This would result in an aggregate annual burden of 12 hours for NMS
Stock ATSs that choose to cease operations and submit a cessation of
operation report on Form ATS-N.\655\
---------------------------------------------------------------------------

    \653\ See supra Section XII.C.
    \654\ Attorney at 1.5 hours + Compliance Clerk at 0.5 hours = 4
burden hours. See supra note 597, and accompanying text.
    \655\ 2 burden hours x 6 NMS Stock ATSs = 12 aggregate annual
burden hours.
---------------------------------------------------------------------------

iii. ATSs That Transact in Both NMS and Non-NMS Stocks
    Under proposed Rule 301(b)(2)(viii) of Regulation ATS, an ATS that
effects trades in both NMS stocks and non-NMS stocks would have to
submit a Form ATS-N with respect to its trading of NMS stocks and a
revised Form ATS that removes discussion of those aspects of the ATS
related to the trading of NMS stocks. Under the proposed amendments to
Rule 301(b)(9), an ATS that effects trades in both NMS stocks and non-
NMS stocks would also be required to file separate Forms ATS-R--one
disclosing trading volume in NMS stocks and one disclosing trading
volume in non-NMS stocks. Therefore, ATSs that are subject to these
proposed requirements would incur: (1) the above baseline burdens
related to filing a Form ATS-N and Form ATS-N Amendments; \656\ (2) the
additional burden of filing a new Form ATS to only disclose information
related to non-NMS stock trading activity on the ATS; \657\ and (3) the
burden of completing and filing two Forms ATS-R.\658\
---------------------------------------------------------------------------

    \656\ See supra Sections XII.D.2.b.ii.A and B.
    \657\ See supra Section XII.D.2.a and accompanying text for the
baseline estimates for submitting an IOR for Form ATS and amendments
to Form ATS.
    \658\ See supra note 598 and accompanying text for the baseline
estimate for submitting a Form ATS-R.
---------------------------------------------------------------------------

    Accordingly, the Commission estimates that the total hourly burden
for an ATS to separately file a Form ATS for its non-NMS stock trading

activity and Form ATS-N for its NMS stock trading activity would be 20
burden hours for the initial operation report on Form ATS for its non-
NMS stock trading activity and 141.3 burden hours for its Form ATS-N.
The Commission notes that the estimated hour burden related to the
initial operation report submission on Form ATS for non-NMS stock
trading activity might be less than the estimated 20 burden hours, as,
to the extent the NMS Stock ATS in question is currently operating, the
description of its non-NMS stock trading activity should already be
contained in its existing Form ATS.\659\ As previously noted, there are
currently 11 ATSs that trade, or have indicated that they expect to
trade in Exhibit B to their Form ATS, both NMS stocks and non-NMS
stocks on the ATS. Consequently, the Commission preliminarily estimates
that the aggregate initial burden on ATSs to file these separate forms
would be 1,774.3 hours, and the aggregate annual burden for filing
amendments to both forms would be 445.5 hours.\660\
---------------------------------------------------------------------------

    \659\ The hourly burden related to amendments to its Form ATS
and Form ATS-N would remain unchanged: 6 estimated burden hours for
amendments to Form ATS, and 9.5 estimated burden hours for Form ATS-
N Amendments. See supra notes 646-650 and accompanying text.
    \660\ (Form ATS initial operation report at 20 hours + Form ATS-
N at 141.3 hours) x 11 ATSs = 1,774.3 aggregate burden hours. Using
the estimates of 2 amendments each year to Form ATS, see supra
Section XII.D.2.a, and 3 amendments each year to Form ATS-N, see
supra Section XII.D.2.b.ii.B, the ongoing aggregate burden for these
bifurcated ATSs would be ((2 Form ATS Amendments per year x 6 hours)
+ (3 Form ATS-N Amendments per year x 9.5 hours)) x 11 respondents =
445.5 aggregate ongoing burden hours per year relating to
amendments.
---------------------------------------------------------------------------

    The Commission estimates that the total burden for completing and
filing two Form ATS-R would be 4.5 hours, which is 0.5 hours \661\
above the current baseline burden of 4 hours for filing a Form ATS-
R.\662\ The Commission preliminarily believes that ATSs required to
file two Forms ATS-R would incur an additional burden above the
baseline because they would be required to divide their trading
statistics between two forms and file each form separately. The
Commission does not believe that those ATSs would incur any additional
burden to collect the required information because they currently
assemble that information when preparing their current Form ATS-R
filings. As previously noted, there are currently 11 ATSs that trade,
or have indicated that they expect to trade in Exhibit B to their Form
ATS, both NMS stocks and non-NMS stocks on the ATS; those ATSs would be
required to file a pair of Forms ATS-R four times annually.
Consequently, the Commission estimates that the aggregate annual burden
of filing two Forms ATS-R for those ATS that effect transactions in
both NMS stocks and non-NMS stocks would be 198 hours.\663\
---------------------------------------------------------------------------

    \661\ Attorney at .5 hours = .5 burden hours.
    \662\ See supra note 598 and accompanying text for the baseline
estimate for submitting a Form ATS-R.
    \663\ ((Attorney at 3.5 hours + Compliance Clerk at 1 hour) x (4
filings annually)) x 11 ATSs = 198 aggregate burden hours.
---------------------------------------------------------------------------

iv. Access to EFFS
    The Commission proposes that Form ATS-N would be submitted
electronically in a structured format and require an electronic
signature.\664\ Currently, ATSs that transact in NMS stock do not have
the ability to access and submit an electronic form. The proposed
amendments to Regulation ATS would require that every NMS Stock ATS
have the ability to submit forms electronically with an electronic
signature. The Commission's proposal contemplates the use of an online
filing system, the EFFS. Based on the widespread use and availability
of the Internet, the Commission preliminarily believes that filing Form
ATS-N in an electronic format would be less burdensome and a more
efficient filing process for NMS Stock ATSs and the Commission, as it
is likely to be less expensive and cumbersome than mailing and filing
paper forms to the Commission.
---------------------------------------------------------------------------

    \664\ The Commission notes that all estimated burden hours with
regard to completing Parts I-V of proposed Form ATS-N, which are
explained above and herein, include the estimated burden associated
with the proposed requirement that NMS Stock ATSs file proposed Form
ATS-N in a structured format, including narrative responses that are
block-text tagged.
---------------------------------------------------------------------------

    To access EFFS, an NMS Stock ATS would have to submit to the
Commission an External Account User Application (``EAUA'') to register
each individual at the NMS Stock ATS who would access the EFFS system
on behalf of the NMS Stock ATS. The Commission is including in its
burden estimates the burden for completing the EAUA for each individual
at an NMS Stock ATS who would request access to EFFS. The Commission
estimates that initially, on average, two individuals at each NMS Stock
ATS would request access to EFFS through the EAUA, and each EAUA would
take 0.15 hours to complete and submit. Therefore, each NMS Stock ATS
would require a total of 0.3 hours to complete the requisite
EAUAs,\665\ or approximately 13.8 hours for all NMS Stock ATSs.\666\
The Commission also preliminarily estimates that annually, on average,
one individual at each NMS Stock ATS will request access to EFFS
through the EAUA.\667\ Therefore, the ongoing burden to complete the
EAUA would be 0.15 hours annually for each NMS Stock ATS,\668\ or
approximately 6.9 hours annually for all NMS Stock ATSs.\669\
---------------------------------------------------------------------------

    \665\ 0.15 hours per EAUA x 2 individuals = 0.3 burden hours per
NMS Stock ATS. These estimates are based on the Commission and its
staff's experience with EFFS and EAUAs pursuant to Rule 19b-4 under
the Exchange Act. The 0.3 hours represents the time spent by two
attorneys. The Commission believes it is appropriate to estimate
that, on average, each NMS Stock ATS will submit two EAUAs
initially.
    \666\ 0.30 hours x 46 NMS Stock ATSs = 13.8 burden hours.
    \667\ The Commission estimates that annually, on average, one
individual at each NMS Stock ATS will request access to EFFS through
EAUA to account for the possibility that an individual who
previously had access to EFFS may no longer be designated as needing
such access.
    \668\ 0.15 hours per EAUA x 1 individual = 0.15 burden hours.
    \669\ 0.15 hours x 46 NMS Stock ATSs = 6.9 burden hours.
---------------------------------------------------------------------------

    In addition, the Commission estimates that each NMS Stock ATS will
designate 2 individuals to sign Form ATS-N each year. An individual
signing a Form ATS-N must obtain a digital ID, at the cost of
approximately $25 each year. Therefore, each NMS Stock ATS would pay
approximately $50 annually to obtain digital IDs for the individuals
with access to EFFS for purposes of signing Form ATS-N,\670\ or
approximately $2,300 for all NMS Stock ATSs.\671\
---------------------------------------------------------------------------

    \670\ $25 per digital ID x 2 individuals = $50 per NMS Stock
ATS.
    \671\ $50 per NMS Stock ATS x 46 NMS Stock ATSs = $2,300.
---------------------------------------------------------------------------

v. Public Posting on NMS Stock ATS's Web Site
    Proposed Rule 304(b)(3) would require each NMS Stock ATS to make
public via posting on the NMS Stock ATS's Web site a direct URL
hyperlink to the Commission's Web site that contains the documents
enumerated in proposed Rule 304(b)(2). The Commission preliminarily
estimates that each NMS Stock ATS would incur an initial, one-time
burden to program and configure its Web site in order to post the
required direct URL hyperlink pursuant to proposed Rule 304(b)(3). The
Commission preliminarily estimates that this initial, one-time burden
would be approximately 2 hours.\672\ Because the Commission
preliminarily believes that many broker-dealer operators currently
maintain a Web site for their NMS Stock ATSs, the Commission
preliminarily estimates that the aggregate initial, one-time

burden would be approximately 92 hours.\673\
---------------------------------------------------------------------------

    \672\ Senior Systems Analyst at 2 burden hours.
    \673\ Senior Systems Analyst at 2 hours x 46 NMS Stock ATSs = 92
burden hours.
---------------------------------------------------------------------------

vi. Recordkeeping Requirements
    As noted above, the Commission proposes to amend Rule 303(a)(2)(ii)
\674\ of Regulation ATS to provide that all ATSs must preserve copies
of all reports filed pursuant to proposed Rule 304 for the life of the
enterprise and any successor enterprise.
---------------------------------------------------------------------------

    \674\ 17 CFR 242.303(a)(2)(ii).
---------------------------------------------------------------------------

    Rule 303(a)(ii) currently requires an ATS to preserve copies of
reports filed pursuant to Rule 301(b)(2), which include all Form ATS
filings, for the life of the enterprise and any successor enterprise.
Because NMS Stock ATSs that solely trade NMS stocks would be filing
Form ATS-N in lieu of Form ATS under this proposal, the Commission
believes that the proposed amendment to Rule 303(a)(ii) would not
result in any burden for those ATSs that is not already accounted for
under the current baseline burden estimate for Rule 303.\675\ For the
11 ATSs that trade, or have indicated in Exhibit B to their Form ATS
that they expect to trade both NMS stocks and non-NMS stocks on the
ATS, the Commission preliminarily estimates that the burden above the
current baseline estimate for preserving records relating to compliance
with the proposed amendment to Rule 303(a)(ii) would be approximately 3
hours annually per ATS for a total annual burden above the current
baseline burden estimate of 33 hours for all respondents.\676\
Accordingly, the Commission proposes to modify the current PRA burden
for Rule 303 to account for the increased burden on ATSs that trade
both NMS stocks and non-NMS stocks.
---------------------------------------------------------------------------

    \675\ To comply with all of the record preservation requirements
of Rule 303, the Commission currently estimates that ATSs spend
approximately 1,380 hours per year. See Rule 303 PRA Update, supra
note 580, 78 FR 43943. At an average cost per burden hour of
$104.20, the resultant total related cost of compliance is $143,796
per year (1,380 burden hours x $104.20/hour). See id.
    \676\ 3 additional burden hours x 11 ATSs = 33 aggregate burden
hours.
---------------------------------------------------------------------------

E. Collection of Information Is Mandatory

    All collections of information pursuant to the proposed rules would
be mandatory for entities that meet the definition of NMS Stock ATS.

F. Confidentiality of Responses to Collection of Information

    With respect to the proposed amendments to Rules 301(b)(2)(viii)
and 304 of Regulation ATS, including proposed Form ATS-N, the
Commission would make publicly available on its Web site all Forms ATS-
N upon being declared effective. The Commission would also make
publicly available on its Web site all properly filed Form ATS-N
Amendments, and notices of cessation on Form ATS-N. The Commission
would not make publicly available on its Web site Forms ATS-N that the
Commission has declared ineffective, but these forms would be available
for examination by the Commission and its staff, state securities
authorities, and self-regulatory organizations. The proposed Form ATS
amendments would also require each NMS Stock ATS that has a Web site to
post on the NMS Stock ATS's Web site a direct URL hyperlink to the
Commission's Web site that contains the documents enumerated in
proposed Rule 304(b)(2). The collection of information required by the
proposed amendments to Rules 301(b)(10), 303(a)(1)(v), 301(b)(9), and
303(a)(2)(ii) would not be made public, but would be used for
regulatory purposes by the Commission and the SRO(s) of which the ATS's
broker-dealer operator is a member. In Part III, Item 10 of Form ATS-N,
however, NMS Stock ATSs would be required to describe the written
safeguards and written procedures to ensure confidential treatment of
trading information that would be required under the proposed amendment
to Rule 301(b)(10); as explained above, the Commission would make
certain Form ATS-N filings publicly available. To the extent that the
Commission receives confidential information pursuant to this
collection of information, such information would be kept confidential,
subject to the provisions of applicable law.

G. Retention Period for Recordkeeping Requirements

    All reports required to be made under proposed Rules
301(b)(2)(viii), 301(b)(9), and 304 of Regulation ATS, including
Proposed Form ATS-N, would be required to be preserved during the life
of the enterprise and any successor enterprise, pursuant to the
proposed amendment to Rule 303(a)(2) of Regulation ATS.
    ATSs would be required to preserve a copy of their written
safeguards and written procedures to protect subscribers' confidential
trading information under proposed Rule 301(b)(10) of Regulation ATS
for not less than 3 years, the first 2 years in an easily accessible
place, pursuant to proposed Rule 303(a)(1)(v) of Regulation ATS.

H. Request for Comments

    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comment to:
    1. Evaluate whether the proposed collection of information is
necessary for the proper performance of our functions, including
whether the information shall have practical utility;
    2. Evaluate the accuracy of our estimate of the burden of the
proposed collection of information;
    3. Determine whether there are ways to enhance the quality,
utility, and clarity of the information to be collected; and
    4. Evaluate whether there are ways to minimize the burden of
collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology.

Persons submitting comments on the collection of information
requirements should direct them to the Office of Management and Budget,
Attention: Desk Officer for the Securities and Exchange Commission,
Office of Information and Regulatory Affairs, Washington, DC 20503, and
should also send a copy of their comments to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090, with reference to File Number S7-23-15.
Requests for materials submitted to OMB by the Commission with regard
to this collection of information should be in writing, with reference
to File Number S7-23-15 and be submitted to the Securities and Exchange
Commission, Office of FOIA/PA Services, 100 F Street NE., Washington,
DC 20549-2736. As OMB is required to make a decision concerning the
collections of information between 30 and 60 days after publication, a
comment to OMB is best assured of having its full effect if OMB
receives it within 30 days of publication.

XIII. Economic Analysis

A. Background

    The Commission is concerned that the current regulatory
requirements relating to operational transparency for NMS Stock ATSs
may no longer fully meet the goals of furthering the public interest
and protecting investors. The market for NMS stock execution services
consists of registered national securities exchanges, NMS Stock ATSs,
and non-ATS broker-dealers that effect OTC transactions. As of the
second quarter of 2015, NMS Stock ATSs account for approximately 15.4%
of the total dollar volume in NMS stocks and compete with, and operate
similar to, registered national securities exchanges.

However, relative to registered national securities exchanges, there is
limited and differential information publicly available to market
participants about how NMS Stock ATSs operate, including how orders
interact, match, and execute, and the activities of the broker-dealer
operators and their affiliates. Not only is there a lack of consistency
with respect to the quality of information that market participants
receive from different NMS Stock ATSs, there are also differences due
to the fact that for a given NMS Stock ATS, some subscribers might have
more detailed information relative to other subscribers about how
orders interact, match, and execute on the ATS.
    Currently, NMS Stock ATSs provide the Commission with notice of
their initial operations and changes to their operations on Form ATS.
Although some NMS Stock ATSs voluntarily make their Form ATS publicly
available on their Web site, they are not required to do so, as Form
ATS is ``deemed confidential when filed.'' \677\ In light of this,
subscribers to these NMS Stock ATSs may have more information about the
operations of these NMS Stock ATSs relative to subscribers to NMS Stock
ATSs that do not make their Form ATS public. Moreover, an NMS Stock ATS
may also make different information available to certain market
participants about its operations than it does to other market
participants. The Commission is concerned that this limited and
differential level of operational transparency around NMS Stock ATSs
may impede market participants' ability to adequately discern how their
orders interact, match, and execute on NMS Stock ATSs, or fully
understand the activities of an NMS Stock ATS's broker dealer-operator
and its affiliates, and the conflicts that may arise from such
activities. This could thereby impede a market participant's ability to
evaluate whether submitting order flow to a particular NMS Stock ATS
aligns with its business interests and would help it achieve its
investing or trading objectives. In addition, the Commission is
concerned that the current lack of transparency around the potential
conflicts of interest that arise from the activities of the broker-
dealer operator and its affiliates hinders market participants'
abilities to protect their interests when doing business on the NMS
Stock ATS.
---------------------------------------------------------------------------

    \677\ See 17 CFR 242.301(b)(2)(vii).
---------------------------------------------------------------------------

    The Commission is concerned that the current market for NMS stock
execution services does not address the problems described above.
Rather, when demanding services that are typically offered by NMS Stock
ATSs--particularly, dark pools--some market participants trade off the
less stringent transparency requirements applicable to NMS Stock ATSs,
as compared to national securities exchanges, in exchange for obtaining
some perceived advantages of trading on these venues, such as keeping
their orders dark prior to execution.\678\ Furthermore, the difficulty
involved in comparing the operations and execution quality of an NMS
Stock ATS to the operations and execution quality of national
securities exchanges or other NMS Stock ATSs may limit the ability of
market participants to judge whether that tradeoff actually benefits
either themselves or their customers when sending orders to a
particular NMS Stock ATS. For example, as noted above, a certain
category of subscribers may have access to services offered by an NMS
Stock ATS that are not offered to another category of subscribers, but
subscribers that fall under the latter category may not be fully aware
of any potential disadvantages when submitting orders to that NMS Stock
ATS.\679\ Furthermore, the Commission preliminarily believes that the
NMS Stock ATS would generally not have a strong incentive to fully
reveal how it operates to either category of subscriber under the
current regulatory regime.
---------------------------------------------------------------------------

    \678\ See supra notes 123-126 and accompanying text.
    \679\ See supra Section VII.B.4.
---------------------------------------------------------------------------

    The Commission is proposing to amend Regulation ATS to adopt new
Rule 304, which would provide a process for the Commission to determine
if an NMS Stock ATS qualifies for the exemption from the definition of
``exchange'' pursuant to Rule 3a1-1(a)(2) and declare an NMS Stock
ATS's Forms ATS-N either effective or ineffective. The proposal would
also provide a process for the Commission to suspend, limit, or revoke
an NMS Stock ATS's exemption from the definition of ``exchange'' under
certain circumstances. The Commission is also proposing to amend
Regulation ATS to require NMS Stock ATSs to file Form ATS-N, which
would require NMS Stock ATSs to provide detailed disclosures about
their trading operations and the activities of their broker-dealer
operators and their affiliates. The Commission is proposing to make
certain Form ATS-N filings public by posting them on the Commission's
Web site and requiring each NMS Stock ATS that has a Web site to post
on the NMS Stock ATS's Web site a direct URL hyperlink to the
Commission's Web site that contains the documents enumerated in
proposed Rule 304(b)(2). The Commission is also proposing to amend Rule
301(b)(10) of Regulation ATS to require that all ATSs have their
procedures and safeguards to protect subscribers' confidential trading
information in writing. The proposed amendments seek to improve and
make more consistent the information available to market participants
regarding different NMS Stock ATSs' operations and the activities of
their broker-dealer operators and their affiliates. The proposed
amendments also aim to make the level and type of disclosures more
consistent between NMS Stock ATSs. The Commission preliminarily
believes that making publicly available a more consistent level of
information to all market participants would help them to better
evaluate NMS Stock ATSs as potential routing destinations for their
orders.
    The Commission is sensitive to the economic consequences and
effects, including the costs and benefits, of its rules. The following
economic analysis identifies and considers the costs and benefits--
including the effects on efficiency, competition, and capital
formation--that may result from the amendments to Regulation ATS being
proposed. These costs and benefits are discussed below and have
informed the policy choices described throughout this release.\680\
---------------------------------------------------------------------------

    \680\ Exchange Act Section 3(f) requires the Commission, when it
is engaged in rulemaking pursuant to the Exchange Act and is
required to consider or determine whether an action is necessary or
appropriate in the public interest, to consider, in addition to the
protection of investors, whether the action will promote efficiency,
competition and capital formation. See 15 U.S.C. 78c(f). In
addition, Exchange Act Section 23(a)(2) requires the Commission,
when making rules pursuant to the Exchange Act, to consider among
other matters the impact that any such rule would have on
competition and not to adopt any rule that would impose a burden on
competition that is not necessary or appropriate in furtherance of
the purposes of the Exchange Act. See 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

B. Baseline

    The enhanced transparency and oversight of NMS Stock ATSs that the
Commission preliminarily believes would result from the proposed
amendments to Regulation ATS would increase the amount of information
and improve the quality of information available to all market
participants about the operations of NMS Stock ATSs and the activities
of their broker-dealer operators and their affiliates. As a result,
this information should better inform market participants making
decisions about which trading venue to route their orders to. The
proposed amendments would also affect the

competitive dynamics between trading venues that compete for order
flow. The numerous parties that would be affected by the proposed
amendments include: Existing NMS Stock ATSs; potential new NMS Stock
ATSs; current and potential subscribers of NMS Stock ATSs; broker-
dealers that are affiliated with NMS Stock ATSs and their customers;
non-ATS affiliated broker-dealers and their customers; broker-dealers
that do not operate NMS Stock ATSs but send order flow to NMS Stock
ATSs; institutional investors that periodically transact large trades
on NMS Stock ATSs; other persons that seek to effect transactions in
NMS stocks on ATSs; and registered national securities exchanges that
compete for order flow with NMS Stock ATSs.
    The baseline against which economic costs and benefits, as well as
the impact of the proposed amendments on efficiency, competition, and
capital formation, are measured is the current market and regulatory
framework for trading NMS stocks. The baseline, discussed in further
detail below, includes statistics on the number of NMS Stock ATSs;
current reporting requirements for NMS Stock ATSs; the lack of public
disclosure of NMS Stock ATSs' operations, as well as disparate levels
of information available to market participants about NMS Stock ATSs'
operations and the activities of their broker-dealer operators and
their affiliates; and the competitive environment between registered
national securities exchanges and NMS Stock ATSs, among NMS Stock ATSs,
and between broker-dealers that operate NMS Stock ATSs and broker-
dealers that do not operate NMS Stock ATSs.
1. Current NMS Stock ATSs
    In a concept release on equity market structure in 2010, the
Commission stated that in the third quarter of 2009 there were 37 dark
pools and ECNs that traded NMS stocks, and that they accounted for
18.7% of total NMS share volume.\681\ From mid-May to mid-September
2014, the trading volume of ATSs accounted for approximately 18% of the
total dollar volume in NMS stocks.\682\ During the second quarter in
2015, 38 ATSs traded NMS stocks \683\ and these 38 ATSs accounted for
approximately 59 billion shares traded in NMS stocks (approximately
$2.5 trillion in dollar volume), representing approximately 15.0% of
total share trading volume (15.4% of total dollar trading volume) on
all registered national securities exchanges, ATSs, and non-ATS OTC
trading venues in the second quarter of 2015.\684\ There have been
several changes in the market for NMS stocks execution services that
may explain the volatility in fraction of share and dollar volume
executed on NMS Stock ATSs since 2009. First, two ECNs have now
registered as national securities exchanges.\685\ Second, there has
been a rise in the number of ATSs operating as dark pools. Since the
third quarter of 2009, the number of ATSs operating as dark pools has
increased from 32 \686\ to more than 40 today.\687\ In 2009, dark pools
accounted for 7.9% of NMS share volume \688\ and by the second quarter
of 2015, they accounted for 14.9% of NMS share volume.\689\ In summary,
in recent years, the number of NMS Stock ATSs has increased, and the
percentage of NMS stocks executed in dark pools has also increased.
---------------------------------------------------------------------------

    \681\ The Commission used data from the third quarter of 2009.
Of these 37 ATSs that traded NMS stocks, 32 were classified as dark
pools and 5 were classified as ECNs. These dark pools accounted for
7.9% of total NMS share volume and the ECNs accounted for 10.8% of
total NMS share volume. Of the 10.8% attributable to ECNs, 9.8% was
attributable to two ECNs that were operated by Direct Edge, which
subsequently registered as national securities exchanges. See 2010
Equity Market Structure Release, supra note 124, at 3598-3599.
    \682\ See SCI Adopting Release, supra note 17, at 72266 n.148
and accompanying text and n.150.
    \683\ See infra Table 1, ``NMS Stock ATSs Ranked by Dollar
Trading Volume--March 30, 2015 to June 26, 2015.''
    \684\ See infra Table 1 ``NMS Stock ATSs Ranked by Dollar
Trading Volume--March 30, 2015 to June 26, 2015.'' Total dollar
trading volume on all exchanges and off-exchange trading in the
second quarter of 2015 was approximately $16.3 trillion and
approximately 397 billion shares. See id.
    \685\ EDGA Exchange, Inc. and EDGX Exchange, Inc. (f/k/a Direct
Edge ECN) previously operated as ECNs and are now registered
national securities exchanges. See In the Matter of the Applications
of EDGX Exchange, Inc., and EDGA Exchange, Inc. for Registration as
National Securities Exchanges: Findings, Opinion, and Order of the
Commission, Securities Exchange Act Release No. 61698 (March 12,
2010), 75 FR 13151 (March 18, 2010) (File Nos. 10-194 and 10-196).
Prior to 2009, there were other ECNs that also became national
securities exchanges. BATS Exchange Inc. (f/k/a BATS ECN) previously
operated as an ECN and is now a registered national securities
exchange. See In the Matter of the Application of BATS Exchange Inc.
for Registration as National Securities Exchange: Findings, Opinion,
and Order of the Commission, Securities Exchange Act Release No.
58375 (August 18, 2008), 73 FR 49498 (August 21, 2008) (File No. 10-
198). NYSE Arca, Inc., (f/k/a Archipelago) previously operated as an
ECN and was acquired by the New York Stock Exchange LLC. See Order
Granting Approval of Proposed Rule Change and Amendment Nos. 1, 3,
and 5 Thereto and Notice of Filing and Order Granting Accelerated
Approval to Amendment Nos. 6 and 8 Relating to the NYSE's Business
Combination With Archipelago Holdings, Inc., Securities Exchange Act
Release No. 53382 (February 27, 2006), 71 FR 11251 (March 6, 2006)
(SR-NYSE-2005-77). Finally, The Nasdaq Stock Market LLC, prior to
becoming a national securities exchange, acquired Brut ECN and INET
ECN. See In the Matter of the Application of the Nasdaq Stock Market
LLC for Registration as National Securities Exchange: Findings,
Opinion, and Order of the Commission, Securities Exchange Act
Release No. 53128 (January 13, 2006), 71 FR 3550, n.137 (January 23,
2006) (File No. 10-131).
    \686\ See supra note 133 and accompanying text.
    \687\ See supra note 134 and accompanying text.
    \688\ See supra note 135 and accompanying text.
    \689\ See infra Table 1 ``NMS Stock ATSs Ranked by Dollar
Trading Volume--March 30, 2015 to June 26, 2015'' and based on data
compiled from Forms ATS submitted to the Commission as of the end of
the second quarter of 2015.
---------------------------------------------------------------------------

2. Current Reporting Requirements for NMS Stock ATSs
    Even though ATSs directly compete for order flow in NMS stocks with
national securities exchanges, ATSs are exempt from the definition of
``exchange'' and therefore are not required to register as national
securities exchanges with the Commission. An ATS qualifies for an
exemption from the definition of ``exchange'' provided by Exchange Act
Rule 3a1-1(a)(2) on the condition that it complies with Regulation ATS,
including registering as a broker-dealer, which includes joining a
self-regulatory organization, such as FINRA. Thus, ATSs can collect and
execute orders in securities electronically without registering as a
national securities exchanges under Section 6 of the Exchange Act.
    A broker-dealer can become an ATS by filing an initial operation
report on Form ATS at least 20 days before commencing operations. Form
ATS requires, among other things, that the ATS provide information
about: classes of subscribers and differences in access to the services
offered by the ATS to different groups or classes of subscribers; the
securities the ATS expects to trade; any entity other than the ATS
involved in its operations; the manner in which the system operates;
how subscribers access the trading system; procedures governing order
entry and execution; and trade reporting and clearance and settlement
of trades on the ATS. Form ATS is not approved by the Commission; \690\
rather, it provides the Commission with notice of an ATS's operations
prior to commencing operations.\691\
---------------------------------------------------------------------------

    \690\ See supra Section II.B.
    \691\ See Instruction A.1 to Form ATS.
---------------------------------------------------------------------------

    An ATS must notify the Commission of any changes in its operations
by filing an amendment to its Form ATS initial operation report under
three circumstances. First, an ATS must amend Form ATS at least 20 days
prior to implementing any material change to the operation of the
ATS.\692\ Second, if any information contained in the initial operation
report becomes inaccurate and has not already been reported to the

Commission as an amendment, the ATS must file an amendment on Form ATS
within 30 calendar days after the end of each calendar quarter.\693\
Third, an ATS must also promptly file an amendment on Form ATS
correcting information that it previously reported on Form ATS after
discovery that the information was inaccurate when filed.\694\
Regulation ATS also requires ATSs to report certain information about
transactions on the ATS and information about certain activities on
Form ATS-R within 30 days after the end of each calendar quarter.\695\
Form ATS-R requires that ATSs report both total unit volume and dollar
volume of their transactions over the quarter, as well as a list of all
subscribers that were participants during the quarter and a list of all
securities traded on the ATS at any time during the quarter.\696\ In
addition to the reporting requirements of Form ATS and Form ATS-R,
there are other conditions under Regulation ATS, including those that
address order display and access; fees and fair access; capacity,
integrity, and security of automated systems; examinations,
inspections, and investigations; recordkeeping; procedures to protect
subscribers' confidential treatment of trading information; and
limitations on the name of the ATS.\697\
---------------------------------------------------------------------------

    \692\ See 17 CFR 242.301(b)(2)(ii).
    \693\ See 17 CFR 242.301(b)(2)(iii).
    \694\ See 17 CFR 242.301(b)(2)(iv).
    \695\ See 17 CFR 242.301(b)(9).
    \696\ See Form ATS-R.
    \697\ See supra Section II.B; see also 17 CFR 242.301(b).
---------------------------------------------------------------------------

    All ATSs are currently members of FINRA and must therefore comply
with all FINRA rules applicable to broker-dealers. FINRA rules require
ATSs to report transaction volume. For instance, FINRA Rule 4552
requires each ATS to report to FINRA aggregate weekly trading volume on
a security-by-security basis.\698\ FINRA publishes the information
regarding NMS stocks in the S&P500 Index or the Russell 1000 Index and
certain exchange-traded products on a two-week delayed basis, and the
information on all other NMS stocks and OTC equity securities on a
four-week delayed basis.\699\ In addition to FINRA Rule 4552, other
rules pertaining to the operations of NMS Stock ATSs include FINRA
Rules 6160 and 6170, which pertain to the use of a Market Participant
Identifier (``MPID'') for trade reporting purposes.\700\
---------------------------------------------------------------------------

    \698\ See FINRA Rule 4552.
    \699\ See id.
    \700\ See FINRA Rules 6160 and 6170.
---------------------------------------------------------------------------

3. Lack of Public Disclosure of NMS Stock ATS Operations and the
Activities of the Broker-Dealer Operator and the Broker-Dealer
Operator's Affiliates
    Regulation ATS states that information on Form ATS is ``deemed
confidential when filed.'' \701\ In the Regulation ATS Adopting
Release, the Commission stated that preserving confidentiality of
information on Form ATS would provide ATSs ``with the necessary comfort
to make full and complete filings,'' and noted that information
required on Form ATS ``may be proprietary and disclosure of such
information could place alternative trading systems in a
disadvantageous competitive position.'' \702\
---------------------------------------------------------------------------

    \701\ See 17 CFR 242.301(b)(2)(vii). While FINRA Rule 4552
requires dissemination of aggregate weekly trading volume on the ATS
by stock, this data does not reveal any information about the ATSs
trading operations. Some ATSs such as IEX Trading have voluntarily
made public information about order size and fill rates, as well as
volume that is matched and routed, on a monthly basis. See, e.g.,
IEX ATS Statistics, http://www.iextrading.com/stats/.
    \702\ See Regulation ATS Adopting Release, supra note 7, at
70864.
---------------------------------------------------------------------------

    Although the Commission does not require information provided on
Form ATS to be made publicly available, the Commission has observed
that some NMS Stock ATSs voluntarily make publicly available their
Forms ATS.\703\ However, even when ATSs publicly disclose their Form
ATS filings, it is often not easy for market participants to
systematically compare one NMS Stock ATS to another based on these
disclosures because the level of detail and the format in which it is
presented on these Form ATSs may vary among the NMS Stock ATSs. In
addition, the Commission notes that some of these NMS Stock ATSs do not
make public the full version of the Form ATS that has been filed with
the Commission. Also, NMS Stock ATSs are under no legal obligation to
keep current a Form ATS they have made publicly available, so market
participants cannot immediately confirm whether a publicly posted Form
ATS is the most recent filing of the NMS Stock ATS.
---------------------------------------------------------------------------

    \703\ See supra note 156.
---------------------------------------------------------------------------

    Furthermore, different information is made available to different
market participants regarding the operations of NMS Stock ATSs and the
activities of NMS Stock ATSs' broker-dealer operators and their
affiliates. NMS Stock ATSs that either voluntarily make their Form ATS
publicly available, or publish summary information of their operations,
may provide to market participants more information about their
operations than NMS Stock ATSs that do not make their Forms ATS or
information about their operations publicly available. Furthermore,
subscribers to an NMS Stock ATS may have greater access to information
about the NMS Stock ATS than other market participants, including the
NMS Stock ATS's subscriber manual and access to other subscriber
quotes.
    NMS Stock ATSs also disclose some execution quality metrics.
Exchange Act Rule 605(a) requires every market center, including ATSs,
to make publicly available for each calendar month a report containing
standardized data on the covered orders in NMS stocks that it receives
for execution from any market participant.\704\ Data on execution
quality required under Exchange Act Rule 605(a) includes order sizes,
execution sizes, effective spreads, price improvement, and quarterly
volume of shares traded. As such, market participants have access to
actual market quality statistics of execution quality on NMS Stock
ATSs. The Commission recognizes that some NMS Stock ATSs may publish or
otherwise disclose to subscribers market quality statistics that may be
useful to those subscribers in addition to what is currently required
by Exchange Act Rule 605. However, the Commission does not believe that
such market quality statistics are standardized in terms of how they
are calculated, and it does not know how much information subscribers
that receive these market quality statistics have about how the NMS
Stock ATS calculates the statistics. The Commission preliminarily
believes that some subscribers may have access to more information
about a given NMS Stock ATS than other ATSs, and also may have more
information about that NMS Stock ATS than non-subscribers.
---------------------------------------------------------------------------

    \704\ A covered order shall mean any market order or any limit
order (including immediate-or-cancel orders) received by a market
center during regular trading hours at a time when a consolidated
best bid and offer is being disseminated, and, if executed, is
executed during regular trading hours, but shall exclude any order
for which the customer requests special handling for execution,
including, but not limited to, orders to be executed at a market
opening price or a market closing price, orders submitted with stop
prices, orders to be executed only at their full size, orders to be
executed on a particular type of tick or bid, orders submitted on a
``not held'' basis, orders for other than regular settlement, and
orders to be executed at prices unrelated to the market price of the
security at the time of execution. See Rule 605(a)(8).
---------------------------------------------------------------------------

    The differences in information that certain subscribers have about
an NMS Stock ATS's operations may be manifested through channels other
than having differential access to Form ATS, an NMS Stock ATS's
subscriber manual, or being granted access to certain market quality
statistics as provided by an NMS Stock ATS in addition to what is

currently publicly disclosed under Exchange Act Rule 605. To the extent
that the NMS Stock ATS provides access to services to certain
subscribers and not others, the subscribers with greater access to the
services of an NMS Stock ATS could be in a position to obtain more
knowledge and information about the operations of NMS Stock ATSs than
those subscribers who have limited access to the services of the NMS
Stock ATS. Therefore, subscribers who have greater access to services
offered by the NMS Stock ATS may be able to make more informed choices
about their trading decisions relative to subscribers who have limited
access to the services of the NMS Stock ATS. For instance, a broker-
dealer operator may offer products or services in connection with a
subscriber's use of the NMS Stock ATS, and, as a result, these
subscribers may receive more favorable terms from the broker-dealer
operator with respect to their use of the NMS Stock ATS. Such favorable
terms could include preferential routing arrangements, access to
certain order types, or access to a faster connection line to the ATS
via a co-location service, as opposed to through the broker-dealer
operator's SOR (or similar functionality) or algorithm. Granting access
to these favorable terms can result in these subscribers having more
detailed information about how their orders will interact, match, and
execute relative to those of other subscribers. With this detailed
information, these subscribers can make more nuanced decisions about
which trading venue suits their trading purposes relative to other
subscribers who do not have access to these services, and thus do not
possess an informational advantage.
    Even if having greater access to the services of an NMS Stock ATS
yields additional information about the operations of the NMS Stock ATS
to certain subscribers, it is possible that subscribers that do not
have full access to services of the NMS Stock ATS, and the resulting
additional information, may still want to trade on NMS Stock ATSs in
spite of their relative informational disadvantage. It is possible that
had these subscribers possessed more detailed information about the
operations of the NMS Stock ATS, they may have been able to make more
informed--and therefore potentially different--decisions about where to
route their orders for execution.
4. NMS Stock ATS Treatment of Subscriber Confidential Trading
Information
    Under current Rule 301(b)(10) of Regulation ATS,\705\ all ATSs must
establish adequate safeguards and procedures to protect subscribers'
confidential trading information, and, to ensure that those safeguards
and procedures are followed, the ATS must also establish adequate
oversight procedures.\706\ Furthermore, all ATSs are required to
preserve certain records pursuant to Rule 303(a)(1).\707\ However,
neither Rule 301(b)(10) nor Rule 303(a)(1) of Regulation ATS currently
require that an ATS have in writing and preserve their safeguards and
procedures to protect subscribers' confidential trading information, or
their related oversight procedures. Based on the experience of the
Commission and its staff from periodic examinations or investigations
of ATSs, the Commission preliminarily believes that ATSs--in
particular, ATSs whose broker-dealer operators are large, multi-service
broker-dealers--currently have and maintain in writing their safeguards
and procedures to protect subscribers' confidential trading
information, as well as the oversight procedures to ensure such
safeguards and procedures are followed. Nevertheless, under the current
regulatory environment for ATSs, absent specific questions in an
examination by the Commission or its staff, the Commission is not able
to determine the specific ATSs that currently have written safeguards
and written procedures to protect subscribers' confidential trading
information based on the disclosure requirements of current Form ATS.
---------------------------------------------------------------------------

    \705\ 17 CFR 242.301(b)(10).
    \706\ 17 CFR 242.301(b)(10).
    \707\ See supra Section X.
---------------------------------------------------------------------------

5. Current State of Competition Between NMS Stock ATSs and Registered
National Securities Exchanges
    In the market for NMS stock execution services, NMS Stock ATSs not
only compete with other NMS Stock ATSs, but they also compete with
registered national securities exchanges. As noted previously, while
registered national securities exchanges compete with NMS Stock ATSs
for order flow, NMS Stock ATSs and registered national securities
exchanges are subject to different regulatory regimes, including
different obligations to disclose information about their trading
operations and activities.\708\ For example, ATSs that operate pursuant
to the exemption from the definition of ``exchange'' under Rule 3a1-
1(a)(2) must register as broker-dealers,\709\ and provide notice of
their operations on Form ATS.\710\ This notice of operations is not
approved or disapproved by the Commission. Form ATS requires ATSs to
disclose only limited aspects of their operations, and ATSs are not
required to publicly disclose Form ATS, which is ``deemed confidential
when filed.'' \711\ In addition, ATSs need not publicly disclose
changes to their operations and trading functionality because
amendments to Form ATS are not publicly disclosed.\712\ Some market
participants therefore have limited access to information about NMS
Stock ATSs, including information related to the types of subscribers,
means of access, order types, market data, and procedures governing the
interaction and execution of orders on the NMS Stock ATS. On the other
hand, national securities exchanges, with which NMS Stock ATSs compete
for order flow, must register with the Commission on Form 1, must file
proposed rule changes with the Commission under Section 19(b) of the
Exchange Act, and are SROs. The proposed rule changes of national
securities exchanges must be made available for public comment,\713\
and in general, these proposed rule changes publicly disclose, among
other things, details relating to the exchange's operations,
procedures, and fees. National securities exchanges and other SROs also
have regulatory obligations, such as enforcing their rules and the
federal securities laws with respect to their members, which do not
apply to market participants such as ATSs.\714\
---------------------------------------------------------------------------

    \708\ See supra Section I (discussing the different mix of
obligations and benefits applicable to ATSs and registered national
securities exchanges).
    \709\ See 17 CFR 242.301(b)(1).
    \710\ See 17 CFR 242.301(b)(2).
    \711\ See 17 CFR 242.301(b)(2)(vii).
    \712\ Id.
    \713\ See 15 U.S.C. 78s(b)(1).
    \714\ See, e.g., Section 19(b) of the Exchange Act, 15 U.S.C.
78s(b)(1), and Section 6(b) of the Exchange Act, 15 U.S.C. 78f(b).
---------------------------------------------------------------------------

    While national securities exchanges have more regulatory burdens
than NMS Stock ATSs, they also enjoy certain unique benefits that are
not afforded to NMS Stock ATSs. While national securities exchanges are
SROs, and are thus subject to surveillance and oversight by the
Commission, they can still establish norms regarding conduct, trading,
and fee structures for external access. ATSs on the other hand are
regulated as broker-dealers, and must comply with the rules of FINRA,
which is the SRO to which all ATSs currently belong. Trading venues
that elect to register as national securities exchanges may gain added
prestige by establishing

listing standards for their securities. Additionally, national
securities exchanges can be direct participants in the NMS plans, such
as the ITS, the CTA Plan, Consolidated Quotation System, and the OTC/
UTP Plan. Direct participation in these systems may provide a higher
degree of transparency and execution opportunity than on NMS Stock
ATSs. Furthermore, national securities exchanges are entitled to share
in market data revenue generated by the CTA \715\ and enjoy limited
immunity from private liability with respect to their regulatory
functions.
---------------------------------------------------------------------------

    \715\ See Regulation ATS Adopting Release, supra note 7, at
70880, 70902-70903 (discussing generally some of the obligations and
benefits of registering as a national securities exchange).
---------------------------------------------------------------------------

    Since the adoption of Regulation NMS in 2005, the market for NMS
stock execution services has become more and more fragmented and
competitive. Currently there are 11 registered national securities
exchanges that effect transactions in NMS stocks, namely, NYSE MKT LLC
(formerly NYSE AMEX and the American Stock Exchange), BATS Exchange,
Inc. (``BATS-Z Exchange''), BATS Y- Exchange, Inc. (``BATS-Y
Exchange'') (``BATS-Z Exchange and BATS-Y Exchange, collectively ``the
BATS Exchanges''), NASDAQ OMX BX, Inc. (formerly the Boston Stock
Exchange), Chicago Stock Exchange, Inc., EDGA Exchange, Inc.
(``EDGA''), EDGX Exchange, Inc. (``EDGX''), The Nasdaq Stock Market LLC
(``Nasdaq''), New York Stock Exchange LLC (``NYSE''), NYSE Arca, Inc.
(``NYSE Arca''), and NASDAQ OMX PHLX, Inc. (formerly Philadelphia Stock
Exchange).\716\
---------------------------------------------------------------------------

    \716\ As noted above, National Stock Exchange, Inc. ceased
trading on its system as of the close of business on May 30, 2014.
See supra note 118.
---------------------------------------------------------------------------

    Several of these national securities exchanges (NYSE Arca, Nasdaq,
BATS Z-Exchange, EDGA and EDGX) previously operated as ECNs or acquired
ECNs as part of their trading platforms.\717\ A reason why an ECN might
want to register as a national securities exchange is so that it can
participate in and earn market data fees from U.S. tape plans, reduce
clearing costs and operate a primary listings business.\718\
---------------------------------------------------------------------------

    \717\ See supra note 685 and accompanying text.
    \718\ See BATS Global Markets, Inc., Amendment to Form S-1
Registration Statement, http://www.sec.gov/Archives/edgar/data/1519917/000119312512125661/d179347ds1a.htm.
---------------------------------------------------------------------------

    Over the past decade, with the increase in fragmentation in the
market for execution services, there has been a shift in the market
share of trading volume in NMS stocks across trading venues. For
example, there has been a decline in market share of trading volume for
exchange-listed stocks of the two traditionally dominant trading
venues, NYSE and Nasdaq. The market share of the NYSE in NYSE-listed
stocks fell dramatically from approximately 80% in 2005 to 20% in 2013,
and for Nasdaq-listed stocks, Nasdaq's market share fell by
approximately half, from 50% in 2005 to 25% in 2013.\719\ Over the same
time period, there has been an increase in market share on other newer
national securities exchanges such as NYSE Arca, BATS-Z, BATS-Y, EDGA
and EDGX, and an increase in the market share of off-exchange trading,
which includes both internalization by dealers and trading on NMS Stock
ATSs.\720\ As discussed above, there has also been an increase in the
number of NMS Stock ATSs that operate as dark pools, and the market
share for these NMS Stock ATSs has increased.\721\ Thus, greater
fragmentation in the market for NMS stock execution services over the
past decade has resulted in trading volume being executed on different
venues, some of which include NMS Stock ATSs, particularly NMS Stock
ATSs that operate as dark pools.
---------------------------------------------------------------------------

    \719\ See Angel, James, Lawrence Harris, and Chester Spatt
(2013), ``Equity Trading in the 21st Century: An Update,'' working
paper, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1584026.
    \720\ See id.
    \721\ See supra Section XIII.B.1.
---------------------------------------------------------------------------

    As discussed above, NMS Stock ATSs face lower regulatory burdens
than national securities exchanges. Because national securities
exchanges are SROs, they are subject to certain regulatory obligations,
such as enforcing their own rules and the federal securities laws with
respect to their members. NMS Stock ATSs do not have such oversight and
enforcement responsibilities.\722\ The Commission recognizes that the
growth in the number of NMS Stock ATSs could be driven by these less
stringent regulatory obligations.
---------------------------------------------------------------------------

    \722\ See supra note 714.
---------------------------------------------------------------------------

6. Competition Among NMS Stock ATSs
    NMS Stock ATSs also compete amongst each other in a niche in the
market for NMS stock execution services. The rise in the number of NMS
Stock ATSs has not only affected competition between national
securities exchanges and ATSs for order flow of NMS stocks, it has also
impacted competition among NMS Stock ATSs. Table 1 depicts the market
share of total dollar volume for NMS stocks, and the total share volume
for NMS stocks for individual ATSs, based on data collected from ATSs
pursuant to FINRA Rule 4552 for 13 weeks of trading from late March
2015 to late June 2015. Even though there are many NMS Stock ATSs, much
of the NMS stock dollar volume on ATSs is transacted by only a handful
of venues. Table 1 shows that the top eight NMS Stock ATSs ranked by
dollar volume accounted for 61.1% of total dollar volume transacted on
ATSs and 58.9% of total share volume transacted on ATSs from late March
2015 to late June 2015.
BILLING CODE 8011-01-P

[GRAPHIC] [TIFF OMITTED] TP28DE15.000

Table 1--NMS Stock ATSs Ranked by Dollar Trading Volume

(March 30, 2015 to June 26, 2015)

    This table shows the 38 ATSs that effected transactions in NMS
stocks from March 30, 2015 to June 26, 2015, ranked in descending order
by dollar volume transacted. ATS data is reported weekly, and these
dates approximately correspond to the second quarter of 2015. Dollar
volume transacted on an ATS is calculated by multiplying the share
volume for a given NMS stock on the ATS in a given week by the average
trade price for that week. Dollar volume for each NMS stock is then
aggregated across all NMS stocks that traded on the given ATS in that
week. Also reported in this table is the number of trades, share
volume, each NMS Stock ATS's market share of all NMS Stock ATS dollar
volume and NMS Stock ATS share volume in that quarter.
    Table 2, which is based on data collected from NMS Stock ATSs
pursuant to FINRA Rule 4552 for 13 weeks of trading from late March
2015 to late June 2015, shows the average trade size, which is share
volume divided by the number of trades on each of the NMS Stock ATSs.
The table reveals marked differences in the average trade size of
transactions executed on the various NMS Stock ATSs. Six NMS Stock ATSs
had average trade sizes in excess of 10,000 shares. This suggests that
some NMS Stock ATSs may receive large block orders and execute large
trades.\723\ One of the

advantages for market participants of trading on block crossing
networks is the ability to execute large block orders while minimizing
the movement of prices against their trading interest.\724\
---------------------------------------------------------------------------

    \723\ For purposes of this analysis we considered block orders
as orders of more than 10,000 shares, which is the traditional
definition for block orders. See supra note 126.
    \724\ See supra notes 124-125 and accompanying text.
---------------------------------------------------------------------------

    While these NMS Stock ATSs on average execute large size trades,
the combined market share of these NMS Stock ATSs is only 7.8% when
measured in dollar volume, and 3.7% when measured in share volume. The
vast majority of NMS Stock ATSs have average trade sizes between 150
and 450 shares. The two NMS Stock ATSs with the highest market shares
(measured either in dollar volume or share volume) have average trade
sizes of 181 and 157 shares, respectively.
    Though NMS Stock ATSs compete with each other in a niche in the
market for NMS stock execution services, the trade sizes in Table 2
actually suggest that this niche market may not be very different from
the market as a whole. The average trade size on NMS Stock ATSs is 214
shares, which is not significantly different from the average trade
size of 181 shares on registered national securities exchanges.\725\
Thus, on average, the trade size for executions on NMS Stock ATSs and
national securities exchanges appears similar.
---------------------------------------------------------------------------

    \725\ These results are consistent with prior findings that
average trade sizes on ``lit'' national securities exchanges are
similar to those taking place on ``dark ATSs.'' See Tuttle: ATS
Trading in NMS Stocks, supra note 126. Unlike ``lit'' national
securities exchanges, dark ATSs do not publicly disseminate top of
the limit-order book information. See id. See also supra note 123
and accompanying text.
[GRAPHIC] [TIFF OMITTED] TP28DE15.001

Table 2: NMS Stock ATSs Ranked by Average Trade Size

(March 30, 2015 to June 26, 2015)

    This table shows 38 ATSs that effected transactions in NMS stocks
from March 30, 2015 to June 26, 2015, ranked in descending order by
average trade size. ATS data is reported weekly, and these dates
correspond approximately to the second quarter of 2015. Also reported
in this table is the raw number of trades, share volume, dollar volume,
and each NMS Stock ATS's market share of all NMS Stock ATS dollar
volume and NMS Stock ATS share volume. Dollar volume transacted on an
ATS is calculated by multiplying the share volume for a given NMS stock
on the ATS in a given week by the average trade price for that week.
Dollar volume for each NMS stock is then aggregated across all NMS
stocks that traded on the given ATS in that week.
    While many NMS Stock ATSs operating today are similar with respect
to the limited transparency they provide with respect to their trading
model, the Commission understands that the services offered vary
significantly across NMS Stock ATSs. Some NMS Stock ATSs offer mid-
point matching services exclusively while others may have more complex
matching algorithms. Some other NMS Stock ATSs offer preferential
treatment in execution priority to some groups of subscribers, but not
others, and some NMS Stock ATSs may allow subscribers to avoid trading
with specific counterparties. Additionally, order types and their
characteristics can also vary significantly across NMS Stock ATSs,
including with respect to how particular order types interact with
other order types, which could affect execution priorities. Even though
an NMS Stock ATS might not be privy to detailed information about the
operations of other NMS Stock ATSs, it may be able to garner general
information about the differential services offered by its competitors
through Web sites and forums,\726\ enabling it to modify its products
and services to better compete within the market for NMS stock
execution services. Thus, while an NMS Stock ATS may currently make
available certain information about its products and services in an
attempt to enable market participants to differentiate the ATS's
products and services from those of its competitors, an NMS Stock ATS
may not be incented to fully reveal how orders interact, match and
execute on its platform, because revealing such information may
adversely impact the ATS's position within the market by also informing
its competitors.
---------------------------------------------------------------------------

    \726\ Furthermore, a broker-dealer that operates an ATS may also
be a subscriber to one or more ATSs that are owned or operated by
other broker-dealers, and in this capacity, may obtain information
about how such unaffiliated ATS(s) operate. For example, the broker-
dealer operator of an ATS that is a subscriber to an unaffiliated
ATS may obtain information about order types and priority rules of
the unaffiliated ATS.
---------------------------------------------------------------------------

7. Competition Between Broker-Dealers That Operate NMS Stock ATSs and
Broker-Dealers That Do Not Operate NMS Stock ATSs
    Competition for NMS stock order flow not only exists between
national securities exchanges and NMS Stock ATSs and among NMS Stock
ATSs, but also exists between the broker-dealers that operate NMS Stock
ATSs and those broker-dealer operators that do not operate NMS Stock
ATSs. As discussed above, most ATSs that currently transact in NMS
stocks are operated by multi-service broker-dealers that engage in
significant brokerage and dealing activities in addition to their ATS
operations.\727\ These multi-service broker-dealers operate one or more
NMS Stock ATS as a complement to the broker-dealer's other service
lines, often using the ATS(s) as an opportunity to execute customer
orders ``in house'' before seeking contra-side interest at outside
execution venues. They may also execute orders in NMS stocks internally
on non-ATS trading centers by trading as principal against such orders,
or crossing orders as agent in a riskless principal capacity, before
routing the orders to an ATS that they operate.
---------------------------------------------------------------------------

    \727\ See supra Section III.B.
---------------------------------------------------------------------------

    The current competitive environment in which NMS Stock ATSs operate
suggests that broker-dealers who operate their own NMS Stock ATS(s) may
have certain trading advantages relative to broker-dealers that do not
operate their own NMS Stock ATS. Broker-dealer owned NMS Stock ATSs may
provide their business units or affiliates, that are also subscribers
to the NMS Stock ATS, access to certain services, which may result in
trading advantages, such as providing faster access to the ATS or
priority in executions over other subscribers, such as broker-dealers
that do not have their own ATS platform and may route their orders to
these ATSs.
8. Effect of NMS Stock ATSs on the Current Market for NMS Stock
Execution Services
    As discussed above, the current market for NMS stock execution
services consists of competition for order flow among national
securities exchanges, NMS Stock ATSs, and broker-dealers who operate or
control non-ATS trading centers.\728\ This section specifically
discusses the impact that this current market for NMS stock execution
services has on trading costs to market participants; the process by
which the price of NMS stocks are determined in the market (``price
discovery''); and market efficiency.
---------------------------------------------------------------------------

    \728\ See supra Section XIII.A. See also supra note 123
(describing dark pools that are not ATSs) and note 387 (describing
non-ATS trading centers).
---------------------------------------------------------------------------

a. Trading Costs
    Since the adoption of Regulation ATS in 1998 and the implementation
of Regulation NMS in 2005, trading costs have, on average, declined
significantly in the U.S. Institutional trading costs--particularly for
large capitalization stocks--are amongst the lowest in the world.\729\
Since 1998, share and dollar trading volume, has generally increased,
and with the exception of the financial crisis, bid-ask spreads (both
quoted and effective spreads) have narrowed significantly.\730\ Some
research has suggested that these lower trading costs can, in part, be
driven by the rising fragmentation of trading volume and competition
for order flow, through the proliferation of new trading venues such as
NMS Stock ATSs.\731\
---------------------------------------------------------------------------

    \729\ See ``View Point: US Equity Market Structure: An Investor
Perspective,'' BlackRock, April 2014, https://www.blackrock.com/corporate/en-us/literature/whitepaper/viewpoint-us-equity-market-structure-april-2014.pdf; and Angel, supra note 719.
    \730\ See BlackRock, supra note 729; and Angel, supra note 719.
    \731\ See Foucault, Thierry and A.J. Menkveld, 2008,
``Competition for Order Flow and Smart Order Routing Systems,''
Journal of Finance 63, 19-58; O'Hara, M. and M. Ye, 2011, ``Is
Market Fragmentation Harming Market Quality?'' Journal of Financial
Economics 100, 459-74; and Colliard, J.E. and Thierry Foucault
(2012), ``Trading Fees and Efficiency in Limit Order Markets,''
Review of Financial Studies 25, 3389-421.
---------------------------------------------------------------------------

    NMS Stock ATSs provide an environment whereby certain market
participants can trade at low costs relative to national securities
exchanges. For instance, if market participants submit to a national
securities exchange a block order or a large ``parent'' order shredded
into smaller ``child'' orders, they may experience ``price impact''
when others observe their trading and infer the presence of a large
order. That is, the price at which these child orders execute may get
subsequently worse from the time of the initial order submission to the
time of the final execution of the order. Thus, when working these
child orders, the order originator may seek to keep their executions
``quiet'' to minimize adverse price moves that may otherwise occur as
other market participants infer that order originator is an
institutional

investor that is a large buyer or seller. As such, trading on NMS Stock
ATSs may provide a useful tool whereby institutional investors may be
able to reduce the extent to which their own trading signals additional
trading intentions and obtain enhanced execution quality for their
orders.
    The current market for NMS stock execution services--which includes
NMS Stock ATSs--provides value to market participants. If all NMS Stock
ATSs were to cease operations, market participants may incur costs
associated with not being able to find an adequate trading venue that
offers benefits similar to those that NMS Stock ATSs provide. For
example, certain market participants may be unable to find a trading
center that adequately minimizes the revelation of their trading
interest. Therefore, some of the trades by these market participants,
which would have been executed on NMS Stock ATSs, may no longer be
executed at all if NMS Stock ATSs cease operations. Even though NMS
Stock ATSs provide value to some market participants by allowing them
to trade on a venue that mitigates the signaling of information
regarding their trading interest while keeping their trading costs at a
low level, NMS Stock ATSs are characterized by a lack of transparency
regarding their operations and the activities of their broker-dealer
operators and the broker-dealer operator's affiliates. Currently,
disclosures on Form ATS are not required to be made public, and even
when an NMS Stock ATS voluntarily discloses its Form ATS, the
information provided tends to be limited. The Commission has also
observed that NMS Stock ATSs vary with respect to the depth and extent
of their disclosures on Form ATS, including basic aspects of their
operations. This heterogeneity in terms of the level of disclosure
pertaining to NMS Stock ATS operations has resulted in certain costs
for market participants, in that currently a market participant has to
expend some effort searching for a trading venue that would serve its
investing or trading objectives. A by-product of these search costs for
some market participants is uncertainty pertaining to how their orders
will be handled. Because there is no current requirement for NMS Stock
ATSs to disclose information about their operations to the public, some
subscribers to NMS Stock ATSs--particularly subscribers to those NMS
Stock ATSs that have not made their Form ATS public--may not fully know
how their orders are handled. Furthermore, for a specific NMS Stock
ATS, some subscribers may have been provided more information regarding
how their orders will interact, match, and execute on the NMS Stock
ATS, exacerbating this uncertainty.
b. Price Discovery
    The current market for NMS stock execution services has resulted in
the fragmentation of trading volume. While this fragmentation--which
has in part been due to the rise in NMS Stock ATSs--has been a factor
in currently providing low trading costs for market participants,\732\
the contributions that this current market for NMS stock execution
services provides in terms of price discovery has been mixed. Some
academic studies imply that while national securities exchanges and NMS
Stock ATSs are regulated differently, their coexistence in the current
market has had a positive contribution to price discovery, as it has
led to more aggressive competition among market participants in
providing liquidity, which in turn has improved price discovery.\733\
Other academic studies have suggested that because some NMS Stock ATSs
are crossing networks and often derive their prices from national
securities exchanges, price impact costs that result from trading on a
national securities exchange harm prices on NMS Stock ATSs, resulting
in less trading and harming price discovery.\734\
---------------------------------------------------------------------------

    \732\ See supra note 731.
    \733\ See Boulatov, Alex, and T.J. George, 2013, ``Hidden and
Displayed Liquidity in Securities Markets with Informed Liquidity
Providers,'' Review of Financial Studies 26, 2095-2137.
    \734\ See Ye, Mao, 2011, ``A Glimpse into the Dark: Price
Formation, Transaction Cost and Market Share of the Crossing
Network,'' working paper, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1521494.
---------------------------------------------------------------------------

    Some academic studies have also suggested that the coexistence of
national securities exchanges and NMS Stock ATSs has led to market
segmentation, i.e. to the extent that certain subscribers of NMS Stock
ATSs have information regarding how orders will interact, match, and
execute on an NMS Stock ATS, these subscribers may be able to make more
informed decisions about where to route their orders, and, therefore,
such subscribers may congregate and trade on either NMS Stock ATSs or
national securities exchanges based on that information. These academic
studies further suggest that this market segmentation, whereby certain
subscribers of NMS Stock ATSs have information regarding how orders
will interact, match and execute and, therefore, trade on NMS Stock
ATSs or national securities exchanges, can improve price
discovery.\735\
---------------------------------------------------------------------------

    \735\ See Zhu, Haoxiang, 2014, ``Do Dark Pools Harm Price
Discovery?'' Review of Financial Studies 27, 747-789. This academic
study specifically examines dark pools.
---------------------------------------------------------------------------

    The theory that market segmentation of market participants leads to
price discovery relies on the assumption that because trade executions
on some NMS Stock ATSs are determined by matching orders, orders of
informed market participants are more likely to cluster on one side of
the market (either the buy-side or the sell-side).\736\ For instance,
if informed market participants believe that a security is undervalued,
they will be more likely to submit a buy-order; and vice-versa if they
believe a security is overvalued. This means that if these informed
market participants trade on an NMS Stock ATS, their trading interest
will likely cluster towards one side of the market and there will not
be enough orders to take the opposite side of their trades. As a
result, some orders will not be matched and there would be low rates of
execution on NMS Stock ATSs. In contrast, orders by uninformed market
participants are less likely to be correlated with one another because
the reasons for their trading are somewhat idiosyncratic to the market
participant.\737\ These orders by uninformed market participants are,
therefore, less likely to cluster on one side of the market, because
trades by uninformed market participants are not grounded on
fundamental information about the stock. As such, the orders from
uniformed market participants will likely have higher rates of
execution on NMS Stock ATSs relative to rates of executions for
informed participants.\738\ Accordingly, this academic literature
predicts that the set of market participants entering orders on
national securities exchanges will contain a proportionately higher
level of informed market participants.\739\ This segmentation of market
participants on NMS Stock ATSs and national securities exchanges
potentially could result in informed market participants trading on
national securities exchanges, and uninformed market participants
trading on NMS Stock ATSs.\740\ Because

informed market participants have better knowledge about the value of a
security than uninformed market participants, this segmentation can
improve price discovery on national securities exchanges.\741\
---------------------------------------------------------------------------

    \736\ See id.
    \737\ Uninformed market participants trade for non-informational
reasons. In some cases, they are termed ``noise traders,'' since
their trades are based on their beliefs and sentiments, and are not
grounded on fundamental information. See Vishwanath, Ramanna. and
Chandrasekhar Krishnamurti, 2009, ``Investment Management: A Modern
Guide to Security Analysis and Stock Selection,'' Springer
Publishing.
    \738\ See supra note 735.
    \739\ See id.
    \740\ It should be noted that this academic literature posits
one theory regarding how the coexistence of national securities
exchanges and NMS Stock ATSs results in segmented trading of
informed and uninformed market participants. See supra note 735.
Contrary to this theory regarding how market segmentation of
national securities exchanges and NMS Stock ATSs can affect price
discovery, a motivation for informed market participants to trade on
NMS Stock ATSs is to minimize the price impact of large trades.
Thus, it could be the case that the decision by informed market
participants of where to trade is reduced to whether the value of
minimizing the price impact of their trades outweighs the heightened
execution risk (due to the difficulty in finding a counterparty to
take the opposite side of the trade, perhaps because a market
participant places a large order) they might incur if they trade on
NMS Stock ATSs See supra note 734.
    \741\ See Zhu, supra note 736; Comerton-Forde, Carole and T.J.
Putnins, 2015, ``Dark Trading and Price Discovery,'' working paper,
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2183392. Both
these studies specifically examine dark pools.
---------------------------------------------------------------------------

    Several academic studies suggest that the presence of NMS Stock
ATSs in the current trading environment deteriorates price discovery
\742\ and liquidity.\743\ When trading, informed market participants
often balance two types of costs, namely price impact costs and
execution costs. On a national securities exchange, an informed market
participant's order experiences lower execution risk, but because of
price impact, each order is subsequently executed at a worse
price.\744\ On an NMS Stock ATS, price impact costs are smaller due to
there being less informational dissemination than on national
securities exchanges, however, the probability of execution decreases
as order size increases, due to the increased difficulty in finding a
counterparty to take the opposite side of a large trade.\745\ Because
trading on a national securities exchange generates price impact, the
cost associated with this price impact also could affect a market
participant's profit on trades executed on an NMS Stock ATS. The reason
for this is that NMS Stock ATSs often match orders at prices derived
from national securities exchanges, and if trading on these national
securities exchanges generates worse prices due to price impact, this
could therefore spill over and affect a market participant's profit on
trades executed on the NMS Stock ATS. This spillover could result in
informed market participants trading less aggressively, which could in
turn reduce price discovery.\746\ Finally, while low levels of trading
on NMS Stock ATSs are not harmful, price discovery is harmed for high
levels of trading on NMS Stock ATSs (i.e., when trading on NMS Stock
ATSs in a given NMS stock exceeds approximately 10% of dollar
volume).\747\ This implies that when most orders are filled on NMS
Stock ATSs, market participants may withdraw displayed quotes because
of the reduced likelihood of those orders being filled.\748\
---------------------------------------------------------------------------

    \742\ See Ye, Mao, 2011, ``A Glimpse into the Dark: Price
Formation, Transaction Cost and Market Share of the Crossing
Network,'' working paper, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1521494; Degryse, Hans, Frank de Jong and
Vincent van Kervel, 2015, ``The Impact of Dark Trading and Visible
Fragmentation on Market Quality,'' Review of Finance 19, 1587-1622.
Both these studies specifically examine dark pools.
    \743\ See Zhu, supra note 736.
    \744\ See Ye, supra note 742.
    \745\ See Ye, supra note 742.
    \746\ See Ye, supra note 742 (for theoretical work on this
topic). See also Comerton-Forde and Putnins, supra note 741, for
empirical work on this topic. Specifically, using Australian data,
the latter paper finds that the migration of order flow into dark
pools removes valuable information from the price formation process,
and leads to increased adverse selection, larger bid-ask spreads
(lower liquidity) and larger price impacts on the exchange (lower
market quality). Both of these studies specifically examine dark
pools.
    \747\ See also Comerton-Forde and Putnins, supra note 741.
    \748\ See CFA Institute, 2012, ``Dark Pools, Internalization,
and Equity Market Quality,'' http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2012.n5.1. This study specifically examines dark pools.
---------------------------------------------------------------------------

    Another element that may affect market quality is order
internalization by broker-dealers. Academic literature has previously
proposed theoretical models where broker-dealer operators have an
incentive to internalize uninformed orders, by trading as principal
against such orders or crossing orders as agent in a riskless principal
capacity, before routing the orders to their respective ATSs.\749\ The
literature has also argued that internalization of order flow reduces
market depth and price informativeness.\750\ According to this
literature, the internalization of order flow by broker-dealers, some
of whom operate NMS Stock ATSs, is associated with wider spreads
(quoted, effective, and realized), higher price impact per trade, and
increased volatility of trades on the registered national securities
exchanges, which translates into an increased cost for market
participants, where market participants pay approximately $3.9 million
more per security per year.\751\ In the current operational environment
of NMS Stock ATSs, based on the Commission's experience, subscribers'
orders or other trading interest could be removed from the broker-
dealer's NMS Stock ATS and routed to, among other destinations, another
trading center operated by the broker-dealer operator for
internalization. Thus, the fact that some broker-dealers operate their
own NMS Stock ATS, and yet internalize some order flow rather than
executing it on their own NMS Stock ATS, may have a deleterious effect
on market quality.
---------------------------------------------------------------------------

    \749\ See Chordia, Tarun and Avanidhar Subrahmanyam, 1995,
``Market making, the tick size, and payment-for-order flow: Theory
and evidence,'' Journal of Business 68, 543-75; Easley, Kiefer and
O'Hara, 1996, ``Cream-skimming or profit-sharing? The curious role
of purchased order flow,'' Journal of Finance 51, 811-33.
    \750\ See Chakravarty, Sugato and Asani Sarkar, 2002, ``A model
of broker's trading, with applications to order flow
internalization,'' Review of Financial Economics 11, 19-36.
    \751\ See Weaver, Daniel G., 2014, ``The Trade-At Rule,
Internalization, and Market Quality,'' working paper, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1846470.
---------------------------------------------------------------------------

c. Market Efficiency
    Currently, the coexistence of national securities exchanges and NMS
Stock ATSs seems to have beneficial effects on market efficiency. One
academic study suggests that while not all trades that execute on NMS
Stock ATSs are large block trades, those that are have been seen to be
beneficial to market efficiency.\752\ If NMS Stock ATSs were not a
viable trading venue for market participants, market participants might
not execute large orders at all because of the price impact costs of
executing on a national securities exchange. Therefore, the ability for
market participants to execute large trades on NMS Stock ATSs generates
liquidity. The same study also suggests that small trades that execute
on NMS Stock ATSs are beneficial in that they also generate market
efficiency.\753\
---------------------------------------------------------------------------

    \752\ See Comerton-Forde and Putnins, supra note 741.
    \753\ See id.
---------------------------------------------------------------------------

C. Economic Effects and Effects on Efficiency, Competition, and Capital
Formation

    The Commission has considered the economic effects of the proposed
amendments to Rule 3a1-1(a) and Regulation ATS. This section provides
an overview of the broad economic considerations relevant to the
proposed amendments to Rule 3a1-1(a) and Regulation ATS, and the
economic effects, including the costs, benefits, and the effects on
efficiency, competition, and capital formation. Additional economic
effects, including benefits and costs related to specific requirements
of the proposed amendments to Rule 3a1-1(a) and Regulation ATS, are
also discussed.
    The proposed amendments to Rule 3a1-1(a) and Regulation ATS \754\
are designed to generate greater transparency about the operations of
NMS Stock ATSs and the activities of their broker-dealer operators and
their

affiliates. By requiring NMS Stock ATSs to provide detailed, public
disclosures about their operations and the activities of their broker-
dealer operators and their broker-dealer operators' affiliates, the
Commission preliminarily believes that the proposal would reduce the
discrepancy in information that different market participants receive
about NMS Stock ATS operations and provide market participants--
particularly those that have access to less information about NMS Stock
ATS operations--with more information about the means by which orders
and trading interest interact, match, and execute on NMS Stock ATSs.
The Commission preliminarily believes that the proposal would help
market participants make better-informed decisions about where to route
their orders in order to achieve their trading or investment
objectives, improve the efficiency of capital allocation, and enhance
execution quality.
---------------------------------------------------------------------------

    \754\ See supra Section IV.
---------------------------------------------------------------------------

    The Commission further understands that the proposed amendments to
Regulation ATS may generate some uncertainty for NMS Stock ATSs in
that, under the proposal, the Commission would declare a Form ATS-N
effective or ineffective (which is not currently the case with respect
to Form ATS), and this may act as a potential deterrent for ATSs
wishing to transact NMS stocks, or legacy NMS Stock ATSs that would be
required to file Form ATS-N. Moreover, the proposed amendments to Rule
3a1-1(a) and Regulation ATS could be costly, because NMS Stock ATSs
would have to disclose detailed information about their operations and
the activities of their broker-dealer operators and their affiliates.
Together, these could harm the competitive dynamics in the market for
NMS stock execution services, which includes competition between
national securities exchanges and NMS Stock ATSs, among NMS Stock ATSs
themselves, and between broker-dealers that operate NMS Stock ATSs and
those that do not.\755\ Increased costs associated with disclosure
requirements for NMS Stock ATSs could result in some NMS Stock ATSs
exiting the market or could create a disincentive for potential NMS
Stock ATSs to enter the market. However, in spite of these costs, and
as discussed in more detail below, the Commission preliminarily
believes that the NMS Stock ATSs that remain in the market may
propagate greater interaction between buyers and sellers who trade on
these venues, fostering not only trading between one and another, but
also facilitating the price discovery process and capital formation.
The consistent set of information that is proposed to be disclosed in
Form ATS-N may impact how market participants react in terms of their
trading, which may improve market efficiency.\756\
---------------------------------------------------------------------------

    \755\ See infra Section XIII.C.2.
    \756\ See id.
---------------------------------------------------------------------------

    Moreover, the Commission notes that increased transparency
regarding the operations of NMS Stock ATSs may impact competition
between broker-dealers that operate NMS Stock ATSs and broker-dealers
who trade NMS stocks but do not operate an NMS Stock ATS. Because
broker-dealers who transact in NMS stocks but do not operate ATSs are
not subject to the proposed operational transparency requirements,
these broker-dealers may be at a competitive advantage and attract and
internalize order flow that would otherwise be entered and executed on
NMS Stock ATSs. Furthermore, greater operational transparency of NMS
Stock ATSs could also impact competition between NMS Stock ATSs and
national securities exchanges, resulting in a larger amount of order
flow being executed on national securities exchanges.
    Further, the Commission preliminarily believes that the proposed
amendments to Rule 301(b)(10) and 303(a)(1) that would require ATSs to
establish and preserve written safeguards and written procedures to
protect subscribers' confidential trading information, as well as the
oversight procedures to ensure such safeguards and procedures are
followed should strengthen the effectiveness of those safeguards and
procedures and better enable an NMS Stock ATS to protect confidential
subscriber trading information and implement and monitor the adequacy
of, and the ATS's compliance with, its safeguards and procedures.\757\
The Commission also preliminarily believes that requiring ATSs to adopt
written safeguards and written procedures will benefit the Commission
by helping it better understand, monitor, and evaluate how each ATS
protects subscribers' confidential trading information from
unauthorized disclosure and access.\758\ The Commission also expects
that this proposed requirement will help oversight by the SRO of which
the NMS Stock ATS's broker-dealer operator is a member.
---------------------------------------------------------------------------

    \757\ See supra Section IX.
    \758\ See id.
---------------------------------------------------------------------------

    The Commission has attempted, where possible, to quantify the
benefits and costs anticipated by the proposed amendments to Rule 3a1-
1(a) and Regulation ATS. The Commission notes, however, that many of
the costs and benefits of the proposed amendments are difficult to
quantify with any degree of certainty. For instance, it is unclear how
many NMS Stock ATSs might cease operations (or, less likely, switch to
trading in a different class of securities) if they are required to
publicly disclose information about their operations on proposed Form
ATS-N. It is also unclear how many NMS Stock ATSs may decide to
register as national securities exchanges, as some ECNs have in
previous years, as a result of the proposed amendments to Rule 3a1-1(a)
and Regulation ATS.\759\ Therefore, quantifying the effects that the
expanded disclosure requirements would have on market liquidity and
capital formation is difficult. As the decision for an NMS Stock ATS to
continue operating or to exit the market depends on numerous factors,
one of which being the extent to which its competitive advantage is
driven by its matching methodology or other operational
characteristics, the Commission is unable to fully determine the extent
to which the proposal would affect this decision. Furthermore, the
decision to exit is idiosyncratic to the NMS Stock ATS and the
Commission cannot ascertain whether large or small ATSs will be more
prone to leaving the market. Additionally, the Commission cannot
estimate the fraction of order flow that would be routed to other NMS
Stock ATSs or national securities exchanges if some ATSs ceased
operations. In light of all of these limitations on available
information, the Commission is unable to make reasonable assumptions
regarding the number of NMS Stock ATSs that may cease operations and
exit the market; the number of NMS Stock ATSs that may register as
national securities exchanges; or the fraction of order flow that would
be routed to other NMS Stock ATSs or national securities exchanges if
some ATSs ceased operations. Given that the Commission is unable to
make these assumptions, it is unable to quantify the effect of the
proposed amendments to Rule 3a1-1(a) and Regulation ATS on trading
volume on the NMS Stock ATS as well as quantify the effects on price
discovery and market efficiency.
---------------------------------------------------------------------------

    \759\ See supra note 685 and accompanying text.
---------------------------------------------------------------------------

1. Costs and Benefits of Proposed Enhanced Filing Requirements
    As discussed above, the Commission is proposing to amend Rule 3a1-
1(a) and Regulation ATS to require ATSs that effect transactions in NMS
stocks comply with the requirements of

proposed Rule 304 in order to qualify for exemption from the definition
of ``exchange.'' \760\ The proposed amendments would require an NMS
Stock ATS to file reports and amendments pursuant to proposed Rule 304,
which includes the requirement to file proposed Form ATS-N, in lieu of
current Form ATS, to disclose information about its operations and the
activities of its broker-dealer operator and its affiliates.
---------------------------------------------------------------------------

    \760\ See supra Section IV (discussing the proposed amendments).
See also proposed Rules 3a1-1(a)(2) and (3), 300, 301, and 304.
---------------------------------------------------------------------------

    As noted above, an NMS Stock ATS may provide some subscribers
access to certain trading information or services that it does not
provide to others.\761\ For example, an NMS Stock ATS may offer certain
order types or special fees or rebates to particular subscribers, which
might result in those subscribers obtaining an advantage when trading
on the ATS. The proposed amendments would require NMS Stock ATSs to
describe any such differentiation of services or information among
subscribers, which would include certain disclosures related to the
operations of their broker-dealer operators. The Commission
preliminarily believes that those disclosures would help market
participants assess potential conflicts of interest that may adversely
impact their trading on the NMS Stock ATS.
---------------------------------------------------------------------------

    \761\ See supra Section VII.B.10.
---------------------------------------------------------------------------

    Proposed Rule 304 would also provide a process by which the
Commission would declare Form ATS-N filings effective or ineffective,
and a process by which the Commission would review Form ATS-N
Amendments and declare ineffective a Form ATS-N Amendment if it finds
that such action is necessary or appropriate in the public interest,
and is consistent with the protection of investors. The Commission is
also proposing a process by which the Commission could suspend, limit,
or revoke an NMS Stock ATS's exemption from the definition of an
``exchange'' under Rule 3a1-1(a)(2).\762\ An NMS Stock ATS would not
qualify for the exemption from the definition of ``exchange'' unless
the NMS Stock ATS files Form ATS-N with the Commission and the
Commission declares the Form ATS-N effective.\763\
---------------------------------------------------------------------------

    \762\ Pursuant to proposed Rule 304(b)(2), the Commission would
publicly post on its Web site each: order of effectiveness of a Form
ATS-N; order of ineffectiveness of a Form ATS-N; effective Form ATS-
N; filed Form ATS-N Amendment; order of ineffectiveness of a Form
ATS-N Amendment; notice of cessation; and order suspending,
limiting, or revoking the exemption from the definition of an
``exchange'' pursuant to Rule 3a1-1(a)(2). Proposed Rule 304(b)(3)
would also require an NMS Stock ATS that has a Web site to post on
its Web site a direct URL hyperlink to the Commission's Web site
that contains the documents enumerated in proposed Rule 304(b)(2).
See supra Section IV.D.
    \763\ See supra Section IV.C.5.
---------------------------------------------------------------------------

a. Better Regulatory Oversight and Increased Investor Protection
    The Commission preliminarily believes that the proposed amendments
to Rule 3a1-1(a) and Regulation ATS would result in better regulatory
oversight of NMS Stock ATSs and increased investor protection. Form ATS
discloses only limited aspects of an ATS's operations as compared to
the information that would be provided on Form ATS-N by NMS Stock ATSs.
Form ATS requires, for example, that an ATS provide information about:
classes of subscribers and differences in access to the services
offered by the ATS to different groups or classes of subscribers;
securities the ATS expects to trade; any entity other than the ATS
involved in its operations; the manner in which the system operates;
how subscribers access the trading system; procedures governing order
entry and execution; and trade reporting, clearance and settlement of
trades on the ATS. On the other hand, Form ATS-N would require an NMS
Stock ATS to disclose information about the manner of operations of the
ATS, including: subscribers; hours of operation; types of orders;
connectivity, order entry, and co-location procedures; segmentation of
order flow and notice about segmentation; display of order and other
trading interest; trading services, including matching methodologies,
order interaction rules, and order handling and execution procedures;
procedures governing suspension of trading or trading during a system
disruption or malfunction; opening, closing, and after hours
procedures; outbound routing services; fees; market data; trade
reporting; clearance and settlement; order display and execution access
(if applicable); fair access (if applicable); and market quality
statistics published or provided to one or more subscribers.
    In addition, current Form ATS does not require an ATS to disclose
information about the activities of the broker-dealer operator and the
broker-dealer operator's affiliates in connection with the ATS whereas
the enhanced disclosure requirements under proposed Form ATS-N would
require an NMS Stock ATS to disclose information about the activities
of its broker-dealer operator and the broker-dealer operator's
affiliates that may give rise to potential conflicts of interest,
including: their operation of non-ATS trading centers and other NMS
Stock ATSs; products and services offered to subscribers; arrangements
with unaffiliated trading centers; trading activities on the NMS Stock
ATS; smart order router (or similar functionality) and algorithms used
to send or receive orders or other trading interest to or from the ATS;
personnel and third parties used to operate the NMS Stock ATS;
differences in the availability of services, functionalities, or
procedures; and safeguards and procedures to protect subscribers'
confidential trading information. Accordingly, the Commission
preliminarily believes that the enhanced disclosure requirements under
proposed Form ATS-N would result in better regulatory oversight of NMS
Stock ATSs and increased investor protection by providing the
Commission, relevant SROs, and market participants with significantly
more information with which to analyze and evaluate how orders are
handled and executed on NMS Stock ATSs.
    The Commission is proposing that Form ATS-N and Form ATS-N
Amendments be filed electronically in a text-searchable format. The
Commission preliminarily believes that requiring Form ATS-N and Form
ATS-N Amendments to be filed in a text-searchable format, coupled with
the enhanced disclosure requirements under the proposal, will
facilitate a more effective and thorough review and analysis of NMS
Stock ATSs by regulators, which should yield greater insights into the
operations of NMS Stock ATSs and the activities of their broker-dealer
operators and their affiliates. For example, under the proposal,
examiners at the Commission and the SRO of which an NMS Stock ATS is a
member would be able to run automated processes to review information
disclosed on filed Forms ATS-N and Form ATS-N Amendments in order to
select NMS Stock ATSs for examination based on certain criteria for the
examination. Additionally, examiners would be better able to assemble
and review a larger pool of data regarding NMS Stock ATSs to better
inform their examinations. Both such benefits could increase investor
protection by improving the effectiveness and efficiency of the
examination process.
    Furthermore, the Commission preliminarily believes that the
proposed process of declaring a Form ATS-N effective or ineffective and
the process to review and declare, if necessary, Form ATS-N Amendments
ineffective would improve the quality of the information regulators
receive from NMS Stock ATSs and increase the

protection of investors. The proposed effectiveness process for a Form
ATS-N is designed to provide an opportunity for the Commission to
review Form ATS-N filings before an NMS Stock ATS commences operations
(in the case of new NMS Stock ATSs), or while it continues operations
under its Form ATS filing (in the case of legacy NMS Stock ATSs). The
Commission preliminarily believes that the proposed process would allow
the Commission to evaluate the adequacy of NMS Stock ATSs' disclosures
for compliance with the Form ATS-N requirements before declaring the
Form ATS-N effective or ineffective. As a result, once the Commission
has made an effectiveness or ineffectiveness determination, only an NMS
Stock ATS for which a Form ATS-N has been declared effective would be
allowed to transact in NMS stocks without registering as a national
securities exchange.
    The Commission would make Form ATS-N Amendments public upon filing.
As a result, a publicly disclosed Form ATS-N Amendment could contain
potentially inaccurate or incomplete disclosures at the time it is
posted on the Commission's Web page. Prior to the conclusion of its
review of a Form ATS-N Amendment, the Commission would make the public
aware of the fact that, though the amendment is posted on the
Commission's Web site, it is still pending Commission review and could
still be declared ineffective. The Commission preliminarily believes
that this process would provide transparency to market participants
about the operations of these ATSs and also provide market participants
with information about forthcoming changes to the NMS Stock ATS while
the Commission's review is pending.
    The Commission preliminarily believes that the proposed review and
public disclosure process for a Form ATS-N and Form ATS-N Amendments
would allow the Commission to better protect investors from potentially
inaccurate or incomplete disclosures that could misinform market
participants about the operations of an NMS Stock ATS or the activities
of its broker-dealer operator, including how their orders may be
handled and executed, and thereby impact market participants' decisions
about where they should route their orders.
    If the Commission declares ineffective a Form ATS-N or Form ATS-N
Amendment of an entity, that entity would have the opportunity to
address deficiencies in the previously filed form by filing a new Form
ATS-N or Form ATS-N Amendment. However, the Commission recognizes that
an ineffectiveness declaration could impose costs on that entity--such
as costs from having to cease operations, roll back a change in
operations, or delay the start of operations--and could impose costs on
the overall market for NMS stock execution services resulting from a
potential reduction in competition or the removal of a sole provider of
a niche service within the market. Furthermore, the removal of a sole
provider of a niche service from the market could also impose costs on
individual market participants, as they may have to subscribe to
another NMS Stock ATS, or they may have to incur the cost of making
changes to their SOR (or similar functionality) or algorithm in order
to submit their orders for execution. However, NMS Stock ATSs and
market participants would not incur these costs unless the Commission
declares a Form ATS-N or a Form ATS-N Amendment ineffective. The
Commission preliminarily believes that NMS Stock ATSs would be
incentivized to comply with the requirements of Form ATS-N, as well as
federal securities laws, including the other requirements of Regulation
ATS, to avoid an ineffectiveness declaration, which produces benefits
to the market. Therefore, the Commission preliminarily believes that
there would be no undue burden imposed in connection with resubmitting
Form ATS-N for these entities or from an ineffective declaration in
general.
b. Implementation and Ongoing Costs
    The Commission understands that both new and existing NMS Stock
ATSs would incur implementation costs in order to comply with the
proposed amendments to Regulation ATS. Regardless of their size and
transaction volume, all NMS Stock ATSs would need to ensure that their
disclosures meet the requirements of proposed Form ATS-N and that they
correctly file their Form ATS-N. NMS Stock ATSs may develop internal
processes to ensure correct and complete reporting on Form ATS-N, which
can be viewed as a fixed setup cost, which NMS Stock ATSs may have to
incur, regardless of the amount of trading activity that takes place on
them. As a result, these implementation costs may fall
disproportionately on lower-dollar volume NMS Stock ATSs (as opposed to
ATSs transacting greater dollar volume), since all ATSs would likely
incur these fixed implementation costs. However, smaller NMS Stock ATSs
that are not operated by multi-service broker-dealer operators and do
not engage in other brokerage or dealing activities in addition to
their NMS Stock ATSs would likely incur lower implementation costs
because certain sections of proposed Form ATS-N (such as several items
of Part III) would not be applicable to these NMS Stock ATSs.
    Relative to the baseline, the proposed amendments to Regulation ATS
would also impose implementation costs for all NMS Stock ATSs,
including legacy ATSs, in that they would require NMS Stock ATSs to
adhere to heightened disclosure and reporting requirements regarding
their operations. Existing NMS Stock ATSs should already comply with
the current requirements of Regulation ATS. Therefore, the compliance
costs of the proposed amendments should be incremental relative to the
costs associated with the existing requirements. Specifically, the
Commission preliminarily believes that the incremental costs would
consist largely of providing new disclosures and updating records and
retention policies necessary to comply with the proposed amendments.
Based on the analysis for purposes of the PRA, the Commission
preliminarily estimates that the proposed amendments to Regulation ATS
relating to Rules 301(b)(2)(viii) and 304 of Regulation ATS, including
Proposed Form ATS-N, could result in a one-time burden of 141.3 hours
for each NMS Stock ATS,\764\ which would result in an estimated one-
time paperwork compliance cost to an NMS Stock ATS of approximately
$42,838.50.\765\ This would result in an aggregate estimated initial
hour burden for all NMS Stock ATSs to complete Form ATS-N and comply
with proposed Rules 301(b)(2)(viii) and 304 of Regulation ATS of
6,499.8 hours at an estimated cost of $1,970,571.00.\766\
---------------------------------------------------------------------------

    \764\ See supra note 643 and accompanying text.
    \765\ (Attorney at $380 x 54.8 hours) + (Compliance Manager at
$283 x 43.5 hours) + (Senior Systems Analyst at $260 x 34.5 hours) +
(Senior Marketing Manager at $254 x 1 hour) + (Compliance Clerk at
$64 x 7.5 hours) = $42,838.50. This preliminary compliance cost
estimate for a Form ATS-N includes the estimated costs associated
with completing Part III, Item 2 and Part IV, Items 14 and 15 of
proposed Form ATS-N, but as explained above, the Commission
preliminarily believes that the majority of NMS Stock ATSs would not
be required to complete those items of the proposed form. See supra
Section XII.D.2.b.
    \766\ 141.3 burden hours x 46 NMS Stock ATSs = 6,499.8 burden
hours. $42,838.50 x 46 NMS Stock ATSs = $1,970,571.00. This
preliminary aggregate compliance cost estimate assumes that all NMS
Stock ATSs would be required to complete Part III, Item 2 and Part
IV, Items 14 and 15 of proposed Form ATS-N. However, as noted above,
the Commission preliminarily estimates that only 6 NMS Stock ATSs
would be required to complete Part III, Item 2, see supra note 609,
only 1 NMS Stock ATS would be required to complete Part IV, Item 14,
see supra note 641 and accompanying text, and only 2 NMS Stock ATSs
would be required to complete Part IV, Item 15, see id.

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

    Furthermore, the Commission preliminarily believes that there would
be implementation costs for ATSs that have not reduced to writing their
safeguards and procedures to protect subscribers' confidential trading
information and their oversight procedures to ensure that those
safeguards and procedures are followed, which are required under Rule
301(b)(10) of Regulation ATS.\767\ Based on the analysis for purposes
of the PRA, the Commission preliminarily estimates that, in order to
comply with the proposed amendments to Rules 301(b)(10) and
303(a)(1)(v) of Regulation ATS,\768\ it could take approximately 15
ATSs an estimated one-time burden of up to 10 hours each,\769\
resulting in an estimated one-time paperwork cost for each of those 15
ATSs of $3,484.00 and an aggregate estimated hour burden of 150 hours
at an estimated cost of $52,260.00.\770\
---------------------------------------------------------------------------

    \767\ See 17 CFR 242.301(b)(10).
    \768\ See supra Section IX.
    \769\ See supra notes 583-585.
    \770\ (Attorney at $380 x 9 hours) + (Compliance Clerk at $64 x
1 hour) = $3,484.00. $3,484.00 x 15 ATSs = $52,260.00.
---------------------------------------------------------------------------

    In addition to the implementation costs mentioned above, there are
also expected ongoing costs for NMS Stock ATSs to comply with the
proposed amendments to Rule 3a1-1(a) and Regulation ATS. For instance,
NMS Stock ATSs would incur ongoing costs associated with amending their
Forms ATS-N prior to material changes in their operations, or to
correct any information that has become inaccurate. Regardless of the
reason for filing a Form ATS-N Amendment, the Commission preliminarily
estimates for the purposes of the PRA that it could take an NMS Stock
ATS approximately 28.5 hours annually \771\ to prepare and file its
Form ATS-N Amendments at an estimated annual cost of $8,352.00.\772\
This would result in an estimated aggregate ongoing hour burden for all
NMS Stock ATSs to amend their Forms ATS-N and comply with proposed
Rules 301(b)(2)(viii) and 304 of Regulation ATS of 1,311 hours at an
estimated cost of $384,192.00 annually.\773\
---------------------------------------------------------------------------

    \771\ See supra notes 644-651 and accompanying text. As
explained above, the Commission preliminarily estimates that each
NMS Stock ATS would file 3 Form ATS-N Amendments per year, and the
hourly burden per amendment would be 9.5 hours.
    \772\ (Attorney at $380 x 16.5 hours) + (Compliance Manager at
$283 x 6 hours) + (Compliance Clerk at $64 x 6 hours) = $8,352.00.
    \773\ 28.5 hours x 46 NMS Stock ATSs = 1,311 hours. $8,352.00 x
46 NMS Stock ATSs = $384,192.00.
---------------------------------------------------------------------------

    Furthermore, the proposed amendments to Rules 301(b)(10) and
303(a)(1)(v) relating to written safeguards and written procedures to
protect subscribers' confidential trading information would impose
ongoing costs for all ATSs. For the purposes of the PRA, the Commission
preliminarily estimates it could take approximately 4 hours annually
for each ATS to update and maintain these safeguards and
procedures,\774\ resulting in an estimated annual paperwork cost for
each ATS of $888.00.\775\ This would result in an estimated aggregate
ongoing hour burden for all ATSs to maintain and update their
safeguards and procedures pursuant to proposed Rules 301(b)(10) and
303(a)(1)(v) of 336 hours at an estimated cost of $74,592.00
annually.\776\
---------------------------------------------------------------------------

    \774\ See supra notes 586-587 and accompanying text.
    \775\ (Attorney at $380 x 2 hours) + (Compliance Clerk at $64 x
2 hours) = $888.00 annual paperwork cost per ATS.
    \776\ 4 annual burden hours x 84 ATSs = 336 annual burden hours.
$888.00 annual paperwork cost per ATS x 84 NMS Stock ATSs =
$74,592.00 aggregate annual paperwork cost.
---------------------------------------------------------------------------

    Some existing NMS Stock ATSs that also transact in non-NMS stocks
might incur additional costs due to the proposed amendments. As
discussed above,\777\ pursuant to the proposed amendments to Regulation
ATS, an ATS that effects transactions in both NMS stocks and non-NMS
stocks would be subject to the requirements of Rule 304 with respect to
its NMS stock trading operations and Rule 301(b)(2) with respect to its
non-NMS stock trading operations. Accordingly, NMS Stock ATSs that also
transact in non-NMS stocks would incur additional implementation costs
when compared to ATSs that only trade NMS stocks because the former
group would be required to file both Form ATS-N and a revised Form ATS
that removes discussion of those aspects of the ATS related to the
trading of NMS stocks. Those NMS Stock ATSs would also be required to
file a pair of Forms ATS-R four times annually. For the purposes of the
PRA, the Commission preliminarily estimates that the aggregate initial
burden for those ATSs to file a Form ATS-N in regard to their NMS stock
trading activity and a current Form ATS in regard to their non-NMS
stock trading activity would be 1,774.3 hours \778\ at an aggregate
estimated cost of $530,491.50.\779\ The Commission also preliminarily
estimates that that the aggregate annual burden to file separate Forms
ATS-R for those ATSs that effect transactions in both NMS stocks and
non-NMS stocks would be 198 hours \780\ at an aggregate estimated cost
of $1,394.\781\ Furthermore, the Commission preliminarily estimates
that these ATSs that facilitate transactions in both NMS stocks and
non-NMS stocks would incur an additional estimated recordkeeping burden
of 3 hours annually per ATS, resulting in an estimated cost of $312.60
per ATS \782\ and an aggregate estimated hour burden of 33 hours at an
estimated cost of $3,438.60, due to the proposed amendments to Rule
303(a)(2)(ii).\783\
---------------------------------------------------------------------------

    \777\ See supra Section IV.C.2.
    \778\ See supra notes 659-663 and accompanying text.
    \779\ ((Attorney for Form ATS at $380 x 13 hours) + (Attorney
for Form ATS-N at $380 x 54.8 hours) + (Compliance Manager for Form
ATS-N at $283 x 43.5 hours) + (Senior Systems Analyst for Form ATS-N
at $260 x 34.5 hours) + (Senior Marketing Manager for Form ATS-N at
$254 x 1 hour) + (Compliance Clerk for Form ATS at $64 x 7 hours) +
(Compliance Clerk for Form ATS-N at $64 x 7.5 hours)) x 11 ATSs =
$530,491.50 This preliminary aggregate compliance cost estimate
includes the estimated costs associated with completing Part III,
Item 2 and Part IV, Items 14 and 15 of proposed Form ATS-N, but as
explained above, the Commission preliminarily believes that the
majority of NMS Stock ATSs would not be required to complete those
items of the proposed form. See supra Section XII.D.2.b.
    \780\ See supra notes 663 and accompanying text.
    \781\ (Attorney at $380 x 3.5 hours) + (Compliance Clerk at $64
x 1 hours) = $1,394.
    \782\ At an average cost per burden hour of $104.20, see Rule
303 PRA Update, supra note 580, 78 FR 43943, the resultant total
related cost of compliance for each ATS would be $312.60 ((3 burden
hours) x $104.20/hour).
    \783\ 3 hours x 11 ATSs = 33 burden hours. $312.60 x 11 ATSs =
$3,438.60. See supra Section XII.D.2.b.vi.
---------------------------------------------------------------------------

    Currently, ATSs that transact in NMS stocks do not have the ability
to access and file the Form ATS electronically. The Commission proposes
that proposed Form ATS-N would be filed electronically in a structured
format and would require an electronic signature. These proposed
amendments to Regulation ATS would require that every NMS Stock ATS
have the ability to file forms electronically with an electronic
signature. The Commission's proposal contemplates the use of an online
filing system, the EFFS. Based on the widespread use and availability
of the Internet, the Commission preliminarily believes that filing Form
ATS-N in an electronic format would be less burdensome and a more
efficient filing process than the current paper process for NMS Stock
ATSs and the Commission, as it is likely to be less expensive and
cumbersome than mailing and filing paper forms to the Commission.
    To access EFFS, an NMS Stock ATS would need to submit to the
Commission an EAUA to register each individual at the NMS Stock ATS who
will access the EFFS system on behalf of the NMS Stock ATS. The

Commission is including in its estimates the burden for completing the
EAUA for each individual at an NMS Stock ATS that will request access
to EFFS.\784\ For the purposes of the PRA, the Commission preliminarily
estimates that initially, on average, two individuals at each NMS Stock
ATS will request access to EFFS through the EAUA, and each EAUA would
require 0.15 hours to complete and submit.\785\ Therefore, each NMS
Stock ATS would require 0.3 hours to complete the requisite EAUAs \786\
at a cost of $114.00,\787\ and the aggregate initial burden would be
approximately 13.8 hours for all NMS Stock ATSs \788\ at a cost of
$5,244.00.\789\ The Commission also preliminarily estimates that
annually, on average, one individual at each NMS Stock ATS will request
access to EFFS through the EAUA.\790\ Therefore, the ongoing burden to
complete the EAUA would be 0.15 hours annually for each NMS Stock ATS
\791\ at a cost of $57.00,\792\ and the aggregate ongoing burden would
be approximately 6.9 hours for all NMS Stock ATSs \793\ at a cost of
$2,622.00.\794\
---------------------------------------------------------------------------

    \784\ For the purpose of completeness, the Commission has also
included the initial estimated burden and costs related to
completing the EAUA in its burden and cost estimates for the initial
ATS-N filings by NMS Stock ATSs. See supra note 643.
    \785\ See supra note 665 and accompanying text.
    \786\ 0.15 hours per EAUA x 2 individuals = 0.3 burden hours per
NMS Stock ATS. These preliminary estimates are based on the
Commission and its staff's experience with EFFS and EAUAs pursuant
to Rule 19b-4 under the Exchange Act. The 0.3 hours represents the
time spent by two attorneys. The Commission believes it is
appropriate to estimate that, on average, each NMS Stock ATS will
submit two EAUAs initially.
    \787\ Attorney at $380 x 0.3 hours per EAUA = $114.00.
    \788\ 0.30 hours per EAUA x 46 NMS Stock ATSs = 13.8 burden
hours.
    \789\ $114 cost per NMS Stock ATS x 46 NMS Stock ATSs =
$5,244.00.
    \790\ The Commission estimates that annually, on average, one
individual at each NMS Stock ATS will request access to EFFS through
EAUA to account for the possibility that an individual who
previously had access to EFFS may no longer be designated as needing
such access.
    \791\ 0.15 hours per EAUA x 1 individual = 0.15 hours.
    \792\ Attorney at $380 x 0.15 hours per EAUA = $57.00.
    \793\ 0.15 hours x 46 NMS Stock ATSs = 6.9 hours.
    \794\ $57 cost per NMS Stock ATS x 46 NMS Stock ATSs =
$2,622.00.
---------------------------------------------------------------------------

    In addition, the Commission preliminarily estimates that each NMS
Stock ATS will designate two individuals to sign Form ATS-N each year.
An individual signing a Form ATS-N must obtain a digital ID, at the
cost of approximately $25.00 each year. Therefore, each NMS Stock ATS
would require approximately $50.00 annually to obtain digital IDs for
the individuals with access to EFFS for purposes of signing Form ATS-
N,\795\ and the aggregate initial burden would be approximately
$2,300.00 for all NMS Stock ATSs.\796\
---------------------------------------------------------------------------

    \795\ $25 per digital ID x 2 individuals = $50.00 per NMS Stock
ATS.
    \796\ $50 cost per NMS Stock ATS x 46 NMS Stock ATSs = $2,300.
---------------------------------------------------------------------------

    The Commission also preliminarily estimates that NMS Stock ATSs
would incur a one-time cost to make public via posting on their Web
sites a direct URL hyperlink to the Commission's Web site that contains
their Form ATS-N filings.\797\ For the purposes of the PRA, the
Commission preliminarily estimates that this initial, one-time burden
would be approximately 2 hours per NMS Stock ATS at an estimated cost
of $520.00,\798\ and the aggregate estimated burden for all NMS Stock
ATSs would be approximately 92 hours \799\ at an estimated cost of
$23,920.00.\800\
---------------------------------------------------------------------------

    \797\ See supra Section XII.D.2.b.v.
    \798\ Senior Systems Analyst at $260 x 2 hours = $520.00.
    \799\ 2 hours per NMS Stock ATS x 46 NMS Stock ATSs = 92 burden
hours.
    \800\ $520 per NMS Stock ATS x 46 NMS Stock ATSs = $23,920.00.
---------------------------------------------------------------------------

2. Costs and Benefits of Public Disclosures of Proposed Form ATS-N
    The Commission is proposing Rule 304(b) to mandate greater public
disclosure of NMS Stock ATS operations by making Form ATS-N and Form
ATS-N Amendments publicly available on the Commission's Web site,
requiring each NMS Stock ATS that has a Web site to post a direct URL
hyperlink to the Commission's Web site that contains the documents
enumerated in proposed Rule 304(b)(2), and providing for the posting of
Commission orders related to the effectiveness of Form ATS-N on the
Commission's Web site.\801\ The Commission's proposal to require such
public disclosure is designed, in part, to increase the operational
transparency requirements of NMS Stock ATSs in order to bring those
requirements more in line with the operational transparency
requirements of national securities exchanges.\802\ The Commission
preliminarily believes the proposal should assist market participants
in evaluating and choosing the NMS Stock ATSs to which they may route
orders or become a subscriber due to the proposed enhanced disclosure
requirements.
---------------------------------------------------------------------------

    \801\ See supra Section IV.D.
    \802\ See id.
---------------------------------------------------------------------------

    As mentioned above, the proposed amendments to Regulation ATS would
make Form ATS-N publicly available, thereby improving the information
available to market participants and making that information
consistent. The Commission is proposing to amend Regulation ATS to
require NMS Stock ATSs to file proposed Form ATS-N in lieu of Form
ATS.\803\ Furthermore, the Commission is proposing to require NMS Stock
ATSs to disclose on Form ATS-N detailed information about the
activities of the broker-dealer operator of the NMS Stock ATS and the
broker-dealer operator's affiliates, including: The operation of non-
ATS trading centers and other NMS Stock ATSs; products and services
offered to subscribers; arrangements with unaffiliated trading centers;
trading activities on the NMS Stock ATS by the broker-dealer operator