configure the ATS to provide reduced latencies for certain means of
entry used by itself or its affiliates.\578\
---------------------------------------------------------------------------

    \577\ See supra note 564 and accompanying text.
    \578\ Covered ATSs would not be required to calculate and
disclose precise latencies for each means of entry for purposes of
Form ATS-N.
---------------------------------------------------------------------------

    The Commission also believes that it is important for subscribers
to understand if a means of entry is provided by an affiliate, even if
it does not provide an advantage to a particular entity.
    Disclosures about a broker-dealer operator's use of its or an
affiliate's direct or indirect functionality to enter trading interest
into the Covered ATS are important to market participants to allow them
to assess the potential for information leakage. The indirect means of
access (e.g., SOR or algorithm) may obtain information about subscriber
trading interest that is sent to the ATS (and may now be resting in the
ATS) and subscriber trading interest that is sent out of the ATS. The
potential that an indirect means of accessing the Covered ATS could
lead to leakage of subscribers' confidential trading information
necessitates disclosure of certain information about the use of such
indirect means to send subscriber trading interest in or out of the
ATS. In addition, there may be instances where an ATS uses an
intermediate functionality or entity as the means to bring together
buyers and sellers or provide established methods (such as providing
means to enter, display, communicate, or execute trading interest) and
that intermediate functionality or entity would be considered part of
the ATS for purposes of Regulation ATS and Form ATS-N.\579\ For
example, if the broker-dealer operator arranges for trading interest to
be entered into the ATS by another party, the activities of that party
with respect to the ATS would be subject to the disclosure requirements
of Form ATS-N. Likewise, if an ATS is subject to the Fair Access Rule
under Regulation ATS and its participants must use an entity other than
the broker-dealer operator to enter or receive information about
trading interest in the ATS, the ATS must establish reasonable written
standards governing the granting, denial, or limitation of access to
ensure that those participants are not treated in an unfair and
unreasonably discriminatory manner by the entity.\580\
---------------------------------------------------------------------------

    \579\ See NMS Stock ATS Adopting Release, supra note 2, at 38832
and 38844. Depending on the activities of the persons involved with
the market place, a group of persons can together provide,
constitute, or maintain a market place or facilities for bringing
together purchasers and sellers of securities and together meet the
definition of exchange. In such a case, the group of persons would
have the regulatory responsibility for the exchange.
    \580\ See Regulation ATS Adopting Release, supra note 31, at
70873. See infra Section V.A.3.a.
---------------------------------------------------------------------------

Request for Comment
    113. Are there any means of entering trading interest into the
Covered ATS where more or should be required to explain their
operation? Are there any aspects of those means of entry that are
particularly important?
f. Item 6: Connectivity and Co-Location
    Part III, Item 6(a) of Form ATS-N would request information about
whether the Covered ATS offers co-location and related services, and if
so, would require a summary of the requirements for use of such
services, including the speed and connection (e.g., fiber, copper)
options offered. Part

III, Item 6(b) of Form ATS-N \581\ would require a Covered ATS to
indicate whether it provides any other means besides co-location and
related services described in the Item 6(a) to increase the speed of
communication with the ATS, and if so, to explain the means and provide
a summary of the requirements for its use. Part III, Item 6(c) would
require the Covered ATS to indicate whether it offers any means to
reduce the speed of communication with the ATS and if so, to provide a
summary of the requirements for its use.\582\
---------------------------------------------------------------------------

    \581\ The Commission is proposing to re-number Part III, Item
6(c) of current Form ATS-N to Item 6(b) and Part III, Item 6(e) of
current Form ATS-N to Part III, Item 6(c).
    \582\ To clarify that the Commission is soliciting information
about any requirements the ATS imposes on subscribers or persons
that submit trading interest to use co-location, related services,
and other means to increase or reduce the speed of communication
with the ATS, rather than the legal or contractual terms of such
services, the Commission is proposing to replace the current
requirement for a summary of the ``terms and conditions'' with
``requirements for use'' for such services in Part III, Items 6(a),
6(b), and 6(c). See supra note 543.
---------------------------------------------------------------------------

    Latency is an important feature of trading in certain government
securities and NMS stocks, and market participants are interested in
understanding the functionalities employed by Covered ATSs to influence
it.\583\ The Item would require a summary of the requirements where a
trading venue employs mechanisms to increase the latency or the length
of time for trading interest or other information to travel from a user
to the system. Users of co-location services can experience faster or
slower connection speeds to a Covered ATS depending on factors such as
the distance of the customer servers from the matching engine, or the
use or non-use of ``coiling'' to its matching engine to equalize
connection speeds among subscribers, among others. Such differences in
connection speed or latency would be required to be disclosed under
Part III, Item 6. If, for example, the ATS offers means that would
allow certain subscribers a competitive advantage, then the ATS should
disclose such means on the Form ATS-N. The Commission believes that the
information disclosed in Item 6 would help market participants
understand their connectivity options to the ATS and expedite the order
entry process for subscribers.
---------------------------------------------------------------------------

    \583\ See October 15 Staff Report, supra note 188, at 36-37;
Treasury Request for Information, supra note 193, at 3928. See also
Letter from Dan Cleaves, Chief Executive Officer, BrokerTec
Americas, and Jerald Irving, President, ICAP Securities USA LLC, to
David R. Pearl, Office of the Executive Secretary, Treasury
Department, dated April 22, 2016 (``BrokerTec/ICAP Letter''), at 3-
4, available at https://www.treasurydirect.gov/instit/statreg/gsareg/ICAPTreasuryRFILetter.pdf; Letter from C. Thomas Richardson,
Managing Director, Head of Electronic Trading Service, Wells Fargo
Securities, and Cronin McTigue, Managing Director, Head of Liquid
Products, Wells Fargo Securities, to Treasury Department, dated
April 21, 2016, at 6-7, available at https://www.treasurydirect.gov/instit/statreg/gsareg/RFIcommentWellsFargo.pdf.
---------------------------------------------------------------------------

Request for Comment
    114. Are there any aspects of the means for increasing or reducing
the speed of communication with Covered ATSs that the Commission should
specifically require under this Item?
g. Item 7: Order Types and Sizes; Trading Facilities
    Part III, Item 7 of Form ATS-N is designed to disclose whether the
Covered ATS provides trading facilities or sets rules for bringing
together orders of buyers and sellers (e.g., crossing system, auction
market, limit order matching book, click-to-trade functionality). The
request is intended to capture Covered ATSs that offer the use of firm
trading interest and a trading facility or rules for buyers and sellers
to interact and agree upon the terms of a trade. The Commission
believes that systems that typically offer the use of orders and
trading facilities and systems that offer the use of non-firm trading
interest and communication protocols operate distinctively. Systems
that offer the use of orders and trading facilities typically match
orders of buyers and sellers pursuant to pre-determined rules
programmed into an algorithm, while systems that offer the use of
trading interest and communication protocols allow buyers and sellers
to interact directly to find a counterparty and negotiate a trade. To
facilitate market participants' understanding of these systems and
their unique aspects, the Commission is proposing that Covered ATSs
disclose information about the use of orders and trading facilities or
rules in Part III, Item 7 and disclose the use of trading interest and
communication protocols in Part III, Item 8. These questions would
apply to both NMS Stock ATSs and Government Securities ATSs. If a
Covered ATS provides both a trading facility and communication protocol
(e.g., provides both a limit order book and RFQ protocol), the Covered
ATS would respond affirmatively to and explain the protocols separately
under Items 7 and 8. To the extent the trading facility and
Communication Protocol Systems interact in any way, the Covered ATS
would explain that interaction in response to each question.
    A Covered ATS that answers affirmatively to Part III, Item 7 of
revised Form ATS-N would be required to explain the trading facilities
and rules for bringing together the orders of buyers and sellers in the
ATS. In this response, the ATS would be expected to disclose the
information responsive to Part III, Items 7 (Order Types and
Attributes), 8 (Order Sizes), and 11 (Trading Services, Facilities, and
Rules) of current Form ATS-N. Based on Commission staff experience
reviewing Form ATS-N filings, and particularly disclosures related to
order types, order size, and the ATSs' rules, procedures, and
facilities to bring buyers and sellers together, ATS are linked and
intertwined. Allowing the Covered ATS to provide a narrative of these
topics together in Part III, Item 7 of Form ATS-N would provide for
more streamlined disclosures for market participants to understand and
reduce redundancy. This proposed change would result in clearer, more
readable narrative disclosures, and potentially reduce the burden to
Covered ATSs of drafting repetitive disclosures in multiple responses
in the form.
    Part III, Item 7 of Form ATS-N would require that ATSs provide a
description of each order type offered by the Covered ATS, and provide
a list of items that the ATS should include in its description. To
provide transparency to market participants, the Item would require a
complete and detailed description of the order types available on the
Covered ATS, their characteristics, operations, and how they are
handled.\584\ All market participants should have full information
about the operations of order types available on a Covered ATS to
comprehensively understand how their orders will be handled and
executed in the ATS. Order types are a primary means by which users of
a Covered ATS communicate their instructions to trade on an ATS. Given
the importance, diversity, and complexity of order types, the
Commission is proposing to require Covered ATSs to disclose the
information called for by Part III, Item 7 on Form ATS-N.
---------------------------------------------------------------------------

    \584\ In the instruction to Part III, Item 7 of Form ATS-N, the
Commission is proposing to make certain changes and clarify the
examples provided in this Item regarding order types. Particularly,
the Commission proposes to clarify the example provided regarding
``how price conditions affect the rank and price at which it can be
executed'' by replacing ``it'' with ``the order type.'' In addition,
the Commission is proposing to add ``store orders'' as an example of
order types designed not to remove liquidity. The Commission
recognizes that ``store orders'' may be more relevant to Government
Securities ATSs than to NMS Stock ATSs.
---------------------------------------------------------------------------

    Market participants should have sufficient information about all
aspects of the operations of order types

available on a Covered ATS to understand how to use order types to
achieve their trading objectives, as well as to understand how order
types used by other market participants could affect their trading
interest. A detailed description of order type characteristics would
assist subscribers in better understanding how their orders would
interact with other trading interest in the ATS. It also would allow
market participants to see what order types could be used by other
market participants, which could affect the probability, timing, and
quality of their own executions. For example, if the time priority of a
pegged order changes in response to changes in the reference price,
that would affect the likelihood of execution for such an order. The
Commission is also proposing to require that Covered ATSs disclose any
order size requirements (e.g., minimum or maximum size, odd-lot, mixed-
lot, trading increments) and related handling procedures (e.g.,
handling of residual trading interest) in Part III, Item 7 of Form ATS-
N. This incorporates the requirements of Part III, Item 8 of current
Form ATS-N, with modifications.\585\ This information would inform
subscribers about the permissible size of orders and trading interest
that a subscriber could enter in the ATS. For example, if a Covered ATS
has minimum or maximum order sizes, or a minimum increment size
requirement for order modifications, those requirements and related
handling procedures would be responsive to the Item. The Commission is
also proposing to add the example of how residual or unexecuted orders
are handled to the types of related handling procedures that a Covered
ATS would be required to include in Part III, Item 7. Broker-dealer
operators employ market access and risk management controls and
procedures that prevent the entry of erroneous orders and orders that
are above a subscriber's predetermined threshold. If order size
requirements are imposed on subscribers as part of a risk management
procedure, an explanation of those procedures as they relate to the ATS
would be responsive to this Item. An explanation of how a Covered ATS's
requirements and conditions related to the size of trading interest
differ among subscribers and persons would also provide a market
participant with information regarding how its trading interest would
be handled in relation to other market participants.
---------------------------------------------------------------------------

    \585\ As discussed above, to streamline the format of responses,
the Commission is proposing to consolidate current Form ATS-N Part
III, Items 8(a) through (f) in Part III, Item 7 of revised Form ATS-
N. The Commission believes that the information requested is the
same, and the information requests covered by these sub-items (odd-
lot orders and mixed-lot orders) would be covered in Part III, Item
7 of revised Form ATS-N.
---------------------------------------------------------------------------

    Covered ATSs may offer the use of various types of trading
facilities to bring together the orders of buyers and sellers and for
such orders to interact. These types of systems would be disclosed in
Part III, Item 7 of Form ATS-N. For example, many Covered ATSs bring
together multiple buyers and sellers using limit order matching
systems. Other Covered ATSs offer the use of crossing mechanisms that
allow participants to enter unpriced orders to buy and sell securities,
with the ATS's system crossing orders at specified times at a price
derived from another market.\586\ Some Covered ATSs offer the use an
auction mechanism that matches multiple buyers and sellers by first
pausing execution in a certain security for a set amount of time,
during which the ATS's system seeks out and/or concentrates liquidity
for the auction; after the trading pause, orders will execute at either
a single auction price or according to the priority rules for the
auction's execution. Certain Covered ATSs may use a voice system to
bring together orders as well, or a combination of voice and electronic
systems. Part III, Item 7, would require Covered ATSs to provide
disclosure of how these facilities operate.
---------------------------------------------------------------------------

    \586\ See Regulation ATS Adopting Release, supra note 31, at
70849 n.37.
---------------------------------------------------------------------------

    In addition, Part III, Item 7 would require a Covered ATS to
disclose its rules and procedures under which orders interact and
buyers and sellers agree upon the terms of a trade.\587\ Form ATS-N
sets forth a non-exhaustive list of such rules and procedures, which
includes order interaction, priority,\588\ pricing methodologies,
allocation, matching, and execution of orders and other procedures for
trading, such as price improvement functionality, price protection
mechanisms, short sales, functionality to adjust or hedge orders,
locked-crossed markets, the handling of execution errors, the time-
stamping of messages and executions, and any conditions or processes
for terminating a counterparty match.\589\
---------------------------------------------------------------------------

    \587\ The Commission is proposing to add examples of
functionalities used in the government securities market for which a
Government Securities ATS would be required to explain the ATS's
rules and procedures, if applicable.
    \588\ The Commission is making a non-substantive change to Part
III, Item 7 of Form ATS-N to state that a Covered ATS would be
required to disclose the order type's priority ``in relation to''
(rather than ``vis-[agrave]-vis'') other orders on the book due to
changes in the NBBO or other reference price.
    \589\ This non-exhaustive list is the same as what is in current
Form ATS-N, Part III, Item 11.
---------------------------------------------------------------------------

    The Commission is also proposing that a Covered ATS disclose
pricing methodologies used for each type of security traded by the ATS
under Part III, Item 7.\590\ For example, orders may be priced using
spreads off a benchmark price, or spreads between two different
maturities of a security. A Covered ATS may also restrict the allowable
deviation from a benchmark price, or allow for indicative pricing of
certain securities. If a transaction has more than one leg, the ATS may
price both legs according to a price derived from one of the securities
traded. In response to this request, a Covered ATS would be required to
describe the ATS's procedures for determining all pricing methodologies
and to the extent the pricing methodologies differ among subscribers
and the broker-dealer operator, the ATS must disclose those
differences.
---------------------------------------------------------------------------

    \590\ Part III, Item 7 would require Government Securities ATSs
and, to the extent applicable, NMS Stock ATSs, to describe any
functionality to adjust or hedge orders.
---------------------------------------------------------------------------

    In addition, Item 7 would require Covered ATSs to disclose how
orders may interact with non-firm trading interest or separate trading
functionalities within the ATS or offered by the broker-dealer
operator. Item 7 would also require Covered ATSs to disclose the
various procedures under which orders interact and match. Some Covered
ATSs may offer price-time priority to determine how to match orders
(potentially with various exceptions), while others may offer midpoint-
only matching with time priority. Some Covered ATSs might also take
into account other factors to determine priority. For example, a
Covered ATS may assign either a lower or higher priority to an order
entered by a subscriber in a certain class (e.g., orders of principal
traders or retail investors) or sent from a particular source (e.g.,
orders sent by an algorithm or similar functionality) when compared to
an equally priced order entered by a different subscriber or via a
different source. Also, if applicable, the Item would require an
explanation of which party to a trade would receive any price
improvement depending on the priority, order type, and prices of the
matched orders and the percentage of price improvement the party would
receive. A broker-dealer operator could also act as the counterparty
for each side of a transaction that matches on its ATS.
    Pursuant to the proposed instruction at the beginning of Part III,
Covered ATSs would be required to disclose any differences in treatment
among subscribers, the broker-dealer, and other participants in the ATS
as they relate to

the means and facilities for bringing together the orders of buyers and
sellers.
Request for Comment
    115. What are the most prevalent order types on Government
Securities ATSs? Are there more important means than order types for
subscribers to communicate the handling of their trading interest on
Government Securities ATSs? Does Form ATS-N capture all of the means
for subscribers of Government Securities ATSs to communicate the
handling of their orders? Are there any aspects of order types on
Government Securities ATSs that should be specifically addressed in the
Item? If yes, please explain.
    116. Are there any operations or procedures, either of an ATS or a
broker-dealer operator, which could limit the entry, or size of, a
subscriber's orders submitted to the ATS? If so, please describe these
operations or procedures and explain why they are important to
subscribers.
    117. Are there any specific means or facilities used to bring
together multiple buyers and sellers on Covered ATSs that should be
specifically included as an example in this Item? Are there any rules
and procedures that govern trading of government securities and repos
that should be specifically included as examples in this Item?
h. Item 8: Use of Non-Firm Trading Interest; Communication Protocols
and Negotiation Functionality
    As discussed above, the proposed definition of ``exchange'' would
include systems that make available the use of non-firm trading
interest and communication protocols to bring together buyers and
sellers of securities. Form ATS-N currently includes questions about
NMS Stock ATSs' use of conditional order functionality and indications
of interest,\591\ which can be forms of communication protocols.
Current Form ATS-N, however, does not contain comprehensive disclosure
requests about systems that solely offer the use of non-firm trading
interest and communication protocols because, as discussed above, such
systems typically do not fall within the criteria of current Exchange
Act Rule 3b-16(a) and, therefore, do not operate pursuant to the ATS
exemption. The Commission is proposing to revise Part III, Item 8 to
request information about the operations of these systems and the
requests would be applicable to both NMS Stock ATSs and Government
Securities ATSs. With respect to conditional orders and indications of
interest, Part III, Item 8 of revised Form ATS-N incorporates and
expands on the current disclosure requirements of Part III, Item 9
(Conditional Orders and Indications of Interest) and Part III, Items 7
(Order Types) and 8 (Order Sizes) of current Form ATS-N as they relate
to conditional orders and indications of interest in the ATS.
---------------------------------------------------------------------------

    \591\ Part III, Item 9 of current Form ATS-N asks about
conditional orders and indications of interest. Part III, Item 8 of
current Form ATS-N asks about order sizes. The Commission is
proposing to incorporate the requirements of Part III, Item 8 into
Part III, Items 7 and 8. In addition, the Commission is proposing to
incorporate the requirements in Part III, Item 9 of current Form
ATS-N in Part III, Item 8 of revised Form ATS-N.
---------------------------------------------------------------------------

    Proposed Part III, Item 8 of revised Form ATS-N would require
Covered ATSs to disclose whether they make available communication
protocols for buyers and sellers to communicate non-firm trading
interest, solicit interest to buy or sell a security, discover prices,
find a counterparty, or negotiate a trade. Such systems could offer,
for example, RFQ or workup protocols, stream axes, or conditional order
functionalities.\592\
---------------------------------------------------------------------------

    \592\ See supra Section II.B.2.
---------------------------------------------------------------------------

    If the Covered ATS provides communication protocols and negotiation
functionalities, it would be required to identify and explain the
protocols and functionalities in the response to Part III, Item 8. The
Commission believes that identifying and explaining these
functionalities would provide transparency regarding how buyers and
sellers can interact with each other on the system. This would require
the Covered ATS to provide a narrative description of how participants
in the ATS send and receive messages, how such messages interact, and
the rules, procedures, and protocols governing the use of non-firm
trading interest in the Covered ATS. To facilitate this disclosure, the
Commission is proposing to include in Form ATS-N a description of the
types of information that should be explained in this Item. The
Commission recognizes, however, that each system operates differently
and may offer unique protocols, and has designed Part III, Item 8 to
allow ATSs the flexibility to provide a narrative response that will
help market participants understand the protocols governing their
systems.
    First, the Covered ATS would be required to explain the use of
messages in the ATS. Messaging is a primary tool by which Communication
Protocol Systems bring together buyers and sellers. Use of messaging is
critical to how buyers and sellers can use the system to find one
another and negotiate a transaction. The Commission believes that ATSs
offer diverse types of messaging that facilitate communication and
negotiation, including non-firm trading interest that subscribers
expose to other subscribers, communications that subscribers send to
other subscribers to negotiate transactions, messages that subscribers
use to communicate to the ATS how they want their trading interest to
be handled, as well as messages the ATS sends to subscribers to
communicate the presence of trading interest. The Commission believes
that this information will help market participants understand how they
can use messages in the ATS to interact with potential counterparties
and to communicate how they want their trading interest to be handled
by the ATS.
    The Commission is proposing to provide a non-exhaustive list of
what this explanation would include, as applicable to the Covered ATS's
protocols and functionalities. The Covered ATS would be required to
describe and explain each type of message the ATS permits participants
to send and receive and the types of persons that can send and receive
each type of messages (e.g., the ATS, types of subscribers, specific
subscribers, customers of subscribers, trading venues). The ATS would
also be required to disclose the information contained in messages
(e.g., symbol, price, direction (i.e., buy or sell), or size minimums)
and any other information that a participant may choose to include in a
message. If terms in messages can vary based on potential recipients
(e.g., different subscribers may receive varying priced messages for
the same security), the Covered ATS would be required to disclose that.
    The Commission is proposing that the Covered ATS disclose whether
messages are attributed to their sender or anonymous, and whether a
subscriber may elect to disclose its identity to other participants,
and if so, what is disclosed and how, when, and to whom. The Commission
understands that some Communication Protocol Systems allow participants
to negotiate trades on an attributed basis so that certain
counterparties may know the identity of other counterparties pre-trade.
In some cases, subscribers on the ATS have established relationships
and may choose to share their identity with a pre-selected list of
potential counterparties or potential counterparties that meet certain
criteria. Even while the subscriber discloses its identity to others,
the identity of potential counterparties may be either known or
anonymous. The Covered ATS would be required to describe when, and
under what conditions, the subscriber or the

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

Covered ATS would be required to disclose, for example, how the ATS or
a subscriber can designate trading interest as automatically
executable. Any limitations that subscribers may impose on auto-
execution would be responsive to such request.
    The Covered ATS would also be required to discuss in Part III, Item
8 how non-firm trading interest may interact with orders or separate
trading functionalities in the ATS or functionality offered by the
broker-dealer operator. For example, if an IOI can interact with a firm
order on the Covered ATS's order book, it should disclose this and any
policies and procedures for such interaction. To the extent that the
Covered ATS has disclosed this in Part III, Item 7 in its discussion of
how firm orders can interact with non-firm trading interest, the ATS
should describe how the non-firm trading interest may interact with
firm trading interest and may cross-reference the disclosure in Part
III, Item 7.
    In the Commission's experience, ATSs have adopted other trading
procedures governing interaction and execution. The Commission is
proposing to include examples of such procedures governing
communication protocols that would be required to be disclosed. This
would include functionality or protocols that permit the selection of
displayed non-firm trading interest to trade against. In the
Commission's experience, negotiation systems may allow subscribers to
choose the trading interest they interact with; any procedures
governing such selection should be disclosed in Part III, Item 8. In
addition, the Commission believes that market participants would
benefit from transparency regarding procedures that could re-price
trading interest or prevent it from interacting with other trading
interest under certain conditions. Accordingly, the Form ATS-N would
provide a non-exhaustive list of procedures that includes price
improvement, price protection mechanisms, procedures related to short
sales, functionality to adjust or hedge trading interest, locked-
crossed markets, the handling of execution errors, platform and trade
controls (e.g., fat finger checks, whether the ATS can employ a global
kill switch), the time-stamping of trading interest messages and
executions, and any conditions or processes for terminating a
counterparty match.
    In addition, the Covered ATS would be required to disclose what
information is available to subscribers from the ATS about interaction
history, counterparty matching, or executions (e.g., pre- and post-
trade data, best execution analysis, transaction cost analysis), when
such information is made available, the source(s) of such information,
and the process for subscribers to access this information. The
Commission believes that requiring such information would allow market
participants to better assess the information that Covered ATSs
provide, including allowing them to analyze or evaluate their
performance, resolve potential disputes, and/or understand how their
trading interest has historically interacted and been treated in the
ATS, among other things.
Request for Comment
    118. Are there any aspects of how Covered ATSs permit non-firm
trading interest to be sent and/or received that are not covered by
this Item? Are there any aspects of how subscribers interact with each
other on Covered ATSs by using non-firm trading interest that are not
covered by this Item? What information about non-firm trading interest
and the process for transmitting non-firm trading interest would be
useful to market participants?
i. Item 9: Monitoring and Surveillance of the ATS Market
    The Commission is proposing that Part III, Item 9(a) of Form ATS-N
require a Covered ATS to disclose information about the activities the
ATS undertakes to supervise the trading activity that occurs on or
through the ATS (e.g., supervisory systems and procedures to detect,
deter, or limit potentially disruptive, manipulative, or non-bona fide
quoting and trading activities that occur on or through its system and
to ensure that they are reasonably designed to achieve compliance with
applicable SRO rules and the Federal securities laws) and to provide a
summary of any supervision activities that occur on or through the ATS,
the sources of data the ATS uses to supervise trading activity (e.g.,
internal or external sources), and the activities that the ATS intends
to detect, deter, or limit.
    As a registered broker-dealer, an ATS must comply with the filing
and conduct obligations associated with being a registered broker-
dealer, including becoming a member of an SRO, such as FINRA, and
compliance with SRO rules.\593\ Accordingly, ATSs must comply with SRO
rules which, among other things, require each member to maintain a
reasonably designed supervisory system.\594\ For example, FINRA states
it expects an ATS's supervisory system to be reasonably designed to
identify ``red flags,'' including potentially manipulative or non-bona
fide trading that occurs on or through its systems, and that ATSs must
regularly assess and evaluate their supervisory systems and procedures
to ensure that they are reasonably defined to achieve compliance with
applicable FINRA rules and the Federal securities laws.\595\ The
Commission believes that the information disclosed in response to this
request would help market participants understand the scope of
supervision activities that an ATS performs to mitigate potentially
manipulative and non-bona fide trading that occurs on or through its
system. This information could also help regulators, including the
Commission and FINRA, to assess the extent to which an ATS's
supervision procedures are designed to facilitate investor protection
over activities occurring in the ATS and comply with the applicable
rules, including the Exchange Act and FINRA rules.
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    \593\ Section 15(b)(8) of the Exchange Act requires a broker or
dealer to become a member of a registered national securities
association, unless it effects transactions in securities solely on
an exchange of which it is a member. 15 U.S.C. 78o(b)(8).
    \594\ See Regulatory Notice 18-25, ATS Supervision Obligations,
August 13, 2018, available at https://www.finra.org/sites/default/files/Regulatory-Notice-18-25.pdf (``FINRA Regulatory Notice'') at
3. In addition, FINRA Rule 3310 requires FINRA members to, among
other things: Establish and maintain a system to supervise the
activities of each associated person that is reasonably designed to
achieve compliance with applicable securities laws, regulations, and
FINRA rules; establish, maintain, and enforce written procedures to
supervise the types of business in which it engages and the
activities of associated persons that are reasonably designed to
achieve compliance with applicable securities laws, regulations, and
FINRA rules; conduct a review, at least annually of the businesses
in which it engages reasonably designed to assist the member in
detecting and preventing violations of, and achieving compliance
with, applicable securities laws, regulations, and FINRA rules and
retain a written record of the date upon which each review and
inspection is conducted; and include in its supervisory procedures a
process for the review of securities transactions that are
reasonably designed to identify trades that may violate the
provisions of the Exchange Act, the rules thereunder, or FINRA rules
prohibiting insider trading and manipulative and deceptive devices
that are effected for certain accounts. See FINRA Rule 3310.
    \595\ See FINRA Regulatory Notice, supra note 594, at 3.
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    The Commission is proposing Part III, Item 9(b) of Form ATS-N to
request disclosures about whether the ATS monitors for certain types of
trading behaviors or activities that may be detrimental to the ATS
market place or trading (e.g., anti-gaming technology) and, if so, to
provide a summary of the ATS's monitoring activities and the trading
behaviors and explain the

activities that the ATS intends to detect, deter, or limit. In the NMS
Stock ATS Adopting Release, the Commission described that, in response
to the proposal of Form ATS-N, commenters requested that information
about the monitoring activities the ATS performs be included in Form
ATS-N.\596\ One commenter suggested that disclosure of certain
additional trading services should be required, specifically whether
the ATS employs technology designed to detect and deter price
manipulation and other disruptive trading practices (i.e., anti-gaming
technology), and, if so, the ATSs should include a description of this
technology in the form.\597\ This commenter stated that existence of
such technology can increase market confidence, particularly for market
participants that transact in large volumes, such as funds, because it
shows that a trading venue is committed to providing a fair and
competitive market.\598\ This commenter further stated that funds
currently have no mechanism to receive standardized information
regarding anti-gaming technology or to compare anti-gaming technology
across different ATSs.\599\ Another commenter stated that anti-gaming
technology and other subscriber-related safeguards are among the core
attributes of ATSs that are of particular importance to buy-side
institutions.\600\
---------------------------------------------------------------------------

    \596\ See NMS Stock ATS Adopting Release, supra note 2, at
38850.
    \597\ See Letter from David W. Blass, General Counsel,
Investment Company Institute, dated February 25, 2016, at 9-10.
    \598\ See id.
    \599\ See id.
    \600\ See Letter from Phillip S. Gillespie, Executive Vice
President, General Counsel, State Street Global Advisors, dated
February 26, 2016 at 2-3. See also Memorandum from the Office of
Commissioner Kara Stein regarding a July 26, 2016 meeting with
representatives of Morgan Stanley (including in a presentation that
whether an ATS has anti-gaming controls is among the frequently
asked questions by clients).
---------------------------------------------------------------------------

    The Commission, however, declined to adopt a request related to
anti-gaming technology and subscriber-related safeguards at that time
because such descriptions made in a publicly available document could
serve to undermine those safeguards by disclosing information that
makes evading those safeguards easier.\601\ However, the Commission is
now proposing this requirement because it believes that market
participants would want to know how the ATS may monitor for certain
trading behaviors or activities that may be detrimental to the ATS
market place or to the participants that use the ATS's services. In
addition, the information would help market participants determine
which ATSs provide better market quality that the market participants
would be more inclined to effect transactions on. In the Commission
staff's experience reviewing Forms ATS-N filed by NMS Stock ATSs, some
NMS Stock ATSs have described information about their surveillance
procedures and other safeguards, which allow market participants to
understand their practices, while avoiding the level of detail that
would help enable market participants to evade them. Accordingly, the
Commission believes that the requests for information proposed would
not serve to undermine the ATS's surveillance and monitoring activities
because the Commission is requesting summary level information, which
would strike the right balance in requiring these important disclosures
and avoiding the risk that market participants could use the
disclosures on Form ATS-N to evade such tools and controls.
---------------------------------------------------------------------------

    \601\ See NMS Stock ATS Adopting Release, supra note 2, 83 FR
38850.
---------------------------------------------------------------------------

Request for Comment
    119. Would requiring summary disclosure regarding the Covered ATS's
anti-gaming technology and similar safeguards benefit market
participants? What other information regarding monitoring and
surveillance of activity in the ATS would be beneficial? Does the
proposed summary disclosure strike the right balance in providing
disclosure and avoiding the risk that market participants could use the
disclosures to evade the ATS's tools and controls?
j. Item 10: Opening and Reopening
    Part III, Item 10 of Form ATS-N is designed to provide information
about the use of any special processes and procedures related to
matching trading interest at the opening, or to set a single opening or
reopening price to, for example, maximize liquidity and accurately
reflect market conditions at the opening or reopening of trading. The
Commission believes that this disclosure requirement is important
because market participants would likely want to know about any special
opening or reopening processes, including which types of trading
interest can participate in the opening or reopening processes or
whether there are any protocols at the open for buyers and sellers to
send messages and negotiate a trade. To capture processes related to
sending, receiving, and viewing trading interest for communication
protocols and negotiation systems, the Commission is proposing to
specify in Part III, Item 10 that the ATS should disclose when and how
trading interest may be sent, received, and viewed at opening, how
unexecuted trading interest is handled at the time the ATS begins its
regular trading hours or following a stoppage of trading in a security
during its regular trading hours, and whether there are any protocols
at the open for buyers and sellers to send messages and negotiate a
trade.
    Based on Commission staff experience with Form ATS-N filings, the
Commission is proposing to amend Form ATS-N to incorporate the
requirements of Part III, Item 10(c) of current Form ATS-N with the
requirements of Part III, Item 10(a). In its experience, the Commission
observed significant overlap in the responses to Part III, Item 10(a),
which asks about how the ATS opens or re-opens after stoppage, and Part
III, Item 10(c), which asks how unexecuted trading interest is handled
at the start of regular trading hours or following a stoppage, as the
treatment of unexecuted trading interest is an integral part of an
ATS's opening and re-opening procedures. Because of this overlap, some
NMS Stock ATSs repeat the disclosures in both current Form ATS-N Part
III, Items 10(a) and (c). To streamline the disclosure and reduce
redundancy, the Commission is proposing to specify in Part III, Item
10(a) of revised Form ATS-N that the Covered ATS describe how
unexecuted trading interest is handled at the time the ATS begins its
regular trading hours or following a stoppage of trading in a security
during its regular trading hours, and to delete the separate disclosure
requirements of Part III, Item 10(c) of current Form ATS-N.
    Information about when the Covered ATS will price and prioritize
trading interest during the opening or reopening of the ATS would
provide market participants with the information they need to plan and
execute their trading strategies during these periods. The Item would
also, for example, require disclosure of any processes or procedures to
match trading interest to set a single opening or reopening price to
maximize liquidity and accurately reflect market conditions at the
opening or reopening of trading. For trading interest allowed to be
submitted before an ATS opens for trading, the Item 10(b) would require
an explanation of what priority rules would apply to that trading
interest.\602\ The Commission believes most participants consider
important the procedures for the pricing and priority of trading
interest, and the

types of trading interest allowed because these rules and procedures
can directly impact their execution price. The disclosures are also
designed to provide information to subscribers about when they may use
the systems to send or receive messages or view trading interest at the
open or reopen, and the status of any messages or orders that may be
pending before the ATS opens or reopens.
---------------------------------------------------------------------------

    \602\ The Commission is renumbering Part III, Item 10(e) of
current Form ATS-N as Part III, Item 10(b) in revised Form ATS-N.
The Commission also proposes to clarify in Item 10 that ``regular
trading hours'' refer to the ATS's regular trading hours.
---------------------------------------------------------------------------

Request for Comment
    120. Do Government Securities ATSs have any special opening and
reopening processes and procedures around Treasury auctions? If so, do
commenters believe there any aspects of the opening and reopening
processes for Treasury auctions that should be specifically addressed
in this Item?
k. Item 11: Interaction With Related Markets
    Proposed Part III, Item 11 of Form ATS-N is designed to provide
information about any functionality, procedure or protocol used to
facilitate trading or communication on, or source pricing for, the
Covered ATS that is offered by the broker-dealer operator or its
affiliates \603\ using markets for financial instruments related to the
securities it trades (``Related Markets''). In the 2020 Proposal, the
Commission proposed to add a similar question to Form ATS-G; the
Commission is now proposing to add this question to Form ATS-N and to
make it applicable to both Government Securities ATSs and NMS Stock
ATSs. Markets for financial instruments related to government
securities could include those non-government securities markets that
trade futures, currencies, fixed income, and swaps, for example.
Markets for financial instruments related to NMS stocks could include,
for example, non-NMS stock markets that trade futures, options, and
swaps. If applicable, the Covered ATS would: (1) Identify the
functionality, procedures, protocols, and source of pricing and the
Related Market; (2) state whether the functionality, procedures,
protocols, and source of pricing is provided or operated by the broker-
dealer operator or its affiliate, and whether the Related Market is
provided or operated by the broker-dealer operator or its affiliate;
(3) explain the use of the functionality, procedures, protocols, and
source of pricing with regard to the Related Market and the ATS,
including how and when the functionality, procedures, protocols, and
source of pricing can be used, by whom, and with what markets.
---------------------------------------------------------------------------

    \603\ Among other things, services to facilitate trading or
source pricing for the Government Securities ATS using non-
government securities markets that are offered by a third-party by
arrangement with the broker-dealer operator or affiliates would also
be required to be disclosed under this Item.
---------------------------------------------------------------------------

    The functionalities, procedures, or protocols required to be
disclosed would include, for example, offering order types to
facilitate transactions in the ATS and the Related Market, procedures
to allow subscribers to perform multi-leg transactions involving
another market and the ATS, or a protocol to allow a subscriber to
communicate with other persons to negotiate a trade including, for
example, a government security and non-government security. A Covered
ATS could offer, for example, Exchange-for-Physical (``EFP'')
transactions that can involve markets in addition to the ATS. An EFP
transaction where ATS subscribers agree to exchange a financial
product, such as a futures contract on a government security, for the
underlying related government security or NMS stock, would be
responsive to this Item. The Commission believes that it would be
important to participants to understand functionality, procedures, and
protocols made available to them, as they can impact their experience
in the ATS.\604\
---------------------------------------------------------------------------

    \604\ To the extent that a Government Securities ATS offers a
functionality, procedure, or protocol using a market for government
securities (e.g., trading venue for U.S. Treasury Securities or
options) or an NMS Stock ATS offers a functionality, procedure, or
protocol using a market for NMS stocks, the Covered ATS would
disclose information about that functionality, procedure, or
protocol in Part III, Item 11 of Form ATS-N.
---------------------------------------------------------------------------

    Information about how the ATS uses market data from a Related
Market, through an aggregator or otherwise, to provide the services it
offers would also be required by the form.\605\ Among other things, for
example, the ATS would need to disclose in response to this Item its
use of such market data to display, price, prioritize, execute, and
remove trading interest in the ATS.\606\ As part of this explanation,
the ATS would specify, if applicable, when the ATS may change sources
of market data to provide its services. In response to proposed Part
III, Item 11 of Form ATS-N, the ATS would explain how, for example,
market data from a Related Market is received by the ATS, compiled, and
delivered to the matching engine. For example, among other possible
arrangements, the ATS could explain that market data from a Related
Market is received and assembled by the broker-dealer operator, and
subsequently delivered to the matching engine, or that market data is
sent directly to the matching engine, which normalizes the data for its
use. The ATS would disclose, for example, whether it uses market data
from the futures market to price and execute EFP transactions and
describe how it uses that market data under this Item.
---------------------------------------------------------------------------

    \605\ If a Covered ATS uses market data from another market that
trades government securities, that information would be disclosed
under Part III, Item 22 of revised Form ATS-N.
    \606\ Disclosure of any market data used by the Covered ATS,
including market data for options and repos on government
securities, would be required under Part III, Item 22 of Form ATS-N.
---------------------------------------------------------------------------

    A broker-dealer operator's activities in financial instruments
related to the securities that the ATS trades or offerings of a Related
Market, such as a futures exchange, along with its operation of an ATS,
raise the potential for information leakage of a subscriber's
confidential trading information, or the broker-dealer operator could
provide certain advantages to subscribers that use a Related Market
that it operates. As such, Item 11 would require information about
whether the functionality, protocols, procedures, and source of pricing
on the Covered ATS or the Related Markets are provided or operated by
the broker-dealer operator or its affiliates.
Request for Comment
    121. What are commenters' views on the relationship between markets
for government securities and Related Markets and between markets for
NMS stocks and Related Markets and how investors may use these markets
together with a Covered ATS to achieve their trading objectives?
    122. What aspects of government securities markets or NMS stock
markets and Related Markets, such as the futures markets, do market
participants use for trading on a Covered ATS? What information about
those markets might be useful to a subscriber and why?
l. Item 12: Liquidity Providers
    Part III, Item 12 of Form ATS-N is designed to disclose information
about arrangements with liquidity providers. Like national securities
exchanges,\607\ ATSs might engage firms to provide liquidity on both
sides of the market. The Commission has observed that the overwhelming
majority of registered national securities exchanges have structured
programs for market makers, which generally set forth both obligations
(e.g., continuous quoting at or within the NBBO) and often, some
benefits (e.g., fee rebates). Similarly, a Covered ATS may want to
ensure that there is sufficient contra-side liquidity

available in the ATS in a particular security to incentivize market
participants to send trading interest in that security to the ATS. To
do this, the ATS may engage certain market participants to quote in a
security or trade against orders in the Covered ATS, performing similar
functions to a market maker on a national securities exchange.\608\
---------------------------------------------------------------------------

    \607\ See, e.g., NYSE Guide Rule 104 (Dealings and
Responsibilities of DMMs), Nasdaq Rules Equity 2, Section 5 (Market
Maker Obligations).
    \608\ These liquidity providers may quote in a particular
security in the ATS during trading hours and may receive a benefit
for performing this function, such as discounts on fees, rebates, or
the opportunity to execute with a particular type of segmented order
flow.
---------------------------------------------------------------------------

    To the extent that a Covered ATS and a participant have entered
into an arrangement under which that participant undertakes obligations
to display, enter, or trade against trading interest on the Covered
ATS, the Commission believes that market participants should know both
the terms and conditions of such an arrangement and the identity of the
liquidity-provider ATS participant. Form ATS-N currently requires an
ATS to disclose the terms and conditions of an arrangement with a
liquidity provider and the names of any liquidity providers that are
either business units of the broker-dealer operator or affiliates of
the broker-dealer operator.\609\ When it adopted Form ATS-N, the
Commission explained that it was requiring disclosure regarding
liquidity providers because it believed that market participants would
want to know the identity of such liquidity providers to help evaluate
potential conflicts of interest or information leakage on the trading
platform.\610\ The Commission now believes that the names of all
liquidity providers should be disclosed to evaluate potential conflicts
of interest and the potential for information leakage. Specifically, if
a participant is obligated to provide contra-side liquidity and, for
example, derives a particular benefit in exchange for undertaking such
an obligation, the Commission believes that other users of the ATS
should know who that liquidity provider is, how it is expected to trade
in the ATS, and the benefit that it is receiving. This disclosure would
be similar to Exhibit M of Form 1, which requires national securities
exchanges to publicly disclose, among other things, the identity of all
market makers and liquidity providers. The Commission believes it
appropriate to require a similar level of disclosure for Covered ATSs
with regard to the identity of market makers and liquidity providers,
given the sizable market share of such entities in their respective
sectors.
---------------------------------------------------------------------------

    \609\ See Part II, Items 1(c) and 2(c) of Form ATS-N.
    \610\ See NMS Stock ATS Adopting Release, supra note 2, at
38829.
---------------------------------------------------------------------------

    Additionally, the Commission believes that information about
liquidity providers would be useful to ATS participants who, for
example, may want their orders to only interact with agency orders (and
not with those of a liquidity provider), or, conversely, may themselves
want to become liquidity providers on the Covered ATS. Such arrangement
could take many forms, and the function of the liquidity provider on an
ATS could depend on the structure and trading protocols of the ATS.
This Item could cover, for example, arrangements or agreements between
the broker-dealer operator and another party to quote or trade on the
Covered ATS. The Item does not cover agreements with a subscriber that
has no obligation to buy or sell securities in the ATS. Furthermore, to
obtain disclosures about activity on Communication Protocol Systems,
the Commission is proposing to revise Part III, Item 12 of Form ATS-N,
which asks about whether there are arrangements to ``provide'' orders
and trading interest, and, instead, to ask about arrangements to
``display, enter, or trade against'' trading interest.
    Accordingly, the Commission is proposing that Part III, Item 12
require a Covered ATS to disclose any formal or informal arrangements
with any person \611\ or the broker-dealer operator to display, enter,
or trade against trading interest in the ATS (e.g., undertaking to buy
or sell continuously or to meet specified thresholds of trading or
quoting activity). This will be in the form of a ``yes'' or ``no''
question, and if the ATS answers yes, it must both identify the
liquidity provider(s) and describe the arrangement(s), including the
terms and conditions.
---------------------------------------------------------------------------

    \611\ The Commission is proposing to change the current
requirement to disclose arrangements with any ``Subscriber'' to
display, enter, or trade against trading interest in the Covered ATS
to require disclosure of any such arrangements with any ``persons.''
In the Commission's experience, arrangements to display, enter, or
trade against trading interest in a Covered ATS may include
arrangements with subscribers, non-subscriber participants who
submit orders through a subscriber or the broker-dealer operator,
and persons controlling subscribers or participants to the ATS. The
Commission is therefore proposing to revise the rule text by using
the term ``person'' to capture arrangements with non-subscribers
that could impact order flow on the ATS.
---------------------------------------------------------------------------

Request for Comment
    123. Are there any arrangements between Covered ATSs and persons to
provide trading interest to the Covered ATS that may not be required by
this Item but should be? If any, what is the nature of those
arrangements, and why are they important to disclose publicly on Form
ATS-N?
    124. Should Covered ATSs be required to identify liquidity
providers on Form ATS-N? Please explain why or why not, including any
advantages or disadvantages resulting from this disclosure.
m. Item 13: Segmentation; Notice
    Part III, Item 13(a) of Form ATS-N is designed to disclose
information about how trading interest in the Covered ATS is segmented
into categories, classifications, tiers, or levels. The Covered ATS
would be required to explain the segmentation procedures, including how
and what trading interest is segmented. The Commission is proposing to
add in Item 13(a) of Form ATS-N a requirement to explain where the
identification of segmented trading interest is applied (e.g., when ATS
trading interest is received by the broker-dealer operator or entered
into the ATS). From the Commission's experience, systems may segment
trading interest when trading interest enters through the broker-dealer
(from the SOR or similar functionality), or when the trading interest
is entered into the ATS. The Commission believes subscribers would want
to understand where their trading interest is segmented so they can
assess who is making the decisions about how their trading interest
will be categorized when entered into the ATS and the level of
protections their confidential trading information will receive. The
Covered ATS would also be required to identify and describe any
categories, classifications, tiers, or levels and the types of trading
interest that are included in each and provide a summary of the
parameters for each segmented category and length of time each
segmented category is in effect. The Commission is proposing to add to
Item 13(a) that the parameters for each segmented category would
include when such category is determined, reviewed, and can be changed.
Item 13(a) also requires disclosure of any procedures for overriding a
determination of segmented category and would require how segmentation
can affect trading interest interaction.
    This Item is designed to provide market participants with an
understanding of the categories of trading interest or types of
participants with which they may interact. In addition, the information
provided would allow them to both assess the consistency of a segmented
group and determine whether the manner in which the trading interest is
segmented comports with their views of how

certain trading interest should be categorized. Disclosure of the
procedures and parameters used to segment categories would allow a
participant to determine whether its view of what constitutes certain
trading interest it wants to seek or avoid is classified in the same
way by the Covered ATS. For example, a subscriber may find it useful to
understand the standards a Covered ATS uses to categorize high
frequency trading firms so that it can compare the criteria used by the
ATS with its view of what constitutes a high frequency trading firm,
and thus be able to successfully trade against or avoid such trading
interest. Similarly, information regarding the procedures applicable to
trading among segmented categories would allow market participants to
evaluate whether they can successfully trade against or avoid the
segments of trading interest. In response to the question regarding
segmentation on previously-proposed Form ATS-G in the 2020 Proposal,
one commenter stated that, as the fixed income market structure
continues to develop, types of segmentation options may occur in
Government Securities ATSs and should be disclosed.\612\
---------------------------------------------------------------------------

    \612\ See Bloomberg Letter at 8.
---------------------------------------------------------------------------

    Some Covered ATSs segment trading interest entered in the ATS
according to various categories for purposes of trading interest
interaction. For example, a Covered ATS could elect to segment trading
interest by type of participant (e.g., buy-side or sell-side firms,
PTFs, agency-only firms, firms above or below certain assets under
management thresholds). When segmenting trading interest in the ATS, a
Covered ATS might look to the underlying source of the trading interest
such as the trading interest of retail customers. Some Covered ATSs
segment by the nature of the trading activity, which could include
segmenting by patterns of behavior, time horizons of traders, or the
passivity or aggressiveness of trading strategies. Covered ATSs might
use some combination of these criteria or other criteria altogether.
The ATS might use these segmented categories to design its trading
interest interaction rules, allowing only trading interest from certain
categories to interact with each other.
    The Commission recognizes the concern that describing the precise
criteria used by the ATS to segment trading interest could result in
gaming of those criteria by subscribers and thus reduce the
effectiveness of segmentation as a control. On the other hand, market
participants are interested in understanding how their trading interest
is categorized in the ATS and the types of market participants that
would interact with its trading interest. The Commission believes that
Part III, Item 13 of Form ATS-N appropriately balances these competing
interests by soliciting a summary of the parameters for each segmented
category. By requiring Covered ATSs to provide a summary of these
parameters on Form ATS-N, rather than a detailed analysis of the
parameters and how they are calculated, this Item is designed to avoid
responses that could allow the gaming or manipulation of segmentation
criteria.
    Based on the Commission's experience, systems that offer RFQs or
BWIC protocols that bring buyers and sellers together to negotiate may
apply filtering technology to allow participants to more easily search
for securities with particular characteristics that comport with the
participants' needs or exclude securities that do not meet the
participants' needs. They may also offer counterparty filtering that
prevents transactions between certain participants (i.e., potential
counterparties) by prohibiting views of either party's inventory by the
other party. Such systems may also implement permissioning procedures
for subscribers to be able to view trading interest of certain other
subscribers. The Commission believes that market participants would
benefit from understanding how a Covered ATS controls the counterparty
interest that they, and their potential counterparties, can view and
interact with, and accordingly, the Commission is proposing to add new
Part III, Item 13(b), which would ask if the ATS, in the absence of
subscriber direction, can prevent a participant or its potential
counterparties from viewing or interacting with certain trading
interest (e.g., permissioning, filtering, or blocking).\613\ An ATS
that has such controls would be required to explain the processes,
including what a subscriber or counterparty is prevented from viewing
or interacting with and where this determination is made (i.e., when
trading interest is received at the broker-dealer operator or the ATS);
how and when the ATS prevents a subscriber or its potential
counterparty from viewing or interacting with certain trading interest;
any categories, classifications, tiers, or levels, and the types of
trading interest that the ATS uses to determine how subscribers can
view or interact with other trading interest; a summary of the
parameters for such processes and the length of time any such parameter
is in effect; any procedures for overriding a determination of any
category, classification, tier, or level that the ATS uses to designate
how subscriber trading interest can interact; how such processes can
affect trading interest interaction; and how a subscriber can view
filtered messages and any permissioning process and criteria for a
subscriber to send, receive, or interact with a message.
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    \613\ The Commission is proposing to specify that this question
relates to process implemented ``in the absence of subscriber
direction.'' The Commission is drawing a distinction from the
filtering or blocking that a subscriber can do in the ATS, which
would be disclosed in Part III, Item 14 (Counter-Party Selection).
If the ATS, on its own, and in the absence of subscriber directions,
filters certain subscribers from viewing the existence of certain
trading interest, that would be responsive to Part III, Item 13 of
Form ATS-N.
---------------------------------------------------------------------------

    The Commission believes that market participants will benefit from
transparency regarding protocols that Covered ATSs use to limit in any
way the trading interest that certain subscribers can view or interact
with based on the identity of the counterparty. The Commission
recognizes that RFQs and similar systems may establish protocols to
block or filter participants from viewing or interacting with the
trading interest of certain potential counterparties. The Commission is
thus proposing to clarify in Part III, Item 13 of Form ATS-N that the
scope of the question would extend to ATS protocols involving the ATS
filtering or blocking trading interest.
    Part III, Item 13(c) would address whether the ATS identifies
trading interest entered by a customer of a broker-dealer as customer
trading interest. Disclosing the origin of customer trading interest of
a broker-dealer could be a form of segmentation because it can
facilitate users restricting their trading to only certain types of
market participants and it can contribute to information leakage and
adverse selection of trading interest of institutional investors, who
generally trade passively. Accordingly, Part III, Item 13(c) would
require a Covered ATS to disclose if it identifies trading interest
entered by a customer of a broker-dealer in the ATS as customer trading
interest.
    In addition, in Part III, Item 13(d) of Form ATS-N, the ATS would
be required to state whether it discloses to any person the designated
segmented or otherwise designated category, classification, tier, or
level of trading interest and, if so, provide a summary of the content
of the disclosure, when and how the disclosure is communicated, who
receives it, and whether and how such designation can

be contested. This requirement is substantially similar to the current
requirement of Part III, Item 13(d) of Form ATS-N, but the Commission
is proposing to amend this request to add designations other than
segmentation, such as permissioning, filtering, and blocking, that
would be responsive under proposed Part III, Item 13(b) of Form ATS-N.
This would provide information to market participants about the notice
that the ATS provides subscribers about the segmented category to which
they are assigned, and also, if applicable, who can obtain information
about the segmented categories of other subscribers.
Request for Comment
    125. What information about the segmentation of trading interest by
a Covered ATS or any other practices or procedures that allow a Covered
ATS to control which counterparties view each other's trading interest
or are able to interact would be important to persons that use the
services of the ATS?
n. Item 14: Counter-Party Selection
    Part III, Item 14(a) of Form ATS-N is designed to provide
information about whether trading interest can be designated to
interact or not interact with certain trading interest in the ATS by an
ATS participant. The Commission is proposing to make minor
modifications to this question including new examples of the types of
designations that a subscriber can make to control both interactions
with and matching against trading interest or a participant in the ATS.
These examples would include designations to interact with or execute
against a specific subscriber's trading interest or prevent the trading
interest of a subscriber from interacting with or executing against the
trading interest of that subscriber. If the ATS has such counterparty
selection available, it would be required to explain the counterparty
selection procedures, including how counterparties can be selected and
whether the designation affects the trading rules (e.g., order
interaction or priority) or communication protocols of the ATS.\614\ To
analyze whether the ATS is an appropriate venue to accomplish their
trading objectives, market participants have an interest in knowing
whether--and how--they may designate their trading interest to interact
or avoid interacting with specific trading interest or persons in the
ATS. Part III, Item 14 is designed to require disclosure of such
information.
---------------------------------------------------------------------------

    \614\ The Commission is proposing minor changes to Form ATS-N,
Part III, Item 14, which references how the designation affects the
``interaction and priority of trading interest in the ATS'' to be
more inclusive of communication protocols.
---------------------------------------------------------------------------

    For instance, the disclosures proposed under this Item would allow
a participant in the Covered ATS to know whether it can interact with
certain categories of trading interest in the ATS or can designate
trading interest submitted to the ATS to interact only with trading
interest of certain other types of ATS participants. The ATS might
allow subscribers to choose from categories of trading interest or
categories of participants that the broker-dealer operator segments in
the ATS. For example, buy-side or institutional subscribers might seek
to trade only against other buy-side or institutional trading interest,
or might seek to avoid trading against PTFs or high frequency trading
firms. Also, it would also be responsive to this Item for a Covered ATS
to state whether a subscriber can restrict interacting with its own
trading interest, whether such restrictions are by default or only upon
subscriber request, and any applicable limitations on such
restrictions. This Item would require description of any procedures
allowing a subscriber to limit its counterparty on an order-by-order
basis or a participant-by-participant basis, how it would go about
doing so, and how such selection would affect the interaction and
priority of trading interest. For example, an ATS would include in its
response to this Item whether a designation to interact with a specific
category of counterparty trading interest or participants can be made
by the subscriber (i.e., by marking its trading interest) or whether
the designation must be implemented by the broker-dealer, on the
subscriber's behalf. If the broker-dealer implements the counterparty
designation, the ATS would also include when such designation would go
into effect (e.g., on same trading day as the subscriber's selection or
on a date thereafter).
    The Commission is also proposing to amend Form ATS-N to add a
requirement that the ATS disclose in Part III, Item 14(b) whether a
subscriber can designate trading interest that the subscriber or
potential counterparties can view (e.g., filtering, blocking,
permissioning). The ATS would be required to explain any such
processes, including how and when a subscriber can (or cannot)
designate which trading interest it or a potential counterparty can
view, any categories, classifications, or levels, and the types of
trading interest that subscribers are able to designate, a summary of
the parameters for such processes and the length of time any such
parameter is in effect, and how such processes can affect how trading
interest interacts in the ATS. The Commission believes this type of
functionality may be particularly relevant to communication protocols
and negotiation systems that may fall within the criteria of Rule 3b-
16(a), as proposed to be amended. From Commission staff's experience,
ATSs may disclose counterparty filters that could, for example, allow a
subscriber to prohibit itself from viewing a potential counterparty's
inventory or to prohibit a potential counterparty from viewing its
inventory. Under proposed Part III, Item 14(b), an ATS would include in
its response if, for example, participants in the ATS can choose not to
view trading interest from certain identified potential counterparties
or certain types of counterparties, such as those that have failed to
respond to RFQs in a given amount of time. Similarly, if a participant
can block certain potential counterparties from viewing its trading
interest, such functionality would be required to be disclosed in this
Item as well. Market participants should be aware of how participants
on the platform can choose not to interact with certain trading
interest. If, however, the ATS (and not the participant) makes these
designations and restricts the interactions of potential
counterparties, such designations and restrictions would be required to
be disclosed under Part III, Item 13.\615\
---------------------------------------------------------------------------

    \615\ See supra Section IV.D.5.m.
---------------------------------------------------------------------------

Request for Comment
    126. Should Form ATS-N request more or less information about how
trading interest can be designated to interact or not interact with
certain trading interest in the Covered ATS? Are there important forms
of counterparty selection that the Commission should address?
o. Item 15: Display and Visibility of Trading Interest
    The Commission is proposing to restructure Part III, Item 15 so
market participants can more readily understand information regarding
trading interest that the Covered ATS displays to the subscribers, the
public, and any person, including the broker-dealer operator, and what
information regarding trading interest a subscriber of the ATS can
display through the ATS. Although, as discussed below, the Commission
proposes to require Covered ATSs to divide the responses to Part III,
Item 15(b) of current Form ATS-N into Items 15(a), (b), and (c) in
revised Form ATS-N, the Commission believes that these questions would
solicit substantially similar information

that is required by current Item 15(b) of Form ATS-N, in addition to
information that is relevant to communication protocols and the use of
non-firm trading interest.
    Part III, Item 15(a) of Form ATS-N would require a Covered ATS to
disclose whether the ATS displays trading interest to subscribers or
the public (e.g., whether the ATS disseminates orders through market
data feeds or a website or sends invitations or requests to subscribers
about potential counterparties to trade with). If the ATS displays
trading interest to subscribers or the public, the ATS would be
required to explain what information the ATS displays (e.g., security,
price, size, direction, the identity of the sender, rating information
based on the sender's past performance in the ATS), how and when such
information is displayed, to whom such information is displayed (e.g.,
subscribers, public, types of market participant), and how long the
displayed information is available. In addition, the ATS would also be
required to indicate whether a subscriber can opt-out of the display of
its trading interest, and if so, the process for subscribers to do so.
This Item would also require the ATS to describe differences in
latencies with which the ATS displays subscribers' trading interest due
to a functionality of the ATS. For example, if a Covered ATS transmits
and displays its proprietary data feed to certain subscribers faster
than to other subscribers as a result of the alternative means offered
by the ATS to connect, such information would be responsive to this
Item. In addition, this Item would require an ATS that offers work-ups
to match trading interest to disclose the information that is displayed
to all subscribers or certain subscribers in public or private phases
of the work-up, as well as what characteristics of the trading interest
are displayed.
    The ATS could display subscriber trading interest in a number of
ways. For instance, when an ATS sends electronic messages outside of
the ATS that expose the presence of trading interest in the ATS, it is
displaying or making known trading interest in the ATS. In Part III,
Item 15(a), a Covered ATS would be required to disclose the
circumstances under which the ATS sends these messages, the types of
market participants that received them, and the information contained
in the messages, including the exact content of the information, such
as symbol, price, size, attribution, or any other information made
known. An ATS may also offer a direct data feed from the ATS that
contains real-time order information.\616\ Some ATSs have arrangements,
whether formal or informal (oral or written), with third parties to
display the ATS's trading interest outside of the ATS, such as IOIs
from the subscribers being displayed on vendor systems or arrangements
with third parties to transmit IOIs between subscribers. A Covered ATS
would be required to include this type of information in its response
to this Item.
---------------------------------------------------------------------------

    \616\ In the case of a Covered ATS offering a direct data feed
with information about trading interest in the ATS, the ATS would be
required to disclose under Part III, Item 15 what information the
data feed provides about the trading interest, the associated timing
in receiving the feed (e.g., real-time, delayed), how a subscriber
would receive the feed (e.g., connectivity), and if all subscribers
are treated the same in receiving the feed, including whether all
subscribers are eligible to receive it and any differences in
latency receiving the feed.
---------------------------------------------------------------------------

    Part III, Item 15(b) of Form ATS-N would require a Covered ATS to
disclose whether a subscriber can use the ATS to display or make known
trading interest to any person (e.g., stream quotes to the subscribers
or the public or send a request for quote, IOI, conditional order, or
invitation to negotiate to a subscriber or the broker-dealer operator).
If yes, the ATS would explain what information the subscriber can
display through the ATS (e.g., security, price, size, direction, the
identity of the sender), procedures for subscribers to display such
information, how and when such information is displayed, to whom such
information is displayed (e.g., subscribers, public, types of market
participant), and how long the displayed information is available. In
addition, Communication Protocol Systems may offer functionalities or
protocols to allow their subscribers, who otherwise do not have the
ability to display their trading interest, to use the functionalities
or protocols to display trading interest information. Part III, Item
15(b) would differ from Part III, Item 15(a) in that Item 15(b) would
ask what information subscribers can display or make known about their
trading interest through the ATS whereas Part III, Item 15(a) would ask
what information regarding trading interest the ATS displays. For
example, an ATS that receives orders and disseminates top-of-book
information to subscribers would be required to disclose this in Item
15(a), while an RFQ system that allows participants to select when,
how, and to whom to display their trading interest to solicit
counterparty trading interest would be required to disclose this in
Item 15(b). The Commission is proposing the disclosure requirements of
Item 15(b) because it believes that ATS participants would want to know
whether a particular ATS would provide them with any protocol or
functionality that would enable them to stream quotes to other
subscribers or the public or send a request or invitation to negotiate
to another subscriber or the broker-dealer operator. The disclosures
regarding whether subscribers can display or make known their trading
interest and the types of information that the subscribers can display
would help market participants understand the extent to which potential
information leakage may occur on the ATS.
    Part III, Item 15(c) of Form ATS-N would require a Covered ATS to
disclose whether any trading interest bound for the ATS is made known
to any person--not including employees of the ATS who are operating the
system. Many market participants are sensitive to precisely how and
when the ATS displays or otherwise makes known their trading interest
both inside and outside the ATS as such information could result in
other market participants trading ahead of their positions, and thus
possibly causing inferior execution prices for the participants whose
trading interest is displayed or otherwise made known. These
participants could use these disclosures to evaluate whether sending
trading interest to a particular ATS would achieve their trading
strategies. In particular, subscribers that use the services of Covered
ATSs, including customers of the broker-dealer operator, have limited
information about the extent to which their trading interest sent to
the ATS could be displayed outside the ATS.
    For example, trading interest directed to the ATS could pass
through the broker-dealer operator's non-ATS systems or functionalities
such as an algorithm or a SOR, before entering the ATS. Such non-ATS
systems and functionalities could be used to support the broker-dealer
operator's other business units, including any trading venues.\617\ It
would be responsive to this Item to identify the recipient of displayed
information by identifying the functionality of the broker-dealer
operator (e.g., SOR, algorithm, trading desk), third party, or the type
of market participant \618\ that receives the displayed information.
If, for instance, the ATS displays orders to the broker-dealer
operator's SOR or trading desk, the ATS would indicate ``yes'' to this

question. If the answer is ``yes'' to either of these questions, the
ATS would be required to explain what information is displayed (e.g.,
security, price, size, direction, the identity of the sender), how and
when such information is displayed, to whom such information is
displayed (e.g., algorithm, SOR, trading desk, third party), and how
long the displayed information is available. If, for instance, trading
interest bound for the ATS passes through the broker-dealer operator's
common gateway or algorithm, the ATS would need to disclose these
functionalities as the trading interest was displayed to a
functionality of the broker-dealer operator that would likely be
outside the ATS. If trading interest resting in the ATS is displayed to
one or more of the broker-dealer operator business units, the ATS would
need to identify the business units of the broker-dealer operator by
type of market participant (e.g., institutional investors, PTFs, market
makers, affiliates, trading desks at the broker-dealer operator, market
data vendors, clearing entities, and potential subscribers, among
others). This Item is designed to ensure that the ATS discloses any
display of trading interest bound to the ATS or residing in the ATS not
otherwise captured in Part III, Items 15(a) and (b). Consistent with
the discussion above, the Commission believes that market participants
should have a full understanding of how and when their trading interest
becomes known to any person, particularly when the information is made
known to the broker-dealer operator's non-ATS-systems and
functionalities. The Commission further believes that information
required under this Item would help market participants assess the
potential for information leakage of subscribers' confidential trading
information to the broker-dealer operator's non-ATS systems and
functionalities.
---------------------------------------------------------------------------

    \617\ The broker-dealer operator typically controls the logic
contained in these systems or functionality that determines where
trading interest that the broker-dealer operator receives will be
handled or sent.
    \618\ See Part III, Item 1 of Form ATS-N (providing examples of
types of market participants).
---------------------------------------------------------------------------

    The proposed Item would not require information about employees of
the ATS in non-trading related roles, such as technical, quality
assurance, compliance, or accounting roles, among others, that support
the ATS's operations and to whom trading interest are made known in the
performance of their duties.\619\
---------------------------------------------------------------------------

    \619\ Covered ATSs, as proposed, would be subject to the
requirements of Rule 301(b)(10) and would be required to establish
adequate safeguards and procedures to protect subscribers'
confidential trading information, which must include: Limiting
access to the confidential trading information of subscribers to
those employees of the ATS who are operating the system or
responsible for its compliance with these or any other applicable
rules; and implementing standards controlling employees of the ATS
trading for their own accounts. See 17 CFR 242.301(b)(10).
---------------------------------------------------------------------------

    Part III, Item 15(d) of Form ATS-N would require the ATS to
indicate whether it is an Electronic Communication Network (``ECN'') as
defined in Rule 600(a)(31) of Regulation ATS.\620\ NMS Stock ATSs that
are also ECNs may differ in how and where trading interest are
displayed. NMS Stock ATSs that indicate ``yes'' to this Item would also
be required to provide information in response to Part III, Items
15(a), (b), or (c) to inform market participants how ECNs display
trading interest.
---------------------------------------------------------------------------

    \620\ Part III, Item 15(d) of revised Form ATS-N (which is
currently included in Part III, Item 15(a) of current Form ATS-N)
would be applicable only to NMS Stock ATSs because Rule 600(a)(31)
only applies to systems that trade NMS stocks. A Government
Securities ATS would select ``no'' in response to this question. The
Commission is also correcting a typo referencing Rule 600(a)(23) and
replacing the reference with Rule 600(a)(31).
---------------------------------------------------------------------------

Request for Comment
    127. What information involving NMS stocks, government securities,
and repos do ATSs or Communication Protocol Systems display? Are there
levels of displayed information that a system may offer to market
participants? If so, what are the levels and are there any specific
requirements for a market participant to access that information? For
instance, do ATSs or Communication Protocol Systems have different
mechanisms or functionalities for displaying trading interest depending
on the subscriber? What functionalities does the system use to display
information in government securities and repos? Please explain the
purpose and operation of any such functionality.
    128. For ATSs or Communication Protocol Systems that display
trading interest both on the system and outside the system, what is the
process for market participants to submit trading interest to interact
with the trading interest that is displayed outside the system?
    129. Are there any aspects of display of trading interest on
Government Securities ATSs that should be specifically addressed in the
Item? Are there any aspects of display that are unique to Communication
Protocol Systems?
p. Item 16: Routing
    Part III, Item 16 is designed to provide information about whether
trading interest in the ATS can be routed or sent to a destination
outside the ATS. As proposed, Part III, Item 16 would apply to both NMS
Stock ATSs and Government Securities ATSs. In the Commission's
experience, routing of government securities among trading venues is
not as prevalent as in the market for NMS stocks. To the extent it is
inapplicable, a Government Securities ATS would check ``no'' on Form
ATS-N. However, Government Securities ATSs may have mechanisms to send
trading interest outside the ATS. Accordingly, the Commission is
proposing to require Covered ATSs to disclose whether they route or
otherwise ``send'' trading interest outside of the ATS. If the Covered
ATS permits trading interest to be routed or sent to a destination
outside of the ATS, the ATS would be required to indicate whether
affirmative instructions from a subscriber must be obtained before its
trading interest can be routed or sent from the ATS, and provide a
description of the affirmative instruction and explain how the
affirmative instruction is obtained. If the ATS is not required to
obtain an affirmative instruction to route or send trading interest,
the ATS would be required to explain when trading interest can be
routed or sent from the ATS (e.g., at the discretion of the broker-
dealer operator). The Commission believes that such disclosures provide
ATS participants with the ability to gauge how their trading interest
would be handled by the ATS. Subscribers might, for example, have
concerns about the leakage of confidential trading information when
their orders are routed to other trading venues. The Commission
believes the disclosures in Part III, Item 16 would provide relevant
information for ATS participants to evaluate the potential for leakage
of their confidential trading information.
    The Commission is also proposing to relocate Part II, Items 1(d)
and 2(d) of current Form ATS-N to Part III, Item 16(c) of revised Form
ATS-N.\621\ Specifically, proposed Item 16(c) of revised Form ATS-N
would request whether trading interest in the ATS can be routed or sent
to a destination operated or controlled by the broker-dealer operator
or an affiliate of the broker-dealer. If yes, the ATS would be required
to identify the destination and when and how trading interest is routed
or sent from the ATS to the destination. The Commission believes that
such information would help market participants evaluate whether the
Covered ATS sending trading interest to a trading venue operated or
controlled

by the broker-dealer operator or its affiliates poses a conflict of
interest and is consistent with its trading objectives.
---------------------------------------------------------------------------

    \621\ As discussed above, the Commission believes it would be
more efficient for market participants and filers to consolidate the
current disclosure in Part II, Items 1(d) and 2(d) to proposed Part
III, Item 16(c). See supra Section IV.D.4.a.
---------------------------------------------------------------------------

Request for Comment
    130. Do Government Securities ATSs (inclusive of Communication
Protocol Systems, as proposed) and Communication Protocol Systems that
trade NMS stocks send trading interest to destinations away from the
system? If so, how and under what circumstances? Are there any aspects
about how trading interest is sent away from a Covered ATS that should
be addressed by Form ATS-N? Have the mechanisms for routing to a
destination outside an NMS Stock ATS changed in any way since the
adoption of Form ATS-N for NMS Stock ATSs? If so, do commenters believe
that the Commission should require Covered ATSs to provide additional
information in Part III, Item 16 to reflect such change?
q. Item 17: Closing
    Part III, Item 17 of Form ATS-N is designed to provide information
about differences between how trading interest is treated on the ATS
during the ATS's closing session(s) \622\ and during regular trading
hours established by the ATS. The Item is designed to provide market
participants with information about processes the Covered ATS uses to
transition to the next trading day, including whether the ATS offers
any particular order types during a closing session(s) or has different
procedures for closing trading for a particular trading session and
transitioning trading to the next trading day. The vast majority of
requests in Part III of revised Form ATS-N relate to trading during the
Covered ATS's regular trading hours. Therefore, when discussing
differences between trading during the Covered ATS's closing session(s)
and during regular trading hours set by the ATS, the Covered ATS would
be required to discuss differences as compared to relevant information
disclosed in Part III Items, including, among others, order types and
sizes and trading facilities (Item 7), use of non-firm trading interest
and communication protocols and negotiation functionality (Item 8),
segmentation and notice (Item 13), and display and visibility of
trading interest (Item 15). The Commission believes this information
would be important for market participants to understand the closing
procedures around a particular trading session, if any, to carry out
their trading objectives.\623\
---------------------------------------------------------------------------

    \622\ The Commission is proposing to revise Item 17 of Form ATS-
N to clarify that the question relates to the ATS's closing
session(s), and that ``regular trading hours'' refers to the ATS's
regular trading hours.
    \623\ The Item would, for example, require disclosure of any
procedures to match trading interest to set a single closing price
to maximize liquidity and accurately reflect market conditions at
the close of trading in the ATS.
---------------------------------------------------------------------------

r. Item 18: Fees
    Part III, Item 18 of Form ATS-N \624\ would require a Covered ATS
to provide information on any fees or charges for use of the ATS's
services, including any fees or charges for use of the ATS's services
that are bundled with the subscriber's use of non-ATS services or
products offered by the broker-dealer operator or its affiliates, and
any rebate or discount of fees or charges. The Commission believes that
disclosures regarding fees on Form ATS-N are necessary and important,
and should not be voluntary for Covered ATSs. Fee disclosures on Form
ATS-N are designed to allow all market participants to analyze the fee
structures across Covered ATSs in an expedited manner and decide which
ATS offers them the best pricing according to the characteristics of
their order flow, the type of participant they are (if relevant), or
any other aspects of an ATS's fee structure that serves to provide
incentives or disincentives for specific market participants or trading
behaviors. Requiring disclosures of ATS fees is warranted as, in the
Commission's experience, fees can be a primary factor for market
participants in deciding where to send their trading interest.
---------------------------------------------------------------------------

    \624\ As discussed above, the Commission is proposing to delete
current Part III, Item 18 of Form ATS-N (Trading Outside of Regular
Trading Hours) to combine such disclosure requests with Part III,
Item 4 (Hours of Operations). As a result of this deletion, the
Commission is proposing to re-number Part III, Items 19 through 26
of current Form ATS-N. The discussion herein refers to the Items as
proposed to be re-numbered.
---------------------------------------------------------------------------

    Part III, Item 18 would request that Covered ATSs include in their
descriptions the types of fees, the structure of the fees, variables
that impact the fees, and differentiation among types of subscribers,
and whether the fee is incorporated into the price displayed for a
security, and the Commission would provide examples of responsive
information in a parenthetical in the text of each subpart.\625\ The
Item also would require a range for each type of fee (e.g.,
subscription, connectivity, and market data) charged on the Covered
ATS.
---------------------------------------------------------------------------

    \625\ The Commission is including non-exhaustive lists of
examples of responsive information in parentheticals in the text of
the Item. For instance, for the description of the structure of the
fees, the Commission is providing as examples fixed, volume-based,
and transaction-based fee structures. For the description of
variables that impact the fees, the Commission is providing as
examples: The types of securities traded, block orders, and the form
of connectivity to the ATS. For the description of the
differentiation among types of subscribers for the fee, the
Commission is providing as examples the types of subscribers:
Broker-dealers, institutional investors, and retail investors.
---------------------------------------------------------------------------

    The Commission is proposing to add the term ``market data'' to the
examples listed in Part III, Item 18 of the types of fees that a
Covered ATS must disclose. For example, if a Covered ATS distributed a
market data feed and charged a fee for it, the ATS would be required to
provide the information responsive to Item 18 regarding that fee. The
Commission believes this example may be relevant to Government
Securities ATSs, which are primarily lit venues that offer market data
to subscribers. While most NMS Stock ATSs do not disseminate market
data, a description of an NMS Stock ATS's market data fees is currently
required by the Item, which requires disclosure of ``any'' fee or
charge for use of the ATS services. Adding the example could assist
Covered ATSs in responding comprehensively to the Item.
    The Commission recognizes that the fee structures of Covered ATSs
can vary and that not all Covered ATSs apply set tiers or categories of
fees for subscribers; however, the Commission believes that a market
participant should have sufficient information to understand the fees
for using the services of the Covered ATS. Recognizing the various fees
that can be charged by Covered ATSs, the Commission is specifying in
the fee request the types of information that a Covered ATS must
provide in response to the Commission's proposed request to describe
its fees (e.g., the structure of the fees, variables that impact each
fee, differentiation among types of subscribers, and the range of
fees). With regard to the variables that impact the fees set, ATSs
would be required to be specific and delineate how a given variable
would likely impact the fee level (e.g., higher or lower). In addition,
the Commission is proposing to add a new requirement not included in
current Form ATS-N that the Covered ATS must disclose whether the fee
is incorporated into the price displayed for a security (e.g., markups,
markdowns). For example, the price displayed by the security may be
higher (or lower) than the market price, and the broker-dealer would be
compensated by the difference between the displayed price and the
market price. The Commission believes that, in particular, such fees or
charges may be relevant to communication protocols that would be

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

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

arrangement that could trigger the disclosure requirement under Part
III, Item 21. Limiting the explanation required to material
arrangements would reduce the burden on Covered ATSs while at the same
time still allowing market participants to understand and more easily