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).
    \150\ An 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).
    \151\ See Regulation ATS Adopting Release, supra note 31, at
70867.
    \152\ See 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.
---------------------------------------------------------------------------

    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\
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    \153\ See infra Section III.B.4 and Section V.A.
    \154\ An 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.
    \155\ See 17 CFR 242.301(b)(5).
    \156\ See infra Section III.B.4.
---------------------------------------------------------------------------

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

    \157\ An 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).
    \158\ See 17 CFR 242.301(b)(6)(i).
---------------------------------------------------------------------------

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

    \159\ Regulation 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.
    \160\ See infra Section III.C.
---------------------------------------------------------------------------

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

    \161\ See 17 CFR 242.301(b)(7).
---------------------------------------------------------------------------

    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

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

    \162\ See 17 CFR 242.301(b)(8).
    \163\ See 17 CFR 242.302. Rule 302 requires all ATSs to make and
keep current certain records, including: A record of subscribers to
the ATS; daily summaries of trading in the ATS; and time-sequenced
records of order information in the ATS. See 17 CFR 242.302.
    \164\ See 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.
    \165\ See supra note 98 and accompanying text.
    \166\ Specifically, 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).
    \167\ See Regulation ATS Adopting Release, supra note 31, at
70878.
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    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\
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    \168\ These 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.
    \169\ See 17 CFR 242.301(b)(10); NMS Stock ATS Adopting Release,
supra note 2, Section VI.
    \170\ See 17 CFR 242.301(b)(10)(ii).
    \171\ See NMS Stock ATS Adopting Release, supra note 2, at
38864.
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    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\
---------------------------------------------------------------------------

    \172\ See 17 CFR 242.301(b)(11); Regulation ATS Adopting
Release, supra note 31, Section II.C.
    \173\ See Securities Exchange Act Release No. 39884 (April 17,
1998), 63 FR 23504, 23523 (April 29, 1998) (``Regulation ATS
Proposing Release'').
---------------------------------------------------------------------------

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

    \174\ For purposes of the rule text, the Commission is proposing
to apply the transitional rules to ``Newly Designated ATSs.''
    \175\ A 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.
    \176\ After 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.
    \177\ See 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 Sec.  240.3a1-1(a)(3)
prior to effective date of any final rule) not registered as a
broker-dealer. See infra note 283.
---------------------------------------------------------------------------

    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

operations and facilitate oversight of the systems.
---------------------------------------------------------------------------

    \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).
    \179\ The rule text uses the term ``Covered Newly Designated
ATS.''
    \180\ See proposed changes to Rule 301(b)(2)(i).
    \181\ See infra note 300 and Section IV.A.
---------------------------------------------------------------------------

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

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

    \182\ Under the Exchange Act, government securities are defined
as, among other things, securities which are direct obligations of,
or obligations guaranteed as to principal or interest by, the United
States. See 15 U.S.C. 78c(42)(A). Government securities include U.S.
Treasury securities, debt securities issued or guaranteed by a U.S.
executive agency, as defined in 5 U.S.C. 105, or government-
sponsored enterprise, as defined in 2 U.S.C. 622(8), and Agency
Mortgage-Backed Securities (``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).
    \183\ See 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.
    \184\ See 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.
    \185\ See id. at 3.
    \186\ See SIFMA Fixed Income Trading Volume, available at
https://www.sifma.org/resources/research/us-fixed-income-trading-volume/. This includes U.S. Treasury Securities, Agency Mortgage-
Backed Securities, and Federal Agency Securities.
---------------------------------------------------------------------------

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

    \187\ See 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.
    \188\ See 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.
    \189\ See infra note 193 for a description of ``off-the-run''
securities.
    \190\ See James Collin Harkrader and Michael Puglia, Fixed
Income Market Structure: Treasuries vs. Agency MBS, Board of
Governors of the Federal Reserve System: FEDS NOTES (August 25,
2020), available at https://www.federalreserve.gov/econres/notes/feds-notes/fixed-income-market-structure-treasuries-vs-agency-mbs-20200825.htm (``August 25th FEDS Notes'') (explaining the recent
evolution of the government securities market structure).
---------------------------------------------------------------------------

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

    \191\ STRIPS 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.
    \192\ On-the-run U.S. Treasury Securities are the most recently
issued nominal coupon securities. Nominal coupon securities pay a
fixed semi-annual coupon and are currently issued at original
maturities of 2, 3, 5, 7, 10, 20, and 30 years. These standard
maturities are commonly referred to as ``benchmark'' securities
because the yields for these securities are used as references to
price a number of private market transactions.
    \193\ Off-the-run or ``seasoned'' U.S. Treasury Securities are
the issues that preceded the current on-the-run securities. The U.S.
Treasury Securities market also comprises futures and options on
U.S. Treasury Securities, and securities financing transactions in
which U.S. Treasury Securities are used as collateral. See Treasury
Request for Information, supra note 188, at 3928. For the purpose of
this proposal, the Commission focuses on the secondary cash market.
---------------------------------------------------------------------------

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

    \194\ See id.
    \195\ See id.
    \196\ See id. For the purposes of this proposal, internalization
refers to a broker filling a customer order either from the firm's
own inventory or by matching the order with other customer order
flow, instead of sending the order to an interdealer market for
execution. See id. at 3928 n.5.
---------------------------------------------------------------------------

    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

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

    \197\ See 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.
    \198\ The growth of electronic trading has contributed to a
marked shift in the composition of the interdealer cash market for
U.S. Treasury Securities over time. Traditionally, interdealer
brokers only allowed primary dealers to access their trading venues.
After 1992, however, interdealer brokers expanded access to all
entities that were netting members of the Government Securities
Clearing Corporation (which is now the Fixed Income Clearing
Corporation's Government Securities Division). Thereafter, other
entities gained access to these trading venues through their prime
brokers, who themselves had access, and in recent years the trading
venues granted direct access to an even wider range of participants,
including non-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.
    \199\ See infra Table VIII.2 and accompanying text.
    \200\ For 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.
    \201\ Also, 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.
    \202\ See 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.
    \203\ While trading in on-the-run securities likely accounts for
more than half of total daily trading volumes, off-the-run U.S.
Treasury Securities make up over 95 percent of the outstanding
marketable U.S. Treasury Securities. See G30 Report, supra note 183,
at 1, n.2.
---------------------------------------------------------------------------

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

    \204\ See U.S. Department of the Treasury Resource Center,
``Fixed Income: Agency Securities,'' available at https://www.treasury.gov/resource-center/faqs/Markets/Pages/fixedfederal.aspx. 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.
    \205\ Additionally, repos on government securities are also
traded on some ATSs.
---------------------------------------------------------------------------

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

    \206\ PTFs 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.'').
    \207\ See 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.
    \208\ See infra Table VIII.2. (ATS PTF volume/ATS volume) x 100
= PTF share of ATS volume (%).
    \209\ See October 15 Staff Report, supra note 188, at 32, 35-36,
39.
    \210\ See November 2021 IAWG Report, supra note 184, at 5;
October 15 Staff Report, supra note 188, at 38.
    \211\ See October 15 Staff Report, supra note 188, at 37.
---------------------------------------------------------------------------

    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

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

    \212\ See, e.g., BrokerTec Letter, SIFMA Letter, AFREF Letter.
    \213\ See FINRA Letter.
    \214\ See SIFMA Letter at 2.
    \215\ See also MFA Letter at 4.
    \216\ See AFREF Letter at 1.
    \217\ See id.
    \218\ See 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).
---------------------------------------------------------------------------

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 15C \223\
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\
---------------------------------------------------------------------------

    \219\ 17 CFR 240.3a1-1(a)(3).
    \220\ 17 CFR 242.301(a)(4)(ii)(A).
    \221\ 17 CFR 242.301(b).
    \222\ See 15 U.S.C. 78o(b) (pertaining to the registration and
regulation of brokers and dealers).
    \223\ See 15 U.S.C. 78o-5 (pertaining to the registration and
regulation of government securities brokers and dealers).
    \224\ See 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.
    \225\ See 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.
    \226\ Some ATSs that are eligible for the exemption voluntarily
comply with Regulation ATS, even though ATSs that trade only
government securities are not required to comply with Regulation ATS
at all.
---------------------------------------------------------------------------

    ATSs that 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

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

    \227\ See supra notes 130-131 and accompanying text.
    \228\ See FINRA Rule 6730(a)(1) requires FINRA members to report
transactions in TRACE-Eligible Securities, which FINRA Rule 6710
defines to include U.S. Treasury Securities and Agency Securities.
For each transaction in U.S. Treasury Securities and Agency
Securities, a FINRA member would be required to report the CUSIP
number or similar numeric identifier or FINRA symbol; size (volume)
of the transaction; price of the transaction (or elements necessary
to calculate price); symbol indicating whether transaction is a buy
or sell; date of trade execution (``as/of'' trades only); contra-
party's identifier; capacity (principal or agent); time of
execution; reporting side executing broker as ``give-up'' (if any);
contra side introducing broker (in case of ``give-up'' trade); the
commission (total dollar amount), if applicable; date of settlement;
if the member is reporting a transaction that occurred on an ATS
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).
    \229\ FINRA Rule 6750(a) requires FINRA to disseminate
information on all transactions on certain securities, including
Agency Securities (but excluding U.S. Treasury Securities),
immediately upon receipt of the transaction report. FINRA is
permitted to publish or distribute weekly aggregated transaction
information and statistics on U.S. Treasury Securities, and has
stated that it intends to publish weekly volume information
aggregated by U.S. Treasury subtype (e.g., Bills, Floating Rate
Notes, Treasury Inflation-Protected Securities, and Nominal
Coupons). See Securities Exchange Release No. 87837 (December 20,
2019), 84 FR 71986 (December 30, 2019) (approving a proposed rule
change to allow FINRA to publish or distribute aggregated
transaction information and statistics on U.S. Treasury Securities).
    \230\ See 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.
    \232\ See 17 CFR 242.301(b)(5).
    \233\ See 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).
    \235\ See supra notes 157-158 and accompanying text.
---------------------------------------------------------------------------

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

    \236\ 17 CFR 242.304. See also supra notes 139-143 and
accompanying text.
    \237\ See supra notes 149-151 and accompanying text.
    \238\ See supra note 152 and accompanying text.
---------------------------------------------------------------------------

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

    \239\ See supra Section II.A.
    \240\ See, e.g., 2020 Proposal, supra note 4, at 87125.
    \241\ See id. at Section III.B.4 (discussing the Fair Access
Rule) and III.C (discussing Regulation SCI).
---------------------------------------------------------------------------

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

    \242\ See proposed Rule 300(l).
    \243\ 17 CFR 242.300(a). See Regulation ATS Adopting Release,
supra note 31, at 70851-52.
    \244\ See proposed Rule 300(l).
    \245\ An 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.
    \246\ Broker-dealers that operate Government Securities ATSs
that are currently subject to Regulation ATS already must have
established written safeguards and written procedures to protect
subscribers' confidential trading information, pursuant to Rule
301(b)(10), and already must make and keep records pursuant to Rule
301(b)(8) that are tailored to the types of securities the ATS
trades and the subscribers that trade those securities on the ATS.
The Commission believes the proposal is broadly consistent with the
manner in which broker-dealers that operate NMS Stock ATSs and non-
NMS Stock ATSs currently comply with Regulation ATS. For further
discussion, see infra Section III.B.3.
---------------------------------------------------------------------------

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

    \247\ See ICE Bonds Letter I at 5.
    \248\ See 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.
    \249\ See id.
---------------------------------------------------------------------------

    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

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

    \250\ See id.
    \251\ See supra note 246.
    \252\ See infra Section IV.D.4.f.
    \253\ See infra Section IV.D.5.k.
---------------------------------------------------------------------------

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

    \254\ See proposed Rule 300(k).
    \255\ See current Rule 301(b)(2)(viii).
    \256\ See 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.
---------------------------------------------------------------------------

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

    \257\ See proposed Rule 300(m).
    \258\ See proposed Rule 300(s).
---------------------------------------------------------------------------

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

    \259\ See proposed Rule 300(o)-(p).
    \260\ See infra Section III.B.4. The proposed definitions are
similar to those in FINRA's rules. See FINRA Rules 6710(l) and
6710(p).
---------------------------------------------------------------------------

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

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

    \261\ See 17 CFR 240.3a1-1(a)(3) and 17 CFR 242.301(a)(4).
    \262\ The 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.
    \263\ See Regulation ATS Adopting Release, supra note 31, at
70878. See also infra notes 287-297 and accompanying text.
---------------------------------------------------------------------------

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

    \264\ See, 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.
    \265\ See 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).
    \266\ See Citadel Letter.
    \267\ See MFA Letter at 3.
    \268\ See SIFMA Letter at 2.
---------------------------------------------------------------------------

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

    \269\ See Bloomberg Letter at 4.
    \270\ See id.
    \271\ See, 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).
---------------------------------------------------------------------------

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

    \272\ 15 U.S.C. 78o.
    \273\ See 15 U.S.C. 78o-5. Exchange Act Section 15C(a)(1)(A)
makes it unlawful for a government securities broker or government
securities dealer (other than a registered broker or dealer or a
financial institution) to make use of the mails or any means or
instrumentality of interstate commerce to effect a transaction in
any government securities unless the government securities broker or
government securities dealer is registered with Commission pursuant
to Exchange Act Section 15C(a)(2). See 15 U.S.C. 78o-5(a)(1)(A).
Section 15C(e) in turn generally requires that a government
securities broker or government securities dealer that is registered
or required to be registered under Section 15C(a)(1)(A) must be a
member of a registered national securities exchange or registered
securities association such as FINRA.
    \274\ Broker-dealers that limit their activity to government
securities require specialized registration under Section 15C of the
Exchange Act and do not have to register as general-purpose broker-
dealers under Section 15(b). See 15 U.S.C. 78o-5.
    \275\ See 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.
    \276\ See, e.g., FINRA Rule 1000 Series, FINRA Rules 4140, 4510,
4520, 4530, and 8210.
    \277\ See, e.g., FINRA Rule 6730.
    \278\ See, e.g., FINRA Rules 3110, 4370, 5210, 5220, 5230, 5310,
and 5340.
    \279\ See Regulation ATS Adopting Release, supra note 31, at
70863.

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

    In contrast, SRO membership is not required for a bank or other
financial institution that registers as a government securities broker
or dealer.\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\
---------------------------------------------------------------------------

    \280\ Unlike registered broker-dealers (Section 15(b)(8)) and
government securities brokers or government securities dealers that
are registered or required to be registered under Section
15C(a)(1)(A) (Section 15C(e)), there is no statutory requirement of
SRO membership for banks. Because banks typically operate in
reliance on exceptions from broker or dealer status, they are not
required to become a member of an SRO, such as FINRA. In this
regard, Exchange Act Section 3(a)(4)(B)(iii)(II) excludes from the
definition of ``broker'' a bank that effects transactions in
``exempted securities'' such as government securities. 15 U.S.C.
78c(a)(4)(B)(iii)(II). See Exchange Act Section 3(a)(12) (defining
``exempted securities'' to include ``government securities'' as
defined in Section 3(a)(42) of the Exchange Act). Exchange Act
Section 3(a)(5)(C)(i)(II) similarly excepts from the definition of
``dealer'' a bank that buys or sells exempted securities. 15 U.S.C.
78c(a)(5)(C)(i)(II).
    \281\ Exchange Act Section 15C(a)(1)(B) makes it unlawful for
any government securities broker or government securities dealer
that is a registered broker or dealer or a financial institution to
make use of the mails or any means or instrumentality of interstate
commerce to effect any transaction in, or to induce or attempt to
induce the purchase or sale of, any government security unless such
government securities broker or government securities dealer has
filed with the appropriate regulatory agency written notice that it
is a government securities broker or government securities dealer.
15 U.S.C. 78o-5(a)(1)(B)(i).
    \282\ See Exchange Act Sections 3(a)(6) (defining ``bank'') and
3(a)(46) (defining ``financial institution'').
---------------------------------------------------------------------------

    As a result, a bank-operated ATS that trades only government
securities or repos would be unable to rely on the exemption provided
by Regulation ATS, as proposed to be amended, and could not otherwise
operate unless registered as a national securities exchange 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\
---------------------------------------------------------------------------

    \283\ See 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.
    \284\ See 17 CFR 242.301(b)(3)-(4).
    \285\ See infra Section III.B.4.
    \286\ See infra Section III.C.
---------------------------------------------------------------------------

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

    \287\ See 17 CFR 242.301(b)(7). See also Regulation ATS Adopting
Release, supra note 31, Section IV.A.2.f.
    \288\ See Regulation ATS Adopting Release, supra note 31, at
70877.
---------------------------------------------------------------------------

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

    \289\ See supra note 163.
    \290\ See supra notes 164 and 166.
    \291\ See 17 CFR 242.301(b)(8). See also Regulation ATS Adopting
Release, supra note 31, Section IV.A.2.g.
    \292\ See Regulation ATS Adopting Release, supra note 31, at
70878.
---------------------------------------------------------------------------

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

    \293\ See 17 CFR 242.301(b)(9). See also supra notes 144-148 and
infra Section III.B.4.
    \294\ See Regulation ATS Adopting Release, supra note 31, at
70874 and 70878.
---------------------------------------------------------------------------

     Adopt written safeguards and written procedures to protect
confidential trading information and to separate ATS functions from
other broker-dealer functions, including principal and customer trading
pursuant to Rule 301(b)(10).\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

of subscriber confidential trading information.\296\
---------------------------------------------------------------------------

    \295\ See 17 CFR 242.301(b)(10); infra note 168; NMS Stock ATS
Adopting Release, supra note 2, Section VI.
    \296\ See NMS Stock ATS Adopting Release, supra note 2, at
38864.
---------------------------------------------------------------------------

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

    \297\ See 17 CFR 242.301(b)(11); Regulation ATS Adopting
Release, supra note 31, Section II.C.
    \298\ See Regulation ATS Proposing Release, supra note 173.
---------------------------------------------------------------------------

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?
    24. 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?
3. 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).
---------------------------------------------------------------------------

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

    The Commission is proposing to amend Rule 301(b)(2)(viii) to make
clear that Covered ATSs are required to file reports pursuant to Sec.
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

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

    \300\ The Commission is also proposing to amend Rule
301(b)(2)(viii) to state that Covered Newly Designated ATSs will be
subject to Rule 304.
    \301\ The 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.
    \302\ See Rule 3a1-1(a)(2) (providing that an organization,
association, or group of persons shall be exempt from the definition
of ``exchange'' if it is in compliance with Regulation ATS) and Rule
301(a) (providing that an ATS shall comply with the requirements of
Rule 301(b)).
    \303\ Under the proposed rules, a broker-dealer operator for an
ATS that currently trades government securities and corporate bonds,
for example, would file a Form ATS-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).
    \304\ See supra note 246 and accompanying text.
---------------------------------------------------------------------------

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

    \305\ See 17 CFR 242.301(b)(9).
    \306\ The 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.
    \307\ See supra notes 244 and 254 and accompanying text.
    \308\ See NMS Stock ATS Adopting Release, supra note 2, Section
III.B.5.
---------------------------------------------------------------------------

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

    \309\ See infra Section V.A. See also proposed Rule
301(b)(5)(iii).
    \310\ See 17 CFR 242.301(b)(5)(i).
---------------------------------------------------------------------------

    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

of trading volume in these two types of securities.\313\
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    \311\ See Regulation ATS Adopting Release, supra note 31, at
70872.
    \312\ See id.
    \313\ Under 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.
---------------------------------------------------------------------------

    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\
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    \314\ See, e.g., SIFMA Letter; MFA Letter; ICE Bonds Letter I;
and Healthy Markets Letter.
    \315\ See 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).
    \316\ See 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).
    \317\ See 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.
    \318\ See 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).
---------------------------------------------------------------------------

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

    \319\ See supra note 229.
    \320\ The 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.
---------------------------------------------------------------------------

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

    \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.
    \323\ For 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.
---------------------------------------------------------------------------

    Third, the Commission believes that it is appropriate to determine
these volume thresholds on a category basis.\324\ Given that U.S.
Treasury

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

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

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

    \325\ However, if, for example, during the six month period from
January to June, the Government Securities ATS met the threshold for
U.S. Treasury Securities only during January and April and met the
threshold for Agency Securities only during February and May, the
Government Securities ATS would not be subject to the Fair Access
Rule in July because the ATS would not have met the threshold for
either type of security during at least four of the preceding six
months in either U.S. Treasury Securities or Agency Securities.
---------------------------------------------------------------------------

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

    \326\ See AFREF Letter at 3.
    \327\ See Bloomberg Letter at 6.
    \328\ See SIFMA Letter at 5.
---------------------------------------------------------------------------

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

    \329\ See 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.
---------------------------------------------------------------------------

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

    \330\ See 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.
    \331\ Based 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.
    \332\ See 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.
    \333\ See id.
---------------------------------------------------------------------------

    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

markets that are important venues for trading in U.S. Treasury
Securities.
---------------------------------------------------------------------------

    \334\ Data is based on the regulatory version of TRACE for U.S.
Treasury Securities from April 1, 2021 through September 30, 2021.
---------------------------------------------------------------------------

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

    \335\ See Rule 301(b)(5)(i)(A)-(D).
    \336\ This ATS would also meet the proposed threshold for
trading in U.S. Treasury Securities.
---------------------------------------------------------------------------

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

    \337\ See 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