Supporting Statement for Rule 303 (08.01.18)

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for Regulation of
NMS Stock Alternative Trading Systems – Rule 303

This submission is being made pursuant to the Paperwork Reduction Act of 1995, 44
U.S.C. Section 3501 et seq.
A.

JUSTIFICATION
1.

Necessity of Information Collection

In 1998, the Commission adopted Regulation ATS, which established a new
regulatory framework for alternative trading systems (“ATS”), which allows entities that
meet the definition of “exchange” under Section 3(a)(1) of the Exchange Act to choose
between two regulatory structures: registering as a national securities exchange or
registering as a broker-dealer and complying with Regulation ATS.
Regulation ATS allows an organization, association, or group of persons that
meets the definition of an exchange, as define under Section 3(a)(1) of the Exchange Act
and Rule 3b-16 thereunder, 1 to choose between two regulatory structures: registering as a
national securities exchange or operating as an ATS pursuant to an exemption provided
by Regulation ATS. An organization, association, or group of persons that chooses to
operate as an ATS pursuant to the exemption provided by Exchange Act Rule 3a1-1(a)(2)
must comply with Regulation ATS, including registering as a broker-dealer.
Regulation ATS is composed of Rules 300, 2 301, 3 302, 4 and 303. 5 Rule 300
defines terms. Rule 301 sets forth the conditions that an ATS must meet to be exempt
under Rule 3a1-1(a)(2), including the requirement that an ATS be registered as a brokerdealer. Rule 301 contains certain notice and reporting requirements, as well as additional
obligations that only apply to ATSs with significant volume. 6 Rule 302 establishes a set
1

See 17 CFR 240.3b-16. See generally Securities Exchange Act Release No.
40760 (December 8, 1998), 63 FR 70844, 70863 (December 22, 1998)
(Regulation of Exchanges and Alternative Trading Systems); see also Securities
Exchange Act Release No. 76474 (Nov. 18, 2015), 80 FR 80998, 81004 (Dec. 28,
2015) (“Proposal”) discussing the current exemption from the definition of
exchange available to ATSs).

2

Rule 300 does not include a collection of information.

3

OMB No. 3235-0509.

4

OMB No. 3235-0510.

5

OMB No. 3235-0505.

6

In November 2014, the Commission adopted Regulation Systems Compliance and
Integrity (“Regulation SCI”) to require certain key market participants to, among

of records relating to trading activity that the ATS must make. Rule 303 establishes
requirements for the preservation of certain records that ATSs must make. 7
On July 18, 2018, the Commission adopted amendments to Regulation ATS to
improve the operational transparency of ATSs that trade in NMS stocks (“NMS Stock
ATSs”). 8 The majority of substantive changes in the new amendments are in Rule 304,
which includes the requirement that NMS Stock ATSs file public disclosures on Form
ATS-N. Rule 304 establishes new conditions for NMS Stock ATSs seeking to rely on the
exemption from the definition of “exchange” provided by Rule 3a1-1(a) of the Exchange
Act. 9 Form ATS-N will require NMS Stock ATSs to publicly disclose, among other
things, information about the broker-dealer operator, the NMS Stock ATS’s manner of
operations, and the ATS-related activities of the broker-dealer operator and its

other things: (1) have comprehensive policies and procedures in place to help
ensure the robustness and resiliency of their technological systems, and also that
their technological systems operate in compliance with the federal securities laws
and with their own rules; and (2) provide certain notices and reports to the
Commission to improve Commission oversight of securities market infrastructure.
Regulation SCI was adopted to update, formalize, and expand the Commission’s
ARP Inspection Program, and, with respect to SCI entities, to supersede and
replace the Commission’s ARP Policy Statements, as well as certain rules
regarding systems capacity, integrity, and security in Rule 301(b)(6) of
Regulation ATS that relate to ATSs that trade NMS and equity securities that are
not NMS stocks. Securities and Exchange Act Release No. 34-73639 (November
19, 2014), 79 FR 72251 (December 5, 2014). Given the inclusion of ATSs that
trade NMS stocks and equity securities that are not NMS stocks within the scope
of Regulation SCI, the Commission amended Rule 301(b)(6) of Regulation ATS
so that it will no longer apply to ATSs that trade NMS stocks and equities
securities that are not NMS stocks.
7

As discussed in the Proposal, the Commission is submitting separate information
collections for Rules 301, 303, and 304 of Regulation ATS because we consider
this organization the most practical and efficient manner in which to organize the
collections. The collections associated with each rule serve different purposes:
the collection in Rule 301 relates in large part to Form ATS; Rule 304 relates
primarily to Form ATS-N; and Rule 303 is the associated record preservation
requirements. The Commission at one point combined these collections under
OMB control number 3235-0509 during the proposing stage, but for the
aforementioned reasons, we believe that separating the information collections for
these rules is more effective.

8

See Exchange Act Release No. 83663 (July 18, 2018), (File No. S7-23-15).

9

We have adopted conforming amendments to Rule 300 of Regulation ATS and
Exchange Act Rule 3a1-1(a).
2

affiliates. 10 The collection of information in Rule 304 and Form ATS-N are discussed in
the Supporting Statement for OMB No. 3235-XXXX. Thus, NMS Stock ATSs would no
longer comply with the filing requirements of Rule 301(b)(2). Instead, NMS Stock ATSs
must file Form ATS-N pursuant to Rule 304 of Regulation ATS.
ATSs that choose to register as broker-dealers and comply with Regulation ATS
are required to comply with record preservation requirements under Rule 303. 11 In
connection with the adoption of the Rule 304 and Form ATS-N, we adopted related
amendments to existing Rule 303 of Regulation ATS. As discussed below, we amended
Rule 303(a)(1)(v) of Regulation ATS 12 to require every ATS to preserve the written
safeguards and written procedures mandated under Rule 301(b)(10). Additionally, as
discussed further below, we amended Rule 303(a)(2)(ii) to require that an ATS shall
preserve for the life of the enterprise and of any successor enterprise, copies of reports
filed pursuant to Rule 301(b)(2) or – in the case of an NMS Stock ATS – Rule 304. 13
We believe that that information contained in the record required to be preserved by
Rule 303(a)(1)(v), as adopted, will be used by examiners and other representatives of the
Commission, state securities regulatory authorities, and SROs to evaluate whether the ATS
are in compliance with Regulation ATS as well as other applicable rules and regulations.
Without the data required by the amendments to Regulation ATS, regulators would be
limited in their ability to comply with their statutory obligations, provide for the
protection of investors, and promote the maintenance of fair and orderly markets.
2.

Purpose and Use of the Information Collection

Rule 303 describes the record preservation requirements for ATSs. Rule 303 also
describes how such records must be maintained, what entities may perform this function,
and how long records must be preserved.
Under Rule 303, ATSs are required to preserve all records made pursuant to Rule
302, which includes information relating to subscribers, trading summaries and timesequenced records of order information. Rule 303 also requires ATSs to preserve any
notices provided to subscribers, including, but not limited to, notices regarding the ATSs
operations and subscriber access. For an ATS subject to the fair access requirements
10

Form ATS-N expands on the information contained in Form ATS and will be made
public. The Commission will continue to collect information for Form ATS for nonNMS Stock ATSs and Form ATS-R. Both the Form ATS and Form ATS-R will
remain confidential. Although an ATS may voluntarily publish its Form ATS and
Form ATS-R, these forms are otherwise available only to the examination of the
Commission staff, state securities authorities, and self-regulatory organizations.

11

See 17 CFR 242.301(b)(8). ATS shall: (i) make and keep records specified in 17
CFR 242.302 and (ii) preserve the records specified in 17 CFR 242.303.

12

See 17 CFR 242.303(a)(1)(v).

13

See 17 CFR 242.303(a)(2)(ii).
3

described in Rule 301(b)(5)(ii) of Regulation ATS, Rule 303 further requires the ATS to
preserve at least one copy of its standards for access to trading, all documents relevant to
the ATS’s decision to grant, deny, or limit access to any person, and all other documents
made or received by the ATS in the course of complying with Rule 301(b)(5) of
Regulation ATS. As provided in Rule 303(a)(1), ATSs are required to keep all of these
records, as applicable, for a period of at least three years, the first two in an easily
accessible place. In addition, Rule 303 requires ATSs to preserve records of partnership
articles, articles of incorporation or charter, minute books, stock certificate books, copies
of reports filed pursuant to Rule 301(b)(2), and records made pursuant to Rule 301(b)(5)
for the life of the ATS.
We have amended the record preservation requirements of Rule 303 to
incorporate the preservation of records that have been created pursuant to the new
requirements that NMS Stock ATSs file an initial Forms ATS-N, Form ATS-N
amendments, and notices of cessation on Form ATS-N instead of Form ATS.
Specifically, the Commission amended Rule 303(a)(2)(ii) to require that an ATS shall
preserve, for the life of the enterprise and of any successor enterprise, copies of reports
filed pursuant to Rule 301(b)(2) or – in the case of an NMS Stock ATS – Rule 304, and
records made pursuant to Rule 301(b)(5). 14 As a result, because an NMS Stock ATS is
required to file initial Form ATS-N, Form ATS-N amendments, and notices of cessation
on Form ATS-N pursuant to proposed Rule 304, instead of on Form ATS pursuant to
Rule 301(b)(2)to Rule 301(b)(2), the NMS Stock ATS would be required to preserve
those reports for the life of the enterprise and of any successor enterprise pursuant to the
proposed amendments to Rule 303(a)(2). 15
We have also amended the record preservation requirements of Rule 303(a)(1) 16
to incorporate the amendments to Rule 301(b)(10), 17 which requires an ATS to reduce to
writing its safeguards and procedures to ensure confidential treatment of subscribers’
trading information and the oversight procedures to ensure that those safeguards and
procedures are followed. Accordingly, pursuant to Rule 303(a)(1)(v), an ATS is
required, for a period of not less than three years, the first two years in an easily
accessible place, to preserve at least one copy of the written safeguards and written
procedures to protect subscribers’ confidential trading information and the written
oversight procedures created in the course of complying with Rule 301(b)(10). 18 We
have not amended any other aspects of the records preservation requirements of Rule
14

See Rule 303(a)(2)(ii).

15

The Commission notes that an NMS Stock ATS that had previously made filings
on Form ATS would be required to preserve those filings for the life of the
enterprise, as well as filings made going forward on Form ATS-N.

16

17 CFR 242.303(a)(1).

17

See Rule 301(b)(10).

18

See Rule 303(a)(1)(v).
4

303(a)(1). We believe that the amendments to Rule 303 are necessary to create a
meaningful audit trail of an ATS’s current and previous written safeguards and
procedures pursuant to Rule 301(b)(2) and permit surveillance and examination staff to
help ensure fair and orderly markets, without imposing any undue burden on ATSs. 19
3.

Consideration Given to Information Technology

We believe that improvements in telecommunications and data processing
technology may reduce any burdens that result from the Rule. We are not aware of any
technical or legal obstacles to reducing the burden through the use of improved information
technology.
4.

Duplication

Most of the records required to be made under the Rule reflect practices that prudent
ATSs would establish. Because most ATSs would maintain much of the information
required by the Rule, no duplication would occur with respect to such information. To the
extent that the Rule establishes new collections of information, there is no similar
information available that could replace the information required.
5.

Effect on Small Entities

Rule 303 applies generally to all ATSs and does not depend on the size of the
system. Therefore, Rule 303 could apply to small businesses. An entity that complies with
Regulation ATS must, among other things, register as a broker dealer.20 Thus, the SEC’s
definition of small entity as it relates to broker-dealers also applies to ATSs. 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 notes that there are approximately 87 ATSs that are subject to
Regulation ATS. 21 The Commission staff estimates that currently 15 broker-dealers
19

We also made a minor technical amendment to Rule 303(a). Previously, Rule
303(a) referenced “paragraph (b)(9) of § 242.301” when setting forth the record
preservation requirements for ATSs. We changed the above reference to
“paragraph (b)(8) of § 242.301” because Rule 301(b)(8) sets forth the
recordkeeping requirements for ATSs.

20

See 17 CFR 242.301(b)(1).

21

This is based on the number of ATSs as of March 31, 2018.
5

operating as ATSs (including NMS Stock and non-NMS Stock ATSs), 22 registered with
the Commission are small entities as currently defined by the Act. Therefore, the
amendments to Rule 303 would apply to 15 small entities that are ATSs but we believe
that there would be no significant economic impact on these entities because, to the
extent they do not have these safeguards and procedures in writing, any resulting burden
is minimal because the ATS would only be memorializing its existing safeguards and
procedures. 23
Because the risks that the Commission monitors in the operation of an ATS occur in
any size business, we have determined that Rule 303 must apply in the same manner to
small as well as large entities. Hence, Rule 303 does not contain an exemption for small
entities. However, we note that Regulation ATS imposes additional duties on ATSs that
have large volumes, which are not likely to be such small entities.
6.

Consequences of Not Conducting Collection

We believe that the amendments to Rule 303 are necessary to create a meaningful
audit trail of an ATS’s current and previous written safeguards and procedures pursuant to
Rule 301(b)(2) and permit surveillance and examination staff to help ensure fair and orderly
markets, without imposing any undue burden on ATSs. 24
7.

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

Certain provisions of Rule 303 require respondents to retain records for more than
three years. 25 As discussed above, we amended Rule 303(a)(2)(ii) to require that an
NMS Stock ATS preserve, for the life of the enterprise and of any successor enterprise,
copies of reports filed pursuant to Rule 304 of Regulation ATS. We believe that the
amendment to Rule 303 is necessary to create a meaningful audit trail of an ATS’s
current and previous manner of operation and permit surveillance and examination staff
to help ensure fair and orderly markets.
8.

Consultations Outside the Agency

22

We estimate that 5 of the estimated 15 small entities are NMS Stock ATSs that
would not be subject to the filing requirements of Form ATS (and instead comply
with Rule 304). As noted above, all 15 small entities would be subject to the
filing requirements for Form ATS-R.

23

See Proposal, supra note 1, at 81093.

24

We also made a minor technical amendment to Rule 303(a). Previously, Rule
303(a) referenced “paragraph (b)(9) of § 242.301” when setting forth the record
preservation requirements for ATSs. We changed the above reference to
“paragraph (b)(8) of § 242.301” because Rule 301(b)(8) sets forth the
recordkeeping requirements for ATSs.

25

See Rule 303(a)(2)(ii).
6

All Commission rule proposals are published in the Federal Register for a
comment period lasting at least 30-60 days. This comment period allowed the public an
opportunity to respond to the proposal. In the Proposal, the Commission solicited
comments on the collection of information burdens and asked whether commenters agree
with our estimate of the number of respondents and paperwork burdens of the Proposal. 26
The Commission received no comments pertaining to the information collection in Rule
303.
9.

Payment or Gift

The respondents receive no payments or gifts.
10.

Confidentiality

Generally, the records required by Rule 303 are available only for the examination
of the Commission staff, state securities authorities, and the SROs.27 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 the rule.
12.

Burden of Information Collection

We believe that ATSs – in particular, ATSs whose broker-dealer operators are
large, multi-service broker-dealers – generally have and maintain in writing their
safeguards and procedures to protect subscribers’ confidential trading information, as
well as the oversight procedures to ensure such safeguards and procedures are followed.
In the Proposal, we stated that for ATSs that currently have and preserve in written
format the safeguards and procedures to protect subscribers’ confidential trading
information under Rule 301(b)(10) of Regulation ATS, the proposed requirement to
preserve those written procedures would not add any burden to those ATSs. 28 We believe
that the current practices of those ATSs would already be in compliance with Rule
303(a)(1)(v). Therefore, we believe that there will be no increased initial or ongoing
burden for those ATSs under the amendments to Rule 303(a)(1)(v) of Regulation ATS.
We estimate that, of the 87 current ATSs, 15 ATSs might not have recorded in
writing their safeguards and procedures to protect subscribers’ confidential trading
26

See Proposal, supra note 1, at 81107.

27

Form ATS and Form ATS-R are field on a confidential basis pursuant to
301(b)(2)(vii). Form ATS-N is a public report filed with the Commission.

28

Id. at 81093.
7

information and oversight procedures to ensure such safeguards and procedures are
followed, there will be a one-time initial burden to memorialize them in a written
document(s) and set up procedures to preserve such documents. Although the number of
respondents has increased by 3, we believe that any initial and ongoing burden in
connection with preserving these records is already accounted for in the existing record
preservation requirements under Rule 303, therefore, a revision to the current burden
estimate is not necessary. The current average ongoing hourly burden for a respondent to
comply with the record preservation requirements under Rule 303 is approximately 15 hours
per year. 29 We estimate that there are approximately 87 ATSs registered as broker-dealers
that have filed initial operation reports in compliance with Regulation ATS. Therefore, we
estimate the average aggregate ongoing burden to comply with existing Rule 303 is 1,305
hours per year.30
The Commission amended Rule 303(a)(2)(ii) 31 of Regulation ATS to provide that
all NMS Stock ATSs must preserve copies of all reports filed pursuant to proposed Rule
304 for the life of the enterprise and any successor enterprise. Because NMS Stock ATSs
that solely trade NMS stocks will file Form ATS-N in lieu of Form ATS, we believe that
the amendment to Rule 303(a)(2)(ii) will not result in any burden for those NMS Stock
ATSs that are not already accounted for under the current baseline burden estimate for
Rule 303. 32 The estimated burden under amended Rule 303(a)(2)(ii) for each ATS is the
29

(Compliance Manager at 3 hours per year) + (Compliance Clerk at 12 hours per
year) = 15 hours per year. Regulation SCI superseded and replaced certain rules
regarding systems capacity, integrity, and security in Rule 301(b)(6) of
Regulation ATS that relate to ATSs that trade NMS and non-NMS stocks.
Securities and Exchange Act Release No. 34-73639 (November 19, 2014), 79 FR
72251 (December 5, 2014). These alternative trading systems further were
required to preserve under Rule 303 any records made in the process of
complying with the systems capacity, integrity, and security requirements.
Nevertheless, despite the removal of Rule 301(b)(6) and its corresponding
recordkeeping obligations, the Commission has not modified the burden hours
estimated to comply with the record preservation requirements under Rule 303.
The Commission estimated only two ATSs would cross the relevant volume
thresholds to be subject to Rule 301(b)(6). See FR Doc. 2014-02143, 79 FR
6236, 6237-38 (February 3, 2014) (Request to OMB for Extension of Rule 301
and Forms ATS and ATS-R; SEC File No. 270-451; OMB Control No. 32350509). Also, the recordkeeping obligations of Rule 301(b)(6) did not require
substantial procedures related to recordkeeping in addition to the other
recordkeeping provisions of Rule 303. For these reasons, the Commission
believes that maintaining the estimated burden hours for Rule 303 at 15 hours is
appropriate.

30

87 ATSs x 15 hours = 1,305 hours.

31

17 CFR 242.303(a)(2)(ii).

32

To comply with all of the record preservation requirements of Rule 303, we
8

same as in the Proposal. 33 For the 10 ATSs that transact in, or have indicated in Exhibit
B to their Forms ATS that they expect to trade both NMS stock and non-NMS stock on
their respective ATSs, we estimate that the ongoing burden above the current baseline
estimate for preserving records relating to compliance with the amendment to Rule
303(a)(ii) will be, consistent with the estimate in the Proposal, approximately 3 hours
Summary of Hourly Burdens

Name of
Information
Collection

Type of
Burden

# Entities
Impacted

Annual
Responses
per Entity

Record
Preservation
for at Least 3
Years (Rule

Recordkeeping

87

1

Initial
Burden
per
Entity

Initial
Burden
Annualize
d per
Entity

Ongoing
Burden
per Entity

Annual
Burden Per
Entity Per
Response

Total
Annual
Burden
Per Entity

Total
Industry
Burden

Total Initial
Burden For
All
Respondents

Total
Ongoing
Burden For
All
Respondents

Small
Business
Entities
Affected

0.00

0.00

15.00

15.00

15.00

1,305.00

0.00

1,305.00

15

annually per ATS for a total annual burden above the current baseline burden estimate of
30 hours for all respondents. 34
The estimated average annual aggregate burden for alternative trading systems to
comply with Rule 303 would be 1,335.00 hours. This estimate is broken down as follows:

estimate that ATSs spend approximately 1,305 hours per year (87 respondents at
15 burden hours per respondent). See FR Doc. 2013-17474, 78 FR 43943 (July
22, 2013) (Request to OMB for Extension of Rule 303; SEC File No. 270-450;
OMB Control No. 3235-0505).
33

See Proposal, supra note 1, at 81107.

34

3 additional burden hours x 10 ATSs = 30 aggregate burden hours.
9

303(a)(1)(v))
Record
Preservation
for the Life of
the Enterprise
(Rule
303(a)(2)(ii))

Recordkeeping

10

13.

1

0.00

0.00

3.00

3.00

3.00

30.00

0.00

30.00

TOTAL HOURLY BURDEN FOR ALL RESPONDENTS

18.00

1,335.00

0.00

1,335.00

Costs to Respondents

We believe that compliance with Rule 303 of Regulation ATS does not require any
capital or startup costs, or any recurring annual external operating and maintenance costs.
14.

Cost to Federal Government

The government does not experience significant costs based on the recordkeeping
required pursuant to Rule 303. The information collected by the respondents would
typically be reviewed only as part of an investigation. As a matter of routine, however, we
do not review the records kept by the respondents.
15.

Changes in Burden

The estimated hour burden associated with Rule 303 of Regulation ATS has
increased from the new requirements from 1,305.45 hours per year to 1,335 hours per
year. This increase results primarily from the 10 NMS Stock ATSs that will have to
preserve additional records pursuant to Rule 303(a)(2)(ii).
16.

Information Collection Planned for Statistical Purposes

Not applicable. The information is not published for statistical use.
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 does not employ statistical methods.

10

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