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    18. In light of comments that the concept of a communication
protocol system could capture various types of technologies used by
market participants for securities (e.g., GUIs, web chat providers,
primary market communication systems, software solutions, or trading
desks of a broker-dealer), please explain in detail and provide
examples of the specific activities performed through the use of such
technology identified by commenters.
    19. In response to the Proposing Release, the Commission received
several comments expressing concern that the expansion of Exchange Act
Rule 3b-16 might encompass general internet chat services, such as
WhatsApp, Twitter, and Reddit.\135\ As stated in the Proposing Release,
systems that provide general connectivity for persons to communicate
without protocols containing requirements and limitations to negotiate
trades for securities (e.g., utilities or electronic web chat
providers) would not fall within the definition of exchange, as
proposed to be amended.\136\ However, the determination as to whether a
given system would meet the criteria under Rule 3b-16(a), as proposed
to be amended, must be based on the facts and circumstances surrounding
the operation of the system, not the market name or categorization
(i.e., simply because a program is called a ``chat'' or ``messaging''
service, it does not mean the service is per se outside the scope of
Rule 3b-16(a), as proposed to be amended). For example, if a chat or
messaging service was provided with a display functionality for trading
interest in securities, an execution facility for securities, or
protocols for participants to negotiate, the mere fact that the system
contains a chat feature or message service would not necessarily
preclude it from meeting the criteria of Rule 3b-16 as proposed to be
amended. What features of a chat or message service could be considered
protocols (i.e., requirements or limitations) under Rule 3b-16, as
proposed to be amended, that would allow buyers and sellers to interact
and negotiate a trade for securities? Are there currently any types of
chat services that are solely used for discussing securities but are
not used for negotiating a securities trade? Are there any types of
chat services that are currently designed for buyers and sellers to
interact and negotiate a trade for securities? Please explain why or
why not.
---------------------------------------------------------------------------

    \135\ See, e.g., Chia Network Letter at 4-7 (stating that the
expansion to parties that ``make available'' established, non-
discretionary methods could capture large numbers of internet and
telecommunications providers, including any company that makes any
sort of messaging system available to internet users such as Twitter
and Reddit, and creates regulatory uncertainty for all such
entities); GDCA Letter II at 10 (stating that the term trading
interest ``sweeps up dialogue that otherwise would be outside the
rules,'' such as `` `inadvertent' or `incidental' exchange
activity'' through protocols ``with a primary social or business use
unrelated to trading'' that are ``used secondarily or incidentally
for trading'').
    \136\ See Proposing Release at 15502 n.72.
---------------------------------------------------------------------------

    20. Do commenters believe that there are other technologies, such
as social networking websites, business communication platforms,
financial information systems, blockchain technology nodes and smart
contracting platforms,\137\ that could be used to perform activities
that meet the criteria of Exchange Act Rule 3b-16(a), as proposed to be
amended? Are there any features of these systems that could be
considered protocols (i.e., requirements or limitations) that allow
buyers and sellers to interact and negotiate a trade for securities?
Please explain.
---------------------------------------------------------------------------

    \137\ See infra note 278.
---------------------------------------------------------------------------

    21. Form ATS is designed to enable the Commission to determine
whether an ATS subject to Regulation ATS is in compliance with
Regulation ATS and other federal securities laws.\138\ Form ATS
provides disclosures about, among other things, classes of subscribers,
securities traded, manner of operation, and procedures governing the
execution, reporting, clearance, and settlement of transactions.
Proposed Item 3(c) of Form ATS (current Form ATS Exhibit B) requires an
ATS to disclose a list of securities the ATS trades or expects to
trade, and requires disclosure of all securities, which includes crypto
asset securities.\139\
---------------------------------------------------------------------------

    \138\ See Form ATS Instruction A.6.
    \139\ See Proposing Release at 15653.

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

    22. Form ATS-N is designed to provide market participants with
information to, among other things, help them make informed decisions
about whether to participate on an NMS Stock ATS (and, as proposed, on
a Government Securities ATS).\140\ Proposed Part I, Item 8 of Form ATS-
N would require an NMS Stock ATS or Government Securities ATS to
disclose information about the NMS stocks and government securities
that it makes available for trading, which would include any NMS stocks
or government securities that are crypto asset securities.\141\ Should
the Commission adopt an amendment to proposed Item 3(c) of Form ATS or
proposed Part I, Item 8 of Form ATS-N to require ATSs and NMS Stock
ATSs and Government Securities ATSs to specifically identify the
securities that are crypto asset securities? Why or why not? Should the
Commission make any other changes to Form ATS and Form ATS-N in light
of the Proposing Release and the information provided in this Reopening
Release?
---------------------------------------------------------------------------

    \140\ See Form ATS-N Instruction D.
    \141\ See Proposing Release at 15542.
---------------------------------------------------------------------------

    23. Form ATS-R, which is filed on a quarterly basis and deemed
confidential when filed, is designed to enable the Commission to more
effectively track the growth and development of ATSs, as well as to
more effectively comply with its statutory obligations with respect to
ATSs, and improve investor protection.\142\ Among other things, Form
ATS-R requires ATSs to list all securities that were traded on the ATS
at any time during the period covered by the report \143\ and to report
total unit and dollar volume of transactions for certain categories of
securities.\144\ Should Form ATS-R be amended to require ATSs to
indicate whether any of the types of securities traded on the ATS are
crypto asset securities? For example, should Form ATS-R include a
checkbox for each type of security listed on Form ATS-R for the ATS to
indicate whether any of the securities transacted are crypto asset
securities? Why or why not? Should Form ATS-R be amended to require an
ATS to report the total unit and dollar volume of transactions in
crypto asset securities for each category of securities? Why or why
not? Should the Commission make any other changes to Form ATS-R in
light of the Proposing Release and the information provided in this
Reopening Release?
---------------------------------------------------------------------------

    \142\ See Form ATS-R Instruction A.7.
    \143\ See Form ATS-R Item 3. Form ATS-R also requires a list of
all subscribers that were participants of the ATS during each
calendar quarter. See Form ATS-R Item 2.
    \144\ See Form ATS-R Item 4. For example, Form ATS-R requires
NMS Stock ATSs to report the total unit and dollar volume of
transactions in NMS stocks that are reported to the consolidated
tape in ``Listed Equity Securities'' (Item 4A), ``Nasdaq National
Market Securities'' (Item 4B), or ``Nasdaq SmallCap Market
Securities'' (Item 4C). In the Proposing Release, the Commission
proposed to delete the categories ``Nasdaq National Market
Securities'' and ``Nasdaq SmallCap Market Securities'' and require
ATSs to report the total volume previously reported under these
categories under ``Listed Equity Securities.'' See Proposing Release
at 15580.
---------------------------------------------------------------------------

    24. Information about a New Rule 3b-16(a) System's operations,
including operations related to non-firm trading interest and protocols
provided for buyers and sellers to interact and negotiate the terms of
a trade, would be responsive to proposed Item 3(g) of Form ATS, which
requires a description of the manner of operation of the ATS. To assist
New Rule 3b-16(a) Systems in responding to Form ATS, should the
Commission adopt an amendment to proposed Item 3 of Form ATS to add the
following requirement as a disclosure: ``any display of trading
interest'' and ``protocols provided for buyers and sellers to interact
and negotiate the terms of a trade''? Please explain why or why not.
Although this information would be responsive to current Form ATS Item
8(a) and would be required to be included in current Form ATS Exhibit
F, the explicit references would make clear to ATSs that such
information is responsive to the form and must be provided.
    25. Proposed Item 3(j) of Form ATS (current Form ATS Item 8(d),
which is required to be disclosed on Exhibit F) would require an ATS to
provide ``a description of the procedures governing execution,
reporting, clearance, and settlement of transactions effected through
the [ATS].'' \145\ Should the Commission adopt an amendment to the Item
to include a reference to the use of DLT among the procedures so that
the Item would state that the ATS must include ``a description of the
procedures, including through use of DLT, governing execution,
reporting, clearance, and settlement of transactions effected through
the alternative trading system''? Please explain why or why not.
Although a description of the use of DLT, or any other technology, in
these processes is currently required by the term ``procedures,'' the
explicit reference to DLT would make clear that a description of its
use would be required to be provided in Form ATS.
---------------------------------------------------------------------------

    \145\ See id. at 15654.
---------------------------------------------------------------------------

    26. As discussed above, several commenters ask questions about how
so-called ``DeFi'' systems could comply with the requirements of
Regulation ATS.\146\ Form ATS-N, which provides operational
transparency and regulatory oversight of NMS Stock ATSs and, as
proposed, of Government Securities ATSs, is technology neutral and asks
questions designed to apply to ATSs that vary in structure and offer
many different functionalities and trading processes and procedures.
However, Form ATS-N provides examples of specific functionalities and
procedures that would be responsive to particular questions. To assist
subject systems in responding to Form ATS-N, should the Commission
adopt any changes, particularly to the examples provided in Form ATS-N,
to clarify and highlight the applicability of certain items in Form
ATS-N to NMS Stock ATSs and Government Securities ATSs that use DLT?
Should, for example, the Commission adopt amendments to proposed Part
II, Item 5 to provide examples of other products and services that the
operator of a system that uses DLT may provide for the purpose of
effecting transactions or submitting, disseminating, or displaying
trading interest on the ATS? \147\ Should the Commission adopt
amendments to Part III, Item 5(a) to provide web-based systems as an
example of means by which the NMS Stock ATS or Government Securities
ATS permits trading interest to be entered directly into the ATS? \148\
Should the Commission adopt amendments to Part III, Item 15 to provide
examples of blockchain-based means by which trading interest can be
displayed or made known to the ATS subscribers or the public? \149\
Should the Commission adopt amendments to proposed Part III, Item 21 to
provide examples of blockchain-based procedures to manage the post-
trade processing, clearance, and/or settlement on the ATS? \150\ Should
the Commission adopt amendments to proposed Part III, Item 22 to
provide examples of blockchain-based market data sources? \151\
---------------------------------------------------------------------------

    \146\ See, e.g., supra note 55.
    \147\ See Proposing Release at 15546-48.
    \148\ See id. at 15552-53.
    \149\ See id. at 15563-65. Such amendments could provide
examples of blockchain-based means by which: an ATS may display
trading interest to its subscribers or the public; a subscriber can
display or make known trading interest through the ATS; and trading
interest bound for the ATS is made known to any person. See id.
    \150\ See id. at 15568-69.
    \151\ See id. at 15569.
---------------------------------------------------------------------------

D. Exclusion From Exchange Act Rule 3b-16(a)

    In the Proposing Release, the Commission proposed to amend Rule 3b-
16(b) to add an exclusion from Rule 3b-16(a) for systems that allow an
issuer

to sell its securities to investors.\152\ The Commission stated in the
Proposing Release that the exclusion was merely codifying in Rule 3b-
16(b)(3) an example the Commission provided in the Regulation ATS
Adopting Release for systems that have a single seller of its
securities.\153\ While such systems have multiple buyers (i.e.,
investors), they have only one seller for each security (i.e., issuers)
and, therefore, do not meet the criteria of Rule 3b-16(a) because the
systems do not bring together multiple buyers and multiple
sellers.\154\
---------------------------------------------------------------------------

    \152\ See proposed Rule 3b-16(b)(3).
    \153\ See Regulation ATS Adopting Release at 70849.
    \154\ Id.
---------------------------------------------------------------------------

    One commenter states that it is unclear whether the issuer
exclusion would cover portals on which multiple issuers offer
securities.\155\ Another commenter suggests that the exclusion for
issuer systems should be revised to state that it applies to a system
that ``allows one or more issuers to sell their securities to
investors, either directly or through placement agents or
underwriters.'' \156\ This commenter states that a system that allows
more than one issuer to sell its own securities is a single
counterparty system because for any particular security, there is only
one counterparty, the issuer of the securities.\157\ This commenter
further states that including the phrase ``or through placement agents
or underwriters'' is needed to make clear that the issuer exclusion may
continue to be applied if the system permits an issuer to use brokers
or underwriters, and this approach is desirable because it permits the
interposition of registered brokers, who provide a multitude of
services protective of the rights of investors.\158\
---------------------------------------------------------------------------

    \155\ See SIFMA AMG Letter at 8.
    \156\ See ABA Letter at 8.
    \157\ Id. at 9.
    \158\ Id.
---------------------------------------------------------------------------

    Two commenters request that the Commission confirm that a system or
portal that an exchange-traded fund (``ETF'') sponsor uses to
facilitate ETF primary market operations (i.e., creation and redemption
of ETF shares) (``ETF Portal'') is not a communication protocol system,
as defined in the Proposing Release, and otherwise does not meet the
definition of ``exchange,'' as proposed to be amended.\159\ The
commenters state that ETF Portals enable registered broker-dealers that
serve as an ETF's authorized participants (``APs'') to communicate
creation or redemption requests for an ETF.\160\ One of the commenters
states that ETF Portals do not create a market place for secondary
market trading activity (i.e., trading of the actual ETF shares among
individual investors) because they are used by ETF sponsors for the
specific purpose of creating and redeeming their own issued
securities.\161\ In this respect, this commenter believes that ETF
Portals are similar to a system that allows issuers to sell their own
securities to investors.\162\ Another commenter similarly agrees that
ETF Portals should not be included in the definition of an ``exchange''
and does not believe there would be any public benefit to treating such
portals as exchanges and requiring ATS registration.\163\
---------------------------------------------------------------------------

    \159\ See SIFMA AMG Letter at 8; ICI Letter at 13. The
commenters state that they do not believe that the Commission
intended to classify ETF Portals as exchanges under Rule 3b-16, as
proposed to be amended. See id.
    \160\ See id.
    \161\ See ICI Letter at 14. This commenter also states that an
ETF Portal's activities are limited in the following respects: ``(1)
the scope of ETFs involved in the creation or redemption process is
confined to those offered by the ETF sponsor; (2) only registered
broker-dealers that have an established agreement with an ETF
sponsor's ETF to act as an AP can submit creation or redemption
requests to the ETF; and (3) the system or portal does not directly
facilitate secondary market activity in the ETF (i.e., trading of
the actual ETF shares among individual investors), nor does it
provide access for individual investors that are not registered
broker-dealers.'' Id. at 13.
    \162\ See id. at 14. This commenter further states that applying
the Regulation ATS and broker-dealer regulatory frameworks to ETF
Portals would impose unnecessary additional costs and burdens to the
ETF creation and redemption process, lead to unintended
consequences, and would not further the Commission's regulatory
objectives. See id. at 4.
    \163\ See SIFMA AMG Letter at 8.
---------------------------------------------------------------------------

Request for Comment
    27. Should the Commission adopt Rule 3b-16(b)(3), as proposed to be
amended? Why or why not? Should the Commission adopt the proposed Rule
3b-16(b)(3) exclusion but with certain revisions? If so, please
identify those revisions and explain. For example, should the
Commission adopt, as suggested by one commenter, the proposed issuer
exclusion with revisions to state that it applies to a system that
``allows one or more issuers to sell their securities to investors,
either directly or through placement agents or underwriters''? In
particular, should the Commission add ``one or more issuers'' to the
proposed issuer exclusion? What types of systems would be covered under
the revised issuer exclusion example above? Please explain. Is the
inclusion of ``either directly or through placement agents or
underwriters'' in the revised issuer exclusion example above necessary
or appropriate to clarify its application? If so, why?
    28. How do ETF Portals operate for the creation and redemption of
securities? Who are the participants in ETF Portals and how do they
interact? Are there any trading activities conducted as part of the
creation and redemption process through an ETF Portal that are exchange
activities or necessitate further clarification by the Commission as to
whether such activities are exchange activities? Do an ETF Portal's
activities facilitate secondary market activity in the ETF? Why or why
not? Does trading in ETF Portals involve multiple buyers and sellers of
securities? Why or why not? What non-discretionary methods are
generally used by ETF Portals?
    29. Do ETF Portals fall within the criteria of existing Exchange
Act Rule 3b-16(a) or Rule 3b-16(a), as proposed to be amended? Why or
why not? If the activities conducted through ETF Portals fall within
the criteria of existing Exchange Act Rule 3b-16(a) or Rule 3b-16(a),
as proposed to be amended, should the Commission adopt an exclusion
under Exchange Act Rule 3b-16(b)(3) for ETF Portals? If yes, please
explain why and explain what the exclusion should apply to. How should
an ETF Portal be defined for purposes of the exclusion? For example,
should the Commission expressly adopt an exclusion that applies only to
ETF Portals that fall within this definition: ``a system that allows
one or more issuers from the same sponsoring entity to solicit creation
or redemption requests for their own securities submitted by authorized
participants for those securities''? Should the Commission adopt an
exclusion that applies only to platforms that solely support primary
market transactions in investment company securities, where the issuer
of the security participates in each transaction either as the sole
buyer, or as the sole seller? If so, should the exclusion be available
only for securities issued by ETFs or also for securities issued by
other investment companies? Should the exclusion specify that it is
available only for transactions that take place at a price based on the
current net asset value of the security, as required by 17 CFR 270.22c-
1 (Rule 22c-1 under the Investment Company Act of 1940)? What ETF
Portals should not be excluded from Exchange Act Rule 3b-16(a)? Please
explain.

E. Compliance Date for Implementation of Proposed Amendments to Rule
3b-16

    Exchange Act Rule 3b-16, as proposed to be amended, would require,
if adopted, New Rule 3b-16(a) Systems to comply with federal securities
laws applicable to national securities exchanges and ATSs. These
systems may trade securities that are crypto asset securities, or
specific types of securities, including NMS stock, over-the-counter
(``OTC'') equity securities, corporate bonds, municipal securities,
government securities, foreign sovereign debt, asset-backed securities,
restricted securities, or options. New Rule 3b-16(a) Systems provide
access to numerous and diverse market participants (e.g., retail
investors, institutional investors, broker-dealers, issuers) seeking to
perform different trading strategies and investment objectives in
various types of securities. To facilitate these market participants'
trading strategies and investment objectives, providers of these
trading systems employ assorted technology and protocols (e.g.,
internet, DLT, cloud) and apply a variety of methods to bring together
buyers and sellers in securities (e.g., RFQ, indication of interest,
negotiation, conditional orders, bid wanted in competition, streaming
axes).
    Several commenters express concern that New Rule 3b-16(a) Systems
would not be provided enough time to comply with their new regulatory
obligations.\164\ As stated in the Proposing Release, the Commission
expects that many New Rule 3b-16(a) Systems would elect to register as
broker-dealers and comply with Regulation ATS; \165\ however, they can
also elect to register as exchanges.\166\ The Commission recognizes
that New Rule 3b-16(a) Systems are operating today and would seek to
comply with the Proposed Rules without disrupting their current
business and their participants. To facilitate the trading system
operators' compliance with the Proposed Rules, the Commission is
soliciting further public comment on any compliance dates for the
Proposed Rules.
---------------------------------------------------------------------------

    \164\ See, e.g., MarketAxess Letter at 5; Letter from Teana
Baker-Taylor, Chief Policy Officer, Chamber of Digital Commerce,
dated Mar. 24, 2022 (``Chamber Letter'') at 5; Letter from Elisa
Hirschmann, Executive Director, Chief Compliance Officer, BrokerTec
Americas LLC, CME Group, Inc., dated Apr. 18, 2022 at 4; Bloomberg
Letter I at 4-5; Letter from Scot J. Halvorsen, Associate General
Counsel, Cboe Global Markets, Inc., dated Apr. 18, 2022 (``Cboe
Letter'') at 2; Crypto Council Letter at 7.
    \165\ See Proposing Release at 15502.
    \166\ See id. at 15617-18.
---------------------------------------------------------------------------

Request for Comment
    30. Should the Commission adopt a compliance date to delay
implementation for New Rule 3b-16(a) Systems? Why or why not? Should
the Commission adopt the same compliance date for all New Rule 3b-16(a)
Systems or different compliance dates depending on certain factors,
such as the type of securities the system trades? Please explain. For
example, should the Commission adopt separate compliance dates to
implement the proposed amendments to Exchange Act Rule 3b-16 for
trading systems that trade one or more of the following: NMS stock, OTC
equity securities, corporate bonds, municipal securities, government
securities, foreign sovereign debt, asset-backed securities, restricted
securities, or options? Please explain.
    31. As indicated above, crypto assets generally use DLT as a method
to record ownership and transfers, and a crypto asset that is a
security is not a separate type or category of security for purposes of
federal securities laws based solely on the use of DLT.\167\ Should the
Commission adopt a separate compliance date for New Rule 3b-16(a)
Systems that trade crypto asset securities? \168\ Please explain. If
the Commission adopts a different compliance date for New Rule 3b-16(a)
Systems that trade crypto asset securities, for purposes of ascribing
such compliance date, should ``crypto asset securities'' be defined to
mean securities that are also issued and/or transferred using
distributed ledger or blockchain technology, including, but not limited
to, so-called ``virtual currencies,'' ``coins,'' and ``tokens,'' to the
extent they rely on cryptographic protocols? \169\ Please explain.
---------------------------------------------------------------------------

    \167\ See supra note 27 and accompanying text.
    \168\ Such a delayed compliance date for New Rule 3b-16(a)
Systems would not impact the obligation of systems that meet the
existing criteria of Rule 3b-16 to comply with existing rules.
    \169\ In the past, the Commission used this definition for
``digital asset securities'' in the Commission Statement on Custody
of Digital Asset Securities by Special Purpose Broker-Dealers. See
supra note 26.
---------------------------------------------------------------------------

    32. Should the Commission adopt a uniform compliance period for all
categories of securities that is one year? Or would a shorter or longer
time period than one year be sufficient or necessary? If commenters
believe the Commission should adopt different compliance dates for
trading systems that trade a category of security, what compliance date
should the Commission adopt for such trading systems? Please explain.
    33. Should the Commission adopt different compliance dates for New
Rule 3b-16(a) Systems based on the types of participants that trade on
the system? For example, should the Commission adopt a delayed
compliance date for trading systems that have predominately retail,
institutional, or broker-dealer participants? Please explain. What
compliance date should the Commission adopt for these types of trading
systems? Please explain.
    34. Should the Commission adopt different compliance dates for New
Rule 3b-16(a) Systems based on the different means by which
participants enter trading interest into the system? For example,
should the Commission adopt a delayed compliance date for trading
systems that perform intermediary services, such as entering trading
interest into the trading system on behalf of users or offering users
services other than trading? Should the Commission adopt a delayed
compliance date for trading systems that allow buyers and sellers to
enter trading interest into the system directly without an
intermediary? Please explain. What compliance date should the
Commission adopt for these types of trading systems? Please explain.
    35. Should the Commission adopt different compliance dates for New
Rule 3b-16(a) Systems based on different trading protocols that bring
together buyers and sellers to negotiate a trade? For example, should
the Commission adopt different compliance dates for trading systems
that provide RFQs, indications of interest, bids wanted in competition,
or streaming axes? Should the Commission adopt a delayed compliance
date for trading systems that use AMMs for buyers and sellers to enter
trading interest into the system and negotiate a trade? What compliance
date should the Commission adopt for these types of trading systems?
Please explain.
    36. Should the Commission adopt different compliance dates for New
Rule 3b-16(a) Systems based on the technology supporting its exchange
activity (e.g., internet, DLT, cloud)? For example, should the
Commission adopt a delayed compliance date for trading systems that use
DLT to bring together buyers and sellers using trading interest and
establish protocols that allow participants to negotiate a trade?
Please explain. What compliance date should the Commission adopt for
these types of trading systems? Please explain.
    37. Should the Commission adopt different compliance dates for New
Rule 3b-16(a) Systems based on the volume that trading systems
transact? For example, should the Commission adopt a delayed compliance
date for a trading system that transacts a certain level of dollar
volume or share volume, and if

so, what should that volume be? Should the Commission adopt different
compliance dates for trading systems based on all of their transaction
volume or only transaction volume in a category of security or in a
crypto asset security? Please explain. What compliance date should the
Commission adopt for these types of trading systems? Please explain.
    38. Should the Commission adopt different compliance dates for New
Rule 3b-16(a) Systems based on a combination of factors described above
or any other factors? Please explain.

IV. Paperwork Reduction Act

    In the analysis of the proposed rule amendments under the Paperwork
Reduction Act of 1995 (``PRA'') of the Proposing Release, the
Commission estimated 22 Communication Protocol Systems \170\ would be
impacted by the Proposed Rules. This estimate included systems that
offer trading of OTC equity securities and restricted securities, some
of which trade crypto asset securities.
---------------------------------------------------------------------------

    \170\ The Proposing Release referred to systems that would newly
meet the definition of ``exchange'' under the Proposed Rules as
``Communication Protocol Systems.'' See Proposing Release at 15496
n.5. See also id. at 15586 (estimating the total number of
Communication Protocol Systems to be 22).
---------------------------------------------------------------------------

    The Commission is revising the estimated number of trading systems
that would be impacted by the proposed amendments to Exchange Act Rule
3b-16 to include: (1) New Rule 3b-16(a) Systems that trade crypto asset
securities and were not included in the estimates in the Proposing
Release, and (2) New Rule 3b-16(a) Systems for non-crypto asset
securities that have exited, entered, or intend to enter, the market
since the Commission issued the Proposing Release. The Commission is
not revising its estimate of the per-respondent burdens that would be
imposed by the proposed amendments to Rule 3b-16(a). The summary of the
``collection of information'' requirements within the meaning of the
PRA and the proposed use of such information described in the Proposing
Release are unchanged.

A. Respondents

    As discussed in the Proposing Release,\171\ the Commission believes
that New Rule 3b-16(a) Systems would likely choose to register as a
broker-dealer and comply with the conditions of Regulation ATS rather
than register as a national securities exchange because of the lighter
regulatory requirements imposed on ATSs, as compared to registered
exchanges.\172\ For purposes of this PRA analysis, New Rule 3b-16(a)
Systems that would comply with Regulation ATS are referred to as
``Newly Designated ATSs.'' \173\ In the Proposing Release, the
Commission estimated the total number of Newly Designated ATSs, across
all asset classes, to be 22.\174\ Since issuing the Proposing Release,
the Commission has learned, based on public sources of information, of
several trading systems that appear to offer the use of non-firm
trading interest, provide non-discretionary protocols, trade crypto
asset securities, and were not included within the Commission's initial
estimate of the number of respondents. Based on publicly-available
information, these trading systems may meet the criteria of Exchange
Act Rule 3b-16(a) as proposed to be amended and therefore, this PRA
analysis includes estimates of the burdens that these systems would
incur under the Proposed Rules. Many of the entities operating such
trading systems, however, depending on their activities and other facts
and circumstances, may be subject to existing federal securities laws
and registration requirements, including the requirement to register as
an exchange under existing criteria of Rule 3b-16(a) or the requirement
to register as a broker-dealer. In this regard, the Commission
recognizes that it may be over-estimating the number of respondents
that may be subject to the Proposed Rules. Specifically, the Commission
is revising the estimated total number of Newly Designated ATSs from
the 22 estimated systems in the Proposing Release to a total of 35-46
estimated Newly Designated ATSs,\175\ which would include: (1) an
additional 15-20 New Rule 3b-16(a) Systems that trade crypto asset
securities,\176\ and (2) 20-26 Newly Designated ATSs (revised from the
22 Newly Designated ATSs estimated in the Proposing Release),\177\
which has been revised to reflect New Rule 3b-16(a) Systems for non-
crypto asset securities that have exited, entered, or intend to enter,
the market since the Commission issued the Proposing Release. For the
purposes of this PRA analysis, the Commission is analyzing the burdens
for an estimated 46 Newly Designated ATSs, based on

the high end of these ranges.\178\ Some or all of this total number
will be subject to the following collections of information \179\ as
estimated below:\180\
---------------------------------------------------------------------------

    \171\ See id. at section VII.
    \172\ See id. at section II.D. As discussed above, today, the
Commission preliminarily believes that some amount of crypto asset
securities trade on New Rule 3b-16(a) Systems. See supra note 31.
These systems are not included as estimated respondents for the
purposes of the PRA analysis because they are already required to
comply with current applicable regulations; the proposed amendments
to Rule 3b-16 would not result in any new burden on these systems.
Rather, the PRA analysis includes the estimated number of
respondents for which a new burden would be imposed by the proposed
amendments to Rule 3b-16. Further, as discussed earlier in this
section, the Commission is not revising its estimate of the per-
respondent burdens that would be imposed by the proposed amendments
to Rule 3b-16. The increase in the estimate of total burdens across
all respondents is due solely to the Commission revising its
estimate of the number of respondents to include: (1) systems that
would meet the criteria of Rule 3b-16, as proposed to be amended,
and trade crypto asset securities; and (2) systems that would meet
the criteria of Rule 3b-16, as proposed to be amended, and trade
securities that are not crypto asset securities and have entered,
intend to enter, or exited the market since the Commission issued
the Proposing Release.
    \173\ See supra note 170. The description of respondents and
burden estimates described in this Reopening Release for Newly
Designated ATSs supersedes and replaces corresponding respondent and
burden estimates for Communication Protocol Systems in the Proposing
Release.
    \174\ See Proposing Release at section VII.C.
    \175\ As discussed in the Proposing Release, some of the
estimates could change based on how the Newly Designated ATSs
structure their operations if subject to Regulation ATS. See id. at
15586 n.749. For example, the Commission is basing some of the below
estimates on the assumption that operators of Newly Designated ATSs
that are affiliated with existing broker-dealers would structure
their operations so that the existing broker-dealer would operate
the ATS to avoid the costs of new broker-dealer registration. In
addition, the Commission estimates that 2 Newly Designated ATSs that
trade municipal securities or corporate debt securities would meet
the volume thresholds to satisfy the conditions for complying with
ATS-specific systems capacity, integrity and security recordkeeping
as well as systems outages requirements. This number is based on
aggregate data reported by broker-dealers and could vary based on
how these systems structure their businesses.
    \176\ The Commission received several comments stating that the
PRA analysis in the Proposing Release underestimated or did not
include systems that trade crypto asset securities. See, e.g.,
Bloomberg Letter II at 2-3; Coin Center Letter at 25; Coinbase
Letter at 6; Crypto Council Letter at 4-7. One commenter states that
the Commission did not include approximately 288 crypto
``exchanges,'' 200 crypto AMMs, and 9 front-end platforms that offer
liquidity aggregation and (smart) order routing functionality. See
Bloomberg Letter II at 2-3. It is not clear from the comment letter
whether these systems operate in the U.S., use non-firm trading
interest, and provide non-discretionary protocols to bring together
buyers and sellers to negotiate, and thus would be New Rule 3b-16(a)
Systems and subject to the new burdens analyzed under the PRA. In
addition, the Commission preliminarily believes that some amount of
crypto asset securities trade on New Rule 3b-16(a) Systems. See
supra note 31. These systems could be some or many of the systems
the commenter references. However, without additional information,
the Commission is unable to assess whether the systems referenced by
the commenter would meet existing Rule 3b-16(a), or Rule 3b-16(a),
as proposed to be revised. In addition, some commenters estimate
that hundreds or thousands of persons could be captured by the
proposed rule change. See supra note 60. See also SIFMA Letter II at
8-9 (stating that ``[t]he broad concept of communication protocol
systems could theoretically capture hundreds, if not thousands, of
systems across asset classes'' and there is a disconnect with the
Commission's estimate that 22 systems would be affected by the
Proposed Rules). As discussed above, systems would constitute a
single exchange and be responsible for compliance as a single
entity. See supra section II.B.
    \177\ The original 22 Newly Designated ATSs the Commission
estimated in the Proposing Release may include ATSs that trade
crypto asset securities.
    \178\ In the Proposing Release, the Commission certified that
the proposed amendments to Regulation ATS would not, if adopted,
have a significant economic impact on a substantial number of small
entities pursuant to section 3(a) of the Regulatory Flexibility Act
of 1980 (5 U.S.C. 603(a)). See Proposing Release at 15645. The
Commission did not receive any comment regarding its certification.
Although the Commission is now revising its estimate of the number
of respondents that would be subject to the proposed rules, the
Commission continues to certify that the proposed amendments would
not, if adopted, have a significant economic impact on a substantial
number of small entities. As in the Proposing Release, the
Commission encourages written comments regarding this certification.
    \179\ The estimates presented here relate only to those
collections of information for which the burdens will change as a
result of increasing the estimated total number of Newly Designated
ATSs. For the complete estimated burden associated with the proposed
amendments, the estimates here for Newly Designated ATSs should be
considered together with those originally included in the Proposing
Release for Communication Protocol Systems, see Proposing Release at
section VII, with any burden identified by the identical combination
of Collection of Information and rule number replaced and superseded
by that contained here.
    \180\ The estimated respondents for the Rule 304/Form ATS-N
collection of information is based on the assumption that systems
that operate multiple market places that are affiliated with a new
or existing broker-dealer will all be operated by such broker-
dealer, and that such systems will not register multiple broker-
dealers to operate multiple affiliated ATSs.

----------------------------------------------------------------------------------------------------------------
                                                        Number of
   Collection of  information           Rule           respondents                   Description
----------------------------------------------------------------------------------------------------------------
Rule 301 of Regulation ATS and   17 CFR                          37  The Commission estimates that certain Newly
 Forms ATS and ATS-R.             242.301(b)(2)                       Designated ATSs that trade securities
                                  (``Rule                             other than NMS stocks or government
                                  301(b)(2)'').                       securities or repos, including crypto
                                                                      asset securities, would be required to
                                                                      file the proposed modernized Form ATS.
                                 Rule 301(b)(5)....              10  The Commission estimates that certain Newly
                                                                      Designated ATSs would meet the volume
                                                                      thresholds in government securities, NMS
                                                                      stocks, corporate debt securities,
                                                                      municipal securities, equity securities
                                                                      that are not NMS stocks and for which
                                                                      transactions are reported to an SRO and be
                                                                      subject to the Fair Access Rule.
                                 17 CFR                          46  The Commission estimates that all Newly
                                  242.301(b)(9)                       Designated ATSs will need to comply with
                                  (``Rule                             the requirement to file quarterly reports
                                  301(b)(9)'').                       on the proposed modernized Form ATS-R.
                                 17 CFR                          46  The Commission estimates that all Newly
                                  242.301(b)(10)                      Designated ATSs will need to comply with
                                  (``Rule                             the requirement to have written safeguards
                                  301(b)(10)'').                      and written procedures to protect
                                                                      subscribers' confidential trading
                                                                      information.
Rule 302 of Regulation ATS.....  17 CFR 242.302                  46  The Commission estimates that all Newly
                                  (``Rule 302'').                     Designated ATSs will need to comply with
                                                                      the recordkeeping requirements for ATSs.
Rule 303 of Regulation ATS.....  17 CFR 242.303                  46  The Commission estimates that all Newly
                                  (``Rule 303'').                     Designated ATSs will need to comply with
                                                                      the record preservation requirements for
                                                                      ATSs.
Rule 304 of Regulation ATS.....  17 CFR 242.304                   9  The Commission estimates that certain
                                  (``Rule 304'').                     Communication Protocol Systems that trade
                                                                      NMS stocks or government securities or
                                                                      repos would be required to file Form ATS-
                                                                      N, as proposed to be revised.
Rule 15b1-1 and Form BD........  17 CFR 240.15b1-1               27  The Commission estimates that certain Newly
                                  (``Rule 15b1-1'').                  Designated ATSs are not currently
                                                                      registered as or affiliated with a broker-
                                                                      dealer and will need to register using
                                                                      Form BD. This would include all Newly
                                                                      Designated ATSs that trade crypto asset
                                                                      securities that do not currently file a
                                                                      Form ATS.
Form ID........................  17 CFR 232.101                  27  The Commission estimates that the same
                                  (``Rule 101 of                      subset of Newly Designated ATSs that are
                                  Regulation S-T'').                  not currently registered as or affiliated
                                                                      with a broker-dealer will also need to
                                                                      file Form ID to apply for EDGAR access.
----------------------------------------------------------------------------------------------------------------

B. Total PRA Burdens

    The Commission continues to assume that, under the proposed
amendments, Newly Designated ATSs will choose to register as broker-
dealers and comply with the conditions of Regulation ATS, rather than
register as a national securities exchange,\181\ and the estimates
below reflect this assumption.
---------------------------------------------------------------------------

    \181\ See Proposing Release at 15618 n.1056 and accompanying
text.
---------------------------------------------------------------------------

1. Burden of Rule 301 of Regulation ATS and Forms ATS and ATS-R
a. Rule 301(b)(2) Burden on Newly Designated ATSs
    As discussed in the Proposing Release, the Commission estimates
that each Newly Designated ATS would incur an initial burden of 20.5
hours \182\ and an annual burden of 5 hours \183\ for complying with
Rule 301(b)(2). In light of the revision of the Commission's estimate
of Newly Designated ATSs, the Commission estimates the following total
initial and annual burdens:
---------------------------------------------------------------------------

    \182\ The Commission's currently approved baseline for the
average initial compliance burden for each initial operation report
(``IOR'') on Form ATS is 20 hours (Attorney at 13 hours + Compliance
Clerk at 7 hours). See Extension Without Change of a Currently
Approved Collection: Regulation ATS Rule 301 Amendments; ICR
Reference No.<PHONE_NUMBER>-011; OMB Control No. 3235-0509 (June 9,
2018), available at https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202101-3235-011 (``Rule 301 PRA Supporting
Statement''). The Commission proposed amendments to Part I of Form
ATS, which would add an additional burden of 0.5 hours per filing
using the modernized form (Compliance Clerk at 0.5 hours), and
therefore the average compliance burden for each Form ATS filing
would be 20.5 hours. See Proposing Release at section V.B and
section VII.E (discussing proposed changes).
    \183\ The Commission's currently approved baseline for the
average ongoing compliance burden for each amendment to a Form ATS
IOR is 4 hours ((Attorney at 1.5 hours + Compliance Clerk at 0.5
hours) x 2 IOR amendments a year). See Rule 301 PRA Supporting
Statement. The Commission proposed amendments to Part I of Form ATS,
including a requirement applicable to an ATS filing an IOR amendment
to attach as Exhibit 3 a marked document to indicate changes to
``yes'' or ``no'' answers and additions or deletions from any Item
in Part I, Part II, and Part III, which would add an additional
annual burden of 1 hour per ATS using the modernized form
(Compliance Clerk at 0.5 hours x 2 IOR amendments a year). Therefore
the average compliance burden for each Form ATS filing would be 5
hours. See Proposing Release at section V.B and section VII.E
(discussing proposed changes).

----------------------------------------------------------------------------------------------------------------
                                                                                Total burden
                                                                                (number of
           Burden type              Respondent type        Number of          Burden per         respondents x
                                                          respondents         respondent          burden per
                                                                                respondent)
----------------------------------------------------------------------------------------------------------------
Initial.........................  Newly Designated                    37  20.5 hours........  758.5 hours.
                                   ATSs.
Annual..........................  ...................  .................  5 hours...........  185 hours.
----------------------------------------------------------------------------------------------------------------

b. Rule 301(b)(5) Burden on Newly Designated ATSs

    As discussed in the Proposing Release, the Commission estimates an
annual compliance burden of 37 hours per respondent for Rule
301(b)(5).\184\ In light of the revision of the Commission's estimate
of Newly Designated ATSs, the Commission estimates the following total
annual burdens:
---------------------------------------------------------------------------

    \184\ The Commission's currently approved baseline for the
average compliance burden per respondent is 37 hours = 10 hours for
Fair Access standards recordkeeping (Attorney at 5 hours x 2
responses a year) + 27 hours for Fair Access notices (Attorney at 1
hour x 27 responses a year). See Proposing Release at section
VII.D.1.b.

----------------------------------------------------------------------------------------------------------------
                                                                                Total annual burden
                                             Number of          Annual burden per      (number of  respondents x
            Respondent type                 respondents             respondent             annual burden per
                                                                                respondent)
----------------------------------------------------------------------------------------------------------------
Newly designated ATSs..................                 10  37 hours.................  370 hours.
----------------------------------------------------------------------------------------------------------------

c. Rule 301(b)(6) Burden on Newly Designated ATSs
    The Commission estimates that none of the Newly Designated ATSs
trading crypto asset securities or that have entered or intend to enter
the market since the Commission issued the Proposing Release would meet
the applicable volume requirements and be subject to the requirements
of 17 CFR 242.301(b)(6) (``Rule 301(b)(6)''), and therefore, the
estimates in the Proposing Release remain unchanged.
d. Rule 301(b)(9) Burden on All Respondents
    As discussed in the Proposing Release, the Commission estimates an
annual compliance burden of 19 hours per new Form ATS-R respondent
\185\ and 3 hours per existing Form ATS-R respondent.\186\ In light of
the revision of the Commission's estimate of Newly Designated ATSs, the
Commission estimates the following total annual burdens:
---------------------------------------------------------------------------

    \185\ The annual burden per Newly Designated ATS would be 4.75
hours x 4 quarterly filings annually = 19 burden hours. See
Proposing Release at 15590 n.770.
    \186\ The annual burden per existing Form ATS-R respondent would
be 0.75 hours x 4 quarterly filings annually = 3 burden hours. See
id. at 15590 n.771.

----------------------------------------------------------------------------------------------------------------
                                                                                Total annual burden
                                             Number of          Annual burden per      (number of  respondents x
            Respondent type                 respondents             respondent             annual burden per
                                                                                respondent)
----------------------------------------------------------------------------------------------------------------
Newly Designated ATSs..................                 46  19 hours.................  874 hours.
----------------------------------------------------------------------------------------------------------------

e. Rule 301(b)(10) Burden on Newly Designated ATSs
    As discussed in the Proposing Release, the Commission estimates an
initial burden of 8 hours \187\ and an annual burden of 4 hours \188\
per respondent for complying with Rule 301(b)(10). In light of the
revision of the Commission's estimate of Newly Designated ATSs, the
Commission estimates the following total initial and annual burdens:
---------------------------------------------------------------------------

    \187\ The Commission's currently approved baseline for the
average initial compliance burden is 8 hours (Attorney at 7 hours +
Compliance Clerk at 1 hour). See Rule 301 PRA Supporting Statement.
    \188\ The Commission's currently approved baseline for the
average ongoing compliance burden is 4 hours (Attorney at 2 hours +
Compliance Clerk at 2 hours). See id.

----------------------------------------------------------------------------------------------------------------
                                                                                Total burden
                                                                                (number of
           Burden type              Respondent type        Number of          Burden per         respondents x
                                                          respondents         respondent          burden per
                                                                                respondent)
----------------------------------------------------------------------------------------------------------------
Initial.........................  Newly Designated                    46  8 hours...........  368 hours.
                                   ATSs.
Annual..........................  ...................  .................  4 hours...........  184 hours.
----------------------------------------------------------------------------------------------------------------

2. Burden of Rules 302 and 303 of Regulation ATS on Newly Designated
ATSs
---------------------------------------------------------------------------

    \189\ The Commission's currently approved baseline for the
average compliance burden is 45 hours (Compliance Clerk at 45
hours). See Extension Without Change of a Currently Approved
Collection: Rule 302 (17 CFR 242.302) Recordkeeping Requirements for
Alternative Trading Systems; ICR Reference No.<PHONE_NUMBER>-011; OMB
Control No. 3235-0510 (Oct. 24, 2019), available at https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=201906-3235-011.
There is no initial burden associated with this rule.

    As discussed in the Proposing Release, the Commission estimates an
annual burden of 45 hours per respondent to comply with Rule 302 \189\
and 15 hours to comply with Rule 303.\190\ In light of the revision of
the Commission's estimate of Newly Designated ATSs, the Commission
estimates the following total annual burdens:
---------------------------------------------------------------------------

    \190\ The Commission's currently approved baseline for the
average compliance burden is 15 hours (Compliance Clerk at 15
hours). See Extension Without Change of a Currently Approved
Collection: Rule 303 (17 CFR 242.303) Record Preservation
Requirements for Alternative Trading Systems; ICR Reference No.
202101-3235-010; OMB Control No. 3235-0505 (June 25, 2021),
available at https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202101-3235-010. There is no initial burden
associated with this rule.

----------------------------------------------------------------------------------------------------------------
                                                                                Total annual
                                                                                burden (number of
              Rule                  Respondent type        Number of       Annual burden per     respondents x
                                                          respondents         respondent       annual burden per
                                                                                respondent)
----------------------------------------------------------------------------------------------------------------
Rule 302........................  Newly Designated                    46  45 hours..........  2,070 hours.
                                   ATSs.
Rule 303........................  ...................  .................  15 hours..........  690 hours.
----------------------------------------------------------------------------------------------------------------

3. Burden of Rule 304 of Regulation ATS and Form ATS-N on Newly
Designated ATSs

    As discussed in the Proposing Release, the Commission estimates an
initial compliance burden of 136.4 hours per new Form ATS-N respondent
\191\ and an annual burden of 47 hours.\192\ In light of the revision
of the Commission's estimate of Newly Designated ATSs, the Commission
estimates the following total annual burdens:
---------------------------------------------------------------------------

    \191\ The Commission's currently approved baseline for the
average initial compliance burden for each initial Form ATS-N is
130.4 hours (currently approved baseline burden to complete an
initial Form ATS at 20 hours: Attorney at 13 hours and Compliance
Clerk at 7 hours; see Proposing Release at 15588 n.759) + (Part I at
0.5 hour) + (Part II at an average of 29 hours) + (Part III at an
average of 78.75 hours) + (Access to EDGAR at 0.15 hours) + (Posting
link to published Form ATS-N on ATS website at 2 hours) = 130.4
burden hours. See Extension Without Change of a Currently Approved
Collection: Regulation ATS Rule 304 and Form ATS-N; ICR Reference
No.<PHONE_NUMBER>-014; OMB Control No. 3235-0763 (January 3, 2022),
available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202109-3235-014 (``Rule 304 PRA Supporting
Statement''). The aggregate totals by professional, including the
baseline, are estimated to be approximately 54.6 hours for an
Attorney, 0.5 hours for a Chief Compliance Manager, 34.55 hours for
a Compliance Manager, 32.25 hours for a Senior Systems Analyst, 1
hour for a Senior Marketing Manager, and 7.5 hours for a Compliance
Clerk. The Commission estimates that the proposed amendments to Form
ATS-N would add an additional burden of 6 hours per filing (Attorney
at 2.5 hours, Compliance Manager at 1.5 hours, Senior Systems
Analyst at 1.5 hours, and Compliance Clerk at 0.5 hours), and
therefore the average compliance burden for each new Form ATS-N
filer would be 136.4 hours. See Proposing Release at section V.B and
section VII.E (discussing proposed changes).
    \192\ The currently approved baseline for filing amendments to
Form ATS-N is 47 hours ((Attorney at 5.5 hours + Compliance Manager
at 2 hours + Compliance Clerk at 1.9 hours) x 5 amendments a year).
See Rule 304 PRA Supporting Statement.

----------------------------------------------------------------------------------------------------------------
                                                                                Total burden
                                                                                (number of
                                                                                respondents x
                                                                  Number of      Burden per        burden per
             Burden type                  Respondent type        respondents     respondent       respondent,
                                                                                (hours)         rounded to
                                                                                nearest 0.5
                                                                                hours)
----------------------------------------------------------------------------------------------------------------
Initial.............................  Newly Designated ATSs..               9           136.4            1,227.5
Annual..............................  .......................  ..............              47                423
----------------------------------------------------------------------------------------------------------------

4. Burden of Rule 15b1-1 and Form BD on Newly Designated ATSs
    As discussed in the Proposing Release, the Commission estimates an
initial burden of 2.75 hours \193\ and an annual burden of 1 hour \194\
per respondent for completing Form BD. In light of the revision of the
Commission's estimate of Newly Designated ATSs, the Commission
estimates the following total initial and annual burdens:
---------------------------------------------------------------------------

    \193\ The Commission's currently approved baseline for the
average initial compliance burden for each Form BD is 2.75 hours
(Compliance Manager at 2.75 hours). See Extension Without Change of
a Currently Approved Collection: Form BD and Rule 15b1-1.
Application for registration as a broker-dealer; ICR Reference No.
201905-3235-016; OMB Control No. 3235-0012 (Aug. 7, 2019), available
at https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=201905-3235-016. (``Form BD PRA Supporting Statement'').
    \194\ The Commission's currently approved baseline for the
average ongoing compliance burden for each respondent amending Form
BD is 0.95 hours (Compliance Manager at 0.33 hours x 2.87 amendments
per year). See Form BD PRA Supporting Statement.

----------------------------------------------------------------------------------------------------------------
                                                                                Total burden
                                                                                (number of
                                                                                respondents x
                                                                  Number of      Burden per        burden per
             Burden type                  Respondent type        respondents     respondent       respondent,
                                                                                (hours)         rounded to
                                                                                nearest 0.5
                                                                                hours)
----------------------------------------------------------------------------------------------------------------
Initial.............................  Newly Designated ATSs..              27            2.75                 74
Annual..............................  .......................  ..............            0.95               25.5
----------------------------------------------------------------------------------------------------------------

5. Burden of Form ID on Newly Designated ATSs
    As discussed in the Proposing Release, the Commission estimates,
with regards to Rule 101 of Regulation S-T, an initial burden of 0.15
hours \195\ and no annual burden per respondent for completing Form ID.
In light of the revision of the Commission's estimate of Newly
Designated ATSs, the Commission estimates the following total burdens:
---------------------------------------------------------------------------

    \195\ See Revision of a Currently Approved Collection: Form ID--
EDGAR Password; ICR Reference No.<PHONE_NUMBER>-022; OMB Control No.
3235-0328 (Apr. 29, 2021), available at https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202104-3235-022.

----------------------------------------------------------------------------------------------------------------
                                                                                Total initial
                                                                                burden (number of
                                                                                respondents x
                    Respondent type                         Number of     Initial burden per  initial burden per
                                                           respondents    respondent (hours)      respondent,
                                                                                rounded to nearest
                                                                                0.5 hours)
----------------------------------------------------------------------------------------------------------------
Newly Designated ATSs..................................              27                0.15                   4
----------------------------------------------------------------------------------------------------------------

6. Burden of Regulation SCI on Newly Designated ATSs
    The Commission does not estimate any Newly Designated ATSs that
trade crypto asset securities or that have exited, entered, or intend
to enter the market since the Commission issued the Proposing Release
will be subject to Regulation SCI,\196\ and therefore, the estimates in
the Proposing Release remain unchanged.
---------------------------------------------------------------------------

    \196\ ``Regulation SCI'' consists of 17 CFR 242.1000 through
242.1007.
---------------------------------------------------------------------------

C. Request for Comments

    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comments to:
    39. Evaluate whether the proposed collection of information is
necessary for the proper performance of the Commission's functions,
including whether the information shall have practical utility;
    40. Evaluate the accuracy of the Commission's estimates of the
burden of the proposed collection of information;
    41. Determine whether there are ways to enhance the quality,
utility, and clarity of the information to be collected;
    42. Evaluate whether there are ways to minimize the burden of
collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology; and
    43. Evaluate whether the proposed amendments would have any effects
on any other collection of information not previously identified in
this section.
    Persons submitting comments on the collection of information
requirements should direct them to the Office of Management and Budget,
Attention: Desk Officer for the Securities and Exchange Commission,
Office of Information and Regulatory Affairs, Washington, DC 20503, and
should also send a copy of their comments to Vanessa Countryman,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090, with reference to File Number S7-02-22.
Requests for materials submitted to Office of Management and Budget
(``OMB'') by the Commission with regard to this collection of
information should be in writing, with reference to File Number S7-02-
22 and be submitted to the Securities and Exchange Commission, Office
of FOIA/PA Services, 100 F Street NE, Washington, DC 20549-2736. As OMB
is required to make a decision concerning the collection of information
between 30 and 60 days after publication, a comment to OMB is best
assured of having its full effect if OMB receives it within 30 days of
publication.

V. Economic Analysis

A. Introduction

    The Commission received comments on the Proposing Release stating
that the Commission had not considered the economic effects of the
Proposed Rules on New Rule 3b-16(a) Systems that trade crypto asset
securities.\197\ In this section the Commission is supplementing the
economic analysis provided in the Proposing Release with additional
analysis that considers the impact of the Proposed Rules on New Rule
3b-16(a) Systems that trade crypto asset securities.\198\
---------------------------------------------------------------------------

    \197\ See GDCA Letter II at 4, 5, and 6; Crypto Council Letter
at 2, 3, 4, and 5; McHenry/Huizenga Letter at 2; LeXpunK Letter at
3; ADAM Letter II at 13 and 14; Chamber Letter at 4; Coinbase Letter
at 2 and 6; a16z Letter at 2, 3, 7, 20 and 21; Blockchain
Association Letter II at 1 and 7; DeFi Education Fund Letter at 3.
    \198\ Exchange Act section 3(f) requires the Commission, when it
is engaged in rulemaking pursuant to the Exchange Act and is
required to consider or determine whether an action is necessary or
appropriate in the public interest, to consider, in addition to the
protection of investors, whether the action will promote efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f). In
addition, Exchange Act section 23(a)(2) requires the Commission,
when making rules pursuant to the Exchange Act, to consider among
other matters the impact that any such rule would have on
competition and not to adopt any rule that would impose a burden on
competition that is not necessary or appropriate in furtherance of
the purposes of the Exchange Act. See 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The Commission preliminarily believes that some amount of crypto
asset securities trade on New Rule 3b-16(a) Systems. These New Rule 3b-
16(a) Systems do not meet the current definition of an exchange and
thus are not subject to regulation either as a national securities
exchange or an ATS. By amending Exchange Act Rule 3b-16 to include New
Rule 3b-16(a) Systems within the definition of exchange, the Proposed
Rules would functionally apply Regulation ATS to an additional number
of entities not currently regulated by it. This would have a number of
benefits, including enhanced regulatory oversight and protection for
investors, a reduction in trading costs and improvement in execution
quality, and enhancement of price discovery and liquidity.
    The Proposed Rules would also have costs for those entities subject
to new requirements, including compliance costs associated with filing
forms such as Form ATS-N or Form ATS, protecting confidential
information, keeping certain records, registering as a broker-dealer,
and complying with the Fair Access Rule and/or Regulation SCI if
applicable.
    For purposes of measuring the effects of the proposed rule on
participants in crypto asset securities markets, this analysis assumes
that market participants are compliant with existing applicable
Commission and FINRA rules, including those requiring registration and
the rules and regulations applicable to such registered

entities. To the extent that some entities engaged in activities
involving crypto asset securities are not, but should be, FINRA or
Commission registered entities, they may incur additional costs to
comply with existing rules and registration obligations that are
distinct from the costs associated with the Proposed Rules and are not
discussed in this analysis. Similarly, any benefits from coming into
compliance with existing rules and registration obligations are also
not discussed in this analysis, and effects on efficiency, competition,
and capital formation may differ from the discussion in this analysis
to the extent impacted entities do not comply with existing applicable
Commission or FINRA rules. For such entities, we expect the benefits
and costs specifically associated with the Proposed Rules to be the
same as those described below as applicable.

B. Baseline

1. Current State of Crypto Asset Markets
    The global market for crypto assets is valued by some estimates at
approximately $900 billion,\199\ as of December 2022. Volatility in the
price of crypto assets has caused this number to fluctuate considerably
over the past few years. For example, in July of 2020 the market was
estimated to be worth approximately $276 billion, but went on to reach
a peak value of approximately $3 trillion by November 2021.\200\ A
subset of these crypto assets are securities with associated activity
within the U.S.\201\
---------------------------------------------------------------------------

    \199\ See, e.g., Global Cryptocurrency Market Cap Charts,
CoinGecko, available at https://www.coingecko.com/en/global-charts
(last visited on Mar. 15, 2023).
    \200\ Id.
    \201\ The Commission is aware that some amount of activity in
the market for crypto assets discussed in this Reopening Release is
conducted outside the U.S. Due to unique challenges in analyzing the
crypto asset market, the Commission faces obstacles to obtaining
reliable, comprehensive, and comparable information to determine, in
this rulemaking, the extent of the activities taking place within
the U.S. For example, while the issuance of a crypto asset on a
blockchain can be detected by observers of the blockchain, the
national or international scope of the activities involving this
asset is not always readily apparent. Furthermore, many of the
platforms on which crypto assets are traded do not provide publicly
available information that could be used to inform the determination
about the scope of their operations. This is due, in part, to the
significant amount of trading in crypto asset securities that may be
occurring in non-compliance with the federal securities laws. See
also supra note 26 (discussing crypto assets that are securities).
---------------------------------------------------------------------------

    The Commission has limited information regarding crypto asset
securities.\202\ This limitation is, in part, due to the fact that only
a small portion of crypto asset security trading activity is occurring
within entities that are registered with the Commission and any of the
SROs, or operating pursuant to the Regulation ATS exemption.\203\ For
example, there are currently no special purpose broker-dealers
authorized to maintain custody of crypto asset securities.\204\ This
information limitation is also, in part, due to the significant trading
activity in crypto asset securities that may be occurring in non-
compliance with the federal securities laws.\205\
---------------------------------------------------------------------------

    \202\ See, e.g., FSOC Report, supra note 30 (``The crypto-asset
ecosystem is characterized by opacity that creates challenges for
the assessment of financial stability risks.''); Crypto-Assets
Treasury Report, supra note 75, at 12 (finding that data pertaining
to ``off-chain activity'' is limited and subject to voluntary
disclosure by trading platforms and protocols, with protocols either
not complying with or not subject to obligations ``to report
accurate trade information periodically to regulators or to ensure
the quality, consistency, and reliability of their public trade
data''); Fin. Stability Bd., Assessment of Risks to Financial
Stability from Crypto-assets 18-19 (Feb. 16, 2022) (``FSB Report''),
available at https://www.fsb.org/wp-content/uploads/P160222.pdf
(finding that the difficulty in aggregating and analyzing available
data in the crypto asset space ``limits the amount of insight that
can be gained with regard to the [crypto asset] market structure and
functioning,'' including who the market participants are and where
the market's holdings are concentrated, which, among other things,
limits regulators' ability to inform policy and supervision);
Raphael Auer et al., Banking in the Shadow of Bitcoin? The
Institutional Adoption of Cryptocurrencies 4, 9 (Bank for Int'l
Settlements, Working Paper No. 1013, May 2022), available at https://www.bis.org/publ/work1013.pdf (stating that data gaps, which can be
caused by limited disclosure requirements, risk undermining the
ability for holistic oversight and regulation of cryptocurrencies);
Int'l Monetary Fund, The Crypto Ecosystem and Financial Stability
Challenges, in Global Financial Stability Report 41, 47 (Oct. 2021),
available at https://www.imf.org/-/media/Files/Publications/GFSR/2021/October/English/ch2.ashx (finding that crypto asset service
providers provide limited, fragmented, and, in some cases,
unreliable data, as the information is provided voluntarily without
standardization and, in some cases, with an incentive to manipulate
the data provided).
    \203\ For a description of the requirements of the Regulation
ATS exemption, see Proposing Release at section II.E.2.
    \204\ For background on 17 CFR 240.15c3-3 (``Rule 15c3-3''), as
it relates to crypto asset securities, see U.S. Sec. & Exch. Comm'n,
Joint Staff Statement on Broker-Dealer Custody of Digital Asset
Securities (July 8, 2019) (``Joint Staff Statement on Broker-Dealer
Custody of Digital Asset Securities''), available at https://www.sec.gov/news/public-statement/joint-staff-statement-broker-dealer-custody-digital-asset-securities; Fin. Indus. Regul. Auth.,
SEC Staff No-Action Letter, ATS Role in the Settlement of Digital
Asset Security Trades (Sept. 25, 2020), available at https://www.sec.gov/divisions/marketreg/mr-noaction/2020/finra-ats-role-in-settlement-of-digital-asset-security-trades-09252020.pdf. Staff
reports, Investor Bulletins, and other staff documents (including
those cited herein) represent the views of Commission staff and are
not a rule, regulation, or statement of the Commission. The
Commission has neither approved nor disapproved the content of these
staff documents and, like all staff statements, they have no legal
force or effect, do not alter or amend applicable law, and create no
new or additional obligations for any person. The Commission issued
a statement describing its position that, for a period of five
years, special purpose broker-dealers operating under the
circumstances set forth in the statement will not be subject to a
Commission enforcement action on the basis that the broker-dealer
deems itself to have obtained and maintained physical possession or
control of customer fully paid and excess margin crypto asset
securities for purposes of Rule 15c3-3(b)(1) under the Exchange Act.
See Commission Statement on Custody of Digital Asset Securities by
Special Purpose Broker-Dealers. To date, no such special purpose
broker-dealer registration applications have been granted by FINRA.
    \205\ See also FSOC Report, supra note 30, at 5, 87, 94, 97
(emphasizing the importance of the existing financial regulatory
structure while stating that certain digital asset platforms may be
listing securities while not in compliance with exchange, broker-
dealer, or other registration requirements, which may impose
additional risk on banks and investors and result in ``serious
consumer and investor protection issues''); Crypto-Assets Treasury
Report, supra note 49, at 26, 29, 39, 40 (stating that issuers and
platforms in the digital asset ecosystem may be acting in non-
compliance with statutes and regulations governing traditional
capital markets, with market participants that actively dispute the
application of existing laws and regulations, creating risks to
investors from non-compliance with, in particular, extensive
disclosure requirements and market conduct standards); FSB Report,
supra note 202, at 4, 8, 18 (stating that some trading activity in
crypto assets may be failing to comply with applicable laws and
regulations, while failing to provide basic investor protections due
to their operation outside of or in non-compliance with regulatory
frameworks, thereby failing to provide the ``market integrity,
investor protection or transparency seen in appropriately regulated
and supervised financial markets'').
---------------------------------------------------------------------------

    Because of this limited information, and because, as the Commission
understands, the trading of crypto asset securities utilizes different
technology and methods of operation than is utilized in markets for
non-crypto asset securities, the Commission has a greater degree of
uncertainty in characterizing the baseline for the crypto asset market
than it does in characterizing the baseline for non-crypto asset
securities.
    It is impossible to determine the true market turnover \206\ for
crypto assets, because, among other reasons, the crypto asset market
reportedly is characterized \207\ by rampant wash

trading.\208\ The Commission does possess data on reported trades from
many crypto asset platforms, but there is no reliable way to determine
whether trades reported are actually between two different market
participants or are the result of wash trading. Estimates of how much
of the total crypto asset market volume is attributable to wash trades
vary but range as high as 95%.\209\ The Commission believes that with
such pervasive wash trading, any reported volume figures are
significantly misleading.
---------------------------------------------------------------------------

    \206\ That is, the amount of crypto assets that actually change
hands between distinct market participants.
    \207\ See, e.g., Lin William Cong, Xi Li, Ke Tang & Yang Yang,
Crypto Wash Trading (Nat'l Bureau of Econ. Rsch., Working Paper No.
30783, Dec. 2022), available at https://www.nber.org/papers/w30783,
Andrew Singer, Cleaning Up Crypto Exchange Wash Trading Will Take
Global Regulation, Cointelegraph (July 29, 2020), available at
https://cointelegraph.com/news/cleaning-up-crypto-exchange-wash-trading-will-take-global-regulation (according to Gerald Chee, head
of research at CoinMarketCap.com, ``there is no way to tell if an
exchange is inflating volume or not by merely looking at the volume
they report'' because ``[t]he only way to detect `wash trades' would
require access to `account-ID' data'' and ``only exchanges have
access to these [data]''); see also, e.g., Friedhelm Victor & Andrea
Marie Weintraud, Detecting and Quantifying Wash Trading on
Decentralized Cryptocurrency Exchanges (Working Paper, Feb. 13,
2021), available at https://arxiv.org/pdf/2102.07001.pdf.
    \208\ The term wash trading refers to the practice of creating
misleading trade reports and delivering such reports to the public,
usually to deceive market participants into believing volume in a
particular instrument is higher than it actually is. This is often
arranged by trading against one's own limit orders, or buy swapping
the instrument back and forth with a collaborator.
    \209\ See, e.g., Bitwise Asset Management, Presentation to the
Securities and Exchange Commission (Mar. 19, 2019), available at
https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca201901-5164833-183434.pdf (stating that only 4.5% of approximately $6
billion of reported trading in Bitcoin was real). See also Javier
Paz, More Than Half of All Bitcoin Trades are Fake, Forbes (Aug. 26,
2022), available at https://www.forbes.com/sites/javierpaz/2022/08/26/more-than-half-of-all-bitcoin-trades-are-fake/?sh=471e51be6681.
---------------------------------------------------------------------------

    Because such wash trading renders volume data unusable, the
Commission is also unable to determine the share of trading that takes
place on various types of platforms; or the amount of concentration in
volume among various exchanges, including whether a given exchange has
any legitimate volume at all.
    It is likewise impractical to determine market turnover of crypto
assets using data on transfer of crypto assets between wallets that is
available via public blockchains. The Commission preliminarily believes
that a direct analysis of blockchain data would be unable to reliably
determine how many crypto assets are actually moving between different
entities. Among other complications, the Commission understands that it
is a common practice for a single entity participating in crypto asset
trading to control multiple wallets and to move funds between those
wallets. There may be no way of determining that movement between such
wallets represents the exchange of crypto assets between distinct
entities. Additionally, because transactions on the blockchain can be
costly and slow, the Commission understands crypto assets to sometimes
trade and settle off-chain, with only changes between public addresses
eventually appended to the blockchain. Thus, even if one could
determine changes in ownership from transfers on the blockchain, that
might not reflect all changes of ownership that occur on off-chain
platforms.
a. Platforms in the Market for Crypto Assets
    The Commission is unable to reliably determine the amount of
trading in crypto assets that takes place through platforms, or to
quantify their share of the market for trading services in crypto
assets. This is due to the wash trading problem in the crypto asset
market discussed above.\210\ The Commission is also unable to reliably
determine the number of platforms operating in the crypto asset
market.\211\
---------------------------------------------------------------------------

    \210\ See supra section V.B.1. The difficulties in computing
volume is also due in part to the significant amount of trading in
crypto asset securities that may be occurring in non-compliance with
federal securities laws. See supra section V.B.1.
    \211\ While the Commission is uncertain about the total number
of platforms, some existing estimates of this number are over 200
for certain kinds of platforms, and over 250 for other kinds of
platforms. See, e.g., Top Cryptocurrency Spot Exchanges,
CoinMarketCap, available at https://coinmarketcap.com/rankings/exchanges/, Top Cryptocurrency Decentralized Exchanges,
CoinMarketCap, available at https://coinmarketcap.com/rankings/exchanges/dex/; see also Bloomberg Letter II at 3; see supra section
V.B.1. discussing difficulties in determining the size and scope of
the crypto asset market generally, including issues related to
foreign activity and non-compliance. See infra section V.B.1.c
(where the Commission has provided a rough estimate of the number of
Communication Protocol Systems in the market for crypto asset
securities).
---------------------------------------------------------------------------

    Some platforms may operate through the use of smart contracts.\212\
A smart contract may be designed to accept and integrate changes to its
functionality, or it may be immutable.\213\ Different designs are used
to control changes to a smart contract's functionality, including
designs that enable only very specific entities to submit changes to
the smart contract, as well as designs where a number of market
participants receive tokens theoretically enabling them to vote on
whether a change proposed by a developer is integrated or not.\214\ The
Commission understands that these tokens, or other tokens, may also
entitle their holders to additional benefits, which may include a claim
on some portion of the transaction fees paid to the smart contract.
---------------------------------------------------------------------------

    \212\ See supra note 15. Smart contracts generally can be
appended to a blockchain capable of running such programs by anyone
with the ability to submit transactions to it. The Commission
understands that not all blockchains are initially designed with the
intention of enabling smart contract functionality.
    \213\ By ``immutable,'' the Commission means that the smart
contract cannot be changed through the processes that are part of
the typical functioning of a blockchain. The miners or validators of
the blockchain, by deviating from such processes, can make
alterations to the blockchain that alter interactions with
``immutable'' smart contracts. See infra section V.C.2.c.i for
related discussion.
    \214\ Such tokens are sometimes referred to as governance
tokens.
---------------------------------------------------------------------------

i. Operations of Platforms
    The Commission understands that some platforms for crypto assets
operate limit order books to facilitate trading among their customers.
Some operators of platforms also operate an affiliated so-called over-
the-counter system or an RFQ system.\215\ Colocation options are
possible at some platforms.\216\
---------------------------------------------------------------------------

    \215\ See Elias Ahonen, What Really Goes on at a Crypto OTC
Desk?, Cointelegraph (May 16, 2022), available at https://cointelegraph.com/magazine/explained-what-really-crypto-otc-desk/.
    \216\ See Anna Baydakova, High-Frequency Trading is Newest
Battleground in Crypto Exchange Race, CoinDesk (July 8, 2019),
available at https://www.coindesk.com/markets/2019/07/08/high-frequency-trading-is-newest-battleground-in-crypto-exchange-race/.
---------------------------------------------------------------------------

    The Commission preliminarily believes that platforms can be a
source of pricing information for the crypto assets that trade on those
platforms. Pricing information from off-chain platforms is sometimes
supplied to blockchains to serve as a reference price for various
entities using smart contracts in their systems.\217\
---------------------------------------------------------------------------

    \217\ See, e.g., Andrei Anisimov & Luke Youngblood, Introducing
the Coinbase Price Oracle, Coinbase (Apr. 23, 2020), available at
https://www.coinbase.com/blog/introducing-the-coinbase-price-oracle.
See also infra section V.B.1.a for further discussion of using price
information from centralized platforms in DeFi settings.
---------------------------------------------------------------------------

    Some entities run limit order books on the blockchain, by utilizing
smart contracts that accept limit orders, display them, and match limit
orders with market orders. In a system using a limit order book where
all activity takes place on-chain, traders must pay for blockchain
transactions for each message they wish to send to the limit order
book, in addition to any fees the limit order book may charge. This can
increase the sources of transaction cost relative to a platform that
does not run its limit order book on-chain. Some entities with an on-
chain component to their system may run their limit order books in
whole or in part off-chain, with only final transactions being posted
to the blockchain. This may help both reduce total fees paid by users
and issues of latency in updating on-chain records.
    An AMM is designed as an alternative to a limit order book.\218\ An
AMM typically offers liquidity by exchanging one crypto asset for
another,\219\ with the

exchange rate typically set according to a pre-specified formula. In
some cases, this formula is set only by a mathematical function of the
inventory the AMM possesses of each crypto asset in the pair,\220\
while in other cases the AMM may incorporate information from an off-
chain platform to help inform the exchange rate. The inventory that an
AMM uses to fill orders is typically supplied by market participants,
and the details of the smart contract may specify compensation for
supplying inventory (e.g., by dividing up transaction fees among the
inventory suppliers). In some cases, the AMM may permit the inventory
suppliers to restrict the use of their liquidity to pre-specified price
ranges.
---------------------------------------------------------------------------

    \218\ AMMs typically make use of smart contracts to enable their
functionality, and as a consequence may run on-chain to a
significant degree.
    \219\ The inventory held by an AMM for providing liquidity is
typically called a pool. A single AMM protocol will typically have
many pools, one for each combination of crypto asset trades offered.
For example, for crypto assets A, B, and C, a single AMM protocol
might have a pool that offers to trade A for B and vice versa,
another pool that offers to trade B for C and vice versa, and a
third pool that offers to trade A for C and vice versa. Some AMMs
can have pools with more than two assets that permit trades in
combinations of the assets in the pool. For example, a pool might
contain A, B, and C, and permit trades such as exchanging A and B
for C.
    \220\ In the case where the AMM offers pools with more than two
assets, the formula may be based on the amount of each asset held in
the pool.
---------------------------------------------------------------------------

    The Commission understands that while some platforms provide
markets that enable the trading of crypto assets for dollars or other
fiat currency, platforms for crypto assets typically offer markets in
trading pairs as well. This means that, for example, an order on a
limit order book may offer to buy or sell units of a base asset in
exchange for a quote asset with the price expressed in units of the
quote asset.\221\ In addition, some platforms focus on facilitating
trades where the transaction takes place entirely ``on-chain.'' In this
case, the platform is unable to facilitate crypto asset markets using
fiat currency. Instead, such systems can only facilitate trading in
crypto asset pairs.
---------------------------------------------------------------------------

    \221\ See supra section II.A for additional discussion of pairs
trading.
---------------------------------------------------------------------------

    The Commission understands that the majority of platforms typically
require crypto assets and fiat currency to be provided to the platform
in advance of any trading activity. This requirement can help ensure
the successful completion of trades.
    A variety of market participants use platforms to trade crypto
assets. The Commission understands that retail investors are
significant users of platforms.\222\ The Commission also understands
that some platforms may also be used to fill the orders of
institutional investors, and may have market makers participating as
well.
---------------------------------------------------------------------------

    \222\ See, e.g., Michel Rauchs, Apolline Blandin, Kristina
Klein, Gina Pieters, Martino Recanatini & Bryan Zhang, 2nd Global
Cryptoasset Benchmarking Study (Dec. 2018), available at https://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-09-ccaf-2nd-global-cryptoasset-benchmarking.pdf, showing that globally, retail
investors are 70% of ``exchange-only'' crypto business users and 78%
of ``multi-segment'' crypto businesses. See also 2022 10-K, Coinbase
(Feb. 21, 2023), available at https://www.sec.gov/Archives/edgar/data/1679788/000167978823000031/coin-20221231.htm showing that for
one centralized platform, retail investors accounted for
approximately 20% of trading volume in 2022.
---------------------------------------------------------------------------

    The Commission understands that the speed of processing on some
platforms may be faster when compared to transfers on some blockchains
or systems that involve blockchain processing as part of
functionality,\223\ both of which are reliant on blockchain
transactions to function. The Commission understands that there is
often a queue of transactions waiting to be appended to a blockchain,
and transactions being sent to a trading platform running on that
blockchain may have to wait in that queue to be processed.
---------------------------------------------------------------------------

    \223\ See infra section V.B.1.c.
---------------------------------------------------------------------------

    Trading using systems that involve sending information to a
blockchain \224\ as a means of interacting with the system may expose
the market participant to information leakage of a kind that is not
present on platforms or New Rule 3b-16(a) Systems that do not require
interacting through a blockchain. The Commission understands that
messages to be appended to a blockchain often end up in queue that is
publicly viewable, which then exposes the market participant to
information leakage.
---------------------------------------------------------------------------

    \224\ For example, sending a transaction to an AMM running on-
chain.
---------------------------------------------------------------------------

    Furthermore, when trading on a system that runs some of its
functionality on-chain, there is a risk of unexpected or undesired
execution results. Specifically, a market participant may send an order
to a blockchain intending to interact with the on-chain portion of the
system based on market conditions which will be altered by other
transactions that are already queued but not yet processed.\225\
---------------------------------------------------------------------------

    \225\ The Commission understands that some platforms which have
this risk permit transaction messages to set limits to help mitigate
the risk of unexpected execution results. Although the problem of
messages already en route or queued for processing causing
unexpected changes to a trading platform for other users is a
problem on off-chain platforms as well, the Commission understands
that the problem may be more severe on platforms which require
interaction through a blockchain because the longer processing times
can lead to larger queues.
---------------------------------------------------------------------------

    Some ATSs, which have an active Form ATS on file with the
Commission, specify in their Form ATS disclosures that they trade or
intend to trade crypto asset securities.
ii. Regulatory Baseline
    The provider of a platform that meets the current criteria of Rule
3b-16 of the Exchange Act is required to register as a national
securities exchange or operate pursuant to the Regulation ATS
exemption, which involves registering as a broker-dealer and complying
with Regulation ATS.\226\ The regulatory requirements and the
associated compliance costs for platforms that trade crypto asset
securities vary according to whether they are regulated as a national
securities exchange or ATS.
---------------------------------------------------------------------------

    \226\ See supra section V.B.1.a.i, discussing ATSs that trade or
intend to trade crypto asset securities. There are no registered
national securities exchanges which trade crypto asset securities.
See supra section V.B.1.
---------------------------------------------------------------------------

    A platform that trades crypto asset securities could choose to
register as a national securities exchange pursuant to sections 5 and 6
of the Exchange Act.\227\ The compliance costs associated with being a
national securities exchange are generally significantly higher than
those of being an ATS. In contrast to an ATS, a national securities
exchange, as an SRO, incurs compliance costs associated with, among
other things, setting standards of conduct for its members,
administering examinations for compliance with these standards,
coordinating with other SROs with respect to the dissemination of
consolidated market data, and generally taking responsibility for
enforcing its own rules and the provisions of the Exchange Act and the
rules and regulations thereunder. Furthermore, under section 19(b) of
the Exchange Act, a national securities exchange incurs compliance
costs by filing any proposed changes to its rules with the Commission,
which the Commission has the authority to approve or disapprove.\228\
---------------------------------------------------------------------------

    \227\ Pursuant to section 6 of the Exchange Act, national
securities exchanges must establish rules that generally: (1) are
designed to prevent fraud and manipulation, promote just and
equitable principles of trade, and protect investors and the public
interest; (2) provide for the equitable allocation of reasonable
fees; (3) do not permit unfair discrimination; (4) do not impose any
unnecessary or inappropriate burden on competition; and (5) with
limited exceptions, allow any broker-dealer to become a member.
Section 6(b) of the Exchange Act requires, among other things, that
the national securities exchange be so organized and have the
capacity to carry out the purposes of the Exchange Act and to comply
and enforce compliance by its members, and persons associated with
its members, with the federal securities laws and the rules of the
exchange. See section 6(b) of the Exchange Act.
    \228\ See generally section 19(b) of the Exchange Act.
---------------------------------------------------------------------------

    A platform that meets the current definition of an exchange and
operates pursuant to the ATS exemption must comply with Regulation ATS,
and

incurs costs related to compliance with these requirements. To operate
under the exemption, an ATS must register as a broker-dealer \229\ and
comply with the filing and conduct obligations associated with being a
registered broker-dealer, including membership in an SRO, such as
FINRA,\230\ and compliance with the SRO's rules.\231\ Upon becoming a
broker-dealer, the operator of an ATS is subject to certain broker-
dealer requirements with respect to maintaining net capital, reporting,
and recordkeeping.\232\ An ATS is subject to Commission examinations
and FINRA examinations and surveillance, trade reporting obligations,
and certain investor protection rules.\233\ An ATS is required to
establish adequate written safeguards and written procedures \234\ to
protect subscribers' confidential trading information.\235\
Furthermore, an ATS is subject to certain reporting and disclosure
requirements, as applicable. Under Rule 301(b)(2) of Regulation ATS, an
ATS that does not trade NMS stocks must file Form ATS.\236\ An ATS must
file quarterly Form ATS-R to report to the Commission, among other
things, trading volume, securities traded, and a list of subscribers
that were participants during the relevant quarter.\237\ An ATS is
subject to recordkeeping and record preservation requirements under
Rules 302 and 303 of Regulation ATS, respectively.
---------------------------------------------------------------------------

    \229\ The broker-dealer operator controls all aspects of the
operation of the ATS and is legally responsible for ensuring that
the ATS complies with applicable federal securities laws and the
rules and regulations thereunder, including Regulation ATS. See NMS
Stock ATS Adopting Release at text accompanying note 663.
    \230\ See section 15(b)(8) of the Exchange Act.
    \231\ See Regulation ATS Adopting Release, supra note 3, at
70903.
    \232\ Registered broker-dealers would be subject to requirements
under certain Exchange Act rules, such as Rule 15c3-1, Rule 17a-1,
Rule 17a-3, Rule 17a-4, and Rule 17a-5.
    \233\ Under the federal securities laws and FINRA rules,
registered broker-dealers (e.g., broker-dealer operators of ATSs)
are subject to, among other things: (1) various disclosure and
supervision obligations; (2) anti-money laundering obligations
(including suspicious activity reporting); (3) FINRA OTC trade
reporting requirements, including requirements to maintain
membership in, or maintain an effective clearing arrangement with a
participant of, a clearing agency registered under the Exchange Act;
and (4) Commission examinations and FINRA examinations and
surveillance of members and markets that its members operate.
    \234\ These written safeguards and written procedures must
include, among other things: 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.
    \235\ See 17 CFR 242.301(b)(10); NMS Stock ATS Adopting Release,
supra note 7, section VI.
    \236\ Under Rule 304 of Regulation ATS, NMS Stock ATSs are
required to file public Form ATS-N (instead of filing Form ATS),
which is subject to a Commission review and effectiveness process.
    \237\ See Rule 301(b)(9); Form ATS-R.
---------------------------------------------------------------------------

    In addition, an ATS that trades in crypto asset securities that are
corporate debt securities, and meets certain volume thresholds, is
required to comply with the Fair Access Rule and Rule 301(b)(6) of
Regulation ATS. The requirements of Rule 301(b)(6) are similar to, but
with less benefits and with significantly less costs than, the
requirements of Regulation SCI.\238\ Such an ATS must be a member of
FINRA, and would accordingly be required to report to the Trade
Reporting and Compliance Engine (TRACE) transactions in corporate
bonds.\239\
---------------------------------------------------------------------------

    \238\ The scope and requirements of Rule 301(b)(6) are narrower
than those of Regulation SCI. For example, Rule 301(b)(6) of
Regulation ATS applies to a narrower set of systems, as compared to
Regulation SCI. Rule 301(b)(6) of Regulation ATS applies only to
systems that support order entry, order routing, order execution,
transaction reporting, and trade comparison, which is narrower than
the definition of SCI system. Also, Rule 301(b)(6) does not require
ATSs to maintain a backup facility, whereas Regulation SCI includes
such a requirement.
    \239\ See Proposing Release at 15604 n.871 and accompanying
text.
---------------------------------------------------------------------------

    An ATS that trades crypto asset securities that are municipal
securities is similarly required to comply with the Fair Access Rule
and with Rule 301(b)(6) of Regulation ATS if it meets certain volume
thresholds. Additionally, the broker-dealer operator of such an ATS
must register with the Municipal Securities Rulemaking Board (MSRB) and
accordingly is required to report municipal bond trades to the MSRB's
Real-Time Transaction Reporting System (RTRS).\240\
---------------------------------------------------------------------------

    \240\ See id. at 15608.
---------------------------------------------------------------------------

    A platform that operates as an NMS Stock ATS and trades in crypto
asset securities that are NMS stocks is required to file public Form
ATS-N. Such an ATS must comply with the requirements of Regulation SCI
and the Fair Access Rule if it meets the corresponding volume
thresholds. Additionally, because trades in NMS stocks that are
transacted off-exchange must be reported to one of three FINRA Trade
Reporting Facilities, such an NMS Stock ATS would have the reporting
obligation in most cases where it handles the execution of the trade.
Such an ATS that receives or originates orders in Eligible Securities
\241\ is required to report any Reportable Event \242\ to the
Consolidated Audit Trail.
---------------------------------------------------------------------------

    \241\ The CAT NMS Plan is a national market system plan approved
by the Commission pursuant to Section 11A of the Exchange Act and
the rules and regulations thereunder. See Securities Exchange Act
Release No. 79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016). The
CAT NMS Plan and subsequent amendments to the Plan are available at
https://catnmsplan.com/about-cat/cat-nms-plan. Section 1.1 of the
CAT NMS Plan defines Eligible Securities as ``(a) all NMS
Securities; and (b) all OTC Equity Securities,'' where OTC Equity
Securities are defined as any equity security, other than an NMS
Security, subject to prompt last sale reporting rules of a
registered national securities association and reported to one of
such association's equity trade reporting facilities.'' This
includes both OTC Equity Securities and transactions in Restricted
Equity Securities effected pursuant to Securities Act Rule 144A.
    \242\ According to Section 1.1 of the CAT NMS Plan, ``Reportable
Event'' includes, but is not limited to, the original receipt or
origination, modification, cancellation, routing, execution (in
whole or in part) and allocation of an order, and receipt of a
routed order. See CAT NMS Plan, supra note 241.
---------------------------------------------------------------------------

    A platform that is an ATS and trades in crypto asset equity
securities that are not NMS stocks is required to comply with
Regulation SCI and the Fair Access Rule if it meets certain volume
thresholds, be a member of FINRA, and comply with associated reporting
obligations.
    AMMs \243\ that meet the definition of a dealer or government
securities dealer under sections 3(a)(5) and 3(a)(44) of the Exchange
Act are subject to the requirements applicable to dealers under federal
securities laws and FINRA rules.\244\ These AMMs would incur compliance
costs associated with broker-dealer requirements discussed in section
V.B.1.a.ii.
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    \243\ Some AMMs may operate as single dealer platforms. A single
dealer platform that meets the requirement of existing Exchange Act
Rule 3b-16(b)(2) and Rule 3b-16(b)(2) as proposed to be amended,
would be excluded from the Exchange Act Rule 3b-16(a) and thus not
fall within the definition of exchange. In addition, the proposed
amendments to Rule 3b-16 do not change the registration obligations
of a person that meets the definition of a dealer or government
securities dealer under sections 3(a)(5) and 3(a)(44) of the
Exchange Act.
    \244\ The Commission encourages commenters to review the
Commission's proposal, ``Further Definition of ``As a Part of a
Regular Business'' in the Definition of Dealer and Government
Securities Dealer,'' Securities Exchange Act Release No. 94524 (Mar.
28, 2022), 87 FR 23054 (Apr. 18, 2022) to determine whether it might
affect their comments on this Reopening Release.
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    Regulated platforms do not offer trading in non-cash markets for
crypto assets in which one of the assets is a security and the other
one is not a security.\245\
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    \245\ There is a significant amount of trading in crypto asset
securities that may be occurring in non-compliance with federal
securities laws. See supra section V.B.1.
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b. New Rule 3b-16(a) Systems in the Market for Crypto Assets Securities
    The Commission understands that some amount of trading in crypto
asset securities is facilitated through New Rule 3b-16(a) Systems.\246\
The

Commission lacks information on the entities involved providing New
Rule 3b-16(a) Systems in the market for crypto asset securities, and
consequently, is uncertain as to the precise number of such entities.
Nevertheless, the Commission is providing a rough estimate that there
are 15-20 New Rule 3b-16(a) Systems trading crypto asset
securities.\247\ The Commission requests comment on the number of New
Rule 3b-16(a) Systems in the market for crypto asset securities. The
Commission lacks data on the share of trades in crypto asset securities
that are conducted in this way, and requests comment on this issue.
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    \246\ See supra section V.B.1. Additionally, one commenter
states that the proposed amendments to the definition of exchange,
specifically the phrasing ``to include systems that offer the use of
non-firm trading interest and communication protocols to bring
together buyers and sellers of securities,'' could be read to
encompass ``unhosted protocols,'' which the Commission understands
to refer to DeFi platforms. See Delphi Digital Letter at 11; see
also LeXpunK Letter at 3.
    \247\ The Commission received comments stating that we had not
included an estimate of the number of crypto asset security market
participants that would be included in the amended definition of
exchange. See GDCA Letter II at 6, Delphi Digital Letter at 11,
McHenry/Huizenga Letter at 2.
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    The Commission is uncertain as to the range of specific
communication protocols used for trading crypto assets.\248\ The
Commission requests comment on the types of protocols used in trading
crypto assets.
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    \248\ In the Proposing Release, the Commission discussed common
kinds of protocols and their economic significance in their
respective markets, see, e.g., Proposing Release sections VIII.B.1,
VIII.B.2.b, VIII.B.3.b, VIII.B.4.b, VIII.B.5.d, VIII.B.6.b, and
VIII.B.7.
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    Some entities provide New Rule 3b-16(a) Systems that may run part
of the system on-chain (for example, by using smart contracts). A New
Rule 3b-16(a) System that utilizes such technology may possess some of
the same features as other systems using that technology described in
section V.B.1.a.
    The Commission understands that when running a New Rule 3b-16(a)
System that involves on-chain technology, the actual negotiation
portion of the system (e.g. the RFQ functions) may be run ``off-
chain,'' that is, without using the blockchain for computation and
communication. Once negotiation is finished, the transaction may then
be completed using blockchain-based systems.
    It is also possible that some New Rule 3b-16(a) Systems may be run
entirely on-chain. For example, there may be smart contracts that
enable the sending of RFQs, responses to the RFQ, and finalizing of
transactions all through communicating with a set of smart contracts by
sending messages to the blockchain.
    The Commission preliminarily believes that New Rule 3b-16(a)
Systems with on-chain components to their system generally facilitate
trades that are not cash-based. That is, the trades exchange one crypto
asset security for another crypto asset. The Commission preliminarily
believes that it is possible that New Rule 3b-16(a) Systems that do not
use any on-chain elements in their systems may also facilitate trades
that are non-cash based.
    New Rule 3b-16(a) Systems do not meet the current definition of
exchange under Rule 3b-16, and therefore are not currently required to
register as national securities exchanges or comply with Regulation
ATS.\249\
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    \249\ See supra section V.B.1.a.ii describing the rules of
Regulation ATS, as well as rules applicable to national securities
exchanges.
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c. Other Methods of Trading in Crypto Assets
    Market participants may transact in crypto assets via bilateral
voice trading or electronic chat messaging.\250\ The Commission
understands that such interactions may be with a market maker in crypto
assets, or with some other market participant. Such methods of trading
permit negotiation on price and size. The Commission lacks information
on current crypto asset market practice, and requests comment on this
issue.
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    \250\ See supra section V.B.1.
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    Bilateral voice trading may provide flexibility to traders and
reduce information leakage. For these reasons, the Commission
preliminarily believes it may be a useful method for trading crypto
assets in large blocks. The Commission requests comment on the role of
bilateral voice trading in the market for crypto assets.
d. Competition for Crypto Asset Trading Services
    The various platforms available for trading crypto assets, as well
as New Rule 3b-16(a) Systems, compete to attract order flow. The
Commission preliminarily believes that market participants seeking
liquidity in crypto assets may prefer either one particular platform or
method of crypto asset trading or multiple platforms or methods. A
single order may be split and filled using the different methods. It is
also possible that some methods may be used more than others in certain
segments of market participants.
    Because New Rule 3b-16(a) Systems are not currently subject to the
same regulation as organizations, associations, or groups of persons
that meet the existing definition of ``exchange'' under Rule 3b-16,
they often trade pairs, which can include a combination of securities
and non-securities. This may give New Rule 3b-16(a) Systems a
competitive advantage over platforms that currently meet regulatory
requirements for exchanges.
    Some of the methods for trading crypto asset securities involve
platforms that are currently subject to regulation as an ATS or
national securities exchange.\251\ New Rule 3b-16(a) Systems, in
contrast, are not subject to such regulation. This may have an impact
on competition for order flow between these two groups of platforms.
For example, platforms that are ATSs or national securities exchanges
may offer the benefits of investor protections associated with these
regulations to customers in ways that New Rule 3b-16(a) Systems do not.
It is also the case that the compliance costs for such regulations may
burden current ATSs and national securities exchanges in a way that
disadvantages them in competing with New Rule 3b-16(a) Systems.
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    \251\ See supra section V.B.1.a discussing such platforms and
the regulations to which they are subjected. Also, see supra section
V.B.1.a.i, discussing ATSs that trade or intend to trade crypto
asset securities. Today, there are no registered national securities
exchanges that trade crypto asset securities. See supra section
V.B.1.
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C. Economic Effects

    The Commission discussed the economic effects of the Proposed Rules
on general activity involving securities in the Proposing Release. In
this section, the Commission discusses the economic effects of the
Proposed Rules on activity involving crypto asset securities.
    The Commission is relying on the analysis in the Proposing Release
to form the basis for its discussion of the effects of the Proposed
Rules for systems trading crypto asset securities.\252\ This is because
the Commission believes that New Rule 3b-16(a) Systems that trade
crypto asset securities are broadly similar in their functions to
functions of other New Rule 3b-16(a) Systems. The following sections
include discussion of the extent to which we believe these effects may
deviate from those discussed in the Proposing Release for the market
for crypto asset securities. Throughout the discussion in this
Reopening Release, the Commission has a greater degree of uncertainty
in its analysis of the costs that the Proposed Rules would impose on
market participants for crypto asset securities than it did in its
discussion of costs for non-crypto asset securities. This is because
the Commission has less data

on the functioning of the market for crypto asset securities.\253\
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    \252\ See id.
    \253\ See supra section V.B.1.
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    As discussed in the Proposing Release,\254\ a New Rule 3b-16(a)
System could choose to register as an exchange rather than choose to
comply with the Regulation ATS exemption. The Commission believes that
New Rule 3b-16(a) Systems that trade crypto asset securities would
likely elect to register as a broker-dealer and comply with Regulation
ATS because the regulatory costs associated with registering and
operating as an exchange would be higher than those associated with
registering as a broker-dealer and complying with Regulation ATS.\255\
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    \254\ See Proposing Release at 15618.
    \255\ See id. at 15586.
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    One commenter agrees with the Commission that any entity captured
as a New Rule 3b-16(a) System ``would likely prefer to be regulated as
an ATS as opposed to an exchange.'' \256\
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    \256\ See LeXpunK Letter at 14.
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1. Benefits
    The Commission believes that the benefits detailed in the Proposing
Release \257\ would accrue in broadly the same manner to market
participants who trade in crypto asset securities as they would to
market participants who trade in the securities discussed in the
Proposing Release. This is because the Commission believes that New
Rule 3b-16(a) Systems that trade crypto asset securities are broadly
similar in their functions to functions of other New Rule 3b-16(a)
Systems. However, throughout the discussion in this Reopening Release,
the Commission has a greater degree of uncertainty in its analysis of
the benefits that the Proposed Rules would provide to market
participants in the market for crypto asset securities than it did in
its discussion of benefits for non-crypto asset securities. This is
because the Commission has less data on the functioning of the market
for crypto asset securities.\258\
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    \257\ See id. at 15618.
    \258\ See supra section V.B.1.
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    Certain benefits discussed in the Proposing Release apply only to
certain asset classes: the Commission believes that if any current or
future crypto asset security falls into one of those classes, then
those benefits would likely apply to the participants in the market for
that crypto asset security as well.
a. Enhancement of Regulatory Oversight and Investor Protection
    As discussed fully in the Proposing Release, the Proposed Rules
would enhance regulatory oversight and investor protection by extending
the requirements related, among other things, to broker-dealer
registration, transaction reporting, safeguarding subscribers'
confidential trading information, recordkeeping and reporting under
Regulation ATS, providing certain information on Form ATS-R to the
Commission, and filing public Form ATS-N, to New Rule 3b-16(a) Systems
trading in securities of the applicable asset classes.\259\ Of these
benefits, some are associated with rules that apply to all securities,
and the rest are associated with rules that apply only to securities of
specific asset classes. The Commission believes that benefits
associated with rules that apply to all securities would accrue to
market participants trading crypto asset securities in a manner similar
to the description in the Proposing Release, and to a similar extent.
The Commission additionally believes that benefits associated with
rules applying only to specific asset classes would accrue to market
participants trading crypto asset securities of the appropriate asset
type, again in a similar manner and to a similar extent as that
described in the Proposing Release.
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    \259\ See id. at 15618-19. See also supra note 181 and
accompanying text (explaining that the Commission continues to
assume that, under the Proposed Rules, Newly Designated ATSs will
choose to register as broker-dealers and comply with the conditions
of Regulation ATS, rather than register as national securities
exchanges, and therefore the costs analyzed here assume that such
systems will not register as national securities exchanges).