Rule 301 Supporting Statement - 2013 (3)

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 301
A.

JUSTIFICATION
1.

Necessity of Information Collection

The Securities Exchange Act of 1934, as amended (“Act”)1, sets forth a scheme of
self-regulation in which national securities exchanges and associations have primary
responsibility for regulating their members and enforcing compliance by members and their
associated persons with the Act, the rules thereunder, and their own rules. Under the Act,
the Commission is charged with the responsibility for supervising and assuring that
exchanges and associations comply with and advance the policies of the Act.
In the 1975 Amendments to the Act, 2 Congress specifically endorsed the
development of a national market system (“NMS”) and sought to clarify and strengthen
the Commission’s authority to promote the achievement of such a system. The growing
use of technology has made it possible for commercial entities to engage in activities
similar to those of national securities exchanges.
Regulation ATS provides a regulatory structure that directly addresses issues
related to these so-called alternative trading systems. Regulation ATS allows alternative
trading systems to choose between two regulatory structures: registering as a brokerdealer and complying with Regulation ATS or registering as a national securities
exchange. Regulation ATS provides the regulatory framework for those alternative
trading systems that choose to be regulated as broker-dealers.
Regulation ATS is composed of Rules 300, 301, 302, and 303. Rule 300 defines
terms that provide the basis for alternative trading system regulation. Rule 301 of
Regulation ATS sets forth the conditions that an alternative trading system must meet in
order to be regulated as a broker-dealer. Rule 301 contains certain notice and reporting
requirements, as well as additional obligations that only apply to alternative trading
systems with significant volume. Rule 302 establishes a set of records that the alternative
trading system must make. Rule 303 establishes requirements for the preservation of
certain records that alternative trading systems must make.
2.

Purpose and Use of the Information Collection

Rule 301 describes the conditions with which an alternative trading system must
comply. The Rule requires all alternative trading systems that wish to comply with
Regulation ATS to file an initial operation report on Form ATS. The initial operation
report requires information regarding operation of the system including, but not limited
1

15 U.S.C. 78a et seq.

2

Pub. L. No. 29, 89 Stat. 97 (1975).

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to, the method of operation, access criteria, and the types of securities traded. Alternative
trading systems are also required to supply updates on Form ATS to the Commission,
describing material changes to the system. In addition, Regulation ATS requires
alternative trading systems to provide quarterly transaction reports on Form ATS-R. An
alternative trading system, if it ceases to operate, is also required to file a cessation of
operations report. The gathering of such information permits the Commission to oversee
the operation of such systems and track the growth of their role in the securities markets.
Alternative trading systems with significant volume are required to comply with
requirements for fair access and systems capacity, integrity, and security. Under Rule
301, such alternative trading systems are required to establish written standards for
granting access to trading on their systems. In addition, such alternative trading systems
are required to make and keep records of all grants of access including, for all subscribers,
the reasons for granting such access, and all denials or limitations of access and reasons, for
each applicant, for denying or limiting access. Regulation ATS requires alternative trading
systems to preserve any records made in the process of complying with the systems
capacity, integrity, and security requirements. In addition, such alternative trading
systems are required to notify Commission staff of material systems outages and
significant systems changes.
The Commission uses the information provided pursuant to Rule 301 to
comprehensively monitor the growth and development of alternative trading systems to
confirm that investors are adequately protected, and that the systems do not impede the
maintenance of fair and orderly securities markets or otherwise operate in a manner that
is inconsistent with the federal securities laws. In particular, the information collected
and reported to the Commission by alternative trading systems enables the Commission
to evaluate the operation of alternative trading systems with regard to national market
system goals, and monitor the competitive effects of these systems to ascertain whether
the regulatory framework remains appropriate to the operation of such systems.
Without the information provided on Forms ATS and ATS-R, the Commission
would not have readily available information on a regular basis in a format that would
allow it to determine whether such systems have adequate safeguards. Further, in the
absence of Rule 301, the Commission would not regularly obtain uniform trading data to
identify areas where surveillance by self-regulatory organizations may be more
appropriately tailored to the detection of fraudulent, deceptive, and manipulative
practices that may be peculiar to an automated trading environment. In sum, without the
data required by Rule 301, the Commission would be severely limited in its ability to
comply with its statutory obligations, provide for the protection of investors and promote
the maintenance of fair and orderly markets.
3.

Consideration Given to Information Technology

Ultimately, all SEC filings, including Forms ATS and ATS-R, will be considered for
electronic submission. Such automation would increase the speed, accuracy, and
availability of information, generating benefits to investors and financial markets.

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4.

Duplication

Because most alternative trading systems would maintain much of the information
required by Rule 301, no duplication occurs with respect to such information. To the extent
that Rule 301 establishes new collections of information, there is no similar information
available that could replace the information required.
5.

Effect on Small Entities

Rule 301 is one of general applicability that mostly does not depend on the size of
the system. Fair access reporting requirements and system capacity, integrity, and security
requirements apply only to alternative trading systems that have significant volume. The
filing requirements on Forms ATS and ATS-R, however, apply to all alternative trading
systems regardless of size. Therefore, the Rule could apply to small businesses. Pursuant to
17 CFR 240.0-10(c), the term “small business” or “small organization” when used in
reference to a broker-dealer means a broker-dealer that has total capital (net worth plus
subordinated liabilities) of less than $500,000 on the date in the prior fiscal year as of which
its audited financial statements were prepared pursuant to 17 CFR 240.17a-5(d) or, if not
required to file such statements, a broker-dealer that had total capital of less than $500,000
on the last business day of the preceding fiscal year (or in the time that it has been in
business); and is not affiliated with any person (other than a natural person) that is not a
small business or small organization as defined in 17 CFR 240.0-10. The Commission staff
estimates that 5 alternative trading systems that would register as broker-dealers are small
entities as currently defined by the Act.
Because the risks that the Commission monitors in the operation of an alternative
trading system occur in any size business, the Commission has determined that Rule 301
must apply in the same manner to small as well as large entities. Hence, Rule 301 does not
contain an exemption for small entities. However, the Commission notes that Regulation
ATS imposes additional duties on alternative trading systems that have large volumes,
which are not likely to be small entities.
6.

Consequences of Not Conducting Collection

Without the information provided on Forms ATS and ATS-R, the Commission
would not have readily available information on a regular basis in a format that would
allow it to determine whether such systems have adequate safeguards. Further, in the
absence of Rule 301, the Commission would not regularly obtain uniform trading data to
identify areas where surveillance by self-regulatory organizations may be more
appropriately tailored to the detection of fraudulent, deceptive, and manipulative
practices that may be peculiar to an automated trading environment. In sum, without the
data required by Rule 301, the Commission would be severely limited in its ability to
comply with its statutory obligations, provide for the protection of investors, and promote
the maintenance of fair and orderly markets.

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7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

There are no special circumstances. This collection is consistent with the
guidelines in 5 CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

The required Federal Register notice with a 60-day comment period soliciting
comments on this collection of information was published. No public comments were
received.
9.

Payment or Gift

The respondents receive no payments or gifts.
10.

Confidentiality

The records required by the proposed amendments are available only to the
examination of the Commission staff, state securities authorities, and self-regulatory
organizations. Subject to the provisions of the Freedom of Information Act, 5 U.S.C. § 522
(“FOIA”), and the Commission’s rules thereunder (17 CFR 200.80(b)(4)(iii)), the
Commission does not generally publish or make available information contained in any
reports, summaries, analyses, letters, or memoranda arising out of, in anticipation of, or in
connection with an examination or inspection of the books and records of any person or any
other investigation.
11.

Sensitive Questions

Not applicable. No information of a sensitive nature is required under Rule 301.
The form does not collect any Personally Identifiable Information (PII).
12.

Burden of Information Collection
a.

Form ATS - Initial Operation Report

Alternative trading systems that choose to register as broker-dealers and comply
with Regulation ATS are required to file a Form ATS prior to commencing operations. The
Commission estimates that approximately 7 respondents will file an Initial Operation Report
on Form ATS each year, and that the average compliance burden for each respondent would
be 20 hours, comprising 13 hours of in-house professional work and 7 hours of clerical
work. Thus, the total compliance burden per year is 140 hours (7 responses x 20 hours =
140 hours). The approximate cost per hour is $379 for in-house professional work and $63
for clerical work.3 Thus the total cost of compliance for the annual burden is $ 37,576
3

The Commission’s estimate concerning the wage rate for attorney and clerk time is based
on salary information for the securities industry compiled by the Securities Industry and
Financial Markets Association (‘‘SIFMA’’). The $379 per hour figure for an attorney is

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($379 x 13 hours per response + $63 x 7 hours per response = $ 5,368 per response; $ 5,368
x 7 responses = $ 37,576).
b.

Form ATS - Periodic Amendments to Update Information

Alternative trading systems that choose to register as broker-dealers and comply
with Regulation ATS are required to file periodic amendments to the initial operations
report on Form ATS to provide notice of material systems changes and reflect other
changes. The Commission estimates that each of the approximately 95 alternative trading
systems will file 2 amendments per year for 190 responses, and that the average compliance
burden for each response would be 6 hours, comprising 4.5 hours of in-house professional
work and 1.5 hours of clerical work. Thus, the total compliance burden per year is 1,140
hours (190 responses x 6 hours = 1,140 hours). The approximate cost per hour is $379 for
in-house professional work and $63 for clerical work. Thus the total cost of compliance for
the annual burden is $342,000 ($379 x 4.5 hours per response + $63 x 1.5 hours per
response = $1,800 per response; $1,800 x 190 responses = $342,000).
c.

Form ATS-R - Quarterly Reports

Alternative trading systems that choose to register as broker-dealers and comply
with Regulation ATS are required to file quarterly reports on Form ATS-R. Each of the
approximately 95 alternative trading systems will file 4 quarterly reports per year for 380
responses. The Commission estimates that that the average compliance burden for each
response would be 4 hours, comprising 3 hours of in-house professional work and 1 hour of
clerical work. Thus, the total compliance burden per year is 1,520 hours (380 responses x 4
hours = 1,520 hours). The approximate cost per hour is $379 for in-house professional work
and $63 for clerical work. Thus the total cost of compliance for the annual burden is
$456,000 ($379 x 3 hours per response + $63 x 1 hours per response = $1,200 per response;
$1,200 x 380 responses = $456,000).
d.

Form ATS - Cessation of Operations Report

Alternative trading systems that choose to register as broker-dealers and comply
with Regulation ATS are required to submit a notice on Form ATS when they are ceasing
operations. The Commission estimates that 5 alternative trading systems will be required to
file a cessation of operations report each year, and that the average compliance burden for
each response would be 2 hours, comprising 1.5 hours of in-house professional work and
0.5 hours of clerical work. Thus, the total compliance burden per year is 10 hours (5
responses x 2 hours = 10 hours). The approximate cost per hour is $379 for in-house
professional work and $63 for clerical work. Thus the total cost of compliance for the
from SIFMA’s Management & Professional Earnings in the Securities Industry 2012,
modified by Commission staff to account for an 1800-hour work-year and multiplied by
5.35 to account for bonuses, firm size, employee benefits, and overhead. The $63 per
hour figure for a compliance clerk is from SIFMA’s Office Salaries in the Securities
Industry 2012, modified by Commission staff to account for an 1800-hour work-year and
multiplied by 2.93 to account for bonuses, firm size, employee benefits, and overhead.

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annual burden is $3,000 ($379 x 1.5 hours per response + $63 x 0.5 hours per response =
$600 per response; $600 x 5 responses = $3,000).
e.

Establishment of Written Fair Access Standards

Alternative trading systems that choose to register as broker-dealers, comply with
Regulation ATS, and meet certain volume thresholds are required to establish written
standards for granting access to their systems. The Commission estimates that 2 alternative
trading systems that register as broker-dealers and comply with Regulation ATS would meet
the volume thresholds that trigger fair access obligations, and that the average compliance
burden of establishing written fair access standards for each entity would be 10 hours of inhouse professional work at $379 per hour. Thus, the total compliance burden per year is 20
hours (2 responses x 10 hours = 20 hours). The total cost of compliance for the annual
burden is $7,580 ($379 x 10 hours per response x 2 responses = $7,580).
f.

Making and Keeping Records in Connection with Fair Access

Alternative trading systems that choose to register as broker-dealers, comply with
Regulation ATS, and meet certain volume thresholds are required to make and keep records
of (1) all grants of access including, for all subscribers, the reasons for granting such access;
and (2) all denials or limitations of access and reasons, for each applicant, for denying or
limiting access.4 In addition, the alternative trading systems that meet such volume
thresholds must disclose on Exhibit C to Form ATS-R a list of all persons granted, denied,
or limited access to the system during the relevant period.5 The Commission estimates that
2 alternative trading systems that register as broker-dealers and comply with Regulation
ATS be subject to these requirements, and that the average compliance burden for each
entity would be 10 hours of in-house professional work at $379 per hour. Thus, the total
compliance burden per year is 20 hours (2 responses x 10 hours = 20 hours). The total cost
of compliance for the annual burden is $7,580 ($379 x 10 hours per response x 2
respondents = $7,580).
g.

Systems Capacity, Integrity, and Security Recordkeeping

Alternative trading systems that choose to register as broker-dealers, comply with
Regulation ATS, and meet certain volume thresholds are required to make records relating
to any steps taken to comply with systems capacity, integrity, and security requirements
under Rule 301(b)(6).6 The Commission estimates that 2 alternative trading systems that
4

While fair access obligations are triggered when volume thresholds are crossed on a
security-by-security basis with respect to specific equity securities, and on a percentage
of market basis with respect to fixed income securities, it would be difficult, if not
impossible, to estimate the exact number of securities with respect to which an ATS
would cross a volume threshold. In practice, however, if an ATS crosses a volume
threshold for any securities, it would typically offer fair access to its entire system.

5

The burdens associated with filing Form ATS-R are discussed in subsection (c) above.

6

As part of the proposed Regulation Systems Compliance and Integrity (“SCI”), the

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register as broker-dealers and comply with Regulation ATS would trigger this requirement,
and that the average compliance burden for each response would be 10 hours of in-house
professional work at $379 per hour. Thus, the total compliance burden per year is 20 hours
(2 responses x 10 hours = 20 hours). The total cost of compliance for the annual burden is
$7,580 ($316 x 20 hours = $7,580).
h.

Systems Outage Notices

Alternative trading systems that choose to register as broker-dealers, comply with
Regulation ATS, and meet certain volume thresholds are required to provide a notice to the
Commission to report any systems outages. The Commission estimates that 2 alternative
trading systems that register as broker-dealers and comply with Regulation ATS would meet
the volume thresholds that trigger systems’ outage notice obligations approximately 5 times
a year, and that the average compliance burden for each response would be 0.25 hours of inhouse professional work at $379 per hour. Thus, the total compliance burden per year is 2.5
hours (2 respondents x 5 responses each x 0.25 hours = 2.5 hours). The total cost of
compliance for the annual burden is $947.50 ($379 x 0.25 hours per response x 10 responses
= $947.50).
i.

Aggregate Respondent Reporting Burdens

The estimated average annual aggregate burden for alternative trading systems to
comply with Rule 301 would be 2,872.50 hours. This estimate is broken down as follows:
Initial Operating Reports on Form ATS =
140 hours
Amendments to Form ATS =
1,140 hours
Quarterly reports on Form ATS-R =
1,520 hours
Cessation of operations report on Form ATS =
10 hours
Establishment of Written Fair Access Standards=
20 hours
Making and Keeping Records in Connection with Fair Access= 20 hours
Systems capacity, integrity and security records =
20 hours
2.5 hours
Systems outage notices =
2,872.50 hours
The estimated number of annual responses for alternative trading systems under
Rule 301 would be 598. This estimate is broken down as follows:

Commission has recently proposed to eliminate Rule 301(b)(6) and replace it with
proposed Rule 1000, which would make certain modifications to the applicable volume
thresholds and processes related to system integrity. See Securities Exchange Act
Release No. 34-69077 (March 8, 2013), 78 FR 18084 (March 25, 2013).

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Initial operation report filing on Form ATS =
7 filings
Amendments to Form ATS =
190 filings
Quarterly reports on Form ATS-R =
380 filings
Cessation of operations report on Form ATS =
5 filings
Establishment of Written Fair Access Standards
2 responses
Making and Keeping Records in Connection with Fair Access =
2 responses
Systems capacity, integrity and security records =
2 responses
Systems outage notices =
10 notices
598 annual responses
13.

Costs to Respondents

The Rule does not impose any costs aside from those associated with the burden
hours discussed in item 12 above.
14.

Costs to Federal Government

There are no federal costs related to material costs for this information collection.
15.

Changes in Burden

As compared to the costs and hourly burdens identified in the Commission's 2010
Submission, the estimated aggregate hourly burden has increased from 1,792.50 hours to
2,872.50 hours as a result of an increase in the number of ATSs and a change in the estimate
of certain hourly burdens. The estimated aggregate costs associated with Rule 301 of
Regulation ATS decreased from $158,988.14 to zero because costs had been estimated
improperly in earlier years.
16.

Information Collection Planned for Statistical Purposes

Not applicable. The information collection is not used for statistical purposes.
17.

Approval to Omit OMB Expiration Date

The Commission is not seeking approval to omit the expiration date.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

This collection complies with the requirements in 5 CFR 1320.9.
B.
COLLECTION OF INFORMATION EMPLOYING STATISTICAL
METHODS
This collection of information does not involve statistical methods.