publicly disclose its Form ATS or to file a publicly available Form
ATS-G.\628\ This disparity in requirements could lead to information
asymmetries amongst different classes of subscribers.
---------------------------------------------------------------------------

    \628\ See 17 CFR 242.301(b)(2)(vii).
---------------------------------------------------------------------------

    Certain Government Securities ATSs may make voluntary disclosures
regarding their operations, creating disparate levels of transparency.
For example, subscribers to a particular Government Securities ATS may
have greater access to information about the ATS, including the ATS's
subscriber manual and other subscriber quotes, than other market
participants. There could also be differences in the information
available to different classes of subscribers to a Government
Securities ATS. Because there is no required disclosure of order
execution statistics for government securities trading, different
classes of subscribers to a Government Securities ATS could receive
differing levels of information regarding execution quality on the ATS.
This could lead to potential inefficiencies as market participants with
limited access to information struggle to compete with those who have
greater access to information, and this could also be the case with
respect to other information about the operations of Government
Securities ATSs. In all cases, subscribers who have greater access to
information offered by the Government Securities ATS may be able to
make better choices about their trading decisions relative to
subscribers who have limited access to information about the operations
of the ATS.
4. Government Securities ATSs Treatment of Subscriber Confidential
Trading Information
    Because Currently Exempted Government Securities ATSs are not
required to comply with Regulation ATS, they are not subject to Rule
301(b)(10) and Rule 303(a)(1), which means that they are not required
to establish written safeguards and written procedures to protect
subscribers' confidential trading information pursuant to Regulation
ATS.\629\ To the extent that a Currently Exempted Government Securities
ATS does not have these procedures, or has them but such procedures are
not adequate, the integrity of a subscriber's confidential trading
information could be at risk of unauthorized disclosure and subject to
potential misuse. ATSs are not required to file their written
safeguards and written procedures with the Commission. Therefore,
absent an examination by the Commission staff regarding the adequacy of
the written safeguards and written procedures, the Commission is not
able to determine the specific Government Securities ATSs that
currently have adequate written safeguards and written procedures to
protect subscribers' confidential trading information. At the same
time, based on the experience of the Commission, the Commission
believes that some Government Securities ATSs currently have, and
maintain in writing, safeguards and procedures to protect subscribers'
confidential trading information, as well as the oversight procedures
to ensure such safeguards and procedures are followed.
---------------------------------------------------------------------------

    \629\ In contrast, Legacy Filers are currently subject to Rule
301(b)(10) and Rule 303(a)(1) of Regulation ATS. See supra Section
IX.A.
---------------------------------------------------------------------------

5. Fair Access Rule
    The Fair Access Rule of Regulation ATS does not currently apply to
ATSs that trade government securities because government securities are
not a category of securities covered under the rule. As a result, there
is no legal mechanism to prevent Government Securities ATSs from
unreasonably denying or limiting subscribers' access to an ATS that is
a significant market for government securities.\630\ Access to a
Government Securities ATS may not be critical when market participants
are able to substitute the execution services of one ATS with those of
another. However, when a Government Securities ATS has a significant
share of trading volume in government securities, unfairly
discriminatory actions may hurt investors lacking access to the system
because viable alternatives to trading on such a system may be limited.
Furthermore, market forces alone may not be sufficient to prevent a
Government Securities ATS from unreasonably denying access to some
market participants. In the absence of the Fair Access Rule, for
example, a Government Securities ATS with a significant volume in
government securities may only allow certain types

of market participants to access the ATS and exclude others without
establishing reasonable written standards.\631\ In this case, the ATS
may cater to the preferences of subscribers that favor the exclusion,
while failing to internalize the negative externality that this may
impose on the excluded market participants who could have more limited
trading venue options, resulting in higher trading costs and the
reduction in efficiency with which they achieve trading objectives.
This failure to internalize an externality could lead to market
failure.
---------------------------------------------------------------------------

    \630\ See supra Sections I.B and II.D discussing the Fair Access
Rule requirements.
    \631\ An ATS subject to the Fair Access Rule could not offer a
service or level of service to only one subscriber or class of
subscribers unless the ATS has established written standards that do
not unreasonably prohibit or limit access of permissioned
subscribers to the service or level of service.
---------------------------------------------------------------------------

6. Regulation SCI
    The provisions of Regulation SCI and Rule 301(b)(6) of Regulation
ATS do not apply to the government securities activities of an ATS and
therefore Currently Exempted Government Securities ATSs and Legacy
Filers are not subject to either.\632\ Among the three ATSs that trade
government securities and satisfy the proposed volume thresholds for
government securities that would trigger application of Regulation SCI,
one Government Securities ATS is operated by a broker-dealer that also
operates an NMS Stock ATS that is an SCI entity because the NMS Stock
ATS meets Regulation SCI volume thresholds for NMS stocks. As an
existing SCI entity, this NMS Stock ATS has the policies and procedures
in place for systems related to trading of NMS stocks as required by
Regulation SCI. The Commission believes that the broker-dealer operator
for the Government Securities ATS of the existing SCI entity could have
already capitalized on operational synergies from operating both an NMS
Stock ATS and a Government Securities ATS, and could have implemented
some of the same policies and procedures of the NMS Stock ATS required
by Regulation SCI, modified as needed for systems related to trading of
government securities and repos.
---------------------------------------------------------------------------

    \632\ See supra Section I.B discussing Rule 301(b)(6) and its
current application to ATSs.
---------------------------------------------------------------------------

    More generally, although most Government Securities ATSs are not
subject to the requirements of Regulation SCI with respect to their
government securities activities, a comment letter received in response
to the Treasury Request for Information stated that many Government
Securities ATSs adopted system testing and control procedures that
followed the recommended best practices of the Treasury Market
Practices Group.\633\ The Treasury Market Practices Group promotes a
robust control environment for government securities trading, using
internal controls and risk management.\634\ However, these best
practices are meant only as useful operational guideposts rather than
binding rules, and each trading venue can choose if it wants to comply
and how to comply, which could provide weak safeguards to protect
against the risks of system failures. In contrast, Regulation SCI
establishes a formalized regulatory framework to ensure more effective
Commission oversight.
---------------------------------------------------------------------------

    \633\ See Letter from Mike Zolik, Nate Kalich, and Larry
Magargal, Ronin Capital LLC, to David R. Pearl, Office of the
Executive Secretary, U.S. Department of the Treasury, dated March
19, 2016, at 31-33, available at https://www.treasurydirect.gov/instit/statreg/gsareg/RoninCapital.pdf.
    \634\ See Treasury Market Practices Group, Best Practices For
Treasury, Agency Debt, and Agency Mortgage-Backed Securities Markets
(July 2019), available at https://www.newyorkfed.org/medialibrary/Microsites/tmpg/files/TMPG_BestPractices_071119.pdf.
---------------------------------------------------------------------------

    While the Commission recognizes that Government Securities ATSs
have some incentives to maintain robust systems in order to remain
competitive, the Commission believes that market forces alone are
insufficient to significantly reduce systems issues in the market for
trading and execution services in government securities. In particular,
the Commission believes that Government Securities ATSs do not fully
internalize the costs associated with systems issues, because systems
issues pose significant negative externalities on the market. That is,
systems issues have ramifications on the market for government
securities beyond the impact on the Government Securities ATS
responsible for the systems issues. If a trading system of a Government
Securities ATS with significant trading volume fails, this failure not
only forces the ATS to forgo revenue but also can diminish trading in
government securities during the disruption. In particular, the failure
of such trading system can increase trading costs of market
participants that have optimized their trading strategy under the
assumption that all Government Securities ATSs with significant volume
are fully operational.
    The Commission also believes that some Government Securities ATSs
that trade a large volume of government securities play a significant
role in the government securities market, particularly those that trade
on-the-run U.S. Treasury Securities, because the prices from these
transactions serve as risk-free rate benchmarks for pricing other
financial products. Without appropriate safeguards in place for
Government Securities ATSs, technological vulnerabilities continue to
exist and could lead to the potential for costly failures, disruptions,
delays, intrusions, and the reduction in systems up-time, which could
harm the price discovery process and price efficiency of government
securities.\635\
---------------------------------------------------------------------------

    \635\ See infra Section X.C.3.c. On January 11, 2019, the
largest trading platform in on-the-run U.S. Treasury Securities,
experienced a system outage approximately from 2 p.m. to 3:30 p.m.
ET. While the outage resulted in a modest reduction in market
volume, had it occurred at a time other than late on a Friday
afternoon when trading activity is normally already low, the outage
could have resulted in more adverse consequences on the overall
market. See also Elizabeth Stanton, Nick Baker, & Matthew Leising,
Treasuries Hit by One-Hour Outage on Biggest Electronic Platform,
Bloomberg, January 13, 2019, https://www.bloomberg.com/news/articles/2019-01-11/brokertec-inter-dealer-treasury-broker-suffers-outage.
---------------------------------------------------------------------------

    Furthermore, based on the staff's experience receiving reports of
systems issues concerning NMS Stock SCI ATSs, the Commission believes
that the frequency and the duration of systems issues have decreased
and systems up-time has improved over time since the adoption of
Regulation SCI. Because Government Securities ATSs operate with similar
complexity as NMS Stock SCI ATSs,\636\ the Commission believes that
extending Regulation SCI to Government Securities ATSs with significant
volume would also help reduce the frequency and the duration of systems
issues and improve systems up-time for those Government Securities
ATSs.\637\
---------------------------------------------------------------------------

    \636\ See supra Section VI.
    \637\ See infra Section X.C.1.b discussing the benefits of the
proposed amendments to Regulation SCI. Infra Section X.C.2.b
discusses the costs of these proposed amendments, while infra
Section X.C.3 discusses the effects of these amendments on
efficiency, competition, and capital formation.
---------------------------------------------------------------------------

7. Implications for Efficiency
    The intensity of competition among trading venues, the availability
of information regarding Government Securities ATS operational facets,
the number of trading venue options available to market participants,
and the risk of potential market disruptions due to systems issues
could affect market participants' trading costs and the efficiency with
which market participants achieve their trading or investment
objectives. The Commission believes that there is currently limited
publicly available information regarding the operations of Government
Securities ATSs and that some subscribers to these ATSs may be privy to
more detailed

information about how their orders are executed, sent, and/or
prioritized compared to other subscribers.\638\ Market participants in
the government securities market with limited information regarding ATS
operational facets, such as order handling, fee structure, and any
potential conflicts of interest that may arise from the ATS-related
activities of the broker-dealer operator or its affiliates, could face
difficulty in comparing Government Securities ATSs when deciding which
venue most suits their trading purposes and could incur higher search
costs in the selection of trading venues. This would result in higher
trading costs for market participants and reduce the efficiency with
which market participants achieve their trading objectives.
---------------------------------------------------------------------------

    \638\ See supra Section X.B.3.
---------------------------------------------------------------------------

    Government Securities ATSs and non-ATS trading venues compete for
order flows in the government securities market.\639\ The Commission
believes that the limited publicly available information regarding
Government Securities ATS operational characteristics, such as fee
structure, order types, and trading functionalities, reduces the
incentives of ATSs and non-ATS trading venues to compete more
vigorously, innovate systems technology, improve execution quality, and
lower fees. This could also reduce the efficiency with which market
participants achieve their trading objectives. Currently, government
securities are not subject to the Fair Access Rule.\640\ To the extent
that there are market participants who are unreasonably denied access
to an ATS with a significant volume in U.S. Treasury Securities or
Agency Securities, this could limit trading venue options for these
market participants, resulting in higher trading costs and the
reduction in efficiency with which they achieve their trading
objectives.
---------------------------------------------------------------------------

    \639\ See supra Sections X.B.1.a, X.B.1.b, and X.B.1.c for
discussion on competition in the on-the-run U.S. Treasury
Securities, off-the-run U.S. Treasury Securities, and Agency
Securities, respectively.
    \640\ See supra Section X.B.5 for a discussion about the Fair
Access Rule.
---------------------------------------------------------------------------

    The provisions of Regulation SCI do not apply to systems related to
the trading of government securities.\641\ Market disruptions due to
systems issues at an ATS with a significant volume in U.S. Treasury
Securities or Agency Securities could interrupt the price discovery
process and liquidity flows in the market for government securities,
which would result in periods of pricing inefficiencies for government
securities and risky securities. Diminished price discovery in the
secondary market for on-the-run U.S. Treasury Securities could also
reduce price efficiency of risky securities because the transaction
prices of on-the-run U.S. Treasury Securities are used as risk-free
rate benchmarks to price risky securities transactions.\642\ Price
efficiency of risky securities is important because prices that
accurately convey information about fundamental value improve the
efficiency with which capital is allocated across projects and
entities.
---------------------------------------------------------------------------

    \641\ See supra Section X.B.6 for a discussion about Regulation
SCI practices.
    \642\ As noted in the October 15 Staff Report, supra note 14,
price discovery is especially important in the secondary market for
on-the-run U.S. Treasury Securities because the transaction prices
are used as risk-free rate benchmarks to price other securities
transactions.
---------------------------------------------------------------------------

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

    The Commission has considered the economic effects of the proposed
amendments to extend Regulation ATS and Regulation SCI to include
Government Securities ATSs.\643\ The Commission believes these proposed
amendments would (i) help prevent the potential for abuse of ATS
subscriber confidential trading information; \644\ (ii) improve the
ability of the Commission or an SRO to detect and investigate potential
irregularities that might occur in the market for government securities
and repo execution services; \645\ (iii) increase the Commission's
knowledge regarding the operations of and potential conflicts of
interest on Government Securities ATSs and help identify whether they
operate in a manner consistent with the federal securities laws; \646\
(iv) help market participants make better-informed decisions about
where to send their orders in order to achieve their trading or
investment objectives, which could lower trading costs and enhance
order execution quality; \647\ (v) allow some market participants to
access and increase options in the selection of trading venues, which
could lower their trading costs; \648\ and (vi) help reduce market
disruptions due to systems issues \649\ and prevent interruptions in
the price discovery process and liquidity flows.\650\
---------------------------------------------------------------------------

    \643\ Government Securities ATSs account for significant portion
of interdealer and overall volume in the government securities
market. See supra Section X.B.1 for Tables X.1, X.2, X.3, and X.4.
See also supra Section X.A for a discussion about the need for
greater transparency and public data availability regarding the
functioning of U.S. Treasury markets.
    \644\ See infra Section X.C.1.a.i. See also supra Section X.A
for a discussion about the need for greater transparency and public
data availability regarding the functioning of U.S. Treasury
markets.
    \645\ See supra note 644.
    \646\ See infra Section X.C.1.a.ii. See also supra Section X.A
for a discussion about the need for greater transparency and public
data availability regarding the functioning of U.S. Treasury
markets.
    \647\ See supra note 644.
    \648\ See infra Section X.C.1.a.iii.
    \649\ See infra Section X.C.1.b.
    \650\ See infra Sections X.C.1.b and X.C.3.c.
---------------------------------------------------------------------------

    Government Securities ATSs would incur implementation and ongoing
compliance costs to comply with the proposed Regulation ATS and
Regulation SCI amendments. Market participants in the government
securities and repo market could face higher trading costs (e.g.,
higher fees) from Government Securities ATSs to the extent that
compliance costs of Regulation ATS and SCI amendments are passed on to
them.
    The compliance costs of the proposed amendments include, among
other things, costs associated with establishing and updating policies
and procedures to protect subscriber confidential information, updating
systems to comply with recordkeeping requirements, gathering
information for new disclosures, filing Form ATS-G, and establishing
fair access standards.\651\ The Commission also believes that Currently
Exempted Government Securities ATSs would incur costs to comply with
Regulation ATS in addition to those incurred by Legacy Filers.\652\
Government Securities ATSs that meet the specified volume thresholds
would also incur compliance costs as SCI entities,\653\ such as costs
associated with documentation, mandatory reporting and dissemination of
SCI events, reporting of material systems changes, recordkeeping, and
implementing the policies and procedures related to systems capacity,
integrity, resiliency, availability, security, and compliance.
Regulation SCI also imposes some indirect requirements on other market
participants interacting with SCI entities (e.g., third-party vendors
providing SCI systems to SCI entities and members of SCI entities
participating in testing of business continuity and disaster recovery
plans).\654\
---------------------------------------------------------------------------

    \651\ See infra Section X.C.2.a for a discussion of compliance
costs associated with the proposed amendments to Regulation ATS.
    \652\ See infra Section X.C.2.a.i for a discussion of compliance
costs for Currently Exempted Government Securities ATSs.
    \653\ See infra Section X.C.2.b for a discussion of compliance
costs associated with the proposed amendments to Regulation SCI.
    \654\ See supra note 653.
---------------------------------------------------------------------------

    In addition to compliance costs, some market participants could
incur indirect

costs from the proposed amendments. A Government Securities ATS could
incur indirect costs if its competitive position in the market were
adversely affected as a result of the public disclosure requirement of
Form ATS-G. However, such costs to one ATS would constitute transfers
to other ATSs rather than a net social cost, and the Commission
believes that the risk of such transfers is likely to be low.\655\
Furthermore, as discussed in Section X.C.2.a.ii, some subscribers of a
Government Securities ATS could incur indirect costs if the subscribers
were to lose their informational advantage regarding the operational
facets of the ATS over other subscribers as a result of the public
disclosure requirement of Form ATS-G.
---------------------------------------------------------------------------

    \655\ See infra Section X.C.2.a.ii for a discussion about
transfer cost and why the Commission believes the risk of incurring
such transfer cost is likely to be low.
---------------------------------------------------------------------------

    The Commission believes that the amendments could foster
competition for order flow in the market for government securities and
repo execution services, help market participants make better informed
decisions about where to send their orders to achieve their trading or
investment objectives, enhance execution quality, and improve
efficiency and capital allocation. Moreover, the Commission believes
that the risk of the proposed amendments adversely affecting
competition in the market for government securities and repo execution
services, the incentive for Government Securities ATSs to innovate, and
the efficiency with which market participants achieve trading
objectives, is likely to be low.\656\
---------------------------------------------------------------------------

    \656\ See infra Section X.C.3.
---------------------------------------------------------------------------

    In addition to the economic effects discussed below, the proposed
amendment to Exchange Act Rule 3a1-1(b) would require a Government
Securities ATS to register as a national securities exchange if the ATS
meets certain volume thresholds and the Commission finds that the
exemption would not be necessary or appropriate in the public interest
or consistent with the protection of investors.\657\ The Commission
believes that the proposed amendment to Exchange Act Rule 3a1-1(b)
would enhance the Commission's ability to regulate certain large volume
ATSs upon registration as a national securities exchange, which would
improve the Commission's market surveillance and help protect
investors.\658\ A Government Securities ATS that the Commission
required to register as a national securities exchange would incur
costs corresponding with a registered national securities exchange,
including costs related to the requirement to be so organized to, and
have the capacity to carry out the purposes of the Exchange Act
including its own ability to enforce member compliance with securities
laws.\659\
---------------------------------------------------------------------------

    \657\ The Commission estimates that currently, there is no
Government Securities ATS that meets the volume thresholds specified
in the provisions of Exchange Act Rule 3a1-1(b). See supra Section
II.A.
    \658\ See Regulation ATS Adopting Release, supra note 35, at
70903-07 for a discussion of benefits and costs for registering as a
national securities exchange.
    \659\ See supra note 658.
---------------------------------------------------------------------------

    The Commission has attempted, where possible, to quantify the
benefits and costs anticipated to result from the proposed amendments
to Regulation ATS and Regulation SCI.
    However, as explained in more detail below, because the Commission
does not have, and in certain cases does not believe it can reasonably
obtain data that may inform the Commission on certain economic effects,
the Commission is unable to quantify certain economic effects. Further,
even in cases where the Commission has some data, it may not be
practicable to perform a quantitative analysis due to the number and
type of assumptions necessary to quantify certain economic effects,
which likely would render any such quantification unreliable.
Therefore, certain parts of the discussion below are qualitative in
nature and focus on the direction of the various effects of the
proposed amendments. The inability to quantify certain benefits and
costs, however, does not mean that the overall benefits and costs of
the final rules are insignificant.
1. Benefits
    The Commission assessed the anticipated economic benefits from the
various components of the proposed amendments to Regulation ATS and
SCI. The Commission believes that the proposed amendments to Regulation
ATS would help improve the oversight of Government Securities ATSs
\660\ by the Commission and SROs. The extension of Regulation ATS to
include Currently Exempted Government Securities ATSs would help
protect investors and help the Commission better oversee these ATSs. In
addition, the public disclosure of operational facets of Government
Securities ATSs via Form ATS-G under Rule 304 of Regulation ATS could
lower search costs in the selection of trading venues and result in
lower trading costs for market participants. Requiring Form ATS-G to be
filed on EDGAR in a structured format would improve the usability,
accessibility, and reliability of Form ATS-G disclosures for market
participants and for the Commission and SROs; EDGAR filing requirements
for Forms ATS and ATS-R, along with other amendments related to Forms
ATS, ATS-R, and ATS-N, would similarly enhance Commission and SRO
oversight of Form ATS, ATS-R, and ATS-N filers, thereby protecting
investors and helping ensure the adequacy and reliability of
information on the market. To the extent that there are market
participants excluded from trading on Government Securities ATSs, the
Commission believes that the extension of the Fair Access Rule for
government securities could increase trading venue options and lower
trading costs for those market participants. Finally, the Commission
believes the proposed amendments to Regulation SCI would help prevent
interruptions in the price discovery process and liquidity flows, and
thus would help prevent periods with pricing inefficiencies from
occurring.\661\
---------------------------------------------------------------------------

    \660\ Government Securities ATSs account for significant portion
of interdealer and overall volume in the government securities
market. See supra note 641.
    \661\ See infra Section X.C.1.b. See also supra Section X.B.6.
---------------------------------------------------------------------------

a. Extension of Regulation ATS to Currently Exempted Government
Securities ATSs and Amendment to Regulation ATS for All Government
Securities ATSs
    The proposed extension of Regulation ATS would extend Regulation
ATS to include Currently Exempted Government Securities ATSs; extend
Rule 304 of Regulation ATS to include all Government Securities ATSs
and amend Rule 304; and apply the Fair Access Rule. Each of these
changes would produce a number of benefits.
i. Extension of Regulation ATS To Include Currently Exempted Government
Securities ATSs
    The Commission believes that the proposed amendments to require
Currently Exempted Government Securities ATSs to comply with certain
provisions of Regulation ATS would help protect investors and enhance
the oversight of Currently Exempted Government Securities ATSs by the
Commission and SROs.
    The Commission believes that requiring Currently Exempted
Government Securities ATSs to adopt written safeguards and written
procedures to protect subscribers' confidential trading information and
to

separate ATS functions from other broker-dealer functions would help
prevent the potential for abuse of subscriber confidential trading
information. The trading information of subscribers to Currently
Exempted Government Securities ATSs could be subject to the same
potential abuse as at other ATSs, such as sharing confidential
subscriber trading information with other customers or the operator of
the ATS using the confidential trading information of other subscribers
to advantage its own trading on the ATS. The Commission, however, lacks
information on the extent to which the confidential trading information
of subscribers to Currently Exempted Government Securities ATSs is
currently being abused.\662\ Nonetheless, the Commission believes that
the establishment of written safeguards and written procedures to
separate Currently Exempted Government Securities ATS system functions
from other broker-dealer functions, including principal trading, and to
limit access to subscribers' confidential trading information to those
employees of the ATS who are operating the system or are responsible
for its compliance with applicable rules would help protect investors
by reducing the chance that a subscriber's confidential information is
accessed or shared inappropriately.
---------------------------------------------------------------------------

    \662\ Although the Commission currently lacks this information,
we describe above a potential scenario where the confidential
trading information of a subscriber could be impermissibly shared
with the personnel of the broker-dealer operator or any of its
affiliates, and the broker-dealer operator, in turn, could
potentially abuse that relationship to provide itself or its
affiliates with a direct competitive advantage over that subscriber.
See supra Section III.B.6.
---------------------------------------------------------------------------

    The Commission believes that requiring Currently Exempted
Government Securities ATSs to comply with the recordkeeping and
reporting requirements of Regulation ATS would improve the Commission's
ability to monitor Currently Exempted Government Securities ATSs and
improve its oversight of the market for government securities execution
services. Each quarter, a Currently Exempted Government Securities ATS
would be required to file a confidential Form ATS-R with the
Commission, which would include transaction volume statistics, the
identity of participants on the ATS, and the securities traded on the
ATS. This information would allow the Commission to better monitor the
types of investors that trade on these ATSs and the role they play in
the government securities and repo market.\663\
---------------------------------------------------------------------------

    \663\ See supra Section X.A for a discussion about the need for
greater transparency and public data availability regarding the
functioning of U.S. Treasury markets.
---------------------------------------------------------------------------

    The requirement for a Currently Exempted Government Securities ATS
to keep and preserve records of subscribers to the ATS, daily summaries
of trading in the ATS, and time-sequenced records of order information
in the ATS would help create a meaningful audit trail of activities on
the ATS. The preserved records of customer orders and transactions are
expected to improve the ability of the Commission or an SRO to detect
and investigate potential irregularities that might occur in the market
for government securities and repos, which would help promote a fair
and orderly market for government securities.
    The Commission believes that the extension of Regulation ATS to
include bank-operated Currently Exempted Government Securities ATSs
would improve transaction transparency, which would enhance the
Commission's or SRO's market surveillance and help protect
investors.\664\ In addition, the improvement in transaction
transparency could facilitate price discovery and price formation.
Under the proposal, bank-operated Currently Exempted Government
Securities ATSs would be required to register as broker-dealers and
become members of an SRO and report transactions in government
securities to TRACE,\665\ which FINRA would publicly disseminate. This
would result in the transaction reporting and public dissemination of
government securities transactions executed by bank-operated Currently
Exempted Government Securities ATSs, which are currently not reported
to TRACE. The Commission believes that the improvement in transaction
transparency could facilitate market surveillance by the Commission and
FINRA and help protect investors and enhance price discovery and price
formation.\666\ The Commission believes that the magnitude of benefits
from the increase in transaction transparency depends on the portion of
transactions executed by the bank-operated Currently Exempted
Government Securities ATSs, which are currently not reported to
TRACE.\667\ However, the Commission is unable to estimate the magnitude
of this benefit because the Commission does not have transaction data
executed by the estimated one bank-operated Currently Exempted
Government Securities ATS that exists, which would not be subject to
transaction reporting obligations.
---------------------------------------------------------------------------

    \664\ See supra note 662.
    \665\ See supra note 50.
    \666\ See supra note 662.
    \667\ See supra Section IX.D.1.
---------------------------------------------------------------------------

ii. Extension of Rule 304 of Regulation ATS To Include All Government
Securities ATSs and Amendments to Rule 304
    The Commission believes that the proposed extension of Rule 304 to
Currently Exempted Government Securities ATSs and Legacy Filers would
enhance the regulatory oversight of and the operational transparency of
Government Securities ATSs, which account for significant trading
volume of government securities,\668\ and also could lower search
costs, reduce trading costs, and improve the quality of order execution
for market participants. Furthermore, the Commission believes that
requiring Covered ATSs \669\ to post their Forms ATS-N and Forms ATS-G
on their websites would help facilitate public access to the forms for
market participants who may use Form ATS-N or Form ATS-G to obtain
information regarding operational facets of an ATS or to compare ATSs
in the selection of trading venues.\670\
---------------------------------------------------------------------------

    \668\ See supra note 643.
    \669\ Covered ATSs as defined in the proposed rule currently
would include 26 Government Securities ATSs and 34 NMS Stock ATSs if
the proposed rule were in effect today. See supra note 95. See also
supra Section II.B.
    \670\ See Rule 304(b)(3)(ii).
---------------------------------------------------------------------------

    First, the Commission believes that the information disclosed in
Form ATS-G, and the ability of the Commission to declare Form ATS-G
ineffective, would improve the quality of information the Commission
receives and significantly enhance the Commission's knowledge of the
operations of Government Securities ATSs, the activities of its broker-
dealer operator and its affiliates, and its safeguards and procedures
to protect the confidential trading information of subscribers. Based
in part on the Commission's experience with Form ATS-N for NMS Stock
ATSs, the Commission believes that extending Rule 304 to include all
Government Securities ATSs would result in better regulatory oversight
of these ATSs and help protect investors.\671\ Second, the Commission
believes that the proposed public disclosure of Form ATS-G would
enhance the operational transparency of all Government Securities
ATSs.\672\ Similar to Form ATS-N for NMS Stock ATSs, the Commission
believes that Form ATS-G would provide market participants in the
government securities markets with more uniform

information regarding how orders are handled and any potential
conflicts of interest that may arise from the ATS-related activities of
the broker-dealer operator or its affiliates. The Commission believes
that there is currently limited publicly available information
regarding the operations of Government Securities ATSs and that some
subscribers of a Government Securities ATS may be privy to more
detailed information about how their orders are executed, sent and/or
prioritized than other subscribers. The Commission believes that the
proposed public disclosure of Form ATS-G would help equalize
information distribution among market participants, lower search costs,
and assist market participants in selecting a Government Securities
ATSs for their orders, which could lower their trading costs and
improve the quality of their order execution.
---------------------------------------------------------------------------

    \671\ See supra note 663.
    \672\ See id.
---------------------------------------------------------------------------

    The Commission believes that the increase in amount, and the
improvement in quality, of information regarding Government Securities
ATSs via Form ATS-G filings would help improve the regulatory oversight
of the ATSs and help protect investors. Form ATS-G would improve the
amount and quality of information the Commission receives regarding
Government Securities ATSs because Form ATS-G would require Government
Securities ATSs to disclose more detailed information regarding their
operations than Form ATS does for Legacy Filers. For Currently Exempted
Government Securities ATSs, the Commission would receive this detailed
information about how those systems operate for the first time. For
example, compared to Form ATS, Form ATS-G requires detailed information
regarding the types of orders offered, how they interact and match, and
how customer order flow is segmented. Form ATS-G would require
Government Securities ATSs to report on the activities of the broker-
dealer operator and its affiliates in connection with the ATS, which
Form ATS does not require. The Commission's recent experience with Form
ATS-N informs this belief. Since February 2019, the Commission has
reviewed initial Form ATS-N filings and amendments thereto and engaged
in direct conversation with all NMS Stock ATSs about their Form ATS-N
filings. When new NMS Stock ATSs seek to begin operations, the initial
Form ATS-N provides the Commission with detailed information about how
the ATS will operate. With this knowledge, the Commission is better
able to oversee compliance and evaluate how NMS Stock ATSs as a group
are evolving. The Commission believes that similar information
disclosed in proposed Form ATS-G would also help make the examination
process of Government Securities ATSs more effective and efficient,
improving the ability of the Commission and the ATS's SRO to examine
for compliance with the federal securities laws.
    The Commission believes that the Commission's process to declare
Form ATS-G ineffective that is set forth in the proposed amendments
would help ensure the quality of information disclosed in Form ATS-G,
which would improve the efficiency in the regulatory oversight of
Government Securities ATS, with attendant benefits to market
participants who utilize Form ATS-G. The Commission's review of Form
ATS-G would not be merit-based; instead, it would focus on the
completeness and comprehensibility of the disclosures.\673\ The
proposed amendments would provide a process for the Commission to
declare a Form ATS-G ineffective if the form contained material
deficiencies with respect to, among other things, its accuracy,
currency, or completeness.\674\ The Commission believes that the
process would incentivize Government Securities ATSs to file accurate,
current, and complete public disclosures about their operations and
accordingly would improve the quality of information disclosed by the
ATSs as compared to the information currently filed on Form ATS by
Legacy Filers. In the Commission's experience, working with NMS Stock
ATSs on their Form ATS-N filings has helped ensure that such
disclosures are complete and comprehensible. Many NMS Stock ATSs have
opted to seek the Commission staff's input about pending material
amendments prior to filing, which has contributed to clearer and more
effective disclosures.
---------------------------------------------------------------------------

    \673\ See supra note 166. To emphasize that the Commission is
not conducting a merit-based review of Form ATS-G disclosures filed
with the Commission, the Commission is proposing to include a legend
on the Form ATS-G cover page stating that the Commission has not
passed upon the merits or accuracy of the disclosures in the filing.
See supra Section III.A.1.
    \674\ A Government Securities ATS would not qualify for the
exemption from the definition of ``exchange'' unless its Form ATS-G
becomes effective.
---------------------------------------------------------------------------

    The Commission believes that the public disclosure of Form ATS-G
could lower search costs, reduce trading costs, and improve the quality
of order execution for market participants.\675\ Specifically, the
Commission believes that requiring detailed public disclosures about
the operations of Government Securities ATSs would, among other things,
better standardize the type of information market participants receive
about those operations including how orders are handled, fee
structures, or any potential conflicts of interest that may arise from
the activities of the broker-dealer operator or its affiliates. Based
on the Commission's experience with its review of initial Form ATS-N
filings, the Commission believes that Form ATS-G would result in more
standardized public information about Government Securities ATSs. As a
result, search costs for market participants could be lower, as
consistent disclosure requirements for all Government Securities ATSs
as part of the proposed amendments to Regulation ATS should facilitate
market participants' comparison of Government Securities ATSs when
deciding which venue best suits their trading purposes. The Commission
believes the enhanced operational transparency resulting from the
public disclosures of Form ATS-G would aid market participants when
evaluating potential trading venues, which could lower their trading
costs and improve the quality of their order execution. Furthermore,
based on the Commission's experience, fees can be a primary factor for
market participants in deciding where to send their orders.\676\ Fee
disclosures on proposed Form ATS-G would help market participants
compare and analyze the fee structures across Government Securities
ATSs in an expedited manner and decide which ATS offers them the best
pricing according to the characteristics of their order flow and the
type of participant they are, which would lower their search costs and
trading costs.
---------------------------------------------------------------------------

    \675\ The proposed Rule 304(b)(3)(i) would require Government
Securities ATSs to make Form ATS-G public via posting on their
websites a direct URL hyperlink to the Commission's website that
contains their Form ATS-G filing. The proposed Rule 304(b)(3)(ii)
would require all Covered ATSs (26 Government Securities ATSs and 34
NMS Stock ATSs) to make the most recently disseminated Covered Forms
(Form ATS-G and Form ATS-N) public via posting the forms on their
websites. See supra Section II.B for the definition of the terms
``Covered ATS'' and ``Covered Form.'' See also supra note 95.
    \676\ See supra Section III.C.19.
---------------------------------------------------------------------------

    However, the Commission is unable to quantify these benefits to
market participants because the Commission lacks data on the amount of
information that is currently available to different market
participants regarding Government Securities ATS operations and the
activities of its broker-dealer operators and their affiliates. The
magnitude of the anticipated benefits discussed above would also depend
on a number of factors, including the extent to which market
participants would change their behavior as a result of

receiving the public disclosure of more comprehensive and uniform
information of this type in Form ATS-G. It is inherently difficult to
predict how different market participants will use the information
contained in Form ATS-G in evaluating and choosing the Government
Securities ATSs that best serve their trading objectives.
    With respect to the filing location and format of Form ATS-G, the
Commission believes requiring all Government Securities ATSs to file
Form ATS-G on the EDGAR system in a structured, machine-readable custom
eXtensible Markup Language (``custom XML'') format would benefit market
participants by improving the usability, accessibility, and reliability
of the Form ATS-G disclosures.\677\ By requiring a structured format
and a publicly accessible filing location for Form ATS-G, the
Commission would enable market participants to download the disclosed
information directly into their databases and analyze the information
using various tools and applications. This would make it easier for
market participants to aggregate the information and compare multiple
Government Securities ATSs to help select the venue that best suits
their trading purposes, thereby potentially avoiding the cost of paying
a third party data vendor to extract and structure the disclosed
information on their behalf.
---------------------------------------------------------------------------

    \677\ See supra Section IV. The custom XML format requirement
would be specified in the EDGAR Filer Manual and in the Instructions
to Form ATS-G. See Instruction A.5 to proposed Form ATS-G.
---------------------------------------------------------------------------

    The Commission also believes requiring all Government Securities
ATSs to submit Form ATS-G in a custom XML format would facilitate more
effective and thorough review and analysis of Government Securities
ATSs by the Commission, which should yield greater insights into the
operations of Government Securities ATSs and the activities of their
operators and affiliates. Additionally, Commission staff would be
better able to assemble and review a larger pool of data regarding
Government Securities ATSs. The Commission believes that both of these
outcomes would benefit market participants by facilitating the
Commission's examination process and thus would help protect investors
and ensure the sufficiency of information in the market related to
Government Securities ATSs.
    Requiring all Government Securities ATSs to file Form ATS-G on
EDGAR would benefit market participants by ensuring that the Form ATS-G
disclosures are in a centralized, publicly accessible filing location
with validation capabilities. Providing a centralized filing location
would prevent market participants from incurring additional costs to
locate and retrieve different Forms ATS-G from different filing
locations. Similarly, because EDGAR is a publicly accessible system, an
EDGAR requirement would prevent market participants from incurring
additional costs that would arise if an operator or other party were to
place any barriers to access Form ATS-G (such as a website registration
requirement). Because EDGAR provides basic validation capabilities, an
EDGAR requirement would reduce the incidence of non-discretionary
errors on Forms ATS-G, thereby improving the quality of Form ATS-G
disclosures.
iii. Application of Fair Access Rule to Government Securities ATSs
    The Commission believes that the proposed application of the Fair
Access Rule could increase trading venue options available to market
participants who are currently excluded, which could lower their
trading costs, to the extent that there are market participants
currently excluded from trading on Government Securities ATSs that meet
the specified volume thresholds. The Commission believes that requiring
Government Securities ATSs that meet the volume thresholds to establish
and objectively apply fair access standards could help prevent certain
market participants from being denied access to an ATS that trades a
significant portion of the market for U.S. Treasury Securities and
Agency Securities, to the extent there are any such market
participants. Denials of access are of particular concern when an ATS
captures a significant percentage of trading volume in a particular
type of securities. The Commission also believes that Form ATS-R
information regarding fair access grants, denials, and limitations of
access to Government Securities ATSs would improve the Commission's
ability to oversee those ATSs to evaluate for compliance with the Fair
Access Rule.
    Under the proposal, if a Government Securities ATS meets the fair
access volume thresholds, the ATS would be required to apply the same
access standards to all persons in a subscriber group. As a result, for
example, there would be a mechanism to prevent a Government Securities
ATS that met the volume threshold from unreasonably denying access to
one hedge fund while granting access to another similar hedge fund. The
Commission believes that to the extent there are any market
participants currently excluded from trading on Government Securities
ATSs, the proposed change would address any unreasonable exclusion
practices by Government Securities ATSs that have a significant market
share, which would increase trading platform options and lower trading
costs for previously excluded market participants.
b. Extension of Regulation SCI to Government Securities ATSs
    The Commission believes the proposed amendments to Regulation SCI
would promote the establishment of more robust systems that are less
likely to experience a system disruption by requiring Government
Securities ATSs that meet the definition of SCI entity to establish and
enforce written policies and procedures to ensure that their SCI
systems have adequate levels of capacity, integrity, resiliency,
availability, and security to maintain the SCI entity's operational
capability.\678\ The Commission believes that the proposed extension of
Regulation SCI could help strengthen the infrastructure and improve the
resiliency of the automated systems of Government Securities ATSs that
are important to the government securities markets. The Commission
expects requiring Government Securities ATSs that meet certain volume
thresholds to comply with Regulation SCI could help prevent system
issues from occurring and reduce the severity and duration of any
effects when such issues do occur. The Commission believes that this
would help facilitate the price discovery process and liquidity flows
in government securities market. Price discovery in the secondary
market for on-the-run U.S. Treasury Securities is important because the
transaction prices of on-the-run U.S. Treasury Securities are used as
risk-free rate benchmarks to price other securities transactions.\679\
---------------------------------------------------------------------------

    \678\ See supra Section VI.
    \679\ As noted in the October 15 Staff Report, supra note 14,
price discovery is especially important in the secondary market for
on-the-run U.S. Treasury Securities because the transaction prices
are used as risk-free rate benchmarks to price other securities
transactions.
---------------------------------------------------------------------------

    The Commission also believes that the requirement for a Government
Securities ATS that would be an SCI ATS to establish procedures to
disseminate information about SCI events to responsible SCI personnel,
ATS participants, and the Commission would help reduce the duration and
severity of any system distributions that do occur.\680\ The procedures
would improve the ability of such an ATS to quickly provide the
affected parties with critical information in the event that it
experiences a system disruption. This

could allow the affected parties to respond more quickly and
appropriately to the incident, which could help shorten the duration
and reduce the effects of a system event. Additionally, the Commission
believes that the requirement for a Government Securities ATS that
meets the definition of SCI ATS to conduct testing of its business
continuity and disaster recovery plans with its designated participants
and other industry SCI entities would help detect and improve the
coordination of responses to system issues that could affect multiple
trading venues and participants in the government securities and repo
market.\681\ This testing should help prevent these system disruptions
from occurring and help reduce the severity of their effects, if they
do occur.
---------------------------------------------------------------------------

    \680\ See supra note 678.
    \681\ See id.
---------------------------------------------------------------------------

    As discussed in Section X.B.6, one Government Securities ATS
operated by a broker-dealer operator of an NMS Stock ATS that is a SCI
entity could already have utilized some of the policies and procedures
of the NMS Stock ATS required by Regulation SCI and modified them as
needed for systems related to trading of U.S. Treasury Securities and
Agency Securities.\682\ However, the Commission believes that imposing
the requirements of Regulation SCI on systems related to trading of
U.S. Treasury Securities and Agency Securities could further strengthen
these policies and procedures, which would help improve the robustness
of SCI systems and SCI indirect systems.
---------------------------------------------------------------------------

    \682\ See supra Section X.B.6 for a discussion of Government
Securities ATSs of existing SCI entities.
---------------------------------------------------------------------------

c. Amendments to Rule 301(b)(2), Form ATS, Form ATS-R, and Form ATS-N
    The Commission believes that the proposed amendments to modernize
Form ATS and Form ATS-R would enhance the efficiency of the Commission
in overseeing ATSs as well as the efficiency of filing Forms ATS and
ATS-R for ATSs. Such amendments would apply to all ATSs that file Form
ATS and/or Form ATS-R. Requiring an ATS to specify the type of
amendment on Form ATS and to provide the cessation date, which is not
currently required, would better enable the Commission to determine
whether an ATS is in compliance with Regulation ATS.
    The Commission believes that the proposed amendments to Form ATS-R
would help facilitate the Commission's review and provide the
Commission with more specificity for all categories of securities that
ATSs trade. The Commission believes that requiring the ATS to indicate
whether it was subject to the Fair Access Rule during any portion of
the period covered by the report would facilitate the Commission's
review of Form ATS-R submissions. The Commission believes that this
change would help the Commission facilitate compliance with the trading
volume-based thresholds for the Fair Access Rule and Regulation
SCI.\683\ The Commission believes that updating the descriptions of
certain categories of securities for which volume is required to be
reported on Form ATS-R by an ATS would reduce potential confusion for
an ATS when completing Form ATS-R and would enable an ATS to reflect
more accurately its trading activities during the applicable reporting
period.\684\ Furthermore, adding new Item 4K of Form ATS-R would result
in consistent reporting of the total dollar volume of transactions in
repurchase or reverse repurchase agreements that ATSs trade. New Item
5C of Form ATS-R would provide the Commission with information
regarding the types of securities subject to repurchase or reverse
repurchase agreements reported in Item 4K of Form ATS-R. The Commission
believes that adding new Item 5D would provide the Commission with more
specific information about the types of options (equity options and
options on government securities) that each ATS trades, which would
help enhance the regulatory oversight of ATSs.
---------------------------------------------------------------------------

    \683\ See supra Sections II.D and VI.
    \684\ See supra Section V.C for a discussion of the proposal to
replace the names of the securities categories, ``Nasdaq National
Market Securities'' and ``Nasdaq SmallCap Market Securities,''
reported in Items 4 and 6 of Form ATS-R, with ``Nasdaq Global Market
Securities'' and ``Nasdaq Capital Market Securities,'' respectively.
---------------------------------------------------------------------------

    The Commission is also proposing to require Forms ATS and ATS-R,
which are currently required to be sent to the Commission in paper
form, to be filed on EDGAR.\685\ All ATSs subject to Regulation ATS are
required to file a Form ATS-R, and, as proposed, all ATSs that do not
trade NMS stocks or government securities would file a Form ATS. As
discussed above, requiring forms to be filed on EDGAR would provide a
centralized filing location with validation capabilities for submitted
filings.\686\ The Commission believes that an EDGAR requirement would
also increase filing efficiencies for ATSs by removing the need to
print and mail paper versions of Forms ATS and ATS-R.
---------------------------------------------------------------------------

    \685\ See supra note 308.
    \686\ See supra Section X.C.1.a.ii.
---------------------------------------------------------------------------

    The Commission is also proposing several revisions to Form ATS-N,
including: deletion of a checkbox requiring NMS Stock ATSs to indicate
whether they currently operate pursuant to a Form ATS; addition of a
requirement to indicate whether the registered broker-dealer has been
authorized by its national securities association to operate an ATS;
deletion of signature block language that refers to the signatory as
``duly sworn''; and changes to the Form's definitions of ``Person'' (to
reflect the Exchange Act definition, not the Advisers Act definition)
and ``NMS Stock ATS'' (to reflect the proposed changes to Rule
300).\687\ Certain of these proposed changes represent technical
clarifications that are unlikely to materially impact the disclosures
on Form ATS-N, but would facilitate the preparation and filing of Form
ATS-N. With respect to the proposed requirement for Form ATS-N filers
to indicate whether the registered broker-dealer has been authorized by
its SRO to operate an ATS, the Commission believes this would benefit
market participants by facilitating the Commission's oversight of an
NMS Stock ATS operator's compliance with SRO rules (including the need
to obtain approval to operate an ATS), thereby likely decreasing the
incidence of non-compliance with those rules.
---------------------------------------------------------------------------

    \687\ See supra Section V.D.
---------------------------------------------------------------------------

2. Costs
    Government Securities ATSs would incur both initial implementation
and ongoing compliance costs due to the proposed amendments to
Regulation ATS and Regulation SCI. In addition, market participants in
the government securities and repo market could face higher trading
costs (e.g., higher fees) from Government Securities ATSs, to the
extent that compliance costs from Regulation ATS and Regulation SCI
amendments are passed on to market participants. The Commission
estimates that Government Securities ATSs would incur the following
approximate aggregate PRA compliance costs and FINRA membership related
costs associated with the proposed amendments to Regulation ATS.\688\
---------------------------------------------------------------------------

    \688\ The Commission is unable to estimate costs associated with
FINRA rules, such as FINRA examination and surveillance, trade
reporting obligations, and certain investor protection rules, for
the bank-operated Currently Exempted Government Securities ATS. See
infra Section X.C.2.a.i for a discussion about compliance costs
associated with FINRA rules for the bank-operated Currently Exempted
Government Securities ATS. Furthermore, to comply with the Fair
Access Rule, the Commission recognizes that Government Securities
ATSs could incur non-PRA compliance costs (e.g., costs associated
with changing fee structures and adapting the operating model to
grant access to market participants), for which the Commission is
unable to provide cost estimates. See infra Section X.C.2.a.iii for
a discussion about non-PRA compliance costs associated with the Fair
Access Rule for Government Securities ATSs.
    \689\ The Commission estimates 7 Currently Exempted Government
Securities ATSs would be subject to the proposed amendments to
Regulation ATS. See also supra Section IX.C.
    \690\ This cost includes the approximate initial cost of
$275,000 for registering as a broker-dealer with the Commission and
becoming a FINRA member for 1 estimated bank-operated Currently
Exempted Government Securities ATS to comply with Rule 301(b)(1).
See also infra Section X.C.2.a.i for a discussion of the initial
cost of registering as a broker-dealer with the Commission via Form
BD and becoming a FINRA member for a bank-operated Currently
Exempted Government Securities ATS to comply with Rule 301(b)(1).
    \691\ This cost includes the approximate ongoing annual cost of
$50,000 for registering as a broker-dealer with the Commission and
maintaining FINRA membership for 1 estimated bank-operated Currently
Exempted Government Securities ATS to comply with Rule 301(b)(1).
See also infra Section X.C.2.a.i for a discussion of the ongoing
annual cost of registering as a broker-dealer with the Commission
via Form BD and becoming a FINRA member for a bank-operated
Currently Exempted Government Securities ATS to comply with Rule
301(b)(1).
    \692\ The Commission estimates 26 Government Securities ATSs
would be subject to the proposed amendments to Regulation ATS. See
also supra Section IX.C.
    \693\ This cost does not include the aggregate initial PRA costs
associated with Rule 304(b)(3)(ii) for 34 NMS Stock ATSs. See infra
Section X.C.2.a.ii for a discussion about the aggregate initial PRA
costs to comply with the proposed amendments to Rule 304 of
Regulation ATS. See also infra notes 726 and 728.
    \694\ This cost does not include the aggregate ongoing annual
PRA costs associated with Rule 304(b)(3)(ii) for 34 NMS Stock ATSs.
See infra Section X.C.2.a.ii for a discussion about the aggregate
ongoing annual PRA costs to comply with the proposed amendments to
Rule 304 of Regulation ATS. See also infra notes 727 and 729.
    \695\ The Commission estimates 1 bank-operated Currently
Exempted Government Securities ATS would initially be required to
file a Form ID to gain access to EDGAR as a result of the proposed
amendments. See also supra Section IX.D.2.b.iv. In addition, the
Commission notes that it is proposing changes to Form ATS-N to
delete a question related to legacy status, and to include a
checkbox asking if the registered broker-dealer is authorized by a
national securities association to operate an ATS; the Commission
believes that because this information should be readily available
to a filer and requires only marking a checkbox, this would not
impose additional monetary costs above the baseline for Form ATS-N
filers. See also supra note 520.
    \696\ See infra Section X.C.2.c for a discussion about the
aggregate initial PRA costs to comply with the proposed amendments
to Rule 301(b)(2), Form ATS, and Form ATS-R.
    \697\ See infra Section X.C.2.c for a discussion about the
aggregate ongoing annual PRA costs to comply with the proposed
amendments to Rule 301(b)(2), Form ATS, and Form ATS-R.
    \698\ The Commission estimates 3 Government Securities ATSs
would be subject to the Fair Access Rule. See also supra Section
IX.D.3.
    \699\ See infra Section X.C.2.a.iii for a discussion about the
aggregate ongoing annual PRA costs to comply with the Fair Access
Rule.

                        Table X.5--Regulation ATS
------------------------------------------------------------------------
                                             Aggregate       Aggregate
             Regulation ATS                initial costs   annual costs
------------------------------------------------------------------------
i. Regulation ATS for Currently Exempted  \690\ $344,000  \691\ $156,000
 Government Securities ATSs \689\.......
ii. Rule 304 for all Government                    \693\   \694\ 514,000
 Securities ATSs \692\..................       1,194,000
iii. Rule 301(b)(2) and Forms ATS and        \696\ 1,800    \697\ 46,000
 ATS-R \695\............................
iv. Fair Access Rule \698\..............  ..............    \699\ 25,000
------------------------------------------------------------------------

    The Commission also believes that Government Securities ATSs with
significant volume in U.S. Treasury Securities or Agency Securities
would incur the following approximate aggregate PRA and non-PRA
compliance costs associated with Regulation SCI:

                        Table X.6--Regulation SCI
------------------------------------------------------------------------
                                Aggregate initial     Aggregate annual
    Regulation SCI \700\              costs                 costs
------------------------------------------------------------------------
PRA costs \701\.............  $1,631,000..........  $2,413,000.
Non-PRA costs \702\.........  960,000 ~ $7.2        640,800 ~ $4.8
                               million.              million.
------------------------------------------------------------------------

    In addition to compliance costs, some market participants could
experience indirect costs from the proposal. For example, a Government
Securities ATS could incur indirect costs if its competitive position
in the market were adversely affected as a result of the public
disclosure requirement of Form ATS-G. However, such costs to one ATS
would constitute transfers to other ATSs rather than a net social cost,
and the Commission believes that the risk of such transfers is likely
to be low.\703\
---------------------------------------------------------------------------

    \700\ The Commission estimates 3 Government Securities ATSs
would be subject to Regulation SCI. See also supra Section IX.D.5.
The costs tabulated in this table do not include costs for market
participants interacting with SCI entities (e.g., third-party
vendors providing SCI systems and/or indirect SCI systems to SCI
entities, members or participants of SCI entities participating in
testing of business continuity and disaster recovery plans). See
also infra Section X.C.2.b.
    \701\ These cost estimates are based on the 2018 SCI PRA
Extension. See 2018 SCI PRA Extension, supra note 529. See also
supra Section IX.D.5 discussing PRA burden estimates related to
compliance with Regulation SCI.
    \702\ See infra note 767. See also infra Section X.2.b and
Regulation SCI Adopting Release, supra note 2, at 72416.
    \703\ See infra Section X.C.2.a.ii for a discussion about
transfer costs and why the Commission believes the risk of incurring
such transfer costs is likely to be low.
---------------------------------------------------------------------------

a. Extension of Regulation ATS to Currently Exempted Government
Securities ATSs and Amendment to Regulation ATS for All Government
Securities ATSs
    The proposed extension of Regulation ATS would generate a number of
costs for Currently Exempted Government Securities ATSs and Legacy
Filers associated with extending Regulation ATS to include Currently
Exempted Government Securities ATSs; extending Rule 304 of Regulation
ATS to include all Government Securities ATSs and amending Rule 304;
and applying the Fair Access Rule.\704\
---------------------------------------------------------------------------

    \704\ See supra Section X.C.2 for a discussion and table
regarding the summary of PRA compliance costs associated with the
proposed amendments to Regulations ATS.
---------------------------------------------------------------------------

i. Extension of Regulation ATS To Include Currently Exempted Government
Securities ATSs
    The Commission estimates that, together, 7 Currently Exempted
Government Securities ATSs would incur the aggregate initial PRA costs
of approximately $27,000 \705\ and the

aggregate ongoing annual PRA costs of approximately $77,000 \706\ to
comply with the applicable rules of Regulation ATS (other than the
costs to comply with Rule 304, which are discussed below).\707\ In
addition, the Commission estimates that 1 bank-operated Currently
Exempted Government Securities ATS would incur the additional initial
costs of approximately $275,000 \708\ and the ongoing annual costs of
approximately $50,000 \709\ to register as a broker-dealer with the
Commission via Form BD and become a member of FINRA under the proposed
Rule 301(b)(1).\710\
---------------------------------------------------------------------------

    \705\ $27,146 (estimated aggregate initial cost of compliance
with Rule 301(b)(10) for 7 Currently Exempted Government Securities
ATSs). See infra note 719. The Commission estimates the wage rate
associated with these burden hours based on salary information for
the securities industry compiled by SIFMA. The estimated wage figure
for attorneys, for example, is based on published rates for
attorneys, modified to account for a 1,800 hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead yielding an effective hourly rate for 2013 of
$380 for attorneys. See Securities Industry and Financial Markets
Association, Management & Professional Earnings in the Securities
Industry--2013, available at https://www.sifma.org/resources/research/managementand-professional-earnings-in-the-securitiesindustry-2013/. These estimates are adjusted for an
inflation rate of 11.34 percent based on the Bureau of Labor
Statistics data on CPI-U between October 2013 and May 2020.
Therefore, the current inflation adjusted effective hourly wage
rates for attorneys are estimated at $423 ($380 x 1.1134). We
discuss other costs of compliance with the proposed rules below.
    \706\ $22,365 (estimated aggregate ongoing cost of compliance
with Rule 302 for 7 Currently Exempted Government Securities ATSs) +
$7,455 (estimated aggregate ongoing cost of compliance with Rule 303
for 7 Currently Exempted Government Securities ATSs) + $40,719
(estimated aggregate ongoing cost of compliance with Rule 301(b)(9)
for 7 Currently Exempted Government Securities ATSs) + $6,916
(estimated aggregate ongoing cost of compliance with Rule 301(b)(10)
for 7 Currently Exempted Government Securities ATSs) = $77,455. For
an explanation of each of these costs, see infra notes713, 715, 717,
and 721. Costs of compliance with Rule 301(b)(5), as applicable, are
discussed below. See infra note 757.
    \707\ These aggregated compliance costs associated with the PRA
include the costs to comply with Rule 301(b)(1), Rule 301(b)(2),
Rule 301(b)(9), Rule 301(b)(10), Rule 302, and Rule 303(a)(1)(v).
These aggregated compliance costs associated with the PRA do not
include the compliance costs associated with Rule 301(b)(2)(viii),
Rule 304 of Regulation ATS, the Fair Access Rule, and Regulation
SCI.
    \708\ The Commission estimates that 1 bank-operated Currently
Exempted Government Securities ATS would incur the aggregate initial
cost for registering as a broker-dealer with the Commission via Form
BD and becoming a FINRA member under Rule 301(b)(1) of approximately
$275,000. See also infra note 724.
    \709\ The Commission estimates that 1 bank-operated Currently
Exempted Government Securities ATS would incur the aggregate ongoing
cost associated with Form BD and maintaining FINRA membership under
Rule 301(b)(1) of approximately $50,000. See also infra note 725.
    \710\ See supra note 429 and accompanying text for hourly
burden. The initial PRA costs would be: Compliance Manager at $315 x
2.75 hours x 1 estimated bank-operated Currently Exempted Government
Securities ATS = $866.25. See supra note 430. The ongoing annual PRA
costs would be: (Compliance Manager at $315 x 0.33 hours) x 3
amendments x 1 estimated bank-operated Currently Exempted Government
Securities ATS = $311.85. See supra note 432.
---------------------------------------------------------------------------

    Currently Exempted Government Securities ATSs would incur ongoing
annual PRA costs to comply with recordkeeping requirements of Rules 302
and 303 of Regulation ATS.\711\ Currently Exempted Government
Securities ATSs would also incur ongoing annual PRA costs associated
with filing information required by Form ATS-R with the Commission each
quarter to comply with Rule 301(b)(9). The requirements to establish
written safeguards and procedures to protect the confidential trading
information of ATS subscribers under Rules 301(b)(10) and 303(a)(1)(v)
would impose one-time initial PRA costs on Currently Exempted
Government Securities ATSs. In addition, Currently Exempted Government
Securities ATSs would incur ongoing annual PRA costs to update and
preserve the written safeguards.
---------------------------------------------------------------------------

    \711\ Rule 301(b)(8) would require Currently Exempted Government
Securities ATSs to comply with the requirements of Rules 302 and 303
of Regulation ATS. Legacy Filers already comply with Rules 302 and
303 of Regulation ATS. See also supra Section IX.D.1.b.
---------------------------------------------------------------------------

    Table X.7 tabulates initial and ongoing annual PRA costs associated
with Rules 302, 303, 301(b)(9), 301(b)(10), and 303(a)(1)(v):

------------------------------------------------------------------------
           Burden               Initial PRA costs     Annual PRA costs
------------------------------------------------------------------------
Recordkeeping under Rule 302  N/A.................  Per ATS:
                                                     $3,195,\712\
                                                     Industry:
                                                     $22,365.\713\
Recordkeeping under Rule 303  N/A.................  Per ATS:
                                                     $1,065,\714\
                                                     Industry:
                                                     $7,455.\715\
Filing Form ATS-R under Rule  N/A.................  Per ATS:
 301(b)(9).                                          $5,817,\716\
                                                     Industry:
                                                     $40,719.\717\
Written safeguards and        Per ATS:              Per ATS: $988,\720\
 procedures under Rules        $3,878,\718\          Industry:
 301(b)(10) and 303(a)(1)(v).  Industry: $27,146     $6,916.\721\
                               \719\.
------------------------------------------------------------------------

    The Commission believes that Currently Exempted Government
Securities ATSs that are banks (i.e., bank-operated Currently Exempted
Government Securities ATSs) would incur additional compliance costs
related to registering with the Commission as broker-dealers, which
entails becoming members of an SRO, such as FINRA, compared to those
not operated by banks. In addition, as members of FINRA, bank-operated
Currently Exempted Government Securities ATSs would incur costs related
to FINRA examination and surveillance, trade reporting obligations, and
certain investor protection rules.\722\ It is the Commission's
understanding that bank-operated Currently Exempted Government
Securities ATSs may adopt a structure where the ATS is operated by a
bank affiliate that is a registered broker-dealer, rather than by the
bank itself.\723\ In this case, the bank affiliates operating ATSs
would be required to register as broker-dealers with the Commission via
Form BD and become members of an SRO under the proposed Rule 301(b)(1).
The Commission estimates that 1 bank-operated Currently Exempted
Government Securities ATS would register as a broker-dealer with the
Commission via Form BD and

become a member of an SRO under the proposed Rule 301(b)(1).
---------------------------------------------------------------------------

    \712\ Compliance Clerk at $71 x 45 hours = $3,195. See supra
note 434. This burden is equal to the Commission's estimate of the
annual costs that a Legacy Filer currently bears for fulfilling the
requirements of Rule 302.
    \713\ $3,195 x 7 Currently Exempted Government Securities ATSs =
$22,365.
    \714\ Compliance Clerk at $71 x 15 hours = $1,065. See supra
note 436. This burden is equal to the Commission's estimate of the
annual costs that a Legacy Filer currently bears for fulfilling the
requirements of Rule 303.
    \715\ $1,065 x 7 Currently Exempted Government Securities ATSs =
$7,455.
    \716\ (Attorney at $423 x 12 hours) + (Compliance Manager at
$315 x 1 hour) + (Compliance Clerk at $71 x 6 hours) = $5,817. See
supra note 438. This burden is equal to the burden that Legacy
Filers bear for complying with Rule 301(b)(9). See supra Section
IX.D.1.c.
    \717\ $5,817 x 7 Currently Exempted Government Securities ATSs =
$40,719.
    \718\ (Attorney at $423 x 9 hours) + (Compliance Clerk at $71 x
1 hour) = $3,878. See supra note 443.
    \719\ $3,878 x 7 Currently Exempted Government Securities ATSs =
$27,146.
    \720\ (Attorney at $423 x 2 hours) + (Compliance Clerk at $71 x
2 hours) = $988. See supra note 445. This burden is equal to the
Commission's estimate of the annual costs that a Legacy Filer
currently bears to comply with the rule under the proposal.
    \721\ $988 x 7 Currently Exempted Government Securities ATSs =
$6,916.
    \722\ See supra notes 108-110.
    \723\ See supra Section II.C for a discussion of bank-operated
Currently Exempted Government Securities ATS. Because a bank-
operated Government Securities ATS could comply with the proposed
requirements by, for example, restructuring so that an existing
affiliate operates the ATS, the Commission does not consider costs
that would be associated with creating a new bank-affiliated entity
to be part of the incremental costs of the proposal.
---------------------------------------------------------------------------

    The Commission estimates an initial cost of approximately $275,000
to register as a broker-dealer with the Commission via Form BD and
become a member of FINRA.\724\ Additionally, the Commission estimates
an ongoing annual cost of approximately $50,000 to maintain the broker-
dealer registration with the Commission and FINRA membership.\725\ The
Commission believes that these costs related to broker-dealer
registration and FINRA membership are relevant primarily to bank-
operated Currently Exempted Government Securities ATSs. However, these
estimates are uncertain because the Commission does not have
information on the estimated 1 bank-operated Currently Exempted
Government Securities ATS, such as the number of registering persons,
profitability, the degree of reliance on outside legal or consulting
costs necessary for effectively completing the application to be a
member of FINRA, and the current sample size of one may be too small to
be a reliable indicator of industry costs. For example, the initial
registration costs for FINRA membership is higher for entities with a
larger number of associated persons being registered. The ongoing costs
to remain a FINRA member vary based on the profitability and the size
(i.e., the number of registered persons and the number of branch
offices) of the entity. Furthermore, the Commission is unable to
provide estimated costs related to FINRA examination and surveillance,
trade reporting obligations, and certain investor protection rules
because these costs are based on compliance with FINRA rules. The costs
associated with FINRA examination and surveillance, trade reporting
obligations, and certain investor protection rules may depend on
various factors, such as the costs of updating systems for trade
reporting requirements and the costs of complying with FINRA rules
(including drafting policies and procedures as may be required for the
bank-operated Currently Exempted Government Securities ATS), for which
the Commission does not have information. The Commission invites
comments on costs that a bank-operated Government Securities ATS could
incur in relation to FINRA membership, FINRA examination and
surveillance, trade reporting, and certain investor protection rules.
---------------------------------------------------------------------------

    \724\ See Exchange Act Release No. 33-9974 (October 30, 2015),
80 FR 71388, 71509 (November 16, 2015) (``Regulation Crowdfunding
Adopting Release''). In addition to the initial costs to become a
member of FINRA, this cost includes the paperwork related initial
costs of $866.25 for filing Form BD with the Commission. See also
supra note 708.
    \725\ In addition to the ongoing annual costs to maintain a
membership with FINRA, this cost includes the costs of paperwork
related ongoing annual costs of $311.85 to amend Form BD with the
Commission. See supra note 709. See also Regulation Crowdfunding
Adopting Release, supra note 724, at 71509.
---------------------------------------------------------------------------

ii. Extension of Rule 304 of Regulation ATS To Include All Government
Securities ATSs and Amendments to Rule 304
    The Commission estimates that all 26 Government Securities ATSs
would incur the aggregate initial PRA costs of approximately $1,143,000
\726\ to complete Form ATS-G and to make Form ATS-G public. The
Commission estimates that all 26 Government Securities ATSs would incur
the aggregate ongoing annual PRA costs of approximately $331,000 \727\
to amend their Forms ATS-G. In addition, the Commission estimates that
some Legacy Filers would incur PRA costs associated with amending Form
ATS and filing Form ATS-R. As discussed below, the Commission estimates
that 17 Legacy Filers would incur the aggregated initial PRA costs of
approximately $51,000 \728\ for amending Form ATS and the aggregated
ongoing annual PRA costs of approximately $183,000 \729\ for amending
Form ATS and Form ATS-R. Furthermore, the Commission estimates that 34
NMS Stock ATSs would incur the aggregated initial and ongoing annual
PRA costs of approximately $39,000 \730\ and $118,000,\731\
respectively, to make the most recently disseminated Forms ATS-N public
via posting on the ATSs' websites. The Commission also believes that
some subscribers of Government Securities ATSs could incur indirect
costs resulting from the public disclosure requirement of Form ATS-G.
---------------------------------------------------------------------------

    \726\ $1,097,773 (estimated aggregate initial cost associated
with completing Form ATS-G required by Rule 301(b)(2)(viii) and Rule
304 for 26 Government Securities ATSs) + $15,028 (estimated
aggregate initial cost associated with making public posting on
ATS's website of direct URL hyperlink to the Commission's website
that contains Form ATS-G, as required by Rule 304(b)(3)(i) for 26
Government Securities ATSs) + $30,056 (estimated aggregate initial
cost associated with making public posting on ATS's website of the
most recently disseminated Form ATS-G, as required by Rule
304(b)(3)(ii) for 26 Government Securities ATSs) = $1,142,857. See
also infra notes 733, 747, and 749.
    \727\ $241,129 (estimated aggregate ongoing cost associated with
amending Form ATS-G required by Rule 301(b)(2)(viii) and Rule 304
for 26 Government Securities ATSs) + $90,168 (estimated aggregate
ongoing cost associated with making public posting on ATS's website
of the most recently disseminated Form ATS-G, as required by Rule
304(b)(3)(ii) for 26 Government Securities ATSs) = $331,297. See
also infra notes 735 and 749.
    \728\ $50,966 (estimated aggregate initial cost associated with
amending Form ATS, as required by Rule 301(b)(2)(viii) for 17 Legacy
Filers). See also infra note 742.
    \729\ $69,547 (estimated aggregate ongoing cost associated with
amending Form ATS required by Rule 301(b)(2)(viii) for 17 Legacy
Filers) + $113,271 (estimated aggregate ongoing cost associated with
amending Form ATS-R, as required by Rule 301(b)(9) for 17 Legacy
Filers) = $182,818. See also infra notes 733 and 744.
    \730\ $39,304 (estimated aggregate initial cost associated with
making public posting on ATS's website of the most recently
disseminated Form ATS-N, as required by Rule 304(b)(3)(ii) for 34
NMS Stock ATSs). See also infra note 749.
    \731\ $117,912 (estimated aggregate ongoing cost associated with
making public posting on ATS's website of the most recently
disseminated Form ATS-N, as required by Rule 304(b)(3)(ii) for 34
NMS Stock ATSs). See also infra note 749.
---------------------------------------------------------------------------

    The proposed amendments to Regulation ATS would impose PRA costs on
all Government Securities ATSs in that they would require Government
Securities ATSs to adhere to heightened disclosure and reporting
requirements regarding their operations. The Commission expects the PRA
costs of the proposed amendments to be incremental relative to the PRA
costs associated with the existing requirements. Specifically, the
Commission believes that the incremental PRA costs would consist
largely of providing new disclosures and updating records and retention
policies necessary to comply with the proposed amendments. The
Commission estimates that all 26 Government Securities ATSs would need
to comply with the proposed amendments to Regulation ATS relating to
Rules 301(b)(2)(viii) and 304, which require the filing of proposed
Form ATS-G. Some of the information requests on Form ATS-G would be
applicable to only Government Securities ATSs that meet the applicable
volume thresholds.\732\ This would result in the aggregate initial PRA
cost of $1,097,773 for all Government Securities ATSs to complete Form
ATS-G and comply with proposed Rules 301(b)(2)(viii) and 304 of
Regulation ATS.\733\
---------------------------------------------------------------------------

    \732\ See supra Section IX.D.2.b.i.
    \733\ Aggregate costs to complete Part I of Form ATS-G:
(Compliance Clerk at $71 x 0.75 hours) x 26 Government Securities
ATSs = $1,384.50 (see supra note 473). Aggregate costs to complete
Part II of Form ATS-G: ((Attorney at $423 x 18.5 hours) +
(Compliance Manager at $315 x 9.5 hours) + (Sr. Systems Analyst at
$289 x 1 hour) + (Sr. Marketing Manager at $311 x 2 hours)) x 26
Government Securities ATSs = $304,954 (see supra note 475).
Aggregate costs to complete Part III items applicable to all
respondents: ((Attorney at $423 x 19.5 hours) + (Compliance Manager
at $315 x 26.2 hours) + (Sr. Systems Analyst at $289 x 26.55 hours)
x 26 Government Securities ATSs = $628,535 (see supra note 477).
Aggregate costs to complete Part III, Item 24(a): ((Attorney at $423
x 2 hours) + (Compliance Manager at $315 x 1 hour) + (Sr. Systems
Analyst at $289 x 2 hours)) x 3 ATSs subject to the requirement =
$5,217. Aggregate costs to complete Part III, Item 24(b): (Attorney
at $423 x 2 hours) + (Compliance Manager at $315 x 1 hour) + (Sr.
Systems Analyst at $289 x 2 hours)) x 1 ATS subject to the
requirement = $1,739. ($1,385 (Part I) + $304,954 (Part II) +
$628,535 (Part III items applicable to all filers) + $5,217 (Part
III, Item 24(a)) + $1,739 (Part III, Item 24(b)) + $155,896
(baseline) + $47 (access to EDGAR) = $1,097,773 total aggregate
costs.

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

    In addition to the initial PRA costs mentioned above, Government
Securities ATSs would also incur ongoing PRA costs to comply with the
proposed amendments to Rule 3a1-1(a) and Regulation ATS. For instance,
Government Securities ATSs would incur ongoing PRA costs associated
with amending their Form ATS-G 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-G amendment, the
Commission estimates that a Government Securities ATS would incur
approximately $9,274 to prepare and file its Form ATS-G
amendments.\734\ This would result in the aggregate ongoing annual PRA
cost of $241,129 for all Government Securities ATSs to amend their
Forms ATS-G and comply with proposed Rules 301(b)(2)(viii) and 304 of
Regulation ATS.\735\
---------------------------------------------------------------------------

    \734\ See supra note 483. (Attorney at $423 x 16.5 hours) +
(Compliance Manager at $315 x 6 hours) + (Compliance Clerk at $71 x
5.7 hours) = $9,274.2.
    \735\ 28.2 total hours (see supra note 484) x 26 Government
Securities ATSs = 733.2 hours. $9,274.20 x 26 Government Securities
ATSs = $241,129.
---------------------------------------------------------------------------

    Requiring Form ATS-G to be filed on EDGAR would impose only a
minimal cost, at most, on Government Securities ATSs. The Commission
believes requiring proposed Form ATS-G to be filed on EDGAR would
impose the aggregate initial PRA cost of approximately $47 for 1 bank-
operated Currently Exempted Government Securities ATS,\736\ and the
aggregate ongoing annual PRA costs of approximately $47 for 1 new
Government Securities ATS per year that may be operated by an entity
without prior access to EDGAR.\737\ Because all Legacy Filers are
operated by registered broker-dealers, there would be no burden
associated with gaining access to EDGAR for Legacy Filers.\738\ The
Commission estimates that 1 Currently Exempted Government Securities
ATS is operated by a bank, not a registered broker-dealer; as such,
there would be a total cost of approximately $47 associated with
gaining access to EDGAR (assuming the bank operator is not subject to
other EDGAR filing requirements).\739\
---------------------------------------------------------------------------

    \736\ (Compliance Manager at $315 x 0.15 hours) x 1 bank-
operated Currently Exempted Government Securities ATS = $47.25. See
supra note 509. This cost is reflected in the aggregate initial
costs discussed earlier in this section.
    \737\ (Compliance Manager at $315 x 0.15 hours) x 1 new
Government Securities ATS = $47.25. See supra note 509. This cost is
reflected in the aggregate ongoing annual costs discussed earlier in
this section.
    \738\ See supra Section IX.C.
    \739\ (Compliance Manager at $315 x 0.15 hours) x 1 bank-
operated Currently Exempted Government Securities ATS = $47.25. See
supra notes 515 and 516.
---------------------------------------------------------------------------

    Requiring Form ATS-G to be filed in a custom XML format would not
impose any incremental costs on filers as compared to an unstructured
format such as HTML. All Government Securities ATSs would be given the
option of filing Form ATS-G using a web-fillable form that will render
into XML in EDGAR, or to file directly in XML using the custom XML
schema for ATSs as published on the Commission's website.\740\ Given
the availability of the web-fillable form, the XML requirement would
not impose upon any Government Securities ATS the need to license XML-
based filing preparation software or establish XML-based filing
processes.
---------------------------------------------------------------------------

    \740\ See supra Section IV. This reflects the current filing
methods for Form ATS-N.
---------------------------------------------------------------------------

    Some existing broker-dealers that operate ATSs that transact in
securities other than government securities or repos in addition to
operating the Government Securities ATSs might incur additional costs
to comply with the proposed amendments. Pursuant to the proposed
amendments to Regulation ATS, a Government Securities ATS could not
trade securities other than government securities or repos.\741\
Accordingly, broker-dealers that operate an ATS that currently trades
government securities and repos and securities other than government
securities or repos, would incur additional PRA costs compared to a
Currently Exempted Government Securities ATS, which only trades
government securities or repos, because the former would be required to
file both an initial Form ATS-G and amend their Form ATS. The
Commission estimates that 17 Legacy Filers would need to file an
initial Form ATS-G in regard to their trading activity in government
securities or repos and an amendment to a Form ATS to remove references
to government securities or repos and that the aggregate initial PRA
cost for those ATSs to file would be $823,288 \742\ and that the
aggregate ongoing annual PRA cost to file an amendment to Form ATS and
initial Form ATS-G would be $227,208.\743\ Furthermore, the broker-
dealers operating these Government Securities ATSs would also be
required to file a pair of Forms ATS-R four times annually. The
Commission estimates that the aggregate ongoing annual PRA cost of
filing two Forms ATS-R for broker-dealers that operate one ATS that
trades government securities or repos and a second ATS that trades
securities other than government securities and repos would be
$113,271.\744\
---------------------------------------------------------------------------

    \741\ See proposed Rule 300(l).
    \742\ The Commission estimates that the total hourly burden for
a broker-dealer to separately file an amended Form ATS for the non-
Government Securities ATS and initial Form ATS-G for the Government
Securities ATS would be 10 burden hours to amend its initial
operation report on Form ATS for its trading activity related to
securities other than NMS stock and government securities or repos,
and approximately 134 burden hours to file its initial Form ATS-G.
See also supra notes 497 and 501. ((Attorney at $423 x 61.5 hours) +
(Compliance Manager at $315 x 37.7 hours) + (Sr. Systems Analyst at
$289 x 31.55 hours) + (Sr. Marketing Manager at $311 x 2 hours) +
(Compliance Clerk at $71 x 11.25 hours)) x 17 Legacy Filers that
would continue to file a Form ATS = $823,288. Of $823,288, the cost
of $50,966 is attributable to the aggregate initial costs for
amending Form ATS to remove references to government securities or
repos for 17 Legacy Filers.
    \743\ The Commission estimates that a broker-dealer operator
that operates an ATS that currently trades government securities or
repos and securities other than government securities or repos would
face an annual burden of 13 hours to file amendments to Form ATS and
28.2 hours to file amendments to Form ATS-G. See also supra notes
498 and 499. ((Attorney at $423 x 25.5 hours) + (Compliance Manager
at $315 x 6 hours) + (Compliance Clerk at $71 x 9.7 hours)) x 17
Legacy Filers that would continue to file a Form ATS = $227,208. Of
$227,208, the cost of $69,547 is attributable to the aggregate
ongoing costs to amend Form ATS for 17 Legacy Filers.
    \744\ The Commission estimates that a broker-dealer would face a
total burden of 5.25 hours to prepare two Form ATS-Rs. See supra
note 500. ((Attorney at $423 x 14 hours) + (Compliance Manager at
$315 x 1 hour) + (Compliance Clerk at $71 x 6 hours)) x 17 Legacy
Filers that would continue to file a Form ATS = $113,271.
---------------------------------------------------------------------------

    A Government Securities ATS would incur costs associated with
programming and website configuration to make Form ATS-G public via
posting on its website a direct URL hyperlink to the Commission's
website that contains its Form ATS-G filing, as required by Rule
304(b)(3)(i).\745\ The Commission estimates that the initial one-time
PRA cost would be approximately $578 \746\ per Government Securities
ATS and the aggregate PRA cost for all Government Securities ATSs would
be approximately $15,028.\747\ Furthermore, all Covered ATSs (26
Government Securities ATSs and 34 NMS Stock ATSs) would incur costs
associated with programming and website

configuration to make the most recently disseminated Forms ATS-G and
Forms ATS-N public via posting on their websites, as required by Rule
304(b)(3)(ii).\748\ The Commission estimates that the initial PRA cost
would be $1,156 per Covered ATS and $69,360 for all Covered ATSs and
that the ongoing annual PRA cost would be $3,468 per Covered ATS and
$208,080 for all Covered ATSs.\749\
---------------------------------------------------------------------------

    \745\ NMS Stock ATSs are already required to comply with Rule
304(b)(3)(i). See supra Section IX.D.2.b.v.
    \746\ See supra Section IX.D.2.b.v.
    \747\ (Sr. Systems Analyst at $289 x 2 hours) x 26 Government
Securities ATSs = $15,028.
    \748\ See supra Section IX.D.2.b.v.
    \749\ For all Covered ATSs, the aggregate initial cost would be:
(Sr. Systems Analyst at $289 x 4 hours) x (26 Government Securities
ATSs + 34 NMS Stock ATSs) = $30,056 (estimated aggregate initial
costs for 26 Government Securities ATSs) + $39,304 (estimated
aggregate initial costs for 34 NMS Stock ATSs) = $69,360. See supra
note 512. For all Covered ATSs, the aggregate ongoing cost would be:
(Sr. Systems Analyst at $289 x 12 hours) x (26 Government Securities
ATSs + 34 NMS Stock ATSs) = $90,168 (estimated aggregate ongoing
costs for 26 Government Securities ATSs) + $117,912 (estimated
aggregate ongoing costs for 34 NMS Stock ATSs) = $208,080. See supra
note 513.
---------------------------------------------------------------------------

    Under the proposal, when a Government Securities ATS ceases
operations, it would be required to file a cessation of operations on
Form ATS-G. Currently Exempted Government Securities ATSs are not
required to notify the Commission when they cease operations. If a
Currently Exempted Government Securities ATS were to cease operations,
the Commission estimates that each Currently Exempted Government
Securities ATS would incur a one-time PRA cost of $670 to prepare and
file a cessation of operations on Form ATS-G with the Commission.\750\
The Commission also estimates that one new Government Securities ATS
would file a Form ATS-G per year \751\ and make the Form ATS-G public
by posting a direct URL hyperlink on its website to the Commission's
website,\752\ resulting in the PRA cost of $47,264.\753\
---------------------------------------------------------------------------

    \750\ Currently Exempted Government Securities ATSs are
currently not required to notify the Commission when they cease
operations. (Attorney at $423 x 1.5 hours) + (Compliance Clerk at
$71 x 0.5 hours) = $670. See supra note 490.
    \751\ See supra Section IX.C.
    \752\ See supra Section IX.D.2.b.v.
    \753\ (Attorney at $423 x 55 hours) + (Compliance Manager at
$315 x 39.85 hours) + (Sr. Systems Analyst at $289 x 35.55 hours) +
(Sr. Marketing Manager at $311 x 2 hours) + (Compliance Clerk at $71
x 7.75 hours) = $47,264.
---------------------------------------------------------------------------

    Regardless of their size and transaction volume, all Government
Securities ATSs would need to ensure that their disclosures meet the
requirements of proposed Form ATS-G and that they correctly file their
Form ATS-G. Government Securities ATSs may develop internal processes
to ensure correct and complete reporting on Form ATS-G, which would
result in a fixed setup PRA cost. These PRA costs may fall
disproportionately on smaller Government Securities ATSs in terms of
PRA costs relative to transaction volume (as opposed to larger
Government Securities ATSs in terms of PRA costs relative to
transaction volume), because all Government Securities ATSs would be
likely to incur these fixed PRA costs. However, smaller Government
Securities ATSs that are not operated by multi-service broker-dealer
operators and that generally do not engage in other brokerage or
dealing activities in addition to their ATSs would likely incur lower
PRA costs because certain sections of proposed Form ATS-G would not be
applicable to these Government Securities ATSs.
    The PRA costs could also vary across Government Securities ATSs
depending on the complexity of the ATS and the services that it offers.
For example, some Government Securities ATSs may not segment subscriber
order flow or offer counter-party selection protocols. These ATSs would
not be required to complete Part III, Items 13 and 14 of proposed Form
ATS-G. As a result, such Government Securities ATSs could incur lower
PRA costs because these ATSs would apply lesser burden hours to
complete their Form ATS-G.
    In addition to the PRA compliance costs discussed above, the
Commission believes that the proposed ability for the Commission to be
able to declare a Form ATS-G or Form ATS-G amendment ineffective would
generate direct costs for Government Securities ATSs.\754\ If the
Commission declares a Government Securities ATS's Form ATS-G or Form
ATS-G amendment ineffective, then the ATS might have to cease
operations, roll back a change in operations, or delay the start of
operations until it is able to address the deficiencies in the
previously filed form by filing a new Form ATS-G or Form ATS-G
amendment. An ineffective Form ATS-G filing could also impose indirect
costs on the overall market for government securities execution
services resulting from a potential reduction in competition or the
removal of a sole provider of a niche service within the market.\755\
---------------------------------------------------------------------------

    \754\ See Rule 304(a)(1)(iv)(B).
    \755\ See infra Section X.C.3.a.i.b for a discussion about the
impact of a declaration of ineffectiveness on competition in the
market for government securities and repo execution services.
---------------------------------------------------------------------------

    However, the Commission believes that there would not be a
substantial burden imposed in connection with resubmitting Form ATS-G
or a Form ATS-G amendment for these entities or from an ineffective
declaration in general. Because Government Securities ATSs and market
participants would not incur these costs unless the Commission declares
a Form ATS-G or amendment ineffective, Government Securities ATSs would
be incentivized to comply with the requirements of Form ATS-G, as well
as federal securities laws, including the other requirements of
Regulation ATS, to avoid an ineffectiveness declaration. The Commission
believes that these incentives would encourage Government Securities
ATSs to initially submit a more accurate and complete Form ATS-G and
amendments, which would reduce the likelihood that they are declared
ineffective.
    Additionally, currently operating Government Securities ATSs would
not have to bear the costs of immediately ceasing operations under the
proposal without having an effective Form ATS-G on file with the
Commission because Legacy Filers would be able to continue operations
pursuant to a previously filed initial operation report on Form ATS and
Currently Exempted Government Securities ATSs would also be able to
continue operations pending the Commission's review of its initial Form
ATS-G. However, if after notice and opportunity for hearing, the
Commission declares an initial Form ATS-G filed by a Legacy Filer or
Currently Exempted Government Securities ATS ineffective, the ATS would
be required to cease operations. The Government Securities ATS would
then have the opportunity to address deficiencies in the previously
filed form by filing a new initial Form ATS-G.
    The proposed amendments could generate indirect costs for some
subscribers by causing Government Securities ATSs to stop sharing
information that they might currently offer to only some subscribers,
but the Commission believes that this risk could be low because ATSs
could have a commercial incentive to continue disclosing it. Form ATS-G
would require Government Securities ATSs to publicly disclose any
platform-wide order execution metrics that they share with any
subscriber. In order to avoid publicly disclosing this information, an
ATS could stop sharing the information with subscribers. The trading
costs of subscribers that currently use this information to help make
trading decisions could increase if the information is no longer
available to them. The Commission believes that the risk of ATSs
disclosing less information than they currently do depends on several
factors, such as the commercial purpose for releasing such information.
If the subscribers that receive such information demand the information
as

a condition of subscribing, ATSs would have a commercial incentive to
continue disclosing it.
    The Commission also believes that the public disclosure of Form
ATS-G could generate indirect costs, in the form of transfers, for some
subscribers to Government Securities ATSs that might currently have
more information regarding some ATS features, such as order priority
and matching procedures, than other subscribers. The public disclosure
of these features might reduce informed subscribers' information
advantage over other subscribers on the Government Securities ATS and
increase their trading costs. In this regard, the Commission recognizes
that the benefit of the proposal enjoyed by some subscribers in
receiving the proposed information may be seen as a cost by those
subscribers who currently receive such information.
    Some Government Securities ATSs could experience indirect costs
from the public disclosure of Form ATS-G though the Commission believes
these costs actually amount to transfers. To the extent that a
Government Securities ATS in part relies on certain operational
characteristics (e.g., order types, trading functionalities) to attract
customer order flow and generate trading revenues, it is possible that
the public disclosure of these characteristics in Form ATS-G could make
it easier for other trading venues to adopt the operational
characteristics, which could lower trading volume and reduce revenue of
the disclosing ATS. Such costs to the disclosing ATS would constitute
transfers to competing ATSs rather than a net social cost. However, the
Commission believes that the risk of such transfers may be low because
it is not likely the responsive information to the proposed Form ATS-G
would include information regarding operational facets such that the
public disclosure of the information would adversely affect the
competitive position of the disclosing ATS in the market for government
securities and repo execution services.\756\
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    \756\ See supra note 196 and accompanying text.
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iii. Application of Fair Access Rule to Government Securities ATSs
    The Commission estimates that three Government Securities ATSs
would incur the aggregate ongoing annual PRA costs of approximately
$25,000 \757\ to comply with the proposed Fair Access Rule. In
addition, the Commission believes that the proposed application of the
Fair Access Rule to U.S. Treasury Securities and Agency Securities
could impose non-PRA compliance costs on Government Securities ATSs and
market participants could incur indirect costs resulting from
Government Securities ATSs being subject to the Fair Access Rule.\758\
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    \757\ ((Attorney at $423 x 10 hours) x 3 Government Securities
ATSs) + ((Attorney at $423 x 10 hours) x 3 Government Securities
ATSs) = $25,380. See supra notes 518 and 519.
    \758\ In addition to the costs discussed here and in the
following section about the extension of Regulation SCI to
Government Securities ATSs, ATSs may incur costs to subscribe to,
and program their internal systems to process, TRACE trade reports
for Agency Securities. FINRA currently publishes the weekly
aggregate volume data for U.S. Treasury Securities on which ATSs
would base their fair access calculations for U.S. Treasury
Securities. See supra Section II.D. But ATSs would need to subscribe
to TRACE to obtain the trade reports necessary to calculate the
threshold for Agency Securities. See id. The Commission believes
that the vast majority--and likely, all--broker-dealer operators of
Government Securities ATSs that trade Agency Securities currently
subscribe to TRACE, however, the Commission is requesting comment on
the extent to which Government Securities ATSs (both Currently
Exempted Government Securities ATSs and those subject to current
Regulation ATS) have access to TRACE trade reports for Agency
Securities. See supra note 146.
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    Government Securities ATSs that meet certain volume thresholds for
U.S. Treasury Securities, Agency Securities, or both would incur costs
to establish written standards for granting access to their
systems.\759\ The Commission estimates that three Government Securities
ATSs would meet the volume thresholds that trigger the Fair Access Rule
and that the average ongoing annual PRA cost of establishing written
fair access standards for each entity would be $4,230.\760\
Accordingly, the Commission estimates that the aggregate ongoing annual
PRA cost for Government Securities ATSs to establish written fair
access standards would be approximately $12,690.\761\
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    \759\ See supra Section IX.D.3 for a discussion of this
proposal.
    \760\ Attorney at $423 x 10 hours = $4,230. See supra note 518.
This cost is equal to the Commission's estimate for compliance with
Rule 301(b)(5) because the requirements of the Fair Access Rule
would be identical for Government Securities ATSs and ATSs that are
currently subject to Rule 301(b)(5). See Rule 301 OMB Update, supra
note 419, at 3238.
    \761\ $4,230 x 3 Government Securities ATSs = $12,690.
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    Government Securities ATSs that meet the fair access volume
thresholds would incur costs to make and keep records of (1) all grants
of access including, for all subscribers, the reasons for granting such
access; and (2) all denials or limitations of access and reasons, for
each applicant, for denying or limiting access. They would also incur
costs to disclose on Exhibit C of Form ATS-R a list of all persons
granted, denied, or granted limited access to the system during the
relevant period.\762\ The Commission estimates that the average ongoing
annual reporting PRA cost for each Government Securities ATS that is
subject to these requirements would be $4,230.\763\ Thus, the
Commission estimates that the aggregate ongoing annual PRA cost for
three Government Securities ATSs to keep these records would be
$12,690.\764\
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    \762\ The burdens associated with filing Form ATS-R are
discussed above in Section IX.D.3.
    \763\ Attorney at $423 x 10 hours = $4,230. See supra note 519.
    \764\ 3 responses x 10 hours = 30 hours. $4,230 x 3 Government
Securities ATSs = $12,690.
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    The Commission believes the proposed extension of the Fair Access
Rule to U.S. Treasury Securities and Agency Securities could impose
non-PRA compliance costs on Government Securities ATSs. Under the
proposal, Government Securities ATSs that meet the specified volume
thresholds could no longer treat subscribers differently with respect
to access to the services of the ATS without a reasonable basis. For
example, a Government Securities ATS could not offer one class of
subscriber a service (e.g., an order interaction procedure, order type,
or connectivity method) without offering the service to all subscribers
unless the Government Securities ATS had a reasonable basis for the
differential treatment. In addition, a Government Securities ATS could
not charge fees that may unreasonably prohibit certain market
participants from accessing the services of the ATS. To the extent that
Government Securities ATSs must change fee structures or access and
adapt their operating model due to the Fair Access Rule, those
Government Securities ATSs would incur costs related to changing
business operations.
    The Commission, however, is unable to quantify the potential non-
PRA compliance costs discussed above. In particular, the Commission
lacks data on the extent to which Government Securities ATSs that meet
the fair access volume thresholds currently grant access to the ATS
services to all subscribers on the same terms, and on the specific
types of services and subscribers in question. In addition, the
Commission lacks similar data for other trading venues in the market
for government securities that may offer differential access to
services. Thus, the Commission is not able to estimate the costs
associated with changing fee structures and adapting operating models.
In turn, the Commission is not able to estimate the loss of revenues
that Government Securities ATSs that meet the fair access volume
thresholds could

incur as a result of the proposed extension of the Fair Access Rule.
    The Commission believes that market participants could incur
indirect costs related to Government Securities ATSs being subject to
the Fair Access Rule. Government Securities ATSs that are close to
satisfying the volume thresholds for certain government securities
could limit the trading in those government securities on their ATSs
over some period to stay below the volume thresholds and avoid being
subject to the Fair Access Rule. The order flow that was being executed
on those Government Securities ATSs might be absorbed and redistributed
amongst other Government Securities ATSs. If a Government Securities
ATS that is the sole provider of a niche service limits the trading in
certain government securities to avoid being subject to the Fair Access
Rule, it could require some market participants to seek execution on
other trading venues, which could result in higher trading costs.
b. Extension of Regulation SCI to Government Securities ATSs
    The Commission estimates that three Government Securities ATSs (two
Currently Exempted Government Securities ATSs and one Legacy Filer)
that meet the specified volume thresholds would incur both PRA and non-
PRA direct and indirect compliance costs as SCI entities. The
Commission estimates that two Currently Exempted Government Securities
ATSs would incur the aggregate initial PRA costs of approximately
$1,305,000 and the aggregate ongoing annual PRA costs of approximately
$1,609,000 to comply with Regulation SCI.\765\ Furthermore, the
Commission estimates that one Legacy Filer would incur the initial PRA
costs of approximately $326,000 and the ongoing annual PRA costs of
approximately $804,000 to comply with Regulation SCI.\766\ The
Commission also estimates that three Government Securities ATSs would
incur the aggregate initial non-PRA costs of between approximately
$960,000 and $7.2 million, and the aggregate ongoing annual non-PRA
costs of between approximately $640,800 and $4.8 million to comply with
Regulation SCI.\767\ In addition, as discussed below, the Commission
believes that the proposed amendments to Regulation SCI would impose
indirect compliance costs on market participants interacting with SCI
entities.
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    \765\ These cost estimates are based on the 2018 SCI PRA
Extension. See 2018 SCI PRA Extension, supra note 529. See also
supra Section IX.D.5 discussing PRA burden estimates related to
compliance with Regulation SCI.
    \766\ See supra note 765.
    \767\ Based on the Regulation SCI Adopting Release in 2014, the
Commission estimates that a Government Securities ATS would incur an
initial cost of between approximately $320,000 and $2.4 million.
Thus, 3 Government Securities ATSs would incur the aggregate initial
cost of between approximately $960,000 and $7.2 million.
Additionally, a Government Securities ATS would incur an ongoing
annual cost of between approximately $213,600 and $1.6 million.
Thus, three Government Securities ATSs would incur the aggregate
ongoing annual cost of between approximately $640,800 and $4.8
million. See also Regulation SCI Adopting Release, supra note 2, at
72416.
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    Under the proposal, the definition of SCI ATSs would be expanded to
include Government Securities ATSs that meet certain volume thresholds
for U.S. Treasury Securities and/or Agency Securities would be subject
to the requirements of Regulation SCI. Because Regulation SCI imposes
some indirect requirements on other market participants interacting
with SCI entities (e.g., third-party vendors providing SCI systems and/
or indirect SCI systems \768\ to SCI entities, members or participants
of SCI entities participating in testing of business continuity and
disaster recovery plans), those market participants would also incur
indirect costs from Government Securities ATSs being defined as SCI
entities. Also, market participants (including broker-dealers and
institutional investors who use Government Securities ATSs) in the
government securities and repo market may face increased trading costs
(in the form of higher fees) from SCI entities, to the extent that
increased compliance costs are passed on to market participants.
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    \768\ The term ``indirect SCI systems'' is defined to mean ``any
systems of, or operated by or on behalf of, an SCI entity that, if
breached, would be reasonably likely to pose a security threat to
SCI systems.'' See Regulation SCI Adopting Release, supra note 2.
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    The Commission believes that the 2018 estimates of initial PRA
burdens for new SCI entities and ongoing PRA burdens for all SCI
entities under Regulation SCI are largely applicable to Government
Securities ATSs.\769\ The Commission believes that Government
Securities ATSs could be divided into two groups: \770\ Government
Securities ATSs that are existing SCI entities; and Government
Securities ATSs that are entirely new SCI entities currently not
subject to Regulation SCI. For the first group (Government Securities
ATSs that are existing SCI entities), the Commission believes that such
entities would incur approximately 50 percent of the Commission's
initial PRA burden estimates for an entirely new SCI entities.
Furthermore, for the second group (Government Securities ATSs that are
new SCI entities currently not subject to Regulation SCI), the
Commission believes that such entities would incur the same estimated
initial PRA burdens as those estimated for new SCI entities in the 2018
SCI PRA Extension. The Commission also believes that the same ongoing
PRA burdens for all SCI entities estimated in the 2018 SCI PRA
Extension are applicable to Government Securities ATSs in both the
first and the second group.
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    \769\ See 2018 SCI PRA Extension, supra note 529.
    \770\ We divide Government Securities ATSs into two groups in
discussing PRA costs because Government Securities ATSs operated by
a broker-dealer operator of an NMS Stock ATS that is a SCI entity
would have lower initial PRA costs. See also 2018 SCI PRA Extension,
supra note 529.
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    Among the three Government Securities ATSs that satisfy the volume
thresholds, the Commission believes that one Government Securities ATS
(referred as the first group above) would incur approximately 50
percent of initial PRA burden estimates for an entirely new SCI entity
included in the 2018 SCI PRA Extension, and two Government Securities
ATSs (referred as the second group above) would incur the same
estimated initial PRA burdens as those estimated for new SCI entities
included in the 2018 PRA Extension. In addition, the Commission
believes that all three Government Securities ATSs would incur the same
ongoing PRA burdens as all other SCI entities included in the 2018 SCI
PRA Extension.
    Government Securities ATSs would also incur non-PRA direct
compliance costs as SCI entities. The Regulation SCI Adopting Release
in 2014 estimated that an SCI entity would incur an initial cost of
between approximately $320,000 and $2.4 million. Additionally, an SCI
entity would incur an ongoing annual cost of between approximately
$213,600 and $1.6 million. The Commission believes that these non-PRA
costs are largely applicable to Government Securities ATSs. However,
the Commission is uncertain about the actual level of costs Government
Securities ATSs would incur because these costs may differ from the
types of SCI entities considered in the Regulation SCI Adopting
Release, which did not include fixed income ATSs.\771\ The Commission
is also uncertain about the actual level of costs Government Securities
ATSs would incur because the actual costs could differ based on various
factors, such as

complexity of SCI entities' systems and the degree to which SCI
entities employ third-party systems. The Commission believes that
Government Securities ATSs with relatively simpler systems would incur
lower compliance costs compared to those with more complex
systems.\772\ Also, any SCI systems operated by a third-party on behalf
of an SCI entity would be subject to the requirements of Regulation
SCI. The Commission believes that Government Securities ATSs with
higher dependency on SCI systems operated by third-party vendors could
incur higher compliance costs compared to those with lower dependency
on third-party systems.\773\
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    \771\ See Regulation SCI Adopting Release, supra note 2. In the
Regulation SCI Adopting Release, fixed income ATSs are excluded from
the regulation.
    \772\ See id. The Regulation SCI Adopting Release explains that
compliance costs would depend on the complexity of SCI entities'
systems and they would be higher for SCI entities with more complex
systems.
    \773\ See id. The Regulation SCI Adopting Release discusses that
compliance costs could in part depend on the extent to which an SCI
entity utilize third-party systems because ensuring compliance of
systems operated by a third-party with Regulation SCI may be more
costly than ensuring compliance of internal systems with Regulation
SCI.
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    Additionally, the Commission believes that some Government
Securities ATSs' participants required to participate in the testing of
business continuity and disaster recovery plans would incur Regulation
SCI-related connectivity costs of approximately $10,000 apiece.\774\ To
the extent that larger members or participants of SCI Government
Securities ATSs already maintain connections to backup facilities
including for testing purposes, the compliance costs associated with
the business continuity and disaster recovery plans testing
requirements in Rule 1004 for those larger member or participants could
be limited.
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    \774\ See id. The Regulation SCI Adopting Release estimated
connectivity costs as part of business continuity and disaster