Rule 303 Supporting Statement - revised for OMB comments

SUPPORTING STATEMENT
FOR THE PAPERWORK REDUCTION ACT
INFORMATION COLLECTION SUBMISSION FOR
RULE 303
A.

JUSTIFICATION
1.

Necessity of Information Collection

Regulation ATS sets forth a regulatory regime for “alternative trading systems”
(“ATSs”), which are entities that carry out exchange functions but which are not required
to register as national securities exchanges under the Securities Exchange Act of 1934
(“Act”). 1 In lieu of exchange registration, an ATS can instead opt to register with the
Securities and Exchange Commission (“SEC”) as a broker-dealer and, as a condition to
not having to register as an exchange, must instead comply with Regulation ATS.
Regulation ATS is composed of Rules 300, 301, 302 and 303. 2 Rule 300 defines
terms that provide the basis for ATS regulation. 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.
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 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
1

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

2

17 CFR 242.300 to 242.303.

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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.
Consideration Given to Information Technology
The SEC believes that improvements in telecommunications and data processing
technology may reduce any burdens that result from the Rule. The SEC is not aware of any
technical or legal obstacles to reducing the burden through the use of improved information
technology.
The records required by Rule 303 must be maintained in paper form, 3 micrographic
media, or electronic storage media.5
4

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, 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
3

See 17 CFR 242.303(b); 17 CFR 240.17a-4(f)(1)(i).

4

Micrographic media means microfilm or microfiche, or any similar medium. 17
CFR 240.17a-4(f)(1)(i).

5

The term electronic storage media means any digital storage medium or system that
meets the applicable conditions regarding accessibility set forth in Section 240.17a4(f). 17 CFR 240.17a-4(f)(1)(ii).

6

See 17 CFR 242.301(b)(1).

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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 84 ATSs that are subject to
Regulation ATS. The Commission staff estimates that currently five 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 the Rule 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 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)

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 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.
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

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received.
9.

Payment or Gift

The respondents receive no payments or gifts.
10.

Confidentiality

The records required by Rule 303 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

No questions of a sensitive nature are asked. The information collection does not
collect any Personally Identifiable Information (PII).
12.

Burden of Information Collection

ATSs that choose to register as broker-dealers and comply with Regulation ATS are
required to comply with record preservation requirements under Rule 303. The SEC
estimates that the average hour burden for each respondent to comply with the record
preservation requirements under the Rule is approximately 15 hours per year. 7 The SEC
derived this estimate from the following: (Compliance Manager at 3 hours per year) +
7

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 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 these sections 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 (of 84)
would cross the relevant volume thresholds to be subject to Rule 301(b)(6). See
PRA Supporting Statement for Rule 301. 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.

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(Compliance Clerk at 12 hours per year) = 15 hours per year. The SEC estimates the related
internal compliance cost for this hour burden per respondent at approximately $1,644 per
year. 8 The SEC derived this cost estimate from the following: ((Compliance Manager at
$288/hour) x (3 hours) = $864 + (Compliance Clerk at $65/hour) x (12 hours) = $780) =
$1,644. 9
The SEC estimates that there are approximately 84 ATSs registered as brokerdealers that have filed initial operation reports in compliance with Regulation ATS. The
SEC estimates the average aggregate hour burden to comply with Rule 303 is 1,260 hours
per year (84 ATSs at 15 hours per ATS per year). The SEC estimates that the aggregate
internal compliance cost for respondents for the hour burden to comply with Rule 303 is
$138,096 per year (84 ATSs at $1,644 per ATS per year).

Name of Information
Collection

Type of
Burden

# Entities
Impacted

Annual
Responses
per Entity

Record preservation
requirements for ATSs (Rule
303)

Recordkeeping

84

1

13.

Ongoing
Burden
per Entity

Annual
Burden Per
Entity per
Response

Total Annual
Burden Per
Entity

15.00

15.00

15.00

Total
Burden

1,260.00

Total
Ongoing
Burden For
All
Respondents
1,260.00

Costs to Respondents

The SEC believes that compliance with Rule 303 of Regulation ATS does not
require any capital or start up costs, or any recurring annual external operating and
maintenance costs separate from the wages, salaries, or fees represented in the estimated
hourly burdens discussed above.
14.

Costs 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, the
SEC does not review the records kept by the respondents.
8

The SEC estimates that the average cost per burden hour is $109.60 (($1644 per
ATS per year)/(15 hours per year) = $109.60 per hour.)

9

The hourly cost figure for a Compliance Manager is from SIFMA’s Management
& Professional Earnings in the Securities Industry 2013, modified by SEC staff to
account for an 1800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits, and overhead. The hourly cost figure for a
Compliance Clerk is from SIFMA’s Office Salaries in the Securities Industry
2012, 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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15.

Changes in Burden

The estimated hour burden associated with Rule 303 of Regulation ATS has
decreased from 1,380 hours per year to 1,260 hours per year as a result of a decrease in
the number of ATSs from 92 to 84.
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.