the operations of an NMS Stock ATS, which they can use to understand how orders interact, match, and execute in an NMS Stock ATS and compare to other NMS Stock ATSs and national securities exchanges. Form ATS–N will also provide the public with information about the ATS-related activities of the broker-dealer operator and its affiliates, which can be used by market participants to assess potential conflicts of interest and information leakage.102 Collectively, the Form ATS–N public disclosures will allow market participants to better evaluate an NMS Stock ATS as a potential trading destination for their orders and help them better protect their interests. The Form ATS–N public disclosures are also designed, in part, to bring the operational transparency requirements for NMS Stock ATSs more in line with the requirements for national securities exchanges. Finally, we believe that our process for reviewing Form ATS–N filings, which provides for Commission review of disclosures for compliance with the requirements of Rule 304 and Form ATS–N, and a potential declaration of ineffectiveness of a Form ATS–N, after notice and opportunity for hearing, will facilitate better Commission oversight of NMS Stock ATSs and thus, better protection of investors.
III. Heightened Regulatory
Requirements for NMS Stock ATSs A. Exchange Act Rule 3a1–1(a) Exemption: New Conditions for NMS Stock ATSs ATSs that trade NMS stocks operate pursuant to the exemption provided by Exchange Act Rule 3a1–1(a)(2), which exempts from the definition of an ‘‘exchange’’ any ATS that complies with Rules 300 through 303 of Regulation ATS.103 Given our concerns regarding the lack of public transparency around the operations of NMS Stock ATSs and the ATS-related activities of the brokerdealer operator and its affiliates, we proposed to expand the conditions of the Rule 3a1–1(a)(2) exemption to enhance operational transparency and oversight for these ATSs. We are adopting this requirement as proposed.104 We proposed to require NMS Stock ATSs to comply with proposed Rule 304, in addition to existing Rules 300 through 303 of Regulation ATS (except Rule 301(b)(2)), to be eligible for the exemption.105 Proposed Rule 304(a)(1)(i) set forth two new fundamental conditions to the Rule 3a1–1(a)(2) exemption: (1) An NMS Stock ATS must file Form ATS–N with the Commission (instead of the current Form ATS), and (2) the Commission must declare the Form ATS–N effective before the NMS Stock ATS can operate pursuant to the exemption. Adopted Rule 304(a)(1)(i) deletes the proposed condition that the Commission declare the Form ATS–N effective, and provides that the Form ATS–N must be effective

106See infra Section IV.A.3.
107 In Exchange Act Rules 3a1–1(a)(2) and (3), Regulation ATS is currently defined as ‘‘17 CFR
242.300 through 242.303.’’ We proposed amending
these references to Regulation ATS to define Regulation ATS as ‘‘17 CFR 242.300 through 242.304.’’ We also proposed conforming Rule 3a1– 1(a)(3) by changing the reference to Rule 303 to final Rule 304 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. No changes were proposed to Rule 3a1–1(a)(1), which exempts any ATS that is operated by a national securities association. 108See SIFMA Letter at 2; Barnard Letter at Public comment on IOSCO’s Consultation Report on Issues Raised by Dark Liquidity; Anonymous Letter at 1; Luminex Letter at 1; MFA/AIMA Letter at 1–2; Fidelity Letter at 1; UBS Letter at 1; Markit Letter at 3–4; Schneiderman Letter at 1; ICI Letter at 3; CFA Institute Letter at 3, 6; CBOE Letter at 1; KCG Letter at 1; PDQ Letter at 1; STA Letter at 2; Liquidnet Letter at 1; STANY Letter at 1; FINRA Letter at 1; HMA Letter at 1, 5; Citadel Letter at 1; Better Markets Letter at 3–4; BIDS Letter at 1–2; SSGA Letter at 2; T. Rowe Price Letter at 1; AI Letter at 2–3; Consumer Federation of America Letter at 4; Morgan Stanley Letter at 1; Investor Advocate Letter at 2, 6; LeveL ATS Letter at 1; Virtu Letter at 2; MFA Letter 2 at 30. But see Morgan Stanley Letter at 1, 3 (stating that it is important to balance public disclosure with disclosure more suitable for the Commission (see discussion below and infra note 150 and accompanying text); that certain disclosure requirements, such as any disclosure around broker trading infrastructure and order handling practices beyond ATS operations, should apply to all brokers (see discussion infra note 217– 218and accompanying text and infra Section III.A.2); and that the Proposal treats all ATSs like exchanges and fails to account for distinct ATS models (see discussion below and infra note 176 and accompanying text)). One commenter commented only on whether the Proposal should apply to ATSs that trade only fixed-income securities. See MarketAxcess Letter; infra Section III.A.2. 109See generally Virtu Letter; T. Rowe Price Letter; Schneiderman Letter; ICI Letter; MFA/AIMA Letter; Consumer Federation of America Letter; CBOE Letter; Citadel Letter; Anonymous Letter; Better Markets Letter; Investor Advocate Letter. See also CFA Institute Letter at 6; SIFMA Letter at 3. 110See SIFMA Letter at 3; Virtu Letter at 2; T. Rowe Price at 1; Schneiderman Letter at 1; MFA/ AIMA Letter at 2; MFA Letter 2 at 30; CBOE Letter at 1; Citadel Letter at 1; Consumer Federation of America Letter at 6; CFA Institute Letter at 3; Anonymous Letter at 1; KCG Letter at 3; Morgan Stanley Letter at 1; Investor Advocate Letter at 6; Better Markets Letter at 1. 111See ICI Letter at 4–6; Consumer Federation of America Letter at 6; CFA Institute Letter at 3; Citadel Letter at 3; KCG Letter at 3; STA Letter at 2; MFA/AIMA Letter at 4; CBOE Letter at 1; Investor Advocate Letter at 2, 8. 112See Luminex Letter at
1; Fidelity Letter at 1; SSGA Letter at 2; KCG Letter at 1; Citadel Letter at 1; ICI Letter at 3; STA Letter at 2; Schneiderman Letter at 2; Consumer Federation of America Letter at 6; Investor Advocate Letter at 11. 113See Luminex Letter at 1. 114See STA Letter at 2; Consumer Federation of America Letter at 6; Investor Advocate Letter at 3, 11–12. 115See Citadel Letter at 1. 116See Investor Advocate Letter at 12. 117See CBOE Letter at 1. 118 Id. 119See infra Section X.B.6 (discussing the effects of NMS Stock ATSs on the market for NMS stock execution services, including fragmentation). 120See infra Section X.C (discussing the expected economic effects of today’s rulemaking, as well as its expected effects on efficiency, competition, and capital formation). 121See STA Letter at 2. 122See CFA Institute Letter at 3; Schneiderman Letter at 2; Investor Advocate Letter at 11–12. 123See Investor Advocate Letter at 11, 12. pursuant to Rule 304(a)(1)(iii) or Rule 304(a)(1)(iv)(A). Adopted Rule 304(a)(1)(iii) has been modified to provide that Form ATS–N will become effective if the Commission does not otherwise declare Form ATS–N ineffective—the Commission will not be declaring Form ATS–N filings effective.106 We proposed to amend Rules 3a1– 1(a)(2) and (3) to require compliance with proposed Rule 304 as a condition to operating pursuant to the Rule 3a1– 1(a)(2) exemption.107 We received several comments on the proposal to expand the conditions of the Rule 3a1– 1(a)(2) exemption for NMS Stock ATSs and require these ATSs to comply with Rule 304. We also received comments on the application of the Proposal to ATSs that trade securities other than NMS stocks, and, specifically, requiring these types of ATSs to file a Form ATS– N and operate pursuant to the effectiveness process. Both sets of comments are discussed below.

Comments on the Rule 304
Requirements; Effectiveness Nearly all commenters agree with our stated goal of enhancing operational transparency for NMS Stock ATSs.108 Several commenters agree that the Commission should adopt the heightened disclosure requirements of proposed Rule 304.109 In particular, several commenters support enhancing the disclosure and oversight regime for NMS Stock ATSs as progress toward increasing operational transparency in NMS Stock ATSs.110 Specifically, some commenters express support for NMS Stock ATSs to file Form ATS–N as a tool to improve transparency.111 Several commenters assert that more transparency regarding ATS operations could help market participants evaluate and compare trading venues so they can determine where to route orders.112 One commenter states that ‘‘it is good for investors to have access to information on how their orders are handled and with whom they are dealing.’’ 113 Several commenters believe that making Form ATS–N filings public would encourage competition among trading venues,114 and one commenter asserts that the proposed transparency requirements could reduce competitive imbalances between NMS Stock ATSs and national securities exchanges.115 With respect to the Commission’s effectiveness determination for Form ATS–N, another commenter states that ‘‘given the level of competition between exchanges and NMS Stock ATSs, this effectiveness determination would better align the Commission’s oversight among different types of trading venues.’’ 116 One commenter, however, believes that ATSs do not add sufficient value to offset the regulatory inequity and market fragmentation they have created.117 This commenter also states that the Proposal represents ‘‘meaningful progress in the effort to increase the operational transparency of NMS Stock ATSs.’’ 118 The Proposal was not designed to eliminate the exemption from the definition of exchange that is currently available to all ATSs, including NMS Stock ATSs. We believe that NMS Stock ATSs play a significant role in equity market structure and provide market participants with a variety of trading models to facilitate the interaction and execution of orders in NMS stocks. We believe that the current market for NMS stock execution services, consisting of national securities exchanges, NMS Stock ATSs, and other off-exchange venues, has resulted in an improvement to market efficiency.119 The changes to the requirements for NMS Stock ATSs that we are adopting today will increase operational transparency for these ATSs, bringing it more in line with the operational transparency for national securities exchanges, while continuing to recognize the difference in the business structure of ATSs as registered brokerdealers. We also believe that while the rules adopted today will increase the regulatory burden for NMS Stock ATSs and could result in some NMS Stock ATSs electing to no longer operate as an ATS, those NMS Stock ATSs that remain may compete more heavily with each other and
with national securities exchanges, which could ultimately result in improvements to efficiency and capital formation.120 Another commenter believes that increased disclosure will aid in developing industry-based standards.121 Three commenters state that increased disclosure will boost investor confidence,122 and according to one of these commenters, increased transparency and investor confidence could lead to more investors using NMS Stock ATSs, and result in greater price discovery and lower costs of capital formation.123 We believe that a wide range of market participants will benefit from the enhanced operational transparency,

124See Citadel Letter at 1; Consumer Federation of America Letter at 6; HMA Letter at 10; Luminex at 1; SIFMA Letter at 35. 125See SSGA Letter at 2. 126See ICI Letter at 3. 127See, e.g., Proposal, supra note 2, at 81002 n.36 and accompanying text, 81013 n.187 and accompanying text (discussing 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’’). 128See Luminex Letter at 2–3; PDQ Letter at 2; Fidelity Letter at 5; STANY Letter at 3; Morgan Stanley Letter at 2. 129See Fidelity Letter at 5; STANY Letter at 3. 130See infra Sections X.C.1 and X.C.2. We have considered any additional burden that may result from completion of Form ATS–N and the benefits of the additional information that will be made available to market participants by requiring NMS Stock ATSs to file Form ATS–N, and making Form ATS–N public. See id. 131For example, we have narrowed a request for information regarding trading by affiliates of the broker-dealer operator on the NMS Stock ATS by requiring only the disclosures of affiliates that can enter or direct the entry of orders and trading interest into the ATS. See infra Section V.C.1. We are not requiring NMS Stock ATSs to provide proposed Exhibit 1 to Form ATS–N. See infra
Section V.B.2. Exhibit 1 would have required that
NMS Stock ATSs provide a copy of any materials currently provided to subscribers or other persons related to the operations of the ATS or the disclosures on Form ATS–N, such as frequently asked questions, manuals, and marketing materials. 132See infra Section V.C. 133See infra Section X.C.4. 134See Consumer Federation of America Letter at 3. 135See id. 136See Investor Advocate Letter at 8. 137See Morgan Stanley Letter at 1. 138See Proposal, supra note 2, at 81011. 139See Luminex Letter at 2–3; STANY Letter at 3. 140See STANY Letter at 3; PDQ Letter at 2; Fidelity Letter at 5. 141See STANY Letter at 3. including, for example, fund managers and the many brokers that subscribe to NMS Stock ATSs and route their orders, and those of their customers, to NMS Stock ATSs for execution. Five commenters observe, for example, that more transparency regarding ATS operations could assist market participants in achieving best execution.124 One commenter states that disclosure of material aspects of ATS operations that allow market participants to weigh the costs and benefits of venues is ‘‘particularly important for asset managers who are acting in a fiduciary capacity.’’ 125 Another commenter believes that making Form ATS–N filings publicly available would provide a ‘‘valuable tool for funds to use to assess NMS Stock ATSs, make informed routing decisions, and evaluate the performance of their brokers.’’ 126 We believe that the information disclosed on Form ATS–N will help brokers meet their best execution obligations to their customers, as they should be better able to assess the trading venues to which they route orders.127 We also believe that asset managers and institutional investors, who 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 orders and trading interest of the institutional investor may be displayed or made known outside the ATS. This information also will enable asset managers to better evaluate the routing decisions of their brokers, including whether their brokers routed their orders to a venue that best fits their trading interests. a. Comments on Form ATS–N Requirement Some commenters, however, believe NMS Stock ATSs should not be required to comply with new Rule 304 and the Commission should instead simply amend Regulation ATS to require making Form ATS public for NMS Stock ATSs.128 Two of these commenters assert that the Commission should mandate disclosure of current Form ATS as a first step to increase disclosure before considering implementing more burdensome disclosure requirements.129 We are not adopting commenters’ suggestion to make Form ATS public rather than requiring NMS Stock ATSs to comply with Rule 304 and file Form ATS–N. First, we believe that new Form ATS–N requires important additional disclosures that are not made under existing Form ATS.130 While Form ATS–N will require NMS Stock ATSs to
disclose more information than Form ATS, in response to certain comments, we have reduced the burden of completing Form ATS–N by narrowing the scope of several requests for information and, in some cases, eliminating certain requests from the form.131 We have also simplified Form ATS–N to make completing and maintaining the form less burdensome and have modified questions so as not to solicit competitively sensitive information.132 We believe that Form ATS–N disclosures will help market participants compare and evaluate NMS Stock ATSs and make better informed decisions about where to route their orders to achieve their trading or investment objectives, enhance execution quality, and improve efficiency and capital allocation.133 Based on Commission staff’s experience reviewing disclosures made by ATSs on Form ATS over the past 19 years and as discussed in the Proposal, we have observed that ATSs have often provided minimal, rudimentary, and summary disclosures about their operations on Form ATS. One commenter agrees with our assessment, stating that based on its review of publicly available Forms ATS, the forms ‘‘often provide minimal and often generalized information’’ with respect to classification and segmentation of subscribers, means of access to the ATS, matching priority, order interaction, order types, and how the NBBO is calculated, and they are often missing ‘‘critical details’’ about their operations.134 Further, this commenter states that ‘‘[r]arely do Form ATSs provide information relating to their fee structures and potential or actual conflicts of interest.’’ 135 According to another commenter, current Form ATS is ‘‘not adequate’’ to allow the Commission and market participants to ‘‘understand how NMS Stock ATSs operate in today’s environment, given the complexity and the potential for significant conflicts of interest with the broker-dealer operator.’’ 136 In addition, one commenter observes that market participants currently receive ‘‘varying levels’’ of information about the operations of the NMS Stock ATS.137 As described in the Proposal,138 we believe that the complexity of NMS Stock ATS operations has increased substantially and in a manner that causes the current disclosure requirements of Form ATS to result in an insufficient, and inconsistent, level of detail about the operations of NMS Stock ATSs. Two commenters argue that a new Form ATS–N is unnecessary because most of the fundamental information required in Form ATS–N is currently covered by Form ATS.139 In addition, three commenters suggest that, as an alternative to requiring NMS Stock ATSs to file and make public Form ATS–N, we should clarify the requests for information on Form ATS and mandate that the revised Form ATS be made public.140 One of these commenters believes such an approach would help achieve the Commission’s goal of operational transparency, while ‘‘maintaining a regulatory structure under which NMS Stock ATSs can continue to innovate.’’ 141 Even if we
were to ‘‘clarify’’ the requests for information on Form ATS to standardize disclosures and make current and past Forms ATS public, Form ATS does not require the

142See id. at 4.
143See supra notes 109–123 and accompanying text. 144See infra Section V. 145See SSGA Letter at 2; PDQ Letter at 2; Morgan Stanley Letter at 2. 146See SSGA Letter at 2. See also Fidelity Letter at 8 (discussing that, from a due diligence perspective, subscribers may require NMS Stock ATS information). 147See SSGA Letter at 2. See also PDQ Letter at 2. 148See PDQ Letter at 2. 149See Virtu Letter at 2; Schneiderman Letter at 1; ICI Letter at 3; Consumer Federation of America Letter at 6; and Citadel Letter at 1. 150See Morgan Stanley Letter at 2 (asserting that ‘‘standardization is the key to concise, comparable and meaningful information regarding ATS operations’’). This commenter states that while it supports the Proposal’s effort to mandate transparency, it is concerned that proposed Form ATS–N ‘‘will result in more subjective, narrative responses that will not lend themselves to side-byside comparison.’’ See id. at 1. 151See id. at 2. 152See Proposal, supra note 2, at 81123. See also infra Section V.A.1. We believe that requiring NMS Stock ATSs to provide only ‘‘yes’’ or ‘‘no’’ responses would limit ATSs, which provide diverse services and often operate uniquely, from accurately describing their operations and inhibit market participants from fully understanding the operations of the ATS or the ATS-related activities of the broker-dealer operator and its affiliates. See id. (discussing the Commission’s belief that narrative responses are important for market participants to understand the operations of NMS Stock ATSs given differences across ATSs, and provide NMS Stock ATSs with the flexibility in their responses). 153See CFA Institute Letter at 3; UBS Letter at 2. See also KCG Letter at 1. disclosure of certain information that will be required by Form ATS–N. For example, Form ATS–N requires NMS Stock ATSs to disclose information about the ATS-related activities of the broker-dealer operator and its affiliates that will allow market participants to assess potential conflicts of interest and information about the NMS Stock ATS’s safeguards and procedures to protect confidential trading information. The disclosure requirements of Form ATS are not sufficient to provide market participants with adequate information about the operational complexity of NMS Stock ATSs and the ATS-related activities of the broker-dealer operator and its affiliates that exist today. Form ATS–N is designed to provide market participants with more robust, detailed, and standardized disclosures, and to enable market participants to better understand the operations of NMS Stock ATSs and potential conflicts of interest between ATS operations and the other ATS-related activities of the brokerdealer operator and its affiliates. One commenter who suggests making Form ATS public as an alternative to requiring Form ATS–N expresses concern that the ‘‘crippling amount of detail’’ required to be disclosed under Form ATS–N would not be useful to market participants.142 We do not
believe that Form ATS–N, as modified from the Proposal, will require a ‘‘crippling’’ level of detail that will only be useful to the Commission, and several commenters agree that the Form ATS–N disclosures would be useful for market participants in comparing trading venues and assessing conflicts of interest.143 While Form ATS–N will require NMS Stock ATSs to disclose more information than Form ATS, we have recognized commenters’ concerns regarding the burden of completing Form ATS–N by narrowing the scope of several requests, eliminating certain requests altogether, and simplifying its format.144 Other commenters discuss how market participants currently glean information about ATSs, and suggest that such methods could serve as alternatives to the requirements of Rule 304, or inform the Rule 304 requirements.145 One commenter states that it performs periodic due diligence on ATSs because it believes that as a fiduciary, it should only trade on venues or exchanges that further its goals of satisfying ‘‘best execution,’’ that protect client information, and generally support principles of fair access.146 This commenter also states that currently, market participants perform such due diligence by sending ATSs questionnaires.147 Similarly, another commenter observes that ATSs are incentivized to respond to these questionnaires to attract participants, and therefore, the Commission should not place additional disclosure burdens on ATSs.148 We do not believe that the practice of some market participants individually soliciting information about the operations of NMS Stock ATSs and conflicts of interest through questionnaires is an adequate alternative to Form ATS–N. We believe that disclosures on Form ATS–N should be easily accessible to all market participants. This is particularly important for NMS Stock ATSs given how orders in NMS stocks may be routed among various trading centers before receiving an execution. Based on the Commission’s experience, responses to questionnaires are generally unavailable to non-subscribers, including potential subscribers and customers of current subscribers. Without this information, potential subscribers would be unable to fully assess an NMS Stock ATS as a trading center and customers of subscribers would be inhibited from assessing their broker’s routing decisions. In addition, we believe, as indicated by comments,149 that the publicly available, standardized disclosure regime that will result from Rule 304 and Form ATS–N is critical for all market participants to receive equal information about NMS Stock ATSs. One commenter suggests that, as an alternative to the proposed Form ATS– N, the Commission should mandate that ATS operators publicly disclose current and historical Form ATS filings and related amendments, and responses to standardized, frequently asked questions (‘‘FAQs’’) regarding ATS operations.150 The commenter believes that this approach would be ‘‘more balanced and appropriate’’ and ‘‘less
burdensome and faster to implement.’’ 151 For the reasons discussed above in this section, we believe that the requests on Form ATS are not designed to produce adequate information for market participants about the operational complexity of NMS Stock ATSs and the ATS-related activities of their broker-dealer operators and their affiliates. We also believe that making public an ATS’s responses to standardized, FAQs regarding its operations would not achieve the same level of disclosure that Form ATS–N will require, and would not facilitate our oversight of NMS Stock ATSs. Based on Commission experience, the information required to be disclosed on Form ATS–N exceeds the information provided by NMS Stock ATSs in their responses to FAQs and will provide a greater benefit to market participants. In addition, NMS Stock ATSs must file Form ATS–N disclosures with the Commission, which will be subject to Commission review before they become public. As discussed in the Proposal, the public disclosures on Form ATS–N are designed to standardize the information available to all market participants about NMS Stock ATSs and facilitate their ability to compare and evaluate these trading venues.152 Finally, we believe that the burden resulting from filing a Form ATS–N would not be significant compared to requiring an NMS Stock ATS to prepare disclosures on Form ATS and responses to FAQs. We received four comments about the application of Rule 304 to some or all NMS Stock ATSs. We received three comments expressing the importance of the Commission’s need to heighten the regulatory requirements for all NMS Stock ATSs.153 In particular, one commenter states that the Commission’s additional disclosure requirements are important for creating a consistent and

154See UBS Letter at 2.
155See id.
156See CFA Institute Letter at 3.
157See STANY Letter at 2. See also Luminex Letter at 1. 158See STANY Letter at 2. 159National securities exchanges are subject to the same public rule filing and registration requirements irrespective of the volume transacted on the exchange. While an NMS Stock ATS may not transact significant overall volume in NMS stocks, that ATS may transact a significant volume of orders in certain NMS stocks or orders for certain subscribers. Additionally, we also believe that applying the enhanced regulatory requirements only to larger NMS Stock ATSs could create an opportunity for arbitrage without appropriate benefit, in that an NMS Stock ATS may be incentivized to structure their operations to avoid being subject to enhanced requirements. We believe that the burden of complying with the enhanced regulatory requirements imposed on lower volume NMS Stock ATSs is justified by the benefits. See infra Section X.D.4. 160One commenter expresses its concern that ‘‘small and innovative ATSs will be frustrated by the requirement that changes to their technology must be approved by the Commission prior to implementation.’’ See STANY Letter at 2. The Commission will not ‘‘approve’’ material amendments, but instead, may declare amendments ineffective if the disclosures filed by an NMS Stock ATS on Form ATS–N are materially deficient with respect to their completeness or comprehensibility. See infra Section IV.B.2. In addition, we are requiring that NMS Stock ATSs publicly disclose a brief summary of a material amendment upon filing, and after the Commission has had an opportunity to review the amendment, the material amendment would be made public. This change from the Proposal is in response to commenters who believe that an ATS may be placed at a competitive disadvantage if it is required to publicly file a material change 30 calendar days before implementing the change. See infra Section IV.E.2.c. 161See infra Section X.D.4. 162See infra Section V.C and Section X.C.4.a. 163See infra Section X.D.4. 164See supra note 58 and accompanying text. 165See infra Section IV.B.1.a. 166See, e.g., Anonymous Letter at 1, Citadel Letter at 1; Markit Letter at 4; STANY Letter at 3. 167See Anonymous Letter at 1; Citadel Letter at 1. 168See Markit Letter at 4; STANY Letter at 3. 169See Markit Letter at 4. 170See Proposal, supra note 2, at 81011. 171See id. fair set of obligations for all NMS Stock ATSs while providing market participants and subscribers with complete information.154 This commenter observes that although an ATS may have a small share of volume relative to the overall equities trading marketplace, it does not necessarily follow that such ATS has a similarly small share of each subscriber’s flow.155 Another commenter cautions the Commission about allowing exemptions based on metrics such as dollar volume, trading volume, or number of subscribers because allowing such exemptions could increase ‘‘incentives and opportunities’’ for regulatory arbitrage, and may result in
unintended consequences.156 On the other hand, one commenter argues that the Commission should take a tiered regulatory approach to NMS Stock ATSs by applying certain of the enhanced requirements only to larger NMS Stock ATSs.157 This commenter suggests that to foster competitive innovations among NMS Stock ATSs, the Commission should only apply the requirement of prior Commission ‘‘approval’’ of changes before they are implemented to ‘‘larger ATSs with a substantial market footprint.’’ 158 We continue to believe that requiring all NMS Stock ATSs to publicly file a Form ATS–N, irrespective of the volume of NMS stocks transacted on the ATS is appropriate, and does not agree that its objectives would be achieved by applying Rule 304 on a tiered basis to NMS Stock ATSs. Given that brokerdealers can route their customers’ orders to any NMS Stock ATS for execution, we do not believe that transaction volume in NMS stocks serves as a proxy for whether customers of broker-dealers or subscribers to an ATS should have information about how their orders would be prioritized, matched, or executed on an NMS Stock ATS or understand the ATS-related activities of the broker-dealer operator and its affiliates that may give rise to conflicts of interest.159 As a result, customers of broker-dealers that route their orders to NMS Stock ATSs with low volume will have the same level of information to assess their broker-dealers’ routing decisions as customers of broker-dealers that may route orders to any other NMS Stock ATSs. Amending Exchange Act Rule 3a1–1(a) to apply the requirements of Rule 304 to all NMS Stock ATSs would promote efficient and effective market operations by providing information all market participants can use to evaluate all NMS Stock ATSs that could be potential destinations for their orders. We believe that these requirements, including the requirement that NMS Stock ATSs file amendments to Form ATS–N in advance of adopting material changes,160 would not place an undue burden on smaller NMS Stock ATSs or their ability to innovate.161 Smaller NMS Stock ATSs that are not operated by multi-service broker-dealer operators and do not engage in other brokerage or dealing activities in addition to their ATS operations would have a lower burden than other ATSs because certain sections of Form ATS– N (such as several items of Part II) may not be applicable to these NMS Stock ATSs.162 We believe that the reduction in costs from exempting small NMS Stock ATSs would be minimal as compared to the benefits that would result from requiring the same level of transparency from small NMS Stock ATSs as from other NMS Stock ATSs.163 Further, under Regulation ATS, every ATS must currently wait 20 calendar days from the date of filing an amendment to Form ATS–N before implementing a material change to its operations.164 In addition, we believe that the new process for NMS Stock ATSs applicable to filing material amendments is appropriate,165 and, like the other
requirements of Rule 304, should be applied consistently across NMS Stock ATSs, regardless of their size or trading volume. The Commission review process for Form ATS–N amendments is designed to improve operational transparency for all market participants and not only for market participants that use NMS Stock ATSs with significant trading volume as compared to other NMS Stock ATSs. b. Comments on Effects on ATSs Relative to National Securities Exchanges We received comments regarding the competitive effect of Rule 304 on ATSs relative to national securities exchanges.166 Some commenters support public disclosure of Form ATS– N on the grounds that the current differences in transparency requirements for ATSs and national securities exchanges are competitively unfair.167 On the other hand, other commenters express concern about the competitive burden that the requirements of Rule 304 could place on ATSs.168 Specifically, one commenter states that not extending the enhanced transparency requirements to national securities exchanges may ‘‘result in a competitive advantage to exchanges.’’ 169 We believe that the new disclosure requirements for NMS Stock ATSs are not more rigorous than the disclosure standards for national securities exchanges and will not provide national securities exchanges with a competitive advantage over NMS Stock ATSs. National securities exchanges are required to publicly file proposed rule changes with the Commission to disclose, among other things, their manner of operations and fees.170 These proposed rules changes are subject to notice and comment from the public, as well as Commission consideration, pursuant to Section 19(b) and 17 CFR 240.19b–4 (Rule 19b–4).171 This is not the case for NMS Stock ATSs. Furthermore, Form ATS–N is designed to solicit information about ATS-related activities of the brokerdealer operator and its affiliates to help

172See Proposal, supra note 2, at 81042 n. 370– 372 and accompanying text. In cases where we have approved exceptions to this prohibition, there have been limitations and conditions on the activities of the national securities exchange and its affiliated member designed to address concerns about potential conflicts of interest and unfair competitive advantage. See id. at 81042 n.372. 173See STANY Letter at 3. 174See supra Section II.D. 175See infra Section X.C.2.a (discussing the economic benefits of the new disclosure requirements). See also Section X.C.4.a.i. 176See Morgan Stanley Letter at 3. 177See id. at 2–3. 178See Fidelity Letter at 4. 179See 15 U.S.C. 78f. An ATS is not required to comply with the requirements of Rule 301(b) if it is registered as an exchange under Section 6 of the Exchange Act. See 17 CFR 242.301(a)(1). 180See 17 CFR 240.19b–4(f)(2). Another commenter states that while Regulation ATS recognizes the distinction between national securities exchanges and ATS offerings, the regulatory structure tailored for national securities exchanges can be seen throughout much of the Proposal and proposed Form ATS–N, and included as examples the Proposal’s focus on disclosures regarding subscribers, subscriber manuals, and fees, as well as the public posting upon filing of amendments to Form ATS–N. See Morgan Stanley Letter at 3–4. This commenter believes this approach is contrary to the objectives of Regulation ATS and urges the Commission to reconsider aspects of the Proposal that have the effect of not recognizing the materially different roles that ATSs and exchanges are intended to play in the U.S. marketplace. See id at 4. We agree that registered broker-dealers that operate ATSs should continue to be able to avail themselves of the exemption from the definition of ‘‘exchange’’ provided by Exchange Act Rule 3a1–1 and Regulation ATS, but believe that due to changes in the role and operation of NMS Stock ATSs since the adoption of Regulation ATS, it is in the public interest to update the requirements for that exemption applicable to that subset of ATSs. Also many of the disclosure items identified by this commenter are the kinds of disclosures other commenters have described as significant to their understanding of the operation of NMS Stock ATSs. 181See infra Section V.D.19. 182See generally 15 U.S.C. 78s(b); 17 CFR 240.19b–4. 183See 15 U.S.C. 78f(b). market participants better understand potential conflicts of interest and information leakage. In the context of national securities exchanges, we have expressed concern that the affiliation of a national securities exchange with one of its members raises potential conflicts of interest, and the potential for unfair competitive advantage; and because the Commission reviews the rules of national securities exchanges, a process which requires, among other things, that to approve certain rule changes the Commission find that the proposed rule change is consistent with the Exchange Act,
each existing national securities exchange has implemented rules that restrict affiliation between the exchange and its members to mitigate the potential for these types of conflicts of interest.172 NMS Stock ATSs are not subject to such restrictions with respect to the activities of their broker-dealer operator and its affiliates that may raise conflicts of interests. Another commenter states its view that requiring public disclosure of Form ATS–N will ‘‘alter the competitive landscape . . . between NMS Stock ATSs and national securities exchanges.’’ 173 We continue to believe 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.174 The enhanced transparency requirements for NMS Stock ATSs are designed to allow market participants to compare execution services of NMS Stock ATSs against national securities exchanges, to appropriately calibrate the level of transparency between NMS Stock ATSs and national securities exchanges, and to foster even greater competition for order flow of NMS stocks between those trading centers.175 One commenter asserts that the Proposal treats all ATSs as stand-alone, exchange-like price/time priority models and fails to account for distinct ATS models (e.g. price/capacity/size priority and interval VWAP crossing) and does not consider that an ATS may be part of a broader, integrated electronic offering available to clients choosing to access the markets through a full-service broker-dealer.176 This commenter also states that while Regulation ATS recognizes the distinction between exchanges and ATS offerings, the regulatory structure specifically tailored for exchanges can be seen throughout much of the Proposal and proposed Form ATS–N, such as in the Proposal’s focus on:
Subscribers, in the way an exchange has members; a subscriber manual, in the way an exchange has a rule book; and fees, similar to an exchange fee
schedule.177
One commenter questions why the Commission has determined that NMS Stock ATSs should be subject to ‘‘essentially similar disclosure requirements’’ as national securities exchanges without affording NMS Stock ATSs benefits such as limited immunity and market data revenue that national securities exchanges receive.178 NMS Stock ATSs, unlike registered national securities exchanges, are registered as broker-dealers and exempt from the requirements of, among other provisions, Sections 6 and 19(b) of the Exchange Act. However, an NMS Stock ATS that desires the benefits afforded to national securities exchanges can choose to register as a national securities exchange under Section 6 of the Exchange Act 179 and be subject to the requirements of, among other provisions, Sections 6 and 19(b) of the Exchange Act. In addition, we do not agree with the commenter’s view that the disclosure requirements with which NMS Stock ATSs must comply are ‘‘essentially similar’’ to the disclosure requirements imposed on national securities exchanges. For example, a national securities exchange is required to file with the Commission all rule changes establishing or changing a due, fee, or other charge assessed to members, which the Commission reviews for consistency with the Exchange Act.180 In contrast, an NMS Stock ATS will be required to provide disclosure on the types of fees and charges of the NMS Stock ATS.181 Further, disclosure is only one of the requirements to which national securities exchanges are subject. Notably, the rules and changes to the rules of national securities exchanges are required to be filed with the Commission and are subject to public notice and comment.182 NMS Stock ATSs are not subject to these requirements, as well as many others, applicable to national securities exchanges.183 While NMS Stock ATSs and national securities exchanges are subject to different regulatory regimes, NMS Stock ATSs are trading centers that perform similar trading functions as national securities exchanges and have evolved to become more like national securities exchanges in their operations. We believe that Form ATS–N, as adopted, accommodates the differences between the regulatory requirements for national securities exchanges and those of NMS Stock ATSs while increasing public operational transparency for NMS Stock ATSs. The Commission does not agree that NMS Stock ATSs are being treated like national securities exchanges and believes that Form ATS–N is designed in a manner that allows ATSs to explain their unique business models. For example, NMS Stock ATSs will be able to explain their trading models, and associated facilities and procedures, in
Part III, Item 11 of adopted Form ATS–
N (‘‘Trading, Rules and Facilities’’). In addition, Part III, Item 19 (‘‘Fees’’) requires an NMS Stock ATS to identify and describe the types of fees or charges of the ATS and any differences among subscribers, whereas national securities exchanges are required to publicly post their complete fee schedules and any changes are subject to the SRO rule filing process under Section 19 of the

184See, e.g., infra Section V.D.11 (describing Part III, Item 11 of Form ATS–N, which asks NMS Stock ATSs to provide a summary of their marketplaces and the means and facilities for bringing together the orders of multiple buyers and sellers on the NMS Stock ATS). 185See infra Section IV.A.1. As adopted, the Commission will not declare initial Form ATS–N filings effective under Rule 304. 186See Citadel Letter at 3; HMA Letter at 7–8; and Investor Advocate Letter at 11–12. 187See MFA/AIMA Letter at 4; CFA Institute Letter at 4; and PDQ Letter at 2. Two commenters do not object to the effectiveness process. See Liquidnet Letter at 3 and STANY Letter at 2. 188See Luminex Letter at 1; Fidelity Letter at 8– 9. 189See Luminex Letter at 1. 190See Fidelity Letter at 8–9. 191See supra note 189 and accompanying text. 192See infra Sections IV.A.3.c and IV.A.4.a. 193See id. 194See infra Section X.C. 195See supra note 190 and accompanying text. See also infra Section IV.A.3.d. 196See supra note 190 and accompanying text. 197See infra Section X.C.4. 198See infra Section IV.A.3. 199The term ‘‘U.S. Government securities’’ is defined under Section 3(a)(42) of the Exchange Act. See 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’’). 200For purposes of this discussion, we are 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). 201See Proposal, supra note 1, at 81018. 202See Proposal, supra note 2. See also infra note 668 and accompanying text (discussing the term ‘‘trading center’’). 203For purposes of this discussion, references to non-ATS OTC trading centers, as used herein, encompass all executions that occur off a national securities exchange and outside 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, Exchange Act. The Commission also understands that some broker-dealer operators offer their NMS Stock ATSs along with other execution and routing services. We believe that requests on Form ATS–N are appropriately designed, and provide narrative flexibility, to elicit information about the varying NMS Stock ATS models, including those of multi-service brokerdealers.184
c. Comments on Effectiveness
Requirement
We proposed that to qualify for the exemption from the definition of ‘‘exchange,’’ an NMS Stock ATS’s Form ATS–N must be declared effective by the Commission; as adopted, a Form ATS–N must be effective for the ATS to qualify for the exemption.185 Several commenters express their support for requiring that Form ATS–N be subject to Commission review,186 and some commenters support the proposed requirement that Form ATS–N be declared effective by the Commission,187 while other commenters raise concerns about requiring that Form ATS–N be declared effective by the Commission.188 One commenter states that the proposed effective/ineffective process is ‘‘unnecessary’’ and ‘‘will have a chilling effect’’ on, or stifle innovation of, ATS operations.189 Another commenter similarly questions the need for the Commission to make a determination of effectiveness for Form ATS–N, and expresses concern that such a process would increase the regulatory risk for new NMS Stock ATSs and stifle innovation in the ATS marketplace by delaying the effectiveness of NMS Stock ATSs whose features, while meeting regulatory requirements, do not meet industry norms.190 We do not believe that requiring Form ATS–N to become effective after Commission review is ‘‘unnecessary;’’ 191 rather, the review process will facilitate the Commission’s oversight of NMS Stock ATSs and help ensure that information required by the form is disclosed in a complete and comprehensible manner. We have modified the proposed effectiveness process for initial Form ATS–N so that the Commission will not declare initial Form ATS–N effective; instead, initial Form ATS–N, as amended, will become effective, unless declared ineffective, upon the earlier of: (1) The completion of review by the Commission and publication pursuant to Rule 304(b)(2), or (2) the expiration of the Commission review period, or, if applicable, the extended review period.192 Form ATS– N will nevertheless be subject to Commission review, and, as proposed, the Commission may declare a Form ATS–N ineffective if it finds, after notice and opportunity for hearing, that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors.193 We believe that requiring Form ATS–N to be effective, which would occur only after being subject to Commission review, could incentivize NMS Stock ATSs to make more detailed and informative disclosures than under current Form ATS. While requiring Form ATS–N to be effective may have some impact on innovation,194 our review of Form ATS–N is designed to mitigate any effect on innovation, and accordingly would focus on, for example, the completeness and comprehensibility of the Form ATS–N disclosures and not include a review of the merits of the disclosures or whether such trading functionalities meet industry norms.195 We do not believe that requiring Form ATS–N to be effective will unduly increase the ‘‘regulatory risk’’ of launching a new NMS Stock ATS as one
commenter suggests.196 We understand that the Commission review process will generate some uncertainty for NMS Stock ATSs as a Form ATS–N could be declared ineffective, which is not currently the case with respect to Form ATS.197 The Commission review process, however, will not be merit based, and determinations of ineffectiveness will require the Commission to make certain findings after notice to the NMS Stock ATS and opportunity for hearing.198 In addition, the rule provides that if the Commission does not declare the Form ineffective before the end of a fixed time period, the Form ATS–N will become effective. We believe that these factors will provide NMS Stock ATSs with greater regulatory certainty regarding the effectiveness process.
2. Comments on Extending Rule 304 to
Non-NMS Stock ATSs
Rule 304 of Regulation ATS, as proposed and adopted, would apply only to NMS Stock ATSs, as defined in Rule 300(k) of Regulation ATS. We are concerned that, given the significance of NMS Stock ATSs in equity market structure and their operational complexities, the lack of transparency around NMS Stock ATSs operations could inhibit market participants’ ability to evaluate NMS Stock ATSs as potential routing destinations for their orders in NMS stocks. As discussed in the Proposal, we did not propose to apply Rule 304 to non-NMS Stock ATSs, which would include ATSs that trade corporate or municipal fixed income securities (‘‘Fixed Income ATSs’’), U.S. Government securities (‘‘Government Securities ATSs’’),199 or OTC Equity securities (‘‘OTC Equity Securities ATSs’’).200 We sought comment on whether Rule 304, in whole or in part, should apply to Fixed Income ATSs, Government Securities ATSs, and OTC Equity Securities ATSs.201 We also did not propose to apply Rule 304 to any other type of trading center besides NMS Stock ATSs,202 such as non-ATS OTC trading centers 203 or national securities exchanges.

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 13, at 3599–3600. 204See Better Markets Letter at 3, 8; CFA Institute Letter; Citadel Letter; Consumer Federation of America Letter at 6–7; Fidelity Letter at 6–7; HMA Letter at 5–6, 10, 12; ICI Letter at 11; Investor Advocate Letter at 2, 12–15; KCG Letter at 12–13; Liquidnet Letter at 3; Luminex Letter at 2, 4; MarketAxess Letter; Markit Letter at 2, 4, 9; MFA/ AIMA Letter 2–4; MFA Letter 2 at 30; Morgan Stanley Letter at 5–6; PDQ Letter at 2; SIFMA Letter at 3, 5; STANY Letter at 5; T. Rowe Price Letter at 2; Virtu Letter at 2. 205See Fidelity Letter at 7; ICI Letter at 11; Luminex Letter at 2; Morgan Stanley Letter 2, 5; Investor Advocate Letter at 2–3; PDQ Letter at 2; STANY Letter at 3; SIFMA Letter at 3–4. 206See Better Markets Letter at 3, 8; CFA Institute Letter at 3–4; Consumer Federation of America Letter at 6–7; HMA Letter 5–6, 10, 12. 207See ICI Letter at 11; Liquidnet Letter at 3. 208See Consumer Federation of America Letter at 6; Better Markets Letter at 8; CFA Institute Letter at 3–4; HMA Letter at 10; MFA/AIMA Letter at 2– 3. 209See Fidelity Letter at 6–7; KCG Letter at 12– 13; Liquidnet Letter at 3; MarketAxess Letter at 3– 4 ; Markit Letter at 9; SIFMA Letter at 3. 210See Fidelity Letter at 6; SIFMA Letter at 34– 35; Markit Letter at 9; Investor Advocate Letter at 12–16; ICI Letter at 11. See also Luminex Letter at 4. 211See Better Markets Letter at 8; CFA Institute Letter at 3–4; Citadel Letter at 4–5; Investor Advocate Letter at 16–17; KCG Letter; Liquidnet Letter at 3; MFA/AIMA Letter at 2–7; SIFMA Letter at 3, 5, 35–36; Virtu Letter at 2. 212Some commenters specifically support operational transparency and enhanced monitoring of trading activity for Government
Securities ATSs. See Virtu Letter at 2; Better Markets Letter at 8; CFA Institute Letter at 3–4; Citadel Letter at 4–5; MFA/ AIMA Letter at 2–7. See also Liquidnet Letter at 3 (stating that it does ‘‘not object’’ to the requirements of Regulation ATS applying to systems that cross trades in U.S. Government securities). 213See Citadel Letter at 4–5; Liquidnet Letter at 3; Investor Advocate Letter at 16–19; Virtu Letter at
2. One commenter combined its support for
transparency of ATSs that trade U.S. Government securities and Fixed Income ATSs. See MFA/AIMA Letter at 3–4 214See SIFMA Letter at 34–35; Markit Letter at 9; Investor Advocate Letter, at 14. See also Fidelity Letter at 6. 215See KCG Letter at 13; SIFMA Letter at 3, 5, 36. 216See supra note 209 accompanying text. 217See ICI Letter at 12; Morgan Stanley Letter at 2–3. 218See id. See also Fidelity Letter at 11–12. Another commenter recommends that the Commission be required to conduct a review within a designated time-period to assess the effectiveness of the new rules and determine if any refinements should be proposed. See T. Rowe Price Letter at 3. In addition, one commenter suggests that regulators periodically monitor the development of the market and technological developments, and take appropriate action as needed. See Barnard Letter at
3. In addition to the Commission’s ongoing
oversight responsibilities under the Exchange Act, Rule 304 provides a process for the Commission to review disclosures filed on Form ATS–N, either through an initial Form ATS–N, Form ATS–N amendment, or cessation of operations. 219See 5 U.S.C.—App; Securities Exchange Act Release No. 81958 (October 26, 2017), 82 FR 50460 (October 31, 2017) (Notice of Federal Advisory Committee Establishment). 220See Recommendation for the SEC to Review the Framework for the Oversight of Electronic Trading Platforms for Corporate and Municipal Bonds (July 16, 2018) available on the Commission’s website at https://www.sec.gov/ spotlight/fixed-income-advisory-committee/fimsacelectronic-trading-platforms-recommendation.pdf. We received several comments generally supporting operational transparency and about whether or not to apply Rule 304 to non-NMS Stock ATSs.204 Of the commenters generally supporting enhanced operational transparency, several encourage the Commission to make the current Form ATS public for all ATSs.205 Some commenters urge the Commission to amend Regulation ATS to apply Rule 304 to all ATSs.206 Two commenters explicitly support applying the Proposal solely to NMS Stock ATSs.207 Several commenters specifically argue for extending Rule 304, including Form ATS–N, to Fixed Income ATSs.208 Several commenters, however, recommend against extending the Proposal requirements for NMS Stock ATSs to Fixed Income ATSs.209 Several commenters suggest that the Commission require Fixed Income ATSs to make their Forms ATS public.210 We also received several comments that specifically address enhancing operational transparency for, or extending Rule 304 to, Government Securities ATSs.211 Several commenters support applying Rule 304 requirements to Government Securities ATSs,212 while several state that Regulation ATS should be amended to include electronic platforms for U.S. Government securities.213 Other commenters believe that the Commission should gather additional information on fixed income markets, which include U.S. Government securities markets, and as an interim step, make the Form ATS filings for these ATSs public.214 We also received comments that specifically oppose applying the Proposal requirements to Government Securities ATSs,215 or more generally oppose expanding Rule 304 to non-NMS Stock ATSs.216 We also received comments regarding enhancing operational transparency for other non-ATS OTC trading centers— namely broker-dealers that internalize order flow.217 In general, these commenters point out the discrepancy in disclosure obligations that would result from the Proposal, or the possibility that broker-dealers would route order flow to non-ATS trading centers as a result.218 Given the range of commenter views on these questions and our belief that it is appropriate to take an incremental approach by first applying the amended regime to NMS Stock ATSs before considering a further step, we are not amending Rule 3a1–1(a) and Regulation ATS for
non-NMS Stock ATSs. We intend to monitor the implementation and effectiveness of Rule 304 to NMS Stock ATSs, and should we decide to take further action with respect to nonNMS Stock ATSs, we would do so in a separate rulemaking and take into account our experience with Rule 304 and NMS Stock ATSs. The Commission notes that the Fixed Income Market Structure Advisory Committee (‘‘FIMSAC’’) was formed in 2017 pursuant to the Commission’s authority under the Federal Advisory Committee Act to provide the Commission with diverse perspectives on the structure and operations of the U.S. fixed income markets, as well as advice and recommendations on matters related to fixed income market structure.219 The FIMSAC recently issued recommendations for the Commission to review the framework for the oversight of electronic trading platforms for municipal securities and corporate bonds. Specifically, the FIMSAC recommended that the Commission form, together with FINRA and the MSRB, a joint working group to review the regulatory framework for oversight of electronic trading platforms used in the municipal securities and corporate bond markets.220 In light of recent recommendations of the FIMSAC, and comments received, we will review the regulatory framework for fixed income electronic trading platforms, including to consider whether we should propose amendments to Regulation ATS (and any other applicable rules) to account for operational and regulatory differences among electronic trading

221We believe that the concept of NMS Stock ATSs ‘‘trading’’ or ‘‘transacting’’ in NMS stocks, should be familiar to existing NMS Stock ATSs as Form ATS requires disclosure regarding, among other things ‘‘the types of securities the [ATS] trades’’ and ‘‘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].’’ See Form ATS. Additionally, Form ATS requires disclosure regarding ‘‘[t]he procedures governing execution, reporting, clearance and settlement of transactions effected through the [ATS]’’; and Form ATS–R requires NMS Stock ATSs to ‘‘[p]rovide the total unit and dollar volume of transactions’’ in specified securities categories. See Form ATS and Form ATS–R. 222As proposed, an NMS Stock ATS would include any ATS that effects transactions in securities that are listed on a national securities exchange (other than options, debt or convertible debt). See Proposal, supra note 2, at 81015–81016. 223ATSs that are not subject to Rule 301(a) include those that are: Registered as an exchange under Section 6 of the Exchange Act; exempt from national securities 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 are banks, and that limit their securities activities to certain instruments; or exempted, conditionally or unconditionally, by Commission order, after application by such ATS 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 3, at 70859–63. 224See 17 CFR 242.301(a)(5). 225Regulation ATS Adopting Release, supra note 3, at 70863. 226The Commission continues to also have general exemptive authority pursuant to Section 36(a) of the Exchange Act to grant both conditional and unconditional exemptions from any provisions or provisions of the Exchange Act, or any rule or regulation thereunder (including Rule 304 and any other provision of Rule 3a1–1 and Regulation ATS), to the extent necessary or appropriate in the public interest and consistent with the protection of investors. See 15 U.S.C. 78mm(a). 227See Investor Advocate Letter at 8. 228See id. See also infra notes 723–725 and accompanying text (discussing this comment in the specific context of disclosures regarding affiliates of the broker-dealer operator). 229See Investor Advocate Letter at 9. For example, in the context of any exemptions from the requirements applicable to disclosures regarding affiliates of the broker-dealer operator of an NMS Stock ATS, the commenter encouraged the Commission to consider providing guidance as to what facts and circumstances it might consider when evaluating a broker-dealer operator’s request for exemptive relief. See id. See also infra notes 723–725 and accompanying text. platforms for municipal securities and
corporate bonds. B. Amendments to Existing Regulation ATS Rules for NMS Stock ATSs To operate pursuant to the Exchange Act Rule 3a1–1a(2) exemption, NMS Stock ATSs will be required to comply with new Rule 304, in addition to the applicable existing Rules 300 through 303 of Regulation ATS. In light of the new requirements of Rule 304, we are adopting, with modifications discussed below, amendments to several existing rules of Regulation ATS.

Rule 300(k): Definition of NMS Stock
ATS
Proposed Rule 300(k) of Regulation ATS defined ‘‘NMS Stock ATS’’ in new paragraph (k) as ‘‘an alternative trading system, as defined in § 242.300(a), that facilitates transactions in NMS stocks, as defined in § 242.300(g).’’ We received no comments on the proposed definition of NMS Stock ATS and are adopting Rule 300(k) with modifications. We are replacing ‘‘facilitates transactions in’’ with ‘‘trades.’’ The term ‘‘trades’’ is well understood in the context Regulation ATS 221 and the term ‘‘facilitates’’ is not used in the definition of an ATS. This change is non-substantive and will clarify the rule text.222 Accordingly, Rule 300(k), as adopted, defines an ‘‘NMS Stock ATS’’ as ‘‘an alternative trading system, as defined in paragraph (a) of [Rule 300], that trades NMS stocks, as defined in paragraph (g) of [Rule 300].’’
Rule 301(a): Exemption From
Compliance With Regulation ATS We made explicit in proposed Rule 304(a) that NMS Stock ATSs must comply with Rules 300 through 304, unless not required to comply with Regulation ATS pursuant to Rule 301(a). Pursuant to Rule 301(a), certain ATSs that are subject to other appropriate regulations are not required to comply with Regulation ATS.223 To the extent that an NMS Stock ATS meets the criteria of the Rule 301(a) exemption, such ATS would not be required to comply with Rules 300 through 304 of Regulation ATS. We received no comments on the application of Rule 301(a) to NMS Stock ATSs and are adopting as proposed this language in Rule 304(a) to make clear that Rules 300 through 303 of Regulation ATS, including Rule 301(a) continue to apply to NMS Stock ATSs, unless otherwise provided by Rule 301(a).
Rule 301(a)(5): Exemptions From
Certain Requirements of Regulation ATS Pursuant to Application to the Commission Rule 301(a)(5) of Regulation provides that an ATS shall comply with the requirements of Rule 301(b) unless such ATS is exempted, conditionally or unconditionally, by Commission order after application by such ATS, from one or more of the requirements of Rule 301(b), and that the Commission will grant such exemption only after determining that such an order is consistent with the public interest, the protection of investors, and the removal of impediments to, and perfection of, a national market system.224 When adopting Rule 301(a)(5), we stated that while the requirements of Regulation ATS are appropriate for all ATSs, a system may develop in the future for which these requirements may not be appropriate. The Commission expected to issue such an order only under unusual circumstances, and only after making the applicable determination.225 The requirements of Rule 304 were not part of Regulation ATS at the time the Commission adopted Rule 301(a)(5). We believe that, given the amendments to Regulation ATS that will require NMS Stock ATSs to comply with the filing requirements of Rule 304, including filing Form ATS–N, instead of the Form ATS filing requirements of Rules 301(b)(2)(i)–(vii), it may be appropriate under certain limited, unusual facts and circumstances for the Commission to exempt an NMS Stock ATS, conditionally or unconditionally, by Commission order, from one or more requirements of Rule 304. As such, we are amending Rule 301(a)(5) to include exemptions from the requirements of Rule 304.226 In response to the Proposal, we received one comment regarding possible use of the Commission Section 36 exemptive authority in connection with the requirements of Rule 304.227 This commenter states that instead of modifying the requirements under the Proposal in such a way that could result in less relevant information being provided to the Commission and to the public, certain concerns of other commenters could be addressed through use of the Commission’s Section 36 exemptive authority. Specifically, this commenter observes that an NMS Stock ATS could seek relief tailored to its unique facts and circumstances pursuant to Section 36(a)(1) of the Exchange Act, and that Section 36(a)(1) permits the Commission to grant both conditional and unconditional exemptions from any provisions of a rule, to the extent necessary or appropriate in the public interest and consistent with the protection of investors.228 This commenter also states that using Section 36 exemptive authority would be consistent with the manner in which the Commission generally treats requests it receives from regulated entities, and encourages the Commission to consider providing guidance as to what factors it might consider when evaluating a request for specific exemptive relief.229 We believe that amendments made to Rule 301(a)(5) make clear that the Commission could

230See HMA Letter at 10; SIFMA Letter at 31; KCG Letter at 10. 231See SIFMA Letter at 31. 232See id. 233See KCG Letter at 10. The commenter states that, for example, if a broker-dealer operator provides a disclosure that it routes orders to the ATS from its algorithmic business, and the data center from which the algorithmic business operates subsequently experiences systems issues that force it to stop routing orders to the ATS, the disclosure would no longer be accurate and the broker-dealer operator would not be in position to provide 30-calendar day advance notice of the change. 234See HMA Letter at 10. 235As amended, Rule 301(a)(5) will apply to ATSs that have received exemptive relief from one or more requirements of Rule 304. See Rule 301(a)(5). 236Applications for exemptive relief from the 30- calendar day advance notice requirement of Rule 304(a)(2)(i)(A) generally should, for example, contain a description of the circumstances that necessitate the implementation of the material change on an expedited basis, and why, in the view of the NMS Stock ATS, expedited implementation is necessary or appropriate in the public interest, and consistent with the protection of investors, such as why the expedited implementation is necessary to prevent substantial harm to investors. The Commission will not consider hypothetical or anonymous requests for exemptive relief. 237See Rule 301(b)(2)(vii). 238See Liquidnet Letter at 3. We received two comments regarding the application of Rule 301(b)(2)(i) through (vii) to Legacy NMS Stock ATSs that have filed a Form ATS–N that has not yet become effective. See Liquidnet Letter at 3; BIDS Letter at 2–3. We are adopting a transitional rule that will not require a Legacy NMS Stock ATS to amend its Form ATS under Rule 301(b)(2) if it has filed a Form ATS–N with the Commission that has not yet become effective. We are instead requiring such Legacy NMS Stock ATS to file amendments on Form ATS–N pursuant to the requirements of Rule 304(a)(2)(i)(A) through (C). Rule 304(a)(1)(v)(C) is discussed below in greater detail. See infra
Section IV.A.4.c.
239See Liquidnet Letter at 3. exempt an NMS Stock ATS, conditionally or unconditionally, by order, after application by the ATS from one or more of the requirements of Rule 304 of Regulation ATS provided that the Commission determines that such an exemption is consistent with the public interest, the protection of investors, and removal of impediments to, and perfection of the mechanisms of, a national market system. We also received other comments regarding specific exceptions from the proposed requirements of Rule 304. Specifically, three commenters suggest providing an exception to the 30- calendar day advance notice requirement for material changes in case of exigent circumstances.230 One commenter states that unless the Commission narrows the materiality standard for material amendments, the 30-calendar day advance notice requirement could affect an ATS operator’s ability to take ‘‘decisive action.’’ 231 This commenter further believes that NMS Stock ATS operators often must take decisive action without time for a lengthy review and approval process, given that the speed of response to technical or operational issues (including cybersecurity) often is measured in seconds. This commenter believes there should be a carve-out for exigent circumstances when an NMS Stock ATS must act swiftly.232 Another commenter states that there could be situations in which it would be difficult for an NMS Stock ATS to meet the 30- calendar day advance notice requirement based on ongoing business changes, and that the Commission should clarify that certain Form ATS–N disclosures may be subject to immediate change without notice.233 Another commenter states that the Commission should allow for more rapid action (than the 30-day advance notice requirement) in the event of an ‘‘external emergency,’’ such as an extreme market event, but that such circumstances should be rare and only granted upon express approval of the Commission, upon a finding that such action is necessary to protect investors and promote fair and efficient markets.234 We believe that there may be unusual circumstances under which an NMS Stock ATS may need to seek an exemption from the requirements of Rule 304 or the disclosure requirements of Form ATS–N. For example, under exceptionally rare occasions, an NMS Stock ATS may need to make a material change to its operations on an expedited basis to prevent substantial harm to market participants, such as in response to a significant operational or marketwide event. The amendments to Rule 301(a)(5) are designed to address these concerns.235 Applications for relief from a requirement of Rule 304 generally should explain why the applicant believes the relief sought is consistent with the public interest, the protection of investors, and the removal and impediments to, and perfection of the mechanism of, a national market system.236 As noted by commenters, circumstances may necessitate the implementation of a material change to the operations of an
NMS Stock ATS on an expedited basis. We believe that, based on particular facts and circumstances, it may be appropriate to grant such an exemption from the 30- day advance notice requirement of Rule 304(a)(2)(i)(A), for example, in the event of extraordinary, unforeseen circumstances, and if delaying implementation pursuant to the 30- calendar day advance notice requirement would cause substantial harm to subscribers or other markets trading NMS stocks. By comparison, to the extent that an NMS Stock ATS may need to change its operations in response to an operational problem, as suggested by one commenter, an NMS Stock ATS could proactively develop and disclose in the relevant Form ATS– N Item alternative procedures that the ATS would apply if the ATS experiences a systems problem that causes it to be unable to perform a particular function. For example, an NMS Stock ATS that routes orders and trading interest resting in the ATS to destinations outside the ATS could state, for example, that the NMS Stock ATS will either execute or cancel orders and trading interest submitted to the ATS if the ATS is unable to route orders and trading interest away from the ATS due to a systems problem.
4. Rule 301(b)(2): Form ATS Reporting
Requirements No Longer Apply to NMS Stock ATSs We proposed in Rule 304 to except NMS Stock ATSs from complying with Rule 301(b)(2) of Regulation ATS. 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.’’ 237 We proposed this exception to make clear that NMS Stock ATSs would not be required to comply with the Form ATS reporting requirements provided in Rule 301(b)(2) because the NMS Stock ATS would file a Form ATS–N pursuant to Rule 304. We also proposed Rule 301(b)(2)(viii) to make clear that NMS Stock ATSs must file with the Commission the reports and amendments required by Rule 304 and that NMS Stock ATSs were not subject to Rule 301(b)(2) of Regulation ATS. We also proposed that ATSs that effect 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. We received one comment regarding proposed Rule 301(b)(2)(viii).238 The commenter states that requiring an ATS that transacts in both NMS stocks and non-NMS Stocks to file reports on Form ATS–N with respect to NMS stocks but also file reports on Form ATS with respect to non-NMS stocks could be unduly burdensome.239 The commenter states that an ATS should have the option to file reports on Form ATS–N

240See id.
241An ATS that trades both NMS stocks and nonNMS stocks will be required to amend its Form ATS, after the ATS files Form ATS–N, by removing information that pertains solely to the ATS’s NMS stock operations. Amending Form ATS in this manner should help ensure that the Form ATS accurately describes the ATS’s non-NMS stock operations. 242See Liquidnet Letter at 3. 243See supra Section III.A. 244For example, Rule 611 of Regulation NMS, which requires a trading center to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent trade-throughs on that trading center, subject to certain exceptions, applies only to protected quotations in NMS stocks, and not to non-NMS stocks. See 17 CFR 242.611. 245See supra Section III.A. 246See infra Section IV.A.4. 247To reduce redundancy, we are revising the proposed rule text to state that the Legacy NMS Stock ATS must file ‘‘reports’’ (rather than ‘‘the reports and amendments’’) required by Rule 304. Rule 304(b)(1) provides that every Form ATS–N, which will include every amendment filed on Form ATS–N, shall constitute a ‘‘report’’ within the meaning of sections 11A, 17(a), 18(a), and 32(a) (15 U.S.C. 78k–1, 78q(a), 78r(a), and 78ff(a)), and any other applicable provisions of the Exchange Act. 248See Proposal, supra note 2, at 81022–24, 81027–31. Without this modification, Rule 301(b)(2)(viii) could be interpreted, contrary to the Commission’s intention, to except an NMS Stock ATS from compliance with all of Rule 301(b)(2), including Rule 301(b)(2)(viii) itself. 249EDGAR will be ready to accept Form ATS–N filings on January 7, 2019, and we have conformed Rule 301(b)(2)(iii) to be consistent with the EDGAR ability to accept Form ATS–N filings. 250See infra Section IV.A.1 (discussing the filing requirements for new NMS Stock ATSs). 251See infra Section IV.A.4.a. for all U.S. equities that it trades, whether listed or unlisted because an ATS operator would otherwise have the burden of maintaining two separate ATS filings for what the commenter believes is essentially the same functionality.240 We do not believe that requiring an ATS that trades both NMS stocks and non-NMS stocks to file reports on Form ATS–N with respect to NMS stocks, but also file reports on Form ATS with respect to non-NMS stocks, will be unduly burdensome. We recognize the additional burdens for NMS Stock ATSs resulting from the requirement to file disclosures on new Form ATS–N; however, we estimate that the burden for these ATSs to maintain their Forms ATS will decrease, because they will no longer be required to disclose information about their NMS stock operations on Form ATS.241 We also believe that allowing a broker-dealer operator to choose to disclose information on Form ATS–N about trading in non-NMS stocks, as suggested by the commenter,242 would likely result in incomplete disclosures about the ATS’s non-NMS stock operations that may be confusing or not useful to market participants. Form
ATS–N was specifically designed to solicit information about trading in NMS stocks on an ATS to allow market participants to understand the ATS’s NMS stock operations and readily compare the ATS against other ATSs and national securities exchanges that trade NMS stocks.243 While many of the requests on Form ATS–N could apply to Fixed Income ATSs or Government Securities ATSs, the requests are not fully tailored to solicit information about trading in those types of securities and the systems that trade them. For example, transactions in NMS stocks are, in some cases, subject to different federal securities laws and Commission rules than transactions in other securities, such as fixed income securities.244 Because Form ATS–N is specifically designed for NMS Stock ATSs, subscribers relying on Form ATS–N disclosures to assess a non-NMS Stock ATS, such as one that trades fixed income securities, as a potential trading venue may not receive a complete or comprehensible understanding of the ATS’s fixed income operations, or fixed income activities of the broker-dealer operator and its affiliates as such activities relate to the ATS, because Form ATS–N does not solicit such information. We believe that allowing NMS Stock ATSs to choose whether to integrate information about trading in non-NMS stocks on a Form ATS–N could make the disclosures confusing for users and make it difficult for them to compare the operations of an NMS Stock ATS against other NMS Stock ATSs. Because we are adopting rules that require NMS Stock ATSs to file Form ATS–N pursuant to Rule 304, we are adopting Rule 304(a) with modifications to provide that an NMS Stock ATS would specifically be excepted from compliance with Rules 301(b)(2)(i) through (vii) of Regulation ATS, which govern the filing of Form ATS.245 An NMS Stock ATS that is operating pursuant to an initial operation report on Form ATS as of January 7, 2019 (‘‘Legacy NMS Stock ATS’’) will be required to file a Form ATS–N no earlier than January 7, 2019 and no later than February 8, 2019.246 We are also adopting Rule 301(b)(2)(viii) to provide for how Legacy NMS Stock ATSs transition from filing a Form ATS to filing a Form ATS–N. We are defining the term ‘‘Legacy NMS Stock ATS’’ to mean an NMS Stock ATS that is operating pursuant to an initial operation report on Form ATS as of January 7, 2019. We are also replacing proposed language that stated that an NMS Stock ATS would not be subject to the requirements of Rule 301(b)(2) with language stating that a Legacy NMS Stock ATS shall be subject to the Form ATS filing requirements of Rule 301(b)(2)(i) through (vii) until the Legacy NMS Stock ATS files an initial Form ATS–N with the Commission pursuant to Rule 304(a)(1)(iv)(A), and that thereafter, the Legacy NMS Stock ATS shall file reports 247 pursuant to Rule 304(a)(1)(iv)(A). We intended in the Proposal to except a Legacy NMS Stock ATS from compliance with Rule 301(b)(2)(i) through (vii) after it filed Form ATS–N, but also
intended that a Legacy NMS Stock ATSs be subject to Rule 301(b)(2)(viii), which requires NMS Stock ATSs to file reports required by Rule 304.248 We believe that this modification will make clear that, until a Legacy NMS Stock ATS files its Form ATS–N with the Commission, the Legacy NMS Stock ATS must amend Form ATS in compliance with Rule 301(b)(2) of Regulation ATS. We are also including language in Rule 301(b)(2)(viii) stating that as of January 7, 2019, an entity seeking to operate as an NMS Stock ATS shall not be subject to the ATS filing requirements of Rule 301(b)(2)(i) through (vii) and shall file reports pursuant to Rule 304.249 Rule 301(b)(2)(viii) describes the reporting obligations of Legacy NMS Stock ATSs, and we believe that this additional language will make clear that NMS Stock ATSs must file an initial Form ATS–N, and that they do not need to comply with Rule 301(b)(2)(i) through (vii) and therefore should not file Form ATS.250 We recognize that an entity may wish to start operating as an NMS Stock ATS between the time the final rule is adopted and January 7, 2019. During that time, an entity must file an initial operation report on Form ATS and comply with Rule 301(b)(2); after January 7, 2019, the ATS, which would operate as a Legacy NMS Stock ATS, must file an initial Form ATS–N between January 7, 2019 and February 8, 2019 pursuant to Rule 304(a)(1)(iv)(A).251 As of January 7, 2019, an entity that seeks to operate as an NMS Stock ATS must comply with Rule 304 (and not with Rules 301(b)(2)(i) through (vii)) and file an initial Form ATS–N with the Commission. We are adopting, with a nonsubstantive modification, the proposed Rule 301(b)(2)(viii) requirement that an ATS that effects transactions in both NMS stocks and non-NMS stocks be subject to the requirements of new Rule 304 with respect to NMS stocks and

252This modification is being made for clarity and consistency with the Rule 300(k) definition of NMS Stock ATS. See supra Section III.B.1. 253See 17 CFR 242.301(b)(2)(i) and (vii), respectively. 254See 17 CFR 242.301(b)(9). 255See Regulation ATS Adopting Release, supra note 3, at 70878. The information filed on Form ATS–R permits the Commission to monitor trading on an ATS. 256We did not propose any other changes to Rule 301(b)(9). Form ATS–R would continue to be deemed confidential. 257See supra note 15. 258See SIFMA Letter at 8 n.16. 259Form ATS–R requires ATSs to provide, among other things, trading volumes, a list of all subscribers that were participants of the ATS, and a list of all securities traded. The information on Form ATS–R permits the Commission to monitor ATSs for compliance with the fair access requirements of Rule 301(b)(5), as ATSs subject to those requirements must report quarterly on Form ATS–R the persons to whom they grant, deny, or limit access to the ATS, as well as the date of the action, the effective date of the action, and the nature of the denials of limitations of access. See Form ATS–R; see also Regulation ATS Adopting Release, supra note 3, at 70878. 260See HMA Letter at 11 n.64. 261See supra Section X.D.6. 262See supra Section III.B.4. 263See infra Section IV. 264 17 CFR 242.301(a). 265See Proposal, supra note 2, at 81087. 266See 17 CFR 242.301(b)(8). 267See 17 CFR 242.302. 268See 17 CFR 242.303. 269See 17 CFR 242.303(a)(1). 270See id. 271See supra notes 77–81 and accompanying text. 272See supra notes 72–75 and accompanying text. 273See 17 CFR 242.303(a)(2). 274See 17 CFR 242.301(b)(2). 275See supra notes 72–75 and accompanying text. 276See 17 CFR 242.301(b)(2). 277See 17 CFR 242.303(a)(2)(ii). Rule 301(b)(2) with respect to non-NMS stocks. We are modifying the requirement to replace ‘‘effects transactions in’’ with ‘‘trades.’’ As adopted, Rule 301(b)(2)(viii) requires that an ATS that trades both NMS stocks and non-NMS stocks be subject to the requirements of new Rule 304 with respect to NMS stocks and Rule 301(b)(2) with respect to non-NMS stocks.252 By adopting Rule 304 and Form ATS–N, we believe it has addressed concerns raised by NMS Stock ATSs, as discussed above and in the Proposal, but that applying Rule 304 to the non-NMS Stock ATS 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. Finally, we are adopting as proposed nonsubstantive amendments to Rule 301(b)(2)(i) and Rule 301(b)(2)(vii) 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.253
5. Rule 301(b)(9): Form ATS–R
Quarterly Reports
We also proposed to amend Rule 301(b)(9) of Regulation ATS,254 which provides that an ATS shall report transaction volume on Form ATS–R on a quarterly basis and within 10 calendar days after it ceases operation,255 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.256 We received two comments regarding Form ATS–R. One commenter states that in light of information on FINRA’s website regarding ATSs,257 and the detailed disclosures in periodic disclosures required by Form ATS–N, the Commission should no longer require an NMS Stock ATS to file Form ATS–R.258 We are not amending Regulation ATS at this time to remove the requirement for NMS Stock ATSs to file Form ATS–R. Notwithstanding the disclosure on FINRA’s website of certain volume information for ATSs that trade NMS stocks, we continue to believe that the form helps the Commission oversee and monitor the trading activity of NMS Stock ATSs, because Form ATS–R provides the Commission with information that is unavailable on the FINRA website.259 Another commenter states that to alleviate burdens on ATSs and promote more meaningful comparisons across firms and venues, the Commission should significantly revise reporting obligations on Form ATS–R.260 The commenter does not specify how Form ATS–R should be revised; however, we believe that the role Form ATS–R plays in helping the Commission to oversee and monitor the trading activities of NMS Stock ATSs justifies the burden on NMS Stock ATSs to file Form ATS– R.261
6. Rule 303: Recordkeeping
Requirements for Form ATS–N We proposed amending Rules 303(a)(1) and 303(a)(2) of Regulation ATS to reflect the proposed amendments to Rule 301(b)(2) 262 and the addition of Rule 304.263 In addition, the proposed rules would make minor technical amendments to Rule 303. We received no comments on the proposed amendments to Rule 303 and are adopting these requirements as proposed. Unless not required to comply with Regulation ATS pursuant to Rule 301(a) 264 of Regulation ATS, an ATS must comply with the recordkeeping requirements of Regulation ATS.265 Specifically, Rule 301(b)(8) 266 requires an ATS to make and keep current the records specified in Rule 302 267 and to preserve the records specified in Rule
303.268 Before the adoption of the
amendments to Rule 303, Rule 303(a)(1) required an ATS to preserve certain records for at least three years, the first two years in an easily accessible place.269 Specifically, Rule 303(a)(1) 270 required an ATS to preserve: (1) All records required to be made pursuant to Rule 302; (2) all notices provided to subscribers, including notices addressing hours of operations, system malfunctions, changes to system procedures, maintenance of hardware and software, and instructions pertaining to access to and denials of, or limitations on, access to the ATS; (3) documents made or received in the course of complying with the system capacity, integrity, and security standards in Rule 301(b)(6), if applicable; 271 and (4) if the ATS is subject to the fair access requirements under Rule 301(b)(5),272 a record of its access standards. Rule 303(a)(2) 273 requires that certain other records must be kept for the life of the ATS and any successor enterprise, including partnership articles or articles of incorporation (as applicable), and copies of reports filed pursuant to Rule 301(b)(2),274 which includes current Form ATS, and records made pursuant to Rule 301(b)(5).275 In particular, reports required to be maintained for the life of the ATS, or any successor enterprise, include initial operation reports, amendments, and cessation of operations reports, filed on Form ATS.276 We are amending the record preservation requirements of Rule 303 to incorporate the preservation of records that would be created pursuant to the requirements that NMS Stock ATSs file initial Form ATS–N, Form ATS–N amendments, and notices of cessation on Form ATS–N, instead of Form ATS. Specifically, we are amending Rule 303(a)(2)(ii) to require that an ATS shall preserve, for the life of the enterprise and of any successor enterprise, copies of reports filed pursuant to Rule 301(b)(2) or—in the case of an NMS Stock ATS—Rule 304, and records made pursuant to Rule 301(b)(5).277 As a result, because an NMS Stock ATS will be required to file initial Form ATS–N, Form ATS–N amendments, and notices of cessation on Form ATS–N pursuant to Rule 304,

278NMS Stock ATSs that had previously made filings on Form ATS must preserve those filings for the life of the enterprise, as well as filings made going forward on Form ATS–N. See id. We believe that the amendments to Rule 303 are necessary to create a meaningful audit trail of an ATS’s current and previous written safeguards and procedures pursuant to Rule 301(b)(2) and permit surveillance and examination staff to help ensure fair and orderly markets without imposing any undue burden on ATSs. 279See infra Section VI. 280See Proposal, supra note 2, at 81058, 81083. 281See Citadel Letter at 3; Liquidnet Letter at 14– 15; see also supra Section II.C (discussing the order display and execution access requirements under Rule 301(b)(3) of Regulation ATS). 282See Citadel Letter at 3. 283The commenter believes that the threshold for the order display requirement may prevent it from offering functionalities that may provide market participants flexibility in how they display block orders. See Liquidnet Letter at 14–15. 284See Citadel Letter at 2–3; Liquidnet Letter at 9–12; see also supra Section II.C (discussing the fair access requirements under Rule 301(b)(5) of Regulation ATS). 285See Citadel Letter at 2. 286See Liquidnet Letter at 10. 287See UBS Letter at 8. In 2009, the Commission published a proposal to address certain practices with respect to undisplayed liquidity, which is trading interest that is available for execution at a trading center, but is not included in the consolidated quotation data that is widely disseminated to the public. See Regulation of NonPublic Trading Interest at 61209 (proposal to amend, among other things, Rule 301(b)(3) of Regulation ATS). 288See Barnard Letter at 2. 289See supra Section III.A.1. See also Rule 301(a)(1)(i). 290We are making the following non-substantive modifications to Rule 304(a)(1)(i): (1) Deleting the phrase ‘‘from the definition of ‘exchange’;’’ (2) changing the phrase ‘‘in accordance with the instructions therein’’ to ‘‘in accordance with the conditions of this section;’’ and (3) adding the term ‘‘initial’’ before ‘‘Form ATS–N.’’ instead of on Form ATS pursuant to Rule 301(b)(2), the NMS Stock ATS must preserve those reports for the life of the enterprise and of any successor enterprise pursuant to Rule 303(a)(2) as amended.278 We are not amending the recordkeeping requirements of Rule 302, or any other amendments to the record preservation requirements of Rule 303(a)(2). We are also adopting a minor technical amendment to Rule 303(a). Currently, Rule 303(a) references ‘‘paragraph (b)(9) of § 242.301’’ when setting forth the record preservation requirements for ATSs; this reference is incorrect, as Rule 301(b)(9) describes the filing requirements, rather than the recordkeeping requirements, for ATSs. We are therefore adopting a change to correct the above reference to ‘‘paragraph (b)(8) of § 242.301.’’ In addition, we are adopting an amendment to Rule 303(a)(1) to incorporate amendments to Rule
301(b)(10).279
7. Comments Recommending Changes
to Other Existing Regulation ATS Rules In the Proposal, we requested comment on other potential changes to Regulation ATS rules, including the order display and execution access requirement in Rule 301(b)(3) and the fair access requirement in Rule 301(b)(5).280 We received two comments recommending changes to Rule 301(b)(3) of Regulation ATS.281 One commenter urges the Commission to consider lowering or eliminating the threshold for the order display requirement.282 Another commenter states that lowering the threshold for the order display requirement would result in reduced choice and higher trading costs for long-term investors, and urges the Commission to provide a block exemption from the order display requirement.283 In addition, the Commission received two comments recommending changes to the fair access requirements in Rule 301(b)(5).284 One commenter urges the Commission to eliminate the 5% trading volume fair access threshold, in light of the importance of NMS Stock ATSs to equity markets today.285 Another commenter states that rather than lowering the trading volume threshold that triggers the fair access requirement of Rule 301(b)(5), the Commission should exclude block executions from counting towards the fair access threshold.286 In addition, one commenter believes that, in connection with Rule 301(b)(3) of Regulation ATS (order display and execution access), it is not appropriate to include actionable indications of interest in the definitions of ‘‘bid’’ and ‘‘offer’’ under Regulation NMS.287 Another commenter states that actionable indications of interest should be treated as quotes and should be transparent to the public.288 We are not adopting changes to the order display and execution requirement or the fair access requirement at this time. We believe that it is appropriate to take an incremental approach by first applying the amended regime to NMS Stock ATSs before considering a further step and we intend to monitor the effectiveness of Rule 301(b)(3) and Rule 301(b)(5) requirements. Should the Commission decide to take further action with regard to these requirements, such as proposing to amend Regulation ATS, the Commission would do so in a separate rulemaking and take into account its experience with Rule 304 and NMS Stock ATSs.
IV. Form ATS–N Filing Process;
Effectiveness Review
A. Initial Form ATS–N

Rule 304(a)(1)(i): Filing and
Effectiveness Requirement Rule 304(a)(1)(i) requires that an NMS Stock ATS operate pursuant to an effective initial Form ATS–N to be exempt from the definition of ‘‘exchange.’’ Proposed Rule 304(a)(1)(i) (‘‘Filing’’) provided that no exemption from the definition of ‘‘exchange’’ is available to an NMS Stock ATS pursuant to § 240.3a1–1(a)(2) unless the NMS Stock ATS files with the Commission a Form ATS–N, in accordance with the Instructions therein, and the Commission declares the Form ATS–N effective. Proposed Rule 304(a)(1)(i) also included transitional provisions for Legacy NMS Stock ATSs to file Form ATS–N and operate under Rule 304. These provided that if an NMS Stock ATS is operating pursuant to a previously-filed initial operation report on Form ATS as of the effective date of the final rule, such NMS Stock ATS shall file with the Commission a Form ATS–N, in accordance with the Instructions therein, no later than 120 calendar days after the effective date of the final rule. Further, proposed Rule 304(a)(1)(i) would have provided that an NMS Stock ATS operating as of the effective date of the final rule 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. We are adopting Rule 304(a)(1)(i) (‘‘Filing and Effectiveness Requirement’’) with modifications and relocating the provisions applicable to Legacy NMS Stock ATSs to another provision within Rule 304(a)(1). Rule 304(a)(1)(i) sets forth two principal conditions of the Exchange Act Rule 3a1–1(a)(2) exemption for NMS Stock ATSs: (1) The NMS Stock ATS must file an initial Form ATS–N, and (2) the initial Form ATS–N must be effective.289 We are relocating the provisions of proposed Rule 304(a)(1)(i) regarding the filing of Form ATS–N by Legacy NMS Stock ATSs during the Commission review period to Rule 304(a)(1)(iv) to better organize the rule text, particularly in light of other changes we are making to the proposed rule in response to comments. In addition, we are making other, non-substantive modifications that we believe will not impact NMS Stock ATSs and will result in a more readable rule text for the public.290 We are also changing Rule 304(a)(1)(i) to state that the exemption for NMS Stock ATSs will not be available unless ‘‘the initial Form ATS–N is effective

291See Rule 301(b)(1). An entity seeking to operate as an NMS Stock ATS that has filed an initial operation report on Form ATS prior to January 7, 2019, but has not yet become operational pursuant to Rule 301(b)(2)(i), must file an initial operation report on Form ATS–N, in accordance with the conditions of Rule 304, and the initial Form ATS–N must become effective before the new NMS Stock ATS may commence operations. 292See infra Section IV.A.4.b. 293See CFA Institute Letter at 4; Liquidnet Letter at 3; PDQ Letter at 2. See also infra note 435. 294See CFA Institute Letter at 4. 295See Liquidnet Letter at 3. See also PDQ Letter at 2. 296See Proposal, supra note 2, at 81023–81024. See infra Section IV.A.4.b for a description of Rule 304(a)(1)(iv)(B), which provides the Commission review period for Legacy NMS Stock ATSs. 297See Proposal, supra note 2, at 81024. 298See HMA Letter at 7–8. 299See Rule 304(a)(1)(iii); Rule 304(a)(1)(iv)(A). See also Section IV.A.4.b. 300See Rule 304(a)(1)(ii)(A); 304(a)(1)(iv)(B). See also infra Section IV.A.4.b. 301See Consumer Federation of America Letter at 10. pursuant to paragraph (a)(1)(iii) or (a)(1)(iv)(A) of [Rule 304]’’ rather than the proposed rule text, which stated that the exemption is available only if ‘‘the Commission declares the Form ATS–N effective.’’ This change is made in connection with adopted Rule 304(a)(1)(iii) and Rule 304(a)(1)(iv)(A), which, in response to comments, provide that an initial Form ATS–N for both a non-Legacy NMS Stock ATS and Legacy NMS Stock ATS, as amended, becomes effective, unless declared ineffective, upon the earlier of: (1) The completion of review by the Commission and publication pursuant to Rule 304(b)(2) or (2) the expiration of the Commission review period, or, if applicable, the end of the extended review period. Accordingly, we are adopting Rule 304(a)(1)(i), which provides that no exemption is available to an NMS Stock ATS pursuant to Rule 3a1–1(a)(2) unless the NMS Stock ATS files with the Commission an initial Form ATS–N, in accordance with the conditions of Rule 304 and the initial Form ATS–N is effective pursuant to Rule 304(a)(1)(iii) or Rule 304(a)(1)(iv)(A). Consequently, an NMS Stock ATS that is not a Legacy NMS Stock ATS operating pursuant to an initial operation report on Form ATS as of January 7, 2019, will be required to comply with the requirements of Rule 304 as of that date. 291
2. Rule 304(a)(1)(ii): Commission
Review Period
Rule 304(a)(1)(ii) describes the timing for the Commission’s review of initial Form ATS–N for Legacy NMS Stock ATSs. Proposed Rule 304(a)(1)(ii) provided the timing for the Commission’s review of initial Form ATS–N as adopted for both Legacy NMS Stock ATSs and non-Legacy NMS Stock ATSs. The timing for the Commission’s review of initial Form ATS–N for Legacy NMS Stock ATSs is provided by Rule 304(a)(1)(iv)(B).292 Proposed Rule 304(a)(1)(ii)(A) (‘‘Review period and extension of the 120-day review period’’) provided that the Commission would declare a Form ATS–N filed by a Legacy NMS Stock ATS effective or ineffective no later than 120 calendar days from filing with the Commission. Proposed Rule 304(a)(1)(ii)(A) also provided that the Commission could extend the review period for Forms ATS–N filed by Legacy NMS Stock ATSs: (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- calendar day review period and will briefly describe the reason for the determination for which additional time for review is required; or (2) any extended review period to which a duly-authorized representative of the NMS Stock ATS agrees in writing. Proposed Rule 304(a)(1)(ii)(B) would have provided that the Commission would declare a Form ATS–N filed by an non-Legacy NMS Stock ATS effective or ineffective no later than 120 calendar days from filing with the Commission. The proposed rule also would have provided that the Commission may extend the Form ATS–N review period for: (1) An additional 90 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-calendar day review period and will briefly describe the reason for the determination for which additional time for review is required; or (2) any extended review period to which a duly-authorized representative of the NMS Stock ATS agrees in writing. We received three comments regarding the length of the Commission review period and extended review period for Form ATS–N filings.293 One commenter states that the 120-calendar day period for the Commission to review Form ATS–N filings is a reasonable amount of time for the Commission to process each filing, and the 120-day extension of the review period for Form ATS–N filings by Legacy NMS Stock ATSs that are particularly novel or complex is agreeable.294 Another commenter does not object to the proposed period for reviewing Form ATS–N.295 We continue to believe that an initial review period of 120 calendar days for Form ATS–N filings would provide the Commission adequate time to carry out its oversight functions with respect to its review of Forms ATS–N filed by both Legacy NMS Stock ATSs and non-Legacy NMS Stock ATSs, including its
responsibilities to protect investors and maintain fair, orderly, and efficient markets.296 We also continue to believe that extended review periods of 120 calendar days for Form ATS–N filings by Legacy NMS Stock ATSs, and 90 calendar days for filings by non-Legacy NMS Stock ATSs, that are unusually lengthy or raise novel or complex issues, are appropriate. As discussed in the Proposal, these time periods will allow the 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 a filing with an NMS Stock ATS if necessary.297 One commenter worries the review process may devolve into other market centers seeking to have the Commission preserve their market positions, and urges the Commission to promptly evaluate and act on initial Form ATS– N filings.298 We believe that the proposed time periods for review of Form ATS–N filings are appropriate. The Commission could, depending on the length and complexity of a Form ATS–N filing, complete the review prior to the expiration of the review period; thus, the Form ATS–N would become effective upon publication, pursuant to Rule 304(b)(2).299 The review periods and extended review periods combined cannot exceed 240 calendar days for a Legacy NMS Stock ATS or 210 calendar days for a non-Legacy NMS Stock ATS unless the NMS Stock ATS agrees, in writing, to a longer review period.300 In addition, one commenter states that the proposed process for determining whether an NMS Stock ATS qualifies for the exemption from the definition of ‘‘exchange’’ could, in light of the Commission’s SRO rule filing review responsibilities, overwhelm staff by adding potentially hundreds of new NMS Stock ATS filings.301 This commenter expresses concern that Commission staff may spend too much time reviewing whether an NMS Stock ATS meets its procedural obligations rather than trying to better understand the ‘‘substance, merits, and potential misconduct of ATSs’ trading operations and activities, and how they fit into the broader market structure,’’ and worries that Commission staff ‘‘might get caught in a procedural morass and miss the

302See id.
303See id. at 2, 10.
304We are: (1) Deleting proposed Rule 304(a)(1)(iv), which stated that the Commission would issue an order declaring a Form ATS–N effective or ineffective and (2) adding the words ‘‘by order’’ to adopted Rule 304(a)(1)(ii). These changes simplify the rule text without changing the Commission’s proposal to inform the public about the ineffectiveness of Form ATS–N by issuing an order. 305We are deleting text that states that this provision applies to ‘‘an NMS Stock ATS that was not operating as of [effective date of the final rule]’’ as it will be clear that the provisions of Rule 304(a)(1)(ii) apply to the filing of initial Form ATS– N by non-Legacy NMS Stock ATSs and that the provisions of Rule 304(a)(1)(iv) will apply to filings by Legacy NMS Stock ATSs. 306See proposed Rule 304(a)(1)(iv). 307See Rule 304(b)(2)(i). 308See Proposal supra note 2, at 81026. 309See infra Sections IV.B.1.b and IV.B.1.c. Amendments will be subject to Commission review under Rule 304(a)(2)(ii), which states that the Commission will, by order, declare ineffective any Form ATS–N amendment no later than 30 calendar days from filing of such amendment with the Commission if the Commission finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors. 310See id. 311Unlike non-Legacy NMS Stock ATSs, Legacy NMS Stock ATSs will operate during the Commission review period pursuant to a filed, but not yet effective, initial Form ATS–N. Accordingly, Legacy NMS Stock ATSs may file amendments to their Form ATS–N during the Commission review period to make material changes to their operations and introduce new functionalities. See infra Section IV.A.4.c. 312The Commission could, however, complete its review of a refiled initial Form ATS–N in less than 120 calendar days from the date of filing, and the Form ATS–N would become effective upon publication. See Rules 304(a)(1)(ii)-(iii) and 304(b). 313We are making additional changes from proposed Rule 304(a)(1)(ii) to: (1) Rename the paragraph from ‘‘Review period and extension of the 120-day review period’’ to ‘‘Commission review period;’’ (2) add to the end of the first sentence that the Commission may declare an initial Form ATS– N ineffective no later than 120 calendar days from the date of filing with the Commission ‘‘or, if applicable, the end of the extended review period;’’ (3) specify that the Commission will declare an initial Form ATS–N ineffective no later than 120 calendar days from ‘‘the date of’’ filing with the Commission; (4) add the word ‘‘initial’’ before Form ATS–N; and (5) add the word ‘‘calendar’’ before ‘‘day’’ in the description of the 90-day extension period. 314See proposed Rule 304(a)(1)(iii). forest for the trees.’’ 302 This commenter compares the proposed review process for Form ATS–N filings to the review and approval process for SRO rule changes, and states that unless the Commission is more willing than it has previously been to challenge
applications, the proposed process for reviewing Form ATS–N filings will devolve into an ‘‘unreasonably burdensome exercise for Commission staff while providing little benefit to market integrity or investor protection.’’ 303 We do not believe that the review process would be unreasonably burdensome to the Commission or its staff. The Commission’s review will not be meritbased; instead, it will focus on the completeness and comprehensibility of disclosures. In addition, under the adopted rules, a Form ATS–N, as amended, will become effective, unless declared ineffective, upon the earlier of the completion of Commission review or the end of the Commission review period. This streamlined process will facilitate efficient Commission review, which is designed to protect investors by allowing the Commission to review disclosures on Form ATS–N for potential deficiencies that might otherwise confuse or mislead market participants about the operations of the NMS Stock ATS or the ATS-related activities of the broker-dealer operator and its affiliates. We are adopting proposed Rule 304(a)(1)(ii)(B) with modifications, renumbering the proposed rule as Rule 304(a)(1)(ii) (‘‘Commission review period’’), and relocating Rule 304(a)(1)(ii)(A), which relates to Legacy NMS Stock ATSs, to Rule 304(a)(1)(iv)(B). We are modifying proposed Rule 304(a)(1)(ii) to state that the Commission ‘‘may,’’ ‘‘by order,’’ 304 as provided in Rule 304(a)(1)(iii), declare an initial Form ATS–N filed by an NMS Stock ATS ineffective no later than 120 calendar days from the date of filing with the Commission or, if applicable, the end of the extended review period.305 Proposed Rule 304(a)(1)(iv) (‘‘Order regarding effectiveness’’) would have required the Commission to issue an order to declare a Form ATS–N effective or ineffective. We are not adopting the proposed requirement 306 that the Commission issue an order to declare a Form ATS– N effective because, as described below, the Commission will only issue orders of ineffectiveness. In addition, to improve readability, the adopted rule references the ineffectiveness process in Rule 304(a)(1)(iii). The Commission will make public, on its website, any effective initial Form ATS–N, as amended.307 We are modifying Rule 304(a)(1)(ii) to add a provision that will allow NMS Stock ATSs to amend their initial Forms ATS–N during the Commission review period. We discussed in the Proposal that during the Commission’s review, the Commission 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.308 In addition, an NMS Stock ATS may need to update disclosures on its initial Form ATS–N to otherwise reflect changes during the Commission review period. To allow an NMS Stock ATS to correct or update its disclosures on an initial Form ATS–N during the review period, we are modifying Rule 304(a)(1)(ii) to provide that during the review period of the
initial Form ATS–N, the NMS Stock ATS shall amend its initial Form ATS– N pursuant to the requirements of Rules 304(a)(2)(i)(B) and (C), which are discussed further below.309 We believe that updates or corrections to an NMS Stock ATS’s disclosures about its intended operations would be properly filed as updating or correcting amendments pursuant to Rules 304(a)(2)(i)(B) and (C).310 We believe allowing an entity seeking to operate as an NMS Stock ATS to amend its initial Form ATS–N during the Commission review period will promote transparency and facilitate complete and comprehensible disclosures. Once an initial Form ATS–N becomes effective, the Commission will make public the initial Form ATS–N, as amended, which will incorporate any amendments that were filed during the Commission review period. An NMS Stock ATS (other than a Legacy NMS Stock ATS),311 however, seeking to amend its initial Form ATS–N to make a material change to its Form ATS–N disclosures during the Commission review period must withdraw its initial Form ATS–N and may refile a new, initial Form ATS–N pursuant to Rule 304(a)(1). We believe a material change to the disclosures on an initial Form ATS–N would necessitate a full review period.312 In addition, we have made several technical, non-substantive modifications to Rule 304(a)(1)(ii) that are designed to improve the readability of the rule, reduce potential ambiguity, or both.313
3. Rule 304(a)(1)(iii): Effectiveness;
Ineffectiveness Determination Rule 304(a)(1)(iii) describes the process by which an initial Form ATS– N would become effective, or be declared ineffective by the Commission. Proposed Rule 304(a)(1)(iii) (‘‘Effectiveness’’) provided that the Commission will declare effective a Form ATS–N if the NMS Stock ATS qualifies for the Rule 3a1–1(a)(2) exemption and 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.314 Proposed Rule 304(a)(1)(iv) (‘‘Order regarding effectiveness’’)

315See Proposal, supra note 2, at 81024–81026. 316See Rule 304(c); Instructions to Form ATS–N. The Commission’s staff may become aware of information, as a result of discussions with the NMS Stock ATS or otherwise, that calls into question, for example, the currency or accuracy of the disclosures on a Form ATS–N, which may result in a determination to begin the process to declare the Form ATS–N ineffective. See infra
Section IV.A.3.d.
317See SIFMA Letter at 28.
318See id.
319See id.
320See proposed Instructions to Form ATS–N. As adopted, the Instructions to Form ATS–N state that:
‘‘An NMS Stock ATS must provide all the information required by Form ATS–N, including responses to each Item, as applicable, and the Exhibits, and disclose information that is accurate, current and complete. . . . A filing that is defective may be rejected and not accepted by the EDGAR system. Any filing so rejected shall be deemed not to have been filed.’’ The Instructions to Form ATS– N replace the proposed cite to 17 CFR 240.0–3 under the Exchange Act, which applies to paper filings, with a cite to Regulation S–T, which applies to electronic filings, because the form will be electronically filed via EDGAR. See Instructions to Form ATS–N. Because Form ATS–N will be electronically filed, we do not believe it is necessary to return a copy of Form ATS–N filings and are therefore replacing the word ‘‘returned’’ with ‘‘rejected’’ to specify this. We are also modifying the Instructions to Form ATS–N to delete the phrase: ‘‘and must present the information in a clear and comprehensible manner.’’ See Instructions to Form ATS–N. This modification to the Instructions to Form ATS–N will streamline the instructions by removing confusing language relating to the Commission’s standard of review, but will not modify an NMS Stock ATS’s obligations with respect to Form ATS– N. Additionally, the Commission has reorganized the Instructions to differentiate between an NMS Stock ATS’s filing obligations, and the consequences of incompleteness or similar deficiency. We are modifying our guidance and the rule text for determinations of ineffectiveness, and believe these modifications to the Instructions to Form ATS–N better align them with that guidance and adopted rule text and reduce any potential confusion about the difference between an NMS Stock ATS’s obligations with respect to completing Form ATS–N and the standard of review that the Commission will apply when determining whether to declare a Form ATS–N ineffective. See infra
Section IV.A.3.d. See also infra Section V.A.1
(discussing the Form ATS–N disclosure requirements). 321See Proposal, supra note 2, at 81024 n.284. 322See 17 CFR part 232. 323Proposal, supra note 2, at 81024 n.284. 324See id. 325See proposed Rule 303(a)(1)(iii). 326See Proposal, supra note 2, at 81024. provided that the Commission will issue an order to declare a Form ATS–N effective or ineffective. Proposed Rule 304(a)(1)(iv) also provided that upon the effectiveness of the Form ATS–N, the NMS Stock ATS may operate pursuant to the conditions of Rule 304, and 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) further provided that a Form ATS–N declared ineffective would not prevent the NMS Stock ATS from subsequently filing a new Form ATS–N. We also discussed in the Proposal our preliminary beliefs regarding when it would be necessary or appropriate in the public interest to declare ineffective a Form ATS–N.315 We received several comments related to proposed Rule 304(a)(1)(iii), proposed Rule 304(a)(1)(iv), and the standard of review for declaring Form ATS–N filings effective or ineffective, which are summarized below. Pursuant to Rule 304 and Form ATS– N, as adopted and as discussed below, an NMS Stock ATS must provide all the information required by the form and respond to each item, as applicable, and disclose information that is accurate, current, and complete. A Form ATS–N filing that is defective may be rejected. If the filing is accepted for review, it will become effective unless the Commission finds, after notice and opportunity for hearing, that it is necessary or appropriate in the public interest, and consistent with the protection of investors, to declare the filing ineffective. Responsibility for current, complete, and accurate disclosures rests with the NMS Stock ATS.316 The Commission will consider whether it is necessary or appropriate in the public interest, and consistent with the protection of investors, to declare an initial Form ATS–N filing ineffective because, for example, the Form ATS–N was filed by an entity that does not meet the proposed definition of NMS Stock ATS; one or more disclosures reveal non-compliance with federal securities laws, or the rules or regulations thereunder, including Regulation ATS; or the disclosures are materially deficient with respect to completeness or comprehensibility. a. Comments on the Standard of Review To Accept Filings of Form ATS–N The determination of whether to reject a Form ATS–N filing is separate from the Commission’s determination to declare a filed Form ATS–N ineffective after Commission review. We received one comment regarding the process pursuant to which a Form ATS–N would be accepted for Commission review.317 The commenter states that the Commission should not review a Form ATS–N filing for accuracy and completeness in connection with accepting a Form ATS–N filing, but rather that such review should be conducted
when the Commission is considering whether to declare the Form ATS–N effective or ineffective.318 The commenter states that the Commission’s standards for accepting a Form ATS–N should be clear and objective, and Form ATS–N should be rejected only for purely ‘‘technical deficiencies.’’ 319 As proposed, the Instructions to Form ATS–N required that ‘‘[a]n NMS Stock ATS must respond to each item, as applicable, in detail and disclose information that is accurate, current, and complete. An NMS Stock ATS must provide all the information required by the form, including the exhibits, and must present the information in a clear and comprehensible manner. A filing that is incomplete or similarly deficient may be returned to the NMS Stock ATS.’’ 320 In the Proposal, we stated that ‘‘a Form ATS–N that contains technical deficiencies, such as missing pages or one in which the entity does not respond to all questions, including subquestions, would not be complete and would be returned to the NMS Stock ATS.’’ 321 We believe that it would be appropriate to reject a Form ATS–N if the filing is defective.322 For example, a Form ATS–N is defective if it is missing sections or missing responses to any questions, including sub-questions, or does not comply with the electronicfiling requirements. A decision to reject a Form ATS–N filing, and not accept it for review, would be for reasons distinct from Commission review pursuant to Rule 304(a)(1)(iii), as discussed below. The rejection of a Form ATS–N would not prejudice any decision by the Commission regarding ineffectiveness should the NMS Stock ATS resubmit a Form ATS–N.323 An NMS Stock ATS also may choose to withdraw a filed Form ATS–N.324 The Commission will apply the same standard when determining whether to accept an amendment to Form ATS–N for review or reject the filing. b. Comments on the Review for Declarations of Ineffectiveness We proposed that the Commission will declare effective a Form ATS–N if the NMS Stock ATS qualifies for the Rule 3a1–1(a)(2) exemption, and will declare it ineffective if it finds, after notice and opportunity for hearing, that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors.325 We discussed in the Proposal that the Commission would use Form ATS–N to evaluate whether an entity qualifies for the exemption, and would evaluate, among other things, whether the entity satisfies the definition of NMS Stock ATS.326 We also discussed our preliminary beliefs regarding when it would be necessary or appropriate in the public interest to declare ineffective

327See id. at 81024–81026. 328See id. 329See id. at 81026. With respect to compliance with federal securities laws, we stated that the Commission’s evaluation would involve a ‘‘redflag’’ review of the Form ATS–N disclosures. See id. at 81025. With respect to whether an entity meets the definition of NMS Stock ATS, we stated our preliminary belief that 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. See id. at 81024 n.288 and accompanying text. 330See MFA/AIMA Letter at 4. 331See Investor Advocate Letter at 11. 332See id. 333See id. 334See id. We agree with the commenter and intend to help market participants understand the reason the Form ATS–N was declared ineffective by explaining the Commission’s reasoning for the ineffective declaration in the Commission order. See supra Section IV.A.3.d. 335See LeveL ATS Letter at 8–9. 336See SIFMA Letter at 32. 337See id. 338See id. at 33. 339See id. 340See id. 341See id. 342See id. at 30. 343See id. at 30 (emphasis in original). See also Proposal, supra note 2, at 81025. Another commenter states that it recognizes the difficulty associated with identifying every potential scenario that might cause a Form ATS–N to be declared ineffective, but requests that the Commission provide additional guidance to ensure that NMS Stock ATS operators understand the standard to be applied. See LeveL ATS Letter at 9. 344See SIFMA Letter at 30. 345See id. 346See Fidelity Letter at 2, 9. This commenter requests that the Commission implement a ‘‘completeness review’’ under which the Commission would review responses to Form ATS– N for completeness and consistency without considering the merits of each answer. The commenter also requests that the Commission provide additional guidance with respect to the process by which it could declare a Form ATS–N ineffective, and questions how review by Commission staff of initial filings will be undertaken to ensure consistency across Form ATS–N filings. See id. at 9. a Form ATS–N, and provided examples.327 We stated that it would be necessary and appropriate in the public interest to declare a Form ATS–N ineffective if the Commission finds, after notice and opportunity for hearing, that: An entity does not meet the definition of NMS Stock ATS; one or more disclosures on Form ATS–N are materially deficient with respect to their accuracy, currency or completeness; or one or more disclosures reveal noncompliance with federal securities laws, or the rules and regulations thereunder, including Regulation ATS.328 We also stated that a declaration of effectiveness would not constitute a finding that the NMS Stock ATS’s operations are consistent with the Exchange Act, but rather only address the issue of whether the NMS Stock ATS had complied with the requirements of Form ATS–N.329 We received several comments
regarding the standard that the Commission would apply to declare a Form ATS–N effective or ineffective. One commenter asserts that it would be helpful to have the Commission review initial Forms ATS–N for completeness and accuracy, and legal and regulatory compliance, and to help standardize the level of disclosure across NMS Stock ATSs.330 Another commenter urges the Commission to move forward with the effectiveness determination as proposed.331 This commenter states that market participants will use the 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, and that it is important that the detailed information be accurate, current, and complete.332 This commenter also states that the Commission should be able to conduct a ‘‘red flag’’ review of the disclosures for apparent noncompliance with the federal securities laws, and avoid having a noncompliant NMS Stock ATS begin operation with inadequate system operations; this commenter states that while not affording complete certainty, this review process would be an improvement over the review process for Form ATS.333 Further, the commenter states that the notice and hearing process will furnish the industry with useful information regarding specific regulatory concerns and questions.334 One commenter expresses concern that the Commission would lack objective standards to evaluate initial Forms ATS–N and amendments.335 Another commenter believes that in the Proposal, the Commission did not articulate a ‘‘consistent standard of review’’ for declaring a Form ATS–N or Form ATS– N amendment effective or ineffective.336 The commenter expresses its view that the standard for declaring a Form ATS– N ineffective should be only if the Form ATS–N is ‘‘materially deficient with respect to completeness,’’ 337 asserting that criteria such as currency, accuracy, and fair presentation are subjective standards that could make it difficult for NMS Stock ATSs to understand the level of disclosure necessary to satisfy the Commission’s review requirements, and therefore require extended discussion with the Commission.338 Further, the commenter believes that such subjective standards would be difficult to standardize in application from firm to firm, would complicate the Commission’s review of Form ATS–N, and are unnecessary to increase the operational transparency of NMS Stock ATSs and to ensure a consistent level of information regarding NMS Stock ATSs is available to market participants.339 The commenter believes that the rule’s directives to consider whether to declare a Form ATS–N ineffective would provide the Commission with flexibility to determine whether declaring a Form ATS–N ineffective is ‘‘necessary or appropriate in the public interest’’ and ‘‘consistent with the protection of investors,’’ and therefore that including additional subjectivity in the Commission’s standard is unnecessary.340 The commenter believes that
NMS Stock ATSs would have other incentives to ensure the accuracy of their Forms ATS–N.341 This commenter also states that the Commission should only find a disclosure to be ‘‘materially deficient’’ with respect to the accuracy, currency, and completeness in an ‘‘extreme situation, not a circumstance where additional color or language might be viewed as preferable to a disclosure as filed,’’ and asserts that a response that is facially responsive to a question on Form ATS–N should be deemed sufficient.342 This commenter agrees with the examples of ‘‘materially deficient’’ disclosures that the Commission provided in the Proposal, but also requests that the Commission provide examples of ‘‘disclosures that would not be viewed as materially deficient.’’ 343 Additionally, this commenter states that if the Commission declares an initial Form ATS–N or amendment ineffective, it should provide the NMS Stock ATS with a clear written statement of the reasons for the declaration.344 The commenter urges the Commission to provide clarity and practical guidance around its expectations on declaring Form ATS–N filings effective.345 Another commenter raises concerns that the process for declaring Form ATS–N effective or ineffective may result in the Commission staff undertaking meritbased reviews of the disclosures on Form ATS–N that could be used to delay the effectiveness of NMS Stock ATSs whose features, ‘‘while meeting regulatory requirements, do not meet current industry norms.’’ 346 We believe 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, for example, the Commission finds, after notice and opportunity for hearing, the Form ATS–N was filed by an entity that does not meet the definition of NMS Stock ATS; one or more disclosures reveal non-compliance

347See infra Section IV.A.3.d.
348See id.
349See infra notes 404–407 and accompanying text. 350See Consumer Federation of America Letter at 2, 10–11. 351See id. at 11. 352See Investor Advocate Letter at 12. See also supra note 340 and accompanying text. Pursuant to Rule 304(a)(1)(iii) the Commission will issue an order declaring an initial Form ATS–N filing ineffective if it finds, after notice and opportunity for hearing, that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors if, for example, the Form ATS–N was filed by an entity that does not meet the definition of NMS Stock ATS; one or more disclosures reveal non-compliance with federal securities laws, or the rules or regulations thereunder, including Regulation ATS; or the disclosures are materially deficient with respect to completeness or comprehensibility. 353See HMA Letter at 8; Consumer Federation of America Letter at 11. 354See id. 355See HMA Letter at 8. 356See Fidelity Letter at 9. 357See Rule 304(a)(1)(iii). 358See Consumer Federation of America Letter at 2, 10. 359See supra note 405. 360See infra notes 404–407 and accompanying text. 361See supra note 356. with federal securities laws, or the rules or regulations thereunder, including Regulation ATS; or one or more disclosures on Form ATS–N are materially deficient with respect to their completeness or comprehensibility.347 We are providing additional examples of when, depending on the facts and circumstances, the Commission may make such a finding.348 In response to comments regarding the scope of the Commission’s review of initial Form ATS–N filings and the standard to be applied for declarations of ineffectiveness, we are making clear that the Commission will not be conducting a merit-based review.349
c. Effectiveness, Ineffectiveness Process
The Commission received comments about the proposed process by which a Form ATS–N would become effective or ineffective, including the potential implications of the proposed process. One commenter expresses concern that a declaration of effectiveness may give market participants a false sense of security that the Commission’s deeming an NMS Stock ATS’s Form ATS–N ‘‘effective’’ will be tantamount to the Commission’s approval of an ATS’s operations on the merits, as market participants may not fully understand that a declaration of effectiveness only implies that the NMS Stock ATS has met the Form ATS–N filing requirements, and that the Commission is not approving the merits of the NMS Stock ATS’s operations or conflicts of interest. 350 The commenter believes that such mistaken belief could cause market participants to route orders to venues that are not in their best interests.351 Another commenter states that there is the danger that the Commission review process would encourage market complacency, and that the Commission, through guidance in this adopting release and continuing investor education, should help to ensure that: (1) Investors understand that such a determination would not constitute a finding that the NMS Stock ATS’s operations are necessarily consistent with the Exchange Act; and (2) operators of NMS Stock ATSs understand that the determination would not preclude the Commission from later determining that an NMS Stock ATS has violated federal securities laws.352 We also received two comments about an NMS Stock ATS potentially using a declaration of effectiveness to shield itself from potential liability.353 Both express concern that, although the Proposal explains that a declaration of effectiveness is not an ‘‘approval’’ of Form ATS–N, the process could be used to inappropriately inoculate NMS Stock ATS operators from liability.354 One of these commenters states that its concern is heightened by a recent court decision in which the court found that the Commission’s review and approval of exchanges’ activities made the activities legal.355 One commenter believes that a declaration of ineffectiveness will ‘‘sound the death knell’’ for an NMS Stock ATS and that the opportunity to file a new Form ATS–N would be of no practical value because the marketplace would not use the ATS.356 While we do not believe that providing a process by which Form ATS–N filings will become effective or ineffective 357 would risk misleading market participants about the kind of review that will be undertaken by the Commission,358 we are modifying the process for initial Form ATS–N filings to become effective, to mitigate any such risk. Accordingly, the Commission will not declare initial Form ATS–N filings effective pursuant to Rule 304(a)(1)(iii). Further, the Commission will only declare ineffective an initial 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. An initial Form ATS–N, as amended, will become effective, unless declared ineffective, upon the earlier of completion of review by the Commission and publication pursuant to Rule 304(b)(2), or the expiration of the review period, or, if applicable, the extended review period. Unlike proposed rule changes filed by national securities exchanges, the Commission will not make affirmative findings about Form ATS–N filings with regard to consistency with the Exchange Act in the general course of the review of Form ATS–N filings.359 As discussed below, the Commission’s review will not focus on the merits of the Form ATS–N disclosures, such as determining the strengths and weaknesses of the trading platform or a protocol offered by the NMS Stock ATS, nor is the Commission making findings regarding whether the means by which orders will interact on the trading platform are consistent with certain provisions of the Exchange Act.360 If disclosures on Form ATS–N reveal non-compliance with federal securities laws or the rules and regulations thereunder, however, the Commission may find that it is appropriate to declare the filing ineffective. We believe that the scope of the Commission’s review is clear and that the benefits of the Commission review process for Form ATS–N filings justify any risk that market participants misunderstand that the Commission is not performing a merit review of Form ATS–N. We further believe that adopting a process for initial Form ATS–N filings to become effective without the Commission affirmatively declaring them effective by order will help signal to market participants that the Commission is not passing on the merits of the NMS Stock ATSs’ disclosures regarding their operations. Even if we assume that a declaration of ineffectiveness will ‘‘sound the death knell,’’ as suggested by a commenter,361 or result in reputational harm to an NMS Stock ATS, the process for declaring a Form ATS–N filing ineffective will be consistent with the Commission’s objective to protect investors and the public interest and will provide NMS Stock ATSs with opportunities to avoid or mitigate such a declaration. An NMS Stock ATS would be given notice and an opportunity for hearing to respond to the Commission’s concerns. A nonLegacy NMS Stock ATS would also have the option of withdrawing and subsequently refiling its Form ATS–N. In addition, during the Commission review period, both non-Legacy NMS Stock ATSs and Legacy NMS Stock ATSs can amend their initial Form ATS–N to cure potential deficiencies. Additionally, if the Commission does

362See CFA Institute Letter at 5.
363See id. at 4.
364See Rule 304(a)(1)(iv)(A). See also infra
Section IV.A.4.a (discussing the initial Form ATS–
N requirements for Legacy NMS Stock ATSs). 365See infra note 368 and accompanying text. 366We are adopting a process that allows NMS Stock ATSs to file an updating and correcting amendment to an initial Form ATS–N during the Commission review period. See supra Section IV.A.2. We are adding to Rule 304(a)(1)(iii) that an initial Form ATS–N ‘‘as amended’’ will become effective, which includes any amendments filed to the initial Form ATS–N during the Commission review period. Amendments filed by an NMS Stock ATS to an initial Form ATS–N during the Commission review period are subject to Rule 304(a)(2)(ii), which provides that the Commission will, by order, declare ineffective any Form ATS– N amendment no later than 30 calendar days from filing with the Commission. The Commission will have 30 calendar days to declare any amendments ineffective, including amendments to Form ATS–N that are filed during the Commission review period. For example, if an NMS Stock ATS files an updating or correcting amendment to an initial Form ATS–N on calendar day 110 of the Commission review period, and the initial Form ATS–N becomes effective on calendar day 120, the updating or correcting amendment could be declared ineffective by the Commission up to an additional 20 calendar days after the initial Form ATS–N becomes effective—until the Commission’s 30-calendar day review period has expired. 367We are also making technical changes to the proposed text of Rule 304(a)(1)(iii) by adding to Rule 304(a)(1)(iii) the word ‘‘initial’’ before Form ATS–N and renaming the paragraph as ‘‘Effectiveness; Ineffectiveness determination.’’ In the Proposal, we stated 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. See Proposal, supra note 2, at 81025. As discussed further below, we are modifying the proposed guidance regarding when it may be necessary or appropriate to declare a Form ATS–N ineffective. We are also modifying the Instructions to Form ATS–N to better align them with that guidance, and to reduce any potential confusion about the difference between an NMS Stock ATS’s obligations with respect to completing Form ATS–N and the standard of review that the Commission will apply when determining whether to declare a Form ATS– N ineffective. See supra note 320. The same standard for declarations of ineffectiveness will apply to filings of both initial Form ATS–N and Form ATS–N amendments. See infra Section IV.B.2. 368We are deleting the following language, which was part of proposed Rule 304(a)(1)(iv): ‘‘The Commission will issue an order to declare a Form ATS–N effective or ineffective.’’ This is addressed in the adopted rule text stating that ‘‘[a]n initial Form ATS–N, as amended, filed by an NMS
Stock ATS will become effective, unless declared ineffective, upon the earlier of: (1) [T]he completion of review by the Commission and publication pursuant to paragraph (b)(2)(i) of [Rule 304] or (2) [t]he expiration of the review period, or, if applicable, the end of the extended review period, pursuant to paragraph (a)(1)(ii) of [Rule 304]’’ and that ‘‘[t]he Commission will, by order, declare an initial Form ATS–N ineffective if it finds, after notice and opportunity for hearing, that such action is necessary and appropriate in the public interest, and is consistent with the protection of investors.’’ See Rule 304(a)(1)(iii)(B). In addition, we are not adopting the language that states ‘‘[u]pon the effectiveness of the Form ATS–N, the NMS Stock ATS may operate pursuant to the conditions of this
section’’ or language that states ‘‘[i]f the
Commission declares an initial Form ATS–N effective, the NMS Stock ATS may operate pursuant to the conditions of this section’’ for purposes of clarity and readability. Rule 304(a)(1)(i) provides that an initial Form ATS–N must be effective for the NMS Stock ATS to avail itself of the Rule 3a1– 1(a)(2) exemption (see supra Section IV.A.1), and Rule 304(a)(1)(iii) specifies when an initial Form ATS–N filing will become effective. Rule 304(a)(1)(iii) also states that: (1) if the Commission declares an initial Form ATS–N ineffective, the NMS Stock ATS shall be prohibited from operating as an NMS Stock ATS ‘‘pursuant to § 240.3a1– 1(a)(2);’’ and (2) an initial Form ATS–N declared ineffective ‘‘does’’ not (rather than ‘‘would’’ not) prevent the NMS Stock ATS from subsequently filing a new Form ATS–N. declare an initial Form ATS–N ineffective, the NMS Stock ATS will have an opportunity to revise its disclosures, or change its operations, and subsequently file a new initial Form ATS–N, and such filing could become effective. In addition, one commenter argues that a Form ATS–N should be considered ineffective upon filing until the Commission affirmatively declares it effective or ineffective.362 However, this commenter also recommends that if the Commission fails to declare a Form ATS–N effective or ineffective within the 120-calendar day review period, or does not extend the review period, the ‘‘default decision’’ should be that the Form ATS–N is declared effective.363 We believe that it would be appropriate for an initial Form ATS–N to become effective if the Commission does not declare, by order, the filing ineffective during the initial review period, or in the case of an extended review period, during the extended period, to provide certainty about timing of the Commission’s review to the NMS Stock ATS and to market participants. Providing for an initial Form ATS–N filed by a Legacy NMS Stock ATS to become effective in this manner will allow the Legacy NMS Stock ATS to continue to operate without disruption to its subscribers (provided the Commission does not declare the Form ATS–N ineffective).364 Considering an initial Form ATS–N ineffective upon filing, before the Commission has completed the review, as suggested by a commenter, would cause a Legacy NMS Stock ATS to stop operating, which may harm the market participants that currently use the services on the Legacy NMS Stock ATS. Once an initial Form ATS–N is effective, Rule 304(a)(4) provides a process for the Commission to suspend, limit, or revoke the exemption for the NMS Stock ATS. Given this change in the effectiveness determination process, we do not believe that requiring that an initial Form ATS–N filing be considered ineffective upon filing would provide any additional benefit, because an NMS Stock ATS (except for a Legacy NMS Stock ATS) may not operate pursuant to the conditions of the Rule 3a1–1(a)(2) exemption unless its Form ATS–N has become effective, pursuant to Rule
304(a)(1)(iii). d. Effectiveness; Ineffectiveness Determinations Under Rule 301(a)(1)(iii) We are adopting Rule 304(a)(1)(iii) with modifications, and relocating most of proposed Rule 304(a)(1)(iv), with modifications,365 to adopted Rule 304(a)(1)(iii) (‘‘Effectiveness; Ineffectiveness determination’’). For the reasons described above, we are modifying Rule 304(a)(1)(iii) to provide that an initial Form ATS–N filed by an NMS Stock ATS, as amended,366 will become effective, unless declared ineffective, upon the earlier of: (1) The completion of review by the Commission and publication pursuant to Rule 304(b)(2)(i), or (2) the expiration of the review period, or, if applicable, the end of the extended review period, pursuant to Rule 304(a)(1)(ii). Rule 304(a)(1)(iii) will further provide that the Commission will, by order, declare ineffective an initial 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.367 We are also relocating two provisions of proposed Rule 304(a)(1)(iv), with non-substantive modifications,368 to adopted Rule 304(a)(1)(iii). As a result, Rule 304(a)(1)(iii) states that if the Commission declares an initial Form ATS–N ineffective, the NMS Stock ATS shall be prohibited from operating as an NMS Stock ATS pursuant to § 240.3a1– 1(a)(2); and that an initial Form ATS–N declared ineffective does not prevent the NMS Stock ATS from subsequently filing a new Form ATS–N. We believe Rule 304(a)(1)(iii), as modified, clearly explains when an initial Form ATS–N will become effective or declared ineffective, and the consequences of an order of ineffectiveness. Accordingly, an NMS Stock ATS whose initial Form ATS–N has become effective may commence operations and will be required to comply with Rule 304 as well as applicable provisions of Rules 300 through 303 of Regulation ATS. An NMS Stock ATS whose initial Form ATS–N was declared ineffective would be prohibited from operating pursuant

369The initial filing of Form ATS–N by Legacy NMS Stock ATSs is discussed further below. See infra Section IV.A.4.a. 370See Proposal, supra note 2, at 81024–26. 371See supra notes 343, 345, and 346 and accompanying text. See also supra notes 335–340 and accompanying text discussing commenter concerns regarding whether the Commission articulated an objective or consistent standard of review. 372See infra notes 404–407 and accompanying text. 373See Proposal, supra note 2, at 81024–81025. 374See Rule 300(k). 375For example, an ATS that is not an NMS Stock ATS would be subject to different conditions under Regulation ATS 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 a national securities exchange. See Proposal, supra note 2, at 81024 n.288 and accompanying text. 376See Proposal at 81025–26. 377 17 CFR 242.301(b)(1). 378 15 U.S.C. 78o(b)(8). 379 15 U.S.C. 78o–3. 380See 17 CFR 301(b)(1). Rule 301(b)(1) of Regulation ATS requires an ATS to register as a broker-dealer under Section 15 of the Exchange Act. 381See 15 U.S.C. 78o(b)(1). 382See 17 CFR 242.301(b)(1). 383Specifically, 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). to the Rule 3a1–1(a)(2) exemption. Similarly, a Legacy NMS Stock ATS whose initial Form ATS–N was declared ineffective would no longer be eligible for the Rule 3a1–1(a)(2) exemption and would be required to cease operations.369 If the Commission declares an initial Form ATS–N ineffective, the NMS Stock ATS that filed the form could subsequently file a new Form ATS–N for Commission consideration. In the Proposal, we provided certain examples of scenarios in which we believed 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, after notice and opportunity for hearing.370 We continue to believe that the examples provided in the Proposal are appropriate for the Commission to declare a Form ATS–N ineffective and will provide NMS Stock ATSs and market participants with clarity with respect to when the Commission could find, after notice and opportunity for hearing, it necessary or appropriate in the public interest, and consistent with the protection of investors, to declare ineffective a Form ATS–N. We are also providing additional clarity with respect to this guidance. Several commenters request additional guidance and
clarity regarding the Commission’s review of initial Form ATS–N filings and Form ATS–N amendments and the circumstances under which the Commission may declare a Form ATS– N ineffective.371 We believe 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 the Commission finds, for example, after notice and opportunity for hearing, the Form ATS–N was filed by an entity that does not meet the definition of NMS Stock ATS; one or more disclosures reveal non-compliance with federal securities laws, or the rules or regulations thereunder, including Regulation ATS; or one or more disclosures on Form ATS–N are materially deficient with respect to their completeness or comprehensibility. Given that the objective of Rule 304 is to provide market participants with information about NMS Stock ATSs through Form ATS–N disclosures, our review is designed to focus on the Form ATS–N disclosures and is not a meritbased review of the operations of the NMS Stock ATS or the ATS-related activities of the broker-dealer operator.372 We believe 373 that it would be necessary to declare ineffective a Form ATS–N if the Form ATS–N was filed by an entity that does not satisfy the definition of ATS, and more specifically, the definition of NMS Stock ATS.374 The 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.375 We believe that the review of Form ATS–N disclosures will help 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. We believe that it would be necessary to declare Form ATS–N ineffective if one or more disclosures reveal noncompliance with federal securities laws, including Regulation ATS. As discussed in the Proposal,376 the Commission will conduct a ‘‘red-flag’’ review for instances of non-compliance with federal securities laws that seem apparent from the disclosures on 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.377 Section 15(b)(8) of the Exchange Act 378 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 379 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 and comply with the rules of the SRO, including obtaining approval by the SRO to operate an ATS in accordance with applicable SRO rules. If an entity were to file a Form ATS–N before registering as a brokerdealer under Section 15 of the Exchange Act, the entity would not be in compliance with Rule 301(b)(1) of Regulation ATS.380 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) of the Exchange Act 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,381 and the Commission’s order granting broker-dealer registration would not be effective.382 As another example, if the Form ATS–N reveals non-compliance with Regulation NMS, including, among other provisions, Rule 612, 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 $0.01,383 the Form ATS–N would not be consistent with Rule 304 because the NMS Stock ATS would operate in a manner that may violate the federal securities laws. We believe that it would be necessary to declare Form ATS–N ineffective if one or more disclosures are materially deficient with respect to their completeness and comprehensibility. The following are non-exhaustive examples of Form ATS–N disclosures that may be deficient with respect to

384These are some, but not all, of the types of circumstances that could result in the Commission declaring a Form ATS–N ineffective due to being materially deficient with respect to completeness. We also provided some of these examples in the Proposal as examples of disclosures 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. See Proposal, supra note 2, at 81025. Because we are modifying the standard of review to focus on completeness and comprehensibility, some of the examples discussed in the Proposal are also discussed below to show application of the standard the Commission is adopting to the same scenarios. 385This example was discussed in the Proposal as an example of a disclosure that may be materially deficient because it may not be sufficiently detailed. See Proposal, supra note 2, at 81025. 386See id. Another example would be if the NMS Stock ATS fails to describe which order would receive priority where two or more orders are otherwise on par, such as a situation in which a customer and non-customer order are at the same price in a price priority system. 387These examples were discussed in the Proposal as examples of disclosures that may be materially deficient because they would not be accurate. See Proposal, supra note 2, at 81025. 388These are some, but not necessarily all, of the types of circumstances that could result in the Commission declaring a Form ATS–N ineffective due to being materially deficient with respect to comprehensibility. 389 In the Proposal, this was provided as an example of a disclosure that may be materially deficient because it may not be accurate; however, inconsistent disclosures in a Form ATS–N also may render disclosures unclear as to which rule or procedure, for example, controls and how the NMS Stock ATS intends to operate. See Proposal, supra note 2, at 81025. Depending on the facts and circumstances, inconsistent or contradictory disclosures in a Form ATS–N may be materially deficient with respect to comprehensibility. 390See supra note 342 and accompanying text. 391See supra note 343 and accompanying text. 392See Fidelity Letter at 9. See also supra note 346. 393See MFA/AIMA Letter at 4. See also supra note 330 and accompanying text. 394See infra Section V (discussing modifications to Proposed Form ATS–N). their completeness: 384 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; 385 an NMS Stock ATS describes some of its priority rules, but fails to describe conditions or exceptions to its priority rules, or fails to describe any priority overlays; 386 an NMS Stock ATS, in response to Part II, Item 1 of adopted Form ATS–N, discloses that a
principal trading desk of the broker-dealer operator trades on the NMS Stock ATS, but does not explain advantages the broker-dealer operator receives compared to other subscribers; an NMS Stock ATS, in response to Part III, Item 19 of adopted Form ATS–N, fails to provide complete information about fees and rebates charged for use of the NMS Stock ATS; an NMS Stock ATS discloses that it 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 ATS in fact has several classes of subscribers; or an NMS Stock ATS discloses that it has two classes of subscribers that are charged the same trading fees, but the Commission or its staff learns through discussions with the ATS or otherwise that in fact one class receives more favorable fees than the other.387 The following are non-exhaustive examples of Form ATS–N disclosures that may be deficient with respect to their comprehensibility: 388 Form ATS– N includes inconsistent information among the disclosures, such as a statement by the NMS Stock ATS in one
part of the form that the ATS uses
private feeds to calculate the NBBO but in another part of the form indicates that it uses the SIP; 389 the NMS Stock ATS states in one part of Form ATS–N that it does not segment its orders but provides a description in another part of the Form ATS–N that indicates that the ATS offers a functionality that allows institutional investors to limit their trading activity to interactions with other institutional investors; the Form ATS–N disclosures indicate that the NMS Stock ATS uses time/price priority to execute orders but provides an example that demonstrates an order received before an identically priced order does not receive priority over the later order; or the NMS Stock ATS states in one part of the Form ATS–N that it provides certain order types, transacts in certain types of securities, or provides access to certain classes of subscribers, and there is contrary disclosure in other parts of the Form ATS–N. We do not agree with the commenter that believes that the term materially deficient should be understood to represent only ‘‘extreme situation[s].’’ 390 The Commission review will focus on whether the lack of completeness or comprehensibility in a Form ATS–N disclosure would prevent market participants from understanding an ATS’s operations or the ATS-related activities of its broker-dealer operator or its affiliates. We believe that subscribers and market participants will rely on Form ATS–N disclosures to understand and evaluate the operations of the NMS Stock ATS and conflicts of interest that may arise from the ATS-related activities of the broker-dealer operator and its affiliates and use this information to help determine where to route their orders, or the orders of their customers. We believe that a disclosure on Form ATS–N that is materially deficient with respect to its completeness or comprehensibility could mislead market participants or impede their ability to understand an NMS Stock ATS’s operations, or the ATS-related activities of its brokerdealer operator, which would frustrate the purpose of the transparency goals of this rulemaking. We do not believe that it would be practical, as one commenter suggests,391 to provide examples of disclosures that the Commission would not view as materially deficient because the context of each disclosure is crucial to determining whether a disclosure is complete and comprehensible. Whether a disclosure deficiency is material depends on the facts and circumstances, as does whether the deficiency would support a finding that the deficiency is such that a declaration of ineffectiveness would be in the public interest and consistent with the protection of investors. As discussed above, one commenter questions how the Commission’s review will be undertaken to help ensure consistency across filings when initial Form ATS–N filings are made ‘‘without any prior knowledge of the detail the Commission expects,’’ 392 and another states that it ‘‘would be helpful’’ to have the Commission review
initial filings to, among other things, help ‘‘standardize the level of disclosure across NMS Stock ATSs.’’ 393 We have revised Form ATS– N in a number of ways in response to comments. For instance, we added more ‘‘yes’’ or ‘‘no’’ questions, separated questions into distinct subject matter categories, provided additional examples as guidance, and made requests more explicit for more targeted responses.394 These changes to Form ATS–N are designed to better inform NMS Stock ATSs of the requirements of Form ATS–N and to solicit more consistent responses from NMS Stock ATSs. However, NMS Stock ATSs operate differently, and with different complexities, and use different terms to describe their systems. While this could lead to different levels of disclosures among ATSs, we believe that the combination of refinements to the form, and the Commission’s review of all Forms ATS–N filed by Legacy NMS Stock ATSs during the same period of time, will assist the Commission in providing a consistent level of comment on the forms that will help facilitate a more consistent and standard level of information disclosed across NMS Stock ATSs.

395See supra notes 362–363 and accompanying text. 396See supra note 356 and accompanying text. 397See supra note 344 and accompanying text. 398See CBOE Letter at 2. 399See Citadel Letter at 3. 400See UBS Letter at 4. 401See id. Another commenter, in expressing the view that Form ATS–N amendments should not be made public upon filing, states that doing so would risk turning the effectiveness process into an extended review, notice, and comment period, which the commenter believes would be inappropriate and unwarranted. See SIFMA Letter at 31–32. 402See supra Section IV.A.3.c. 403See supra note 359 and accompanying text. 404See, e.g., supra note 346 and accompanying text. 405Proposed rule changes filed by national securities exchanges pursuant to Section 19 of the Exchange Act must be consistent with the Exchange Act. In addition, filings made pursuant to Section 19(b)(2) require the Commission to approve a proposed rule change if it finds the proposed rule change is consistent with the Exchange Act and the rules and regulations thereunder, or it must disapprove the proposed rule change. While a disclosure that reveals non-compliance with the federal securities laws or the rules and regulations thereunder may be a basis for the Commission finding that a declaration of ineffectiveness would be in the public interest and consistent with the protection of investors, Regulation ATS is a disclosure regime, and the Commission will not be making findings on consistency with the Exchange Act with respect to disclosures on Form ATS–N. 406See Regulation ATS Adopting Release, supra note 3, at 70910. 407See id. at 70847. Any order declaring a Form ATS–N ineffective will require the Commission to find that such action is necessary or appropriate in the public interest, and consistent with the protection of investors. Rule 304(a)(1)(iii) provides that the Commission must provide notice to the NMS Stock ATS and provide an opportunity for a hearing. As such, an NMS Stock ATS will have the opportunity to be heard before the Commission declares its Form ATS–N ineffective. As discussed above, we do not agree with a commenter’s suggestion that a Form ATS–N be considered ineffective upon filing.395 We also do not agree with the comment that a declaration of ineffectiveness of a Form ATS–N will prejudice an entity such that a revised filed Form ATS–N will have no practical value.396 We anticipate a dialogue between Commission staff and the NMS Stock ATS regarding the Form ATS–N disclosures and an NMS Stock ATS will have the opportunity to amend its initial Form ATS–N during the Commission review period. If a Form ATS–N is declared ineffective by the Commission, the Commission’s order will provide the basis for the declaration of ineffectiveness, and the NMS Stock ATS will have the opportunity to file another Form ATS–N that addresses the basis for the ineffectiveness determination. To the extent that the NMS Stock ATS files a revised initial Form ATS–N or Form ATS–N
amendment that no longer contains, for example, material deficiencies with respect to its completeness or comprehensibility, the Form ATS–N would become effective, assuming no other basis for an ineffectiveness determination. Regarding the comment that the Commission should provide an NMS Stock ATS with a clear written statement of the reasons for a declaration of ineffectiveness,397 the Commission intends to provide the basis for declaring a Form ATS–N ineffective in an order declaring a Form ATS–N ineffective, which will help the NMS Stock ATS address disclosure deficiencies if the ATS decides to refile an initial Form ATS–N and help market participants understand the reason the Form ATS–N was declared ineffective. We also received three comments regarding whether the Commission should add a requirement to make available Form ATS–N filings for public notice and comment before the Commission declares a Form ATS–N effective or ineffective. One commenter notes that the rule filings of national securities exchanges are made publicly available and subject to notice and comment before approval, and that Form ATS–N should be the same.398 Another commenter expresses the view that it would be helpful for the Commission to receive feedback from market participants regarding Form ATS–N filings, and supports harmonizing the process with the application and filing process for national securities exchanges.399 One commenter, however, expresses the view that Form ATS–N should not be subject to a public notice and comment process.400 This commenter states that the Commission has long recognized several fundamental differences between national securities exchanges and ATSs, and that imposing a public notice and comment period on ATSs would not be equitable and would impede dynamic market structure advances because the Commission has fostered competition among different types of trading venues.401 We believe that it would not be appropriate to subject Form ATS–N filings to public notice and comment, as some commenters suggest. The Commission did not propose to subject Form ATS–N filings to a public notice and comment process. As discussed above,402 the Commission is not performing a review of the merits of initial Form ATS–N disclosures, such as determining the strengths and weaknesses of the trading platform or a protocol offered by the NMS Stock ATS. The Commission also is not making findings regarding whether the means by which orders will interact on the trading platform are, or are not, consistent with the Exchange Act, as is the case with respect to certain SRO rule filings.403 Rather the Commission’s review of Form ATS–N disclosures will focus on the completeness and comprehensibility of the disclosures, which does not lend itself to public notice and comment. We do not believe that public comment would facilitate the review of Form ATS–N, and are not subjecting Form ATS–N filings to a process similar to SROs’ proposed rule change filings, which are
subject to notice and comment, and consideration by the Commission. The standard of review for ineffectiveness of Form ATS–N filings that we are adopting does not include an evaluation of the merits of the services that an NMS Stock ATS offers to subscribers. As discussed above, some commenters raise concerns about whether the Commission review process will result in imposing substantive standards on NMS Stock ATSs.404 Rule 304 and Form ATS–N are designed to enhance operational transparency for NMS Stock ATSs, and therefore, the standard of review undergirding the Commission review will focus on the disclosures on Form ATS–N, as described above, and not the manner in which the NMS Stock ATS operates. Unlike proposed rule changes filed by national securities exchanges, the Commission will not make affirmative findings about Form ATS–N filings with regard to consistency with the Exchange Act.405 Regulation ATS was designed to encourage innovation 406 and provide enough flexibility to accommodate the business objectives of, and benefits provided by, alternative trading systems.407 As follows, the standard of review for ineffectiveness of Form ATS– N is designed to enhance the transparency objectives of the new disclosure requirements in a manner consistent with allowing NMS Stock ATSs to continue to innovate and provide benefits to the market. The Commission review is not intended to evaluate an NMS Stock ATS’s services against industry norms, nor approve or disapprove aspects of the NMS Stock ATS’s operations, for example, a new trading functionality, order type, or execution protocol.

408We are adopting Rule 304(a)(1)(iv) to delineate the initial filing process applicable to Legacy NMS Stock ATSs from the initial filing process applicable to non-Legacy NMS Stock ATSs. This differs from the proposed rule text, which integrated the requirements applicable to Legacy NMS Stock ATSs within the requirements applicable to all NMS Stock ATSs set forth in proposed Rule 304(a)(1)(i) through (iii). Providing these requirements in a separate section of the rule better organizes the rule text so filers can more easily understand the initial Form ATS–N filing process that is applicable to Legacy NMS Stock ATSs and is responsive to comments, which are discussed below. 409Although the Form ATS for a Legacy NMS Stock ATS will no longer have any legal effect for purposes of the exemption after the ATS files a Form ATS–N, a Form ATS will nevertheless continue to be subject to the federal securities laws and the regulations thereunder, including Regulation ATS, as a Form ATS previously filed with the Commission will 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. See 17 CFR 242.301(b)(2)(vi). 410See Rule 304(a)(1)(iv)(A). 411See Proposal, supra note 2, at 81026. 412See CFA Institute Letter at 5; BIDS Letter at 3. 413See CFA Institute Letter at 4. 414See also supra note 412 and accompanying text. 415See BIDS Letter at 2–3; SIFMA Letter at 29. 416See BIDS Letter at 2. 417See SIFMA Letter at 29. 418See id. 419See BIDS Letter at 2–3; SIFMA Letter at 29. 420See BIDS Letter at 2.
4. Rule 304(a)(1)(iv): Transition for
Legacy NMS Stock ATSs a. Rule 304(a)(1)(iv)(A): Initial Filing Requirements Rule 304(a)(1)(iv) describes the process through which Legacy NMS Stock ATSs would file their initial Form ATS–N. We are adopting Rule 304(a)(1)(iv) (‘‘Transition for Legacy NMS Stock ATSs’’) to provide a process for a Legacy NMS Stock ATS to file its initial Form ATS–N, and to continue to operate while its initial Form ATS–N is under Commission review.408 Adopted Rule 304(a)(1)(iv)(A) (‘‘Initial Form ATS–N filing requirements’’) requires that a Legacy NMS Stock ATS shall file with the Commission an initial Form ATS–N, in accordance with the conditions of Rule 304(a)(1)(iv), no earlier than January 7, 2019, and no later than February 8, 2019. Further, adopted Rule 304(a)(1)(iv)(A) provides that an initial Form ATS–N filed by a Legacy NMS Stock ATS shall supersede and replace for purposes of the exemption the previously-filed Form ATS (including any amendments to Form ATS) of the Legacy NMS Stock ATS.409 The Legacy NMS Stock ATS may operate, on a temporary basis, pursuant to the filed initial Form ATS– N, and any amendment thereto, during the review of the initial Form ATS–N by the Commission.410 In addition, adopted Rule 304(a)(1)(iv)(A) provides that an initial Form ATS–N filed by a Legacy NMS Stock ATS, as amended, will become effective, unless declared ineffective, upon the earlier of: (1) The completion of review by the Commission and publication pursuant to Rule 304(b)(2) or (2) the expiration of the review period, or, if applicable, the end of the extended review period, pursuant to Rule 304(a)(1)(iv)(B). Adopted Rule 304(a)(1)(iv) modifies proposed Rule 304(a)(1)(i) to address certain commenter concerns, as described below. Under the proposed rule, an NMS Stock ATS operating as of the effective date of the final rule would continue to operate pursuant to its previously filed initial operation report on Form ATS, pending the Commission’s review of the filed Form ATS. We modified this proposed process in response to comments. In the Proposal, we asked whether the Commission should allow a Legacy NMS Stock ATS to continue operations pursuant to Form ATS pending the Commission’s review of Form ATS– N.411 Two commenters express support for certain aspects of the proposed transition process for Legacy NMS Stock ATSs (including that the Commission allow Legacy NMS Stock ATSs to operate during the Commission review period).412 One commenter states that it supports requiring Legacy NMS Stock ATSs to file an initial Form ATS–N.413 A Legacy NMS Stock ATS will be required to file an initial Form ATS–N to continue to operate pursuant to the Rule 3a1–1(a)(2) exemption with respect to its Rule 3b–16 activity in NMS stocks beyond January 7, 2019. This provision will allow a Legacy NMS Stock ATS to continue its current operations without disruptions to the ATS or its current subscribers and provide the Legacy NMS Stock ATS with sufficient time to make an orderly transition from
compliance under the current Regulation ATS requirements to compliance with Rule 304. Under the adopted rule, both Legacy NMS Stock ATSs and non-Legacy NMS Stock ATSs will be required to file an initial Form ATS–N. We believe that market participants should have access to the same level of information disclosed by both Legacy NMS Stock ATSs and non-Legacy NMS Stock ATSs as market participants will consider routing orders to both types of NMS Stock ATS. Allowing Legacy NMS Stock ATSs to file Form ATS instead of Form ATS–N would limit the amount of information available to market participants about these ATSs’ operations and the ATS-related activities of their broker-dealer operators, and would thereby make it difficult for market participants to assess Legacy NMS Stock ATSs as potential routing destinations for their orders. We believe that a Legacy NMS Stock ATS should be permitted to continue to operate during the Commission review period for initial Form ATS–N.414 Therefore, we are adopting Rule 304(a)(1)(iv)(A) to transition Legacy NMS Stock ATSs from operating pursuant to Form ATS to operating pursuant to Form ATS–N without interruption. As noted above, the transition for Legacy NMS Stock ATSs will benefit Legacy NMS Stock ATSs and their subscribers, as subscribers will be able to continue to send their orders to Legacy NMS Stock ATSs without disruption. Two commenters request clarification about the process for a Legacy NMS Stock ATS to file an initial Form ATS– N and its obligations to update its Form ATS on file with the Commission while the Commission reviews its initial Form ATS–N.415 One commenter expresses concerns about the regulatory and legal uncertainties that could result from a Legacy NMS Stock ATS operating while having filed with the Commission both a Form ATS and a Form ATS–N.416 Similarly, another commenter requests clarification about how a Legacy NMS Stock ATS should handle material changes to the NMS Stock ATS’s Form ATS.417 This commenter also asks the Commission to clarify whether a Legacy NMS Stock ATS should amend its Form ATS to avoid potential liability caused by the NMS Stock ATS submitting the additional information required in Form ATS–N.418 These commenters suggest processes that they believe will address these concerns.419 One commenter suggests that the Commission deem effective a Legacy NMS Stock ATS’s Form ATS–N upon filing but nevertheless subject it to a review and comment period by the Commission.420 We are not adopting this suggestion because labeling an initial Form ATS–N ‘‘effective’’ before the Commission has completed the review could mislead market participants. Another commenter suggests that a Legacy NMS Stock ATS that makes changes to its operations during the 120-calendar day review period or extended review period should only be required to amend its Form ATS, and that the Legacy NMS Stock ATS should not be required to

421See SIFMA Letter at 29.
422A Legacy NMS Stock ATS may file amendments pursuant to Rule 304(a)(1)(iv)(C) during the Commission review period. A change subject to a material amendment filed by a Legacy NMS Stock ATS within 30 calendar days of the end of the 240-calendar day extended review period, as provided by Rule 304(a)(1)(iv)(B)(1), or other period to which the Legacy NMS Stock ATS agrees in writing described in Rule 304(a)(1)(iv)(B)(2), may only be implemented by the Legacy NMS Stock ATS after the expiration of the 30-calendar day period provided by Rule 304(a)(2)(i)(A), and the Commission may declare such an amendment ineffective, as appropriate, until the 30-calendar day review period expires. 423See CFA Institute Letter at 5. 424This provision, which was proposed as the second sentence of proposed Rule 304(a)(1)(i) is now the first sentence of adopted Rule 304(a)(1)(iv)(A). In the adopted rule, we are making technical, non-substantive modifications to the proposed rule text, including: (1) Referring to ‘‘an’’ NMS Stock ATS rather than ‘‘the’’ NMS Stock ATS; (2) defining an NMS Stock ATS operating pursuant to an initial operation report on Form ATS as of the effective date as a ‘‘Legacy NMS Stock ATS;’’ (3) revising the definition of Legacy NMS Stock ATS to state that it operates pursuant to ‘‘an initial operation report’’ rather than a ‘‘previously filed’’ initial operation report; and (4) adding to Rule 304(a)(1)(i) the term ‘‘initial’’ before Form ATS–N. We are also changing the term ‘‘in accordance with the instructions therein’’ to ‘‘in accordance with the conditions of this section’’ because we intended for NMS Stock ATSs to comply with all of the applicable provisions of Rule 304, including any procedural provisions, in addition to the Instructions on Form ATS–N. 425See Proposal, supra note 2, at 81023. 426See 17 CFR 242.301(b)(2). See supra notes 57– 63 and accompanying text. also amend its initial Form ATS–N until the Commission declares it effective, and that the NMS Stock ATS could then file a ‘‘clean-up’’ amendment to its initial Form ATS–N.421 We are not adopting this approach because, as discussed below, our adopted approach to require a Legacy NMS Stock ATS to amend Form ATS–N would be less burdensome for the ATS than requiring the Legacy NMS Stock ATS to amend its Form ATS during the Commission review period and Form ATS–N after the Form ATS–N becomes effective. In response to these commenters, and after considering their alternative suggestions, we are adopting Rule 304(a)(1)(iv)(A), which is modified from proposed Rule 304(a)(1)(i), to provide that a filed Form ATS–N shall supersede and replace for purposes of the exemption a Legacy NMS Stock ATS’s previously-filed Form ATS. After considering the comments, we acknowledge that if the Commission were to require a Legacy NMS Stock ATS to file and amend both Form ATS and Form ATS–N during the Commission review period for an initial Form ATS–N, the Legacy NMS Stock ATS could incur additional legal and
regulatory risks, as it would be required to make changes to two forms and ensure that the information on the two forms is consistent. The disclosures on an initial Form ATS–N would include the vast majority of information provided to the Commission on Form ATS that pertains to the ATS’s NMS stock operations. Therefore, we believe that the modifications to the proposed rule would alleviate the burden on Legacy NMS Stock ATSs of filing two separate documents with the Commission that would likely contain significantly overlapping information. In addition, to address the commenters’ concerns, and facilitate the ability of a Legacy NMS Stock ATS to maintain only one filing for a limited time during the transition, we are also modifying proposed Rule 304(a)(1)(i), and adopting as Rule 304(a)(1)(iv)(A), to provide that the Legacy NMS Stock ATS may operate, on a provisional basis, pursuant to the filed Form ATS–N, and any amendments thereto,422 during the Commission review period of the filed initial Form ATS–N. This provision is designed to facilitate an orderly transition for Legacy NMS Stock ATSs from the Form ATS regime to the Form ATS–N regime while at the same time requiring an appropriate level of disclosure by NMS Stock ATSs. In addition, we are adopting a provision in Rule 304(a)(1)(iv)(A) that provides that an initial Form ATS–N filed by a Legacy NMS Stock ATS, as amended, will become effective, unless declared ineffective, upon the earlier of:
(1) The completion of review by the Commission and publication pursuant to Rule 304(b)(2) or (2) the expiration of the review period, or, if applicable, the end of the extended review period, pursuant to Rule 304(a)(1)(iv)(B). We are adding this provision to reflect changes to the effectiveness process; this provision is designed to replace parts of proposed Rule 304(a)(1)(iii). In addition, because we are adopting a process that allows a Legacy NMS Stock ATS to amend its initial Form ATS–N during the Commission review period, we are adding to Rule 304(a)(1)(iv)(A) that a Legacy NMS Stock ATS’s Form ATS–N ‘‘as amended’’ will become effective, which will include any amendments made to an initial Form ATS–N during the Commission review period. Finally, proposed Rule 304(a)(1) would have required Legacy NMS Stock ATSs to submit their initial Form ATS– N filings within 120 days of the effective date of this rulemaking. We received one comment supporting the requirement that Legacy NMS Stock ATSs file Form ATS–N within 120 calendar days of the effective date of the final rule, ‘‘given the reasonable assumption that the operators of the ATS should be very familiar with the operational structure of said ATS.’’ 423 We are modifying proposed Rule 304(a)(1)(i) (as part of adopted Rule 304(a)(1)(iv)(A)) to require Legacy NMS Stock ATSs to file an initial Form ATS– N no earlier than January 7, 2019, and no later than February 8, 2019 and making additional technical modifications.424 We believe that this will provide adequate time following the date that the enhanced disclosure requirements under Rule 304 become effective and for NMS Legacy NMS Stock ATSs to prepare and file an initial Form ATS–N with the Commission. NMS Stock ATSs will file Form ATS– N via EDGAR, which will be ready to accept Form ATS–N filings on January 7, 2019. We agree with the commenter that a Legacy NMS Stock ATSs should be knowledgeable of the operations of its system and the ATS-related activities of the broker-dealer operator and its affiliates and believes that requiring Legacy NMS Stock ATSs to file their initial Form ATS–N between January 7, 2019 and February 8, 2019 provides these with reasonable time to prepare and file their disclosures on Form ATS– N.425 We note that, until a Legacy NMS Stock ATS files its initial Form ATS–N with the Commission, the Legacy NMS Stock ATS must provide notice of changes to its operations by amending its Form ATS on file with the Commission pursuant to Rule 301(b)(2) of Regulation ATS.426 b. Rule 304(a)(1)(iv)(B): Commission Review Period; Ineffectiveness Determination Rule 304(a)(1)(iv)(B) provides the process and timing for the Commission to review a Legacy NMS Stock ATS’s initial Form ATS–N, and, if applicable, declare such initial Form ATS–N effective. We are adopting Rule 304(a)(1)(iv)(B) (‘‘Commission review period; Ineffectiveness determination’’), which provides that the Commission may, by order, as provided in Rule 304(a)(1)(iii),
declare an initial Form ATS–N filed by a Legacy NMS Stock ATS ineffective no later than 120 calendar days from the date of filing with the Commission, or, if applicable, the end of the extended review period. The Commission may extend the initial Form ATS–N review period for a Legacy NMS Stock ATS for: (1) An additional 120 calendar days if the initial 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

427See supra notes 294–295 and accompanying text. 428See Proposal, supra note 2, at 81023–24. See also supra notes 296–297 and accompanying text. 429See supra Section IV.A.3. We added language to the proposed rule text, and created a separate paragraph (B) of Rule 304(a)(1)(iv) to address the Commission review period for Legacy NMS Stock ATS amendments including: (1) Specifying, consistent with the proposed rule text, that the Commission will declare ‘‘by order’’ an initial Form ATS–N ineffective and referencing the paragraphs under the rule that delineate the process pursuant to which the Commission will do so; (2) specifying that the Commission will declare an initial Form ATS–N ineffective no later than 120 calendar days from ‘‘the date of’’ filing with the Commission; (3) adding to the first sentence that the Commission may declare an initial Form ATS–N ineffective no later than 120 calendar days from the date of filing with the Commission, ‘‘or, if applicable, the end of the extended review period’’ to reduce ambiguity regarding the length of the Commission review period; (4) specifying that the Commission will notify the Legacy NMS Stock ATS of any extension of the review period within the 120 ‘‘calendar day’’ review period; (5) specifying that the Commission review period described in this section applies to ‘‘initial’’ Form ATS–N; and (6) using the defined term ‘‘Legacy NMS Stock ATS’’ throughout the paragraph. 430See SIFMA Letter at 29. 431Because its initial Form ATS–N supersedes and replaces a Legacy NMS Stock ATS’s Form ATS for purposes of the exemption and the initial Form ATS–N can be amended, a Legacy NMS Stock ATS may not withdraw its initial Form ATS–N. See infra
Section V.B.1.
432See infra note 434.
433See SIFMA Letter at 29.
434The Commission could also, in the case of a Legacy NMS Stock ATS, provide in its order of ineffectiveness a period of time for the NMS Stock ATS to wind down its operations. Because Commission orders of ineffectiveness would be made public, market participants would also have notice of any wind down period. 435See BIDS Letter at 3; SIFMA Letter at 29. Legacy NMS Stock ATS in writing within the initial 120-calendar day review period and will briefly describe the reason for the determination for which additional time for review is required; or (2) any extended review period to which a duly-authorized representative of the Legacy NMS Stock ATS agrees in writing. As discussed above, we received comments on the 120-calendar day review period and extended review periods that either support or do not object to the time frames proposed for both non-Legacy NMS Stock ATSs and Legacy NMS Stock ATSs.427 We continue to believe that 120 calendar days typically would provide the Commission adequate time to carry out its oversight functions with respect to the review of Forms ATS–N filed by Legacy NMS Stock ATSs, including its responsibilities to protect investors and maintain fair, orderly, and efficient markets, and that the extended review period for filings that are unusually lengthy or raise novel or complex issues will allow the Commission and its staff to conduct a thorough review and provide sufficient opportunity to discuss the filing with the NMS Stock ATS if necessary.428 We are adopting Rule 304(a)(1)(iv)(B), which was proposed as part of Rule 304(a)(1)(ii)(A), with modifications, consistent with and for the reasons discussed above with respect to the Commission review period for Form ATS–N filings by nonLegacy NMS Stock ATSs.429 One commenter suggests that if the Commission declares a Legacy NMS Stock ATS’s initial Form ATS–N ineffective, the NMS Stock ATS should have the opportunity to amend its Form ATS–N so that the form would be effective before the NMS Stock ATS is required to cease operating.430 During the review process, we expect to engage in dialogue with the Legacy NMS Stock ATSs about their Form ATS–N disclosures. To the extent any deficiencies exist with the Form ATS– N disclosures, we expect that the Legacy NMS Stock ATSs typically will have an opportunity to understand and cure deficiencies in the filing before the Commission declares the Form ATS–N ineffective. If, after discussion with Commission staff, a Legacy NMS Stock ATS determines that it needs more time to address deficiencies in its initial Form ATS–N to avoid a Commission declaration of ineffectiveness, a Legacy NMS Stock ATS could consent to an extended Commission review period under Rule 304(a)(1)(iv)(B)(2). Prior to declaring a Legacy NMS Stock ATS’s Form ATS–N ineffective, the Commission will provide the ATS with notice and opportunity for hearing about the Commission’s intention to declare the form ineffective. After the Commission declares a Form ATS–N ineffective,
however, the Legacy NMS Stock ATS will not have an opportunity to amend its Form ATS–N.431 Upon its Form ATS–N being declared ineffective, a Legacy NMS Stock ATS must cease operating pursuant to the Rule 3a1–1(a) exemption,432 and to the extent that the ATS does continue to operate, the Commission could find it to be an unregistered national securities exchange, and thus operating in violation of Section 5 of the Exchange Act. This commenter also states that a declaration of ineffectiveness should remain confidential until the Legacy NMS Stock ATS has amended the Form ATS–N and the amended form is ‘‘approved.’’ 433 We do not agree with the commenter’s suggestion. As discussed immediately above, there will be an opportunity during the review process for the ATS to supplement its filing. Once its initial Form ATS–N is declared ineffective, a Legacy NMS Stock ATS would not be able to operate pursuant to the Rule 3a1–1(a)(2) exemption and would not be able to amend its Form ATS–N after it is declared ineffective. It could file a new Form ATS–N, which the Commission will review without prejudice. We believe that it is in the public interest for the Commission to make an order of ineffectiveness for a Legacy NMS Stock ATS publicly available so that market participants have notice of the operating status of the NMS Stock ATS and can make appropriate adjustments to their routing strategies.434 Two commenters request clarification about whether amending an initial Form ATS–N as a result of a material change during the Commission review period would toll the review period, and suggest that the review period should not restart with every amendment.435 The filing of a Form ATS–N material amendment by a Legacy NMS Stock ATS, even if filed within 30 days of the expiration of the Commission’s extended review period, would not toll the review period for the Form ATS–N; initial Form ATS–N will become effective in accordance with the timeframes set forth in Rule 304(a)(1)(iv)(A). However, a change reflected in a material amendment that is filed within 30 days of the expiration of the Commission review period could not be implemented until the end of the Commission’s 30-calendar day review period pursuant to Rule 304(a)(2)(i)(A).
c. Rule 304(a)(1)(iv)(C): Amendments to
Initial Form ATS–N
Rule 304(a)(1)(iv)(C) describes the process through which Legacy NMS Stock ATSs would amend their initial Form ATS–N during the Commission review period. We are adopting Rule 304(a)(1)(iv)(C) (‘‘Amendments to initial Form ATS–N’’), which requires that during the review period of the initial Form ATS–N filed by a Legacy NMS Stock ATS, the Legacy NMS Stock ATS shall amend its initial Form ATS–N pursuant to the requirements of Rule 304(a)(2)(i)(A) through (D). The adopted rule differs from the Proposal. As proposed, during the Commission review period for an initial Form ATS– N filed by a Legacy NMS Stock ATS, the Legacy NMS Stock ATS would have been required to continue operating pursuant to its existing Form ATS initial operation report and file amendments on Form ATS to provide notice of changes to the operations of its

436See Proposal, supra note 2, at 81023; see also 17 CFR 242.301(b)(2)(ii) through (iv). The Commission is modifying the proposed rule by creating a new paragraph (C) of Rule 304(a)(1)(iv), which provides a process for reporting changes during the Commission review period for Legacy NMS Stock ATSs. 437See supra note 409. 438See supra note 415 and accompanying text. 439See supra notes 420 and 421 and accompanying text. 440See supra note 415 and accompanying text. 441See id. 442See Liquidnet Letter at 4. 443See infra note 587 and accompanying text. 444The proposed rule text required that an NMS Stock ATS amend ‘‘an effective’’ Form ATS–N in accordance with the ‘‘instructions therein.’’ We have modified this requirement in the Rule 304(a)(2)(i) as adopted by deleting the word ‘‘effective’’ because, as discussed in Section IV.A.4.c, we are adopting Rule 304(a)(1)(ii) and Rule 304(a)(1)(iv)(C), which allow an NMS Stock ATS to amend a Form ATS–N that has not yet become effective. In addition, we are replacing the rule text that stated that an NMS Stock ATS shall amend Form ATS–N in accordance with ‘‘the instructions therein’’ with text requiring an NMS Stock ATS to amend Form ATS–N in accordance with ‘‘the conditions of this section’’ because we intended for NMS Stock ATSs to comply with all of the applicable provisions of Rule 304, including any procedural provisions, in addition to the Instructions on Form ATS–N. We are also adding a separate amendment filing process for changes to information disclosed in Part III, Item 24 and 25 of Form ATS–N. See infra Sections IV.B.1.a.iii. Because in Rule 304(a)(2)(i)(D) we are specifying treatment for order display and fair access amendments, which generally would be material changes, we are also adding that Rule 304(a)(2)(i)(A) applies ‘‘except as provided by’’ Rule 304(a)(2)(i)(D). See infra Sections IV.B.1.a.iii. system.436 Because adopted Rule 304(a)(1)(iv)(A) states that a filed Form ATS–N will supersede and replace for purposes of the exemption a Legacy NMS Stock ATS’s previously-filed Form ATS, a Legacy NMS Stock ATS will no longer file Form ATS amendments once it files an initial Form ATS–N. Instead, a Legacy NMS Stock ATS will be required to update Form ATS–N during the Commission review period.437 If the ATS trades both NMS stocks and nonNMS stocks, such ATS would update its Form ATS with respect to its non-NMS stock operations. As discussed above, two commenters request that the Commission clarify the process for filing amendments during the Commission review period for Legacy NMS Stock ATSs 438 and suggest alternative approaches.439 The modifications in adopted Rule 304(a)(1)(iv)(C) are designed to address the comments requesting clarification about the process for reporting material changes during the time the Commission reviews the initial Form ATS–N of a Legacy NMS Stock ATS.440 Adopted Rule 304(a)(1)(iv)(C) also addresses the alternative approaches that the commenters suggest by requiring a
Legacy NMS Stock ATS to update its Form ATS–N (rather than Form ATS), and operate pursuant to its Form ATS–N (rather than Form ATS).441 We believe that Rule 304(a)(1)(iv)(C) will relieve any unnecessary burden from maintaining two forms and ease the transition to the Form ATS–N regime. In addition, one commenter asked the Commission to adopt a process that would allow Legacy NMS Stock ATSs to introduce a new functionality or make changes during the 120-calendar day review period for the initial Form ATS– N.442 We agree with the commenter that Legacy NMS Stock ATSs should have a method to make changes to their operations and introduce new functionalities during the Commission review period. In accordance with Rule 304(a)(1)(iv)(C), during the Commission review period, the Legacy NMS Stock ATSs may make changes to the operations of the ATS and shall file amendments to reflect those changes pursuant to the requirements of Rule 304(a)(2)(i)(A) through (D). For example, during the period of Commission review of its initial Form ATS–N, a Legacy NMS Stock ATS may make a material change to its operations, provided that it files with the Commission an amendment to its Form ATS–N describing such change at least 30 calendar days prior to the date of implementation of such change, pursuant to Rule 304(a)(2)(i)(A). A change subject to a material amendment filed by a Legacy NMS Stock ATS may be implemented by the Legacy NMS Stock ATS after the expiration of the 30- calendar day period provided by Rule 304(a)(2)(i)(A). Rule 304(a)(1)(iv)(C) provides that a Legacy NMS Stock ATS shall amend its initial Form ATS–N pursuant to the requirements of Rule 304(a)(2)(i)(A) through (D), which govern the process for filing amendments to Form ATS–N. Amendments will be subject to Commission review and could be declared ineffective under Rule 304(a)(2)(ii). Filed Form ATS–N amendments will not be made public until the Legacy NMS Stock ATS’s initial Form ATS–N becomes effective and publicly available. Once a Legacy NMS Stock ATS’s initial Form ATS–N becomes effective, the Commission will make public the Form ATS–N, as amended, which will incorporate any amendments that the Legacy NMS Stock ATS filed to the initial Form ATS–N during the Commission review period, except for any material amendments still subject to the 30-calendar day Commission review period.443 In connection with the changes described above, we are adopting Rule 304(a)(1)(iv)(C), which provides that a Legacy NMS Stock ATS shall amend its filed Form ATS–N during the Commission review pursuant to the requirements of Rule 304(a)(2)(i)(A) through (D). B. Rule 304(a)(2): Form ATS–N Amendments

Rule 304(a)(2)(i): Filing Requirements
Rule 304(a)(2)(i) describes the types of amendments that NMS Stock ATSs would be required to file to their Form ATS–N. We proposed Rule 304(a)(2)(i) (‘‘Form ATS–N amendment filing requirements’’) to require an NMS Stock ATS to update information disclosed on Form ATS–N concerning its manner of operations and the ATS-related activities of its broker-dealer operator and its affiliates. Proposed Rule 304(a)(2)(i) would have required 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 proposed Rule 304(a)(1)(i) or (a)(2)(i)(A) or (B) was inaccurate or incomplete when filed. We are adopting Rule 304(a)(2)(i) with modifications. As adopted, Rule 304(a)(2)(i) requires an NMS Stock ATS to amend a Form ATS–N in accordance with the conditions of Rule 304: 444 (1) At least 30 calendar days, except as provided by Rule 304(a)(2)(i)(D), prior to the date of implementation of a material change to the operations of the NMS Stock ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on Form ATS–N; (2) no later than 30 calendar days after the end of each calendar quarter to correct information that has become inaccurate or incomplete for any reason and was not required to be reported to the Commission as a Form ATS–N amendment pursuant to Rules 304(a)(2)(i)(A), (C), or (D); (3) promptly, to correct information in any previous disclosure on Form ATS–N, after

445See cover page to Form ATS–N.
446See proposed Rule 304(a)(2)(i)(A). 447See Proposal, supra note 2, at 81027–28. 448See id. at 81028. 449See MFA/AIMA Letter at 4. 450See HMA Letter at 9. 451See Liquidnet Letter at 4; KCG Letter at 5. 452See Liquidnet Letter at 4. 453See id. 454See KCG Letter at 5. 455See Fidelity Letter at 10. 456See KCG Letter at 5. 457See KCG Letter at 4. 458See supra Section IV.A.3. 459See Liquidnet Letter at 5. 460See id. 461See infra Section IV.B.1.a.ii. discovery that any material information previously filed on Form ATS–N was inaccurate or incomplete when filed; and (4) no later than seven calendar days after information required to be disclosed in Part III, Items 24 and 25 on Form ATS–N has become inaccurate or incomplete. Form ATS–N requires an NMS Stock ATS filing an amendment to ‘‘select one’’ of the four types of amendments; each amendment type is mutually exclusive.445 a. Material Changes (i) Comments on Advance Notice We proposed that an NMS Stock ATS would be required to amend an effective Form ATS–N 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.446 In the Proposal, we stated that a 30-calendar day advance notice period would give the Commission the opportunity to clarify any questions that might arise or to take action, if appropriate, regarding problems that may impact market participants, before the NMS Stock ATS implemented the change.447 We also stated that such advance notice would allow market participants to evaluate the changes before implementation and assess the NMS Stock ATS as a continued, or potential, trading venue.448 We received several comments relating to the proposed 30-calendar day advance notice requirement for material changes in proposed Rule 304(a)(2)(i)(A). One commenter states that it supports the requirement that an NMS Stock ATS file a material amendment to Form ATS–N 30 days in advance of implementing a material change to the operations of the NMS Stock ATS, or the activities of the broker-dealer operator or its affiliates.449 Another commenter states that although advance notice of 20 calendar days before implementing a material change may be adequate, it believes that the 30- calendar day advance notice requirement strikes an appropriate balance between an NMS Stock ATS’s ability to innovate, while also providing market participants and regulators adequate time to evaluate and respond to the intended change.450 Two commenters suggest that instead of requiring 30 calendar days of advance notice, the Commission should require NMS Stock ATSs to file an amendment on Form ATS–N at least 20 calendar days in advance of implementing a material change, which is the same as the current requirement for filing amendments to Form ATS.451 One commenter believes the 30-calendar day advance notice period would provide minimal benefit for the
Commission because the Commission may at any time object to an NMS Stock ATS’s functionality or require clarification.452 This commenter also states that lengthening the advance notice period would create an unnecessary delay for NMS Stock ATSs in introducing new functionality and improving existing functionality and processes.453 The other commenter supports retaining the 20-calendar day advance notice period, stating that due to the breadth of disclosures on Form ATS–N and the fact that Form ATS–N disclosures will be made public, market participants will have access to a much greater level of information about ATS operations and changes than in the past.454 Another commenter states that a process for reviewing Form ATS–N amendments that extends beyond 30 days could have a significant impact on NMS Stock ATS operations, particularly with regard to the launch of new technologies.455 We are adopting Rule 304(a)(2)(i)(A) with modifications. We do not agree with commenters who believe that the current 20-calendar day advance notice period for material amendments to be filed on Form ATS would be more appropriate for NMS Stock ATSs than a 30-calendar day period. We believe that a 30 calendar day advance notice period for a material change would allow the Commission sufficient time to review the amendment and determine, if necessary, whether the filing should be declared ineffective. Although we agree with the commenter that states that market participants will have access to more information regarding NMS Stock ATS operations than in the past,456 given the complexity of NMS Stock ATSs today and the breadth of disclosures required on Form ATS–N, the 10 additional calendar days provides the Commission with the necessary time to review, and communicate with the NMS Stock ATS about, the Form ATS–N disclosures. We believe that the benefits of a longer advance notice period justify any potential burden on an NMS Stock ATS and any potential delay to the introduction of a new technology. We believe that a 30-calendar day review period will benefit subscribers and market participants as the time will allow the Commission to help ensure that disclosures made available to the public are complete and comprehensible. One commenter states that the advance notice requirement for material changes would be close to an ‘‘advance notice and approval’’ approach that may effectively result in a merit review process of NMS Stock ATS operations.457 As discussed above with respect to the Commission’s review of an initial Form ATS–N pursuant to Rule 304(a)(1)(iii),458 the Commission’s review of a Form ATS–N amendment does not weigh the merits of a change that is the subject of a Form ATS–N amendment. Rather, the Commission’s review is focused on the completeness and comprehensibility of the disclosures themselves. Another commenter expresses concern regarding situations in which it files a material amendment to Form ATS–N but needs to modify a functionality based on customer
feedback or unanticipated workflows or scenarios.459 The commenter states that it would be beneficial for an NMS Stock ATS to have the flexibility to make modifications without delay, as long as any modifications were disclosed in advance to customers, would not adversely impact customers, and do not change the key elements of the new functionality that had been previously described in a Form ATS–N amendment.460 In addition to providing advance notice to the public about a potential material change to the NMS Stock ATS, the advance notice period allows the Commission to review the disclosures on Form ATS–N, and we believe that the review will help ensure that market participants receive complete and comprehensible disclosures. We are providing guidance for determining whether a change is material.461 In deciding whether to implement a modification to a functionality without delay in response to customer feedback or unanticipated workflows or scenarios, an NMS Stock ATS is required to determine if, in light of all relevant facts and circumstances,

462 In the event that it is appropriate for the Commission to exempt an NMS Stock ATS, conditionally or unconditionally, by Commission order, after application by the ATS, from the advance filing requirement, the Commission will be able to issue exemptions. See supra note 226 and accompanying text. 463See Proposal, supra note 2, at 81028. 464See id. at 81028 n.309. 465See BIDS Letter at 3; SIFMA Letter at 30–31. 466See infra note 468 and accompanying text. 467See Liquidnet Letter at 4. 468See Proposal, supra note 2, at 81028. 469See BIDS Letter at 3–4; Fidelity Letter at 10; UBS Letter at 3; SIFMA Letter at 31. 470See SIFMA Letter at 31. 471See id. 472See KCG Letter at 5. 473See SIFMA Letter at 30–31. 474See Fidelity Letter at 10. 475See SIFMA Letter at 5. 476See UBS Letter at 3. 477See Liquidnet Letter at 4. 478See SIFMA Letter at 30–31. the modification constitutes a material change. If the modification does not constitute a material change, the NMS Stock ATS could implement the change and file an updating amendment. However, if the modification is material, the NMS Stock ATS must file a material amendment and wait 30 calendar days before implementing the change.462 (ii) Comments on Materiality In the Proposal, we stated our belief that a change to the operations of an NMS Stock ATS, or the disclosures regarding the activities of the brokerdealer 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.463 We continue to believe that this standard of materiality is appropriate. This standard of materiality is similar to materiality standards applied in the context of securities disclosures made pursuant to other rules.464 Some commenters agree that materiality is an appropriate standard for requiring advance notice.465 One commenter states that it agrees with the guidance regarding materiality set forth in the Proposal 466 but notes that facts and circumstances could determine whether the scenarios the Commission provided in the Proposal would likely constitute material changes, and states that although the scenarios set forth in the Proposal are helpful examples, they are broadly written.467 We continue to believe that scenarios that are particularly likely to implicate a material change would include: (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 subscribers’ confidential trading information.468 This list is not intended to be exhaustive, and we do not mean to imply that other changes to the operations of an NMS Stock ATS or the activities of the broker-dealer operator or its affiliates could not constitute material changes. Further, the NMS Stock ATS should generally consider whether the cumulative effect of a series of changes to the operations of the NMS Stock ATS or the activities of the broker-dealer operator or its affiliates with regard to the NMS Stock ATS is material. In addition, in determining whether a change is material, an ATS generally should consider whether such change would affect: (1) The competitive dynamics among ATS subscribers; (2) the execution quality or performance of the orders of any subscriber or category of subscribers; (3) the fees that any subscriber or category of subscribers would pay to access and/ or use the ATS; (4) the nature or composition of counter-parties with which any subscriber or category of subscribers interact; and (5) the relative speed of access or execution of any subscriber or group of subscribers. Some commenters ask that we provide greater clarity with respect to the types of changes that would be material changes.469 One commenter states that we should provide examples of types of changes that would not be considered material or would be excluded from being considered ‘‘material’’ given the impracticality of the 30-calendar day amendment period, and states that changes that are not subscriber-facing (e.g., changes to software, hardware, or other trading infrastructure) should not be deemed to be material changes.470 This commenter also states that NMS Stock ATSs should not be required to make a good-faith decision that a change is not material ‘‘only to be informed that the Commission has decided the change is material based on an unpublished standard.’’ 471 Another commenter states that the ‘‘standard’’ for determining material changes is one of the most difficult and potentially unworkable obligations under the Proposal.472 Another commenter states that the Commission should provide ‘‘clear and objective standards’’ on what triggers the requirement for an NMS Stock ATS to file a Form ATS–N amendment; this commenter states that if the Commission staff regards every change as material, then it means nothing to provide that amendments are required only for material changes.473 In addition, one commenter states that a clearer ‘‘definition’’ of what is considered a ‘‘material amendment’’ is critical to NMS Stock ATS broker-dealer operators due to the fact that NMS Stock ATSs must provide advance notice before implementing a material change.474 Another commenter observes that NMS Stock ATSs have operations, offerings, and interactions that regularly evolve and states
that it is ‘‘essential’’ for NMS Stock ATSs to have ‘‘clear and specific expectations’’ on what types of changes would be deemed material and what level of detail should be included in the disclosures.475 Another commenter states that without descriptive and informative commentary from the Commission, there will be uncertainty and disparity as to which changes are actually filed by NMS Stock ATS operators as material changes, and suggests that the Commission provide a clear set of standards that would trigger a Form ATS–N amendment.476 We continue to believe that the Proposal’s guidance regarding whether a change is material is appropriate. In addition, we agree with the comment that a change that falls in one of the categories set forth in the Proposal, including a change to the manner in which the NMS Stock ATS displays orders or trading interest, such as the font size in which orders are displayed,477 would not be a material change if there would not be a substantial likelihood that a reasonable market participant would consider the change important when evaluating the NMS Stock ATS as a potential trading venue. We also do not believe that market participants should be concerned, as suggested by one commenter,478 that the Commission staff may regard ‘‘every change’’ as material and thereby render

479See BIDS Letter at 3–4.
480See STA Letter at 5.
481See supra note 475 and accompanying text. 482See Part II, Items 4, 5, 6, and 7 of adopted Form ATS–N; Part III, Items 2, 3, 5, 6, 11, 13, and 19 of adopted Form ATS–N. 483See UBS Letter at 3. 484See Regulation SCI Adopting Release, supra note 76, 79 FR at 72341–42. 485See HMA Letter at 9–10. 486See Proposal, supra note 2, at n.500. 487See id. at n.506. meaningless the Commission’s materiality guidance. One commenter notes that NMS Stock ATSs may over-file material amendments to avoid risk, and that over-filing would cost substantial time and resources for NMS Stock ATSs, as well as burden the Commission staff that will be processing and reviewing the submissions.479 Another commenter expresses concern that the requirements for amending Form ATS–N would create a reporting regime that is ‘‘overly voluminous’’ and may be less effective for market participants seeking transparency.480 The Commission does not believe that its materiality standard will result in overreporting or underreporting of information by an NMS Stock ATS or create an overly time-consuming and voluminous Form ATS–N amendment filing process for NMS Stock ATSs or the Commission. The Commission recognizes that Form ATS–N will require an NMS Stock ATS to provide more information about its operations and ATS-related activities of the brokerdealer operator and its affiliates than Form ATS. The Commission also recognizes that the structure and complexities of NMS Stock ATS operations have significantly changed since Regulation ATS was adopted, and believes that these changes require enhanced disclosures for subscribers to better understand how NMS Stock ATSs operate. Given the technology advancements and the proclivity for NMS Stock ATSs to enhance the operations of their ATSs, and the fact that market participants search for the best trading venue for their orders, we believe that it is important for an NMS Stock ATS to amend its Form ATS–N as required to ensure disclosures on Form ATS–N are complete and comprehensible. Based on the Commission experience with Form ATS filings, we believe that we have provided reasonable estimates of the time and resources that NMS Stock ATSs will need to expend to ensure that disclosures on amended Form ATS–N are accurate, current, and complete. With regard to the commenter that asks for more specificity about the level of detail that amendments to Form ATS–N require,481 we have revised Parts II and III of adopted Form ATS– N to make requests more explicit and clear about information that would be responsive to form requirements, and in some questions, we are requiring NMS Stock ATSs to provide a ‘‘summary’’ or a ‘‘list’’ of information.482 These changes are designed to provide an NMS Stock ATS with more specificity about the level of detail that is required by the form and to alleviate the burden on NMS Stock ATSs. Further, we revised Form ATS–N to remove certain terms that commenters believe are vague and, in some cases, reduced the scope of
information requested, and revised requests in adopted Form ATS–N to make more explicit what we meant by these terms. We believe that the requests in adopted Form ATS–N, as revised from the Proposal, provide NMS Stock ATSs the appropriate level of specificity for them to understand the information that is required by the form. In addition, the Commission will apply the same standard of review for declaring ineffective a Form ATS–N amendment as it will apply for declaring ineffective an initial Form ATS–N. One commenter states that it may be worth considering an approach that leverages the Regulation SCI framework of major changes determined to be material because such an approach would help ensure consistency between different Commission regulations that impact and govern ATSs.483 We are declining to adopt the commenter’s suggestion to apply the Regulation SCI framework for materiality. Regulation SCI does not define material systems changes but requires an SCI entity to establish written criteria for identifying a change to its SCI systems and the security of indirect SCI systems as material and to report to the Commission those changes the SCI entity identified as material in accordance with such criteria.484 Additionally, Form ATS–N is a public reporting form, and we believe the materiality guidance for material amendments to Form ATS–N is more appropriate than the Regulation SCI framework because it provides NMS Stock ATSs, market participants, and the Commission a clearer standard for determining whether a change would be material in the context of public reporting. In addition, one commenter states that because consumers of ATS disclosures vary widely in business models and sophistication, the Commission should not create ‘‘tiers’’ of materiality, and states that although the Commission has always understood that some ‘‘material’’ factors may be more or less important to different market participants, it should not substitute its priorities and relative rankings of importance for those of diverse market participants.485 We are not adopting ‘‘tiers’’ of materiality or using our own priorities or other relative ‘‘rankings’’ to determine whether a change to an NMS Stock ATS’s operations is material. The materiality of any change is dependent on the specific facts and circumstances, and we believe that creating tiers of materiality would add unnecessary complexity and would be inconsistent with the Commission’s approach to materiality in other contexts. (iii) Order Display and Fair Access Amendments In the Proposal, we stated that if an NMS Stock ATS triggers the Rule 301(b)(3)(i) order display and execution access volume thresholds after commencing operations pursuant to an effective Form ATS–N, the Commission generally would consider this to be a material change to the operations of the NMS Stock ATS.486 We also stated in the Proposal that if an NMS Stock ATS triggers the Rule 301(b)(5)(i) fair access volume thresholds after commencing
operations pursuant to an effective Form ATS–N, the Commission would generally consider this to be a material change to the operations of the NMS Stock ATS.487 Under Rule 304(a)(i)(2)(A), an NMS Stock ATS is required to file a material amendment at least 30 calendar days prior to the date of implementation of a material change. We continue to believe that it generally would be a material change to the operations of an NMS Stock ATS if the ATS were to exceed the order display and execution access threshold or become subject to the order display and execution access requirements under Rule 301(b)(3). Likewise, we continue to believe that it generally would be a material change to the operations of an NMS Stock ATS if the ATS were to exceed the fair access threshold or become subject to the order display and execution access requirements under Rule 301(b)(5). We recognize, however, that an NMS Stock ATS may not be able to comply with the 30-calendar day advance notice period for material amendments because the ATS may not be able to foresee when it will exceed the order display and execution access or fair access volume thresholds. To provide market participants with information about when an NMS Stock ATS becomes subject to, or no longer is subject to, the

488Because order display and fair access amendments generally would be material changes, we are also adding to Rule 304(a)(2)(i)(A) that such amendments must be filed under Rule 304(a)(2)(i)(A) ‘‘except as provided by’’ Rule 304(a)(2)(i)(D). 489 In the Proposal, we referred to these amendments as ‘‘periodic amendments.’’ See Proposal, supra note 2, at 81029. We believe that calling these amendments ‘‘updating amendments’’ reduces any potential ambiguity regarding the timing and purpose of these amendments, which is discussed below. 490Proposed Rule 304(a)(2)(i)(B). 491See Liquidnet Letter at 7. 492See id. 493See Proposal, supra note 2, at 81029. 494See Proposal, supra note 2 at 81084 (stating that to comply with the requirements of Part IV, Item 16 (adopted Part III, Item 26), an NMS Stock ATS would file a Form ATS–N amendment within 30 calendar days after the end of each calendar quarter). See also infra Section V.D.26.a. order display and execution access and fair access requirements, while not placing an undue burden on the NMS Stock ATS, we are adding to Rule 304(a)(2)(i) new subparagraph (D) to require an NMS Stock ATS to amend its Form ATS–N no later than seven calendar days after a change to the information required to be disclosed in
Part III, Items 24 and 25 on Form ATS–
N by an NMS Stock ATS (‘‘order display and fair access amendments’’).488 We believe that requiring NMS Stock ATSs to disclose changes to the information required to be disclosed in Part III, Items 24 and 25 of adopted Form ATS–N no later than seven calendar days from such changes will provide sufficient time for NMS Stock ATSs to comply with the requirement, while providing market participants with timely notice. b. Updating Amendments We proposed in Rule 304(a)(2)(i)(B) that an NMS Stock ATS is required to update its 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. We are amending Rule 304(a)(2)(i)(B) to expand the circumstances under which ‘‘updating amendments’’ 489 would be filed. As proposed, NMS Stock ATSs would have been required to file updating amendments to correct information that has become ‘‘inaccurate.’’ 490 We are amending Rule 304(a)(2)(i)(B) also to require that NMS Stock ATSs file updating amendments to correct information that has become ‘‘incomplete.’’ Although we received no comments directly on proposed Rule 304(a)(2)(i)(B), one comment on the amendment process in general expresses the view that an ATS must have the ability to update its filing to address ambiguities in how its rules would apply to different scenarios or uses.491 The commenter also states that if an ATS determines that it can ‘‘make its disclosure clearer, add detail, or improve the organization of the disclosure, the ATS should be encouraged to do so.’’ 492 We are modifying proposed Rule 304(a)(2)(i)(B) to specify that an NMS Stock ATS will be required to file an updating amendment to revise disclosures that become ‘‘inaccurate or incomplete.’’ Although, as proposed, Rule 304(a)(2)(i) did not explicitly require an NMS Stock ATS to disclose changes (other than material changes under Rule 304(a)(2)(i)(A)) that would render its Form ATS–N incomplete, the Commission stated its intent for Rule 304(a)(2)(i)(B) to provide a ‘‘a mechanism for NMS Stock ATSs to disclose changes to their operations or to update information that does not constitute a material change.’’ 493 We continue to believe that it is important that market participants have access to accurate, current, and complete disclosures on Form ATS–N. Accordingly, the Commission is requiring that an NMS Stock ATS disclose, no later than 30 calendar days after the end of the calendar quarter, changes that would render its Form ATS–N inaccurate or incomplete, but would not be required to be filed as correcting, material, or order display and fair access amendments. We also are revising Rule 304(a)(2)(i)(B) to provide that an updating amendment shall be filed ‘‘no later than’’ 30 calendar days after the end of the calendar quarter. This change allows, but does not require, an NMS Stock ATS to file amendments required by Rule
304(a)(2)(i)(B) earlier than the 30 calendar day window at the end of each calendar quarter. In addition, proposed Rule 304(a)(2)(i)(B) would have required an NMS Stock ATS to file an amendment to correct ‘‘any other’’ information that has not been previously reported as a Form ATS–N amendment. We believe that, as proposed, the phrase ‘‘any other’’ information could be vague and therefore, it could have been unclear when it would be permitted for an NMS Stock ATS to file an updating amendment, as opposed to a material or correcting amendment. To distinguish between what information may be filed pursuant to Rule 304(a)(2)(i)(B), rather than as a material amendment under Rule 304(a)(2)(i)(A), correcting amendment under Rule 304(a)(2)(i)(C), or order display and fair access amendment under Rule 304(a)(2)(i)(D), we are making a change to provide that updating amendments shall be filed to correct information that ‘‘was not required to be reported to the Commission as a Form ATS–N amendment pursuant to paragraphs 304(a)(2)(i)(A), (C), or (D) of this
section.’’
We believe that requiring NMS Stock ATSs to correct information that has become inaccurate or incomplete for any reason (and was not required to be reported to the Commission as a material amendment, correcting, or order display and fair access amendment) no later than 30 calendar days after the end of each calendar quarter would tailor the reporting burden for filing amendments 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. For example, if an NMS Stock ATS that publishes or otherwise provides to one or more subscribers or persons aggregate platform-wide order flow and execution statistics of the NMS Stock ATS that are not otherwise required disclosures under Rule 605 of Regulation NMS, the NMS Stock ATS could, depending on the facts and circumstances, disclose changes to such statistics in a updating amendment no later than 30 calendar days after the end of the calendar quarter in which the changes occurred.494 We continue to believe that allowing NMS Stock ATSs to implement nonmaterial changes immediately would allow NMS Stock ATSs to make updating changes to their operations and disclosures without delay, while at the same time provide disclosure about those changes to market participants and the Commission within an appropriate time frame. Updating amendments, like all amendments to Form ATS–N, will be subject to Commission review pursuant to Rule 304(a)(2)(ii) and could be declared ineffective if the Commission makes the required findings.
c. Correcting Amendments
We proposed in Rule 304(a)(2)(i)(C) to require an NMS Stock ATS to amend its Form ATS–N promptly to correct information in any previous disclosure on Form ATS–N after discovery that any information previously filed on Form ATS–N was inaccurate or incomplete when filed. We proposed that such amendments will be subject to

495See Proposed Rule 304(a)(2)(ii).
496See Liquidnet Letter at 7.
497See Fidelity Letter at 10.
498 In addition, we are adopting Rule 304(a)(2)(i)(C) with technical modifications. The rule text of proposed Rule 304(a)(2)(i)(C) stated that an NMS Stock ATS must amend Form ATS–N upon discovery that any information ‘‘filed under paragraphs (a)(1)(i) or (a)(2)(i)(A) or (B)’’ was inaccurate or incomplete when filed. This inadvertently excluded applying the requirement to inaccurate or incomplete information filed under paragraph (a)(2)(i)(C). We believe that deleting the cross-references and simply stating that an NMS Stock ATS must file an amendment when ‘‘any previous disclosure on Form ATS–N’’ was materially inaccurate or incomplete when filed would require that an NMS Stock ATS correct materially incomplete or inaccurate information on initial Form ATS–N and any amendment thereto (including any amendment previously required by Rule 304(a)(2)(C)). We are making this change to correct this error, and to specify that an NMS Stock ATS would have an obligation to promptly correct a materially inaccurate or incomplete disclosure on any initial Form ATS–N or amendment thereto. Generally, we will consider a correcting amendment to be filed ‘‘promptly,’’ if it is filed within five business days after discovery that any material information previously filed on Form ATS–N was materially inaccurate or incomplete when filed. In addition, we are making a technical change by defining the type of amendment described in Rule 304(a)(2)(i)(C) as a ‘‘correcting amendment.’’ 499See supra Section IV.B.1.a. 500We are also making several other changes to Rule 304(a)(2)(ii): (1) Reordering some of the language of Rule 304(a)(2)(ii) from the proposed rule text; (2) changing the heading of the paragraph from ‘‘Commission review period’’ to ‘‘Commission review period; Ineffectiveness determination’’; (3) revising the proposed rule text that stated ‘‘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’’ to simply state ‘‘A Form ATS–N amendment declared ineffective shall prohibit the NMS Stock ATS from operating pursuant to the ineffective Form ATS–N amendment’’; (4) deleting references to the defined term ‘‘Form ATS–N Amendment’’; (5) stating that a Form ATS–N amendment declared ineffective ‘‘does’’ not (rather than ‘‘would’’ not) prevent the NMS Stock ATS from subsequently filing a new Form ATS–N amendment; and (6) referring to amendments filed pursuant to Rule 304(a)(2)(i)(A) ‘‘through (D)’’. 501See Proposal, supra note 2, at 81029. 502See id. at 81030. 503See id. 504See supra note 359 and accompanying text. 505See supra Section IV.A.3. Commission review pursuant to Rule 304(a)(2)(ii).495 We received one comment regarding proposed Rule 304(a)(2)(i)(C) that supports allowing an NMS Stock ATS to file a Form ATS–N amendment to correct information in a previous Form ATS–N disclosure that was inaccurate or incomplete when filed.496 Another commenter is generally concerned
about the amount and types of amendment filings required under the Proposal, and the burden that filing such amendments could impose on NMS Stock ATSs.497 To address this concern, we are modifying proposed Rule 304(a)(2)(i)(C) to require that NMS Stock ATSs file correcting amendments after discovery that any information previously filed on Form ATS–N was materially inaccurate or incomplete when filed.498 We believe that it is appropriate to require NMS Stock ATSs to promptly file an amendment only when the information previously filed was materially inaccurate or incomplete because such information is likely to be important to current subscribers and market participants and could impact their decision to use the NMS Stock ATS’s services. Corrections of immaterial inaccuracies and completeness can be made by updating amendments. In determining whether previously filed information is materially inaccurate or incomplete, an NMS Stock ATS should consider the factors it would consider in determining whether a change would require a material amendment.499
2. Rule 304(a)(2)(ii): Commission
Review Period; Ineffectiveness Determination Rule 304(a)(2)(ii) provides the process through which the Commission would review and declare Form ATS–N amendments to Form ATS–N. Proposed Rule 304(a)(2)(ii) (‘‘Commission review period; Ineffectiveness determination’’) provided that the Commission will, by order, if it finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors, declare ineffective any Form ATS–N amendment filed pursuant to Rule 304(a)(2)(i)(A) through (C) no later than 30 calendar days from filing with the Commission. The proposed rule also provided that 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. Under proposed Rule 304(a)(2)(ii), the NMS Stock ATS could have, however, continued to operate pursuant to a Form ATS–N that was previously declared effective. In addition, the proposed rule provided that 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. We are adopting Rule 304(a)(2)(ii) with modifications to provide that the Commission will, by order, declare ineffective any Form ATS–N amendment filed pursuant to Rule 304(a)(2)(i)(A) through (D), no later than 30 calendar days from filing with the Commission, if the Commission finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors.500 We stated in the Proposal that the Commission could declare ineffective a Form ATS–N amendment if one or more disclosures on an amended Form ATS– N are materially deficient with respect to its accuracy, currency, completeness, or fair presentation.501 We also stated that it could 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 disclosures reveal that, under a ‘‘red flag’’ review, the activity described would not comply with the federal securities laws or the rules or regulations thereunder, including Regulation ATS.502 We further stated that like the review of an initial Form ATS–N, the Commission’s review of a Form ATS–N amendment would focus on the disclosures made on Form ATS– N, and that 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.503 As discussed above in the context of initial Form ATS–N filings, we are not performing a review of the merits of the disclosures on Form ATS–N amendments, such as determining the strengths and weaknesses of the trading platform or a protocol offered by the NMS Stock ATS. The Commission also is not making findings regarding whether
the means by which orders will interact on the trading platform are, or are not, consistent with the Exchange Act, as is the case with respect to certain SRO rule filings.504 As with respect to initial filings of Form ATS–N, the Commission could declare a Form ATS–N amendment ineffective if the Commission finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors. The Commission notes that this process will be similar to the review process for initial Form ATS–N. Accordingly, the examples provided above to illustrate scenarios that would cause the Commission to declare an initial Form ATS–N ineffective (e.g., materially deficient disclosures with respect to completeness or comprehensibility) would equally apply in the context of a Form ATS–N amendment filed with the Commission.505

506See Liquidnet Letter at 5–6.
507See id. at 6.
508See supra Section IV.A.3.
509See Liquidnet Letter at 5.
510Although we acknowledged in the Proposal that the Commission staff would likely engage in discussions with NMS Stock ATSs during the review period, we did not propose a process for NMS Stock ATSs to amend a material amendment during the Commission review period. See Proposal, supra note 2, at 81035. The adopted process is similar to the process we are adopting to allow non-Legacy NMS Stock ATSs to amend initial Form ATS–N during the Commission review period. See supra Section IV.A.2. 511Rule 304(a)(2)(ii) states that the Commission will, by order, declare ineffective any Form ATS– N amendment no later than 30 calendar days from filing of such amendment with the Commission. We will have 30 calendar days to declare any amendment ineffective, including updating or correcting amendments to material amendments that are filed during the Commission review period. For example, if an NMS Stock ATS files an updating or correcting amendment to a material amendment on calendar day 25 of the Commission review period of the material amendment, the updating or correcting amendment could be declared ineffective by the Commission up to 25 calendar days after the Commission review period for the material amendment expires—until the Commission’s 30-calendar day review period for the updating or correcting amendment has expired. 512See KCG Letter at 5. 513See id. 514See id. at 7–8. 515See PDQ Letter at 1. We received comments regarding the proposed process for reviewing Form ATS–N amendments. One commenter expresses support for the proposal not to require the Commission to affirmatively declare material amendments effective, and states that such a requirement might serve as an impediment to NMS Stock ATSs seeking to introduce a new functionality, would unnecessarily burden Commission staff, and would discourage NMS Stock ATSs from filing changes more than 30 days in advance of implementation.506 This commenter expresses concern that requiring preapproval of changes to Form ATS–N would inhibit informal communication between an NMS Stock ATS and the Commission staff in cases where an ATS may otherwise be willing to share information with the Commission staff in advance of filing.507 We are not adopting a rule to declare a Form ATS– N amendment effective. The Commission’s oversight function of NMS Stock ATSs will be preserved because the Commission will be able to declare ineffective a Form ATS–N if it finds that such action is necessary or appropriate in the public interest and consistent with the protection of investors. This process will be similar to the review process for initial Form ATS–N.508 Accordingly, the examples provided above to illustrate scenarios that would cause the Commission to declare an initial Form ATS–N ineffective (e.g., materially deficient disclosures with respect to completeness or comprehensibility) would equally apply in the context of a Form ATS–N amendment filed with the Commission. One commenter does not object to the Commission
having the ability to declare a material amendment ineffective, but hopes the Commission would identify concerns as soon as practical during the review period so an NMS Stock ATS could address any issues.509 The Commission intends to engage in dialogue with an NMS Stock ATS regarding its Form ATS–N amendment disclosures and communicate to the NMS Stock ATS any concerns so the ATS may amend its disclosures, as appropriate or necessary to avoid an ineffective declaration. Such dialogue will benefit market participants by creating more effective disclosures in Form ATS–N amendments that will help enable them to make more informed routing decisions. To facilitate this, we are adopting a process for an NMS Stock ATS to file, during the Commission’s review of a material amendment, a correcting or updating amendment pursuant to Rule 304(a)(2)(i)(B) through (C) to the material amendment.510 This process is designed to promote transparency and facilitate complete and comprehensible disclosure. Any updating or correcting amendments to a material amendment filed during the Commission review period will be subject to Commission review under Rule 304(a)(2)(ii).511 Although a correcting or updating amendment is not subject to an implementation delay, Rule 304(a)(2)(i)(A) requires that the NMS Stock ATS delay the implementation of the change subject to the material amendment until 30 calendar days following filing of the material amendment; therefore, any correcting or updating amendment that amends a material amendment during the Commission review could not be implemented before the material amendment that it is amending is effective. In contrast, we believe a material change to a Form ATS–N material amendment could reflect a significant change to the intended operations of the ATS or the ATS-related activities of its broker-dealer operator, which would necessitate a full review period. Therefore, we are modifying Rule 304(a)(a)(2)(ii) to specify that an NMS Stock ATS making material changes to a filed material amendment during the Commission review period shall withdraw its filed material amendment and, if the NMS Stock ATS chooses to pursue the change, must file a new material amendment pursuant to Rule 304(a)(2)(i)(A). Another commenter suggests that similar to the current process for reviewing Form ATS amendments, the Commission should require advanced notice of material changes, but not impose a review process for ineffectiveness.512 The commenter states that requiring NMS Stock ATSs to provide advance notice and receive Commission ‘‘approval’’ before an NMS Stock ATS can implement a material change could incent an NMS Stock ATS to err on the side of submitting ‘‘vague’’ disclosures, which are less helpful to market participants, so that it has ‘‘sufficient operational flexibility’’ to make future changes, or could stifle ATS innovation as NMS Stock ATSs may be reluctant to make changes that would be subject to the ‘‘approval/ disapproval’’ review
process.513 The commenter further states that NMS Stock ATS operators should be allowed to furnish universal operations and systems material via a web link, and updates to such materials should not be subject to advance notice and Commission review because requiring an NMS Stock ATS to provide advance notice of changes to operations and systems ‘‘would cause lengthy delays and stifle NMS Stock ATS technical innovation.’’ 514 Another commenter observes that ‘‘approval’’ of Form ATS– N amendments ‘‘would require positive response from the Commission instead of the current passive approval after a certain period of time.’’ 515 We are declining to adopt the commenter’s suggestion to not review Form ATS–N amendments for ineffectiveness because the review process allows the Commission to better fulfill its oversight responsibilities of NMS Stock ATSs and to help ensure that Form ATS–N amendments contain disclosures that are complete and comprehensible. We also disagree with the commenter’s view that the Commission review process will incentivize NMS Stock ATSs to make vague disclosures to allow for operational flexibility. Rather, we believe that without a process to declare ineffective a Form ATS–N amendment, an NMS Stock ATS may have less incentive to provide complete and comprehensible disclosures. While the review process for Form ATS–N amendments may have some

516See infra Section X.C.
517See supra note 514 and accompanying text. 518See Rule 304(a)(2)(i)(B). 519Several commenters address our proposed review process for all Form ATS–N filings, rather than specifically addressing the review of Form ATS–N amendments. See supra Section IV.A.3. 520After ceasing operations, the broker-dealer operator of an NMS Stock ATS will be required to file Form ATS–R within 10 calendar days as required by Rule 301(b)(9) of Regulation ATS. 521As proposed, Rule 304(a)(3) states that an NMS Stock ATS shall notice its cessation at least 10 business days ‘‘before’’ the date it ‘‘ceases’’ to operate. As adopted, Rule 304(a)(3) states that an NMS Stock ATS shall notice its cessation at least 10 business days ‘‘prior to the date’’ it ‘‘will cease’’ to operate. We believe these changes enhance the readability of the rule. 522We made technical, non-substantive changes from the proposed rule by: (1) Replacing references to an ‘‘NMS Stock ATS’s exemption’’ to ‘‘the exemption for an NMS Stock ATS’’ throughout Rule 304(a)(4); and (2) deleting the reference to ‘‘the definition of an ‘exchange’ ’’ in Rule 304(a)(4). 523See CFA Institute Letter at 4; Liquidnet Letter at 7–8; HMA Letter at 5–6; Better Markets Letter at 7. 524See CFA Institute Letter at 4. 525See id. 526See HMA Letter at 5. 527See supra Section III.A.2. 528See Liquidnet Letter at 7–8. 529 In the Regulation ATS Adopting Release, we stated our belief that the enhanced regulation of alternative trading systems that choose to remain registered broker-dealers under Regulation ATS provides more protection for the investors who use impact on innovation by ATSs,516 under the rules adopted today and consistent with proposed Rule 304(a)(2)(ii), the Commission will not be declaring Form ATS–N amendments ‘‘effective;’’ if the 30-calendar day review period elapses and the Commission has not declared an amendment ineffective, the NMS Stock ATS may commence operating pursuant to the Form ATS–N amendment. Further, Form ATS–N amendments will not be approved by the Commission and the amendment review process, like the review process for initial Form ATS–N, will not be a merit-based review, but rather will focus on the completeness and comprehensibility of the disclosures. We are declining to adopt the commenter’s suggestion to allow an NMS Stock ATS to change its operations and systems without a review process and by furnishing a web link.517 We believe that it is important that subscribers have advance notice of material changes and that the Commission has the opportunity to review material amendments to the Form ATS–N disclosures. If the NMS Stock ATS makes changes that are not material, the NMS Stock ATS can implement such changes and report them by way of an updating amendment.518 Other commenters express the same concerns with regard to the review process for Form ATS–N amendments as they did for the review process for initial Form ATS–N. These comments are addressed above.519 With respect to determining
whether to declare an amendment to Form ATS–N ineffective, the Commission will apply the same standard of review that will be applied to initial filings.
C. Rule 304(a)(3): Notice of Cessation
Rule 304(a)(3) provides the requirement for NMS Stock ATSs to provide notice if they plan to cease to operate. Proposed Rule 304(a)(3) (‘‘Notice of cessation’’) provided that an NMS Stock ATS shall notice its cessation of operations on Form ATS–N at least 10 business days before the date the NMS Stock ATS ceases to operate as an NMS Stock ATS. Proposed Rule 304(a)(3) also provided that a notice of cessation shall cause the Form ATS–N to become ineffective on the date designated by the NMS Stock ATS. We received no comments regarding proposed Rule 304(a)(3). We believe that 10 business days is a reasonable period within which an NMS Stock ATS will provide notice that it intends to cease operations and will give market participants sufficient time to seek alternative routing destinations for their orders.520 We are adopting Rule 304(a)(3) with non-substantive modifications.521 D. Rule 304(a)(4): Suspension, Limitation, or Revocation of the Exemption From the Definition of Exchange Paragraph (i) of proposed Rule 304(a)(4) (‘‘Suspension, limitation, and revocation of the exemption from the definition of exchange’’) provided that the Commission will, by order, if it finds, after notice and opportunity for hearing, that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors, suspend for a period not exceeding twelve months, limit, or revoke an NMS Stock ATS’s exemption from the definition of ‘‘exchange’’ pursuant to Rule 3a1–1(a)(2). Further, proposed Rule 304(a)(4)(ii) provided 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 an ‘‘exchange’’ pursuant to Rule 3a1–1(a)(2). In addition, proposed Rule 304(a)(4)(i) provided that if an NMS Stock ATS’s exemption is limited pursuant to proposed Rule 304(a)(4)(i), the NMS Stock ATS shall be prohibited from operating in a manner otherwise inconsistent with the terms and conditions of the Commission order. We are adopting Rule 304(a)(4) with minor modifications.522 We received four comments regarding proposed Rule 304(a)(4).523 One commenter supports the Commission’s proposal to introduce a mechanism for the suspension for a period not exceeding 12 months, limitation, or revocation of the exemption provided under Rule 3a1–1(a)(2) because it believes that there must be a clear mechanism for removing non-compliant trading venues from ‘‘the exchangewaiver regime rather than relying on more general enforcement powers.’’ 524 This commenter asserts that considering whether an NMS Stock ATS has accurately and timely filed Form ATS– N in determining whether the ATS qualifies for an exemption ‘‘is necessary to ensure the credibility of these public disclosure documents and the accountability of the entities seeking the exemption.’’ 525 In addition, one commenter states that the Commission ‘‘should be empowered
to suspend, limit, or revoke an ATS’s exemption from the definition of an ‘exchange’, irrespective of the assets traded on the ATS.’’ 526 We have determined to apply the additional conditions to the Exchange Act Rule 3a1–1(a) exemption, including Rule 304(a)(4), only to NMS Stock ATSs 527 and are not adopting Rule 304(a)(4) to apply to non-NMS Stock ATSs at this time. We will consider the comment if we propose in the future to apply Rule 304, including Rule 304(a)(4), to nonNMS Stock ATSs. We intend to monitor the implementation of Rule 304 to NMS Stock ATSs, and should we decide to take further action with applying Rule 304, including Rule 304(a)(4), to nonNMS Stock ATSs, we would do so in a separate rulemaking and take into account our experience with Rule 304 and NMS Stock ATSs. One commenter is concerned that the process to suspend, limit, or revoke an NMS Stock ATS’s exemption provided under Rule 3a1–1(a)(2) could result in a sanction (such as suspension or revocation of its exemption) that is ‘‘disproportionate to the alleged violation,’’ and asks the Commission to reconsider such requirement.528 The Rule 304(a)(4) process for the suspension, limitation, or revocation of the Rule 3a1–1(a)(2) exemption is designed in part to help prevent failure by an NMS Stock ATS to adhere to the conditions for the exemption. The conditions of the Rule 3a1–1(a) exemption are designed to, among other things, protect investors.529 We believe

these systems. See Regulation ATS Adopting Release, supra note 3, at 70857. 530See Proposal, supra note 2, at 81032. 531See supra note 522 and accompanying text. In the Proposal, we provided examples of when it would be appropriate to provide for the suspension, limitation, or revocation of an NMS Stock ATS’s exemption pursuant to Rule 3a1–1(a)(2). See Proposal, supra note 2 at 81032. 532 If the Commission revoked or suspended the exemption of an NMS Stock ATS, the Commission could provide in its order a period of time for the NMS Stock ATS to wind down its operations. Because Commission orders revoking or suspending the exemption would be made public, market participants would also have notice of any wind down period. Additionally, if the Commission revoked the exemption of an NMS Stock ATS and the entity wished to continue operations, the entity could do so only if it were registered as a national securities exchange pursuant to Section 6 of the Exchange Act or were 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 entity would not be prohibited from filing a new Form ATS–N, pursuant to Rule 304(a)(1)(i). 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. 533See Proposal, supra note 2, at 81033. 534See id. If the Commission finds 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 ATS to continue to operate as disclosed on its Form ATS–N, but prohibit the ATS from engaging in the undisclosed activity until the ATS properly amends its Form ATS–N in accordance with Rule 304(a)(2). Or, if the Commission finds that an NMS Stock ATS offers 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 ATS to continue to operate but prohibit the ATS from offering the order type, if it finds that doing so is necessary or appropriate in the public interest, and consistent with the protection of investors. 535See Proposal, supra note 2, at 81033. 536See id. 537See id. 538See id. that it is important to provide a process tailored to the regulatory structure for NMS Stock ATSs for the Commission to use in the event an NMS Stock ATS does not meet the conditions of the exemption as investor protections may be at risk. As proposed, prior to issuing an order suspending, limiting, or revoking an NMS Stock ATS’s exemption pursuant to 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 Rule 304(a)(4)(i), 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. We believe that this process will provide an NMS Stock ATS with adequate opportunity to respond before Commission action, and will provide the Commission with an appropriate tool, subject to notice and hearing safeguards, to protect the public from an NMS Stock ATS that fails to comply with Regulation ATS or otherwise violates any provision of the federal securities laws. The exemption from the definition of ‘‘exchange’’ provided under Rule 3a1– 1(a)(2) is conditional upon initial and ongoing compliance with Regulation ATS. As a result of this rulemaking, the conditions of the Rule 3a1–1(a)(2) exemption are being expanded for NMS Stock ATSs. An ATS that fails to comply with those conditions would fall outside the scope of the exemption. We believe 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 provided under Rule 3a1– 1(a)(2) if the NMS Stock ATS is operating or has operated in a manner such that the exemption for the NMS Stock ATS is not necessary or appropriate in the public interest, or is inconsistent with the protection of investors,530 and are adopting Rule 304(a)(4) substantially as proposed.531 We believe 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, we believe that revocation of the exemption would be appropriate upon the existence of a problem involving the ATS that significantly impacts the public interest and the protection of investors. Pursuant to Rule 304(a)(4)(ii), an NMS Stock ATS whose exemption has been suspended or revoked would be prohibited from operating pursuant to the Rule 3a1–1(a)(2) exemption; if an NMS Stock ATS were to continue to engage in Rule 3b–16 activity in NMS stocks without the exemption, it would be operating as an unregistered national securities exchange because it would no longer qualify for the exemption.532 If an NMS Stock ATS’s exemption were limited pursuant to Rule 304(a)(4)(i), 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 operated in a manner inconsistent with the terms and conditions of the order, it 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. We believe that the process for suspending, limiting, or revoking an NMS Stock ATS’s exemption, if necessary or appropriate in the public interest, and consistent with the protection of investors, will protect investors in the event of
non-compliance by an NMS Stock ATS with the conditions with which the NMS Stock ATS must adhere to continue to qualify for the exemption. We also continue to believe that providing a process by which the Commission can determine to suspend, limit, or revoke an NMS Stock ATS’s exemption will provide appropriate flexibility to address the specific facts and circumstances of an NMS Stock ATS’s failure to comply with Regulation ATS.533 This process will also allow the Commission to consider the nature of the violation of federal securities laws and the potential harm to investors as a result of the non-compliance or violation. The process for the Commission to limit the exemption in Rule 3a1–1(a)(2) will allow flexibility to address specific disclosures or activities that are the cause of the non-compliance with Regulation ATS or that violate federal securities laws.534 We believe 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 operating as an ATS.535 By comparison, we believe 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.536 Additionally, we believe that it could 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 NMS Stock ATS appears to be violating, or to have violated, the antifraud provisions of the federal securities laws.537 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.538 Another commenter requests clarification regarding the process for revoking, suspending, or limiting an NMS Stock ATS’s exemption. The commenter asks the Commission to clarify how an ATS could reestablish its exemption provided under Rule 3a1– 1(a)(2) after it has been revoked. This commenter also questions whether there

539See CFA Institute Letter at 5.
540See infra note 532 and accompanying text. 541See CFA Institute Letter at 5. 542See Better Markets Letter at 7. 543See generally Exchange Act Section 21C. The use of the 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 enforcement authority, such as, for example, pursuant to Sections 10(b), 15(b)(4), and 15(c) (15 U.S.C. 78(j)(b), 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 the exemption. For example, if an NMS Stock ATS failed to file a Form ATS–N amendment to disclose material changes to the operation of the ATS, the Commission could invoke the process to suspend, limit, or revoke the ATS’s exemption, but would not be precluded from bringing an action against the broker-dealer operator of the ATS for failing to comply with Rule 304(a)(2), or violating the antifraud provisions of the federal securities laws. 544See 17 CFR 301(b)(2)(vi). 545 15 U.S.C. 78k–1, 78q(a), 78r(a), and 78ff(a). See 17 CFR 242.301(b)(2)(vi). Section 17(a) of the Exchange Act imposes recordkeeping requirements on national securities exchanges and registered securities associations; Section 18(a) of the Exchange Act imposes liability for false or misleading statements with respect to a material fact in applications, reports, or documents filed pursuant to the Exchange Act or any rule or regulation thereunder; and Section 32(a) of the Exchange Act provides for penalties against any person that willfully violates any provision of, or that willfully and knowingly makes, or causes to be made, any false or misleading statements with respect to a material fact in any application, report, or document required to be filed under the Exchange Act or any rule or regulation thereunder. 546See Better Markets Letter at 7; SIFMA Letter at 33. 547See Better Markets Letter at 7. 548See SIFMA Letter at 33. 549See id. 550See id. 551See infra Section V. will be penalties for non-compliance or whether the Commission’s deliberations on the re-submitted Form ATS–N would in any way differ from those on initial Form ATS–N.539 An NMS Stock ATS whose exemption has been revoked cannot operate pursuant to the Rule 3a1–1(a)(2) exemption, and if such entity were to continue to engage in Rule 3b–16 activity, it could be determined to be an unregistered national securities exchange in violation of Section 5 of the Exchange Act.540 To operate as an NMS Stock ATS after revocation, the entity would need to file a new initial Form ATS–N with the Commission. The Commission would review the Form ATS–N without prejudice and would not apply a different standard than it would to any other entity filing Form ATS–N pursuant to Rule 304(a)(1). One commenter also requests clarification regarding the procedure that the Commission will follow
for an NMS Stock ATS that has had its exemption suspended for the maximum 12 months.541 Upon the expiration of the suspension period, an NMS Stock ATS could operate pursuant to its initial Form ATS–N, as long as its exemption is not otherwise limited or revoked and the NMS Stock ATS is otherwise in compliance with Rule 304. The suspension period is not to exceed 12 months, and the Commission could order a suspension period of less than 12 months. During the suspension period, the Commission could reevaluate the status of the NMS Stock ATS’s exemption and determine, pursuant to Rule 304(a)(4), to revoke or limit the Rule 3a1–1(a) 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. An additional commenter questions what action the Commission would take in the event that there are ‘‘ambiguous, seemingly incomplete, or otherwise questionable disclosures that do not rise to the level of material deficiency,’’ and suggests that the Commission apply ‘‘intermediate’’ sanctions, such as monetary fines and the temporary suspension of the right to operate as an NMS Stock ATS without notice or hearing.542 The purpose of Rule 304(a)(4) is to prohibit the NMS Stock ATSs from operating in a manner inconsistent with the Rule 3a1–1(a)(2) exemption, which we believe is necessary or appropriate in the public interest and consistent with the protection of investors. We do not believe it is appropriate to impose monetary fines or temporarily suspend an NMS Stock ATS’s exemption without such due process, as suggested by the commenter. Any suspension, limitation, or revocation of an NMS Stock ATS’s exemption provided by Rule 3a1–1(a)(2) would not preclude the Commission from using its enforcement authority if the NMS Stock ATS fails to comply with the federal securities laws.543 E. Rule 304(b): Public Disclosure of Form ATS–N and Related Commission Orders

Rule 304(b)(1): Form ATS–N
‘‘Report’’
Rule 304(b)(1) provides that every Form ATS–N would constitute a report under the Exchange Act. Paragraph (1) of proposed Rule 304(b) (‘‘Public disclosures’’) provided 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. Proposed Rule 304(b)(1) is nearly identical to current Rule 301(b)(2)(vi),544 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.545 We received two comments on proposed Rule 304(b)(1).546 One commenter supports that Form ATS–N shall constitute a ‘‘report’’ within the meaning of applicable provisions of the Exchange Act.547 The other commenter expresses concern regarding the potential liability and consequences of the provision that Form ATS–N would constitute a ‘‘report’’ within the meaning of Sections 11A, 17(a), 18(a), and 32(a) of the Exchange Act in light of the increased disclosure requirements under Form ATS–N.548 This commenter states that although this same standard applies to current Form ATS, the potential for an NMS Stock ATS to unknowingly but willfully file a statement that turns out to be false is heightened by the increased amount and scope of disclosure contemplated under Form ATS–N.549 We do not believe that the fact that Form ATS–N requires more detailed disclosures than Form ATS would justify reducing the potential liability for false or misleading statements made in Form ATS–N disclosures. The information required on Form ATS–N is designed to provide the public with transparency into an NMS Stock ATS’s operations and the ATS-related activities of the broker-dealer operator and its affiliates. Although the commenter does not directly object to Rule 304(b)(1), the commenter argues that the Commission should narrow the scope of disclosures and standardize the Form ATS–N format in light of the potential liability this presents.550 In response to the comments, we have modified certain requests on Form ATS–N to remove language that some commenters believe is vague, and in many cases, changed questions to solicit more general information.551 Further, given that Form ATS–N will be made public, we expect that market participants will rely on these disclosures when making routing

552To conform to changes that provide that we will not issue orders of effective initial Form ATS– N, we have eliminated proposed Rule 304(b)(2)(i) from adopted Rule 304(b)(2). See supra Section IV.A.1. In addition, the Commission made the following technical, non-substantive modifications to the proposed text of Rule 304(b)(2): (1) Renumbered proposed Rule 304(b)(2)(ii) through (vii); (2) reordered proposed Rule 304(b)(2)(iii) so that ‘‘Effective Form ATS–N’’ is adopted Rule 304(b)(2)(i); (3) changed the proposed language stating that the Commission ‘‘would’’ make public the documents specified in Rule 304(b)(2)(i)–(vii) to the Commission ‘‘will’’ make public the documents specified in Rule 304(b)(2)(i) through (vi); (4) specified that the Commission will publish ‘‘initial’’ Form ATS–N, as amended, under adopted Rule 304(b)(2)(i); (5) changed the proposed language that the Commission will make public each ‘‘Order of ineffectiveness of a Form ATS–N’’ to ‘‘Order of ineffective initial Form ATS–N’’; (6) changed references to uppercase ‘‘Amendment’’ in adopted Rule 304(b)(2)(iii) and (iv) to lowercase; (7) changed the language in adopted Rule 304(b)(2)(iv) from describing an ‘‘Order of ineffectiveness of a’’ Form ATS–N amendment to a ‘‘Order of ineffective’’ Form ATS–N amendment; and (8) modified language in the rule to state that the order suspending, limiting, or revoking the exemption in adopted Rule 304(b)(2)(vi) will apply to the exemption for an ‘‘NMS Stock ATS.’’ We are adopting these changes to simplify and improve the clarity of the rule text and we do not believe that these changes impact the operation of the proposed rules. Because we are providing a process for NMS Stock ATSs to amend their initial Forms ATS–N during the Commission review period, we are also revising proposed Rule 304(b)(2)(iii) (renumbered as Rule 304(b)(2)(i)) to state that the Commission will publish initial Form ATS–N, ‘‘as amended,’’ to specify that the initial Form ATS–N will reflect amendments made during the Commission review period. See supra Section IV.A.2 and Section IV.A.4.b. In addition, in response to comments, we are adopting a modified requirement that for material amendments, the cover page of the material amendment will be made public upon filing and the entirety of the material amendment, as amended, will be made public upon the expiration of the Commission review period. See infra Section IV.E.2.c. We are also adding to Rule 304(b)(2)(iii)(B) that the Commission will make public each updating or correcting amendment filed to a material amendment following the expiration of the review period for the material amendment pursuant to Rule 304(a)(2)(ii). See id. We are also adopting Rule 304(b)(2)(iii)(B) to provide that the Commission will make the entirety of order display and fair access amendments, as well as updating amendments and correcting amendments, public upon filing. See id. We are also adopting Rule 304(b)(2)(iii)(A) to specify that the
Commission will not make public the entirety of a material amendment that it declares ineffective. See id. 553See supra note 93 and accompanying text. 554See supra note 108. 555See Proposal, supra note 2, at 81035. 556See 17 CFR 240.301(b)(2)(vii). 557See 15 U.S.C. 78s(b). 558See Alternative Trading System (‘‘ATS’’) List, http://www.sec.gov/foia/docs/atslist.htm. 559See, e.g., Consumer Federation of America Letter at 3; HMA Letter at 2; Morgan Stanley Letter at 1. 560See supra notes 110–123 and accompanying text. 561See CFA Institute Letter at 6; BIDS Letter at 3; UBS Letter at 3; LeveL ATS Letter at 7. 562See LeveL ATS Letter at 7. decisions or assessing their brokers’ routing practices, so it is critical that the disclosures constitute a ‘‘report’’ and are subject to the applicable consequences. We also believe that making Form ATS– N disclosures subject to liability as a ‘‘report’’ under the Exchange Act further will incentivize NMS Stock ATS operators to make truthful statements on Form ATS–N. We are adopting Rule 304(b)(1) as proposed.
2. Rule 304(b)(2): Making Public Form
ATS–N Filings and Commission Orders. Rule 304(b)(2) provides which Form ATS–N filings and related orders the Commission would make public. Proposed Rule 304(b)(2) provided that we would make public, via posting on the Commission’s website, each (1) order of effectiveness of a Form ATS–N; (2) order of ineffectiveness of a Form ATS–N; (3) effective Form ATS–N; (4) filed Form ATS–N amendment; (5) order of ineffectiveness of a Form ATS– N amendment; (6) notice of cessation; and (7) order suspending, limiting, or revoking the exemption from the definition of an ‘‘exchange’’ pursuant to Exchange Act Rule 3a1–1(a)(2). We are adopting Rule 304(b)(2) with modifications discussed below.552 In addition, as proposed, we specify that we will make NMS Stock ATS filings public via posting on the Commission’s website. As discussed above, many commenters support making Form ATS–N public, observing that market participants do not currently have access to sufficient, standardized information about the operations and ownership of NMS Stock ATSs.553 Nearly all commenters agree with the Commission’s stated goal of enhancing transparency.554 Although many commenters express general support for public disclosure of Form ATS–N, many commenters recommend certain modifications or clarifications. We continue to believe that making Form ATS–N filings publicly available is important because most market participants have limited access to information that permits them to adequately compare and contrast how an NMS Stock ATS would handle its orders with how a national securities exchange or other NMS Stock ATS would handle its orders.555 Currently, a Form ATS filed with the Commission by an ATS that trades NMS stocks is ‘‘deemed confidential when filed’’ under Rule 301(b)(2)(vii) of Regulation ATS,556 whereas a national securities exchange is required to both (1) make available to the public its entire rulebook and (2) publicly file all proposed rule changes pursuant to
Section 19(b) of the Exchange Act.557
The only information the Commission currently makes publicly available regarding ATSs is a list of the names and locations of ATSs with a Form ATS on file with the Commission, which is updated monthly.558 Unless an NMS Stock ATS voluntarily publicizes how its functionalities operate, market participants have limited information to adequately compare and contrast the operation of the ATS with that of a national securities exchange or another NMS Stock ATS. And when NMS Stock ATSs voluntarily make their Forms ATS–N public, the lack of uniformity or standardization makes it difficult to compare disclosures across ATSs. Currently, approximately 20 NMS Stock ATSs voluntarily post a Form ATS on their website. Some commenters, however, observe that in the absence of mandatory and uniform disclosure requirements, Forms ATS vary in content and the level of detail disclosed, and are therefore difficult to compare.559 Accordingly, through Form ATS–N, we are adopting disclosures that will provide information that market participants can use to perform these comparisons as they evaluate the ATS as a potential destination for their orders. We are adopting Rule 304(b)(2), with the modifications to address commenters’ concerns, to mandate greater public disclosure of NMS Stock ATS operations through the publication of Form ATS–N. Adopted Rule 304(b)(2) provides that the Commission will make Form ATS–N and related filings available via posting on the Commission’s website. NMS Stock ATS broker-dealer operators will submit Form ATS–N filings via EDGAR, and the Commission will make such filings available on its website. a. Public Disclosure of Effective Initial Form ATS–N, As Amended Several commenters express support for proposed Rule 304(b)(2)(iii), which would make public an effective Form ATS–N.560 Four commenters agree with the Commission’s approach of making initial Forms ATS–N publicly available once the Commission declared such forms effective.561 One commenter asserts that publishing a filing that is not yet effective, and may ultimately not be ‘‘approved,’’ will cause confusion among market participants regarding the manner of operation of the NMS Stock ATS.562 Another commenter states that requiring disclosure of Forms ATS–N that the Commission has declared ineffective ‘‘may place undue suspicion from market participants on ATSs that fail to gain exemption status on the first

563See CFA Institute Letter at 6.
564Material amendments filed by Legacy NMS Stock ATSs during the Commission review period are subject to Rule 304(b)(2)(iii)(A), which provides that the entirety of a material amendment will not be made public until the expiration of the Commission’s 30-calendar day review period. Therefore, under Rule 304(b)(2)(iii)(A), material amendments filed during the final 30 calendar days of the Commission review period would not be made public until the 30-calendar day Commission review period for such amendments has expired. For example, if an NMS Stock ATS files a material amendment on calendar day 230 of the Commission review period, and the Form ATS–N becomes effective on calendar day 240, the material amendment would remain subject to the Commission’s review, and not publicly disclosed, for an additional 20 calendar days—until the Commission’s 30-calendar day review period has expired. Under Rule 304(b)(2)(iii)(A), the cover page for any material amendments during the Commission review would be made public when the initial Form ATS–N becomes effective. 565See Liquidnet Letter at 3; SSGA Letter at 2; Fidelity Letter at 7–8; STANY Letter at 3; UBS Letter at 6–8; Luminex Letter at 2,4; PDQ Letter at 2; SIFMA Letter at 4. 566See Liquidnet Letter at 3. 567See, e.g., MFA/AIMA Letter at 2; Schneiderman Letter at 2; ICI Letter at 1; CFA Institute Letter at 3; Consumer Federation of America Letter at 6. 568See Rule 304(a)(1)(ii). 569See SSGA Letter at 2; Fidelity Letter at 7–8; STANY Letter at 3; UBS Letter at 6–8; Luminex Letter at 2,4; PDQ Letter at 2; SIFMA Letter at 4. 570See Luminex Letter at 2; SIFMA Letter at 4; KCG Letter at 6. 571See infra Section V. 572See id. 573See Fidelity Letter at 8; UBS Letter at 7; Luminex Letter at 2–4; SIFMA Letter at 16. 574See Fidelity Letter at 8; UBS Letter at 7. 575See Fidelity Letter at 4; Luminex Letter at 2– 4. 576See UBS Letter at 7. 577See SIFMA Letter at 16. 578See PDQ Letter at 2. 579See infra Section V.B.2. Exhibit 1 would have required NMS Stock ATSs to attach 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. The determination not to adopt this proposed requirement renders irrelevant the comment regarding allowing NMS Stock ATSs to post updated marketing materials on their websites. See infra note 705 and accompanying text. 580See infra Sections V.D.5, V.D.13, V.D.16. attempt.’’ 563 The Commission will make only effective Forms ATS–N public because this would be less confusing for market participants. We expect that in the course of reviewing an initial Form ATS–N, Commission staff would likely engage in discussions with the entity regarding its disclosures and could request the entity to revise or augment its disclosures to cure deficiencies and provide market participants with greater clarity regarding the entity’s operations. Accordingly, we continue to believe that it would be premature to make
publicly available an initial Form ATS–N filing before it becomes effective because of the potential confusion that may result from making public disclosures on an initial Form ATS–N that is not effective. Therefore, under adopted Rule 304(b)(2)(i), the Commission will make public an effective initial Form ATS–N, as amended. Adopted Rule 304(a)(1)(ii)(B) and Rule 304(a)(1)(iv)(C) provide processes for NMS Stock ATSs to amend their initial Forms ATS–N during the Commission review period. If, for example, the Commission staff provides comments to a broker-dealer operator suggesting modifications designed to enhance the completeness and comprehensibility of its initial Form ATS–N disclosures, the NMS Stock ATS would have the opportunity to file an amendment to respond to such comments during the Commission review period. We believe that it is appropriate to make public initial Form ATS–N, as revised by any such amendments (except for material amendments during the Commission review period),564 when the initial Form ATS–N becomes effective. Accordingly, we are revising proposed Rule 304(b)(2)(iii) (renumbered as Rule 304(b)(2)(i)) to state that the Commission will publish initial Form ATS–N, ‘‘as amended.’’ Some commenters express concerns regarding the timing of publicly disclosing a filed Form ATS–N.565 One commenter states its view that for Legacy NMS Stock ATSs that are filing Form ATS–N for the first time, the Commission should not make any Forms ATS–N public until the date on which the Commission has completed the review of the initial Form ATS–N filings for all Legacy NMS Stock ATSs, so that a Legacy NMS Stock ATS is not disadvantaged by making its Form ATS– N public prior to other Legacy NMS Stock ATSs.566 As we stated in the Proposal, and as many commenters have agreed,567 the public has a strong interest in public disclosure about the operations of NMS Stock ATSs. For some Legacy NMS Stock ATSs, the review period may be extended pursuant to Rule 304(a)(1)(iv)(B). We believe that disclosure of all Legacy NMS Stock ATSs’ Forms ATS–N should not be delayed during any extended review period that may be necessary for the Commission to review any Legacy NMS Stock ATS’s initial Form ATS–N that raises novel or complex issues and therefore requires additional time for review.568 Additionally, some NMS Stock ATSs may not wish to delay public disclosure once their Forms ATS–N become effective, and it is neither in the public interest nor in the interest of those NMS Stock ATSs to withhold effective Forms ATS–N from the public. Several commenters suggest that the Commission should make certain information required by Form ATS–N available only to the Commission.569 Some commenters state that the scope of items required for public disclosure, particularly those related to the administration of the ATS, is too detailed and may not be helpful to market participants in making routing decisions.570 We believe that Form ATS–N, as adopted, solicits the
appropriate level of information about NMS Stock ATSs that would be useful to subscribers and market participants.571 In response to commenters, we have revised proposed Form ATS–N to remove certain requests that commenters believe are not relevant to subscribers, limited the scope of certain requests that commenters believe to be too broad, and narrowed certain requests to only require summary information or specific information to avoid the disclosure of commercially sensitive information.572 We nevertheless believe that responses to Form ATS–N requests must be sufficiently detailed for subscribers and market participants to adequately understand the operations of an NMS Stock ATS and the ATS-related activities of the broker-dealer operator and its affiliates. Other commenters express concern that publicly disclosing Form ATS–N could result in the disclosure of an NMS Stock ATS’s proprietary or commercially sensitive information.573 In particular, and as discussed further below, commenters express concern about disclosing information regarding classification of subscribers,574 details about administrative operations of broker-dealer operators,575 and contractual agreements between brokerdealer operators and their clients,576 and NMS Stock ATSs and their vendors.577 One commenter raises concern about customer confidentiality.578 We have determined not to adopt the proposed Exhibit 1 requirements 579 and have revised the Form ATS–N requests to not seek disclosure of certain information that could be proprietary or commercially sensitive, such as routing tables or numerical order flow segmentation metrics.580 We do not believe that the vast majority of information responsive to adopted Form ATS–N would be proprietary or commercially sensitive. Furthermore, we do not believe that the requests of adopted Form ATS–N, as modified, would require NMS Stock

581See SSGA Letter at 2.
582See T. Rowe Price Letter at 2.
583See SSGA Letter at 2.
584See infra Sections V.C.6, V.D.6, V.D.13, V.D.23. 585One commenter believes that an ATS should have the ability to file supplemental materials with the Commission that are not part of the public filing as long as the ATS’s public filing accurately responds to all questions on the Form ATS–N. See Liquidnet Letter at 9. We have determined not to adopt a formal process through which broker-dealer operators can disclose supplemental information for Commission review alone. We believe that the primary purpose of Form ATS–N is to provide the public with critical information regarding NMS Stock ATS operations and affiliate relationships. 586See T. Rowe Price Letter at 2. 587See Section IV.E.2.c. 588See supra notes 574–578 and accompanying text. 589See Investor Advocate Letter at 10–11. 590See supra note 584 and accompanying text. 591See 17 CFR. 240.24b–2. 592See FINRA Letter at 2–3. 593See supra note 552. 594We proposed this requirement as Rule 304(b)(2)(i) and are adopting this requirement as Rule 304(b)(2)(ii). 595See supra note 433 and accompanying text. 596Adopted Rule 304(b)(2)(ii) states that this provision applies to each ‘‘[o]rder of ineffective initial Form ATS–N’’ instead of the proposed language, which stated that the provision would apply to each ‘‘[o]rder of ineffectiveness of a Form ATS–N.’’ As discussed above, the Commission will, by order, declare ineffective an initial 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. See supra Section IV.A.3. We believe that the revised rule text reduces any potential ambiguity by specifying that the public disclosure requirement applies to orders related to ‘‘initial’’ Form ATS–N and simplifying the rule language. 597See Proposal, supra note 2, at 81028. 598See ICI Letter at 3; Liquidnet Letter at 6; SIFMA Letter at 31; UBS Letter at 3; BIDS Letter at 4; STA Letter at 5; STANY Letter at 2; CFA Institute Letter at 6; LeveL ATS Letter at 7. ATSs to compromise customer confidentiality when making thorough and accurate disclosures. Some commenters that believe that Form ATS–N disclosures may be too detailed to be helpful to market participants 581 or that they may disclose proprietary or commercially sensitive information suggest that the Commission make only parts of Form ATS–N public, or delay public disclosure of certain parts of Form ATS– N.582 Specifically, one commenter suggests that the Commission require NMS Stock ATSs to submit a full Form ATS–N to the Commission, but only provide that a selected sub-set of fields be publicly disclosed.583 We are not adopting the commenters’ suggestions to limit public disclosures because the vast majority of adopted Form ATS–N will not require the disclosure of proprietary or commercially sensitive information.584 In addition, not making certain items public would undercut the transparency that is the primary purpose of this
rulemaking.585 Another commenter suggests that the Commission should consider ‘‘tiering’’ proprietary information by first making it only available to the Commission and subscribers, and after a ‘‘reasonable’’ time lag, further disseminating such information to the general public.586 In response to commenter concerns, the cover page of the filed material amendment will be made public by the Commission upon filing and, unless the Commission declares the material amendment ineffective, the entirety of the material amendment, as amended, will be made public by the Commission following the Commission’s 30-calendar day review period.587 Another commenter states that, although the Commission should not address commenters’ concerns regarding disclosure of sensitive or proprietary information,588 by automatically making any portion of Form ATS–N confidential, if a ‘‘genuine need for confidentiality exists,’’ the broker-dealer can obtain confidential treatment under Commission Rule 24b–2, and suggests that the Commission provide guidance around the use of this limited exception.589 We believe that questions on adopted Form ATS–N, as modified, do not solicit the type of information that typically would constitute confidential information.590 The existing processes for obtaining confidential treatment will remain available to broker-dealer operators.591 Furthermore, the purpose of Form ATS– N is to create a public transparency regime for NMS Stock ATSs, with commensurate benefits, and allowing disclosures to be made only to the Commission would be contrary to the purposes of this rulemaking. In addition, FINRA requests that the Commission require NMS Stock ATSs to file duplicate copies of Form ATS–N submissions with FINRA so that FINRA has access to these filings before they become effective, or in the event that they are deemed ineffective and thus never made public.592 Requiring an NMS Stock ATS to provide Form ATS– N filings to the SRO of which the ATS is a member before the filings become effective or are declared ineffective would place additional administrative burdens on the NMS Stock ATS, particularly in the event the NMS Stock ATS amends its Form ATS–N during discussion with the Commission staff. We continue to believe that making Form ATS–N public will enhance the information available to market participants and benefit the marketplace, and therefore are adopting Rule 304(b)(2)(i), to provide that the Commission will make public each effective initial Form ATS–N, as amended.593 b. Public Disclosure of Orders of an Ineffective Initial Form ATS–N Because the Commission will not issue orders of effective initial Forms ATS–N, adopted Rule 304(b)(2) does not include each ‘‘Order of effectiveness of a Form ATS–N.’’ We continue to believe that it is appropriate to make public each order of ineffective Form ATS–N, substantially as proposed,594 to provide the public with notice regarding the regulatory status of potential trading venues; if a Form ATS–N is
declared ineffective, the ATS may not operate pursuant to the exemption from the definition of ‘‘exchange,’’ and the public should be aware of such regulatory status. Other than the comment about orders of ineffectiveness relating to a Legacy NMS Stock ATS’s initial Form ATS–N, which is discussed above,595 we received no comments on making public orders of effective or ineffective Form ATS–N. We continue to believe that it is necessary to make public an order of ineffective Form ATS–N for market participants to be informed of the operating status of an NMS Stock ATS. Therefore, we are adopting Rule 304(a)(2)(ii) to provide that orders of ineffective initial Form ATS–N will be made public, with modifications to reduce any potential ambiguity and improve readability of the rule text.596
c. Public Disclosure of Form ATS–N
Amendments
We proposed, in Rule 304(a)(2)(iv), making all filed amendments to Form ATS–N public; as proposed, Form ATS– N amendments would have been public during the Commission review period and prior to the Commission’s determination of whether a Form ATS– N amendment should be declared ineffective. In the Proposal, we asked whether commenters believe that the Commission should make public on its website upon filing a Form ATS–N amendment for a material change, and whether there should be a delay in when the Form ATS–N for a material change is made public.597 We received several comments on this aspect of the Proposal.598 Although one commenter agrees with our proposal to make Form ATS–N amendments public upon filing because it would keep market participants informed about changes to

599See ICI Letter at 3, n.3.
600See Liquidnet Letter at 6; SIFMA Letter at 31; UBS Letter at 3; BIDS Letter at 4; STA Letter at 5; STANY Letter at 2; CFA Institute Letter at 6; LeveL ATS Letter at 7. Some commenters state that an amendment to Form ATS–N should not be made public until it is declared effective. See, e.g., SIFMA Letter at 31; UBS Letter at 3. We, however, did not propose, and are not adopting, a process for declaring amendments to Form ATS–N effective. The Commission will have a 30-calendar day review period to declare amendments to Form ATS–N ineffective. See supra Section IV.B.2. 601See LeveL ATS Letter at 7–8. See also SIFMA Letter at 31; STANY Letter at 2. 602See BIDS Letter at 4; UBS Letter at 3; LeveL ATS Letter at 7. 603See UBS Letter at 3. 604See Liquidnet Letter at 6–7. 605See BIDS Letter at 4. 606See SIFMA Letter at 32. potential trading venues,599 several other commenters express concerns about making Form ATS–N amendments public upon filing or argue that the Commission should make amendments public only once the related changes are operative.600 Some of these commenters state that public disclosure of changes to ATS operations at least 30 calendar days before such changes are implemented may burden the ability of NMS Stock ATSs to act competitively, or may reduce the competitive advantage associated with being the first to innovate.601 In addition, commenters assert that making public Form ATS–N amendments that may never be implemented could be confusing or misleading to market participants; 602 one commenter states that publicly disclosing material changes in advance of implementation could cause market participants to not understand current operations of an NMS Stock ATS versus its proposed, future operations.603 One commenter asserts that immediate publication of amendments would stifle dialogue between the NMS Stock ATS and Commission staff.604 Another commenter states that it does not believe that making Form ATS–N amendments public upon filing would provide a benefit to market participants as ‘‘existing documents’’ should be adequate for market participants considering whether to use a particular NMS Stock ATS.605 We are modifying the proposed rules for making Form ATS–N amendments to an effective Form ATS–N public. In response to commenters’ concerns, we are adding new subparagraph (b)(2)(iii)(A) to Rule 304 to provide that, for material amendments (as defined by Rule 304(a)(2)(i)(A)) to an effective Form ATS–N, the cover page of the filed material amendment will be made public by the Commission upon filing and, unless the Commission declares the material amendment ineffective, the entirety of the material amendment, as amended, will be made public by the Commission following the Commission’s 30-calendar day review period. In addition, we are adding new subparagraph (b)(2)(iii)(B) to Rule 304 to provide that, for updating, correcting, and order display and fair access amendments (as defined by Rule 304(a)(2)(i)(B), (C), and (D),
respectively) to an effective Form ATS–N, the entirety of the updating, correcting, or order display and fair access amendment will be made public by the Commission upon filing. We are also adding to subparagraph (b)(2)(iii)(B) that an updating or correcting amendment filed to a material amendment will be made public by the Commission following the expiration of the review period for such material amendment pursuant to paragraph (a)(2)(ii) of Rule 304. We share the commenters’ concerns that making public Form ATS–N material amendments before expiration of the Commission’s 30-day calendar review period could be confusing or misleading to the public, particularly in the event the material amendment is declared ineffective and the related change is never implemented. One commenter asserts that advance disclosure of Form ATS–N amendments may burden market participants who feel obligated to review premature disclosures for possible effects on them and their underlying customers.606 We believe that publicly disclosing the cover page to a Form ATS–N material amendment during the review period, and disclosing the entire material amendment following the expiration of 30-calendar day Commission review period, when the related changes can be implemented, will reduce any potential for confusion and will not pose an undue burden on market participants. In addition, we share the commenters’ concerns that providing advance public notice of material changes to NMS Stock ATSs could burden ATSs, which would be required to provide at least 30- calendar day advance notice of material changes to all market participants, including their competitors. Requiring such advance public notice of material changes before they are implemented could reduce incentives for NMS Stock ATSs to innovate. However, we continue to believe that market participants that are planning routing strategies would benefit from advance notice that the NMS Stock ATS is planning changes to its operations or conflicts of interest. To minimize the potential competitive harm of advance public notice, while also providing the benefits of immediate public transparency, the Commission will make public the cover page of a material amendment to an effective Form ATS– N upon filing of such amendment. The cover page will indicate that the NMS Stock ATS has filed a material amendment and provide a brief narrative about the content of the amendment. An NMS Stock ATS is required to indicate the part and item number of Form ATS–N that is subject to the change, state whether or not such change will apply to all subscribers and the broker-dealer operator, and provide a brief summary of the changes. For example, if an NMS Stock ATS is introducing a new order type, the brief narrative might state: ‘‘The ATS is amending Part III, Item 7(a) of Form ATS–N to include a new order type, which will be available to all subscribers.’’ In addition, we are adding, in new subparagraph (b)(2)(iii)(A) to Rule 304, that the
Commission will, following the expiration of the 30-calendar day Commission review period pursuant to Rule 304(a)(2)(ii), make public the entirety of the material amendment ‘‘as amended.’’ We are providing a process, under Rule 304(a)(2)(ii), for NMS Stock ATSs to file updating and correcting amendments under Rule 304(a)(2)(i)(B) and (C), respectively, to material amendments during the Commission review period. In addition, Rule 304(b)(2)(iii)(B) provides that an updating or correcting amendment filed to a material amendment will be made public by the Commission following the expiration of the review period for such material amendment pursuant to Rule 304(a)(2)(ii). We believe that disclosing updating and correcting amendments to material amendments before expiration of the Commission’s 30-day calendar review period for the material amendment (and before the material amendment is made public) could be confusing or misleading to the public as the underlying material amendment would not yet be public or operative. We will make public material amendments ‘‘as amended;’’ material amendments will reflect any updating and correcting amendments filed during the Commission review period. Such amended disclosures could provide market participants with more complete and comprehensible information about NMS Stock ATS operations and the activities of their broker-dealer operators and affiliates. Accordingly, Rule 304(b)(2)(iii)(B) provides that an updating or correcting amendment filed to a material amendment will be made public by the Commission following the

607See Rule 304(a)(2)(i)(B) and supra Section IV.B.1.b. 608See Rule 304(a)(2)(i)(C). 609See Rule 304(a)(2)(i)(D). 610See LeveL ATS Letter at 7; UBS Letter at 3. 611An updating or correcting amendment to a material amendment during Commission review will not be made public until the material amendment that is amended becomes public. We believe this is appropriate because updating and correcting amendments to a material amendment during Commission review would amend a material amendment that is not yet public or operative. 612See SIFMA Letter at 31. 613See SIFMA Letter at 32; Morgan Stanley Letter at 4; KCG Letter at 4. 614See supra Section IV.B.2. 615See UBS Letter at 3; STA Letter at 5. 616See supra Section IV.A.2. 617See supra note 438 and accompanying text. 618See supra Section IV.A.4. expiration of the review period for such material amendment pursuant to Rule 304(a)(2)(ii), and Rule 304(b)(2)(iii)(A) provides that a material amendment will be made public, as amended, which would incorporate any amendments that were filed to the material amendment during the Commission review period. The change to delay making the entirety of Form ATS–N material amendments, as amended, public until after the Commission has completed the review will not impact the manner in which we proposed to make public updating, correcting, and order display and fair access amendments. Form ATS–N updating amendments require NMS Stock ATSs to, no later than 30 calendar days after the end of a calendar quarter, correct information that has become inaccurate or incomplete for any reason and was not required to be reported to the Commission as a Form ATS–N amendment pursuant to Rules 304(a)(2)(i)(A), (C), or (D).607 NMS Stock ATSs are required to correct information in any previous disclosure on Form ATS–N through a correcting amendment after discovery that any material information previously filed on Form ATS–N was inaccurate or incomplete when filed.608 Order display and fair access amendments are required to be filed no later than seven calendar days after information required to be disclosed in Part III, Items 24 and 25 on Form ATS–N has become inaccurate or incomplete.609 We proposed that all amendments, which include Form ATS–N updating and correcting amendments (as well as material amendments), be made public upon filing. Two commenters assert that publicly disclosing changes that the Commission could later declare ineffective could create confusion among market participants.610 Although, as adopted, the Commission would not make the entirety of material amendments public until after its 30- calendar day review period expires, because correcting, updating, and order display and fair access amendments would be made public upon filing, the Commission could declare such an amendment ineffective after it has been made public. We continue to believe that, even with the risk of some confusion if updating, correcting, and order display and fair access amendments later were
declared ineffective, it is appropriate to make updating, correcting, and order display and fair access amendments to an effective Form ATS–N public upon filing because the related changes, any inaccurate or incomplete disclosures about the operation of the NMS Stock ATS, or triggering of the order display and execution access and fair access thresholds, may have been implemented at or before the time of filing, and we believe that it is crucial that market participants have updated information about current NMS Stock ATS operations.611 With respect to amendments declared ineffective, one commenter states that such amendments should be returned to the NMS Stock ATS and not be made publicly accessible.612 Under Rule 304(b)(2)(iii)(A), as adopted, the Commission is specifying that it will not make public the entirety of a material amendment that it declares ineffective. The Commission would, however, upon filing, make public on its website the cover page of the material amendment, and subsequently, any order of ineffectiveness related to such material amendment. In addition, because the Commission will make public updating, correcting, and order display and fair access amendments to an effective Form ATS–N upon filing, such amendments will be publicly available even if the Commission declares such amendments ineffective during its 30-calendar day review period. We believe that it is appropriate to make public updating, correcting, and order display and fair access amendments upon filing, even if the Commission could later declare them ineffective, because, unlike material amendments, the disclosures included in updating, correcting, and order display and fair access amendments have been implemented and reflect an NMS Stock ATS’s current operations and affiliate relationships. If the Commission later declares an updating, correcting, or order display and fair access amendment ineffective, it will issue an order of ineffectiveness, which the Commission will make public to notify market participants that such change is no longer in effect. Three commenters state that by making pending amendments public, the Commission may incidentally turn the process into a review, notice, and comment period.613 Under the adopted rule, the Commission will not make material amendments to Form ATS–N public until the Commission review period has expired. Further, the Commission does not believe that publicly disclosing the brief description of a material amendment on the cover
page of Form ATS–N or publicly
disclosing correcting, updating, and order display and fair access amendments upon filing will create a public notice, comment, and review period, as the Commission is not soliciting public comments on amendments.614 This process will be distinct from the proposed rule filing process for national securities exchanges, in which the Commission solicits comment for proposed rule changes and considers whether rule changes are consistent with the Exchange Act. Two commenters suggest that material amendments should be made public after the Commission has completed its review, but prior to implementation.615 We are not adopting this suggestion because doing so would require that, to provide additional time for public disclosure after the end of the Commission review period, either the Commission truncate the period for Commission review from the entire 30- calendar day advance notice period, which we believe is necessary for the review,616 to a shorter segment of the total 30-calendar day advance notice period, or require that NMS Stock ATSs disclose changes further in advance, which could potentially be burdensome for NMS Stock ATSs. In addition, we received comments asking for clarification regarding the process for a Legacy NMS Stock ATS to file amendments to its Form ATS while the Commission is reviewing the ATS’s initial Form ATS–N.617 In response, we are requiring that a Legacy NMS Stock ATSs amend only its initial Form ATS– N, and not its Form ATS, during the Commission review period.618 Further, a Legacy NMS Stock ATS’s Form ATS– N will not be made public until the end of the Commission review period under Rule 304(a)(1)(iv)(B). Rule 304(b)(2)(iii) provides that amendments to an effective Form ATS–N will be made public. Accordingly, amendments to a Form ATS–N filed by a Legacy NMS Stock ATS during the Commission review period will not be made public until after the Commission review period has ended and the Form ATS–N

619See supra note 552.
620See id.
621See ICI Letter at 11.
622See supra note 552. We are making one modification to specify that this applies to the exemption ‘‘for an NMS Stock ATS.’’ 623See CFA Institute Letter at 6; UBS Letter at 3. 624See CFA Institute Letter at 6. 625See UBS Letter at 3. 626See Proposal, supra note 2, at 81035. 627See id. 628See Proposed Form ATS–N, Part V. 629The Commission is deleting the word ‘‘electronically’’ and the language ‘‘and contain an electronic signature’’ in the first sentence of proposed Rule 304(c)(2). All NMS Stock ATSs are required to file Form ATS–N through EDGAR. Therefore, we believe that referencing the term ‘‘electronic’’ and ‘‘electronic signature’’ is redundant because all filings are electronically submitted through EDGAR. We are deleting the second sentence (regarding manually signing a signature page or document) and instead adding a reference to 232.302 of Regulation S–T, which includes the general rules for electronic filings, including rules governing electronic signatures. We are also modifying the third sentence of Rule 304(c)(2) to state that any report filed under Rule becomes effective. We believe that making Form ATS–N amendments public before the initial Form ATS–N is public would provide little utility, and would likely only confuse market participants. At the end of the Commission review period, a Legacy NMS Stock ATS’s initial Form ATS–N will be made public, along with all filed correcting, updating, and order display and fair access amendments, material amendments for which the Commission’s 30-calendar day review period has expired, and the cover pages to any material amendments during the Commission review period. d. Public Disclosure of Orders of Ineffective Form ATS–N Amendment Under Rule 304(b)(2)(iv), the Commission will make public each order of ineffective Form ATS–N amendment. This would provide notice to market participants that the Commission had declared a Form ATS– N amendment ineffective. We received no comments on making public orders of ineffective Form ATS–N amendments. We are adopting proposed Rule 304(b)(2)(v) as adopted Rule 304(b)(2)(iv).619 e. Public Disclosure of Notices of Cessation Under Rule 304(b)(2)(v) (which was proposed as Rule 304(b)(2)(vi)),620 the Commission will make public each notice of cessation of a Form ATS–N filed pursuant to Rule 304(a)(3). One commenter states that it supports our proposal to make notices of cessation publicly available.621 No commenters express opposition to such requirement. We continue to believe that making public each properly filed Form ATS–N notice of cessation will 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 will provide market participants with the date that the NMS Stock ATS will cease operations, as designated by the NMS Stock ATS, and allow them to make arrangements to
select alternative routing destinations for their orders. Therefore, we are adopting as proposed the requirement for public disclosure of notices of cessation. f. Public Disclosure of Each Order Suspending, Limiting, or Revoking the Rule 3a1–1(a)(2) Exemption Under proposed Rule 304(b)(2)(vii), the Commission would make public each order suspending, limiting, or revoking the exemption provided pursuant to Rule 3a1–1(a)(2). We did not receive any comments on this requirement. We believe that it is important for market participants to be aware of whether an NMS Stock ATS is subject to an order suspending, limiting, or revoking the exemption from the definition of ‘‘exchange’’ when they are making their routing decisions because such an order could prevent an NMS Stock ATS from operating, or it could limit its functionality. Therefore, we are adopting substantially as proposed the requirement that the Commission make public each order suspending limiting, or revoking the exemption from the definition of ‘‘exchange,’’ as renumbered Rule 304(b)(2)(vi).622
3. Rule 304(b)(3): Disclosure of Form
ATS–N on the NMS Stock ATS’s Website Proposed Rule 304(b)(3) required each NMS Stock ATS to make public via posting on its website a direct URL hyperlink to the Commission’s website that contains the documents enumerated in proposed Rule 304(b)(2). We received two comments on proposed Rule 304(b)(3).623 One commenter supports adding a requirement for NMS Stock ATSs to post the effective Forms ATS–N on their own websites and not simply provide links to the Commission’s website.624 Another commenter requests that rather than requiring materials to be posted centrally through the Commission, the Commission should allow an NMS Stock ATS to post its disclosure materials on its public website.625 We are not adopting a requirement that an NMS Stock ATS post its filings on its own website because it believes that requiring each NMS Stock ATS to provide a link to the Commission’s website, which will link to Form ATS– N filings in EDGAR, will provide market participants easy and uniform access to Form ATS–N filings. The link to the Commission website would provide users with access to all new filings available in EDGAR. We are adopting, with modifications, the requirement that each NMS Stock ATS make public via posting on its website a direct URL hyperlink to the Commission’s website that contains the documents enumerated in proposed Rule 304(b)(2). We continue to believe that the requirement of posting on the NMS Stock ATS’s website a direct URL hyperlink to the Commission’s website 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 made available through the Commission’s website.626
V. Form ATS–N Disclosures
A. Form ATS–N Disclosure Requirements and Definitions

Rule 304(c): Disclosure Requirements
Proposed Rule 304(c)(1) required 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. Unlike proposed Rule 304(c)(2), reports required under Rule 304 must be filed electronically on Form ATS–N, include all information as prescribed in Form ATS–N and the Instructions thereto, and contain an electronic signature that is authenticated by manual signature. Further, proposed Rule 304(c)(2) required that such document be executed before or at the time Form ATS–N is electronically filed and be retained by the NMS Stock ATS in accordance with Rule 303.627 The proposed Form ATS–N required the signator to represent that the information and statements in the applicable Form ATS–N, including exhibits, schedules, or other documents attached to the Form ATS–N, and other information filed with the Form ATS–N, are current, true, and complete.628 We are adopting Rule 304(c)(2), with technical and non-substantive modifications to reduce redundancy and reduce potential ambiguity about the filing requirements for Form ATS–N.629

304 shall be executed ‘‘at, or prior to,’’ the time the Form ATS–N is filed (instead of ‘‘before or at’’). We are also adding a reference to the Instructions in Form ATS–N, which includes the requirement for NMS Stock ATSs to maintain a paper copy with original manual signatures, instead of including a reference to retaining Form ATS–N in accordance with § 242.303, as proposed. 630See Proposal, supra note 2, at 81005. 631See id. at 81037. 632See SIFMA Letter at 33; Better Markets Letter at 7. 633See Better Markets Letter at 7. 634See SIFMA Letter at 33. 635See Form ATS at 1. 636See Form 1 at 1. 637We changed the heading of proposed Rule 304(c) from ‘‘Form ATS–N filing requirements’’ to ‘‘Form ATS–N disclosure requirements,’’ which we believe more accurately describes the purpose and content of the paragraph. 638See Rule 304(c)(1). 639See Instructions to Form ATS–N. 640See, e.g., Form ATS–N Part III, Item 13(a) (instructing NMS Stock ATS to provide a summary of the parameters for each segmented order category). 641 In addition, to avoid potential confusion, we are removing ‘‘in detail’’ from Rule 304(c)(1) and instead, specifying that the Form ATS–N must be filed ‘‘in accordance with the instructions therein.’’ See Rule 304(c)(1). 642See T. Rowe Price Letter at 2. 643See Fidelity Letter at 8. 644See SSGA Letter at 2–3; BIDS Letter at 4–5; Fidelity Letter at 5; STANY Letter at 5; UBS Letter at 2–3; KCG Letter at 8–9, 11; Morgan Stanley Letter at 1; STA Letter at 2; SIFMA Letter at 9; LeveL ATS Letter at 6–7. 645See STANY Letter at 3; Luminex Letter at 4; KCG Letter at 4; SSGA Letter at 2; SIFMA Letter at 7. 646See STA Letter at 2; KCG Letter at 3–4; SIFMA Letter at 9. 647See SSGA Letter at 2. 648See Liquidnet Letter at 18. 649See SSGA Letter at 2; Fidelity Letter at 5; STA Letter at 2; BIDS Letter at 4–5; KCG Letter at 8–9; Morgan Stanley Letter at 1. 650See SSGA Letter at 2; BIDS Letter at 4; STANY Letter at 5; STA Letter at 2; UBS Letter at 2–3; KCG Letter at 8–11; SIFMA Letter at 9; LeveL ATS Letter at 6. In the Proposal, the Commission stated that Regulation ATS requires NMS Stock ATSs to register as broker-dealers with the Commission, which entails becoming a member of an SRO, such as FINRA, and fully complying with the broker-dealer regulatory regime.630 The Commission requested comment on whether the certification under FINRA Rule 3130 would help ensure an NMS Stock ATS’s compliance with proposed Rule 304, including the requirement that disclosures on Form ATS–N be accurate, current, and complete.631 The Commission received two comment letters regarding the requirement that an authorized person certify that the form is ‘‘current, true, and complete.’’ 632 One commenter supports the certification requirement.633 Another commenter expresses concern about immaterial errors being a basis for liability.634 The Commission continues to believe that it is appropriate to require authorized persons to certify that the Form ATS–N is ‘‘current, true,
and complete.’’ We believe that market participants will rely on Form ATS–N disclosures to understand the operations of an NMS Stock ATS and ATS-related activities of the broker-dealer operator, and decide whether that trading center would be a desirable venue for their orders. The information contained on Form ATS–N will also be available for Commission use, including as part of its oversight functions. Further, existing Form ATS also requires authorized persons to certify that the information and statements in the form, exhibits, schedules and other documents attached are ‘‘current, true, and complete.’’ 635 In addition, Form 1, the application for registration or exemption from registration as a national securities exchange, requires a similar certification.636 Neither of these certifications includes a materiality qualifier, and the Commission does not believe that it would be appropriate to include a materiality qualifier in Form ATS–N. We are adopting Rule 304(c)(1) with certain modifications.637 Specifically, adopted Rule 304(c)(1) requires that ‘‘[a]n NMS Stock ATS must file a Form ATS–N in accordance with the Instructions therein.’’ 638 The adopted Instructions to Form ATS–N require, among other things, that ‘‘[a]n NMS Stock ATS must provide all the information required by Form ATS–N, including responses to each Item, as applicable, and the Exhibits, and disclose information that is accurate, current, and complete.’’ 639 Similar to the Instructions of proposed Form ATS– N, the Instructions to adopted Form ATS–N asks an NMS Stock ATS to respond to each item ‘‘in detail.’’ In response to comments, we revised some of the requests on Form ATS–N to solicit ‘‘a summary of information’’ to tailor further, as appropriate, the required disclosure or avoid requiring the disclosure of personal or commercially sensitive information.640 Accordingly, we are revising the Instructions to require that ‘‘unless otherwise provided’’ (i.e., where the request indicates that the ATS is required to disclose ‘‘summary’’ information), the NMS Stock ATS respond to each request in detail.641 One commenter suggests that an NMS Stock ATS should be permitted to disclose additional information to its subscribers and potential customers, outside of the Form ATS–N process, or respond to requests for information from market participants.642 Similarly, one commenter states that NMS Stock ATSs should be allowed to separately disclose information, upon request, regarding order segmentation to subscribers who require such information from a ‘‘due diligence perspective’’ and who, due to the nature of their trading, would not present gaming concerns.643 We believe that it would be inconsistent with the goals of this rulemaking were its adoption to chill communication between broker-dealer operators and subscribers about the NMS Stock ATS. The adopted enhanced disclosure requirements do not prohibit brokerdealer operators from communicating with subscribers and other market
participants about information not otherwise required by Form ATS–N in a manner that is consistent with federal securities laws and the rules or regulations thereunder. A broker-dealer operator responding to a request for information from a subscriber or market participant generally should evaluate whether the information provided in response to these requests must be disclosed on Form ATS–N if the information does not already appear in its Form ATS–N. The Commission received several comments on the general format of the Form ATS–N. Several commenters suggest that the Commission modify Form ATS–N so that the requests for information result in disclosures that are more standardized and allow market participants to more easily compare Form ATS–N filings.644 Some commenters express concern that requesting what they characterize as ‘‘extraneous’’ information could obscure the information that market participants would find the most relevant.645 Some of these commenters also express concern that the volume of data that NMS Stock ATSs would provide in response to questions that require narrative responses would make it difficult for participants to understand ATS operations 646 or conduct due diligence.647 Although one commenter expressly agrees with the Commission’s approach of requiring summaries of amendments,648 several commenters state that narrative responses on Form ATS–N are likely to vary widely, and could make comparing multiple platforms difficult.649 Multiple commenters advocate for replacing some of the proposed narrative responses to Form ATS–N with ‘‘yes’’ or ‘‘no’’ responses.650 One commenter states that requiring ATSs to respond in a ‘‘yes’’ or ‘‘no’’ format would support

651See LeveL ATS Letter at 7.
652See BIDS Letter at 4; SIFMA Letter at 12; LeveL ATS Letter at 7. 653See BIDS Letter at 5. 654The Commission is making one technical change to the proposed term ‘‘affiliate’’ by capitalizing the defined term ‘‘Person.’’ This change is meant to identify the term Person as a defined term for purposes of the Form ATS–N. 655See LeveL ATS Letter at 3, n.5. 656See id. at 4, n.7. 657See UBS Letter at 4. This commenter states that the broker-dealer operator of its ATS has well over 300 global affiliates under the definition set forth in the Proposal, and that not all such affiliates are users of the ATS; only orders routed by a small number of affiliates end up in its ATS. See id. The commenter also points out that as proposed, it would need to disclose every affiliate regardless of whether it has any interactions with the ATS. See id. 658See HMA Letter at 15. 659See LeveL ATS Letter at 3, n.6. 660See id. more fulsome disclosure and create a universal standard of review, as allowing narrative responses may allow ATSs to disclose only the information that they deem appropriate.651 Some commenters recognize that ‘‘yes’’ or ‘‘no’’ information may need to be supplemented by short narrative responses.652 One commenter suggests introducing a tabular format, where reasonable, to capture the disclosures required by Forms ATS–N would facilitate comparison of Forms ATS– N.653 The Commission has revised the format of proposed Form ATS–N to further standardize the form’s requests, better organize questions by subject matter, reduce redundancy, reduce ambiguity, make more explicit requests on Form ATS–N to facilitate complete responses, and achieve the appropriate balance between yes/no and narrative responses. For instance, the adopted format of Form ATS–N changes several questions from proposed Form ATS–N for certain subject matters (e.g., order display, co-location services, and segmentation) to require ‘‘yes’’ or ‘‘no’’ responses with further narrative disclosure required in connection with ‘‘yes’’ responses. We believe that adding more ‘‘yes’’ or ‘‘no’’ questioning in Form ATS–N will help standardize responses and address commenters’ concerns about facilitating market participants’ review and comparisons of Form ATS– N disclosures. We continue to believe, however, that narrative responses enable market participants to understand the operations of the NMS Stock ATS and the ATS-related activities of the broker-dealer operator, particularly in light of the different trading functionalities, options, and procedures that are offered across NMS Stock ATSs, and provide NMS Stock ATSs with the flexibility to communicate required information to the public that is required by the form. Also, certain requests have been amended to only require summary information. We believe that requiring summaries for certain disclosures could help reduce potential extraneous information.
2. Terminology
a. Definitions for Form ATS–N (i) Proposed Defined Terms As proposed, Form ATS–N would have set forth definitions of the following terms: (1) Affiliate; (2) alternative trading system; (3) brokerdealer operator; (4) control; (5) NMS security; (6) NMS Stock; (7) NMS Stock ATS; (8) order; (9) person; and (10) subscriber. The Commission received several comments regarding the proposed definitions of ‘‘affiliate.’’ The Commission is adopting the definition of the term ‘‘affiliate,’’ with a technical change,654 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.’’ One commenter states that the proposed definition of ‘‘affiliate’’ would include, among others, owners of the ATS operator, without regard for whether the affiliate is separately registered as a broker-dealer and therefore subject to the Commission’s jurisdiction.655 The commenter notes that the definition of ‘‘affiliate’’ would include persons ‘‘under common control with’’ the NMS Stock ATS operator, with control meaning at least 25% ownership, such that the threshold would capture entities that operate independently from one another.656 Similarly, another commenter points out that although the Proposal contains a customary definition of the term ‘‘affiliate,’’ the definition is not limited in any way that focuses on direct interactions or relationships with the NMS Stock ATS.657 We do not believe that the status of an affiliate’s registration with the Commission should limit the scope of the disclosures about that affiliate in Form ATS–N. However, the adopted Form ATS–N conflicts-of-interest disclosures are tailored to inform market participants about how affiliates of the broker-dealer operator trade on the NMS Stock ATS and how the use of the ATS by affiliates may affect the handling and execution of orders from unaffiliated parties. While the definition of ‘‘affiliate’’ in Form ATS–N may encompass a large number of entities for some ATSs, Form ATS–N is designed to solicit information that is relevant to a market participant’s evaluation of an NMS Stock ATS as a potential trading venue. Therefore, while we have not amended the proposed definition of ‘‘affiliate,’’ the disclosures about affiliate activity on an NMS Stock ATS are not designed to require information about affiliates that the Commission and commenters believe would be extraneous to a market participant’s evaluation of conflicts of interest and information leakage on the ATS. We received two comments regarding the proposed definition of ‘‘control.’’ After carefully considering these comments, we are adopting the definition of ‘‘control,’’ as proposed, to 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. One commenter expresses support for the Commission’s proposal that the definition of control contain a 25% ownership threshold that the commenter states currently serves as a presumption of control and is consistent with that used in other areas of the securities laws.658 Another commenter states, however, that the proposed definition of ‘‘control’’ provides that certain persons are presumed to control the broker-dealer operator of an NMS Stock ATS, but that there is no corresponding safe harbor whereby persons are presumed not to control an NMS Stock ATS.659 Accordingly, the commenter opines that an NMS Stock ATS operator may feel obligated to provide overly broad disclosures, which could confuse subscribers regarding potential conflicts.660 Disclosures related to affiliates extend to persons that control, are controlled by, or are under common control with the broker-dealer operator, and, as a result, parallel the disclosures related to ‘‘control affiliates’’ that broker-dealer

661See Form BD at 2 (defining ‘‘control affiliate’’). 662 17 CFR 242.300(f). 663See Proposal, supra note 1, at 81044. 664See SIFMA Letter at 10. 665See infra Section V.C.1. 666See KCG Letter at 8. 667See id. at 8–9. This commenter also asserts that it is imperative for the Commission to clarify that the interaction between the NMS Stock ATS and any non-ATS trading center may be subject to change and the ATS operator does not need file and receive Commission approval before implementation. See id. We note that the materiality of any changes to the interaction and coordination between non-ATS trading centers and the NMS Stock ATS that would require disclosure on Form ATS–N should be evaluated based on the facts and circumstances related to each change. 668See 17 CFR 242.600(b)(78). operators must make on Form BD.661 The Commission disagrees that an NMS Stock ATS operator may feel obligated to provide unnecessarily broad disclosures regarding potential conflicts of interest due to the proposed definition of ‘‘control.’’ The presumed control tests set forth in the adopted definition of ‘‘control’’ are meant to provide clarity to NMS Stock ATSs as to when an entity and the broker-dealer operator are defined as ‘‘affiliated,’’ which would trigger the NMS Stock ATSs’ disclosure duties under Part II of adopted Form ATS–N. We believe that the enumerated circumstances under which there is presumed control involve factors (such as a shared executive or 25% ownership) that would likely result in one entity or person having the power, directly or indirectly, to direct the management or policies of the broker-dealer operator of an ATS. Therefore, in such situations, a presumption of control is appropriate. On the other hand, because control can manifest itself in several ways under the adopted definition, the Commission does not feel that there are certain facts that would warrant a presumption of no control. For example, the unique facts and circumstances of several different ownership structures could result in different conclusions regarding control, even though the various structures contain some similarities. Accordingly, the Commission has not added provisions setting forth circumstances under which there would be a presumption of no control. The Commission is adopting as proposed the changes to the definition of ‘‘control’’ under Rule 300(f) in Regulation ATS. The definition of the term control being adopted herein contains the additional 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.662 As discussed in the Proposal, the purpose of this difference 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 brokerdealer 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.663 The disclosures of ATS-related activities of the broker-dealer operator’s affiliates in Part II of adopted Form ATS–N are designed to provide subscribers and market participants with a comprehensive understanding of the 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 adopted definitions of ‘‘affiliate’’ and ‘‘control,’’ any affiliate of the broker-dealer operator of the NMS Stock ATS would be an affiliate of the NMS Stock ATS. These definitions are designed to cover entities that have a close relationship with the broker-dealer operator and whose activities could raise conflicts of interest concerns, or could otherwise be relevant to market participants when evaluating an NMS Stock ATS. Furthermore, in Part III, Item 1 of proposed Form ATS–N, the Commission used the term ‘‘non-ATS trading center.’’ A commenter requests that the Commission define the term ‘‘non-ATS trading center’’ so that broker-dealer operators can better focus on making proper disclosures.664 As further explained below, in response to comments, the Commission is reorganizing and changing Part III, Item 1 of proposed Form ATS–N to request information about the trading activities of the broker-dealer operator and its affiliates, irrespective of whether the broker-dealer operator’s business units and/or affiliates are non-ATS trading centers.665 Given the revisions the Commission is making to Part III, Item 1, we believe that the defined term is no longer necessary, and the Commission is, therefore, eliminating the term from adopted Form ATS–N. Another commenter agrees with the goal of highlighting potential conflicts of interest faced by broker-dealer operators of NMS Stock ATSs and their affiliates in connection with the ATS.666 The commenter endorses the proposed requirement to identify non-ATS trading centers managed by the ATS operator or its affiliates that interact with the ATS. The commenter also states that disclosures related to non-ATS trading centers should be limited to non-ATS trading centers that interact with or exchange information with the ATS.667 The Commission also believes that public disclosure of non-ATS trading centers managed by the broker-dealer operator or its affiliates that interact with the ATS furthers the stated goal of helping market participants evaluate potential conflicts of interest on an NMS Stock ATS. The requests in Part II of adopted Form ATS–N are tailored to elicit such information without burdening NMS Stock ATSs with a requirement to list the non-ATS trading centers of the broker-dealer operator or its affiliates that do not interact with the NMS Stock ATS. (ii) New Defined Terms The Commission is adding the term ‘‘trading center’’ to the definitions set forth in the Instructions to adopted Form ATS–N to
define that term for purposes of its use in Part II and Part III of adopted Form ATS–N. The term ‘‘trading center’’ was used in proposed Form ATS–N with regard to arrangements with other trading centers—Part III, Item 4 of proposed Form ATS–N—and is used in adopted Form ATS–N’s requests regarding the routing of orders from the NMS Stock ATS to business units or affiliates of the broker-dealer operator (adopted Part II, Items 1 and 2) and the NMS Stock ATS’s arrangements with other trading centers (adopted Part II, Item 4). The definition of the term ‘‘trading center’’ used for purposes of adopted Form ATS–N is the same as that currently set forth in Regulation NMS Rule 600(b)(78).668 The adopted definition is ‘‘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.’’ While we believe that the scope of the term ‘‘trading center’’ in Form ATS–N would likely be understood by NMS Stock ATSs, we believe that adding a definition to the Form ATS–N will reduce any potential ambiguity with regard to those requests in Part II, Items 1, 2, and 4 of adopted Form ATS–N. One commenter states that the Commission should add additional definitions for certain terms to promote consistency throughout Forms ATS–N, which the commenter believes could ultimately facilitate comparison among

669See BIDS Letter at 5.
670See UBS Letter at 2.
671See Morgan Stanley Letter at 4. 672See UBS Letter at 5. 673 17 CFR 242.300(b) (emphasis added). Additionally, the definition of the term ‘‘subscriber’’ under Regulation ATS states that a subscriber shall not include a national securities exchange or national securities association. See id. 674See Proposal, supra note 2, at 81041 (discussing the relationship between the brokerdealer operator’s operation of the NMS Stock ATS and its other operations). 675For example, third-party market participants— including, potentially, affiliates and non-affiliates of the broker-dealer operator—may enter into subscriber agreements or some other form of contract with the broker-dealer operator to connect directly to the ATS to submit or display orders. We note that a determination as to who may be a ‘‘subscriber’’ to the ATS would depend upon the facts and circumstances of the relationship between the ATS and the broker-dealer operator, so the preceding examples are not exhaustive. 676See UBS Letter at 5 (noting that market participants may maintain a commercial relationship with the broker-dealer operator for purposes other than accessing the broker-dealer operator’s ATS, such as to use the broker-dealer’s high touch block trading desk or to use the brokerdealer’s trading algorithms); Morgan Stanley Letter at 1–2 (explaining that full service broker-dealers may provide clients with a broad, integrated electronic offering of trading services, which might include ATS services). Forms ATS–N.669 Another commenter emphasizes that the Commission should establish fundamental uniformity in the way information is defined and disclosed.670 We have structured adopted Form ATS–N to allow market participants to better compare disclosures among NMS Stock ATSs. We do not, however, believe that it should establish standardized terms to be used by NMS Stock ATSs when completing their disclosures on Form ATS–N. We do not desire to impose substantive standards for how disclosures should be written by adopting and defining terms to be used by all NMS Stock ATSs to describe the functionalities, operations, or procedures of their systems. The operations of NMS Stock ATSs vary, and, apart from some common terms, many NMS Stock ATSs use different terminology to describe their operations and functionalities. Based on our review of Form ATS filings, we believe that NMS Stock ATSs may use differing terms and definitions to describe functionalities, operations, or procedures, even if a particular function, operation, or procedure on one ATS may resemble that on another. We do not believe that it would be very helpful to define terms for functionalities, operations, or procedures across NMS Stock ATSs because doing so may not result in complete or comprehensible disclosures due to these substantive and semantical differences in the operations of NMS Stock ATSs. We believe that adopting standardized, substantive terms for Form ATS–N disclosures may limit the ability of an NMS Stock ATS
to completely and clearly describe its system, which we believe could reduce the utility of Form ATS–N disclosures for market participants. We also believe that such defined terminology would limit the flexibility of NMS Stock ATSs to name or market new services of the ATS. b. Comments on the Definition of ‘‘Subscriber’’ When seeking disclosures regarding how an NMS Stock ATS operates and the ATS-related activities of the brokerdealer operator and its affiliates, proposed Form ATS–N used the terms ‘‘subscriber’’ and ‘‘person(s).’’ One commenter believes that Form ATS–N should instead focus on the term ‘‘user’’ rather than ‘‘subscriber.’’ 671 This commenter states that the term ‘‘subscriber’’ can be disparately interpreted and applied by broker-dealer operators of ATSs and would inhibit uniform application across ATSs in terms of disclosure, access, priority, and other purposes. This commenter further states that the current definition in Regulation ATS fails to adequately define ‘‘subscriber’’ in the case of an ATS that is part of a larger broker-dealer operation, leading to inconsistencies in the application of the requirements applicable to subscribers across ATSs. The commenter believes that disclosures in Form ATS–N should not depend on whether a broker-dealer operator has a contractual agreement with a user for accessing the ATS, but should be consistent for all users that access an ATS whether such users are internal or external and whether such users access the ATS directly or indirectly. Similarly, another commenter believes the phrase ‘‘subscriber orders or other trading interest’’ as used in proposed Part III, Item 1—which would have required the NMS Stock ATS to disclose information about the interaction and coordination between non-ATS trading centers operated by the broker-dealer operator or its affiliates and the NMS Stock ATS—should be read as ‘‘subscriber orders or subscriber trading interest.’’ 672 This commenter believes that the alternative reading would potentially capture all trading interest sent to the broker-dealer operator of the NMS Stock ATS. We agree that responses to questions in Form ATS–N should be uniformly applied by NMS Stock ATSs regardless of the source of orders (e.g., principal trading desks of the broker-dealer operator, third parties using direct connectivity, affiliates of the brokerdealer operator, customers of the brokerdealer operator whose orders are submitted to the ATS through a functionality of the broker-dealer operator, such as a smart order router (‘‘SOR’’)). We have revised several requests on proposed Form ATS–N to help facilitate a uniform application of responses by NMS Stock ATSs and, in response to commenters’ concerns, are providing guidance regarding the definition of ‘‘subscriber’’ under Regulation ATS and in the context of Form ATS–N disclosures. First, we believe that the term ‘‘subscriber’’ sufficiently captures the vast majority of market participants whose orders or trading
interest are submitted to and executed in an NMS Stock ATS. Regulation ATS defines subscriber ‘‘[a]s any person that has entered into a contractual agreement with an ATS to access such ATS for the purpose of effecting transactions in securities or submitting, disseminating, or displaying orders on such ATS, including a customer, member, user, or participant in an ATS.’’ 673 In the Proposal, as the Commission discussed, the broker-dealer operator of an NMS Stock ATS is legally responsible for, and controls all aspects of, the ATS operation, including, among other things, providing access to the ATS.674 Based on our experience, persons seeking to use an ATS’s services enter into agreements with the broker-dealer operator, and these agreements could cover services in addition to the ATS services. These agreements may take a variety of forms, and may or may not be written.675 If a market participant has an agreement—written or unwritten—with a broker-dealer that allows the market participant to enter orders directly into an ATS operated by the broker-dealer, that market participant is a subscriber of the ATS for purposes of Regulation ATS and Form ATS–N. Another example of a subscriber would include a customer of the brokerdealer operator whose orders are submitted to the ATS by the brokerdealer operator. Many NMS Stock ATSs are operated by broker-dealers that offer their customers a wide range of order handling and execution services in addition to the execution services of their NMS Stock ATSs.676 These services typically involve functionality such as an SOR or other types of trading algorithms. In cases where a customer uses this wider range of services of the broker-dealer, the customer would not

677We do not intend for Form ATS–N to require disclosures about aspects of a market participant’s other commercial relationships with a broker-dealer operator that do not pertain to the NMS Stock ATS. We believe that the adopted Form ATS–N disclosure requests are tailored so that operations of the broker-dealer operator not housed within the NMS Stock ATS—and that do not otherwise pertain to the functions of the ATS—would not be subject to disclosure on Form ATS–N. 678See Morgan Stanley Letter at 4. 679Proposed Form ATS–N would have required NMS Stock ATSs to check the ‘‘Submission Type.’’ Adopted Form ATS–N requires NMS Stock ATSs to check the ‘‘Type of Filing.’’ This is a nonsubstantive change. 680Adopted Form ATS–N’s cover page provides that a filing may be an initial Form ATS–N, or a Form ATS–N material amendment, updating amendment, correcting amendment, or order display and fair access amendment. Proposed Form ATS–N included a check box above the ‘‘Submission Type’’ menu, where an NMS Stock ATS could indicate if the filing was an ‘‘Initial Form Filing.’’ In addition, in the proposed Form ATS–N ‘‘Submission Type’’ menu, an NMS Stock ATS could check whether its submission was a ‘‘Form ATS–N.’’ Adopted Form ATS–N does not include a check box to indicate whether the filing is an ‘‘Initial Form Filing,’’ and revises the proposed check box under the ‘‘Type of Filing’’ menu to state ‘‘Initial Form ATS–N’’ (emphasis added). 681Proposed Form ATS–N included a check box, above the ‘‘Submission Type’’ menu, where an NMS Stock ATS could indicate that a filing was a ‘‘Withdrawal of Initial Form Filing.’’ Adopted Form ATS–N relocates this check box to the ‘‘Type of Filing’’ menu and revises it to say ‘‘Withdrawal of Form ATS–N filing’’ so that such check box can accommodate withdrawals of different types of filings, and not just a withdrawal of an initial Form ATS–N. Adopted Form ATS–N provides a space for the EDGAR accession number for the Form ATS– N filing to be withdrawn, which will enable market participants to identify the prior filing that is being withdrawn. 682An NMS Stock ATS is required to attach a document marked to indicate changes for a Form ATS–N amendment to Form ATS–N Part, I, Part II, and Part III, as applicable, and to highlight changes to ‘‘yes’’ or ‘‘no’’ answers or additions or deletions from its prior Form ATS–N filing. We believe that marked documents will help market participants and the Commission review Form ATS–N amendments in an efficient manner. We have changed the marked document requirement that was proposed. In the proposal the marked document was referred to a redline. We proposed for an NMS Stock ATS to submit two redlines— Exhibit 3A to show changes to Part III of proposed Form ATS–N and Exhibit 4A to show changes to
Part IV of proposed Form ATS–N. We are adopting
a requirement that ATSs provide a single exhibit, Exhibit 3, that contains a marked document to indicate changes to Parts I, II, and III. We believe that only requiring a single document may reduce the filing burden on ATSs. We believe that the marked documents will be helpful for market participants to review changes to Part I. In addition, to reflect the use of ‘‘yes’’ or ‘‘no’’ questions in adopted Form ATS–N, we are specifying that the marked document would be required to indicate changes in ‘‘yes’’ or ‘‘no’’ answers. send its orders directly to the ATS, but rather, send its orders to some functionality external to the ATS, which could be the SOR or algorithm itself or a client service desk that submits the customer orders into the broker-dealer’s SOR or trading algorithms. A SOR or trading algorithm typically has the capability to route customer orders to a number of execution venues, including the broker-dealer operator’s own ATS. We note that such commercial relationships may be governed by formal or informal agreements. To the extent a person enters into a contract, written or unwritten, to use the brokerdealer operator’s order routing and execution services, and those services could include routing to and executing in the broker-dealer operator’s own ATS, that agreement would fall within the contractual agreements under the definition of ‘‘subscriber’’ under Regulation ATS and the person would be a subscriber to the ATS. On the other hand, a customer’s order routed by the broker-dealer operator’s SOR or trading algorithm to an external market for execution would not be a subscriber order because the order was not destined or entered into the ATS.677 Second, as noted above, a commenter believes that Regulation ATS does not adequately define the term ‘‘subscriber’’ in the case of an ATS that is part of a larger broker-dealer operation, which the commenter believes could lead to inconsistencies in the application of the requirements applicable to subscribers across ATSs.678 While we believe that the term ‘‘subscriber’’ sufficiently captures the vast majority of market participants whose orders or trading interest are submitted to and executed in an NMS Stock ATS, we also acknowledge that business units of multi-service broker-dealer operators, in many cases, participate in the ATS of that broker-dealer operator and submit principal orders to the ATS. Despite participating in the ATS, these business units might not always meet the definition of ‘‘subscriber’’ because an ATS may not have a contractual agreement with a business unit that is
part of the same entity.
Adopted Form ATS–N uses the term ‘‘subscriber’’ throughout, and, in certain Items, specifically states the type of ATS-related activities of, or information about, the broker-dealer operator that must be disclosed. For example, Part III, Item 5(b) of adopted Form ATS–N requires the NMS Stock ATS to state whether the terms and conditions to directly enter orders and trading interest into the NMS Stock ATS are the same for all subscribers and the broker-dealer operator. We believe that drafting the Form ATS–N requests in this manner will help ensure that the scope of information solicited encompasses all relevant users of the ATS services (i.e., subscribers, and to the extent such users do not meet the definition of ‘‘subscriber,’’ the business units of the broker-dealer operator). We believe that adopted Form ATS–N is not designed to solicit disparate disclosures among NMS Stock ATS due to varying interpretations of the term ‘‘subscriber’’ by individual ATSs. B. Cover Page and Part I of Form ATS–N: Identifying Information

Cover Page
In response to concerns from commenters that the public may be led to believe that the Commission is conducting a merit-based review of Form ATS–N disclosures filed with the Commission, we are including on the cover page of Form ATS–N a legend stating that the Commission has not passed upon the merits or accuracy of the disclosures in the filing. On the cover page of adopted Form ATS–N, the responding entity is required to identify the type of filing 679 by marking the appropriate checkbox.680 We are also adopting, as proposed, a requirement that NMS Stock ATSs file a notice of cessation of operations on Form ATS–N and provide the date that the NMS Stock ATS will cease to operate. We are also adopting a check box that allows a Form ATS–N filer to withdraw a previously filed Form ATS– N filing.681 The Instructions to Form ATS–N state that an NMS Stock ATS may withdraw an initial Form ATS–N or an amendment before the end of the applicable Commission review period. Because its initial Form ATS–N supersedes and replaces a Legacy NMS Stock ATS’s Form ATS for purposes of the exemption and the initial Form ATS–N can be amended, a Legacy NMS Stock ATS may not withdraw its initial Form ATS–N at any time. Once the Commission review period has expired or a Legacy NMS Stock ATS has filed its initial Form ATS–N, the Legacy NMS Stock ATS cannot withdraw the filing and must file a notice of cessation pursuant to Rule 304(a)(3) if it intends to cease to operate or file an amendment to its Form ATS–N, as appropriate. In addition, an NMS Stock ATS may withdraw a notice of cessation of operations at any time before the date that the NMS Stock ATS had indicated it intended to cease operating. In the cover page of proposed Form ATS–N, the Commission sought a brief narrative description for Form ATS–N amendments so market participants could quickly understand the nature of the amendment.682 We are modifying this requirement to be more specific as to what information is required in this narrative. Adopted Form ATS–N requires the NMS Stock ATS to indicate

683Accordingly, the adopted Instructions have been enhanced from the proposed Instructions so that they provide more guidance to an NMS Stock ATS drafting the narrative. The proposed Instructions would have asked an NMS Stock ATS to ‘‘[p]rovide a brief narrative description of the Amendment.’’ See Proposal, supra note 2, at 81138. 684See supra Section IV.E.2.c. 685Proposed Form ATS–N set forth this check box in Part I, Item 4, whereas adopted Form ATS– N sets forth this check box on the cover page. 686The subsequent sections of adopted Form ATS–N have been renumbered accordingly. The disclosures regarding the ATS-related activities of the broker-dealer operator and its affiliates on the NMS Stock ATS are contained in Part II, the manner of operations disclosures are contained in
Part III, and the contact information, signature
block, and consent to service are contained in Part IV of adopted Form ATS–N. 687 In some instances, an NMS Stock ATS may have several commercial or doing-business-as names, such as a name the ATS uses in its filings to the Commission, or to FINRA pursuant to FINRA Rule 6110. Adopted Form ATS–N requires the ATS to list all names under which it conducts business in Part I, Item 2. 688Part I, Item 2 of proposed Form ATS–N would have required an NMS Stock ATS to disclose the full name of the NMS Stock ATS under which its business is conducted, ‘‘if any.’’ Part I, Item 3 of adopted Form ATS–N only requires this disclosure ‘‘if different.’’ 689The requirements of Part II, Items 2 and 3 of proposed Form ATS–N are consolidated into Part I, Item 4 of adopted Form ATS–N, and divided into two subparts. 690The mailing address for registered brokerdealers is available to the Commission via EDGAR. The mailing address, type of entity, and date when established for each broker-dealer is available to the public through FINRA. 691This requirement was previously a stand-alone request and has been moved to Part I, Item 5 of adopted Form ATS–N, which asks the NMS Stock ATS to disclose its national securities association, which would issue the MPID to the ATS. An 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 when reporting trade information to FINRA. See FINRA ATS Reporting Approval, supra note 15. 692See HMA Letter at 10. 693Contact information of the broker-dealer operator’s representative in Part IV of Form ATS– N will not be made public. In addition, consistent with the requirements of proposed Form ATS–N, the signature block in Part IV of adopted Form ATS–N requires the NMS Stock ATS to consent that the part and item number of the Form ATS–N that is the subject of the change, provide a brief summary of the changes, and state whether or not the changes apply to all subscribers and the brokerdealer operator.683 In addition, the NMS Stock ATS is required to provide the EDGAR accession number for the Form ATS–N filing to be amended, which will allow market participants to identify the filing that is being amended. Furthermore, in response to comments, we are adopting Rule 304(b)(2)(iii), which provides that it will make public the cover page of a filed Form ATS–N material amendment upon filing and then make public the entirety of the material amendment following the expiration of the review period pursuant to Rule 304(a)(2)(ii).684 In connection with this change, we are adopting Instructions that we believe will better solicit information that will notify market participants of the general subject matter of a Form ATS–N amendment, as well as the subscribers that would be affected by the amendment. For
updating and correcting amendments, which will be made public upon filing, we believe that the information in the narrative can assist market participants in understanding the general nature of the change that the NMS Stock ATS is implementing. In addition, we are making a technical change to relocate the check box indicating whether an initial Form ATS–N is being filed by a Legacy NMS Stock ATS operating pursuant to a Form ATS.685
2. Part I of Form ATS–N: Identifying
Information a. Part I: Identifying Information
Part I of adopted Form ATS–N
combines the requests set forth in Parts I and II of proposed Form ATS–N, which covered, among other things, the name of the NMS Stock ATS and the NMS Stock ATS’s broker-dealer operator’s registration and contact information.686 We are adding to Part I, Item 1 of adopted Form ATS–N, a new requirement, which was not proposed, that the filer check a box indicating whether the filer is a registered brokerdealer with the Commission to readily notify the Commission whether the filer is eligible to operate as an NMS Stock ATS pursuant to Regulation ATS. To assist the Commission in more easily assessing whether the NMS Stock ATS has registered as a broker-dealer pursuant to Rule 301(b)(1) of Regulation ATS, we are adopting the proposed requirement that the NMS Stock ATS provide 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 2 of adopted Form ATS–N. To the extent that a commercial or ‘‘DBA’’ (doing business as) name or names 687 are used to identify the NMS Stock ATS to the public, the Commission, or its SRO, or if a registered broker-dealer operates multiple NMS Stock ATSs, adopted Form ATS–N would require the full name(s) of the NMS Stock ATS under which business is conducted, if different,688 in Part I, Item 3 of adopted Form ATS–N. We are also adopting Part II, Items 2 and 3 of proposed Form ATS–N as Part I, Item 4 689 of adopted Form ATS–N to require the NMS Stock ATS to provide the broker-dealer operator’s SEC File Number and Central Registration Depository (‘‘CRD’’) Number. We are not, however, including in adopted Part I the proposed requests that the NMS Stock ATS provide the effective date of its broker-dealer operator’s registration with the Commission, the broker-dealer operator’s legal status (e.g., sole proprietorship, corporation), information about its date and place of formation if the broker-dealer operator is other than a sole proprietor, and the mailing address of the NMS Stock ATS (if not the same as the physical address). This identifying information is disclosed on Form BD or otherwise made available to the public and the Commission.690 We do not believe that it is necessary to require the NMS Stock ATS to provide this information on Form ATS–N because other information requests about the registration status of the broker-dealer operator will inform the Commission about whether the NMS Stock ATS has met the condition of Rule 301(b)(1) of Regulation ATS. We are adopting Part II, Item 4 of proposed Form ATS–N as Part I, Item 5 of adopted Form ATS–N to require the NMS Stock ATS to provide the full name of the national securities association of the broker-dealer operator and the effective date of the brokerdealer operator’s membership with the national securities association. We are adding to Part I, Item 4 of adopted Form ATS–N the proposed requirement for an NMS Stock ATS to provide its Market Participant Identifier (‘‘MPID’’).691
Providing the name of the NMS Stock ATS or DBAs and its MPID would identify the ATS to the public and Commission. One commenter states that the name, identity of the broker-dealer operator, any ‘‘doing business as’’ name, and the ATS’s MPID are basic information critical to market participants and should be disclosed.692 Also, as was proposed, adopted Form ATS–N requires the NMS Stock ATS to provide a URL address for the website of the ATS, and in the signature block in Part IV of adopted Form ATS–N, the representative of the broker-dealer operator will also be required to provide his or her business contact information, including the person’s name and title, telephone number, email address, and primary street address and mailing address (if different) of the NMS Stock ATS.693 This information will facilitate

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 to the contact employee at the primary street address or mailing address, if different, of the NMS Stock ATS, or via email, at the addresses provided on this Form ATS–N. 694Part IV of adopted Form ATS–N, which will not be made public, requires the primary street address and mailing address of the NMS Stock ATS in order to facilitate the Commission contacting the NMS Stock ATS. See supra note 693. 695See Part II, Item 6 of proposed Form ATS–N. 696See HMA Letter at 11. 697Part I, Item 7 of adopted Form ATS–N. 698See SIFMA Letter at 7; Liquidnet Letter at 8; KCG Letter at 6; HMA Letter at 11; STANY Letter at 3; UBS Letter at 3; Level ATS Letter at 5. 699See SIFMA Letter at 7; Liquidnet Letter at 8; KCG Letter at 6. 700See KCG Letter at 6. 701See SIFMA Letter at 7. 702See Liquidnet Letter at 8; KCG Letter at 6; Level ATS Letter at 5. One of these commenters also expresses concern that the proposed requirement would require disclosure of subscriber agreements, which are individually negotiated and confidential. See Level ATS Letter at 5–6. Another one of these commenters is concerned that NMS Stock ATS operators would limit the amount of information shared with subscribers in order to avoid sharing that information with the public and its competitors. See Liquidnet Letter at 8. 703See Liquidnet Letter at 8. communication with the broker-dealer operator during the Commission review period of a Form ATS–N and later as necessary as part of the Commission’s ongoing monitoring of the NMS Stock ATS. We are modifying the proposed request for the physical street address of the NMS Stock ATS to also require the ATS to provide the physical street address, if any, of a secondary location for the ATS that may be used in the event that the primary physical location is not available. The location of an NMS Stock ATS, including its matching system, may differ from the main physical or mailing address of the broker-dealer operator. We believe that it is important for both the Commission and market participants to know where the NMS Stock ATS is located in the event of, for instance, a natural disaster that could impact market participants’ ability to trade on the ATS and potential latency that could be experienced due to the location of the secondary site of the NMS Stock ATS. Also, we are concerned that market participants could be harmed from systems problems that necessitate a suspension or halt to trading at an NMS Stock ATS. Thus, we believe it is important to fully understand what, if any, trading procedures an NMS Stock ATS would follow if trading is suspended or stopped, which would be disclosed under Part III, Item 20 of adopted Form ATS–N. We believe that knowing any secondary location(s) for the NMS Stock ATS would be relevant to both the Commission’s and market
participants’ understanding of how the ATS handles certain contingencies. The main physical address and mailing address of the broker-dealer operator are provided on Form BD, so we do not believe it is necessary to publicly disclose this information on Form ATS–N.694 Part II, Item 6 of proposed Form ATS–N provided that the NMS Stock ATS could indicate by check box that the broker-dealer operator is a sole proprietor and that the physical street address is a private residence, and that in such case, the private residential address would not be included in the publicly available version of the form.695 One commenter asserts that Form ATS–N should require disclosure of all relevant addresses, and states its view that we should eliminate the proposed exception for NMS Stock ATSs out of a personal residence.696 In light of this comment, we are not including in adopted Form ATS–N the proposed check box noting that the physical address of the matching system is at a sole proprietor’s private residence. We agree that market participants should be aware of the physical addresses of the matching systems for all NMS Stock ATSs, regardless of whether they are at a sole proprietor’s private residence. In addition, based on Commission experience, NMS Stock ATSs generally do not operate out of a sole proprietor’s residence, and the Commission does not believe that the exception is necessary. We will therefore make the physical address of the matching system available for every Form ATS–N.697 Also, as was proposed, the Part I, Items 8 and 9 require an NMS Stock ATS to attach its most recently filed or amended Schedule A of the brokerdealer operator’s Form BD disclosing information related to direct owners and executive officers, and its most recently filed or amended Schedule B of the broker-dealer operator’s Form BD disclosing information related to indirect owners as Exhibits 1 and 2, respectively. In lieu of attaching those schedules, the NMS Stock ATS can indicate, via a checkbox, that the information under those schedules is available on its website and is accurate as of the date of the filing of the Form ATS–N. We continue to believe that these exhibits will help market participants identify the persons and entities that directly and indirectly own the broker-dealer operator and any potential associated conflicts of interest. We are requiring the NMS Stock ATS to provide this information on Form ATS– N, even though the same information is provided on Form BD, because information about ownership of the broker-dealer operator will enable market participants to better understand conflicts of interest that may arise therefrom, which is one of the central purposes of the form. As such, an NMS Stock ATS must file this information on Form ATS–N. We also continue to believe that it is appropriate for an NMS Stock ATS to provide this information using a URL address for these documents in lieu of attaching the actual documents to their Form ATS–N filings because
the ATS’s disclosures on Form ATS–N will provide the public with the required information. Part I, Item 10 of adopted Form ATS–N requires the NMS Stock ATS, for filings made pursuant to Rule 304(a)(2)(i) (i.e., Form ATS–N amendments), to attach as Exhibit 3 a marked document to indicate changes to ‘‘yes’’ or ‘‘no’’ answers or additions or deletions from any item in Part I, Part II, Part III, as applicable. b. Comments on Proposed Exhibit 1 We proposed to require that NMS Stock ATSs provide, in Exhibit 1 to Form ATS–N, a copy of any materials currently provided to subscribers or other person related to the operations of the NMS Stock ATS or the disclosures on Form ATS–N (e.g., FIX protocol procedures, rules of engagement/ manuals, frequently asked questions, marketing materials). We received several comments regarding Exhibit
1.698 We are not adopting the proposed
Exhibit 1 requirements to Form ATS–N. Commenters express concerns that the requirements of Exhibit 1 are broad,699 not relevant for purposes of facilitating ATS comparisons by market participants,700 and would require unnecessarily cumbersome amount of disclosure.701 Three commenters express concern about the requirement to make subscriber materials attached to Form ATS–N as exhibits public on the grounds that such documents may include confidential information.702 Commenters propose that as an alternatives to the Exhibit 1 requirements, the Commission could make exhibits public only when they are responsive to certain categories of documents made available to users (such as FIX protocol procedures, rules of engagement, user manuals, frequently asked questions, and marketing materials) or are required to accurately respond to the questions on Form ATS– N,703 or not make public certain

704See SIFMA Letter at 7–8.
705See UBS Letter at 3.
706See HMA Letter at 12 (supporting the adoption of a revised Exhibit 1 because it would enhance consistency of information to subscribers and the public and would be valuable to those seeking to evaluate NMS Stock ATSs). See infra note 709. 707See KCG Letter at 5–6 (supporting a requirement that information be made available to all market participants, and not selectively disclosed, but asserting that as drafted, Exhibit 1 is overly broad). 708See Liquidnet Letter at 9. 709See HMA Letter at 12. 710See Proposal, supra note 2, at 81041. 711See UBS Letter at 4. 712As discussed further below, several commenters suggest how to refine the specific requests proposed for Part III of Form ATS–N. 713See, e.g., STA Letter at 4; KCG Letter at 8–9; SIFMA Letter at 4–8; Luminex Letter at 2–3; Fidelity Letter at 5; STANY Letter at 5; UBS Letter at 6; Morgan Stanley Letter at 5. 714See Fidelity Letter at 2 and 4; UBS Letter at 2–4; SIFMA Letter at 4, 8; Luminex Letter at 3; Markit Letter at 7–8. 715See Morgan Stanley Letter at 5. 716See UBS Letter at 2–5. information (such as electronic trading protocols or other customer agreements) and provide other ‘‘proprietary’’ information only to regulators upon request.704 Another commenter suggests that rather than requiring formal amendments to Form ATS–N every time an ATS wishes to change or enhance marketing materials and similar disclosures, the Commission should allow an NMS Stock ATS to post the most recent versions of its marketing materials on its website.705 We are not adopting the proposed requirement that NMS Stock ATSs provide 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. We recognize that some of such materials could contain proprietary or other information that NMS Stock ATSs would not wish to make public due to confidentiality or competitive concerns. With respect to the comments in support of requiring subscriber materials to be made public,706 or in support of a limited version of the Exhibit 1 requirements,707 we believe that Form ATS–N is designed to elicit meaningful disclosures about how the NMS Stock ATS operates and the ATSrelated activities of the broker-dealer operator and its affiliate. We believe that the vast amount of information that would have been contained in the Exhibit 1 materials will be disclosed in response to the request in Form ATS– N and that no longer requiring NMS Stock ATSs to produce these materials will reduce their burden and the potential disclosure of redundant information to the public. One commenter states that while it does not support a requirement for public filing of exhibits, it supports requiring these exhibits to be filed with the Commission.708 We are not adopting this suggestion. As discussed above, the purpose of this rulemaking is to expand the public transparency of NMS Stock ATSs; providing the proposed Exhibit 1 information to only the Commission
would not serve this purpose. Another commenter states that to the extent that ATSs would disclose statistics or data that had been requested by firms to help with their cost and best execution analysis, such an approach would be less helpful than a greatly enhanced, comprehensive disclosure for this information.709 The commenter states that this information is essential. However, this commenter expresses concern that as a consequence of the Exhibit 1 requirements, NMS Stock ATSs may cease to provide subscribers with information and statistics to avoid having to make such information public. This commenter suggests that Exhibit 1 be revised to include all marketing materials, manuals, and fee information, but not customized statistics and information, provided that such statistics and information are otherwise publicly disclosed. We are not expanding market statistics that NMS Stock ATSs are currently required to disclose as part of this rulemaking.
c. ATS Governance Structure and
Compliance Programs and Controls In the Proposal, we asked if NMS Stock ATSs should be required to provide disclosure about their governance structure and compliance programs and controls to comply with Regulation ATS.710 In response, we received one comment, which states that governance structures are likely to vary materially among ATSs, and that the Commission’s goals in this area would best be served through the Commission’s Office of Compliance Inspections and Examination’s regular examination efforts.711 We did not receive comments supporting a request for such information. We believe that it is appropriate to take an incremental approach to this topic and intends to monitor the effectiveness of the disclosures on adopted Form ATS–N. Should the Commission decide to take further action with regard to Form ATS– N’s disclosure requirements, including adding requests about NMS Stock ATS governance structure and compliance programs and controls, the Commission would do so in a separate rulemaking in the future.
C. Part II of Form ATS–N: ATS-Related
Activities of the Broker-Dealer Operator and Affiliates We believe that the interests of the broker-dealer operator or its affiliates sometimes compete against the interest of those that use the ATS’s services. These competing interests, at times, may give rise to conflicts of interests for the broker-dealer operator and its affiliates or the potential for information leakage of subscribers’ confidential trading information. As such, Part II of Form ATS–N is designed to provide subscribers and market participants with information about these competing interests, and in doing so, inform them about: (1) The operation of the NMS Stock ATS—regardless of the corporate structure of the NMS Stock ATS—and of its broker-dealer operator, or any arrangements the broker-dealer operator may have made, whether contractual or otherwise, pertaining to the operation of its NMS Stock ATS; and (2) ATS-related activities of the broker-dealer operator and its affiliates that may give rise to conflicts of interest for the broker-dealer operator and its affiliates or the potential for information leakage of subscribers’ confidential trading information. Commenters generally support disclosing information about potential conflicts of interest and information leakage, and we did not receive any comments opposing the principle that information related to conflicts of interest or information leakage on an NMS Stock ATS should be publicly disclosed.712 Several commenters, however, state general concerns that the scope of the requests in Part III of proposed Form ATS–N is too broad.713 A number of commenters believe that the requests regarding affiliates should be limited to descriptions of how the broker-dealer operator and its affiliates or business units directly interact with or affect the operations of the NMS Stock ATS.714 For example, one commenter argues that proposed Form ATS–N would have required disclosures that are not meaningful to market participants and could possibly inhibit useful comparison of NMS Stock ATSs.715 Furthermore, a commenter argues that the proposed conflicts of interest requests regarding affiliates of the broker-dealer operator would have placed a significant burden on multiservice broker-dealers with a large number of affiliates, sometimes numbering in the hundreds.716 Similarly, another commenter states that an NMS Stock ATS’s broker-dealer operator may not be privy to certain

717See Fidelity Letter at 4.
718Updating amendments for non-material changes may be required, as appropriate. 719See 17 CFR 242.302. 720See SIFMA Letter at 6, 9. 721For example, in the request under Part II, Item 5 of adopted Form ATS–N, an NMS Stock ATS is only required to provide a summary of the terms and conditions for the use of products or services offered by the ATS. 722See Investor Advocate Letter at 8. 723See id. at 9. 724See 15 U.S.C. 78mm(a)(1). 725See Investor Advocate Letter at 9. information about its affiliates for valid compliance reasons.717 As outlined below in more detail— and in response to both these general commenter concerns and commenter concerns that are more specific to particular disclosure requests, which are explained below—we are modifying the conflicts of interest requests to focus on:
(1) The ability of business units or affiliates of the broker-dealer operator to enter, or direct the entry of, orders into the NMS Stock ATS and whether such business units or affiliates actually trade on the NMS Stock ATS; and (2) whether those business units and affiliates that do trade on the NMS Stock ATS receive any preferential treatment with respect to the services offered by the NMS Stock ATS. We continue to believe that disclosures regarding the ATS-related activities of the broker-dealer operator and its affiliates will help enable market participants to assess potential conflicts of interest that may impact their trading on the ATS and assess the potential for information leakage. At the same time, we also believe that Form ATS–N should not require public disclosure of activities or affiliate relationships of the broker-dealer operator that do not relate to the NMS Stock ATS and thus, do not present a potential conflict of interest. We believe that the revisions to the proposed disclosure requests are responsive to commenters’ concerns about the scope of the form’s affiliate disclosures. Furthermore, the burden of responding to the affiliate requests has been reduced from that which was proposed. First, the adopted affiliate disclosure requests focus on substantive information about how affiliated entities interact with the ATS and differences in how the ATS treats affiliates’ orders. As such, frequent updates to Part II for ministerial or minor administrative changes by the ATS would not normally be necessary.718 To the extent a ministerial or administrative change affects a disclosure on Form ATS–N in a non-material way, the NMS Stock ATS would, in most instances, only be required to file a quarterly updating amendment. Additionally, an NMS Stock ATS likely already has the necessary information about the services that it offers affiliates that trade on the ATS because of its current recordkeeping requirements,719 and we believe that maintaining up-to-date Part II disclosures is justified by the benefit to market participants from public disclosure of conflicts of interest information. Another commenter expresses concern that the proposed conflicts of interest requests would seek public disclosure of proprietary or confidential information that would pose unintended consequences or security risks to ATS operators.720 We are sensitive to concerns about the burden of providing disclosures of potentially commercially sensitive information. In response to these commenter concerns, we have revised the wording of relevant requests to mitigate such concerns or provided guidance regarding the scope of certain disclosure requests, as further explained below.721 We believe that in the vast majority of cases, the level of detail required by Form ATS–N should not require the public disclosure of commercially sensitive information. In the Proposal, we did not intend to require NMS Stock ATSs to publicly disclose such information. We also note
that the disclosure requests on Form ATS–N seek information that the Commission and some commenters believe to be important to market participants when evaluating an NMS Stock ATS as a potential trading venue. We believe that the disclosures on adopted Form ATS– N will provide market participants with information necessary to evaluate potential conflicts of interest and information leakage while not requiring NMS Stock ATSs to provide granular details about aspects of the ATS that it might consider to be commercially sensitive. Accordingly, to the extent an NMS Stock ATS believes that Form ATS–N requires the disclosure of what it believes to be commercially sensitive information, we believe that such disclosure is justified by the public benefit of the information required on Form ATS–N becoming publicly available. On the other hand, one commenter expresses a specific concern that narrowing the universe of affiliates subject to disclosure could result in less relevant information being provided to the Commission and the public, as NMS Stock ATSs could structure their legal affiliations and operations to take advantage of unanticipated gaps in the rule.722 This commenter states that the Commission should draw exemptions for certain affiliate relationships very narrowly and provide ‘‘bright lines’’ to help ensure that the requirements are clear and unambiguous, so that ATSs would not be permitted to determine whether to disclose an affiliate. This commenter also states that it recognizes that information on certain affiliates required by Form ATS–N may have little relevance to the Commission’s review of the broker-dealer operator’s Form ATS–N.723 This commenter believes that rather than modifying the Proposal, this issue could be addressed by an NMS Stock ATS seeking relief tailored to its unique facts and circumstances pursuant to Section 36(a)(1) of the Exchange Act,724 which permits the Commission to grant exemptions from any provision of a rule, to the extent such exemption is necessary or appropriate in the public interest and consistent with the protection of investors.725 We agree with this commenter that Form ATS–N requests regarding the ATS-related activities of the brokerdealer operator and its affiliates should provide clear and unambiguous requirements for NMS Stock ATSs. We also agree that Form ATS–N should be comprehensive enough to preclude an NMS Stock ATS from finding ‘‘unanticipated gaps’’ in the language to avoid disclosing critical aspects of its operations. We believe that the refinements to adopted Form ATS–N, as outlined above and further explained below, strike the appropriate balance between providing market participants with relevant information about potential conflicts of interest information and information leakage and the burden that Form ATS–N will place on NMS Stock ATSs. We do not believe that it is necessary to adopt all of the conflicts of interest requests as proposed and require NMS Stock ATSs to seek exemptive
relief from certain disclosure requirements. Furthermore, the adopted definitions of ‘‘affiliate’’ and ‘‘control’’ are intended to encompass all relevant affiliate relationships between the broker-dealer operator and other entities that we believe would help market participants’ evaluation of potential conflicts of interest.

Broker-Dealer Operator and its
Affiliate Trading Activities on the NMS Stock ATS a. Proposed Requests and Response to Comments
Part III, Item 1 of proposed Form
ATS–N would have required disclosures

726See supra notes 712–715 and accompanying text. 727We also note that because Parts I and II of proposed Form ATS–N have been consolidated into a single section of adopted Form ATS–N, the disclosure requests about the ATS-related activities of the broker-dealer operator and its affiliates on the NMS Stock ATS are set forth in Part II of adopted Form ATS–N. 728See STA Letter at 4–5; UBS Letter at 5; SIFMA Letter at 10; LeveL ATS Letter at 4. 729See UBS Letter at 5. 730 In the Proposal, the term ‘‘non-ATS trading center’’ was a defined term, but as explained above, adopted Form ATS–N will not use the term ‘‘nonATS trading center.’’ See supra Section V.A.2.a. 731See UBS Letter at 6. regarding non-ATS trading centers operated or controlled by the NMS Stock ATS’s broker-dealer operator or any of its affiliates. Part III, Item 2 of proposed Form ATS–N would have required disclosures about the operation of any other NMS Stock ATSs operated by the broker-dealer operator or any of its affiliates. Part III, Item 5 of proposed Form ATS–N would have required disclosures regarding the broker-dealer operator’s and its affiliates’ trading activity on the NMS Stock ATS. As discussed above, we received general comments on Part III of proposed Form ATS–N.726 Additionally, we received comments specifically addressing the requests in
Part III, Items 1, 2, and 5, of proposed
Form ATS–N. In this section, we outline and address these more specific comments not previously outlined above. In Section V.C.1.b., we outline how we have consolidated much of the subject matter set forth in in Part III, Items 1, 2, and 5 of proposed Form ATS–N into Part II, Items 1 and 2 of adopted Form ATS–N.727 First, in addition to the general comments regarding the scope of the affiliate disclosure requests that are explained above, some commenters provide comments specific to proposed
Part III, Item 1 and Part III, Item 5.728
One of these commenters states that the scope of the proposed requests in Part III, Item 1 with regard to non-ATS trading centers of the broker-dealer operator or its affiliates could have prejudiced commercial strategy.729 We believe that a list containing business units or affiliates of the broker-dealer operator that do not use the trading services of the NMS Stock ATS would not be as helpful to market participants as would a list of only those that trade on, or otherwise use the trading services of, the ATS.730 Accordingly, we have revised these disclosures so that Part II, Items 1(a) and 2(a) of adopted Form ATS–N ask whether business units of the broker-dealer operator or its affiliates, respectively, are permitted to enter or direct the entry of orders into the ATS. This disclosure is designed to inform market participants about whether the ATS permits the brokerdealer operator or its affiliates to trade on the NMS Stock ATS. If the ATS permits the broker-dealer operator or its affiliates to trade on the ATS, the NMS Stock ATS will be required to only list the business units or affiliates that actually enter or direct the entry of orders into the NMS Stock ATS. Furthermore, with regard to Part III, Item 5 of proposed Form ATS–N, one commenter states that affiliates or business units that indirectly send orders to an NMS Stock ATS through another entity or through services provided by another entity are not ‘enter[ing]’ orders ‘‘on the NMS Stock ATS.’’ 731 We believe that if a business unit or affiliate of the broker-dealer operator enters or directs the entry of orders into the ATS, market participants would find it useful to know that they may be trading against those business units, affiliates, or client orders entered by those entities. For example, if a principal trading desk of the brokerdealer operator or an affiliate uses a direct connection to the NMS Stock ATS or the broker-dealer operator’s SOR to submit orders or trading interest into the ATS, the NMS Stock ATS must list that desk or affiliate on adopted Form ATS–N under Part II, Item 1(a) or 2(a), respectively. Likewise, if an affiliated asset manager of the broker-dealer operator uses the services of a thirdparty broker-dealer to route directed orders to the NMS Stock ATS (i.e., the asset manager instructs the third-party broker-dealer to send its orders to the NMS Stock ATS), the NMS Stock ATS would be required to list that affiliated asset manager under Item 2(a). However, if that affiliated asset manager submits orders to a third-party broker-dealer, and that third-party broker-dealer using its own discretion, routes the orders of the asset manager into the affiliated NMS Stock ATS (e.g., the third-party broker-dealer’s SOR decides where to route the affiliated asset manager’s orders using its routing table), the NMS Stock ATS would not be required to list the affiliated asset manager under Item 2(a); under such circumstances, the affiliate would not be ‘‘directing’’
orders to the ATS because the third-party broker-dealer is using its discretion to route the affiliate’s orders and thus, not required to be listed under Item 2(a). The adopted requests also specify the type of information that must be provided with regard to business units or affiliates of the broker-dealer operator. Specifically, Item 1(a) requires the NMS Stock ATS to name and describe each type of business unit of the broker-dealer operator that enters or directs the entry of orders and trading interest into the ATS (e.g., NMS Stock ATS, type of trading desks, market maker, sales or client desk) and, for each business unit, to provide the applicable MPID and list the capacity of its orders and trading interest (e.g., principal, agency, riskless principal). Item 2(a) requires the NMS Stock ATS to name and describe each type of affiliate that enters or directs the entry of orders and trading interest into the ATS (e.g., broker-dealers, NMS Stock ATS, investment company, hedge fund, market maker, principal trading firm) and, for each of those affiliates, provide the applicable MPID and list the capacity of its orders and trading interest (e.g., principal, agency, riskless principal). We believe that market participants will find it more relevant to know both the types of broker-dealer operator business units and affiliates that can trade in the NMS Stock ATS, and their trading activities, rather than, as proposed, having a potentially voluminous list of entities that might include some that cannot send or direct orders or trading interest to the ATS. We also believe that the revised requests will reduce the burden on NMS Stock ATSs when completing the form because they will only require the NMS Stock ATS to list entities that trade on the ATS. The narrative responses to Items 1(a) and 2(a) could typically be kept up-to-date via Updating Amendments to Form ATS–N, which the ATS could file on a quarterly basis. However, we also note that in most cases, if the ‘‘yes’’ or ‘‘no’’ response to Items 1(a) or 2(a) changes (e.g., the NMS Stock ATS changes its operations to allow affiliates to trade whereas they could not do so prior, or vice versa), the NMS Stock ATS would be required to file a material amendment. Accordingly, we believe that the scope of the requests in Part II, Items 1(a) and 2(a) of adopted Form ATS–N present a reasonable disclosure requirement for NMS Stock ATSs, particularly multi-service brokerdealers with many affiliates, without eliminating the requirements for the NMS Stock ATS to provide information about the NMS Stock ATS-related trading activities of broker-dealer operator and its affiliates, which we believe will be helpful for market participants. Another commenter recommends that the Commission take a progressive approach of ‘‘yes’’ or ‘‘no’’ questioning for disclosures concerning affiliates of the broker-dealer operators that initially targets whether the affiliate directly

732See Fidelity Letter at 5.
733See id. at 5–6.
734Specifically, Item 2(a) requires the NMS Stock ATS to answer ‘‘yes’’ or ‘‘no’’ as to whether affiliates of the broker-dealer operator are permitted to enter or direct the entry of orders and trading interest into the NMS Stock ATS, and if the answer is ‘‘yes’’, the ATS must provide specific information about those affiliates and the capacity of the orders and trading interest that the affiliates enter onto the ATS. Item 2(b) then requires the NMS Stock ATS to answer ‘‘yes’’ or ‘‘no’’ as to whether the services that the NMS Stock ATS offers and provides to the affiliates identified in Item 2(a) are the same for all subscribers, and if the NMS Stock ATS answers no, it must explain any differences. We also note that the requests in Item 1(a) of adopted Form ATS–N with regard to trading activity of the broker-dealer operator on the NMS Stock ATS follow the same format as that in Item 2 of adopted Form ATS–N. 735See KCG Letter at 8–9; STA Letter at 4; SIFMA Letter at 10–11; 14. See also SIFMA Letter at 4, 8. 736See Morgan Stanley Letter at 5. 737While the terms ‘‘interaction and coordination’’ are no longer used in this disclosure request, many, if not all, Form ATS–N requests are designed to provide insight into how the brokerdealer operator, its affiliates, or third-parties interact or coordinate their activities with the NMS Stock ATS. Two examples of this include Part II, Items 3 and 5 of adopted Form ATS–N. Part II, Item 3 of adopted Form ATS–N requests specific information about how subscribers can opt out from interacting with orders of the broker-dealer operator or its affiliates. Likewise, Item 5 of adopted Form ATS–N requests specific information about how the ATS interacts with affiliates by requiring certain disclosures about products and services offered by the broker-dealer operator. 738Because we are replacing the term ‘‘interaction and coordination’’ with these enumerated points of information, aspects of the requests set forth in Part III, Items 1(b)(ii)–(iii) and 2(b)(i), (iii) of proposed Form ATS–N—which addressed the transmission of subscriber orders to other trading centers operated by the broker-dealer operator or its affiliates—are being either narrowed or eliminated from adopted
Part II, Items 1 and 2. As explained further below,
to the extent information that would have been required by Part III, Items 1(b)(ii)–(iii) and 2(b)(i), (iii) of proposed Form ATS–N is responsive to Part II, Item 4 of adopted Form ATS–N—which requests information about the NMS Stock ATS’s arrangements with unaffiliated or affiliated trading centers—the NMS Stock ATS is required to provide that information in response to Item 4. See infra
Section V.C.3.
739Another commenter suggests that the Commission’s goals would be served more simply by requiring ATSs to categorize and disclose to their subscribers the nature of a counterparty (i.e., agent, principal (including affiliates of the brokerdealer operator)) rather than using the term ‘‘proprietary’’ in the disclosures regarding trading activities of the broker-dealer operator and its affiliates. See UBS Letter at 6. The commenter believes that this type of disclosure would succinctly inform a subscriber about what type of counterparty was on the other side of a trade. See id. This commenter also notes that in the Proposal, the Commission discussed disclosures and potential additional regulations related to ‘‘proprietary trading.’’ See id. The commenter states that federal regulators have encountered challenges in defining this term as part of the ‘‘Volcker Rule’’ under the Dodd Frank Act. See id. In response to this comment, the Commission has, in the language of Part II, Items 1 and 2, listed several examples of the capacity in which the broker-dealer operator and its affiliates enter or direct the entry of orders (principal, agency, or riskless principal) to provide more guidance about the type of information sought by Form ATS–N. The Commission has also removed references to ‘‘proprietary trading’’ from Form ATS–N, and the adopted form’s disclosure requirements refer to, when applicable, ‘‘principal trading’’ of the broker-dealer operator and its affiliates. 740With regard to the latter two of these items, adopted Form ATS–N requests that the description be provided in the applicable Part III item to reduce redundancy on the Form ATS–N, as further explained below. 741See supra note 717 and accompanying text. 742See 17 CFR 242.302. routes orders to the NMS Stock ATS.732 The commenter recommends that the Commission require NMS Stock ATSs to state whether the ATS directly receives any order flow from an affiliated party, and if so, if the affiliated party is treated exactly the same as every other party with access to the ATS.733 If the ATS answers in the affirmative, the commenter suggests that the ATS be required to identify the affiliated parties with access and the procedure for treatment of their orders, and if the ATS answers in the negative, the ATS would be required to identify parties with access and specifically articulate differences in treatment. The disclosure requests in Part II of adopted Form ATS–N are all structured in a ‘‘yes’’ or ‘‘no’’ format with follow-on narrative (as necessary), and we believe that the information this commenter recommends to be included in Form ATS–N is presented in a format that resembles that recommendation.734 Several commenters also opine that terms such as ‘‘describe,’’ ‘‘any interaction or coordination,’’ ‘‘circumstances,’’ and ‘‘otherwise made known’’ in the conflicts of interest requests might result in overbroad or lengthy responses that contain information which would not be helpful for market
participants.735 Another commenter cites Part III, Item 5 of proposed Form ATS–N as an example of a request that should be tailored to elicit information based on which ATS users can make informed decisions.736 This commenter states that full-service broker-dealers often have hundreds of affiliates and business units that meet the definition of entities that may trade on the subject ATS, and that keeping such information current and accurate on an ongoing basis would bring additional burden with very little, if any, benefit to ATS users; the commenter believes that the request regarding trading on the ATS by the broker-dealer operator or its affiliates should be focused on whether they receive any preferential or differentiated treatment. In response to these comments, we are eliminating the terms ‘‘interaction and coordination,’’ ‘‘circumstances,’’ and ‘‘otherwise made known’’ from these requests to reduce any potential ambiguity.737 The adopted requests are closely tailored to solicit information that market participants find relevant to evaluating potential conflicts of interest on an NMS Stock ATS.738 Further, both
Part II, Items 1(a) and 2(a) of adopted
Form ATS–N enumerate the type of information that an NMS Stock ATS must provide if it answers in the affirmative that the broker-dealer operator or its affiliates, respectively, is permitted to trade on the NMS Stock ATS.739 Furthermore, while the term ‘‘describe’’ is still used in Items 1(a) and 2(a), we are adding specific examples to each respective request to better explain the type of description that would necessary, such as ‘‘NMS Stock ATS,’’ ‘‘trading desks,’’ ‘‘market maker,’’ ‘‘sales’’ or ‘‘client desk.’’ Also, Items 1(b)–(d) and 2(b)–(d) specifically state that the NMS Stock ATS must explain (1) any differences between the treatment of those business units or affiliates of the broker-dealer operator and other subscribers regarding services offered and provided by the NMS Stock ATS; (2) whether any of those business units or affiliates of the broker-dealer operator have formal or informal arrangements with the NMS Stock ATS to provide liquidity to the NMS Stock ATS; and (3) how orders and trading interest in the NMS Stock ATS can be routed to a trading center of the brokerdealer operator or affiliate.740 Additionally, a commenter expresses concern that it may not be privy to some the information that proposed Form ATS–N would have required.741 We note that ATSs are currently obligated to make and keep records of, among other things, subscribers to the ATS and daily summaries of trading, including the identity of the parties to the transactions.742 We believe that the specific information sought in these requests with regard to affiliate trading activity on the ATS in adopted Form ATS–N should be maintained as part of the ATS’s recordkeeping obligation without the ATS having to breach any information barriers or other compliance protections. To the extent that a business unit or affiliate of the broker-dealer operator triggers a disclosure obligation on Form ATS–N by directing the entry of orders into the NMS Stock ATS through a third-party broker-dealer, we believe that the broker-dealer operator should have—or be able to obtain—such information through appropriate internal compliance procedures to be responsive to Form ATS–N.

743This information would have been required under Part III, Item 1(b)(i) and 2(b)(ii) of proposed Form ATS–N. 744This information would have been required under Part III, Item 5(c) of proposed Form ATS–N. 745One commenter also recommends limiting the requests related to order routing from proposed Part III, Item 2 (Multiple NMS Stock ATS Operations) to the functions of ATS operation, as distinguished from other algorithmic or routing functions housed within the broker-dealer operator or an affiliate, which the commenter states appear to be addressed in Part III, Item 3 of proposed Form ATS–N, as well as asking what it means to ‘‘remove’’ an order. See SIFMA Letter at 11. See infra Section V.D.7. for a discussion of the required disclosures related to the removal of trading interest. Furthermore, this commenter recommends that Commission state whether the ATS operator should distinguish between parent and child orders for the disclosures related to Part III, Item 2 of proposed Form ATS– N. See id. Adopted Part III, Item 16(b) requires the NMS Stock ATS to either describe the affirmative instructions from a subscriber that must be obtained to route outside of the NMS Stock ATS or, if no instructions are required, the ATS must explain when orders in the ATS can be routed from the NMS Stock ATS. If the NMS Stock ATS breaks up a parent order into child orders or otherwise uses the fact that an order is a parent order or child order to make routing decisions, such information must be disclosed under Item 16(b). 746See SIFMA Letter at 14. 747See STANY Letter at 5. 748See Consumer Federation of America Letter at 7–8; HMA Letter at 13. 749See HMA Letter at 15–18. Another commenter states its support for the goal of a fulsome disclosure of circumstances where subscriber orders or other trading interest could leave an NMS Stock ATS and be made available to other areas of the broker-dealer operator. See UBS Letter at 5. The commenter states that market participants are entitled to know such information, but also states that the Commission’s goal could be achieved through simplified disclosures. The commenter states that the proposed requirement to list the nonATS trading centers controlled by the broker-dealer operator or its affiliates should only be required if orders are routed to the NMS Stock ATS from such trading centers or from the NMS Stock ATS to those trading centers. 750See MFA/AIMA Letter at 5. 751See HMA Letter at 16. 752See KCG Letter at 10. We have also revised the requests in proposed Form ATS–N to reduce redundant disclosure requirements. First, Part II, Items 1 and 2 of adopted Form ATS–N now require the NMS Stock ATS to provide any narratives about differences in treatment between the broker-dealer operator, its affiliates, and other subscribers in Part III of the adopted form, and only cross reference those narratives in Part II (as opposed to providing a separate, likely redundant narrative in Part II). Second, Part II, Items 1 and 2
of adopted Form ATS do not require the NMS Stock ATS to disclose whether subscriber orders or other trading interest sent to the NMS Stock ATS are displayed or otherwise made known to a non-ATS trading center or another NMS Stock ATS operated by the broker-dealer operator or an affiliate.743 Rather, any narrative with regard to order display (including a description about differences in services) is only required to be set forth in Part III, Item 15 of adopted Form ATS–N, which contains the order display requests of adopted Form ATS–N. Finally, Part II, Items 1 and 2 of adopted Form ATS–N do not require the NMS Stock ATS to disclose how the business units and affiliates of the broker-dealer operator connect to the ATS, such as through a Financial Information Exchange (‘‘FIX’’) protocol.744 Rather, any narrative about order entry in the NMS Stock ATS (including a description about differences in services) is only required by Part III, Item 5 of adopted Form ATS–N (Means of Entry). Accordingly,
Part II of adopted Form ATS–N is
designed to provide market participants with information about how the NMS Stock ATS interacts with the business units and affiliates of the broker-dealer operator so they can assess potential conflicts of interest, while minimizing disclosure requests that would be redundant with those contained in Part III.745 Another commenter believes that the information requested under proposed
Part III, Item 5 of proposed Form
ATS–N was too granular, duplicative of information required by Form BD, and that some of the prompts (e.g., ‘‘business unit,’’ ‘‘describe the circumstances’’) were too open-ended, which could lead to non-standardized responses that would not be helpful to market participants.746 This commenter recommends: (i) Eliminating proposed Item 5 and replacing the proposed disclosure requirements with yes/no prompts or short-answer responses that are more focused or narrowly tailored and (ii) eliminating or further clarifying and limiting the request for information of affiliates and business units. As explained above, Part II, Items 1(a) and 2(a) of adopted Form ATS–N provide more specificity about the information requested about the ATSrelated activities of business units and affiliates of the broker-dealer operator by providing examples of what we intend to solicit from these requests. To the degree that some information solicited by adopted Form ATS–N is duplicative of information sought on Form BD, the duplicative information is straightforward for the broker-dealer to reproduce on Form ATS–N, and we believe that market participants will derive greater benefit from this information being disclosed on a single form (Form ATS–N) as opposed to being spread across multiple forms filed with the Commission. Similarly, another commenter cites the proposed requirement to provide the names of specific business units and algorithms that trade in NMS Stock ATS as an example of requested information that it believes is unnecessary to risk assessment.747 We believe that some market participants may find it very helpful to know the identities and number of the broker-dealer operator’s business units or affiliates that trade on the NMS Stock ATS. As indicated by commenters, some market participants may, for example, view trading on an ATS by a principal trading desk of the broker-dealer operator as presenting a potential conflict of interest for the broker-dealer operator, even if the ATS does not give any preference to the orders from that desk.748 We also received comments supporting the original requests under
Part III, Items 1, 2, and 5 of proposed
Form ATS–N. One commenter believes that these proposed disclosure requests are essential to alerting market participants about potentially significant advantages of the brokerdealer operator and its affiliates and to allow market participants to obtain a reasonable understanding of the conflicts of interest posed by the brokerdealer operator’s or its affiliates’ trading activities on the ATS.749 In addition, a commenter states that the requests under Part III, Item 5 of proposed Form ATS–N would help investors better understand the relationship between the NMS Stock ATS, its broker-dealer operator, and any affiliates.750 One commenter asserts that market participants would want to know the specific advantages afforded to the ATS operator or its affiliate, and urges the Commission to adopt proposed Part III, Item 5.751 While we have refined the scope of certain subject matter in response to comment, we still believe that the disclosure requests in adopted Form ATS–N about the trading activities of the broker-dealer operator and its affiliates will allow for a high degree of transparency by capturing information that these commenters believe is important to market participants. In addition, one commenter states that it supports the disclosure of potential trading activity on the NMS Stock ATS by the broker-dealer operator and its affiliates, but asserts that the disclosure requirement should be revised to allow for a series of progressive ‘‘yes’’ or ‘‘no’’ responses.752 The commenter also notes that as proposed, it would be difficult for NMS Stock ATSs to maintain this disclosure on an on-going basis. As is

753The subject matter covered in Part III, Item 5.d of proposed Form ATS is now addressed in Part II Item 3 of adopted Form ATS–N. See infra Section V.C.2. 754These proposed requests would have required disclosures regarding the display of subscriber orders to a non-ATS trading center operated by the broker-dealer operator (proposed Part III, Item 1(b)(i)) and the execution of subscriber orders in a non-ATS trading center operated by the brokerdealer operator (proposed Part III, Item 1(b)(ii)), respectively. 755These proposed requests would have required disclosures about sending subscriber orders to another NMS Stock ATS operated by the brokerdealer operator in lieu of the NMS Stock ATS filing the form (proposed Part III, Item 2(b)(i)) and the display of subscriber orders to another NMS Stock ATS operated by the broker-dealer operator (proposed Part III, Item 2(b)(ii)), respectively. 756The requirement to disclose liquidity providers and the terms and condition of any arrangements with liquidity providers was set forth under Part IV, Item 1(d) of proposed Form ATS–N. 757See infra Section V.D.12. 758See id. explained above, we do not believe that maintaining up-to-date disclosures regarding the ATS-related trading activities of the broker-dealer operator and its affiliates will impose an unreasonable administrative burden on the NMS Stock ATS. b. Adopted Part II, Item 1 and 2 of Form ATS–N; ATS-Related Trading Activities of the Broker-Dealer Operator and its Affiliates As noted above, we reorganized and relocated the subject matter requested in
Part III, Items 1, 2, and 5 of proposed
Form ATS–N to Part II, Items 1 (‘‘Broker-Dealer Operator ATS Trading Activities’’) and 2 (‘‘Affiliates ATS Trading Activities’’) of adopted Form ATS–N. We have also revised the content of the proposed disclosure requests in response to public comment.753
Part II, Item 1(a) of adopted Form
ATS–N requires the NMS Stock ATS to disclose whether business units of the Broker-Dealer Operator are permitted to enter or direct the entry of orders and trading interest (e.g., quotes, conditional orders, or indications of interest) into the NMS Stock ATS. This request will be in the form of a ‘‘yes’’ or ‘‘no’’ question, and if the NMS Stock ATS answers ‘‘yes,’’ it will be required to name and describe each type of business unit of the Broker-Dealer Operator that enters or directs the entry of orders and trading interest into the ATS (e.g., NMS Stock ATS, type of trading desks, market maker, sales or client desk) and, for each type of business unit, it must provide the applicable MPID and list the capacity of its orders or trading interest (e.g., principal, agency, riskless principal). This request is designed to encompass the information request in
Part III, Items 5(a) and (b) of proposed
Form ATS–N and capture elements of
Part III Items 1(a) and (b) and Items 2(a)
and (b) of proposed Form ATS–N.
The subject matter covered by Part III, Item 1(b)(i) and (ii) is no longer included in the disclosure request contained in Part II, Item 1 of adopted Form ATS–N.754 Likewise, the subject matter covered by Part III, Item 2(b)(i) and (ii) is no longer included in the disclosure request contained in Part II, Item 1 of adopted Form ATS–N.755 Part II, Item 1 of adopted Form ATS–N focuses on the trading activity of the broker-dealer operator in the NMS Stock ATS, so those proposed disclosure requests are outside the scope of adopted Part II, Item 1. However, to the extent that information about the subjects in those proposed disclosure requests are responsive to other disclosure requests in adopted Form ATS–N—such as Part II, Item 3 (‘‘Arrangements With Trading Centers) and Part III, Item 15 (‘‘Display’’)—the NMS Stock ATS must respond to those items accordingly. Next, Part II, Item 1(b) of adopted Form ATS–N requires an NMS Stock ATS to disclose whether the services that the NMS Stock ATS offers and provides to the business units required to be identified in Item 1(a) are the same for all subscribers. This request will be in the form of a ‘‘yes’’ or ‘‘no’’ question, and if the NMS Stock ATS answers ‘‘no,’’ it will be required to explain any differences in response to the applicable Item number(s) in Part III of adopted Form ATS–N and list the applicable Item number(s). If there are differences that are not applicable to Part III of adopted Form ATS–N, the NMS Stock ATS must explain those differences in detail under Part II, Item 1. Next, Part II, Item 1(c) of adopted Form ATS–N requires NMS Stock ATSs to disclose the broker-dealer operator’s role as a liquidity provider on the NMS Stock ATS, if applicable.756 This item requires the NMS Stock ATS to disclose—in the form of a ‘‘yes’’ or ‘‘no’’ question—whether there are any formal or informal arrangements with any of the sources of orders or trading interest of the broker-dealer operator identified in Item 1(a) to provide orders or other trading interest to the NMS Stock ATS (e.g., undertaking to buy or sell continuously, or to meet specified thresholds of trading or quoting activity). If the NMS Stock ATS answers ‘‘yes,’’ it must identify the business unit(s) and respond to the request in
Part III, Item 12, which sets forth the
requests for liquidity providers on the NMS Stock ATS.757 We believe that highlighting, in Part II of adopted Form ATS–N, whether the broker-dealer operator acts as a liquidity provider on the NMS Stock ATS will be helpful to market participants when evaluating the potential for conflicts of interest or information leakage on the trading platform. However, to reduce duplicative requests on adopted Form ATS–N, we are not requiring the NMS Stock ATS to provide a narrative in Part II of adopted Form ATS–N regarding the broker-dealer operator’s liquidity provider activities because that information will be disclosed under Part III, Item 12 of adopted Form ATS–N. Finally, Part II, Item 1(d) of adopted Form ATS–N requires the NMS Stock ATSs to disclose information about the routing of orders and trading interest to trading centers operated or controlled by the broker-dealer operator. This Item will require the NMS Stock ATS to disclose—in the form of a ‘‘yes’’ or ‘‘no’’ question—whether orders and trading interest in the NMS Stock ATS can be routed to a trading center of the brokerdealer operator. If the NMS Stock ATS answers ‘‘yes,’’ it must respond to the requests in Part III, Item 16 of adopted Form ATS–N, which sets forth the requests for disclosures about routing orders and trading interest out of the NMS Stock ATS. We continue to believe that disclosures regarding the routing of orders will provide subscribers with information about how their orders would be handled if they are not executed on the ATS and allow them to assess whether such routing could result in the leakage of confidential information, particularly if those orders are being routed to a trading center of the broker-dealer operator. Similar to
Part II, Item 1(c) of adopted Form ATS–
N, the request in Part II, Item 1(d) will not require a narrative because Part IV, Item 16 of adopted Form ATS–N requires disclosures about routing.758
Part II, Item 2(a) of adopted Form
ATS–N requires an NMS Stock ATS to disclose whether affiliates of the brokerdealer operator are permitted to enter or direct the entry of orders and trading interest into the NMS Stock ATS. This request will be in the form of a ‘‘yes’’ or ‘‘no’’ question, and if the NMS Stock ATS answers ‘‘yes,’’ it must name and describe each type of affiliate that enters or directs the entry of orders and trading interest in the ATS (e.g., broker-dealers, NMS Stock ATS, mutual fund, hedge fund, market maker) and, for each affiliate that trades on the NMS Stock ATS, the NMS Stock ATS must provide the applicable MPID and list the capacity(ies) of its orders and trading interest (e.g., principal, agency, riskless

759Also like Part II, Item 1(a) of adopted Form ATS–N, Item 2(a) does not contain the subject matter covered by Part III, Item 1(b)(i) and (ii) and
Part III, Item 2(b)(i) and (ii) of proposed
Form ATS–N, but to the extent that information about the subjects in those proposed requests are responsive to other requests in adopted Form ATS– N, the NMS Stock ATS must respond to those items accordingly. 760We have incorporated the requests of proposed Part III, Item 9 of proposed Form ATS–N into individual Part II requests in adopted Form ATS–N, and thus, there is no longer a standalone question addressing differences among the services provided to the broker-dealer operator or its affiliates and other subscribers. See supra
Section V.C.7.
761For example, if a broker-dealer operator uses its SOR or algorithms to submit subscriber orders into the ATS, any steps that either the broker-dealer operator or the subscriber would have to take so that those orders are opted-out of trading with the broker-dealer operator or its affiliates would be required disclosures under Items 3(a) and 3(b), respectively. 762Part III, Item 5(d) of proposed Form ATS–N would have required the NMS Stock ATS to 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. 763See UBS Letter at 6. 764See HMA Letter at 16; UBS Letter at 5; SIFMA Letter at 13. 765See SIFMA Letter at 13. 766See UBS Letter at 5. principal). As with Item 1, these requests are designed to encompass the information that would have been required under Part III, Items 5(a) and (b) of proposed Form ATS–N and is designed to capture elements of Part III Item 1(a) and Item 2(a) of proposed Form ATS–N.759 Next, Part II, Item 2(b) of adopted Form ATS–N requires an NMS Stock ATS to disclose whether the services that the NMS Stock ATS offers and provides to the affiliates required to be identified in Item 2(a) are the same for all subscribers. This request is in the form of a ‘‘yes’’ or ‘‘no’’ question, and if the NMS Stock ATS answers ‘‘no,’’ it will be required to explain any differences in response to the applicable Item number(s) in Part III of adopted Form ATS–N, as required, and list the applicable Item number(s). If there are differences that are not applicable to
Part III of adopted Form ATS–N, the
NMS Stock ATS must explain those differences in detail under Part II, Item 2.760
Part II, Item 2(c) of adopted Form
ATS–N requests information about the role of the broker-dealer operator’s affiliates as liquidity providers on the NMS Stock ATS, if applicable. This item requires the NMS Stock ATS to disclose—in the form of a ‘‘yes’’ or ‘‘no’’ question—whether there are there any formal or informal arrangements with affiliates of the broker-dealer operator identified in Item 2(a) to provide orders or other trading interest to the NMS Stock ATS (e.g., undertaking to buy or sell continuously, or to meet specified thresholds of trading or quoting activity). If the NMS Stock ATS answers ‘‘yes,’’ it must identify the affiliates and respond to the request in Part III, Item 12, which sets forth the required disclosures for liquidity providers on the NMS Stock ATS. Finally, Part II, Item 2(d) of adopted Form ATS–N requires an NMS Stock ATS to disclose information about routing orders and trading interest out of the NMS Stock ATS to a trading center operated and controlled by affiliates of the broker-dealer operator. This item will require the NMS Stock ATS to disclose—in the form of a ‘‘yes’’ or ‘‘no’’ question—whether orders and trading interest in the NMS Stock ATS can be routed to a trading center operated or controlled by an affiliate of the broker-dealer operator. If the NMS Stock ATS answers ‘‘yes,’’ it must respond to request in Part III, Item 16, which sets forth the required disclosures for routing orders and trading interest out of the NMS Stock ATS.
2. Order Interaction With Broker-Dealer
Operator; Affiliates
Part II, Item 3 of adopted Form ATS–
N requests information about the interaction of orders of between unaffiliated subscribers to the ATS and orders of the broker-dealer operator and its affiliates in the NMS Stock ATS. Part II, Item 3(a) of adopted Form ATS–N requires an NMS Stock ATS to disclose whether a subscriber can opt out of interacting with orders and trading interest of the broker-dealer operator in the NMS Stock ATS, and Part II, Item 3(b) requires an NMS Stock ATS to disclose whether a subscriber can opt out of interacting with the orders and trading interest of an affiliate of the broker-dealer operator in the NMS Stock ATS.761 Part II, Item 3(c) of adopted Form ATS–N requires the NMS Stock ATS to disclose whether the terms and conditions of the opt-out processes for the broker-dealer operator and affiliates required to be identified in Items 3(a) and (b) are the same for all subscribers. The content of these requests are intended to cover the subject matter contained in Part III, Item 5(d) of proposed Form ATS–N.762 We believe that is helpful to market participants for the subject matter covered by proposed Part III, Item 5(d) to be a stand-alone question in adopted Form ATS–N. Such information is important to unaffiliated market participants trading on an ATS because some unaffiliated subscribers may not wish to interact with the order flow of the broker-dealer operator or its affiliates. This disclosure will help market participants understand whether and how they may avoid trading with the broker-dealer operator and its affiliates should they elect to use the services of the NMS Stock ATS. As explained above, we received several comments about the proposed requests addressing ATS-related activities of the broker-dealer operator and its affiliates, including the request set forth in Part III, Item 5. In addition to these comments, one commenter opines that if a subscriber desires to opt out of trading with the broker-dealer operator’s principal orders, the brokerdealer operator should be obliged to follow and implement the stated instruction.763 This rulemaking addresses enhanced disclosure requirements for NMS Stock ATSs, and not regulations to require certain actions by NMS Stock ATSs outside of the disclosures and other requirements specifically enumerated herein.
3. Arrangements With Trading Centers
Part III, Item 4 of proposed Form
ATS–N requested disclosures about arrangements the broker-dealer operator, or any of its affiliates, has with unaffiliated trading centers. The subject matter covered in Part III, Item 4 of proposed Form ATS–N is under Part II, Item 4 of adopted Form ATS–N. The Commission received several comments regarding disclosure requests about arrangements with unaffiliated trading centers. Three commenters support the public disclosure of preferential arrangements with third parties.764 One of these commenters, while supporting the disclosure of preferential arrangements in principle, believes the requests in Part III, Item 4 of proposed Form ATS–N could be too exhaustive and should be narrowed to focus on preferential arrangements.765 Similarly, another commenter believes the central concern around affiliate relationships should focus on whether a third-party entity has differentiated or unique access to an ATS.766 Another commenter believes that the brokerdealer operators of NMS Stock ATSs should not be required to provide proprietary information to the public under this disclosure, stating that in instances where SORs operate outside of the NMS Stock ATS and make routing decisions independent of the NMS Stock ATS, the appropriate source of information sought by the Commission

767See STANY Letter at 4.
768See UBS Letter at 5.
769Mutual or reciprocal access arrangements may be, for example, an NMS Stock ATS that allows another broker-dealer operator to access its ATS for liquidity in return for the ability to access the liquidity of the other broker-dealer’s ATS. 770Preferential routing arrangements may be, for example, an NMS Stock ATS being the first routing destination on the routing table of a third party’s algorithm. 771For example, a potential conflict of interest could arise where an NMS Stock ATS has a preferred routing arrangement with an affiliated, non-ATS trading center wherein all orders sent to the NMS Stock ATS would first be routed to the affiliated, 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 because the nonATS trading center would know that any unexecuted orders would then be routed to the NMS Stock ATS. Alternatively, if an arrangement between the NMS Stock ATS and affiliated trading center provides that any subscriber orders routed out of the NMS Stock ATS would be first routed to the affiliated, non-ATS trading center, the NMS Stock ATS may have an incentive to remove subscribers’ orders from the NMS Stock ATS and allow the affiliated non-ATS trading center the opportunity to execute those orders. is the operator of the SOR, not the operator of the NMS Stock ATS.767 We have not limited the disclosures required under adopted Part II, Item 4 of adopted Form ATS–N to preferential arrangements or other unique access given to unaffiliated third parties, as suggested by these commenters. We believe that some market participants may consider other arrangements with third parties relevant to their evaluations of an NMS Stock ATS as a potential trading venue. For example, if an NMS Stock ATS has a mutual access agreement with another ATS, a market participant may take into account the fact that its order may eventually route to another ATS, even if orders from the other ATS do not receive preferential treatment on the ATS. The disclosure requests in Part II, Item 4 of adopted Form ATS–N will provide market participants with information necessary to evaluate potential conflicts of interest or sources of information leakage. For example,
Part II, Item 4 of adopted Form ATS–N
requires the disclosure of an arrangement between the NMS Stock ATS and an unaffiliated NMS Stock ATS under which the NMS Stock ATS would route orders or other trading interest to the unaffiliated NMS Stock ATS for possible execution before routing to any other destination. By way of further example, Item 4 also requires 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; it also requires a summary of the terms and conditions of the arrangement such as, for example, whether the NMS Stock ATS is providing monetary compensation or some other brokerage service to the unaffiliated NMS Stock ATS. In response to the above commenter concerns, however, Part II, Item 4 of adopted Form ATS–N includes some modifications. First, the adopted disclosure request in Part II, Item 4 replaces the proposed phrase ‘‘describe the terms of the arrangement’’ with the phrase ‘‘provide a summary of the terms and conditions of the arrangement.’’ We believe that replacing the term ‘‘describe’’ with a requirement to ‘‘provide a summary’’ will make it clear that the scope of the adopted request should not typically require the NMS Stock ATS to provide granular details about its arrangements that the ATS might consider to be commercially sensitive. Second, Part II, Item 4 of adopted Form ATS–N does not use the phrase ‘‘person(s), or affiliate(s) of such person(s) that operates a trading center’’ when establishing the scope of the request, as was proposed. Rather, the adopted request focuses on arrangements with trading centers themselves. One commenter argues that to the extent a third-party entity solely has access to functionality disclosed elsewhere in proposed Form ATS–N, proposed Part III, Item 4 would not be necessary.768 We did not intend for the proposed request to encompass, for example, a subscriber agreement between a third-party broker-dealer, who happens to also operate a trading center, and the NMS Stock ATS under which the third-party broker-dealer submits orders to the ATS in the same manner as all other subscribers. Rather, the purpose of the request in Part II, Item 4 is to publicly disclose any arrangement with another trading center that may be relevant to a conflicts of interest analysis, such as one under which the NMS Stock ATS and a thirdparty NMS Stock ATS send their respective subscriber orders to one another. Additionally, we are including in Part II, Item 4 of adopted Form ATS–N examples of the types of arrangements that would be responsive to the disclosure request, such as mutual or reciprocal access arrangements 769 and preferential access arrangements 770 to clarify that the disclosures required by
Part II, Item 4 of adopted Form ATS are
not so broad as to require the NMS Stock ATS to list each unaffiliated subscriber that accesses its system. We are also revising the request in Part III, Item 4 of proposed Form ATS–N to only require disclosures about arrangements with trading centers to access the NMS Stock ATS’s services in adopted Form ATS–N. For example, an NMS Stock ATS must provide details about how it disseminates orders or trading interest submitted by a trading center under a unique arrangement with that trading center such a reciprocal access agreement; these types of arrangements would typically be different than the ATS’s standard contract with subscribers to access the services of the ATS. We believe that this change will better define the scope of information responsive to the Part II, Item 4 of adopted Form ATS–N while not removing any proposed disclosure requirements. Likewise, the Commission is modifying the wording of the proposed disclosure requests to require the NMS Stock ATS to disclose formal or informal arrangements for a trading center ‘‘to access the NMS Stock ATS services.’’ Adding the word ‘‘services’’ clarifies that the disclosure must explain the services provided to the unaffiliated trading center after it connects to the ATS. An NMS Stock ATS can provide various types of services to subscribers and the request, as revised, is tailored for those ATSs services that a subscriber may use. Next, the scope of Part III, Item 4 of proposed Form ATS–N only encompassed arrangements with unaffiliated trading centers, but Part II, Item 4 of adopted Form ATS–N encompasses arrangements with both unaffiliated and affiliated trading centers. As explained above, the requests set forth in Part III, Items 1(b)(ii)–(iii) and 2(b)(i), (iii) of proposed Form ATS–N—which addressed the transmission of subscriber orders to other trading centers operator by the broker-dealer operator or its affiliates— have either been narrowed or eliminated from Part II, Items 1 and 2 of adopted Form ATS–N. However, to the extent that an NMS Stock ATS has an arrangement with a trading center operated by the broker-dealer operator or an affiliate, we believe that market participants are still likely to consider information about such arrangements relevant to their evaluation of an NMS Stock ATS as a potential trading venue and such an arrangement may raise concerns about conflicts of interest or information leakage.771 Additionally, Part III, Item 4 of proposed Form ATS–N would also have required the disclosure of mutual access arrangements between an NMS Stock

772See Proposal, supra note 2, at 81049. Furthermore, as discussed in the Proposal, 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. 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. See id. at 81049, n.401. 773See ICI Letter at 7. 774See HMA Letter at 16; KCG Letter at 9; SIFMA Letter at 11–13; UBS Letter at 5; STANY Letter at 4. 775See HMA Letter at 16. 776See KCG Letter at 9. The commenter states that, in many cases, an ATS operator may be unaware of products and services separately provided by an affiliate to a customer that are entirely independent from and may pre-exist the client’s ATS subscription. See id. 777See SIFMA Letter at 12. 778See UBS Letter at 5. The commenter also states that a forced public listing of a broker-dealer’s products and services may be inconsistent with the broker-dealer’s traditional approach and preferences for marketing. See id. 779See Proposal, supra note 2 at 81048. 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 its 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 to the NMS Stock ATS. 780See STANY Letter at 4. 781See SIFMA Letter at 12–13. 782For a further discussion about when a brokerdealer operator’s SOR (or similar functionality) or algorithm may operate as part of its NMS Stock ATS, see Section V.D.5 below. ATS and other trading centers whereby, for example, a broker-dealer operator, or its affiliate, may offer access to the broker-dealer operator’s NMS Stock ATS in exchange for access to another NMS Stock ATS of operated by another broker-dealer. Accordingly, Part II, Item 4 of adopted Form ATS–N is designed to inform subscribers about these arrangements as such information may impact a subscriber’s experience on the NMS Stock ATS and allow them to evaluate potential conflicts of interest of the broker-dealer operator and its affiliates.772 Finally, in Part II, Item 4 of adopted Form ATS–N, the Commission has divided the request into two subparts— one subpart addressing the brokerdealer operator’s arrangements, and another subpart addressing its affiliates’ arrangements. This is a technical edit so that the format of Part II, Item 4 of Form ATS–N is consistent with the format of
Part II, Items 1–3 above.
4. Other Products and Services
Part III, Item 3 of proposed Form
ATS–N would have required disclosures about products and services offered to subscribers used in connection with trading on the NMS Stock ATS. We are adopting Part III, Item 3 of proposed Form ATS–N as Part II, Item 5 of adopted Form ATS–N; however, we are modifying the proposed disclosure request in response to commenter concerns. One commenter states that the proposed requests would have helped investment funds assess an NMS Stock ATS as a potential execution venue by improving their ability to understand all functionality offered by the brokerdealer operator and whether the brokerdealer operator makes all services available in a fair and impartial manner.773 Some commenters, while not opposing the general category of disclosure requested in proposed Part III, Item 3, believe the scope of the requests regarding products and services should be narrowed.774 One commenter agrees with the Commission’s approach, but states that the disclosure requirement should be refined to cover products or services used in connection with trading NMS stocks, not just trading on the NMS Stock ATS.775 Another commenter believes that distinct products and services provided by an affiliate of the broker-dealer operator to a client—who happens to be an ATS subscriber—but which are not directly linked to the ATS subscription should not be captured by this requirement, particularly, when the client/subscriber ultimately may or may not use those services to trade on the ATS.776 Another commenter suggests only requiring an ATS to list or outline broad categories of products or services rather than requiring the NMS Stock ATS to ‘‘describe’’ its products or services.777 Another commenter states that each relationship and customer experience is different and free-standing in certain respects, and believes that the proposed request would potentially require the disclosure of a whole array of products or services, the enumeration of which would add little value and be burdensome to maintain/update.778 Broker-dealer operators of NMS Stock ATSs may, directly or indirectly through an affiliate, offer products or services to subscribers for the purpose of, for example, submitting orders, or receiving information about displayed interest, in the ATS.779 We continue to believe that subscribers would want to know the products or services that the broker-dealer operator or its affiliates may offer for the purpose of effecting transactions, or submitting, disseminating, or displaying orders and trading interest on the NMS Stock ATS because such products or services may impact the subscribers’ access to, or trading on, the ATS. We note that many broker-dealer operators are multi-service brokerdealers and provide routing and execution services in NMS stocks separate from their ATS services. We further note that customers of a brokerdealer operator could be both subscribers to its ATS and customers of the broker-dealer operator that use trading products and services outside of the
ATS. To the extent that a customer is a subscriber to the NMS Stock ATS and is offered use of products and services by the broker-dealer operator or its affiliate for the purpose of effecting transactions or submitting, disseminating, or displaying orders and trading interest in the NMS Stock ATS,
Part II, Item 5 of adopted Form ATS–N
would require disclosures about those products or services. However, the adopted requests in Part II, Item 5 would not encompass trading products or services offered by the broker-dealer operator to customers that are not for the purpose of effecting transactions or submitting, disseminating, or displaying orders and trading interest in the NMS Stock ATS. Two commenters express opinions about how the scope of the proposed requests relate to the scope of an NMS Stock ATS’s operations. One commenter states that the Proposal does not draw sufficient distinction between the operations of the NMS Stock ATS and other products and services of the broker-dealer operator, including agency execution services, market making and algorithms.780 Another commenter states that the Commission should clarify the terminology used in this item because it appears to conflate the NMS Stock ATS itself with routing and algorithmic functions.781 Whether a product or service is part of the ATS requires a facts and circumstances analysis. Based on Commission experience, broker-dealers generally offer various products and services to customers, which include execution and routing services, such as a SOR. These products and services are generally independent of each other, and how such products and services may be used by a subscriber to an NMS Stock ATS varies. However, to the extent that a SOR (or similar functionality) or algorithm performs a function of the ATS by bringing together the orders for securities of multiple buyers and sellers using established nondiscretionary methods, the SOR (or similar functionality) or algorithm may be part of the NMS Stock ATS.782 Another commenter states that Form ATS–N should only require disclosure

783See STANY Letter at 4.
784We note that, as part of our review of Form ATS–N responses, we intend to monitor the level of summary information provided on the form for completeness to help ensure that such information is responsive to the form and is not designed to avoid meaningful disclosure. 785The revised wording for this request also provides examples of the types of services that would be encompassed by this question, such as algorithmic trading products that send orders to the ATS, order management or order execution systems, and market data feeds. 786For example, if a broker-dealer operator offers subscribers alternative algorithms to handle orders, including sending such order to the NMS Stock ATS, and there is a difference in the speed or latency in which each of the alternatives transmits information, such differences in speed or latency would need to be disclosed in Part II, Item 5 of adopted Form ATS–N. 787See SIFMA Letter at 16. 788See HMA Letter at 17. 789See ICI Letter at 5–6; STANY Letter at 4. 790See ICI Letter at 5–6. of products or services at a high level and that commercially sensitive or proprietary information should not be required to be publicly disclosed.783 As noted above, we are sensitive to concerns about the potential disclosure of commercially sensitive information. The proposed request stated that NMS Stock ATSs must ‘‘[d]escribe the products or services.’’ To address commenter concerns regarding the potential disclosure of commercially sensitive information in this disclosure request, the adopted disclosure request requires the NMS Stock ATS to provide only a summary of the terms and conditions for the products and services disclosed and to explain how the product or service is used with the ATS in the applicable Item number in Part III of adopted Form ATS–N. As explained above, we believe that requiring only a summary narrative would normally not require the broker-dealer operator to disclose commercially sensitive information.784 To reduce redundancy and streamline disclosures, we are requiring NMS Stock ATSs to provide a narrative explaining the use of the product or service required to be disclosed in Part II, Item 5 in the relevant item in Part III of adopted Form ATS–N. We are also adding to Part II, Item 5 of adopted Form ATS–N the language ‘‘for the purpose of’’ before effecting transactions, or submitting, disseminating, or displaying orders and trading interest on the NMS Stock ATS to make clear that this Item requests information about those products or services offered by the broker-dealer operator or its affiliate that have a nexus to the ATS services. We believe that the disclosure requests in Part III of adopted Form ATS–N are limited to information that we believe is necessary for market participants to understand the operation of the ATS, without requiring a level of detail that would normally require the disclosure of commercially sensitive information. In summary, we are modifying the proposed requests being adopted as
Part II, Item 5 of Form ATS–N to clarify that the NMS Stock ATS is only required to provide information about products and services offered to subscribers for the purpose of effecting transactions, or submitting, disseminating, or displaying orders and trading interest on the NMS Stock ATS. Specifically, we have modified the proposed language to state that the broker-dealer operator must disclose any products or services offered to subscribers for the purpose of effecting transactions or for submitting, disseminating, or displaying orders and trading interest in the NMS Stock ATS (e.g., algorithmic trading products that send orders to the ATS, order management or order execution systems and market data feeds). We believe that this language makes a sufficient distinction between products and services that relate to the functions of the ATS and those that do not; disclosures about the latter would not be required.785 In addition, we have divided the disclosure requests into four subparts:
(i) One subpart addresses the products or services that the broker-dealer operator offers to subscribers for the purpose of effecting transactions or for submitting, disseminating, or displaying orders and trading interest in the NMS Stock ATS; (ii) another subpart addresses products or services that the broker-dealer operator’s affiliates offer to subscribers for the purpose of effecting transactions or for submitting, disseminating, or displaying orders and trading interest in the NMS Stock ATS; and (iii) the other two subparts address any differences between the terms and conditions of the services or products required to be identified in Item 5 among the broker-dealer operator, affiliates, and unaffiliated subscribers.786 This is a technical edit to the proposed disclosures so that the format of Part II, Item 5 is consistent with the format of Part II, Items 1–4 above.
5. Activities of Service Providers
a. Shared Employees
Part III, Item 7 of proposed Form
ATS–N would have required disclosures about employees of the broker-dealer operator that service the operations of the NMS Stock ATS and also service other business units of the broker-dealer operator or any of its affiliates (‘‘shared employees’’). We received several comments on Part III, Item 7 of proposed Form ATS–N. We are adopting Part III, Item 7 of proposed Form ATS–N with modifications in response to commenters’ concerns, as further explained below, and we are also renumbering Part III, Items 7 of proposed Form ATS–N as Part II, Item 6(a) of adopted Form ATS–N. One commenter recommends eliminating the requests related to shared employees because the commenter believes that keeping the item up-to-date would be too burdensome and unnecessary as employee roles and responsibility shift periodically.787 Similarly, another commenter believes that while accountability for the safeguarding of customer information is essential, the commenter is uncertain as to why the disclosures regarding shared employees under Part III, Item 7 of proposed Form ATS–N need to be public, particularly in light of the proposal’s other reforms regarding the safeguarding of customers’ confidential information.788 We continue to believe that disclosures about shared employees with access to confidential trading information from the NMS Stock ATS would help market participants evaluate circumstances under which a conflict of interest may arise for the NMS Stock ATS or when there is the potential for information leakage involving shared employees. For example, we believe that market participants would likely want to know if an employee of the broker-dealer operator that is responsible for the operations of a system containing confidential subscriber trading information from the NMS Stock ATS is also responsible for supporting the principal trading activity of the brokerdealer operator. As discussed further below, however, we are modifying the proposed request about shared employees on Form ATS–N to more narrowly tailor the request in response to comments, which should reduce the proposed reporting burden. Some commenters believe that the Commission should narrow the scope of the shared employee request to shared employees who may have access to or knowledge of confidential subscriber information or orders.789 One commenter states that market participants would need to dedicate resources to determine which employees actually could pose risks of information leakage without limiting the disclosure in this manner.790 Another commenter also opines that it would be more useful to limit the information

791See STANY Letter at 4. 792See ICI Letter at 5–6; STANY Letter at 4–5; Liquidnet Letter at 9; STANY Letter at 4–5; UBS Letter at 6. 793See ICI Letter at 5–6; STANY Letter at 4–5; UBS Letter at 6–7. 794See UBS Letter at 6. 795As guidance for this request, the summary of the shared employees’ role and responsibilities generally should include sufficient detail to provide market participants with a comprehensive understanding of the full range of the shared employee’s responsibilities with the NMS Stock ATS and each relevant entity, including responsibilities that could enable the employee to view confidential trading information of the NMS Stock ATS. 796See Luminex Letter at 2; see also PDQ Letter at 1 (agreeing with Luminex’s letter). 797See ICI Letter at 5–6. 798See id. 799See HMA Letter at 17; ICI Letter at 5. 800See HMA Letter at 17. 801See Luminex Letter at 2; see also PDQ Letter at 1 (agreeing with Luminex’s letter). about shared employees to those with access to confidential information.791 We acknowledge that for some brokerdealer operators—particularly multiservice broker-dealers for which the NMS Stock ATS is one of many business units—some employees provide purely administrative services or other support services to multiple business units that would not make them privy to confidential subscriber trading information of the NMS Stock ATS. In response to these comments, the adopted request requires disclosures only about shared employees with access to confidential trading information on the ATS. Furthermore, some commenters state that information about shared employees should not contain certain personal information about the employee, such as the employees name, title, or position.792 Several of these commenters believe that such public disclosures would provide little benefit to market participants because, for example, titles change frequently, lack standard meaning across firms and businesses, and do not provide meaningful information about potential information leakage on the ATS.793 In response to these comments, we have eliminated the requirement that the NMS Stock ATS identify the name and position or title of shared employees because we agree that any benefit to providing personally identifiable information about shared employees would not be justified by the potential negative effects to the individual whose personally identifiable information has been posted. We also agree that such information could become stale or change frequently, resulting in an increased burden on NMS Stock ATSs to keep that information up-to-date. One of the above commenters also states that, while it supports disclosure to the Commission of relevant information concerning individuals responsible for ATS functions, it believes that the request concerning shared employees should be limited to ‘‘categories of service’’ as opposed to individual positions and titles.794 As explained above, we have removed the proposed requirement that the disclosures
regarding shared employees contain the name and position or title of all shared employees, and Form ATS–N only requires a summary of the role and responsibilities of a shared employee that has access to confidential trading information.795 While these changes reduce the proposed burden on filers, disclosures responsive to Part II, Item 6(a) of adopted Form ATS–N should also provide market participants with sufficient information to evaluate whether a shared employee’s role with the NMS Stock ATS may create a potential for information leakage. We do not believe that market participants would benefit from even broader, or more general, disclosures, such as ‘‘categories of service’’ for shared employees because such information would likely not provide market participants with relevant information to assess the potential for information leakage. Two commenters express support for
Part III, Item 7 of proposed Form
ATS–N by noting that current Form ATS Exhibit E calls for the disclosure of other entities relevant to the operation of the ATS, which the commenters believe would be helpful in determining whether there are apparent conflicts of interest that could come into play in terms of how orders are executed in the ATS.796 Another commenter recommends that the Commission ensure that the requests provide meaningful narrative information about the role and duties of each shared employee, both at the NMS Stock ATS and the other business unit or affiliate of the broker-dealer operator.797 This commenter states that, to better equip funds and other market participants to assess the roles and expertise of shared employees, an NMS Stock ATS should also disclose whether any shared employees are registered with the Commission or the Financial Industry Regulatory Authority and whether they hold one or more securities licenses.798 Because we have amended the proposed requests to reduce the potential for the public disclosure of personally identifiable information, we will not incorporate this commenter’s recommendation to require an NMS Stock ATS to disclose whether any shared employees are registered with the Commission or FINRA and whether they hold one or more securities licenses. The details solicited in Part II, Item 6(a) of adopted Form ATS–N are designed to provide market participants with information to assess whether an NMS Stock ATS’s use of shared employees poses a risk of information leakage or other conflicts of interest that could affect a market participant’s decision of whether or not to trade on the ATS. Requiring an NMS Stock ATS to disclose information about a shared employee’s credentials would be contrary to the Commission’s intent to limit the amount of personally identifiable information that is required by Form ATS–N. b. Third-Party Service Providers
Part III, Item 8 of proposed Form
ATS–N would have required disclosures about third-party service providers to the NMS Stock ATS. The Commission received several comments on Part III, Item 8 of proposed Form ATS–N. The Commission is adopting Part III, Item 8 of proposed Form ATS–N with modifications in response to commenters’ concerns, as further explained below, and is renumbering
Part III, Item 8 of proposed Form
ATS–N as Part II, Items 6(b), 6(c), and 6(d) of adopted Form ATS–N. Two commenters support the Commission’s proposal to require the disclosure of information related to third-party service providers because such disclosures would provide information related to potential information leakage on the NMS Stock ATS.799 One of those commenters further opines that while shared employees are likely subject to increased oversight and it supports the proposed requests related to shared employees, the oversight of third-parties is significantly less formidable and may result in greater risk for information leakage.800 As they did for Part III, Item 7 of proposed Form ATS–N, two other commenters express support for Part III, Item 8 of proposed Form ATS–N by noting that current Form ATS Exhibit E calls for the disclosure of other entities relevant to the operation of the ATS, which the commenters believe would be helpful in determining whether there are apparent conflicts of interest that could come into play in terms of how orders are executed in the ATS.801 Several commenters believe that aspects of the request under Part III, Item 8 of proposed Form ATS–N related to third-party service providers are unnecessary to evaluating an NMS

802See Luminex Letter at 4; STANY Letter at 5. 803See Morgan Stanley Letter at 5. 804See Proposal, supra note 2, at 81055. 805See Item 7 of Form ATS (describing the requirements for Exhibit E of Form ATS). 806See ICI Letter at 6; UBS Letter at 6; SIFMA Letter at 16. 807See Morgan Stanley Letter at 5. 808See supra note 742 and accompanying text. 809See Morgan Stanley Letter at 5. 810See UBS Letter at 7. 811As guidance for this request, the Commission would view, for example, an NMS Stock ATS simply stating that a third-party provides technology or hardware to the ATS as insufficient. See Proposal, supra note 2, at 81055. In this example, the summary generally should provide market participants with an understanding of the types of technology or hardware provided, and how that hardware or technology is used by the NMS Stock ATS. This information is meant to provide market participants with a better understanding about whether the service provider could access confidential trading information. Stock ATS as a potential trading venue. Two commenters state that information about certain shared personnel for vendors or certain support functions, such as back-office or technology resources, are not necessary for risk assessment of an ATS.802 Similarly, another commenter believes that the disclosures could, in fact, inhibit useful comparison of ATSs and create unnecessary and burdensome disclosure obligations.803 Specifically, this commenter cites the proposed requirements to provide detailed information regarding persons, including natural persons, providing services for the ATS, but who are unaffiliated with the broker-dealer. We disagree that the proposed request regarding third party service providers to the NMS Stock ATS is unnecessary, would not be meaningful to market participants, or, when compared to the current requirements on Form ATS, would be overly burdensome. As noted in the Proposal,804 the request related to service providers is intended to expand on the current disclosure requirement of Exhibit E of Form ATS, which requires ATSs to disclose the name of any entity other than the ATS that will be involved in the operation of the ATS, including the execution, trading, clearing, and settling of transactions on behalf of the ATS; and to provide a description of the role and responsibilities of each entity.805 We continue to believe that subscribers and market participants would be interested in whether services performed by a third-party may or may not be under the control of the brokerdealer operator for the purposes of evaluating the potential information leakage. Some commenters recommend clarifying or more narrowly tailoring the scope of the requests in Part III, Item 8 of proposed Form ATS–N related to service providers so as not to capture information about vendors that only provide administrative services to the ATS or other overhead, such as utility companies.806 We believe that the scope of the third-party service provider requests
should not encompass purely administrative items—such as human resources support—or basic overhead items—such as phone services and other utilities. The information solicited in this disclosure is meant to provide information about the extent to which a third-party may be able to influence or control the operations of the ATS through involvement with its operations (such as operating the ATS’s proprietary data feeds sent to subscribers). As indicated by commenters, information about the roles and responsibilities of service providers to the ATS is important because it could inform market participants about the potential information leakage on the NMS Stock ATS. A commenter also states that it is very difficult for a broker-dealer to know the structure of all of its vendors, much less whether the vendor has an affiliate that may enter orders in the subject ATS.807 This commenter believes that requiring an ATS to disclose information regarding whether any such persons, or any of their affiliates, may enter orders or other trading interest on the NMS Stock ATS would be unduly burdensome. We believe that the benefit to market participants from the public disclosure of information concerning the use of ATS services by third-party service providers and their affiliates justifies the potential burden on the NMS Stock ATS to provide those disclosures in Form ATS–N. Service providers have business relationships outside of simple subscriber-ATS arrangements, which may give those service providers or their affiliates access to confidential trading information of other subscribers. As such, market participants should be aware of how those service providers utilize the ATS as a trading venue or for any other services. Furthermore, the adopted requests under Part II, Items 6(c)–(d) require the NMS Stock ATS to disclose whether any service providers or their affiliates use the services of the NMS Stock ATS and if they do, the ATS is required to identify the service providers, the service(s) used, and whether there is any disparate treatment between those service providers and other subscribers. Thus, an NMS Stock ATS would only be required to obtain and disclose information about third-party vendors and their affiliates that actively use the services of the ATS; the ATS should be aware of all parties the use its services under its current recordkeeping obligations.808 Additionally, because the ATS has already established a relationship with its service providers, we do not believe that it would impose a significant burden on ATSs to require its service providers to inform them about any affiliates that use the services of the ATS. Accordingly, to the extent that an affiliate of a service provider uses the services of the ATS, we believe that the burden to obtain the information required by Form ATS–N is justified by the above-explained benefits to market participants from these disclosures. This commenter also states that if the Commission’s concern is whether
a service provider is receiving preferential treatment from an ATS, the Proposal should have mandated disclosure of whether there is any preferential and/or differentiated treatment.809 We believe market participants would find it very useful to understand whether potential counterparties with whom they are trading, and who also service the operation of the NMS Stock ATS, have access to different or unique ATSrelated services when analyzing potential conflicts of interest or information leakage on the venue. We have added a request to Part II, Item 6 of adopted Form ATS–N to expressly require the ATS to identify and explain any differences in ATS services to a service provider and all other subscribers. One commenter questions the feasibility of providing ‘‘a detailed description of information technology services, including both hardware and software’’ in Part III, Item 8 of proposed Form ATS–N, which the commenter opines can be taken to the extreme of requiring an ATS operator to disassemble a server to enumerate the manufacturer of various components. The commenter believes that a general— but thorough—description of the information technology services would be more practical.810 We did not intend for the adopted disclosures to require the level of granular detail to which this commenter cites in its comment letter. To clarify the scope of the required disclosure about services provided by third parties, adopted Form ATS–N no longer requires the NMS Stock ATS to ‘‘describe’’ the operation, service, or function provided by the third party service provider. Instead, it requires an NMS Stock ATS to provide a ‘‘summary’’ of the service provider’s role and responsibilities.811

812See SIFMA Letter at 16. 813See HMA Letter at 18. 814 If an NMS Stock ATS has disclosed information on its Form ATS–N about the written safeguards and procedures that it has established to protect the confidential trading information of subscribers, including oversight procedures to ensure that such safeguards and procedures are followed, but those disclosures materially differ from the actual means by which the NMS Stock ATS protected the confidential trading information of subscribers, the ATS would be required to file an amendment pursuant to Rule 304(a)(2) to revise its Form ATS–N to accurately describe such safeguards and procedures. 815See Regulation ATS Adopting Release, supra note 3, at 70879. 816See Proposal, supra note 2, at 81058. As guidance for this request, we would view, for example, an NMS Stock ATS simply stating that a third-party provides technology or hardware to the ATS as not responsive to the required summary of the service provider’s role. But we would not expect the ATS to provide information about the manufacturer of certain components of its hardware. This request for summary information is designed to provide market participants with a general understanding of the types of technology or hardware provided by the service provider as part of its responsibilities, and how that hardware or technology is used by the NMS Stock ATS. The purpose of this disclosure is to provide market participants with information to better understand whether the service provider might be able to access confidential trading information, so NMS Stock ATSs should draft its disclosure with the goal of conveying such information. Furthermore, to reduce redundant disclosures on Form ATS–N, adopted Form ATS–N will only require this in
Part III, unless there are no disclosure
requests in Part III that would encompass these types of services. The disclosure requests in Part III will likely require the NMS Stock ATS to describe the services provided by third-parties, and we believe that a summary narrative about the roles and responsibilities of third-party service providers will likely be included in that description of the services. We do not believe that it is not necessary to also provide a redundant summary narrative of the roles and responsibilities of service providers in
Part II.
A commenter also recommends eliminating the disclosures of thirdparty service providers from the publicly available Form ATS–N and requiring that the information requested be made available only to the Commission on a confidential basis.812 We are not changing the nature of the third-party service provider request to require the disclosures to be filed on a confidential basis with the Commission. We have narrowed the scope of the request so that the information provided is tailored to address the concerns of market participants and NMS Stock ATSs clarify the level of detail required by these disclosures. We believe that requiring only a summary description of the roles and responsibilities of thirdparty service providers would not require the type of details that could be subject to confidentiality concerns or otherwise put either the NMS Stock ATS or the service provider at a competitive disadvantage. Finally, we are replacing the proposed word ‘‘person’’ with the word ‘‘entity’’ in Part II, Item 6(b) of adopted Form ATS–N. The Commission does not believe that an NMS Stock ATS is likely to contract with a natural person who is not associated with a legal entity (e.g., a corporation or an LLC) to provide services to the ATS. Furthermore, the Commission does not intend for the service provider request to disclose details about natural persons providing services to the ATS when those natural persons are employees of, or independent contractors hired by, a third party.
6. Protection of Confidential Trading
Information
Part III, Item 10 of proposed Form
ATS–N would have required an NMS Stock ATS to provide disclosures about its confidential treatment of trading information. One commenter states its belief that the proposed requests under
Part III, Item 10 of proposed Form ATS–
N seemed appropriate given the risk of misuse of confidential information.813 This commenter believes the requests fit well within the framework of the new requirement that all ATSs maintain written safeguards and procedures to protect confidential trading information. We are adopting Part III, Item 10 of proposed Form ATS–N with modifications in response to commenter concerns, as further explained below, and renumbering the proposed request as Part II, Item 7 of adopted Form ATS–N.
Part II, Item 7(a) of adopted Form
ATS–N requires an NMS Stock ATS to describe its written safeguards and written procedures to protect the confidential trading information of subscribers to the NMS Stock ATS, including: (i) Written standards controlling employees of the ATS that trade for employees’ accounts; and (ii) written oversight procedures to ensure that the safeguards and procedures described above are implemented and followed. The protection of confidential trading information is a bedrock component of the regulation of ATSs and is essential to ensuring the integrity of ATSs as an execution venue. If such information is not protected, many of the advantages or purposes for which a subscriber may choose to send its orders to an ATS (e.g., trade anonymously and/ or to mitigate the impact of trading in large positions) are eliminated. In cases where the confidential trading information of a subscriber is impermissibly shared with the personnel of the broker-dealer operator or any of its affiliates (e.g., persons who are not responsible for the operation of the ATS or compliance with applicable rules), such an abuse is also compounded by the conflicting interests of the broker-dealer operator. That is, in such a case, the broker-dealer operator has invited subscribers to trade on its ATS and may have abused that relationship to provide itself or its affiliates with a direct competitive advantage over that subscriber. Accordingly, we believe that disclosures informing market participants about broker-dealer operators’ written safeguards and procedures to protect confidential trading information are necessary 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.814 We are adopting Part II, Items 7(b) and (c) to require an NMS Stock ATS to disclose whether a subscriber can consent and withdraw consent, respectively, to the disclosure of its confidential trading information to any person (not including those employees of the NMS Stock ATS who are operating the system or responsible for its compliance with applicable rules). Subscribers should be able to give consent if they so choose to share their confidential trading information.815 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 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).816 For this example, Part II, Items 7(b) and 7(c) of adopted Form ATS–N

817See id. We believe that there may be some NMS Stock ATSs that might not offer any means by 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 7(a). See id., n.437. 818See Regulation ATS Adopting Release, supra note 3, at 70879; 17 CFR 242.301(b)(10)(i)(A). 819See MFA/AIMA Letter at 6 (expressing concern that requiring disclosure of the positions or titles of persons who have access to confidential trading information would paint a target on such persons and could increase their security risks and risks of receiving phishing attacks); SIFMA Letter at 17–18 (stating that the public disclosure of information under Part IV, Item 10 of proposed Form ATS–N would have raised privacy, security, and proprietary information concerns). 820See Regulation ATS Adopting Release, supra note 3, at 70879; 17 CFR 242.301(b)(10)(i)(A). 821See SIFMA Letter at 6; Consumer Federation of America Letter at 9–10. See also Fidelity Letter at 5 (stating it should be disclosed when subscribers are not treated the same way); UBS Letter at 7 (suggesting the Commission request should highlight differences among subscribers). 822See HMA Letter at 17–18. 823See SIFMA Letter at 17. 824See id. 825See Proposal, supra note 2, at 81043. would require the NMS Stock ATS to describe the means by which a subscriber could control some of the information contained in the IOI message by providing consent or withdrawing such consent for the sharing of its confidential trading information.817
Part II, Items 7(b) and 7(c) contain
requests similar to those in Part III, Item 10(a) of proposed Form ATS–N, but we are modifying the format of these requests so that they are in the form of a ‘‘yes’’ or ‘‘no’’ question, and if the NMS Stock ATS answers ‘‘yes,’’ the NMS Stock ATS must explain how and under what conditions consent can be given and withdrawn. We are also adding the phrase ‘‘not including those employees of the NMS Stock ATS who are operating the system or responsible for its compliance with applicable rule’’ to Part II, Item 7(b) of adopted Form ATS–N. This change is to clarify that the request does not cover such employees that may need access to such information in the course of their responsibilities to service the system. As noted above, Regulation ATS requires that access to confidential subscriber information be available only to those employees of the ATS that operate the ATS’s system or are responsible for the ATS’s compliance with applicable rules.818 Finally, we are adopting Part II, Item 7(d) to require an NMS Stock ATS to provide a summary of the roles and responsibilities of any persons that have access to confidential trading information, the confidential trading information that is accessible by them, and the basis for the access. Part III, Item 10(b) of proposed Form ATS–N would have required the NMS Stock ATS to identify the position or title of any person who has access to confidential trading information, describe the confidential information to which the person has access, and describe the circumstances under which the person can access confidential trading information. Some commenters express concerns regarding the potential disclosure of personally identifiable information under proposed Part III, Item 10(b).819 We have eliminated the proposed requirement to publicly disclose the positions or titles of persons with access to confidential trading information and part II, Item 7(d) of adopted Form ATS–N requires only a summary of the roles and responsibilities of any persons that have access to confidential trading information, the confidential trading information that is accessible by them, and the basis for the access. We believe that any benefit of providing personally identifiable information is not justified by the potential negative effects of publicly posting personally identifiable information; a summary of the information required under Item 7(d) will buttress the existing obligations on ATSs to restrict access only to permitted personnel (e.g., those responsible for its operation or compliance).820
7. Differences in Availability of
Services, Functionalities, or Procedures
Part III, Item 9 of proposed Form
ATS–N would have required an NMS Stock ATS to disclose information regarding the differences in the availability of services, functionalities, or procedures of the NMS Stock ATS that are available or apply to the brokerdealer operator or its affiliates that are not available or do not apply to other subscribers. In general, several commenters support requests for information about differences between subscribers and the broker-dealer with respect to their use of the NMS Stock ATS.821 A commenter also states that the proposed requests in
Part III, Item 9 of proposed Form
ATS–N are reasonable.822 One commenter, however, expresses concern that the proposed disclosures that would have been required under Part III, Item 9 of proposed Form ATS–N were too broad and could result in the disclosure of either proprietary information or other information that could pose a cybersecurity risk.823 We continue to believe that the disclosure about differences in treatment are important to market participants and will better allow them to decide whether submitting order flow to that NMS Stock ATS aligns with their trading or investment objectives. To more closely tailor the Form ATS–N disclosures about differences in treatment to the subject matter covered in relevant conflicts-of-interest requests, we are removing Part III, Item 9 of proposed Form ATS–N as a stand-alone question and incorporating the request into Part II, Items 1, 2, 3, and 6 of adopted Form ATS–N. We believe that under this format, disclosures regarding the differences in the availability of services, functionalities, or procedures of the NMS Stock ATS will relate to the specific subject matter covered by each of the aforementioned disclosure requests that relate to services, functionalities, or procedures that may differ among subscribers or the brokerdealer operator and subscribers. The requests in Part II of adopted Form ATS–N focus on the ATS-related activities of the broker-dealer operator and its affiliates and are designed to inform market participants about the competing interests between the brokerdealer operator or its affiliates and other subscribers and the potential for information leakage of subscribers’ confidential trading information. In response to a commenter’s concern,824 we note that we did not intend for these requests to require descriptions of technologies or other aspects of the NMS Stock ATS that could pose a cybersecurity risk or are otherwise disclose commercially sensitive information.
8. Other Recommendations From
Commenters
The Commission received comments recommending additional regulation or disclosures for NMS Stock ATSs related to conflicts of interests. In the Proposal, the Commission considered alternatives to address conflicts of interests between the broker-dealer operator and the NMS Stock ATS. One alternative the Commission considered was to eliminate any potential conflicts of interest by requiring the NMS Stock ATS to operate with a single business function—operating the NMS Stock ATS—and by eliminating any other function of the broker-dealer, such as principal trading.825 The Commission also considered continuing to allow broker-dealer operators 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 of

826See id.
827See id.
828See Consumer Federation of America Letter at 7–8 (asserting that certain conflicts of interest are so acute and pernicious that they cannot be mitigated or absolved merely by disclosing them; the commenter provides principle trading by the broker-dealer operator as an example); HMA Letter at 13–18 (advocating for: (1) The Commission to prohibit what the commenter considers to be the deeply troubling conflicts of interest attendant with allowing an ATS operator or affiliate to trade in the ATS; or (2) alternatively if the Commission would not adopt such a prohibition, for the Commission to affirmatively restrict how the broker-dealer operator or its affiliates interact with the ATS); Better Markets Letter at 5–6 (advocating that the Commission ban material conflicts of interest rather than relying on disclosure alone). 829See Proposal, supra note 2, at 81043. 830See Better Markets Letter at 6. 831See ICI Letter at 6, n.14. 832The topics and examples provided on Form ATS–N are designed to help NMS Stock ATS consider the scope of the request and information potentially responsive to the form requirements. While we use the term ‘‘including’’ to denote topics responsive to an Item and have provided examples in many of the requests, these topics or examples are not an exhaustive list of what may be responsive to a Form ATS–N request. See, e.g., Items 4, 6, 7, 9, 10, 11, 13, 19, 21, and 23 of Part III of adopted Form ATS–N. 833See e.g., SSGA Letter at 2; SIFMA Letter at 9; STANY Letter at 5; LeveL ATS Letter at 6–7; KCG Letter at 10. See also Section V.A.1. (discussing the format of items in Part II and III of Form ATS–N). 834Specifically, this requirement is being added to Items 10, 14, 17, 18, and 23 of adopted Form ATS–N. In the Proposal, the Commission required a description of any differences between subscribers and persons in Part IV, Items 1(b), 1(e), 2(b), 3(b)– (d), 4, 5(a), 5(b), 6(a), 7, 8, 10(b), 12(b), and 13 of proposed Form ATS–N. See Proposal, supra note 2, at 81146–81152. 835See, e.g., SIFMA Letter at 5–6 (stating whether all subscribers have access to the same suite of products and services is particularly appropriate and useful); Fidelity Letter at 5 (calling for disclosure when subscribers are not treated the same way); UBS Letter at 7 (suggesting the Commission request should highlight differences in subscriber access that may impact other users of the ATS). See also Consumer Federation of America Letter at 9–10 (discussing how to address potential advantages of the broker-dealer operator and its affiliates). interest.826 In the Proposal, the Commission requested comment about whether certain conflicts of interest arising out of the broker-dealer’s operation of the NMS Stock ATS should be prohibited.827 Several commenters recommend that the Commission prohibit conflicts of interest altogether on NMS Stock ATSs, which would include a prohibition on trading on the NMS Stock ATS by the broker-dealer operator and its affiliates,
rather than simply increasing the disclosure requirements for conflicts of interest.828 However, we continue to believe that prohibiting conflicts of interest for the broker-dealer operator related to its operation of an NMS Stock ATS would be significantly more intrusive relative to requiring additional disclosures about the operations of the broker-dealer operator and its affiliates, and therefor did not propose these alternatives.829 We also believe that such a prohibition would substantially affect or limit the current operations of ATSs that trade NMS stocks. Part II of adopted Form ATS–N is designed to provide disclosures to market participants about ATS-related activities of a broker-dealer operator and its affiliates that might give rise of potential conflicts of interest or information leakage, and thus, should better enable market participants to evaluate whether they want to use the services of that NMS Stock ATS. Also, one commenter recommends that, for any conflicts of interest that are permitted, at a minimum Form ATS–N should include clear disclosures of conflicts of interest under a section titled ‘‘conflicts of interest.’’ 830 We decline the commenter’s request to title
Part II ‘‘conflicts of interest.’’ We believe
that it is more helpful to market participants for Form ATS–N to provide the information market participants need to individually evaluate whether there is a conflict of interest on a given NMS Stock ATS rather than relying on the ATS to determine when a conflict exits. We also received a comment requesting the Commission to require NMS Stock ATSs to disclose in Part II of Form ATS–N any proceeding within the last 10 years against the NMS Stock ATS, the broker-dealer operator or officers or employees of the brokerdealer operator that relates to the handling of equity orders or the operation of the NMS Stock ATS.831 Form ATS–N is designed to provide market participants with public disclosures about the current operations of an NMS Stock ATS and the current ATS-related activities of the brokerdealer operator and its affiliates. We believe that this information will help market participants assess the NMS Stock ATS as potential venue for their orders. We believe that disclosures about past proceedings, or other disciplinary matters, of the NMS Stock ATS, its broker-dealer operator, or officers and employees of the brokerdealer operator—even those that relate to the handling of equity orders or the operation of the NMS Stock ATS— would not provide additional transparency into the current operations of the NMS Stock ATS. To the extent that such information is publicly available, a market participant may review details about past and pending proceedings involving the NMS Stock ATS, its broker-dealer operator, or the officers and employees of the brokerdealer operator via, for example, public databases maintained by the Commission or FINRA. D. Part III Form ATS–N: Manner of ATS Operations
Part III of adopted Form ATS–N is
designed to provide public disclosures to help market participants understand, among other things, how subscribers’ orders and trading interest are handled, matched, and executed on the NMS Stock ATS. In response to comments, we are revising the format of several requests in Part IV of proposed Form ATS–N (renumbered as Part III in the adopted Form) to help NMS Stock ATSs provide disclosures that would be useful to market participants. For example, in response to commenters that believe the Commission’s use of the term ‘‘describe’’ is vague and would lead to discursive disclosures and obscure key information, we are revising requests to be more explicit, adding specificity to clarify the meaning of the requests, and providing non-exhaustive examples for NMS Stock ATSs to better understand what would be responsive to the Form ATS–N.832 In addition, we have added ‘‘yes’’ or ‘‘no’’ questions, and converted proposed Items into ‘‘yes’’ or ‘‘no’’ questions, throughout
Part III of Form ATS–N, which we
believe will allow market participants to find information more efficiently and facilitate their comparisons across NMS Stock ATSs.833 Moreover, we have separated the requests for information in
Part III of adopted Form ATS–N into
more items (and renumbered the items) and discrete topics to help readers more easily find information and compare that information among NMS Stock ATSs. In addition, we are combining or removing certain requests to reduce redundancy within Part III, and between Parts II and III, and separating certain requests for information into new items or subparts that focus the information required in response to commenter suggestions and concerns. Finally, we are adding a requirement to identify and explain any differences in the treatment of subscribers and the broker-dealer operator to several items that did not require this information as proposed.834 We intended that these differences be explained for all of the subject matter covered by Form ATS–N, and several commenters support requests for information about differences between subscribers and the broker-dealer operator with respect to their use of the NMS Stock ATS.835 Differences in the treatment among subscribers and the broker-dealer operator and its affiliates

836As also discussed under Section V.D.2., commenters state with regard to the entirety of Part IV, Item 1 of proposed Form ATS–N that the Commission should adopt a ‘‘yes’’ or ‘‘no’’ format for the item instead of requests for descriptions. See SIFMA Letter at 19; KCG Letter at 11. 837See SIFMA Letter at 20. 838See KCG Letter at 12. The proposed Item required the NMS Stock ATS to describe the types of subscribers and other persons that use the services of the NMS Stock ATS. 839See e.g., SSGA Letter at 2; SIFMA Letter at 9; STANY Letter at 5; LeveL ATS Letter at 6–7; KCG Letter at 10. 840See Section V.D.2 for a discussion of changes to the requirement under Part IV, Item 1(c) of proposed Form ATS–N that NMS Stock ATSs state whether they accept non-broker-dealers as subscribers to the NMS Stock ATS. 841As discussed in the Proposal, the eligibility process and requirements to access an NMS Stock ATS may vary, and the requirements may differ depending on whether a potential subscriber is a customer of the broker-dealer operator of the ATS. For instance, some ATSs may require that a potential subscriber be a broker-dealer to submit orders in the ATS, while other ATSs may 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. See Proposal, supra note 2, at 81060. 842One commenter supports the proposed disclosures stating that funds and other market participants would find this information valuable because it would facilitate the efficient comparison of eligibility processes and requirements across all NMS Stock ATSs and describe the types of participants that may dominate order flow on a particular NMS Stock ATS. See ICI Letter at 8. 843See SIFMA Letter at 19. 844 Id. at 20 (stating it cannot distinguish between the requested information in proposed Items 1(a) and 1(e)); KCG Letter at 11–12 (noting an apparent overlap between the information requested under proposed Item 1(a) and proposed Item 1(e) and recommending that the Commission revisit and clarify the request). 845For example, if an NMS Stock ATS has a practice of excluding subscribers that do meet certain percentage thresholds for submitting firmup orders in response to receiving a conditional order sent to them by the NMS Stock ATS, then this practice would be subject to disclosure under Part III, Item 3 of adopted Form ATS–N (‘‘Exclusion from Services’’) and not Part III, Item 2 (‘‘Eligibility Requirements’’). 846See infra notes 855–857 and accompanying text. will help market participants discern any benefit or disadvantage they may receive in comparison to other market participants or the broker-dealer operator.

Types of ATS Subscribers
Part IV, Item 1(c) of proposed Form
ATS–N would have required disclosures about types of subscribers to the NMS Stock ATS. We are adopting Part IV, Item 1(c) of proposed Form ATS–N with modifications as Part III Item 1 (‘‘Types of Subscribers’’) of adopted Form ATS–N.836 Part III, Item 1 of adopted Form ATS–N is designed to provide market participants with information about the type of order flow in the NMS Stock ATS. NMS Stock ATSs may design their system for trading by retail, institutional, or any other type of market participant. One commenter recommends that the Commission consider eliminating or consolidating this request because it is redundant to the request in Part IV, Item 5 of proposed Form ATS–N regarding segmentation.837 In response to this comment, we are removing the requirement from Part IV, Item 1(c) of proposed Form ATS–N to ‘‘describe any criteria for distinguishing among types of subscribers, classes of subscriber, or other persons.’’ To the extent that an NMS Stock ATS distinguishes among ATS subscribers, the ATS will be required to discuss such information in
Part III, Item 13 of adopted Form ATS–
N, which relates to segmentation.
Another commenter believes that the phrase ‘‘types of subscribers’’ should be specifically defined.838 In response to this comment, we are providing a list of market participants in Part III, Item 1 of adopted Form ATS–N that, in the Commission’s experience, are commonly used. The revised list includes: Retail investors, issuers, asset managers, brokers, dealers, NMS Stock ATSs, investment companies, hedge funds, market makers, principal trading firms, and banks. The list is nonexhaustive and an NMS Stock ATS is required to list any type of subscriber that can use the NMS Stock ATS services. Also, in response to this comment, we are revising Part IV, Item 1(c) of proposed Form ATS–N, by removing the request to describe the type of subscribers and other persons and instead, are only requesting that the NMS Stock ATS select the checkbox for the types of subscribers that can use the NMS Stock ATS services (and identify any other types of subscribers not listed in a checkbox). We are also revising the Item to require the selection of the types of subscribers that ‘‘can’’ use the NMS Stock ATS services, rather than solely those types of subscribers that in fact use the NMS Stock ATS as was proposed. Furthermore, in response to general comments that the Form ATS–N should be formatted to facilitate comparisons across NMS Stock ATSs,839 we are relocating Part IV, Item 1(c) of proposed Form ATS–N into a separate Item in
Part III, Item 1 of adopted Form
ATS–N and naming it ‘‘Types of ATS Subscribers.’’ 840
Eligibility for ATS Services
Part IV, Item 1(a) of proposed Form
ATS–N would have required disclosures about eligibility requirements of the NMS Stock ATS.841 We are adopting
Part IV, Item 1(a) of proposed Form
ATS–N with certain modifications described below, naming the Item ‘‘Eligibility for ATS Services,’’ and relocating the request as Part III, Item 2 of adopted Form ATS–N.842 We also received comment seeking modifications to the proposed Item. One commenter suggests that the term ‘‘eligibility requirements’’ under Part IV, Item 1(a) of proposed Form ATS–N is unclear and suggests using eligibility ‘‘standards’’ as a more accurate way to capture the various subscriber criteria an ATS might evaluate.843 In response to this comment, we are replacing the reference to ‘‘eligibility requirements’’ in Part IV, Item 1(a) of proposed Form ATS–N with a reference to ‘‘conditions’’ the NMS Stock ATS requires a person to satisfy before accessing the ATS services. We believe that the term ‘‘conditions’’ provides the NMS Stock ATS with more flexibility to describe the relevant criteria. Also, commenters express confusion over the difference between Part IV, Item 1(a) and 1(e) (adopted as Part III, Items 2 and 3, respectively) of proposed Form ATS–N and whether they overlapped.844 In response to these commenters, we are clarifying the request by adding the phrase ‘‘before accessing the ATS services’’ in Part III, Item 2(b) of adopted Form ATS–N. On the other hand, Part III, Item 3 of adopted Form ATS–N, as discussed infra, requires disclosures about any conditions that would exclude a subscriber, in whole or in part, from using the services of the NMS Stock ATS after the person, as a subscriber, is permitted to use or submit orders to the NMS Stock ATS, such as for certain subscriber behavior while actively participating in the ATS.845 We are not imposing new requirements for NMS Stock ATSs to have certain eligibility requirements, either by implicating the fair access rule under Rule 301(b)(5) (as suggested by a commenter), or otherwise.846 The ‘‘yes’’ or ‘‘no’’ questions of Part III, Item 2(b) of adopted Form ATS–N ask whether there are any conditions that the NMS Stock ATS requires a person to satisfy before accessing the ATS services. If an NMS Stock ATS marks ‘‘yes,’’ the ATS is indicating that it has such conditions and must list and provide a summary of the conditions. We believe that these revisions make clear that we are not requiring any eligibility requirements. In Part III, Item 2(a) of adopted Form ATS–N, we are requiring the NMS Stock ATS to state whether it requires subscribers to be registered brokerdealers. This request is similar to the

847We are removing the reference to ‘subscriber’ from the Item, as proposed, because Part III, Item 2 of adopted Form ATS–N relates to eligibility requirements of persons before they become subscribers. 848See UBS Letter at 7. See infra note 853 and accompanying text. 849See id. 850See, e.g., SIFMA Letter at 5–6 (stating whether all subscribers have access to the same suite of products and services is particularly appropriate and useful); Fidelity Letter at 5 (stating it should be disclosed when subscribers are not treated the same way); UBS Letter at 7 (suggesting the Commission request should highlight differences in subscriber access that may impact other users of the ATS). See also Consumer Federation of America Letter at 9– 10 (discussing how to address potential advantages of the broker-dealer operator and its affiliates). 851See Liquidnet Letter at 12; UBS Letter at 7; SIFMA Letter at 19. 852We are moving the provision in Part IV, Item 1(b) of proposed Form ATS–N, which would have required that the NMS Stock ATS state whether the contractual agreements for granting access to the NMS Stock ATS were written, to Part III, Item 2(d) of adopted Form ATS–N. Part III, Item 2(d) asks a ‘‘yes’’ or ‘‘no’’ question on whether subscribers are required to enter a written agreement to use the services of the NMS Stock ATS. 853See UBS Letter at 7. 854See SIFMA Letter at 20. 855 Id. at 19–20. 856See 17 CFR 242.300(a)(2). proposed request in Part IV, Item 1(c) of proposed Form ATS–N but asked in a ‘‘yes’’ or ‘‘no’’ format. Part III, Items 2(c) and 2(d) of adopted Form ATS–N are requirements proposed in Part IV, Item 1(a) 847 and 1(b), respectively, of proposed Form ATS–N, that the Commission is formatting as ‘‘yes’’ or ‘‘no’’ questions. If the NMS Stock ATS indicates that it does have conditions that a person must satisfy before accessing the ATS services, the request, as modified, requires an NMS Stock ATS to list and provide a ‘‘summary’’ of those conditions. We believe a summary of those conditions would provide sufficient disclosure (in conjunction with Part III, Item 1 of adopted Form ATS–N) for market participants to discern the type of order flow that they are likely to interact with on the NMS Stock ATS, while at the same time, not impairing the ATS’s ability to reasonably control the activities and quality of flow on its platform.848 One commenter acknowledges that it already discloses the general requirements for becoming a user of its ATS,849 which is analogous to the summary of conditions we are adopting in this Item. Moreover, we believe that requiring additional disclosures about differences in treatment among persons is important to market participants.850 We also received comment unfavorable to Part IV, Item 1(b) of proposed Form ATS–N.851 The proposed Item would have required 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 and if the terms and conditions of any contractual agreements were not the same for all subscribers and persons, the NMS Stock ATS would be required to describe any differences. We are not adopting the provision requiring the disclosure of the terms and conditions of any contractual agreements in Part IV, Item 1(b) of proposed Form ATS–N.852 We believe that the Form ATS–N, as adopted, requires comprehensive disclosure on the principal aspects of the operations of NMS Stock ATSs and any differences in the treatment of subscribers and the broker-dealer operator. We believe that a description of the terms of any contractual agreements is unlikely to provide much, if any, further information about the ATS’s operations that is not already required to be disclosed in the other items of Form ATS–N and would likely impose a significant burden.
3. Exclusion From ATS Services
Part IV, Item 1(e) of proposed Form
ATS–N would have required disclosures about limitation and denial of ATS services. We are adopting Part IV, Item 1(e) of proposed Form ATS–N, with certain modifications discussed below, including adopting a ‘‘yes’’ or ‘‘no’’ format to questions, as Item 3 of adopted Form ATS–N, and naming the request ‘‘Exclusion from ATS Services.’’ One commenter states that requiring an NMS Stock ATS to disclose additional details about why the ATS would limit or deny ATS services could affect the ATS’s ability to reasonably control the activities and quality of flow on its platform; the commenter suggests, therefore, that such disclosure remain confidential with the Commission.853 In response to this comment, we are adopting Part III, Item 3(a) of adopted Form ATS–N, as modified, to require the NMS Stock ATS to provide a list and ‘‘summary’’ of the conditions for excluding (or limiting) a participant from using the ATS, and are removing the requirement to describe the procedures or standards of the NMS Stock ATS that are used to determine whether to exclude a subscriber. We believe that these changes would protect sensitive information and prevent participants from using the disclosures to potentially misuse or game its system while ensuring that participants have the information necessary to understand when they may be excluded. Another commenter suggests that it is unclear whether Part IV, Item 1(e) of proposed Form ATS–N requests disclosure of instances where a subscriber requests not to interact with certain counterparties.854 We are not requiring in Part III, Item 3 of adopted Form ATS–N that the NMS Stock ATS disclose instances where a subscriber requests not to interact with certain counterparties. Information regarding counter-party selection procedures on the NMS Stock ATS, including where a subscriber requests not to interact with certain counterparties, is required to be disclosed, as applicable, in Part III, Item 14 of adopted Form ATS–N. This commenter also expresses concern about the implications for fair access raised by Part IV, Item 1(e) of proposed Form ATS–N.855 The commenter assumes that the Commission intends that Part IV, Item 1(e) should apply only to entities subject to the fair access threshold, and believes that entities not subject to the fair access rule can deny access for any reason. The commenter further believes that it is important to note that unless an ATS exceeds the fair access threshold, the ATS should be able to deny access for any reason (e.g., credit risk). This commenter requests clarification from the Commission if this interpretation is wrong to avoid later misunderstanding or interpretive conflicts. The commenter also suggests that Part IV, Item 1(e) of proposed Form ATS–N goes beyond the fair access requirements (to keep records of all grants, denials, and limitations of access, and to report that information), and states that if the Commission intends to replace the fair access rule with a different regulatory and
disclosure regime, the Commission should address this issue directly. We are not implicating or changing Rule 301(b)(5) of Regulation ATS, the so-called fair access rule, by requiring NMS Stock ATSs to disclose information about when the ATS can exclude, in whole or in part, a subscriber from the services of the ATSs. Pursuant to Rule 300(a)(2) of Regulation ATS, an ATS cannot set rules governing the conduct of subscribers other than the conduct of subscribers’ trading on the system and cannot discipline subscribers other than by exclusion from trading.856 NMS Stock ATSs are not required to establish rules for excluding subscribers from

857See Proposal, supra note 2, at 81063. These limitations can result in some subscribers having different levels of functionality or more favorable terms of access than others. For example, in the Commission’s experience, some ATSs exclude subscribers that have a high percentage of not responding with firm-up orders after receiving an IOI or conditional order. 858See SIFMA Letter at 19–20. 859 Id. 860See Proposal, supra note 2, at 81057. 861 15 U.S.C. 78f(b)(2). 862See 17 CFR 242.301(b)(5). See also supra notes 72–75 and accompanying text (discussing the fair access requirements of Regulation ATS). 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, which, among other things, require an ATS to establish written standards for granting access to trading on its system and not unreasonably prohibit or limit any person with respect to access to services offered by the ATS by applying the written standards in an unfair or discriminatory manner. 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 adopted written standards and applied them in a fair and non-discriminatory manner. 863See, 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); 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 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); 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; 48718 (Oct. 30, 2003), http://www.sec.gov/litigation/admin/34- 48718.htm (all settling 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). 864See, e.g., UBS Settlement, supra note 864 (noting that UBS did not disclose the existence of a sub-penny order type to all ATS subscribers and that ‘‘nearly all of the subscribers’’ who received notice of the order type ‘‘were market makers and/ or HFT firms’’) and at 10 (noting that certain orders—those entered on behalf of UBS clients that paid to use UBS-developed order-routing algorithms—had the ability to avoid executing in the ATS against orders entered by subscribers that UBS had deemed ‘‘non-natural’’ and no other subscribers had the ability to use this natural-only crossing restriction) and Crossfinder Settlement supra note 96 (noting the ATS did not permit all subscribers to receive IOIs from the IOI server). using the ATS. Nevertheless, based on the Commission’s experience, ATSs that trade NMS stocks often have rules governing subscribers’ participation on the ATS, and if a subscriber fails to comply with these rules, the ATS may limit or deny access to the ATS.857 Part III, Item 3 of adopted Form ATS–N is designed to provide subscribers with information about when the NMS Stock ATS can exclude, in whole or in part, a subscriber from the services of the ATSs and help them reasonably expect the types of activities that may cause them to be excluded (or limited) from using the services of the NMS Stock ATS. One commenter requests guidance about the ability of an ATS to deny access pursuant to Rule 301(b)(5) of Regulation ATS when such ATS has not exceeded the fair access threshold requirements under Rule 301(b)(5)(i).858 This commenter expresses concern that
Part IV, Item 1(a) (‘‘Eligibility’’) and
Item 1(e) (‘‘Limitations and Denial of Services’’) of proposed Form ATS–N raises the specter of fair access and that if the Commission is seeking to change regulatory expectations relating to fair access, the Commission should do so in a straight forward manner and not by way of requiring disclosures around ‘‘eligibility requirements.’’ We did not propose and are not adopting any change to the fair access rule under Rule 301(b)(5) of Regulation ATS. The commenter appears to misconstrue the requirements and application of the fair access rule in the context of the proposed disclosure requirements of
Part IV, Item 1 of proposed Form ATS–
N, and we believe it is important, in response to the commenter’s request for clarification if its interpretation is wrong, to further explain the operation of the fair access rule ‘‘to avoid later misunderstanding or interpretive conflicts. ’’859 In the Proposal, we discussed 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.860 Section 6(b)(2) of the Exchange Act generally requires national securities exchanges to allow any qualified and registered broker-dealer to become a member of the national securities exchange—a key element in assuring fair access to national securities exchange services.861 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 Section 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.862 As a result, 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. Furthermore, 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.863 In this rulemaking, we are requiring NMS Stock ATSs to identify and explain on Form ATS–N any instances where the ATS differs in how it treats subscribers and the broker-dealer operator so market participants can have additional information to consider when evaluating an ATS. More favorable service or pricing for certain ATS subscribers necessarily implies less favorable service or pricing for others.864 We believe that it is consistent with the goals of operational transparency for subscribers that receive less favorable service or pricing than other subscribers to know that fact. These subscribers will thus have better information to assess whether they should continue to trade on the ATS despite their different treatment or, if they do continue to trade on the ATS, whether they should alter their behavior in any way to better protect their interests. Part III, Items 2 and 3 of adopted Form ATS–N do not limit an NMS Stock ATS’s ability to discriminate among different subscribers. To the extent that an NMS Stock ATS is subject to the fair access rule under Rule 301(b)(5) and treats subscribers differently, the NMS Stock ATS must comply with the requirements of Rule 301(b)(5) with respect to its treatment of subscribers. If an NMS Stock ATS elects to treat subscribers differently by creating types or levels of eligibility and exclusion
requirements, Part III, Items 2 and 3 of adopted Form ATS–N require an NMS Stock ATS to ‘‘identify and explain any differences,’’ which is similar to the vast majority of items on Form ATS–N. We are adopting Part III, Item 3 of Form ATS–N with certain language to reduce potential confusion with the application of Rule 301(b)(5) of Regulation ATS. As indicated above, to meet the definition of an ATS, a system

865See 17 CFR 242.300(a).
866See supra note 855 and accompanying text.
Part III, Item 25 of adopted Form ATS–N (‘‘Fair
Access’’) is specifically designed to require an NMS Stock ATS, as applicable, to provide information in connection with Rule 301(b)(5) of Regulation ATS. See also Section V.D.25. 867We are also modifying this request to require the times when trading interest can be entered on the ATS, as opposed to identifying the times trading interest is entered, so as to more precisely indicate when the ATS is available for the entry of trading interest. We are replacing references to pre-opening and after-hours with the more general reference to hours of operation ‘‘outside of regular trading hours.’’ 868See SIFMA Letter at 15. 869See id. at 22. 870See Proposal, supra note 2, at 81068. 871To 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 ATS, the ATS must identify the application or functionality and provide a description of its purpose. In this example, given that the intermediate application or functionality has access to a subscriber’s order information, the NMS Stock ATS must take appropriate measures to protect the confidentiality of such information pursuant to Rule 301(b)(10) of Regulation ATS. must not discipline subscribers other than by exclusion from trading. 865 The language in Part III, Item 3 of adopted Form ATS–N now uses ‘‘exclude, in whole or in part,’’ which is similar to language used in the definition of ATS in Rule 300(a)(2), rather than using the term ‘‘limitations and denials of services,’’ as used in Part IV, Item 1(e) of proposed Form ATS–N. We recognize that exclusions from services, in whole or in part, are functionally equivalent to limitations and denials of services; however, we believe that the elimination of these terms from Part III, Item 3 of adopted Form ATS–N should mitigate any potential confusion that we are implicating Rule 301(b)(5) in the request.866
4. Hours of Operations
Part IV, Item 2 of proposed Form
ATS–N would have required disclosures about the hours of operations. We did not receive comment on Part IV, Item 2 of proposed Form ATS–N. We are adopting the Item with modifications as
Part III, Item 4 (‘‘Hours of Operations’’)
of adopted Form ATS–N, as discussed below. We continue to believe that it is important for market participants and the Commission to understand when an NMS Stock ATS operates and when orders can be entered, including when an NMS Stock ATS will accept orders outside of regular trading hours. Making such information publicly available would enable market participants to more easily compare when trading interest can be entered on NMS stock trading centers. We are modifying the example provided in this Item by replacing references in the Proposal to hours when ‘‘pre-opening or after-hours trading occurs’’ (emphasis added) with ‘‘hours of operation outside of regular trading hours.’’ Our intent is to provide market participants with information about when the NMS Stock ATS is operating, whether trading or performing another function, such as accepting orders, and not simply when trading is occurring.867
5. Means of Entry
In Part III, Item 6 of proposed Form ATS–N we proposed a similar request to
Part IV, Item 4(a) of proposed Form
ATS–N that focused on the activities of the broker-dealer operator and its affiliates. Part III, Item 6 of proposed Form ATS–N would have required disclosures about the broker-dealer operator’s, or any of its affiliates’, use of a SOR(s) (or similar functionality) or an algorithm. Part IV, Item 4(a) of proposed Form ATS–N would have required disclosures about connectivity and order entry to the NMS Stock ATS. We are adopting both requests with modifications and combining them into
Part III, Item 5 (‘‘Means of Entry’’) of
adopted Form ATS–N.
One commenter asserts that the information sought in Part III, Item 6 of proposed Form ATS–N is generally duplicative of the requests in Part III, Item 3 (‘‘Products or Services Offered to Subscribers’’) and Part III, Item 5 (‘‘Trading Activities on the NMS Stock ATS’’) of proposed Form ATS–N and that the requests in Part III, Item 6 of proposed Form ATS–N (‘‘Smart Order Router (‘SOR’) (or Similar Functionality of Algorithm)’’) should be either consolidated into those requests or eliminated altogether.868 To reduce redundancy, we are combining the proposed requests for information as explained above. With regard to Part IV, Item 4(a) of proposed Form ATS–N, one commenter states that the requirement to ‘‘describe’’ the means of connectivity by ‘‘other persons’’ is potentially overbroad— particularly for ATSs with affiliated broker-dealers or other business units that may connect directly or indirectly to the ATS.869 This commenter suggests that Part IV, Item 4(a) conflates the identities of market participants (subscribers and other persons) with the means of connectivity. The commenter submits that end users would be better served by a table identifying the various means of connectivity without respect to the identities of who connects and in which fashion. In response to this comment, Part III, Item 5 of adopted Form ATS–N first requires an NMS Stock ATS to identify and explain the protocol that can be used to directly enter orders and trading interest into the ATS. In a separate subpart to Part III, Item 5 of adopted Form ATS–N, the NMS Stock ATS must identify and explain any other means for entering orders and trading interest into the NMS Stock ATS (e.g., smart order router, algorithm, order management system, sales desk) and indicate whether these means are provided by the broker-dealer operator, either by itself or through a third-party contracting with the broker-dealer operator, or any affiliate of the brokerdealer operator. Both of these subparts are followed, respectively, by a request to identify and explain any differences in the terms and conditions for these means of entry among subscribers and the broker-dealer operator. We believe that these changes will better distinguish subject matter regarding means of entry from subject matter regarding the identity of any party offering access to such means of entry. We note that subscribers may submit orders or trading interest to the NMS Stock ATS both directly and indirectly.870 A direct method of sending orders or 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 trading interest into the ATS without an intermediary. An example of an indirect method of submitting orders or trading interest to an NMS Stock ATS would include the use of the broker-dealer operator’s SOR (or similar functionality) or algorithm. SORs (or similar functionalities) and algorithms are discussed further
below. The means of order entry into an ATS (e.g., direct or indirect) could impact the speed in which a subscriber’s order is handled and potentially executed and potentially increases the risk of information leakage.871 We believe that the disclosures regarding the direct or indirect means of order entry would inform subscribers and market participants about the functionalities that its orders and trading interest pass through on their way to the ATS and help them assess any potential advantages that orders sent through the broker-dealer operator may have with respect to other subscribers on the NMS Stock ATS. We also received several other comments on the request for information in Part III, Item 6 of proposed Form ATS–N, which as

Regulation of NMS Stock Alternative Trading Systems

Lineage: In force

Similar documents from other regulators