3235-0510-- 2023 Rule 302 revised Supporting Statement re ATS proposal

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 302
(OMB Control No. 3235-0510)
Proposed Partial Revision
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 Securities Exchange Act of 1934 (“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
1

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.

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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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.
2022 Proposed Rulemaking Affecting this OMB Control Number
In January 2022, the Commission proposed amendments to Regulation ATS and
Exchange Act Rule 3b-16, which defines certain terms used in the statutory definition of
“exchange” under section 3(a)(1) of the Exchange Act. 6 In April 2023, the Commission
provided supplemental information and reopened the comment period for the 2022 Reg
ATS Proposing Release.7 These proposed amendments would increase the number of
respondents for the collections of information in several rules, including this one. This
revision only increases the number of respondents, as described below, and does not
otherwise revise the collections of information in this OMB Control Number.
The Commission assumed in both the 2022 Reg ATS Proposing and 2023 Reg
ATS Reopening Releases that, under the proposed amendments, systems that would be
newly captured under the proposed definition of “exchange” will choose to register as
broker-dealers and comply with the conditions of Regulation ATS rather than register as
a national securities exchange, because of the lighter regulatory requirements imposed on
ATSs, as compared to registered exchanges. 8 Accordingly, this revision to the PRA
analysis for Rule 302 increases the estimated number of respondents, in light of the 2022
Reg ATS Proposing and 2023 Reg ATS Reopening Releases, to include both (1)
Government Securities ATSs that were formerly not required to comply with Regulation
ATS under the 17 CFR 240.3a1-1(a)(3) (Exchange Act Rule 3a1-1(a)(3)) exemption and
(2) systems that would be newly captured under the proposed definition of “exchange”
6

See Securities Exchange Act Release No. 94062 (Jan. 26, 2022), 87 FR 15496
(Mar. 18, 2022) (“2022 Reg ATS Proposing Release”). The Commission
proposed to, among other things: (1) amend Rule 3b-16 under the Exchange Act
to, among other things, include within the definition of “exchange” systems that
offer the use of non-firm trading interest and provide non-discretionary protocols
to bring together buyers and sellers of securities; (2) eliminate the exemption from
compliance with 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”).

7

See Securities Exchange Act Release No. 97309 (Apr. 14, 2023), 88 FR 29448
(May 5, 2023) (“2023 Reg ATS Reopening Release”). The Commission
reopened the comment period for the 2022 Reg ATS Proposing Release and
provided supplemental information and economic analysis regarding trading
systems that trade crypto asset securities that would be newly included in the
definition of “exchange” under the proposal.

8

See 2022 Reg ATS Proposing Release, supra note 6, at 15618 n.1056 and
accompanying text.

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and choose to register as broker-dealers and comply with the conditions of Regulation
ATS rather than register as national securities exchanges.
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.9 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.

9

See 17 CFR 242.301(b)(1).

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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 small as
well as large entities. Hence, the Rule does not contain an exemption for small entities.
The Commission notes that there are approximately 101 ATSs that are subject to
Regulation ATS. The Commission staff estimates that currently 2 broker-dealers operating
as ATSs registered with the Commission are small entities as currently defined by the Act.
Of the 53 additional respondents being added by the 2022 Reg ATS Proposing and
2023 Reg ATS Reopening Releases, none is estimated to be a small entity.
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

In the 2022 Reg ATS Proposing Release, the Commission solicited comment on the
accuracy of the burden of the proposed revisions to the seven collections of information
contained in the proposal.10 The Commission did not receive comments specifically
relating to the collection of information for this OMB Control Number, but it did receive
general comments questioning whether the Commission had underestimated the number of
newly-designated ATSs, particularly systems that trade crypto asset securities and systems
commenters characterize as decentralized finance or (“DeFi”),11 which would, in turn, affect
10

See 2022 Reg ATS Proposing Release, supra note 6, at 15593.

11

See Letter from Gregory Babyak and Gary Stone, Regulatory Affairs, Bloomberg
L.P., dated Sept. 21, 2022, at 2; Letter from Robert Toomey, Managing Director,
Associate General Counsel, SIFMA, dated Jun. 13 2022, at 5-6; Letter from Gus
Coldebella and Gregory Xethalis, dated Apr. 19, 2022, at 4-5; Letter from Sheila
Warren, Chief Executive Officer, Crypto Council for Innovation, dated Apr. 18,
2022, at 4; Letter from Kristin Smith, Executive Director, and Jake Chervinsk,
Head of Policy, Blockchain Association, dated Apr. 18, 2022, at 7-8; Letter from
Renata K. Szkoda, Chair, Global Digital Asset & Cryptocurrency Association,
dated Apr. 18, 2022, at 6; Letter from LeXpunK, dated Apr. 18, 2022, at 11;
Letter from Miller Whitehouse-Levine, Policy Director, DeFi Education Fund,

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the number of estimated respondents for this collection of information. In the 2023 Reg
ATS Reopening Release, the Commission increased the estimated number of respondents
for this collection of information specifically to account for the types of systems raised by
commenters, as detailed below. The Commission has also solicited comment on the revised
PRA analysis in the 2023 Reg ATS Reopening Release, 12 but has not yet received specific
comments on that topic. The Commission will consider all comments received before
adoption of a final rule.
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

Under Rule 302, ATSs are required to maintain a record of subscribers to the
ATS, daily summaries of trading in the ATS, and time-sequenced records of order
information in the ATS. Some of this information may contain personally identifiable
information (PII) to include home name, address, and telephone number. However, no
information of a sensitive nature will be required under this collection of information.
The SEC will not collect and maintain the records. Therefore a PIA is not required.
Subsequent SEC requests for the records to carry out an SEC function will be assessed
for a PIA separately under the specific SEC program making the request. To provide
notice to the public of how their information collected under rule 302, may be maintained
and disclosed by the SEC, the SEC has published SORN SEC03, SECs Division of
Trading and Markets Records.
12.

Burden of Information Collection
2022 Proposed Rulemaking Affecting this OMB Control Number

dated Apr. 18, 2022, at 16-17; Letter from Paul Grewal, Chief Legal Officer,
Coinbase, dated Apr. 18, 2022, at 6; Letter from Teana Baker-Taylor, Chief
Policy Officer, Chamber of Digital Commerce, et al., dated Mar. 24, 2022, at 5;
all available at https://www.sec.gov/comments/s7-02-22/s70222.htm.
12

See 2023 Reg ATS Proposing Release, supra note 7, at 29469.

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As discussed above, the changes proposed in the 2022 Reg ATS Proposing and
2023 Reg ATS Reopening Releases would increase the number of respondents for the
collections of information in several rules, including this one. This revision only
increases the number of respondents, as described below, and does not otherwise revise
the collections of information in this OMB Control Number.
As a condition to the exemption, ATSs are 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 $3,735 per year. This
estimated cost is derived from 45 hours per year at $83 per hour.13
The SEC estimates that currently there are approximately 101 ATSs that are
registered as broker-dealers and have an active Form ATS initial operation report on file
with the Commission. The SEC estimates 53 additional respondents in the 2022 Reg ATS
Proposing and 2023 Reg ATS Reopening Releases. 14 The SEC estimates the average
aggregate hour burden for all respondents to comply with Rule 302 is approximately 6,930
hours per year (154 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
approximately $575,190 per year (154 ATSs at $3,735 per ATS per year).
Rule

Burden Type

Rule 302
(Regulation
ATS)

Recordkeeping 154

13.

Number of
Respondents

Time Per
Response
45 hours
(per year)

Total
Burden
(Hours)
6,930 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.

Costs to Federal Government

13

$83 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 to June 2022.

14

See 2022 Reg ATS Proposing Release, supra note 6, at 15590-91; 2023 Reg ATS
Reopening Release, supra note 7, at 29467-68.

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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
increased from 4,545 to 6,930 hours per year as a result of the proposed amendments
described in the 2022 Reg ATS Proposing and 2023 Reg ATS Reopening Releases.
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.