-----------------------------------------------------------------------
    Total...............................               4  209,000...................  59,000.
----------------------------------------------------------------------------------------------------------------
\a\ This cost figure is obtained by summing the initial implementation costs associated with Rule 301(b)(10) and
  304 ($49,000) presented in supra Table VIII.8 for 4 Communication Protocol Systems that trade NMS stocks.
\b\ This cost figure is obtained by summing the ongoing implementation costs associated with Rule 301(b)(9),
  301(b)(10), 302, 303, and 304 ($3,300) presented in supra Table VIII.8 for 4 Communication Protocol Systems
  that trade NMS stocks.

                                      Table VIII.13--Current NMS Stock ATSs
----------------------------------------------------------------------------------------------------------------
                                             Number of
               Compliance                    entities       Aggregate initial costs     Aggregate ongoing costs
----------------------------------------------------------------------------------------------------------------
Regulation SCI.
Fair Access.
Other...................................              34  77,000 \a\................  16,000.\b\
                                         -----------------------------------------------------------------------
    Total...............................              34  77,000....................  16,000.
----------------------------------------------------------------------------------------------------------------
\a\ This cost figure is the initial implementation cost associated with Rule 304 ($2,300) presented in supra
  Table VIII.8 for 34 Current NMS Stock ATSs.
\b\ This cost figure is the ongoing implementation cost associated with Rule 301(b)(9) ($500) presented in supra
  Table VIII.8 for 34 Current NMS Stock ATSs.

                               Table VIII.14--Other Communication Protocol Systems
----------------------------------------------------------------------------------------------------------------
                                             Number of
               Compliance                    entities       Aggregate initial costs     Aggregate ongoing costs
----------------------------------------------------------------------------------------------------------------
Rule 301(b)(6)..........................               2  ..........................  $10,000.\a\
Fair Access.............................               6  ..........................  99,000.\b\
BD Registration.........................               6  1.9 million \c\...........  360,000.\d\
Other...................................              14  133,000 \e\...............  191,000.\f\
                                         -----------------------------------------------------------------------
    Total...............................              14  2 million.................  660,000.
----------------------------------------------------------------------------------------------------------------
\a\ This cost figure is the ongoing implementation cost associated with Rule 301(b)(6) presented in supra Table
  VIII.8 for 2 Communication Protocol Systems that trade corporate debt securities.
\b\ This cost figure is the ongoing implementation cost associated with Rule 301(b)(5) presented in supra Table
  VIII.8 for 6 Communication Protocol Systems that trade corporate debt securities or municipal securities.
\c\ This cost figure is obtained by summing the initial implementation costs associated with Rule 301(b)(1)
  presented in supra Table VIII.8 for 6 Communication Protocol Systems that trade neither government securities
  nor NMS stocks.
\d\ This cost figure is obtained by summing the ongoing implementation costs associated with Rule 301(b)(1)
  presented in supra Table VIII.8 for 6 Communication Protocol Systems that trade neither government securities
  nor NMS stocks.
\e\ This cost figure is obtained by summing the initial implementation costs associated with Rule 301(b)(2) and
  301(b)(10) presented in supra Table VIII.8 for 14 Communication Protocol Systems that trade neither government
  securities nor NMS stocks.
\f\ This cost figure is obtained by summing the ongoing implementation costs associated with Rule 301(b)(2),
  301(b)(9) ($6,000), 301(b)(10), 302, and 303 presented in supra Table VIII.8 for 14 Communication Protocol
  Systems that trade neither government securities nor NMS stocks.

                                        Table VIII.15--Other Current ATSs
----------------------------------------------------------------------------------------------------------------
                                             Number of
               Compliance                    entities       Aggregate initial costs     Aggregate ongoing costs
----------------------------------------------------------------------------------------------------------------
Rule 301(b)(6).
Fair Access.
Other...................................              59  374,000 \a\...............  115,000.\b\
                                         -----------------------------------------------------------------------
    Total...............................              59  374,000...................  115,000.
----------------------------------------------------------------------------------------------------------------
\a\ This cost figure is the initial implementation cost associated with Rule 301(b)(2) presented in supra Table
  VIII.8 for 59 Current ATSs that trade neither government securities nor NMS stocks.
\b\ This cost figure is obtained by summing the ongoing implementation costs associated with Rule 301(b)(2) and
  301(b)(9) ($500) presented in supra Table VIII.8 for 59 Current ATSs that trade neither government securities
  nor NMS stocks.

    One commenter stated that the proposed amendments in the 2020
Proposal would require a Legacy Government Securities ATS to separate
trading activity in government securities and repos from non-NMS stock
trading activity, which could impose administrative and operational
burdens on both Government Securities ATSs

and subscribers.\1103\ The Commission believes that the proposed
amendments do not require separating operations, and thus, Legacy
Government Securities ATSs would not incur costs associated with
separating operations.\1104\
---------------------------------------------------------------------------

    \1103\ See ICE Bonds Letter I at 3 and 4. The commenter on the
2020 Proposal stated that this separation requirement would result
in fewer venues and higher trading costs for subscribers to trade
and hedge and concentrate trading among a few large Government
Securities ATSs because smaller Legacy Government Securities ATSs
may determine to exit due to the prohibitive costs associated with
this separation requirement. This commenter also provided a list of
costs associated with separating operation. See also supra Section
III.B.1 and note 250.
    \1104\ See supra Section III.B.I.
---------------------------------------------------------------------------

i. Implementation Costs: \1105\
---------------------------------------------------------------------------

    \1105\ Implementation costs are the monetized costs of PRA
burdens. See also supra note 1100.
---------------------------------------------------------------------------

    Currently Exempted Government Securities ATSs and Communication
Protocol Systems that would be newly subject to the requirements of
Regulation ATS would incur implementation costs associated with, among
other things, written safeguards and procedures to protect subscribers'
trading information,\1106\ recordkeeping,\1107\ record
preservation,\1108\ and Form ATS-R.\1109\ Currently Exempted Government
Securities ATSs and Communication Protocol Systems that trade NMS
stocks or government securities would incur higher implementation costs
due to the heightened requirements of filing Form ATS-N compared to
other Communication Protocol Systems that would file Form ATS.\1110\
---------------------------------------------------------------------------

    \1106\ See the implementation costs associated with Rule
301(b)(10) in supra Table VIII.8.
    \1107\ See the implementation costs associated with Rule 302 in
supra Table VIII.8.
    \1108\ See the implementation costs associated with Rule 303 in
supra Table VIII.8.
    \1109\ See the implementation costs associated with Rule
301(b)(9) in supra Table VIII.8.
    \1110\ See the implementation costs associated with Rule
301(b)(2) and Rule 304 in supra Table VIII.8.
---------------------------------------------------------------------------

    Current ATSs and Communication Protocol Systems that trade neither
NMS stocks nor government securities would incur implementation costs
associated with re-filing or filing the modernized Form ATS.\1111\
Current NMS Stock ATSs would incur implementation costs associated with
amending revised Form ATS-N.\1112\ Furthermore, all current ATSs,
Currently Exempted Government Securities ATSs, and Communication
Protocol Systems would incur implementation costs to re-file or file
the revised electronic Form ATS-R.\1113\
---------------------------------------------------------------------------

    \1111\ The initial and ongoing implementation costs per entity
associated with Rule 301(b)(2) are approximately $6,400 and $1,500,
respectively. See supra notes f and g in Table VIII.8. See also
supra Section VII.D.1.a for a discussion about the implementation
costs associated with Rule 301(b)(2).
    \1112\ The implementation cost associated with amending revised
Form ATS-N is approximately $2,300 per entity. See supra note r in
Table VII.8. See also supra Section VII.D.3 for a discussion about
the implementation costs associated with Rule 304.
    \1113\ The implementation costs associated with filing or re-
filing electronic Form ATS-R is approximately $500 per entity. See
supra note k in Table VII.8. See supra Section VII.D.1.d for a
discussion about the implementation costs associated with Rule
301(b)(9).
---------------------------------------------------------------------------

    Government Securities ATSs that meet certain volume thresholds
would be subject to the Fair Access Rule of Regulation ATS. The
Commission estimates 3 Currently Exempted Government Securities ATSs, 3
Current Government Securities ATSs, and 2 Communication Protocol
Systems that trade government securities would be subject to the Fair
Access Rule. These entities would incur the implementation costs per
entity presented in Table VIII.8.
    Significant NMS Stock ATSs and ATSs that trade corporate debt
securities, municipal securities, or non-NMS stock equity securities
are subject to the Fair Access Rule. The Commission estimates 2
Communication Protocol Systems that trade corporate debt securities, 1
Communication Protocol System that trades municipal securities, and 3
Communication Protocol Systems that trade non-NMS stock equity
securities would be subject to the Fair Access Rule. These entities
would incur the same implementation costs per entity presented in Table
VIII.8.
    Significant ATSs that trade corporate debt securities or municipal
securities are subject to Rule 301(b)(6). The Commission estimates that
2 Communication Protocol Systems that trade corporate debt securities
would be subject to Rule 301(b)(6) and incur the implementation costs
per entity presented in Table VIII.8.
    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.\1114\ For the purpose of implementation cost
estimation, two groups of Government Securities ATSs are considered:
\1115\ 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 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 Supporting Statement. The Commission also believes that the
same ongoing PRA burdens for all SCI entities estimated in the 2018 SCI
PRA Supporting Statement are applicable to Government Securities ATSs
in both the first and the second group.
---------------------------------------------------------------------------

    \1114\ See 2018 SCI PRA Supporting Statement, supra notes 793,
794, and 795.
    \1115\ Government Securities ATSs are divided into two groups in
discussing implementation 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 implementation costs. See also
2018 SCI PRA Supporting Statement, supra note 793.
---------------------------------------------------------------------------

    The Commission estimates that 4 Government Securities ATSs would be
subject to the requirements of Regulation SCI and incur the
implementation costs per entity presented in Table VIII.8. Among the
four 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 Supporting Statement, and three 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 SCI PRA Supporting Statement. In addition, the Commission
believes that all four Government Securities ATSs would incur the same
ongoing PRA burdens as all other SCI entities included in the 2018 SCI
PRA Supporting Statement.
    Significant ATSs that trade either NMS stocks or non-NMS stock
equity securities are subject to the requirements of Regulation SCI.
The Commission estimates that no Communication Protocol System that
trades NMS stocks or non-NMS stock equity securities would be subject
to Regulation SCI. If a significant Communication Protocol System that
trades NMS stocks or equity securities that are not NMS stocks exists,
it would incur the same range of implementation costs per entity
presented in Table VIII.8.
    The estimated implementation costs for Communication Protocol
Systems and Currently Exempted Government Securities ATSs associated
with Rule

301(b)(9) and (10), Rule 302, and Rule 303 would represent a larger
fraction of revenue for a small (measured in trading volume) ATS
relative to that for a large ATS. This is because these costs would be
fixed costs that these ATSs would incur regardless of the amount of
trading activity that takes place on them. Furthermore, regardless of
their size and transaction volume, all Government Securities ATSs and
Communication Protocol Systems that are NMS Stock ATSs would need to
ensure that their disclosures meet the requirements of Form ATS-N and
that they correctly file their Form ATS-N under Rule 304. Such
Government Securities ATSs and Communication Protocol Systems might
develop internal processes to ensure correct and complete reporting on
Form ATS-N, which would result in a fixed implementation cost. These
implementation costs would fall disproportionately on smaller (measured
in trading volume) such Government Securities ATSs and Communication
Protocol Systems in terms of implementation costs relative to trading
volume (as opposed to larger such Government Securities ATSs and
Communication Protocol Systems in terms of implementation costs
relative to trading volume), because all Government Securities ATSs and
Communication Protocol Systems that are NMS Stock ATSs would likely
incur these fixed implementation costs. However, smaller such
Government Securities ATSs and Communication Protocol Systems 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 implementation costs
because certain sections of revised Form ATS-N would not be applicable
to Government Securities ATSs and Communication Protocol Systems that
are NMS Stock ATSs.
    The implementation costs associated with Rule 304 would also vary
across Government Securities ATSs and Communication Protocol Systems
that are NMS Stock ATSs depending on the complexity of the ATS and the
services that it offers. For example, some such ATSs might not segment
subscriber order flow or offer counterparty selection protocols. These
ATSs would not be required to complete Part III, Items 13 and 14 of
revised Form ATS-N. As a result, such Government Securities ATSs and
Communication Protocol Systems that are NMS Stock ATSs would incur
lower implementation costs because these ATSs would apply lesser burden
hours to complete their Form ATS-N.
ii. Costs Associated With Broker-Dealer Requirements
    Under the proposed Rule 301(b)(1), Currently Exempted Government
Securities ATSs that are banks (i.e., bank-operated Currently Exempted
Government Securities ATSs) and Communication Protocol Systems that are
non-broker-dealers (i.e., non-broker-dealer-operated Communication
Protocol Systems) would be subject to broker-dealer registration
requirements.
    The Commission believes that non-broker-dealer-operated
Communication Protocol Systems without a broker-dealer affiliate would
incur additional compliance costs related to registering with the
Commission as broker-dealers, becoming members of an SRO, such as
FINRA, and maintaining broker-dealer registration and SRO membership,
compared to those operated by broker-dealers and those with a broker-
dealer affiliate. The initial costs would include the costs associated
with filing Form BD and Form ID, FINRA membership application fees, and
any legal or consulting costs necessary for effectively completing the
application to be a member of FINRA (e.g., ensuring compliance with
FINRA rules \1116\ including drafting policies and procedures as may be
required). The ongoing costs would include the costs associated with
amending Form BD, and ongoing fees associated with FINRA membership and
legal work relating to FINRA membership.
---------------------------------------------------------------------------

    \1116\ See supra Section II.D.2 for a discussion about FINRA
rules.
---------------------------------------------------------------------------

    The Commission recognizes that the costs associated with obtaining
and maintaining FINRA membership would vary significantly depending on
entity characteristics, activities, and the degree of the firm's
reliance on outside legal or consulting for effectively completing the
application process and maintaining FINRA membership. The initial
registration costs for FINRA membership \1117\ would depend on, among
other things, the number of associated persons being registered. The
ongoing costs to remain a FINRA member would vary based on the scope of
brokerage activities, revenue,\1118\ size (i.e., the number of
registered persons and the number of branch offices), and trading
volume.\1119\ Thus, entities with a smaller number of registered
persons, fewer brokerage activities, smaller trading volume, and lower
revenue would face lower costs.
---------------------------------------------------------------------------

    \1117\ See https://www.finra.org/registration-exams-ce/classic-crd/fee-schedule#examfees for the schedule of FINRA registration
fees.
    \1118\ FINRA imposes a Gross Income Assessment as follows:
$1,200 on a Member Firm's annual gross revenue up to $1 million; a
charge of 0.1215% on a Member Firm's annual gross revenue between $1
million and $25 million; a charge of 0.2599% on a Member Firm's
annual gross revenue between $25 million and $50 million; a charge
of 0.0518% on a Member Firm's annual gross revenue between $50
million and $100 million; a charge of 0.0365% on a Member Firm's
annual gross revenue between $100 million and $5 billion; a charge
of 0.0397% on a Member Firm's annual gross revenue between $5 and
$25 billion; and a charge of 0.0855% on a Member Firm's annual gross
revenue greater than $25 billion. When a firm's annual gross revenue
exceeds $25 million, the maximum of current year's revenue and
average of the last three years' revenue is used as the basis for
the income assessment. See also https://www.finra.org/rules-guidance/notices/09-68.
    \1119\ Fees for reporting trades to FINRA may depend on the
types of security, the size of trade, and the types of message
(e.g., cancellation message, correction message). For example, fees
for reporting trades to FINRA TRACE as follows: $0.475/trade for
trade size up to and including $200,000 par value; $0.000002375
times the par value of the transaction (i.e., $0.002375/$1,000) for
trade size over $200,000 and up to and including $999,999.99 par
value; $2.375/trade for trade size of $1,000,000 par value or more;
$1.50/trade for all transactions in securitized products that are
Agency Pass-Through Mortgage-Backed Securities traded to be
announced (``TBA'') or SBA-Backed ABS traded TBA (each ``TBA
transaction''); $1.50/trade for cancellation or correction; and $3/
trade for late trades. See also https://www.finra.org/rules-guidance/rulebooks/finra-rules/7730.
---------------------------------------------------------------------------

    As outlined in Table VIII.8, the Commission estimates an initial
cost of approximately $317,000 to register as a broker-dealer with the
Commission and become a member of FINRA.\1120\ Additionally, the
Commission estimates an ongoing annual cost of approximately $58,000 to
maintain the broker-dealer registration and FINRA membership.\1121\ The
Commission preliminarily believes that these costs related to broker-
dealer registration and FINRA membership are relevant to non-broker-
dealer-operated Communication Protocol Systems without a broker-dealer
affiliate. However, these cost estimates are uncertain because the

Commission does not have information on the estimated 6 non-broker-
dealer-operated Communication Protocol Systems without a broker-dealer
affiliate, such as the number of associated persons of the broker
entity and their licensing requirements, the scope of the proposed
brokerage activities, and the degree of reliance on outside legal or
consulting expertise necessary for effectively completing the
application to be a member of FINRA. Furthermore, the Commission is
unable to provide cost estimates related to trade reporting obligations
\1122\ because these costs would depend on various factors, such as the
number of trades and the costs of updating systems for trade reporting
requirements, for which the Commission does not have information.
---------------------------------------------------------------------------

    \1120\ See Exchange Act Release No. 33-9974 (October 30, 2015),
80 FR 71388, 71509 (November 16, 2015) (``Regulation Crowdfunding
Adopting Release''). These estimates are adjusted for an inflation
rate of 15.33 percent based on the Bureau of Labor Statistics data
on CPI-U between October 2015 and September 2021. In addition to the
initial costs to become a member of FINRA, this cost includes the
initial implementation costs of $950 for filing Form BD and Form ID
tabulated in Table VIII.8. The Commission recognizes that the cost
of registering and becoming a member of a national securities
association varies significantly among brokers, depending on facts
and circumstances. The Commission estimates the range of cost to be
between $57,500 and $576,500, and thus, chose the average amount of
$317,000 for purposes of this discussion.
    \1121\ See id. See also Regulation Crowdfunding Adopting Release
at 71509. In addition to the ongoing annual costs to maintain a
membership with FINRA, this cost includes the ongoing annual
implementation costs of $300 to amend Form BD tabulated in Table
VIII.8.
    \1122\ See supra note 1119 for fees for reporting trades to
FINRA. The Commission estimates that 2 non-broker-dealer-operated
Communication Protocol Systems without a broker-dealer affiliate
trade restricted securities, which may be subject to FINRA
transaction reporting requirements. Thus, with respect to those
restricted securities, these Communication Protocol Systems may
incur costs associated with reporting trades to FINRA.
---------------------------------------------------------------------------

    In addition to the costs associated with broker-dealer registration
and FINRA membership, a non-broker-dealer-operated Communication
Protocol System without a broker-dealer affiliate could incur costs
related to restructuring its business and incorporating itself or a
separate entity (i.e., an affiliate) to be registered as a broker-
dealer. Such restructuring costs would include any costs that may be
associated with making necessary changes to its business practices,
fees for consulting and legal services, fees for incorporation and the
amendment of its certificate of incorporation and its bylaws, and tax
consequences. Fees for incorporation and amending the certificate of
incorporation and its bylaws may be minimal. For example, fees for
incorporation and amending the certificate of incorporation and its
bylaws in the state of Delaware would range approximately between $89
and $200 depending on the entity type of incorporation.\1123\ However,
certain restructuring costs, such as costs associated with making
changes to business practices to comply with the broker-dealer
registration requirements, could be significant. The Commission
estimates that up to 6 non-broker-dealer-operated Communication
Protocol Systems without a broker-dealer affiliate could be required to
restructure their business in order to comply with the broker-dealer
registration requirements. The Commission is unable to provide
estimates on certain restructuring related costs for a non-broker-
dealer-operated Communication Protocol System because the Commission
does not have information regarding the scope of its restructuring,
such as the need and the extent of required changes in current business
practices, the need and the extent of consulting services, and its
choice of entity type for incorporation.
---------------------------------------------------------------------------

    \1123\ See fee schedules for incorporation and amending the
certificate of incorporation and its bylaws in the state of Delaware
at: https://corpfiles.delaware.gov/Aug09feesch.pdf.
---------------------------------------------------------------------------

    Upon becoming broker-dealers, operators of these Communication
Protocol Systems would be subject to certain broker-dealer requirements
with respect to maintaining net capital, reporting, and
recordkeeping.\1124\ The compliance costs associated with maintaining
net capital, reporting, and recordkeeping would depend on the business
structure of a broker-dealer (i.e., the capital structure of a broker-
dealer and the scope of a broker-dealer's activities). For example, the
costs would vary significantly depending on the types of securities a
broker-dealer holds, the level of net capital a broker-dealer
maintains, and whether a broker-dealer carries customer accounts,
carries for other broker-dealers, is a registered investment adviser,
is affiliated with an investment adviser, or transacts in principal
capacity. However, to the extent that an operator of Communication
Protocol System limits its activities to trading operations and does
not expand into these other business activities, the operator would
incur minimal costs with respect to net capital, reporting, and
recordkeeping requirements upon registering as a broker-dealer. The
Commission is unable to estimate the costs associated with these
broker-dealer requirements because the Commission does not have
information about whether or how the current business structures of the
estimated 6 Communication Protocol Systems that are not operated by a
registered broker-dealer nor how a broker-dealer affiliate might change
upon registering as a broker-dealer.
---------------------------------------------------------------------------

    \1124\ Registered Broker-dealers would be subject to
requirements under the rules, such as 17 CFR 240.15c3-1, 204.17a-1,
204.17a-3, 240.17a-4, and 240.17a-5 (Rule 15c3-1, Rule 17a-1, Rule
17a-3, Rule 17a-4, and Rule 17a-5).
---------------------------------------------------------------------------

    The Commission believes that a bank-operated Currently Exempted
Government Securities ATS or a non-broker-dealer-operated Communication
Protocol System would not incur compliance costs associated with
registering as a broker-dealer and becoming a member of an SRO (e.g.,
FINRA) if it has a broker-dealer affiliate. It is the Commission's
understanding that ATSs that are banks often are operated by bank
affiliates that are themselves registered broker-dealers, rather than
by the banks themselves.\1125\ A bank-operated Currently Exempted
Government Securities ATS might adopt a similar registered affiliate
structure for its government securities trading operations. For a non-
broker-dealer-operated Communication Protocol System that is affiliated
with an existing broker-dealer, it would be more cost-effective for the
Communication Protocol System to move its operations to an existing
broker-dealer affiliate rather than restructure itself to become a
broker-dealer or create a new broker-dealer entity to comply with the
broker-dealer registration requirements. Thus, the Commission expects
that such non-broker-dealer-operated Communication Protocol Systems
would choose the more cost-effective way of moving its trading
operations to its registered broker-dealer affiliate.
---------------------------------------------------------------------------

    \1125\ See supra Section III.B.2 for a discussion about ATSs
that are banks.
---------------------------------------------------------------------------

    A broker-dealer affiliate that is adding ATS or Communication
Protocol System operations would incur additional ongoing costs
associated with maintaining FINRA membership if adding trading
operations increases revenue, the number of registered persons or
branch offices, trading volume, or expands the scope of brokerage
activities.\1126\ Furthermore, a broker-dealer affiliate that is adding
ATS or Communication Protocol System operations could incur additional
costs associated with maintaining adequate net capital level,
reporting, and recordkeeping depending on the changes in business
structure of the broker-dealer. For the reasons discussed above, the
Commission is unable to provide estimates on these additional costs for
the estimated 1 bank-operated Currently Exempted Government Securities
ATS and 2 non-broker-operated Communication Protocol Systems that are
affiliated with an existing broker-dealer.
---------------------------------------------------------------------------

    \1126\ For an entity that may adopt a registered affiliate
structure, it is possible that it may have to file a Continuing
Membership Application with FINRA noticing material changes to
business operations resulting from adding ATS operations. See (under
material change) https://www.finra.org/registration-exams-ce/classic-crd/fee-schedule regarding the fees for the Continuing
Membership Application with FINRA.
---------------------------------------------------------------------------

iii. Costs Associated With Ineffectiveness Declaration
    In addition to the implementation costs associated with filing and
amending Form ATS-N, the Commission preliminarily believes that the
proposed ability for the Commission to declare a Form ATS-N or Form
ATS-

N amendment ineffective could result in direct costs for Government
Securities ATSs and Communication Protocol Systems that are NMS Stock
ATSs.\1127\ If the Commission declares a Government Securities ATS's or
an NMS Stock ATS's Form ATS-N or Form ATS-N 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.
---------------------------------------------------------------------------

    \1127\ See Rule 304(a)(1)(iv)(B).
---------------------------------------------------------------------------

    An ineffective Form ATS-N could also impose indirect costs on the
overall market for government securities and NMS stock trading services
resulting from a potential reduction in competition or the removal of a
sole provider of a niche service within the market.\1128\
---------------------------------------------------------------------------

    \1128\ See infra Section VIII.C.3.a.i.d for a discussion about
the impact of a declaration of ineffectiveness on competition in the
market for government securities and repo trading services.
---------------------------------------------------------------------------

    However, the Commission believes that there would not be a
substantial burden imposed in connection with resubmitting Form ATS-N
or a Form ATS-N amendment or from an ineffective declaration in
general.\1129\ Because Government Securities ATSs, Communication
Protocol Systems that are NMS Stock ATSs, and market participants would
not incur these costs unless the Commission declares a Form ATS-N or
amendment ineffective, such Government Securities ATSs and
Communication Protocol Systems would be incentivized to comply with the
requirements of Form ATS-N, as well as Federal securities laws,
including the other requirements of Regulation ATS, to avoid an
ineffectiveness declaration. These incentives would encourage such
Government Securities ATSs and Communication Protocol Systems to
initially submit a more accurate and complete Form ATS-N and amendments
thereto, which would reduce the likelihood that they are declared
ineffective.
---------------------------------------------------------------------------

    \1129\ One commenter on the 2020 Proposal stated that the use of
the same initial filing, amendment review, and effectiveness process
for the previously proposed Form ATS-G as is currently in place for
the Form ATS-N should reduce compliance burdens for market
participants and reduce potential market confusion. See Tradeweb
Letter at 10.
---------------------------------------------------------------------------

    Additionally, Current Government Securities ATSs and Communication
Protocol Systems that are NMS Stock ATSs would not have to bear the
costs of immediately ceasing operations under the proposal without
having an effective Form ATS-N on file with the Commission because
Current Government Securities ATSs would be able to continue operations
pursuant to a previously filed initial operation report on Form ATS and
Currently Exempted Government Securities ATSs and Communication
Protocol Systems that trade NMS stocks would also be able to continue
operations pending the Commission's review of their initial Form ATS-N.
However, if after notice and opportunity for hearing, the Commission
declares an initial Form ATS-N filed by a Current Government Securities
ATS, Currently Exempted Government Securities ATS, or Communication
Protocol System ineffective, the ATS would be required to cease
operations until an initial Form ATS-N is effective.
    One commenter stated that the Commission's imposition of an
``effectiveness'' regime to previously proposed Form ATS-G under the
2020 proposal is an unnecessary administrative burden on Government
Securities ATSs, and will be particularly burdensome on those
Government Securities ATSs with limited volumes in government
securities.\1130\ The implementation costs associated with the
requirements of Form ATS-N, including the costs for developing internal
processes to ensure correct and complete reporting on Form ATS-N to
avoid an ineffectiveness declaration, would be fixed costs, and thus,
would represent a larger fraction of revenue for a small (measured in
trading volume) ATS relative to that for a large ATS. However, the
Commission preliminarily believes that this adverse effect on small
ATSs would be mitigated to some extent, because, as discussed in
Section VIII.C.2.a.i, the Commission believes that certain smaller
Government Securities ATSs and Communication Protocol Systems that
trade NMS stocks would likely incur lower implementation costs.\1131\
---------------------------------------------------------------------------

    \1130\ See ICE Bonds Letter I at 5.
    \1131\ Smaller Government Securities ATSs and Communication
Protocol Systems that trade NMS stocks 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 implementation costs because certain
sections of revised Form ATS-N would not be applicable to these
ATSs. Furthermore, smaller such Government Securities ATSs and
Communication Protocol Systems that operate simpler systems would
likely incur lower implementation costs associated with the
requirements of Form ATS-N because certain sections of revised Form
ATS-N would not be applicable to these ATSs.
---------------------------------------------------------------------------

iv. Costs Associated With the Fair Access Rule
    The Commission preliminarily believes that applying the Fair Access
Rule could impose compliance costs (non-PRA based) on Government
Securities ATSs, Communication Protocol Systems that trade NMS stocks,
non-NMS stock equity securities, corporate debt securities, or
municipal securities, and passive systems that trade NMS stocks. Under
the proposal, Government Securities ATSs, Communication Protocol
Systems that trade NMS stocks, non-NMS stock equity securities,
corporate debt securities, or municipal securities, and passive systems
that trade NMS stocks that meet the specified aggregate volume
thresholds could no longer treat subscribers differently with respect
to access to the services of the ATS without a reasonable basis. For
example, an ATS could not offer one class of subscriber a service
(e.g., an order interaction procedure, order type, trading protocol, or
connectivity method) without offering the service to all subscribers
unless the ATS had a reasonable basis for the differential treatment.
In addition, an ATS could not charge fees that unreasonably prohibit
certain market participants from accessing the services of the
ATS.\1132\ If ATSs must change fee structures, order interaction
procedures, trading protocols, or access provisions and adapt their
operating model due to the Fair Access Rule, those ATSs would incur
costs related to changing business operations.
---------------------------------------------------------------------------

    \1132\ See supra Section V.A.3 for a discussion about
reasonableness and fees under the proposed amendments to the Fair
Access Rule.
---------------------------------------------------------------------------

    The Commission, however, is unable to quantify the potential
compliance costs discussed above. In particular, the Commission lacks
data on the extent to which Communication Protocol Systems that trade
NMS stocks, non-NMS stock equity securities, corporate debt securities,
or municipal securities, passive systems that trade NMS stocks, and
Government Securities ATSs that meet the aggregate 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 government securities, corporate debt securities,
and municipal securities market, which might offer differential access
to services. Thus, the Commission is not able to estimate the costs
associated with changing fee structures and adapting operating models.
    Significant ATSs that trade NMS stocks, non-NMS stock equity
securities, corporate debt securities, or municipal securities are
subject to the Fair Access

Rule. The proposed amendments to aggregate volume across affiliated
ATSs in calculating certain volume thresholds could increase the number
of smaller affiliate ATSs that would be subject to the Fair Access
Rule. Smaller affiliate ATSs that would not have met the current volume
thresholds individually would be subject to the Fair Access Rule if
they meet the proposed aggregate volume thresholds. As discussed above,
if ATSs must adapt their operating models as a result of being subject
to the Fair Access Rule, those ATSs would incur costs related to
changing business operations. The Commission estimates that no current
smaller affiliate ATS that trades NMS stocks, non-NMS stock equity
securities, corporate debt securities, or municipal securities and does
not already currently meet the Fair Access volume thresholds would meet
the volume thresholds \1133\ and be subject to the Fair Access Rule if
volume is aggregated across affiliated ATSs.\1134\
---------------------------------------------------------------------------

    \1133\ See supra note 1079 for details on the Fair Access
thresholds. See supra note 310 for the application of the Fair
Access Rule on the trading of NMS stocks, non-NMS stock equity
securities, municipal securities, and corporate debt securities. See
also supra Section V.A.2 for a discussion about the aggregation of
volume threshold.
    \1134\ See supra note 1085.
---------------------------------------------------------------------------

v. Costs Associated With Rule 301(b)(6)
    In addition to the implementation costs associated with reporting
outages and recordkeeping under the proposed Rule 301(b)(6), the
Commission preliminarily believes that significant Communication
Protocol Systems that trade corporate debt securities or municipal
securities could incur compliance costs (non-PRA based) to ensure
adequate capacity, integrity, and security with respect to those
systems that support order entry, order routing, order execution,
transaction reporting, and trade comparison.\1135\ To the extent that
these significant Communication Protocol Systems currently do not meet
certain standards under the proposed Rule 301(b)(6), they would incur
compliance costs associated with, among other things, capacity
planning, and conducting periodic capacity stress tests of critical
systems that process transactions.\1136\ For example, a Communication
Protocol System would incur the costs associated with upgrading systems
(e.g., investing in computer hardware and software) if its critical
systems that process transactions do not have adequate capacity. In
addition, significant Communication Protocol Systems would incur costs
associated with the independent review of their systems on an annual
basis.
---------------------------------------------------------------------------

    \1135\ The Commission estimates that 2 Communication Protocol
Systems that trade corporate debt securities or municipal securities
would exceed the thresholds under the proposed Rule 301(b)(6). See
supra Section VIII.C.2.a.i.
    \1136\ See supra note 157.
---------------------------------------------------------------------------

    The Commission believes that the compliance costs for one of these
significant Communication Protocol Systems would depend on the extent
to which its existing policies with respect to maintaining adequate
capacity, integrity, and security of systems that support order entry,
order routing, order execution, transaction reporting, and trade
comparison already comply with the standards under the proposed Rule
301(b)(6). The Commission is unable to estimate these compliance costs
because it lacks information on the existing policies for maintaining
adequate capacity, integrity, and security of such systems for
significant Communication Protocol Systems that trade corporate debt
securities or municipal securities.\1137\ However, the Commission
believes that compliance costs associated with Rule 301(b)(6) would be
significantly less than those of Regulation SCI because the scope and
requirements of Rule 301(b)(6) would be narrower than those of
Regulation SCI.\1138\
---------------------------------------------------------------------------

    \1137\ See supra note 888 (discussing commenter statements on
the extent to which fixed incomes systems already comply with the
provisions of Rule 301(b)(6)).
    \1138\ For example, Rule 301(b)(6) would apply to a narrower set
of systems, as compared to Regulation SCI: Rule 301(b)(6) of
Regulation ATS applies only to systems that support order entry,
order routing, order execution, transaction reporting, and trade
comparison, which is narrower than the definition of SCI system.
Furthermore, Rule 301(b)(6) would not require significant
Communication Protocol Systems that trade corporate debt securities
or municipal securities to maintain a geographically diverse backup
facility.
---------------------------------------------------------------------------

vi. Costs Associated With Regulation SCI
    Government Securities ATSs that meet certain volume thresholds
would incur compliance costs (non-PRA based costs) as SCI
entities.\1139\ 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 $214,000 and $1.6 million.
The Commission believes that these compliance costs are largely
applicable to Government Securities ATSs.
---------------------------------------------------------------------------

    \1139\ While NMS Stock ATSs that meet certain volume thresholds
are also subject to Regulation SCI, the Commission estimates that no
Communication Protocol Systems that trade NMS stocks would be
subject to Regulation SCI. The Commission preliminarily believes
that a Communication Protocol System that trades NMS stocks would
incur the same implementation costs and other compliance costs (non-
PRA based), including ATS's participant costs, in the same range as
those presented in Table VIII.8.
---------------------------------------------------------------------------

    One commenter on the 2020 Proposal stated that Regulation SCI
imposes a specific manner in which SCI Entities must organize their
asset inventories, and that redesigning and implementing new asset
inventories to comply with Regulation SCI would require significant
investment and would impose material upfront compliance costs that may
divert resources rather than encourage meaningful investment.\1140\
Although Regulation SCI would require SCI Entities to identify systems
based on their functionality, as discussed above, the Commission
believes that Regulation SCI is designed to provide flexibility in
applying industry standards to establish policies and procedures.\1141\
This flexibility may not require SCI Entities to redesign their systems
to comply with Regulation SCI. However, to the extent that an SCI
Entity would be required to redesign its systems, the Commission
believes that the costs would be included in the compliance costs
associated with Regulation SCI discussed above.\1142\
---------------------------------------------------------------------------

    \1140\ See BrokerTec Letter at 7.
    \1141\ See supra note 374 and accompanying text.
    \1142\ See supra Table VIII.8 for the compliance costs
associated with Regulation SCI.
---------------------------------------------------------------------------

    However, the Commission is uncertain about the actual level of
costs Government Securities ATSs would incur because these costs might
differ from the types of SCI entities considered in the Regulation SCI
Adopting Release, which did not include fixed income ATSs.\1143\ The
Commission is also uncertain about the actual level of costs Government
Securities ATSs would incur because the actual costs might 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.\1144\ 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 might incur higher compliance costs compared to
those with lower dependency on third-party systems.\1145\
---------------------------------------------------------------------------

    \1143\ See Regulation SCI Adopting Release, supra note 3. In the
Regulation SCI Adopting Release, fixed income ATSs are excluded from
the regulation.
    \1144\ 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.
    \1145\ See id. The Regulation SCI Adopting Release discusses
that compliance costs could in part depend on the extent to which an
SCI entity uses 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.
---------------------------------------------------------------------------

    In addition, 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.\1146\
If 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 might be limited.
---------------------------------------------------------------------------

    \1146\ See id. The Regulation SCI Adopting Release estimated
connectivity costs as part of business continuity and disaster
recovery plans to be approximately $10,000 per SCI entity member or
participant.
---------------------------------------------------------------------------

    The Commission believes that the costs to comply with Regulation
SCI discussed above would also fall on third-party vendors employed by
Government Securities ATSs to provide services used in their SCI
systems. The costs for third-party vendors imposed by Regulation SCI
would depend on the extent to which Government Securities ATSs use
third-party systems that fall under the definition of SCI systems and
the portion of third-party vendors operating SCI systems on behalf of
large (i.e., over the volume threshold) Government Securities ATSs that
already comply with the requirements of Regulation SCI. It is possible
that some third-party vendors operating SCI systems on behalf of large
Government Securities ATSs already comply with the requirements of
Regulation SCI because they also operate the SCI systems for other SCI
(e.g., SCI ATSs, SCI SROs). The additional compliance costs from the
proposed amendments of Regulation SCI for these third-party vendors
would be minimal. However, at this time, it is difficult to estimate
the cost for third-party vendors because the Commission does not know
the extent to which Government Securities ATSs use third-party systems
that fall under the definition of SCI systems.
b. Indirect Costs
    The Commission believes that the proposed amendments could result
in indirect costs for market participants and certain Government
Securities ATSs and Communication Protocol Systems.
    The public disclosure requirements of Form ATS-N under the proposal
could generate indirect costs for some subscribers by causing
Government Securities ATSs and Communication Protocol Systems that are
NMS Stock ATSs to stop sharing information that they might currently
offer to only some subscribers. Form ATS-N would require Government
Securities ATSs and NMS Stock ATSs to publicly disclose any platform-
wide order execution metrics that they share with any subscriber. To
avoid publicly disclosing this information, an ATS might stop sharing
the information with subscribers. The trading costs of subscribers that
currently use this information to help make trading decisions would
increase if the information is no longer available to them. 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 who receive such information demand the
information as a condition of subscribing, ATSs would have a commercial
incentive to continue disclosing it. Thus, the Commission believes that
this risk might be low.
    The Commission believes that the public disclosure of Form ATS-N
would generate indirect costs, in the form of transfers, for some
subscribers of Government Securities ATSs or Communication Protocol
Systems that are NMS Stock ATSs who 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 would reduce informed subscribers' information advantage
over other subscribers on such Government Securities ATSs or
Communication Protocol Systems and increase their trading costs. In
this regard, the Commission recognizes that this effect would be a
transfer to those subscribers who would receive the proposed
information, from those subscribers currently exclusively receive such
information.
    Some Government Securities ATSs and Communication Protocol Systems
that are NMS Stock ATSs would experience indirect costs from the public
disclosure of Form ATS-N to the extent that this form would reveal
information to competitors. If a Government Securities ATS or NMS Stock
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-N would make it easier for other
trading venues to adopt the operational characteristics, which would
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 cost to the market.
    That said, the Commission believes that the risk of these transfers
is low because it is not likely the responsive information to the
revised Form ATS-N would include detailed enough information regarding
operational facets such that the public disclosure of the information
would allow another ATS to replicate the functionality to the extent it
would adversely affect the competitive position of the disclosing ATS
in the market.\1147\
---------------------------------------------------------------------------

    \1147\ See supra note 467 and accompanying text.
---------------------------------------------------------------------------

    The Commission believes that Government Securities ATSs and
Communication Protocol Systems that trade NMS stocks, non-NMS stock
equity securities, corporate debt securities, or municipal securities,
and passive systems that trade NMS stocks could indirectly experience
costs in the form of lost revenue if they meet or exceed the Fair
Access Rule thresholds and need to alter their business model to comply
with the requirements of the Fair Access Rule. If they need to alter
their terms of service or operations it may lead some subscribers that
currently trade on the venue and benefit from the existing terms of
service or operations to reduce the order flow they route to the venue
or even leave the venue entirely, which could reduce the ATS's revenue.
However, this revenue loss may be mitigated if the ATS is also able to
attract new subscribers or additional order flow that was previously
not able to access the venue.\1148\ The Commission is not able to
estimate the loss of revenues that Government Securities ATSs,
Communication Protocol Systems that trade NMS stocks, and passive
systems that meet the aggregate volume thresholds could incur as a
result of applying the Fair Access Rule, because the venues may alter
their business operations in response to being subject

to the requirements of the Fair Access Rule and how the venue's
existing subscribers may consequently alter their order flow or
subscription to the ATS.
---------------------------------------------------------------------------

    \1148\ The Commission believes that, even if, an ATS has to
change its business operations as a result of exceeding the Fair
Access Rule threshold and is able to attract additional order flow
or subscribers, the ATS's profits will likely be lower. If an ATS
could have increased its profits by altering its business model
before it was subject to the Fair Access Requirements, it would
presumably have done so.
---------------------------------------------------------------------------

    The Commission believes that market participants could incur
indirect costs related to Government Securities ATSs, Communication
Protocol Systems that trade NMS stocks, non-NMS stock equity
securities, corporate debt securities, or municipal securities, and
passive systems that trade NMS stocks being subject to the Fair Access
Rule. As discussed in Section VIII.C.1.b, applying the Fair Access Rule
could lower trading costs for market participants who are able to gain
access to a trading venue from which they were previously excluded.
This could impose costs on existing subscribers who may currently
benefit from limiting access to the trading venue, though the
Commission recognizes these costs would amount to transfers. To the
extent this occurs, it is possible that some existing subscribers may
redirect some or all of their trading interest to another trading venue
that is not subject to the Fair Access Rule in order to preserve some
of the benefits they may receive from a trading venue limiting access.
These existing subscribers may incur search costs to find other venues
to trade on as well as costs associated with administrative and
operational procedures (e.g., means of access, connectivity, order
entry) to trade on a new trading venue. To the extent that existing
subscribers shift their trading from the trading venue that is subject
to the Fair Access Rule to a trading venue that is not subject to the
rule, the benefits marker participants receive from gaining access to
trading venues subject to the Fair Access Rule could be reduced.
    Furthermore, compared to larger and more established ATSs, it is
possible that younger ATSs rely more on providing catered services,
including more advantageous access, to specific clients or a clientele,
in order to grow their businesses. If being subject to the Fair Access
Rule prohibits these ATSs from doing this, these ATSs could restrict
trading on their systems when they are close to meeting the volume
thresholds under the Fair Access Rule. This may not result in a
significant increase in trading costs for market participants, because
the order flow that was being sent to those ATSs would likely be
absorbed and redistributed amongst other ATSs or non-ATS venues.
However, if an ATS that is the sole provider of a niche service limits
the trading in certain securities to avoid being subject to the Fair
Access Rule, it could be more difficult for some market participants to
find an alternative trading venue for that niche service, which would
result in a larger increase in trading costs.
    Similarly, the proposed amendments to apply certain aggregate
volume thresholds to the Fair Access Rule in the markets for government
securities, corporate debt and municipal securities, and equity
securities could also cause market participants to incur similar
indirect costs. If the aggregate volume of ATSs operated by a common
broker-dealer or operated by affiliated broker-dealers approaches the
Fair Access volume thresholds, then the operators could restrict
trading in one or more securities on their systems in order to avoid
being subject to the requirements of the Fair Access Rule. However,
ATSs in the markets for government securities, corporate debt
securities, and municipal securities may be unlikely to restrict
trading in individual securities on their systems because the
aggregated volume threshold is applied categorically rather than to
individual securities.
    Market participants could also incur indirect costs from the
proposed amendments to apply certain aggregate volume thresholds to the
Fair Access Rule if it causes a broker-dealer or affiliated broker-
dealers that operate multiple ATSs to shut down one or more their
smaller ATSs in order to avoid triggering the Fair Access threshold.
This could cause market participants that subscribed to one of the
shutdown platforms to incur search costs to find another venue to trade
on.
    The Commission believes that market participants could incur
indirect costs related to applying Regulation SCI to Government
Securities ATSs and Communication Protocol Systems in equity securities
and with applying Rule 301(b)(6) to Communication Protocol Systems in
the market for corporate debt securities or municipal securities. If a
Government Securities ATS or Communication Protocol System that trades
NMS stocks is close to satisfying the volume thresholds of Regulation
SCI or Rule 301(b)(6), it could limit the trading in certain securities
on its systems to stay below the volume thresholds in order to avoid
being subject to Regulation SCI or Rule 301(b)(6). If this occurs for a
Government Securities ATS or Communication Protocol System that is the
sole provider of a niche service, as discussed above, some market
participants would incur higher trading costs.
    Additionally, in order to stay below the volume thresholds under
Regulation SCI or Rule 301(b)(6), an ATS could break itself up into
smaller ATSs. If this results in its subscribers changing their
administrative and operational procedures (e.g., means of access,
connectivity, order entry), the subscribers would incur costs
associated with making those administrative and operational changes to
utilize the ATS, or otherwise incur search costs to find another venue
to trade.
3. Efficiency, Competition, and Capital Formation
    The Commission has considered the effects of the proposed
amendments on efficiency, competition, and capital formation, and
discussed these effects below.
a. Competition
    The Commission preliminarily believes that the proposed amendments
to Regulation ATS and Regulation SCI would affect competition in the
market for trading services.\1149\
---------------------------------------------------------------------------

    \1149\ See supra Section VIII.C.1 for a discussion about
benefits from the requirements of Regulation ATS and Regulation SCI
and Section VIII.C.2 for a discussion about costs of the
requirements of Regulation ATS and Regulation SCI.
---------------------------------------------------------------------------

i. Regulation ATS
    The Commission believes that the proposed amendments to Rule 3b-16
and Regulation ATS would promote competition by requiring current ATSs
and Communication Protocol Systems to operate on a more equal basis.
Additionally, the Commission believes that the regulatory requirements
and compliance costs associated with the proposed amendments to Rule
3b-16 and Regulation ATS could act as a deterrent or a barrier to entry
for potential ATSs or cause some smaller existing trading venues to
exit the market for trading services.\1150\ However, based on the
estimated costs in Section VIII.C.2.a.i above, the burdens imposed by
these regulatory requirements or compliance costs may not be large
enough for these effects to be significant. Even if a smaller trading
venue ceased operating, the Commission believes it may not have a
significant adverse effect on overall competition among trading venues,
because the market for trading services is competitive and the trading
volume from the venue would likely be

absorbed and redistributed amongst other ATSs or non-ATS venues.\1151\
---------------------------------------------------------------------------

    \1150\ The expected compliance costs of Regulation SCI could act
as a barrier to entry for new entrants who expect to eventually
become SCI ATSs. If the expected compliance costs reduce the number
of potential new entrants, this would reduce the potential
competition from new entrants. However, these effects may not be
significant because the entry decision at the margin, when the venue
is small, may not be significantly influenced by what would happen
if the venue later became large enough and met the requirements of
Regulation SCI.
    \1151\ The competitive effects would vary based on the types of
securities and the role that ATSs and Communication Protocol Systems
play in each securities market. See supra Sections VIII.B.2.d,
VIII.B.3.d, VIII.B.4.d, and VIII.B.5.f for a discussion about
competition in the market for trading services in different
securities markets. Furthermore, the Commission acknowledges that
the effects on competition could be greater if a smaller trading
venue that is the sole provider of a niche service were shut down.
To the extent this occurs, it could adversely impact competition
because it would require some market participants to find other
venues to trade on that may not minimize their trading costs to the
same extent. However, even in this case, the overall effects on
competition may still be limited because a competitor could create
similar business models if demand were adequate, and if it did not
do so, it seems likely new entrants would do so if demand were
sufficient.
---------------------------------------------------------------------------

    Although the proposed amendments to Exchange Act Rule 3b-16 and
Regulation ATS may not significantly increase the barriers to entry for
new trading venues or cause some existing smaller trading venues to
exit the market, the Commission lacks certain information necessary to
quantify the extent to which entities that otherwise would seek to
operate as a trading venue in the markets for government securities,
repos, corporate, municipal, or equity securities would be dissuaded
from doing so. Specifically the decision for a trading venue to
continue operating or to cease operating depends on numerous factors
and the Commission lacks information about many of those factors. For
example, the Commission does not have information on the extent to
which an existing Communication Protocol Systems would potentially need
to alter its operations or business model as a result of the proposed
amendments to Rule 3b-16 and Regulation ATS.
(a) Regulatory Framework
    To the extent that current ATSs and Communication Protocol Systems
compete,\1152\ the proposed changes to Exchange Act Rule 3b-16, which
would subject Communication Protocol Systems to the exchange regulatory
framework, which can include complying with Regulation ATS,\1153\ would
promote competition by requiring current ATSs and Communication
Protocol Systems to operate on a more equal basis in securities
markets. One commenter on the Concept Release stated that non-ATS
trading platforms that are neither registered as exchanges nor as ATSs
perform core market place functions in fixed income securities (e.g.,
corporate and municipal bonds) trading.\1154\ This commenter also noted
that these non-ATS trading platforms are operated by either broker-
dealers or unregulated entities. Furthermore, this commenter stated
that the significant regulatory burdens on ATSs put ATSs at a
competitive disadvantage to non-ATS trading platforms that are not
subject to the same regulatory obligations. Extending the requirements
of Regulation ATS to Communication Protocol Systems would help
eliminate a competitive disadvantage for ATSs arising from uneven
regulatory requirements in the market for trading services.\1155\ As
discussed in Section II.B.3, the proposed amendment would subject both
broker-dealer-operated and non-broker-dealer-operated Communication
Protocol Systems to the requirements of Regulation ATS. To comply with
the broker-dealer registration requirements of Regulation ATS, a non-
broker-dealer-operated Communication Protocol System would be required
to become a member of an SRO (e.g., FINRA) and comply with the
requirements of the SRO, to which ATSs are currently required.
---------------------------------------------------------------------------

    \1152\ See supra Sections VIII.B.2.d, VIII.B.2.d, VIII.B.2.d,
and VIII.B.7 (discussing how current ATSs in some markets tend to be
interdealer markets and Communication Protocol Systems tend to be
dealer-to-customer markets).
    \1153\ Under the proposal, Communication Protocol Systems that
choose not to register as exchanges can instead register as broker-
dealers and comply with Regulation ATS. Furthermore, under the
proposal, Communication Protocol Systems operated by non-broker-
dealers would be subject to the same regulatory requirements as
ATSs, including the broker-dealer registration requirement of
Regulation ATS. The Commission estimates that 6 non-broker-dealer-
operated Communication Protocol Systems without a broker-dealer
affiliate exist. The Commission assumes that, under the proposed
amendments, Communication Protocol Systems would choose to register
as broker-dealers and comply with Regulation ATS, rather than
register as exchanges. See supra note 1056 and accompanying text.
    \1154\ See ICE Bonds Letter II at 2 and 3.
    \1155\ See supra Sections VIII.B.2, VIII.B.3, VIII.B.4,
VIII.B.5, and VIII.B.6 for discussions regarding regulatory
requirements for ATSs in the government securities, corporate debt
securities, municipal securities, equities, and options market,
respectively. One commenter on the Concept Release stated that
applying a consistent regulatory framework to trading platforms that
provide equivalent services to market participants, while also
distinguishing between platforms that offer distinct trading
protocols, would level the competitive landscape and allow market
participants to choose trading platforms and protocols based on the
merits of the services provided. Furthermore, this commenter also
stated that it would not be appropriate to regulate all types of
electronic trading protocols in the same manner regardless of their
systemic risk profiles or to regulate electronic trading protocols
more strictly than equivalent non-electronic trading protocols. See
Tradeweb Letter at 4.
---------------------------------------------------------------------------

    Similarly, extending Regulation ATS to Currently Exempted
Government Securities ATSs \1156\ and Communication Protocol Systems
that trade government securities would help promote competition by
eliminating a Current Government Securities ATS's competitive
disadvantage that might arise due to uneven regulatory requirements in
the market for government securities and repo trading services.\1157\
---------------------------------------------------------------------------

    \1156\ Under the proposal, bank-operated Currently Exempted
Government Securities ATSs would be subject to the same regulatory
requirements as non-bank-operated Currently Exempted Government
Securities ATSs and Current Government Securities ATSs. The
Commission estimates that 1 bank-operated Currently Exempted
Government Securities ATS exists.
    \1157\ Current Government Securities ATSs might be at a
competitive disadvantage to Currently Exempted Government Securities
ATSs and Communication Protocol Systems, which do not currently
incur compliance costs associated with the requirements of
Regulation ATS. As discussed above, Currently Exempted Government
Securities ATSs, bank-operated Currently Exempted Government
Securities ATSs, Communication Protocol Systems, and Current
Government Securities ATSs compete in the market for government
securities and repo trading services with different regulatory
requirements. For example, due to reporting requirements of
Regulation ATS, it would be more difficult or costly for a Current
Government Securities ATS to implement significant operational
changes to compete with Currently Exempted Government Securities
ATSs and Communication Protocol Systems if the Current Government
Securities ATS's competitive advantage is driven by operational
facets that would be reported on Form ATS. See also supra Sections
II, III, VIII.B.2.a, and VIII.B.2.b for a discussion about the
differences in regulatory requirements between Current Government
Securities ATSs, Currently Exempted Government Securities ATSs, and
Communication Protocol Systems under the current regulatory
framework.
---------------------------------------------------------------------------

    The Commission acknowledges that some Government Securities ATSs
and Communication Protocol Systems could restructure their operations
to be non-ATSs to avoid being subject to Regulation ATS and Regulation
SCI if the requirements are too burdensome or impair the ability of the
trading venue to compete. However, the risk of this occurring may be
mitigated because the proposed amendments to Rule 3b-16 may make it
difficult for Government Securities ATSs and Communication Protocol
Systems to restructure their operations to be non-ATSs.\1158\ To the
extent this does occur, the benefits and enhancements to competition
discussed above would be reduced.\1159\
---------------------------------------------------------------------------

    \1158\ Additionally, although non-ATS venues would compete with
ATSs in the market for government securities and repo trading
services, non-ATS venues cannot offer the same services as ATSs
without becoming ATSs.
    \1159\ See supra Section VIII.C.1 for a discussion about
benefits from the requirements of Regulation ATS and Regulation SCI.
---------------------------------------------------------------------------

    One commenter on the Concept Release stated that the flexibility of
the current regulatory framework allows financial technology firms
\1160\ to

innovate and compete fiercely.\1161\ This commenter also stated that
this structure creates relatively low costs for entry (and exit) in the
development of new technologies.\1162\ Subjecting Communication
Protocol Systems to the requirements of Regulation ATS could reduce
operational flexibility. For example, it would be more costly for a
Communication Protocol System to implement significant changes to
operational facets that would be required to be reported on Form ATS or
Form ATS-N. The Commission acknowledges that this reduction in
operational flexibility could, under certain circumstances, make it
more difficult to innovate.\1163\ That said, in addition to the other
benefits discussed above,\1164\ the Commission believes that the
proposed amendments would foster competition by requiring current ATSs
and Communication Protocol Systems to operate on a more equal basis in
the market for trading services. This, in turn, would help promote
innovation.
---------------------------------------------------------------------------

    \1160\ For the purpose of this discussion, financial technology
firm is interpreted to be a type of Communication Protocol System
(e.g., RFQ system).
    \1161\ See Bloomberg Letter at 10 and 17.
    \1162\ See Bloomberg Letter at 23.
    \1163\ For example, it would take longer for a Communication
Protocol System that trades government securities to implement an
innovative operational facet that required a significant change to
its systems, e.g. an innovative trading protocol, because they it
need to file a Form ATS-N material amendment 30 days before
implementing the system change. See supra IV.A.
    \1164\ See supra Section VIII.C.1.
---------------------------------------------------------------------------

(b) Compliance Costs of Regulation ATS
    The Commission preliminarily believes that the compliance costs
associated with the requirements of Regulation ATS would have different
effects on the competitive position of ATSs depending on their size.
However, the Commission believes that these initial and ongoing
compliance costs may not have a significant adverse impact on overall
competition in the market for trading services.
    As a result of the proposed extension of Regulation ATS to
Communication Protocol Systems and Currently Exempted Government
Securities ATSs, these ATSs would be subject to Rule 301(b)(9) and
(10), Rule 302, and Rule 303. Most of the estimated compliance costs
\1165\ associated with these rules would be fixed costs to those ATSs
regardless of the amount of trading activity that takes place on them,
and thus, these compliance costs would represent a larger fraction of
revenue for a small (measured in trading volume) ATS relative to that
for a large ATS.\1166\ Furthermore, most of the estimated compliance
costs associated with the requirements of Form ATS-N under Rule 304,
which all Government Securities ATSs and Communication Protocol Systems
that trade NMS stocks would incur, would be fixed costs. This could
have an adverse impact on small ATSs in competing against larger ATSs,
which could act as a deterrent or a barrier to entry for potential ATSs
or result in small ATSs exiting the market for trading services.\1167\
However, if small Government Securities ATSs and Communication Protocol
Systems that trade NMS stocks engage in providing simpler services,
these small ATSs are likely to incur lower compliance costs.\1168\
---------------------------------------------------------------------------

    \1165\ The compliance costs associated with the requirements of
Regulation ATS are generally represented by implementation costs
(the monetized costs of PRA burdens). See also supra note 1100. See
supra Section VIII.C.2.a.i for a discussion on the implementation
costs associated with Rule 301(b)(9) and (10), Rule 302, and Rule
303. Communication Protocol Systems that are not broker-dealers and
Currently Exempted Government Securities ATSs that are banks would
incur additional compliance costs associated with the broker-dealer
registration requirements under Rule 301(b)(1). See infra Section
VIII.C.3.1.i.c) for a discussion of the competitive effects of
broker-dealer registration requirements.
    \1166\ See supra Section VIII.2.a.i for a discussion about the
impact of implementation costs for small ATSs.
    \1167\ Based on the estimated costs in Section VIII.C.2.a.i
above, the Commission preliminarily believes that the compliance
costs may not be large enough for these effects to be significant.
See supra note 1151 and accompanying text.
    \1168\ See supra Section VIII.C.2.
---------------------------------------------------------------------------

    One commenter on the Concept Release stated that the regulatory
burdens associated with subjecting all electronic platforms to the
requirements of Regulation ATS could ultimately reduce the number of
different platforms available.\1169\ Another commenter on the Concept
Release stated that the changes contemplated to Rule 3b-16 could end up
raising costs for new financial technology (i.e., fintech) \1170\
entrants (liquidity solutions) to enter, stifle innovation and damage
the current ability of market participants to locate liquidity in all
illiquid security markets.\1171\ This commenter also stated that a
change in the definition of exchange would insert unnecessary
intermediation between dealers and their customers and damage liquidity
formation.\1172\
---------------------------------------------------------------------------

    \1169\ See SIFMA Letter at 9 and 11. Another commenter on the
Concept Release stated that the revision of the definition of
``exchange'' in Exchange Act Rule 3b-16 (``Rule 3b-16'') to expand
the applicability of Regulation ATS to firms currently regulated as
non-ATS broker-dealers may cause disruption if not undertaken
carefully. See Tradeweb Letter at 2. An additional commenter stated
that the Commission must be careful in implementing any reforms to
the oversight of corporate bond and municipal securities trading
venues to ensure that there are no unintended consequences for
investors, such as the reduction in the availability of the types of
platforms that investors utilize to effect transactions in these
securities. See MFA Letter at 8.
    \1170\ For the purpose of this discussion, fintech is
interpreted to be a type of Communication Protocol System (e.g., RFQ
system).
    \1171\ See Bloomberg Letter at 3. This commenter on the Concept
Release stated that adding fintechs, such as RFQ systems, to the
definition of exchange would erect high regulatory hurdles for
innovation and new fintech entrants. See also Bloomberg Letter at
28. Another commenter on the Concept Release similarly expressed
concern that any revisions to the regulatory framework for fixed
income electronic trading should not stifle the investment and
innovation that has led to the variety of existing trading
protocols, and that it would be a mistake to interrupt this
evolution through the increased imposition of an equity-based
regulatory framework. See MarketAxess Letter at 3.
    \1172\ See Bloomberg Letter at 20. This commenter also stated
that a change in the definition of exchange would threaten to
distort the market structure by creating a one-size-fits-all
approach that is biased against the trading of less-liquid
instruments, damaging liquidity formation. See id.
---------------------------------------------------------------------------

    As discussed above, the compliance costs from the proposed
amendments to Regulation ATS may not significantly increase the
barriers to entry for new trading venues or cause some existing
Communication Protocol Systems and Currently Exempted Government
Securities ATSs to exit the market. Therefore, the Commission believes
that the compliance costs associated with Regulation ATS may not have a
significant adverse impact on competition in the markets for trading
services. As discussed above, while the Commission acknowledges the
proposed amendments could reduce operational flexibility, which could,
under certain circumstances, make it more difficult to innovate, the
Commission believes increased competition from the proposed amendments
providing a more equal regulatory basis would help promote
innovation.\1173\ To the extent the proposed amendments force an
innovative fintech to exit the market, it may be able to restructure
itself (rather than operate as an ATS) as a third-party vendor and
continue to provide certain innovative services, or otherwise sell its
technology to another ATS, which would mitigate to some extent any
adverse impact the proposed amendments may have on innovation.
---------------------------------------------------------------------------

    \1173\ See supra Section VIII.C.3.a.i.a).
---------------------------------------------------------------------------

    To the extent the proposed amendments result in a Communication
Protocol System that trades less liquid securities exiting the market
for trading services, it could increase the trading costs of its
subscribers if they need to find a new trading venue or are forced to
go through multiple intermediaries (i.e., broker-dealers) to find
counterparties. However, as discussed above, the Commission
preliminarily believes this may not result in a significant increase in
trading costs for market participants because the trading

interest that was being sent to the Communication Protocol System would
likely be absorbed and redistributed amongst other ATSs or non-ATS
venues.\1174\
---------------------------------------------------------------------------

    \1174\ See supra Section VIII.C.2.b.
---------------------------------------------------------------------------

(c) Broker-Dealer Registration Requirements
    In addition to the compliance costs associated with the
requirements of Regulation ATS, non-broker-dealer-operated
Communication Protocol Systems without a broker-dealer affiliate would
incur additional compliance costs related to registering with the
Commission as broker-dealers, becoming members of an SRO, such as
FINRA, and maintaining broker-dealer registration and SRO
membership.\1175\ Although these additional compliance costs could harm
the competitive position of these Communication Protocol Systems and
raise barriers to entry for entrants who are not broker-dealers nor
affiliated with another broker-dealer, the Commission preliminarily
believes that the compliance costs associated with the proposed broker-
dealer registration requirements may not have a significant adverse
effect on overall competition in the market for trading services.
---------------------------------------------------------------------------

    \1175\ The Commission estimates there are 6 non-broker-dealer-
operated Communication Protocol Systems without a broker-dealer
affiliate. See supra Section VIII.C.2.a.ii.
---------------------------------------------------------------------------

    Although the Commission acknowledges uncertainty about the
compliance costs associated with the proposed broker-dealer
registration requirements,\1176\ there are two reasons why these costs
may not be significant enough to make a non-broker-dealer-operated
Communication Protocol Systems exiting the market likely. First, the
Commission believes that the estimated average costs may not be
significant enough to make exiting the market likely.\1177\ Second, the
Commission believes that the adverse effect on competition may be
limited to existing small Communication Protocol Systems and this
adverse effect may be mitigated to some extent because small
Communication Protocol Systems would incur lower compliance costs
associated with the broker-dealer registration requirements.\1178\ To
the extent that one of these Communication Protocol Systems ceased
operating, the Commission believes it may not have a significant
adverse effect on overall competition among trading venues, because the
market for trading services is competitive and the trading volume from
the venue would likely be absorbed and redistributed amongst other ATSs
or non-ATS venues.\1179\
---------------------------------------------------------------------------

    \1176\ As discussed above, the costs would vary significantly
across firms and the Commission's estimate is uncertain because it
does not have information on the non-broker-dealer-operated
Communication Protocol Systems without a broker-dealer affiliate.
See id.
    \1177\ The Commission estimates an initial cost of approximately
$317,000 to register as a broker-dealer with the Commission and
become a member of FINRA and an ongoing annual cost of approximately
$58,000 to maintain the broker-dealer registration and FINRA
membership. See id.
    \1178\ See id for a discussion about the costs associated with
the broker-dealer registration requirements under Rule 301(b)(1).
    \1179\ See supra note 1151 and accompanying text.
---------------------------------------------------------------------------

(d) Ineffectiveness Declaration
    The proposed ability for the Commission to be able to declare a
Form ATS-N or Form ATS-N amendment ineffective could result in
compliance costs for Government Securities ATSs and Communication
Protocol Systems that are NMS Stock ATSs and may affect competition in
the market for government securities, repos, and NMS stock trading
services. However, based on Commission staff's experience with NMS
Stock ATSs that filed an initial Form ATS-N, the Commission
preliminarily believes this would be an unlikely result.\1180\ To the
extent the Commission declares an initial Form ATS-N or amendment
ineffective, the ATS would either have to cease operations \1181\ or,
in the case of an amendment, roll back any changes it made and operate
pursuant to its previous Form ATS-N that is effective until it is able
to address the deficiencies and file a new Form ATS-N that becomes
effective.\1182\ To the extent the Commission declares an initial Form
ATS-N or amendment ineffective, some broker-dealer operators of
Government Securities ATSs and Communication Protocol Systems in NMS
Stocks might find that the costs of addressing deficiencies in Form
ATS-N outweigh the benefits of continuing to operate the trading venue,
particularly if the trading venue does not constitute a significant
source of profit for a broker-dealer operator.
---------------------------------------------------------------------------

    \1180\ Unlike the current rules applicable to NMS Stock ATSs
under Rule 304 of Regulation ATS with respect to ineffectiveness,
the Commission does not have a process to declare a Form ATS
ineffective because of the quality of the disclosures and cause the
ATS cease operating pursuant the exemption. See Rule
304(a)(1)(iv)(B).
    \1181\ See Rule 304(a)(1)(iv)(B).
    \1182\ See id.
---------------------------------------------------------------------------

    The ability of the Commission to declare Form ATS-N ineffective
could also raise barriers to entry for new ATSs, as it might create
uncertainty as to whether the Commission would declare its initial Form
ATS-N effective or ineffective and as to the cost of avoiding an
ineffective declaration. If a new ATS's initial Form ATS-N is declared
ineffective, it would require time and additional expenditures to
address the deficiencies delaying the commencing of operations, which
would deter some potential ATSs from entry into the market for trading
services. However, because an ineffectiveness declaration would be an
unlikely result,\1183\ the Commission believes it would not
significantly raise the barriers to entry for new ATSs.
---------------------------------------------------------------------------

    \1183\ See supra Section VIII.C.2.a.iii (discussing the
Commission's belief that the potential costs of an ineffectiveness
declaration would incentivize Government Securities ATSs and
Communication Protocol Systems to initially submit a more accurate
and complete Form ATS-N and amendments, which would reduce the
likelihood that they are declared ineffective).
---------------------------------------------------------------------------

(e) Fair Access
    The Commission believes that applying the Fair Access Rule to
Government Securities ATSs, Communication Protocol Systems, and passive
systems could increase competition between market participants in the
markets for government securities, repos, corporate and municipal
securities, and equity securities. As discussed above, to the extent
that there are market participants currently excluded from trading on
significant Government Securities ATSs, Communication Protocol Systems,
or passive systems, applying the Fair Access Rule to Government
Securities ATSs, Communication Protocol Systems, and passive systems
could increase trading venue options available to these market
participants, which could lower their trading costs.\1184\ This, in
turn, could increase competition among market participants trading on
these platforms, which could be significant sources of liquidity and
represent a significant portion of trading volume in their respective
markets.\1185\ However, these competitive effects may be reduced to the
extent that some existing subscribers of trading venues that are
subject to the Fair Access Rule redirect their trading interest to
other trading venues not subject to the Fair Access Rule in order to
preserve some of the benefits they may receive from a trading venue
limiting access.\1186\ If the

proposed amendments to apply certain aggregate volume thresholds
increase the number of smaller affiliate ATSs that would be subject to
the Fair Access Rule, it could also increase competition among market
participants, to the extent certain market participants are currently
excluded from accessing these platforms.
---------------------------------------------------------------------------

    \1184\ See supra Section VIII.C.1.b.
    \1185\ One commenter on the 2020 Proposal stated that, since the
bilateral fixed-income market is a heavily relationship-driven
business, the Fair Access rule would better ensure that broker-
dealers and their affiliates cannot engage in retaliatory behavior,
and thus improve access and competition for the largest, most
systemically important markets. See AFREF Letter at 3.
    \1186\ See supra Section VIII.C.2.b (discussing the indirect
costs to market participants related to the requirements of the Fair
Access Rule).
---------------------------------------------------------------------------

    The Commission believes that the proposed amendments to apply
certain aggregate volume thresholds to the Fair Access Rule could harm
competition among trading venues in the markets for government
securities, corporate debt and municipal securities, and equity
securities. As discussed above, if the aggregate volume of ATSs
operated by a common broker-dealer or operated by affiliated broker-
dealers approaches the Fair Access volume thresholds, then the
operators could restrict trading on their systems in one or more
securities in order to avoid being subject to the requirements of the
Fair Access Rule.\1187\ However, ATSs in the markets for government
securities and corporate debt and municipal securities may be unlikely
to restrict trading in individual securities on their systems because
the aggregated volume threshold is applied categorically rather than to
individual securities. If these venues restrict trading in some
securities, it would reduce competition among trading venues to attract
order flow in these securities.
---------------------------------------------------------------------------

    \1187\ See supra Section VIII.C.2.b.
---------------------------------------------------------------------------

    Additionally, the proposed amendments to apply certain aggregate
volume thresholds to the Fair Access Rule could also harm competition
among trading venues if they cause a broker-dealer or affiliated
broker-dealers that operate multiple ATSs to shut down one or more
their smaller ATSs in order to avoid triggering the Fair Access
threshold.\1188\ However, because the trading volume on these smaller
ATSs would likely be absorbed and redistributed amongst other ATSs or
non-ATS venues, the Commission believes that the overall effects on
competition among trading venues may not be significant.
---------------------------------------------------------------------------

    \1188\ See id.
---------------------------------------------------------------------------

(f) Public Disclosure
    The increase in transparency due to the public disclosure of Form
ATS-N would promote competition in the markets for government
securities, repos, and NMS stock trading services. The increase in
competition could result in lower venue fees, improve the efficiency in
customer trading interest or order handling procedures, and promote
innovation. For instance, because the public disclosure of Form ATS-N
would make it easier for market participants to compare fees across
ATSs,\1189\ market participants could choose to send their orders to
ATSs that offer lower fees, which in turn, could induce ATSs to lower
their fees to attract new subscribers. If non-ATS venues compete with
ATSs for trading services, the increased operational transparency of
ATSs might also incentivize non-ATS trading venues to reduce their fees
to compete with ATSs.
---------------------------------------------------------------------------

    \1189\ Under the proposed amendments, Government Securities ATSs
(inclusive of Communication Protocol Systems, as proposed) and
Communication Protocol Systems that trade NMS stocks would need to
begin disclosing their Form ATS-N. Current NMS Stock ATSs already
publically disclose their Form ATS-N.
---------------------------------------------------------------------------

    Because the public disclosure of Form ATS-N would make it easier
for market participants to compare the quality of trading services,
such as innovative trading functionalities, order handling procedures,
and execution statistics--if they are made available, across
venues,\1190\ market participants would be more likely to send their
trading interests or orders to ATSs that offer better trading services.
This would promote greater competition in the market for trading
services and incentivize ATSs to innovate, including, in particular,
technology related to trading services to improve the quality of such
services to attract more subscribers.
---------------------------------------------------------------------------

    \1190\ See supra Section VIII.C.1.b for a discussion about
benefits from public disclosure of Form ATS-N.
---------------------------------------------------------------------------

    Similarly, the public disclosure of Form ATS-N would also result in
market participants redirecting their trading interest away from ATSs
that offer lower quality trading services compared to other ATSs, which
could result in these ATSs earning less revenue. If the loss in revenue
causes these ATSs to become unprofitable, they might choose to exit the
market.\1191\
---------------------------------------------------------------------------

    \1191\ See supra note 1151 and accompanying text for a
discussion on the effects of ATSs exiting the market for trading
services.
---------------------------------------------------------------------------

    The proposed amendment to require timely fee change disclosure on
Form ATS-N would promote competition between current NMS Stock ATSs and
other trading venues in the market for NMS stocks, including
exchanges.\1192\ In the Commission staff's experience, NMS Stock ATSs
have taken varied approaches to the reporting of fees. Current NMS
Stock ATSs that treat fee changes as material changes in filing Form
ATS-N are required to wait 30 calendar days from the filing date to
implement a fee change.\1193\ In other cases, NMS Stock ATSs have filed
updating amendments no later than 30 days following the end of the
calendar quarter in which a fee change was made. The Commission
believes that requiring NMS Stock ATSs to file a fee amendment no later
than the date it makes the change to a fee or fee disclosure would
require those NMS Stock ATSs to provide the public with sufficient
notice about a fee change while enabling those NMS Stock ATSs to nimbly
change fees in competing against other trading venues. Furthermore,
under Section 19(b) of the Exchange Act, national securities exchanges
can implement fee changes upon filing with the Commission.\1194\ To the
extent that NMS Stock ATSs compete with exchanges in fees to attract
order flow, the proposed amendment would promote competition by helping
to level the playing field between NMS Stock ATSs and exchanges in
terms of the timeframes in which they can initiate and disclose fee
changes.\1195\
---------------------------------------------------------------------------

    \1192\ Under the proposed amendments, Government Securities ATSs
would also be required to file fee amendments on Form ATS-N. This
could promote competition among Government Securities ATSs because
timely fee disclosure of fee changes by Government ATSs would make
it easier for market participants to compare fees between trading
venues. This could incentivize trading venues in the market for
Government Securities to reduce their fees to compete to attract
order flow.
    \1193\ See supra Section IV.A for a discussion about fee
amendments on Form ATS-N.
    \1194\ Under Section 19(b)(3), SRO rule changes that: Constitute
a stated policy, practice, or interpretation with respect to the
meaning, administration, or enforcement of an existing rule of the
SRO; establish or changing a due, fee, or other charge imposed by
the SRO; or are concerned solely with the administration of the SRO,
are immediately effective upon filing. However, the Commission may
suspend one of these SRO rule changes within 60 days of the date the
SRO rule change is filed with the Commission, if it appears to the
Commission that such action is necessary or appropriate in the
public interest, for the protection of investors, or the maintenance
of fair and orderly markets, to remove impediments to, and perfect
the mechanisms of, a national market system, or otherwise in
furtherance of the purposes of the Exchange Act. If the Commission
does suspend a SRO rule change, then it shall institute proceedings
under Section 19(b)(2)(B) to determine whether the proposed SRO rule
change should be approved or disapproved. See 15 U.S.C. 78s(b)(2)
and 15 U.S.C. 78s(b)(3).
    \1195\ Currently, an amendment to a fee could result in an ATS
filing an updating amendment or a material amendment, depending on
the nature of the change and the ATS's assessment of whether such
change was material. If an NMS Stock ATS would file an updating
amendment to disclose a fee change, then the proposed amendment
would help level the playing field by reducing the amount of time
that the NMS Stock ATS would have before it had to disclose a fee
change, bringing it more in line with the disclosure timeframes of
exchanges. If an NMS Stock ATS would file a material amendment to
disclose a fee change, then the proposed amendment would help level
the playing field because the NMS Stock ATS would no longer have to
give 30 days' notice before initiating the fee change, bringing it
more in line with the notice timeline in which exchanges can
initiate fee changes.

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

    The public disclosure of a Government Securities ATS's or
Communication Protocol System that trades NMS stock's previously non-
public information regarding innovative operational facets could
adversely impact competition in the market for trading services and
also reduce the incentives for these trading venues to innovate. If the
competitive advantage of an ATS in the market is driven by certain
operational innovations, the disclosure of this information could
result in other competing ATSs with similar operational platforms
implementing similar methodologies, which could cause market
participants to send their trading interest or orders to those other
ATSs. To the extent some ATSs may rely on these innovations to attract
trading interest, this could cause some existing ATSs to exit the
market or raise the barriers to entry for new ATSs, which could
adversely impact competition.\1196\ Additionally, it could reduce the
incentives for ATSs to innovate if publicly disclosing new innovations
results in the disclosing ATS earning less revenue from new innovations
it develops. However, the Commission believes that the risk of these
adverse effects occurring would be low, because the information
disclosed on Form ATS-N is not likely to include detailed enough
information regarding operational facets or innovations such that the
public disclosure would adversely affect the competitive position of
the disclosing ATS.\1197\
---------------------------------------------------------------------------

    \1196\ See supra note 1151 and accompanying text for a
discussion on the effects of ATSs exiting the market for trading
services.
    \1197\ See supra note 467 and accompanying text.
---------------------------------------------------------------------------

    One commenter on the 2020 Proposal stated that the Commission
should not require making commercially sensitive information filed on
the previously proposed Form ATS-G publicly available, which the
commenter classified as information on certain fees or charges for use
of the ATS's services and on aggregate, platform-wide order flow and
execution statistics that the ATS already otherwise collects and
publishes to one or more subscribers.\1198\ The commenter stated that
the public disclosure of such information would have a negative impact
on innovation and competition among ATSs. As discussed above, the
Commission believes that the responsive information to the Form ATS-N
is not likely to include commercially sensitive or other information
the public disclosure of which would result in the disclosing ATSs
exiting the market for trading services and ultimately reduce
transparency.
---------------------------------------------------------------------------

    \1198\ See Tradeweb Letter at 3, 10, and 11. Similarly, another
commenter stated that publication of compliance procedures/processes
is not commonplace and risks requiring disclosure of proprietary
information. See ICE Bonds Letter I at 6.
---------------------------------------------------------------------------

    One commenter on the 2020 Proposal stated that if the disclosure
requirements of previously proposed Form ATS-G are too burdensome or
impair the ability of Government Securities ATSs to compete, it will
discourage the expansion of ATSs and potentially encourage operators of
Government Securities ATS to restructure their operations to avoid
being characterized as an ATS, which would ultimately result in less
transparency rather than more.\1199\ As discussed above, although the
Commission acknowledges that some Government Securities ATSs could
restructure their operations to be non-ATSs to avoid being subject to
the public disclosure of Form ATS-N, the risk of this occurring may be
mitigated because the proposed amendments to Rule 3b-16 may make it
difficult for them to restructure their operations to be non-
ATSs.\1200\
---------------------------------------------------------------------------

    \1199\ See ICE Bonds Letter I at 5 and ICE Bonds Letter II at 4.
    \1200\ See supra Section VIII.C.3.a.i.a).
---------------------------------------------------------------------------

ii. Regulation SCI
    The Commission believes that the requirements imposed by Regulation
SCI may not have a significant adverse effect on competition in the
market for trading services or on market participants' trading costs.
    The Commission believes that the compliance costs imposed by
Regulation SCI may not have a significant adverse effect on competition
among SCI ATSs, non-SCI ATSs, and non-ATS venues in the government
securities market due to mitigating factors.\1201\ The compliance costs
imposed by Regulation SCI would have some impact on competition in the
market for government securities trading services. Specifically,
because non-SCI ATSs do not have to incur the compliance costs
associated with Regulation SCI, non-SCI ATSs and non-ATS venues would
gain a competitive advantage in the market for trading services over
SCI ATSs, with which they compete.\1202\ If SCI ATSs pass on the
compliance costs to their subscribers in the form of higher fees, SCI
ATSs would lose order flow or their subscribers to other non-SCI ATSs
and non-ATS venues with lower fees. Adverse competitive effects,
however, would be mitigated because an SCI ATS would likely have more
robust systems, fewer disruptive systems issues, and better up-time
compared to non-SCI ATSs. Furthermore, any adverse competitive effect
may be minor if an SCI ATS is large and has a more stable and
established subscriber base than other ATSs and non-ATS venues.
---------------------------------------------------------------------------

    \1201\ NMS Stock ATSs that meet certain volume thresholds are
subject to Regulation SCI. The Commission estimates that no
Communication Protocol System that is an NMS Stock ATS would be
subject to Regulation SCI. The Commission preliminarily believes
that subjecting significant Communication Protocol Systems that are
NMS Stock ATSs to Regulation SCI would affect competition as
discussed in the Regulation SCI Adopting Release.
    \1202\ The expected compliance costs could act as a barrier to
entry for new entrants who expect to eventually become SCI ATSs, but
the Commission preliminarily believes this would not be a likely
possibility. See supra note 1150.
---------------------------------------------------------------------------

    The compliance costs associated with participating in business
continuity and disaster recovery plan testing would affect competition
among subscribers of SCI ATSs and also would raise barriers to entry
for new subscribers. Because some subscribers would incur compliance
costs associated with Rule 1004 and others would not, it would
adversely impact the ability for those subscribers of SCI ATSs to
compete. However, it is difficult to gauge the extent of impact on
competition because the Commission does not have sufficient
information, for example, on whether certain subscribers of SCI ATSs
currently maintain connections to backup facilities, including for
testing purposes. If larger subscribers of SCI ATSs already maintain
connections to backup facilities including for testing purposes, the
adverse impact on competition would be mitigated because the
incremental compliance costs associated with the business continuity
and disaster recovery plan testing requirements under Rule 1004 would
be limited for those larger subscribers. The Commission believes that
new subscribers are less likely to be designated immediately to
participate in business continuity and disaster recovery plan testing
than are existing larger subscribers because new subscribers might not
initially satisfy the ATS's designation standards as they establish
their businesses.
    It is difficult to estimate the costs of Regulation SCI for third-
party vendors that operate SCI systems or indirect SCI systems \1203\
on behalf of SCI ATSs.\1204\ If Regulation SCI imposes compliance costs
on such vendors, the compliance costs would affect the competition

among third-party vendors in the market for SCI systems or indirect SCI
systems. If the costs associated with Regulation SCI for third-party
vendors outweigh the benefits of continuing to operate SCI systems or
indirect SCI systems on behalf of SCI ATSs, these third-party vendors
would exit the market for SCI systems or indirect systems. In this
respect, Regulation SCI would adversely impact such vendors and reduce
the ability for some third-party vendors to compete in the market for
SCI systems and indirect SCI systems, with attendant costs to SCI ATSs.
If this happens, SCI ATSs would incur costs from having to find a new
vendor, form a new business relationship, and adapt their systems to
those of the new vendor. SCI ATSs might also elect to perform the
relevant functions internally. If the current third-party vendors are
the most efficient means of performing certain functions for SCI ATSs,
and to the extent that any third-party vendor exits the market, finding
new vendors or performing the functions internally would represent a
reduction in efficiency for SCI ATSs.
---------------------------------------------------------------------------

    \1203\ See supra note 348 for the definition of indirect SCI
systems.
    \1204\ See supra Section VIII.C.2.a.vi.
---------------------------------------------------------------------------

b. Efficiency and Capital Formation
    The Commission believes the proposed amendments to Rule 3b-16,
Regulation ATS, and Regulation SCI could promote price efficiency and
capital formation by reducing trading costs and the potential for
systems disruptions on ATSs that capture a significant portion of
trading volume.\1205\ However, if ATSs restrict trading volume in
certain securities to stay below the Fair Access Rule, Regulation SCI,
and Rule 301(b)(6) thresholds, it could adversely affect price
efficiency and capital formation.
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    \1205\ See supra Sections VIII.B.2.a and VIII.B.2.b for
discussions about the importance of real-time price information on
Government Securities ATS and indicative quotes on Communication
Protocol Systems that trade U.S. Treasury Securities in price
discovery of various securities. See supra Section VIII.C.1.c,
discussing the benefits of reducing system disruptions through
Regulation SCI and Rule 301(b)(6).
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    As discussed above, the proposed requirement for certain
Communication Protocol Systems and Government Securities ATSs to
publically disclose Form ATS-N could help reduce trading costs for
market participants.\1206\ Additionally, subjecting significant
Communication Protocol Systems and Government Securities ATS to the
Fair Access Rule could also help reduce market participants' trading
costs.\1207\ A reduction in trading costs could, in turn, reduce limits
to arbitrage and help facilitate informed traders impounding
information into security prices, which could enhance price
efficiency.\1208\ Furthermore, extending Regulation SCI and Rule
301(b)(6) would help improve systems up-time \1209\ for ATSs and would
also promote more robust systems that directly support execution
facilities, order matching, and the dissemination of market data, which
could also enhance price efficiency.\1210\ In particular, enhanced
price efficiency in the secondary market for on-the-run U.S. Treasury
Securities might also enhance the 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.\1211\
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    \1206\ See supra Section VIII.C.1.b
    \1207\ See id.
    \1208\ See, e.g., Shleifer, A. and Vishny, R. (1997). The Limits
of Arbitrage. The Journal of Finance, 52(1), 35-55 (discussing
limits to arbitrage); Grossman, S. and Stiglitz, J. (1980). On the
impossibility of informationally efficient markets. American
Economic Review, 70, 393-408 (discussing informed traders and price
efficiency).
    \1209\ Systems up-time is a measure of the time that a computer
system is running and available.
    \1210\ See supra Section VIII.C.1.c.
    \1211\ Based on the Commission's understanding, Government
Securities ATSs disseminate their Treasury trades via private feeds
and third-party vendors. These prices also serve as benchmarks for
pricing other financial products. See October 15 Staff Report, supra
note 188.
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    Enhanced price efficiency could also promote capital formation.
Price efficiency of securities is important because prices that
accurately convey information about fundamental value improve the
efficiency in allocating capital across projects and entities, which
helps promote capital formation.
    On the other hand, the Commission believes that the proposed
amendments of the Fair Access Rule, Regulation SCI, and Rule 301(b)(6)
could also adversely affect price efficiency and capital formation if
ATSs that are close to satisfying the volume threshold limit trading
over some period restrict trading or cease operating to stay below the
volume thresholds and avoid being subject to these rules.\1212\ To the
extent that this keeps ATSs from getting larger, it would increase
fragmentation, and thus, adversely affect price efficiency in those
markets, harming capital formation.
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    \1212\ See supra Section VIII.C.2.b.
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D. Reasonable Alternatives

    The Commission considered several alternatives to the proposal: (1)
Require Currently Exempted Government Securities ATSs and certain
Communication Protocol Systems to file Form ATS, but not publicly
disclose Form ATS; (2) require differing levels of public disclosure by
Government Securities ATSs depending on their trading volume; (3)
extend the transparency requirements (i.e., Form ATS-N) of Regulation
ATS to all ATSs and Communication Protocol Systems; (4) apply Rule
301(b)(6) of Regulation ATS to Government Securities ATSs; (5) alter
the volume thresholds for the Fair Access Rule; (6) alter the
Government Securities ATS volume thresholds for Regulation SCI; (7)
exclude Communication Protocol Systems from the definition of
``exchange'' but require them to register as broker-dealers; (8)
require Forms ATS-N, ATS, and ATS-R to be submitted in Inline XBRL; and
(9) require the content of Form ATS-N to be posted on individual ATS
websites.
1. Require Government Securities ATSS To File a Non-Public Form ATS
    One alternative could require Government Securities ATSs (inclusive
of Communication Protocol Systems, as proposed) to file Form ATS and
subsequent amendments with the Commission, instead of filing Form ATS-
N. This alternative would allow Current Government Securities ATSs to
continue to file current Form ATS. However, Form ATS would be deemed
confidential for all Government Securities ATSs and would not have to
be publicly disclosed. Under this alternative, compliance costs would
be lower because the costs to prepare a Form ATS for Government
Securities ATSs is less than preparing a Form ATS-N. Furthermore,
Government Securities ATSs would not incur additional costs associated
with amending Form ATS-N to address any deficiencies to avoid an
ineffectiveness determination, because Rule 304 of Regulation ATS does
not apply to Form ATS filings. However, this alternative would reduce
regulators' insight into Government Securities ATSs compared to the
proposal because Form ATS would require the disclosure of less
information about the operations of Government Securities ATSs and the
activities of their broker-dealer operators and their affiliates, as
compared to Form ATS-N.
    The lack of public disclosure of Form ATS under the alternative
could result in market participants making less informed decisions
regarding where to send their orders, and thus, could result in lower
execution quality than they would obtain under the proposal.
Additionally, this alternative could result in higher search costs for
subscribers to identify potential trading venues for their orders.
Because Government Securities ATSs would not have to publicly disclose
their fees or details about their operations, there would be less
competition among Government Securities ATSs and

between Government Securities ATSs and non-ATS trading venues compared
to the proposal. If there is less competition for order flow in the
market for government securities and repo trading services, there could
also be less incentive for Government Securities ATSs to innovate.
2. Initiate Differing Levels of Public Disclosure Depending on
Government Securities ATS Dollar Volume
    The Commission could require different levels of disclosure (i.e.,
under Rule 304) among Government Securities ATSs based on the dollar
volume in government securities traded on the platform. In particular,
this alternative would subject Government Securities ATSs with lower
dollar volumes to lower levels of disclosure on the revised Form ATS-N.
This alternative could provide smaller Government Securities ATSs with
a competitive advantage over larger ones because smaller Government
Securities ATSs would incur lower compliance costs relative to the
proposal, which could translate into lower entry barriers relative to
such barriers under the proposal. Because these small Government
Securities ATSs would not have to disclose as much information
pertaining to their operational facets to their competitors, they would
have a competitive advantage over more established Government
Securities ATSs and other trading venues. This approach therefore would
promote competition in the market. To the extent the public disclosure
of Form ATS-N would have discouraged innovation,\1213\ this alternative
also would promote innovation because these small Government Securities
ATSs would not be deterred from innovating by the possibility of having
to disclose certain operational facets, which could also benefit market
participants who trade on these ATSs by improving the execution quality
of their trades. However, because some Government Securities ATS would
not have to publicly disclose as much information on their Form ATS-N,
market participants may not be as able to compare Government Securities
ATSs to select the most appropriate venue for the their trading
objectives, which could increase market participant search costs and
trading costs relative to the proposal.\1214\ Additionally, this
alternative could incentivize small Government Securities ATSs to limit
the trading in government securities on their ATSs to stay small and
not trigger additional disclosure requirements. If this were to happen,
it could limit market participants' options for trading venues, which
could result in higher trading costs relative to the proposal.
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    \1213\ As discussed above, the risk that the public disclosure
of Form ATS-N would reduce the incentives for ATSs to is likely to
be low. See supra Section VIII.C.3.a.i.f).
    \1214\ See supra Section VIII.C.1.b.
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3. Extend the Transparency Requirements of Regulation ATS to All ATSs
and Communication Protocol Systems
    As another alternative, the Commission could extend the
transparency requirements (i.e., the public disclosure on Form ATS-N
under Rule 304) of Regulation ATS to all ATSs and Communication
Protocol Systems. Under this alternative, investors would receive
information about the ATS operations and the activities of the broker-
dealer operators and affiliates of all ATSs and Communication Protocol
Systems. While the disclosure requirements of individual systems would
be similar to what is required under the proposal, investors would be
able to access detailed information on ATSs and Communication Protocol
Systems that currently do not file Form ATS-N. This could help market
participants make better-informed decisions about where to send their
orders to achieve their trading objectives as compared to under the
proposal. Compared to the proposal, the public disclosure of Form ATS-N
by all ATSs and Communication Protocol Systems would further promote
competition, which could result in lower venue fees, improve the
efficiency in handling of customer trading interest procedures, and
promote innovation.
    Under this alternative, ATSs and Communication Protocol Systems
that currently do not file Form ATS-N would incur the compliance costs
discussed in Section VIII.C.2.a to comply with Regulation ATS.
Additionally, the public disclosure of details regarding the
operational facets of these ATSs and Communication Protocol Systems
could adversely impact competition and raise barriers to entry in the
market for trading services, and could also lower the incentives for
these ATSs and Communication Protocol Systems to innovate. However, the
Commission believes that the risk of this is likely to be low.\1215\
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    \1215\ See supra Section VIII.C.3.a.i.f) for a discussion about
the risk that the responsive information to the revised Form ATS-N
would include information regarding operational facets such that the
public disclosure of the information would adversely affect the
competitive position of the disclosing ATS or Communication Protocol
Systems and why the Commission believes that this risk is likely to
be low. See also supra note 467 and accompanying text.
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4. Apply Rule 301(b)(6) of Regulation ATS to Government Securities ATSs
    Another alternative for the Commission is to apply the Capacity,
Integrity, and Security Rule in Rule 301(b)(6) \1216\ of Regulation ATS
to Government Securities ATSs instead of extending Regulation SCI. The
scope and requirements of the Capacity, Integrity, and Security Rule
would be narrower than those of Regulation SCI. For example, Rule
301(b)(6) of Regulation ATS would apply to a narrower set of systems,
as compared to Regulation SCI. Rule 301(b)(6) of Regulation ATS applies
only to systems that support order entry, order routing, order
execution, transaction reporting, and trade comparison, which is
narrower than the definition of SCI system. This could result in the
establishment of less robust systems in Government Securities ATSs
compared to the proposal. This may increase the duration and severity
of any system distributions, and result in more system issues occurring
on Government Securities ATSs, which may, in turn, cause more
interruptions in the price discovery process and liquidity flows and
increase the occurrence of periods with pricing inefficiencies compared