DGL REVISED FINAL 2021 Supporting statement for Rule 303 (DGL and DG changes) v2

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for Regulation of
NMS Stock Alternative Trading Systems – Rule 303
(OMB Control No. 3235-0505)
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 defined 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, 4 303, 5 and 304. Rule 300 defines
terms. Rule 301 sets forth the conditions that an ATS must meet to be exempt under Rule 3a11(a)(2), including the requirement that an ATS be registered as a broker-dealer. 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 of records relating to trading
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 (November 18, 2015), 80 FR 80998, 81004 (December 28, 2015) (“NMS
Stock ATS 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 other
things: (1) have comprehensive policies and procedures in place to help ensure the

activity that the ATS must make. Rule 303 establishes requirements for the preservation of
certain records that ATSs must make.
On July 18, 2018, the Commission adopted amendments to Regulation ATS to improve
the operational transparency of ATSs that trade in National Market System (“NMS”) stocks
(“NMS Stock ATSs”). 7 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 ATSN. 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. 8 Form ATSN 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 affiliates. 9 The collection of information in Rule
304 and Form ATS-N are discussed in the Supporting Statement for OMB No. 3235-0763.
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. 10 In connection with
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 stocks and equity securities that are
not NMS stocks. See Securities and Exchange Act Release No. 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

See Securities Exchange Act Release No. 83663 (July 18, 2018), 83 FR 38768 (August 7,
2018).

8

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

9

Form ATS-N expands on the information contained in Form ATS and is made public. The
Commission will continue to collect information for Form ATS for non-NMS 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.

10

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.
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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 11 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. 12
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 self-regulatory organizations (“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 to 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 time-sequenced
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 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 Form 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,
11

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

12

See 17 CFR 242.303(a)(2)(ii).
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copies of reports filed pursuant to Rule 301(b)(2) or Rule 304 in the case of an NMS Stock ATS,
and records made pursuant to Rule 301(b)(5). 13 ATSs that trade both NMS stocks and securities
other than NMS stocks are required to file, and also preserve under Rule 303, both Form ATS
and related amendments and Form ATS-N and related amendments.
We have also amended the record preservation requirements of Rule 303(a)(1) 14 to
incorporate the amendments to Rule 301(b)(10), 15 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). 16
We have not amended any other aspects of the records preservation requirements of Rule
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. 17
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

13

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

14

17 CFR 242.303(a)(1).

15

See 17 CFR 242.301(b)(10).

16

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

17

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.
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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. 18 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 94 ATSs that are subject to
Regulation ATS. 19 The Commission staff estimates that currently 17 broker-dealers operating as
ATSs (including NMS Stock and non-NMS Stock ATSs) registered with the Commission are
small entities as currently defined by the Act. Therefore, the amendments to Rule 303 would
apply to 17 small entities that are ATSs, but we believe that there would be no significant
economic impact on these entities because the universal use of electronic storage mediums by
ATSs makes any resulting burden minimal.
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.
6.

Consequences of Not Conducting Collection

We believe that Rule 303 is necessary to create a meaningful audit trail of an ATS’s current
and previous records to evaluate its compliance with Regulation ATS and permit surveillance and
examination staff to help ensure fair and orderly markets, without imposing any undue burden on
ATSs.
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. 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
20

18

See 17 CFR 242.301(b)(1).

19

This is based on the number of ATSs as of May 12, 2021.

20

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

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

Generally, the records required by Rule 303 are available only for the examination of the
Commission staff, state securities authorities, and the SROs.21 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

The information collection collects basic personally identifiable information that includes
name, job title, telephone number, and fax number. However, the agency has determined that the
information does not constitute a system of records for purposes of the Privacy Act. Information is
not retrieved by a personal identifier. Neither a PIA nor a SORN are required in connection with
the collection of information; the PAW is sufficient.
12.

Burden of Information Collection

The Commission continues to believe that the average ongoing hourly burden for a
respondent to comply with the baseline record preservation requirements under Rule 303 is
approximately 15 hours per year. 22 The Commission believes that a burden estimate of 15 hours
21

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.

22

(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 stocks and non-NMS stocks. See Securities Exchange Act Release No.
73639 (November 19, 2014), 79 FR 72251 (December 5, 2014). These ATSs further
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per ATS is appropriate to identify and preserve the applicable records. We estimate that there are
approximately 94 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 the baseline Rule 303 record preservation requirements is approximately 1,410.00
hours per year. 23 In addition, there are currently two ATSs that transact in both NMS stock and
non-NMS stock on their ATSs. These two ATSs have a slightly greater burden because they
have to keep both Form ATS and Form ATS-N and related documents (e.g., amendments) as
opposed to the other ATSs that trade either NMS stock or non-NMS stock and thus only keep
either Form ATS or Form ATS-N documents. For these two ATSs, we estimate that the ongoing
burden above the current baseline estimate for preserving records will be approximately 1 hour
annually per ATS for a total annual burden above the current baseline burden estimate of 2 hours
for all respondents. 24
The estimated average annual aggregate burden for alternative trading systems to comply
with Rule 303 would thus be approximately 1,412.00 hours. This estimate is broken down as
follows:

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 per ATS is appropriate.
23

94 ATSs x 15 hours = 1,410 hours.

24

1 additional burden hours x 2 ATSs = 2 aggregate burden hours.
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Summary of Hourly Burdens

Name of
Information
Collection

Annual
Burden
Per
Entity
Per
Response

0.00

15.00

15.00

0.00

1.00

Total Initial
Burden For
All
Respondents

Total
Ongoing
Burden For
All
Respondents

Small
Business
Entities
Affected

15.00

1,410.00

0.00

1,410.00

16

1.00

1.00

2.00

0.00

2.00

1

TOTAL HOURLY BURDEN FOR ALL RESPONDENTS

16.00

1,412.00

0.00

1412.00

Type of
Burden

Annual
Responses
per Entity

Record
Preservation
for all ATSs

Recordkeeping

94

1

0.00

Additional
Record
Preservation
for ATSs that
trade both
NMS stock
and nonNMS stock

Recordkeeping

2

1

0.00

13.

Ongoing
Burden
per
Entity

Total
Industry
Burden

Initial
Burden
per
Entity

# of
Entities
Impacted

Initial
Burden
Annualized
per Entity

Total
Annual
Burden
Per
Entity

Costs to Respondents

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 approximately 1,335 hours per year to approximately 1,412.00 hours per year. This
increase results primarily from an increase in the number of ATSs from 87 to 94.
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.

8

B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
This collection does not employ statistical methods.

9