DGL REVISED Rule 302 Suporting Statement 2019 6-10-19 (3)

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 302
A.

JUSTIFICATION
1.

Necessity of Information Collection

Regulation ATS sets forth a regulatory regime for “alternative trading systems”
(“ATSs”). An entity that meets the definition of an exchange must register, pursuant to
Section 5 of the Exchange Act, as a national securities exchange under Section 6 of the
Exchange Act 1 or operate pursuant to an appropriate exemption. 2 One of the available
exemptions is for ATSs. 3 Exchange Act Rule 3a1-1(a)(2) exempts from the definition of
“exchange” under Section 3(a)(1) an organization, association, or group of persons that
complies with Regulation ATS. 4 Regulation ATS requires an ATS to, among other
things, register as a broker-dealer with the Securities and Exchange Commission
(“SEC”), file a Form ATS with the Commission to notice its operations, and establish
written safeguards and procedures to protect subscribers’ confidential trading
information. An ATS that complies with Regulation ATS and operates pursuant to the
Rule 3a1-1(a)(2) exemption would not be required by Section 5 to register as a national
securities exchange.
Regulation ATS is composed of Rules 300, 301, 302, 303 and 304. 5 Rule 300
defines terms for the purposes of Regulation ATS. Rule 301 sets forth various
obligations of ATSs. Rule 302 establishes a set 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. Rule 304 sets forth the conditions to the ATS exemption
for ATSs that trade NMS stock (“NMS Stock ATS”), including the requirement that an
NMS Stock ATS file an initial Form ATS-N with the Commission and the initial Form
ATS-N be effective.

See 15 U.S.C. §§ 78e and 78f. A “national securities exchange” is an exchange
registered as such under Section 6 of the Exchange Act.
1

2

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

3

Rule 300(a) of Regulation ATS provides that an ATS is “any organization, association,
person, group of persons, or system: (1) [t]hat 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 [Exchange Act Rule 3b-16]; and (2) [t]hat does not: (i) [s]et rules governing the
conduct of subscribers other than the conduct of subscribers’ trading on such [ATS]; or (ii)
[d]iscipline subscribers other than by exclusion from trading.”

4

See 17 CFR 240.3a1-1(a)(2).

5

17 CFR 242.300 to 242.304.

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2.

Purpose and Use of the Information Collection

Under Rule 302, ATSs are required to make a record of subscribers to the ATS,
daily summaries of trading in the ATS and time-sequenced records of order information in
the ATS. Regulators (including the SEC and the self-regulatory organizations (“SROs”))
use the information contained in the records required to be preserved by Rule 302 to ensure
that ATSs are in compliance with Regulation ATS as well as other applicable rules and
regulations. Without the data required by the Rule, 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.
3.

Consideration Given to Information Technology

The SEC believes that improvements in telecommunications and data processing
technology may reduce any burdens that result from Rule 302. The SEC is 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 occurs 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 302 applies generally to all ATSs and does not depend on the size of the
system. Therefore, the Rule could apply to small businesses. An entity that complies with
Regulation ATS must, among other things, register as a broker dealer. 6 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.
Because the risks that the SEC monitors in the operation of an ATS occur in any
size business, the SEC has determined that Rule 302 must apply in the same manner to
6

See 17 CFR 242.301(b)(1).

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small as well as large entities. Hence, the Rule does not contain an exemption for small
entities.
The Commission notes that there are approximately 83ATSs that are subject to
Regulation ATS. The Commission staff estimates that currently 14 broker-dealers
operating as ATSs registered with the Commission are small entities as currently defined by
the Act.
6.

Consequences of Not Conducting Collection

The information required to be collected under Rule 302 should increase the
abilities of the SEC, state securities regulatory authorities, and the SROs to ensure that
ATSs are in compliance with Regulation ATS as well as other applicable rules and
regulations. If the information is not collected or is collected less frequently, 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.
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 Rule 302 are available only for the examination of the SEC
staff, state securities authorities, and the SROs. Subject to the provisions of the Freedom of
Information Act, 5 U.S.C. § 522 (“FOIA”), and the SEC’s rules thereunder (17 CFR
200.80(b)(4)(iii)), the SEC 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

Rule 302 requires an Alternative Trading System to collect and keep the identity of
certain parties/name of the individuals, but it is not reported to the Commission (except in

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the case of an examination). No information of a sensitive nature, including social security
numbers, will be required under this collection of information. The information collection
does not collect personally identifiable information (PII). The agency has determined that a
system of records notice (SORN) and privacy impact assessment (PIA) are not required in
connection with the collection of information.
12.

Burden of Information Collection

As a condition to the exemption, ATSs required to comply with recordkeeping
requirements under Rule 302 . The SEC estimates that the average time burden for each
respondent to comply with the recordkeeping requirements under the rule is approximately
45 hours (Compliance Clerk) per year. The SEC estimates the related internal cost of
compliance for this hour burden per respondent at approximately $ 3285 per year. This
estimated cost is derived from 45 hours per year at $73 per hour. 7
The SEC estimates that currently there are approximately 83 ATSs that are
registered as broker-dealers and have an active Form ATS initial operation report on file
with the Commission. The SEC estimates the average aggregate hour burden for all
respondents to comply with Rule 302 is 3735 hours per year (83 ATSs at 45 hours per ATS
per year). The SEC estimates that the aggregate internal cost of compliance for all
respondents to comply with Rule 302 is $272,655 per year (83 ATSs at $3285 per ATS per
year).
Rule

Burden Type

Number of
Respondents

Time Per
Response

Rule 302
(Regulation
ATS)

Recordkeepin
g

83

45 hours
(per year)

13.

Total
Burden
(Hours)
3735 hours
(per year)

Costs to Respondents

The SEC believes that compliance with Rule 302 of Regulation ATS does not
require any capital or start up costs, or any recurring annual external operating and
maintenance costs in addition to the hour burdens and internal compliance costs discussed
above.
14.

7

Costs to Federal Government

$73 per hour figure for a Compliance Clerk is from SIFMA’s Office Salaries in the
Securities Industry 2013, modified by SEC staff to account for an 1800-hour work-year
and multiplied by 2.93 to account for bonuses, firm size, employee benefits and
overhead, and adjusted for inflation.

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The federal government does not experience significant costs based on the
recordkeeping required pursuant to Rule 302. The information collected by the respondents
typically would be reviewed only as part of an investigation. As a matter of routine,
however, the SEC does not review the records kept by the respondents.
15.

Changes in Burden

The estimated hour burden associated with Rule 302 of Regulation ATS has
decreased from 3780 to 3735 hours per year as a result of a decrease in the SEC’s estimate
of the number of ATSs from 84 to 83.
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 SEC 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.