[Federal Register Volume 85, Number 251 (Thursday, December 31, 2020)]
[Proposed Rules]
[Pages 87106-87253]
[FR Doc No: 2020-21781]

Vol. 85

Thursday,

No. 251

December 31, 2020

Part III

Securities and Exchange Commission

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17 CFR Parts 240, 242 and 249

Regulation ATS for ATSs That Trade U.S. Government Securities, NMS
Stock, and Other Securities; Regulation SCI for ATSs That Trade U.S.
Treasury Securities and Agency Securities; and Electronic Corporate
Bond and Municipal Securities Markets; Proposed Rule

Federal Register / Vol. 85 , No. 251 / Thursday, December 31, 2020 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240, 242 and 249

[Release No. 34-90019; File No. S7-12-20]
RIN 3235-AM45

Regulation ATS for ATSs That Trade U.S. Government Securities,
NMS Stock, and Other Securities; Regulation SCI for ATSs That Trade
U.S. Treasury Securities and Agency Securities; and Electronic
Corporate Bond and Municipal Securities Markets

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule; request for comment; concept release.

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SUMMARY: The Securities and Exchange Commission is proposing amendments
to Regulation ATS under the Securities Exchange Act of 1934 (``Exchange
Act'') for alternative trading systems (``ATSs''). The Commission is
proposing to amend Regulation ATS for ATSs that trade government
securities as defined under Section 3(a)(42) of the Exchange Act
(``government securities'') or repurchase and reverse repurchase
agreements on government securities (``Government Securities ATSs'')
to: Eliminate the exemption from compliance with Regulation ATS for an
ATS that limits its securities activities to government securities or
repurchase and reverse repurchase agreements on government securities,
and registers as a broker-dealer or is a bank; require the filing of
public Form ATS-G, which would require a Government Securities ATS to
disclose information about its manner of operations and the ATS-related
activities of the registered broker-dealer or government securities
broker or government securities dealer that operates the ATS and its
affiliates; require, among other things, public posting of certain Form
ATS-G filings and to provide a process for the Commission to review
Form ATS-G filings and, after notice and opportunity for hearing,
declare Form ATS-G filings ineffective; and apply the fair access rule
under Rule 301(b)(5) of Regulation ATS to Government Securities ATSs
that meet certain volume thresholds in U.S. Treasury Securities or in a
debt security issued or guaranteed by a U.S. executive agency, or
government-sponsored enterprise (``Agency Securities''). The Commission
is also proposing changes to correct and modernize Regulation ATS, Form
ATS, Form ATS-N, and Form ATS-R. In addition, the Commission is
proposing to amend Regulation Systems Compliance and Integrity to apply
it to ATSs that meet certain volume thresholds in U.S. Treasury
Securities or Agency Securities. Finally, the Commission is issuing a
concept release on the regulatory framework for electronic platforms
that trade corporate debt and municipal securities.

DATES: Comments should be received on or before March 1, 2021.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number S7-12-20 on the subject line.

Paper Comments

     Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.

All submissions should refer to File Number S7-12-20. This file number
should be included on the subject line if email is used. To help the
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's internet website (http://www.sec.gov/rules/proposed.shtml). Comments are also available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. All comments received will be posted without change.
Persons submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly.
    Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any materials will
be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Regulation ATS: Tyler Raimo, Assistant
Director, at<PHONE_NUMBER>; Matthew Cursio, Special Counsel, at (202)
551-5748; David Garcia, Special Counsel, at<PHONE_NUMBER>; Megan
Mitchell, Special Counsel, at<PHONE_NUMBER>; and Joanne Kim, Law
Clerk, at<PHONE_NUMBER>, and for Regulation SCI: David Liu, Special
Counsel, at<PHONE_NUMBER> and Sara Hawkins, Special Counsel, at (202)
551-5523, Office of Market Supervision, Division of Trading and
Markets, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing to: (1) Amend
Rule 300 (17 CFR 242.300) and Rule 301 (17 CFR 242.301) of Regulation
ATS under the Exchange Act to eliminate the current exemption from
compliance with Rules 300 through 304 (17 CFR 242.300 through 242.304)
(``Regulation ATS'') under the Exchange Act for an ATS that limits its
securities activities to government securities or repurchase and
reverse repurchase agreements on government securities, and registers
as a broker-dealer or is a bank and require such ATS to comply with
applicable provisions of Regulation ATS; (2) amend Rule 3a1-1(b) (17
CFR 242.3a1-1(b)) under the Exchange Act to require a Government
Securities ATS, which otherwise qualifies for the Rule 3a1-1(a)
exemption, to register as a national securities exchange if the ATS
meets certain, specified volume levels in U.S. Treasury Securities and
Agency Securities, and the Commission determines that such exemption is
not necessary or appropriate in the public interest or consistent with
the protection of investors; (3) include Government Securities ATSs
within the scope of Rule 304 (17 CFR 242.304) of Regulation ATS,\1\
which would provide new requirements for Government Securities ATSs
seeking to use the exemption from the definition of ``exchange'' under
Regulation ATS; (4) require that Government Securities ATSs use new
Form ATS-G in accordance with Rule 3a1-1(a) (17 CFR 240.3a1-1(a)); (5)
amend Rule 301(b)(5) (17 CFR 242.301(b)(5)) of Regulation ATS (``Fair
Access Rule'') to require Government Securities ATSs that meet certain
trading volume thresholds in transactions in U.S. Treasury Securities
or Agency Securities to comply with the Fair Access Rule; (6) amend
Rule 301 of Regulation ATS and Form ATS and Form ATS-R to provide that
such forms must be electronically filed; and (7) amend Rule 1000 (17
CFR 242.1000) of Regulation Systems Compliance and Integrity
(``Regulation SCI'') under the Exchange Act by expanding the definition
of ``SCI alternative trading system'' to include Government

Securities ATSs that meet a specified volume threshold in transactions
in U.S. Treasury Securities or Agency Securities, and as a result
subject these Government Securities ATSs to the requirements of
Regulation SCI.\2\
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    \1\ The Commission adopted Rule 304 on July 18, 2018. See
Securities Exchange Act Release No. 83663 (July 18, 2018), 83 FR
38768 (August 7, 2018) (``NMS Stock ATS Adopting Release'').
    \2\ The Commission adopted Regulation SCI on November 19, 2014.
See Securities Exchange Act Release No. 73639 (November 19, 2014),
79 FR 72252 (December 5, 2014) (``Regulation SCI Adopting
Release'').
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Table of Contents

I. Government Securities ATS: Background
    A. ATS Markets for U.S. Government Securities
    B. Current Regulatory Framework for Government Securities ATSs
    C. Prior Comments Received About Government Securities Markets
II. Proposed Amendments to Regulation ATS for Government Securities
ATSs
    A. Proposed Amendment to Exchange Act Rule 3a1-1(b)
    B. Proposed Definitions for Government Securities ATSs Rules
    C. Proposed Elimination of the Exemption for ATSs That Limit
Securities Activities to Government Securities and Repos
    D. Application of Fair Access to Government Securities ATSs
    E. Filing Requirements for Broker-Dealers That Operate ATSs That
Trade Government Securities and Non-Government Securities
    F. Enhanced Filing Requirements for Government Securities ATSs
    G. Public Disclosure of Form ATS-G and Related Commission Orders
    H. Form ATS-G Requirements
III. Proposed Form ATS-G for Government Securities ATSs
    A. Cover Page and Part I of Form ATS-G
    1. Cover Page
    2. Part I of Form ATS-G: Identifying Information
    B. Part II of Form ATS-G: ATS-Related Activities of the Broker-
Dealer Operator and Affiliates
    1. Broker-Dealer Operator and Its Affiliate Trading Activities
on the Government Securities ATS
    2. Order Interaction With Broker-Dealer Operator; Affiliates
    3. Arrangements With Other Trading Venues
    4. Other Products and Services
    5. Activities of Service Providers
    6. Protection of Confidential Trading Information
    C. Part III Form ATS-G: Manner of ATS Operations
    1. Types of ATS Subscribers
    2. Eligibility for ATS Services
    3. Exclusion From ATS Services
    4. Hours of Operations
    5. Means of Entry
    6. Connectivity and Co-Location
    7. Order Types and Attributes
    8. Order Sizes
    9. Indications of Interest
    10. Opening and Reopening
    11. Trading Services, Facilities and Rules
    12. Liquidity Providers
    13. Segmentation; Notice
    14. Counter-Party Selection
    15. Display
    16. Interaction With Related Markets
    17. Closing
    18. Trading Outside of Regular Trading Hours
    19. Fees
    20. Suspension of Trading
    21. Trade Reporting
    22. Clearance and Settlement
    23. Market Data
    24. Fair Access
    25. Aggregate Platform-Wide Data; Trading Statistics
    D. Part IV of Proposed Form ATS-G
IV. EDGAR Filing Requirements; Structured Data
V. Amendments to Regulation ATS, Form ATS, Form ATS-R, and Form ATS-
N
    A. Amendments to Rules 301(b)(5) and 301(b)(6) of Regulation ATS
    B. Amendment to Rule 301(b)(2)(vii)
    C. Modernization and Electronic Filing of Form ATS and Form ATS-
R
    D. Changes to Form ATS-N
VI. Proposed Amendments to Regulation SCI for Government Securities
ATS
VII. General Request for Comment
VIII. Concept Release on Electronic Corporate Bond and Municipal
Securities Market
IX. Paperwork Reduction Act
    A. Summary of Collection of Information
    1. Requirements Relating to Application of Rule 301(b) of
Regulation ATS to Currently Exempted Government Securities ATSs
    2. Requirements Relating To Proposed Amendments to Rules
301(b)(2)(viii) and 304 of Regulation ATS, Including Proposed Form
ATS-G, and Amendments to Rule 301(b)(9)
    3. Requirements Relating To Proposed Amendments to Rule
301(b)(5)
    4. Requirements Related To Proposed Amendments to Rule
301(b)(2), Form ATS, and Form ATS-R
    5. Requirements Related to Amendments to Regulation SCI
    B. Proposed Use of Information
    1. Proposed Amendments To Apply Rule 301(b) of Regulation ATS to
Currently Exempted Government Securities ATSs
    2. Proposed Amendments to Rule 301(b)(5) of Regulation ATS
    3. Proposed Amendments to Rule 301(b)(2), Form ATS, and Form
ATS-R
    4. Proposed Application of Regulation SCI to Government
Securities ATSs
    5. Proposed Rules 301(b)(2)(viii) and 304 of Regulation ATS,
Including Proposed Form ATS-G, and Proposed Rule 301(b)(9)
    C. Respondents
    D. Total Initial and Annual Reporting and Recordkeeping Burdens
    1. Rule 301(b) of Regulation ATS to Currently Exempted
Government Securities ATSs
    2. Proposed Amendments to Rules 301(b)(2)(viii) and 304 of
Regulation ATS, Including Proposed Form ATS-G
    3. Proposed Amendments to Rule 301(b)(5) of Regulation ATS
    4. Proposed Amendments to Rule 301(b)(2), Form ATS, and Form
ATS-R
    5. Proposed Amendments to Regulation SCI
    E. Collection of Information Is Mandatory
    F. Confidentiality of Responses to Collection of Information
    G. Retention Period for Recordkeeping Requirements
    H. Request for Comments
X. Economic Analysis
    A. Introduction
    B. Baseline
    1. Current State of Competition in the Market for Trading
Government Securities
    2. Reporting Requirements for Government Securities ATSs
    3. Information Asymmetries Due to Limited Public Information
About Operations of Government Securities ATSs
    4. Government Securities ATSs Treatment of Subscriber
Confidential Trading Information
    5. Fair Access Rule
    6. Regulation SCI
    7. Implications for Efficiency
    C. Economic Effects and Effects on Efficiency, Competition, and
Capital Formation
    1. Benefits
    2. Costs
    3. Efficiency, Competition, and Capital Formation
    D. Reasonable Alternatives
    1. Require Currently Exempted Government Securities ATSs To File
a Non-Public Form ATS
    2. Require Proposed Form ATS-G Be Filed But Treat the
Information as Confidential
    3. Initiate Differing Levels of Public Disclosure Depending on
Government Securities ATS Dollar Volume
    4. Extend the Transparency Requirements of Regulation ATS to All
Non-ATS Trading Venues for Government Securities
    5. Alter the Volume Thresholds for the Fair Access Rule and
Regulation SCI
    6. Apply Rule 301(b)(6) of Regulation ATS to Government
Securities ATSs
    7. Require Forms ATS-G, ATS, and ATS-R To Be Submitted in the
Inline XBRL Format
    8. Require Forms ATS-G, ATS, and ATS-R To Be Filed on EFFS or on
Individual ATS Websites
    E. Request for Comments
XI. Consideration of Impact on the Economy
XII. Regulatory Flexibility Act Certification
XIII. Statutory Authority and Text of Proposed Amendments

I. Government Securities ATS: Background

A. ATS Markets for U.S. Government Securities

    An ATS is a trading system for securities that meets the definition
of ``exchange'' under federal securities laws but is not required to
register with the Commission as a national securities exchange if it
complies with the conditions to an exemption provided under Regulation
ATS. Since Regulation ATS was adopted in 1998, ATSs have become
increasingly important venues

for trading government securities.\3\ Currently, ATSs, particularly
those that operate in the secondary interdealer markets for on-the-run
U.S. Treasury Securities, have become a significant source of orders
and trading interest for government securities.\4\ ATSs for government
securities now operate with complexity similar to that of markets that
trade NMS stocks in terms of automation and speed of trading, the use
of limit order books, order types, algorithms, connectivity, data
feeds, and the active participation of principal trading firms
(``PTFs'') on ATSs.\5\ Furthermore, government securities \6\ make up
more than half of the outstanding debt issuances in the U.S. bond
market \7\ and play a critical role in the U.S. and global economies.
Over the last six months of 2019, the average daily trading volume in
government securities was approximately $835 billion, or roughly 95
percent of all fixed income trading volume in the U.S.\8\
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    \3\ A venue for trading government securities can include, among
other things, an exchange, an ATS, an OTC market maker, or any other
broker or dealer operated platform for executing trading interest
internally by trading as principal or crossing orders as agent.
    \4\ See infra Section X.B.1.
    \5\ See NMS Stock ATS Adopting Release, supra note 1, at 38771
for a discussion about the current operational complexities of ATSs
that trade National Market System stocks (``NMS Stock ATSs'').
    \6\ Under the Exchange Act, government securities are defined
as, among other things, securities which are direct obligations of,
or obligations guaranteed as to principal or interest by, the United
States. See 15 U.S.C. 78c(42)(A). Government securities include U.S.
Treasury securities, debt securities issued or guaranteed by a U.S.
executive agency, as defined in 5 U.S.C. 105, or government-
sponsored enterprise, as defined in 2 U.S.C. 622(8), and Agency
Mortgage-Backed Securities. Government securities also include (i)
securities which are issued or guaranteed by the Tennessee Valley
Authority or by corporations in which the United States has a direct
or indirect interest and which are designated by the Secretary of
the Treasury for exemption as necessary or appropriate in the public
interest or for the protection of investors; (ii) securities issued
or guaranteed as to principal or interest by any corporation the
securities of which are designated, by statute specifically naming
such corporation, to constitute exempt securities within the meaning
of the laws administered by the Commission; and (iii) any put, call,
straddle, option, or privilege on one of the aforementioned (subject
to limited exceptions). 15 U.S.C. 78c(42)(B)-(C).
    \7\ See infra Section X.B.1.
    \8\ See SIFMA Fixed Income Trading Volume, available at https://www.sifma.org/resources/research/us-fixed-income-trading-volume/.
This includes U.S. Treasury Securities, Agency Mortgage-Backed
Securities, and Federal Agency Securities. The six-month average is
the mean of the average daily trading volume for these instruments
from July to December 2019.
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    The most liquid and commonly traded government securities are U.S.
Treasury Securities, which are direct obligations of the U.S.
Government issued by the U.S. Department of the Treasury (``Treasury
Department''). The Treasury Department issues several different types
of securities, including Treasury bills, nominal coupons notes and
bonds, Floating Rate Notes, and Treasury Inflation Protected
Securities. For each security type, the most recently issued (``on-the-
run'') securities are generally considered most liquid in the secondary
market.\9\ Market participants commonly refer to securities issued
prior to ``on-the-run'' securities as ``off-the-run'' securities.\10\
Market participants use U.S. Treasury Securities as an investment
instrument, hedging vehicle, and to source orders and trading interest,
among other things. U.S. banks commonly own U.S. Treasury Securities
due to their low risk and strong liquidity characteristics.
Additionally, U.S. Treasury Securities are often used as collateral in
lending arrangements or as margin on other financial transactions.
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    \9\ On-the-run U.S. Treasury Securities are the most recently
issued nominal coupon securities. Nominal coupon securities pay a
fixed semi-annual coupon and are currently issued at original
maturities of 2, 3, 5, 7, 10, 20, and 30 years. These standard
maturities are commonly referred to as ``benchmark'' securities
because the yields for these securities are used as references to
price a number of private market transactions.
    \10\ Off-the-run or ``seasoned'' U.S. Treasury Securities are
the issues that preceded the current on-the-run securities. The U.S.
Treasury Securities market also comprises futures and options on
U.S. Treasury Securities, and securities financing transactions in
which U.S. Treasury Securities are used as collateral. See
Department of the Treasury Release No. 2015-0013 (January 22, 2016),
Notice Seeking Public Comment on the Evolution of the Treasury
Market Structure, 81 FR 3928, 3928 (``Treasury Request for
Information''). For the purpose of this proposal, the Commission
focuses on the secondary cash market.
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    For U.S. Treasury Securities, the secondary market is generally
bifurcated between the dealer-to-customer market, in which dealers
trade with their customers (e.g., investment companies, pension funds,
insurance companies, corporations, or retail) and the interdealer
market, in which dealers and specialty firms trade with one
another.\11\ Trading in the U.S. Treasury Securities dealer-to-customer
market is generally--and has historically been--conducted through
bilateral transactions. Customers, also referred to as ``end users,''
have not traditionally traded directly with other end users.\12\
Rather, end users primarily trade with dealers, and dealers use the
interdealer market as a source of orders and trading interest to help
facilitate their trading with clients in the dealer-to-customer market.
Such trading often occurs either over the phone or on trading venues
that facilitate the matching of buy and sell orders through electronic
systems. Broker-dealers also internalize a portion of their customer
flow, although the extent to which broker-dealers internalize is
unclear.\13\
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    \11\ See id.
    \12\ See id.
    \13\ See id. For the purposes of this proposal, internalization
refers to a broker filling a customer order either from the firm's
own inventory or by matching the order with other customer order
flow, instead of sending the order to an interdealer market for
execution. See id. at 3928 n.5.
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    In the interdealer market, the majority of trading in on-the-run
U.S. Treasury Securities currently occurs on ATSs using central limit
order books supported by advanced electronic trading technology.\14\
For off-the-run U.S. Treasury Securities,\15\ the majority of
interdealer trading occurs via bilateral transactions through
traditional voice-assisted brokers and electronic trading platforms
that offer various trading protocols to bring together buyers and
sellers,\16\ though, some interdealer trading of off-the-run U.S.
Treasury Securities does occur on ATSs.\17\ Furthermore, interdealer
trading for on-the-run U.S. Treasury Securities is generally
concentrated within a very small number of ATSs, especially when
compared to the market for NMS stocks, which is dispersed among many
trading venues. Specifically, over the past several years, the majority
of overall trading in the interdealer secondary market for on-the-run
U.S. Treasury Securities has

occurred on ATSs.\18\ For example, during the 4th quarter of 2019, one
ATS accounted for $15.60 trillion in total dollar volume in all U.S.
government securities, the majority of which were on-the-run U.S.
Treasury Securities.\19\
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    \14\ See Joint Staff Report: The U.S. Treasury Market on October
15, 2014, at 11, 35-36, available at https://www.sec.gov/files/treasury-market-volatility-10-14-2014-joint-report.pdf (``October 15
Staff Report''). The October 15 Staff Report is a joint report about
the unusually high level of volatility and rapid round-trip in
prices that occurred in the U.S. Treasuries market on October 15,
2014. Among other things, the October 15 Staff Report 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.
    \15\ Also, as noted in the October 15 Staff Report issued by the
U.S. Department of the Treasury, Board of Governors of the Federal
Reserve System, Federal Reserve Bank of New York, the Commission,
and U.S. Commodity Futures Trading Commission, trading in off-the-
run U.S. Treasury Securities has always been less active than
trading in on-the-run U.S. Treasury Securities, and price discovery
in the cash markets primarily occurs in on-the-run securities. See
id.
    \16\ See id. at 35.
    \17\ While trading in on-the-run securities likely accounts for
more than half of total daily trading volumes, off-the-run U.S.
Treasury Securities make up over 95 percent of the outstanding
marketable U.S. Treasury Securities. See James Clark, Chris Cameron,
and Gabriel Mann, Examining Liquidity in On-the-Run and Off-the-Run
Treasury Securities, Treasury Notes Blog, https://www.treasury.gov/connect/blog/Pages/Examining-Liquidity-in-On-the-Run-and-Off-the-Run-Treasury-Securities.aspx.
    \18\ See text accompanying infra note 583; Table X.2 and
accompanying text.
    \19\ For an additional discussion of trading volume in the U.S.
bond market as a whole and U.S. Treasury Securities, see infra
Section X.B.
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    Another type of government securities is Agency Securities. Agency
Securities include securities issued by or guaranteed by U.S.
Government corporations and U.S. Government sponsored enterprises
(``GSEs'').\20\ For example, the Government National Mortgage
Association (``Ginnie Mae'') is a U.S. Government corporation that
issues mortgage-backed securities guaranteed by the full faith and
credit of the U.S. Government. The assets collateralized into the
securities issued by Ginnie Mae are federally insured and guaranteed
mortgage loans. Agency Securities issued by GSEs include those issued
by the Federal Home Loan Banks (``FHLBs''), the Federal National
Mortgage Association (``Fannie Mae''), the Federal Home Loan Mortgage
Corporation (``Freddie Mac''), and the Student Loan Marketing
Association (``Sallie Mae'').\21\ Agency Securities issued by GSEs are
not normally backed by the full faith and credit of the U.S. Government
and therefore, may present some default and credit risk.
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    \20\ See U.S. Department of the Treasury Resource Center,
``Fixed Income: Agency Securities,'' available at https://www.treasury.gov/resource-center/faqs/Markets/Pages/fixedfederal.aspx.
    \21\ See id. The housing sector GSEs are Fannie Mae, Freddie
Mac, and the FHLB institutions, the latter of which issue debt
through the joint Office of Finance. Sallie Mae is a higher
education sector GSE that currently is in the transition process to
full privatization. See id.
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    Agency Securities, while often not backed by the full faith and
credit of the U.S. Government, are generally considered to be very
liquid and offer state and local tax advantages to the holder. Market
participants frequently use ATSs to buy and sell Agency Securities,
although, based on the Commission's review of Form ATS-R filings,
transaction volume of Agency Securities is not as large as that of U.S.
Treasury Securities on ATSs.\22\ Investors, banks, and other market
participants often acquire Agency Securities in the secondary market to
support various investing strategies, such as hedging against other
more risky investments in a given portfolio.
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    \22\ Additionally, repurchase and reverse repurchase agreements
on government securities are also traded on some ATSs.
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    Trading of both U.S. Treasury Securities and Agency Securities has
become increasingly electronic, and ATSs that trade government
securities have evolved into very complex markets. This is particularly
true for the trading of on-the-run U.S. Treasury Securities,\23\ but is
also the case for the trading of other U.S. Treasury Securities and
Agency Securities.\24\ For example, based on the Commission's review of
Form ATS filings by ATSs that trade government securities, and
discussions with market participants for government securities, the
Commission believes that Government Securities ATSs often offer
subscribers a variety of order types to pursue both aggressive and
passive trading strategies, and low latency, high-speed connectivity to
the ATS. These ATSs frequently use automated systems, such as a central
limit order book, to match orders anonymously on a price/time priority
basis, and offer subscribers direct data feeds and co-location
services. Some Government Securities ATSs also segment orders into
categories by participants or allow participants the ability to
interact with specific counterparty groups on the ATS and facilitate
order interaction and execution.\25\
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    \23\ The growth of electronic trading has contributed to a
marked shift in the composition of the interdealer cash market for
U.S. Treasury Securities over time. Traditionally, interdealer
brokers only allowed primary dealers to access their trading venues.
After 1992, however, interdealer brokers expanded access to all
entities that were netting members of the Government Securities
Clearing Corporation (which is now the Fixed Income Clearing
Corporation's Government Securities Division). Thereafter, other
entities gained access to these trading venues through their prime
brokers, who themselves had access, and in recent years the trading
venues granted direct access to an even wider range of participants,
including non-dealer PTFs, which account for more than half of the
trading activity in the futures and electronically brokered
interdealer cash markets. See October 15 Staff Report, supra note
14, at 36. See also Treasury Request for Information, supra note 10,
at 3928.
    \24\ See James Collin Harkrader and Michael Puglia, Fixed Income
Market Structure: Treasuries vs. Agency MBS, Board of Governors of
the Federal Reserve System: FEDS NOTES (August 25, 2020), available
at https://www.federalreserve.gov/econres/notes/feds-notes/fixed-income-market-structure-treasuries-vs-agency-mbs-20200825.htm
(``August 25th FEDS Notes'') (explaining the recent evolution of the
government securities market structure).
    \25\ This evolution in the interdealer secondary cash markets
for U.S. Treasury Securities was also highlighted in the October 15
Staff Report, see October 15 Staff Report, supra note 14, the
Treasury Request for Information, see Treasury Request for
Information, supra note 10, at 3928, and public comment received by
the Commission, see infra Section I.C.
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    With regard to the interdealer secondary markets for on-the-run
U.S. Treasury Securities, the continued growth of electronic trading
has contributed to an increased presence of PTFs in the
marketplace.\26\ Currently, PTFs account for the majority of trading
and provide significant top-of-the-book liquidity for on-the-run U.S.
Treasury Securities on electronic interdealer trading venues.\27\ From
July 1, 2019 to December 31, 2019, PTFs traded on 13 Government
Securities ATSs accounting for approximately 55 percent of total
Government Securities ATS trading volume.\28\ PTFs usually have direct
access to electronic interdealer trading venues for U.S. Treasury
Securities, and as is the case with the equity markets, PTFs trading on
the electronic interdealer trading venues for on-the-run U.S. Treasury
Securities often employ automated algorithmic trading strategies that
rely on speed and allow the PTFs to cancel or modify quotes in response
to perceived market events.\29\ Furthermore, most PTFs trading U.S.
Treasury Securities on these trading venues for on-the-run U.S.
Treasury Securities also restrict their activities to principal trading
and do not hold positions long term \30\ while dealers use the
interdealer market as a source of orders and trading interest to help
facilitate their trading with clients in the dealer-to-customer market.
As explained in the October 15 Staff Report, the increase in trading by
PTFs in the interdealer market may affect the amount of liquidity
available to end users in the dealer-to-customer market.\31\
---------------------------------------------------------------------------

    \26\ PTFs are not, however, very active in the electronic
markets for Agency Securities. See August 25th FEDS Notes, supra
note 24 (``Though parts of the agency MBS market have moved from
voice-based to screen-based trading since the early 2000s,
algorithmic high-frequency electronic trading still does not
comprise a meaningful share of average daily volume and the market
remains devoid of PTF participation.'').
    \27\ See October 15 Staff Report, supra note 14, at 36; Remarks
of Deputy Secretary Justin Muzinich at the 2019 U.S. Treasury Market
Structure Conference (September 23, 2019), available at https://home.treasury.gov/news/press-releases/sm782 (``Muzinich Remarks'').
    \28\ See infra Table X.2. (ATS PTF volume/ATS volume) x 100 =
PTF share of ATS volume (%).
    \29\ See October 15 Staff Report, supra note 14, at 32, 35-36,
39.
    \30\ See id. at 38.
    \31\ See id. at 37.
---------------------------------------------------------------------------

B. Current Regulatory Framework for Government Securities ATSs

    Despite the critical role of government securities in the U.S. and
global economy, the significant volume in government securities
transacted on ATSs, and these ATSs' growing importance to investors and
overall securities market structure, an ATS that limits its securities
activities to government securities or repurchase and reverse
repurchase agreements on

government securities (``repos''), and registers as a broker-dealer or
is a bank (``Currently Exempted Government Securities ATS'') is exempt
from exchange registration and is not required to comply with
Regulation ATS. Furthermore, ATSs that trade both government securities
and non-government debt securities (e.g., corporate bonds) are not
subject to all the provisions of Regulation ATS, such as the Fair
Access Rule, and are not subject to Regulation SCI.
    Regulation ATS and its related rules provide an exemption from the
definition of ``exchange'' under Section 3(a)(1) of the Exchange
Act,\32\ coupled with alternate regulatory requirements with which ATSs
must comply to achieve and maintain their eligibility for the
exemption. Exchange Act Rule 3b-16(a) provides a functional test to
assess whether a trading platform meets the definition of ``exchange''
under Section 3(a)(1) of the Exchange Act.\33\ Under Rule 3b-16(a), an
organization, association, or group of persons shall be considered to
constitute, maintain, or provide 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, 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.\34\ Accordingly, an
entity that provides a marketplace for bringing together buyers and
sellers for government securities, regardless of the applied
technology, would need to consider whether its activities meet the
definition of an ``exchange'' under the federal securities laws.\35\
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78c(a)(1). Pursuant to Section 3(a)(1) of the
Exchange Act, the statutory definition of ``exchange'' means any
organization, association, or group of persons, whether incorporated
or unincorporated, which constitutes, maintains, or provides 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 as
that term is generally understood, and includes the market place and
the market facilities maintained by such exchange.
    \33\ See 15 U.S.C. 78e and 78f.
    \34\ 17 CFR 240.3b-16(a). Exchange Act Rule 3b-16(b) explicitly
excludes from that definition certain systems that do not meet the
definition of ``exchange,'' such as order routers and systems that
allow persons to enter orders for execution against the bids and
offers of a single dealer. See 17 CFR 240.3b-16(b). See also NMS
Stock ATS Adopting Release, supra note 1, at n.32 and accompanying
text.
    \35\ For example, whether or not a particular system is an
exchange does not turn solely on the level of automation used;
``orders'' can be given over the telephone, as well as
electronically. See Securities Exchange Act Release No. 40760
(December 8, 1998), 63 FR 70844, 70850 (December 22, 1998)
(``Regulation ATS Adopting Release'').
---------------------------------------------------------------------------

    Section 5 of the Exchange Act \36\ requires an organization,
association, or group of persons that meets the definition of
``exchange'' under Section 3(a)(1) of the Exchange Act,\37\ unless
otherwise exempt, to register with the Commission as a national
securities exchange pursuant to Section 6 of the Exchange Act.\38\
Exchange Act Rule 3a1-1(a)(2) \39\ provides an exemption from national
securities exchange registration for ATSs, which are systems that meet
the Rule 3b-16(a) criteria and do not perform self-regulatory
activities.\40\ As a result of the exemption, an organization,
association, or group of persons that meets the definition of an
exchange and complies with Regulation ATS is not required by Section 5
of the Exchange Act to register as a national securities exchange
pursuant to Section 6 of Exchange Act and is not a self-regulatory
organization (``SRO''), and therefore, is not required to comply with
regulatory requirements applicable to national securities exchanges and
SROs.\41\
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78e.
    \37\ 15 U.S.C. 78c(a)(1).
    \38\ 15 U.S.C. 78f.
    \39\ See 17 CFR 240.3a1-1(a)(2).
    \40\ See 17 CFR 242.300(a). Rule 300(a) of Regulation ATS
defines an ATS as any organization, association, person, group of
persons, or system: (1) That constitutes, maintains, or provides 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 Rule 3b-16; and (2) that does not: (i) 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 (ii) discipline subscribers other
than by exclusion from trading.
    \41\ See 15 U.S.C. 78e (Section 5 of the Exchange Act); 78f
(Section 6 of the Exchange Act); and 78s (Section 19 of the Exchange
Act). See also NMS Stock ATS Adopting Release, supra note 1, at
78772. An ATS that fails to comply with Regulation ATS would no
longer qualify for the exemption provided under Rule 3a1-1(a)(2) and
thus risks operating as an unregistered exchange in violation of
Section 5 of the Exchange Act. See 15 U.S.C. 78e. See also NMS Stock
ATS Adopting Release, supra note 1, at 78772.
---------------------------------------------------------------------------

    The vast majority of ATSs that operate today do so pursuant to the
exemption provided by Exchange Act Rule 3a1-1(a)(2), which requires the
ATSs to comply with Regulation ATS and register as broker-dealers.
Currently Exempted Government Securities ATSs, however, operate
pursuant to Exchange Act Rule 3a1-1(a)(3) \42\ and Rule
301(a)(4)(ii)(A).\43\ These provisions currently exempt an ATS from
compliance with the requirements in Rule 301(b) of Regulation ATS \44\
if, in relevant part, the ATS is registered as a broker-dealer under
Sections 15(b) \45\ or 15C \46\ of the Exchange Act, or is a bank, and
limits its securities activities to government securities, as defined
in Section 3(a)(42) of the Exchange Act, repos, any puts, calls,
straddles, options, or privileges on government securities, other than
puts, calls, straddles, options, or privileges that: (1) Are traded on
one or more national securities exchanges; or (2) for which quotations
are disseminated through an automated quotation system operated by a
registered securities association, and commercial paper.\47\
Accordingly, such Currently Exempted Government Securities ATSs are not
required to register as a national securities exchange or comply with
Regulation ATS.\48\ To the Commission's knowledge, most Currently
Exempted Government Securities ATSs operating pursuant to this
exemption limit their securities activities solely to government
securities and register as broker-dealers with the Commission.\49\
---------------------------------------------------------------------------

    \42\ 17 CFR 240.3a1-1(a)(3).
    \43\ 17 CFR 242.301(a)(4)(ii)(A).
    \44\ 17 CFR 242.301(b).
    \45\ See 15 U.S.C. 78o(b) (Section 15(b) of the Exchange Act
pertains to the registration and regulation of brokers and dealers).
    \46\ See 15 U.S.C. 78o-5 (Section 15C of the Exchange Act
pertains to government securities brokers and dealers).
    \47\ See 15 U.S.C. 78c(a)(42). The Commission notes that the
definition of ``government securities'' in Section 3(a)(42) of the
Exchange Act includes certain puts, calls, straddles, options, or
privileges on government securities, other than puts, straddles,
options, or privileges that: (1) Are traded on one or more national
securities exchanges; or (2) for which quotations are disseminated
through an automated quotation system operated by a registered
securities association. See supra note 6. Therefore, references to
``government securities'' throughout this proposal include such
puts, calls, straddles, options, or privileges on government
securities.
    \48\ See 17 CFR 242.301(a)(4)(i) and (ii)(A). Although not
required to register as a national securities exchange or comply
with Regulation ATS, a Currently Exempted Government Securities ATS
may need to register as a broker-dealer under Section 15(b) or as a
government securities broker or government securities dealer
pursuant to Exchange Act Section 15C, and comply with associated
regulatory requirements. See, e.g., 17 CFR, Subchapter A--
Regulations under Section 15C of the Securities Exchange Act of
1934.
    \49\ Some ATSs that are eligible for the exemption voluntarily
comply with Regulation ATS, even though ATSs that trade only
government securities are not required to comply with Regulation ATS
at all.
---------------------------------------------------------------------------

    ATSs that trade government securities or repos and other
securities--such as corporate bonds or municipal securities--cannot use
this exemption

because these ATSs do not limit their securities activities solely to
government securities or repos. Such ATSs must either register as a
national securities exchange or comply with Regulation ATS pursuant to
Exchange Act Rule 3a1-1(a)(2), which includes, among other things,
registering as a broker-dealer under Section 15 of the Exchange Act. As
a registered broker-dealer, an ATS must also, in addition to complying
with Regulation ATS, comply with broker-dealer filing and conduct
obligations, including becoming a member of an SRO, such as the
Financial Industry Regulatory Authority (``FINRA''). Among other
things, Government Securities ATSs that are currently subject to
Regulation ATS must report transactions in U.S. Treasury Securities and
Agency Securities to the Trade Reporting and Compliance Engine
(``TRACE''),\50\ and FINRA publicly disseminates data about these
transactions. Currently, FINRA publishes weekly aggregated transaction
information on U.S. Treasury Securities and disseminates certain
transaction information on Agency Securities immediately upon receipt
of a transaction report.\51\
---------------------------------------------------------------------------

    \50\ See FINRA Rule 6730(a)(1) requires FINRA members to report
transactions in TRACE-Eligible Securities, which FINRA Rule 6710
defines to include U.S. Treasury Securities and Agency Securities.
For each transaction in U.S. Treasury Securities and Agency
Securities, a FINRA member would be required to report the CUSIP
number or similar numeric identifier or FINRA symbol; size (volume)
of the transaction; price of the transaction (or elements necessary
to calculate price); symbol indicating whether transaction is a buy
or sell; date of trade execution (``as/of'' trades only); contra-
party's identifier; capacity (principal or agent); time of
execution; reporting side executing broker as ``give-up'' (if any);
contra side introducing broker (in case of ``give-up'' trade); the
commission (total dollar amount), if applicable; date of settlement;
if the member is reporting a transaction that occurred on an ATS,
the ATS's separate Market Participant Identifier (``MPID''); and
trade modifiers as required. For when-issued transactions in U.S.
Treasury Securities, a FINRA member would be required to report the
yield in lieu of price. See FINRA Rule 6730(c).
    \51\ FINRA Rule 6750(a) requires FINRA to disseminate
information on all transactions on certain securities, including
Agency Securities (but excluding U.S. Treasury Securities),
immediately upon receipt of the transaction report. FINRA is
permitted to publish or distribute weekly aggregated transaction
information and statistics on U.S. Treasury Securities, and has
stated that it intends to publish weekly volume information
aggregated by U.S. Treasury subtype (e.g., Bills, Floating Rate
Notes, Treasury Inflation-Protected Securities, and Nominal
Coupons). See Securities Exchange Release No. 87837 (December 20,
2019), 84 FR 71986 (December 30, 2019) (approving a proposed rule
change to allow FINRA to publish or distribute aggregated
transaction information and statistics on U.S. Treasury Securities).
---------------------------------------------------------------------------

    In addition to registering as a broker-dealer, an ATS that trades
government securities or repos and securities other than government
securities or repos must file notices with the Commission on Form ATS
(which are ``deemed confidential'' and ``available only to the
examination of Commission staff, state securities authorities, and the
self-regulatory organizations'') to disclose their operations to the
Commission pursuant to Rule 301(b)(2); cooperate with the Commission's
or an SRO's inspection, examination, or investigation of the ATS or any
of the ATS's subscribers pursuant to Rule 301(b)(7); make, keep
current, and preserve certain records as prescribed under Rule 302 and
Rule 303 of Regulation ATS pursuant to Rule 301(b)(8); periodically
report certain information about trading activities on Form ATS-R
pursuant to Rule 301(b)(9); adopt written safeguards and written
procedures to protect subscriber confidential trading information and
separate ATS functions from other broker-dealer functions, including
principal and customer trading pursuant to Rule 301(b)(10); and not use
in its name the word ``exchange,'' or derivations of the word
``exchange'' pursuant to Rule 301(b)(11).\52\
---------------------------------------------------------------------------

    \52\ See 17 CFR 242.301(b)(1); 301(b)(2); and 301(b)(7) through
(b)(11). The order display and execution access provisions under
Rule 301(b)(3) and the related fee restrictions of Rule 301(b)(4) of
Regulation ATS only apply to an ATS's NMS stock activities. See 17
CFR 242.301(b)(3)-(4).
---------------------------------------------------------------------------

    Such Government Securities ATSs, however, are subject to only
certain provisions of Regulation ATS because not all the provisions of
Regulation ATS are applicable to trading in government securities. In
particular, government securities are not included in any category of
securities under the Fair Access Rule.\53\ Today, the categories of
securities under the Fair Access Rule include NMS stocks, equity
securities that are not NMS stocks and for which transactions are
reported to an SRO, municipal securities, and corporate debt
securities.\54\ Under the Fair Access Rule, an ATS that meets the
average daily volume threshold for a category of securities during at
least four of the preceding six calendar months must: (1) Establish
written standards for granting access to trading on its system; (2) not
unreasonably prohibit or limit any person in respect to access to
services offered by such ATS by applying the above written standards in
an unfair or discriminatory manner; and (3) make and keep certain
records. In addition, Regulation SCI does not apply to ATSs with
respect to their trading in government securities.\55\ The capacity,
integrity, and security of automated systems provisions of Rule
301(b)(6) under Regulation ATS (``Capacity, Integrity, and Security
Rule'') \56\ also do not apply to the government securities activities
of an ATS.\57\
---------------------------------------------------------------------------

    \53\ 17 CFR 242.301(b)(5).
    \54\ See id.
    \55\ See infra Section VI (describing the types of entities that
are currently subject to the requirements of Regulation SCI).
    \56\ 17 CFR 242.301(b)(6).
    \57\ Rule 301(b)(6) requires an ATS that trades only municipal
securities or corporate debt securities with 20 percent or more of
the average daily volume traded in the United States during at least
four of the preceding six calendar months to comply with the
Capacity, Integrity, and Security Rule. Prior to the Commission's
adoption of Regulation SCI, the requirements of Rule 301(b)(6) also
applied to ATSs with regard to their trading in NMS stocks and non-
NMS stocks; however, Regulation SCI superseded and replaced the
requirements of Rule 301(b)(6) with regard to ATSs that trade NMS
stocks and non-NMS stocks. See infra Section VI (describing each
requirement of Regulation SCI).
---------------------------------------------------------------------------

    Finally, Government Securities ATSs that trade only government
securities or repos are not required to comply with rules applicable to
ATSs that trade NMS stocks, including Rule 304 of Regulation ATS.\58\
Rule 304 requires only NMS Stock ATSs to file a public Form ATS-N,
which discloses the manner of the NMS Stock ATS's operations and the
ATS-related activities of the broker-dealer operator and its
affiliates. Form ATS-N disclosures are subject to review by the
Commission and an NMS Stock ATS is prohibited from operating unless the
Form ATS-N is effective. ATSs that transact in government securities or
repos are also not required to comply with the order display and
execution access provisions under Rule 301(b)(3) \59\ and the related
fee restrictions of Rule 301(b)(4),\60\ both of which only apply to an
ATS's NMS stock activities.
---------------------------------------------------------------------------

    \58\ 17 CFR 242.304.
    \59\ Rule 301(b)(3) only applies to ATSs that (1) display
subscriber orders in an NMS stock to any person (other than an
employee of the ATS) and (2) during at least four of the preceding
six calendar months, had an average daily trading volume of 5
percent or more of the aggregate average daily share volume for that
NMS stock, as reported by an effective transaction reporting plan.
See 17 CFR 242.301(b)(3).
    \60\ Under Rule 301(b)(4), an ATS must not charge any fee to
broker-dealers that access the ATS through a national securities
exchange or national securities association that is inconsistent
with the equivalent access to the ATS that is required under Rule
301(b)(3)(iii), and thus, the requirements of Rule 301(b)(4) also
only apply to ATSs that transact in NMS stock and trigger the order
display requirements of Rule 301(b)(3). See 17 CFR 242.301(b)(4).
---------------------------------------------------------------------------

C. Prior Comments Received About Government Securities Markets

    On July 18, 2018, the Commission adopted amendments to Regulation
ATS and Exchange Act Rule 3a1-1 to enhance operational transparency of,

and increase Commission oversight for, NMS Stock ATSs.\61\ In the
Commission's proposal for these amendments, the Commission solicited
comment about whether the proposal should apply to other types of ATSs,
including Currently Exempted Government Securities ATSs and Government
Securities ATSs. The Commission also acknowledged the observations made
in the October 15 Staff Report about the significance of the government
securities markets and the rapid and continuing evolution of the
electronic secondary market in U.S. Treasury Securities. The Commission
solicited comment about removing the exemption for Currently Exempted
Government Securities ATSs and amending Regulation ATS to apply
provisions of Regulation ATS to Government Securities ATSs, including
the Fair Access Rule.\62\
---------------------------------------------------------------------------

    \61\ See NMS Stock ATS Adopting Release, supra note 1.
    \62\ See Securities Exchange Act Release No. 76474 (November 18,
2015), 80 FR 80998, 81018-20 (December 28, 2015) (``NMS Stock ATS
Proposing Release'').
---------------------------------------------------------------------------

    The Commission received several comments regarding Government
Securities ATSs.\63\ Commenters generally supported increasing
operational transparency for Government Securities ATSs.\64\ Several
commenters suggested that the current exemption should be eliminated or
that Regulation ATS should be amended to apply to Currently Exempted
Government Securities ATSs,\65\ and several commenters stated that the
proposal relating to the oversight of NMS Stock ATSs should be expanded
to include Government Securities ATSs.\66\ One commenter, however,
stated that Government Securities ATSs should not be subject to
increased regulation, as such requirements would place such ATSs at a
disadvantage with respect to non-ATS trading venues that trade
government securities.\67\ Another commenter stated that Government
Securities ATSs should be excluded from the scope of the Form ATS-N-
like requirements because of the different trading characteristics they
offer and the relatively recent entry of ATSs into this space.\68\ The
commenter also stated that any additional regulatory proposals with
respect to Government Securities ATSs should be informed by the results
of any review of the U.S. Treasury Securities market structure in
connection with the October 15 Staff Report.\69\
---------------------------------------------------------------------------

    \63\ All comments received on the NMS Stock ATS Proposing
Release regarding Government Securities ATS are available at:
https://www.sec.gov/comments/s7-23-15/s72315.shtml.
    \64\ See, e.g., Letter from Venu Palaparthi, Senior Vice
President, Virtu Financial, to Brent J. Fields, Secretary,
Commission, dated December 2, 2015 (``Virtu Letter''), at 2; Letter
from Dennis M. Kelleher, President and Chief Executive Officer,
Stephen W. Hall, Legal Director & Securities Specialist, and Allen
Dreschel, Attorney, Better Markets, Inc., to Brent J. Fields,
Secretary, Commission, dated February 26, 2016 (``Better Markets
Letter''), at 8; and Letter from Theodore R. Lazo, Managing Director
and Associate General Counsel, Securities Industry and Financial
Markets Association, to Brent J. Fields, Secretary, Commission,
dated March 7, 2016 (``SIFMA Letter''), at 36. See also Letter from
Jonathan A. Clark, Chief Executive Officer, and James C. Dolan,
Chief Compliance Office, Luminex Trading & Analytics LLC, to Brent
J. Fields, Secretary, Commission, dated February 23, 2016 (``Luminex
Letter''), at 3 (supporting public disclosure of Form ATS for all
ATSs); Letter from David W. Blass, General Counsel, Investment
Company Institute, to Brent J. Fields, Secretary, Commission, dated
February 25, 2016 (``ICI Letter''), at 11-12; and Letter from Marc
R. Bryant, Senior Vice President and Deputy General Counsel,
Fidelity Investments, to Brent J. Fields, Secretary, Commission,
dated February 26, 2016 (``Fidelity Letter''), at 7 (generally
supporting improving transparency into the operations of non-NMS
Stock ATSs by providing public disclosure of Form ATS).
    \65\ See Virtu Letter, supra note 64, at 2 (stating that
Regulation ATS should be amended to include electronic platforms for
government securities because greater public transparency and
enhanced monitoring of trading activity in these securities would
result in greater investor confidence with respect to U.S. Treasury
Securities markets); Letter from Rick A. Fleming, Investor Advocate,
Office of the Investor Advocate, Commission, to Brent J. Fields,
Secretary, Commission, dated September 9, 2016 (``OIA Letter''), at
16-19 (supporting the elimination of the exemption for Currently
Exempted Government Securities ATSs and making their Form ATS public
as an interim step); and Letter from Adam C. Cooper, Senior Managing
Director and Chief Legal Officer, Citadel LLC, to Brent J. Fields,
Secretary, Commission, dated March 1, 2016 (``Citadel Letter''), at
4. Another commenter also did not object to applying the
requirements of Regulation ATS to systems that cross trades in
government securities. See Letter from Howard Meyerson, General
Counsel, Liquidnet, Inc., to Brent J. Fields, Secretary, Commission,
dated February 26, 2016 (``Liquidnet Letter''), at 3.
    \66\ See, e.g., Letter from Kurt N. Schacht, Managing Director,
Standards & Advocacy, CFA Institute, and James C. Allen, Head,
Capital Markets Policy, CFA Institute, to Brent J. Fields,
Secretary, Commission, dated February 26, 2016, at 3-4 (stating that
there is not a compelling case that public disclosure of relatively
fundamental organizational structure would harm trading venues and
should, therefore, be hidden from market participants); Letter from
Micah Hauptman, Financial Services Counsel, Consumer Federation of
America, to Brent J. Fields, Secretary, Commission, dated February
26, 2016, at Section II.A (stating that requiring all ATSs to
publicly disclose their Form ATS-N should foster greater competition
for order flow among ATSs on terms that are beneficial to
investors); Better Markets Letter, supra note 64, at 8 (stating that
all investors in securities deserve equally robust protections
against conflicts of interest and assurances of access to
transparent information relating to their trading venues, and that
all trading venues should be able to conduct their businesses on a
level regulatory playing field regardless of the types of securities
trading they seek to offer to investors); Letter from Dave Lauer,
Chairman, Healthy Markets Association, to Brent J. Fields,
Secretary, Commission, dated February 26, 2016 (``HMA Letter''), at
5-6 (stating that while market characteristics across asset classes
are different and such differences may render information that is
extremely material for one asset class irrelevant to trading in
another asset class, those circumstances are generally rare);
Citadel Letter, supra note 65, at 4; and Letter from Stuart J.
Kaswell, Executive Vice President, Managing Director, and General
Counsel, Managed Funds Association, and Ji[rcaron][iacute]
Kr[oacute]l, Deputy Chief Executive Officer, Global Head of
Government Affairs, Alternative Investment Management Association,
to Brent J. Fields, Secretary, Commission, dated February 26, 2016
(``MFA/AIMA Letter''), at 2-4.
    \67\ See Letter from John A. McCarthy, General Counsel, KCG
Holdings, Inc., to Brent J. Fields, Secretary, Commission, dated
March 15, 2016 (``KCG Letter''), at 13. See also Liquidnet Letter,
supra note 65, at 3 (stating that the enhanced transparency
requirements should be limited to the trading of equity securities).
This commenter, however, did not object to the requirements of
Regulation ATS applying to ATSs that cross trades in government
securities. See id.
    \68\ See SIFMA Letter, supra note 64, at 35-36. This commenter,
however, generally supported increased transparency for Government
Securities ATSs, although it stated that disclosure to give effect
to this goal should be tailored to the unique characteristics of the
government securities market, and that it would support making
current Form ATS for Government Securities ATSs publicly available
as an interim step. Id. at 36. Another commenter stated that the
disclosure required by Form ATS-N might not be appropriate for
securities other than NMS stocks at this time in their development,
and recommended that the Commission carefully study these other
markets before proceeding with an enhanced disclosure regime for
ATSs that offer trading exclusively in non-NMS stocks. See ICI
Letter, supra note 64, at 11. However, this commenter did not
explicitly comment on Government Securities ATSs, or whether ATSs
that currently transact solely in government securities should or
should not be required to comply with the Regulation ATS
requirements or be subject to any transparency requirements at this
time. Id.
    \69\ See SIFMA Letter, supra note 64, at 35. See also October 15
Staff Report, supra note 14, at 47 (stating that the authors of the
report, among other items, support a review of the current
regulatory requirements applicable to the government securities
market and its participants).
---------------------------------------------------------------------------

    Of the several commenters that expressed support for expanding the
ATS-N disclosure regime to include Government Securities ATSs,\70\ one
commenter in particular described the importance of the U.S. Treasury
Securities market and the depth, liquidity, and significant volume in
recently issued benchmark or on-the-run U.S. Treasury Securities
transacted on ATSs.\71\ This commenter also stated that the U.S.
Treasury Securities market has undergone significant changes with the
transition to electronic trading and the entry of new liquidity
providers.\72\ The commenter stated that removing the exemption for
Government Securities ATSs would subject them to appropriate oversight
and that market participants using these ATSs would benefit from
increased operational transparency

regarding subscriber segmentation, potential conflicts of interest,
order types, and fees.\73\
---------------------------------------------------------------------------

    \70\ See supra note 64.
    \71\ See Citadel Letter, supra note 65, at 4.
    \72\ See id.
    \73\ See id.
---------------------------------------------------------------------------

    Another commenter stated that many of the concerns surrounding
potential conflicts of interest that arise between an ATS and the
activities of its broker-dealer operator and affiliates are equally
relevant with respect to Government Securities ATSs as with NMS Stock
ATSs.\74\ This commenter stated that there is little information
available to investors and the public about Government Securities ATSs
and that Form ATS-N-like disclosures for these ATSs could greatly
enhance public transparency of these markets.\75\ Another commenter
stated that making the Form ATS public for Government Securities ATSs
would enhance transparency and provide important disclosures to market
participants and the public about increasingly important venues of cash
trading in government securities.\76\ In addition, of the commenters
who stated that Government Securities ATSs should be subject to similar
obligations as NMS Stock ATSs,\77\ one commenter specifically asserted
that Government Securities ATSs should be subject to the Fair Access
Rule to prevent them from arbitrarily excluding specific market
participants.\78\ This commenter stated that these requirements would
not only promote market safety, stability, and integrity, but would
also improve conditions for investors through increased transparency,
more competition, better pricing, and new sources of orders and trading
interest.\79\ Moreover, this commenter supported a comprehensive review
of the current regulatory framework for electronic trading platforms
for government securities in an effort to improve market transparency,
fairness, and resiliency. This commenter stated that requiring
electronic trading platforms for government securities to comply with
the systems compliance and integrity standards in Regulation SCI, among
other things, would promote a transparent, efficient, and resilient
market.\80\
---------------------------------------------------------------------------

    \74\ See MFA/AIMA Letter, supra note 66, at 3.
    \75\ See id. This commenter also stated that at a minimum, a
trading venue should clearly disclose the manner of its operations.
See id. at 4.
    \76\ See OIA Letter, supra note 65, at 19.
    \77\ See supra note 64.
    \78\ See Citadel Letter, supra note 65, at 4. This commenter
also stated that government securities trading venues that do not
currently meet the definition of ATS, such as trading venues that
use request for quote systems, should be subject to equivalent
regulation as well. Id. at 5.
    \79\ See id. at 4.
    \80\ See id.
---------------------------------------------------------------------------

II. Proposed Amendments to Regulation ATS for Government Securities
ATSs

    The Commission recognizes that Form ATS and the requirements of
Regulation ATS were designed before Government Securities ATSs operated
as electronic platforms with the automation, speed, and complexity that
they do today, and that market conditions for government securities
have substantially changed since the adoption of Regulation ATS in
1998. The Commission has carefully considered prior comments it
received relating to Government Securities ATSs, the significant role
of Government Securities ATSs in today's government securities market
structure, and the complexity of Government Securities ATS operations,
and is proposing the amendments described below.\81\
---------------------------------------------------------------------------

    \81\ See infra Sections II.A-H and III.
---------------------------------------------------------------------------

A. Proposed Amendment to Exchange Act Rule 3a1-1(b)

    The Commission is proposing to amend the existing classes of
securities set forth in Exchange Act Rule 3a1-1(b)(3) \82\ to add U.S.
Treasury Securities and Agency Securities for which transactions are
reported to an SRO.\83\ As a result of the proposed change, the
Commission could require a Government Securities ATS, which otherwise
meets the conditions to the Rule 3a1-1(a) exemption,\84\ to register as
a national securities exchange if the ATS meets specified volume levels
in U.S. Treasury Securities or Agency Securities \85\ and the
Commission finds that the exemption would not be necessary or
appropriate in the public interest or consistent with the protection of
investors.\86\
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    \82\ 17 CFR 240.3a1-1(b).
    \83\ The Commission is proposing to specify that Rule 3a1-1(b)
would apply to U.S. Treasury Securities and Agency Securities for
which transactions are reported to an SRO to allow the Commission
and market participants to calculate the volume level threshold
provided under the rule.
    \84\ See supra note 40 and accompanying text.
    \85\ The volume thresholds are met if during three of the
preceding four calendar quarters, the ATS had (i) fifty percent or
more of the average daily dollar trading volume in any security and
five percent or more of the average daily dollar trading volume in
any class of securities; or (ii) forty percent or more of the
average daily dollar trading volume in any class of securities. See
17 CFR 240.3a1-1(b)(1).
    \86\ See 17 CFR 240.3a1-1(b)(2).
---------------------------------------------------------------------------

    The Commission would provide a Government Securities ATS with
notice and an opportunity to respond before determining the exemption
from national securities exchange registration is not necessary or
appropriate in the public interest or consistent with the protection of
investors. The Commission would take into account the requirements for
exchange registration under Section 6 of the Exchange Act and the
objectives of the national market system. This amendment would extend
the existing provision under Rule 3a1-1(b) applicable to ATSs that
trade NMS stocks, corporate debt, municipal securities, and OTC equity
securities to ATSs that trade U.S. Treasury Securities or Agency
Securities and enhance the Commission's ability to regulate certain
large volume ATSs whose registration as a national securities exchange,
and the associated increased obligations that arise therefrom, may be
in the public interest.
Request for Comment
    1. Should the Commission amend Exchange Act Rule 3a1-1(b) to add
U.S. Treasury Securities and Agency Securities to the list of existing
classes of securities set forth in Rule 3a1-1(b)(3)?

B. Proposed Definitions for Government Securities ATSs Rules

    The Commission is proposing to amend Rule 300 of Regulation ATS to
define ``Government Securities ATS'' to mean an alternative trading
system, as defined in Rule 300(a), that trades government securities,
as defined in section 3(a)(42) of the Exchange Act (15 U.S.C.
78c(a)(42)),\87\ or repurchase and reverse repurchase agreements on
government securities.\88\ To meet the definition of a Government
Securities 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.\89\ The Commission is also
proposing that a Government Securities ATS shall not trade securities
other than government securities or repos \90\ and that trading of
securities other than government securities or repos would require the
separate filing of either a Form ATS or a Form ATS-N, depending on the
types of securities traded.\91\ This amendment would not, however,
impose new compliance requirements on such ATSs other than complying
with Rule 304 and

filing Form ATS-G.\92\ Under the proposal, if a registered broker-
dealer or government securities broker or government securities dealer
that operates the ATS (``broker-dealer operator'') that currently
operates an ATS for government securities and non-government securities
such as, for example, corporate bonds, the broker-dealer operator would
operate two separate ATSs: (1) A Government Securities ATS that would
trade government securities, which would be subject to Rule 304, and
file disclosures on proposed Form ATS-G and (2) a non-Government
Securities ATS that would trade corporate bonds, which would not be
subject to Rule 304, and file disclosures on its existing Form ATS, as
amended to remove references to government securities. To provide that
the same approach applies to broker-dealers that operate NMS Stock ATSs
and non-NMS Stock ATSs, and to clarify requirements applicable to NMS
Stock ATSs, the Commission is proposing to amend the definition of
``NMS Stock ATS'' to state that an NMS Stock ATS shall not trade
securities other than NMS stocks.\93\ Today, securities other than NMS
stocks are not traded in any NMS Stock ATS and the proposed amendment
to the definition of NMS Stock ATS would have no impact on any existing
ATS nor on the requirements applicable to existing NMS Stock ATSs.\94\
---------------------------------------------------------------------------

    \87\ The definition of government security in section 3(a)(42)
of the Exchange Act encompasses ``any put, call, straddle, option,
or privilege'' on any government security listed in subsections (A)-
(C) of the definition, other than any put, call, straddle, option or
privilege that is traded on one or more national securities
exchanges, or for which quotations are disseminated through an
automated quotation system operated by a registered securities
association. 15 U.S.C. 78c(a)(42)(D).
    \88\ See proposed Rule 300(l).
    \89\ 17 CFR 242.300(a). See Regulation ATS Adopting Release,
supra note 35, at 70851-52.
    \90\ See proposed Rule 300(l).
    \91\ An ATS that does not trade NMS stocks or government
securities, as proposed, must file Form ATS.
    \92\ Broker-dealers that operate Government Securities ATSs that
are currently subject to Regulation ATS already must have
established written safeguards and written procedures to protect
subscribers' confidential trading information, pursuant to Rule
301(b)(10), and already must make and keep records pursuant to Rule
301(b)(8) that are tailored to the types of securities the ATS
trades and the subscribers that trade those securities on the ATS.
The Commission believes the proposal is broadly consistent with the
manner in which broker-dealers that operate NMS Stock ATSs and non-
NMS Stock ATSs currently comply with Regulation ATS. For further
discussion, see infra Section II.E.
    \93\ See proposed Rule 300(k).
    \94\ Broker-dealer operators of NMS Stock ATSs are currently
required to file a Form ATS-N for NMS Stock ATS operations and a
separate Form ATS for any non-NMS Stock ATS operations. See current
Rule 301(b)(2)(viii). This would not change under this proposal.
---------------------------------------------------------------------------

    The Commission is also proposing to amend Rule 300 of Regulation
ATS to define the terms ``Covered ATS'' and ``Covered Form.'' \95\ The
proposed terms would be used throughout Rule 304 because Government
Securities ATSs, in addition to NMS Stock ATSs, would be subject to
Rule 304 of Regulation ATS.\96\ ``Covered ATS'' would mean an NMS Stock
ATS or Government Securities ATS and ``Covered Form'' would mean a
filing on Form ATS-N or Form ATS-G, as applicable. To facilitate the
orderly transition to the heightened requirements for Government
Securities ATSs that are currently operating, the Commission is
defining such ATSs as ``Legacy Government Securities ATSs.'' \97\ The
Commission believes these proposed definitions are non-substantive and
enhance the readability of the rule text.
---------------------------------------------------------------------------

    \95\ See proposed Rule 300(m)-(n).
    \96\ See infra Section II.F-H.
    \97\ See proposed Rule 300(o). Legacy Government Securities ATSs
would include all Government Securities ATSs operating as of [the
date 120 calendar days after the date of publication of the final
rule in the Federal Register] (``Compliance Date''), including both
(1) Currently Exempted Government Securities ATSs and (2) Government
Securities ATSs operating pursuant to a Form ATS on file with
Commission as of the Compliance Date.
---------------------------------------------------------------------------

    The Commission is also proposing to add definitions of ``U.S.
Treasury Security'' and ``Agency Security'' for purposes of Regulation
ATS.\98\ ``U.S. Treasury Security'' would mean a security issued by the
U.S. Department of the Treasury. ``Agency Security'' would mean a debt
security issued or guaranteed by a U.S. executive agency, as defined in
5 U.S.C. 105, or government-sponsored enterprise, as defined in 2
U.S.C. 622(8). The proposed definitions are designed to provide the
scope of securities a Government Securities ATS must include when
calculating whether the fair access requirements set forth in Rule
301(b)(5) are applicable and to facilitate compliance with the Fair
Access Rule.\99\ In addition, the Commission is proposing to use these
definitions in the proposed amendment to Exchange Act Rule 3a1-1(b)(3)
to provide the scope of securities for which the Commission could
remove the exemption from national securities exchange if certain
volume thresholds are met.\100\
---------------------------------------------------------------------------

    \98\ See proposed Rule 300(p)-(q).
    \99\ See infra Section II.D. The proposed definitions are
similar to those in FINRA's rules. See FINRA Rule 6710(l) and FINRA
Rule 6710(p).
    \100\ See supra Section II.A.
---------------------------------------------------------------------------

Request for Comment
    2. Should the Commission adopt a more limited or expansive
definition of Government Securities ATS than the definition that is
being proposed?
    3. Should the Commission cite to the section 3(a)(42) (15 U.S.C.
78c(a)(42)) definition of government securities for purposes of
defining Government Securities ATS? Should the securities encompassed
by the definition (e.g., certain options on government securities) be
considered ``government securities'' for purposes of this regulation?
    4. Should the Commission modify the proposed definitions of U.S.
Treasury Securities and Agency Securities in any way?
    5. The proposed amendments to the definitions of NMS Stock ATS and
Government Securities ATS are not designed to limit a broker-dealer
operator for an NMS Stock ATS or Government Securities ATS with respect
to other types of securities that the broker-dealer operator may wish
to trade in an ATS that is subject to Rule 301(b)(2) of Regulation ATS
or how the broker-dealer operator may elect to structure the operations
of its ATS businesses. Would the proposed amendments to the definitions
of NMS Stock ATS and Government Securities ATS impose any operational
or other burdens on the broker-dealer operator, other than those
related to filing Form ATS, Form ATS-R, Form ATS-G or Form ATS-N, as
applicable?

C. Proposed Elimination of the Exemption for ATSs That Limit Securities
Activities to Government Securities and Repos

    The Commission is proposing amendments to Regulation ATS that would
require a Currently Exempted Government Securities ATS that seeks to
operate pursuant to the exemption from the definition of an
``exchange'' under Exchange Act Rule 3a1-1(a)(2), and thus not be
required to be registered as a national securities exchange, to comply
with Regulation ATS. A Currently Exempted Government Securities ATS
that opts to comply with Regulation ATS would then be subject to the
conditions to the exemption from exchange registration that are
designed to provide its subscribers with investor protections and
enable Commission oversight, including the surveillance and examination
of ATSs, and to help assure fair and orderly markets.\101\ The
Commission is also proposing to subject Currently Exempted Government
Securities ATSs to the enhanced public transparency requirements of
Rule 304 and Form ATS-G.
---------------------------------------------------------------------------

    \101\ See Regulation ATS Adopting Release, supra note 35, at
70878. See also infra notes 121-131 and accompanying text.
---------------------------------------------------------------------------

    At present, Exchange Act Rule 3a1-1(a)(3) and Rule 301(a)(4) of
Regulation ATS exempt from the definition of an ``exchange'' under
Section 3(a)(1) of the Exchange Act an ATS that is operated by a
registered broker-dealer or a bank that solely trades government
securities or repos.\102\ The Commission is proposing to amend
Regulation ATS to eliminate the exemption under Rule

301(a)(4) of Regulation ATS for ATSs that solely trade government
securities and repos. As a result of this proposed amendment, any
system that meets the definition of an ``exchange'' under Section
3(a)(1) of the Exchange Act and Rule 3b-16(a) thereunder and solely
trades government securities or repos would no longer be exempt from
the definition of an ``exchange'' and would either have to register as
a national securities exchange or operate pursuant to an exemption to
such registration, such as the exemption under Regulation ATS.\103\
---------------------------------------------------------------------------

    \102\ See 17 CFR 240.3a1-1(a)(3) and 17 CFR 242.301(a)(4).
    \103\ The Commission is proposing to delete the text of Rule
301(a)(4)(ii)(A)-(C) and replace each paragraph with the term
``Reserved.'' The Commission is not proposing to eliminate Rule
301(a)(4)(ii)(D), which exempts an ATS from compliance with
Regulation ATS if the ATS limits its securities activities to
commercial paper. Accordingly, the only ATSs that would continue to
be exempt under Rule 301(a)(4) would be ATSs that are registered
broker-dealers or are banks and limit their securities activities to
commercial paper.
---------------------------------------------------------------------------

    The Commission is also proposing to amend Rule 301(b)(1) of
Regulation ATS, which currently requires an ATS to register as a
broker-dealer under Section 15 of the Exchange Act,\104\ to allow an
ATS to register either as a broker-dealer under Exchange Act Section 15
or a government securities broker or government securities dealer under
Exchange Act Section 15C(a)(1)(A).\105\ Registration pursuant to
Section 15C(a)(1)(A) specifically applies to government securities
brokers and dealers other than registered broker-dealers or financial
institutions.\106\ Registration as a broker-dealer under Section 15 or
government securities broker or government securities dealer under
Section 15C(a)(1)(A) of the Exchange Act is important because, among
other things, it requires membership in an SRO, such as FINRA.\107\
Because ATSs that register as broker-dealers or government securities
brokers or dealers do not have self-regulatory responsibilities, the
Commission believes it is important for these ATSs to be members of an
SRO and thus subject to SRO examination and surveillance,\108\ trade
reporting obligations,\109\ and certain investor protection rules.\110\
Like ATSs registered as broker-dealers under Section 15, an ATS
registered as a government securities broker or government securities
dealer under Section 15C(a)(1)(A) would be subject to oversight and
surveillance by an SRO.\111\
---------------------------------------------------------------------------

    \104\ 15 U.S.C. 78o.
    \105\ See 15 U.S.C. 78o-5. Exchange Act Section 15C(a)(1)(A)
makes it unlawful for a government securities broker or government
securities dealer (other than a registered broker or dealer or a
financial institution) to make use of the mails or any means or
instrumentality of interstate commerce to effect a transaction in
any government securities unless the government securities broker or
government securities dealer is registered with Commission pursuant
to Exchange Act Section 15C(a)(2). See 15 U.S.C. 78o-5(a)(1)(A).
Section 15C(e) in turn generally requires that a government
securities broker or government securities dealer that is registered
or required to be registered under Section 15C(a)(1)(A) must be a
member of a registered national securities exchange or registered
securities association such as FINRA.
    \106\ Broker-dealers that limit their activity to government
securities require specialized registration under Section 15C of the
Exchange Act and do not have to register as general-purpose broker-
dealers under Section 15(b). See 15 U.S.C. 78o-5.
    \107\ See Regulation ATS Adopting Release, supra note 35, at
70863 (discussing the importance of an ATS being a member of an SRO
because ATSs registered as broker-dealers will not have self-
regulatory responsibilities). As noted above, Section 15C(e)
generally requires SRO membership for a government securities broker
or government securities dealer that is registered or required to be
registered under Section 15C(a)(1)(A). Similarly, Section 15(b)(8)
generally requires a registered broker-dealer to be a member of a
registered securities association such as FINRA.
    \108\ See, e.g., FINRA Rule 1000 Series, FINRA Rules 4140, 4510,
4520, 4530, and 8210.
    \109\ See, e.g., FINRA Rule 6730.
    \110\ See, e.g., FINRA Rules 3110, 4370, 5210, 5220, 5230, 5310,
and 5340.
    \111\ See Regulation ATS Adopting Release, supra note 35, at
70863.
---------------------------------------------------------------------------

    In contrast, SRO membership is not required for a bank or other
financial institution that registers as a government securities broker
or dealer.\112\ Accordingly, the amendment to Regulation ATS would not
permit a bank or other financial institution to satisfy the broker-
dealer registration requirement by registering as a government
securities broker or government securities dealer under Section
15C(a)(1)(B) of the Exchange Act.\113\ The Commission believes it is
important for an ATS to be a member of an SRO, and unlike registrants
under Sections 15 and 15C(a)(1)(A), a bank or other financial
institution that registers under Section 15C(a)(1)(B) is not required
to be a member of an SRO.\114\
---------------------------------------------------------------------------

    \112\ As proposed, Currently Exempted Government Securities ATSs
that are operated by banks would be required to structure their
business to either comply with Regulation ATS or register as a
national securities exchange. For example, to comply with Regulation
ATS, the Government Securities ATS might move its ATS operations
into a new or existing broker-dealer affiliate of the bank. Unlike
registered broker-dealers (Section 15(b)(8)) and government
securities brokers or government securities dealers that are
registered or required to be registered under Section 15C(a)(1)(A)
(Section 15C(e)), there is no statutory requirement of SRO
membership for banks. Because banks typically operate in reliance on
exceptions from broker or dealer status, they are not required to
become a member of an SRO, such as FINRA. In this regard, Exchange
Act Section 3(a)(4)(B)(iii)(II) excludes from the definition of
``broker'' a bank that effects transactions in ``exempted
securities'' such as government securities. 15 U.S.C.
78c(a)(4)(B)(iii)(II). See Exchange Act Section 3(a)(12) (defining
``exempted securities'' to include ``government securities' as
defined in Section 3(a)(42) of the Exchange Act). Exchange Act
Section 3(a)(5)(C)(i)(II) similarly excepts from the definition of
``dealer'' a bank that buys or sells exempted securities. 15 U.S.C.
78c(a)(5)(C)(i)(II).
    \113\ Exchange Act Section 15C(a)(1)(B) makes it unlawful for
any government securities broker or government securities dealer
that is a registered broker or dealer or a financial institution to
make use of the mails or any means or instrumentality of interstate
commerce to effect any transaction in, or to induce or attempt to
induce the purchase or sale of, any government security unless such
government securities broker or government securities dealer has
filed with the appropriate regulatory agency written notice that it
is a government securities broker or government securities dealer.
15 U.S.C. 78o-5(a)(1)(B)(i).
    \114\ See Exchange Act Sections 3(a)(6) (defining ``bank'') and
3(a)(46) (defining ``financial institution'').
---------------------------------------------------------------------------

    As a result, a bank-operated ATS that trades only government
securities or repos would be unable to rely on the exemption provided
by Regulation ATS, as proposed to be amended, and could not otherwise
operate unless registered as a national securities exchange pursuant to
Section 5 of the Exchange Act. However, this is the case currently with
respect to bank-operated ATSs that trade securities other than
government securities, and it is the Commission's understanding that
these ATSs often are operated by bank affiliates that are themselves
registered broker-dealers, rather than by the banks themselves. The
Commission believes that a bank that operates an ATS that trades only
government securities might adopt a similar registered affiliate
structure for its government securities operations. The Commission is
requesting comment, however, on whether it should amend Rule 301(b)(1)
to make the Regulation ATS exemption available to entities registered
under Section 15C(a)(1)(B), and whether some transition period is
required if a bank decides to restructure the operation of its
Government Securities ATS. Eliminating the exemption from the
definition of ``exchange'' for broker-dealers and banks that operate an
ATS for solely government securities or repos would bring these markets
within the Commission's regulatory framework for exchanges and, as
discussed in more detail above, enhance regulatory oversight, protect
investors, and help ensure fair and orderly markets for government
securities and repos.\115\ Additionally, this proposal seeks to bring
greater transparency to a very important market, and removing the
exemption under Rule 301(a)(4) of

Regulation ATS would accomplish this goal.
---------------------------------------------------------------------------

    \115\ See supra text accompanying note 101 (describing that the
proposed amendments would provide better Commission oversight of and
public transparency over Currently Exempted Government Securities
ATSs).
---------------------------------------------------------------------------

    In addition to Rule 301(b)(1) of Regulation ATS, with which most
Currently Exempted Government Securities ATSs currently comply,\116\ a
Currently Exempted Government Securities ATS would be required to
comply with the conditions of the Regulation ATS exemption, as proposed
to be amended. This includes Rule 304, which would require that
Government Securities ATSs file Form ATS-G. Government Securities ATSs
would not, however, be subject to the order display and execution
access provisions under Rule 301(b)(3) or the fees provision of Rule
301(b)(4) that are applicable only to NMS Stock ATSs.\117\ As discussed
further below, the Commission is proposing to require Government
Securities ATSs that meet a certain volume threshold to comply with the
Fair Access Rule with respect to trading in U.S. Treasury Securities
and Agency Securities.\118\ Because the Commission is proposing to
apply Regulation SCI to certain Government Securities ATSs that trade
U.S. Treasury Securities and/or Agency Securities, the Capacity,
Integrity, and Security Rule under Rule 301(b)(6) would not apply to
the trading of government securities on ATSs.\119\
---------------------------------------------------------------------------

    \116\ See supra text accompanying note 49 (stating that most
Currently Exempted Government Securities ATSs register as broker-
dealers with the Commission).
    \117\ See 17 CFR 242.301(b)(3)-(4).
    \118\ See infra Section II.D.
    \119\ See infra Section VI.
---------------------------------------------------------------------------

    The Commission believes that it is important to apply these
conditions to the exemption to Currently Exempted Government Securities
ATSs because the conditions are designed to protect investors and to
facilitate Commission oversight. Therefore, the Commission is proposing
that a Currently Exempted Government Securities ATS must:
     Permit the examination and inspection of its premises,
systems, and records, and cooperate with the examination, inspection,
or investigation of subscribers, whether such examination is being
conducted by the Commission or by an SRO of which such subscriber is a
member, pursuant to Rule 301(b)(7).\120\ The Commission believes that
because subscribers to whom the Commission's inspection authority does
not extend could use a Currently Exempted Government Securities ATS to
manipulate the market in a security, it is important that these ATSs
cooperate in all inspections, examinations, and investigations.\121\
---------------------------------------------------------------------------

    \120\ See 17 CFR 242.301(b)(7). See also Regulation ATS Adopting
Release, supra note 35, Section IV.A.2.f.
    \121\ See Regulation ATS Adopting Release, supra note 35, at
70877.
---------------------------------------------------------------------------

     Make and keep certain records specified in Rule 302 \122\
and preserve records specified in Rule 303,\123\ pursuant to Rule
301(b)(8).\124\ The recordkeeping requirements would require the
Currently Exempted Government Securities ATSs to create a meaningful
audit trail and allow the Commission to examine whether the ATS is in
compliance with federal securities laws.\125\
---------------------------------------------------------------------------

    \122\ Rule 302 requires all ATSs to make and keep current
certain records, including: A record of subscribers to the ATS;
daily summaries of trading in the ATS; and time-sequenced records of
order information in the ATS. See 17 CFR 242.302.
    \123\ Rule 303, and specifically Rule 303(a)(1), requires an ATS
to preserve: All records required to be made pursuant to Rule 302;
all notices provided to subscribers, including notices addressing
hours of operations, system malfunctions, changes to system
procedures, and instructions pertaining to access to the ATS;
documents made or received in the course of complying with the
Capacity, Integrity, and Security Rule in Rule 301(b)(6), if
applicable; and, if the ATS is subject to the Fair Access Rule under
Rule 301(b)(5), a record of its access standards. Rule 303(a)(2)
requires that certain other records must be kept for the life of the
ATS and any successor enterprise, including partnership articles or
articles of incorporation (as applicable), and copies of reports
filed pursuant to Rule 301(b)(2), which includes current Form ATS,
and records made pursuant to Rule 301(b)(5). In particular, reports
required to be maintained for the life of the ATS or any successor
enterprise include initial operation reports, amendments, and
cessation of operations reports, filed on Form ATS.
    \124\ See 17 CFR 242.301(b)(8). See also Regulation ATS Adopting
Release, supra note 35, Section IV.A.2.g.
    \125\ See Regulation ATS Adopting Release, supra note 35, at
70878.
---------------------------------------------------------------------------

     Periodically report certain information about transactions
on the ATS and information about certain activities on Form ATS-R
within 30 calendar days after the end of each calendar quarter in which
the market has operated pursuant to Rule 301(b)(9).\126\ The
information reported on Form ATS-R by Currently Exempted Government
Securities ATSs will permit the Commission to monitor the trading on
these ATSs for compliance with the Exchange Act and applicable rules
thereunder and enforce the Fair Access Rule.\127\
---------------------------------------------------------------------------

    \126\ See 17 CFR 242.301(b)(9). See also infra Section II.E;
Regulation ATS Adopting Release, supra note 35, Section IV.A.2.h
(Rule 301(b)(9)). Form ATS-R requires the ATS to report, among other
things, the aggregate quarterly volume data for specified categories
of securities, a list of all securities traded on the ATS during the
quarter, and a list of all subscribers that were participants during
the quarter. In addition, Form ATS-R requires an ATS that is subject
to the fair access obligations under Rule 301(b)(5) of Regulation
ATS to report a list of all persons granted, denied, or limited
access to the ATS during the period covered by the Form ATS-R and
designate for each person: (a) Whether access was granted, denied,
or limited; (b) the date the ATS took such action; (c) the effective
date of such action; and (d) the nature of any denial or limitation
of access. Rule 301(b)(9) requires an ATS to complete and file Form
ATS-R within 10 calendar days after ceasing to operate. See Form
ATS-R.
    \127\ See Regulation ATS Adopting Release, supra note 35, at
70874 and 70878.
---------------------------------------------------------------------------

     Adopt written safeguards and written procedures to protect
confidential trading information and to separate ATS functions from
other broker-dealer functions, including principal and customer trading
pursuant to Rule 301(b)(10).\128\ The Commission believes that applying
the requirements of Rule 301(b)(10) to Currently Exempted Government
Securities ATSs will help prevent the potential for abuse of subscriber
confidential trading information.\129\
---------------------------------------------------------------------------

    \128\ See 17 CFR 242.301(b)(10); NMS Stock ATS Adopting Release,
supra note 1, Section VI.
    \129\ See NMS Stock ATS Adopting Release, supra note 1, at
38864.
---------------------------------------------------------------------------

     Not use in its name the word ``exchange,'' or any
derivation of the word ``exchange'' pursuant to Rule 301(b)(11).\130\
The Commission believes that the use of the word ``exchange'' by an
ATS, including a Currently Exempted Government Securities ATS, would be
deceptive and could lead investors to believe incorrectly that such ATS
is registered as a national securities exchange.\131\
---------------------------------------------------------------------------

    \130\ See 17 CFR 242.301(b)(11); Regulation ATS Adopting
Release, supra note 35, Section II.C.
    \131\ See Securities Exchange Act Release No. 39884 (April 17,
1998), 63 FR 23504, 23523 (April 29, 1998) (``Regulation ATS
Proposing Release'').
---------------------------------------------------------------------------

Request for Comment
    6. Should the Commission amend Regulation ATS to eliminate the
exemption from compliance with Regulation ATS under Rule
301(a)(4)(ii)(A) for all Currently Exempted Government Securities ATS,
including those operated by banks?
    7. Should the proposed elimination of the exemption from compliance
with Regulation ATS only apply to Government Securities ATSs that trade
a certain type of government security (e.g., only U.S. Treasury
Securities or only Agency Securities)? Should the proposed elimination
of the exemption from compliance with Regulation ATS only apply to
Government Securities ATSs that trade government securities (and not
repos)? If so, for which type of Government Securities ATS should the
exemption be eliminated?
    8. Should Government Securities ATSs seeking to operate pursuant to
the exemption provided by Regulation ATS have the alternative option to
satisfy broker-dealer registration with the

Commission pursuant to Section 15C(a)(1)(A)?
    9. Should the Commission adopt any alternatives to requiring
Government Securities ATSs to register with the Commission as broker-
dealers under Section 15 or Section 15C(a)(1)(A)? For example, should
the Commission amend Rule 301(b)(1) of Regulation ATS to include an
alternative for a bank to register as a government securities broker or
dealer pursuant to Section 15C(a)(1)(B), which would not require the
bank to become a member of an SRO?
    10. Should there be a transition period for Currently Exempted
Government Securities ATSs that are currently operated by banks to
comply with the proposed amendments to Rule 301(b)(1), including ATSs
provided and operated by an affiliate of the bank? If so, how long
should the transition period be?
    11. Should there be a transition period for Currently Exempted
Government Securities ATSs to comply with all or some of the
requirements of Regulation ATS? If so, which requirements would require
such a transition period, and how long should such transition period
be?
    12. Should the Commission amend Regulation ATS to remove the
exemption from Regulation ATS for ATSs that limit their securities
activities to commercial paper? Do market participants use ATSs to
trade commercial paper? If so, how is commercial paper traded on an
ATS? Should the Commission remove any other exemption from Regulation
ATS available under Rule 301?
    13. Should the Commission require Currently Exempted Government
Securities ATSs to comply with all of the requirements of Regulation
ATS applicable to all ATSs that are currently required to comply with
Regulation ATS? If not, which requirements should a Currently Exempted
Government Securities ATS not be required to comply with and why?

D. Application of Fair Access to Government Securities ATSs

    The Commission believes that the proposal to amend Regulation ATS
to include U.S. Treasury Securities and Agency Securities as categories
of securities under the Fair Access Rule would promote fair and orderly
markets given the importance of Government Securities ATSs. When
Regulation ATS was adopted, the Commission explained that the fair
treatment by ATSs of potential and current subscribers is particularly
important when an ATS captures a large percentage of trading volume in
a security, because viable alternatives to trading on such a system are
limited.\132\ The Commission further explained that if an ATS has a
significantly large percentage of the volume of trading in a security
or type of security, unfairly discriminatory actions can hurt investors
lacking access to that ATS.
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    \132\ See Regulation ATS Adopting Release, supra note 35, at
70872.
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    Currently, Rule 301(b)(5) only applies to the trading of NMS
stocks, equity securities that are not NMS stocks and for which
transactions are reported to an SRO, municipal securities, and
corporate debt securities, but not to trading in government
securities.\133\ An ATS subject to the Fair Access Rule must, among
other things, establish written standards for granting access to
trading on systems and apply these standards fairly, and is prohibited
from unreasonably prohibiting or limiting any person with respect to
trading in the stated security when that trading exceeds certain volume
thresholds.\134\ These requirements are designed to ensure that
qualified market participants have fair access to the nation's
securities markets.
---------------------------------------------------------------------------

    \133\ See 17 CFR 242.301(b)(5)(i).
    \134\ See supra Section I.B.
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    Government Securities ATSs have become a significant source of
orders and trading interest in U.S. Treasury Securities and Agency
Securities for investors.\135\ Regulation ATS, however, does not
provide a mechanism to prevent unfair denials or limitations of access
by Government Securities ATSs that trade U.S. Treasury Securities or
Agency Securities or regulatory oversight of such denials or
limitations of access. The Commission believes that today, the
principles undergirding the Fair Access Rule are equally relevant to a
Government Securities ATS and amending the Fair Access Rule to include
the trading of U.S. Treasury Securities and Agency Securities would
help ensure the fair treatment of potential and current subscribers to
ATSs that consist of a large percentage of trading volume in these two
types of securities.\136\
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    \135\ See infra Section X.B.1.
    \136\ Under the proposal, the Fair Access Rule would not apply
to Government Securities ATSs that trade repos, including repos on
U.S. Treasury Securities and Agency Securities. Based on information
available to the Commission, the Commission does not believe that
ATSs today capture a significant market share for trading repos or
that these markets are as liquid as the markets for securities
currently covered by the Fair Access Rule. The Commission also notes
FINRA does not require ATSs to report transactions for repos. The
Commission is requesting comment on its preliminary assessment and
on whether the Commission should amend Regulation ATS to require
Government Securities ATSs that trade repos, including repos on U.S.
Treasury Securities and Agency Securities, to be subject to the
requirements of the Fair Access Rule.
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    Under the proposed amendments to Rule 301(b)(5), a Government
Securities ATS would be subject to the Fair Access Rule if during at
least four of the preceding six calendar months, the Government
Securities ATS had, (1) with respect to U.S. Treasury Securities, five
percent or more of the average weekly dollar volume traded in the
United States as provided by the self-regulatory organization to which
such transactions are reported, and (2) with respect to Agency
Securities, five percent or more of the average daily dollar volume
traded in the United States as provided by the self-regulatory
organization to which such transactions are reported.\137\
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    \137\ Dollar volume is measured in par value, where par value is
the face value or nominal value of a bond. The Commission notes that
TRACE Security Activity Report and TRACE Fact Book report volume in
the same unit, ``par value volume'' or ``par value traded.'' See
FINRA Rule 7730(g)(7). See also FINRA, TRACE Fact Book, available at
https://www.finra.org/filing-reporting/trace/trace-fact-book.
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    The Commission is proposing five percent volume thresholds for
subjecting a Government Securities ATS to the Fair Access Rule.
Specifically, a Government Securities ATS would be subject to the Fair
Access Rule for its trading of U.S. Treasury Securities if its volume
surpasses the five percent threshold for U.S. Treasury Securities.
Similarly, a Government Securities ATS would be subject to the Fair
Access Rule for its trading in Agency Securities if its volume
surpasses the five percent threshold for Agency Securities.\138\ When
the Commission adopted Rule 301(b)(5), the Fair Access Rule threshold
was 20 percent of the average daily trading volume.\139\ Currently, the
Fair Access Rule applies on a security-by-security basis for NMS stocks
and equity securities that are not NMS stocks, and on a category basis
for corporate bonds and municipal securities. The original volume
threshold was reduced to five percent for all categories of securities
when the Commission adopted Regulation NMS, and the Commission proposes
to apply

five percent volume thresholds for the trading of U.S. Treasury
Securities and Agency Securities.\140\
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    \138\ As such, a Government Securities ATS with high trading
volume in U.S. Treasury Securities and low trading volume in Agency
Securities might only be subject to the Fair Access Rule for U.S.
Treasury Securities. Likewise, a Government Securities ATS with high
Agency Securities trading volume and low U.S. Treasury Securities
trading volume might only be subject to the Fair Access Rule for
Agency Securities. A Government Securities ATS that surpasses each
of the two thresholds would be subject to the Fair Access Rule for
U.S. Treasury Securities and Agency Securities.
    \139\ See Regulation ATS Adopting Release, supra note 35, at
70873.
    \140\ See Securities and Exchange Act Release No. 51808 (June 9,
2005) 70 FR 37496, 37550 (June 29, 2005) (File No. S7-10-04).
---------------------------------------------------------------------------

    The proposed thresholds include only such securities for which
transactions are reported to an SRO. FINRA publishes weekly aggregate
data on U.S. Treasury Securities based on the mandatory transaction
reports of its members to TRACE, and disseminates transactions data
about Agency Securities immediately upon receipt of a transaction
report.\141\ Because weekly dollar volume data about transactions in
U.S. Treasury Securities and daily dollar volume data about
transactions in Agency Securities are publicly available via TRACE,
Government Securities ATSs will be able to readily calculate whether
they meet the applicable thresholds.
---------------------------------------------------------------------------

    \141\ See supra notes 50-51.
---------------------------------------------------------------------------

    The Commission believes that separate volume thresholds for U.S.
Treasury Securities and Agency Securities would advance the investor
protection goals of the Fair Access Rule. U.S. Treasury Securities and
Agency Securities make up the vast amount of government securities
traded on ATSs today, and also constitute different sources of
potential orders and trading interest for market participants.\142\ The
proposed volume thresholds would help ensure that the Fair Access Rule
applies to the category of security for which an ATS has significant
trading volume. If a Government Securities ATS has significant trading
volume in U.S. Treasury Securities but not Agency Securities, for
example, the proposed rule would help ensure that investors are
provided fair access to the ATS's services with respect to U.S.
Treasury Securities, even if the ATS's combined trading volume in both
U.S. Treasury Securities and Agency Securities would not exceed a five
percent volume threshold. The Commission believes that it would be
unnecessary and overly burdensome to require a Government Securities
ATS to comply with the Fair Access Rule for a category of government
security for which that ATS does not have significant volume.
Additionally, given that U.S. Treasury Securities and Agency Securities
are types of debt securities, the Commission believes that it is
appropriate to determine these five percent volume thresholds on a
category basis because doing so would be consistent with the Fair
Access Rule's application to other categories of fixed income
securities (i.e., corporate bonds and municipal securities).
---------------------------------------------------------------------------

    \142\ See infra Section X.B.1. See also supra Section I.A.
---------------------------------------------------------------------------

    The Commission believes that the proposed five percent volume
threshold test is consistent with the Commission's current threshold
for identifying significant markets for purposes of the Fair Access
Rule and is appropriate for determining whether a Government Securities
ATS should be subject to the Fair Access Rule for trading in the
categories of U.S. Treasury Securities and Agency Securities.
Currently, the Commission estimates that three ATSs trading U.S.
Treasury Securities and one ATS trading Agency Securities would be
subject to the Fair Access Rule under the proposed five percent volume
thresholds.\143\ The ATS with the largest market volume in U.S.
Treasury Securities has approximately 24 percent of market volume,
while the second and third largest are both slightly above five percent
market share. The one ATS that would exceed the proposed threshold for
Agency Securities accounts for roughly 13 percent of volume in Agency
Securities. If the Commission were to propose a four percent volume
threshold, the number of ATSs that would be subject to the Fair Access
Rule for U.S. Treasury Securities and Agency Securities would not
change, but if the Commission proposed a three percent volume threshold
test, the Commission estimates a total of four ATSs would be subject to
the Fair Access Rule for U.S. Treasury Securities and the number of
ATSs subject to the Fair Access Rule for Agency Securities would remain
at one.\144\
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    \143\ See infra Table X.1.
    \144\ See id.
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    If the proposed volume thresholds were 10 percent, however, only
one ATS trading U.S. Treasury Securities and one ATS trading Agency
Securities would be subject to the Fair Access Rule.\145\ The
Commission believes that the proposed five percent volume thresholds--
in addition to being consistent with the current volume threshold for
categories of debt securities under the Fair Access Rule--are
appropriately designed to capture those ATSs that are significant
liquidity venues for U.S. Treasury Securities or Agency Securities.
That said, as further specified below, the Commission is requesting
comment on whether these proposed volume thresholds should be set
higher or lower for ATSs trading government securities.
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    \145\ See id.
---------------------------------------------------------------------------

    The proposed fair access volume threshold for U.S. Treasury
Securities would have a different data benchmark than that for Agency
Securities. The former would be based on average weekly dollar volume
traded, and the latter would be based on average daily volume traded.
This proposed difference is because FINRA only provides weekly
aggregated transaction information on U.S. Treasury Securities but
provides individual trade reports for Agency Securities transactions.
Currently, FINRA neither provides individual trade reports nor
aggregate daily volume data for U.S. Treasury Securities transactions
to TRACE subscribers (or to the public). Thus, Government Securities
ATSs will only have weekly-volume data upon which to make fair access
determinations for U.S. Treasury Securities. FINRA, however, provides
individual trade reports for all Agency Securities transactions to
TRACE subscribers, and therefore,\146\ Government Securities ATSs will
be able determine the average daily trading volume for a given month by
aggregating these trade reports. Accordingly, the Commission proposes
an average daily volume threshold for Agency Securities, which is
consistent with the current volume thresholds in 301(b)(5).\147\
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    \146\ The Commission believes that the vast majority--and
likely, all--broker-dealer operators of Government Securities ATSs
that trade Agency Securities currently subscribe to TRACE. The
Commission is, however, requesting public comment on the extent to
which Government Securities ATSs (both Currently Exempted Government
Securities ATSs and those subject to current Regulation ATS) have
access to TRACE trade reports for Agency Securities.
    \147\ See supra notes 138-140.
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    Lastly, the Commission is proposing that a Government Securities
ATS would only be required to comply with the Fair Access Rule only if
it has met at least one of the applicable volume thresholds during at
least four of the preceding six calendar months.\148\ This is the same
time period for evaluating the applicability of the Fair Access Rule to
ATSs that trade U.S. Treasury Securities or Agency Securities that is
currently applied to ATSs that trade NMS stocks, equity securities that
are not NMS stocks and for which transactions are reported to an SRO,
municipal securities, and corporate debt securities. Because of the
similarity of Government Securities ATSs to the other ATSs, the
Commission believes that the range of time is an appropriate

period to evaluate the trading volume of an ATS and strikes an
appropriate balance; the threshold will not be triggered by atypical
periods of increased trading or a few occurrences of very large trades,
but will be timely triggered after an ATS attains a significant role in
the market.
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    \148\ However, if, for example, during the six month period from
January to June, the Government Securities ATS met the threshold for
U.S. Treasury Securities only during January and April and met the
threshold for Agency Securities only during February and May, the
Government Securities ATS would not be subject to the Fair Access
Rule in July because the ATS would not have met the threshold for
either type of security during at least four of the preceding six
months in either U.S. Treasury Securities or Agency Securities.
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Request for Comment
    14. Should any other type of government securities be included as a
category of securities under Rule 301(b)(5)? Should the Commission
apply Rule 301(b)(5) to all Government Securities ATSs? What would be
the costs and benefits associated with such a requirement?
    15. Should the proposed five percent fair access threshold for U.S.
Treasury Securities be applied to all types of U.S. Treasury Securities
or only to a subset(s) of U.S. Treasury Securities? For example, should
the five percent fair access threshold be applied to transaction volume
in only on-the-run U.S. Treasury Securities? Should the five percent
fair access threshold should be applied to all Agency Securities or
only to a subset(s) of Agency Securities?
    16. Should the proposed five percent fair access threshold for U.S.
Treasury Securities be set higher or lower than five percent? If so,
what should that percentage threshold should be? Should there be no
threshold? Please support your views. Is the five percent threshold an
appropriate threshold to capture ATSs that are significant markets for
trading in U.S. Treasury Securities or Agency Securities? Would the
five percent threshold capture ATSs that are not significant markets
for U.S. Treasury Securities and Agency Securities? If there should be
a percent threshold for a subset of U.S. Treasury Securities, for
example on-the-run U.S. Treasury Securities or off-the-run U.S.
Treasury Securities, what should that threshold should be?
    17. Would the proposed four out of six month period be an
appropriate period to measure the volume thresholds for U.S. Treasury
Securities, Agency Securities, or both? If not, what period of time
would be appropriate?
    18. Would it be appropriate to use five percent of average weekly
dollar volume traded in the United States as a fair access threshold
for U.S. Treasury Securities?
    19. If the average weekly dollar volumes were to include
transactions for U.S Treasury Securities by non-FINRA members, which
currently are not reported to, or collected by, the SRO that makes
public average weekly dollar volume statistics, should the fair access
threshold change? If so, what should be the appropriate threshold?
    20. Would it be appropriate to use five percent of average daily
dollar volume traded in the United States as a fair access threshold
for Agency Securities? Do ATSs that trade Agency Securities currently
subscribe to TRACE and, therefore, receive TRACE trade reports for
Agency Securities? If not, what percentage of these ATSs do not
currently subscribe to TRACE?
    21. Should the requirements under the Fair Access Rule be amended
specifically for Government Securities ATS? If so, how?
    22. Should the proposed five percent fair access threshold for U.S.
Treasury Securities be applied on a security-by-security basis?
    23. Should the proposed fair access volume threshold measurement
for Government Securities ATSs, and current fair access threshold
measurements applicable to ATSs that trade NMS stock, OTC equity
securities, corporate bonds, and municipal securities, take into
account whether the ATSs are under common control share the same
technology platform? A broker-dealer may be the registered broker-
dealer for multiple types of ATSs that trade different types of
securities (e.g., an NMS Stock ATS and a non-NMS Stock ATS) or a
broker-dealer may also be the registered broker-dealer for multiple
ATSs that trade the same type of securities but are separate and
distinct from each other (e.g., a broker-dealer registered for, and
operates, two NMS Stock ATSs that each maintains a separate book of
orders that are governed by distinct priority and order interaction
rules). In both instances, each of the ATSs operated by the broker-
dealer operator is separate from each other and must independently
comply with Regulation ATS. Should two or more ATSs under common
control and operated by the same broker-dealer be viewed as a single
ATS required to aggregate volume of transactions for purposes of
determining whether the fair access threshold has been satisfied? If
yes, what factors should be considered when determining the fair access
threshold test for multiple ATSs operated by the same broker-dealer,
and why?

E. Filing Requirements for Broker-Dealers That Operate ATSs That Trade
Government Securities and Non-Government Securities

    The Commission is proposing to revise Rule 301(b)(2)(viii) \149\ of
Regulation ATS to provide that a Legacy Government Securities ATS that
is operating pursuant to a Form ATS as of the Compliance Date will
continue to be subject to the Rule 301(b)(2) requirements to file a
Form ATS. However, once the ATS files a Form ATS-G, it will no longer
be subject to Rule 301(b)(2)(i) through (vii) and will instead be
subject to the reporting requirements under Rule 304, which provides
the rules for filing of Form ATS-G. The Commission is also proposing to
provide that as of the Compliance Date, an entity seeking to operate as
a Government Securities ATS will not be subject to the requirements of
Rule 301(b)(2)(i) through (vii) and will instead be required to file
reports under Rule 304. In addition, the Commission is proposing rules
to make clear that a Currently Exempted Government Securities ATS would
be subject to Rule 304 and would not be subject to Rule 301(b)(2)(i)
through (viii). Other than changes to refer to Government Securities
ATSs, the relevant compliance dates, and the treatment of Currently
Exempted Government Securities ATSs, these rules are identical to the
existing rules that were applied to Legacy NMS Stock ATSs operating
during the Commission review period for Form ATS-N and would avoid
Government Securities ATSs from being subject to potentially
duplicative requirements in Rule 304 and Rule 301(b)(2).
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    \149\ 17 CFR 242.301(b)(2)(viii). Current Rule 301(b)(2)(viii)
provides that NMS Stock ATSs must file with the Commission the
reports and amendments required by Rule 304 and that NMS Stock ATSs
are not subject to Rule 301(b)(2). NMS Stock ATSs or entities
seeking to operate as NMS Stock ATSs would continue to file reports
pursuant to Rule 304. Because the Commission review period for all
Forms ATS-N filed by Legacy NMS Stock ATSs ended in October 2019,
the Commission is proposing to delete references in Rule
301(b)(2)(viii) to Legacy NMS Stock ATSs. The Commission is also
proposing to consolidate the current provisions of Rule
301(b)(2)(viii) applicable to NMS Stock ATSs to state that NMS Stock
ATSs or entities seeking to operate as an NMS Stock ATS shall not be
subject to the requirements of Rule 301(b)(2)(i) through (vii) and
would be subject to Rule 304.
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    The Commission is proposing to amend Rule 301(b)(2)(viii) to make
clear that NMS Stock ATSs and Government Securities ATSs are required
to file reports pursuant to Sec.  242.304 and ATSs that are not NMS
Stock ATSs or Government Securities ATSs are subject to Rule 301(b)(2).
A broker-dealer may be the registered broker-dealer for multiple types
of ATSs that trade different types of securities (e.g., NMS Stock ATS
and non-NMS Stock ATS) or a broker-dealer may be the registered broker-
dealer for multiple ATSs that trade the same type of securities but are
separate and distinct from each other (e.g., a broker-dealer registered
for, and

operates, two NMS Stock ATSs, each of which maintains a separate book
of orders that is governed by distinct priority and order interaction
rules for one type of security). In both instances, each of the ATSs is
separate from the other and must independently comply with Regulation
ATS.\150\ The Commission is proposing to add to Rule 301(b)(2)(viii) to
provide that an NMS Stock ATS or a Government Securities ATS that is
operated by a broker-dealer that is the registered broker-dealer for
more than one ATS must independently comply with Regulation ATS,
including the filing requirements of Rule 304. The Commission believes
that the proposed language makes clear that the proposal would not
require compliance with the heightened transparency requirements of
Regulation ATS for ATSs that are not NMS Stock ATSs or Government
Securities ATSs. Under the proposal, a broker-dealer operator, for
example, for an ATS that noticed on its initial operation report on
Form ATS that the ATS trades government securities and corporate debt
securities would be the broker-dealer operator for two types of ATSs
that would be separate from each other with regard to trading these
securities and independently comply with Regulation ATS. These two
types of ATSs would be (1) a Government Securities ATS that would file
a Form ATS-G with respect to government securities and (2) a non-
Government Securities ATS that would file a Form ATS with respect to
corporate debt.\151\ In addition, each of the two ATSs would be
required to comply with the conditions to Regulation ATS, including,
among other things, each adopting written safeguards and written
procedures to protect subscriber confidential trading information for