Market Structure Analyst; Howard Meyerson, General Counsel,
Liquidnet, Inc., dated December 21, 2009 (``Liquidnet letter #1'').
---------------------------------------------------------------------------

    Three commenters expressed the view that the Commission should
address the regulatory disparity between national securities exchanges
and ATSs. Senator Edward E. Kaufman expressed the view that ``as
trading continues to become faster and more dispersed, it is that much
more difficult for regulators to perform their vital oversight and
surveillance functions,'' and that ``the Commission should consider
strengthening the regulatory requirements for becoming an Alternative
Trading System or starting a new trading platform for existing market
centers.'' \167\ Senator Kaufman further urged the Commission to
``harmonize rules across all market centers to ensure exchanges and
ATSs are competing on a level playing field that serves the interests
of all investors.'' NYSE Euronext stated that because ``ATSs now
represent a significant share of trading volume in NMS stocks . . . the
time is ripe to move to a framework that has consistent regulatory
requirements when the trading activity at issue is essentially the
same.'' \168\ The National Investor Relations Institute opined that
``the same regulatory oversight, market surveillance, reporting, and
other investor safeguards that exist for exchanges should be in place
for all trading venues to ensure maximum investor protection.''\169\
---------------------------------------------------------------------------

    \167\ Kaufman letter, supra note 166, attachment at 4-5.
    \168\ NYSE Euronext letter #1, supra note 166, at 3.
    \169\ National Investor Relations Institute letter, supra note
166, at 2.
---------------------------------------------------------------------------

    Liquidnet expressed the view that the Commission should require
institutional brokers, including institutional ATSs, to disclose to
their customers specific order handling practices and that Regulation
ATS should be amended to enhance the review process of new ATSs and
material changes to ATSs' business operations.\170\ Liquidnet stated
that disclosures by institutional brokers, including institutional
ATSs, to their customers should include, among other things,
identification of external venues to which the broker routes orders,
the process for crossing orders with other orders received by the
broker, execution of orders as agent and principal, a detailed
description of the operation and function of each ATS or trading desk
operated by the broker, a clear and detailed description of each
algorithm and order type offered by the broker, categories of
participant and admission criteria for each ATS or trading desk with
which the customer's order can interact, and internal processes and
policies to control dissemination of the institution's order and trade
information and other confidential information.\171\ Liquidnet also
suggested that the Commission amend ``Regulation ATS to permit the
Commission to delay the effective date of a new ATS commencing
operation or of an existing ATS implementing a material business change
if the Commission believes that information in the ATS filing is
unclear or incomplete or raises an issue of potential non-compliance
with applicable law or regulation,'' and expressed support for making
publicly available ATS filings with the Commission.\172\
---------------------------------------------------------------------------

    \170\ See Liquidnet letter #1, supra note 166, at D-5-6, 11.
    \171\ See Liquidnet letter #1, supra note 166, at D-5-6.
    \172\ Id. at D-11.
---------------------------------------------------------------------------

    In 2010, the Commission issued a Concept Release that, among other
things, solicited comment on whether trading centers offering
undisplayed liquidity are subject to appropriate regulatory
requirements for the type of business they conduct.\173\ Specifically,
the Commission asked, among other things, for comment on the following:
\174\
---------------------------------------------------------------------------

    \173\ See 2010 Equity Market Structure Release, supra note 124,
at 3614.
    \174\ See id.
---------------------------------------------------------------------------

     Do investors have sufficient information about dark pools
to make informed decisions about whether in fact they should seek
access to dark pools? Should dark pools be required to provide improved
transparency on their trading services and the nature of their
participants? If so, what disclosures should be required and in what
manner should ATSs provide such disclosures?
     Are there any other aspects of ATS regulation that should
be enhanced for dark pools or for all ATSs, including ECNs?
     Are there any ways in which Regulation ATS should be
modified or supplemented to appropriately reflect the significant role
of ATSs in the current market structure?
    The Commission received 20 comment letters that addressed these
questions as they relate to the proposal.\175\ The 20 comment letters
offered contrasting views.
---------------------------------------------------------------------------

    \175\ See letters from Theodore R. Lazo, Managing Director and
Associate General Counsel, Securities Industry and Financial Markets
Association, dated October 24, 2014 (``SIFMA letter #2); Richie
Prager, Hubert De Jesus, Supurna Vedbrat, and Joanne Medero,
BlackRock, Inc., dated September 12, 2014 (``Blackrock letter'');
Micah Hauptman, Consumer Federation of America, dated September 9,
2014 (``Consumer Federation of America letter''); Christopher Nagy
and Dave Lauer, KOR Group LLC, dated April 4, 2014 (``KOR Group
letter''); Bill Neuberger, Andrew Silverman, Paul Fitzgerald, and
Sapna Patel, Morgan Stanley, dated March 7, 2011 (``Morgan Stanley
letter''); Raymond M. Tierney III and Gary Stone, Bloomberg
Tradebook LLC, dated June 28, 2013 (``Bloomberg Tradebook letter'');
Greg Tusar, Goldman Sachs Execution & Clearing, L.P., and Matthew
Lavicka, Goldman Sachs & Co., dated June 25, 2010 (``Goldman Sachs
letter''); Jeffrey S. Wecker, Lime Brokerage LLC, dated May 21, 2010
(``Lime Brokerage letter''); Andrew C. Small, Scottrade, dated May
19, 2010 (``Scottrade letter''); Kimberly Unger, The Security
Traders Association of New York, Inc., dated May 10, 2010
(``Security Traders Association of New York letter''); Stuart J.
Kaswell, Managed Funds Association, dated May 7, 2010 (``Managed
Funds Association letter''); Raymond M. Tierney III, Bloomberg L.P.,
dated May 7, 2010 (``Bloomberg L.P. letter''); James J. Angel,
Georgetown University, McDonough School of Business, dated January
16, 2011 (``Angel letter''); Joan C. Conley, Nasdaq OMX Group, Inc.,
dated April 30, 2010 (``Nasdaq OMX letter''); Ann Vlcek, Securities
Industry and Financial Markets Association, dated April 29, 2010
(``SIFMA letter #1''); Joseph M. Velli, BNY ConvergEx Group, LLC,
dated April 29, 2010 (``BNY CovergEx Group letter''); O. Mason
Hawkins, Richard W. Hussey, Deborah L. Craddock, Jeffrey D.
Engelberg, and W. Douglas Schrank, Southeastern Asset Management,
Inc., dated April 28, 2010 (``Southeastern Asset Management
letter''); Janet M. Kissane, NYSE Euronext, dated April 23, 2010
(``NYSE Euronext letter #2''); David C. Cushing, Wellington
Management Company, LLP, dated April 21, 2010 (``Wellington
Management Company letter''); Seth Merrin, Howard Meyerson, and Vlad
Khandros, Liquidnet, Inc., dated March 26, 2010 (``Liquidnet letter
#2'').
---------------------------------------------------------------------------

    Five commenters expressed support for Commission action to address
the regulatory disparity between national securities exchanges and
ATSs, particularly where such trading venues perform similar functions.
Security Traders Association of New York noted that it has ``called for
the harmonization of regulatory oversight and the need for similar
rules across venues, including exchanges, ATSs and other liquidity
sources that are connected through the

Reg. NMS regulatory framework.'' \176\ Nasdaq OMX expressed the view
that the ``Commission has flexibility to adopt a more principles-based
regulatory structure'' which it could use to ``level the competitive
playing field between ATSs and exchanges,'' and that ``[i]n areas where
ATS and exchange activities overlap, differences in [regulatory]
approach should persist only if there is a clear policy basis for those
differences.'' \177\ NYSE Euronext opined that the ``lighter regulatory
oversight for ATSs puts transparent, regulated markets at a competitive
disadvantage, to the potential detriment of investors'' and that ``now
that ATSs represent a significant share of trading volume in NMS
stocks, . . . the Commission should address the regulatory disparity
between registered exchanges and ATSs that engage in trading activities
analogous to traditional exchange trading.'' \178\ Wellington
Management Company expressed the view that ``regulatory requirements
for types of venues should differ only to the extent the differentiated
requirements are specifically designed to address clearly identifiable
and compelling needs'' and that ``material disparities in regulatory
requirements could make it difficult for exchanges to compete with ATSs
and broker-dealers and could threaten their long-term survival.'' \179\
Liquidnet stated that ``[t]o the extent that an exchange conducts the
equivalent business function as a broker or an ATS, regulators should
ensure that levels of regulation are consistent.'' \180\
---------------------------------------------------------------------------

    \176\ Security Traders Association of New York letter, supra
note 175, at 2.
    \177\ Nasdaq OMX letter, supra note 175, at 13, 16.
    \178\ NYSE Euronext letter #2, supra note 175, at 7.
    \179\ Wellington Management Company letter, supra note 175, at
3.
    \180\ Liquidnet letter #2, supra note 175, at F-7.
---------------------------------------------------------------------------

    However, three commenters expressed the view that in order to
rectify the regulatory disparity, the Commission should lessen
regulatory burdens on exchanges, rather than enhance its regulation of
ATSs. Goldman Sachs urged the Commission to ``consider expanding the
types of rule changes that exchanges . . . can propose on an
immediately effective basis,'' which ``would help to level the playing
field between exchanges and ATSs.'' \181\ Wellington Management Company
opined that ``the burden of regulation should be shared fairly by
execution venues'' and that ``exchanges should be granted the ability
to make certain rule changes in a manner similar to ATSs (i.e., as a
notification with SEC veto authority, and not as part of a lengthy
notice, comment, and approval process).'' \182\ Liquidnet stated that
``regulators should not impose unnecessary burdens on ATSs and brokers,
but rather should remove unnecessary regulatory burdens from exchanges,
to the extent that they exist.'' \183\
---------------------------------------------------------------------------

    \181\ Goldman Sachs letter, supra note 175, at 10.
    \182\ Wellington Management Company letter, supra note 175, at
3.
    \183\ Liquidnet letter #2, supra note 175, at F-7.
---------------------------------------------------------------------------

    Ten commenters expressed the view that ATSs and broker-dealers
should be required to provide more enhanced disclosures regarding their
operations, and described specific disclosures that the Commission
should require of ATSs. SIFMA stated that the Commission ``should
require broker-dealers to publish on their Web sites, on a monthly
basis, a standardized disclosure report that provides an overview of
key macro issues that are of interest to clients,'' including, among
other things, ``order types supported on the broker-dealer's ATS (if
applicable).'' \184\ Blackrock, Inc. expressed the view that although
some ATSs voluntarily publish their Form ATS filings and supplemental
materials, the ``particular operational features specified and degree
of detail lack consistency from one [Form ATS] submission to another''
and that ``[a]dditional standardization and information are required in
disclosures about ATS practices.'' \185\ Blackrock further stated that
``[m]andatory ATS disclosures should include greater detail on how the
platform calculates reference prices, determines order priority,
matches orders between client segments, monitors execution quality,
advertises orders, interacts with affiliates and is compensated by
subscribers.'' \186\ The Consumer Federation of America stated that
Form ATS should require ATSs to provide ``critical details about an
ATS's participants, segmentation, and fee structure'' because the
``information will allow market participants, regulators, and third
party analysts to assess whether an ATS's terms of access and service
are such that it makes sense to trade on that venue.'' \187\ The
Consumer Federation of America further opined that ``the Commission
should undertake an exhaustive investigation of the current order
types, requiring exchanges and all ATSs, including dark pools, to
disclose in easily understandable terms what their purpose is, how they
are used in practice, who is using them, and why they are not
discriminatory or resulting in undue benefit or harm to any traders.''
\188\
---------------------------------------------------------------------------

    \184\ SIFMA letter #2, supra note 175, at 13.
    \185\ Blackrock letter, supra note 175, at 4.
    \186\ Id.
    \187\ Consumer Federation of America letter, supra note 175, at
22.
    \188\ Id. at 37-38.
---------------------------------------------------------------------------

    Bloomberg Tradebook LLC noted that buy-side representatives with
whom it met at a workshop for members of equity trading desks of asset
managers stated that although they periodically send questionnaires to
their brokers regarding order handling and internalization (dark pool)
matching protocols, because the buy-side representatives might not be
customers of all ATSs, they could not assess order interaction that
occurs across the market structure.\189\ Bloomberg Tradebook also
recommended that the Commission ask exchanges and ATSs to complete a
questionnaire with ``Yes'' and ``No'' checkboxes that would provide an
overview of each exchange's or ATS's operations, and which Bloomberg
Tradebook suggested could be posted on the Commission's Web site.
Bloomberg Tradebook provided a sample questionnaire that included
questions relating to, among other things, affiliations, riskless
principal trades, trades effected in a proprietary capacity, sharing of
orders or order information with affiliates or other trading venues and
compensation for such sharing, operation of a smart order router and
whether it gives preference to the exchange or ATS or an affiliate,
priority rules, order types that enable customers to gain preference,
and special fees or rebates which lead to a preference of one order
over another.\190\
---------------------------------------------------------------------------

    \189\ Bloomberg Tradebook letter, supra note 175, at 1.
    \190\ Id. at 2-3.
---------------------------------------------------------------------------

    Goldman Sachs recommended an enhanced disclosure regime for
exchanges and ATSs consisting of four components. First, exchanges and
ATSs would be required to ``provide descriptions of the types of
functionalities that they provide, such as types of orders (e.g.,
flash/pinging orders, conditional orders), services (e.g., co-location,
special priority), and data (e.g., depth-of-book quotations, per order
information).'' Second, they would ``disclose the basis upon which
members/subscribers access the type of order, service or data,'' and
``whether only a certain class of market participants has access.''
Third, they would be required to disclose how commonly the
functionality is used. Fourth, the exchanges and ATSs would disclose
more market quality statistics ``so that investors and other market

participants could better gauge execution quality.'' \191\
---------------------------------------------------------------------------

    \191\ Goldman Sachs letter, supra note 175, at 9-10.
---------------------------------------------------------------------------

    Lime Brokerage, LLC recommended that the Commission should require
``transparency around pricing, access criteria and membership of dark
pools.'' \192\ Managed Funds Association stated that ``as long as co-
location is available to investors, traders and larger brokers on an
equal basis, the secondary market for such services to smaller
customers from their brokers should be competitive and thus, fairly
priced,'' and therefore, ``we believe market centers should disclose if
they or third parties offer co-location services on a priority basis
other than first available.'' \193\ SIFMA stated its belief that
``added disclosure about co-location and other market access
arrangements would be beneficial to market participants,'' and that
``[s]uch disclosure might describe standard, high speed, co-location,
or other means by which members may access an exchange or ATS, and
provide market participants with details regarding the categories of
market participants that use each means of access, the data capacity
associated with each arrangement, and the quotation and transaction
volume attributable to each arrangement.'' \194\
---------------------------------------------------------------------------

    \192\ Lime Brokerage letter, supra note 175, at 7.
    \193\ Managed Funds Association letter, supra note 175, at 27.
    \194\ SIFMA letter #1, supra note 175, at 7.
---------------------------------------------------------------------------

    Southeastern Asset Management, Inc. commented that brokers and
trading venues should disclose to investors information such as
payments, rebates, and fees related to execution venues, venue rankings
by routing brokers and routing venues, and the inputs that create the
routing rankings, and the transparency of customer specific order
routing and execution available to the specific customer.\195\
Liquidnet recommended that institutional ATSs make similar disclosures
to those it recommended when commenting on the Regulation of Non-Public
Interest proposing rules and amendment to joint-industry plans.\196\
---------------------------------------------------------------------------

    \195\ See Southeastern Asset Management letter, supra note 175,
at 7.
    \196\ See Liquidnet letter #2, supra note 175, at F-1-F-2; see
also supra note 129.
---------------------------------------------------------------------------

    In addition to the ten commenters that provided specific Form ATS
disclosure recommendations, one commenter provided some examples of
customer questions and requests specific to dark pools that it
received. Such questions and requests related to, among other things,
whether the commenter's dark pool is truly dark, categorization or
tagging of order flow, whether participants may opt out of or into
interaction with certain flow, proprietary orders interaction with the
dark pool, priority rules, requests to exclude certain types of venues
for routing of orders, maintenance of confidential trading information,
use of direct market data feeds by the dark pool's servers and
algorithmic strategies, and co-location of servers and algorithmic
strategies to exchange and ATS servers.\197\ The commenter also
provided some sample questions for its clients to ask of their dark
pool providers. These included questions relating to the dark pools
methods of access, client/subscriber base, types of orders permitted,
matching of dark pool orders at the NBBO, price improvement,
interaction of the dark pool's principal and proprietary orders with
client orders on the dark pool, categorization or tagging of order
flow, and order types.\198\ The commenter also included several
questions that clients should ask dark pools about the sell-side
broker-dealers and exchanges that the dark pools access.
---------------------------------------------------------------------------

    \197\ See Morgan Stanley letter, supra note 175, at 12-14.
Additionally, representatives from Morgan Stanley met with staff
from the Commission's Division of Trading and Market to discuss
market structure issues. During that meeting, Morgan Stanley
provided, among other things, examples of frequently asked questions
that it believes could be standardized to provide mandated
transparency about how orders are handled on dark pools. See
Memorandum from the Division of Trading and Markets regarding an
October 1, 2015, meeting with representatives of Morgan Stanley,
https://www.sec.gov/comments/s7-02-10/s70210.shtml.
    \198\ See Morgan Stanley letter, supra note 175.
---------------------------------------------------------------------------

    In response to the questions the Commission raised in the Equity
Market Structure Release, one commenter raised questions relating to
the transparency of ATSs' operations. The commenter asked, among other
things, whether:
     Form ATS filings provide the Commission with complete and
timely information about the operation of ATSs, and whether such
filings are sufficiently frequent and detailed to allow the Commission
to understand planned system changes by ATSs;
     the Commission has adequate tools to respond to concerns
about the operations of ATSs;
     the Commission has adequate information about the
relationships between ATSs and their subscribers, including how
``toxicity'' ratings are assigned to subscribers, and their impact on
individual subscriber's access and fees, and whether it is acceptable
that ATS subscribers can assign such ratings to counterparties within
and outside the ATS without disclosing objective criteria;
     the Commission has adequate information about ATS pricing,
noting that but for the Rule 3a1-1 exemption from exchange
registration, ATSs would be required to charge fees that are fair and
not unreasonably discriminatory; and
     the Commission receives enough information from ATSs about
their access policies to make comprehensive assessment about
competitive dynamics at work in the market.\199\
---------------------------------------------------------------------------

    \199\ See Nasdaq OMX letter, supra note 175, at 14-16.
---------------------------------------------------------------------------

    The commenter stated its belief that responding to the Commission's
questions in the Equity Market Structure Release with the commenter's
own responsive questions was ``entirely appropriate'' because the
``public cannot comment on the adequacy of Form ATS filings,'' and
therefore, ``the Commission and its staff are uniquely qualified to
assess whether the requirements of the Form and the content of actual
submitted filings provide adequate and timely information.'' \200\
---------------------------------------------------------------------------

    \200\ Id. at 16.
---------------------------------------------------------------------------

    One commenter discussed a May 2009 Opinion Research Corporation
survey of 284 executives from NYSE-listed companies, noting that only
17% of the executives were satisfied with the transparency of trading
in their company's stock, and that 69% of the executives ``indicated
there is inadequate regulatory oversight of non-exchange trading
venues, including dark pools.'' \201\
---------------------------------------------------------------------------

    \201\ NYSE Euronext letter #2, supra note 175, at 7.
---------------------------------------------------------------------------

    Five commenters expressed the view that Form ATS filings should be
made publicly available. SIFMA opined that ``[t]o enhance transparency
and confidence, all ATSs should publish the Form ATS and make their
forms available on their Web sites.'' \202\ Blackrock stated that
current and historical Form ATS filings for active ATSs ``should be
made immediately available to the public, subject to appropriate
redaction of confidential information,'' noting that some ATS operators
``have already displayed exemplary transparency by voluntarily
publishing their Form ATS filings and supplemental materials.'' \203\
The Consumer Federation of America stated its support for requiring all
ATSs, including dark pools, to publicly disclose their Forms ATS ``so
that the public can see how these venues operate.'' \204\ KOR Group LLC
opined that the fact that ``ATS filings are hidden from the public
while the burden is on SROs to file publicly . . . does not serve the
public interest in any

way, and makes it easy for media and others to sensationalize and
demonize what is occurring in this part of the market,'' further
opining that there ``should not be any reasoned argument against''
making Form ATS publicly available.\205\ Goldman Sachs recommended
disclosing Form ATS publicly because ``[s]uch disclosure would provide
investors with useful information regarding the business practices of
ATSs,'' and supported a requirement for ``ATSs to provide public notice
of material changes to their business practices,'' but also stated its
opposition to ``any requirement that ATSs disclose information about
their matching algorithms or the nature of their subscribers'' because
such disclosure ``could result in information leakage that would
detrimentally impact liquidity.'' \206\ James J. Angel commented that
Form ATS should be publicly available on the Commission's Electronic
Data Gathering, Analysis, and Retrieval System (``EDGAR'').\207\ As it
had done when commenting on the Regulation of Non-Public Interest
proposing rules and amendment to joint-industry plans,\208\ Liquidnet
recommended that ATS filings with the Commission be made publicly
available.\209\
---------------------------------------------------------------------------

    \202\ SIFMA letter #2, supra note 175, at 13.
    \203\ Blackrock letter, supra note 175, at 4.
    \204\ Consumer Federation of America letter, supra note 175, at
22.
    \205\ KOR Group letter, supra note 175, at 12.
    \206\ Goldman Sachs letter, supra note 175, at 10.
    \207\ See Angel letter, supra note 175, at 13.
    \208\ See Liquidnet letter #1 supra note 166.
    \209\ See Liquidnet letter #2, supra note 175, at F-8.
---------------------------------------------------------------------------

    Three commenters expressed their opposition to enhanced regulation
of ATSs. Scottrade, Inc. stated it believed that ATSs had ``brought
innovation and better execution quality to the equity markets,'' and
that it ``would not be in favor of additional regulation that would
reduce competition, raise barriers to entry for ATSs or force orders to
be routed to specific destinations.'' \210\ Bloomberg L.P. stated that
it had ``heard exchanges argue it would be in the interest of the
exchanges to regulate ATSs more aggressively,'' but that it had ``not
seen evidence why that which is in the exchanges' interest is
necessarily in the public interest,'' and suggested that the Commission
should ``look to investors' needs,'' which Bloomberg L.P. thought ``do
not . . . justify increasing the regulatory burdens on alternative
trading systems.'' \211\ BNY ConvergEx Group stated its belief that
``the current system of ATS regulation works well and structural
changes are not necessary,'' and that because ``[d]ark ATSs market
their services to institutional customers and prospective customers on
a continuous basis . . . institutions know full well what types of
customers each ATS caters to and the services they offer.'' \212\ BNY
ConvergEx Group acknowledged that ``some retail investors may not
understand precisely how dark ATSs operate,'' but opined that ``[a]ny
perceived lack of information for retail investors about an ATS's
trading services would only become an issue if the ATS was to become
subject to the Fair Access provisions of Regulation ATS,'' and that
``because retail investors are unlikely to pass the objective credit
and other financial standards that would be required under a Fair
Access regime to become subscribers of the ATS, this may not be a real
issue.'' \213\
---------------------------------------------------------------------------

    \210\ Scottrade letter, supra note175, at 4.
    \211\ Bloomberg L.P. letter, supra note175, at 4-5.
    \212\ BNY ConvergEx Group letter, supra note175, at 18, 21.
    \213\ See id. at 21.
---------------------------------------------------------------------------

    The Commission received two comment letters on its Market Structure
Web site relevant to the Commission's proposal to amend Regulation
ATS.\214\
---------------------------------------------------------------------------

    \214\ See Blackrock letter, supra note 175; letter from John C.
Nagel, Managing Director and Senior Deputy Counsel, Citadel LLC,
dated July 21, 2014 (``Citadel letter''). See also Securities and
Exchange Commission Market Structure Web site (``Market Structure
Web site''), http://www.sec.gov/marketstructure/.
---------------------------------------------------------------------------

    Blackrock submitted the same comment letter to the Market Structure
Web site that it submitted with respect to the 2010 Equity Market
Structure Release.\215\ Citadel expressed the view that ``dark pools
should be subject to increased transparency,'' and that ``ATS
operational information and filings should be publicly available.''
\216\
---------------------------------------------------------------------------

    \215\ See Blackrock letter, supra notes 175, 185, 186, and 203
and accompanying text.
    \216\ See Citadel letter, supra note 214, at 4.
---------------------------------------------------------------------------

    The Commission has considered these comments, and, for the reasons
set forth throughout this release, is proposing the amendments to
Regulation ATS and Exchange Act Rule 3a1-1 as described herein.

IV. Proposed Amendments to Regulation ATS and Rule 3a1-1 to Heighten
Regulatory Requirements for ATSs That Transact in NMS Stocks

A. Proposed Definition of NMS Stock ATS

    The Commission is proposing to amend Rule 300 of Regulation ATS to
provide for the definition of ``NMS Stock ATS'' in a new paragraph (k).
The purpose of proposed Rule 300(k) is to specify the type of ATS that
would be subject to the heightened conditions under Exchange Act Rule
3a1-1, as described further below. Proposed Rule 300(k) would define
``NMS Stock ATS'' to mean an ``an alternative trading system, as
defined in Exchange Act Rule 300(a), that facilitates transactions in
NMS stocks, as defined in Exchange Act Rule 300(g).'' \217\ Rule 300(g)
of Regulation ATS currently provides, and would continue to provide,
that the term ``NMS stock'' has the meaning provided in Exchange Act
Rule 600 of Regulation NMS; provided, however, that a debt or
convertible debt security shall not be deemed an NMS stock for purposes
of Regulation ATS.\218\ Pursuant to Exchange Act Rule 600(b), an NMS
stock is any NMS security other than an option,\219\ and an NMS
security is ``any security or class of securities for which transaction
reports are collected, processed, and made available pursuant to an
effective transaction reporting plan, or an effective national market
system plan.'' \220\ Thus, under the proposed amendment to Regulation
ATS, an NMS Stock ATS would include

any ATS that effects transactions in securities that are listed on a
national securities exchange (other than options, debt or convertible
debt). In addition, to meet the definition of an NMS Stock ATS, the
organization, association, person, group of persons or system must meet
the definition of an alternative trading system under Rule 300(a) of
Regulation ATS.\221\
---------------------------------------------------------------------------

    \217\ See proposed Rule 300(k).
    \218\ See 17 CFR 242.300(g).
    \219\ See 17 CFR 242.600(b)(47).
    \220\ See 17 CFR 242.600(b)(46). Transaction reports for
securities that are listed and registered, or admitted to unlisted
trading privileges on a national securities exchange, are collected,
processed, and made available pursuant to the Consolidated Tape
Association (``CTA'') plan (``CTA Plan'') and the OTC/UTP Plan. See,
e.g., CTA Plan (dated as of October 1, 2013), https://www.ctaplan.com/publicdocs/ctaplan/notifications/plans/trader-update/5929.pdf at 34 (describing the types of securities to which
the CTA plan applies).
    See also Joint Self-Regulatory Organization Plan Governing the
Collection, Consolidation and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed Securities Traded on
Exchange on an Unlisted Trading Privilege Basis, http://web.archive.org/web/20070114023844/http://www.utpdata.com/docs/UTP_PlanAmendment.pdf at 2, 10-13 (``OTC/UTP Plan'') (describing the
securities for which transaction information is collected and
disseminated as any Nasdaq Global Market or Nasdaq Capital Market
security, as defined in then-operative NASDAQ Rule 4200). Nasdaq
Rule 5005(a)(26) defines Nasdaq Global Market security as: Any
security listed on Nasdaq that (1) satisfies all applicable
requirements of the Rule 5100 and 5200 Series and meets the criteria
set forth in the Rule 5400 Series; (2) is a right to purchase such
security; (3) is a warrant to subscribe to such security; or (4) is
an Index Warrant which meets the criteria set forth in Rule 5725(a).
Nasdaq Rule 5005(a)(28) defines Nasdaq Capital Market security as:
Any security listed on The Nasdaq Capital Market that (1) satisfies
all applicable requirements of the Rule 5100, 5200 and 5500 Series
but that is not a Nasdaq Global Market security; (2) is a right to
purchase such security; or (3) is a warrant to subscribe to such
security.
    These plans are filed with, and approved by, the Commission in
accordance with the requirements of Rule 608 of Regulation NMS, and
pursuant to Rule 601 of Regulation NMS, which requires every
national securities exchange to ``file a transaction reporting plan
regarding transactions in listed equity and Nasdaq securities
executed through its facilities'' and every national securities
association to ``file a transaction reporting plan regarding
transactions in listed equity and Nasdaq securities executed by its
members otherwise than on a national securities exchange.''
    \221\ 17 CFR 242.300(a).
    As it did in the Regulation ATS Adopting Release, the Commission
notes that whether the actual execution of the order takes place on
the system is not a determining factor of whether a system falls
under Rule 3b-6. A trading system that falls within the Commission's
functional definition of ``exchange'' pursuant to Rule 3b-6 will
still be an ``exchange,'' even if it matches two trades and routes
them to another system or exchange for execution. See Regulation ATS
Adopting Release, supra note 7, at 70851-70852.
---------------------------------------------------------------------------

    The Commission requests comment on the proposed definition of NMS
Stock ATS. In particular, the Commission solicits comment on the
following:
    1. Do you believe the Commission should adopt a more limited or
expansive definition of NMS Stock ATS? Why or why not? Please support
your arguments.
    2. Should the Commission create the NMS Stock ATS category? Why or
why not? Please support your arguments.
    3. Should the Commission modify its proposed definition in any way?
If so, in what way and why? If not, why not? Please support your
arguments.

B. Rule 3a1-1(a)(2): Proposed Amendments to the Exemption From the
Definition of ``Exchange'' for NMS Stock ATSs

    Exchange Act Rule 3a1-1(a) exempts from the definition of
``exchange'': (1) Any alternative trading system operated by a national
securities association,\222\ (2) any alternative trading system that
complies with Regulation ATS,\223\ and (3) any alternative trading
system that under Rule 301(a) of Regulation ATS is not required to
comply with Regulation ATS.\224\ Most ATSs fall within the second prong
of Exchange Act Rule 3a1-1 and thus, must comply with Regulation ATS to
qualify for an exemption from the statutory definition of an
``exchange.''
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    \222\ 17 CFR 240.3a1-1(a)(1).
    \223\ 17 CFR 240.3a1-1(a)(2).
    \224\ 17 CFR 240.3a1-1(a)(3).
---------------------------------------------------------------------------

    As discussed in more detail below, the Commission is now proposing
to expand the conditions with which NMS Stock ATSs would be required to
comply in order to use the exemption from the definition of
``exchange.'' To provide for these new conditions, the Commission is
proposing to amend Rules 3a1-1(a)(2) and (3) to include proposed Rule
304 within the scope of Regulation ATS.\225\ Amended Rule 3a1-1(a)(2)
would condition the exemption for any ATS that meets the definition of
``NMS Stock ATS'' on compliance with Rules 300 through 303 of
Regulation ATS (except Rule 301(b)(2)) and proposed Rule 304.\226\ The
Commission is proposing to amend Rule 3a1-1(a)(3) by changing the
reference to Rule 303 to proposed Rule 304. This is merely a conforming
change to make clear that an NMS Stock ATS that meets the requirements
of Rule 301(a) is not required to comply with Regulation ATS, which
would be amended to include proposed Rule 304. Rule 3a1-1(a)(1), which
exempts any ATS that is operated by a national securities association,
is not impacted by the amendments the Commission is proposing today.
---------------------------------------------------------------------------

    \225\ In Exchange Act Rules 3a1-1(a)(2) and (3), Regulation ATS
is currently defined as ``17 CFR 242.300 through 242.303.'' The
Commission is proposing to amend these references to Regulation ATS
to define Regulation ATS as ``17 CFR 242.300 through 242.304.''
    \226\ See infra Section IV.C. Specifically, the Commission is
proposing to amend Rule 3a1-1(a)(2) by changing the reference to
Rule 303 to proposed Rule 304. Under the proposal, an NMS Stock ATS
would not be required to file the reports and amendments that it is
currently required to file on Form ATS pursuant to Rule 302(b)(2),
unless the ATS also effects transactions in securities other than
NMS stock and is not otherwise exempt. See proposed Rule
301(b)(2)(viii).
---------------------------------------------------------------------------

    The Commission preliminarily believes that amending the conditions
to the Rule 3a1-1(a) exemption would more appropriately calibrate the
level of operational transparency between registered national
securities exchanges and NMS Stock ATSs, which in many regards, are
functionally similar trading centers, while maintaining the regulatory
framework that permits NMS Stock ATSs to decide whether to register and
be regulated as broker-dealers or as national securities
exchanges.\227\ The Commission notes, as it has in other contexts,\228\
that SRO and non-SRO markets, such as NMS Stock ATSs, are subject to
different regulatory regimes, with a different mix of benefits and
obligations. Pursuant to this proposal, NMS Stock ATSs would continue
to be able to choose to register as national securities exchanges or as
broker-dealers. The Commission is proposing, however, to increase the
scope of the conditions to the exemption for the purpose of providing
more transparency around the operations of NMS Stock ATSs and potential
conflicts of interest resulting from the unique relationship between
the broker-dealer operator and the NMS Stock ATS, as discussed further
below. While questions have been raised in other contexts as to whether
the broader regulatory framework for national securities exchanges and
ATSs should be harmonized,\229\ the Commission preliminarily believes
that the proposals are an appropriate response to concerns about the
need for transparency about the operations of NMS Stock ATSs and
potential conflicts of interest resulting from the activities of their
broker-dealer operators and the broker-dealer operators' affiliates.
The Commission preliminarily believes that the proposals would help
market participants make better informed decisions about where to route
their orders for execution; the proposed disclosures would also provide
the Commission with improved tools to carry out its oversight of NMS
Stock ATSs. Moreover, as explained above, the Commission is concerned
that market participants have limited information about the
increasingly complex operations of NMS Stock ATSs,\230\ and need more
transparency on NMS Stock ATSs to fully evaluate how their orders are
handled and executed on NMS Stock ATSs. The Commission preliminarily
believes that the enhanced disclosures about the operations of NMS
Stock ATSs elicited by proposed Form ATS-N would provide better
information about how NMS Stock ATSs operate and, thereby, enable the
Commission to determine whether additional regulatory changes for
either or both national securities exchanges and ATSs are necessary.
---------------------------------------------------------------------------

    \227\ See Regulation ATS Adopting Release, supra note 7, at
70856-70857.
    \228\ See, e.g., SCI Adopting Release, supra note 17, at 72264.
    \229\ See id.
    \230\ See supra Sections III.B and C.
---------------------------------------------------------------------------

    The Commission has considered the alternative of requiring
different levels of disclosure among NMS Stock ATSs based on
volume.\231\ However, the Commission preliminarily believes that it is
necessary and appropriate for the protection of market participants to
apply the proposed heightened conditions for the Rule 3a1-1(a)(2)
exemption to all NMS Stock ATSs. The Commission notes that market
participants may subscribe to multiple ATSs and route orders in NMS
stocks among various ATSs prior to receiving an execution. The
Commission preliminarily believes that because orders in NMS stocks may
be routed to any NMS Stock ATS, regardless of the volume traded on the
NMS Stock ATS, all market participants would benefit from the
disclosures provided pursuant to proposed Rule 304. Accordingly, the

Commission believes that the proposed rules addressing greater
operational transparency should apply equally to all NMS Stock ATSs.
---------------------------------------------------------------------------

    \231\ See infra Section XIII.D.4.
---------------------------------------------------------------------------

    The Commission requests comment on the scope of the proposed
amendments to Rules 3a1-1(a)(2) and (3), which would apply the proposed
new conditions of Rule 304 to all NMS Stock ATSs. In particular, the
Commission solicits comment on the following:
    4. Do you believe that the current conditions to the exemption from
the definition of ``exchange'' for NMS Stock ATSs are appropriate in
light of market developments since Regulation ATS was adopted in 1998?
Why or why not? Please support your arguments.
    5. Do you believe there is sufficient transparency with respect to
the operations of NMS Stock ATSs? If not, what information do you
believe should be disclosed regarding the operations of an NMS Stock
ATS, how frequently should it be disclosed, and why? Does the need for,
and availability of, information about the operations of NMS Stock ATSs
vary among market participants? If so, how? Please explain in detail.
    6. Do you believe there is sufficient transparency with respect to
the activities of the broker-dealer operator and its affiliates in
connection with NMS Stock ATSs? If not, what information do you believe
should be disclosed regarding the activities of the broker-dealer
operator and its affiliates and why? Does the need for, and
availability of, information about the activities of the broker-dealer
operator and its affiliates vary among market participants? If so, how?
Please explain in detail.
    7. Should the Commission adopt the proposal to apply the
requirements of proposed Rule 304 to all NMS Stock ATSs? Why or why
not? Please support your arguments.
    8. Do you believe that the Commission should provide any exceptions
to the application of proposed Rule 304 to NMS Stock ATSs seeking to
operate pursuant to the Rule 3a1-1(a)(2) exemption? Why or why not? For
example, should the requirements to comply with proposed Rule 304,
including the disclosure requirements of proposed Form ATS-N, only be
applicable to NMS Stock ATSs that meet certain thresholds (such dollar
volume, trading volume, or number of subscribers)? If so, what should
the threshold be, and why? If not, why not? Please support your
arguments.
    9. Do you believe that the Commission should require different
levels of disclosure for any proposed Form ATS-N items based on the NMS
Stock ATS's volume? If so, why, what should the different thresholds
be, and which items on proposed Form ATS-N should depend on an NMS
Stock ATS's volume? If not, why not? Please support your arguments.
    At this time, the Commission preliminarily believes that the above
operational transparency conditions to the exemption to Exchange Act
Rule 3a1-1(a) should only apply to NMS Stock ATSs. The Commission,
however, requests comment and data on whether its preliminary view is
warranted for each category of non-NMS stock ATS.
    First, approximately 27 ATSs that currently have a Forms ATS on
file with the Commission disclose that they exclusively trade fixed
income securities, such as corporate or municipal bonds, and
approximately 2 ATSs effect transactions in both fixed income
securities and other securities, including NMS stocks.\232\ Based on
Commission experience, the equity markets, which are generally highly
automated trading centers that are connected through routing networks,
operate and execute orders at rapid speeds using a variety of order
types. Unlike the complex trading centers of the equity markets, the
Commission preliminarily believes that fixed income markets currently
rely less on speed, automation, and electronic trading to execute
orders and other trading interest,\233\ although that may be changing
in some fixed income markets such as those that trade certain
government securities.\234\ Generally, fixed income ATSs offer less
complex order types to their subscribers than those offered by NMS
Stock ATSs, sometimes restricting incoming orders to limit orders, and
the execution of matched interest involves negotiation or a process. In
addition, the municipal and corporate fixed income markets tend to be
less liquid than the equity markets, with slower execution times and
less complex routing strategies.\235\
---------------------------------------------------------------------------

    \232\ Data compiled from Forms ATS and ATS-R submitted to the
Commission as of November 1, 2015.
    \233\ See SCI Adopting Release, supra note 17, at 72270.
    \234\ See October 15 Staff Report, infra note 247 at 35-36.
    \235\ See SCI Adopting Release, supra note 17, at 72270.
---------------------------------------------------------------------------

    Furthermore, market participants trading fixed income securities
are typically not comparing transparent trading venues against non-
transparent trading venues in the same manner as market participants
seeking to execute NMS stock orders. Although two affiliated national
securities exchanges operate electronic systems for receiving,
processing, executing, and reporting bids, offers and executions in
fixed income debt securities,\236\ the Commission preliminarily
believes that the majority of trading in fixed income securities occurs
on the bilateral market.\237\ As such, ATSs that effect trades in fixed
income securities primarily compete against other trading venues with
limited or no operational transparency requirements or standards. By
contrast, NMS Stock ATSs, which provide limited information to market
participants about their operations, compete directly with national
securities exchanges, which are required to publicly disclose
information about their operations in the form of proposed rule changes
and a public rule book. Accordingly, the Commission preliminarily
believes that any proposed revisions to the disclosure requirements for
fixed income ATSs under Regulation ATS should be specifically tailored
to the attributes of the fixed income market and, therefore, may
require different changes to the current Regulation ATS regime and Form
ATS than those being proposed herein, which are in direct response to
specific transparency concerns related to the operational complexities
of NMS Stock ATSs and market participants' general inability to compare
NMS Stock ATSs to one another and to national securities exchanges.
---------------------------------------------------------------------------

    \236\ See Securities Exchange Act Release Nos. 55496 (March 20,
2007) 72 FR 14631 (March 28, 2007) (NYSE-2006-37) (approving the
establishment of NYSE Bonds as an electronic order-driven matching
system for debt securities, including, but not limited to corporate
bonds (including convertible bonds), international bank bonds,
foreign government bonds, U.S. government bonds, government agency
bonds, municipal bonds, and debt-based structured products under
NYSE Rule 86) and 58839 (October 23, 2008) 73 FR 64645 (October 30,
2008) (NYSEALTR-2008-03) (notice of filing and immediate
effectiveness of the Exchange's proposal to relocate the Exchange's
debt trading and adopt NYSEAlternext Equities Rule 86 (now NYSEMKT--
Equities Rule 86) in order to facilitate trading on the system NYSE
Alternext Bonds system (now NYSEMKT Bonds)).
    \237\ For interdealer trading for ``benchmark'' U.S. Treasury
securities, however, trading occurs mainly on centralized electronic
trading platforms using a central limit order book, namely ATSs. See
October 15 Staff Report, infra note 247 at 11.
---------------------------------------------------------------------------

    The Commission recognizes, however, that trading on fixed income
ATSs continues to evolve as fixed income securities are increasingly
being traded on ATSs and that trading is occurring in an automated
manner. Furthermore, while the specific conflicts of interest that
might arise on NMS Stock ATSs operated by multiservice broker dealers
may not be identical to the potential conflicts of interest that might
arise on

a fixed income ATS,\238\ the current operations of fixed income ATSs
may give rise to potential conflicts of interest between the non-ATS
operations of a broker-dealer operator, or its affiliates, and the
fixed income ATS. Accordingly, the Commission seeks comment on the
following:
---------------------------------------------------------------------------

    \238\ For instance, the Commission preliminarily believes that
non-ATS business units of broker-dealer operators of fixed income
ATSs may not trade proprietarily on their ATSs to the same extent
that proprietary trading desks, or other business units, of
multiservice broker-dealer operators trade on NMS Stock ATSs.
---------------------------------------------------------------------------

    10. Do you believe that market participants have sufficient
information about the operations of fixed income ATSs to evaluate such
ATSs as potential trading venues? Why or why not? Please support your
arguments.
    11. Do you believe that the Commission should apply proposed Rule
304, in whole or in part, to fixed income ATSs, or some subset of fixed
income ATSs? Why or why not? If proposed Rule 304 should be applied
only in part to fixed income ATSs, which parts should be applied and
why? What, if any, specific modifications or additions to proposed Rule
304 should be made in any application of it to fixed income ATSs?
Please support your arguments.
    12. Do you believe that fixed income ATSs raise the same or similar
operational transparency concerns that the Commission preliminarily
believes to exist for NMS Stock ATSs? Why or why not? Please support
your arguments. If not, do you believe that fixed income ATSs raise
other operational transparency concerns that warrant inclusion of fixed
income ATSs within the scope of proposed Rule 304? Why or why not?
Please support your arguments.
    13. Do you believe that there are potential conflicts of interest
for broker-dealer operators of fixed income ATSs, or their affiliates,
that may warrant inclusion of fixed income ATSs within the scope of
proposed Rule 304? Why or why not? Please support your arguments. If
yes, what are those potential conflicts of interest and how do those
potential conflicts of interest differ from or resemble the potential
conflicts of interest for broker-dealer operators of NMS Stock ATSs and
their affiliates? Please be specific.
    14. Do you believe that the current conditions to the exemption
from the definition of ``exchange'' are appropriate for fixed income
ATSs? Why or why not? Please support your arguments.
    15. Do you believe that applying proposed Rule 304 to fixed income
ATSs would place them at a competitive disadvantage with respect to
non-ATS trading venues that trade fixed income securities and would not
be subject to such disclosure requirements? Why or why not? Please
support your arguments.
    16. Should the Commission adopt a new form that is designed
specifically to solicit information about the operations of fixed
income ATSs or the operations of certain types of fixed income ATSs? If
so, please explain, in detail, the information the new form should
require. If not, why not? Please support your arguments. Do you believe
that part or all of any new form designed specifically for fixed income
ATSs should be made available to the public? Why or why not? Please
support your arguments.
    As noted above, the Commission recognizes that fixed income
securities markets continue to evolve as fixed income securities are
increasingly being traded on ATSs in an automated manner. Thus, under
the current regulatory requirements, market participants generally do
not have information about how fixed income ATSs operate as ATSs are
not otherwise required to publicly disclose such information \239\ and
Forms ATS filed with the Commission by fixed income ATSs are deemed
confidential.
---------------------------------------------------------------------------

    \239\ The Commission does note, however, that some ATSs may
currently make voluntary public disclosures. See, e.g., infra note
156.
---------------------------------------------------------------------------

    As such, the Commission is seeking public comment on whether it
should make public current Forms ATS filed by fixed income ATSs. Though
the solicitations on current Form ATS are not specifically tailored to
fixed income ATSs like proposed Form ATS-N would be tailored to NMS
Stock ATSs, market participants could use the information to assess and
compare fixed income ATSs when deciding where to trade fixed income
securities. The Commission is cognizant, however, that fixed income
ATSs currently file Form ATS with the understanding that the Form ATS
is deemed confidential and thus, a fixed income ATS may not have chosen
to operate as an alternative trading system if its Form ATS filing was
originally intended to be made public. In response to any change in the
regulatory requirements, a fixed income ATS may change its business
model and choose to curtail its activities or cease operating as an
ATS.
    Accordingly, the Commission seeks comment on the following:
    17. Do you believe that the current Forms ATS initial operation
report, or parts thereof, filed by fixed income ATSs should be made
available to the public? Why or why not? Please support your arguments.
    18. Do you believe that amendments to Form ATS initial operation
reports, or parts thereof, filed by fixed income ATSs should be made
available to the public? Why or why not? Please support your arguments.
    19. Do you believe that current Form ATS is sufficient to elicit
useful information about the operations of fixed income ATSs? If so,
why? If not, in what ways should Form ATS be modified to better inform
the Commission about the operations of fixed income ATSs? Please
explain in detail the manner in which Form ATS should be modified for
fixed income ATSs.
    20. Do you believe that fixed income ATSs may curtail or cease
operations if the Commission rescinded the confidential treatment of
Form ATS and made Forms ATS filed by fixed income ATSs public? Why or
why not? Please support your arguments.
    21. Do you believe that if fixed income ATSs curtail or cease
operations in response to the Commission rescinding the confidentiality
of the Form ATS, the limitation or exit of those ATSs from the fixed
income market would impact the quality of the fixed income markets in
any way? Why or why not? Please support your arguments.
    The questions above relate to all fixed income securities, but the
Commission is also interested in learning commenters' specific views
about whether ATSs that effect transactions in fixed income securities
that are government securities, as defined under the Exchange Act,\240\
should be subject to increased regulation, operational transparency
requirements, or both. Under Rule 301(a)(4) of Regulation ATS, an ATS
that solely trades government securities and is registered as a broker-
dealer or is a bank is exempt from the requirement to either register
as a national securities exchange or comply with Regulation ATS.\241\
If an ATS trades both government securities and non-government
securities--such as NMS stocks, corporate or municipal fixed income
securities--it must either register as a national securities exchange
or comply with Regulation ATS. However, these ATSs are not subject to
several requirements under Regulation ATS with regard to their trading
in government securities. First, ATSs that

do not trade NMS stocks are not subject to the order display and
execution access provisions under Rule 301(b)(3).\242\ Additionally,
the government securities activities of ATSs that trade both government
and other securities are not subject to either the fair access
provisions of Rule 301(b)(5) \243\ or the capacity, integrity, and
security of automated systems provisions under Rule 301(b)(6).\244\
---------------------------------------------------------------------------

    \240\ See 15 U.S.C. 78c(a)(42) (defining ``government
securities'' as, among other things, ``securities which are direct
obligations of, or obligations guaranteed as to principal or
interest by, the United States'').
    \241\ See 17 CFR 242.301(a)(4)(i) and (ii)(A).
    \242\ See supra notes 86-90 and accompanying text.
    \243\ See supra notes 92-94 and accompanying text.
    \244\ See supra notes 96-97 and accompanying text.
---------------------------------------------------------------------------

    Pursuant to the Exchange Act (particularly the provisions of the
Government Securities Act of 1986, as amended \245\) and federal
banking laws, brokers and dealers in the government securities market
are regulated jointly by the Commission, the United States Department
of the Treasury (``U.S. Treasury Department''), and federal banking
regulators.\246\ Recently, staff members from the U.S. Treasury
Department, the Board of Governors of the Federal Reserve System, the
Federal Reserve Bank of New York, the Commission, and the U.S.
Commodity Futures Trading Commission issued a joint report about the
unusually high level of volatility and rapid round-trip in prices that
occurred in the U.S. Treasury market on October 15, 2014 (the ``October
15 Staff Report'').\247\ The October 15 Staff Report discusses the
conditions that contributed to the October 15, 2014 developments and
key findings from the analysis of data from that day.
---------------------------------------------------------------------------

    \245\ See Public Law 99-571, October 28, 1986, and Public Law
103-202, December 17, 1993.
    \246\ The Government Securities Act authorized the U.S. Treasury
Department to promulgate rules governing transactions in government
securities by government securities brokers and dealers. See October
15 Staff Report, infra note 247, at 9. The Commission, FINRA, and
federal bank regulators--in consultation with the U.S. Treasury
Department--also have the authority to issue sales practice rules
for the government securities secondary market. See id.
    \247\ See Joint Staff Report: The U.S. Treasury Market on
October 15, 2014 (July 13, 2015) (the ``October 15 Staff Report''),
http://www.treasury.gov/press-center/press-releases/Documents/Joint_Staff_Report_Treasury_10-15-2015.pdf.
---------------------------------------------------------------------------

    The October 15 Staff Report also provides an overview of the market
structure, liquidity, and applicable regulations of the U.S. Treasury
market, as well as the broad changes to the structure of the U.S.
Treasury market that have occurred over the past two decades.\248\ For
the secondary market in cash U.S. Treasury securities (``Treasury
securities''), the October 15 Staff Report explains that trading
occurs: (1) In bilateral transactions via voice or a variety of
electronic means; or (2) on centralized electronic trading platforms
using a central limit order book.\249\ The October 15 Staff Report
notes that the structure of the U.S. Treasury market has ``evolved
notably in recent years'' and electronic trading has become an
increasingly important feature of the modern interdealer market for
Treasury securities.\250\ Like modern-day trading in NMS stocks, the
majority of interdealer trading in benchmark Treasury securities,\251\
which is the most liquid type of Treasury security, currently occurs on
centralized electronic trading platforms using a central limit order
book, namely ATSs.\252\
---------------------------------------------------------------------------

    \248\ See October 15 Staff Report, supra note 247, at 8-14, 35-
44.
    \249\ See id. at 11.
    \250\ See id. at 35.
    \251\ Benchmark issues are the most recently issued nominal
coupon securities. See id. at 11. Nominal coupon securities pay a
fixed semi-annual coupon and are currently issued at original
maturities of 2, 3, 5, 7, 10, and 30 years. See id. at 11, n.6.
    \252\ See id. at 11, 35-36. The October 15 Staff Report also
notes that the majority of interdealer trading of ``seasoned''
Treasury securities and the majority of dealer-to-customer trading
is via bilateral transactions. See id. at 11, 35-36 n.31.
---------------------------------------------------------------------------

    The October 15 Staff Report notes that the growth in high-speed
electronic trading has contributed to the growing presence of Principal
trading firms (``PTFs'') in the Treasury market, with these firms
accounting for the majority of trading and providing the vast majority
of market depth.\253\ PTFs, which have direct access to electronic
trading platforms for Treasury securities, now represent more than half
of the trading activity on electronic interdealer trading platforms for
Treasury securities.\254\ Similar to HFTs in the equity markets, PTFs
trading on the electronically brokered interdealer market for Treasury
securities often employ automated algorithmic trading strategies that
rely on speed and allow the PTFs to cancel or modify existing quotes in
response to perceived market activity.\255\ Furthermore, most PTFs
trading Treasury securities on electronic platforms also restrict their
activities to proprietary trading and do not hold long positions.\256\
---------------------------------------------------------------------------

    \253\ See id. at 36.
    \254\ See id.
    \255\ See id. at 32, 35-36, 39.
    \256\ See id. at 38.
---------------------------------------------------------------------------

    The October 15 Staff Report also notes that increased trading speed
due to automated trading in the U.S. Treasury market has challenged the
traditional risk management protocols for market participants, trading
platforms, and clearing firms.\257\ The October 15 Staff Report notes
that automated trading can occur at speeds that exceed the capacity of
manual detection and intervention, posing a challenge to traditional
risk management protocols, and forcing market participants, trading
platforms, and clearing firms to develop internal risk controls and
processes to manage the potential for rapidly changing market and
counterparty risk exposures.\258\
---------------------------------------------------------------------------

    \257\ See id. at 36.
    \258\ See id. at 36-37.
---------------------------------------------------------------------------

    As indicated in the October 15 Staff Report, the staff of the U.S.
Treasury Department, the Board of Governors of the Federal Reserve
System, the Federal Reserve Bank of New York, the Commission, and the
U.S. Commodity Futures Trading Commission plan to continue to analyze
the events of October 15, 2014 and examine changes to the U.S. Treasury
market structure. The October 15 Staff Report identified four areas for
further work. One of the four areas includes the continued monitoring
of trading and risk management practices across the U.S. Treasury
market and a review of the current regulatory requirements applicable
to the government securities market and its participants.\259\ In
connection with this, the cross-agency staff expressed support for a
review of the current regulatory requirements applicable to the
government securities market and its participants and suggested
studying the implications of a registration requirement for firms
conducting certain types of automated trading in the U.S. Treasury
market and for government securities trading venues.\260\ The staff
also recommended an assessment of the data available to the public and
to the official sector on U.S. Treasury cash securities markets, which
would include efforts to enhance public reporting on U.S. Treasury
market venue policies and services.\261\
---------------------------------------------------------------------------

    \259\ See id. at 45.
    \260\ See id. at 47.
    \261\ See id. at 48.
---------------------------------------------------------------------------

    Based on the rapid and continued evolution of the market for
government securities, the Commission is seeking comment on whether as
part of its continued cooperation and coordination with other
regulators, it should include ATSs whose trading activity is solely in
government securities within the scope of current Regulation ATS and
amend Regulation ATS to provide for enhanced operational transparency
for ATSs that trade government securities.\262\

Specifically, the Commission seeks comment on the following:
---------------------------------------------------------------------------

    \262\ Prior to adopting any changes to Regulation ATS with
regard to ATSs that trade government securities, the Commission
would, as appropriate, consult with and consider the views of the
Secretary of the Treasury and any other appropriate regulatory
agencies. See 15 U.S.C. 78o(c)(2)(E).
---------------------------------------------------------------------------

    22. Do you that believe market participants have sufficient
information about the operations of ATSs that effect transactions in
government securities in order to evaluate such ATSs as potential
trading venues? Why or why not? Please support your arguments.
    23. Do you believe that the Commission should adopt amendments to
Regulation ATS to remove the exemption under Rule 301(a)(4)(ii)(A) of
Regulation ATS for ATSs whose trading activity is solely in government
securities? Why or why not? Please support your arguments. If so, do
you believe that the Commission should make public Form ATS filings or
otherwise increase the transparency requirements under Regulation ATS
for ATSs whose sole trading activity is in government securities? Why
or why not? Please support your arguments.
    24. Do you believe that the Commission should adopt amendments to
Regulation ATS to enhance the transparency requirements applicable to
ATSs that effect transactions in both government securities and non-
government securities? Why or why not? If so, how? Please support your
arguments.
    25. Do you believe that ATSs that effect transactions in government
securities raise the same operational transparency concerns that the
Commission preliminarily believes to exist for NMS Stock ATSs? Why or
why not? Please support your arguments. If not, do you believe that
ATSs that effect transactions in government securities raise other
operational transparency concerns that warrant expanding the scope of
Regulation ATS to encompass ATSs whose sole trading activity is in
government securities or increasing the transparency requirements for
ATSs that effect transactions in both government securities and non-
government securities? Why or why not? Please support your arguments.
    26. Do you believe that there are potential conflicts of interest
for broker-dealer operators of ATSs, or their affiliates, that effect
transactions in government securities that may justify greater
operational transparency for ATSs that effect transactions in
government securities? Why or why not? Please support your arguments.
If yes, what are those potential conflicts of interest and how do those
potential conflicts of interest differ from or resemble the potential
conflicts of interest for broker-dealer operators of NMS Stock ATSs and
their affiliates? Please be specific.
    27. Do you believe that current Form ATS is sufficient to elicit
information about the operations of ATSs that effect transactions in
government securities? If not, in what ways should Form ATS be modified
to better inform the Commission about the operations of ATSs that
effect transactions in government securities? Please explain in detail
the manner in which Form ATS should be modified. Do you believe that
the current Forms ATS, or parts thereof, for ATSs that effect
transactions in government securities and non-government securities
should be made available to the public? Why or why not? Please support
your arguments.
    28. Do you believe that the Commission should adopt amendments to
existing rules under Regulation ATS, including, Rules 301(b)(3) (order
display and execution access), 301(b)(5) (fair access), and 301(b)(6)
(capacity, integrity, and security of automated systems), to make those
rules applicable to trading in government securities on ATSs? Why or
why not? If so, how? Please provide support for your arguments. Should
the Commission adopt amendments to Rule 301(b)(3) of Regulation ATS to
require ATSs that trade government securities to report quotes and/or
trade information for public dissemination after crossing certain
volume thresholds in a government security? Should such information be
reported only after a delay? Why or why not? Please support your
arguments.
    29. Do you believe that the Commission should apply proposed Rule
304, in whole or in part, to ATSs that effect transactions in
government securities? Why or why not? Please support your arguments.
    30. Do you believe that the Commission should adopt a new form that
is specifically designed to solicit information about the operations of
ATSs that effect transactions in government securities? If so, please
explain, in detail, the information the new form should require from
ATSs that effect transactions in government securities. If not, why
not? Please support your arguments. Do you believe that any new form
designed specifically for ATSs that effect transactions in government
securities should be made available to the public? Why or why not?
Please support your arguments.
    31. Do you believe that broker-dealers that effect transactions in
government securities may modify their business models in order to need
not comply with Regulation ATS in response to enhanced regulatory or
operational transparency requirements for ATSs that effect transactions
in government securities? Why or why not? Please support your
arguments.
    There are also ATSs whose activity is solely the facilitation of
trading in OTC Equity Securities.\263\ At this time, the Commission
preliminarily believes that many of its specific concerns related to
the current operations of NMS Stock ATSs, which proposed Rule 304 and
proposed Form ATS-N seek to address directly, are not equally
applicable to OTC Equity Securities ATSs. The Commission preliminarily
believes that OTC Equity Securities ATSs do not currently operate with
the same complexities as NMS Stock ATSs. Additionally, trading in OTC
Equity Securities is almost always facilitated through ATSs, through
inter-dealer quotation systems that are not ATSs,\264\ or elsewhere in
the bilateral market. Accordingly, trading in the market for OTC Equity
Securities is typically facilitated by platforms or amongst market
participants that are not subject to operational transparency
requirements comparable to those imposed on national securities
exchanges (i.e., the self-regulatory organization rule filing process).
The Commission also preliminarily believes that OTC Equity Securities
ATSs are evolving and, therefore, the Commission seeks comment on the
following:
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    \263\ For the purposes of this analysis and request for comment,
the Commission is using the term ``OTC Equity Security'' as it is
defined in FINRA's 6400 rule series for quoting and trading in OTC
Equity Securities. FINRA defines OTC Equity Security as ``any equity
security that is not an `NMS stock' as that term is defined in Rule
600(b)(47) of SEC Regulation NMS; provided, however, that the term
`OTC Equity Security' shall not include any Restricted Equity
Security,'' which FINRA defines as ``any equity security that meets
the definition of `restricted security' as contained in Securities
Act Rule 144(a)(3).'' See FINRA Rules 6420(f), (k).
    \264\ FINRA Rule 6420 defines an interdealer quotation system as
``any system of general circulation to brokers or dealers which
regularly disseminates quotations of identified brokers or
dealers.'' See FINRA Rule 6420(c). An example of an interdealer
quotation system is the OTC Bulletin Board that FINRA operates.
---------------------------------------------------------------------------

    32. Do you believe that market participants have sufficient
information about the operations of OTC Equity Securities ATSs to
evaluate such ATSs as potential trading venues? Why or why not? Please
support your arguments.
    33. Do you believe that OTC Equity Securities ATSs raise the same
operational transparency concerns that the Commission preliminarily
believes to exist for NMS Stock ATSs? Why or why not? Please support
your arguments. If not, do you believe that OTC Equity Securities ATSs
raise other operational transparency concerns that warrant inclusion of
OTC Equity

Securities ATSs within the scope of proposed Rule 304? Why or why not?
Please support your arguments.
    34. Do you believe that there are potential conflicts of interest
for broker-dealer operators of ATSs, and their affiliates, that
facilitate transactions in OTC Equity Securities that may justify
greater operational transparency for OTC Equity Securities ATSs? Why or
why not? Please support your arguments. If yes, what are those
potential conflicts of interest and how do those potential conflicts of
interest differ from or resemble the potential conflicts of interest
for broker-dealer operators of NMS Stock ATSs and their affiliates?
Please be specific.
    35. Do you believe that the Commission should apply proposed Rule
304, in whole or in part, to OTC Equity Securities ATSs? Why or why
not? Please support your arguments.
    36. Do you believe that applying proposed Rule 304 to OTC Equity
Securities ATSs would place them at a competitive disadvantage with
respect to other trading venues that facilitate transactions in OTC
Equity Securities in the bilateral market, which would not be subject
to such disclosure requirements? Why or why not? Please support your
arguments.
    37. Do you believe that current Form ATS is sufficient to elicit
relevant information about the operations of OTC Equity Securities
ATSs? If so, why? If not, in what ways should Form ATS be modified to
better inform the Commission about the operations of OTC Equity
Securities ATSs? Please explain in detail the manner in which Form ATS
could be modified. Do you believe that the current filed Forms ATS, or
parts thereof, for OTC Equity Securities ATSs should be made available
to the public? Why or why not? Please support your arguments.
    38. Do you believe that the Commission should adopt a new form that
is designed specifically for OTC Equity Securities ATSs to promote
operational transparency of such ATSs? If so, please explain, in
detail, the information the new form should require. If not, why not?
Please support your arguments. Do you believe that any new form
designed specifically for OTC Equity Securities ATSs should be made
available to the public? Why or why not? Please support your arguments.
    Additionally, the Commission notes that there are active ATSs that
trade in securities other than NMS stocks, fixed income securities, or
OTC Equity Securities.\265\ For example, an ATS might help match orders
for options contracts or facilitate trades in cooperative interests or
membership units in limited liability companies. At this time, the
Commission does not believe that these ATSs raise the same operational
transparency concerns as NMS Stock ATSs. The products traded on these
ATSs are not traded on national securities exchanges and, therefore,
these ATSs are not competing against platforms with greater
transparency requirements. Furthermore, the Commission preliminarily
believes that ATSs that trade in securities other than NMS stocks,
fixed income securities, or OTC Equity Securities do not currently
operate with the same complexities as NMS Stock ATSs. For such ATSs,
however, the Commission seeks comment on the following:
---------------------------------------------------------------------------

    \265\ The Commission notes that, based on information provided
on Forms ATS and ATS-R as of November 1, 2015, 5 ATSs may trade such
securities.
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    39. Do you believe that market participants have sufficient
information about the operations of ATSs that effect or facilitate
transactions in securities other than NMS stocks, fixed income
securities, or OTC Equity Securities as potential trading venues? Why
or why not? Please support your arguments.
    40. Do you believe that ATSs that effect or facilitate transactions
in securities other than NMS stocks, fixed income securities, or OTC
Equity Securities raise the same operational transparency concerns that
the Commission preliminarily believes to exist for NMS Stock ATSs? Why
or why not? Please support your arguments.
    41. Do you believe that there are potential conflicts of interest
for broker-dealer operators of ATSs, and their affiliates, that effect
or facilitate transactions in securities other than NMS stocks, fixed
income securities, or OTC Equity Securities that may justify greater
operational transparency for ATSs that effect or facilitate
transactions in securities other than NMS stocks, fixed income
securities, or OTC Equity Securities? Why or why not? Please support
your arguments. If yes, what are those potential conflicts of interest
and how do those potential conflicts of interest differ from or
resemble the potential conflicts of interest for broker-dealer
operators of NMS Stock ATSs and their affiliates? Please be specific.
    42. Do you believe that the Commission should apply proposed Rule
304, in whole or in part, to ATSs that effect or facilitate
transactions in securities other than NMS stocks, fixed income
securities, or OTC Equity Securities? Why or why not? Please support
your arguments. If so, please explain the types of ATSs to which
proposed Rule 304 should apply and why. If not, why not? Please support
your arguments.
    43. Do you believe that Form ATS is sufficient to elicit useful
information about the operations of ATSs that effect or facilitate
transactions in securities other than NMS stocks, fixed income
securities, or OTC Equity Securities? If so, why? If not, in what ways
should Form ATS be modified to better inform the Commission about the
operations of ATSs that effect or facilitate transactions in securities
other than NMS stocks, fixed income securities, or OTC Equity
Securities? Please explain in detail the manner in which Form ATS could
be modified. Do you believe that current filed Forms ATS, or parts
thereof, for ATSs that effect or facilitate transactions in securities
other than NMS stocks, fixed income securities, or OTC Equity
Securities should be made available to the public? Why or why not?
Please support your arguments.
    44. Do you believe that the Commission should adopt a new form
specifically designed for ATSs that effect or facilitate transactions
in securities other than NMS stocks, fixed income securities, or OTC
Equity Securities in order to promote operational transparency of such
ATSs? If so, please explain, in detail, the information the new form
should elicit from ATSs that effect or facilitate transactions in such
securities. If not, why not? Please support your arguments. Do you
believe that any new form designed specifically for ATSs that effect or
facilitate transactions in securities other than NMS stocks, fixed
income securities, or OTC Equity Securities should be made available to
the public? Why or why not? Please support your arguments.

C. Proposed Rule 304: Enhanced Filing Requirements for NMS Stock ATSs

1. Application of Existing Requirements to NMS Stock ATSs
    Proposed Rule 304(a) would require that, unless not required to
comply with Regulation ATS pursuant to Rule 301(a) of Regulation ATS,
an NMS Stock ATS must comply with Rules 300 through 304 of Regulation
ATS (except Rule 301(b)(2), as discussed in Section IV.C.2 below) to be
exempt from the definition of an exchange pursuant to Rule 3a1-
1(a)(2).\266\ The Commission is not proposing to change Rule 301(a) as
part of this proposal, but is simply making

clear that Rule 301(a) continues to apply to NMS Stock ATSs, unless
otherwise exempt.\267\ Thus, NMS Stock ATSs would still be required to
comply with the existing requirements of Rules 300 through 303 of
Regulation ATS, and would additionally be required to comply with
proposed Rule 304.
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    \266\ As discussed above, the Commission is proposing to amend
Rule 3a1-1(a) to provide for modified conditions to the exemption
set forth in proposed Rule 304. See supra Section IV.B.
    \267\ Pursuant to Rule 301(a), certain ATSs that are subject to
other appropriate regulations are not required to comply with
Regulation ATS. These ATSs include those that are: Registered as an
exchange under Section 6 of the Exchange Act; exempt from exchange
registration based on limited volume; operated by a national
securities association; registered as a broker-dealer, under
Sections 15(b) or 15C of the Exchange Act, or that is a bank, that
limits its securities activities to certain instruments; or
exempted, conditionally or unconditionally, by Commission order,
after application by such alternative trading system from one or
more of the requirements of Rule 301(b). See 17 CFR 242.301(a). See
also Regulation ATS Adopting Release, supra note 7, at 70859-63.
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    The Commission also notes that the requirements of Rule 301(b)
(except Rule 301(b)(2)) of Regulation ATS \268\ would continue to apply
to NMS Stock ATSs. As discussed above, Rule 301(b) sets forth the
conditions with which an ATS must comply to benefit from the exemption
provided by Exchange Act Rule 3a1-1(a).\269\ The Commission continues
to believe that compliance by NMS Stock ATSs with the provisions of
Rule 301(b) of Regulation ATS (except Rule 301(b)(2)), as amended, is a
necessary and appropriate condition to the Rule 3a1-1(a)(2) exemption
from the definition of exchange in that the purpose of such condition
is the protection of investors.\270\ The Commission would no longer
require an NMS Stock ATS to comply with the reporting and amendment
requirements of Rule 301(b)(2) because such conditions would be
replaced with the more specific disclosure requirements of proposed
Rule 304 for NMS Stock ATSs, discussed in further detail below. The
Commission is also proposing to make non-substantive amendments to Rule
301(b)(2)(i) and Rule 301(b)(2)(vii) \271\ to delete outdated
references to dates for phased in compliance with Regulation ATS for
ATSs that were operational as of April 21, 1999, and to update the name
of the Division of Trading and Markets, respectively.\272\
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    \268\ See 17 CFR 242.301(b)(1), (b)(3)-(11).
    \269\ See supra Section II.B.
    \270\ See, e.g., Regulation ATS Adopting Release, supra note 7,
at 70856. In adopting the existing conditions in Rule 301, the
Commission determined that the exemption in Rule 3a1-1 was
consistent with the protection of investors because the Commission
believed that investors would benefit from the conditions governing
an alternative trading system, in particular Regulation ATS's
enhanced transparency, market access, system integrity, and audit
trail provisions. See id.
    \271\ See proposed Rules 301(b)(2)(i) and (vii), respectively.
    \272\ See 17 CFR 242.301(b)(2)(i) and (vii), respectively.
---------------------------------------------------------------------------

    The Commission requests comment generally on all aspects of
proposed Rule 304(a).
2. Rule 301(b)(2) and Form ATS; ATSs That Trade in Non-NMS Stocks
    The Commission is proposing Rule 301(b)(2)(viii) to provide that an
NMS Stock ATS shall file the reports and amendments required by
proposed Rule 304 and would not be subject to the requirements of Rule
301(b)(2). Existing Rule 301(b)(2) requires an ATS to file with the
Commission a Form ATS initial operation report, amendments to the Form
ATS initial operation report, and cessation of operations reports on
Form ATS, all of which are ``deemed confidential when filed.'' \273\
Because the Commission is proposing rules to govern the content and
manner in which an NMS Stock ATS would be required to disclose
information to the public and the Commission on proposed Form ATS-N,
existing Rule 301(b)(2), which applies, and will continue to apply, to
ATSs that do not effect transactions in NMS stocks would be duplicative
of the proposed amendments.\274\
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    \273\ See 17 CFR 242.301(b)(2).
    \274\ See supra Section IV.B. (discussing the proposed
conditions to the exemption in Rule 3a1-1(a) for ATSs that trade NMS
stocks, as compared to the conditions for ATSs that trade other
securities or that trade NMS stocks as well as other securities).
---------------------------------------------------------------------------

    Proposed Rule 301(b)(2)(viii) would also provide that an ATS that
effects transactions in both NMS stocks and non-NMS stocks would be
subject to the requirements of proposed Rule 304 with respect to NMS
stocks and Rule 301(b)(2) with respect to non-NMS stocks. The
Commission recognizes that some existing ATSs that would meet the
definition of NMS Stock ATS also transact in securities other than NMS
stocks. For these ATSs to be eligible for the exemption under Rule 3a1-
1(a)(2), the Commission preliminarily believes that it is not necessary
to mandate compliance with the heightened transparency requirements
under proposed Rule 304 with respect to their non-NMS stock operations.
Based on Commission experience, these ATSs are designed so that the
platform on which non-NMS stock order flow interacts and executes
differs from the platform on which NMS stock order flow interacts and
executes. Furthermore, as explained above, the Commission preliminarily
believes that the operational transparency concerns for NMS Stock ATSs
do not apply equally to the markets for non-NMS stocks.\275\ As such,
the Commission has tailored proposed Form ATS-N to address the specific
operational transparency concerns raised by the current functionalities
of the ATS platforms on which NMS stock order flow interacts and
executes. Additionally, the Commission preliminarily believes that
applying proposed Rule 304 to the non-NMS stock operations of ATSs that
trade both NMS stocks and non-NMS stocks would impose unequal
regulatory burdens across ATSs that transact in non-NMS stocks. Under
such a rule, ATSs that trade both NMS stocks and non-NMS stocks would
be required to meet the heightened standards of proposed Rule 304 to be
eligible for the exemption under Rule 3a1-1(a)(2) with regard to their
non-NMS stock operations, whereas ATSs that only trade non-NMS stocks
would not be subject to the standards under proposed Rule 304.
---------------------------------------------------------------------------

    \275\ See supra Section IV.B.
---------------------------------------------------------------------------

    The Commission also proposes to amend Rule 301(b)(9),\276\ which
requires an ATS to report transaction volume on Form ATS-R on a
quarterly basis and within 10 calendar days after it ceases operation.
The Commission proposes to amend Rule 301(b)(9) to require an ATS that
trades both NMS stocks and non-NMS stocks to separately report its
transactions in NMS stocks on one Form ATS-R, and its transactions in
non-NMS stocks on another Form ATS-R. The information filed on Form
ATS-R permits the Commission to monitor trading on an ATS.\277\ As
noted above, the Commission proposes to require each ATS with both NMS
stock and non-NMS stock operations to file a Form ATS-N for its NMS
stock operations and a separate Form ATS for its non-NMS stock
operations. Because the proposed Form ATS-N and Form ATS filings of
such ATSs would describe separate functionalities--the functionalities
for the trading of NMS stocks and those for the trading of non-NMS
stocks, respectively--the Commission preliminarily believes that these
ATSs should file a separate Form ATS-R to report the trading activity
for each functionality to avoid confusion and for regulatory
efficiency. Accordingly, the Commission is proposing to require that
these ATSs file a Form ATS-R to report transaction volume resulting
from their NMS stock operations, as disclosed on a Form ATS-N, and a
separate Form ATS-R to

report transaction volume resulting from their non-NMS stock
operations, as disclosed on Form ATS. The Commission notes that Form
ATS-R would continue to be deemed confidential.
---------------------------------------------------------------------------

    \276\ See 17 CFR 242.301(b)(9).
    \277\ See Regulation ATS Adopting Release, supra note 7, at
70878.
---------------------------------------------------------------------------

    The Commission requests comment on the proposed amendments to Rules
301(b)(2) and 301(b)(9). In particular, the Commission solicits comment
on the following:
    45. Should the Commission require ATSs that trade both NMS stocks
and non-NMS stocks to make filings on both proposed Form ATS-N, with
respect to its NMS stock operations, and Form ATS, with respect to its
non-NMS stock operations? Why or why not? Please support your
arguments.
    46. Should the Commission require ATSs that trade both NMS stocks
and non-NMS stocks to file a Form ATS-R with respect to their NMS stock
operations and a separate Form ATS-R with respect to their non-NMS
stock operations? Why or why not? Please support your arguments.
    47. Do you believe that ATSs that trade both NMS stocks and non-NMS
stocks should be subject to proposed Rule 304, in whole or in part, for
both their NMS stock operations and non-NMS stock operations? Why or
why not? Please support your arguments.
    Do you believe that ATSs that trade both NMS stocks and non-NMS
stocks should be required to disclose their NMS stock and non-NMS stock
operations solely on proposed Form ATS-N? If so, why, and what
additional disclosures should be required on proposed Form ATS-N to
reflect non-NMS stock operations? If not, why not? Please support your
arguments.
3. Proposed Rule 304(a)(1)(i) and (ii): Filing and Review of Form ATS-N
    Proposed Rule 304(a)(1)(i) would provide that no exemption from the
definition of ``exchange'' is available to an NMS Stock ATS pursuant to
Exchange Act Rule 3a1-1(a)(2) unless the NMS Stock ATS files with the
Commission a Form ATS-N and the Commission declares the Form ATS-N
effective. The Commission preliminarily believes that an NMS Stock ATS
that is not operating on the effective date of proposed Rule 304 should
not be permitted to commence operations until the Commission has had
the opportunity to assess whether the NMS Stock ATS qualifies for the
Rule 3a1-1(a)(2) exemption. As discussed above,\278\ the current
requirements of the Rule 3a1-1(a)(2) exemption mandate that an ATS only
provide notice of its operation on a Form ATS initial operation report
20 days prior to commencing operations.\279\ The Commission's review of
Form ATS-N would help ensure that an NMS Stock ATS's disclosures comply
with the requirements of proposed Rule 304 and that a consistent level
of information is made available to market participants in evaluating
NMS Stock ATSs.\280\
---------------------------------------------------------------------------

    \278\ See supra Section IV.B.
    \279\ 17 CFR 242.301(b)(2).
    \280\ The Commission notes, however, that Form ATS-N is intended
to provide regulatory and public transparency. As such, its review
of Form ATS-N will be focused on an evaluation of the completeness
and accuracy of the disclosure thereon, and compliance with federal
securities laws. Even if the Commission declares a Form ATS-N
effective, the Commission would not be precluded from later
determining that an NMS Stock ATS had violated the federal
securities laws or the rules and regulations thereunder. See infra
Section IV.C.8.
---------------------------------------------------------------------------

    Proposed Rule 304(a)(1)(i) is also designed as a transition for
currently operating ATSs that meet the proposed definition of NMS Stock
ATS. Proposed Rule 304(a)(1)(i) would require an existing ATS that
facilitates transactions in NMS stocks and that operates pursuant to a
previously filed initial operation report on Form ATS as of the
effective date of proposed Rule 304 (i.e., a ``legacy NMS Stock ATS'')
to file a Form ATS-N with the Commission no later than 120 calendar
days after the effective date of proposed Rule 304. In other words, the
effectiveness of an existing Form ATS would not suffice for a legacy
NMS Stock ATS to retain its exemption from the definition of
``exchange'' with respect to its Rule 3b-16 activity in NMS stocks
beyond the transition period following the effectiveness of proposed
Rule 304. The Commission is also proposing in Rule 304(a)(1)(i) that a
legacy NMS Stock ATS may continue to operate pursuant to a previously
filed initial operation report on Form ATS pending the Commission's
review of the filed Form ATS-N.\281\ This provision would allow the NMS
Stock ATS to continue its current operations without disruptions to the
NMS Stock ATS or its current subscribers and provide the NMS Stock ATS
with sufficient time to make an orderly transition from compliance
under the current Regulation ATS requirements to compliance with the
proposed requirements of Rule 304. The Commission notes that during the
Commission's review of the filed Form ATS-N, the NMS Stock ATS would
continue to operate pursuant to its existing Form ATS initial operation
report and would continue to be required to file amendments on Form ATS
to provide notice of changes to the operations of its system.\282\
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    \281\ The NMS Stock ATS would be required to continue to comply
with Regulation ATS.
    \282\ 17 CFR 242.301(b)(2)(ii) through (iv).
---------------------------------------------------------------------------

    The Commission considered the alternative of allowing an existing
ATS that engages in Rule 3b-16 activity in NMS stocks to retain its
exemption from the definition of ``exchange'' by virtue of its existing
Form ATS, and to require only a new NMS Stock ATS to file Form ATS-N.
However, the Commission preliminarily believes that this alternative
would not be appropriate as it would create a significant competitive
disparity between a ``new'' and ``legacy'' NMS Stock ATS, with the
latter benefitting from substantially lighter disclosure requirements.
More importantly, it would perpetuate the problem of limited
information being available to market participants. Nevertheless, the
Commission preliminarily believes that it would be appropriate to
provide existing ATSs that engage in Rule 3b-16 activity with regard to
NMS stocks an adjustment period after the effective date of proposed
Rule 304 to file a Form ATS-N. The Commission preliminarily believes
that 120 calendar days is sufficient time for a legacy NMS Stock ATS to
respond to the disclosure requirements on the new Form ATS-N because an
ATS that is currently operating should be knowledgeable about the
operations of its system and the activities of its broker-dealer
operator and its affiliates.
    Proposed Rule 304(a)(1)(ii)(A) would provide that the Commission
declare a Form ATS-N filed by an NMS Stock ATS operating as of the
effective date of proposed Rule 304 effective or ineffective no later
than 120 calendar days from filing with the Commission. Similarly,
Proposed Rule 304(a)(1)(ii)(B) would provide that the Commission
declare a Form ATS-N filed by an NMS Stock ATS that was not operating
as of the effective date of proposed Rule 304 effective or ineffective
no later than 120 calendar days from filing with the Commission. The
disclosures required by proposed Form ATS-N are more comprehensive than
those required on current Form ATS, particularly in terms of volume,
complexity, and detail. Based on its experience over the past seventeen
years of receiving and reviewing notices on Form ATS, the Commission
preliminarily believes that it would receive a large amount of
information provided in Form ATS-N filings. The Commission
preliminarily believes that 120 calendar days would provide the
Commission adequate time to carry out its oversight functions with
respect to its review of Forms ATS-N

filed by legacy and new NMS Stock ATSs, including its responsibilities
to protect investors and maintain fair, orderly, and efficient
markets.\283\
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    \283\ As discussed above, a legacy NMS Stock ATS would be able
continue to operate pursuant to a previously filed initial operation
report on Form ATS pending the Commission's review of the filed Form
ATS-N.
---------------------------------------------------------------------------

    Proposed Rule 304(a)(1)(ii)(A) would further provide a process for
the Commission to extend the review period for Forms ATS-N filed by NMS
Stock ATSs operating as of the effective date of proposed Rule 304: (1)
An additional 120 calendar days, if the Form ATS-N is unusually lengthy
or raises novel or complex issues that require additional time for
review, in which case the Commission will notify the NMS Stock ATS in
writing within the initial 120-day review period and will briefly
describe the reason for the determination that additional time for
review is required; or (2) any extended review period to which the NMS
Stock ATS agrees in writing. Proposed Rule 304(a)(1)(ii)(B) would
include a similar provision for NMS Stock ATSs not operating as of the
effective date of proposed Rule 304, except that the Commission could
extend its review period up to 90 calendar days. The proposed
disclosure requirements require more detailed disclosures regarding the
operations of an NMS Stock ATS than do the current requirements;
thereby increasing the amount of information for the Commission to
review. The Commission preliminarily believes that the additional time
provided by the proposed rule is appropriate because it would allow
Commission and its staff to conduct a thorough review of certain
lengthy, novel, or complex Form ATS-N filings and provide sufficient
opportunity to discuss the filing with the NMS Stock ATS if necessary.
Request for Comment
    48. Do you believe the Commission should adopt a rule in which it
is required to declare a Form ATS-N filed by an NMS Stock ATS effective
or ineffective within 120 calendar days of filing? Do you believe this
is an appropriate time frame in light of the amount and nature of
information to be submitted on Form ATS-N? Why or why not? Does any
experience with Exchange Act Rule 19b-4 filings by self-regulatory
organizations, either in draft or in formal submission, inform the
appropriate time frame?
    49. Should the Commission adopt a process to further extend the
period of review under certain circumstances? If so, what circumstances
and why? Please support your arguments.
    50. If the Commission does not declare a Form ATS-N filing
effective or ineffective within 120 calendar days from filing with the
Commission, or any extension of the 120-day period pursuant to proposed
Rule 304(a)(1)(ii), do you believe the Form ATS-N should be
automatically deemed effective? Why or why not? Please support your
arguments.
    51. If the Commission does not declare a Form ATS-N filing
effective or ineffective within 120 calendar days from filing with the
Commission, or any extension of the 120-day period pursuant to proposed
Rule 304(a)(1)(ii), do you believe the Form ATS-N should be
automatically deemed ineffective? Why or why not? Please support your
arguments.
4. Proposed Rule 304(a)(1)(iii): Declarations of Effectiveness or
Ineffectiveness of Form ATS-N
    Proposed Rule 304(a)(1)(iii) would provide that the Commission will
declare effective a Form ATS-N if the NMS Stock ATS qualifies for the
Rule 3a1-1(a)(2) exemption. Proposed Rule 304(a)(1)(iii) would also
provide that the Commission will declare ineffective a Form ATS-N if it
finds, after notice and opportunity for hearing, that such action is
necessary or appropriate in the public interest, and is consistent with
the protection of investors.\284\
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    \284\ A submitted Form ATS-N that contains technical
deficiencies, such as missing pages or one in which the entity does
not respond to all questions, including all sub-questions, would not
be complete and would be returned to the NMS Stock ATS. See also 17
CFR 240.0-3. Return of a Form ATS-N would not prejudice any decision
by the Commission regarding effectiveness or ineffectiveness should
the NMS Stock ATS resubmit a Form ATS-N. The Commission notes an NMS
Stock ATS also can choose to withdraw a filed Form ATS-N.
---------------------------------------------------------------------------

    Under the proposal, the Commission would use Form ATS-N to evaluate
whether an entity qualifies for an exemption under Rule 3a1-
1(a)(2).\285\ For the Commission to declare a Form ATS-N effective, it
would evaluate, among other things, whether the entity satisfies the
definition of ATS,\286\ and more specifically, the definition of NMS
Stock ATS.\287\ The Commission preliminarily believes that whether an
entity meets the definition of ``NMS Stock ATS'' should be a threshold
requirement for the Commission to declare a Form ATS-N effective, and
therefore for the ATS to qualify for the Rule 3a1-1(a)(2) exemption.
Proper classification of an entity would clearly indicate to market
participants, as well as the Commission, the functions that entity
performs and the regulatory framework and attendant obligations that
attach to that entity.\288\ Thus, if the proposed category of NMS Stock
ATS is adopted, the Commission preliminarily believes it needs to
mitigate concerns that market participants may be confused or misled
about whether an entity in fact meets the definition of an NMS Stock
ATS. If an entity does not meet the definition, market participants may
hold false expectations about how their orders may interact or be
matched with other orders or they may not fully understand whether the
entity with which they are doing business is required to comply with
Regulation ATS. For these reasons, the Commission preliminarily
believes that it would be necessary or appropriate in the public
interest, and consistent with the protection of investors, to declare
ineffective a Form ATS-N if it finds, after notice and opportunity for
hearing, that the Form ATS-N was filed by an entity that does not meet
the functional test under Exchange Act Rule 3b-16, does not perform
functions commonly performed by a stock exchange, or

exercises SRO powers.\289\ Similarly, the Commission preliminarily
believes that it would be necessary or appropriate in the public
interest, and consistent with the protection of investors, to declare
ineffective a Form ATS-N if it finds, after notice and opportunity for
hearing, that the Form ATS-N was filed by an entity that does not meet
the proposed definition of ``NMS Stock ATS.''
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    \285\ An NMS Stock ATS would also be required to comply with
other requirements of Rules 300 through 303 of Regulation ATS
(except Rule 301(b)(2)) and proposed Rule 304.
    \286\ Regulation ATS defines an ATS as any organization,
association, person, group of persons, or system that constitutes a
market place or facilities for bringing together purchasers and
sellers of securities or for otherwise performing with respect to
securities the functions commonly performed by a stock exchange
within the meaning of Exchange Act Rule 3b-16, and does not set
rules governing the conduct of subscribers, other than the conduct
of such subscribers' trading on such organization, association,
person, group of persons, or system, or discipline subscribers under
the Exchange Act other than by exclusion from trading. See 17 CFR
242.300(a).
    Under Exchange Act Rule 3b-16, an organization, association, or
group of persons shall be considered to constitute, maintain, or
provide ``a marketplace or facilities for bringing together
purchasers and sellers of securities or for otherwise performing
with respect to securities the functions commonly performed by a
stock exchange,'' if such organization, association, or group of
persons: (1) Brings together the orders for securities of multiple
buyers and sellers; and (2) uses established, non-discretionary
methods (whether by providing a trading facility or by setting
rules) under which such orders interact with each other, and the
buyers and sellers entering such orders agree to the terms of a
trade. See supra note 48 and accompanying text. See also supra
Section IV.A (discussing the proposed definition of ``NMS Stock
ATS'').
    \287\ See proposed Rule 300(k). See also supra Section IV.A
(discussing the proposed definition of NMS Stock ATS).
    \288\ For example, an ATS that is not an NMS Stock ATS would be
subject to different conditions to be eligible for the Rule 3a1-
1(a)(2) exemption. Similarly, depending on the facts and
circumstances, an entity that is not an ATS may be subject to
requirements as a broker-dealer, but not the conditions of
Regulation ATS, or may be required to register as an exchange.
    \289\ See supra Section IV.A. (discussing the definition of NMS
Stock ATS and the underlying definition of ATS).
     The entity would not fall within the definition of an
``exchange'' under Section 3(a)(1) of the Exchange Act and the
exemption provided in Exchange Act Rule 3a1-1 would not be
applicable.
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    The Commission also preliminarily believes that it would be
necessary or appropriate in the public interest, and consistent with
the protection of investors, to declare ineffective a Form ATS-N if it
finds, after notice and opportunity for hearing, that one or more
disclosures on Form ATS-N are materially deficient with respect to
their accuracy, currency, or completeness. The requirements of proposed
Form ATS-N are set forth in proposed Rule 304(c)(1), which provides
that an NMS Stock ATS must respond to each item on Form ATS-N, as
applicable, in detail and disclose information that is accurate,
current, and complete. The Commission preliminarily believes that
market participants would use information disclosed on Form ATS-N to
evaluate whether a particular NMS Stock ATS would be a desirable venue
to which to route their orders. In addition, the Commission intends to
use the information disclosed on the Form ATS-N to exercise oversight
over and monitor developments of NMS Stock ATSs. Given these potential
uses, the Commission preliminarily believes that it is important that
Form ATS-N contain detailed disclosures that are accurate, current, and
complete.\290\
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    \290\ Proposed Form ATS-N is designed to provide market
participants and the Commission with, among other things, current
information about the operations of the NMS Stock ATS and the
activities of the broker-dealer operator and its affiliates.
Accordingly, an NMS Stock ATS would be required to provide
information on proposed Form ATS-N that reflects the operations of
the NMS Stock ATS at the time its Form ATS-N is declared effective
by the Commission. Any changes in the operations of the NMS Stock
ATS must be disclosed by the NMS Stock ATS in a Form ATS-N
Amendment.
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    The following non-exhaustive examples are provided to illustrate
various applications of proposed Rule 304(a)(1)(iii) that could cause
the Commission to declare a Form ATS-N ineffective because it contains
one or more disclosures that appear to be materially deficient.\291\
For instance, if an NMS Stock ATS discloses an order type on Form ATS-N
but does not describe the key attributes of the order type, such as
time-in-force limitations that can be placed on the ability to execute
the order, the treatment of unfilled portions of orders, or conditions
for cancelling orders in whole or in part, the Form ATS-N would not be
sufficiently detailed. Likewise, if an NMS Stock ATS generally
describes some of its priority rules, but fails to describe conditions
or exceptions to its priority rules, or fails to describe any priority
overlays,\292\ the Form ATS-N would lack sufficient detail. If a Form
ATS-N states that the NMS Stock ATS has only one class of subscribers
but the Commission or its staff learns through discussions (during the
review period) with the NMS Stock ATS or otherwise that the NMS Stock
ATS in fact has several classes of subscribers, or if the Form ATS-N
states that two classes of subscribers are charged the same trading
fees but the Commission or its staff learns through discussions with
the NMS Stock ATS or otherwise that in fact one class receives more
favorable fees than the other, the Form ATS-N would not be accurate. If
a Form ATS-N includes inconsistent information, such as a statement in
one part of the form that the entity uses private feeds to calculate
the NBBO, but in another part of the form it indicates that it uses the
Securities Information Processor (``SIP''), the Form ATS-N would not be
accurate.
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    \291\ The Commission notes that these are some, but not
necessarily all, of the types of circumstances that could result in
the Commission declaring a Form ATS-N ineffective under the proposed
rule.
    \292\ In other words, if the NMS Stock ATS fails to describe
which order would receive priority when two or more orders are
otherwise on par, such as whether customer orders receive priority
in a price priority system if a customer and non-customer order are
at the same price, the disclosure would not be sufficient.
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    The Commission preliminarily believes that it would be necessary or
appropriate in the public interest, and consistent with the protection
of investors, to declare ineffective a Form ATS-N if it finds, after
notice and opportunity for hearing, that one or more disclosures
reveals non-compliance with federal securities laws, or the rules or
regulations thereunder, including Regulation ATS. The Commission notes
that the responsibility for accurate, current, and complete disclosures
on Form ATS-N lies with the NMS Stock ATS.\293\ The Commission's review
of Form ATS-N would focus on an evaluation of the completeness and
accuracy of the disclosures, and compliance with federal securities
laws, including Regulation ATS. The Commission's evaluation regarding
compliance with federal securities laws would involve a ``red-flag''
review of the Form ATS-N disclosures for apparent non-compliance with
federal securities laws, or other rules or regulations thereunder,
including Regulation ATS, and would focus on the disclosures made on
the Form ATS-N. For example, as a condition to the Rule 3a1-1(a)(2)
exemption, Rule 301(b)(1) of Regulation ATS requires that an ATS
register as a broker-dealer under Section 15 of the Exchange Act.\294\
Section 15(b)(8) of the Exchange Act\295\ prohibits a registered broker
or dealer from effecting a transaction unless the broker or dealer is a
member of a securities association registered pursuant to Section 15A
of the Exchange Act \296\ or effects transactions solely on a national
securities exchange of which it is a member. Therefore, to comply with
Regulation ATS, and thus qualify for the Rule 3a1-1(a)(2) exemption, an
ATS must become a member of an SRO. If an entity were to file a Form
ATS-N before registering as a broker-dealer under Section 15 of the
Exchange Act, the entity would not be in compliance with Rule 301(b)(1)
of Regulation ATS.\297\ Moreover, if the entity were to file a Form
ATS-N before becoming a member of an SRO, the entity would not be in
compliance with Rule 301(b)(1) of Regulation ATS because Section
15(b)(1) provides that a Commission order granting registration is not
effective until the broker-dealer has become a member of a national
securities association registered pursuant to Section 15A of the
Exchange Act,\298\ and the Commission's order granting broker-dealer
registration would not be effective.\299\ The Commission preliminarily
believes that it would be necessary or appropriate in the public
interest, and consistent with the protection of investors, to declare
ineffective a Form ATS-N if it finds, after notice and opportunity for
hearing, that a Form ATS-N reveals non-compliance with Regulation ATS
because such non-compliance would be inconsistent with proposed Rule
304(a), which requires that an NMS Stock ATS

comply with Rules 300 through 304 (except Rule 301(b)(2)) as a
condition to the exemption from the definition of exchange pursuant to
Rule 3a1-1(a)(2).\300\ As another example, if a Form ATS-N reveals non-
compliance with Rule 612 of Regulation NMS, known as the ``Sub-Penny
Rule,'' which prohibits market participants, including ATSs, from
displaying, ranking, or accepting orders, quotations, or indications of
interest in NMS stock priced in an increment smaller than $0.01,\301\
the Form ATS-N would not be consistent with the proposed Rule because
the NMS Stock ATS would operate in a manner that would violate the
federal securities laws.
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    \293\ See infra Section IV.E. and accompanying discussion.
Proposed Rule 304(c)(1) would require NMS Stock ATSs to respond to
each item on Form ATS-N, as applicable, in detail and disclose
information that is accurate, current, and complete.
    \294\ 17 CFR 242.301(b)(1).
    \295\ 15 U.S.C. 78o(b)(8).
    \296\ 15 U.S.C. 78o-3.
    \297\ See 17 CFR 301(b)(1). Rule 301(b)(1) requires an ATS to
register as a broker-dealer under Section 15 of the Exchange Act.
    \298\ See 15 U.S.C. 78o(b)(1).
    \299\ See 17 CFR 242.301(b)(1).
    \300\ The Commission notes that determining whether an NMS Stock
ATS qualifies for the exemption from the definition of ``exchange''
would be based on information as it appears in Form ATS-N. If the
Commission were to learn of different information, that
determination may change.
    \301\ Specifically, Rule 612(a) of Regulation NMS provides that
``no national securities exchange, national securities association,
alternative trading system, vendor, or broker or dealer shall
display, rank, or accept from any person a bid or offer, an order,
or an indication of interest in any NMS stock priced in an increment
smaller than $0.01 if that bid or offer, order, or indication of
interest is priced equal to or greater than $1.00 per share.'' See
17 CFR 242.612(a).
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    During its review, the Commission and its staff may provide
comments to the entity, and may request that the entity supplement
information in the Form ATS-N or revise its disclosures on Form ATS-
N.\302\ An order declaring a Form ATS-N effective would not constitute
a finding that the NMS Stock ATS's operations are consistent with the
Exchange Act and the rules and regulations thereunder. Rather, the
declaration of effectiveness would only address the issue of whether
the NMS Stock ATS has complied with the requirements of Form ATS-N and
would focus on the disclosures made on the Form ATS-N. The Commission
would not be precluded from later determining that an NMS Stock ATS had
violated the federal securities laws or the rules and regulations
thereunder.
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    \302\ The Commission notes, however, that Form ATS-N is intended
to provide regulatory and public transparency. As such, its review
of Form ATS-N will be focused on an evaluation of the completeness
and accuracy of the disclosure thereon, and compliance with federal
securities laws.
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Request for Comment
    52. Should Form ATS-N be deemed immediately effective without
Commission action? Why or why not? Please support your arguments.
    53. Should Form ATS-N be considered ineffective on filing with the
Commission until the Commission affirmatively declares the Form ATS-N
ineffective? Why or why not? Please support your arguments.
    54. Should the process for making a Form ATS-N effective for a
legacy NMS Stock ATS be different from the process for making a Form
ATS-N effective for an NMS Stock ATS that files a Form ATS-N after the
effective date of the proposed rule? Why or why not? Please support
your arguments. If so, how should the processes for the two categories
of NMS Stock ATSs differ?
    55. Do you believe that the proposed 120 calendar days after the
effective date of proposed Rule 304 is a reasonable amount of time for
legacy NMS Stock ATSs to complete and file a Form ATS-N? If so, why? If
not, why not, and what amount of time would be reasonable? Please
support your arguments.
    56. Do you believe that new NMS Stock ATSs would be at a
competitive disadvantage if existing NMS Stock ATSs were not required
to file a Form ATS-N? Why or why not? Please support your arguments.
    57. Do you believe that the proposed 120 calendar day period from
filing with the Commission is a reasonable amount of time for the
Commission to declare a Form ATS-N filed by an NMS Stock ATS that was
not operating as of the effective date of proposed Rule 304 effective
or ineffective? Do you believe the review period would place an undue
burden on the NMS Stock ATS that filed the Form ATS-N? If yes, what
amount of time would be reasonable? Please support your arguments.
    58. Should the Commission adopt the proposal to allow a legacy NMS
Stock ATS to continue operations pursuant to an existing filed initial
operation report on Form ATS pending the Commission's review of its
Form ATS-N? Why or why not? Please support your arguments.
    59. Do you believe that if a legacy NMS Stock ATS is allowed to
continue operations during the Commission's review of its Form ATS-N
the Commission should make such NMS Stock ATS's Form ATS-N publicly
available upon filing? Why or why not? Please support your arguments.
    60. Should the Commission permit existing NMS Stock ATSs to be
exempt from the definition of ``exchange'' by virtue of the NMS Stock
ATS's current Form ATS on file with the Commission and require only new
NMS Stock ATSs to file Form ATS-N? Why or why not? Would this raise
competitive concerns with respect to disparate regulatory treatment of
``new'' and ``legacy'' NMS Stock ATSs? Why or why not? Please support
your arguments.
    61. Do you believe that the proposed 90 calendar days for the
Commission to extend the Form ATS-N review period for new NMS Stock
ATSs where the Form ATS-N is unusually lengthy or raises novel or
complex issues is reasonable? Do you believe it would place an undue
burden on the NMS Stock ATS? If so, why, and what amount of time would
be reasonable? Do you believe that the proposed 90 calendar day
extension period disproportionately affects new NMS Stock ATSs? Please
support your arguments.
    62. Should the Commission adopt the proposal to declare ineffective
a Form ATS-N if it finds, after notice and opportunity for hearing,
that such action is necessary or appropriate in the public interest,
and is consistent with the protection of investors? Please support your
arguments.
    63. Do you believe that the Commission's examples of reasons that
the Commission might declare a proposed Form ATS-N ineffective are
appropriate? If yes, why? If not, why not? Please support your
arguments.
    64. Do you believe that the Commission should consider any other
factors in determining whether a Form ATS-N should be declared
effective or ineffective? If so, what are they and why? If not, why
not? Please support your arguments.
    65. Should the Commission require public notice and comment before
declaring a Form ATS-N effective or ineffective? Why or why not? Please
support your arguments.
5. Proposed Rule 304(a)(1)(iv): Orders Regarding Form ATS-N
Effectiveness
    Proposed Rule 304(a)(1)(iv) would provide that the Commission will
issue an order to declare a Form ATS-N effective or ineffective.
Proposed Rule 304(a)(1)(iv) would also provide that upon the
effectiveness of the Form ATS-N, the NMS Stock ATS may operate pursuant
to the conditions in proposed Rule 304. Proposed Rule 304(a)(1)(iv)
would also provide that if the Commission declares a Form ATS-N
ineffective, the NMS Stock ATS shall be prohibited from operating as an
NMS Stock ATS. Proposed Rule 304(a)(1)(iv) would provide that a Form
ATS-N declared ineffective would not prevent the NMS Stock ATS from
subsequently filing a new Form ATS-N.
    Proposed Rule 304(a)(1)(iv) is designed to provide notice to the
public that the NMS Stock ATS that filed a Form ATS-N qualifies for the
exemption provided under Exchange Act Rule 3a1-1(a)(2) and may commence
operations, or if the NMS

Stock ATS was operating pursuant to a previously filed Form ATS, may
continue to operate as an NMS Stock ATS. For an NMS Stock ATS operating
before the effective date of proposed Rule 304 pursuant to a current
Form ATS, the Form ATS for that NMS Stock ATS would no longer have any
legal effect with respect to the regulatory status of the NMS Stock ATS
upon the Commission declaring its Form ATS-N effective. As a result,
the effective Form ATS-N would supersede and replace the NMS Stock
ATS's previously filed Form ATS; and the NMS Stock ATS would no longer
be subject to Rule 301(b)(2) of Regulation ATS and would not be
required to file a Form ATS cessation of operation report because the
NMS Stock ATS would continue operations under the effective Form ATS-N.
Declaring a Form ATS-N ineffective would provide the public with notice
that an entity that filed a Form ATS-N does not qualify for the
exemption under Exchange Act Rule 3a1-1(a)(2) and would be precluded
from operating as an NMS Stock ATS.
    Under Proposed Rule 304(a)(1)(iv), an entity that had filed a Form
ATS-N that had been declared ineffective by the Commission would be
able to subsequently file a new Form ATS-N. This would allow an entity
an opportunity to attempt to address any disclosure deficiencies or
compliance issues that caused the first Form ATS-N to be declared
ineffective.
Request for Comment
    66. Do you believe that a Commission order declaring a Form ATS-N
ineffective would have an unduly prejudicial effect on an entity when
it refiles Form ATS-N, even where the Commission declares effective the
refiled Form ATS-N? Why or why not? Please support your arguments.