3235-0505-- 2023 Rule 303 revised Supporting Statement re ATS proposal

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)
Proposed Partial Revision
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 Securities Exchange Act of 1934 (“Exchange Act”)
and Exchange Act Rule 3b-16(a) thereunder to choose between registering as a national
securities exchange or registering as a broker-dealer and complying with 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, 1 301, 2 302, 3 303, 4 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. 5 Rule 302 establishes a set of records relating to trading
1

Rule 300 does not include a collection of information.

2

OMB No. 3235-0509.

3

OMB No. 3235-0510.

4

OMB No. 3235-0505.

5

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
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

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”). 6 The majority of substantive changes in the new amendments were 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. 7
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 affiliates. 8 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.
We believe that that information contained in the record required to be preserved by Rule
303(a)(1)(v) is 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.
2022 Proposed Rulemaking Affecting this OMB Control Number

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.
6

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

7

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

8

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.
2

In January 2022, the Commission proposed amendments to Regulation ATS and
Exchange Act Rule 3b-16, which defines certain terms in the definition of “exchange” under
section 3(a)(1) of the Exchange Act. 9 In April 2023, the Commission provided supplemental
information and reopened the comment period for the 2022 Reg ATS Proposing Release. 10
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. 11 Accordingly, this revision to the PRA analysis for Rule 303 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” 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

9

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”).

10

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.

11

See 2022 Reg ATS Proposing Release, supra note 9, at 15618 n.1056 and accompanying
text.
3

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 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. For an ATS subject to the capacity, integrity, and security
requirements for automated systems under Rule 301(b)(6) of Regulation ATS, Rule 303 requires
an ATS to preserve all documents made or received by the ATS related to its compliance,
including all correspondence, memoranda, papers, books, notices, accounts, reports, test scripts,
test results, and other similar records. 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.
The information contained in the records required to be preserved by Rule 303 will be
used by regulators (including the SEC and the self-regulatory organizations (“SROs”)) 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. We further believe that the requirements of 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.
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
4

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, the Rule could apply to small businesses. An entity that complies with Regulation ATS
must, among other things, register as a broker dealer. 12 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 can occur in any size
business, the SEC has determined that the Rule 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 two 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

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)

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. These
records are needed for the life of the ATS because they are important to understanding the
corporate structure of the ATS and persons who owned, controlled or directed the ATS, and the
operations of the ATSs for examination and investigation purposes in order to ensure compliance
with Regulation ATS as well as other applicable rules and regulations. The Commission also
12

See 17 CFR 242.301(b)(1).
5

believes that these recordkeeping requirements are necessary to help assure fair and orderly
markets by enhancing the effectiveness of the Commission’s examination and investigation
functions. We further believe that 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

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. 13 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”), 14 which would, in turn, affect 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, 15 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.

13

See 2022 Reg ATS Proposing Release, supra note 9, at 15593.

14

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, dated Apr. 18, 2022, at 16-17; Letter from Paul Grewal,
Chief Legal Officer, Coinbase, dated Apr. 18, 2022, at 6; Letter from Teana BakerTaylor, 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.

15

See 2023 Reg ATS Proposing Release, supra note 10, at 29469.
6

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.16 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. 17 The Commission believes that a burden estimate of 15 hours
per ATS is appropriate to identify and preserve the applicable records. We estimate that there are
approximately 101 ATSs registered as broker-dealers that have filed initial operation reports in
16

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.

17

(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
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.
7

compliance with Regulation ATS. The SEC estimates 53 additional respondents in the 2022 Reg
ATS Proposing and 2023 Reg ATS Reopening Releases. 18 Therefore, we estimate the average
aggregate ongoing burden to comply with the baseline Rule 303 record preservation requirements is
approximately 2,310 hours per year.19 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. 20
The estimated average annual aggregate burden for alternative trading systems to comply
with Rule 303 would thus be approximately 2,312 hours. This estimate is broken down as follows:

18

See Reg ATS Proposing Release, supra note 13, at 15590-91; Reg ATS Reopening
Release, supra note 14, at 29467-68.

19

154 ATSs x 15 hours = 2,310 hours.

20

1 additional burden hours x 2 ATSs = 2 aggregate burden hours.
8

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

2,205.00

0.00

2,310.00

2

1.00

1.00

2.00

0.00

2.00

0

TOTAL HOURLY BURDEN FOR ALL RESPONDENTS

16.00

2,207.00

0.00

2,312.00

Type of
Burden

Annual
Responses
per Entity

Record
Preservation
for all ATSs

Recordkeeping

154

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
900 hours from approximately 1,412 hours per year to approximately 2,312 hours per year as a
result of an increase in the number of estimated respondents from 94 to 154 due to both an
increase in the number of ATSs (from 94 to 101), as well 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 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.
9

B.

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

10