Amendments Regarding the Definition of Exchange and Alternative Trading Systems That Trade U.S. Treasury and Agency Securities, NMS Stocks, and Other Securities

1 ‘‘Regulation ATS’’ consists of 17 CFR 242.300 through 242.304 (Rules 300 through 304 under the Exchange Act). See also Regulation ATS Adopting Release, infra note 31. 2The Commission adopted Rule 304 on July 18,
2018. See Securities Exchange Act Release No.
83663 (July 18, 2018), 83 FR 38768 (August 7, 2018) (‘‘NMS Stock ATS Adopting Release’’). 3The Commission adopted 12 CFR 242.1000 through 242.1007 (Regulation SCI) on November 19,
2014. See Securities Exchange Act Release No.
73639 (November 19, 2014), 79 FR 72252 (December 5, 2014) (‘‘Regulation SCI Adopting Release’’). 4See Securities Exchange Act Release No. 90019 (September 28, 2020), 85 FR 87106 (December 31, 2020). 5For the purposes of this re-proposal, the term ‘‘Government Securities ATS’’ refers to an ATS that trades government securities or repos and includes ATSs that would be subject to Regulation ATS after the effective date of any final rule. This term includes three categories of ATSs. First, a ‘‘Currently Exempted Government Securities ATS’’ means an ATS that trades government securities or repos, is operating as of the effective date of any final rule, and was formerly not required to comply with Regulation ATS under 17 CFR 240.3a1–1(a)(3) (Exchange Act Rule 3a1–1(a)(3)) exemption prior to the effective date of any final rule. Second, a ‘‘Current Government Securities ATS’’ means an ATS that trades government securities or repos and is operating pursuant to an initial operation report on Form ATS on file with the Commission as of the effective date of any final rule. Finally, when referring to regulatory requirements after the effective date of any final rule, the term ‘‘Government Securities ATS’’ also includes a Communication Protocol System that trades U.S. SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 232, 240, 242, and 249 [Release No. 34–94062; File No. S7–02–22] RIN 3235–AM45 Amendments Regarding the Definition of ‘‘Exchange’’ and Alternative Trading Systems (ATSs) That Trade U.S. Treasury and Agency Securities, National Market System (NMS) Stocks, and Other Securities AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: The Securities and Exchange Commission (‘‘Commission’’) is proposing to amend Rule 3b–16 under Securities Exchange Act of 1934 (‘‘Exchange Act’’), which defines certain terms used in the statutory definition of ‘‘exchange’’ under Section 3(a)(1) of the Exchange Act to include systems that offer the use of non-firm trading interest and communication protocols to bring together buyers and sellers of securities. In addition, the Commission is re￾proposing amendments to its regulations under the Exchange Act that were initially proposed in September 2020 for ATSs to take into consideration systems that may fall within the definition of exchange because of the proposed amendments and operate as an ATS. The Commission is re￾proposing, with certain revisions, amendments to its regulations for ATSs that trade government securities as defined under Section 3(a)(42) of the Exchange Act (‘‘government securities’’) or repurchase and reverse repurchase agreements on government securities (‘‘Government Securities ATSs’’). The Commission is also proposing to amend Form ATS–N for NMS Stock ATSs, which would require existing NMS Stock ATSs to amend their existing disclosures. In addition, the Commission is proposing to amend the fair access rule for ATSs. The Commission is also proposing to require electronic filing of
and to modernize Form ATS–R and Form ATS, which would require existing Form ATS filers to amend their existing disclosures. Further, the Commission is re-proposing amendments to its regulations regarding systems compliance and integrity to apply to ATSs that meet certain volume thresholds in U.S. Treasury Securities or in a debt security issued or guaranteed by a U.S. executive agency, or government-sponsored enterprise (‘‘Agency Securities’’). DATES: Comments should be received on or before April 18, 2022. ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments

• Use the Commission’s internet
  comment form (https://www.sec.gov/ regulatory-actions/how-to-submit￾comments); or
• Send an email to rule-comments@
  sec.gov. Please include File Number S7– 02–22 on the subject line. Paper Comments
• Send paper comments to Secretary,
  Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number S7–02–22. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/proposed.shtml). Comments are also available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Operating conditions may limit access to the Commission’s public reference room. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. Studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any materials will be made available on the Commission’s website. To ensure direct electronic receipt of such notifications, sign up through the ‘‘Stay Connected’’ option at www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT:
  Regulation ATS: Tyler Raimo, Assistant Director, at (202) 551–6227; Matthew Cursio, Special Counsel, at (202) 551– 5748; David Garcia, Special Counsel, at (202) 551–5681; Megan Mitchell, Special Counsel, at (202) 551–4887; Amir Katz, Special Counsel, at (202) 551–7653; and Joanne Kim, Attorney Advisor, at (202) 551–4393, and for Regulation SCI: David Liu, Special Counsel, at (312) 353–6265 and Sara Hawkins, Special Counsel, at (202) 551– 5523, Office of Market Supervision, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: The Commission is proposing amendments to the following rules under the Exchange Act: (1) 17 CFR 232.101 (Rule 101 of Regulation S–T); (2) 17 CFR 240.3b–16 (Rule 3b–16); (3) 17 CFR
  242.300 (Rule 300 of Regulation ATS); 1
  (4) 17 CFR 242.301 (Rule 301 of Regulation ATS); (5) 17 CFR 242.302 (Rule 302 of Regulation ATS); (6) 17 CFR 242.304 (Rule 304 of Regulation ATS); 2 and (7) 17 CFR 242.1000 (Rule 1000 of Regulation SCI).3
  I. Introduction
  In September 2020, the Commission issued a proposal to amend Regulation ATS and Regulation SCI for Government Securities ATSs (‘‘2020 Proposal’’).4 The Commission recognized the critical role of government securities in the U.S. and global economy, the significant volume in government securities transacted on systems currently operating as ATSs, and these ATSs’ growing importance to investors and overall securities market structure. Notwithstanding their importance for government securities, the investor protection and fair and orderly market principles of Regulation ATS have limited application to Government Securities ATSs.5 For

Government securities or repos on U.S. Government securities and that chooses to operate as an ATS after the effective date of any final rule. A ‘‘Communication Protocol System’’ would include a system that offers protocols and the use of non￾firm trading interest to bring together buyers and sellers of securities. The re-proposal also uses the term ‘‘Legacy Government Securities ATS,’’ which includes all ATSs that trade government securities or repos and are operating as of the effective date of any final rule, regardless of whether the ATSs are operating pursuant to an initial operation report on Form ATS on file with the Commission (i.e., all Current Government Securities ATSs and Currently Exempted Government Securities ATSs). 6The Commission also had proposed to amend Regulation ATS to: Require that Form ATS and Form ATS–R be filed with the Commission electronically through the Electronic Data Gathering, Analysis and Retrieval (EDGAR) system and modernize both forms; eliminate confidential treatment of the types of securities that an ATS trades as disclosed on the ATS’s Form ATS and Form ATS–R; update and correct Form ATS–N; change the reasons for which the Commission could extend the initial Form ATS–N review period; require NMS Stock ATSs to post on their websites the most recently disseminated Form ATS–N, except for any amendment that the Commission has declared ineffective or that has been withdrawn; and remove the exclusion from compliance with the Fair Access Rule and Rule 301(b)(6) under Regulation ATS for an ATS that matches non￾displayed customer orders using prices disseminated by an effective transaction reporting plan. 7See 2020 Proposal, supra note 4. 8These comment letters are available at https:// www.sec.gov/comments/s7-12-20/s71220.htm and discussed throughout this proposal. 9See, e.g., letter from Marcia E. Asquith, Executive Vice President & Corporate Secretary, Financial Industry Regulatory Authority, Inc., dated March 1, 2021 (‘‘FINRA Letter’’) at 2; letter from Rob Toomey, Managing Director & Associate General Counsel, Securities Industry and Financial Markets Association, Chris Killian, Managing Director, Securitization and Credit, Securities Industry and Financial Markets Association, and Leslie Norwood, Managing Director, Associate General Counsel, Securities Industry and Financial Markets Association, dated March 1, 2021 (‘‘SIFMA Letter’’) at 2; letter from Elisabeth Kirby, Head of U.S. Market Structure, Tradeweb Markets Inc., dated March 1, 2021 (‘‘Tradeweb Letter’’) at 2; letter from Jennifer W. Han, Chief Counsel & Head of Regulatory Affairs, Managed Funds Association, dated March 1, 2021 (‘‘MFA Letter’’) at 2–3; and Tyler Gellasch, Executive Director, Healthy Markets Association, dated March 22, 2021 (‘‘Healthy Markets Letter’’) at 7. 10See letter from Robert Laorno, General Counsel, ICE Bonds Securities Corporation, dated March 8, 2021 (‘‘ICE Bonds Letter I’’) at 5. 11See letter from Kathleen M. Cronin, Senior
Managing Director, General Counsel and Corporate Secretary, CME Group Inc., dated February 26, 2021 (‘‘BrokerTec Letter’’) at 3–4. 12See, e.g., SIFMA Letter at 5 (supporting the proposed volume thresholds); Americans for Financial Reform Education Fund, dated March 1, 2021 (‘‘AFREF Letter’’) at 3 (supporting the proposed threshold with respect to Regulation SCI and stating that they believe the proposed threshold for the Fair Access Rule is too low); Healthy Markets Letter at 10–11 (recommending a lower threshold for Regulation SCI); letter from Gregory Babyak, Global Head of Regulatory Affairs, Bloomberg L.P., dated March 1, 2021 (‘‘Bloomberg Letter’’) at 5–6 (stating that the proposed thresholds are too high); ICE Bonds Letter I at 5 (suggesting a 20 percent threshold for application of Regulation SCI); Tradeweb Letter at 3, 11 (recommending a ‘‘more material’’ threshold for applying Regulation SCI). See also infra Sections III.B.4 and III.C. 13See, e.g., letter from Stephen John Berger, Managing Director, Global Head of Government and Regulatory Policy, Citadel, dated March 1, 2021 (‘‘Citadel Letter’’); letter from Joanna Mallers, Secretary, FIA Principal Traders Group, dated March 1, 2021 (‘‘FIA PTG Letter’’) at 2; letter from Robert Laorno, General Counsel, ICE Bonds Securities Corporation, dated March 15, 2021 (‘‘ICE Bonds Letter II’’) at 2–4; FINRA Letter at 6; MFA Letter at 8; Tradeweb Letter at 4. 14See, e.g., Citadel Letter; FIA PTG Letter; ICE Bonds Letter II. 15See, e.g., letter from Sarah A. Bessin, Associate General Counsel, Investment Company Institute and Nhan Nguyen, Counsel, Investment Company Institute, dated March 1, 2021 (‘‘ICI Letter’’) at 2, 7; letter from Scott Pintoff, General Counsel, MarketAxess, dated March 1, 2021 (‘‘MarketAxess Letter’’) at 2–4; Bloomberg Letter at 17–20. 16See Regulation ATS Adopting Release, infra note 31. example, an ATS that limits its securities activities to government securities or reverse repurchase agreements on government securities (‘‘repos’’) and registers as a broker￾dealer or is a bank (i.e., a Currently Exempted Government Securities ATS) is exempt from exchange registration and is not required to comply with Regulation ATS. Further, ATSs that trade both government securities and non-government securities (e.g., corporate bonds) are subject to Regulation ATS but are not required to comply with many of its investor protection and fair and orderly markets provisions, including public transparency rules and the obligation to provide fair access to investors if the ATS has significant trading volume. In addition, ATSs that trade government securities are not subject to the systems integrity provisions of Regulation SCI. To promote operational transparency, investor protection, system integrity, fair and orderly markets, and regulatory oversight for Government Securities ATSs, the Commission proposed in the 2020 Proposal to: Eliminate the exemption from compliance with Regulation ATS for
Currently Exempted Government Securities ATSs; require all Government Securities ATSs to publicly file Form ATS–G, on which they would disclose information about their operations and potential conflicts of interest; provide a process for the Commission to review Form ATS–G disclosures for clarity, completeness, and potential violations of law and, if necessary, declare ineffective Form ATS–G filings; and require an ATS that has significant volume for U.S. Treasury Securities or Agency Securities to: (1) Establish reasonable standards for access to the ATS and apply those standards to all prospective and current subscribers in a fair and non￾discriminatory manner pursuant Rule 301(b)(5) of Regulation ATS (‘‘Fair Access Rule’’); and (2) comply with the operational capability, security, business continuity planning, incident reporting, and related requirements under Regulation SCI.6 The Commission issued a concept release (‘‘Concept Release’’) in addition to the 2020 Proposal on the regulation of fixed income electronic trading platforms.7 The Concept Release requested comments on a wide range of topics, including the different regulatory treatment among fixed income electronic trading platforms that use diverse trading protocols or business models and various aspects of government securities, corporate bonds, and municipal securities trading, including their operations, services, fees, market data, and participants. The Commission received comments in response to the 2020 Proposal and Concept Release.8 Commenters expressed broad support for the 2020 Proposal. In general, commenters supported the proposed requirements to remove the exemption for Currently Exempted Government Securities ATSs and to require public disclosures on Form ATS–G.9 However, some commenters expressed concern regarding aspects of the 2020 Proposal, including the proposed enhanced disclosure requirements and effectiveness regime 10 and the proposal to require Government Securities ATSs that meet certain volume thresholds to register as national securities exchanges.11 In addition, commenters who opined on the Fair Access Rule and Regulation SCI had differing views about whether and how to apply them to Government Securities ATSs.12 In addition, the Commission received substantial comment on the Concept Release, in particular concerning the regulatory framework for fixed income electronic trading platforms. Many commenters recognized that certain electronic trading platforms for fixed income securities are not regulated as registered exchanges or ATSs despite performing the same market function as those regulated markets.13 Several commenters expressed support for the Commission to expand the scope of its exchange regulation to encompass more fixed income platforms,14 while several other commenters believed that such action is not necessary or appropriate.15 Advances in technology and innovation since Regulation ATS was adopted in 1998 16 have changed the methods by which
securities markets bring together buyers and sellers of

17See infra Section VIII.C.3.a.
18 17 CFR 240.3b–16(a).
19U.S. Treasury Securities and Agency Securities are not classes of securities for purposes of Exchange Act Rule 3a1–1(b). 20The Commission is re-proposing to amend Regulation ATS to require that Form ATS and Form ATS–R be filed with the Commission electronically through EDGAR and to modernize both forms; eliminate confidential treatment of the types of securities that an ATS trades as disclosed on the ATS’s Form ATS and Form ATS–R; and remove the exclusion from compliance with the Fair Access Rule and Rule 301(b)(6) under Regulation ATS for an ATS that matches non-displayed customer orders using prices disseminated by an effective transaction reporting plan. Covered ATSs would not be required to post on their websites the most recently disseminated Form ATS–N, but would be required to provide pursuant to Rule 304(b)(3)(i) a direct URL hyperlink to the Commission’s website that contains the documents made public by the Commission under Rule 304(b)(2). 21 In the 2020 Proposal, the Commission proposed that Government Securities ATSs file proposed Form ATS–G. Given the significant overlap between proposed Form ATS–G and existing Form ATS–N, the Commission is now proposing that Government Securities ATSs file Form ATS–N, which is currently filed by NMS Stock ATSs, and proposing to revise Form ATS–N to apply disclosures for Government Securities ATSs that would fall under the proposed definition of ‘‘exchange.’’ See Appendix A for the proposed revisions to Form ATS–N. The Commission believes that this would limit the number of unique forms and simplify filing requirements. 22The Commission is also re-proposing to change the reasons for which the Commission could extend the initial Form ATS–N review period. See infra
Section IV.A.
23See infra Section V.A.
24See infra Section V.B.
25See 15 U.S.C. 78c(a)(1).
26 15 U.S.C. 78e. securities. As discussed further below, innovations in trading protocols have increased efficiencies and access to discover liquidity and prices, search for a counterparty, and agree upon the terms of a trade. Instead of using exchange markets that offer only the use of firm orders and provide matching algorithms, market participants are able to connect to numerous Communication Protocol Systems, which offer the use of protocols and non-firm trading interest to bring together buyers and sellers of securities. Communication Protocol Systems today perform similar market place functions of bringing together buyers and sellers as registered exchanges and ATSs and have become an increasingly preferred choice of trading venue, particularly for fixed income securities. However, as a function of how Exchange Act Rule 3b– 16 currently defines the terms in
Section 3(a)(1) of the Exchange Act,
Communication Protocol Systems do not fall within the definition of exchange. As a result, Communication Protocol Systems are not subject to the same regulatory requirements as registered exchanges and ATSs and the investors using them do not receive the investor protection, fair and orderly markets, transparency, and oversight benefits stemming from exchange regulation. Further, by Communication Protocol Systems falling outside the definition of exchange, a disparity has developed among similar markets that bring together buyers and sellers of securities, in which some are regulated as exchanges and others are not. This regulatory disparity can create a competitive imbalance and a lack of investor protections.17 Given the changing conditions among markets to bring together buyers and sellers of securities, and taking into consideration comment letters submitted in response to the 2020 Proposal and the Concept Release, the Commission is proposing to amend Exchange Act Rule 3b–16 regarding what ‘‘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’ as those terms are used’’ in the statutory definition of ‘‘exchange’’ under Exchange Act Section 3(a)(1).18 The proposed amendments to Exchange Act Rule 3b–16(a) would include Communication Protocol Systems that make available for trading any type of security, including, among others, government securities, corporate bonds, municipal securities, NMS stocks, equity securities that are not NMS stocks, private restricted securities, repurchase agreements and reverse repurchase agreements, foreign sovereign debt, and options. Including Communication Protocol Systems within the definition of ‘‘exchange’’ would appropriately regulate a market place that brings together buyers and sellers of securities, extend the benefits of the exchange regulatory framework to investors that use such systems, and reduce regulatory disparities among like markets. In addition, because the Commission is proposing to amend Exchange Act Rule 3b–16 to include Communication Protocol Systems within the definition of exchange and taking into consideration comments received in response to the 2020 Proposal and the Concept Release, the Commission is re￾proposing and revising previously proposed amendments to Regulation ATS and Regulation SCI for Government Securities ATSs that include the following: 19 (1) Re-proposing to eliminate the exemption from compliance with Regulation ATS for an ATS that trades only government securities or repos and is operated by a broker-dealer or is a bank; (2) re￾proposing, with certain revisions, to require a Government Securities ATS that has significant volume for U.S. Treasury Securities or Agency Securities to comply with the Fair Access Rule under Regulation ATS and Regulation SCI; 20 (3) re-proposing
to apply the enhanced disclosure and filing requirements of Rule 304 of Regulation ATS, which are currently applicable to NMS Stock ATSs, to all Government Securities ATSs; (4) proposing to require Government Securities ATSs to file Form ATS–N, as revised, instead of previously proposed Form ATS–G; 21 (5) proposing several changes to Form ATS–N that would be applicable to both Government Securities ATSs and NMS Stock ATSs, including questions about the ATS’s interaction with related markets, liquidity providers, and activities the ATS undertakes to surveil and monitor its market; (6) proposing amendments to Form ATS–N that would require existing NMS Stock ATSs to file an amendment to their existing disclosures on Form ATS–N; (7) proposing to add a new type of amendment to Form ATS–N to report changes to fee disclosures; (8) proposing to amend the Form ATS–N review and effectiveness process to permit the Commission to extend the review period for Form ATS–N amendments; 22 (9) proposing to make certain changes to the Fair Access Rule that would apply to all ATSs that are subject to the rule; 23 and (10) re-proposing electronic filing of Form ATS–R and Form ATS and proposing certain changes to the categories of securities reported on Form ATS–R.24
II. Proposed Amendments Regarding
the Definition of Exchange A. Exchange Regulatory Framework Exchange Act Section 3(a)(1) states that the term ‘‘exchange’’ means any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange.25
Section 5 of the Exchange Act 26
requires an organization, association, or

27See infra note 31.
28 15 U.S.C. 78f. A ‘‘national securities exchange’’ is an exchange registered as such under Section 6 of the Exchange Act. 29Section 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 (‘‘MSRB’’). See 15 U.S.C. 78c(a)(26). See also Securities Exchange Act Release No. 76474 (November 18, 2015), 80 FR 80998, 81025 (December 28, 2015) (‘‘NMS Stock ATS Proposing Release’’) at 81000–01 nn.20–26 and accompanying text (discussing certain differences between certain obligations and benefits applicable to national securities exchanges and those applicable to ATSs). 30See, e.g., 15 U.S.C. 78f and 78s. 31See Securities Exchange Act Release No. 40760 (December 8, 1998), 63 FR 70844, 70850 and 70898 (December 22, 1998) (‘‘Regulation ATS Adopting Release’’). See also 15 U.S.C. 78e and 78f. The Commission noted that it was recognized at the time the Exchange Act was enacted that a regulatory structure for securities exchanges would ‘‘be of little value tomorrow if it is not flexible enough to meet new conditions immediately as they arise and demand attention in the public interest.’’ See Regulation ATS Adopting Release at 70898, n.520 (citing Commission, Report of the Special Study of the Securities Markets of the Securities and Exchange Commission, H.R. Doc. No. 95, 88th Cong., 1st Sess. Pt. 1 (1963) at 6 and S. Rep. No. 792, 73rd Cong., 2d Sess. (1934) at 5 (noting that ‘‘exchanges cannot be regulated efficiently under a rigid statutory program,’’ and that ‘‘considerable latitude is allowed for the exercise of administrative discretion in the regulation of both’’)). 32See Regulation ATS Adopting Release, supra note 31, at 70850. 33See id. at 70847. 34See id. 35The Commission adopted Exchange Act Rule 3b–16 under Section 3(b) of the Exchange Act (power to define terms). 15 U.S.C. 78c(b). 36See 17 CFR 240.3b–16(a). 37See Regulation ATS Adopting Release, supra note 31, at 70852. Specifically, Rule 3b–16(b) excludes from the definition of exchange systems that perform only traditional broker-dealer activities, including: Systems that route orders to a national securities exchange, a market operated by a national securities association, a broker-dealer for execution, or systems that allow persons to enter orders for execution against the bids and offers of a single dealer if certain additional conditions are met. 38See 17 CFR 240.3b–16(e). 39See 17 CFR 240.3a1–1(a)(2). 40See 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 31, at 70857–58. 41See 17 CFR 242.300(a); 17 CFR 242.301(a); and 17 CFR 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.’’ 42See 17 CFR 242.300(a). 43See Regulation ATS Adopting Release, supra note 31, at 70859. 44See id. 45See generally Sections 5, 6, and 19 of the Exchange Act, 15 U.S.C. 78e, 78f, and 78s. 46See 15 U.S.C. 78e. group of persons that meets the definition of ‘‘exchange’’ under Section 3(a)(1) of the Exchange Act,27 unless otherwise exempt, to register with the Commission as a national securities exchange pursuant to Section 6 of the Exchange Act.28 As discussed further below, registered national securities exchanges are self-regulatory organizations (‘‘SROs’’),29 and must comply with regulatory requirements applicable to both national securities exchanges and SROs.30 In the Exchange Act, Congress provided a broad definition of the term ‘‘exchange,’’ permitting the Commission to apply the definition flexibly as the securities markets evolve over time.31 In 1998, the Commission adopted Regulation ATS.32 At that time, the Commission recognized that advances in technology had increasingly blurred the line between exchange and broker￾dealer activities 33 and that ATSs that existed then were used by market participants as functional equivalents of exchanges.34 To more accurately describe the range of markets that performed exchange functions at that time, the Commission concurrently adopted Exchange Act Rule 3b–16 to define terms 35 used in the statutory definition of ‘‘exchange’’ under Exchange Act Section 3(a)(1). In Exchange Act Rule 3b–16(a), the Commission defined these terms, in light of the markets that existed at that time, to include any organization, association, or group of persons that: (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.36 Rule 3b–16(b) explicitly excluded certain systems that the Commission believed were not exchanges.37 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 38 the system from the definition. When the Commission adopted
Exchange Act Rule 3b–16, the Commission also adopted Exchange Act Rule 3a1–1(a) to exempt ATSs from the definition of ‘‘exchange’’ under Section 3(a)(1) of the Exchange Act. Exchange Act Rule 3a1–1(a)(2) 39 exempts from the Exchange Act Section 3(a)(1) definition of ‘‘exchange’’ an organization, association, or group of persons that complies with Regulation ATS,40 which requires, among other things, meeting the definition of an ATS and registering as a broker-dealer.41 Rule 300(a) of Regulation ATS defines an ATS as any organization, association, person, group of persons, or system: (1) That constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange within the meaning of Rule 3b–16; and (2) that does not: (i) Set rules governing the conduct of subscribers other than the conduct of such subscribers’ trading on such organization, association, person, group of persons, or system; or (ii) discipline subscribers other than by exclusion from trading.42 Governing the conduct of or disciplining subscribers are functions performed by an SRO that the Commission believed should be regulated as such.43 Accordingly, pursuant to Rule 300(a), a trading system that performs SRO functions or 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, be operated by a national securities association, or seek another exemption.44 As a result of the exemption, an ATS that complies with Regulation ATS is not required by Section 5 of the Exchange Act to register as a national securities exchange, is not an SRO, and, therefore, is not required to comply with regulatory requirements applicable to national securities exchanges and SROs.45 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.46

47See Regulation ATS Adopting Release, supra note 31, at 70900. 48See id. at 70848. 49See id. at 70900. 50For example, the Commission stated in the Regulation ATS Adopting Release that ‘‘an alternative trading system that posts firm orders to buy and sell a security does raise a certain expectation of execution at those quoted prices’’ and that ‘‘[t]he expectation is based on the life of the outstanding orders in the system, rather than continuous two sided quotations published by specialist and market makers.’’ See id. at 70899, n.532. 51See id. at 70900. 52See id. at 70899–900, n.536. 53See id. at 70899, n.525. 54See id. at 70850. In the Regulation ATS Adopting Release, the Commission stated, ‘‘[g]enerally, however, a system that displays bona fide, non-firm indications of interest—including, but not limited to indications of interest to buy or sell a particular security without either prices or quantities associated with those indications—will not be displaying ‘‘orders’’ and, therefore, not fall within Rule 3b–16.’’ See id. 55See id. The Commission also stated that ‘‘[u]nless a system also establishes rules or operates a trading facility under which subscribers can agree to the terms of their trades, the system will not be included within Rule 3b–16, even if it brings together ‘orders.’ ’’ See id. 56See id. at 70848. 57Communication Protocol Systems also may offer a workup functionality or blotter scraping functionality to gather non-firm trading interest and facilitate the negotiation and execution of trades. In a workup, a system may have a private phase, where the two original contra-parties submitting orders can negotiate, and a public phase where all subscribers can submit orders at the workup price. 58An RFQ List may be referred to as a Bid Wanted in Competition (‘‘BWIC’’) or Offer Wanted in Competition (‘‘OWIC’’) in the corporate bond market. Both serve a similar purpose to the RFQ List in allowing the submitter to solicit bids and offers on a number of securities at one time. B. Adopting the Definition of Exchange for Evolving Market Places

1. Orders-Focused Markets Under
   Current Rule 3b–16
   When the Commission adopted Exchange Act Rule 3b–16(a), the Commission sought to more accurately describe the range of markets that performed exchange functions as those were understood at that time.47 In the Regulation ATS Adopting Release, the Commission observed that ATSs at that time provided services more akin to exchange functions than broker-dealer functions, such as matching counterparties’ orders, executing trades, operating limit order books, and facilitating active price discovery.48 In the Regulation ATS Adopting Release, the Commission identified two elements of Exchange Act Rule 3b–16 that most accurately reflected the functions and uses of exchange markets at that time. These elements were the bringing together of orders of multiple buyers and sellers of securities and that trading takes place according to established, non-discretionary rules or procedures.49 When considering what constituted an exchange at that time, the Commission focused on the expectations of the participants regarding how an execution would occur without the discretion of the operator. Because orders instruct a trading system to carry out the intention of participants in accordance with programmed trading procedures, orders, along with established, non￾discretionary methods, contribute to how trading system participants could understand and expect to receive an execution.50 In addition, the Commission stated that ‘‘an essential indication of the non-discretionary status of rules and procedures is that those rules and procedures are communicated to the systems users’’ and ‘‘[t]hus, participants have an expectation regarding the manner of execution—that is, if an order is entered, it will be executed in accordance with those procedures and not at the discretion of a counterparty or intermediary.’’ 51 Further, at the time Exchange Act Rule 3b–16(a) was adopted, most ATSs operating met the criteria of the rule in that they offered the use of orders and algorithms that matched orders.52 ATSs at that time allowed broker-dealers to place and execute orders on the system and the systems functioned as limit order books where orders are executed according to time, price, and size priority.53 Accordingly, orders and established, non-discretionary methods undergirded Exchange Act Rule 3b–16 to reflect functions of exchange markets at that time. When discussing orders in the Regulation ATS Adopting Release, however, the Commission stated that systems that displayed bona fide, non￾firm trading interest 54 or did not establish rules or operate a trading facility 55 would not fall within Rule 3b– 16(a).
2. Prevalence of Systems Offering Non￾Firm Trading Interest and Structured
   Protocols
   Advances in technology have facilitated innovations and more efficient or diverse methods to bring together buyers and sellers of securities.56 In the Commission’s experience, Communication Protocol Systems, which can use various technologies and connectivity, generally offer the use of non-firm trading interest and establish protocols to prompt and guide buyers and sellers to communicate, negotiate, and agree to the terms of the trade without relying solely on the use of orders. Below is a non-exhaustive list of some Communication Protocol Systems. One example of a Communication Protocol System is a ‘‘Request-for￾Quote’’ (‘‘RFQ’’) system. RFQ systems are designed to allow market participants to obtain quotes for a particular security by sending messages to one or multiple potential respondents on the system simultaneously. RFQ systems may be ‘‘disclosed,’’ in which case the participants with established relationships interact only with each other, or anonymous, in which case the parties may not have established relationships. The system provider requires a participant to enter information in a message, which may include the name of the initiator, Committee on Uniform Securities ldentificalion Procedures (CUSIP) number, side, and size. The system provider also provides protocols for participants to communicate with each other and negotiate a price or size of a trade. For example, participants receiving an RFQ message can choose to interact with the initiator by responding within a time period designated by the system provider with a priced quote. These methods can serve the same function as auctions where the respondents compete to offer the best price. The initiator can then select among the quote responses that it wishes to interact with through the system by either accepting one of multiple responses or rejecting all responses within a period of time set by the system provider. The match of the request and response results in an agreement to the terms of the trade between a buyer and a seller, which then proceeds to post-trade processing.57 An RFQ list protocol (‘‘RFQ List’’), which is a form of RFQ protocol used commonly to trade U.S. Treasury Securities, may include a collection of RFQ inquiries that are submitted as a group but priced as individual items.58 The RFQ List (defined by each system provider but generally more than two listed items) may be executed in its entirety, in pieces, or not at all. A liquidity provider that is responding to the list request may apply a ‘‘good for’’ time that is associated with the executable prices provided. A Communication Protocol System could also include a system that electronically displays continuous firm or non-firm trading interest, or ‘‘stream axes,’’ in a security or type of security to participants on the system. Axes typically represent an indication of

59Based on Commission staff experience, some NMS Stock ATSs disclose protocols to allow conditional orders to interact with the ATS’s limit order book, thereby increasing the interaction among potential buyers and sellers and access to liquidity. 60An order resting on an ATS limit order book that can interact with a conditional order does not receive a firm-up invite and therefore does not send firm-up responses. 61Many conditional order and RFQ systems monitor their participants’ firm-up rates and may limit or deny the use of the system by a participant if the participant’s firm-up rate falls below a certain percentage. While the system provider typically monitors these firm-up rates to help ensure that participants do not abuse the system, such monitoring and actions taken against participants for not firming-up may incentivize participants to not back away. Thus, conditional orders or RFQs can be firm in practice and in this way may meet the definition of order under current Regulation ATS. See 17 CFR 242.300(e) (‘‘any firm indication of a willingness to buy or sell a security’’). 62See Citadel Letter at 1–2. 63See id. This commenter noted that multilateral RFQ trading venues are formally registered in other asset classes and jurisdictions, and that there are ‘‘well-established precedents’’ to delineate the scope of multilateral trading venues subject to regulation. 64Tradeweb Investor Presentation, July 2021, available at: https://investors.tradeweb.com/static￾files/e63caabf-d71d-46c0-9589-353fb8b93388. interest to sell or buy a bond (but can include firm quotes), and can either serve as a starting point for negotiation between participants or be executed immediately. Systems that stream axes take many forms. Some system providers provide connectivity and protocols for participants to electronically communicate and negotiate the terms of a trade. Other system providers offer participants more automated processes, whereby participants auto-execute against a streamed quote and agree upon the terms of a trade without negotiation. Typically, the system is programmed with permission options to allow participants to decide who can or cannot receive their axes. In such a case, the trading interest exchanged between the parties is typically firm and functions as orders. Conditional order systems may be Communication Protocol Systems that offer the use of trading interest that may not be executable until after a user takes subsequent action. For example, a system provider may require conditional orders to contain a symbol, side, and size and provide protocols for participants to send and receive invitation messages to trade. The system would be designed for conditional orders to match with other trading interest, which can either be a firm order or another non-firm conditional order.59 Upon a match, the system may send a firm-up invitation messages to both participants. The system protocols may permit a participant using a conditional order to either
decline the firm-up invite, accept the firm-up invite, or counter the response to firm up.60 During the time that the parties’ trading interest is matched until the invitation to firm-up expires, is canceled, is executed, or is declined, the system protocols may require that the non-firm trading interest be committed and the shares cannot trade elsewhere.61 Using the system protocols, the matched parties can modify the attributes of the non-firm trading interest (i.e., price, size) before accepting the firm-up invitation. To the extent either a seller or buyer changes the attributes, an execution will only occur if each contra￾party’s corresponding attributes will still be met. If both matching parties accept the firm-up invite, the parties would agree upon the terms of the trade and an execution would occur. Other systems have developed to bring together buyers and sellers of securities through the use of bilateral negotiation protocols and non-firm trading interest. Negotiation systems focus on providing a forum for buyers and sellers to see displayed non-firm trading interest, access liquidity, find a counterparty, and negotiate a trade through the use of their communication technology. The system may allow participants to select certain pre￾approved participants and then exchange messages for purposes of agreeing to the terms of a trade. Negotiation systems may have fewer parameters for communicating trading interest than RFQ protocols; for example, negotiation systems provide features that are designed to prompt participants to interact with each other and provide parameters around that interaction, such as time for responses or requirements on the content of the message. A system may ‘‘scrape’’ or obtain the symbol of trading interest that a participant is seeking from the participant’s order management or execution management system and use that to alert other participants on its system about potential contra-side interest in seeking to initiate a negotiation. The market participants using negotiation systems may complete a transaction outside of the system. As trading in securities has become more electronic, Communication Protocol Systems perform the function of a market place and have become a preferred method for market participants to discover prices, find a counterparty, and execute a trade, particularly for government securities and other fixed income markets. One commenter on the 2020 Proposal and Concept Release, for example, stated that multilateral trading venues using RFQ protocols are some of the most significant multilateral trading venues operating in fixed income markets regulated by the Commission, including the U.S. Treasury market.62 This commenter stated that RFQ trading venues dominate the dealer-to-customer segment of the U.S. Treasury market and in the aggregate account for approximately 50 percent of total electronic trading volume on multilateral U.S. Treasury trading venues.63 Another large electronic trading
venue for fixed income products estimated that its average daily volume using an RFQ protocol increased from $223 million in the second quarter of 2017 to $1.17 billion in the second quarter of 2021.64 Systems offering conditional order protocols have increased over the past several years, particularly for trading NMS stocks. Today, 26 NMS Stock ATSs have disclosed on their public Form ATS–N that they send or receive messages indicating trading interest, such as conditional orders. Communication Protocol Systems, like registered exchanges and ATSs, offer their participants several benefits, including reducing counterparty search costs, bringing together diverse market participants, and making it efficient and simple to find a counterparty and agree upon the terms of a trade. These systems improve price discovery from the voice protocols that were used more widely in the fixed income market in the past by offering participants systems and protocols that are specifically designed to allow participants to contact, and receive responses from, multiple potential counterparties at one time, as opposed to the more time-consuming process of calling each potential counterparty individually. RFQ protocols, for example, allow an initiator to share and attempt to trade its entire trading interest all at once. In contrast, under a limit order book model, for example, the seeker of liquidity may find it can only execute its trading interest in a piecemeal fashion. RFQs also allow initiators to more easily demonstrate that they attempted to achieve best execution by showing that the initiator sent requests for quotes to multiple dealers for a security. In addition, participants may find conditional orders attractive when seeking to trade at size or to avoid information leakage. While Communication Protocol Systems may bring together buyers and sellers for all types of securities and allow participants to negotiate a trade,

65For example, a market participant that rests the same non-firm trading interest on two trading venues has the ability to back away from one if both are lifted (i.e., preliminarily matched). In such case, the market participant is able to complete one trade and cancel or back away from the other. 66See U.S. Securities and Exchange Commission Fixed Income Market Structure Advisory Committee (‘‘FIMSAC’’), Recommendation for the SEC to Review the Framework for the Oversight of Electronic Trading Platforms for Corporate and Municipal Bonds (July 16, 2018), available at https://www.sec.gov/spotlight/fixed-income￾advisory-committee/fimsac-electronic-trading￾platforms-recommendation.pdf (expressing concern about regulatory harmonization among fixed income trading platforms, recognizing that some firms were regulated as ATSs, while some were regulated as broker-dealers or not regulated at all). 67See infra Section II.D.1. 68See infra Section II.D.2. 69See infra Section II.D. 70See infra Section VIII.C.3.a. 71See supra Section II.A. 72The Commission is not proposing to amend Exchange Act Rule 3b–16(b), which excludes from the definition of ‘‘exchange’’ systems that perform only traditional broker-dealer activities, including:
Systems that route orders to a national securities exchange, a market operated by a national securities association, a broker-dealer for execution, or systems that allow persons to enter orders for execution against the bids and offers of a single dealer if certain additional conditions are met. These systems would continue to not fall within the definition of ‘‘exchange.’’ As discussed below, and consistent with the Commission’s views expressed in the Regulation ATS Adopting Release, a broker￾dealer’s exercise of discretion and judgment over its customers’ orders or trading interest does not make the broker-dealer an exchange. See Regulation ATS Adopting Release, supra note 31, at 70851. See also infra Section II.C.3. The Commission is proposing to add an exclusion to Rule 3b–16(a) for systems that allow issuers to sell their own securities to investors. See infra Section II.C.2. Further, as explained below, the Commission is not proposing to include within the definition of ‘‘exchange’’ a system that unilaterally displays trading interest without offering a trading facility or communication protocols to bring together buyers and sellers. Also, systems that provide general connectivity for persons to communicate without protocols, such as utilities or electronic web chat providers, would not fall within the definition of exchange. See id. 73See infra Section II.D. 74See infra Section II.D.1. 75See infra Section II.D.2. 76See infra note 170 and accompanying text. 77See infra notes 139–142 and accompanying text. A Communication Protocol System that operates as an ATS but trades securities other than NMS stocks or government securities would file Form ATS. 78See infra notes 154–155 and accompanying text. 79See infra notes 131–133 and accompanying text. 80See infra Section VIII.C.3.a. they are particularly useful to market participants to trade less liquid securities, find counterparties for large size trades, and minimize information leakage and adverse impact of large size trades. For example, market participants can use Communication Protocol Systems to post and see non-firm trading interest on several trading venues simultaneously, thereby increasing their ability to find a counterparty and reduce search costs. When resting non-firm trading interest on a trading venue, market participants can use non-firm trading interest as a tool to avoid the risk of double￾execution.65 Participants that use conditional orders, for example, may place the same trading interest at various trading centers in search of liquidity because it would allow them to accept or decline responses if they receive more than one. Participants may find locating a counterparty on a limit order book system for less liquid securities more difficult and choose instead to use a Communication Protocol System, such as an RFQ system, because such system allows the initiating participant to use non-firm trading interest to solicit quotes from multiple market participants for less liquid
securities and negotiate a size or price for such securities.
3. Lack of Investor Protections and
Disparate Regulation Among Market Places Given the changes in methods for bringing buyers and sellers together over the past couple of decades, the contrast between market place functions of exchanges that offer the use of orders and trading facilities and systems that offer the use of trading interest and protocols has become increasingly blurred. Both types of systems share the same business objectives and engage in similar market activities; however, one type of system is subject to the exchange regulatory framework while the other is not.66 Today, Communication Protocol Systems perform similar market place functions as registered exchanges and ATSs and have become venues for investors to discover prices, find a counterparty, and agree upon the terms of a trade. Because Communication Protocol Systems do not fall within the definition of ‘‘exchange’’ and are thus not required to register as national securities exchanges, they are not required to comply with the same Federal securities laws and regulations applicable to registered exchanges 67 or ATSs.68 Market participants use Communication Protocol Systems for certain advantages that these market places offer for trading securities; however, when doing so, market participants cannot avail themselves of the same investor protections, fair and orderly market principles, and Commission oversight that apply to today’s registered exchanges or ATSs.69 This regulatory gap also creates disparities that affect competitive balances among like market places for securities.70 Consistent with the statutory definition of ‘‘exchange’’ in Exchange Act Section 3(a)(1), and as discussed above, today Communication Protocol Systems provide a ‘‘market place’’ for bringing together purchasers and sellers of securities.71 The current proposal will use the flexibility granted to the Commission by Congress to update Exchange Act Rule 3b–16 to address these developments in the markets for securities, the corresponding lack of investor protections, and disparate regulation among these markets.72 Including Communication Protocol Systems within the definition of ‘‘exchange’’ would provide market participants that use these market places with the investor protections, fair and orderly market principles, and Commission oversight provided by the exchange regulatory framework.73 A Communication Protocol System that chooses to register as an exchange would be an SRO and be subject to the requirements of Section 6 of the Exchange Act, as discussed further below.74 However, the Commission expects that many Communication Protocol Systems would choose instead to comply with the conditions of the Regulation ATS exemption, which includes registering as a broker-dealer.75 As discussed further below, Communication Protocol Systems complying with Regulation ATS would also be subject to the Regulation ATS investor protection provisions, including the requirement to establish written safeguards and procedures to protect confidential
subscriber trading information 76 and operational transparency requirements of Form ATS–N for ATSs that trade NMS stocks or government securities or repos.77 They would also be subject to fair and orderly markets provisions under the Fair Access Rule.78 Registering as a broker-dealer would subject a Communication Protocol System to Commission and Financial Industry Regulatory Authority (‘‘FINRA’’) oversight.79 As a FINRA member, the Communication Protocol System would be subject to FINRA’s investor protection and examination and market surveillance programs and would be required to comply with FINRA’s trade reporting rules. The proposal to include Communication Protocol Systems within the definition of exchange would promote competition by reducing cost disparities and creating a more level competitive landscape.80 Several commenters in response to the Concept

81See, e.g., ICE Bonds Letter II at 2–4; Citadel Letter at 2; MFA Letter at 6 (suggesting that to ensure that similarly situated entities are treated similarly in the trading of government securities, the Commission should review the appropriateness of similar regulation on multiple-to-multiple trading venues with significant volume); MarketAxess Letter at 1 (stating that there should be a common regulatory framework for all multilateral fixed income electronic trading platforms that requires minimum standards of conduct and oversight in areas such as trade reporting, resiliency, cyber-security, operational reporting, financial standards, examination, surveillance, and confidentiality). 82See supra note 66. The FIMSAC concerns were highlighted by the Commission in the Concept Release. 83See ICE Bonds Letter II at 4 (stating that the benefits of subjecting non-ATS trading platforms to the same regulatory obligations as current ATSs will be substantial). 84See FIA PTG Letter at 2. See also Citadel Letter at 2 (stating that excluding multilateral RFQ platforms from the current regulatory framework creates an unlevel regulatory field). 85See letter from Michael Decker, Senior Vice President for Public Policy, Bond Dealers of America, dated March 1, 2021 (‘‘BDA Letter’’) at 2. See also FINRA Letter at 6–10 (noting inconsistent regulatory treatment among electronic and hybrid fixed income trading platforms, as well as potential regulatory gaps, flowing in part from the definitions and guidance adopted in 1998 in Regulation ATS). The commenter stated its belief that it would be beneficial for the Commission to provide guidance that specifically addresses the characteristics of RFQ trading systems and evaluate whether they meet the ‘‘exchange’’ definition for purposes of Regulation ATS. 86See infra Section VIII.C.3.a.i. 87See Regulation ATS Adopting Release, supra note 31, at 70850. 88See supra Section II.B.2. 89See Bloomberg Letter at 17–20. This commenter specifically cited RFQs as a new protocol that has helped in discovering less liquid instruments. 90See SIFMA Letter at 11. The commenter stated its belief that systems that merely act as informational conduits should remain outside the scope of Regulation ATS. Release expressed concerns regarding the disparity in regulatory treatment between exchanges, ATSs, and other fixed income platforms.81 In addition, FIMSAC expressed concern about the lack of regulatory harmonization among fixed income electronic trading platforms, recognizing that some firms are regulated as ATSs, while others are regulated as broker-dealers or not at all, and stated that these distinctions in regulatory oversight complicate efforts to improve the efficiency and resiliency of the fixed income electronic trading markets.82 In response to the Concept Release, one commenter stated that the current regulatory framework puts ATSs at a competitive disadvantage to non￾ATS trading platforms, which are not subject to the same
regulatory obligations designed to protect investors and the integrity of the fixed income markets.83 Another commenter stated its belief that disparate regulatory treatment across trading platforms impacts market efficiency and competition and introduces potential resiliency risks.84 Another commenter stated that electronic platforms for bringing together buyers and sellers of fixed income securities for the purpose of effecting transactions should generally be regulated the same regardless of how they are structured internally.85 The Commission recognizes that the regulatory costs associated with registering and operating as a registered exchange are higher than the regulatory costs associated with registering as a broker￾dealer and complying with Regulation ATS. However, Communication Protocol Systems operating outside the exchange regulatory framework are subject to neither national securities exchange nor ATS regulatory costs and therefore have an advantage when competing against other markets that also bring together buyers and sellers of securities.86 As discussed further in
Section VIII, a trading system that
performs an exchange market function but is not subject to the exchange regulatory regime could receive a competitive advantage because such systems are not subject to the compliance costs to which regulated exchanges are subject. Amending Exchange Act Rule 3b– 16(a) to include non-firm trading interest would eliminate the possibility that systems may offer the use of non￾firm trading interest that, in practice, functions as firm orders, so as to avoid exchange registration or complying with Regulation ATS. In the Regulation ATS Adopting Release, the Commission expressed concern that system providers may label trading interest that is firm in practice as non-firm.87 The providers of such systems may take the position that their systems arguably do not use ‘‘orders’’ and thus do not fall within the criteria of Rule 3b–16. For example, systems that offer the use of non-firm trading interest may monitor participants’ firm-up rates in response to a quote they received and may penalize a participant with a low firm￾up rate either economically or by limiting its ability to use features of its system. Such activities could cause participants on the systems to believe that trading interest that they submit or receive is effectively firm and affect their behavior on the system. The difference between what is a firm order and what is not requires careful scrutiny of the design of the system, the trading interest offered, and what actually takes place among buyers and sellers interacting on the systems. The Commission believes, however, that the use of firm or non-firm trading interest by a system should no longer be a factor in determining whether a system performs the function of a market place because both firm and non-firm trading interest can be used by a system with the same purpose and effect to bring together buyers and sellers of securities.88 Finally, for clarity, Exchange Act Rule 3b–16(a) would continue to encompass systems that make available for trading any type of security. The definition of ‘‘exchange’’ under Section 3(a)(1) of the Exchange Act and current Exchange Act Rule 3b–16(a) applies to all securities, including government securities, corporate bonds, municipal securities, NMS stocks, equity securities that are not NMS stocks, private restricted securities, repurchase agreements and reverse repurchase agreements, foreign sovereign debt, and options, and does not exempt or exclude any security or type of securities. The Commission believes that it is important for any system that falls within the criteria of Rule 3b–16(a) to be subject to the exchange regulatory framework, notwithstanding how thinly traded or novel a security may be, and participants on such systems should be able to avail themselves of the same benefits that participants on registered exchanges or ATSs receive. Accordingly, the proposed amendments to Rule 3b–16(a) do not change the Commission’s interpretation of the statutory definition of ‘‘exchange’’—that is, it
applies to all securities. The Commission received several comments in response to the Concept Release expressing reservations about revising Exchange Act Rule 3b–16 to include certain fixed income markets within the definition of exchange. One commenter stated that doing so would insert unnecessary intermediation between dealers and their customers and threaten to distort the market structure by creating a one-size-fits-all approach that is biased against the trading of less-liquid instruments, damaging liquidity formation.89 Another commenter expressed concern about the Commission creating additional regulatory obligations in the fixed income space and believed the Commission should undertake a more in-depth review of fixed income trading, engage in discussion with the industry, and outline the problems that any proposed regulations are intended to solve before moving forward with any such regulatory proposal.90 Likewise, another commenter stated its belief that the Commission should not impose

91See ICI Letter at 2, 7. This commenter stated that, for example, tools that facilitate trade-related communications between market participants should not be subject to rules that are better-suited for order book protocols. 92See id. at 8. 93See MarketAxess Letter at 2–4. 94See id. 95See Bloomberg Letter at 17–20. 96See ICI Letter at 8. 97See Regulation ATS Adopting Release, supra note 31, at 70846. 98 In conjunction with adding the defined term ‘‘trading interest’’ to Rule 3b–16, the Commission is proposing to add the definition of ‘‘trading interest’’ to Rule 300 of Regulation ATS. See proposed Rule 300(q). In addition, to encompass persons who transact in trading interest, and not only orders, the Commission is also proposing to change the definition of ‘‘Subscriber’’ in Rule 300(b) to include any person submitting, disseminating, or displaying ‘‘trading interest.’’ See Rule 300(b), as proposed to be revised. Regulation ATS and the current exchange framework on existing and emerging electronic trading protocols and functionalities that do not meet the existing definition of an ATS or an exchange 91 because such rules are better suited for regulating systems and trading practices in the equity markets.92 In addition, one commenter stated that there are a variety of trading protocols that have developed within the fixed income market—such as those that are primarily order-driven (such as retail-focused order books) and others that are driven by price requests (such as RFQs)—and that the market continues to innovate.93 This commenter stated its belief that the Commission should take into account these distinctions and apply a lighter regulatory approach in order to avoid stifling innovation.94 The Commission notes that these comments focused on the fixed income market exclusively. However, these comments have aided in the formulation of this proposal for revising the Commission interpretation of the definition of ‘‘exchange,’’ and the Commission looks forward to receiving more comments to aid in its deliberations. As a preliminary response to the comment letters summarized in this section, the Commission does not believe that the proposed amendments to Exchange Act Rule 3b–16 would create a one-size-fits-all model, imposing unnecessary intermediation between dealers and their customers,95 or import concepts from the equity markets onto emerging electronic trading protocols that would damage the market structure in the fixed income markets.96 Form ATS and Form ATS–N do not impose or favor any specific market structure or manner of trading, and the Commission is proposing to amend Form ATS–N to accommodate the operations of Communication Protocol Systems. Further, the Commission preliminarily does not believe that regulating fixed income systems, or systems for other asset classes of securities, under the exchange regulatory framework, particularly Regulation ATS, would stifle innovation or be biased against less-liquid instruments using an RFQ
protocol. Regulation ATS is designed to be flexible enough to accommodate the evolving technology of ATSs and allow for systems to continue to innovate without the regulatory obligations of registered exchanges, which are SROs.97 In the years since its adoption in 1998, many systems that chose to operate under the Regulation ATS exemption have had varied business models, including offering RFQ protocols as part of their overall ATS services, for trading different types of securities, including, among others, government securities, corporate bonds, municipal securities, NMS stocks, equity securities that are not NMS stocks, private restricted securities, repurchase agreements and reverse repurchase agreements, foreign sovereign debt, and options. The Commission seeks public comment on all aspects its proposal to amend Exchange Act Rule 3b–16(a), the Communication Protocol Systems that would fall within the definition of ‘‘exchange,’’ and the existing exchange regulatory requirements that would apply to a Communication Protocol System.
C. Proposed Amendments to Exchange
Act Rule 3b–16
Today, Exchange Act Rule 3b–16 provides that an organization, association, or group of persons meets the definition of ‘‘exchange’’ if it doesn’t meet one of the exceptions of the rule and it: (1) Brings together the orders for securities of multiple buyers and sellers; and (2) uses established, non￾discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of the trade. The Commission is proposing to amend Exchange Act Rule 3b–16 to, among other things, include non-firm indications of a willingness to buy or sell a security, in addition to orders, within the interpretation, define ‘‘trading interest,’’ add ‘‘communication protocols’’ as an established method that an organization, association, or group of persons can provide to bring together buyers and sellers of securities, simplify and align the rule text with the statutory definition of exchange under
Section 3(a)(1) of the Exchange Act, and
add an exclusion under Exchange Act Rule 3b–16(b). Accordingly, the Commission is proposing to amend Exchange Act Rule 3b–16 to provide that an organization, association, or group of persons would be considered to constitute, maintain, or provide an exchange if it is not subject to an exception under Rule 3b–16(b) and it:
(1) Brings together buyers and sellers of securities using trading interest; and (2) makes available established, non￾discretionary methods (whether by providing a trading facility or communication protocols, or by setting rules) under which buyers and sellers can interact and agree to the terms of a trade.

1. Trading Interest; Brings Together
   Buyers and Sellers
   The Commission is proposing to add a definition of the term ‘‘trading interest’’ to Exchange Act Rule 3b–16 and amend the rule to replace ‘‘orders’’ with ‘‘trading interest.’’ The definition of trading interest would allow for clear and consistent application of the revised functional test for ‘‘exchange’’ under Rule 3b–16. Under the proposal, Exchange Act Rule 3b–16(a) would continue to apply to systems that use orders, as that term is currently defined and applied in Rule 3b–16(c), to bring together buyers and sellers because the term ‘‘orders’’ would be included in the definition of ‘‘trading interest.’’ ‘‘Trading interest,’’ as proposed, would include ‘‘orders,’’ as the term is defined under Rule 3b–16(c), or any non-firm indication of a willingness to buy or sell a security that identifies at least the security and either quantity, direction (buy or sell), or price.98 Based on Commission staff experience, generally, trading systems have offered non-firm trading interest that included the symbol and one of the following: Quantity, direction, or price. For example, a message that is sent to system participants for an NMS stock that only identifies the NMS stock symbol and quantity that the participant seeks to trade would be considered trading interest. A message sent by a participant of a corporate bond system to five potential counterparties that only identifies the CUSIP for a bond and an instruction to buy would be considered trading interest, as proposed, because it contains the symbol and direction. If the same initiating participant only provided the symbol and requested a two-sided quote in response, the response would constitute trading interest as it would identify the symbol

99See Regulation ATS Adopting Release, supra note 31, at 70850. 100A system that uses trading interest to bring together buyers and sellers would not meet the definition of ‘‘exchange,’’ however, unless it also met all the elements of Rule 3b–16(a), including the element ‘‘makes available established, non￾discretionary methods (whether by providing a trading facility or communication protocols, or by setting rules) under which buyers and sellers can interact and agree to the terms of a trade.’’ 101See id. at 70849. 102See id. 103One commenter on the 2020 Proposal and Concept Release stated its belief that RFQ platforms do not meet the criteria of Rule 3b–16 because such platforms do not offer ‘‘multiple-to-multiple’’ order interaction among participants and that the RFQ platforms instead facilitate trading between an individual market participant (requester) and potential liquidity providers (responders). See ICI Letter at 2, 7. 104The mere interpositioning of a designated counterparty to provide for the anonymity of counterparties to a trade or for settlement purposes after the purchasing and selling counterparties to a trade have been matched would not, by itself, mean the system does not have multiple buyers and sellers. See Regulation ATS Adopting Release, supra note 31, at 70849. and a price. Indeed, Commission staff has observed that ATSs that offer a negotiation functionality to bring together buyers and sellers offer the use of non-firm trading interest that includes the symbol and one of the following: Quantity, direction, or price. In addition, there are instances where systems offer the use of non-firm trading interest, such as an indication of interest, that includes the symbol and direction but does not explicitly include a quantity or price, which can be inferred from the facts and circumstances accompanying the trading interest.99 The Commission believes that a system that offers the use of a message that identifies the security and either the quantity, direction, or price would provide sufficient information to bring together buyers and sellers of securities because it allows a market participant to communicate its intent to trade and a reasonable person receiving the information to decide whether to trade or engage in further communications with the sender.100 On the other hand, the Commission preliminarily believes that a message that only indicates the security to be traded without more information would not be trading interest and a system that only offers the use of such messages would be unlikely to bring together buyers and sellers and does not warrant the regulatory oversight accompanying classification as an exchange. Nevertheless, if a system is designed to permit an initiating participant to submit a message that only contains a symbol, yet a responding participant can submit a message that contains a symbol and either quantity, direction, or price that the initiator can accept, the message by the responding participant
and acceptance by the initiator would be trading interest because each of these contain the symbol and at least direction, size, or price. As proposed, the revised criteria of Exchange Act Rule 3b–16(a) that include ‘‘trading interest,’’ as defined herein, would capture the vast majority of systems that bring together buyers and sellers to agree to the terms of a trade despite not including systems where solely the security is identified. If adopted, however, the Commission would continue to monitor market developments to ascertain whether such systems may warrant further regulation in the future. The Commission is also proposing to amend Rule 3b–16(a)(1) to change the reference to a system that ‘‘brings together the orders’’ to ‘‘brings together buyers and sellers of securities using trading interest.’’ Systems that use non￾firm trading interest allow participants to communicate their trading intentions, either on a bilateral or multilateral basis, to negotiate a trade. Unlike orders, non￾firm trading interest typically does not interact with other non-firm trading interest without further action by the potential counterparties. Rather, the potential counterparties submitting non￾firm trading interest interact with each other through the use of communication protocols. To provide for the use of both firm order interaction and participants’ interaction through non-firm trading interest, the Commission is proposing to amend Rule 3b–16(a) to replace ‘‘brings together orders’’ with ‘‘brings together buyers and sellers of securities using trading interest.’’ The phrase ‘‘brings together buyers and sellers of securities using trading interest’’ still captures systems that use orders. The Commission is not proposing to change the meaning of ‘‘to bring together’’ as defined in the Regulation ATS Adopting Release 101 nor is the Commission proposing to exclude from Rule 3b– 16(a) systems that use orders to bring together buyers and sellers of securities—such systems would still be subject to Rule 3b–16. The Commission is proposing to amend Exchange Act Rule 3b–16(a)(2) to simplify the rule text and align the rule text with the proposed changes to Rule 3b–16(a)(1). Specifically, the Commission is proposing to replace ‘‘under which such orders interact with each other and the buyers and sellers entering such orders agree to the terms of a trade’’ with ‘‘under which buyers and sellers can interact and agree to the terms of a trade.’’ As explained above, because the Commission is proposing to amend Rule 3b–16(a) to include trading interest, and is no longer limiting the application of the rule to orders, the focus on ‘‘interaction’’ should be between buyers and sellers rather than orders. For similar reasons, the Commission is proposing to delete from the rule text the phrase ‘‘the buyers and sellers entering such orders.’’ This proposed change is designed to simplify the rule text and remove the reference to orders because the proposed amendments to Rule
3b–16(a) also include non-firm trading interest in addition to orders.
2. Multiple; Exclusion for Issuer
Systems
The Commission is proposing to remove the reference to securities of ‘‘multiple’’ buyers and sellers from Exchange Act Rule 3b–16(a)(1) and is proposing to codify in Rule 3b–16(b)(3) an example the Commission provided in the Regulation ATS Adopting Release for systems that allow issuers to sell their own securities to investors. These proposed changes are not intended to change the existing scope of Rule 3b– 16(a) but only to clarify its application. The term ‘‘multiple’’ was added to Rule 3b–16(a) to help reinforce that single counterparty systems were not included in the definition of ‘‘exchange.’’ 102 These systems primarily included systems used by issuers to sell their own securities and systems used by market makers registered with an SRO, which are currently specifically excluded from Rule 3b–16(a) under Rule 3b–16(b)(2). The Commission believes that the term ‘‘multiple’’ could be misconstrued to mean that RFQ systems, for example, do not meet the criteria of Rule 3b–16(a) because a transaction request typically involves one buyer and multiple sellers or one seller and multiple buyers.103 Under current Rule 3b–16(a), whether a system meets the ‘‘multiple’’ prong depends on whether the system, when viewed in its entirety, includes more than one buyer and more than one seller and is not determined on a transaction￾by-transaction basis. A system, such as an RFQ system, that is designed to provide the ability of more than one buyer to request quotes from more than one seller in securities at the same or different times would meet the ‘‘multiple’’ prong of Rule 3b–16(a) because such systems do not include a single counterparty.104 Because RFQ systems have more than one buyer and more than one seller, such systems do not have a single counterparty and thus

105The use of plural terms in ‘‘buyers and sellers’’ in Rule 3b–16(a) and ‘‘purchasers and sellers’’ (emphasis added) in the statutory definition of ‘‘exchange’’ makes sufficiently clear that an exchange need only have more than one buyer and more than one seller participating on the system to meet this prong. 106See supra note 102 and accompanying text. 107See Regulation ATS Adopting Release, supra note 31, at 70852. 108See NMS Stock ATS Adopting Release, supra note 2, at 38844 (citing Regulation ATS Adopting Release, 63 FR 70852). 109 Depending on the activities of the persons involved with the market place, a group of persons, who may each perform a part of the 3b–16 system, can together provide, constitute, or maintain a market place or facilities for bringing together purchasers and sellers of securities and together meet the definition of exchange. In such a case, the group of persons would have the regulatory responsibility for the exchange. 110See Regulation ATS Adopting Release, supra note 31, at 70863. 111See id. at 70851. 112See id. at 70850. 113 If a system meets the criteria of Exchange Act Rule 3b–16(a) but includes in that system the ability of the system operator to apply its discretion for handling trading interest, these activities employing discretion by the system operator would be included in the system that meets the criteria of Rule 3b–16(a) and be subject to Federal securities laws and rules applicable to a registered exchange or ATS (including, for example, requirements to provide disclosures about the system operator’s activities on Form ATS or ATS–N and, if the ATS is subject to the Fair Access Rule, include in its written standards why the activities of the system operator that result in the different treatment of subscribers are fair and not unreasonably discriminatory). 114One commenter on the 2020 Proposal and Concept Release stated their belief that ‘‘unlike an ATS on which trading takes place on a non￾discretionary basis, trading discretion is a defining feature of these protocols; a requesting participant can choose the number and identity of participants that will receive the RFQ, while participants who receive an RFQ can choose whether to respond.’’ See ICI Letter at 7. See also Bloomberg Letter at 23 (describing that an RFQ ‘‘consists of discretionary directed order communication network messaging’’ and stating its belief that such messaging is not an ATS function because RFQs lack a non￾discretionary commitment to trade) and MarketAxess Letter at n.2 (stating its belief that an RFQ trading requestor’s trading discretion puts the protocol outside the requirement that the platform use ‘‘established, non-discretionary methods under which such orders interact with each other’’). The ‘‘established, non-discretionary methods’’ element would meet the standard of ‘‘multiple buyers and sellers’’ under Rule 3b– 16(a)(1). Nevertheless, removing the term ‘‘multiple’’ would mitigate confusion and the potential to
misconstrue the application of Rule 3b– 16(a) to systems with non-firm trading interest, including RFQ systems, and aligns the rule with the statutory definition of ‘‘exchange.’’ 105 The Commission is proposing to amend Rule 3b–16(b) to add an exclusion from Rule 3b–16(a) for systems that allow an issuer to sell its securities to investors. The Commission stated in the Regulation ATS Adopting Release that systems for issuers to sell their own securities would not fall within Rule 3b–16(a) because such systems have a single counterparty that is selling its securities.106 The Commission continues to believe that such systems do not meet the criteria of Rule 3b–16(a) because the systems do not bring together multiple buyers and multiple sellers. Given the proposal to remove the term ‘‘multiple’’ from Rule 3b–16(a)(1), adding the exclusion for issuer systems would clarify that such systems do not fall within the criteria of Rule 3b–16(a).
3. Established Methods; Communication
Protocols
The Commission is proposing to amend Rule 3b–16(a)(2) to replace ‘‘uses established, non-discretionary methods’’ with the phrase ‘‘makes available established, non-discretionary methods.’’ The proposed change to use the word ‘‘makes available’’ rather than ‘‘uses’’ is designed to capture established, non-discretionary methods that an organization, association, or group of persons may provide, whether directly or indirectly, for buyers and sellers to interact and agree upon terms of a trade. In contrast to the term ‘‘uses,’’ the Commission believes the term ‘‘makes available’’ would be applicable to Communication Protocol Systems because such systems take a more passive role in providing to their participants the means and protocols to interact, negotiate, and come to an agreement. The term ‘‘makes available’’ is also intended to make clear that, in the event that a party other than the organization, association, or group of persons performs a function of the exchange, the function performed by that party would still be captured for purposes of determining the scope of the exchange under Exchange Act Rule 3b–16. In the Regulation ATS Adopting Release, the Commission stated that it will attribute the activities of a trading facility to a system if that facility is offered by the system directly or indirectly (such as where a system arranges for a third party or parties to offer the trading facility).107 The Commission has further recognized how a system may consist of various functionalities, mechanisms, or protocols that operate collectively to bring together the orders for securities of multiple buyers and sellers using non￾discretionary methods under the criteria of Rule 3b–16(a), and how, in some circumstances, these various functionalities, mechanisms, or protocols may be offered or performed by another business unit of the registered broker-dealer or government securities broker or government securities dealer that operates the ATS (‘‘broker-dealer operator’’) or by a separate entity.108 These principles equally apply to an organization, association, or group of persons that arranges with another party to provide, for example, a trading facility or communication protocols, or parts thereof, to bring together buyers and sellers and perform a function of a system under Rule 3b–16. Using the term ‘‘makes available’’ will help ensure that the investor protection and fair and orderly markets provisions of the exchange regulatory framework apply to all the activities that consist of the system that meets the criteria of Rule 3b–16(a), notwithstanding whether those activities are performed by a party other than the organization that is providing the market place.109 The Commission is not proposing to delete the term ‘‘non-discretionary’’ from Rule 3b–16(a)(2). The term ‘‘non￾discretionary’’ was added to Rule 3b– 16(a)(2) to modify ‘‘methods’’ to distinguish the activities of an exchange from the activities of a broker-dealer.110 As discussed in the
Regulation ATS Adopting Release, broker-dealers exercise control, judgement, or discretion over their customers’ orders or trading interests 111 while an exchange operates pursuant to programmed procedures or set rules and does not exercise discretion over orders or trading interest entered into the system.112 The Commission continues to believe that the distinction between an exchange and a broker-dealer explained in the Regulation ATS Adopting Release is appropriate and the Commission is not proposing to amend Exchange Act Rule 3b–16(a) to include activities of broker-dealers within the definition of ‘‘exchange.’’ 113 The term ‘‘non-discretionary’’ should not be misconstrued to mean that a system does not meet the definition of exchange if it permits buyers or sellers using the system to exercise discretion with regard to the use of the system. Under current Rule 3b–16(a)(2), the phrase ‘‘uses established, non￾discretionary methods’’ applies to the organization, association, or group of persons that provides the means—the trading facility or rules—under which orders interact. Thus, an organization that meets the definition of ‘‘exchange’’ does not exercise any discretion in the matching of buyers and sellers or their orders and buyers and sellers participating on an exchange can use their own discretion in finding and selecting a counterparty.114 The phrase

of Rule 3b–16(a)(2) pertains to the discretion applied by the system provider to bring together buyers and sellers and not discretion that participants may apply. For example, a system provider that matches buyers and sellers using its judgement or discretion would not be using established, non-discretionary methods. As the Commission stated in the Regulation ATS Adopting Release, where customers of a broker-dealer exercise control over their own orders in a trading system operated by the broker-dealer, that broker￾dealer is unlikely to be viewed as using discretionary methods in handling the order. See Regulation ATS Adopting Release, supra note 31, at 70851. 115See id. (describing that, for example, the Commission does not believe that block trading desks, which generally retain some discretion in determining how to execute a customer’s order, and frequently commit capital to satisfy their customers’ needs, use established, non-discretionary methods). 116One commenter suggested a litmus test to assist the Commission in determining whether a fixed-income trading platform for corporate bonds and municipal securities meets the criteria that warrant registration as an exchange or ATS. According to the commenter, the most relevant criteria were: Whether the system provides multilateral trading, whether the technology provider has any influence on picking the counterparties, whether the system enables any sharing of real-time information across multiple counterparties, whether the system provider has any access to real-time information, and whether the transactions happen on the technology platform. See letter from Vijay Kedia, President and CEO, FlexTrade Systems, dated March 1, 2021 (‘‘FlexTrade Systems Letter’’) at 2. As discussed above, the Commission believes that conditions have changed whereby systems that offer the use trading interest and protocols to bring together buyers and sellers of securities perform an exchange market place function similar to systems that offer the use of orders and trading facilities. As proposed, a Communication Protocol System can still meet the criteria of Exchange Act Rule 3b–16 even if it has no role in matching counterparties nor displays trading interest. In addition, neither the current rule nor the proposed amendments require that, for a system to be an exchange, an execution occur on the system; rather, that the buyers and sellers agree to the terms of the trade on the system is sufficient. See Regulation ATS Adopting Release, supra note 31, at 70852 (stating ‘‘whether or not the actual execution of the order takes place on the system is not a determining factor of whether the system falls under Rule 3b–16’’). Also, applying some of the criteria that the commenter suggested (whether system provider have any access to real-time information; whether the transactions happen on the technology platform) could result in the exclusion of certain RFQ platforms from the definition of exchange. 117To the extent that
a system is currently operating consistently with the circumstances described in a staff no-action letter, a system that falls within the scope of Rule 3b–16(a) and seeks to rely on the ATS exemption would need to register as a broker-dealer to comply with the broker-dealer registration requirement under Regulation ATS, regardless of any prior staff statement. Upon the adoption of any final rule, some letters and other staff statements, or portions thereof, may be moot, superseded, or otherwise inconsistent with the final rule and, therefore, would be withdrawn or modified. 118See Regulation ATS Adopting Release, supra note 31, at 70850. See also FINRA Letter at 9–10 (requesting the Commission provide additional guidance on the regulatory classification of bulletin boards). 119See SIFMA Letter at 11 (stating that systems that merely act as informational conduits should remain outside the scope of Regulation ATS); FlexTrade Systems Letter at 2–4 (stating that software vendors that provide functionality for displaying prices do not meet the definition of an exchange). 120See Regulation ATS Adopting Release, supra note 31, at 70850. ‘‘established, non-discretionary methods’’ continues to convey that the system provider is providing the trading facility or communication protocols or setting rules and is not applying its discretion in matching counterparties on the system.115 The Commission is proposing to amend Rule 3b–16(a)(2) to add ‘‘communication protocols’’ as an established method that an organization, association, or group of persons can provide to bring together buyers and sellers of securities. Systems that bring together buyers and sellers of securities may function as exchange market places of securities without orders or a trading facility for orders to interact. In the Commission’s experience, communication protocols, which can be applied to various technologies and connectivity, generally use non-firm trading interest as opposed to orders to prompt and guide buyers and sellers to communicate, negotiate, and agree to the terms of the trade. For example, if an entity makes available a chat feature, which requires certain information to be included in a chat message (e.g., price, quantity) and sets parameters and structure designed for participants to communicate about buying or selling securities, the system would have established communication protocols. While Communication Protocol Systems may not match counterparties’ trading interest, buyers and sellers using these can be brought together to interact, either on a bilateral or multilateral basis, and agree upon the terms of the trade. Protocols that a system offers may take many forms and could include: Setting minimum criteria for what messages must contain; setting time periods under which buyers and sellers must respond to messages; restricting the number of persons a message can be sent to; limiting the types of securities about which buyers and sellers can communicate; setting
minimums on the size of the trading interest to be negotiated; or organizing the presentation of trading interest, whether firm or non-firm, to participants. These examples are not exhaustive, and the determination of whether the system meets Rule 3b–16(a)(2) would depend on the particular facts and circumstances of each system. Nevertheless, as proposed, the Commission would take an expansive view of what would constitute ‘‘communication protocols’’ under this prong of Rule 3b–16(a).116 The Commission preliminarily believes that certain systems would not fall within the criteria of Exchange Act Rule 3b–16(a), as proposed to be amended, because the organization, association, or group of persons would not be considered to be providing a trading facility or communication protocol and therefore would not be considered to be making available established, non-discretionary methods under Rule 3b–16(a)(2).117 The Commission continues to believe that systems that passively display trading interest, such as systems referred to in the industry as bulletin boards, but do not provide means for buyers and sellers to contact each other and agree to the terms of the trade on the system would not be encompassed by Rule 3b–16(a) as proposed to be amended.118 For example, the Commission does not believe that a system that unilaterally displays trading interest without offering a trading facility or communication protocols to bring together buyers and sellers would be considered to be making available established, non-discretionary methods.119 In the Regulation ATS Adopting Release, the Commission stated that ‘‘[u]nless a system also establishes rules and operates a trading facility under which subscribers can agree to the terms of their trades, the system will not be included within Rule 3b–16 even if it brings together ‘orders.’ ’’ 120 These systems may display trading interest to potential buyers and sellers, but the system provider is not making available established methods for buyers and sellers to interact and agree upon terms of a trade. If adopted, however, the Commission would continue to monitor market developments to ascertain whether such systems may warrant further regulation in the future. Similarly, a system that displays trading interest and provides only connectivity among participants without providing a trading facility to match orders or providing protocols for participants to communicate and interact would not meet the criteria of Rule 3b–16(a) because such system would not be considered to be making available established, non-discretionary methods. For example, systems that only provide general connectivity for persons to communicate without protocols, such as utilities or electronic web chat providers, would not fall within the communication protocols prong of the proposed rule because such providers are not specifically designed

121ATSs have more flexibility in the operation of their business than exchanges insofar as ATSs are not subject to Section 6 of the Exchange Act and are not required to comply with the statutory standards with respect to unfair discrimination, burdens on competition, and the equitable allocation of reasonable fees. 122Section 12(a) of the Exchange Act makes it unlawful for any member, broker, or dealer to effect any transaction in any security (other than an exempted security) on a national securities exchange unless a registration statement has been filed with the Commission and is in effect as to such security for such exchange in accordance with the provisions of the Exchange Act and the rules and regulations thereunder. 15 U.S.C. 78l(a).
Section 12(b) of the Exchange Act, 15 U.S.C. 78l(b),
contains procedures for the registration of securities on a national securities exchange. Section 12(a) does not apply to an exchange that the Commission has exempted from registration as a national securities exchange. See, e.g., Securities Exchange Act Release No. 28899 (February 20, 1991), 56 FR 8377 (February 29, 1991). See also Regulation ATS Adopting Release, supra note 31, at 70886. 123See, e.g., Securities Exchange Act Release No. 54767 (November 16, 2006), 71 FR 67680 (November 22, 2006) (SR–NYSE–2004–69) (issuing exemption permitting NYSE to trade unregistered debt securities on its bonds platform, now known as NYSE Bonds). 124See infra Section III.B.2 (discussing proposed changes to Rule 301(b)(1) of Regulation ATS),
Section IV (discussing proposed changes to Rule
304 and Form ATS–N), Section V.A (discussing proposed changes to Rule 301(b)(5) and 301(b)(6)), and Section V.C (discussing proposed changes to Rule 301(b)(2)(vii)). 125See 15 U.S.C. 78f. 126See 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).
127See Section 6(b) of the Exchange Act. 128See generally Section 19(b) of the Exchange Act, 15 U.S.C. 78s(b). 129 Details and the history of each plan can be found at https://www.ctaplan.com/plans; and https://www.utpplan.com. to bring together buyers and seller of securities or provide procedures or parameters for buyers and sellers for securities to interact. To the extent that such systems are designed for securities and provide communication protocols for buyers and sellers to interact and agree to the terms of a trade, such systems would fall within the criteria of Exchange Act Rule 3b–16(a) as proposed to be revised. D. Exchange Registration or ATS Exemption for Communication Protocol Systems Under the Proposed Rules The proposed amendments to Exchange Act Rule 3b–16(a) would scope Communication Protocol Systems into the definition of ‘‘exchange,’’ in which case, the systems may decide between registering as a national securities exchange or registering as a broker-dealer and complying with Regulation ATS. The Commission believes that many Communication Protocol Systems would likely choose to be regulated as an ATS because of the lighter regulatory requirements imposed on them, as compared to the regulatory requirements of registered exchanges, which are SROs. Unlike a national securities exchange, an ATS can trade any type of security and its users are not limited to broker-dealers. In addition, an ATS is not an SRO, is not subject to
Section 6 of the Exchange Act, and does
not require Commission approval for its activities. Complying with Regulation ATS would therefore allow Communication Protocol Systems more flexibility in the operation of their business than registering as an exchange.121 Further, many Communication Protocol Systems make available for trading fixed income securities that are only traded over-the-counter and are not typically registered and approved for listing on an exchange.122 Unless a national securities exchange receives an exemption to trade unregistered debt securities,123 it may only list and trade registered debt securities, whereas Communication Protocol Systems need not receive such an exemption to trade unregistered debt securities. Notwithstanding, the Commission discusses the regulatory requirements for both regulatory alternatives below. The Commission is not proposing to make changes to the regulatory structure for exchanges or the requirements for national securities exchanges. The proposed changes to the regulatory requirements under Regulation ATS are discussed in more detail below.124

1. National Securities Exchange
   Registration
   A Communication Protocol System that chooses to register as a national securities exchange would be required to do so pursuant to Sections 5 and 6 of the Exchange Act. A national securities exchange is an SRO and must set standards of conduct for its members, administer examinations for compliance with these standards, coordinate with other SROs with respect to the dissemination of consolidated market data, and generally take responsibility for enforcing its own rules and the provisions of the Exchange Act and the rules and regulations thereunder. Before a national securities exchange may commence operations, the Commission must approve its application for registration filed on Form 1.125 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.126 Pursuant to Section 6 of the Exchange Act, national securities exchanges must establish rules that generally: (1) Are designed to prevent fraud and manipulation, promote just and equitable principles of trade, and protect investors and the public interest; (2) provide for the equitable allocation of reasonable fees; (3) do not permit unfair discrimination; (4) do not impose any unnecessary or inappropriate burden on competition; and (5) with limited exceptions, allow any broker￾dealer to become a member.127 After approval of its application for registration, a national securities exchange must file with the Commission any proposed changes to its rules.128 The initial application on Form 1, amendments thereto, and filings for proposed rule changes, in combination, publicly disclose important information about national securities exchanges, such as trading services and fees. The Commission’s order approving the application is also public. The Commission oversees the exchanges under the Exchange Act through, among other things, its examination authority under Section 17, its enforcement authority under Sections 19(h)(1) and 21C, its authority to approve and disapprove rules under
   Section 19(b), and its rulemaking
   authority under various Exchange Act provisions. Under the Exchange Act, securities traded on a national securities exchange must be registered with the Commission and approved for listing on an exchange. National securities exchanges can only have broker-dealer members. As an SRO, a national securities exchange enjoys certain unique benefits, such as limited immunity from private liability with respect to its regulatory functions and the ability to receive consolidated revenue under the national market system plans for equity market data (i.e., Consolidated Tape Association (CTA)/ Consolidated Quotation (CQ) and Unlisted Trading Privilege (UTP)),129 among others.
2. Regulation ATS Exemption; Broker￾Dealer Registration
   A Communication Protocol System may choose to operate as an ATS pursuant to Regulation ATS, which exempts an ATS from the definition of ‘‘exchange’’ on the condition that the ATS is in compliance with the requirements of Regulation ATS. An ATS that fails to comply with the requirements of Regulation ATS would

130The Commission is proposing to amend Rule 301(b)(1) to allow an ATS to register as a government securities broker or government securities dealer under Exchange Act Section 15C(a)(1)(A). See infra notes 272–278 and accompanying text. 131See Section 15(b)(8) of the Exchange Act; 15 U.S.C. 78o(b)(8). 132See Regulation ATS Adopting Release, supra note 31, at 70903. 133Form ATS and the Form ATS Instructions are available at https://www.sec.gov/about/forms/ formats.pdf. Form ATS would require, among other things, that the ATS (other than a Government Securities ATS or NMS Stock 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 entry of trading interest and execution; and trade reporting, clearance and settlement of trades on the ATS. See infra Section V.B (describing proposed changes to Form ATS). Regulation ATS provides that a report on Form ATS or Form ATS–R shall be considered filed upon receipt by the Division of Trading and Markets, at the Commission’s principal office in Washington, DC (i.e., in paper form), and that information filed by an ATS on Form ATS is deemed confidential when filed. See 17 CFR 242.301(b)(2)(vii). See also infra Section V.C. 134 ‘‘Newly Designated ATSs’’ would be defined as ATSs operating as of the effective date of any final rule that meet the criteria under Rule 3b–16(a) as of the effective date of any final rule but did not meet the criteria under Rule 3b–16(a) in effect prior to the effective date of any final rule. See Rule 300(r). 135See infra note 180 and accompanying text. The Commission is also proposing changes to Rule 301(b)(2)(i) to clarify that the requirement to file Form ATS does not apply to Covered ATSs or Covered Newly Designated ATSs. See proposed Rule 301(b)(2)(i). See also proposed Rule 300(s) (defining ‘‘Covered Newly Designated ATS’’). 136See Regulation ATS Adopting Release, supra note 31, at 70864. 137Form ATS provides the Commission with notice about an ATS’s operations prior to commencing operations. An ATS is also required to notify the Commission of any changes in its operations by filing an amendment to its initial operation report. There are three types of amendments to an initial operation report. 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. See 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 31, at 70864. 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. See 17 CFR 242.301(b)(2)(iii). 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. See 17 CFR 242.301(b)(2)(iv). An ATS is required to promptly file a cessation of operations on Form ATS. See 17 CFR 242.301(b)(2)(v). 138See 17 CFR 242.301(b)(2)(vii); Form ATS at 3, General Instructions A.7. 139See proposed changes to 17 CFR 242.304. 140See infra Section IV.A. 141See Rule 304(a)(1)(i). 142See infra Section IV.A. 143See infra Section IV. 144See 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. See also Section V.B (describing proposed changes to Form ATS–R). 145See Form ATS–R at 4, Items 1 and 2 (describing the requirements for Exhibit A and Exhibit B of Form ATS–R). ATSs must also complete and file Form ATS–R within 10 calendar days after ceasing to operate. See 17 CFR 242.301(b)(9)(ii); Form ATS–R at 2, General Instructions A.2 to Form ATS–R. no longer qualify for the ATS exemption and thus risks operating as an unregistered exchange in violation of
Section 5 of the Exchange Act.
To operate under the exemption, an ATS must register as a broker-dealer under Exchange Act Section 15 or as a government securities broker or government securities dealer under Exchange Act Section 15C(a)(1)(A),130 and comply with the filing and conduct obligations associated with being a registered broker-dealer, including membership in an SRO, such as FINRA,131 and compliance with the SRO’s rules.132 Requiring Communication Protocol Systems to register as broker-dealers and be a member of an SRO would ensure that they are subject to SRO examination and market surveillance, trade reporting obligations, and certain investor protection rules. Broker-dealer registration provides important investor protections under the Federal securities laws and FINRA rules, such as: (1) Various disclosure and supervision obligations; (2) anti-money laundering obligations (including suspicious activity reporting); (3) FINRA over-the￾counter (OTC) trade reporting requirements, including requirements to maintain membership in, or maintain an effective clearing arrangement with a participant of, a clearing agency registered under the Exchange Act; and (4) Commission examinations and FINRA examinations and surveillance of members and markets that its members operate. In addition, ATSs are subject to certain reporting and disclosure requirements, as applicable. ATSs other than NMS Stock ATSs or, as proposed, Government Securities ATSs, would be required, pursuant to Rule 301(b)(2) of Regulation ATS, to file an initial operation report with the Commission on Form ATS 133 at least 20 days before commencing operations or, in the case of Newly Designated ATSs,134 no later than 30 calendar days after the effective date of any final rule.135 Form ATS provides the Commission with the opportunity to identify problems that might impact investors before the system begins to operate.136 Unlike a Form 1 filed by a national securities exchange, a Form ATS is not approved by the Commission.137 Also unlike a Form 1 application, a Form ATS is deemed confidential when filed.138 Requiring Communication Protocol Systems to file Form ATS and amendments thereto will help the Commission monitor and oversee such ATSs’ operations. NMS Stock ATSs and, as proposed, Government Securities ATSs, would be subject to enhanced filing and disclosure requirements under Rule 304 of Regulation ATS. NMS Stock ATSs or Government Securities ATSs would, in lieu of Form ATS, be required to file public Form ATS–N in EDGAR, in which they must disclose detailed information about the manner in which their trading systems operate and the potential for conflicts of interest and information leakage.139 Form ATS–N is subject to a Commission review and effectiveness process.140 An NMS Stock ATS or Government Securities ATS would not be permitted to operate pursuant to the Rule 3a1–1(a)(2) exemption until its Form ATS–N has become effective.141 In addition, the ATS would be required to file amendments on Form ATS–N to
provide notice of changes to its operations and broker-dealer and affiliate relationships.142 Form ATS–N and the Commission review and effectiveness process, which is described in detail below,143 would provide operational transparency and regulatory oversight of Communication Protocol Systems that are NMS Stock ATSs or Government Securities ATSs. In addition, all ATSs are required to periodically, by paper submission, report certain information about transactions in the ATS and information about certain activities on Form ATS–R within 30 calendar days after the end of each calendar quarter in which the market has operated, pursuant to Rule 301(b)(9).144 Form ATS–R requires quarterly volume information for specified categories of securities, as well as a list of all securities traded in the ATS during the quarter and a list of all subscribers that were participants during the quarter,145 and for ATSs subject to the Fair Access Rule to provide certain additional

146Form ATS–R also requires an ATS that is subject to the fair access obligations under Rule 301(b)(5) of Regulation ATS to provide a list of all persons granted, denied, or limited access to the ATS during the period covered by the ATS–R and designate for each person each of the following:
Whether the person was granted, denied, or limited access; the date the ATS took such action; the effective date of such action; and the nature of any denial or limitation of access. See Form ATS–R at 6, Item 7 (explaining requirements for Exhibit C). 147See 17 CFR 242.301(b)(2)(vii); Form ATS–R at 2, General Instruction A.7. 148See Regulation ATS Adopting Release, supra note 31, at 70874 and 70878. 149An ATS that displays orders and meets the volume requirements must provide to a national securities exchange or national securities association the prices and sizes of the orders at the highest buy price and the lowest sell price for such NMS stock, displayed to more than one person in the ATS, for inclusion in the quotation data made available by the national securities exchange or national securities association pursuant to Rule 602 under Regulation NMS. See 17 CFR 242.301(b)(3)(ii). With respect to any such displayed order, the ATS must provide to any broker-dealer that has access to the national securities exchange or national securities association to which the ATS provides the prices and sizes of displayed orders pursuant to Rule 301(b)(3)(ii), the ability to effect a transaction with such orders that is equivalent to the ability of such broker-dealer to effect a transaction with other orders displayed on the exchange or by the association; and at the price of the highest priced buy order or lowest priced sell order displayed for the lesser of the cumulative size of such priced orders entered therein at such price, or the size of the execution sought by such broker-dealer. See 17 CFR 242.301(b)(3)(iii). 150An ATS that displays subscriber orders in an NMS stock must comply with Rule 301(b)(3) if, during at least four of the preceding six calendar months, it 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. See 17 CFR 242.301(b)(3)(i). 151See Regulation ATS Adopting Release, supra note 31, at 70867. 152See 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 (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. 153See infra Section III.B.4 and Section V.A. 154An ATS subject to the Fair Access Rule, as proposed to be revised, must: Establish and apply reasonable written standards for granting, limiting, and denying access to the services of the ATS; make and keep records of all grants of access including, for all participants, the
reasons for granting such access, and all denials or limitations of access and reasons, for each applicant and participant, for denying or limiting access; and report on Form ATS–R a list of persons granted, denied, and limited access to the ATS. See infra Section V.A. 155See 17 CFR 242.301(b)(5). 156See infra Section III.B.4. 157An ATS that meets the volume requirements must, with respect to those systems that support order entry, order routing, order execution, transaction reporting, and trade comparison, establish reasonable current and future capacity estimates; conduct periodic capacity stress tests of critical systems to determine such system’s ability to process transactions in an accurate, timely, and efficient manner; develop and implement reasonable procedures to review and keep current its system development and testing methodology; review the vulnerability of its systems and data center computer operations to internal and external threats, physical hazards, and natural disasters; establish adequate contingency and disaster recovery plans; on an annual basis, perform an independent review, in accordance with established audit procedures and standards, of the ATS’s controls for ensuring that the above requirements are met, and conduct a review by senior management of a report containing the recommendations and conclusions of the independent review; and promptly notify the Commission and its staff of material systems outages and significant systems changes. See 17 CFR 242.301(b)(6)(ii). 158See 17 CFR 242.301(b)(6)(i). 159Regulation SCI does not apply to ATSs that trade only municipal securities or corporate debt securities. See infra notes 351–356 and accompanying text. See also Regulation SCI Adopting Release, supra note 3, at 72262. 160See infra Section III.C. 161See 17 CFR 242.301(b)(7). 162See 17 CFR 242.301(b)(8). 163See 17 CFR 242.302. Rule 302 requires all ATSs to make and keep current certain records, information.146 Like Form ATS, Rule 301(b)(2)(vii) and the instructions to Form ATS–R provide that Form ATS–R is deemed confidential when filed.147 The information reported on Form ATS–R by Communication Protocol Systems would permit the Commission to monitor the trading on these ATSs for compliance with the Exchange Act and applicable rules thereunder and enforce the Fair Access Rule.148 NMS Stock ATSs must comply with certain order display and execution access obligations 149 under Rule 301(b)(3) if the ATS displays subscriber orders in an NMS stock to any person (other than an employee of the ATS) and meets certain volume requirements.150 These order display and execution access obligations were adopted by the Commission with the expectation they would promote additional market integration and further discourage two-tier markets when trading in an NMS stock on an ATS reaches a certain level.151 In addition, an NMS Stock 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 NMS Stock ATS that is required under Rule 301(b)(3)(iii).152 This requirement is designed to promote equal access to ATSs. As discussed in more detail below,153 ATSs are required to comply with the Fair Access Rule 154 under Rule 301(b)(5) if the ATS meets volume thresholds in NMS stocks, equity securities that are not NMS stocks and for which transactions are reported to an SRO, municipal securities, or corporate debt securities.155 The Commission is proposing to apply the requirements of the Fair Access Rule to trading of U.S. Treasury Securities and Agency Securities on ATSs.156 Additionally, under Rule 301(b)(6) (‘‘Capacity, Integrity, and Security Rule’’), an ATS that trades only municipal securities or corporate fixed income debt with 20% or more of the average daily volume traded in the U.S. during at least four of the preceding six calendar months would be required to comply with capacity, integrity, and security standards 157 with respect to those systems that support order entry, order routing, order execution, transaction reporting, and trade comparison.158 Information provided under the Capacity, Integrity, and Security Rule would enable the Commission staff to better understand the operation of certain Communication Protocol Systems and to identify potential problems and trends that may require attention. NMS Stock ATSs, ATSs that trade non-NMS equity securities that are reported to an SRO, and Government Securities ATSs that meet certain trading thresholds would be subject to Regulation SCI. Regulation SCI superseded and replaced Rule 301(b)(6) requirements with regard to ATSs that trade NMS stocks and non-NMS stocks.159 The Commission is proposing to apply Regulation SCI to Government Securities ATSs, as discussed below.160 Regulation SCI is designed to help address the technological vulnerabilities, and improve the Commission’s oversight of the core technology of key entities. All ATSs, regardless of the volume traded on their systems, are required, pursuant to Rule 301(b)(7),161 to permit the examination and inspection of their premises, systems, and records, and cooperate with the examination, inspection, or investigation of subscribers, whether such examination is being conducted by the Commission or by an SRO of which such subscriber is a member. Because an ATS subscriber to whom the Commission’s inspection authority may not extend could use the ATS to manipulate the market in a security, the requirement is designed to require that ATSs cooperate in all inspections, examinations, and investigations. ATSs are also required, pursuant to Rule 301(b)(8),162 to make and keep current the records specified in Rule 302 of Regulation ATS 163 and preserve

including: A record of subscribers to the ATS; daily summaries of trading in the ATS; and time￾sequenced records of order information in the ATS. See 17 CFR 242.302. 164See Rule 303 of Regulation ATS. 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 31, at 70877–78. 165See supra note 98 and accompanying text. 166Specifically, the Commission is proposing to revise Rule 302(c)(1) (date and time (expressed in terms of hours, minutes, and seconds) that the trading interest was received); (c)(3) (the number of shares, or principal amount of bonds, to which the trading interest applies); (c)(5) (the designation of the trading interest as buy or sell trading interest); (c)(8) (any limit or stop price prescribed by the trading interest); (c)(9) (the date on which the trading interest expires and, if the time in force is less than one day, the time when the trading interest expires); (c)(10) (the time limit during which the trading interest is in force); (c)(11) (any instructions to modify or cancel the trading interest); (c)(12) (the type of account for which the trading interest is submitted); (c)(13) (date and time that the trading interest was executed); (c)(14) (price at which the trading interest is executed); and (c)(15) (size of the trading interest executed). 167See Regulation ATS Adopting Release, supra note 31, at 70878. 168These written safeguards and written procedures must include: Limiting access to the confidential trading information of subscribers to those employees of the ATS who are operating the system or responsible for its compliance with these or any other applicable rules; and implementing standards controlling employees of the ATS trading for their own accounts. 169See 17 CFR 242.301(b)(10); NMS Stock ATS Adopting Release, supra note 2, Section VI. 170See 17 CFR 242.301(b)(10)(ii). 171See NMS Stock ATS Adopting Release, supra note 2, at 38864. 172See 17 CFR 242.301(b)(11); Regulation ATS Adopting Release, supra note 31, Section II.C. 173See Securities Exchange Act Release No. 39884 (April 17, 1998), 63 FR 23504, 23523 (April 29, 1998) (‘‘Regulation ATS Proposing Release’’). 174For purposes of the rule text, the Commission is proposing to apply the transitional rules to ‘‘Newly Designated ATSs.’’ 175A registered broker-dealer that operates a Communication Protocol System and is currently a FINRA member may, under FINRA rules, be required to file a Continuing Membership Application with FINRA noticing material changes to business operations in connection with its operation of an ATS. 176After receiving a substantially complete application package, FINRA must review and process it within 180 calendar days. See ‘‘How to Become a Member—Member Application Time Frames’’ available at
https://www.finra.org/ registration-exams-ce/broker-dealers/how-become￾member-membership-application-time-frames. See also FINRA Rule 1014. 177See proposed revisions to Rule 301(b)(1). This transition period for the proposed rule, if adopted, would also apply to Currently Exempted Government Securities ATSs (i.e., Legacy Government Securities ATSs formerly not required to comply with Regulation ATS pursuant to the exemption under § 240.3a1–1(a)(3) prior to effective date of any final rule) not registered as a broker￾dealer. See infra note 283. 178 ‘‘Covered ATS’’ is defined infra note 257. The Commission is proposing changes to Rule 301(b)(2)(i) to clarify that the requirement to file Form ATS does not apply to ATSs other than Covered ATSs. See proposed Rule 301(b)(2)(i). 179The rule text uses the term ‘‘Covered Newly Designated ATS.’’ 180See proposed changes to Rule 301(b)(2)(i). 181See infra note 300 and Section IV.A. the records specified in 17 CFR
242.303.164 The Commission is
proposing to amend Rule 302 of Regulation ATS to require recordkeeping related to ‘‘trading interest.’’ Rule 302 requires that an ATS shall make and keep certain records, which the rule enumerates. Communication Protocol Systems that choose to comply with Regulation ATS would be required to keep the records enumerated in Rule 302. The Commission is proposing to revise certain of these enumerated records that relate to ‘‘orders’’ to require such records related to ‘‘trading interest,’’ which would include both firm orders and non-firm trading interest.165 This would include time-sequenced records of trading interest information in the ATS.166 The recordkeeping requirements would require Communication Protocol Systems to make and keep certain records for an audit trail of trading activity that would allow the Commission to detect and investigate potential market irregularities, examine whether the ATS is in compliance with Federal securities laws, and ensure investor protections.167 In addition, ATSs are required to establish adequate written safeguards and written procedures 168 to protect confidential trading information and to separate ATS functions from other broker-dealer functions, including principal and customer trading pursuant to Rule 301(b)(10).169 Furthermore, all ATSs must adopt and implement adequate written oversight procedures to ensure that the above written safeguards and procedures are followed.170 These requirements are designed to help prevent the potential for abuse of subscriber confidential trading information.171 In addition, an ATS must not use in its name the word ‘‘exchange,’’ or any derivation of the word ‘‘exchange’’ pursuant to Rule 301(b)(11).172 The Commission believes that the use of the word ‘‘exchange’’ by an ATS would be deceptive and could lead investors to believe incorrectly that such ATS is registered as a national securities exchange.173 The Commission is proposing amendments to facilitate an orderly transition for Communication Protocol Systems to comply with the applicable conditions of the Regulation ATS exemption.174 The Commission understands that some Communication Protocol Systems are not currently registered as broker-dealers.175 To become a registered broker-dealer, these Communication Protocol Systems would be required to file Form BD with the Commission and complete FINRA’s processes for new members.176 The Commission is proposing to allow Communication Protocol Systems that are not registered as broker-dealers at the time the proposed rule would be effective, if adopted, to provisionally operate pursuant to the Rule 3a1–1(a)(2) exemption while their broker-dealer registration is pending until the earlier of (1) the date the ATS registers as a broker-dealer under Section 15 of the Exchange Act or Section 15C(a)(1)(A) of the Exchange Act and becomes a member of a national securities association or (2) the date 210 calendar days after the effective date of any final rule.177 The 210 calendar day
period is designed to provide time for a Communication Protocol System to submit its broker-dealer registration application, or continuing membership application, as applicable, and for FINRA to conduct its review of new member application and continuing member application. The proposed transition period is designed to provide a Communication Protocol System that is not a registered broker-dealer adequate time to comply with the necessary broker-dealer registration requirements under Regulation ATS without disrupting its market or its participants. Proposed Rule 301(b)(2)(i) requires ATSs (other than Covered ATSs) 178 to file an initial operation report on Form ATS at least 20 days before commencing operations; however, Communication Protocol Systems that seek to operate as ATSs already will be operating when the proposed rule, if adopted, becomes effective. To avoid disruption of the services of the ATS, the Commission is proposing to amend Rule 301(b)(2)(i) to require Communication Protocol Systems (other than those that are Covered ATSs) 179 to file an initial operation report on Form ATS no later than 30 calendar days after the effective date of any final rule.180 The Commission is also proposing changes, as discussed below, to Rule 301(b)(2)(viii) and Rule 304 to facilitate the transition for Communication Protocol Systems that are Covered ATSs to file Form ATS–N.181 Requiring Communication Protocol Systems to file a Form ATS with the Commission at the proposed time would provide the Commission with information about its

182Under the Exchange Act, government securities are defined as, among other things, securities which are direct obligations of, or obligations guaranteed as to principal or interest by, the United States. See 15 U.S.C. 78c(42)(A). Government securities include U.S. Treasury securities, debt securities issued or guaranteed by a U.S. executive agency, as defined in 5 U.S.C. 105, or government-sponsored enterprise, as defined in 2 U.S.C. 622(8), and Agency Mortgage-Backed Securities (‘‘MBSs’’). Government securities also include securities which are issued or guaranteed by the Tennessee Valley Authority or by corporations in which the United States has a direct or indirect interest and which are designated by the Secretary of the Treasury for exemption as necessary or appropriate in the public interest or for the protection of investors; securities issued or guaranteed as to principal or interest by any corporation the securities of which are designated, by statute specifically naming such corporation, to constitute exempt securities within the meaning of the laws administered by the Commission; and any put, call, straddle, option, or privilege on one of the aforementioned (subject to limited exceptions). 15 U.S.C. 78c(42)(B)–(C). 183See Group of Thirty Working Group on Treasury Market Liquidity, U.S. Treasury Markets:
Steps Toward Increased Resilience. Group of Thirty at 1 (2021) (‘‘G30 Report’’), available at https:// group30.org/publications/detail/4950. 184See Recent Disruptions and Potential Reforms in the U.S. Treasury Market: A Staff Progress Report, at 32, available at https:// home.treasury.gov/system/files/136/IAWG￾Treasury-Report.pdf (‘‘November 2021 IAWG Report’’). The November 2021 IAWG Report is a joint report issued by the Inter-Agency Working Group for Treasury Market Surveillance (‘‘IAWG’’), which consists of staff from the U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the Commission, and the Commodity Futures Trading Commission. Among other things, the November 2021 IAWG report provides an overview of the current structure of the Treasury market and a detailed analysis of the recent disruptions to the Treasury market at the onset of the COVID–19 pandemic in March 2020 as well as other recent disruptions to the Treasury market. The report also sets forth what the IAWG believes are the six guiding principles for the Treasury market and provides an update about the work streams for specific policy analysis being undertaken by the members of the IAWG. operations and facilitate oversight of the systems. Request for Comment

1. Should the Commission amend
   Exchange Act Rule 3b–16 as proposed? Should the Commission adopt a more expansive or limited interpretation of the definition of ‘‘exchange’’? Do commenters agree that, in the current market, Communication Protocol Systems function as market places that conduct similar activities as exchanges do? Would any systems that conduct similar activities as exchanges that should be included in proposed Rule 3b–16 be excluded? Are there any asset classes or types of securities that should be excluded from the definition of exchange? If so, why?
2. What are commenters’ views on the
   potential consequences of expanding or limiting the definition of ‘‘exchange’’ under Exchange Act Rule 3b–16? What are commenters’ views on how changing Rule 3b–16 could benefit or harm investors and market participants? Are new systems that meet the definition of exchange likely to choose to operate as ATSs instead of national securities exchanges?
3. Should the Commission adopt the
   proposed definition of ‘‘trading interest’’ under Exchange Act Rule 3b–16? Should the definition of ‘‘trading interest’’ require attributes to be identified in addition to at least the security and either quantity, direction (buy or sell), or price? Alternatively, would only one of the security, quantity, direction (buy or sell), or price be adequate to indicate trading interest? Should the definition of ‘‘exchange’’ continue to be limited to systems that use orders? If so, why?
4. Should the Commission revise
   Exchange Act Rule 3b–16 to focus on bringing together buyers and sellers, rather than bringing together orders (or trading interest)? Would the proposed revisions to the rule appropriately describe systems that use non-firm trading interest to allow participants to communicate their trading interest?
5. Should the Commission revise
   Exchange Act Rule 3b–16(a)(2) to describe a system that ‘‘makes available established, non-discretionary methods’’ under which buyers and sellers interact? Should the Commission revise the language further to clarify that a system provider that makes available a trading facility or communication protocol by way of a third party or affiliate would fall within the criteria of Rule 3b– 16(a)(2)? Should there be any minimum or baseline to the established methods a system must have to qualify as an exchange? If so, what are they? Do commenters agree that making available communication protocols, as discussed herein, is sufficient to be an established, non-discretionary method under which buyers and sellers can interact?
6. Should the Commission remove the
   reference to ‘‘multiple’’ in Rule 3b– 16(a)(1))? If so, why? If not, why not?
7. Should Communication Protocol
   Systems that choose to comply with Regulation ATS be subject to all of the requirements of Regulation ATS? Are there certain requirements of Regulation ATS that should or should not be applicable to Communication Protocol Systems, or certain Communication Protocol Systems? For example, are the current Regulation ATS recordkeeping requirements appropriate for Communication Protocol Systems? Should the Commission require a Communication Protocol System that chooses to operate as an ATS to create and maintain records that are not otherwise required by Rule 301(b)(8) of Regulation ATS? Is there anything that is not currently among the conditions to the Regulation ATS exemption that a Communication Protocol System and/or an existing ATS should comply with as
   part of Regulation ATS? And if so, why?
8. Should the Commission amend
   Regulation ATS, Form ATS, Form ATS– R, or Form ATS–N in any way to be more tailored to Communication Protocol Systems? If so, how?
9. Are the proposed transition periods
   for Communication Protocol Systems appropriate? Should the Commission provide Communication Protocol Systems more or less time to comply with any of the requirements of Regulation ATS? Please explain.
10. Is the Commission’s proposal that
    a Newly Designated ATS must file an initial operation report on Form ATS no later than 30 calendar days after the effective date of any final rule, if adopted, appropriate? If not, should the Commission provide more time or less time for a Newly Designated ATS to file an initial Form ATS?
11. Should the Commission allow a
    Newly Designated ATS that is not registered as a broker-dealer to operate pursuant to the Rule 3a1–1(a)(2) exemption on a provisional basis? Does the proposal to allow such ATSs a maximum 210 calendar days to comply with the broker-dealer registration requirement provide an appropriate amount of time to register as a broker￾dealer? If not, what, if any, transition period would be appropriate and why?
    III. Proposed Changes Applicable to
    Government Securities ATSs A. ATS Markets for Government Securities Government securities 182 play a critical role in the U.S. and global economies. Among other things, for example, Treasury rates are a fundamental benchmark for pricing virtually all other financial assets.183 Systems currently operating as ATSs, particularly those that operate in the secondary interdealer markets for the most-recently issued (‘‘on-the-run’’) U.S. Treasury Securities, have become a significant location of trading interest for government securities.184 Specifically, most interdealer trading takes place on electronic platforms provided by interdealer brokers that operate limit order books, with electronic interdealer trading being

185See id. at 3. 186See SIFMA Fixed Income Trading Volume, available at https://www.sifma.org/resources/ research/us-fixed-income-trading-volume/. This includes U.S. Treasury Securities, Agency Mortgage-Backed Securities, and Federal Agency Securities. 187See November 2021 IAWG Report, supra note 184, at 31. See also NMS Stock ATS Adopting Release, supra note 2, at 38771 for a discussion about the current operational complexities of NMS Stock ATSs. 188See also November 2021 IAWG Report, supra note 184, at 31; Joint Staff Report: The U.S. Treasury Market on October 15, 2014, at 11, 35–36, available at https://www.sec.gov/files/treasury￾market-volatility-10-14-2014-joint-report.pdf (‘‘October 15 Staff Report’’); Department of the Treasury Release No. 2015–0013 (January 22, 2016), Notice Seeking Public Comment on the Evolution of the Treasury Market Structure, 81 FR 3928 (January 22, 2016) (‘‘Treasury Request for Information’’). This evolution in the interdealer secondary cash markets for U.S. Treasury Securities was also highlighted in the October 15 Staff Report, the Treasury Request for Information, and public comment received by the Commission. The October 15 Staff Report is a joint report about the unusually high level of volatility and rapid round-trip in prices that occurred in the U.S. Treasuries market on October 15, 2014. Among other things, the October 15 Staff Report provides an overview of the market structure, liquidity, and applicable regulations of the U.S. Treasury market, as well as the broad changes to the structure of the U.S. Treasury market that have occurred over the past two decades. 189See infra note 193 for a description of ‘‘off-the￾run’’ securities. 190See James Collin Harkrader and Michael Puglia, Fixed Income Market Structure: Treasuries vs. Agency MBS, Board of Governors of the Federal Reserve System: FEDS NOTES (August 25, 2020), available at https://www.federalreserve.gov/ econres/notes/feds-notes/fixed-income-market￾structure-treasuries-vs-agency-mbs-20200825.htm (‘‘August 25th FEDS Notes’’) (explaining the recent evolution of the government securities market structure). 191STRIPS is the acronym for Separate Trading of Registered Interest and Principal of Securities. STRIPS let investors hold and trade the individual interest and principal components of eligible Treasury notes and bonds as separate securities. STRIPS are Treasury securities that don’t make periodic interest payments. Market participants create STRIPS by separating the interest and principal parts of a Treasury note or bond. STRIPS can only be bought and sold through a financial institution, broker, or dealer and held in the commercial book-entry system. See TreasuryDirect, STRIPS, available at https:// www.treasurydirect.gov/instit/marketables/strips/ strips.htm. 192On-the-run U.S. Treasury Securities are the most recently issued nominal coupon securities. Nominal coupon securities pay a fixed semi-annual coupon and are currently issued at original
maturities of 2, 3, 5, 7, 10, 20, and 30 years. These standard maturities are commonly referred to as ‘‘benchmark’’ securities because the yields for these securities are used as references to price a number of private market transactions. 193Off-the-run or ‘‘seasoned’’ U.S. Treasury Securities are the issues that preceded the current on-the-run securities. The U.S. Treasury Securities market also comprises futures and options on U.S. Treasury Securities, and securities financing transactions in which U.S. Treasury Securities are used as collateral. See Treasury Request for Information, supra note 188, at 3928. For the purpose of this proposal, the Commission focuses on the secondary cash market. 194See id. 195See id. 196See id. For the purposes of this proposal, internalization refers to a broker filling a customer order either from the firm’s own inventory or by matching the order with other customer order flow, instead of sending the order to an interdealer market for execution. See id. at 3928 n.5. 197See October 15 Staff Report, supra note 188, at 11, 35–36. See also Bloomberg Letter at 5, stating that liquid on-the-run government securities are mostly traded on limit order books. 198The growth of electronic trading has contributed to a marked shift in the composition of the interdealer cash market for U.S. Treasury Securities over time. Traditionally, interdealer brokers only allowed primary dealers to access their trading venues. After 1992, however, interdealer brokers expanded access to all entities that were netting members of the Government Securities Clearing Corporation (which is now the Fixed Income Clearing Corporation’s Government Securities Division). Thereafter, other entities gained access to these trading venues through their Continued concentrated in on-the-run Treasury securities.185 In July 2021, average daily trading in government securities totaled $978 billion, or roughly 95 percent of all fixed income trading volume in the U.S.186 Legacy Government Securities ATSs now operate with complexity similar to that of markets that trade NMS stocks in terms of use of technology and speed of trading, the use of limit order books, order types, algorithms, connectivity, data feeds, and the active participation of principal trading firms (‘‘PTFs’’).187 For example, based on the Commission’s review of Form ATS filings by ATSs that trade government securities and discussions with market participants, the Commission believes that Legacy Government Securities ATSs often offer subscribers a variety of order types to pursue both aggressive and passive trading strategies and low latency, high-speed connectivity to the ATS. These ATSs frequently use automated systems to match orders anonymously on a price/time priority basis. Some Legacy Government Securities ATSs also segment orders into categories by participants or allow participants the ability to interact with specific counterparty groups in the ATS and facilitate order interaction and
execution.188 Likewise, Communication Protocol Systems are increasingly used as electronic means to bring together buyers and sellers for government securities and are particularly prevalent in the dealer-to-customer market for U.S. Treasury and markets for off-the￾run 189 U.S. Treasury Securities, Agency Securities,190 and repos. The most liquid and commonly traded government securities are U.S. Treasury Securities, which are direct obligations of the U.S. Government issued by the U.S. Department of the Treasury (‘‘Treasury Department’’). The Treasury Department issues several different types of securities, including Treasury bills, nominal coupons notes and bonds, Floating Rate Notes, and Treasury Inflation Protected Securities. Treasury nominal coupon notes and bonds, as well as Treasury Inflation Protected Securities, may also be separated into principal and interest payments and traded as STRIPS.191 For each security type, the on-the-run securities are generally considered the most liquid in the secondary market.192 Market participants commonly refer to securities issued prior to ‘‘on-the-run’’ securities as ‘‘off-the-run’’ securities.193 Market participants use U.S. Treasury Securities as an investment instrument, hedging vehicle, and to source orders and trading interest, among other things. U.S. banks commonly own U.S. Treasury Securities due to their low risk and strong liquidity characteristics. Additionally, U.S. Treasury Securities are often used as collateral in lending arrangements or as margin on other financial transactions. For U.S. Treasury Securities, the secondary market is bifurcated between the dealer-to-customer market, in which dealers trade with their customers (e.g., investment companies, pension funds, insurance companies, corporations, or retail), and the interdealer market, in which dealers and specialty firms trade with one another.194 Customers, also referred to as ‘‘end users,’’ have not traditionally traded directly with other end users.195 Rather, end users primarily trade with dealers, and dealers use the interdealer market as a source of liquidity to help facilitate their trading with clients in the dealer-to￾customer market. Trading in the U.S. Treasury Securities dealer-to-customer market is generally—and has historically been—conducted bilaterally using voice, and more recently, electronically through the use of Communication Protocol Systems, most commonly using an RFQ protocol. Broker-dealers also internalize a portion of their customer flow, although the extent to which broker-dealers internalize is unclear.196 In the interdealer market, the majority of trading in on-the-run U.S. Treasury Securities currently occurs on ATSs using limit order books supported by advanced electronic trading technology.197 Furthermore, interdealer trading for on-the-run U.S. Treasury Securities is generally concentrated within a very small number of ATSs, especially when compared to the market for NMS stocks, which is
dispersed among many trading venues.198 While

prime brokers, who themselves had access, and in recent years the trading venues granted direct access to an even wider range of participants, including non-dealers, which account for more than half of the trading activity in the futures and electronically brokered interdealer cash markets. See October 15 Staff Report, supra note 188, at 36. See also Treasury Request for Information, supra note 188, at 3928. 199See infra Table VIII.2 and accompanying text. 200For an additional discussion of trading volume in the U.S. bond market as a whole and U.S. Treasury Securities, see infra Section VIII.B.2. 201Also, as noted in the October 15 Staff Report issued by the Treasury Department, Board of Governors of the Federal Reserve System, Federal Reserve Bank of New York, the Commission, and U.S. Commodity Futures Trading Commission, trading in off-the-run U.S. Treasury Securities has always been less active than trading in on-the-run U.S. Treasury Securities, and price discovery in the cash markets primarily occurs in on-the-run securities. See October 15 Staff Report, supra note 188 at n.7. 202See November 2021 IAWG Report, supra note 184, at 3. See also Bloomberg Letter at 5, stating that less liquid off-the-run government securities are mostly traded using methods other than limit order books. 203While trading in on-the-run securities likely accounts for more than half of total daily trading volumes, off-the-run U.S. Treasury Securities make up over 95 percent of the outstanding marketable U.S. Treasury Securities. See G30 Report, supra note 183, at 1, n.2. 204See U.S. Department of the Treasury Resource Center, ‘‘Fixed Income: Agency Securities,’’ available at https://www.treasury.gov/resource￾center/faqs/Markets/Pages/fixedfederal.aspx. For example, the Government National Mortgage Association (‘‘Ginnie Mae’’) is a U.S. Government corporation that issues mortgage-backed securities guaranteed by the full faith and credit of the U.S. Government. The assets collateralized into the securities issued by Ginnie Mae are federally insured and guaranteed mortgage loans. Agency Securities issued by GSEs include those issued by the Federal Home Loan Banks (‘‘FHLBs’’), the Federal National Mortgage Association (‘‘Fannie Mae’’), the Federal Home Loan Mortgage Corporation (‘‘Freddie Mac’’), and the Student Loan Marketing Association (‘‘Sallie Mae’’). Agency Securities issued by GSEs are not normally backed by the full faith and credit of the U.S. Government and therefore, may present some default and credit risk. 205Additionally, repos on government securities are also traded on some ATSs. 206PTFs are not, however, very active in the electronic markets for Agency Securities. See August 25th FEDS Notes, supra note 190 (‘‘Though parts of the agency MBS market have moved from voice-based to screen-based trading since the early 2000s, algorithmic high-frequency electronic trading still does not comprise a meaningful share of average daily volume and the market remains
devoid of PTF participation.’’). 207See November 2021 IAWG Report, supra note 184, at 5. See also October 15 Staff Report, supra note 188, at 36; Remarks of Deputy Secretary Justin Muzinich at the 2019 U.S. Treasury Market Structure Conference (September 23, 2019), available at https://home.treasury.gov/news/press￾releases/sm782. 208See infra Table VIII.2. (ATS PTF volume/ATS volume) × 100 = PTF share of ATS volume (%). 209See October 15 Staff Report, supra note 188, at 32, 35–36, 39. 210See November 2021 IAWG Report, supra note 184, at 5; October 15 Staff Report, supra note 188, at 38. 211See October 15 Staff Report, supra note 188, at 37. 212See, e.g., BrokerTec Letter, SIFMA Letter, AFREF Letter. 213See FINRA Letter. trading in the most liquid NMS stocks occur on a variety of trading venues (e.g., exchanges, ATSs, single-dealer broker platforms), the majority of overall trading in the interdealer secondary market for on-the-run U.S. Treasury Securities occurs on ATSs.199 For example, during the first nine months of 2021, one ATS accounted for $14.9 trillion in total dollar volume in all government securities, the majority of which were on-the-run U.S. Treasury Securities.200 For off-the-run U.S. Treasury Securities,201 the majority of interdealer trading occurs via transactions through traditional voice￾assisted interdealer broker platforms and Communication Protocol Systems that offer various trading protocols to bring together buyers and sellers,202 though some interdealer trading of off￾the-run U.S. Treasury Securities does occur on ATSs.203 Another type of government securities is Agency Securities. Agency Securities include securities issued by or guaranteed by U.S. Government corporations or U.S. Government sponsored enterprises (‘‘GSEs’’).204 Agency Securities, which may not be backed by the full faith and credit of the U.S. Government, are generally considered to be very liquid and offer state and local tax advantages to the holder. Market participants can use ATSs to buy and sell Agency Securities, although, based on the Commission’s review of Form ATS–R filings, transaction volume of Agency Securities is not as large as that of U.S. Treasury Securities on ATSs.205 Investors, banks, and other market participants often acquire Agency Securities in the secondary market to support various investing strategies, such as hedging against other more risky investments in a given portfolio. Agency Securities also trade on Communication Protocol Systems where buyers and sellers can use RFQ protocols, for example, to engage in price discovery, find a counterparty, and negotiate and execute a transaction. Repos provide short-term financing (often overnight) to help fund the borrower’s (usually a broker-dealer) trading or lending activities. However, the collateral is sold to the lender, and the repo obligates the borrower to repurchase the collateral. U.S. Treasury Securities are frequently used as the underlying collateral of a repo. Several ATSs
have provided notice on their Form ATS disclosures that they facilitate the trading of repos. Much like the markets for U.S. Treasury Securities and Agency Securities, repo trading has historically been conducted bi-laterally by voice; however, over the past decade, electronic trading of repos on Communication Protocol Systems has increased significantly. Electronic trading of repos is primarily conducted via RFQ protocols, and many systems for trading in repos now offer electronic trading options. With regard to the interdealer secondary markets for on-the-run U.S. Treasury Securities, the continued growth of electronic trading has contributed to an increased presence of PTFs in the market place.206 Currently, PTFs account for the majority of trading and provide top-of-the-book liquidity for on-the-run U.S. Treasury Securities on electronic interdealer trading venues.207 From January 1, 2021 to June 30, 2021, PTFs traded on 13 Government Securities ATSs accounting for approximately 48.6 percent of total on-the-run Government Securities ATS trading volume.208 PTFs usually have direct access to electronic interdealer trading venues for U.S. Treasury Securities, and as is the case with the equity markets, PTFs trading on the electronic interdealer trading venues for on-the-run U.S. Treasury Securities often employ automated algorithmic trading strategies that rely on speed and allow the PTFs to cancel or modify quotes in response to perceived market events.209 Furthermore, most PTFs trading U.S. Treasury Securities on these trading venues for on-the-run U.S. Treasury Securities also restrict their activities to principal trading and do not hold positions long term, while dealers use the interdealer market as a source of orders and trading interest to help facilitate their trading with clients in the dealer-to-customer market.210 As explained in the October 15 Staff Report, the increase in trading by PTFs in the interdealer market may affect the amount of liquidity available to end users in the dealer-to-customer market.211 In response to the 2020 Proposal, the Commission received several comments that broadly supported expanding the regulatory framework under Regulation ATS with respect to Government Securities ATSs.212 Commenters stated that ATSs have become increasingly important in the government securities market.213 One commenter stated that, given that Government Securities ATSs closely resemble NMS Stock ATSs, it would be appropriate to impose similar regulatory oversight, including regulatory oversight by the Commission

214See SIFMA Letter at 2.
215See also MFA Letter at 4.
216See AFREF Letter at 1.
217See id.
218See id. at 2 (stating that the growing role of PTFs means that much trading activity is not coming from long-term investors but rather proprietary trading firms who may trade in-and-out of their positions several times in a day and are likely to react sharply to market volatility). 219 17 CFR 240.3a1–1(a)(3). 220 17 CFR 242.301(a)(4)(ii)(A). 221 17 CFR 242.301(b). 222See 15 U.S.C. 78o(b) (pertaining to the registration and regulation of brokers and dealers). 223See 15 U.S.C. 78o–5 (pertaining to the registration and regulation of government securities brokers and dealers). 224See 15 U.S.C. 78c(a)(42). The definition of ‘‘government securities’’ in Section 3(a)(42) of the Exchange Act (and, therefore, references to ‘‘government securities’’ throughout this proposal) includes certain puts, calls, straddles, options, or privileges on government securities, other than puts, straddles, options, or privileges that: Are traded on one or more national securities exchanges; or for which quotations are disseminated through an automated quotation system operated by a registered securities association. See supra note 182. 225See 17 CFR 242.301(a)(4)(i) and (a)(4)(ii)(A). Although not required to register as a national securities exchange or comply with Regulation ATS, a Currently Exempted Government Securities ATS may need to register as a broker-dealer under
Section 15(b) or as a government securities broker
or government securities dealer pursuant to Exchange Act Section 15C, and comply with the associated regulatory requirements. See, e.g., 17 CFR chapter IV, subchapter A—Regulations under
Section 15C of the Securities Exchange Act of 1934.
226Some ATSs that are eligible for the exemption voluntarily comply with Regulation ATS, even though ATSs that trade only government securities are not required to comply with Regulation ATS at all. 227See supra notes 130–131 and accompanying text. 228See FINRA Rule 6730(a)(1) requires FINRA members to report transactions in TRACE-Eligible Securities, which FINRA Rule 6710 defines to include U.S. Treasury Securities and Agency Securities. For each transaction in U.S. Treasury Securities and Agency Securities, a FINRA member would be required to report the CUSIP number or similar numeric identifier or FINRA symbol; size (volume) of the transaction; price of the transaction (or elements necessary to calculate price); symbol indicating whether transaction is a buy or sell; date of trade execution (‘‘as/of’’ trades only); contra￾party’s identifier; capacity (principal or agent); time of execution; reporting side executing broker as ‘‘give-up’’ (if any); contra side introducing broker (in case of ‘‘give-up’’ trade); the commission (total dollar amount), if applicable; date of settlement; if the member is reporting a transaction that occurred on an ATS pursuant to FINRA Rule 6732, the ATS’s separate Market Participant Identifier (‘‘MPID’’); and trade modifiers as required. For when-issued transactions in U.S. Treasury Securities, a FINRA member would be required to report the yield in lieu of price. See FINRA Rule 6730(c). 229FINRA Rule 6750(a) requires FINRA to disseminate information on all transactions on certain securities, including Agency Securities (but excluding U.S. Treasury Securities), immediately upon receipt of the transaction report. FINRA is permitted to publish or distribute weekly aggregated transaction information and statistics on U.S. Treasury Securities, and has stated that it intends to publish weekly volume information aggregated by U.S. Treasury subtype (e.g., Bills, Floating Rate Notes, Treasury Inflation-Protected Securities, and Nominal Coupons). See Securities Exchange Release No. 87837 (December 20, 2019), 84 FR 71986 (December 30, 2019) (approving a proposed rule change to allow FINRA to publish or distribute aggregated transaction information and statistics on U.S. Treasury Securities). 230See 17 CFR 242.301(b)(1), (2), and (7) through (11). The order display and execution access provisions under Rule 301(b)(3) and the related fee restrictions of Rule 301(b)(4) of Regulation ATS only apply to an ATS’s NMS stock activities. See 17 CFR 242.301(b)(3) and (4). See also supra
Section II.D.2 (discussing the requirements for
compliance with the Regulation ATS exemption). 231 17 CFR 242.301(b)(5). See also supra notes 153–157 and accompanying text. 232See 17 CFR 242.301(b)(5). and FINRA.214 Likewise, another commenter stated that many of the concerns surrounding potential conflicts of interest that arise between an ATS and the activities of its bank/broker￾dealer operator and affiliates—and the transparency of an ATS’s operations— are equally relevant with respect to ATSs that transact in government securities as to NMS Stock ATSs.215 In addition, one commenter stated that critical intermediaries in the U.S. Treasury market are ‘‘effectively unregulated’’ as trading venues or dealers, and this hampers availability of information concerning trading in these critical markets, and that oversight of the core ‘‘plumbing’’ of these critical markets, which determines their resiliency, is lacking.216 This commenter stated that several ATSs now dominate the trading of U.S. Treasury Securities and agency mortgage backed securities, and that ensuring that Regulation ATS and Regulation SCI apply to these entities will provide for additional data and create more transparency into the trading around those critical markets.217 This commenter also stated that expanding Regulation ATS with respect to ATSs that trade U.S. Treasuries has also become important as the role of PTFs has become more significant in the U.S. Treasury markets and related repo markets.218 B. Heightened Regulatory Requirements Under Regulation ATS for Government Securities ATSs The vast majority of ATSs that operate today do so pursuant to the exemption provided by Exchange Act Rule 3a1– 1(a)(2), which requires the ATSs to be in compliance with Regulation ATS, which includes, among other things, registering as broker-dealers. Currently Exempted Government Securities ATSs, however, operate pursuant to Exchange Act Rule 3a1–1(a)(3) 219 and Rule 301(a)(4)(ii)(A).220 These provisions currently exempt an ATS from compliance with the requirements in Rule 301(b) of Regulation ATS 221 if, in relevant part, the ATS (1) is registered as a broker-dealer under Sections 15(b) 222 or 15C223 of the Exchange Act, or is a bank, and (2) limits its securities activities to government securities (as defined in Section 3(a)(42) of the Exchange Act), repos, any puts, calls, straddles, options, or privileges on government securities, other than puts, calls, straddles, options, or privileges that: (i) Are traded on one or more national securities exchanges; or (ii) for which quotations are disseminated through an automated quotation system operated by a registered securities association, and commercial paper.224 Accordingly, such Currently Exempted Government Securities ATSs are not required to register as a national securities exchange or comply with Regulation ATS.225 To the Commission’s knowledge, most Currently Exempted Government Securities ATSs operating pursuant to this exemption register as broker-dealers with the Commission.226
ATSs that do not limit their securities activities solely to government securities or repos, trading for example corporate bonds or municipal securities, cannot use this exemption. Such ATSs must either register as an exchange or comply with Regulation ATS pursuant to Exchange Act Rule 3a1–1(a)(2), which includes, among other things, registering as a broker-dealer under
Section 15 of the Exchange Act.227
Government Securities ATSs that are currently subject to Regulation ATS must report transactions in U.S. Treasury Securities and Agency Securities to the Trade Reporting and Compliance Engine (‘‘TRACE’’),228 and FINRA publicly disseminates data about these transactions. Currently, FINRA publishes weekly aggregated transaction information on U.S. Treasury Securities and disseminates certain transaction information on Agency Securities immediately upon receipt of a transaction report.229 Today, Legacy Government Securities ATSs are subject only to certain provisions of Regulation ATS because not all the provisions are applicable to trading in government securities.230 In particular, government securities are not included in any category of securities under the Fair Access Rule.231 Today, the categories of securities under the Fair Access Rule only include NMS stocks, equity securities that are not NMS stocks and for which transactions are reported to an SRO, municipal securities, and corporate debt securities.232 In addition, Regulation SCI does not apply to ATSs with respect to their trading in

233See infra Section III.C (describing the types of entities that are currently subject to the requirements of Regulation SCI). 234 17 CFR 242.301(b)(6). 235See supra notes 157–158 and accompanying text. 236 17 CFR 242.304. See also supra notes 139–143 and accompanying text. 237See supra notes 149–151 and accompanying text. 238See supra note 152 and accompanying text. 239See supra Section II.A. 240See, e.g., 2020 Proposal, supra note 4, at 87125. 241See id. at Section III.B.4 (discussing the Fair Access Rule) and III.C (discussing Regulation SCI). 242See proposed Rule 300(l). 243 17 CFR 242.300(a). See Regulation ATS Adopting Release, supra note 31, at 70851–52. 244See proposed Rule 300(l). 245An ATS that does not trade NMS stocks or government securities, as proposed, must file Form ATS. If the broker-dealer operates an ATS that trades NMS stocks and an ATS that trades government securities, it would be required to file a separate Form ATS–N for each of the NMS Stock ATS and Government Securities ATS. 246Broker-dealers that operate Government Securities ATSs that are currently subject to Regulation ATS already must have established written safeguards and written procedures to protect subscribers’ confidential trading information, pursuant to Rule 301(b)(10), and already must make and keep records pursuant to Rule 301(b)(8) that are tailored to the types of securities the ATS trades and the subscribers that trade those securities on the ATS. The Commission believes the proposal is broadly consistent with the manner in which broker-dealers that operate NMS Stock ATSs and non-NMS Stock ATSs currently comply with Regulation ATS. For further discussion, see infra Section III.B.3. 247See ICE Bonds Letter I at 5. 248See id. The commenter stated that the initial set-up of a new Government Securities ATS would require, among other things, the development of a matching engine, separate connectivity for subscribers, new clearing connectivity, additional personnel to support trading operations of the Government Securities ATS, and regulatory controls (e.g., Rule 15c3–5). The commenter further stated that these requirements would ultimately lead to fewer venues for subscribers to trade and hedge and concentrate trading among a few large Government Securities ATSs, as smaller Legacy Government Securities ATSs may determine that this separation requirement is cost prohibitive. In addition, the commenter stated that if a subscriber has to execute a corporate bond on one ATS and sell the treasury on a different ATS, there is an administrative and operational burden placed on the subscriber, as well as additional economic and market risk to the subscriber as the price on the other venue may move by the time the hedge trade is initiated. 249See id. 250See id. government securities.233 The Capacity, Integrity, and Security Rule under Rule 301(b)(6) 234 also does not apply to the government securities activities of an ATS.235 Finally, Government Securities ATSs are
not required to comply with rules applicable to ATSs that trade NMS stocks, including the obligation to file a public Form ATS–N pursuant to Rule 304 of Regulation ATS.236 ATSs that transact in government securities or repos are also not required to comply with the order display and execution access provisions under Rule 301(b)(3) 237 and the related fee restrictions of Rule 301(b)(4),238 both of which only apply to an ATS’s NMS stock activities. Despite the critical role of government securities in the U.S. and global economy, the significant volume in government securities transacted on ATSs, and these ATSs’ growing importance to investors and overall securities market structure, Currently Exempted Government Securities ATSs are exempt from exchange registration and are not required to comply with Regulation ATS. In addition, Communication Protocol Systems that transact in government securities and/or repos, but do not currently meet the definition of ‘‘exchange,’’ are not subject to exchange registration requirements and are likewise not required to comply with Regulation ATS.239 Furthermore, ATSs that trade both government securities and non-government debt securities (e.g., corporate bonds) are not subject to all the provisions of Regulation ATS. Market participants today have limited access to information that permits them to adequately compare and contrast how they can use a Government Securities ATS or how their trading interest would be handled by Government Securities ATSs.240 In addition, Government Securities ATSs are not currently subject to the Fair Access Rule and Regulation SCI, which would help ensure the fair treatment of subscribers and address technological vulnerabilities, and improve the Commission’s oversight, of the core technology of key entities in the markets for government securities.241 Given these concerns, and comments received on the 2020 Proposal, the Commission is re-proposing and revising the amendments described below.

1. Proposed Definition of Government
   Securities ATS
   The Commission is re-proposing to amend Rule 300 of Regulation ATS to define ‘‘Government Securities ATS’’ to mean an alternative trading system, as defined in Rule 300(a), that trades government securities, as defined in
   section 3(a)(42) of the Exchange Act (15
   U.S.C. 78c(a)(42)), or repurchase and reverse repurchase agreements on government securities.242 To meet the definition of a Government Securities ATS, the organization, association, person, group of persons, or system must meet the definition of an alternative trading system under Rule 300(a) of Regulation ATS.243 The Commission is also re-proposing that a Government Securities ATS shall not trade securities other than government securities or repos 244 and that trading of securities other than government securities or repos would require the separate filing of a Form ATS or a Form ATS–N, depending on the types of securities traded.245 Other than complying with Rule 304 and filing Form ATS–N, this amendment would not, however, impose new compliance requirements on ATSs that currently trade government securities in addition to non-government securities.246 Under the proposal, if a broker-dealer operator currently operates an ATS for government securities and non￾government securities (for example, corporate bonds), the broker-dealer operator would separately be required to comply with Regulation ATS for: (1) A Government Securities ATS that would trade government securities, which would be subject to Rule 304, and file disclosures on Form ATS–N, as proposed to be revised and (2) a non￾Government Securities ATS (that, for example, would trade corporate bonds), which would not be subject to Rule 304, and file disclosures on its existing Form ATS, as amended to remove references to government securities. In response to the 2020 Proposal, the Commission received one comment letter opposing the proposed definition of Government Securities ATS.247 This commenter stated that separating trading activity in government securities and repos from non-NMS stock trading activity could impose administrative and operational burdens on both Government Securities ATSs and subscribers.248 The commenter stated that the Commission did not explain why requiring a Government Securities ATS to separate its operations from other non-NMS Stock ATS trading activity would improve Commission oversight or other regulatory goals.249 The proposed definition of Government Securities ATS, however, would not require operational separation by a Government Securities ATS, and the operational costs that the commenter described would therefore not apply.250 The proposed definition would not, for example, require the Government Securities ATS to develop a new matching engine nor require changes with regard to how subscribers enter trading interest into the ATS. Other than requiring the Government Securities ATS to separately comply with the requirements of Regulation ATS (and, as applicable, Regulation SCI), the proposed definition does not create new compliance requirements on

251See supra note 246.
252See infra Section IV.D.4.f.
253See infra Section IV.D.5.k.
254See proposed Rule 300(k).
255See current Rule 301(b)(2)(viii). 256See proposed Rule 300(n). See also supra note
5. See infra notes 433–439 and accompanying text
for a description of the filing and effectiveness rules applicable to Legacy Government Securities ATSs. 257See proposed Rule 300(m). 258See proposed Rule 300(s). 259See proposed Rule 300(o)–(p). 260See infra Section III.B.4. The proposed definitions are similar to those in FINRA’s rules. See FINRA Rules 6710(l) and 6710(p). Government Securities ATSs.251 Under the proposed rule, a broker-dealer operator for an ATS that currently trades both government securities and corporate debt securities, for example, would be required to file a Form ATS– N for the trading of government securities on a Government Securities ATS and a separate Form ATS for trading of corporate debt securities on an ATS. In this example, the broker￾dealer operator for a Government Securities ATS and non-Government Securities ATS may be required to disclose certain information on Form ATS–N about the non-Government Securities ATS. For example, to the extent that any persons support both the operation of the Government Securities ATS and the ATS that trades corporate debt securities and have access to subscriber confidential trading information for the Government Securities ATS, the Government Securities ATS would need to disclose that on Part II, Item 7 of Form ATS– N.252 In addition, the Government Securities ATS would be required to provide under Part III, Item 11 information about interaction with non￾government securities markets (e.g., futures, currencies, swaps, corporate bonds).253 Further, the Commission believes that by stating that a Government Securities ATS trades only government securities, the definition of Government Securities ATS clarifies which regulatory requirements are applicable for trading activity in government securities and non-government securities. For example, a Government Securities ATS would file a Form ATS–N specifically disclosing information regarding its trading in government securities, which would enable market participants to understand the ATS’s government securities operations and readily compare the ATS against other Government Securities ATSs. To provide that the same approach applies to broker-dealers that operate NMS Stock ATSs and non-NMS Stock ATSs, and to clarify requirements applicable to NMS Stock ATSs, the Commission is proposing to amend the definition of ‘‘NMS Stock ATS’’ to state that an NMS Stock ATS shall not trade securities other than NMS stocks.254 Today, securities other than NMS stocks are not traded in any NMS Stock ATS and the proposed amendment to the definition of NMS Stock ATS would have no impact on any existing ATS nor on the requirements applicable to existing NMS Stock ATSs. Broker-dealer operators of NMS Stock ATSs are currently required to file a Form ATS– N for NMS Stock ATS operations and a separate Form ATS for any non-NMS Stock ATS operations.255 This would not change under this proposal. In addition, to facilitate the orderly transition to the heightened requirements for Government Securities ATSs that
are currently operating, the Commission is defining such ATSs as Legacy Government Securities ATSs.256 To help specify which ATSs are subject to Rule 304 requirements, the Commission is proposing to define ‘‘Covered ATS’’ as an NMS Stock ATS or Government Securities ATS, as applicable.257 The Commission is also proposing to define ‘‘Covered Newly Designated ATS’’ to mean a Newly Designated ATS that is a Government Securities ATS or NMS Stock ATS, which the Commission believes would facilitate the transition of Communication Protocol Systems that are NMS Stock ATSs or Government Securities ATSs to the regulatory requirements of Regulation ATS.258 The Commission is also proposing to add definitions of ‘‘U.S. Treasury Security’’ and ‘‘Agency Security’’ for purposes of Regulation ATS.259 ‘‘U.S. Treasury Security’’ would mean a security issued by the U.S. Department of the Treasury. ‘‘Agency Security’’ would mean a debt security issued or guaranteed by a U.S. executive agency, as defined in 5 U.S.C. 105, or government-sponsored enterprise, as defined in 2 U.S.C. 622(8). The proposed definitions are designed to provide the scope of securities a Government Securities ATS must include when calculating whether the fair access requirements set forth in Rule 301(b)(5) are applicable and to facilitate compliance with the Fair Access Rule.260 Request for Comment
12. Should the Commission adopt a
more limited or expansive definition of Government Securities ATS than the definition that is being proposed? Given that, unlike the 2020 Proposal, the definition of Government Securities ATS would now include Communication Protocol Systems that transact in government securities and/or repos, do commenters believe that the definition of Government Securities ATS should be limited or expanded?
13. Should the Commission cite to the
section 3(a)(42) (15 U.S.C. 78c(a)(42))
definition of government securities for purposes of defining Government Securities ATS? Should the securities encompassed by the definition (e.g., certain options on government securities) be considered ‘‘government securities’’ for purposes of this regulation?
14. Should the Commission modify
the proposed definitions of U.S.
Treasury Securities and Agency Securities in any way? For example, should the proposed definitions of U.S. Treasury Securities and Agency Securities be based on definitions in any other existing rules?
15. The proposed amendments to the
definitions of NMS Stock ATS and Government Securities ATS are not designed to limit a broker-dealer operator for an NMS Stock ATS or Government Securities ATS with respect to other types of securities that the broker-dealer operator may make available for trading in an ATS that is subject to Rule 301(b)(2) of Regulation ATS or how the broker-dealer operator may structure the operations of its ATS businesses. Would the proposed amendments to the definitions of NMS Stock ATS and Government Securities ATS impose any operational or other burdens on the broker-dealer operator, other than those related to filing Form ATS, Form ATS–R, or Form ATS–N, as applicable?
16. Should the Commission require an
ATS that currently trades government securities and non-government securities, such as corporate bonds, to comply with Rule 304, including filing a Form ATS–N, with respect to the ATS’s corporate bond activities as well as its government securities activities?
2. Proposed Elimination of the
Exemption for ATSs That Limit Securities Activities to Government Securities and Repos The Commission is re-proposing amendments to Regulation ATS that would require a Currently Exempted Government Securities ATS that seeks to operate pursuant to the exemption from the definition of an ‘‘exchange’’ under Exchange Act Rule 3a1–1(a)(2), and thus not be required to be registered as a national securities exchange, to comply with Regulation ATS. The Commission is proposing to eliminate the exemption under Rule 301(a)(4) of

261See 17 CFR 240.3a1–1(a)(3) and 17 CFR 242.301(a)(4). 262The Commission is proposing to delete the text of Rule 301(a)(4)(ii)(A)–(C) and replace each paragraph with the term ‘‘Reserved.’’ Based on Commission staff experience, ATSs generally do not trade commercial paper, and the Commission is not proposing to eliminate Rule 301(a)(4)(ii)(D), which exempts an ATS from compliance with Regulation ATS if the ATS limits its securities activities to commercial paper. Accordingly, the only ATSs that would continue to be exempt under Rule 301(a)(4) would be ATSs that are registered broker-dealers or are banks and limit their securities activities to commercial paper. 263See Regulation ATS Adopting Release, supra note 31, at 70878. See also infra notes 287–297 and accompanying text. 264See, e.g., SIFMA Letter at 2 (stating that given that Government Securities ATSs closely resemble ATSs that trade NMS stocks, it would be appropriate to impose similar regulatory oversight over such trading venues); FINRA Letter at 2; BrokerTec Letter at 2; ICE Bonds Letter I at 2. 265See SIFMA Letter at 2; FINRA Letter at 2; MFA Letter at 3; ICE Bonds Letter I at 2; and AFREF Letter at 2–3 (stating that the regulatory extension would help to discourage some of the deceptive and manipulative trading practices that occur in government securities markets). 266See Citadel Letter. 267See MFA Letter at 3. 268See SIFMA Letter at 2. 269See Bloomberg Letter at 4. 270See id. 271See, e.g., supra note 197 and accompanying text (describing that, on the interdealer market, the majority of trading currently occurs on ATSs). See also infra note 840 and accompanying text (describing that Communication Protocol Systems account for approximately 30 to 40 percent of total electronic trading volume on multilateral U.S. Treasury trading venues). 272 15 U.S.C. 78o. 273See 15 U.S.C. 78o–5. Exchange Act Section 15C(a)(1)(A) makes it unlawful for a government securities broker or government securities dealer (other than a registered broker or dealer or a financial institution) to make use of the mails or any means or instrumentality of interstate commerce to effect a transaction in any government securities unless the government securities broker or government securities dealer is registered with Commission pursuant to Exchange Act Section 15C(a)(2). See 15 U.S.C. 78o–5(a)(1)(A). Section 15C(e) in turn generally requires that a government securities broker or government securities dealer that is registered or required to be registered under
Section 15C(a)(1)(A) must be a member of a
registered national securities exchange or registered securities association such as FINRA. 274Broker-dealers that limit their activity to government securities require specialized registration under Section 15C of the Exchange Act and do not have to register as general-purpose broker-dealers under Section 15(b). See 15 U.S.C. 78o–5. 275See Regulation ATS Adopting Release, supra note 31, at 70863 (discussing the importance of an ATS being a member of an SRO because ATSs registered as broker-dealers will not have self￾regulatory responsibilities). As noted above, Section 15C(e) generally requires SRO membership for a government securities broker or government securities dealer that is registered or required to be registered under Section 15C(a)(1)(A). Similarly,
Section 15(b)(8) generally requires a registered
broker-dealer to be a member of a registered securities association such as FINRA. 276See, e.g., FINRA Rule 1000 Series, FINRA Rules 4140, 4510, 4520, 4530, and 8210. 277See, e.g., FINRA Rule 6730. 278See, e.g., FINRA Rules 3110, 4370, 5210, 5220, 5230, 5310, and 5340. 279See Regulation ATS Adopting Release, supra note 31, at 70863. Regulation ATS, which exempts from the definition of an ‘‘exchange’’ under
Section 3(a)(1) of the Exchange Act an
ATS that is operated by a registered broker-dealer or a bank that solely trades government securities or repos.261 As a result, Currently Exempted Government Securities ATSs would either have to register as an exchange or operate pursuant to an exemption to such registration, such as the exemption under Regulation ATS.262 A Currently Exempted Government Securities ATS that opts to comply with Regulation ATS would then be subject to the conditions to the exemption from exchange registration that are designed to provide its subscribers with investor protections and enable Commission oversight, including the surveillance and examination of ATSs, and to help assure fair and orderly markets.263 The Commission is also proposing to subject Currently Exempted Government Securities ATSs to the enhanced public transparency requirements of Rule 304 and Form ATS–N. In response to the 2020 Proposal, several commenters expressed support for eliminating the exemption for ATSs that both (1) limit their securities activities to government securities or repos and (2) either register as broker￾dealers or are banks.264 Commenters stated such requirements would help impose regulatory oversight,265 and one commenter stated that the requirements could promote market transparency, resiliency, and integrity.266 One commenter stated that requiring Currently Exempted Government Securities ATSs to adopt written safeguards and procedures to protect subscriber confidential trading information could help protect the integrity of a subscriber’s confidential trading information that could otherwise be at risk of unauthorized disclosure and subject to potential misuse.267 In addition, commenters specifically expressed support for the requirement that all Government Securities ATSs register as broker￾dealers, stating that such requirement would provide regulatory oversight with regard to risk management and regulatory controls.268 One commenter suggested the Commission consider subjecting ATSs for a class of securities to an enhanced regime if the ATSs trading in that asset class are ‘‘significant’’; the commenter suggested that the Commission may recognize 30 percent as the threshold for ‘‘significant’’ threshold, and noted that equity-NMS Stock ATSs were matching about 30 percent of the total share volume when Regulation ATS was implemented.269 The commenter suggested that the Commission apply this test when considering removing the exemption for Currently Exempted Government Securities ATSs and that the Commission make proposed Form ATS–G public when the ATSs are ‘‘significant’’ with respect to trading volume.270 The Commission is not, however, proposing a specific trading volume test to determine whether to remove the exemption for Currently Exempted Government Securities ATSs. In addition to the significant volume in government securities transacted on ATSs (as well as Communication Protocol Systems),271 the Commission also recognizes that government securities have a
critical role in the U.S. and global economy and ATSs have grown in importance to investors and overall securities market structure for purposes of the execution and pricing of government securities. The Commission is also proposing to amend Rule 301(b)(1) of Regulation ATS, which currently requires an ATS to register as a broker-dealer under
Section 15 of the Exchange Act,272 to
allow an ATS to register either as a broker-dealer under Exchange Act
Section 15 or a government securities
broker or government securities dealer under Exchange Act Section 15C(a)(1)(A).273 Registration pursuant to
Section 15C(a)(1)(A) specifically applies
to government securities brokers and dealers other than registered broker￾dealers or financial institutions.274 Registration as a broker-dealer under
Section 15 or government securities
broker or government securities dealer under Section 15C(a)(1)(A) of the Exchange Act is important because, among other things, it requires membership in an SRO, such as FINRA.275 Because ATSs that register as broker-dealers or government securities brokers or dealers do not have self￾regulatory responsibilities, the Commission believes it is important for these ATSs to be members of an SRO and thus subject to SRO examination and market surveillance,276 trade reporting obligations,277 and certain investor protection rules.278 Like ATSs registered as broker-dealers under
Section 15, an ATS registered as a
government securities broker or government securities dealer under
Section 15C(a)(1)(A) would be subject to
oversight and market surveillance by an SRO.279

280Unlike registered broker-dealers (Section 15(b)(8)) and government securities brokers or government securities dealers that are registered or required to be registered under Section 15C(a)(1)(A) (Section 15C(e)), there is no statutory requirement of SRO membership for banks. Because banks typically operate in reliance on exceptions from broker or dealer status, they are not required to become a member of an SRO, such as FINRA. In this regard, Exchange Act Section 3(a)(4)(B)(iii)(II) excludes from the definition of ‘‘broker’’ a bank that effects transactions in ‘‘exempted securities’’ such as government securities. 15 U.S.C. 78c(a)(4)(B)(iii)(II). See Exchange Act Section 3(a)(12) (defining ‘‘exempted securities’’ to include ‘‘government securities’’ as defined in Section 3(a)(42) of the Exchange Act). Exchange Act Section 3(a)(5)(C)(i)(II) similarly excepts from the definition of ‘‘dealer’’ a bank that buys or sells exempted securities. 15 U.S.C. 78c(a)(5)(C)(i)(II). 281Exchange Act Section 15C(a)(1)(B) makes it unlawful for any government securities broker or government securities dealer that is a registered broker or dealer or a financial institution to make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any government security unless such government securities broker or government securities dealer has filed with the appropriate regulatory agency written notice that it is a government securities broker or government securities dealer. 15 U.S.C. 78o–5(a)(1)(B)(i). 282See Exchange Act Sections 3(a)(6) (defining ‘‘bank’’) and 3(a)(46) (defining ‘‘financial institution’’). 283See supra text accompanying note 226 (stating that most Currently Exempted Government Securities ATSs register as broker-dealers with the Commission). For those Currently Exempted Government Securities ATSs that are operating as banks and not registered broker-dealers, the Commission is proposing to amend Rule 301(b)(1) to provide a transition period to allow them to operate without interruption while their broker￾dealer registration is pending until the earlier of the date the alternative trading system registers as a broker-dealer under section 15 of the Act or section 15C(a)(1)(A) of the Act and becomes a member of a national securities association; or the date 210 calendar days after effective date of any final rule. See supra note 177. 284See 17 CFR 242.301(b)(3)–(4). 285See infra Section III.B.4. 286See infra Section III.C. 287See 17 CFR 242.301(b)(7). See also Regulation ATS Adopting Release, supra note 31, Section IV.A.2.f. 288See Regulation ATS Adopting Release, supra note 31, at 70877. 289See supra note 163. 290See supra notes 164 and 166. 291See 17 CFR 242.301(b)(8). See also Regulation ATS Adopting Release, supra note 31, Section IV.A.2.g. 292See Regulation ATS Adopting Release, supra note 31, at 70878. 293See 17 CFR 242.301(b)(9). See also supra
notes 144–148 and infra Section III.B.4. 294See Regulation ATS Adopting Release, supra note 31, at 70874 and 70878. 295See 17 CFR 242.301(b)(10); infra note 168; NMS Stock ATS Adopting Release, supra note 2,
Section VI.
In contrast, SRO membership is not required for a bank or other financial institution that registers as a government securities broker or dealer.280 Accordingly, the amendment to Regulation ATS would not permit a bank or other financial institution to satisfy the broker-dealer registration requirement by registering as a government securities broker or government securities dealer under
Section 15C(a)(1)(B) of the Exchange
Act.281 The Commission believes it is important for an ATS to be a member of an SRO, and unlike registrants under Sections 15 and 15C(a)(1)(A), a bank or other financial institution that registers under Section 15C(a)(1)(B) is not required to be a member of an SRO.282 As a result, a bank-operated ATS that trades only government securities or repos would be unable to rely on the exemption provided by Regulation ATS, as proposed to be amended, and could not otherwise operate unless registered as a national securities exchange as required by Section 5 of the Exchange Act. However, this is the case currently with respect to bank-operated ATSs that trade securities other than government securities, and it is the Commission’s understanding that these ATSs often are operated by bank affiliates that are themselves registered broker-dealers, rather than by the banks themselves. The Commission believes that a bank that operates an ATS that trades only government securities might adopt a similar registered affiliate structure for its government securities operations, such as by moving its ATS operations into a new or existing broker-dealer affiliate of the bank. In addition to Rule 301(b)(1) of Regulation ATS, which most Currently Exempted Government Securities ATSs already satisfy,283 a Currently Exempted Government Securities ATS would be required to comply with other conditions of the Regulation ATS exemption, as proposed to be amended. This includes Rule 304, which would require that Government Securities ATSs file Form ATS–N. Government Securities ATSs would not, however, be subject to the order display and execution access provisions under Rule 301(b)(3) or the fees provision of Rule 301(b)(4) that are applicable only to NMS Stock ATSs.284 The Commission is proposing to require Government Securities ATSs that meet a certain volume threshold to comply with the Fair Access Rule with respect to trading in U.S. Treasury Securities and Agency Securities.285 Because the Commission is proposing to apply Regulation SCI to certain Government Securities ATSs that trade U.S. Treasury Securities and/ or Agency Securities, the Capacity, Integrity, and Security Rule under Rule 301(b)(6) would not apply to the trading of government securities on ATSs.286 The Commission believes that it is important that all Government Securities ATSs, including Currently Exempted Government Securities ATSs, be subject to the conditions of the Regulation ATS exemption, which are designed to protect investors and to facilitate Commission oversight. Accordingly, the Commission is re￾proposing that a Currently Exempted Government Securities ATS must:

• Permit the examination and
  inspection of its premises, systems, and records, and cooperate with the examination, inspection, or investigation of subscribers, whether such examination is being conducted by the Commission or by an SRO of which such subscriber is a member, pursuant to Rule 301(b)(7).287 The Commission believes that because subscribers to whom the Commission’s inspection authority may not extend could use a Currently Exempted Government Securities ATS to manipulate the market in a security, it is important that these ATSs cooperate in all inspections, examinations, and investigations.288
• Make and keep certain records
  specified in Rule 302 289 and preserve records specified in Rule 303,290 pursuant to Rule 301(b)(8).291 The recordkeeping requirements would require the Currently Exempted Government Securities ATSs to make and keep certain records for an audit trail of trading activity that would allow the Commission to examine whether the ATS is in compliance with Federal securities laws.292
• Periodically report certain
  information about transactions in the ATS and information about certain activities on Form ATS–R within 30 calendar days after the end of each calendar quarter in which the market has operated pursuant to Rule 301(b)(9).293 The information reported on Form ATS–R by Currently Exempted Government Securities ATSs will permit the Commission to monitor the trading on these ATSs for compliance with the Exchange Act and applicable rules thereunder and enforce the Fair Access Rule.294
• Adopt written safeguards and
  written procedures to protect confidential trading information and to separate ATS functions from other broker-dealer functions, including principal and customer trading pursuant to Rule 301(b)(10).295 The Commission believes that applying the requirements of Rule 301(b)(10) to Currently Exempted Government Securities ATSs will help prevent the potential for abuse

296See NMS Stock ATS Adopting Release, supra note 2, at 38864. 297See 17 CFR 242.301(b)(11); Regulation ATS Adopting Release, supra note 31, Section II.C. 298See Regulation ATS Proposing Release, supra note 173. 299 17 CFR 242.301(b)(2)(viii). Current Rule 301(b)(2)(viii) provides that NMS Stock ATSs must file with the Commission the reports and amendments required by Rule 304 and that NMS Stock ATSs are not subject to Rule 301(b)(2). NMS Stock ATSs or entities seeking to operate as NMS Stock ATSs would continue to file reports pursuant to Rule 304. Because the Commission review period for all Forms ATS–N filed by Legacy NMS Stock ATSs ended in October 2019, the Commission is proposing to delete references in Rule 301(b)(2)(viii) to Legacy NMS Stock ATSs. The Commission is also proposing to consolidate the current provisions of Rule 301(b)(2)(viii) applicable to NMS Stock ATSs to state that NMS Stock ATSs or entities seeking to operate as an NMS Stock ATS shall not be subject to the requirements of Rule 301(b)(2)(i) through (vii) and would be subject to Rule 304. 300The Commission is also proposing to amend Rule 301(b)(2)(viii) to state that Covered Newly Designated ATSs will be subject to Rule 304. 301The Commission is proposing that, for the purposes of calculating volume thresholds for the Fair Access Rule, the average trading volume of ATSs that are operated by a common broker-dealer, or ATSs operated by affiliated broker-dealers, will be aggregated. See infra Section V.A.2. 302See Rule 3a1–1(a)(2) (providing that an organization, association, or group of persons shall be exempt from the definition of ‘‘exchange’’ if it is in compliance with Regulation ATS) and Rule 301(a) (providing that an ATS shall comply with the requirements of Rule 301(b)). of subscriber confidential trading information.296

• Not use in its name the word
  ‘‘exchange,’’ or any derivation of the word ‘‘exchange’’ pursuant to Rule 301(b)(11).297 The Commission believes that the use of the word ‘‘exchange’’ by an ATS, including a Currently Exempted Government Securities ATS, would be deceptive and could lead investors to believe incorrectly that such ATS is registered as a national securities exchange.298 Request for Comment

17. Should the Commission amend
    Regulation ATS to eliminate the exemption from compliance with Regulation ATS under Rule 301(a)(4)(ii)(A) for all Currently Exempted Government Securities ATS, including those operated by banks?
18. Should the proposed elimination
    of the exemption from compliance with Regulation ATS only apply to Government Securities ATSs that trade a certain type of government security (e.g., only U.S. Treasury Securities or only Agency Securities)? Should the proposed elimination of the exemption from compliance with Regulation ATS only apply to Government Securities ATSs that trade government securities (and not repos)? If so, for which type of Government Securities ATS should the exemption be eliminated?
19. Should Government Securities
    ATSs seeking to operate pursuant to the exemption provided by Regulation ATS have the alternative option to satisfy broker-dealer registration with the Commission pursuant to Section 15C(a)(1)(A)?
20. Should the Commission adopt any
    alternatives to requiring Government Securities ATSs to register with the Commission as broker-dealers under
    Section 15 or Section 15C(a)(1)(A)? For
    example, should the Commission amend Rule 301(b)(1) of Regulation ATS to include an alternative for a bank to register as a government securities broker or dealer pursuant to Section 15C(a)(1)(B), which would not require the bank to become a member of an SRO?
21. Should there be a transition
    period for Currently Exempted Government Securities ATSs that are currently operated by banks to comply with the proposed amendments to Rule 301(b)(1), including ATSs provided and operated by an affiliate of the bank? Should the Commission allow a Currently Exempted Government Securities ATS that is not registered as a broker-dealer to operate pursuant to the Rule 3a1–1(a)(2) exemption on a provisional basis? Does the proposal to allow such ATSs a maximum 210 calendar days from the effective date to comply with the broker-dealer registration requirement provide an appropriate amount of time to register as a broker-dealer? If not, what, if any, transition period would be appropriate? For Currently Exempted Securities ATSs that are currently operated by banks, should there be a different transition period? If so, why?
22. Should there be a transition
    period for Currently Exempted Government Securities ATSs or Covered Newly Designated ATSs to comply with all or some of the requirements of Regulation ATS? If so, which requirements would require such a transition period, and how long should such transition period be? 23 Should the Commission amend Regulation ATS to remove the exemption from Regulation ATS for ATSs that limit their securities activities to commercial paper? Do market participants use ATSs to trade commercial paper? If so, how is commercial paper traded on an ATS? Should the Commission remove any other exemption from Regulation ATS available under Rule 301?
23. Should the Commission require
    Currently Exempted Government Securities ATSs to comply with all of the requirements of Regulation ATS applicable to all ATSs that are currently required to comply with Regulation ATS? If not, which requirements should a Currently Exempted Government Securities ATS not be required to comply with and why?
24. Filing Requirements for Broker￾Dealers That Operate ATSs That Trade
    Government Securities and Non￾Government Securities The Commission is re-proposing to revise Rule 301(b)(2)(viii) 299 of Regulation ATS to provide that a Legacy Government Securities ATS that is operating pursuant to a Form ATS as of the effective date of any final rule will continue to be subject to the Rule 301(b)(2) requirements to file a Form ATS. However, once the ATS files a Form ATS–N, it will no longer be subject to Rule 301(b)(2)(i) through (vii) and will instead be subject to the reporting requirements under Rule 304, which provides the rules for filing of Form ATS–N. The Commission is also proposing to provide that as of the effective date of any final rule, an entity seeking to operate as a Government Securities ATS will not be subject to the requirements of Rule 301(b)(2)(i) through (vii) and will instead be required to file reports under Rule 304. In addition, the Commission is proposing rules to make clear that a Currently Exempted Government Securities ATS would be subject to Rule 304 and would not be subject to Rule 301(b)(2)(i) through (viii). These rules are designed to prevent Government Securities ATSs from being subject to potentially duplicative requirements in Rule 304 and Rule 301(b)(2). The Commission is proposing to amend Rule 301(b)(2)(viii) to make clear that Covered ATSs are required to file reports pursuant to § 242.304 and ATSs that are not Covered ATSs are subject to Rule 301(b)(2).300 Today, there are some broker-dealers that operate multiple types of ATSs that trade different types of securities (e.g., NMS Stock ATS and non-NMS Stock ATS) or operate multiple ATSs that trade the same type of securities but are separate and distinct from each other (e.g., a broker￾dealer registered for, and operates, two NMS Stock ATSs, each of which maintains a separate book of orders that is governed by distinct priority and order interaction rules for one type of security).301 In both instances, each of the ATSs must comply with Regulation ATS.302 The Commission is proposing to add to Rule 301(b)(2)(viii) to provide that each NMS Stock ATS or Government Securities ATS that is operated by a broker-dealer that is the

303Under the proposed rules, a broker-dealer operator for an ATS that currently trades government securities and corporate bonds, for example, would file a Form ATS–N to disclose its government securities activities for the Government Securities ATS. The broker-dealer operator would disclose the corporate bond activities of its existing ATS by filing with the Commission a material amendment to its Form ATS pursuant to Rule 301(b)(2)(ii) of Regulation ATS to remove information regarding government securities activities. See Regulation ATS Adopting Release, supra note 31, at 70864 (discussing circumstances under which an ATS would file a material amendment to Form ATS pursuant to Rule 301(b)(2), which, among other things, includes changes to the operating platform, the types of securities traded, or types of subscribers). 304See supra note 246 and accompanying text. 305See 17 CFR 242.301(b)(9). 306The information filed on Form ATS–R permits the Commission to monitor trading on an ATS. See Regulation ATS Adopting Release, supra note 31, at 70878. 307See supra notes 244 and 254 and accompanying text. 308See NMS Stock ATS Adopting Release, supra note 2, Section III.B.5. 309See infra Section V.A. See also proposed Rule 301(b)(5)(iii). 310See 17 CFR 242.301(b)(5)(i). 311See Regulation ATS Adopting Release, supra note 31, at 70872. 312See id. registered broker-dealer for more than one ATS must comply with Regulation ATS, including the filing requirements of Rule 304. The Commission believes that the proposed language makes clear that the proposal would not require compliance with the heightened transparency requirements of Regulation ATS for ATSs that are not NMS Stock ATSs or Government Securities ATSs. Under the proposal, a broker-dealer operator, for example, for an ATS that noticed on its initial operation report on Form ATS that the ATS trades government securities and corporate debt securities would be the broker￾dealer operator for two types of ATSs that would be separate from each other with regard to trading these types of securities and each would comply with Regulation ATS. These two types of ATSs would be (1) a Government Securities ATS that would file a Form ATS–N with respect to government securities and (2) a non-Government Securities ATS that would file a Form ATS with respect to corporate debt.303 In addition, each of the two ATSs would be required to comply with the conditions to Regulation ATS, including, among other things, adopting written safeguards and written procedures to protect subscriber confidential trading information for the ATS pursuant to Rule 301(b)(10) and making and keeping records for the ATS pursuant to Rule 301(b)(8).304 The Commission also is proposing to amend Rule 301(b)(9) of Regulation ATS.305 This rule requires an ATS to report transaction volume in various types of securities, including government securities and repos, on Form ATS–R on a quarterly basis and within 10 calendar days after it ceases
operation.306 As discussed above, the Commission is proposing to define ‘‘Government Securities ATS’’ and to clarify the definition of ‘‘NMS Stock ATS’’ to make clear that a Government Securities ATS cannot trade securities other than government securities or repos and that an NMS Stock ATS cannot trade securities other than NMS stocks.307 For example, a Government Securities ATS operated by a broker￾dealer that is also the registered broker￾dealer for a non-Government Securities ATS would be required to file a Form ATS–R for the Government Securities ATS and a separate Form ATS–R for the non-Government Securities ATS. The Commission is proposing to amend Rule 301(b)(9) by removing language stating that an ATS must ‘‘separately file’’ a Form ATS–R for transactions in NMS stocks and for transactions in securities other than NMS stocks to simplify the text and convey that each ATS, even if operated by a broker-dealer that operates other ATSs, must file a Form ATS–R. This is consistent with the current Form ATS–R filing process for a broker-dealer that operates an NMS Stock ATS and non-NMS Stock ATS.308 Request for Comment
25. Should an NMS Stock ATS or
Government Securities ATS that is operated by a broker-dealer that is a registered broker-dealer for more than one ATS be subject to Rule 304 independent of any other ATS operated by its broker-dealer?
26. Should a broker-dealer that is the
registered broker-dealer for more than one ATS be required to file separate Forms ATS–R for each of the ATSs it operates?
27. Should a broker-dealer that is the
registered broker-dealer for an ATS that trades government securities or repos and an ATS that trades NMS stocks be required to file separate Forms ATS–N for each of the ATSs it operates?
28. Should the Commission allow a
broker-dealer operator of an NMS Stock ATS or a Government Securities ATS to disclose on its Form ATS–N its non￾government securities or non-NMS stock activities, in addition to its government securities or NMS stock activities, on a voluntary basis?
29. Do commenters believe that
additional changes or requirements to the ATS framework are needed? For example, should the Commission propose amendments to Regulation ATS to require ATSs that trade equity securities other than NMS stocks, corporate debt securities, municipal securities, or any other category of securities to comply with Rule 304, including filing with the Commission public Form ATS–N and requiring their Forms ATS–N to be subject to Commission review and effectiveness processes?
4. Application of Fair Access to
Government Securities ATSs The Fair Access Rule, as proposed to be amended and as described in detail below,309 requires an ATS to, among other things, establish and apply reasonable written standards for granting access on its system. Today, the Fair Access Rule only applies if an ATS’s trading volume for certain securities or a certain type of securities exceeds an average daily volume threshold during a period time set forth in the rule. Currently, the Fair Access Rule only applies to the trading of NMS stocks, equity securities that are not NMS stocks and for which transactions are reported to an SRO, municipal securities, and corporate debt securities, but not to trading in government securities.310 The Fair Access Rule was designed to ensure that qualified market participants have fair access to the significant sources of liquidity in the U.S. securities markets. When Regulation ATS was adopted, the Commission explained that the fair treatment by ATSs of potential and current subscribers is particularly important when an ATS captures a large percentage of trading volume in a security, because viable alternatives to trading on such a system are limited.311 The Commission further explained that if an ATS has a significantly large percentage of the volume of trading in a security or type of security, unfairly discriminatory actions can hurt investors lacking access to that ATS.312 Currently, however, Regulation ATS does not provide a mechanism to prevent unfair denials or limitations of access by ATSs that trade U.S. Treasury Securities or Agency Securities or regulatory oversight of such denials or limitations of access. Today, the principles undergirding the Fair Access Rule are equally relevant to a Government Securities ATS, and amending the Fair Access Rule to include the trading of U.S. Treasury Securities and Agency Securities would help ensure the fair treatment of potential and current subscribers to ATSs that consist of a large percentage

313Under the proposal, the Fair Access Rule would not apply to trading of repos, including repos on U.S. Treasury Securities and Agency Securities. The Commission notes FINRA does not require ATSs to report transactions for repos. The Commission is requesting comment on its preliminary assessment and on whether the Commission should amend Regulation ATS to require Government Securities ATSs that meet certain volume thresholds for the trading of repos, including repos on U.S. Treasury Securities and Agency Securities, to be subject to the requirements of the Fair Access Rule. 314See, e.g., SIFMA Letter; MFA Letter; ICE Bonds Letter I; and Healthy Markets Letter. 315See SIFMA Letter at 4. See also ICI Letter at 4 (stating that funds generally are not able to directly access liquidity on most of these platforms, and that applying the fair access requirements would enhance the ability of funds to onboard and participate on these platforms directly and would generally enhance market structure for U.S. Treasury Securities and benefit fund shareholders); FIA PTG Letter at 2 (stating that the requirements will ensure qualified market participants have access to the government securities market). 316See MFA Letter at 4. See also ICI Letter at 4 (stating that the fair access requirements would enable the Commission to evaluate ATS standards and determine whether they are being applied in an unfair or discriminatory manner). 317See Tradeweb Letter at 3 (stating that the Commission should not, for example, distinguish between on-the-run and off-the-run U.S. Treasury Securities, and that a broader measure of market significance is preferable in order to provide for more stable application of the Fair Access Rule); ICE Bonds Letter I at 5. 318See Bloomberg Letter at 5 (noting that FINRA’s aggregated weekly data report currently segments the data into on-the-run/off-the-run and dealer-to￾dealer and dealer-to-customer transactions). 319See supra note 229. 320The Commission believes that the vast majority—and likely, all—broker-dealer operators of Legacy Government Securities ATSs that trade Agency Securities currently subscribe to TRACE. Communication Protocol Systems that are not currently FINRA members, however, are not required to report to TRACE. The Commission is requesting public comment on the extent to which Government Securities ATSs (which may include Legacy Government Securities ATSs and Communication Protocol Systems) have access to TRACE trade reports for Agency Securities. 321 In response to the 2020 Proposal, one commenter stated that the proposal would need to be based on ‘‘weekly par value traded’’ because FINRA publishes volume data on a weekly basis. See Bloomberg Letter at 6. The Commission believes that data to calculate the proposed threshold, which is based on dollar volume published by FINRA on a weekly basis, would be readily available. 322 In response to the 2020 Proposal, one commenter stated that it supports applying the Fair Access
Rule to all types of U.S. Treasury Securities and all types of Agency Securities, each on an aggregate basis. See Tradeweb Letter at 3. 323For example, suppose a Government Securities ATS has significant trading volume in U.S. Treasury Securities but not Agency Securities. In this example, the proposed rule would help ensure that investors receive fair access to the ATS’s services with respect to U.S. Treasury Securities, but it would not require the ATS to provide fair access for its Agency Securities services. 324 In response to the 2020 Proposal, some commenters stated that they support applying the thresholds on an aggregate basis. See ICE Bonds Letter at 6 and Tradeweb Letter at 3. One of trading volume in these two types of securities.313 In the 2020 Proposal, the Commission proposed that a Government Securities ATS would be subject to the Fair Access Rule if during at least four of the preceding six calendar months, the Government Securities ATS had: (1) With respect to U.S. Treasury Securities, five percent or more of the average weekly dollar volume traded in the United States as provided by the SRO to which such transactions are reported; or (2) with respect to Agency Securities, five percent or more of the average daily dollar volume traded in the United States as provided by the SRO to which such transactions are reported. In response to the 2020 Proposal, commenters generally supported amending Regulation ATS to apply the Fair Access Rule for Government Securities ATSs that meet certain trading thresholds.314 Some commenters stated that the proposed amendments would ensure that market participants are not unreasonably denied access from important sources of liquidity for a particular security,315 and prevent discriminatory actions that could hurt investors, and potentially result in higher trading costs and a reduction in trading efficiency.316 One commenter stated that the Commission should, as was proposed in the 2020 Proposal, apply the thresholds to all types of U.S. Treasury Securities and Agency Securities, each on an aggregate basis.317 One commenter, however, suggested that the Commission may apply the fair access thresholds to on-the-run securities that are ‘‘likely’’ to trade on an ATS as off-the-run securities are less liquid and tend to trade using other methods.318 The Commission is re-proposing to apply the Fair Access Rule to the trading of government securities on an ATS with certain revisions. After considering comments received, proposed changes to Exchange Act Rule 3b–16, and further analysis of the U.S. Treasury Securities markets, as explained further below, the Commission is proposing to revise the average weekly trading volume percentage for ATSs trading U.S. Treasury Securities from the threshold proposed in the 2020 Proposal. Accordingly, the Commission is proposing that a Government Securities ATS will be subject to the Fair Access Rule if, during at least four of the preceding six calendar months: (1) It
had three percent or more of the U.S. Treasury Securities average weekly dollar volume traded in the United States as provided by the SRO to which such transactions are reported; or (2) it had five percent or more of the Agency Securities average daily dollar volume traded in the United States as provided by the SRO to which such transactions are reported. First, the Commission is re-proposing that the thresholds include only securities for which transactions are reported to an SRO, and the volume thresholds are based on how the SRO subsequently reports that volume to the public. FINRA publishes weekly aggregate data on U.S. Treasury Securities based on the mandatory transaction reports of its members to TRACE, and disseminates transaction data about Agency Securities immediately upon receipt of a transaction report.319 Currently, FINRA neither provides individual trade reports nor aggregates daily volume data for U.S. Treasury Securities transactions to TRACE subscribers (or to the public). FINRA, however, provides individual trade reports for all Agency Securities transactions to TRACE subscribers.320 Accordingly, because weekly dollar volume data about transactions in U.S. Treasury Securities and daily dollar volume data about transactions in Agency Securities are publicly available via TRACE, Government Securities ATSs will be able to readily calculate whether they meet the applicable thresholds.321 Second, the Commission continues to believe that separate volume thresholds for U.S. Treasury Securities and Agency Securities would best advance the investor protection goals of the Fair Access Rule.322 The proposed volume thresholds would help ensure that the Fair Access Rule is appropriately tailored so that it only applies to the category of security for which an ATS has significant trading volume.323 The Commission believes that it would be unnecessary and overly burdensome to require a Government Securities ATS to comply with the Fair Access Rule for a category of government security for which that ATS does not have significant volume. Furthermore, the Commission now proposes different trading volume thresholds for U.S. Treasury Securities and Agency Securities. As such, the Commission believes it would be impractical for the Fair Access Rule to combine trading volume in these two types of securities to determine whether a Government Securities ATS has triggered its requirements. Third, the Commission believes that it is appropriate to determine these volume thresholds on a category basis.324 Given that U.S. Treasury

commenter stated that Commission should not, for example, distinguish between on-the-run and off￾the-run Treasuries in applying the Fair Access Rule because a broader measure of market significance is preferable in order to provide for a more stable application of the Fair Access Rule. See Tradeweb Letter at 3. 325However, if, for example, during the six month period from January to June, the Government Securities ATS met the threshold for U.S. Treasury Securities only during January and April and met the threshold for Agency Securities only during February and May, the Government Securities ATS would not be subject to the Fair Access Rule in July because the ATS would not have met the threshold for either type of security during at least four of the preceding six months in either U.S. Treasury Securities or Agency Securities. 326See AFREF Letter at 3. 327See Bloomberg Letter at 6. 328See SIFMA Letter at 5. 329See Treasury Market Practices Group (TMPG), White Paper on Clearing and Settlement in the Secondary Market for U.S. Treasury Securities (July 2019), available at https://www.newyorkfed.org/ medialibrary/Microsites/tmpg/files/CS_FinalPaper_ 071119.pdf. 330See infra Section V.A. See also infra Table VIII.1. For purposes of estimating the number of unique affiliated ATSs that would meet the proposed three percent threshold, the data in Table VIII.1 (stating a total of nine ‘‘grouped-affiliated ATSs’’ would be affected) has been adjusted based on the Commission’s knowledge of current ATS operations. 331Based on Coalition Greenwich’s Greenwich MarketView data from April 2021 through September 2021, approximately two currently operating Communication Protocol Systems would be subject to the Fair Access Rule using a three percent threshold in U.S. Treasury Securities. This would remain unchanged if the Commission used the previously-proposed five percent threshold. 332See infra Table VIII.1. For purposes of estimating the number of unique affiliated ATSs that would meet a five percent threshold, the data in Table VIII.1 (stating a total of five ‘‘grouped￾affiliated ATSs’’ would be affected) has been adjusted based on the Commission’s knowledge of current ATS operations. 333See id. 334 Data is based on the regulatory version of TRACE for U.S. Treasury Securities from April 1, 2021 through September 30, 2021. Securities and Agency Securities are types of debt securities, doing so would be consistent with the Fair Access Rule’s application to other categories of fixed income securities (i.e., corporate bonds and municipal securities). The Fair Access Rule applies on a security￾by-security basis for NMS stocks and equity securities that are not NMS stocks, and on a category basis for corporate bonds and municipal securities. Fourth, the Commission is proposing that a Government Securities ATS would be required to comply with the Fair Access Rule only if it has met at least one of the applicable volume thresholds during at least four of the preceding
six calendar months.325 For ATSs that trade Agency Securities, this is the same time period for evaluating the applicability of the Fair Access Rule that is currently applied to ATSs that trade NMS stocks, equity securities that are not NMS stocks and for which transactions are reported to an SRO, municipal securities, and corporate debt securities. Fifth, the Commission is proposing a three percent threshold to apply the Fair Access Rule for Government Securities ATSs that trade U.S. Treasury Securities. The Commission received several comments on the threshold proposed in the 2020 Proposal, which expressed differing opinions. One commenter stated that it would support a threshold of three percent of daily market volume, observing that such a threshold would apply the Fair Access Rule to only four ATSs for U.S. Treasury Securities and one for Agency Securities, and stating that these ATSs are ‘‘leading exchanges’’ whose customers deserve fair access.326 On the other hand, one commenter stated that an ATS should be subject to the Fair Access Rule only if it is a ‘‘significant’’ source of liquidity and that it believed that most market participants view 10 percent of the par value traded in the asset class as the market share threshold where an ATS’s liquidity is significant.327 Another commenter supported the previously-proposed five percent thresholds.328 While public comment on what constitutes a significant market center for U.S. Treasury Securities is split, the Commission believes that a three percent average weekly trading volume threshold would encompass the significant markets for and advance the policy goals of the Fair Access Rule. The Commission believes that the policy goals behind the Fair Access Rule are of particular importance in the U.S. Treasury Securities market. Market participants must have reasonable access to significant sources of liquidity in the secondary markets for U.S. Treasury Securities because, among other things, U.S. Treasury Securities play a vital and irreplaceable role in both the U.S. and global economies. In addition, ATSs that operate in the secondary interdealer markets for on￾the-run U.S. Treasury Securities have become a significant source of trading interest for government securities. Also, under this proposal, RFQ systems will now be subject to Regulation ATS. Given that RFQ systems make up over half of secondary trading in the U.S. Treasury market,329 the Fair Access Rule’s policy goals would be advanced by requiring RFQs that facilitate a significant percentage of U.S. Treasury trading to provide fair access to market participants. Additionally, when compared to the application of the Fair Access Rule to NMS Stock ATSs, denying fair access to services of an ATS for U.S. Treasury Securities under this proposal would be particularly impactful. The Fair Access Rule would be applied categorically for government securities rather than on a security-by￾security basis like in the NMS equities market. Thus,
a market participant being denied access to a significant U.S. Treasury Securities ATS could be denied access to the system’s entire portfolio of U.S. Treasury Securities operations. Based on the current market, a three percent volume threshold would help ensure appropriate access for market participants, particularly retail and other non-broker-dealer investors who rely on liquidity in the government securities markets. Specifically, under the proposed three percent threshold, based on volume currently required to be reported to TRACE, the Commission estimates that seven Legacy Government Securities ATSs that trade U.S. Treasury Securities (including four Legacy Government Securities ATSs with greater than three percent market share and three affiliated ATSs with which their volume would be aggregated under the proposed changes to the Fair Access Rule) 330 would be subject to the Fair Access Rule.331 Under the previously proposed five percent threshold, an estimated three ATSs trading U.S. Treasury Securities (including two Legacy Government Securities ATSs with greater than five percent market share and one affiliated ATS) would be subject to the Fair Access Rule.332 As such, a three percent threshold would result in market participants having fair access to an estimated nearly eight percent more of the U.S. Treasury Securities market than they would under a five percent threshold, based on volume currently reported to TRACE.333 Furthermore, applying the Fair Access Rule to ATSs that meet a three percent threshold in U.S. Treasury Securities would result in the Fair Access Rule applying to Legacy Government Securities ATSs transacting in approximately 32 percent of market volume currently reported to FINRA in U.S. Treasury Securities. ATSs that trade U.S. Treasury Securities that would be subject to the Fair Access Rule under the proposed three percent threshold would comprise approximately 94 percent of U.S. Treasury Securities volume traded on ATSs.334 Accordingly, the Commission believes that the three percent threshold would provide investors with access to

335See Rule 301(b)(5)(i)(A)–(D).
336This ATS would also meet the proposed threshold for trading in U.S. Treasury Securities. 337See proposed Rule 301(b)(5)(i)(G). The rule text uses the term ‘‘Newly Designated ATS’’ to refer to a Communication Protocol System. See supra note 134. Under this proposal, an ATS that triggers the fair access threshold for a security (for NMS stocks or equity securities that are not NMS stocks) or a category of security (for municipal securities, corporate debt securities, U.S. Treasury Securities, or Agency Securities) would not be able to avail itself to the one-month compliance period for triggering the fair access threshold for another security or another category of securities. 338See infra Section V.A.3. markets that are important venues for trading in U.S. Treasury Securities. Sixth, the five percent threshold set forth in the 2020 Proposal for Agency Securities is being re-proposed unchanged. Because the U.S. Treasury Securities market is one of the deepest and most liquid in the world, and because of the vital role that U.S. Treasury Securities play in the U.S. and global economies, it is particularly important to ensure that investors have access to ATSs with significant volume in U.S. Treasury Securities. The Agency Securities market, however, does not share the unique qualities of the U.S. Treasury Securities market, and accordingly, the Commission is re￾proposing for Agency Securities a five percent threshold that is consistent with the current volume threshold applicable to corporate bonds and municipal securities.335 Furthermore, based on volume currently reported to TRACE, the estimated one Legacy Government Securities ATS that would exceed the proposed five percent threshold for Agency Securities accounts for nearly 12 percent of volume reported in TRACE in Agency Securities.336 The Commission is proposing a compliance period for Communication Protocol Systems, which seek to operate as ATSs, and Legacy Government Securities ATSs that become subject to the Fair Access Rule. Under the proposal, a Communication Protocol System or a Legacy Government Securities ATS that becomes subject to the Fair Access Rule would be required to comply with the Fair Access Rule one month from the date that the Communication Protocol System or the Legacy Government Securities ATS initially triggers any of the fair access thresholds.337 The Commission believes that it is appropriate to provide the one￾month compliance period to allow the Communication Protocol System or the Legacy Government Securities ATS to establish and apply reasonable written standards for granting, limiting, and denying access to the ATS services, as proposed, and, for those that would be NMS Stock ATSs and Government Securities ATSs, to prepare responses to Item 24 of Form ATS–N.338 The additional compliance period is designed to provide the Communication Protocol Systems and the Legacy Government Securities ATSs sufficient time to transition into the new ATS regulatory regime and
prevent any disruptions to the operation of these systems and their participants. Request for Comment
30. Should any other type of
government securities be included as a category of securities under Rule 301(b)(5)? Should the Commission apply Rule 301(b)(5) to all Government Securities ATSs? What would be the costs and benefits associated with such a requirement?
31. Should the proposed three percent
fair access threshold for U.S. Treasury Securities be applied to all types of U.S. Treasury Securities or to subset categories of U.S. Treasury Securities? For example, should the three percent fair access threshold be applied to transaction volume in only on-the-run U.S. Treasury Securities? Should the five percent fair access threshold be applied to all Agency Securities or to subset categories? If so, why or why not?
32. Should the proposed three percent
fair access threshold for U.S. Treasury Securities be set higher or lower than three percent? Should the proposed five percent fair access threshold for Agency Securities be set higher or lower than five percent? If so, what should the percentage thresholds be? Should there be no thresholds so that the Fair Access Rule would apply to all Government Securities ATSs that trade U.S. Treasury Securities or Agency Securities regardless of volume transacted on the ATS? Please support your views. Are the five percent and three percent thresholds appropriate thresholds to capture ATSs that are significant markets for trading in U.S. Treasury Securities and Agency Securities, respectively? Would the proposed thresholds capture ATSs that are not significant markets for U.S. Treasury Securities and Agency Securities? If there should be a percent threshold for a category finer than all U.S. Treasury Securities, for example on-the-run U.S. Treasury Securities or off-the-run U.S. Treasury Securities, what should that threshold should be?
33. Should the fair access threshold
be based on average weekly dollar volume traded in the United States for U.S. Treasury Securities and daily dollar volume traded in the United States for Agency Securities?
34. Would the proposed four out of
six month period be an appropriate period to measure the volume thresholds for U.S. Treasury Securities and Agency Securities? With respect to calculating the appropriate thresholds, would Government Securities ATSs have available appropriate data with which to determine whether the proposed thresholds have been met? Would ATSs that trade U.S. Treasury Securities be able to readily calculate whether they meet the volume thresholds in at least four out of the preceding six months, given that U.S. Treasury Securities are disseminated on a weekly, rather than daily basis? Would it be appropriate for the Commission to change the proposed four out of six month period to a time period measured in weeks (e.g., at least 16 out of the preceding 24 weeks) with respect to U.S. Treasury Securities? What effect would any such change have on the likelihood that ATSs trading U.S. Treasury Securities would meet the volume thresholds?
35. If the average weekly dollar
volumes were to include transactions for U.S Treasury Securities by non￾FINRA members, which currently are not reported to, or collected by, the SRO that makes public average weekly dollar volume statistics, should the fair access threshold change? If so, what should be the appropriate threshold?
36. Would it be appropriate to use five
percent of average daily dollar volume traded in the United States as a fair access threshold for Agency Securities? Do ATSs that trade Agency Securities currently subscribe to TRACE and, therefore, receive TRACE trade reports for Agency Securities? If not, what percentage of these ATSs do not currently subscribe to TRACE?
37. Should the requirements under
the Fair Access Rule be amended specifically for Government Securities ATS? If so, how?
38. Are there any unique challenges
for ATSs that would be required to comply with the requirements under the Fair Access Rule for the first time? If so, please explain.
39. Do commenters believe that it is
appropriate to provide to Communication Protocol Systems and Legacy Government Securities ATSs a one-month compliance period to comply with the Fair Access Rule? Should the proposed compliance period be longer or shorter? Should the eligibility for the compliance period be expanded to ATSs that are currently operating or limited in any way? Please explain.

339See supra Section II.
340A Communication Protocol System that chooses to register as a national securities exchange would also be subject to Regulation SCI under the definition of ‘‘SCI entity’’ which includes SROs such as national securities exchanges. As discussed above, Communication Protocol Systems, such as RFQ systems, that use trading interest and protocols to bring together buyers and sellers perform an exchange market place function similar to systems that offer the use of orders and trading facilities. These systems allow market participants to use non-firm trading interest to seek and negotiate a trade. Accordingly, the Commission preliminarily believes that such systems, whether they are systems of a registered national securities exchange or an ATS that is an SCI entity, would be covered by the definition of ‘‘SCI systems’’ under Regulation SCI because they directly support trading. See 17 CFR 242.1000 and infra note 348 and accompanying text. As detailed further below, the Commission is requesting comment on whether Communication Protocol Systems of SCI entities would meet the definition of ‘‘SCI systems’’ under Regulation SCI. 341See Regulation SCI Adopting Release, supra note 3, at 72252–56 for a discussion of the background of Regulation SCI. 342See id. at 72253–56. 343See id. at 72277–79. 344 Id. at 72253, 72256. 345See 17 CFR 242.1000. 346See 17 CFR 242.1001; infra notes 397–398. 347See 17 CFR 242.1002–1007; infra notes 400– 411. 348See 17 CFR 242.1000. 349 Id. 350 Id. See also Regulation SCI Adopting Release, supra note 3, at 72277. Paragraph (1) of the definition of ‘‘critical SCI systems’’ in Rule 1000 of Regulation SCI specifically enumerates certain systems to be within its scope, including those that directly support functionality relating to: Clearance and settlement systems of clearing agencies; openings, reopenings, and closings on the primary listing market; trading halts; initial public offerings; the provision of consolidated market data; or exclusively-listed securities. The second prong of the definition provides a broader catch-all for systems that ‘‘[p]rovide functionality to the securities markets for which the availability of alternatives is significantly limited or nonexistent and without which there would be a material impact on fair and orderly markets.’’ 17 CFR
242.1000 (definition of ‘‘critical SCI system’’).
351See Regulation SCI Proposing Release, Securities Exchange Act Release No. 69077 (Mar. 8, 2013), 78 FR 18084, 18093–95 (Mar. 25, 2013).
C. Application of Regulation SCI to
Government Securities ATS The Commission is re-proposing to amend Regulation SCI to expand the definition of ‘‘SCI alternative trading system’’ to include Government Securities ATSs that meet a specified volume threshold. A Government Securities ATS that meets the proposed amended definition of ‘‘SCI alternative trading system’’ would fall within the definition of ‘‘SCI entity’’ and, as a result, would be subject to the requirements of Regulation SCI. Because the proposed amendments to Exchange Act Rule 3b–16(a) would cause Communication Protocol Systems to fall within the definition of ‘‘exchange,’’ 339 Communication Protocol Systems that transact in U.S. Treasuries or Agency Securities that choose to register as a broker-dealer and comply with Regulation ATS would, if they meet the proposed volume threshold, also meet the proposed amended definition of ‘‘SCI alternative trading system’’ and become subject to the requirements of Regulation SCI. The proposed amendments to Exchange Rule 3b–16(a) likewise would cause Communication Protocol Systems that transact in NMS stocks and equity securities that are not NMS stocks to fall within the current definition of SCI alternative trading system if they reached the current volume thresholds within the definition, and become subject to the requirements of Regulation SCI.340 As discussed in detail below, the Commission believes that extending the requirements of Regulation SCI to Government Securities ATSs that trade a significant volume in U.S. Treasury Securities or Agency Securities would help to address any technological vulnerabilities, and improve the Commission’s oversight, of the core technology of key entities in the markets for government securities. The Commission adopted Regulation SCI in November 2014 to strengthen the technology infrastructure of the U.S. securities markets.341 As discussed in the Regulation SCI Adopting Release, a number of factors contributed to the Commission’s proposal and adoption of Regulation SCI. These factors included:
The evolution of the markets becoming significantly more dependent upon sophisticated, complex, and interconnected technology; the successes and limitations of the Automation Review Policy (‘‘ARP’’) Inspection Program; a significant number of, and lessons learned from, systems issues at exchanges and other trading venues; 342 and increased concerns over the potential for ‘‘single points of failure’’ in the securities markets.343 Regulation SCI is designed to strengthen the infrastructure of the U.S. securities markets, reduce the occurrence of systems issues in those markets, improve their resiliency when technological issues arise, and implement an updated and formalized regulatory framework, thereby helping to ensure more effective Commission oversight of such systems.344 The key market participants that are currently subject to Regulation SCI are called ‘‘SCI entities’’ and include certain SROs (including stock and options exchanges, registered clearing agencies, FINRA and the MSRB) (‘‘SCI SROs’’), alternative trading systems that trade NMS and non-NMS stocks exceeding specified volume thresholds (‘‘SCI ATSs’’), the exclusive SIPs (‘‘plan processors’’), certain exempt clearing agencies, and SCI competing consolidators.345 ATSs trading NMS or non-NMS stocks that are currently subject to Regulation SCI are heavily reliant on trading technology and represent a significant pool of liquidity for NMS and non-NMS stocks. As discussed in further detail below, Regulation SCI requires these SCI entities to, among other things, establish, maintain, and enforce written policies and procedures reasonably designed to ensure that their key automated systems have levels of capacity, integrity, resiliency, availability, and security adequate to maintain their operational capability and promote the maintenance of fair and orderly markets, and that such systems operate in accordance with the Exchange Act and the rules and regulations thereunder and the entities’ rules and governing documents, as applicable.346 Broadly speaking, Regulation SCI also requires SCI entities to take appropriate corrective action when systems issues occur, provide certain notifications and reports to the Commission regarding systems problems and systems changes, inform members and participants about systems issues, conduct business continuity and disaster recovery testing, conduct annual reviews of their automated systems, including penetration testing, and make and keep certain books and records.347 Regulation SCI applies primarily to the systems of SCI entities, whether operated by SCI entities or on their behalf, that directly support any one of six key securities market functions— trading, clearance and settlement, order routing, market data, market regulation, and market surveillance (‘‘SCI systems’’).348 With respect to security, Regulation SCI also applies to systems that, if breached, would be reasonably likely to pose a security threat to SCI systems (‘‘indirect SCI
systems’’).349 In addition, certain systems whose functions are critical to the operation of the markets, including those that represent single points of failure (defined as ‘‘critical SCI systems’’), are subject to certain heightened requirements.350 When the Commission adopted Regulation SCI, the Commission departed from its proposal to apply Regulation SCI to fixed income ATSs that trade municipal and corporate debt.351 Explaining this departure, the Commission differentiated ATSs trading

352See Regulation SCI Adopting Release, supra note 3, at 72270. 353See id. 354See id. 355See 2020 Proposal, supra note 4, at 87152. See also supra Section II.B; Regulation SCI Adopting Release, supra note 3, at 72253. 356See 2020 Proposal, supra note 4, at 87152. 357See SIFMA Letter at 5; MFA Letter at 5; AFREF Letter at 2, 4; Healthy Markets Letter at 9– 11; and ICE Bonds Letter II at 5 (stating that it would support application of Regulation SCI to fixed income ATSs if the threshold was set at the 20% volume threshold test currently used under Rule 301(b)(6)). Commenters on the 2020 Proposal that generally supported the application of Regulation SCI expressed varying views as to the appropriate threshold level that the Commission should adopt. See discussion infra regarding comments pertaining to threshold levels. 358See SIFMA Letter at 5; MFA Letter at 5; AFREF Letter at 2, 4; and Healthy Markets Letter at 10–11. 359See MFA Letter at n.13. 360See MFA Letter at 5; and Healthy Markets Letter at 9. 361See Healthy Markets Letter at 10. See also infra note 367 and accompanying text (discussing MarketAxess’s comment with respect to stock market ATSs and fixed income ATSs). 362See AFREF Letter at 2. 363See Tradeweb Letter at 3, 11; BrokerTec Letter at 5–9; and MarketAxess Letter at 11. The Commission notes that MarketAxess focused its comments specifically on corporate and municipal bonds, rather than government securities, but we have included such comments here for completeness. 364See Tradeweb Letter at 11; BrokerTec Letter at 5–9; and MarketAxess Letter at 11. 365See Tradeweb Letter at 3, 11; and BrokerTec Letter at 8–9. 366See Tradeweb Letter at 3, 11. 367See MarketAxess Letter at 11. 368Some commenters on the 2020 Proposal also provided views on whether the Commission should extend application of Regulation SCI to additional entities beyond Government Securities ATSs. See, e.g., Healthy Markets Letter at 9 (stating that the Commission should expand the scope of Regulation SCI to include not just government securities ATSs, but other essential market participants in equities, futures, and fixed income markets); and SIFMA Letter at 5 (arguing that the Commission should not extend Regulation SCI to broker-dealers more generally at this time). As the Commission stated in the Regulation SCI Adopting Release, the Commission will continue to monitor and evaluate the risks posed by the systems of other market participants and the continued evolution of the securities markets to determine whether it would be appropriate to extend the requirements of Regulation SCI to additional categories of entities in the future. See Regulation SCI Adopting Release, supra note 3, at 72259. 369As discussed in detail above and as commenters have stated, the structure of the U.S. Treasury market has evolved in recent years and electronic trading has become an increasingly important feature of the interdealer market for U.S. Treasury Securities. See supra Section II.B and
notes 62–63, 187 and accompanying text. municipal and corporate debt securities from those trading equity securities, stating generally that fixed income markets rely much less on automation and electronic trading than markets that trade NMS stocks or non-NMS stocks.352 The Commission also stated that the municipal and corporate debt markets tend to be less liquid than the equity markets, with slower execution times and less complex routing strategies.353 At the same time, the Commission stated that it would ‘‘monitor and evaluate the implementation of Regulation SCI, the risks posed by the systems of other market participants, and the continued evolution of the securities markets, such that it may consider, in the future, extending the types of requirements in Regulation SCI to additional categories of market participants.’’ 354 In the 2020 Proposal, where the Commission was addressing Government Securities ATSs specifically, the Commission stated that, in light of the increasing automation of the government securities market and the operational similarities between many Government Securities ATSs and NMS Stock ATSs, it believed that it was appropriate to propose to apply the requirements of Regulation SCI to Government Securities ATSs that meet certain volume thresholds, and noted again that while technological developments provide many benefits to the U.S. securities markets, they also have increased the risk of operational problems that have the potential to cause a widespread impact on the securities market and its participants.355 Therefore, the Commission stated in the 2020 Proposal that application of Regulation SCI to Government Securities ATSs that trade a significant volume of U.S. Treasury Securities or Agency Securities would further help to address those technological vulnerabilities, and improve the Commission’s oversight, of the core technology used by key U.S. securities markets participants.356 A number of commenters on the 2020 Proposal supported applying the requirements of Regulation SCI to Government Securities ATSs above a specified volume threshold.357 These commenters stated that such requirements could promote the integrity and resiliency of the key automated systems of Government Securities ATSs and ensure Commission oversight.358 One commenter added that extending Regulation SCI to Government Securities ATSs could reduce the potential for systems issues, as well as reduce the frequency, severity, and duration of any systems issues that may occur.359 As support for the 2020 Proposal, some commenters cited the increased automation in the government securities markets and/or operational similarities with NMS stock ATSs,360 with one commenter stating that the distinctions that the Commission made between stock market ATSs and fixed income ATSs in its adoption of Regulation SCI have not ‘‘stood up well against the rapid evolution of the markets.’’ 361 One commenter asserted that the government securities markets are more
systemically significant than the equity markets, to which Regulation SCI already applies.362 Other commenters on the 2020 Proposal opposed requiring Government Securities ATSs above a volume threshold to comply with Regulation SCI.363 These commenters advocated for applying the narrower technology and resiliency requirements of Rule 301(b)(6), rather than Regulation SCI.364 Some of these commenters expressed concerns regarding the costs and burdens of complying with Regulation SCI.365 One commenter distinguished the equities markets from the market for government securities, asserting that the government securities markets do not have the same type of linkages among trading venues that increase the risk of a systems issue in one market spreading to another and causing significant market impact.366 As such, this commenter argued that applying Regulation SCI would only increase costs without materially increasing the integrity or security of the government securities markets. Another commenter, while focusing its comments on the corporate and municipal bond markets, argued that, when the Commission adopted Regulation SCI, it did not include fixed-income ATSs within the scope of the regulation out of a concern that it could discourage greater automation in the fixed-income markets and that this concern still exists today.367 Acknowledging comment letters on the 2020 Proposal, the Commission continues to believe that the inclusion of Government Securities ATSs meeting specified volume thresholds in Regulation SCI would be appropriate because such Government Securities ATSs (inclusive of Communication Protocol Systems, as proposed), are heavily reliant on technology and represent significant pools of liquidity, as the Commission has determined to be the case for current SCI ATSs.368 The Commission believes that, particularly in light of the evolution of the government securities markets, it is important to impose the requirements of Regulation SCI to help ensure that the technology systems of such Government Securities ATSs are reliable and resilient.369 The focus of the Commission’s discussion in the Regulation SCI

370See Regulation SCI Adopting Release, supra note 3, at 72270. 371See generally SIFMA Letter at 5, MFA Letter at 5, and AFREF Letter at 2. 372See Regulation SCI Adopting Release, supra note 3, at 72264. 373See 17 CFR 242.301(b)(6). At the same time, as specified below, the Commission continues to request comment on whether Government Securities ATSs that meet the proposed volume thresholds for SCI ATSs should be governed by Rule 301(b)(6) instead of being defined as SCI entities. The requirements of Rule 301(b)(6) are less rigorous than the requirements of Regulation SCI. Among other things, Rule 301(b)(6) requires an ATS to notify the Commission staff of material systems outages and significant systems changes and that the ATS establish adequate contingency and disaster recovery plans. See id. Regulation SCI expanded upon these requirements, by, for example, expanding the requirements to a broader set of systems, imposing new requirements for information dissemination regarding SCI events, and requiring Commission notification for additional types of events, among others. Rule 301(b)(6) currently applies to an ATS that trades only municipal securities or corporate debt securities with 20 percent or more of the average daily volume traded in the United States during at least four of the preceding six calendar months. Currently, there are no ATSs that are subject to requirements of Rule 301(b)(6) of Regulation ATS. 374See BrokerTec Letter at 6. 375Specifically, 17 CFR 242.1001(a)(4) (Rule 1001(a)(4)) provides that the policies and procedures required under Rule 1001(a) shall be deemed to be reasonably designed if they are consistent with current SCI industry standards. See Rule 1001(a)(4) of Regulation SCI. ‘‘SCI industry standards’’ are those standards comprising information technology practices that are widely available to information technology professionals in the financial sector and issued by an authoritative body that is a U.S. governmental entity or agency, association of U.S. governmental entities or agencies, or widely recognized organization. 376See Regulation SCI Adopting Release, supra note 3, at 72259–60, 72290–91. 377See paragraphs (3) and (4) of the definition of ‘‘SCI ATS’’ under Rule 1000 of Regulation SCI. 378See AFREF Letter at 2 and 4. 379Specifically, this commenter stated that Regulation SCI should apply to any family of related trading venues for government or agency securities with combined notional average daily values over the lesser of one percent of the overall market share on an appropriate dollar threshold, e.g., $25 billion. See Healthy Markets Letter at 10–
11. In contrast, two commenters advocated for the
application of Rule 301(b)(6) rather than Regulation SCI to Government Securities ATSs, but stated that the current 20 percent threshold in Rule 301(b)(6) is too high. See MarketAxess Letter at 10 (noting that 20 percent is not an appropriate threshold to capture ATSs with a significant percentage of trading volume in corporate or municipal debt); and BrokerTec Letter at 8 (recommending that Rule 301(b)(6) should apply to all Government Trading Securities regardless of trading volume). 380See ICE Bonds Letter II at 5. 381See Tradeweb Letter at 3, 11. This commenter stated that the threshold should be raised to a ‘‘more material percentage’’ such as 25 percent. 382See Bloomberg Letter at 5. Adopting Release regarding the fixed income markets was on the corporate and municipal bond markets, not the government securities markets.370 As discussed in detail below, given the evolution of the government securities markets, the Commission now believes that there are Government Securities ATSs that operate with similar complexity as SCI ATSs that are currently subject to Regulation SCI, and that Government Securities ATSs with significant trading volume play an important role in the government securities markets and face similar technological vulnerabilities as existing SCI entities. Several commenters on the 2020 Proposal stated that 371 the application of Regulation SCI would help the Commission improve its oversight of the market for government securities, thereby continuing its efforts to address technological vulnerabilities of the core technology systems of key U.S. securities markets entities. The Commission explained in the Regulation SCI Adopting Release that it adopted Regulation SCI to expand upon, update, and modernize the requirements of Rule 301(b)(6) for those ATSs trading NMS stocks and non-NMS stocks that it had identified as playing a significant role in the securities markets.372 As stated above, because Government Securities ATSs with significant trading volume play an important role in the government securities markets and present similar risks to the market as SCI ATSs, the re-proposal of the broader set of requirements and safeguards of Regulation SCI is more appropriate for such entities than proposing to amend the older and more limited requirements of Rule 301(b)(6).373 In discussing the costs and burdens of Regulation SCI, one commenter on the 2020 Proposal characterized the requirements of Regulation SCI as being prescriptive and ‘‘one size fits all.’’ 374 This commenter argued that many Government Securities ATSs already align with industry standards that are more flexible and achieve many of the same goals of Regulation SCI without additional compliance costs. Regulation SCI specifically incorporates, and provides that SCI entities can look to, industry standards to comply with the policies and procedures requirement under Regulation SCI.375 As the Commission emphasized at the time of adoption, Regulation SCI is not intended
to be a ‘‘one-size-fits-all’’ regulation, but rather takes a risk-based approach pursuant to which an SCI entity’s policies and procedures could be tailored to a particular system’s criticality and risk, and includes other rules and definitions that similarly incorporated risk-based considerations.376 Accordingly, the Commission is re￾proposing to expand the definition of ‘‘SCI ATSs’’ to include Government Securities ATSs that meet certain volume thresholds with respect to U.S. Treasury Securities and/or Agency Securities.377 Specifically, the definition of ‘‘SCI ATS’’ would be revised to include those ATSs which, during at least four of the preceding six calendar months, had, with respect to U.S. Treasury Securities, five percent or more of the average weekly dollar volume traded in the United States as provided by the SRO to which such transactions are reported; or had, with respect to Agency Securities, five percent or more of the average daily dollar volume traded in the United States as provided by the SRO to which such transactions are reported. Several commenters on the 2020 Proposal discussed the specific proposed volume thresholds for Government Securities ATSs to become subject to Regulation SCI. One commenter stated that the five percent threshold level represents a reasonable level for the systemic integrity issues targeted by Regulation SCI,378 while other commenters expressed support for the application of Regulation SCI as proposed without specifically commenting on the threshold level. Other commenters offered alternative standards for determining which Government Securities ATSs should be included within the scope of Regulation SCI. For example, one commenter recommended that the Commission adopt a lower (i.e., more stringent) threshold level and incorporate a threshold based on a dollar amount.379 Other commenters on the 2020 Proposal suggested adoption of a higher threshold level for the application of Regulation SCI to Government Securities ATSs. For example, one commenter stated that it would support the application of Regulation SCI instead of Rule 301(b)(6) to fixed income ATSs if the Commission adopted the 20 percent volume threshold test currently used under Rule 301(b)(6).380 One commenter who generally opposed the 2020 Proposal also urged the Commission to adopt a higher threshold if it, in fact, extended application of Regulation SCI to Government Securities ATSs.381 Another commenter suggested that application of Regulation SCI should depend on whether the ATS itself is a ‘‘significant’’ source of liquidity, recommending that this determination could, for example, be based on whether the ATS’s par value traded in the asset class, for four months over the prior six months, averaged at least 10 percent of par value traded in the asset class.382

383Regulation SCI would not apply to Government Securities ATSs that trade repos, including repos on U.S. Treasury Securities and Agency Securities. The Commission notes FINRA does not require ATSs to report transactions for repos. See supra note 313. Based on information available to the Commission, the Commission does not believe that ATSs today capture a significant market share for trading repos nor do they rely on the same use of technology as ATSs that trade U.S. Treasury Securities or Agency Securities, but below requests comment on whether Government Securities ATSs that trade repos, including repos on U.S. Treasury Securities and Agency Securities should be subject to Regulation SCI. 384See supra Section II.D and infra Section X.B.1a. As discussed above with regard to the Fair Access Rule, the ATS with the largest market volume in U.S. Treasury Securities has approximately 14 percent of market volume, while the second largest has approximately six percent of market share, and the third and fourth largest both have a little less than four percent market share. The one Legacy Government Securities ATS that would also exceed the threshold for Agency Securities accounts for roughly 11 percent of volume in Agency Securities. See infra Table VIII.1. If the proposed volume thresholds were ten percent, only one Legacy Government Securities ATS would be subject to Regulation SCI, meeting the threshold levels for both U.S. Treasury Securities and Agency Securities. However, the Commission believes that there would still be approximately two currently operating Communication Protocol Systems subject to Regulation SCI using a ten percent threshold in U.S. Treasury Securities. See id. 385See Regulation SCI Adopting Release, supra note 3, at 72270. 386See id. 387See supra notes 187–190 and accompanying text. 388See supra notes 182–186 and accompanying text. One commenter, while arguing that Government Securities ATSs should be subject to Rule 301(b)(6) in lieu of expanding Regulation SCI, in fact similarly emphasized the fundamental importance of the U.S. Treasury market and the need to take appropriate steps to enhance the resilience of the market, arguing that all Government Securities ATSs should be subject to technology and resiliency requirements regardless of volume. See BrokerTec Letter at 8. 389The Commission also recognizes that ATSs for corporate bonds and municipal securities are becoming increasingly electronic and as part of the 2020 Proposal, the Commission requested comment on, among other things, whether the 20 percent volume threshold under Rule 301(b)(6) of Regulation ATS should be amended to capture ATSs that might be critical markets for those securities. 390See Tradeweb Letter at 3, 11. The Commission is re-proposing the five percent thresholds for Government Securities ATSs, consistent with the 2020 Proposal. Although some commenters provided suggestions for different thresholds or recommended applying Rule 301(b)(6) instead, the
Commission believes that the proposed five percent thresholds for applying Regulation SCI to Government Securities ATSs (inclusive of Communication Protocol Systems, as now proposed) would be appropriate measures to identify those ATSs that have the potential to significantly impact investors and the market should a systems issue occur and thus warrant the protections and requirements of Regulation SCI.383 At the same time, as detailed further below, the Commission is requesting additional comment on whether these proposed volume thresholds should be set higher or lower for ATSs trading government securities. The Commission has analyzed the number of entities it believes are likely to be covered by the thresholds it is proposing and believes that, currently, approximately two Legacy Government Securities ATSs trading U.S. Treasury Securities would be subject to Regulation SCI under the five percent volume thresholds, one of which would also meet the volume thresholds for trading Agency Securities.384 In addition, the Commission believes that approximately two currently operating Communication Protocol Systems would likely be subject to Regulation SCI under the proposed five percent threshold in U.S. Treasury Securities. The Commission believes that the proposed volume thresholds to apply Regulation SCI to a Government Securities ATS that trades U.S. Treasury Securities and Agency Securities are reasonable compared to volume thresholds that would subject an ATS to Rule 301(b)(6) under Regulation ATS for the ATS’s trading of corporate bonds and municipal securities. Currently, an ATS that trades corporate bonds or municipal securities is subject to Rule 301(b)(6) if its trading volume reaches 20 percent or more of the average daily volume traded in the United States for either corporate bonds or municipal securities. As discussed in detail above, when the Commission adopted Regulation SCI, it decided not to apply Regulation SCI and its lower volume thresholds to the fixed income markets, concluding that a systems issue in fixed income markets would not have had as significant or widespread an impact as in the equities market.385 Among other things, the Commission reasoned that the fixed income markets at the time relied much less on electronic trading than the equities markets, and that the municipal securities and corporate bond fixed income markets tended to be less liquid than the equity markets, with slower execution times and less complex routing strategies.386 As explained above, however, ATSs for government securities now operate with complexity similar to that of markets that trade NMS stocks in terms of use of technology and speed of trading, the use of limit order books, order types, algorithms, connectivity, data feeds, and the active participation of PTFs, and Communication Protocol Systems are increasingly used as electronic means to bring together buyers and sellers using non-firm trading interest for government securities, being
particularly prevalent in the dealer-to-customer market for off￾the-run U.S. Treasury securities, Agency Securities, and repos.387 Given the critical role government securities play in the U.S. and global economies,388 the Commission believes that, due to their increased reliance on electronic trading and the important role played by Government Securities ATSs in today’s markets, an ATS whose government securities volume falls between five percent and 20 percent of trading volume could significantly impact investors and the market should a systems issue occur. By proposing to apply Regulation SCI to Government Securities ATSs with a threshold of five percent, the Commission seeks to impose the protections of Regulation SCI to these ATSs because of their importance and potential technological risks to the U.S. securities markets.389 While the Commission acknowledges that, as one commenter on the 2020 Proposal suggested,390 the government securities markets may not have the same type of linkages between trading venues as exists in the equities markets today, as described above, Government Securities ATSs with significant trading volume have the potential to significantly impact investors, the overall market, and the trading of individual securities should an SCI event occur, similar to SCI ATSs currently subject to Regulation SCI. In addition, a system outage at a significant Government Securities ATS could disrupt trading at another significant Government Securities ATS even if these Government Securities ATSs are not connected. For example, if a significant Government Securities ATS is experiencing a system outage, there could be a sudden surge in message traffic (e.g., quoting activities) and trading at another significant Government Securities ATS, which could exceed the system capacity of such Government Securities ATS and potentially result in a systems issue and/or a disruption of trading on that ATS as well. Further, the Commission did not base its determination regarding which entities played a significant role in the market and should be included within the scope of the regulation on the linkages that exist in the equities markets. In adopting Regulation SCI, the Commission acknowledged that a temporary outage at an ATS might not lead to a widespread systemic disruption and stated that ‘‘Regulation SCI is not designed to solely address

391See Regulation SCI Adopting Release, supra note 3, at 72263. 392See supra note 379. 393See BrokerTec Letter at 9–10. 394As in the 2020 Proposal, the Commission is proposing to amend the last paragraph in the definition of ‘‘SCI alternative trading system or SCI ATS’’ (newly redesignated paragraph (5)), which provides for the 6-month deferred compliance period, to apply it to Government Securities ATSs. 395See Rule 1000 of Regulation SCI. 396 In the 2020 Proposal, the Commission requested comment on whether all of the obligations in Regulation SCI should apply to Government Securities ATSs that would be SCI ATSs, or whether only certain requirements should be imposed, such as those requiring written policies and procedures, notification of systems problems, business continuity and disaster recovery testing (including testing with subscribers of ATSs), and penetration testing. While, as discussed above, some commenters argue that Rule 301(b)(6) would be more appropriate framework for Government Securities ATSs (see supra note 364), no commenters advocate for applying only a subset of the requirements of Regulation SCI to Government Securities ATSs. 397 17 CFR 242.1001(a) (Rule 1001(a) of Regulation SCI). 398 17 CFR 242.1001(b)(1)–(2). 399 17 CFR 242.1001(c). systems issues that cause widespread systemic disruption, but also to address more limited systems malfunctions that can harm market participants.’’ 391 The Commission believes that, without appropriate safeguards in place for these Government Securities ATSs, technological vulnerabilities could lead to the potential for failures, disruptions, delays, and intrusions, which could place government securities market participants at risk and interfere with the maintenance of fair and orderly markets. The Commission believes that the proposed volume thresholds to apply Regulation SCI to a Government Securities ATS that trades U.S. Treasury Securities and Agency Securities are reasonable as compared to the volume thresholds for applying Regulation SCI to ATSs that trade NMS stocks and ATSs that trade equities that are not NMS stocks. First, an ATS that trades NMS stocks is subject to Regulation SCI if its trading volume reaches: (i) Five percent or more in any single NMS stock and one-quarter percent or more in all NMS stocks of the average daily dollar volume reported by applicable transaction reporting plans; or (ii) one percent or more in all NMS stocks of the average daily dollar volume reported by applicable transaction reporting plans. With respect to non-NMS equity securities, an ATS is subject to Regulation SCI if its trading volume is five percent or more of the average daily dollar volume (across all non-NMS equity securities) as calculated by the SRO to which such transactions are reported. These thresholds reflect the Commission’s determination as to what constitutes a material pool of liquidity traded by ATSs in the respective asset classes: One percent for NMS stocks and five percent
for non-NMS equity securities. The proposed five percent SCI volume thresholds for Government Securities ATSs would be similar to those for ATSs that trade non-NMS equity securities. Basing the thresholds on volume as provided to the SRO to which such transactions are reported is reasonable given that there is no transaction reporting plan for government securities and thus, the trading figures are based on dollar volume traded in the United States as provided by the SRO to which such transactions are reported. With regard to one commenter’s suggestion that the threshold should be based on combined notional average daily values of any family of related trading venues, the Commission requests comment, as set forth below, on whether it would be appropriate to aggregate the volumes of ATSs that trade the same security or category of securities and are operated by a common broker-dealer, or operated by affiliated broker-dealers, and treat the ATSs market places as a single ATS for purposes of determining whether the ATSs meet the threshold levels in the definition of SCI ATS.392 One commenter on the 2020 Proposal urged the Commission to apply the deferred compliance period in the current definition of ‘‘SCI ATS’’ to Government Securities ATSs and asked for clarification as to whether this provision would be applicable.393 Specifically, the definition of SCI ATS currently provides that an SCI ATS shall not be required to comply with the requirements of Regulation SCI until six months after satisfying the thresholds for NMS or non-NMS stocks for the first time. The Commission believes that it is appropriate to provide Government Securities ATS that meet the volume threshold in the definition of ‘‘SCI ATS’’ for the first time a period of time before they are required to comply with the requirements of Regulation SCI. Thus, the Commission is providing clarification that the deferred compliance period would be applicable to Government Securities ATSs.394 Accordingly, Rule 1000 would provide that, like ATSs trading NMS stocks and non-NMS stocks, a Government Securities ATS would not be required to comply with the requirements of Regulation SCI until six months after satisfying the U.S. Treasury Securities or Agency Securities thresholds in the definition for the first time.395 The Commission believes that this six￾month additional compliance period is appropriate to allow a Government Securities ATS the time needed to take steps to meet the requirements of the rules, rather than requiring compliance immediately upon meeting the threshold level. Government Securities ATSs trading U.S. Treasury Securities and/or Agency Securities that meet the volume thresholds under the proposed revised definition of SCI ATS would be subject to the requirements of Regulation SCI, as broadly described below.396 The provision at 17 CFR 242.1001(a) requires SCI entities to establish, maintain, enforce and periodically update policies and procedures reasonably designed to
ensure that their SCI systems and, for purposes of security standards, indirect SCI systems, have levels of capacity, integrity, resiliency, availability, and security adequate to maintain their operational capability and promote the maintenance of fair and orderly markets, and includes certain minimum requirements for those policies and procedures relating to capacity planning, stress tests, systems development and testing methodology, the identification of vulnerabilities, business continuity and disaster recovery plans (including geographic diversity and resumption goals), market data, and monitoring.397 Rule 1001(b) of Regulation SCI requires that each SCI entity establish, maintain, enforce and periodically update written policies and procedures reasonably designed to ensure that its SCI systems operate in a manner that complies with the Exchange Act and the rules and regulations thereunder and the entity’s rules and governing documents, as applicable, and specifies certain minimum requirements for such policies and procedures.398 Rule 1001(c) of Regulation SCI requires SCI entities to establish, maintain, enforce periodically update reasonably designed written policies and procedures that include the criteria for identifying responsible SCI personnel, the designation and documentation of responsible SCI personnel, and escalation procedures to quickly inform ‘‘responsible SCI personnel’’ of potential SCI events.399 Under 17 CFR 242.1002, SCI entities have certain obligations related to SCI events. Specifically, when any responsible SCI personnel has a reasonable basis to conclude that an SCI event has occurred, the SCI entity must

400See 17 CFR 242.1002(a) (Rule 1002(a) of Regulation SCI). 401See 17 CFR 242.1002(b). For any SCI event that ‘‘has had, or the SCI entity reasonably estimates would have, no or a de minimis impact on the SCI entity’s operations or on market participants,’’ Rule 1002(b)(5) provides an exception to the general Commission notification requirements under Rule 1002(b). Instead, an SCI entity must make, keep, and preserve records relating to all such SCI events, and submit a quarterly report to the Commission regarding any such events that are systems disruptions or systems intrusions. 402See 17 CFR 242.1002(c). 403See id. 404See 17 CFR 242.1003(a) (Rule 1003(a) of Regulation SCI). 405See 17 CFR 242.1003(b). 406See 17 CFR 242.1000. Rule 1003(b)(1) of Regulation SCI also states that penetration test reviews of an SCI entity’s network, firewalls, and production systems must be conducted at a frequency of not less than once every three years, and assessments of SCI systems directly supporting market regulation or market surveillance must be conducted at a frequency based upon the risk assessment conducted as part of the SCI review, but in no case less than once every three years. See 17 CFR 242.1003(b)(1)(i)–(ii). 407See 17 CFR 242.1003(b)(2)–(3). 408See 17 CFR 242.1004 (Rule 1004 of Regulation SCI). 409See 17 CFR 242.1005 (Rule 1005 of Regulation SCI). Rule 1005(a) of Regulation SCI relates to recordkeeping provisions for SCI SROs, whereas Rule 1005(b) relates to the recordkeeping provision for SCI entities other than SCI SROs. 410See 17 CFR 242.1006 (Rule 1006 of Regulation SCI). 411See 17 CFR 242.1007 (Rule 1007 of Regulation SCI). begin to take appropriate corrective action which must include, at a minimum, mitigating potential harm to investors and market integrity resulting from the SCI event and devoting adequate resources to remedy the SCI event as soon as reasonably practicable.400 Rule 1002(b) provides the framework for notifying the Commission of SCI events including, among other things, to: Immediately notify the Commission of the event; provide a written notification within 24 hours that includes a description of the SCI event and the system(s) affected, with other information required to the extent available at the time; provide regular updates regarding the SCI event until the event is resolved; and submit a final detailed written report regarding the SCI event.401 Rule 1002(c) of Regulation SCI also requires that SCI entities disseminate information to their members or participants regarding SCI events.402 These information dissemination requirements are scaled based on the nature and severity of an event. 403 The provison at 17 CFR 242.1003(a) requires SCI entities to provide quarterly reports to the Commission relating to system changes.404 Rule 1003(b) of Regulation SCI also requires that an SCI entity conduct an ‘‘SCI review’’ not less than once each calendar year.405 ‘‘SCI review’’ is defined in Rule 1000 of Regulation SCI to mean a
review, following established procedures and standards, that is performed by objective personnel having appropriate experience to conduct reviews of SCI systems and indirect SCI systems, and which review contains: A risk assessment with respect to such systems of an SCI entity; and an assessment of internal control design and effectiveness of its SCI systems and indirect SCI systems to include logical and physical security controls, development processes, and information technology governance, consistent with industry standards.406 Under Rule 1003(b)(2)–(3), SCI entities are also required to submit a report of the SCI review to their senior management, and must also submit the report and any response by senior management to the report, to their board of directors as well as to the Commission.407 The provision at 17 CFR 242.1004 sets forth the requirements for testing an SCI entity’s business continuity and disaster recovery plans with its members or participants.408 SCI entities are required by 17 CFR
242.1005 to make, keep, and preserve
certain records related to their compliance with Regulation SCI 409 and by 17 CFR 242.1006 to make required filings electronically, on Form SCI.410 Finally, 17 CFR 242.1007 contains requirements relating to a written undertaking when records required to be filed or kept by an SCI entity under Regulation SCI are prepared or maintained by a service bureau or other recordkeeping service on behalf of the SCI entity.411 Request for Comment
40. Should Regulation SCI apply to
Government Securities ATSs that meet the proposed definition of SCI ATS? If so, are the proposed revisions to the definition of SCI ATS appropriate? If not, please specifically explain how the policy goals of Regulation SCI would be achieved for such systems without application of the regulation.
41. What are the risks associated with
systems issues at a significant Government Securities ATS? What impact would a systems issue have on the trading of government securities and the maintenance of fair and orderly markets? Do the government securities markets have the same types of linkages between trading venues as the equities markets? If not, what kind of linkages between trading venues exist in the government securities markets? How does this impact the risk of an SCI event at a Government Securities ATS on the market and/or market participants? Should all of the requirements set forth in Regulation SCI apply to Government Securities ATSs that meet the proposed definition of SCI ATS?
42. Should Government Securities
ATSs that meet the proposed volume thresholds for SCI ATSs be governed by the Capacity, Integrity, and Security Rule instead of being defined as SCI entities? Are there Government Securities ATSs that play a significant role in the secondary market for U.S. Treasury Securities but do not meet the proposed volume thresholds for SCI ATSs for which a different threshold should be established to mandate compliance with the Capacity, Integrity, and Security Rule? If yes, what additional regulatory requirements, if any, should be imposed on such ATSs? What would be the costs and benefits associated with applying Rule 301(b)(6) to Government Securities ATSs that are not SCI ATSs?
43. Should the Commission amend
Regulation ATS to require Government Securities ATSs to comply with Rule 301(b)(6) but adopt a threshold that is lower or higher than 20 percent? For example, should the Commission amend Rule 301(b)(6) to subject Government Securities ATSs, or certain Government Securities ATSs, to the requirements of the rule if the Government Securities ATS reaches a 5 percent, 7.5 percent, 10 percent, or 15 percent volume threshold?
44. Should the volume threshold to
meet the definition of SCI ATS include trading in U.S. Treasury Securities and Agency Securities? Should Regulation SCI be applied to ATSs for any other type of government securities? Should Regulation SCI be applied to ATSs that trade repos or reverse repos on government securities, including repos or reverse repos on U.S. Treasury Securities, Agency Securities, or both?
45. Should the proposed five percent
threshold test for U.S. Treasury Securities be applied to all types of U.S. Treasury Securities or to a subset of U.S. Treasury Securities? For example, should the five percent volume test only be applied to transaction volume in on￾the-run U.S. Treasury Securities? Should the five percent threshold be applied to transaction volume in all Agency Securities or to a subset of Agency Securities? If so, why or why not?
46. Is the proposed five percent
threshold an appropriate threshold to apply Regulation SCI to Government Securities ATSs (inclusive of

412See Section V.A.2, infra, discussing the proposed aggregation of volume of affiliated ATSs for purposes of application of the Fair Access Rule. Communication Protocol Systems, as proposed), as significant markets for trading in U.S. Treasury Securities or Agency Securities? If commenters believe that there should be a percent threshold for a subset of U.S. Treasury Securities, such as on-the-run U.S. Treasury Securities or off-the-run U.S. Treasury Securities, what should that threshold be?
47. Should the Commission adopt a
percent volume threshold that is lower than five percent for U.S. Treasury Securities, Agency Securities, or both? If so, what percent threshold should the Commission adopt for U.S. Treasury Securities and Agency Securities? For example, should the Commission adopt a threshold that is four percent, three percent, two percent, or one percent for U.S. Treasury Securities? Should the Commission adopt a threshold that is four percent, three percent, two percent, or one percent for Agency Securities? Should there be no threshold for U.S. Treasury Securities? Should there be no threshold for Agency Securities? Please support your views.
48. Should the Commission adopt a
percent volume threshold that is higher than five percent for U.S. Treasury Securities, Agency Securities, or both? For example, should the Commission adopt a threshold that is 7.5 percent, 10 percent, 15 percent, or 20 percent for U.S. Treasury Securities? Should the Commission adopt a threshold that is
7.5 percent, 10 percent, 15 percent, or
20 percent for Agency Securities?
49. Is it appropriate to use five
percent of average weekly dollar volume traded in the United States as a threshold for application of Regulation SCI requirements to U.S. Treasury Securities? If the average weekly dollar volumes were to include transactions in the secondary cash market for U.S Treasury Securities by non-FINRA members, which currently are not reported to, or collected by, the SRO that makes public average weekly dollar volume statistics, should the Regulation SCI threshold change? If so, what should be the appropriate threshold? Please support your views.
50. Is it appropriate to use five
percent of average daily dollar volume traded in the United States as a threshold for the application of Regulation SCI requirements to Agency Securities?
51. Would the proposed four out of
six month period be an appropriate period to measure the volume thresholds for U.S. Treasury Securities and Agency Securities for purposes of Regulation SCI? With respect to calculating the appropriate thresholds, would Government Securities ATSs have available appropriate data with which to determine whether the proposed thresholds have been met? Would ATSs that trade U.S. Treasury Securities be able to readily calculate whether they meet the volume thresholds in at least four out of the preceding six months, given that U.S. Treasury Securities are disseminated on a weekly, rather than daily basis? If not, what data or information is missing? Would it be appropriate for the Commission to change the proposed four out of six month period to a time period measured in weeks (e.g., at least 16 out of the preceding 24 weeks) with respect to U.S. Treasury Securities? What effect would any such change have on the likelihood that ATSs trading U.S. Treasury Securities would meet the volume thresholds?
52. Should the proposed Regulation
SCI volume threshold measurement for Government Securities ATSs take into account whether Government Securities ATSs are operated by a common broker￾dealer, or operated by affiliated broker￾dealers? 412 For example, should the Commission aggregate the Treasury volume of two Government Securities ATSs that are each operated by a common broker-dealer, or operated by affiliated broker-dealers, for purposes of determining whether the threshold test has been satisfied and, if it has, apply Regulation SCI to each ATS? Why or why not?
53. Should only certain provisions of
Regulation SCI apply to Government Securities ATSs that meet the proposed definition of SCI ATS? For example, should they only be subject to certain aspects of Regulation SCI? If so, which provisions should apply? Do commenters believe that different or unique requirements should apply to the systems of such Government Securities ATSs? What should they be and why?
54. In what instances, if at all, should
the systems of Government Securities ATSs that meet the proposed definition of SCI ATS be defined as ‘‘critical SCI systems’’? Please describe.
55. Which subscribers or types of
subscribers should Government Securities ATSs that meet the proposed definition of SCI ATS consider as ‘‘designated members or participants’’ that should be required to participate in the annual mandatory business continuity and disaster recovery testing? Please describe.
56. Should Government Securities
ATSs that meet the proposed definition of SCI ATS not be defined as SCI entities but instead be required to comply with provisions comparable to provisions of Regulation SCI?
57. What are the current practices of
Government Securities ATSs with respect to the subject matter covered by Regulation SCI? To what extent do Government Securities ATSs have practices that are consistent or inconsistent with the requirements under Regulation SCI? Please describe and be specific. Would the application of Regulation SCI or the Capacity, Integrity, and Security Rule weaken ATSs’ existing capacity, integrity, and security programs?
58. Are there characteristics specific
to the government securities market that would make applying Regulation SCI broadly or any specific provision of Regulation SCI to Government Securities ATSs unduly burdensome or inappropriate?
59. As commenters think about
whether and how to apply Regulation SCI to Government Securities ATSs, are there any lessons commenters can draw from the market stress during Spring 2020, including, for example, lessons learned regarding business continuity or capacity planning?
60. Are there characteristics specific
to Communication Protocol Systems that would make applying Regulation SCI broadly or any specific provision of Regulation SCI to such systems unduly burdensome or inappropriate? For these entities, do commenters believe that Communication Protocol Systems would have systems that meet the definition of ‘‘SCI systems’’? Why or why not? Are there certain types of Communication Protocol Systems that would have systems that meet the definition while others would not, for example, RFQ, BWIC, or conditional order systems? Please describe. Are there certain features or systems functionalities of Communication Protocol Systems that would not meet the definition of SCI systems, but that should be subject to Regulation SCI as SCI systems? Please describe. Should only certain provisions of Regulation SCI apply to Communication Protocol Systems? If so, which provisions should apply? Do commenters believe that different or unique requirements should apply to Communication Protocol Systems? What should they be and why?

413As proposed, references to ‘‘NMS Stock ATSs’’ throughout Rule 304 would be changed to refer to ‘‘Covered ATSs,’’ which would encompass Government Securities ATSs. See supra Section III.B. 414See infra Section IV.D. 415See infra Section IV.D.1. 416 In the NMS Stock ATS Adopting Release, the Commission stated that, while it will review Form ATS–N filings, its review ‘‘is not designed to verify the accuracy of the disclosures nor designed as an independent investigation of whether all aspects of the NMS Stock ATS operations or the ATS-related activities of the broker-dealer operator are disclosed on Form ATS–N.’’ See NMS Stock ATS Adopting Release, supra note 2, at 38851. This would equally apply to the Commission’s review of Forms ATS– N filed by Government Securities ATSs, as proposed. 417See, e.g., MFA Letter at 5; AFREF Letter, at 3; BrokerTec Letter at 2. One commenter, which expressed general support for the enhanced filing requirements and urged the Commission to move forward with finalization and implementation of the proposal, stated that applying Regulation ATS to Government Securities ATSs that meet certain volume thresholds would increase public operational transparency. See FIA PTG Letter at 2. 418See ICE Bonds Letter I at 4–5. 419See MFA Letter at 5. 420See infra notes 430–432 and accompanying text. The proposed amendment to Rule 304(a) would also apply to the review of initial Form ATS–N filed by NMS Stock ATSs. 421See NMS Stock ATS Adopting Release, supra note 2, at 38782. 422The Commission staff may reject a Form ATS– N filing that is defective because, for example, it is missing sections or missing responses to any sub￾questions, or does not comply with the electronic filing requirements. This is a separate process from the determination to declare a Form ATS–N ineffective. See NMS Stock ATS Adopting Release, supra note 2, at 38791. 423See Rule 304(a)(1)(i). 424See proposed Rule 304(a)(1)(ii). See also infra note 430. 425See infra note 451. 426As proposed, to make material changes to its initial Form ATS–N during the Commission review period, the Government Securities ATS shall withdraw its filed initial Form ATS–N and may refile an initial Form ATS–N pursuant to Rule 304(a)(1). See Rule 304(a)(1)(ii)(B). 427See proposed Rule 304(a)(1)(iii)(A).
IV. Revised Form ATS–N: Changes
Applicable to Government Securities ATSs and NMS Stock ATSs A. Proposed Filing and Effectiveness Requirements for Government Securities ATSs and NMS Stock ATSs The Commission is re-proposing to amend Rule 304(a) to require that a Covered ATS, which would include a Government Securities ATS, must comply with Rules 300 through 304 of Regulation ATS, as applicable, to be exempt from the definition of ‘‘exchange’’ pursuant to Rule 3a1– 1(a)(2).413 Rule 304, as proposed to be amended, would require all Government Securities ATSs to file Form ATS–N, as revised. In addition, Communication Protocol Systems that choose to comply with Regulation ATS would be required to meet all applicable requirements of Regulation ATS, including filing a Form ATS–N if they trade NMS stocks, government securities, or repos. The Commission is proposing to make changes to current Form ATS–N, including by adding questions about interaction with related markets, liquidity providers, and surveillance and monitoring, and by making organizational and other changes that would make the form more relevant for Government Securities ATSs inclusive of Communication Protocol Systems, as proposed.414 These changes would be applicable to both Government Securities ATSs and NMS Stock ATSs and would require NMS Stock ATSs to file amendments to their existing form.415 Each Form ATS–N would be subject to an effectiveness process, which would allow the Commission to review disclosures on Form ATS–N and declare the Form ATS–N ineffective if the Commission finds, after notice and opportunity for hearing, that such action is necessary and appropriate in the public interest and the protection of investors. The effectiveness process is not merit-based, but is designed to facilitate the Commission’s oversight of Covered ATSs, and address, for example, material deficiencies with respect to the accuracy, currency, and completeness of disclosures on Form ATS–N.416 The Commission is proposing to apply the same filing and effectiveness process to Government Securities ATSs that is applicable to NMS Stock ATSs filing Form ATS–N. However, the Commission is proposing changes, as described below, to the processes that would apply to both NMS Stock ATSs and Government Securities ATSs, including with regard to extensions of the Commission review period for initial Form ATS–N and Form ATS–N amendments and the filing of amendments related to fees. Commenters on the 2020 Proposal generally supported the requirement that Government Securities ATSs file Form ATS–G.417 Although one commenter stated that the requirement to file Form ATS–G is unnecessarily burdensome for Government Securities ATSs with limited volume,418 another commenter stated it does not support requiring different levels of public disclosure by Government Securities ATSs depending on their trading volume, as it could result in a complex and confusing system of disclosure for market participants.419 The Commission is proposing the requirement to
file a public Form ATS–N, as revised, for all Government Securities ATSs, regardless of their volume, as this requirement is designed to allow market participants to compare Government Securities ATSs, and excluding low volume Government Securities ATSs from this requirement would undermine the goal of transparency and the ability of market participants to use Form ATS–N to assess Government Securities ATSs to select the most appropriate trading venue for their needs. The Commission is proposing to apply to Government Securities ATSs the existing provisions of current Rule 304(a) for the filing and Commission review of an initial Form ATS–N with a modification to the circumstances under which the Commission can extend the review period for an initial Form ATS–N.420 The Commission believes that the review process is appropriate for the same reasons stated in the NMS Stock ATS Adopting Release,421 will facilitate the Commission’s oversight of Government Securities ATSs, and will help ensure that information is disclosed in a complete and comprehensible manner. The differences between Form ATS–N filed by Government Securities ATSs and Form ATS–N filed by NMS Stock ATSs should not warrant a different review and effectiveness process and hence the Commission is proposing to apply the same provisions that are applicable to NMS Stock ATSs to Government Securities ATSs, which include the following:

• No exemption is available to a
  Government Securities ATS pursuant to Exchange Act Rule 3a1–1(a)(2) unless the Government Securities ATS files with the Commission an initial Form ATS–N,422 and the initial Form ATS–N is effective.423
• The Commission will, by order,
  declare ineffective an initial Form ATS– N no later than 120 calendar days from the date of filing with the Commission, or, if applicable, the end of the extended Commission review period.424 During the Commission review period, the Government Securities ATS shall amend its initial Form ATS–N by filing updating amendments, correcting amendments, and fee amendments 425 as applicable.426
• An initial Form ATS–N will
  become effective, unless declared ineffective, upon the earlier of: (1) The completion of review by the Commission and publication pursuant to Rule 304(b)(2)(i); or (2) the expiration of the Commission review period, or, if applicable, the end of the extended review period.427
• The Commission will, by order,
  declare an initial Form ATS–N

428Like the review process for Form ATS–N for NMS Stock ATSs, the Commission’s review of Form ATS–N for Government Securities ATSs would not be merit-based; instead it would focus on the completeness and comprehensibility of the disclosures. See NMS Stock ATS Adopting Release, supra note 2, at 38790. In the NMS Stock ATS Adopting Release, the Commission discussed the circumstances under which the Commission would declare a Form ATS–N amendment ineffective. Such circumstances would also apply to the Commission’s review of an amendment to Form ATS–N filed by a Government Securities ATS. For example, the Commission believes it would be necessary or appropriate in the public interest, and consistent with the protection of investors, to declare ineffective a Form ATS–N if, for example, the Commission finds, after notice and opportunity for a hearing, the Form ATS–N was filed by an entity that does not meet the definition of a Government Securities ATS; one or more disclosures reveal non-compliance with Federal securities laws, or the rules or regulations thereunder, including Regulation ATS; or one or more disclosures on Form ATS–N are materially deficient with respect to their completeness or comprehensibility. For further discussion, see infra
Section IV.B.2.
429See Rule 304(a)(1)(iii)(B).
430See Rule 304(a)(1)(ii)(A)(1). The rule provides that the Commission extends the review period, it will notify the Government Securities ATS in writing within the initial 120-calendar day review period and will briefly describe the reason for the determination for which additional time for review is required. The Commission may also extend the initial Form ATS–N review period for any extended review period to which a duly authorized representative of the Form ATS–N agrees in writing. See Rule 304(a)(1)(ii)(A)(2). 431See 15 U.S.C. 78s(b)(2)(A)(ii). 432 In the Commission staff’s experience reviewing Form ATS–N filed by NMS Stock ATSs, the Commission review period was extended (either by the Commission or by the agreement of a duly authorized representative of the ATS) for 33 of the 43 Forms ATS–N that the Commission has reviewed and published. In its review of each Form ATS–N, the Commission staff engaged in extensive conversations with the NMS Stock ATS with regard to the NMS Stock ATS’s disclosures on its initial Form ATS–N. 433See proposed Rule 304(a)(1)(iv). Other than the differences discussed below, the proposed process is similar to the process currently provided under Rule 304(a)(1)(iv) for Legacy NMS Stock ATSs. ‘‘Legacy NMS Stock ATSs’’ are NMS Stock ATSs that were operating pursuant to an initial operation report on Form ATS on file with the Commission as of January 7, 2019. The Commission is proposing to delete references to Legacy NMS Stock ATSs throughout the rule text, as the transition period for such ATSs has ended. 434See supra note 424 and accompanying text. 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.428 If the Commission declares an initial Form ATS–N ineffective, the Government Securities ATS shall be prohibited from operating as a Government Securities ATS pursuant to Exchange Act Rule 3a1–1(a)(2). An initial Form ATS–N declared ineffective does not prevent the Government Securities ATS from subsequently filing a new Form ATS– N.429 The Commission is re-proposing to amend Rule 304(a)(1)(ii)(A)(1), which currently provides that the Commission may extend the initial Form ATS–N review period for an additional 90 calendar days if the Form ATS–N is unusually lengthy or raises novel or complex issues that require additional time for review, to provide that the Commission may extend the review period if it finds that an extension is appropriate.430 The proposed standard is the same standard for extending the Commission review period for SRO rule filings under Section 19 of the Exchange Act.431 This would apply to Form ATS– N filed by Government Securities ATSs as well as NMS Stock ATSs. The Commission believes that extending the Commission review period for Form ATS–N if it finds that an extension is appropriate would facilitate an effective review process.432 For example, if an ATS’s
disclosures on an initial Form ATS–N are difficult to understand or appear to be incomplete, the Commission may need additional time to discuss the disclosures with the ATS to ascertain whether to declare the Form ATS–N ineffective, even if the form is not unusually lengthy or does not raise novel or complex issues. Rather than moving to declare an initial Form ATS– N ineffective because of material deficiencies with respect to completeness and comprehensibility, the Commission could extend the review period to allow the filer to resolve the deficiencies. As under current Rule 304(a)(1)(ii)(A)(1), in such case, the Commission will notify the Covered ATS in writing within the initial 120-calendar day review period and will briefly describe the reason for the determination for which additional time for review is required. The Commission is also re-proposing a process for Legacy Government Securities ATSs that have a Form ATS on file with the Commission as of the effective date of any final rule to continue to operate during the Commission’s review period.433 In addition, to allow a Currently Exempted Government Securities ATS or Covered Newly Designated ATS to continue to operate without disruption while its initial Form ATS–N is under Commission review, the Commission is proposing to amend Rule 304(a)(1)(i) to provide that a Currently Exempted Government Securities ATS or Covered Newly Designated ATS may continue to operate pursuant to Regulation ATS until its initial Form ATS–N becomes effective. The Commission believes that all Legacy Government Securities ATSs—whether they are operating pursuant to a Form ATS or whether they have operated as a Currently Exempted Government Securities ATS—should be permitted to continue to operate during the Commission review period. The Commission further believes Covered Newly Designated ATSs should be permitted to operate without disruption to their participants and the market. A Government Securities ATS or Covered Newly Designated ATS would file with the Commission an initial Form ATS–N no later than the date 90 calendar days after the effective date of any final rule. An initial Form ATS–N filed by a Legacy Government Securities ATS would supersede and replace a previously filed Form ATS of the Legacy Government Securities ATS. A Legacy Government Securities ATS that fails to comply with the requirements of Regulation ATS by filing Form ATS–N by the 90th calendar day from the effective date of any final rule and continues operating as a Government Securities ATS would no longer qualify for the exemption provided under Rule 3a1–1(a)(2), and thus, risks operating as an unregistered exchange in violation of
Section 5 of the Exchange Act. If a
Legacy Government Securities ATS that has a Form ATS on file with the Commission seeks to trade, for example, government securities and corporate bonds fails to file a Form ATS–N by the 90th calendar day, the ATS must either file a cessation of operations report on Form ATS or file a material amendment on Form ATS to remove information related to government securities. A Legacy Government Securities ATS or Newly Designated Covered ATS would be permitted to operate, on a provisional basis, pursuant to the filed initial Form ATS–N, and any amendments thereto, while the Commission reviews the initial Form ATS–N. The Commission is proposing the initial Commission review period (not including any extension) for an initial Form ATS–N filed by a Legacy Government Securities ATS or Newly Designated Covered ATS to be 180 calendar days. Based on Commission staff experience reviewing initial Form ATS–N filings during the transition period for Form ATS–N, the Commission believes it would be appropriate to provide a 180 calendar day review period rather than the 120 calendar day review period that was applicable to initial filings by Legacy NMS Stock ATSs and that would be applicable to a new Covered ATSs under Rule 304(a)(1)(ii)(A).434 The 180 calendar day review period is designed to provide Commission staff with adequate time to review filings, discuss

435See supra notes 430–432 and accompanying text. 436Consistent with the process for Legacy NMS Stock ATSs today, Rule 304(a)(1)(iv) would permit the Commission to extend the initial Form ATS–N review period for Legacy Government Securities ATSs for an additional 120-calendar days. See infra note 437. 437See Rule 301(b)(2)(viii). Rule 304(a)(1)(iv)(B), as proposed, would provide that the Commission may, by order, as provided in Rule 304(a)(1)(iii), declare an initial Form ATS–N filed by a Legacy Government Securities ATS or Covered Newly Designated ATS ineffective no later than 180 calendar days from the date of filing with the Commission, or, if applicable, the end of the extended review period. As proposed, the Commission may extend the initial Form ATS–N review period for a Legacy Government Securities ATS or Covered Newly Designated ATS for: An additional 120 calendar days if the Commission determines that a longer period is appropriate, in which case the Commission will notify the Legacy Government Securities ATS or Covered Newly Designated ATS in writing within the initial 180- calendar day review period and will briefly describe the reason for the determination for which additional time for review is required; or any extended review period to which a duly-authorized representative of the Legacy Government Securities ATS agrees in writing. 438See NMS Stock ATS Proposing Release, supra note 29 (discussing the proposed process for amendments to, and Commission review of, Form ATS–N filed by NMS Stock ATSs). 439See NMS Stock ATS Adopting Release, supra note 2, Section IV.A.3. 440See Rule 304(a)(2)(i)(A). The Commission is proposing revisions to Rule 304(a)(2)(i)(A) to reference fee amendments and to clarify the language of the provision. See also infra note 451. 441See Rule 304(a)(2)(i)(B). See also infra note 451. 442See Rule 304(a)(2)(i)(C). For a discussion of when an ATS should file a correcting amendment, see NMS Stock ATS Adopting Release, supra note 2, at 38806. 443The Commission is re-proposing to revise Rule 304 to replace references to ‘‘Order Display and Fair Access Amendments’’ with ‘‘Contingent Amendments.’’ The term ‘‘Contingent Amendment’’ would apply to amendments related to Form ATS– N disclosures regarding order display and fair access, as applicable, under Rule 304(a)(2)(i)(D) to Form ATS–N filed by both NMS Stock ATSs and Government Securities ATSs. 444See NMS Stock ATS Adopting Release, supra note 2, at 38803. 445 In the Commission’s experience, a change in ownership of the broker-dealer operator that does not result in the change in the registered entity nevertheless may be likely to implicate a material change, in that, among other things, it may result in a change to the persons who have access to confidential trading information. A change in the broker-dealer operator, however, would require the Covered ATS to cease operations and file a new Form ATS–N. See infra notes 527–528 and accompanying text. disclosures with
Covered ATSs, and address any deficiencies. For the same reasons discussed above,435 the Commission is proposing to amend Rule 304(a)(1)(iv)(B) to provide that the Commission can extend the initial Form ATS–N review period for Legacy Government Securities ATSs by an additional 120 calendar days 436 if it determines that a longer period is appropriate. Other than the proposed changes to the circumstances under which the Commission may extend the Commission review period, the Commission is also proposing that the process for the Commission to review and declare ineffective, if necessary, an initial Form ATS–N filed by a Legacy Government Securities ATS would be the same as the process for an initial Form ATS–N filed by a Legacy NMS Stock ATS.437 Given the proposed intended uses of Form ATS–N to allow the Commission to monitor developments and carry out its oversight functions over Government Securities ATSs and to enable market participants to make more informed decisions about how their trading interest will be handled by the ATSs, the Commission believes that it is important for a Government Securities ATS to maintain an accurate, current, and complete Form ATS–N.438 Providing the Commission with the opportunity to review Form ATS–N disclosures helps ensure that information is disclosed in a complete and comprehensible manner.439 As the intended uses of Form ATS– N filed by Government Securities ATS and Form ATS–N disclosures filed by NMS Stock ATSs are similar, the Commission is proposing the same filing requirements that are currently applicable to Form ATS–N amendments filed by NMS Stock ATSs to Form ATS– N amendments filed by Government Securities ATSs. Like an NMS Stock ATS, a Government Securities ATS would be required to amend Form ATS– N:

• At least 30 calendar days, or the
  length of any extended review period, prior to the date of implementation of a material change to the operations of the Government Securities ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on the Form ATS–N, other than changes related to order display or fair access, which will be contingent amendments reported pursuant to Rule 304(a)(2)(i)(D), or fees, which will be fee amendments reported pursuant to Rule 304(a)(2)(E) (‘‘material amendment’’).440
• No later than 30 calendar days after
  the end of each calendar quarter to correct information that has become inaccurate or incomplete for any reason and was not required to be reported to the Commission as a material amendment, correcting amendment, contingent amendment, or fee amendment (‘‘updating amendment’’).441
• Promptly to correct information in
  any previous disclosure on the Form ATS–N, after discovery that any information previously filed on a Form ATS–N was materially inaccurate or incomplete when filed (‘‘correcting amendment’’).442
• No later than the date that
  information required to be disclosed in
  Part III, Item 23 on Form ATS–N, which
  addresses fair access, has become inaccurate or incomplete (‘‘contingent amendment’’). Because the order display and execution access rule under Rule 301(b)(3) does not apply to Government Securities ATSs, Government Securities ATSs would not be required to disclose information pertaining to order display and execution access. Accordingly, for Government Securities ATSs, Rule 304(a)(2)(i)(D) would only apply to the fair access disclosure on Form ATS– N.443
• No later than after the date that
  information required to be disclosed in
  Part III, Item 18 on Form ATS–N has
  become inaccurate or incomplete (‘‘fee amendment’’). In the NMS Stock ATS Adopting Release, the Commission provided examples of scenarios that are particularly likely to implicate a material change.444 In consideration of Commission staff’s experience with Form ATS–N, the proposed change to include Communication Protocol Systems in the definition of ‘‘exchange,’’ and the proposed changes to Form ATS–N, the Commission is reiterating and adding to the list of scenarios particularly likely to implicate a material change, which would include, but are not limited to: (1) A broker￾dealer operator or its affiliates beginning to trade on the Covered 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, including types of persons that have access to confidential trading information; 445 (3) a change to the types of participants on the Covered ATS or the eligibility to participate in the ATS; (4) the introduction or removal of, or change to, an order type or type of message that subscribers can receive or send; (5) the introduction of, or change to, requirements, conditions, or restrictions to send, receive, or view trading interest; (6) a change to the interaction of trading interest (including, for example, procedures related to how participants send, receive, respond to, counter, and firm￾up trading interest) and priority

446For further discussion, see NMS Stock ATS Adopting Release, supra note 2, Section IV.B.1.a. In the NMS Stock ATS Adopting Release, the Commission stated that in determining whether a change is material, an ATS should generally consider whether such change would affect ‘‘the fees that any subscriber or category of subscribers would pay to access and/or use the ATS.’’ See id. at 38803. As discussed below, the Commission is proposing a new amendment type for fee amendments, and as a result, changes to information in the fee disclosure in Part III, Item 18 would not be material changes for purposes of Rule 304(a)(2). 447 If the Covered ATS files a fee amendment in advance to notice a change of a fee, for example, the Covered ATS should provide the effective date for the fee so that subscribers can understand when the fee will be effective and thus impact them. The Covered ATS must subsequently file an updating amendment on Form ATS–N to remove the outdated effective date and any fees no longer in effect to ensure that the disclosures on Form ATS– N are current and accurate. 448See infra Section IV.D.5.r. 449 15 U.S.C. 78s(b). 450 17 CFR 240.19b–4(f)(2). 451See proposed changes to Rule 304(a)(1)(ii)(B) and Rule 304(a)(1)(iv)(C). In addition, the Commission is proposing to revise the definition of ‘‘Material Amendment’’ to state that it would not include a fee amendment required to be filed pursuant to Rule 304(a)(2)(i)(E) and to reorder the language in Rule 304(a)(1)(ii)(A) to improve the readability of the provision. See Rule 304(a)(2)(i)(A). The Commission is also proposing to revise the definition of ‘‘Updating Amendment’’ to state that it would not include a fee amendment. See Rule 304(a)(2)(i)(B). 452See Rule 304(a)(2)(ii). procedures; (7) any change to ATS functionalities or procedures that affect pricing of trading interest; (8) a change that would impact a subscriber’s ability to send or interact with trading interest, including a change to the segmentation of orders and participants; (9) a change to the manner in which the Covered ATS displays or makes known trading interest, including to limit or expand the trading interest that subscribers can view or interact with; (10) a change of a service provider to the operations of the Covered ATS that has access to subscribers’ confidential trading information; and (11) a change to introduce or stop routing or sending away trading interest. A Covered ATS that notifies subscribers, or certain subscribers, about potential changes to ATS operations or ATS activities of the broker-dealer operator or its affiliates in advance of filing a Form ATS–N amendment demonstrates that the ATS determines such information to be important to subscribers and may likely be material. In addition, from the Commission staff’s experience, if a Covered ATS removes an important functionality or no longer makes a functionality available to subscribers or certain groups of subscribers, the removal of such functionality
could be a material change. This list is not intended to be exhaustive, and does not mean to imply that other changes to the operations of a Covered ATS or the activities of the broker-dealer operator or its affiliates would not constitute material changes. Further, the Covered ATS should generally consider whether the cumulative effect of a series of changes to the operations of the Covered ATS or the activities of the broker-dealer operator or its affiliates with regard to the Covered 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 nature or composition of counterparties with which any subscriber or category of subscribers interact; and (4) the relative speed of access or execution of any subscriber or group of subscribers.446 The Commission is proposing a new amendment type—fee amendments— that is not currently provided for under Rule 304(a)(2), but would be filed by both NMS Stock ATSs and Government Securities ATSs. The Covered ATS would be required to file a fee amendment no later than the date it makes a change that makes information reported on Part III, Item 18, inaccurate or incomplete.447 Part III, Item 18 of Form ATS–N would require disclosure of fee-related information, including, among other things, a description of the types of fees, structure of fees, variables that impact fees, differentiation among fees among types of subscribers, the range of fees, and rebates or discounts, for use of ATS services or services that are bundled with the subscriber’s use of non-ATS services or products offered by the broker-dealer operator or its affiliates.448 Changes that would trigger a fee amendment would include, among other things, a change to the range of fees, a change to the factors that affect the fees that the ATS charges, or any other change to the fee disclosure in
Part III, Item 18. In the Commission
staff’s experience reviewing Form ATS– N amendments, NMS Stock ATSs have taken varied approaches to the reporting of fees. In some cases, NMS Stock ATSs have treated fee changes as material changes, and filed amendments on Form ATS–N at least 30 calendar days before implementing the changes. In other cases, NMS Stock ATSs have filed updating amendments no later than 30 days from the end of the calendar quarter in which the ATS implemented the fee change. The Commission believes that fee changes should be transparent and that both potential and current subscribers and customers of subscribers, generally, should be timely informed of a change to a Covered ATS’s fees, as required to be reported on Form ATS–N. The Commission notes that today, pursuant to Section 19(b) of the Exchange Act,449 national securities exchanges file proposed rule changes with the Commission that may take effect upon filing with the Commission if the rule change is ‘‘establishing or changing a due, fee, or other charge applicable only to a member,’’ no matter the materiality of the rule change.450 NMS Stock ATSs, which compete with national securities exchanges, are not subject to this provision to the Exchange Act, and are required to file a material amendment to Form ATS–N, and thus wait 30 calendar days before implementing a fee change, if the fee change is material. Given this difference between national securities exchanges and NMS Stock ATSs, the Commission believes that requiring Covered ATSs to file a fee amendment no later than the date it makes a change to a fee or fee disclosure would provide the public with sufficient notice about a fee change while allowing the ATS to act nimbly to make fee changes to respond to, for example, competitive pressures from other trading venues. The Commission is also making conforming changes in Rule 304 that would, among other things, allow Covered ATSs to file fee amendments to initial Form ATS–N while the initial Form ATS–N is under Commission review.451 Like Form ATS–N filed by NMS Stock ATSs, the Commission would, by order, declare ineffective any Form ATS–N amendment filed by Government Securities ATSs pursuant to Rule 304(a)(2)(i)(A) through (E) if it finds that such action is necessary or appropriate in the public interest and is consistent with the protection of investors.452 However, the Commission is proposing to amend Rule 304(a)(2)(ii), which currently provides that the Commission would declare any Form ATS–N amendment ineffective no later than 30 calendar days from filing with the Commission, to permit the Commission to extend the Form ATS–N amendment review period by an additional 30 calendar days if the Commission finds that a longer period is appropriate. The ability to extend the review period for amendments to Form ATS–N by an additional 30 calendar days would allow the Commission additional time to review and discuss the amendment with the filer, and, if necessary, declare the Form ATS–N amendment

453See proposed Rule 304(a)(2)(i)(A) (stating that a Covered ATS shall amend a Form ATS–N at least 30 calendar days, or the length of any extended review period pursuant to Rule 304(a)(2)(ii)(A), prior to the date of implementation of a material change (other than a correcting amendment) to the operations of the Covered ATS or to the activities of the broker-dealer operator or its affiliates that are subject to disclosure on the Form ATS–N). 454See infra note 463 and accompanying text. 455See Rule 304(a)(3). 456The proposed limitation on the time frame for suspension is consistent with Federal securities law provisions pursuant to which the Commission may suspend the activities or registration of a regulated entity. See, e.g., Exchange Act Section 15(b)(4) (15 U.S.C. 78o(b)(4)) and 15B(c)(2) (15 U.S.C. 78o– 4(c)(2)). See NMS Stock ATS Proposing Release, supra note 29, at 81031 n.322. 457See proposed Rule 304(a)(4)(i). 458See Rule 304(a)(4). In making a determination as to whether suspension, limitation, or revocation of a Government Securities ATS’s exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors, the Commission would, for example, take into account whether the entity no longer meets the definition of Government Securities ATS under Rule 300(l), does not comply with the conditions to the exemption (in that it fails to comply with any part of Regulation ATS, including Rule 304), or otherwise violates any provision of Federal securities laws. For further discussion of such examples as applied to NMS Stock ATSs, see NMS Stock ATS Proposing Release, supra note 29, at 81032. 459Pursuant to the Commission’s current information sharing practices with the Department of the Treasury, the Commission expects to provide the Department of the Treasury with prompt notice in certain cases, such as when the Commission is declaring a Form ATS–N ineffective under Rule 304(a)(1)(iii)(b), or suspending, limiting, or revoking the exemption of a Government Securities ATS under Rule 304(a)(4). ineffective. Based on the Commission staff’s experience reviewing Form ATS– N amendments, amendments on Form ATS–N vary in length, complexity, as well as comprehensibility and clarity. The Commission staff frequently engages in extensive discussions with NMS Stock ATSs about their disclosures in an amendment, and as a result of these discussions, ATSs often amend a filed amendment to address deficiencies within the Commission review period. To date, NMS Stock ATSs have resolved such deficiencies within the Commission review period, and the Commission has not declared a Form ATS–N amendment ineffective. However, in several circumstances, NMS Stock ATSs have submitted draft amendments to the Commission staff, which has provided the staff and NMS Stock ATSs with additional time to resolve potential deficiencies. NMS Stock ATSs, however, have no obligation to provide such a draft to the Commission, nor does the
Commission staff have any obligation to review such a draft. In the event a Covered ATS is unable to address deficiencies within the initial 30-day review period, the Commission believes that, rather than moving to declare a Form ATS–N amendment ineffective, it would be appropriate to extend the review period and allow the filer more time to address such deficiencies. The Commission believes that 30 additional calendar days will give the Covered ATS sufficient time to address any such concerns. If the Covered ATS is unable to resolve the deficiencies within the extended review period, the Commission will declare the Form ATS–N amendment ineffective if it finds that such action is necessary or appropriate in the public interest, and is consistent with the protection of investors. The Commission is therefore proposing that the Commission may extend the Form ATS–N amendment review period by an additional 30 calendar days if the Commission finds that a longer period is appropriate, or to any extended review period to which a duly-authorized representative of the ATS agrees in writing. The Commission is also proposing to amend Rule 304(a)(2)(i)(A) to provide that a Covered ATS may not implement a material change before the end of the 30 calendar day review period or the length of any extended review period under proposed Rule 301(a)(2)(ii)(A).453 Today, an NMS Stock ATS may not implement a material change until the expiration of the 30-calendar day Commission review period. Likewise, as a result of the proposed change, in the event of an extension of the Commission review period, the Covered ATS would therefore not implement the material change until the review period has expired. As discussed below, the Commission would disseminate the material amendment following the expiration of the review period or any extended review period.454 The Commission is also re-proposing to apply current Rule 304(a)(3) to require a Government Securities ATS to notice its cessation of operations on a Form ATS–N at least 10 business days prior to the date it will cease to operate as a Government Securities ATS.455 Filing such a notice would cause the Form ATS–N to become ineffective on the date designated by the Government Securities ATS. In addition, the Commission is re-proposing to apply Rule 304(a)(4) to Government Securities ATSs, which would allow the Commission to order to suspend (for a period not exceeding twelve months),456 limit, or revoke a Covered ATS’s exemption pursuant to Rule 3a1–1(a)(2) if the Commission finds, after notice and opportunity for hearing, that such action is necessary or appropriate in the public interest.457 Rule 304(a)(4)(ii) would provide that if the exemption for a Government Securities ATS is suspended or revoked pursuant to Rule 304(a)(4)(i), the Government Securities ATS would be prohibited from operating pursuant to the Rule 3a1– 1(a)(2) exemption.458 If the exemption for a Government Securities ATS is limited pursuant to Rule
304(a)(4)(i), the Government Securities ATS shall be prohibited from operating in a manner otherwise inconsistent with the terms and conditions of the Commission order. In addition, Rule 304(a)(4) would provide that prior to issuing an order suspending, limiting, or revoking a Government Securities ATS’s exemption pursuant to Rule 304(a)(4)(i), the Commission will provide notice and opportunity for hearing to the Government Securities ATS, and make the findings specified in Rule 304(a)(4)(i) described above, that, in the Commission’s opinion, the suspension, limitation, or revocation is necessary or appropriate in the public interest and is consistent with the protection of investors.459 Request for Comment
61. Should Government Securities
ATSs be required to file Form ATS–N, as revised, instead of Form ATS? Should Government Securities ATSs be required to file a form different from Form ATS–N?
62. As an alternative to requiring
Government Securities ATSs to file Form ATS–N, should Form ATS, or parts thereof, for Government Securities ATSs be made available to the public? If made available to the public, is current Form ATS sufficient to provide information to the public about the operations of Government Securities ATSs?
63. Do commenters believe that
broker-dealers operators of ATS that trade only government securities or repos might choose to modify their business models so that they would not be required to comply with enhanced regulatory or operational transparency requirements for Government Securities ATSs?
64. Should Government Securities
ATSs be subject to Rule 304(a), in whole or in part?
65. Should Rule 304(a) be amended to
provide that an initial Form ATS–N be made effective by Commission order or any other means instead of upon publication by the Commission?
66. Should Rule 304(a) only apply to
Government Securities ATSs that trade a certain type of government security

460See Rule 304(b)(1) (providing that every Form ATS–N filed pursuant to Rule 304 shall constitute a ‘‘report’’ within the meaning of Sections 11A, 17(a), 18(a), and 32(a) and any other applicable provisions of the Exchange Act). 461See Rule 304(b)(1). 462See Rule 304(b)(2). 463See proposed Rule 304(b)(2)(iii). 464See, e.g., SIFMA Letter at 3–4; BrokerTec Letter at 2; AFREF Letter at 3; Bloomberg Letter at 7; Healthy Markets Association Letter at 7; MFA Letter at 5 (stating that any alternative that would limit disclosure requirements would be detrimental to achieving the Commission’s transparency goals and that requiring different levels of disclosure among Government Securities ATSs based on their trading volume could result in a complex and confusing system of disclosure). 465See FINRA Letter at 2. (e.g., U.S. Treasury Securities, Agency Securities)? If so, to which type of Government Securities ATS should Rule 304 apply (e.g., Government Securities ATSs that trade U.S. Treasury Securities or Government Securities ATSs that trade Agency Securities)?
67. Should the Commission require a
Currently Exempted Government Securities ATS to file Form ATS–N and comply with the requirements of Rule 304 to qualify for the exemption from the definition of exchange?
68. Would the proposal to require a
Currently Exempted Government Securities ATS or Covered Newly Designated ATS to file Form ATS–N by the date 90 calendar days after the effective date of any final rule provide the ATS sufficient time to transition to compliance with Regulation ATS and the proposed requirements under Rule 304? If the Commission were to provide more time for a Covered Newly Designated ATS and/or Currently Exempted Government Securities ATS to file Form ATS–N, should the Commission require the Covered Newly Designated ATS and/or Currently Exempted Government Securities ATS to file an initial operation report on Form ATS to provide notice of its operations to the Commission before it is required to file a Form ATS–N? Would the proposal to require a Current Government Securities ATS to file a Form ATS–N by the date 90 calendar days after the effective date of any final rule provide the ATS sufficient time to transition to compliance with Rule 304?
69. Should the Commission be
permitted to extend the initial Form ATS–N review period if it finds that it is appropriate to extend such review period?
70. Should a Legacy Government
Securities ATS or Covered Newly Designated ATS be allowed to continue operations during the Commission’s review of its initial Form ATS–N?
71. Should the Commission require
amendments to Part III, Item 18 of Form ATS–N to be filed no later than the date that the information on such item becomes inaccurate or incomplete? Or should the Commission require amendments to Part III, Item 18, or any specific required disclosure on such Item to be required in advance of implementation of the change? And if so, how far in advance of implementation and why? Alternatively, should the Commission allow Covered ATSs more or less time to file a fee amendment?
72. Should the rule provide that the
Commission may extend the Form ATS– N amendment review period by an additional 30 calendar days if the Commission finds that a longer period is appropriate? Should such extended review period be longer or shorter? Should the Commission only extend such review period under certain circumstances? If so, under what circumstances should the Commission extend the review period for a Form ATS–N amendment?
73. Are there any aspects of Rule
304(a)(2) relating to the filing and review of amendments that should be modified specifically for Form ATS–N amendments filed by Government Securities ATSs?
74. What changes or types of changes
to a Covered ATS’s operations or the activities of the broker-dealer operator or its affiliates do commenters believe are particularly likely to be material so as to require a material amendment to Form ATS–N?
75. Should the Commission consider
any other factors in determining whether a Form ATS–N filed by a Government Securities ATS should become effective or ineffective? If so, what are they and why?
76. Should the Commission adopt the
current process for the Commission to suspend, limit, or revoke an NMS Stock ATS’s exemption from the definition of ‘‘exchange’’ for Government Securities ATSs? B. Public Disclosure of Form ATS–N for Government Securities ATSs and Related Commission Orders The Commission would make public certain Form ATS–N reports filed by Government Securities ATSs pursuant to Rule 304(b).460 Commission orders related to the effectiveness of revised Form ATS–N would also be publicly posted on the Commission’s website. The Commission would apply to Government Securities ATSs the same rules regarding public disclosure that are currently applicable to NMS Stock ATSs. Applying existing Rule 304(b) to Government Securities ATSs would mandate greater public disclosure of the operations of these ATSs through the publication of Form ATS–N and related filings available on the Commission’s website. Accordingly, the Commission is proposing that Form ATS–N filed by Government Securities ATSs would be subject to the following:

• 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.461
• The Commission will make public
  via posting on the Commission’s website, each: (1) Effective initial Form ATS–N, as amended; (2) order of ineffective initial Form ATS–N; (3) Form ATS–N amendment to an effective Form ATS–N; (4) order of ineffective Form ATS–N amendment; (5) notice of cessation; and (6) order suspending, limiting, or revoking the exemption for a Government Securities ATS from the definition of an ‘‘exchange’’ pursuant to Exchange Act Rule 3a1–1(a)(2).462 The Commission is proposing to make amendments to current Rule 304(b), which would apply to all Covered ATSs. As the Commission is proposing to amend Rule 304(a)(2)(i)(A) to allow extensions of the Commission review period, the Commission is proposing to amend Rule 304(b)(2)(iii) to state that material amendments would be made public following the expiration of the review period ‘‘or any extended review period.’’ 463 As a result, the entire Form ATS–N amendment would not be made public until the review period has expired, at which time the ATS may implement the change described in the amendment. The Commission is also proposing to amend Rule 304(b)(2)(iii)(B) to provide that fee amendments would be made public by the Commission upon filing, consistent with the treatment of updating, correcting, and contingent amendments, all of which are intended to describe the ATS as it currently operates. The Commission received several comments on the 2020 Proposal supporting public disclosure of Form ATS–G and amendments thereto.464 For example, one commenter stated that public disclosure could improve investors’ ability to select trading venues and as a result, lower trading costs and increase execution quality.465 Another commenter, however, stated that Government Securities ATSs should not be required to make public commercially sensitive information on Form ATS–G, and that similar investor protection benefits can be achieved without negative impact by requiring a

466See Tradeweb Letter at 11. 467 In the Commission staff’s experience reviewing disclosures on current Form ATS–N for NMS Stock ATSs and discussing ATS operations and the requirements of the form with NMS Stock ATSs, the Commission staff has observed that the information responsive to the form is not proprietary or commercially sensitive. In the NMS Stock ATS Adopting Release, the Commission stated that it designed Form ATS–N to not seek disclosure of certain information that could be proprietary or commercially sensitive. See NMS Stock ATS Adopting Release, supra note 2, at
38812. In response to commenter concerns
regarding disclosure of proprietary or commercially sensitive information, the Commission revised the wording of relevant requests in originally proposed Form ATS–N to mitigate such concerns or provided guidance regarding the scope of certain disclosure requests and to require ‘‘summary’’ information. See id. at 38825. The Commission stated that, in a vast majority of cases, the level of detail required by Form ATS–N should not require the public disclosure of commercially sensitive information. See id. at 38825. See also, e.g., infra Section IV.D.4.d (describing that Form ATS–N requires a ‘‘summary’’ narrative of products and services to avoid disclosure of commercially sensitive information). 468See 17 CFR 240.301(b)(2)(vii). 469See Alternative Trading System List, https:// www.sec.gov/foia/docs/atslist.htm. 470Unlike the 2020 Proposal, the Commission is not proposing to amend Rule 304(b)(3) to require each Covered ATS to post on its website the most recently disseminated Form ATS–N within one business day after publication on the Commission’s website. 471See Item A.3 of the Instructions to Form ATS– N (as revised). 472See NMS Stock ATS Adopting Release, supra note 2, Section VII. 473See Regulation ATS Adopting Release, supra note 31, at 70877–78. Government Securities ATS to make such information available upon request to subscribers, potential subscribers, and the Commission.466 The Commission believes that the vast majority of information responsive to Form ATS–N would not be proprietary or commercially sensitive for ATSs to disclose.467 The Commission is re-proposing to make Form ATS–N publicly available for all Government Securities ATSs, regardless of their volume. The Commission believes that most market participants have limited access to information to adequately assess ATSs that trade government securities and understand how different ATSs operate. Today, Government Securities ATSs that are currently subject to Regulation ATS file a Form ATS that is deemed confidential when filed under Rule 301(b)(2)(vii) of Regulation ATS,468 and Currently Exempted Government Securities ATSs are not subject to Regulation ATS and not required to file a Form ATS. The only information the Commission currently makes publicly available regarding Government Securities ATSs that are currently subject to Regulation ATS is a monthly list of the names and locations of ATSs with a Form ATS on file with the Commission.469 In the case Government Securities ATSs make information about their operations voluntarily available, such information is limited, and the lack of uniformity or standardization makes it difficult to compare disclosures across ATSs. Accordingly, through Form ATS–N, the Commission is proposing disclosures that will provide information that market participants can use to evaluate an ATS as a potential trading venue. Requiring public disclosure, rather than Government Securities ATSs responding to individual disclosure requests from subscribers or
potential subscribers, will help to ensure uniformity and standardization of the information Government Securities ATSs make available. As proposed, Government Securities ATSs would also be subject to Rule 304(b)(3), which would require each Government Securities ATS that has a website to post a direct URL hyperlink to the Commission’s website that contains the documents enumerated in Rule 304(b)(2), which would include the Government Securities ATS’s Form ATS–N filings.470 Request for Comment
77. Should the requirements of Rule
304(b) apply to Form ATS–N reports filed by Government Securities ATSs, in whole or in part? Should the Commission modify Rule 304(b) in any way for all Covered ATSs?
78. Should Rule 304(b) only apply to
Government Securities ATSs that trade a type of government securities (e.g., U.S. Treasury Securities, Agency Securities)? If so, to which type of Government Securities ATS should Rule 304 apply?
79. Are there any other requirements
that should apply to making public a Form ATS–N report filed by a Government Securities ATS? Please support your arguments, and if so, please list and explain such procedures in detail.
80. Should Rule 304(b) apply to Form
ATS–N reports filed by a Currently Exempted Government Securities ATS? If not, which aspects of Rule 304(b) should not apply and why?
C. Form ATS–N Requirements
The Commission is not re-proposing the use of Form ATS–G for Government Securities ATSs but is proposing that all Covered ATSs file Form ATS–N as revised. The Commission believes that, instead of proposing Form ATS–G for Government Securities ATSs, given the significant overlap between proposed Form ATS–G and existing Form ATS–N, it is appropriate to require all Covered ATSs to file Form ATS–N, and thus limit the number of unique forms and simplify filing requirements. Accordingly, the Commission is proposing to apply existing Rule 304(c) to Government Securities ATSs, which would require Government Securities ATSs to file a Form ATS–N, as revised, in accordance with the form’s instructions. The Commission is proposing to revise the current Form ATS–N instructions by including references to Government Securities ATSs or Covered ATSs, as applicable, replacing references to order display and fair access amendments with references to contingent amendments, revising the relevant compliance dates, adding instructions related to fee amendments, and revising the instructions regarding describing the applicability of amendments. The instructions require, among other things, that a Covered ATS 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.471 Given that the Commission expects market participants to use Form ATS–N to decide which trading venue is best for them, it is important that Form ATS–N filings comply with the instructions and that the information provided on Form ATS– N is accurate, current, and complete. As it is today, Form ATS–N 472 would be required to be filed electronically through EDGAR. The Commission is proposing to apply Rule 304(c)(2) to Government Securities ATSs, which provides that any report required under Rule 304 shall be filed on a Form ATS–N, and include all information as prescribed in the Form ATS–N and the instructions to Form ATS–N. Rule 304(c)(2) would provide that a Form ATS–N be executed at, or prior to, the time the Form ATS– N is filed and shall be retained by the Government Securities ATS in accordance with Rules 302 and 303, and the instructions in Form ATS–N. In the Regulation ATS Adopting Release, the Commission stated that the requirements to make and preserve records set forth in Regulation ATS are necessary to make and keep certain records for an audit trail of trading activity and permit surveillance and examination to help ensure fair and orderly markets.473 Expanding Rule 304(c) to encompass Government Securities ATSs would further these goals.

474See 2020 Proposal, supra note 4.
475See infra Section IV.D.5.k.
476See infra Section IV.D.5.i.
477See FINRA Letter at 4.
478The Form ATS–N Cover Page (Type of Covered ATS), Part I, Item 8.a, and Part III, Items 23, 24(a), and 24(d)(i) will refer to ‘‘NMS Stock ATSs’’ because such requests are applicable only to NMS Stock ATSs. 479See infra note 496 and accompanying text. See proposed revisions to Form ATS–N, Part II, Items 1(a), 1(c), 2(a), 2(c), 3(a), 3(b), 4(a), 5(a), and 5(c);
Part III, Items 4, 5(a), 5(b), 10(a), 12, 13(a), 13(c),
13(d), 14(a), 15, 16(a), 16(b), 17, and 22. 480See supra notes 563–564 and accompanying text. 481See infra note 565. 482See infra note 497 and accompanying text. See proposed revisions to Form ATS–N Part II, Item 4 and Part III, Item 7. 483See proposed changes to Part II, Items 1 and 2 and Part III, Items 4(a), Item 22(a), Item 24(d)(ii). 484See infra Section IV. See also supra note 467. 485See Instruction A.3 of Form ATS–N (requiring that a Form ATS–N filing is accurate, current, and complete). Request for Comment
81. Should Rule 304(c) be applied, in
whole or in part, to Government Securities ATSs?
82. Should Rule 304(c) only apply to
Government Securities ATSs that trade a certain type of government security (e.g., U.S. Treasury Securities, Agency Securities)? If so, to which type of Government Securities ATS should it apply and why? D. Form ATS–N Disclosures Form ATS–N is a public report that provides detailed information about the ATS-related activities of the broker￾dealer operator and its affiliates and the manner of operations of the ATS. Because the Commission is proposing to require Government Securities ATSs to file a Form ATS–N instead of previously proposed Form ATS–G,474 the Commission is proposing amendments to Form ATS–N to solicit disclosures that may be most relevant to market participants that trade government securities on these markets. In addition, because the Commission is amending Exchange Act Rule 3b–16 to include Communication Protocol Systems, the Commission is proposing to amend Form ATS–N to solicit disclosures about unique operational aspects to those systems. The Commission believes that it is important to revise Form ATS–N to provide investors with important information about the operations of all ATSs that trade NMS stocks and, as proposed, government securities. The Commission is proposing that the amendments to Form ATS–N be applicable to both NMS Stock ATSs and Government Securities ATSs, and any differences between how the form requirements would apply to these ATSs are noted below. Given the similar level of complexity/sophistication between NMS Stock ATSs and Government Securities ATSs, the Commission believes that requiring both types of ATSs to file Form ATS–N is appropriate; however, as described below, certain requests have been tailored for the differences between NMS Stock ATSs and Government Securities ATSs. The Commission is proposing to revise Form ATS–N to include information it previously proposed on Form ATS–G, including a question requiring information about interaction with related markets.475 The Commission is also proposing to reorganize certain questions on Form ATS–N and to require disclosure about any surveillance and monitoring that is conducted with respect to the ATS.476 In response to the 2020 Proposal, one commenter stated that the proposed Form ATS–G disclosures were similar to those on Form ATS–N, in that they would be categorized in a more standardized manner than Form ATS, which would allow for better comparisons between ATSs, and enhance the Commission’s and SRO’s regulatory oversight of Government Securities ATSs.477 The proposed revisions to Form ATS–N would continue to allow such comparisons, and applying Form ATS–N to Government Securities ATSs would better help enable market participants to compare Government Securities ATSs. The Commission is proposing certain amendments to Form ATS–N that would apply globally to Form ATS–N unless otherwise noted below. First, as Form ATS–N would be applicable to both Government Securities ATSs and NMS Stock ATSs, the Commission is proposing to replace references to ‘‘NMS
Stock ATSs’’ throughout the form to ‘‘Covered ATSs’’ or ‘‘ATSs.’’ 478 Second, the Commission is proposing to replace references to ‘‘orders’’ throughout Form ATS–N to reference ‘‘trading interest,’’ which would encompass non-firm trading interest.479 Third, Form ATS–N would include an instruction at the beginning of Part III to require that the Covered ATS identify and explain any differences among and between subscribers, persons whose trading interest is entered into the ATS by a subscriber or the broker-dealer operator, the broker-dealer operator, and any affiliates of the broker-dealer.480 Because this disclosure would be integrated in each Item, the Commission is proposing to delete the separate sub￾questions in Part III that ask about whether services and functionalities and conditions or requirements related to such services and functionalities are the same for all subscribers and the broker￾dealer operator.481 Fourth, the Commission is proposing to change references to ‘‘Trading Centers’’ to ‘‘trading venues,’’ which would include trading centers, but also include venues relevant to the trading of government securities and repos and Communication Protocol Systems.482 The term ‘‘trading venue’’ encompasses a broader group of entities that could, for example, result in an execution or affect the handling of a subscriber’s trading interest. The Commission explains below each requirement of Form ATS–N and why the Commission is proposing to apply that requirement to Government Securities ATSs. To the extent that the Commission is proposing a change to the requirement of Form ATS–N that would affect the reporting obligation of an NMS Stock ATS, the Commission identifies that change and the information the NMS Stock ATS would be required to disclose. In addition, to use consistent terminology throughout Form ATS–N, the Commission is proposing to change certain references to activity ‘‘in’’ the ATS to activity ‘‘on’’ the ATS.483 The Commission believes that Form ATS–N’s public disclosures would provide important information to market participants that would help them better understand these operational facets of Covered ATSs and select the best trading venue based on their needs. The Commission believes that the vast majority of responsive information in Form ATS–N, as proposed to be revised, would not be proprietary or commercially sensitive.484

1. Amendments to Form ATS–N for
   NMS Stock ATSs
   If the revisions to Form ATS–N were adopted and become effective, an NMS Stock ATS with an effective Form ATS– N or a Form ATS–N that is under Commission review would be required to file an amendment to its Form ATS– N so that its disclosures, as amended, meet all the requirements of Form ATS– N, as revised. If the proposed revisions to Form ATS–N become effective, a NMS Stock ATS would be required, in accordance with the instructions of the form, to amend its Form ATS–N so that it is complete.485 An NMS Stock ATS is required, pursuant to Rule 304(a)(2)(B), to file an updating amendment no later than 30 days after the end of each calendar quarter to correct information that has become inaccurate or incomplete for any reason. Specifically,

486 15 U.S.C. 80a–2(a)(28) (defining ‘‘person’’ as ‘‘a natural person or a company’’). 487 15 U.S.C. 78c(a)(9) (defining the term ‘‘person’’ as a natural person, company, government, or political subdivision, agency, or instrumentality of a government). 488The Exchange Act’s inclusion of a ‘‘government, or political subdivision, agency or instrumentality of a government’’ under the definition of ‘‘person’’ is unlikely to result in any changes to the disclosures required by the items in Form ATS–N that use the word ‘‘Person’’ as, in the Commission’s experience, these entities are generally not involved in the operations of ATSs as subscribers or otherwise. 489See supra note 254 and accompanying text. 490See supra note 242 and accompanying text. 491See supra note 259 and accompanying text. 492See id. 493See supra note 256 and accompanying text. 494See supra Section II.C.1. 495See supra note 273 and accompanying text. 496See proposed Rule 3b–16(e) and Rule 300(q). 497See revised Form ATS–N, Explanation of Terms. 498This is broader than the definition of ‘‘trading center’’ under Rule 600(b)(78), which includes ‘‘any other broker or dealer than executes orders internally by trading as principal orders as agent.’’ 499See Rule 304(a)(1)(iv), as proposed to be revised. 500The Commission is proposing to delete the checkbox on the cover page of Form ATS–N that requires an NMS Stock ATS to select whether the NMS Stock ATS currently operates pursuant to a Form ATS. Rules 304 and 301(b)(2)(viii) required an NMS Stock ATS to file a Form ATS–N no later than January 7, 2019. After January 7, 2019, this checkbox became obsolete. 501The proposed cover page for Form ATS–N would provide that a filing may be an initial Form ATS–N, or a Form ATS–N material amendment, updating amendment, correcting amendment, contingent amendment, or fee amendment. The Commission is proposing to rename ‘‘order display and fair access amendments’’ to ‘‘contingent amendments’’ throughout the form. In addition, the Commission is proposing a new fee amendment type. See supra Section IV.A. an NMS Stock ATS with an effective Form ATS–N, or an NMS Stock ATS whose Form ATS–N is under Commission review, would be required to, among other things, amend its Form ATS–N to disclose new identifying information and types of securities traded required by Part I, and to provide information responsive to new requests regarding new categories of types of subscribers (Part III, Item 1), monitoring and surveillance (proposed Part III, Item 9), interaction with related markets (proposed Part III, Item 11), the identity of liquidity providers (Part III, Item 12), and post-trade processing (proposed
Part III, Item 21).
In addition, the NMS Stock ATS would be required to amend its Form ATS–N to reorganize responses, including, among others, to move disclosures related to the activities of employees of the broker-dealer operator or its affiliates that service the operations of the ATS and another business unit of the broker-dealer operator or affiliate to proposed Part II, Item 7(a), and move discussion of after￾hours use of orders from current Part III, Item 18 to proposed Part III, Item 4(b)– (c). In addition, the NMS Stock ATS would be required to separately discuss information relevant to trading facilities or rules for bringing together orders of buyers and sellers in proposed Part III, Item 7 and information related to use of non-firm trading interest in proposed
Part III, Item 8. The NMS Stock ATS
would also be required to amend its responses to disclose any differences in treatment among subscribers, persons whose trading interest is entered into the ATS by a subscriber or the broker￾dealer operator, the broker-dealer operator, and any affiliates of the broker-dealer operator as relevant throughout the responses to Part III rather than disclosing differences in treatment between any subscribers and the broker-dealer in specific sub-parts of
Part III, as required by current Form
ATS–N.
2. Definitions
The Commission is proposing to amend certain definitions in the instructions to Form ATS–N. The Commission is re-proposing to replace the current definition of ‘‘person’’ in Form ATS–N, which is provided by the Investment Advisers Act of 1940 (‘‘Advisers Act’’) 486 with the different definition of ‘‘person’’ as defined under the Exchange Act.487 Because Regulation ATS is a Commission regulation under the Exchange Act, the Commission believes that it is more appropriate to apply the definition of ‘‘person’’ under the Exchange Act than the Advisers Act, which is not applicable to ATSs. Although the definitions are not identical, the Commission believes the differences between the definitions are unlikely to result in differences to the disclosures required by Form ATS–N.488 To the extent ATSs might have found ambiguous the Commission’s use of the Advisers Act definition in the context of an Exchange Act rule, the Commission believes that this proposed change will mitigate any such concerns. The Commission is also proposing to change the definition of ‘‘NMS Stock ATS’’ in the instructions to the form to conform to the proposed changes to the definition in Rule 300 and state that NMS Stock ATSs shall not trade securities other than NMS stocks.489 The Commission is also proposing to add definitions of ‘‘Agency Security,’’ 490 ‘‘Government Security,’’ 491 ‘‘Government Securities ATS,’’ 492 ‘‘Legacy Government Securities ATS,’’ 493 and ‘‘Trading Interest’’ 494 and conform the definition of ‘‘Broker-Dealer Operator’’ to the proposed revisions in Rule 301(b)(1).495 As proposed, the term ‘‘Trading Interest’’ would be the same definition provided in proposed Rule 300(q) and Rule 3b–16(e), which would include both orders as defined under Rule 3b– 16(c) and non-firm trading interest.496 In addition, the Commission is proposing to replace the term ‘‘Trading Center’’ with ‘‘trading venue.’’ A ‘‘trading venue’’ would mean a national securities exchange or national securities association that operates an SRO trading facility, an ATS, an exchange market maker, an OTC market maker, a futures or options market, or any other broker- or dealer-operated platform for executing trading interest internally by trading as principal or crossing orders as agent.497 The proposed definition of ‘‘trading venue’’ would encompass ‘‘trading centers’’ as defined under 17 CFR 242.600(b)(78) (Rule 600(b)(78) of Regulation NMS), futures and options markets, which the Commission believes may be relevant to the trading of government securities and repos, and also would encompass broker- or dealer-operated platforms for executing trading interest by trading as a principal or crossing orders as an agent.498
3. Cover Page and Part I; Information
About the Broker-Dealer Operator To make clear that the Commission would not be conducting a merit-based review of Form ATS–N disclosures filed with the Commission, the Form ATS–N cover page states that the Commission has not passed upon the merits or accuracy of the disclosures in the filing. On the cover page of Form ATS–N, the Covered ATS would be required to identify whether it is an NMS Stock ATS or a Government Securities ATS. To indicate whether the ATS is subject to the transitional rules for Legacy Government Securities ATSs and Newly Designated ATSs,499 the ATS would be required to disclose whether it is a Legacy Government Securities ATS or Newly Designated ATS.500 In addition, the Covered ATS would indicate the type of filing by marking the appropriate checkbox.501 If the Covered ATS is filing an amendment, the ATS would be required to indicate the Part and Item number of the Form ATS–N that is the subject of the change(s), provide a brief summary of the substance of the change(s), and state whether or not the change(s) applies to (1) all subscribers and the

502See Instruction A.7.h of Form ATS–N. If a change subject to the amendment would equally apply to all subscribers and the broker-dealer operator, the Covered ATS would indicate that the change applies to all subscribers and the broker￾dealer operator equally. If a change would apply differently among subscribers or types of subscribers, between subscribers and the broker￾dealer operator, or between the broker-dealer operator and its affiliates (which may be subscribers to the ATS), the Covered ATS would state so and describe the differences in treatment. This is the same as how NMS Stock ATSs currently describe in Form ATS–N and would be required to describe in Form ATS–N whether or not a change applies to all subscribers and the broker-dealer operator in amendments on Form ATS–N. As required by the instruction, a filer must provide a brief summary of all changes to the form. Such summary should enable market participants to understand the nature of the changes being made. For example, if the ATS is adding a new order type, the ATS should state that it is adding a new order type and provide a brief description of unique aspects of the order type. The Commission is proposing to clarify in Instruction A.7.h that changes made in Part IV of Form ATS–N should not be described, as Part IV is non-public. See infra Section IV.D.6. 503See Instruction A.9 of Form ATS–N. 504See 15 U.S.C. 78o(b)(8). See also NMS Stock ATS Adopting Release, supra note 2, at 38773. 505As discussed above, Rule 301(b)(1) currently requires that the ATS register as a broker-dealer under Section 15 of the Exchange Act. As proposed, Rule 301(b)(1) would require an ATS to register as a broker-dealer under Exchange Act Section 15 or a government securities broker or government securities dealer under Exchange Act Section 15C(a)(1)(A). See supra note 273 and accompanying text. 506Current Form ATS–N does not include this Item, and as proposed, NMS Stock ATSs would also be subject to this proposed requirement. An LEI is a 20-character reference code that uniquely identifies legally distinct entities that engage in financial transactions and is used by numerous domestic and international regulatory regimes. See Securities Act Release No. 10425, 82 FR 50988, 51005 (November 2, 2017) (stating that LEIs are intended to improve market transparency by providing clear identification of participants). Although several existing ATS broker-dealer operators currently have an LEI, not all broker￾dealer operators have an LEI. In the 2020 Proposal, the Commission asked commenters whether they believe a Government Securities ATS should be required to disclose the broker-dealer operator’s LEI. One commenter supported requiring disclosure of the LEI on Form ATS, Form ATS–R, Form ATS– N, and previously proposed Form ATS–G, stating, among other things, that it is a global standard for legal entity identification and that it enables publicly accessible information about an entity’s ownership structure.
This commenter stated that LEI should not replace the CRD, which serves a purpose in identifying broker-dealers and their affiliates, but should serve as a complimentary identifier. See letter from Stephan Wolf, CEO, Global Legal Entity Identifier Foundation, dated March 1, 2021 (‘‘GLEIF Letter’’). Another commenter stated that the utility of asking brokers to obtain another identification number is unclear if the LEI does not replace FINRA assigned identification numbers. See Bloomberg Letter at 7. 507The Commission understands that, in certain instances, a broker-dealer operator for an ATS may use the ATS MPID in connection with its routing activities when the routing functionality is within the ATS. See FINRA Trade Reporting Guidance, Example 7, available at https://www.finra.org/sites/ default/files/ATS%20OATS%20and%20Trade %20Reporting%20Guidance%209-2-14_0_0_0_ 0.pdf. To the extent that the broker-dealer uses the ATS MPID in connection with its routing activities, or its routing functionality is inside the ATS, such activities and functionality would be subject to Regulation ATS, including the disclosure requirements of Form ATS–N. broker-dealer operator; (2) only the broker-dealer operator; (3) only subscribers; (4) only certain subscribers, subsets of subscribers, or customers of subscribers and the broker-dealer operator; or (5) only certain subscribers, subsets of subscribers, or customers of subscribers.502 In addition, the Covered ATS would be required to provide the EDGAR accession number for the Form ATS–N filing to be amended so that market participants can identify the filing that is being amended. Pursuant to Rule 304(b)(2)(iii), the Commission would 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). For updating, correcting, contingent, and fee amendments, which would be made public upon filing, the Commission believes that the information in the narrative could assist market participants in understanding the general nature of the change that the Covered ATS is implementing. If the filing is a cessation of operations, the cover page of Form ATS–N would require the Covered ATS to provide the date that the ATS will cease to operate. The cover page includes a checkbox where the ATS could indicate whether it wishes to withdraw a previously-filed Form ATS– N filing and provide the EDGAR accession number for the filing to be withdrawn. The instructions to Form ATS–N state that an ATS may withdraw an initial Form ATS–N or an amendment before the end of the applicable Commission review period. In addition, a Covered ATS could withdraw a notice of cessation of operations at any time before the date that the ATS indicated it intended to cease operating.503
Part I of revised Form ATS–N would
be substantively the same as that for current Form ATS–N with certain exceptions, as described below. Form ATS–N would require a Covered ATS to identify the registered broker-dealer that operates the ATS and state whether the filer is a broker-dealer registered with the Commission. The Commission is proposing new Part I, Item 1(b) of Form ATS–N to require the Covered ATS to indicate whether the registered broker￾dealer is authorized by a national securities association to operate an ATS under the rules of the national securities association. Proposed Part I, Item 1(b) would facilitate compliance with and Commission oversight of the requirement that an ATS must register as a broker-dealer and become a member of an SRO.504 The Commission is also proposing that the Covered ATS provide the name of the registered broker-dealer or government securities broker or government securities dealer for the ATS (i.e., the broker-dealer operator), as it is stated on Form BD, in Part I, Item 2 of Form ATS–N.505 To the extent that a commercial or ‘‘DBA’’ (doing business as) name or names are used to identify the Covered ATS to the public, the Commission, or its SRO, or if a registered broker-dealer operates multiple Covered ATSs, Form ATS–N would require the full name(s) of the Covered ATS under which business is conducted, if different, in
Part I, Item 3 of Form ATS–N. Part I,
Item 4 of Form ATS–N would require the Covered ATS to provide the broker￾dealer operator’s SEC File Number and Central Registration Depository (‘‘CRD’’) Number. In addition, the Commission is proposing to require Covered ATSs to provide the broker-dealer operator’s Legal Entity Identifier (‘‘LEI’’) in Part I, Item 4, if the broker-dealer operator has an LEI.506 If a broker-dealer operator of the ATS has an LEI, the information may be useful to market participants as a globally standardized identifier. The Commission, however, is not proposing to require broker-dealer operators that do not have an LEI to obtain such an identifier. In addition, the Commission is proposing to add a question to Part I, Item 4(d) that would require the ATS to provide the MPID of its broker-dealer operator. Although Part I, Item 5(c) of Form ATS–N requires the ATS to disclose the MPID of the ATS, the Commission is also requiring the ATS to provide the MPID of the broker-dealer operator because a broker-dealer operator may have a unique MPID. Because the broker-dealer operator could potentially use such a unique MPID to conduct trading and routing activity that affects the ATS, it would be useful to market participants and regulators to require the ATS to state the broker-dealer operator’s MPID as it will help them identify the broker-dealer operator and better understand the scope of activities of the broker-dealer operator.507
Part I, Item 5 of Form ATS–N would
require the Covered ATS to provide the full name of the national securities association of which the broker-dealer operator is a member, the effective date of the broker-dealer operator’s membership with the national securities

508See FINRA Rules 6160, 6170, 6480, and 6720. 509 If the NMS Stock ATS suspends trading in securities under certain circumstances, the ATS should indicate so under Part III, Item 19. See infra
Section IV.D.5.r.
510The Commission notes that most, if not all, NMS Stock ATSs currently disclose whether they trade all NMS stocks in Part III, Item 11(a) of Form ATS–N. 511The types of securities traded would be limited to government securities (15 U.S.C. 78c(a)(42)) and repos. See proposed Rule 300(l). 512Treasury bills are short-term securities that mature in one year or less from their issue date. Bills are purchased for a price less than or equal to their par (face) value, and when they mature, Treasury Department pays their par value. See TreasuryDirect, The Basics of Treasury Securities, available at https://www.treasurydirect.gov/instit/ research/faqs/faqs_basics.htm#tbills (last visited September 15, 2021). 513Treasury notes are securities that pay a fixed rate of interest every six months until the security matures, which is when Treasury Department pays the par value. Treasury notes mature in more than a year, but not more than 10 years from their issue date. See id. 514Treasury bonds are securities that pay a fixed rate of interest every six months until the security matures, which is when Treasury Department pays the par value. Bonds mature in more than 10 years from their issue date. See id. 515Treasury Inflation-Protected Securities (‘‘TIPS’’) pay interest every six months and the principal value of TIPS is adjusted to reflect inflation or deflation as measured by the Consumer Price Index. The semi-annual interest payments and maturity payment are calculated based on the inflation-adjusted principal value of the security. See id. 516See supra 191. 517A floating rate note security that has an interest payment that can change over time. As interest rates rise, the security’s interest payments will increase. Similarly, as interest rates fall, the security’s interest payments will decrease. This security makes use of an index (or reference) rate (in this case, tied to the most recent 13-week bill rate, prior to the lockout period) and spread (determined at auction) to calculate an interest rate. The index rate changes periodically, in this instance every week, causing the interest rate to change or ‘‘float.’’ The notes may be of varying original maturities. See TreasuryDirect, Frequently Asked Questions, available at https:// www.treasurydirect.gov/indiv/help/TDHelp/ faq.htm. 518A ‘‘when-issued’’ transaction is a transaction in a U.S. Treasury Security that is executed before the issuance of the security. 519Agency Mortgage-Backed Securities include (i) a type of securitized product issued in conformity with a program of a U.S. executive agency, as defined in 5 U.S.C. 105 or a government-sponsored enterprise, as defined in 2 U.S.C. 622(8), for which the timely payment of principal and interest is guaranteed by the executive agency or GSE, representing ownership interest in a pool (or pools) of mortgage loans structured to ‘‘pass through’’ the principal and interest payments to the holders of the security on a pro rata basis; and (ii) a type of
securitized product backed by a securitized product described in (i). See also FINRA Rules 6710(m), 6710(v), 6710(dd). 520Federal Agency Securities include all Agency Securities except Agency Mortgage-Backed Securities. See supra note 519. 521A triparty repo involves a third party, which is a clearing bank that provides support to both parties in the trade by settling the repo on its books and ensuring that the details of the repo agreement are met. See Viktoria Baklanova, Adam Copeland & Rebecca McCaughrin, Federal Reserve Bank of New York Staff Reports, Reference Guide to U.S. Repo and Securities Lending Markets (September 2015) at 5–6, 8–10, available at https:// www.newyorkfed.org/medialibrary/media/research/ staff_reports/sr740.pdf (‘‘New York Fed Staff Report’’). 522A bilateral repo involves two parties agreeing on the terms of trade, including the principal amount of the repo, the interest rate paid by the collateral provider, the type of securities delivered, the haircut to be applied for the collateral pledged, and the maturity of the repo, and each counterparty’s custodian bank clears and settles the trade. See New York Fed Staff Report, supra note 521, at 5–7. 523Centrally cleared would mean any transaction that uses a central counterparty, as defined in 17 CFR 240.17Ad–22(a)(2) (Rule 17Ad–22(a)(2) under the Exchange Act). 524Non-centrally cleared would mean any transaction that does not use a central counterparty, as defined in Rule 17Ad–22(a)(2) under the Exchange Act. See id. 525These items are numbered as Part I, Items 8 and 9 in current Form ATS–N, but would be renumbered as Items 9 and 10. association, and the MPID of the ATS. Pursuant to FINRA rules, each ATS is required to use a unique MPID in its reporting to FINRA, such that its volume reporting is distinguishable from other transaction volume reported by the broker-dealer operator of the ATS, including volume reported for other ATSs or trading desks operated by the broker-dealer operator.508 The broker-dealer operator would provide the unique MPID for the Covered ATS and assess the functionalities related to trading under that MPID and describe them, as applicable, in response to the information requests on Form ATS–N. Providing the name of the Covered ATS or DBAs and its MPID would identify the ATS to the public and the Commission. The name, identity of the broker-dealer operator, any ‘‘DBA’’ name, and the ATS’s MPID are basic information critical to market participants for identifying the ATS and should be disclosed. Proposed Part I, Item 6 of Form ATS– N would require the Covered ATS to provide a URL address for the website of the ATS. Proposed Part I, Item 7 of Form ATS–N would require the ATS to provide the primary physical street address of the ATS matching system and indicate whether the ATS has a secondary matching system that may be used in the event that the primary matching system is not available. If yes, the ATS would be required to provide the secondary address
of the matching system. To inform market participants about the types of securities that a Covered ATS makes available for trading, the Commission is proposing to require a Covered ATS to disclose in Part I, Item 8 of Form ATS–N the types of securities it trades. Part I, Item 8(a) would require an NMS Stock ATS, but not a Government Securities ATS, to indicate whether the ATS makes available for trading all NMS stocks.509 If not, the ATS would identify the securities or types of securities that it does not make available for trading.510 Part I, Item 8(b) would require a Government Securities ATS, but not an NMS Stock ATS, to select the categorical types of government securities the ATS trades (i.e., U.S. Treasury Securities, Agency Securities, repos, or other).511 If the Government Securities ATS trades U.S. Treasury Securities, it would be required to select whether it trades bills,512 notes,513 bonds,514 TIPS,515 STRIPS,516 and/or floating rate notes 517 and indicate whether each type of security traded is on-the-run, off-the￾run, and/or when-issued.518 If the Government Securities ATS trades Agency Securities, it would be required to indicate whether it trades Agency Mortgage-Backed Securities 519 and/or Federal Agency Securities.520 In addition, if the Government Securities ATS trades repos, the ATS would indicate whether it trades triparty 521 and/or bilateral repos,522 and whether such securities are repurchase agreements or reverse repurchase agreements and are centrally cleared 523 or non-centrally cleared.524 If the Government Securities ATS trades any other government securities, it would be required to mark ‘‘other’’ via checkbox and identify the types of government securities that the ATS makes available for trading. Requiring a Covered ATS to publicly disclose the types of securities that it trades would identify to potential subscribers and regulators the securities that the ATS offers for trading and help potential subscribers decide whether they would want to engage the ATS. Proposed Part I, Items 9 and 10 525 would require a Covered ATS to attach the most recently filed or amended
Schedule A of the broker-dealer
operator’s Form BD disclosing information related to direct owners and executive officers, and the 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 Covered 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

526Part I, Items 9 and 10 and Part III, Item 25 (see infra Section IV.D.5.y) are the only requests for information that would allow a Covered ATS to cross-reference to information on the ATS’s website instead of providing it in the form disclosures. Form ATS–N disclosures would be the vehicle for disseminating to the public information about the operations of the ATS and the ATS-related activities of the broker-dealer operator and its affiliates under Rule 304, which are required to be kept current, accurate, and complete by the ATS. Accordingly, ATSs would be required to provide information required by the form in the Form ATS– N disclosures and not cross-reference to other sources. 527See supra note 455 and accompanying text. 528See supra Section IV.A. To facilitate the review of the initial Form ATS–N for the new Covered ATS, the broker-dealer operator for the new ATS may provide a draft initial Form ATS–N to the staff for consideration. 529This Item is currently numbered as Part I, Item 10, but would be renumbered as Item 11. The Commission proposes to make a minor change to this Item to clarify that ‘‘II’’ refers to Part II. 530See infra Section IV.D.4. 531See NMS Stock ATS Proposing Release, supra note 29, at 81010, 81041. 532See id. at 81010. ATS–N.526 The Commission is proposing to include in Part I, Items 9 and 10 that, if the ATS selects to make the information available on its website in lieu of attaching it to its filing, the ATS will maintain its website in accordance with the rules for amending Form ATS–N pursuant to Rule 304(a)(2)(i) to reflect any changes to
Schedule A or Schedule B, as
applicable, to the Form BD of the broker-dealer operator. This would require an ATS checking the box to update its website as if it were Form ATS–N, and therefore, to update the information no later than 30 calendar days after the end of any calendar quarter in which its broker-dealer operator’s Schedule A or Schedule B of Form BD becomes inaccurate or incomplete. When an ATS is purchased by another entity and operated by a broker￾dealer that is not the ATS’s current broker-dealer operator, the new broker￾dealer typically commences operating the ATS using its personnel, processes, and procedures. To avoid disruptions to operations of the ATS or its subscribers, the existing Covered ATS would file a Notice of Cessation at least 10 business days prior to the official change of broker-dealer operator (e.g., the date of closing for an acquisition) pursuant to Rule 304(a)(3) 527 and the new broker￾dealer operator would file an initial Form ATS–N in advance of the Notice of Cessation, which must become effective before it may operate the Covered ATS pursuant to Rule 304(a)(1)(i).528 In addition, Part I, Item 11 of Form ATS–N would require the Covered 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 and additions or deletions from any Item in Part I, Part II, and Part III, as applicable.529 The Commission is proposing to revise Part I, Item 11 to state that the ATS must include in such marked document any changes to Exhibits 1, 2, and 5. The requirement for the ATS to provide a marked document or ‘‘redline’’ showing changes helps market participants and regulators easily review changes the ATS is making in an amendment. The Commission is not proposing Form ATS–N to require a marked document showing changes to Exhibit 4, which includes aggregate platform-wide order flow and execution statistics of the ATS, because such statistics may frequently change, and showing such changes could be burdensome for ATSs and would not be particularly useful for market participants or regulators. However, the ATS should be required to provide a marked document to show changes to the list and explanation of categories or metrics for such aggregate platform-wide order flow and execution statistics on Exhibit 5, as highlighting such changes would be useful for market participants in understanding any aggregate platform-wide order flow and execution statistics the ATS provides. In addition, to ensure the changes in the marked document are clear and readily identifiable, the Commission is proposing to clarify that the ATS must indicate the Part and Item number for all Items that are changing. Request for Comment
83. Should Covered ATSs be required
to provide any additional identifying information on Part I of Form ATS–N? Are the proposed information requests on Part I of Form ATS–N necessary, or are certain information requests not necessary and why?
84. Should the Commission require
Covered ATSs to provide types of securities that they trade (or do not trade) in Part I, Item 8 of Form ATS–N? Would the proposed categories and classifications of government securities in Part III, Item 8(b) be helpful to market participants? What, if any, additional or alternative categories or classifications would commenters suggest? Is there any other information about types of securities an ATS trades that should be required by Form ATS–N?
4. Part II: Broker-Dealer Operator and Its
Affiliates Activities
The Commission believes that the disclosures on Form ATS–N about the conflicts of interest that might arise from the business structures of the Covered ATS and the ATS-related activities of the broker-dealer operator and its affiliates are designed to help participants protect their interests when using the services of the ATS.530 As the Commission has previously stated, the broker-dealer operator controls all aspects of the ATS’s operations and the broker-dealer operator’s non-ATS and ATS functions may overlap.531 Currently, market participants have limited information about conflicts of interest that might arise from the non￾ATS activities of the broker-dealer operator of a Government Securities ATS or a Communication Protocol System, and different classes of participants may have different levels of information about the operations of the ATS or the Communication Protocol System.532 Because of potential overlap between a broker-dealer’s ATS operations and its other operations, there is a risk of information leakage of subscribers’ confidential trading information to other business units of the broker-dealer operator or its affiliates. The Commission believes that some market participants would want to consider the trading activity of the broker-dealer operator, or its affiliates, when evaluating potential conflicts of interest on a Covered ATS and may also want to be aware of the range of services and products that the broker-dealer operator or its affiliates offer for use in the ATS because such services or products may have an impact on access to, or trading on, the ATS. In addition, disclosures on Form ATS–N would better inform the Commission and other regulators about the activities of Covered ATSs and their role in the government securities and NMS stock markets, which would facilitate better oversight of these ATSs to the benefit of investors. The Commission continues to believe that the interests of the broker-dealer operator or its affiliates can sometimes compete against the interests of those that use the Covered ATS’s services. These competing interests, at times, may give rise to conflicts of interest for the broker-dealer operator and its affiliates or the potential for information leakage of subscribers’ confidential trading information. For example, trading by the broker-dealer operator or its affiliates on a Covered ATS controlled and operated by the broker-dealer operator presents a conflict of interest whereby the broker￾dealer operator has the opportunity to place its interest ahead of participants

533Form ATS–N would define ‘‘affiliate’’ as, with respect to a specified person, any person that, directly or indirectly, controls, is under common control with, or is controlled by, the specified person. ‘‘Control’’ would be defined to mean the power, directly or indirectly, to direct the management or policies of the broker-dealer operator of an alternative trading system, whether through ownership of securities, by contract, or otherwise. In this proposal, the Commission is proposing to update the definition of ‘‘person’’ for the purposes of Form ATS–N. A ‘‘person’’ is presumed to control the broker-dealer operator of an alternative trading system if that person: Is a director, general partner, or officer exercising executive responsibility (or having similar status or performing similar functions); directly or indirectly has the right to vote 25 percent or more of a class of voting securities or has the power to sell or direct the sale of 25 percent or more of a class of voting securities of the broker-dealer operator of the alternative trading system; or in the case of a partnership, has contributed, or has the right to receive upon dissolution, 25 percent or more of the capital of the broker-dealer operator of the alternative trading system. See infra Section V.D. 534See NMS Stock ATS Adopting Release, supra note 2, at 38818–19. 535 In Part II, Item 1(a), the Commission is proposing to delete examples of trading interest— quotes, conditional orders, and indications of interest—as the proposed definition of trading interest would encompass these examples. 536For a further discussion about how a conflict of interest related to trading by the broker-dealer operator on its own ATS could be harmful to other subscribers, see NMS Stock ATS Adopting Release, supra note 2, at 38771, 38824–29. 537As explained above, Form ATS–N will remove references to ‘‘orders,’’ and its disclosures will focus on ‘‘trading interest.’’ trading in the ATS that the broker￾dealer controls and operates. Part II of Form ATS–N is designed to provide market participants with information about these competing interests, and inform them about: (1) The operation of the Covered ATS—regardless of the corporate structure of the ATS—and of its broker-dealer operator, or any arrangements the broker-dealer operator may have made, whether contractual or otherwise, pertaining to the operation of its ATS; and (2) ATS-related activities of the broker-dealer operator and its affiliates that may give rise to conflicts of interest for the broker-dealer operator and its affiliates or the potential for information leakage of subscribers’ confidential trading information. The public disclosure about potential conflicts of interest on Covered ATSs would advance the same policy and investor protection objectives. Furthermore, Part II of Form ATS–N does not require public disclosure of activities or affiliate relationships of the broker-dealer operator that do not relate to the Covered ATS. Many
broker-dealer operators of NMS Stock ATSs, and, to a lesser extent, Government Securities ATSs, engage in broker-dealer or other activities that are unrelated to their operations of the ATS. The Commission believes that Form ATS–N should exclude requests that would solicit information about a broker-dealer operator’s activities unrelated to its ATS operations. The Commission is proposing to use the same definitions of ‘‘affiliate’’ and ‘‘control’’ in revised Form ATS–N as are used in current Form ATS–N.533 These terms are intended to encompass all relevant affiliate relationships between the broker-dealer operator and other entities that the Commission believes would help market participants’ evaluation of potential conflicts of interest.534 a. Items 1 and 2: Broker-Dealer Operator and Its Affiliate Trading Activities in the Covered ATS
Part II, Items 1(a) and 2(a) of Form
ATS–N are designed to disclose information about whether business units of the broker-dealer operator or its affiliates,535 respectively, are permitted to enter or direct the entry of trading interest into the Covered ATS. If the person that operates and controls a Covered ATS is also able to trade on that ATS, there may be an incentive to design the operations of the ATS to favor the trading activity of the operator of the ATS or affiliates of the operator. An operator of a Covered ATS that also trades in the ATS it operates would likely have informational advantages over others trading in the ATS, such as a better understanding of the manner in which the system operates or who is trading in the ATS. In the most egregious case, the operator of the ATS might use the confidential trading information of other traders to advantage its own trading on or off of the ATS.536 If a Covered ATS permits the broker￾dealer operator or its affiliates to enter trading interest in the ATS, whether on an agency, principal, or riskless principal basis, the ATS would be required to only list the business units or affiliates that actually enter or direct the entry of trading interest into the ATS. Part II, Items 1(a) and 2(a) of Form ATS–N would require the ATS to list the business unit or affiliate if, for example, a trading desk of the broker￾dealer operator or an affiliate uses a direct connection to the ATS or algorithm to submit trading interest into the ATS. Likewise, if an affiliated asset manager of the broker-dealer operator uses the services of a third-party broker￾dealer to direct trading interest to the ATS (i.e., the asset manager instructs the third-party broker-dealer to send its trading interest to the ATS), the ATS would be required to list that affiliated asset manager under Item 2(a). However, if that affiliated asset manager submits trading interest to a third-party broker￾dealer, and that third-party broker￾dealer, using its own discretion, directs the trading interest of the asset manager into the affiliated ATS, the ATS would not be required to list the affiliated asset manager under Item 2(a); under such circumstances, the affiliate would not be ‘‘directing’’ trading interest to the ATS because the third-party broker-dealer is using its discretion to direct the affiliate’s trading interest. Currently, Part II, Items 1(a) and 2(a) only require an NMS Stock ATS to list business units or affiliates, respectively, that enter or direct the entry of orders and trading interest into the ATS.537 Based on the Commission staff’s experience, some NMS Stock ATSs have opted to list all of the internal business units and affiliates that could trade in the ATS and not only the internal business units and affiliates that actively enter orders and trading interest into the ATS. This additional information can also help market participants evaluate the types of potential conflicts of interest on an NMS Stock ATS by providing the entire universe of potential
contra-side trading interest that users of the ATS might view as a conflict of interest. Accordingly, while not required to do so, a Covered ATS would meet the respective requirements of Part II, Items 1(a) and 2(a) by listing all of the internal business units and affiliates that could trade in the ATS. The Commission is proposing that Form ATS–N specify the types of information that a Covered ATS must provide with regard to business units or affiliates of the broker-dealer operator. Specifically, Item 1(a) would require the ATS to name and describe each type of business unit of the broker-dealer operator that enters or directs the entry of trading interest into the ATS (e.g., another Covered 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 trading interest (e.g., principal, agency, riskless principal). Item 2(a) would require the Covered ATS to name and describe each type of affiliate that enters or directs the entry of trading interest into the ATS (e.g., broker-dealers, another Covered ATS, investment companies, hedge funds, market makers, PTFs) and, for each of those affiliates, provide the applicable MPID and list the capacity of its trading interest (e.g., principal, agency, riskless principal). The disclosures in Items 1(a) and 2(a) would help market participants

538Although the narrative responses to Items 1(a) and 2(a) could typically be kept up-to-date via updating amendments to Form ATS–N, the Commission also notes that in most cases, if the ‘‘yes’’ or ‘‘no’’ response to Items 1(a) or 2(a) changes (e.g., the Covered ATS changes its operations to allow affiliates to trade whereas they could not do so prior, or vice versa), the ATS would be required to file a material amendment. See NMS Stock ATS Adopting Release, supra note 2, at 38826. 539 Depending on how the Covered ATS operates, it is possible that disclosures about the broker￾dealer operator’s (or its affiliate’s) role as an intermediary between two other counterparties would be required disclosures elsewhere on the Form ATS–N (e.g., Part III, Item 7 (Order Types and Sizes; Trading Facilities), Part III, Item 21 (Post￾Trade Processing, Clearance, and Settlement)). Accordingly, the Commission is proposing that this information would be required to be publicly disclosed in Part II. However, to decrease redundancy in the form, the ATS could note in Part II, Item 1(a) and/or 2(a) disclosures that the broker￾dealer operator or its affiliates could be counterparties to a trade, state the capacity in which broker-dealer operator or its affiliate is a counterparty to the trade, and provide a more detailed responses to other requests for information as required in the form. 540The Commission is proposing to revise Part II, Items 1(b) and 2(b) to specifically ask about treatment of persons whose trading interest is entered into the ATS by a subscriber or the broker￾dealer operator. In the Commission’s experience, ATS services could vary among not only subscribers, but also non-subscriber participants to the ATS. The Commission is therefore proposing to broaden the scope of these questions to apply to differing treatment among non-subscriber participants whose trading interest is entered into the ATS by a subscriber or the broker-dealer operator. 541This request is contained in Part III, Item 12. See infra Section V.D.5.l. dealer operator business units and affiliates that can trade in a Covered ATS, and their trading activities.538 In addition to what is required under current Form ATS–N, the Commission proposes to add an additional disclosure request to Part II, Items 1(a) and 2(a) of Form ATS–N that would require a Covered ATS to explain any circumstance when the broker-dealer operator or an affiliate, respectively, would be a counterparty to an ATS trade. Based on Commission experience, the broker-dealer operator may act as a counterparty to both sides of a trade to maintain the anonymity of each counterparty or to facilitate clearance and settlement of the trade. To the extent the broker-dealer operator or affiliate of the broker-dealer operator of a Covered ATS intermediates between two counterparties, the ATS should publicly disclose to its subscribers when and how it does so and the capacity of the broker-dealer operator or its affiliates.539
Part II, Items 1(b) and 2(b) of Form
ATS–N would require a Covered ATS to disclose whether the services that the ATS offers and provides to the business units or affiliates required to be identified in Item 1(a) and 2(a), respectively, are the same for all subscribers and persons whose trading interest is entered into the ATS by a subscriber.540 This request would be in the form of a ‘‘yes’’ or ‘‘no’’ question, and if the ATS answers ‘‘no,’’ it would be required to explain any differences in response to the applicable Item number(s) in Part III of Form ATS–N and list the applicable Item number(s). If there are differences that are not applicable to Part III of Form ATS–N, the ATS must explain those differences in detail under Part II, Items 1 and 2.
Part II, Items 1(c) and 2(c) would
require a Covered ATS to disclose the broker-dealer operator’s or any of its affiliates’ role as a liquidity provider in the ATS, if applicable. These Items would require the ATS to disclose—in the form of a ‘‘yes’’ or ‘‘no’’ response— whether there are any formal or informal arrangements with any of the sources of trading interest of the broker￾dealer operator or affiliates identified in Item 1(a) and Item 2(a), respectively, to provide trading interest to the ATS (e.g., undertaking to buy or sell continuously, or to meet specified thresholds of trading or quoting activity). If the ATS answers ‘‘yes,’’ it must identify the business unit(s) or affiliate(s) and respond to the Item with information about liquidity providers in the ATS.541 Based on the Commission staff’s experience with Form ATS–N filed by NMS Stock ATSs, highlighting whether the broker-dealer operator or affiliate acts as a liquidity provider on a Covered ATS would help market participants evaluate the potential for conflicts of interest or information leakage on the trading platform. Finally, the Commission proposes to relocate the Part II, Items 1(d) and 2(d) disclosure requests to proposed Part III, Item 16(c). Currently, these request an NMS Stock ATS to disclose information about sending orders and trading interest to a trading center operated or controlled by the broker-dealer operator or any of its affiliates, respectively in the form of a ‘‘yes’’ or ‘‘no’’ question. The related narrative is currently required to be provided in Part III, Item 16, which requires disclosures about external routing from the NMS Stock ATS. The Commission continues to believe that this disclosure is important when evaluating potential conflicts of interest and how trading interest may be handled in the ATS. The Commission originally included subpart (d) in Part II, Items 1 and 2 to highlight conflicts of interest related to routing. The Commission believes that it would be more efficient for market participants and filers to consolidate this disclosure with the responses to the request soliciting information about the routing or sending of trading interest from the ATS. As such, the Commission is proposing to delete Items 1(d) and 2(d) from Part II, and relocate the disclosure requirements therein to Part III, Item 16(c). Request for Comment
85. What information about trading by
the broker-dealer operator and its affiliates related to Government Securities ATSs is important to market participants? Are there any additional relevant points of information about NMS Stock ATSs that Form ATS–N does not solicit and should be asked?
86. Are there potential conflicts of
interest for broker-dealer operators of Government Securities ATSs or their affiliates that may justify greater operational transparency for Government Securities ATSs than for NMS Stock ATSs, or vice versa?
87. Should the Commission require
separate disclosures for different types of trading by the broker-dealer operator on the Covered ATS, such as trading by the broker-dealer operator for the purpose of correcting error trades executed in the ATS, as compared to other types of principal trading? If so, what types of principal trading should be addressed separately and why? What disclosures should the Commission require about principal trading and why?
88. Should the Commission limit or
expand in any way the proposed disclosure requirements to require disclosure of arrangements regarding access by the broker-dealer operator or its affiliates to both other trading venues and affiliates of those other trading venues?
89. Should the Commission require
ATSs to provide information about when the broker-dealer or affiliate of the broker-dealer would be a counterparty to an ATS trade? What type of information about such arrangements would be useful to market participants?
90. Form ATS–N currently requires
that an NMS Stock ATS name the affiliate(s) of the broker-dealer operator permitted to enter or direct the entry of trading interest into the ATS. A Government Securities ATS would also be required to describe the type of affiliates on Form ATS–N. Should the Commission continue to require NMS Stock ATSs, but not Government Securities ATSs, to disclose the name(s) of affiliate(s) in Form ATS–N?
91. Should the Commission require
Covered ATSs to disclose the percentage of trading in the ATS attributable to

542For example, if a broker-dealer operator uses algorithms to submit subscriber orders into the Covered ATS, any steps that either the broker￾dealer operator or the subscriber needs to take so that the ATS prevents those orders from trading with the broker-dealer operator or its affiliates would be required disclosures under Items 3(a) and 3(b), respectively. 543The Commission is proposing to replace the phrase ‘‘terms and conditions’’ with ‘‘requirements.’’ In the Commission staff’s experience reviewing Form ATS–N and discussing the requirements of the form with NMS Stock ATSs, the Commission has observed that some NMS Stock ATSs have read ‘‘terms and conditions’’ to mean all legal or contractual terms, rather than terms relevant to the scope of the question (i.e., what is required for a subscriber to opt out). Using the term ‘‘requirements’’ will clarify that the Item is soliciting information specifically related to requirements related to the opt-out process. Substantively, the Commission does not believe that the proposed change would change information that is being solicited in this Item. 544See supra Section IV.D.3.a. 545See NMS Stock ATS Adopting Release, supra note 2, at 38831 nn.769–70 and accompanying text. As the Commission discussed in the NMS Stock ATS Adopting Release, the disclosures required by
Part II, Item 4 of revised Form ATS–N are not so
broad as to require the Covered ATS to list each unaffiliated subscriber that accesses its system. See id. at 38831. 546 In addition, in Part II, Item 4(b) of Form ATS– N, the Commission is proposing to delete the phrase ‘‘if yes to Item 4(a).’’ This phrase was included in Form ATS–N in error. The NMS Stock ATS would be required to respond to Part II, Item 4(b) regardless of its response to Part II, Item 4(a). 547 In the NMS Stock ATS Adopting Release, the Commission provided examples of when potential conflicts of interest and information leakage could occur as a result of preferential routing arrangements (e.g., an affiliate is contractually obligated to route all unexecuted orders to ATS) or routing arrangements with affiliates (e.g., all orders routed by the NMS Stock ATS must first be routed to an the affiliate(s)). Specifically, the former might result in information leakage should the arrangement provide that all orders not executed by the affiliate are to be sent to the NMS Stock ATS and the latter could provide incentive for the NMS Stock ATS to route orders to an affiliate instead of trying to execute the order in the ATS. These issues could arise in the government securities markets, as well, so those examples are also applicable to both NMS Stock ATSs and Government Securities ATSs. See id. at 38831 n.771. 548 In Part II, Item 5, the Commission is proposing to add ‘‘order hedging or aggregation functionality’’ and ‘‘post-trade processing’’ as examples of each or all of the broker-dealer operator’s business units, affiliates or both? Should Form ATS–N require a Covered ATS to disclose specific trade volume data for its trading with business units of the broker-dealer operator or its affiliates? If so, how should that volume be measured (e.g., executed trades, dollar volume)?
92. Would the disclosure of
information about trading by the broker￾dealer operator and its affiliates in the Covered ATS be sufficient to address potential conflicts of interest? If disclosure alone is insufficient, are there other measures the Commission could take to mitigate potential conflicts of interest regarding trading? Should the Commission prohibit some or all trading by the broker-dealer operator and its affiliates in the ATS to address potential conflicts of interest? b. Item 3: Interaction of Trading Interest With Broker-Dealer Operator; Affiliates Proposed Part II, Item 3 of Form ATS– N is designed to solicit information about the interaction of trading interest between unaffiliated subscribers to a Covered ATS and trading interest of the broker-dealer operator and its affiliates in the ATS. As proposed, Part II, Item 3(a) of Form ATS–N would require a Covered ATS to disclose whether a subscriber can opt out of interacting with trading interest of the broker-dealer operator in the ATS, and Part II, Item 3(b) would require the ATS to disclose whether a subscriber can opt out of interacting with the trading interest of an affiliate of the broker-dealer operator in the ATS.542 Part II, Item 3(c) of Form ATS–N would require the ATS to disclose whether the requirements 543 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. Proposed
Part II, Item 3 would be important to
unaffiliated market participants trading on an ATS because, given the potential for informational advantages by the broker-dealer operator or its affiliates,544 some unaffiliated subscribers may not wish to interact with the order flow of the broker-dealer operator or its affiliates. This disclosure could also help subscribers understand whether and how they may avoid trading with the broker-dealer operator and its affiliates should they elect to use the services of the Covered ATS. Request for Comment
93. Should Form ATS–N request more
or less information about how a market participant can limit its interaction on a Covered ATS with the broker-dealer operator or its affiliates? If commenters believe Form ATS–N should request more information, please provide specific information that would be useful along with an explanation of its utility.
c. Item 4: Arrangements With Other
Trading Venues
Part II, Item 4 of Form ATS–N is
designed to disclose information about formal or informal arrangements (e.g., mutual, reciprocal, or preferential access arrangements) 545 between the broker-dealer operator or an affiliate of the broker-dealer operator and a trading venue (e.g., ATS, broker-dealer, exchange, OTC market maker, futures or options market) to access the ATS services (e.g., arrangements to effect transactions or to submit, disseminate, or display orders and trading interest in the ATS).
Part II, Item 4 would require a
Covered ATS to disclose an arrangement between the broker-dealer operator for the ATS or affiliate of the broker-dealer operator and a broker-dealer operator of an unaffiliated ATS under which the broker-dealer operator would send trading interest to the unaffiliated ATS for possible execution before sending it to any other destination. Item 4 would also require disclosure of the inverse arrangement pursuant to which any subscriber trading interest sent out of the unaffiliated Covered ATS would be sent first to the ATS before any other trading venue. In addition, Item 4 would require a summary of the terms and conditions of the arrangement such as, for example, whether the broker-dealer operator of the Covered ATS is providing monetary compensation or some other brokerage service to the unaffiliated ATS.546 If a broker-dealer operator has an arrangement with another trading venue operated by the broker-dealer operator or an affiliate, or an unaffiliated trading venue, market participants are likely to consider information about such arrangements relevant to their evaluation of an ATS as a potential trading venue and such an arrangement may raise concerns about conflicts of interest or information leakage. The Commission is therefore proposing disclosure of such arrangements in Part II, Item 4 of Form ATS–N.547 Request for Comment
94. What type of arrangements might
a broker-dealer operator of a Covered ATS have with a trading venue for government securities or repos? Please explain and describe what information, if any, market participants may wish to know about such an arrangement. d. Item 5: Other Products and Services
Part II, Item 5(a) is designed to
disclose whether the broker-dealer operator offers any products or services for the purpose of effecting transactions or submitting, disseminating, or displaying trading interest in the Covered ATS (e.g., algorithmic trading products that send orders to the ATS, order management or order execution systems, data feeds regarding orders and trading interest in, or executions occurring on, the ATS, order hedging or aggregation functionality, post-trade processing),548 and if applicable, to

products or services for the purpose of effecting transactions or submitting, disseminating, or displaying trading interest in a Covered ATS, and which could be particularly relevant to Government Securities ATSs. ‘‘Order hedging or aggregation functionality’’ would include any aggregation functionality that, for example, could be used by subscribers to interface with the ATS to send or receive orders and trading interest to and from other markets, including U.S. Treasury Securities markets, over-the-counter spot markets, or futures markets. ‘‘Post-trade processing’’ would include any functionality that could be used by subscribers in connection with post-trade processing to manage routing, enrichment, allocations, matching, confirmation, affirmation, or notification of ATS trades. 549The Commission is proposing to replace the phrase ‘‘terms and conditions’’ with the phrase ‘‘requirements’’ throughout this Item. See note 543 and accompanying text. The Commission is also proposing to require the Covered ATS to disclose any differences in treatment as they apply to persons whose trading interest is entered into the ATS by a subscriber or the broker-dealer operator. In the Commission staff’s experience, broker-dealer operators and their affiliates may, for example, disclose products and services offered to customers of subscribers. See proposed revisions to Part II, Items 5(b) and 5(d). 550For example, if a broker-dealer operator offers subscribers alternative algorithms to handle orders, including sending such orders to the Covered ATS, and there is a difference in the latency in which each of the alternatives transmits information, such differences in latency would need to be disclosed in Part II, Item 5 of revised Form ATS–N. 551See NMS Stock ATS Proposing Release, supra note 29, at 81048. See also NMS Stock ATS Adopting Release, supra note 2, at 38832 n.779. For example, order hedging functionalities could encompass a product or service offered by the broker-dealer operator to a customer that the customer may use as a subscriber to the broker￾dealer operator’s ATS to hedge exposures of trading interest in or outside the ATS. A broker-dealer operator that offers such a functionality for use with the ATS would describe the requirements for a subscriber to use the functionality in Part II, Item 5 and explain its use with regard to the ATS in Part III of Form ATS–N. For example, if the order hedging functionality affects order interaction in the ATS, the ATS would explain the functionality in proposed Part III, Item 7. If the order hedging functionality involves futures and trading interest in the ATS, the ATS would explain the related procedures under proposed Part III, Item 11. 552See infra Section IV.D.5.l. 553Services for the purpose of effecting transactions, or submitting, disseminating, or displaying trading interest in the ATS that are offered by a person other than the broker-dealer operator would also be responsive to this Item. indicate
whether the requirements of use 549 for these services or products required to be identified in Part II, Item 5(a) are the same for all subscribers, persons whose trading interest is entered into the ATS by a subscriber or the broker-dealer operator, and the broker-dealer operator.550 Customers of a broker-dealer operator could be both subscribers to its ATS and customers of the broker-dealer operator and the broker-dealer operator may offer its customers trading products and services in addition to its ATS services. In certain cases, the product or service offered might be used by the customer in conjunction with the customer’s use of the ATS. Broker-dealer operators may, directly or indirectly through an affiliate, offer products or services for the purpose of, for example, submitting trading interest, or receiving information about displayed interest, in the ATS.551 The Commission is proposing to delete the term ‘‘Subscribers’’ from Items 5(a) and 5(c) so that all products and services that the broker-dealer operator or affiliate of the broker-dealer operator offers for the purpose of effecting transactions or submitting, disseminating, or displaying trading interest in the ATS, would be required to be disclosed on Form ATS– N, regardless of whether they are offered to subscribers or non-subscribers (e.g., customers of ATS subscribers). For example, a Government Securities ATS would be required to disclose any aggregation functionality that the broker-dealer operator or its affiliate(s) offers, which, for example, could be used by subscribers to interface with the ATS to send or receive trading interest to and from other markets, including U.S. Treasury Securities markets, over￾the-counter spot markets, or futures markets. The Commission believes that participants would be interested in understanding the use of an aggregation functionality with the ATS and how it can help achieve their trading strategies. If the broker-dealer operator or its affiliate offered a product for effecting transactions or submitting, disseminating, or displaying trading interest in the Government Securities ATS using related financial markets for non-government securities (e.g., futures, currencies, swaps, corporate bonds), the ATS could summarize the requirements for use of such a product in this Item and explain the product’s use under proposed Part III, Item 11.552 The Commission believes the information required by Part II, Item 5 of revised Form ATS–N is important because participants 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 trading interest in the ATS because such products or services may impact the participants’ access to, or trading on, the ATS.553 In some cases, if subscribers also use other products or services that the broker-dealer operator offers, they could receive more favorable terms from the broker-dealer
operator with respect to their use of the ATS. For example, if a participant purchases a service offered by the broker-dealer operator of a Covered ATS, the broker￾dealer operator might also provide that subscriber more favorable terms for its use of the ATS than other participants who do not purchase the service. Such favorable terms could include fee discounts or access to a faster connection line to the ATS. Additionally, a broker-dealer operator of a Covered ATS may offer certain products and services only to certain participants or may offer products and services on different terms to different categories of participants. The Commission believes that participants would want to know, when assessing a Covered ATS as a potential trading venue, the range of services or products that the broker-dealer operator or its affiliates offers participants of the ATS, and any differences in treatment among participants, because such services or products may impact the participants’ access to, or trading on, the ATS. To the extent that a participant on a Covered ATS 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 trading interest in the ATS, Part II, Item 5 of Form ATS–N would require disclosures about those products or services. For example, if a broker-dealer operator offers its customers an order management system that can also be used by participants to the ATS to manage orders in the ATS (e.g., adjust the pricing or size of trading interest in relation to trading interest resting in or outside the ATS, or modify order instructions to execute or cancel at a specified time or under certain market conditions), the ATS would be required to identify the order management system, provide a summary of the requirements for its use, and identify the Part and Item number in Form ATS– N where the order management system is explained. In addition, any services offered by the broker-dealer operator for subscribers to mitigate risk, such as limits on gross or net notional exposures by a subscriber, identification of duplicative orders in the ATS, or other checks offered related to order entry or authorizations to trade in the ATS, would be identified in this Item and explained further in proposed Part III, Items 7(b) and 8(b), as applicable. However, the 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 trading interest in the ATS. To alleviate any concerns regarding the potential disclosure of commercially sensitive information in this disclosure request, the proposed disclosure request

554As explained further below, the Commission is relocating the disclosure request about shared employees in Part II, Item 6(a) of current Form ATS–N to Part II, Item 7(a) of revised Form ATS– N. Accordingly, Part II, Item 6(a) of revised Form ATS–N corresponds to Part II, Item 6(b) of current Form ATS–N. 555Legacy Government Securities ATSs that operate pursuant to a Form ATS on file with the Commission are currently subject to the disclosure requirement of Exhibit E of Form ATS, which requires ATSs to disclose the name of any entity other than the ATS that will be involved in the operation of the ATS, including the execution, trading, clearing, and settling of transactions on behalf of the ATS; and to provide a description of the role and responsibilities of each entity. See Item 7 of Form ATS (describing the requirements for Exhibit E of Form ATS). Proposed Part II, Item 6(b) would expand upon this requirement. 556See Bloomberg Letter at 8 (stating, in response to the 2020 Proposal, that disclosure of outsourced technology provider relationships is appropriate for the Commission and FINRA to determine that the regulated entity, the broker-dealer operator, is monitoring its third-party service provider(s)). 557 If a summary of the role and responsibilities of the service provider is disclosed in response to
Part III of Form ATS–N, the ATS need only list the
applicable Item number in response to this Item. If there are services or functionalities that are not applicable to Part III, the ATS would identify the service provider, the services and functionalities, and also provide a summary of the role and responsibilities of the service provider in proposed
Part II, Item 6(a).
558See Regulation ATS Adopting Release, supra note 31, 63 FR 70873 n.252. See also infra Section V.A. 559 In such a case, a description of the written safeguards and procedures to protect subscribers’ confidential trading information of the ATS and service provider would be required to be disclosed in Part II, Item 7 of Form ATS–N. See infra Section IV.D.4.f. 560See supra note 109. would require only a summary of the requirements for the products and services disclosed and an explanation of how the product or service is used with the ATS in the applicable Item number in Part III of Form ATS–N. The Commission believes that requiring only a summary narrative would normally not require the broker-dealer operator to disclose commercially sensitive information. Request for Comment
95. What types of products and
services do broker-dealer operators of Covered ATSs or affiliates of broker￾dealer operators offer to subscribers and how are such products and services used in connection with the ATSs?
96. What information about the
products and services offered by broker￾dealer operators would be helpful to market participants?
97. Should the Commission expand
Part II, Item 5 of Form ATS–N to require
disclosure of products or services offered by the broker-dealer operator or its affiliates to subscribers, but not necessarily offered in connection with transacting on the Covered ATS?
98. Would the information required
by Part II, Item 5 require disclosure of commercially sensitive information? If so, how could the Commission revise the information request to limit the disclosure of commercially sensitive information? e. Item 6: Activities of Service Providers
Part II, Item 6(a) of Form ATS–N is
designed to provide disclosures relating to any entity, other than the broker￾dealer operator, that supports the services or functionalities of the Covered ATS.554 Information about the roles and responsibilities of service providers to the ATS is important because it could inform market participants about the potential for information leakage on the ATS.555 The Commission is not proposing that the third-party service provider requests encompass purely administrative items, such as human resources support, or basic overhead items, such as phone services and other utilities. As it is with
Part II, Item 6(b) in current Form ATS–
N, 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) and allow the Commission to monitor the third party’s role and operations in the ATS.556 For example, any service provider for clearance and settlement of transactions in the ATS, consulting relating to the trading systems or functionality, regulatory compliance, and recordkeeping for the ATS would be responsive to this request.557 The Commission recognizes that an ATS may engage an entity other than the broker-dealer operator to perform an operation or function of the ATS or a subscriber may be directed to use an entity to access a service of the ATS, such as order entry, disseminating market data, or display, for example. In such instances, the ATS must ensure that the entity performing the ATS function complies with Regulation ATS with respect to the ATS activities performed. For example, with respect to an ATS that is subject to the Fair Access Rule, if participants are required to enter orders in the ATS through an order entry firm or to access displayed orders from another entity, the ATS must ensure that its written fair access standards address these entities’ activities because of the affect these entities’ activities can have on participants’ ability to access the ATS services.558 Likewise, to the extent an entity, such as a service provider, performs a function of the ATS, and as a result has access to subscriber confidential trading information, the ATS’s written safeguards and procedures to protect its subscribers’ confidential trading information would also include the service provider’s safeguards and procedures to protect the ATS’s subscriber confidential trading information that is accessible to the service provider.559 In addition, as part of the ATS’s oversight procedures, the ATS must ensure that the service provider, for example, follows the service provider’s safeguards and procedures to protect the ATS’s subscriber confidential trading information. Disclosures about the activities of service providers, for example, would inform the Commission about the scope of the ATS’s operations and therefore the extent to which the ATS’s Regulation ATS obligations would apply to the service provider’s activities. In addition, as discussed above, the Commission will consider as part of its review of the Form ATS–N whether the entity filing Form ATS–N, or entities involved in the operations of the ATS, meets the definition of a Covered ATS, including whether the Covered ATS meets the criteria of Exchange Act Rule 3b–16.560 The information provided on Form ATS–N about the role of service providers with regard to the ATS’s operations would help inform the Commission’s review. Furthermore, the requests under Part II, Items 6(b) through (c) would
require disclosure about whether any service providers or their affiliates use the services of the ATS. If they do, the Covered ATS would be required to identify the service providers, the service(s) used, and whether there is any disparate treatment between those service providers and other subscribers. Thus, for example, a Covered ATS would only be required to obtain and disclose information about third-party vendors and their affiliates that actively use the services of the ATS; the ATS should be aware of all parties that use its services under its current recordkeeping obligations. The Commission believes that market participants, when analyzing potential conflicts of interest or information leakage, would find it very useful to understand whether potential counterparties with whom they are trading, and who also service the operation of the ATS, have access to different or unique ATS-related services. Part II, Item 6(c) of Form ATS– N would require the Covered ATS to

561The Commission is also proposing to require the Covered ATS to disclose any differences in services as they apply to persons whose trading interest is entered into the ATS by a subscriber or the broker-dealer operator (e.g., customers of subscribers). See proposed revisions to Part II, Item 6(c). identify and explain any differences in ATS services to a service provider and all other subscribers and persons whose trading interest is entered into the ATS by a subscriber or the broker-dealer operator.561 Additionally, depending on the role and responsibilities of the service provider, market participants may wish to consider evaluating the robustness of the ATS’s safeguards and procedures to protect confidential subscriber information. This request for summary information is designed to provide market participants with a general understanding of the types of technology or hardware provided by the service provider as part of its responsibilities, and how that hardware or technology is used by the ATS. The purpose of this disclosure is to provide information that subscribers can use to better understand whether the service provider might be able to access subscriber confidential trading information, so ATSs should draft their disclosure with the goal of conveying such information. Simply stating that a third party provides technology or hardware to the ATS would not be responsive to the required summary of the service provider’s role, but, on the other hand, the ATS would not have to provide information about the manufacturer of its hardware components. Request for Comment
99. Are there any critical services or
functionalities (e.g., matching engine, market data) that, if provided by a third party, should be required to be described in a higher level of detail than the proposed ‘‘summary’’ level? If so, which services and functionalities? f. Item 7: Protection of Confidential Trading Information
Part II, Item 7(a) of Form ATS–N is
designed to provide information about a Covered ATS’s written safeguards and written procedures to protect the confidential trading information of subscribers to the ATS, including, (1) 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, the basis for the access, and whether any shared employees (defined below) have access to confidential trading information; (2) written standards controlling employees of the ATS that trade for employees’ accounts; and (3) written oversight procedures to ensure that the safeguards and procedures described above are implemented and followed. The protection of confidential trading information is an important component of the regulation of ATSs and is essential to ensuring the integrity of ATSs as execution venues. The Commission believes that disclosures about any employee of the ATS’s broker-dealer operator or employee of its affiliate that provides services for both the operations of the ATS and any other business unit or any affiliate of the broker-dealer operator (‘‘shared employee’’) with access to subscriber confidential trading information would help market participants evaluate circumstances when there is the potential for information leakage. For example, the Commission believes that market participants would likely want to know if an employee of the broker￾dealer operator (or employee of an affiliate of the broker-dealer operator) that is responsible for the operations of a system containing subscriber confidential trading information from the ATS is also responsible for supporting, for instance, the principal trading activity of the broker-dealer operator, or another trading venue operated by the broker-dealer, or a trading venue that is an affiliate of the broker-dealer operator. In addition, if confidential trading information is not protected, many of the advantages or purposes for which a subscriber may choose to send its trading interest to an ATS (e.g., to trade anonymously and/or to mitigate the impact of trading in large positions) are eliminated. In cases where the confidential trading information of a subscriber is impermissibly shared with the personnel of the broker-dealer operator or any of its affiliates, such an abuse is also compounded by the conflicting interests of the broker-dealer operator. That is, in such a case, the broker-dealer operator has invited subscribers to trade on its ATS and may have abused that relationship to provide itself or its affiliates with a direct competitive advantage over that subscriber. Accordingly, the Commission believes that disclosures informing market participants about broker-dealer operators’ written safeguards and written procedures to protect confidential trading information are necessary so market participants can independently evaluate the robustness of the safeguards and procedures and decide for themselves whether they
wish to do business with a particular Covered ATS.
Part II, Item 7(a) of revised Form
ATS–N contains, in part, the same disclosure requests as Part II, Item 7(a) of current Form ATS–N. The Commission is proposing to amend Part II, Item 7(a) of Form ATS–N by adding the disclosure requests in Part II, Items 6(a) and 7(d) of current Form ATS–N. Item 6(a) of current Form ATS–N solicits information about ‘‘shared employees.’’ Part II, Item 7(d) of current Form ATS–N requires an 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. The Commission is relocating and consolidating these disclosure requests based on its experience with Form ATS–N filings by NMS Stock ATSs. In the Commission staff’s experience, the disclosures in Part II, Items 6(a), 7(a), and 7(d) in current Form ATS–N solicit similar information and thus, the structure of Form ATS–N often resulted in redundant disclosures within these Items. For example, in responding to
Part II, Item 7(d) of current Form ATS–
N, the ATS initially needs to describe what it considers to be confidential trading information, such as whether only pre-trade order information would be considered confidential trading information, or whether post-trade information would also be treated as confidential trading information, and for what period of time. To explain the basis for the access, the ATS currently needs to explain why the person would have access to the confidential trading information in Part II, Item 7(d). Similarly, Part II, Item 6(a) of current Form ATS–N requires the ATS to disclose whether and how shared employees can access confidential trading information. The Commission believes that consolidating these information requests into a single Item request in Part II, Item 7(a) on Form ATS–N would make the form easier to use because the reader will be able to find all the information previously spread across three items in a single item.
Part II, Items 7(b) and (c) of Form
ATS–N are designed to disclose information about whether a subscriber can consent and withdraw consent, respectively, to the disclosure of its confidential trading information to any person (not including those employees of the ATS who are operating the system or responsible for its compliance with applicable rules). Subscribers should be

562See Regulation ATS Adopting Release, supra note 31, at 70879. 563See id. The Commission believes that there may be some Covered ATSs that might not offer any means by which a subscriber could consent to the dissemination of its confidential trading information. A Covered ATS would be required to disclose this fact pursuant to Item 7(a). See id. at 70891 n.437. 564For example, in Part III, Item 5, if a Covered ATS designed its operations to allow only certain types of subscribers to enter trading interest into the ATS through direct means (e.g., Financial Information eXchange (FIX) protocol) and other types of subscribers to enter trading interest into the ATS through indirect means (e.g., SOR or algorithm), the ATS would describe these differences in means of entry in Part III, Item 5(a). 565See current Form ATS–N Part III, Items 2(c), 3(b), 4(b), 5(b), 5(d), 6(b), 6(d), 6(f), 7(b), 8(b), 8(d), 8(f), 9(b), 10(b), 10(d), 11(b), 11(d), 13(b), 13(e), 14(b), 15(c), 17(b), 18(c), 19(b), 21(b), 22(b), and 23(b). The Commission is proposing to delete these Items for Form ATS–N and re-number Items throughout Part III. able to give consent if they so choose to share their confidential trading information.562 Covered ATSs vary in terms of the types of orders, indications of interest (IOIs), or other forms of trading interest that are confidential on their systems and what information about such trading interest may be shared. For example, an ATS might provide that no IOIs submitted by subscribers will be considered confidential, but may provide subscribers with the option to restrict the information in the IOI message to just the symbol and side (i.e., buy or sell). For this example, Part II, Items 7(b) and 7(c) of Form ATS–N would require the Covered 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.563 For example, a subscriber can consent to its open trading interest being displayed to certain subscribers that the subscriber believes are less likely to misuse or exploit such information, or that have open trading interest on the contra side in the same symbol. If the Covered ATS allows subscribers to consent in this manner, the ATS would mark ‘‘yes’’ to
Part II, Item 7(b). Continuing the
example, if the subscriber can subsequently withdraw its consent to this display of its open trading interest, the Covered ATS would mark ‘‘yes’’ to
Part II, Item 7(c).
Request for Comment—Part II
100. Should the Commission expand
the proposed disclosures in proposed
Part II, Item 7(a)(i) to other employees,
personnel, or independent contractors of the broker-dealer operator? If so, which employees, personnel, or independent contractors should be included and what information about such persons should be solicited?
101. Should the Commission require
Covered ATSs to disclose the information in Part II of Form ATS–N? If so, what level of detail should be disclosed?
102. Would Part II of Form ATS–N
capture the information that is most relevant to understanding the Covered ATS and its relationship with the broker-dealer operator and the broker￾dealer operator’s affiliates? Please support your arguments.
103. Would the proposed disclosures
in Part II require broker-dealer operators of Covered ATSs to reveal too much (or not enough) information about their structure and operations?
104. Is there other information about
the activities of the broker-dealer operator and its affiliates that market participants might find relevant or useful in their assessment or use of the Covered ATS? If so, describe such information and explain whether or not such information should be required to be provided on Form ATS–N.
105. Should Covered ATSs not be
required to provide the proposed disclosures in Part II on Form ATS–N due to concerns regarding confidentiality, business reasons, trade secrets, burden, or any other concerns? If so, what information and why?
106. Are there ways to obtain the
same information as would be required from Covered ATSs by Part II other than through disclosure on Form ATS–N? If so, how else could this information be obtained and would such alternative means be preferable to the disclosures in Part II?
107. Should Covered ATSs be
required to publicly disclose in their entirety on Form ATS–N their written safeguards and written procedures to protect the confidential trading information of subscribers? Should the Commission require less information be disclosed about the written safeguards and procedures?
108. Would the information about
written safeguards and written procedures to protect the confidential trading information of subscribers described in Form ATS–N be sufficient for subscribers to independently evaluate such safeguards and procedures and thus evaluate the ATS as a destination for their orders? Should the Commission prohibit the disclosure of confidential subscriber information in some circumstances? If so, please describe.
5. Part III: Manner of Operations
Part III of Form ATS–N is designed to
provide public disclosures to help market participants understand, among other things, how they may use a Covered ATS to buy and sell securities and find a counterparty to a trade. The Commission is proposing amendments to Part III that would apply to both NMS Stock ATSs and Government Securities ATSs. Government Securities ATSs would be required to respond to Part III of Form ATS–N in the same manner as NMS Stock ATSs, and the below description summarizes the types of disclosures Form ATS–N would solicit for both NMS Stock ATSs and Government Securities ATSs. As proposed, Form ATS–N would include an instruction at the beginning of Part III to require that the Covered ATS identify and explain any differences among and between subscribers, persons whose trading interest is entered into the ATS by a subscriber or the broker-dealer operator, the broker-dealer operator, and any affiliates of the broker-dealer.564 Current Form ATS–N is structured to include separate questions throughout the Items that require the ATS to identify and explain any differences in the treatment of subscribers and the broker-dealer operator. Based on its experience reviewing Form ATS–N filed by NMS Stock ATSs, the Commission believes that discussion of these differences is integral to the responses to each of the Items, and that requiring the discussion to be included in the response to each Item, rather than requiring separate, potentially disjointed disclosures, would improve the readability of the disclosures. By requiring Covered ATSs to disclose differences in treatment of persons whose trading interest is entered into the ATS by a subscriber or the broker-dealer operator, which would include, for example, sponsored access clients of subscribers, and affiliates of the broker-dealer operator, market participants will be able to discern any benefit or disadvantage they may receive in comparison to a broader, more comprehensive group of potential users of the ATS.565 The disclosure about differences in treatment of subscribers, other persons whose trading interest is entered into the ATS by a subscriber or the broker-dealer operator, the broker-dealer operator, and the broker-dealer operator’s affiliates is important to market participants and would better allow them to decide whether submitting trading interest to the Covered ATS aligns with their trading objectives. Accordingly, the Commission is proposing to restructure
Part III to delete separate questions
regarding whether subscribers and the

566 In Part III, Item 1 of Form ATS–N, the Commission is modifying the checkboxes listing types of subscribers to add insurance companies, pension funds, and corporations. The Commission believes that adding these checkboxes will provide more granular information on the types of subscribers participating on an ATS in an easier-to￾read format. The Commission is also proposing to remove the checkbox ‘‘NMS Stock ATS’’ under the list of types of subscriber in Form ATS–N. A broker￾dealer operator of an NMS Stock ATS seeking to access another NMS Stock ATS would involve the broker-dealer operator for the NMS Stock ATS becoming a subscriber to the ATS, not the ATS that the broker-dealer operates. In this scenario, an NMS Stock ATS that accepts a broker-dealer operator for another NMS Stock ATS would mark the checkbox for broker and/or dealer in Part III, Item 1 on Form ATS–N as appropriate. 567See NMS Stock ATS Adopting Release, supra note 2, at 38820–21 (discussing the definition of ‘‘subscriber’’ and the persons encompassed thereunder). 568 In Part III, Item 2(b), the Commission is proposing to delete the word ‘‘other’’ and ask whether there any conditions, rather than any ‘‘other’’ conditions, that the ATS requires a person to satisfy before accessing the ATS services. The Commission believes it would be accurate to use the phrase ‘‘any conditions’’ rather than ‘‘any other conditions’’ in circumstances where a Covered ATS indicates that the ATS does not require subscribers to be registered broker-dealers in Part III, Item 2(a). 569For example, if a Covered ATS has a practice of excluding subscribers that do not meet certain percentage thresholds for submitting firm-up orders in response to receiving an IOI, conditional order, or RFQ sent to them by the ATS, then this practice would be subject to disclosure under Part III, Item 3 of Form ATS–N (‘‘Exclusion from ATS Services’’) and not Part III, Item 2 (‘‘Eligibility for ATS Services’’). 570These limitations can result in some subscribers having different levels of functionality or more favorable terms of access than others. For example, in the Commission staff’s experience, some ATSs exclude subscribers that frequently fail to respond with a firm-up order after receiving an IOI or request for quote. broker-dealer operator are treated the same, and instead, proposing to include the instruction for the Covered ATS to disclose any differences in treatment in the applicable responses to Part III. To be clear, this proposed change would not relieve Covered ATSs from their obligation to disclose any differences in treatment that were required to be disclosed in current Form ATS–N. a. Item 1: Types of ATS Subscribers
Part III, Item 1 of Form ATS–N is
designed to provide information on the type(s) of subscribers that can use the Covered ATS services. The Item would provide market participants with information about the type of trading interest in the Covered ATS based on the types of subscribers that use it. Covered ATSs may design their system for trading by retail investors, institutional investors, dealers, or any other type of market participant. The Commission is proposing to revise the list of types of market participants in Part III, Item 1 of Form ATS–N that, in the Commission staff’s experience, are commonly used for Government Securities ATSs and NMS Stock ATSs.566 The list would include:
Retail investors, issuers, asset managers, brokers, dealers, investment companies, hedge funds, market makers, PTFs, insurance companies, pension funds, corporations, and banks. The list is non￾exhaustive and a Covered ATS would be required to list any type of subscriber that can use the ATS’s services.567 In addition to disclosing its subscribers, a Covered ATS may use Part III, Item 1 to disclose any types of participants whose trading interest may reach the ATS. For example, for an ATS that only allows brokers or dealers as subscribers, the ATS could identify the types of customers from which the brokers or dealers send trading interest to the ATS. Request for Comment
109. Should Form ATS–N require a
Covered ATS to include information about the types of subscribers to the ATS? Based on Commission staff experience, some ATSs only accept broker-dealers as subscribers to the ATS and various types of market participants send trading interest into the ATS through the broker-dealer subscriber. Should the Commission require the identification of the types of market participants whose trading interest may be sent to the ATS, whether directly or indirectly, by a broker-dealer subscriber to a Covered ATS? Would this information be useful to understanding the type of trading interest in the ATS?
110. Should the Commission add any
other categories of subscribers commonly applicable to Government Securities ATSs or NMS Stock ATSs, or both, to Form ATS–N? b. Item 2: Eligibility for ATS Services
Part III, Item 2 of Form ATS–N is
designed to provide market participants with information about whether the Covered ATS requires subscribers to be registered broker-dealers or enter a written agreement to use the ATS services, and whether there are any conditions that the ATS requires a person to satisfy before accessing the ATS services.568 This Item would require disclosure of the conditions a person must satisfy ‘‘before accessing the ATS services’’ (emphasis added). On the other hand, Part III, Item 3 of Form ATS–N (discussed infra), would require disclosures about any conditions that would exclude a subscriber, in whole or in part, from using the Covered ATS as a result of subscriber behavior while already actively participating in the ATS.569 The disclosures required by Part III, Item 2 would allow market participants to understand the conditions that they would need to satisfy to participate on the Covered ATS. If the Covered ATS indicates that it does have conditions that a person must satisfy before accessing the ATS services, the request would require the ATS to list and provide a ‘‘summary’’ of those conditions. Some Covered ATSs may only have the eligibility requirement that a person be a client of the broker￾dealer operator. In that case, any eligibility requirements to become a client of the broker-dealer operator would be responsive to this Item. For example, if a subscriber must be a customer of the broker-dealer operator, the Covered ATS would provide a summary of conditions the subscriber, as a customer, would need to satisfy (e.g., know your customer) before its trading interest can be entered into the ATS. If the Covered ATS requires subscribers to contract with or become a member of a third party, for example, for purposes of clearance and settlement, such as, for Government Securities ATSs, the Fixed Income Clearing Corporation’s Government Securities Division, such information would be responsive. Request for Comment
111. What eligibility requirements to
access a Covered ATS are important to a potential subscriber or participant to the ATS and why? Are there any eligibility requirements that are particularly relevant to Government Securities ATSs (inclusive of Communication Protocol Systems, as proposed) or Communication Protocol Systems that trade NMS stock that should also be required to be disclosed on Form ATS–N?
c. Item 3: Exclusion From ATS Services
Based on Commission staff’s experience, ATSs often disclose rules governing subscribers’ participation in the ATS, and if a subscriber fails to comply with these rules, the ATS may limit or deny access to the ATS.570 Part III, Item 3 of Form ATS–N would require information about whether a Covered ATS can exclude, in whole or in part, any subscriber from the ATS services, and if so, to list and provide a summary of the conditions for excluding (or limiting) a subscriber from using the ATS. The disclosures are designed to provide information about when the Covered ATS can exclude, in whole or in part, a subscriber from the services of the ATSs and help subscribers reasonably anticipate the

571See infra Section IV.D.5.i.
572The Commission is proposing to make minor changes to this Item in Form ATS–N to replace ‘‘operation’’ with ‘‘operations’’ and to clarify that ‘‘regular trading hours’’ refers to the ATS’s regular trading hours. 573 In Part III, Item 5(b), the Commission is proposing to make a minor revision to this Item and change the word ‘‘indicate’’ to ‘‘including,’’ so the Covered ATSs would identify and explain the means for entering trading interest, ‘‘including’’ who provides the means, rather than identify and explain the means for entering trading interest and ‘‘indicate’’ who provides the means. The Commission believes identifying and explaining the means for entering trading interest encompasses describing who is providing the means of entry, and for that reason, this revision would clarify what information this Item is requesting. The Commission is also proposing to add clarifying text to Part III, Item 5(b) of Form ATS–N (renumbered from Part III, Item 5(c) of current Form ATS–N) to more clearly contrast such question from Part III, Item 5(a). The question would read whether there are ‘‘means of entering trading interest into the ATS not otherwise disclosed in Part III, Item 5(a)’’ rather than asking whether there are any ‘‘other means for entering orders and trading interest into the NMS Stock ATS.’’ 574Current Form ATS–N requires a summary of the ‘‘terms and conditions’’ for entering orders or trading interest into the ATS through these means. The Commission is proposing to revise the question to require a summary of the ‘‘requirements’’ for entering trading interest in the ATS. See supra note 543 and accompanying text. types of activities that may cause them to be excluded (or limited) from using the services of the ATS. The question, which allows Covered ATSs to provide a ‘‘summary’’ of conditions for excluding (or limiting) a subscriber, is designed to solicit information to alert subscribers about the types of activities that may cause them to be excluded (or limited) from using the services of the ATS while protecting sensitive information to allow the ATS to reasonably control the activities and quality of flow on its platform and prevent subscribers from using the disclosures to potentially misuse or game the system. To the extent that the ATS monitors and surveils trading activity on the ATS that could result in excluding subscribers from ATS services, to avoid duplicative disclosures, the response to this Item could reference the monitoring and surveillance practices described in response to Part III, Item 9.571 Request for Comment
112. Is there any subscriber behavior
for which Covered ATSs, particularly Government Securities ATSs (inclusive of Communication Protocol Systems, as proposed) or Communication Protocol Systems that trade NMS stock, commonly exclude a subscriber in whole or in part? What is that behavior(s) and what form of exclusion is commonly employed (e.g., disqualification from ATS, limitation of services)? d. Item 4: Hours of Operations and Trading Outside of Regular Trading Hours
Part III, Item 4 is intended to provide
market participants with information about the days and hours of operation of the Covered ATS, including the times when trading interest can be entered in the ATS, and ATS services available outside of the ATS’s regular trading hours. Part III, Item 4(a) would require a Covered ATS to provide the hours when it is operating, which would include functions such as accepting trading interest or allowing participants to use communication protocols to message other participants.572 The disclosure required is not limited to only those hours when the ATS matches trading interest or allows participants to submit trading interest. The Commission is proposing to revise Part III, Item 4 to include as Part III, Item 4(b) a question about whether the ATS services are available outside of the ATS’s regular trading hours (e.g., after-hours trading) and with respect to services available outside of the ATS’s regular trading hours, whether there are any differences between the services during the ATS’s regular trading hours and outside of the ATS’s regular hours.
Part III, Item 4(a) of current Form ATS–
N asks about hours of operations outside of regular trading hours, and Part III, Item 18 of current Form ATS–N asks about whether the ATS conducts trading outside of regular trading hours, and whether there are any differences between trading outside regular trading hours and trading during regular trading hours. The Commission is proposing to streamline and combine the current questions, and, recognizing that ATSs, including Communication Protocol Systems, may provide other services beyond ‘‘conduct[ing] trading,’’ to ask about ATS services available outside of the ATS’s regular trading hours. The Commission believes that it is important for market participants and the Commission to understand when a Covered ATS operates, when trading interest can be entered, including when the ATS will accept trading interest outside of its regular trading hours, and whether any other ATS services are available outside the ATS’s regular hours of operations. To the extent that there are differences with respect to any services the Covered ATS provides during and outside of its regular trading hours, the Covered ATS must describe those differences. Similar to Item 17 (requesting differences between any closing session(s) and regular trading hours), a Covered ATS would be required to disclose differences between trading outside of its regular trading hours and during regular trading hours with respect to the relevant information disclosed in Part III Items, including, among others, order types and sizes, and trading facilities (Item 7), use of non￾firm trading interest, and communication protocols and negotiation functionality (Item 8), segmentation and notice (Item 13), and display and visibility of trading interest (Item 15). Many of the disclosures discussed elsewhere in Form ATS–N will relate to the ATS’s regular trading hours so the ATS can simply discuss any differences between trading during its regular hours and trading outside its regular trading hours in Part III, Item 4(c), if applicable. e. Item 5: Means of Entry
Part III, Item 5 of Form ATS–N is
intended to disclose the means that can be used to directly enter trading interest into the Covered ATS and any other means of entering trading interest into the ATS (e.g., smart order router, algorithm, order management system, sales desk, direct market access, web￾enabled system, or aggregation functionality). The Commission is proposing to revise Part III, Item 5 of Form ATS–N to include examples of means of entry that it believes may be relevant to Government Securities ATSs, as well as Communication Protocol Systems. These examples, which are not exhaustive, would include direct market access, web￾enabled systems, and aggregation functionalities. Part III, Item 5 of Form ATS–N would require the Covered ATS to identify and explain means of entering trading interest, including whether the means are provided through the broker-dealer operator itself, through a third-party contracting with the broker-dealer operator, or through an affiliate of the broker-dealer operator,573 and list and provide a summary of the requirements 574 for entering trading interest into the ATS through these means. Based on Commission staff experience, trading interest may be submitted into the Covered ATS both directly and indirectly. A direct method of sending trading interest to an ATS, for example, may include the use of a direct market access platform or FIX protocol connection, which allows subscribers to enter trading interest into the ATS without an intermediary. An example of an indirect method of submitting trading interest to an ATS could include the use of a smart order

575 If an intermediate application or functionality has access to information related to a subscriber’s trading interest, the Covered ATS must take appropriate measures to protect the confidentiality of such information pursuant to Rule 301(b)(10) of Regulation ATS. If the ATS arranges for an intermediate application to be provided by another party, the Covered ATS’s obligations under Rule 301(b)(10) would apply to the activities that that party is performing for the ATS and the ATS’s written safeguards and procedures should be designed to protect subscriber confidential trading information with regard to that party. 576 If a broker-dealer operator permits subscribers to send trading interest to the ATS by excluding all other trading venues from where such trading interest could be sent, this procedure in effect allows a subscriber to direct an order to the ATS and would be responsive to Part III, Item 5. 577See supra note 564 and accompanying text. 578Covered ATSs would not be required to calculate and disclose precise latencies for each means of entry for purposes of Form ATS–N. 579See NMS Stock ATS Adopting Release, supra note 2, at 38832 and 38844. Depending on the activities of the persons involved with the market place, a group of persons can together provide, constitute, or maintain a market place or facilities for bringing together purchasers and sellers of securities and together meet the definition of exchange. In such a case, the group of persons would have the regulatory responsibility for the exchange. 580See Regulation ATS Adopting Release, supra note 31, at 70873. See infra Section V.A.3.a. router (‘‘SOR’’), algorithm or similar functionality, website, graphical user interface (‘‘GUI’’), aggregation interface, or front-end system. The means of entry into an ATS (e.g., direct or indirect) could impact the speed with which a subscriber’s trading interest is handled and potentially executed and could increase the risk of information leakage. Today, the government securities markets are not interconnected markets like those for NMS stocks and therefore SOR technology may not be applied in the same manner by broker-dealer operators of Government Securities ATSs as it may for broker-dealer operators of NMS Stock ATSs. The Commission believes, however, that similar functionality may be used to send or receive trading interest to and from a Government Securities ATS to reduce latency or send trading interest to markets with better prices for certain government securities, and to the extent it does, the ATS should be required to provide information about that functionality as required. The Commission believes that the disclosures regarding the direct or indirect means of trading interest entry would inform market participants about the functionalities that their trading interest pass through on their way to the ATS and help them assess any potential advantages that trading interest sent through the broker-dealer operator may have as opposed
to other methods used by other subscribers. A Covered ATS would be required to identify the functionality that directly connects to the ATS (e.g., algorithm, GUI, aggregation interface) and, if present, any intermediate functionality that trading interest passes through on its way to the functionality that directly connects to the ATS.575 Conversely, if ATS trading interest submitted through an algorithm is sent to another intermediate functionality, and then submitted to the ATS by that functionality, such information would need to be disclosed pursuant to this Item.576 The proposed disclosure requirements would only require the Covered ATS to ‘‘list and provide a summary of the requirements for entering trading interest into the ATS’’ through these sources. Therefore, the Covered ATS would not need to provide a detailed description of the programming of the indirect means for entering trading interest that could put the ATS at a competitive disadvantage with competitors. However, if, for example, an ATS ‘‘throttled’’ the number of messages allowed for a given type of connection, that information would be responsive to this Item. Although the Commission is proposing to delete Part III, Items 5(b) and 5(d) of current Form ATS–N, which asks the Covered ATS to disclose whether the protocols required to be identified in Part III, Item 5 and the requirements for any means of entry are the same for all subscribers and the broker-dealer operator, a Covered ATS would be required to disclose such differences in Part III, Item 5 pursuant to the proposed instruction in Part III in Form ATS–N.577 For example, a Covered ATS would be required to disclose any differences in the latency of the alternative means for entering trading interest into the ATS. The Commission understands that there might be different latencies associated with each alternative. For instance, in some cases, a direct connection to the ATS may have reduced latencies as compared to indirect means where trading interest passes through an intermediate functionality. A broker￾dealer operator could also, for example, configure the ATS to provide reduced latencies for certain means of entry used by itself or its affiliates.578 The Commission also believes that it is important for subscribers to understand if a means of entry is provided by an affiliate, even if it does not provide an advantage to a particular entity. Disclosures about a broker-dealer operator’s use of its or an affiliate’s direct or indirect functionality to enter trading interest into the Covered ATS are important to market participants to allow them to assess the potential for information leakage. The indirect means of access (e.g., SOR or algorithm) may obtain information about subscriber trading interest that is sent to the ATS (and may now be resting in the ATS) and subscriber trading interest that is sent out of the ATS. The potential that an indirect means of accessing the Covered ATS could lead to leakage of
subscribers’ confidential trading information necessitates disclosure of certain information about the use of such indirect means to send subscriber trading interest in or out of the ATS. In addition, there may be instances where an ATS uses an intermediate functionality or entity as the means to bring together buyers and sellers or provide established methods (such as providing means to enter, display, communicate, or execute trading interest) and that intermediate functionality or entity would be considered part of the ATS for purposes of Regulation ATS and Form ATS–N.579 For example, if the broker-dealer operator arranges for trading interest to be entered into the ATS by another party, the activities of that party with respect to the ATS would be subject to the disclosure requirements of Form ATS–N. Likewise, if an ATS is subject to the Fair Access Rule under Regulation ATS and its participants must use an entity other than the broker-dealer operator to enter or receive information about trading interest in the ATS, the ATS must establish reasonable written standards governing the granting, denial, or limitation of access to ensure that those participants are not treated in an unfair and unreasonably discriminatory manner by the entity.580 Request for Comment
113. Are there any means of entering
trading interest into the Covered ATS where more or should be required to explain their operation? Are there any aspects of those means of entry that are particularly important? f. Item 6: Connectivity and Co-Location
Part III, Item 6(a) of Form ATS–N
would request information about whether the Covered ATS offers co￾location and related services, and if so, would require a summary of the requirements for use of such services, including the speed and connection (e.g., fiber, copper) options offered. Part

581The Commission is proposing to re-number
Part III, Item 6(c) of current Form ATS–N to Item
6(b) and Part III, Item 6(e) of current Form ATS– N to Part III, Item 6(c). 582To clarify that the Commission is soliciting information about any requirements the ATS imposes on subscribers or persons that submit trading interest to use co-location, related services, and other means to increase or reduce the speed of communication with the ATS, rather than the legal or contractual terms of such services, the Commission is proposing to replace the current requirement for a summary of the ‘‘terms and conditions’’ with ‘‘requirements for use’’ for such services in Part III, Items 6(a), 6(b), and 6(c). See supra note 543. 583See October 15 Staff Report, supra note 188, at 36–37; Treasury Request for Information, supra note 193, at 3928. See also Letter from Dan Cleaves, Chief Executive Officer, BrokerTec Americas, and Jerald Irving, President, ICAP Securities USA LLC, to David R. Pearl, Office of the Executive Secretary, Treasury Department, dated April 22, 2016 (‘‘BrokerTec/ICAP Letter’’), at 3–4, available at https://www.treasurydirect.gov/instit/statreg/ gsareg/ICAPTreasuryRFILetter.pdf; Letter from C. Thomas Richardson, Managing Director, Head of Electronic Trading Service, Wells Fargo Securities, and Cronin McTigue, Managing Director, Head of Liquid Products, Wells Fargo Securities, to Treasury Department, dated April 21, 2016, at 6–7, available at https://www.treasurydirect.gov/instit/statreg/ gsareg/RFIcommentWellsFargo.pdf. 584 In the instruction to Part III, Item 7 of Form ATS–N, the Commission is proposing to make certain changes and clarify the examples provided in this Item regarding order types. Particularly, the Commission proposes to clarify the example provided regarding ‘‘how price conditions affect the rank and price at which it can be executed’’ by replacing ‘‘it’’ with ‘‘the order type.’’ In addition, the Commission is proposing to add ‘‘store orders’’ as an example of order types designed not to remove liquidity. The Commission recognizes that ‘‘store orders’’ may be more relevant to Government Securities ATSs than to NMS Stock ATSs. III, Item 6(b) of Form ATS–N 581 would require a Covered ATS to indicate whether it provides any other means besides co-location and related services described in the Item 6(a) to increase the speed of communication with the ATS, and if so, to explain the means and provide a summary of the requirements for its use. Part III, Item 6(c) would require the Covered ATS to indicate whether it offers any means to reduce the speed of communication with the ATS and if so, to provide a summary of the requirements for its use.582 Latency is an important feature of trading in certain government securities and NMS stocks, and market participants are interested in understanding the functionalities employed by Covered ATSs to influence it.583 The Item would require a summary of the requirements where a trading venue employs mechanisms to increase the latency or the length of time for trading interest or other
information to travel from a user to the system. Users of co-location services can experience faster or slower connection speeds to a Covered ATS depending on factors such as the distance of the customer servers from the matching engine, or the use or non-use of ‘‘coiling’’ to its matching engine to equalize connection speeds among subscribers, among others. Such differences in connection speed or latency would be required to be disclosed under Part III, Item 6. If, for example, the ATS offers means that would allow certain subscribers a competitive advantage, then the ATS should disclose such means on the Form ATS–N. The Commission believes that the information disclosed in Item 6 would help market participants understand their connectivity options to the ATS and expedite the order entry process for subscribers. Request for Comment
114. Are there any aspects of the
means for increasing or reducing the speed of communication with Covered ATSs that the Commission should specifically require under this Item? g. Item 7: Order Types and Sizes; Trading Facilities
Part III, Item 7 of Form ATS–N is
designed to disclose whether the Covered ATS provides trading facilities or sets rules for bringing together orders of buyers and sellers (e.g., crossing system, auction market, limit order matching book, click-to-trade functionality). The request is intended to capture Covered ATSs that offer the use of firm trading interest and a trading facility or rules for buyers and sellers to interact and agree upon the terms of a trade. The Commission believes that systems that typically offer the use of orders and trading facilities and systems that offer the use of non-firm trading interest and communication protocols operate distinctively. Systems that offer the use of orders and trading facilities typically match orders of buyers and sellers pursuant to pre-determined rules programmed into an algorithm, while systems that offer the use of trading interest and communication protocols allow buyers and sellers to interact directly to find a counterparty and negotiate a trade. To facilitate market participants’ understanding of these systems and their unique aspects, the Commission is proposing that Covered ATSs disclose information about the use of orders and trading facilities or rules in Part III, Item 7 and disclose the use of trading interest and communication protocols in Part III, Item 8. These questions would apply to both NMS Stock ATSs and Government Securities ATSs. If a Covered ATS provides both a trading facility and communication protocol (e.g., provides both a limit order book and RFQ protocol), the Covered ATS would respond affirmatively to and explain the protocols separately under Items 7 and
8. To the extent the trading facility and
Communication Protocol Systems interact in any way, the Covered ATS would explain that interaction in response to each question. A Covered ATS that answers affirmatively to Part III, Item 7 of revised Form ATS–N would be required to explain the trading facilities and rules for bringing together the orders of buyers and sellers in the ATS. In this response, the ATS would be expected to disclose the information responsive to
Part III, Items 7 (Order Types and
Attributes), 8 (Order Sizes), and 11 (Trading Services, Facilities, and Rules) of current Form ATS–N. Based on Commission staff experience reviewing Form ATS–N filings, and particularly disclosures related to order types, order size, and the ATSs’ rules, procedures, and facilities to bring buyers and sellers together, ATS are linked and intertwined. Allowing the Covered ATS to provide a narrative of these topics together in Part III, Item 7 of Form ATS– N would provide for more streamlined disclosures for market participants to understand and reduce redundancy. This proposed change would result in clearer, more readable narrative disclosures, and potentially reduce the burden to Covered ATSs of drafting repetitive disclosures in multiple responses in the form.
Part III, Item 7 of Form ATS–N would
require that ATSs provide a description of each order type offered by the Covered ATS, and provide a list of items that the ATS should include in its description. To provide transparency to market participants, the Item would require a complete and detailed description of the order types available on the Covered ATS, their characteristics, operations, and how they are handled.584 All market participants should have full information about the operations of order types available on a Covered ATS to comprehensively understand how their orders will be handled and executed in the ATS. Order types are a primary means by which users of a Covered ATS communicate their instructions to trade on an ATS. Given the importance, diversity, and complexity of order types, the Commission is proposing to require Covered ATSs to disclose the information called for by Part III, Item 7 on Form ATS–N. Market participants should have sufficient information about all aspects of the operations of order types

585As discussed above, to streamline the format of responses, the Commission is proposing to consolidate current Form ATS–N Part III, Items 8(a) through (f) in Part III, Item 7 of revised Form ATS– N. The Commission believes that the information requested is the same, and the information requests covered by these sub-items (odd-lot orders and mixed-lot orders) would be covered in Part III, Item 7 of revised Form ATS–N. 586See Regulation ATS Adopting Release, supra note 31, at 70849 n.37. 587The Commission is proposing to add examples of functionalities used in the government securities market for which a Government Securities ATS would be required to explain the ATS’s rules and procedures, if applicable. 588The Commission is making a non-substantive change to Part III, Item 7 of Form ATS–N to state that a Covered ATS would be required to disclose the order type’s priority ‘‘in relation to’’ (rather than ‘‘vis-a`-vis’’) other orders on the book due to changes in the NBBO or other reference price. 589This non-exhaustive list is the same as what is in current Form ATS–N, Part III, Item 11. 590Part III, Item 7 would require Government Securities ATSs and, to the extent applicable, NMS Stock ATSs, to describe any functionality to adjust or hedge orders. available on a Covered ATS to understand how to use order types to achieve their trading objectives, as well as to understand how order types used by other market participants could affect their trading interest. A detailed description of order type characteristics would assist subscribers in better understanding how their orders would interact with other trading interest in the ATS. It also would allow market participants to see what order types could be used by other market participants, which could affect the probability, timing, and quality of their own executions. For example, if the time priority of a pegged order changes in response to changes in the reference price, that would affect the likelihood of execution for such an order. The Commission is also proposing to require that Covered ATSs disclose any order size requirements (e.g., minimum or maximum size, odd-lot, mixed-lot, trading increments) and related handling procedures (e.g., handling of residual trading interest) in Part III, Item 7 of Form ATS–N. This incorporates the requirements of Part III, Item 8 of current Form ATS–N, with modifications.585 This information would inform subscribers about the permissible size of orders and trading interest that a subscriber could enter in the ATS. For example, if a Covered ATS has minimum or maximum order sizes, or a minimum increment size requirement for order modifications, those requirements and related handling procedures would be responsive to the Item. The Commission is also proposing to add the example of how residual or unexecuted orders are handled to the types of related handling procedures that a Covered ATS would be required to include in Part III, Item 7. Broker￾dealer operators
employ market access and risk management controls and procedures that prevent the entry of erroneous orders and orders that are above a subscriber’s predetermined threshold. If order size requirements are imposed on subscribers as part of a risk management procedure, an explanation of those procedures as they relate to the ATS would be responsive to this Item. An explanation of how a Covered ATS’s requirements and conditions related to the size of trading interest differ among subscribers and persons would also provide a market participant with information regarding how its trading interest would be handled in relation to other market participants. Covered ATSs may offer the use of various types of trading facilities to bring together the orders of buyers and sellers and for such orders to interact. These types of systems would be disclosed in Part III, Item 7 of Form ATS–N. For example, many Covered ATSs bring together multiple buyers and sellers using limit order matching systems. Other Covered ATSs offer the use of crossing mechanisms that allow participants to enter unpriced orders to buy and sell securities, with the ATS’s system crossing orders at specified times at a price derived from another market.586 Some Covered ATSs offer the use an auction mechanism that matches multiple buyers and sellers by first pausing execution in a certain security for a set amount of time, during which the ATS’s system seeks out and/or concentrates liquidity for the auction; after the trading pause, orders will execute at either a single auction price or according to the priority rules for the auction’s execution. Certain Covered ATSs may use a voice system to bring together orders as well, or a combination of voice and electronic systems. Part III, Item 7, would require Covered ATSs to provide disclosure of how these facilities operate. In addition, Part III, Item 7 would require a Covered ATS to disclose its rules and procedures under which orders interact and buyers and sellers agree upon the terms of a trade.587 Form ATS–N sets forth a non-exhaustive list of such rules and procedures, which includes order interaction, priority,588 pricing methodologies, allocation, matching, and execution of orders and other procedures for trading, such as price improvement functionality, price protection mechanisms, short sales, functionality to adjust or hedge orders, locked-crossed markets, the handling of execution errors, the time-stamping of messages and executions, and any conditions or processes for terminating a counterparty match.589 The Commission is also proposing that a Covered ATS disclose pricing methodologies used for each type of security traded by the ATS under Part III, Item 7.590 For example, orders may be priced using spreads off a benchmark price, or spreads between two different maturities of a security. A Covered ATS may also restrict the allowable deviation from a benchmark price, or allow for indicative pricing of certain securities. If a
transaction has more than one leg, the ATS may price both legs according to a price derived from one of the securities traded. In response to this request, a Covered ATS would be required to describe the ATS’s procedures for determining all pricing methodologies and to the extent the pricing methodologies differ among subscribers and the broker-dealer operator, the ATS must disclose those differences. In addition, Item 7 would require Covered ATSs to disclose how orders may interact with non-firm trading interest or separate trading functionalities within the ATS or offered by the broker-dealer operator. Item 7 would also require Covered ATSs to disclose the various procedures under which orders interact and match. Some Covered ATSs may offer price-time priority to determine how to match orders (potentially with various exceptions), while others may offer midpoint-only matching with time priority. Some Covered ATSs might also take into account other factors to determine priority. For example, a Covered ATS may assign either a lower or higher priority to an order entered by a subscriber in a certain class (e.g., orders of principal traders or retail investors) or sent from a particular source (e.g., orders sent by an algorithm or similar functionality) when compared to an equally priced order entered by a different subscriber or via a different source. Also, if applicable, the Item would require an explanation of which party to a trade would receive any price improvement depending on the priority, order type, and prices of the matched orders and the percentage of price improvement the party would receive. A broker-dealer operator could also act as the counterparty for each side of a transaction that matches on its ATS. Pursuant to the proposed instruction at the beginning of Part III, Covered ATSs would be required to disclose any differences in treatment among subscribers, the broker-dealer, and other participants in the ATS as they relate to

591Part III, Item 9 of current Form ATS–N asks about conditional orders and indications of interest.
Part III, Item 8 of current Form ATS–N asks about
order sizes. The Commission is proposing to incorporate the requirements of Part III, Item 8 into
Part III, Items 7 and 8. In addition, the Commission
is proposing to incorporate the requirements in Part III, Item 9 of current Form ATS–N in Part III, Item 8 of revised Form ATS–N. 592See supra Section II.B.2. the means and facilities for bringing together the orders of buyers and sellers. Request for Comment
115. What are the most prevalent
order types on Government Securities ATSs? Are there more important means than order types for subscribers to communicate the handling of their trading interest on Government Securities ATSs? Does Form ATS–N capture all of the means for subscribers of Government Securities ATSs to communicate the handling of their orders? Are there any aspects of order types on Government Securities ATSs that should be specifically addressed in the Item? If yes, please explain.
116. Are there any operations or
procedures, either of an ATS or a broker-dealer operator, which could limit the entry, or size of, a subscriber’s orders submitted to the ATS? If so, please describe these operations or procedures and explain why they are important to subscribers.
117. Are there any specific means or
facilities used to bring together multiple buyers and sellers on Covered ATSs that should be specifically included as an example in this Item? Are there any rules and procedures that govern trading of government securities and repos that should be specifically included as examples in this Item? h. Item 8: Use of Non-Firm Trading Interest; Communication Protocols and Negotiation Functionality As discussed above, the proposed definition of ‘‘exchange’’ would include systems that make available the use of non-firm trading interest and communication protocols to bring together buyers and sellers of securities. Form ATS–N currently includes questions about NMS Stock ATSs’ use of conditional order functionality and indications of interest,591 which can be forms of communication protocols. Current Form ATS–N, however, does not contain comprehensive disclosure requests about systems that solely offer the use of non-firm trading interest and communication protocols because, as discussed above, such systems typically do not fall within the criteria of current Exchange Act Rule 3b–16(a) and, therefore, do not operate pursuant to the ATS exemption. The Commission is proposing to revise Part III, Item 8 to request information about the operations of these systems and the requests would be applicable to both NMS Stock ATSs and Government Securities ATSs. With respect to conditional orders and indications of interest, Part III, Item 8 of revised Form ATS–N incorporates and expands on the current disclosure requirements of Part III, Item 9 (Conditional Orders and Indications of Interest) and Part III, Items 7 (Order Types) and 8 (Order Sizes) of current Form ATS–N as they relate to conditional orders and indications of interest in the ATS. Proposed Part III, Item 8 of revised Form ATS–N would require Covered ATSs to disclose whether they make available communication protocols for buyers and sellers to communicate non￾firm trading interest, solicit interest to buy or sell a security, discover prices, find a counterparty, or negotiate a trade. Such systems could offer, for example, RFQ or workup protocols, stream axes, or conditional order functionalities.592 If the Covered ATS provides communication protocols and negotiation functionalities, it would be required to identify and explain the protocols and functionalities in the response to Part III, Item 8. The Commission believes that identifying and explaining these functionalities would provide transparency regarding how buyers and sellers can interact with each other on the system. This would require the Covered ATS to provide a narrative description of how participants in the ATS send and receive messages, how such messages interact, and the rules, procedures, and protocols governing the use of non-firm trading interest in the Covered ATS. To facilitate this disclosure, the Commission is proposing to include in Form ATS–N a description of the types of information that should be explained in this Item. The
Commission recognizes, however, that each system operates differently and may offer unique protocols, and has designed Part III, Item 8 to allow ATSs the flexibility to provide a narrative response that will help market participants understand the protocols governing their systems. First, the Covered ATS would be required to explain the use of messages in the ATS. Messaging is a primary tool by which Communication Protocol Systems bring together buyers and sellers. Use of messaging is critical to how buyers and sellers can use the system to find one another and negotiate a transaction. The Commission believes that ATSs offer diverse types of messaging that facilitate communication and negotiation, including non-firm trading interest that subscribers expose to other subscribers, communications that subscribers send to other subscribers to negotiate transactions, messages that subscribers use to communicate to the ATS how they want their trading interest to be handled, as well as messages the ATS sends to subscribers to communicate the presence of trading interest. The Commission believes that this information will help market participants understand how they can use messages in the ATS to interact with potential counterparties and to communicate how they want their trading interest to be handled by the ATS. The Commission is proposing to provide a non-exhaustive list of what this explanation would include, as applicable to the Covered ATS’s protocols and functionalities. The Covered ATS would be required to describe and explain each type of message the ATS permits participants to send and receive and the types of persons that can send and receive each type of messages (e.g., the ATS, types of subscribers, specific subscribers, customers of subscribers, trading venues). The ATS would also be required to disclose the information contained in messages (e.g., symbol, price, direction (i.e., buy or sell), or size minimums) and any other information that a participant may choose to include in a message. If terms in messages can vary based on potential recipients (e.g., different subscribers may receive varying priced messages for the same security), the Covered ATS would be required to disclose that. The Commission is proposing that the Covered ATS disclose whether messages are attributed to their sender or anonymous, and whether a subscriber may elect to disclose its identity to other participants, and if so, what is disclosed and how, when, and to whom. The Commission understands that some Communication Protocol Systems allow participants to negotiate trades on an attributed basis so that certain counterparties may know the identity of other counterparties pre-trade. In some cases, subscribers on the ATS have established relationships and may choose to share their identity with a pre￾selected list of potential counterparties or potential counterparties that meet certain criteria. Even while the subscriber discloses its identity to others, the identity
of potential counterparties may be either known or anonymous. The Covered ATS would be required to describe when, and under what conditions, the subscriber or the

ATS discloses subscribers’ identities and how and when messages are transmitted (e.g., order management system, router, or FIX). The Covered ATS would be required to describe the processes to respond to a message and any parameters around such responses. In the Commission’s experience, on negotiation systems, a subscriber or the Covered ATS makes known the existence of trading interest or an interest in negotiation, and potential counterparties have the opportunity to respond. For example, a Covered ATS would be required to explain how the sender of a message would ‘‘firm-up’’ a conditional or other non-firm message to execute a trade. The ATS would also be required to describe the processes to respond to a request to negotiate, and for subscribers who initiate an RFQ to respond to any responses. In addition, if the ATS permits the initiating party or respondents a final opportunity prior to execution to accept or reject the price after the negotiating parties agree to a trading price (i.e., a ‘‘last look’’), the ATS must describe such processes.
Part III, Item 8 would require the
Covered ATS to describe any time parameters that the ATS sets or permits subscribers to set regarding sending and receiving messages. This would include time-in-force restrictions that a subscriber may place on trading interest in a message (e.g., fill-or-kill, day, good￾til-cancel). This would also include time parameters for updating prices or responding to trading interest or requests for negotiation applicable during any negotiation process. In the case of an RFQ, subscribers may provide a specific price with a ‘‘wire time’’ during which such price is actionable. Any parameters around such wire times would be required to be disclosed by the Covered ATS. Additionally, if the Covered ATS requires that a subscriber firm-up its conditional orders within, for example, three seconds of receiving a response, the Covered ATS would be required to state so. Any time parameters within which an initiator of a message would have to respond to responses to its messages would also be disclosed under Part III, Item 8. The Covered ATS would also be required to provide information regarding the contra-party trading interest made available or known on the system, including whether a subscriber may elect whether to display only part of its trading interest. The instruction in
Part III, Item 8 would state that, if
trading interest is made known on the system, the ATS would be required to describe it in Part III, Item 15. Part III, Item 8 of Form ATS–N would also require a description of the circumstances under which messages may be modified, replaced, canceled, rejected, or removed from the Covered ATS. The Covered ATS would also be required to describe any restrictions or conditions under which the message might result in the match of two counterparties, require a response, or result in an execution in the Covered ATS (e.g., interaction, matching, selection, automatic execution) and any price conditions (e.g., how price conditions affect the rank and price at which the message can result in an execution). The Covered ATS would also be required to describe the limits or requirements for multiple messages sent at the same time. For example, if the Covered ATS prohibits a subscriber from entering non-firm trading interest to buy and sell the same bond or security at the same time, entering the same price for a buy and sell order in the same bond (i.e., a locked market), or entering a lower-priced sell order than the buy order (i.e., inverted market), it should disclose these. In addition, the ATS would be required to state whether a message containing trading interest is eligible to be sent to destinations outside the Covered ATS, and if so, describe it in Part III, Item 16. The Covered ATS would also be required to disclose information about the availability of message types across all forms of connectivity to the ATS. To the extent there are differences in the availability of message types across forms of connectivity, the ATS would need to describe those differences. A Covered ATS would also be required to disclose, with respect to non-firm trading interest, any requirements relating to the size of trading interest (e.g., minimum or maximum size, odd-lot, mixed-lot, trading increments, message controls or throttling). This would include the requirements of Part III, Item 8 of current Form ATS–N, and also include examples of limitations, such as message controls or throttling, that the Commission understands a negotiation system, for example, may use to limit the number of messages sent by a subscriber. The Covered ATS would also be required to disclose any related handling procedures, such as, for example, the handling of residual trading interest after an execution on the ATS (e.g., whether it is canceled or remains in the system). In addition, in its response to Part III, Item 8, the Covered ATS would also be required to disclose in its response the procedures governing communication protocols. These requirements are currently incorporated in Part III, Item 11 of current Form ATS–N. Requiring information about such procedures would provide transparency into how buyers and sellers may interact, and how non-firm trading interest may interact with other trading interest in the ATS. The Commission is proposing to require disclosure of how Covered ATSs
prioritize and permit their subscribers to prioritize trading interest, to provide information that market participants can use to choose an appropriate venue at which they can interact with other subscribers or send trading interest. As applicable, the Covered ATS would be required to provide in Part III, Item 8, a description of priority applied to a message upon entry and any subsequent change to priority (if applicable, whether and when the message can receive a new time stamp, the message’s priority in relation to other messages in the Covered ATS due to a change to any reference price, and any instance in which a message could lose execution priority to a later arriving message at the same price); whether the Covered ATS permits or provides for subscribers to vary pricing based on the identity of other subscribers (e.g., preferred pricing feeds or tiered pricing); and whether subscribers can select counterparties based on their identity or other factors. If a Covered ATS allows subscribers complete discretion to, for example, select which counterparty to interact with when the prices such counterparties offer are the same, the Covered ATS would be required to disclose that. In addition, Part III, Item 8 would require a Covered ATS to disclose its rules and procedures under which buyers and sellers interact and agree upon the terms of a trade. Based on Commission staff experience, ATSs disclose various methods, rules, and conditions under which subscribers may interact using trading interest. Form ATS–N would provide a non￾exhaustive list of such rules and procedures, which includes those for participant interaction, pricing methodologies, allocation, matching, and execution. This question is designed to provide transparency to those diverse methods, rules, and conditions so that market participants better understand how the ATS will handle non-firm trading interest and how subscribers may interact with others in the ATS. If the Covered ATS auto-executes non-firm trading interest, the ATS would also be required to disclose the functionality or protocols governing such auto-execution. The

593Section 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). 594See Regulatory Notice 18–25, ATS Supervision Obligations, August 13, 2018, available at https://www.finra.org/sites/default/files/ Regulatory-Notice-18-25.pdf (‘‘FINRA Regulatory Notice’’) at 3. In addition, FINRA Rule 3310 requires FINRA members to, among other things:
Establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws, regulations, and FINRA rules; establish, maintain, and enforce written procedures to supervise the types of business in which it engages and the activities of associated persons that are reasonably designed to achieve compliance with applicable securities laws, regulations, and FINRA rules; conduct a review, at least annually of the businesses in which it engages reasonably designed to assist the member in detecting and preventing violations of, and achieving compliance with, applicable securities laws, regulations, and FINRA rules and retain a written record of the date upon which each review and inspection is conducted; and include in its supervisory procedures a process for the review of securities transactions that are reasonably designed to identify trades that may violate the provisions of the Exchange Act, the rules thereunder, or FINRA rules prohibiting insider trading and manipulative and deceptive devices that are effected for certain accounts. See FINRA Rule 3310. 595See FINRA Regulatory Notice, supra note 594, at 3. Covered ATS would be required to disclose, for example, how the ATS or a subscriber can designate trading interest as automatically executable. Any limitations that subscribers may impose on auto-execution would be responsive to such request. The Covered ATS would also be required to discuss in Part III, Item 8 how non-firm trading interest may interact with orders or separate trading functionalities in the ATS or functionality offered by the broker￾dealer operator. For example, if an IOI can interact with a firm order on the Covered ATS’s order book, it should disclose this and any policies and procedures for such interaction. To the extent that the Covered ATS has disclosed this in Part III, Item 7 in its discussion of how firm orders can interact with non-firm trading interest, the ATS should describe how the non￾firm trading interest may interact with firm trading interest and may cross￾reference the disclosure in Part III, Item 7. In the Commission’s experience, ATSs have adopted other trading procedures governing interaction and execution. The Commission is proposing to include examples of such procedures governing communication protocols that would be required to be disclosed. This would include functionality or protocols that permit the selection of displayed non-firm trading interest to trade against. In the Commission’s experience, negotiation systems may allow subscribers to choose the trading interest they interact with; any procedures governing such selection should be disclosed in Part III, Item 8. In addition, the Commission believes that market participants would benefit from transparency regarding procedures that could re-price trading interest or prevent it from interacting with other trading interest under certain conditions.
Accordingly, the Form ATS–N would provide a non-exhaustive list of procedures that includes price improvement, price protection mechanisms, procedures related to short sales, functionality to adjust or hedge trading interest, locked-crossed markets, the handling of execution errors, platform and trade controls (e.g., fat finger checks, whether the ATS can employ a global kill switch), the time￾stamping of trading interest messages and executions, and any conditions or processes for terminating a counterparty match. In addition, the Covered ATS would be required to disclose what information is available to subscribers from the ATS about interaction history, counterparty matching, or executions (e.g., pre- and post-trade data, best execution analysis, transaction cost analysis), when such information is made available, the source(s) of such information, and the process for subscribers to access this information. The Commission believes that requiring such information would allow market participants to better assess the information that Covered ATSs provide, including allowing them to analyze or evaluate their performance, resolve potential disputes, and/or understand how their trading interest has historically interacted and been treated in the ATS, among other things. Request for Comment
118. Are there any aspects of how
Covered ATSs permit non-firm trading interest to be sent and/or received that are not covered by this Item? Are there any aspects of how subscribers interact with each other on Covered ATSs by using non-firm trading interest that are not covered by this Item? What information about non-firm trading interest and the process for transmitting non-firm trading interest would be useful to market participants?
i. Item 9: Monitoring and Surveillance
of the ATS Market
The Commission is proposing that
Part III, Item 9(a) of Form ATS–N
require a Covered ATS to disclose information about the activities the ATS undertakes to supervise the trading activity that occurs on or through the ATS (e.g., supervisory systems and procedures to detect, deter, or limit potentially disruptive, manipulative, or non-bona fide quoting and trading activities that occur on or through its system and to ensure that they are reasonably designed to achieve compliance with applicable SRO rules and the Federal securities laws) and to provide a summary of any supervision activities that occur on or through the ATS, the sources of data the ATS uses to supervise trading activity (e.g., internal or external sources), and the activities that the ATS intends to detect, deter, or limit. As a registered broker-dealer, an ATS must comply with the filing and conduct obligations associated with being a registered broker-dealer, including becoming a member of an SRO, such as FINRA, and compliance with SRO rules.593 Accordingly, ATSs must comply with SRO rules which, among other things, require each member to maintain a reasonably designed supervisory system.594 For example, FINRA states it expects an ATS’s supervisory system to be reasonably designed to identify ‘‘red flags,’’ including potentially manipulative or non-bona fide trading that occurs on or through its systems, and that ATSs must regularly assess and evaluate their supervisory systems and procedures to ensure that they are reasonably defined to achieve compliance with applicable FINRA rules and the Federal securities laws.595 The Commission believes that the information disclosed in response to this request would help market participants understand the scope of supervision activities that an ATS performs to mitigate potentially manipulative and non-bona fide trading that occurs on or through its system. This information could also help regulators, including the Commission and FINRA, to assess the extent to which an ATS’s supervision procedures are designed to facilitate investor protection over activities occurring in the ATS and comply with the applicable rules, including the Exchange Act and FINRA rules. The Commission is proposing Part III, Item 9(b) of Form ATS–N to request disclosures about whether the ATS monitors for certain types of trading behaviors or activities that may be detrimental to the ATS market place or trading (e.g., anti-gaming technology) and, if so, to provide a summary of the ATS’s monitoring activities and the trading behaviors and explain the

596See NMS Stock ATS Adopting Release, supra note 2, at 38850. 597See Letter from David W. Blass, General Counsel, Investment Company Institute, dated February 25, 2016, at 9–10. 598See id. 599See id. 600See Letter from Phillip S. Gillespie, Executive Vice President, General Counsel, State Street Global Advisors, dated February 26, 2016 at 2–3. See also Memorandum from the Office of Commissioner Kara Stein regarding a July 26, 2016 meeting with representatives of Morgan Stanley (including in a presentation that whether an ATS has anti-gaming controls is among the frequently asked questions by clients). 601See NMS Stock ATS Adopting Release, supra note 2, 83 FR 38850. 602The Commission is renumbering Part III, Item 10(e) of current Form ATS–N as Part III, Item 10(b) in revised Form ATS–N. The Commission also proposes to clarify in Item 10 that ‘‘regular trading hours’’ refer to the ATS’s regular trading hours. activities that the ATS intends to detect, deter, or limit. In the NMS Stock ATS Adopting Release, the Commission described that, in response to the proposal of Form ATS–N, commenters requested that information about the monitoring activities the ATS performs be included in Form ATS–N.596 One commenter suggested that disclosure of certain additional trading services should be required, specifically whether the ATS employs technology designed to detect and deter price manipulation and other disruptive trading practices (i.e., anti-gaming technology), and, if so, the ATSs should include a description of this technology in the form.597 This commenter stated that existence of such technology can increase market confidence, particularly for market participants that transact in large volumes, such as funds, because it shows that a trading venue is committed to providing a fair and competitive market.598 This commenter further stated that funds currently have no mechanism to receive standardized information regarding anti-gaming technology or to compare anti-gaming technology across different ATSs.599 Another commenter stated that anti￾gaming technology and other subscriber￾related safeguards are among the core attributes of ATSs that are of particular importance to buy-side institutions.600 The Commission, however, declined to adopt a request related to anti-gaming technology and subscriber-related safeguards at that time because such descriptions made in a publicly available document could serve to undermine those safeguards by disclosing information that makes evading those safeguards easier.601 However, the Commission is now proposing this requirement because it believes that market participants would want to know how the ATS may monitor for certain trading behaviors or activities that may be detrimental to the ATS market place or to the participants that use the ATS’s services. In addition, the information would help market participants determine which ATSs provide better market quality that the market participants would be more inclined to
effect transactions on. In the Commission staff’s experience reviewing Forms ATS–N filed by NMS Stock ATSs, some NMS Stock ATSs have described information about their surveillance procedures and other safeguards, which allow market participants to understand their practices, while avoiding the level of detail that would help enable market participants to evade them. Accordingly, the Commission believes that the requests for information proposed would not serve to undermine the ATS’s surveillance and monitoring activities because the Commission is requesting summary level information, which would strike the right balance in requiring these important disclosures and avoiding the risk that market participants could use the disclosures on Form ATS–N to evade such tools and controls. Request for Comment
119. Would requiring summary
disclosure regarding the Covered ATS’s anti-gaming technology and similar safeguards benefit market participants? What other information regarding monitoring and surveillance of activity in the ATS would be beneficial? Does the proposed summary disclosure strike the right balance in providing disclosure and avoiding the risk that market participants could use the disclosures to evade the ATS’s tools and controls? j. Item 10: Opening and Reopening
Part III, Item 10 of Form ATS–N is
designed to provide information about the use of any special processes and procedures related to matching trading interest at the opening, or to set a single opening or reopening price to, for example, maximize liquidity and accurately reflect market conditions at the opening or reopening of trading. The Commission believes that this disclosure requirement is important because market participants would likely want to know about any special opening or reopening processes, including which types of trading interest can participate in the opening or reopening processes or whether there are any protocols at the open for buyers and sellers to send messages and negotiate a trade. To capture processes related to sending, receiving, and viewing trading interest for communication protocols and negotiation systems, the Commission is proposing to specify in Part III, Item 10 that the ATS should disclose when and how trading interest may be sent, received, and viewed at opening, how unexecuted trading interest is handled at the time the ATS begins its regular trading hours or following a stoppage of trading in a security during its regular trading hours, and whether there are any protocols at the open for buyers and sellers to send messages and negotiate a trade. Based on Commission staff experience with Form ATS–N filings, the Commission is proposing to amend Form ATS–N to incorporate the requirements of Part III, Item 10(c) of current Form ATS–N with the requirements of Part III, Item 10(a). In its experience, the Commission observed significant overlap in the responses to
Part III, Item 10(a), which asks about
how the ATS opens or re-opens after stoppage, and Part III, Item 10(c), which asks how unexecuted trading interest is handled at the start of regular trading hours or following a stoppage, as the treatment of unexecuted trading interest is an integral part of an ATS’s opening and re-opening procedures. Because of this overlap, some NMS Stock ATSs repeat the disclosures in both current Form ATS–N Part III, Items 10(a) and (c). To streamline the disclosure and reduce redundancy, the Commission is proposing to specify in Part III, Item 10(a) of revised Form ATS–N that the Covered ATS describe how unexecuted trading interest is handled at the time the ATS begins its regular trading hours or following a stoppage of trading in a security during its regular trading hours, and to delete the separate disclosure requirements of Part III, Item 10(c) of current Form ATS–N. Information about when the Covered ATS will price and prioritize trading interest during the opening or reopening of the ATS would provide market participants with the information they need to plan and execute their trading strategies during these periods. The Item would also, for example, require disclosure of any processes or procedures to match trading interest to set a single opening or reopening price to maximize liquidity and accurately reflect market conditions at the opening or reopening of trading. For trading interest allowed to be submitted before an ATS opens for trading, the Item 10(b) would require an explanation of what priority rules would apply to that trading interest.602 The Commission believes most participants consider important the procedures for the pricing and priority of trading interest, and the

603Among other things, services to facilitate trading or source pricing for the Government Securities ATS using non-government securities markets that are offered by a third-party by arrangement with the broker-dealer operator or affiliates would also be required to be disclosed under this Item. 604To the extent that a Government Securities ATS offers a functionality, procedure, or protocol using a market for government securities (e.g., trading venue for U.S. Treasury Securities or options) or an NMS Stock ATS offers a functionality, procedure, or protocol using a market for NMS stocks, the Covered ATS would disclose information about that functionality, procedure, or protocol in Part III, Item 11 of Form ATS–N. 605 If a Covered ATS uses market data from another market that trades government securities, that information would be disclosed under Part III, Item 22 of revised Form ATS–N. 606 Disclosure of any market data used by the Covered ATS, including market data for options and repos on government securities, would be required under Part III, Item 22 of Form ATS–N. 607See, e.g., NYSE Guide Rule 104 (Dealings and Responsibilities of DMMs), Nasdaq Rules Equity 2,
Section 5 (Market Maker Obligations).
types of trading interest allowed because these rules and procedures can directly impact their execution price. The disclosures are also designed to provide information to subscribers about when they may use the systems to send or receive messages or view trading interest at the open or reopen, and the status of any messages or orders that may be pending before the ATS opens or reopens. Request for Comment
120. Do Government Securities ATSs
have any special opening and reopening processes and procedures around Treasury auctions? If so, do commenters believe there any aspects of the opening and reopening processes for Treasury auctions that should be specifically addressed in this Item? k. Item 11: Interaction With Related Markets Proposed Part III, Item 11 of Form ATS–N is designed to provide information about any functionality, procedure or protocol used to facilitate trading or communication on, or source pricing for, the Covered ATS that is offered by the broker-dealer operator or its affiliates 603 using markets for financial instruments related to the securities it trades (‘‘Related Markets’’). In the 2020 Proposal, the Commission proposed to add a similar question to Form ATS–G; the Commission is now proposing to add this question to Form ATS–N and to make it applicable to both Government Securities ATSs and NMS Stock ATSs. Markets for financial instruments related to government securities could include those non￾government securities markets that trade futures, currencies, fixed income, and swaps, for example. Markets for financial instruments related to NMS stocks could include, for example, non￾NMS stock markets that trade futures, options, and swaps. If applicable, the Covered ATS would: (1) Identify the functionality, procedures, protocols, and source of pricing and the Related Market; (2) state whether the functionality, procedures, protocols, and source of pricing is provided or operated by the broker-dealer operator or its affiliate, and whether the Related Market is provided or operated by the broker-dealer operator or its affiliate; (3) explain the use of the functionality, procedures, protocols, and source of pricing with regard to the Related Market and the ATS, including how and when the functionality, procedures, protocols, and source of pricing can be used, by whom, and with what markets. The functionalities, procedures, or protocols required to be disclosed would include, for example, offering order types to facilitate transactions in the ATS and the Related Market, procedures to allow subscribers to perform multi-leg transactions involving another market and the ATS, or a protocol to allow a subscriber to communicate with other persons to negotiate a trade including, for example, a government security and non￾government security. A Covered ATS could offer, for example, Exchange-for￾Physical (‘‘EFP’’) transactions that can involve markets in addition to the ATS. An EFP transaction where ATS subscribers agree to exchange a financial product, such as a futures contract on a government security, for the underlying related government security or NMS stock, would be responsive to this Item. The Commission believes that it would be important to participants to understand functionality, procedures, and protocols made available to them, as they can impact their experience in the ATS.604 Information about how the ATS uses market data from a Related Market, through an
aggregator or otherwise, to provide the services it offers would also be required by the form.605 Among other things, for example, the ATS would need to disclose in response to this Item its use of such market data to display, price, prioritize, execute, and remove trading interest in the ATS.606 As part of this explanation, the ATS would specify, if applicable, when the ATS may change sources of market data to provide its services. In response to proposed Part III, Item 11 of Form ATS– N, the ATS would explain how, for example, market data from a Related Market is received by the ATS, compiled, and delivered to the matching engine. For example, among other possible arrangements, the ATS could explain that market data from a Related Market is received and assembled by the broker-dealer operator, and subsequently delivered to the matching engine, or that market data is sent directly to the matching engine, which normalizes the data for its use. The ATS would disclose, for example, whether it uses market data from the futures market to price and execute EFP transactions and describe how it uses that market data under this Item. A broker-dealer operator’s activities in financial instruments related to the securities that the ATS trades or offerings of a Related Market, such as a futures exchange, along with its operation of an ATS, raise the potential for information leakage of a subscriber’s confidential trading information, or the broker-dealer operator could provide certain advantages to subscribers that use a Related Market that it operates. As such, Item 11 would require information about whether the functionality, protocols, procedures, and source of pricing on the Covered ATS or the Related Markets are provided or operated by the broker-dealer operator or its affiliates. Request for Comment
121. What are commenters’ views on
the relationship between markets for government securities and Related Markets and between markets for NMS stocks and Related Markets and how investors may use these markets together with a Covered ATS to achieve their trading objectives?
122. What aspects of government
securities markets or NMS stock markets and Related Markets, such as the futures markets, do market participants use for trading on a Covered ATS? What information about those markets might be useful to a subscriber and why?
l. Item 12: Liquidity Providers
Part III, Item 12 of Form ATS–N is
designed to disclose information about arrangements with liquidity providers. Like national securities exchanges,607 ATSs might engage firms to provide liquidity on both sides of the market. The Commission has observed that the overwhelming majority of registered national securities exchanges have structured programs for market makers, which generally set forth both obligations (e.g., continuous quoting at or within the NBBO) and often, some benefits (e.g., fee rebates). Similarly, a Covered ATS may want to ensure that there is sufficient contra-side liquidity

608These liquidity providers may quote in a particular security in the ATS during trading hours and may receive a benefit for performing this function, such as discounts on fees, rebates, or the opportunity to execute with a particular type of segmented order flow. 609See Part II, Items 1(c) and 2(c) of Form ATS– N. 610See NMS Stock ATS Adopting Release, supra note 2, at 38829. 611The Commission is proposing to change the current requirement to disclose arrangements with any ‘‘Subscriber’’ to display, enter, or trade against trading interest in the Covered ATS to require disclosure of any such arrangements with any ‘‘persons.’’ In the Commission’s experience, arrangements to display, enter, or trade against trading interest in a Covered ATS may include arrangements with subscribers, non-subscriber participants who submit orders through a subscriber or the broker-dealer operator, and persons controlling subscribers or participants to the ATS. The Commission is therefore proposing to revise the rule text by using the term ‘‘person’’ to capture arrangements with non-subscribers that could impact order flow on the ATS. available in the ATS in a particular security to incentivize market participants to send trading interest in that security to the ATS. To do this, the ATS may engage certain market participants to quote in a security or trade against orders in the Covered ATS, performing similar functions to a market maker on a national securities exchange.608 To the extent that a Covered ATS and a participant have entered into an arrangement under which that participant undertakes obligations to display, enter, or trade against trading interest on the Covered ATS, the Commission believes that market participants should know both the terms and conditions of such an arrangement and the identity of the liquidity￾provider ATS participant. Form ATS–N currently requires an ATS to disclose the terms and conditions of an arrangement with a liquidity provider and the names of any liquidity providers that are either business units of the broker-dealer operator or affiliates of the broker-dealer operator.609 When it adopted Form ATS–N, the Commission explained that it was requiring disclosure regarding liquidity providers because it believed that market participants would want to know the identity of such liquidity providers to help evaluate potential conflicts of interest or information leakage on the trading platform.610 The Commission now believes that the names of all liquidity providers should be disclosed to evaluate potential conflicts of interest and the potential for information leakage. Specifically, if a participant is obligated to provide contra-side liquidity and, for example, derives a particular benefit in exchange for undertaking such an obligation, the Commission believes that other users of the ATS should know who that liquidity provider is, how it is expected to trade in the ATS, and the benefit that it is receiving. This disclosure would be
similar to Exhibit M of Form 1, which requires national securities exchanges to publicly disclose, among other things, the identity of all market makers and liquidity providers. The Commission believes it appropriate to require a similar level of disclosure for Covered ATSs with regard to the identity of market makers and liquidity providers, given the sizable market share of such entities in their respective sectors. Additionally, the Commission believes that information about liquidity providers would be useful to ATS participants who, for example, may want their orders to only interact with agency orders (and not with those of a liquidity provider), or, conversely, may themselves want to become liquidity providers on the Covered ATS. Such arrangement could take many forms, and the function of the liquidity provider on an ATS could depend on the structure and trading protocols of the ATS. This Item could cover, for example, arrangements or agreements between the broker-dealer operator and another party to quote or trade on the Covered ATS. The Item does not cover agreements with a subscriber that has no obligation to buy or sell securities in the ATS. Furthermore, to obtain disclosures about activity on Communication Protocol Systems, the Commission is proposing to revise Part III, Item 12 of Form ATS–N, which asks about whether there are arrangements to ‘‘provide’’ orders and trading interest, and, instead, to ask about arrangements to ‘‘display, enter, or trade against’’ trading interest. Accordingly, the Commission is proposing that Part III, Item 12 require a Covered ATS to disclose any formal or informal arrangements with any person 611 or the broker-dealer operator to display, enter, or trade against trading interest in the ATS (e.g., undertaking to buy or sell continuously or to meet specified thresholds of trading or quoting activity). This will be in the form of a ‘‘yes’’ or ‘‘no’’ question, and if the ATS answers yes, it must both identify the liquidity provider(s) and describe the arrangement(s), including the terms and conditions. Request for Comment
123. Are there any arrangements
between Covered ATSs and persons to provide trading interest to the Covered ATS that may not be required by this Item but should be? If any, what is the nature of those arrangements, and why are they important to disclose publicly on Form ATS–N?
124. Should Covered ATSs be
required to identify liquidity providers on Form ATS–N? Please explain why or why not, including any advantages or disadvantages resulting from this disclosure. m. Item 13: Segmentation; Notice
Part III, Item 13(a) of Form ATS–N is
designed to disclose information about how trading interest in the Covered ATS is segmented into categories, classifications, tiers, or levels. The Covered ATS would be required to explain the segmentation procedures, including how and what trading interest is segmented. The Commission is proposing to add in Item 13(a) of Form ATS–N a requirement to explain where the identification of segmented trading interest is applied (e.g., when ATS trading interest is received by the broker-dealer operator or entered into the ATS). From the Commission’s experience, systems may segment trading interest when trading interest enters through the broker-dealer (from the SOR or similar functionality), or when the trading interest is entered into the ATS. The Commission believes subscribers would want to understand where their trading interest is segmented so they can assess who is making the decisions about how their trading interest will be categorized when entered into the ATS and the level of protections their confidential trading information will receive. The Covered ATS would also be required to identify and describe any categories, classifications, tiers, or levels and the types of trading interest that are included in each and provide a summary of the parameters for each segmented category and length of time each segmented category is in effect. The Commission is proposing to add to Item 13(a) that the parameters for each segmented category would include when such category is determined, reviewed, and can be changed. Item 13(a) also requires disclosure of any procedures for overriding a determination of segmented category and would require how segmentation can affect trading interest interaction. This Item is designed to provide market participants with an understanding of the categories of trading interest or types of participants with which they may interact. In addition, the information provided would allow them to both assess the consistency of a segmented group and determine whether the manner in which the trading interest is segmented comports with their views of how

612See Bloomberg Letter at 8.
613The Commission is proposing to specify that this question relates to process implemented ‘‘in the absence of subscriber direction.’’ The Commission is drawing a distinction from the filtering or blocking that a subscriber can do in the ATS, which would be disclosed in Part III, Item 14 (Counter￾Party Selection). If the ATS, on its own, and in the absence of subscriber directions, filters certain subscribers from viewing the existence of certain trading interest, that would be responsive to Part III, Item 13 of Form ATS–N. certain trading interest should be categorized. Disclosure of the procedures and parameters used to segment categories would allow a participant to determine whether its view of what constitutes certain trading interest it wants to seek or avoid is classified in the same way by the Covered ATS. For example, a subscriber may find it useful to understand the standards a Covered ATS uses to categorize high frequency trading firms so that it can compare the criteria used by the ATS with its view of what constitutes a high frequency trading firm, and thus be able to successfully trade against or avoid such trading interest. Similarly, information regarding the procedures applicable to trading among segmented categories would allow market participants to evaluate whether they can successfully trade against or avoid the segments of trading interest. In response to the question regarding segmentation on previously-proposed Form ATS–G in the 2020 Proposal, one commenter stated that, as the fixed income market structure continues to develop, types of segmentation options may occur in Government Securities ATSs and should be disclosed.612 Some Covered ATSs segment trading interest entered in the ATS according to various categories for purposes of trading interest interaction. For example, a Covered ATS could elect to segment trading interest by type of participant (e.g., buy-side or sell-side firms, PTFs, agency-only firms, firms above or below certain assets under management thresholds). When segmenting trading interest in the ATS, a Covered ATS might look to the underlying source of the trading interest such as the trading interest of retail customers. Some Covered ATSs segment by the nature of the trading activity, which could include segmenting by patterns of behavior, time horizons of traders, or the passivity or aggressiveness of trading strategies. Covered ATSs might use some combination of these criteria or other criteria altogether. The ATS might use these segmented categories to design its trading interest interaction rules, allowing only trading interest from certain categories to interact with each other. The Commission recognizes the concern that describing the precise criteria used by the ATS to segment trading interest could result in gaming of those criteria by subscribers and thus reduce the effectiveness of segmentation as a control. On the other hand, market participants are interested in understanding how their
trading interest is categorized in the ATS and the types of market participants that would interact with its trading interest. The Commission believes that Part III, Item 13 of Form ATS–N appropriately balances these competing interests by soliciting a summary of the parameters for each segmented category. By requiring Covered ATSs to provide a summary of these parameters on Form ATS–N, rather than a detailed analysis of the parameters and how they are calculated, this Item is designed to avoid responses that could allow the gaming or manipulation of segmentation criteria. Based on the Commission’s experience, systems that offer RFQs or BWIC protocols that bring buyers and sellers together to negotiate may apply filtering technology to allow participants to more easily search for securities with particular characteristics that comport with the participants’ needs or exclude securities that do not meet the participants’ needs. They may also offer counterparty filtering that prevents transactions between certain participants (i.e., potential counterparties) by prohibiting views of either party’s inventory by the other party. Such systems may also implement permissioning procedures for subscribers to be able to view trading interest of certain other subscribers. The Commission believes that market participants would benefit from understanding how a Covered ATS controls the counterparty interest that they, and their potential counterparties, can view and interact with, and accordingly, the Commission is proposing to add new Part III, Item 13(b), which would ask if the ATS, in the absence of subscriber direction, can prevent a participant or its potential counterparties from viewing or interacting with certain trading interest (e.g., permissioning, filtering, or blocking).613 An ATS that has such controls would be required to explain the processes, including what a subscriber or counterparty is prevented from viewing or interacting with and where this determination is made (i.e., when trading interest is received at the broker-dealer operator or the ATS); how and when the ATS prevents a subscriber or its potential counterparty from viewing or interacting with certain trading interest; any categories, classifications, tiers, or levels, and the types of trading interest that the ATS uses to determine how subscribers can view or interact with other trading interest; a summary of the parameters for such processes and the length of time any such parameter is in effect; any procedures for overriding a determination of any category, classification, tier, or level that the ATS uses to designate how subscriber trading interest can interact; how such processes can affect trading interest interaction; and how a subscriber can view filtered messages and any permissioning process and criteria for a subscriber to send, receive, or interact with a message. The Commission believes that market participants will benefit from transparency regarding protocols that
Covered ATSs use to limit in any way the trading interest that certain subscribers can view or interact with based on the identity of the counterparty. The Commission recognizes that RFQs and similar systems may establish protocols to block or filter participants from viewing or interacting with the trading interest of certain potential counterparties. The Commission is thus proposing to clarify in Part III, Item 13 of Form ATS–N that the scope of the question would extend to ATS protocols involving the ATS filtering or blocking trading interest.
Part III, Item 13(c) would address
whether the ATS identifies trading interest entered by a customer of a broker-dealer as customer trading interest. Disclosing the origin of customer trading interest of a broker￾dealer could be a form of segmentation because it can facilitate users restricting their trading to only certain types of market participants and it can contribute to information leakage and adverse selection of trading interest of institutional investors, who generally trade passively. Accordingly, Part III, Item 13(c) would require a Covered ATS to disclose if it identifies trading interest entered by a customer of a broker-dealer in the ATS as customer trading interest. In addition, in Part III, Item 13(d) of Form ATS–N, the ATS would be required to state whether it discloses to any person the designated segmented or otherwise designated category, classification, tier, or level of trading interest and, if so, provide a summary of the content of the disclosure, when and how the disclosure is communicated, who receives it, and whether and how such designation can

614The Commission is proposing minor changes to Form ATS–N, Part III, Item 14, which references how the designation affects the ‘‘interaction and priority of trading interest in the ATS’’ to be more inclusive of communication protocols. 615See supra Section IV.D.5.m. be contested. This requirement is substantially similar to the current requirement of Part III, Item 13(d) of Form ATS–N, but the Commission is proposing to amend this request to add designations other than segmentation, such as permissioning, filtering, and blocking, that would be responsive under proposed Part III, Item 13(b) of Form ATS–N. This would provide information to market participants about the notice that the ATS provides subscribers about the segmented category to which they are assigned, and also, if applicable, who can obtain information about the segmented categories of other subscribers. Request for Comment
125. What information about the
segmentation of trading interest by a Covered ATS or any other practices or procedures that allow a Covered ATS to control which counterparties view each other’s trading interest or are able to interact would be important to persons that use the services of the ATS? n. Item 14: Counter-Party Selection
Part III, Item 14(a) of Form ATS–N is
designed to provide information about whether trading interest can be designated to interact or not interact with certain trading interest in the ATS by an ATS participant. The Commission is proposing to make minor modifications to this question including new examples of the types of designations that a subscriber can make to control both interactions with and matching against trading interest or a participant in the ATS. These examples would include designations to interact with or execute against a specific subscriber’s trading interest or prevent the trading interest of a subscriber from interacting with or executing against the trading interest of that subscriber. If the ATS has such counterparty selection available, it would be required to explain the counterparty selection procedures, including how counterparties can be selected and whether the designation affects the trading rules (e.g., order interaction or priority) or communication protocols of the ATS.614 To analyze whether the ATS is an appropriate venue to accomplish their trading objectives, market participants have an interest in knowing whether—and how—they may designate their trading interest to interact or avoid interacting with specific trading interest or persons in the ATS. Part III, Item 14 is designed to require disclosure of such information. For instance, the disclosures proposed under this Item would allow a participant in the Covered ATS to know whether it can interact with certain categories of trading interest in the ATS or can designate trading interest submitted to the ATS to interact only with trading interest of certain other types of ATS participants. The ATS might allow subscribers to choose from categories of trading interest or categories of participants that the broker-dealer operator segments in the ATS. For example, buy-side or institutional subscribers might seek to trade only against other buy-side or institutional trading interest, or might seek to avoid trading against PTFs or high frequency trading firms. Also, it would also be responsive to this Item for a Covered ATS to state whether a subscriber can restrict interacting with its own trading interest, whether such restrictions are by default or only upon subscriber request, and any applicable limitations on such restrictions. This Item would require description of any procedures allowing a subscriber to limit its counterparty on an order-by￾order basis or a participant-by￾participant basis, how it would go about doing so, and how such selection would affect the interaction and priority of trading interest. For example, an ATS would include in its response to this Item whether a designation to interact with a specific category of counterparty trading interest or participants can be made by the subscriber (i.e., by marking its trading interest) or whether the designation must be implemented by the broker-dealer, on the subscriber’s behalf. If the broker-dealer implements the counterparty designation,
the ATS would also include when such designation would go into effect (e.g., on same trading day as the subscriber’s selection or on a date thereafter). The Commission is also proposing to amend Form ATS–N to add a requirement that the ATS disclose in
Part III, Item 14(b) whether a subscriber
can designate trading interest that the subscriber or potential counterparties can view (e.g., filtering, blocking, permissioning). The ATS would be required to explain any such processes, including how and when a subscriber can (or cannot) designate which trading interest it or a potential counterparty can view, any categories, classifications, or levels, and the types of trading interest that subscribers are able to designate, a summary of the parameters for such processes and the length of time any such parameter is in effect, and how such processes can affect how trading interest interacts in the ATS. The Commission believes this type of functionality may be particularly relevant to communication protocols and negotiation systems that may fall within the criteria of Rule 3b–16(a), as proposed to be amended. From Commission staff’s experience, ATSs may disclose counterparty filters that could, for example, allow a subscriber to prohibit itself from viewing a potential counterparty’s inventory or to prohibit a potential counterparty from viewing its inventory. Under proposed Part III, Item 14(b), an ATS would include in its response if, for example, participants in the ATS can choose not to view trading interest from certain identified potential counterparties or certain types of counterparties, such as those that have failed to respond to RFQs in a given amount of time. Similarly, if a participant can block certain potential counterparties from viewing its trading interest, such functionality would be required to be disclosed in this Item as well. Market participants should be aware of how participants on the platform can choose not to interact with certain trading interest. If, however, the ATS (and not the participant) makes these designations and restricts the interactions of potential counterparties, such designations and restrictions would be required to be disclosed under
Part III, Item 13.615
Request for Comment
126. Should Form ATS–N request
more or less information about how trading interest can be designated to interact or not interact with certain trading interest in the Covered ATS? Are there important forms of counterparty selection that the Commission should address? o. Item 15: Display and Visibility of Trading Interest The Commission is proposing to restructure Part III, Item 15 so market participants can more readily understand information regarding trading interest that the Covered ATS displays to the subscribers, the public, and any person, including the broker￾dealer operator, and what information regarding trading interest a subscriber of the ATS can display through the ATS. Although, as discussed below, the Commission proposes to require Covered ATSs to divide the responses to
Part III, Item 15(b) of current Form
ATS–N into Items 15(a), (b), and (c) in revised Form ATS–N, the Commission believes that these questions would solicit substantially similar information

616 In the case of a Covered ATS offering a direct data feed with information about trading interest in the ATS, the ATS would be required to disclose under Part III, Item 15 what information the data feed provides about the trading interest, the associated timing in receiving the feed (e.g., real￾time, delayed), how a subscriber would receive the feed (e.g., connectivity), and if all subscribers are treated the same in receiving the feed, including whether all subscribers are eligible to receive it and any differences in latency receiving the feed. 617The broker-dealer operator typically controls the logic contained in these systems or functionality that determines where trading interest that the broker-dealer operator receives will be handled or sent. 618See Part III, Item 1 of Form ATS–N (providing examples of types of market participants). that is required by current Item 15(b) of Form ATS–N, in addition to information that is relevant to communication protocols and the use of non-firm trading interest.
Part III, Item 15(a) of Form ATS–N
would require a Covered ATS to disclose whether the ATS displays trading interest to subscribers or the public (e.g., whether the ATS disseminates orders through market data feeds or a website or sends invitations or requests to subscribers about potential counterparties to trade with). If the ATS displays trading interest to subscribers or the public, the ATS would be required to explain what information the ATS displays (e.g., security, price, size, direction, the identity of the sender, rating information based on the sender’s past performance in the ATS), how and when such information is displayed, to whom such information is displayed (e.g., subscribers, public, types of market participant), and how long the displayed information is available. In addition, the ATS would also be required to indicate whether a subscriber can opt-out of the display of its trading interest, and if so, the process for subscribers to do so. This Item would also require the ATS to describe differences in latencies with which the ATS displays subscribers’ trading interest due to a functionality of the ATS. For example, if a Covered ATS transmits and displays its proprietary data feed to certain subscribers faster than to other subscribers as a result of the alternative means offered by the ATS to connect, such information would be responsive to this Item. In addition, this Item would require an ATS that offers work-ups to match trading interest to disclose the information that is displayed to all subscribers or certain subscribers in public or private phases of the work-up, as well as what characteristics of the trading interest are displayed. The ATS could display subscriber trading interest in a number of ways. For instance, when an ATS sends electronic messages outside of the ATS that expose the presence of trading interest in the ATS, it is displaying or making known trading interest in the ATS. In Part III, Item 15(a), a Covered ATS would be required to disclose the circumstances under which the ATS sends these messages, the types of market participants that received them, and the information contained in the messages, including the exact content of the information, such as symbol, price, size, attribution, or any other information made known. An ATS may also offer a direct data feed from the ATS that contains real-time order information.616 Some ATSs have arrangements, whether formal or informal (oral or written), with third parties to display the ATS’s trading interest outside of the ATS, such as IOIs from the subscribers being displayed on vendor systems or arrangements with third parties to transmit IOIs between subscribers. A Covered ATS would be required to include this type of information in its response to this Item.
Part III, Item 15(b) of Form ATS–N
would require a Covered ATS to disclose whether a subscriber can use the ATS to display or make known trading interest to any person (e.g., stream quotes to the subscribers or the public or send a request for quote, IOI, conditional order, or invitation to negotiate to a subscriber or the broker￾dealer operator). If yes, the ATS would explain what information the subscriber can display through the ATS (e.g., security, price, size, direction, the identity of the sender), procedures for subscribers to display such information, how and when such information is displayed, to whom such information is displayed (e.g., subscribers, public, types of market participant), and how long the displayed information is available. In addition, Communication Protocol Systems may offer functionalities or protocols to allow their subscribers, who otherwise do not have the ability to display their trading interest, to use the functionalities or protocols to display trading interest information. Part III, Item 15(b) would differ from Part III, Item 15(a) in that Item 15(b) would ask what information subscribers can display or make known about their trading interest through the ATS whereas Part III, Item 15(a) would ask what information regarding trading interest the ATS displays. For example, an ATS that receives orders and disseminates top-of-book information to subscribers would be required to disclose this in Item 15(a), while an RFQ system that allows participants to select when, how, and to whom to display their trading interest to solicit counterparty trading interest would be required to disclose this in Item 15(b). The Commission is proposing the disclosure requirements of Item 15(b) because it believes that ATS participants would want to know whether a particular ATS would provide them with any protocol or functionality that would enable them to stream quotes to other subscribers or the public or send a request or invitation to negotiate to another subscriber or the broker-dealer operator. The disclosures regarding whether subscribers can display or make known their trading interest and the types of information that the subscribers can display would help market participants understand the extent to which potential information leakage may occur on the ATS.
Part III, Item 15(c) of Form ATS–N
would require a Covered ATS to disclose whether any trading interest bound for the ATS is made known to any person—not including employees of the ATS who are operating the system. Many market participants are sensitive to precisely how and when the ATS displays or otherwise makes known their trading interest both inside and outside the ATS as such information could result in other market participants trading ahead of their positions, and thus possibly causing inferior execution prices for the participants whose trading interest is displayed or otherwise made known. These participants could use these disclosures to evaluate whether sending trading interest to a particular ATS would achieve their trading strategies. In particular, subscribers that use the services of Covered ATSs, including customers of the broker-dealer operator, have limited information about the extent to which their trading interest sent to the ATS could be displayed outside the ATS. For example, trading interest directed to the ATS could pass through the broker-dealer operator’s non-ATS systems or functionalities such as an algorithm or a SOR, before entering the ATS. Such non-ATS systems and functionalities could be used to support the broker-dealer operator’s other business units, including any trading venues.617 It would be responsive to this Item to identify the recipient of displayed information by identifying the functionality of the broker-dealer operator (e.g., SOR, algorithm, trading desk), third party, or the type of market participant 618 that receives the displayed information. If, for instance, the ATS displays orders to the broker￾dealer operator’s SOR or trading desk, the ATS would indicate ‘‘yes’’ to this

619Covered ATSs, as proposed, would be subject to the requirements of Rule 301(b)(10) and would be required to establish adequate safeguards and procedures to protect subscribers’ confidential trading information, which must include: Limiting access to the confidential trading information of subscribers to those employees of the ATS who are operating the system or responsible for its compliance with these or any other applicable rules; and implementing standards controlling employees of the ATS trading for their own accounts. See 17 CFR 242.301(b)(10). 620Part III, Item 15(d) of revised Form ATS–N (which is currently included in Part III, Item 15(a) of current Form ATS–N) would be applicable only to NMS Stock ATSs because Rule 600(a)(31) only applies to systems that trade NMS stocks. A Government Securities ATS would select ‘‘no’’ in response to this question. The Commission is also correcting a typo referencing Rule 600(a)(23) and replacing the reference with Rule 600(a)(31). 621As discussed above, the Commission believes it would be more efficient for market participants and filers to consolidate the current disclosure in
Part II, Items 1(d) and 2(d) to proposed Part III, Item
16(c). See supra Section IV.D.4.a. question. If the answer is ‘‘yes’’ to either of these questions, the ATS would be required to explain what information is displayed (e.g., security, price, size, direction, the identity of the sender), how and when such information is displayed, to whom such information is displayed (e.g., algorithm, SOR, trading desk, third party), and how long the displayed information is available. If, for instance, trading interest bound for the ATS passes through the broker￾dealer operator’s common gateway or algorithm, the ATS would need to disclose these functionalities as the trading interest was displayed to a functionality of the broker-dealer operator that would likely be outside the ATS. If trading interest resting in the ATS is displayed to one or more of the broker-dealer operator business units, the ATS would need to identify the business units of the broker-dealer operator by type of market participant (e.g., institutional investors, PTFs, market makers, affiliates, trading desks at the broker-dealer operator, market data vendors, clearing entities, and potential subscribers, among others). This Item is designed to ensure that the ATS discloses any display of trading interest bound to the ATS or residing in the ATS not otherwise captured in Part III, Items 15(a) and (b). Consistent with the discussion above, the Commission believes that market participants should have a full understanding of how and when their trading interest becomes known to any person, particularly when the information is made known to the broker-dealer operator’s non-ATS￾systems and functionalities. The Commission further believes that information required under this Item would help market participants assess the potential for information leakage of subscribers’ confidential trading information to the broker-dealer operator’s non-ATS systems and functionalities. The proposed Item would not require information about employees of the ATS in non-trading related roles, such as technical, quality assurance, compliance, or accounting roles, among others, that support the ATS’s operations and to whom trading interest are made known in the performance of their duties.619
Part III, Item 15(d) of Form ATS–N
would require the ATS to indicate whether it is an Electronic Communication Network (‘‘ECN’’) as defined in Rule 600(a)(31) of Regulation ATS.620 NMS Stock ATSs that are also ECNs may differ in how and where trading interest are displayed. NMS Stock ATSs that indicate ‘‘yes’’ to this Item would also be required to provide information in response to Part III, Items 15(a), (b), or (c) to inform market participants how ECNs display trading interest. Request for Comment
127. What information involving NMS
stocks, government securities, and repos do ATSs or Communication Protocol Systems display? Are there levels of displayed information that a system may offer to market participants? If so, what are the levels and are there any specific requirements for a market participant to access that information? For instance, do ATSs or Communication Protocol Systems have different mechanisms or functionalities for displaying trading interest depending on the subscriber? What functionalities does the system use to display information in government securities and repos? Please explain the purpose and operation of any such functionality.
128. For ATSs or Communication
Protocol Systems that display trading interest both on the system and outside the system, what is the process for market participants to submit trading interest to interact with the trading interest that is displayed outside the system?
129. Are there any aspects of display
of trading interest on Government Securities ATSs that should be specifically addressed in the Item? Are there any aspects of display that are unique to Communication Protocol Systems? p. Item 16: Routing
Part III, Item 16 is designed to provide
information about whether trading interest in the ATS can be routed or sent to a destination outside the ATS. As proposed, Part III, Item 16 would apply to both NMS Stock ATSs and Government Securities ATSs. In the Commission’s experience, routing of government securities among trading venues is not as prevalent as in the market for NMS stocks. To the extent it is inapplicable, a Government Securities ATS would check ‘‘no’’ on Form ATS– N. However, Government Securities ATSs may have mechanisms to send trading interest outside the ATS. Accordingly, the Commission is proposing to require Covered ATSs to disclose whether they route or otherwise ‘‘send’’ trading interest outside of the ATS. If the Covered ATS permits trading interest to be routed or sent to a destination outside of the ATS, the ATS would be required to indicate whether affirmative instructions from a subscriber must be obtained before its trading interest can be routed or sent from the ATS, and provide a description of the affirmative instruction and explain how the affirmative instruction is obtained. If the ATS is not required to obtain an affirmative instruction to route or send trading interest, the ATS would be required to explain when trading interest can be routed or sent from the ATS (e.g., at the discretion of the broker-dealer operator). The Commission believes that such disclosures provide ATS participants with the ability to gauge how their trading interest would be handled by the ATS. Subscribers might, for example, have concerns about the leakage of confidential trading information when their orders are routed to other trading venues. The Commission believes the disclosures in
Part III, Item 16 would provide relevant
information for ATS participants to evaluate the potential for leakage of their confidential trading information. The Commission is also proposing to relocate Part II, Items 1(d) and 2(d) of current Form ATS–N to Part III, Item 16(c) of revised Form ATS–N.621 Specifically, proposed Item 16(c) of revised Form ATS–N would request whether trading interest in the ATS can be routed or sent to a destination operated or controlled by the broker￾dealer operator or an affiliate of the broker-dealer. If yes, the ATS would be required to identify the destination and when and how trading interest is routed or sent from the ATS to the destination. The Commission believes that such information would help market participants evaluate whether the Covered ATS sending trading interest to a trading venue operated or controlled

622The Commission is proposing to revise Item 17 of Form ATS–N to clarify that the question relates to the ATS’s closing session(s), and that ‘‘regular trading hours’’ refers to the ATS’s regular trading hours. 623The Item would, for example, require disclosure of any procedures to match trading interest to set a single closing price to maximize liquidity and accurately reflect market conditions at the close of trading in the ATS. 624As discussed above, the Commission is proposing to delete current Part III, Item 18 of Form ATS–N (Trading Outside of Regular Trading Hours) to combine such disclosure requests with Part III, Item 4 (Hours of Operations). As a result of this deletion, the Commission is proposing to re-number
Part III, Items 19 through 26 of current Form ATS–
N. The discussion herein refers to the Items as proposed to be re-numbered. 625The Commission is including non-exhaustive lists of examples of responsive information in parentheticals in the text of the Item. For instance, for the description of the structure of the fees, the Commission is providing as examples fixed, volume-based, and transaction-based fee structures. For the description of variables that impact the fees, the Commission is providing as examples: The types of securities traded, block orders, and the form of connectivity to the ATS. For the description of the differentiation among types of subscribers for the fee, the Commission is providing as examples the types of subscribers: Broker-dealers, institutional investors, and retail investors. by the broker-dealer operator or its affiliates poses a conflict of interest and is consistent with its trading objectives. Request for Comment
130. Do Government Securities ATSs
(inclusive of Communication Protocol Systems, as proposed) and Communication Protocol Systems that trade NMS stocks send trading interest to destinations away from the system? If so, how and under what circumstances? Are there any aspects about how trading interest is sent away from a Covered ATS that should be addressed by Form ATS–N? Have the mechanisms for routing to a destination outside an NMS Stock ATS changed in any way since the adoption of Form ATS–N for NMS Stock ATSs? If so, do commenters believe that the Commission should require Covered ATSs to provide additional information in Part III, Item 16 to reflect such change? q. Item 17: Closing
Part III, Item 17 of Form ATS–N is
designed to provide information about differences between how trading interest is treated on the ATS during the ATS’s closing session(s) 622 and during regular trading hours established by the ATS. The Item is designed to provide market participants with information about processes the Covered ATS uses to transition to the next trading day, including whether the ATS offers any particular order types during a closing session(s) or has different procedures for closing trading for a particular trading session and transitioning trading to the next trading day. The vast majority of requests in Part III of revised Form ATS–N relate to trading during the Covered ATS’s regular trading hours. Therefore, when discussing differences between trading during the Covered ATS’s closing session(s) and during regular trading hours set by the ATS, the Covered ATS would be required to discuss differences as compared to relevant information disclosed in Part III Items, including, among others, order types and sizes and trading facilities (Item 7), use of non-firm trading interest and communication protocols and negotiation functionality (Item 8), segmentation and notice (Item 13), and display and visibility of trading interest (Item 15). The Commission believes this information would be important for market participants to understand the closing procedures around a particular trading session, if any, to carry out their trading objectives.623 r. Item 18: Fees
Part III, Item 18 of Form ATS–N 624
would require a Covered ATS to provide information on any fees or charges for use of the ATS’s services, including any fees or charges for use of the ATS’s services that are bundled with the subscriber’s use of non-ATS services or products offered by the broker-dealer operator or its affiliates, and any rebate or discount of fees or charges. The Commission believes that disclosures regarding fees on Form ATS–N are necessary and important, and should not be voluntary for Covered ATSs. Fee disclosures on Form ATS–N are designed to allow all market participants to analyze the fee structures across Covered ATSs in an expedited manner and decide which ATS offers them the best pricing according to the characteristics of their order flow, the type of participant they are (if relevant), or any other aspects of an ATS’s fee structure that serves to provide incentives or disincentives for specific market participants or trading behaviors. Requiring disclosures of ATS fees is warranted as, in the Commission’s experience, fees can be a primary factor for market participants in deciding where to send their trading interest.
Part III, Item 18 would request that
Covered ATSs include in their descriptions the types of fees, the structure of the fees, variables that impact the fees, and differentiation among types of subscribers, and whether the fee is incorporated into the price displayed for a security, and the Commission would provide examples of responsive information in a parenthetical in the text of each subpart.625 The Item also would require a range for each type of fee (e.g., subscription, connectivity, and market data) charged on the Covered ATS. The Commission is proposing to add the term ‘‘market data’’ to the examples listed in Part III, Item 18 of the types of fees that a Covered ATS must disclose. For example, if a Covered ATS distributed a market data feed and charged a fee for it, the ATS would be required to provide the information responsive to Item 18 regarding that fee. The Commission believes this example may be relevant to Government Securities ATSs, which are primarily lit venues that offer market data to subscribers. While most NMS Stock ATSs do not disseminate market data, a description of an NMS Stock ATS’s market data fees is currently required by the Item, which requires disclosure of ‘‘any’’ fee or charge for use of the ATS services. Adding the example could assist Covered ATSs in responding comprehensively to the Item. The Commission recognizes that the fee structures of Covered ATSs can vary and that not all Covered ATSs apply set tiers or categories of fees for subscribers; however, the Commission believes that a market participant should have sufficient information to understand the fees for using the services of the Covered ATS. Recognizing the various fees that can be charged by Covered ATSs, the Commission is specifying in the fee request the types of information that a Covered ATS must provide in response to the Commission’s proposed request to describe its fees (e.g., the structure of the fees, variables that impact each fee, differentiation among types of subscribers, and the range of fees). With regard to the variables that impact the fees set, ATSs would be required to be specific and delineate how a given variable would likely impact the fee level (e.g., higher or lower). In addition, the Commission is proposing to add a new requirement not included in current Form ATS–N that the Covered ATS must disclose whether the fee is incorporated into the price displayed for a security (e.g., markups, markdowns). For example, the price displayed by the security may be higher (or lower) than the market price, and the broker-dealer would be compensated by the difference between the displayed price and the market price. The Commission believes that, in particular, such fees or charges may be relevant to communication protocols that would be

626The Covered ATS services generally include those services used for the purpose of effecting transactions in securities, or for submitting, disseminating, or displaying trading interest in the ATS. See 17 CFR 242.300(b). 627See NMS Stock ATS Adopting Release, supra note 2, at 38858 (discussing what fees should be categorized as for use of the ATS’s services). 628See NMS Stock ATS Adopting Release, supra note 2, at 38858 (discussing responses to current Item 19(b) (proposed Item 18(b)) depending on whether there is an explicit fee for the ATS as part of any bundled services). 629The Commission is proposing to revise Form ATS–N, Part III, Item 19 of revised Form ATS–N (numbered as Item 20 in current Form ATS–N) to reference trading in U.S. Treasury Securities and Agency Securities. 630See Regulation SCI Adopting Release, supra note 3, at 72254–55 n.28. 631See id. at 72255 n.29. included under the proposed definition of ‘‘exchange.’’ These disclosures are designed to provide market participants with more insight regarding the fees charged so that they can better understand how fees may apply to them and assess how such fees may impact their trading strategies. Although the fees charged for Covered ATS services may be individually negotiated between the broker-dealer operator and the subscriber, the disclosures about the type of fees charged by the Covered ATS are designed to help market participants discern how the ATS’s fees are organized and compare that information across Covered ATSs, which could reduce the search costs of market participants in deciding where to send their trading interest. The Commission believes that Covered ATSs should be required to disclose differences in the treatment among ‘‘types of subscribers’’ (e.g., broker-dealers, institutional investors, retail). This information would allow subscribers to observe whether a Covered ATS is offering preferential treatment for certain types of subscribers with respect to fees.
Part III, Item 18(a) would cover
charges to subscribers for their ‘‘use of the ATS services’’ 626 and would not request information on fees charged for non-ATS services by a third party not in contract with the broker-dealer operator.627 Part III, Item 18(b) would require a description of any bundled fees, including a summary of the bundled services and products offered by the broker-dealer operator or its affiliates, the structure of the fee, variables that impact the fee (including, for example, whether the particular broker-dealer services selected would impact the fee), differentiation among types of subscribers, and range of fees.
Part III, Item 18(b) is designed to allow
market participants to better evaluate fees for bundled services and products that include access to the Covered ATS. Covered ATSs would be required to provide information, including the relevant services and products offered by the broker-dealer operator and its affiliates for each bundled fee offered, that will provide context to market participants with which to assess how bundled fees could apply to them as subscribers.628 The disclosure requests under Part III, Item 18 would contain a stand-alone Item—Item 18(c)—which requests information about rebates and discounts of fees that are identified in subparts (a) and (b) of Item 18. Item 18(c) would require information about rebates and discounts that is similar to information required for fees (e.g., type of rebate or discount, structure of the rebate or discount, variables that impact the rebate or discount, differentiation among types of subscribers, and range of rebate or discount). Request for Comment
131. What fees should the
Commission require a Covered ATS subject to the Fair Access Rule to disclose on Form ATS–N? Are there any fees disclosures that are unique to NMS Stock ATSs or Government Securities ATSs and, if so, what information about those fees should be disclosed on Form ATS–N?
132. What disclosures about bundled
fees would be relevant and useful to potential and current subscribers to the ATS?
133. What fees should the
Commission require a Communication Protocol System that operates as a Covered ATS to disclose on Form ATS–N? s. Item 19: Suspension of Trading
Part III, Item 19 of Form ATS–N
would require a Covered ATS to provide information about any procedures for suspending or stopping trading in the ATS, including the suspension of trading in an NMS stock, U.S. Treasury Security, or an Agency Security.629 This Item is designed to, for example, inform market participants of whether, among other things, a Covered ATS will continue to accept trading interest after a suspension or stoppage occurs, whether the ATS cancels, holds, or executes trading interest that was resting in the ATS before the suspension or stoppage was initiated, and what type of notice the ATS provides to subscribers regarding a suspension or stoppage. Examples of system disruptions would include, but are not limited to, internal software problems that prevent the Covered ATS’s system from opening or continuing trading,630 a significant increase in volume that exceeds the ability of the trading system of the ATS to process incoming trading interest,631 and the failure of the trading system of the ATS to receive external pricing information that is used in the system’s pricing methodology. Information regarding a Covered ATS’s procedures about how trading interest might be handled by the ATS during a suspension or stoppage of trading would be useful to market participants because an ATS’s procedures might require the cancelation of existing trading interest or preclude the acceptance or execution of trading interest during a suspension, both of which would impact a subscriber’s trading interest or its ability to trade in the ATS. This information would better inform a subscriber’s trading decisions at the time of such an event and thus help that subscriber accomplish its trading objectives. If a Covered ATS establishes different procedures for suspending or stopping trading in the ATS depending on whether the source of the disruption is internal or external, a description of both procedures would be responsive to this request. In addition, this Item would require disclosure of procedures whereby a Covered ATS suspends trading in NMS stocks, U.S. Treasury Securities, or Agency Securities so that it does not cross the volume thresholds, as proposed herein, that may subject the ATS to certain Federal securities laws, including the order display and execution access rule (Rule 301(b)(3)), Fair Access Rule, or Regulation SCI. Information regarding the procedures for how a Covered ATS would handle trading interest during a suspension of trading or system disruption or malfunction would help the Commission better monitor the securities markets. Request for Comment
134. Should Form ATS–N request
information about any procedures for suspending or stopping trading that is particularly relevant to Government Securities ATSs (inclusive of Communication Protocol Systems, as proposed) or Communication Protocol Systems that trade NMS stock? t. Item 20: Trade Reporting
Part III, Item 20 of Form ATS–N
would require a Covered ATS to provide information on any procedures and material arrangements for reporting

632This question is substantially the same as Part III, Item 21 of current Form ATS–N. 633See supra notes 228–229 and accompanying text. 634The contractual obligations of the ATS are ultimately those of the broker-dealer operator. Because an ATS must register as a broker-dealer, the broker-dealer operator controls the ATS and 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. See NMS Stock ATS Adopting Release, supra note 2, at 38819. 635See Treasury Market Practices Group (TMPG), White Paper on Clearing and Settlement in the Secondary Market for U.S. Treasury Securities (July 12, 2018), available at https://www.newyorkfed.org/ medialibrary/Microsites/tmpg/files/CS-DraftPaper￾071218.pdf. ‘‘The TMPG found that many market participants do not understand the role of the [interdealer brokers] platform in terms of who their counterparty credit risk was to and the roles of various market participants in settlement and clearing.’’ Id. at 27. transactions in the ATS.632 For Government Securities ATSs, FINRA member firms are required to report transactions in U.S. Treasury Securities and Agency Securities to TRACE.633
Part III, Item 20 would require a
Covered ATS to disclose its trade reporting procedures for reporting transactions in the ATS to an SRO or any alternative trade reporting destinations, if applicable. For example, it would be responsive to Item 20 for a Covered ATS to disclose whether the ATS has a specific procedure for reporting transactions to the SRO at different times based on, for example, a subscriber’s use of a particular order type, or the type of subscriber involved in the transaction. Covered ATSs would also be required to disclose ‘‘material’’ arrangements for reporting transactions in the ATS. The Commission recognizes that there could be arrangements relevant to trade reporting, such as the specific software used to report, that play a minor role in the ATS’s trade reporting and need not be disclosed. On the other hand, if a Covered ATS uses another party to report transactions occurring in the ATS or has a backup facility that it uses for trade reporting, that information is likely to be responsive as a material arrangement. Requiring reporting only of material arrangements would limit potential burdens on Covered ATSs while providing market participants with sufficient information to understand how their trade information will be reported. Also, the proposed disclosure of the trade reporting procedures would allow the Commission to more easily review the compliance of the Covered ATS with its applicable trade reporting obligations as a registered broker-dealer as proposed herein. u. Item 21: Post-Trade Processing, Clearance, and Settlement
Part III, Item 21 is designed to provide
information on any procedures and material arrangements undertaken as a result of the contractual agreements between the broker-dealer operator for the Covered ATS 634 and the ATS’s participants to manage the post-trade processing, clearance, and/or settlement of transactions on the Covered ATS. The Commission is proposing revisions to
Part III, Item 21 that would request
information about post-trade processing, which covers the steps taken after execution to prepare a trade for clearance and/or settlement. These steps include, but are not limited to, routing trade information to relevant parties; enrichment of trade details with supplemental information (such as counterparty account information) required to effect settlement; performing allocations whereby a block trade is broken down into various client accounts; comparing the terms of a trade submitted by each counterparty (performing matching) to reconcile the terms so as to generate an affirmed confirm; performing sequential affirmation and confirmation processes; or sending notifications to interested parties, such as custodians. These types of activities can be performed both manually (with trading desk, middle office, or back office personnel completing the steps) or through automated activity processes (which seek to achieve the goal of straight￾through processing whereby trade information passes through the necessary steps to effect settlement in an automated manner). The proposed revisions to Part III, Item 21 provide some specific examples of the types of procedures and material arrangements that should be described by a Covered ATS under this Item, such as whether the broker-dealer operator, or an affiliate of the broker-dealer operator becomes a counterparty; submits trades to a registered clearing agency; requires subscribers to have arrangements with a clearing firm, or terminates trades. These examples are intended to be illustrative and not the only types of material arrangements that may exist. From Commission staff’s experience reviewing Form ATS–N, the Commission understands that broker￾dealer operators have different arrangements and contractual obligations that are important to understanding the clearance and settlement of transactions in the ATS. A Covered ATS would also be required to describe any user requirements for such procedures and material arrangements, including the type and extent of connectivity (e.g., FIX), and whether the connectivity is to an order management system (OMS), execution management system (EMS), end-of-month expirations (EOMS), clearinghouse/custodian, or other system. The integrity of the trading markets depends on the prompt and accurate post-trade processing, clearance, and/or settlement of securities transactions. For example, counterparties to a trade face counterparty credit risk, regardless of whether they choose to clear and settle bilaterally or through a central counterparty, and therefore knowledge of any specific arrangements that are required by an ATS as part of the clearing process promotes market integrity.635 The Covered ATS’s procedures or material arrangements that address post-trade processing, clearance, and/or settlement are critical to ensuring that a buyer receives securities and a seller receives proceeds in accordance with the agreed-upon terms of the trade by settlement date. The
disclosures required by this Item are intended to cover each of the steps in the post-trade process from the time of execution (including whether the broker-dealer operator or an affiliate of the broker-dealer operator is a counterparty to a transaction and whether the obligations of a counterparty are ever assigned or novated), through trade matching or affirmation/confirmation, and then through clearing procedures (including whether the Covered ATS requires its participants to be a member of a registered clearing agency, whether participants have any particular clearing obligations, and whether transactions are—wholly or partially—submitted to a registered clearing agency or cleared bilaterally using clearing banks or clearing agents), until settlement of the transaction (including whether counterparties make use of custodians, settlement banks, or a registered clearing agency). If the Covered ATS has adopted post-trade processing, clearing, and/or settlement processes or imposes any obligations on its participants in the event of a disruption (for example, a failure to deliver securities, a liquidity shortfall, or a counterparty default), this proposed Item should include a discussion of these processes and any resulting participant obligations. The Item requires the disclosure of ‘‘material’’ arrangements to manage the post-trade processing, clearance, and/or settlement of transactions on the Covered ATS. For example, an arrangement under which another party would have a role in clearance or settlement may constitute a material

636This Item is currently numbered as Part III, Item 23 of current Form ATS–N. 637Part III, Item 23 of revised Form ATS–N (currently numbered as Part III, Item 24 of current Form ATS–N) would be required only for NMS Stock ATSs, as the associated rule is inapplicable to government securities. See also NMS Stock ATS Adopting Release, supra note 2, at Section V.D.24. 638 17 CFR 242.301(b)(3). 639See supra Section III.D. 640The Commission is proposing changes to the Fair Access Rule, which are discussed in detail below. See infra Section V.A.2. 641See infra Sections V.A.3 through V.A.4. 642See 17 CFR 242.301(b)(5)(iii)(A). The Commission is proposing that any change in a Covered ATS’s response to Item 24 would be filed as a contingent amendment. See supra note 440 and accompanying text. arrangement that could trigger the disclosure requirement under Part III, Item 21. Limiting the explanation required to material arrangements would reduce the burden on Covered ATSs while at the same time still allowing market participants to understand and more easily compare such arrangements required across Covered ATSs. Proposed Part III, Item 21 is also designed to help market participants understand the measures the Covered ATS takes to manage post-trade processing, clearance, and/or settlement of transactions. Market participants should know and be able to understand any requirements a Covered ATS places on its subscribers, or other persons whose trading interest is sent to the ATS, to receive certain post-trade processing, clearance, and/or settlement services. The Commission believes market participants would likely find the disclosures required by this Item to be useful in understanding the measures undertaken by a Covered ATS to manage post-trade processing, clearance, and/or settlement of subscriber orders in the ATS and allow them to more easily compare these arrangements across Covered ATSs as
part of deciding where to send their
trading interest. The Commission believes that these disclosures would assist the Commission in better understanding the post-trade processing, clearance, and/or settlement procedures of Covered ATSs and risks and trends in the market as part of its overall review of market structure. Request for Comment
135. What aspects of the procedures
and material arrangements undertaken to manage the post-trade processing, clearance, and/or settlement of transactions on Covered ATSs are important for ATSs to disclose on Form ATS–N for the benefit of market participants?
v. Item 22: Market Data
Part III, Item 22 636 of Form ATS–N is
designed to solicit information about the sources of market data used by the Covered ATS and how the ATS uses that market data from these sources to provide the services that it offers. As the Commission is proposing to apply Form ATS–N to Government Securities ATSs, the Commission is proposing to add to
Part III, Item 22 to include ‘‘feeds from
trading venues’’ in the examples of sources of market data, which may be applicable to Government Securities ATSs. Specifically, market participants would likely find it useful to know the source and specific purpose for which the market data is used by the Covered ATS, as the market data received by the ATS might affect the price at which trading interest is prioritized and executed, including trading interest that is pegged to an outside reference price. An NMS Stock ATS, for example, would be required to provide the names of national securities exchanges from which the ATS receives direct market data feeds, either from a vendor or directly from the exchange, in addition to the specific types of market data received from each source. In addition, a Covered ATS would be required to provide information about how the ATS uses market data to provide the services it offers. To avoid duplicative disclosure, market data reflecting options traded on government securities that is used by the ATS could be discussed in response to proposed Part III, Item 11. The Commission is proposing to include determining the best bid or offer (BBO) as an example of how the ATS uses market data, which could be applicable to Government Securities ATSs. Among other things,
Part III, Item 22 requires the disclosure
of the use of market data to display, price, prioritize, execute, and remove trading interest. As part of this explanation, the Covered ATS would be required to specify, if applicable, when the ATS may change sources of market data to provide its services. A Covered ATS would also be required to explain how market data is received by the ATS, compiled, and delivered to the matching engine. For example, among other possible arrangements, a Covered ATS could explain in response to the Item that market data is received and assembled by the broker-dealer operator, and subsequently delivered to the matching engine, or that market data is sent directly to the matching engine, which normalizes the data for its use. Request for Comment
136. What are the sources of market
data in NMS stocks, government securities, and repos that are available to market participants as well as to Covered ATSs and how do market participants and ATSs use this information? What disclosures about an ATS’s use of market data would be important to market participants? w. Item 23: Order Display and Execution Access
Part III, Item 23 is designed to provide
information about whether an NMS Stock ATS is required to comply with Rule 301(b)(3)(ii) of Regulation ATS.637 The Commission is not proposing to make changes to this Item, other than specifying that this Item would be applicable to NMS Stock ATSs, as the order display and execution access provisions under Rule 301(b)(3) only apply to an ATS’s NMS stock activities.638
x. Item 24: Fair Access
Part III, Item 24 of Form ATS–N
would provide a mechanism under which a Covered ATS would notify market participants whether it has triggered the proposed fair access threshold and, if so, whether the ATS is subject to the Fair Access Rule. As described above, the Commission is proposing to require Government Securities ATSs to comply with the Fair Access Rule if they meet the applicable thresholds.639 As a result, Part III, Item 24 would be applicable to both NMS Stock ATSs and Government Securities ATSs that meet the applicable thresholds. Pursuant to proposed Rule 301(b)(5)(ii), a Covered ATS would aggregate the trading volume for a security or category of securities for ATSs that are operated by a common broker-dealer, or ATSs that are operated by affiliated broker-dealers for the purpose of calculating the volume thresholds.640 In connection with proposed Rule 301(b)(5)(ii), the Commission is proposing to require the Covered ATS to indicate in Part III, Item 24(a) through (c) if the ATS crossed the volume thresholds ‘‘whether by itself or aggregated pursuant to Rule 301(b)(5)(ii).’’ If a Covered ATS crosses the fair access thresholds, proposed Rule 301(b)(5)(iii)(A) 641 requires the ATS to establish and apply reasonable written standards for granting, limiting, and denying access to the services of the ATS.642 If subject to the Fair Access Rule, the Covered ATS would be required to describe the reasonable written standards for granting, limiting, and denying access to the services of the ATS pursuant to Rule 301(b)(5)(iii) of