DGL REVISED FINAL 2021 Supporting Statement for Rule 304 (09.30.2021)

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for Regulation of
NMS Stock Alternative Trading Systems – Rule 304
(OMB Control No. 3235-0763)
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 (“ATSs”), 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 brokerdealer and complying with Regulation ATS.
Since the adoption of Regulation ATS, the equity markets have evolved substantially and
ATSs have become a significant source of liquidity in NMS stocks. ATSs that trade NMS stocks
(“NMS Stock ATSs”) generally operate with complexity and sophistication similar to registered
national securities exchanges, which, pursuant to applicable laws and regulations, are required to
publish their rules. 1 Prior to the adoption of the amendments to Regulation ATS and adoption of
Form ATS-N, the Commission was concerned that the regulatory requirements relating to
operational transparency for NMS Stock ATSs no longer fully met the goals of furthering the
public interest and protecting investors. Accordingly, in 2018, the Commission adopted
amendments to Regulation ATS (including new Rule 304) and adopted Form ATS-N to require
NMS Stock ATSs to provide information to the public about their manner of operations, the
broker-dealer operator, and the ATS-related activities of the broker-dealer operator of the NMS
Stock ATS (“broker-dealer operator”) and its affiliates. 2
Rule 304 of Regulation ATS provides 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, including to file a Form ATS-N, and for that Form ATS-N to become effective. 3 Form
ATS-N requires NMS Stock ATSs to provide information about their manner of operations, the
broker-dealer operator, and the ATS-related activities of the broker-dealer operator and its
affiliates to comply with the conditions provided under Rule 304. The amendments to
Regulation ATS provide a process for the Commission to review Form ATS-N filings and, after
notice and opportunity for hearing, declare an NMS Stock ATS’s Form ATS-N ineffective.
1

15 U.S.C. 78s(b)(1).

2

See Securities Exchange Act Release No. 83663 (July 18, 2018), 83 FR 38769 (August 7,
2018) (“NMS Stock ATS Adopting Release”).

3

The Commission also adopted conforming amendments to Rule 300 of Regulation ATS
and Exchange Act Rule 3a1-1(a). See id.

Additionally, as amended, Regulation ATS requires public posting of certain Form ATS-N
filings on the Commission’s website, which is accomplished through the Commission’s
Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”), and requires each NMS
Stock ATS that has a website to post on its website a direct URL hyperlink to the Commission’s
website.
Form ATS-N promotes more efficient and effective market operations by providing more
transparency to market participants about the operations of NMS Stock ATSs and the potential
conflicts of interest of the controlling broker-dealer operator and its affiliates, and helps brokers
meet their best execution obligations to their customers. Operational transparency rules,
including Form ATS-N, are designed to increase competition among trading centers in regard to
order routing and execution quality.
In 2020, the Commission proposed amendments to Regulation ATS Rule 301 and Rule
304 to enhance the regulatory oversight of ATSs that trade government securities as well as
repurchase and reverse repurchase agreements on government securities. 4 The Commission has
not adopted these proposed amendments as of this submission.
2.

Purpose and Use of the Information Collection

Rule 304 of Regulation ATS states that no exemption from the definition of “exchange”
is available to an NMS Stock ATS pursuant to § 240.3a1-1(a)(2) unless the NMS Stock ATS
files with the Commission an initial Form ATS-N, in accordance with the instructions therein,
and the initial Form ATS-N is effective. Form ATS-N requires NMS Stock ATSs to provide
information to the public about the broker-dealer operator of the NMS Stock ATS and the ATSrelated activities of the broker-dealer operator and its affiliates. Form ATS-N also requires NMS
Stock ATSs to provide certain information about the manner of operations of the NMS Stock
ATS and the ATS’s contact information.
Form ATS-N is designed to provide the public with greater transparency around the
operations of NMS Stock ATSs and potential conflicts of interest that may arise involving the
broker-dealer operator and its affiliates. Among other things, these enhanced, public disclosures
also are designed to limit the potential that a broker-dealer operator of an NMS Stock ATS could
provide certain subscribers with greater disclosure about the operations and system
functionalities of the ATS than it provides to other market participants.
We believe that the information required on Form ATS-N about the operations of NMS
Stock ATSs and the ATS-related activities of the broker-dealer operators and the broker-dealer
operators’ affiliates helps market participants evaluate whether to do business with an ATS and
make more informed decisions about where to route their orders. We also believe that the
transparency about the operations of NMS Stock ATSs that Form ATS-N provides may aid
broker-dealers with meeting their best execution obligations to their customers, as they can better
assess the trading venues to which they route orders. In addition, we believe that Form ATS-N
4

See Securities Exchange Act Release No. 90019 (September 28, 2020), 85 FR 87106,
87114 (December 31, 2020).
2

may also help customers of broker-dealers, whose orders are routed to an NMS Stock ATS for
possible execution in the ATS, evaluate whether their broker-dealers fulfilled their duty of best
execution.
The information provided pursuant to Rule 304 also helps the Commission monitor NMS
Stock ATSs for the purpose of protecting investors.
3.

Consideration Given to Information Technology

Form ATS-N is filed electronically in a structured format through EDGAR. By filing in
EDGAR, NMS Stock ATSs are given the option of filing using a web-fillable Form ATS-N
which will render into XML in EDGAR, or to file directly in XML using the XML schema for
NMS Stock ATSs as published on the Commission’s website. With both options, we receive the
Form ATS-N information in XML format. For those NMS Stock ATSs that would prefer to
manually key in all of their Form ATS-N responses, those NMS Stock ATSs can do so using the
Commission’s web-fillable Form ATS-N, which will render into XML in EDGAR. The
Commission’s XML schema and the Commission’s web-fillable Form ATS-N both reflect the
same set of custom XML tags and XML restrictions designed by the Commission to submit the
disclosures in Form ATS-N. Based on the widespread use and availability of the Internet, we
believe that filing Form ATS-N in an electronic format is an efficient filing process.
Form ATS-N requires NMS Stock ATSs to file the form electronically via EDGAR with
a typed signature. This requirement is intended to provide a uniform manner in which we
receive—and the broker-dealer operator files—the Form ATS-N made pursuant to Rule 304 of
Regulation ATS. We believe that the XML format allows the Commission and the public to
better gather, analyze, aggregate, compare, and use the Form ATS-N data. Requiring XML
should result in the Form ATS-N data being provided in a consistent, structured format. This
consistent structure can be automatically recognized and processed by a variety of software
applications such as databases, financial reporting systems, and spreadsheets, and then made
immediately available to the end user to search, aggregate, compare, and analyze.
4.

Duplication

If the broker-dealer operator operates ATSs that trade both NMS stocks and non-NMS
stocks, certain information the NMS Stock ATS provides on its Form ATS-N may be found on
Form ATS. We do not consider this information duplicative because the Form ATS is not
required to be made public. In addition, Form ATS discloses only limited aspects of an ATS’s
operations, and we believe that even where an ATS has voluntarily made public its Form ATS, 5
market participants might not be able to obtain as complete an understanding of how the ATS
operates.
5.

5

Effect on Small Entities

We note that some ATSs have chosen to make Form ATS filings publicly available.

3

Under the Regulatory Flexibility Act (“RFA”) 6 a small entity includes a broker or dealer
that: (1) 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
Rule 17a-5(d) under the Exchange Act, 7 or, if not required to file such statements, a brokerdealer with total capital (net worth plus subordinated liabilities) of less than $500,000 on the last
day of the preceding fiscal year (or in the time that it has been in business, if shorter); and (2) is
not affiliated with any person (other than a natural person) that is not a small business or small
organization. 8
We examined recent Financial and Operational Combined Uniform Single data for the 35
broker-dealer operators for NMS Stock ATSs that have an effective Form ATS-N on file and
concluded that no more than 2 of the broker-dealer operators of NMS Stock ATSs had total
capital of less than $500,000 on the last day of the preceding fiscal year (or in the time that it has
been in business, if shorter) and were not affiliated with any person that is not a small business or
small organization. We do not believe that Rule 304, including the requirement for NMS Stock
ATSs to file Form ATS-N amendments, will represent a significant economic impact on these
entities. One of these entities is a new broker-dealer operator for an NMS Stock ATS; its initial
Form ATS-N was filed on May 25, 2021 and became effective on June 1, 2021.
6.

Consequences of Not Conducting Collection

Without the information required by Rule 304, we would not have readily available
information on a regular basis in a format that would allow us to evaluate the operation of ATSs
with regard to national market system goals, and monitor the competitive effects of these
systems to ascertain whether the regulatory framework remains appropriate to the operation of
such systems. Without the data required by Form ATS-N, the public would have less information
concerning NMS Stock ATSs available to them when selecting a trading venue.
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).

6

Although Section 601(b) of the RFA defines the term “small entity,” the statute permits
agencies to formulate their own definitions. We have adopted definitions for the term
“small entity” for the purposes of Commission rulemaking in accordance with the RFA.
Those definitions, as relevant to this rulemaking, are set forth in Rule 0-10 under the
Exchange Act, 17 CFR 240.0-10. See Securities Exchange Act Release No. 18451
(January 28, 1982), 47 FR 5215 (February 4, 1982) (File No. AS-305).

7

17 CFR 240.17a-5(d).

8

See 17 CFR 240.0-10(c).
4

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

Not applicable.
10.

Confidentiality

The following will be publicly posted on the Commission’s website: (i) order of ineffective
Form ATS-N; (ii) effective initial Form ATS-N, as amended; (iii) Form ATS-N amendment to an
effective Form ATS-N; (iv) order of ineffective Form ATS-N amendment; (vi) notice of cessation;
and (vii) order suspending, limiting, or revoking the exemption from the definition of an “exchange”
pursuant to Exchange Act Rule 3a1-1(a)(2).
11.

Sensitive Questions

The information collection collects basic personally identifiable information that may
include name, and work contact information. However, the agency has determined that the
information collection does not constitute a system of record for purposes of the Privacy Act.
Information is not retrieved by a personal identifier. The information collection is covered by the
EDGAR PIA.
12.

Burden of Information Collection

The total annual burden associated with Rule 304 is approximately 2,042 hours, as
calculated and described below.
a. Initial Form ATS-N
An NMS Stock ATS must file an initial Form ATS-N on EDGAR, 9 and the initial Form
ATS-N must be effective in order to operate pursuant to the Exchange Act Rule 3a1-1(a)(2)
exemption. We estimate that filing Form ATS-N, on average, requires an estimated 128.4 burden
hours.10 This would result in a total one-time burden of approximately 1,155.6 hours for all new
9

For a Form ATS-N filer to gain access to make filings on EDGAR, the filer must submit
a Form ID as required by Regulation S-T Rule 10(b) and submit the Form ID following
the processes detailed in Volume I of the EDGAR Filer Manual. We estimate that the
burden associated with receiving access to EDGAR by submitting a Form ID is 0.15
burden hours per response, which is consistent with the currently approved burden
estimate for Form ID (OMB No. 3235-0328).

10

(Current Baseline to complete an initial Form ATS at 20 hours) + (Part I at 0.5 hour) +
(Part II at an average of 29 hours) + (Part III at an average of 78.75 hours) + (Access to
EDGAR at 0.15 hours) = 128.4 burden hours. The aggregate totals by professional,
including the baseline, are estimated to be approximately 54.6 hours for an Attorney, 0.5

5

NMS Stock ATSs or approximately 385 hours per year (385.2 hours rounded down to 385) when
annualized over three years. 11
b. Form ATS-N Amendments
Rule 304 also includes a process for NMS Stock ATSs to file amendments to Form ATS-N
to provide the public notice of changes to their operations and the ATS-related activities of the
broker-dealer operator of the NMS Stock ATS and its affiliates. Rule 304(a)(2) of Regulation
ATS contain four general categories of required amendments for Form ATS-N. In the NMS Stock
ATS Adopting Release, we estimated that NMS Stock ATSs would submit 3 amendments, on
average, each year. 12 Based on our experience with NMS Stock ATSs filing Form ATS-N
amendments, we now estimate that the 35 respondents13 would file 5 Form ATS-N amendments
each year, 14 for an estimated total of 175 Form ATS-N amendments. 15
hours for a Chief Compliance Manager, 34.55 hours for a Compliance Manager, 30.25
hours for a Senior Systems Analyst, 1 hour for a Senior Marketing Manager, and 7.5
hours for a Compliance Clerk. This estimated burden for a Form ATS-N includes the
hour burden associated with completing Part III, Items 24 and 25 of Form ATS-N. We
believe that the majority of NMS Stock ATSs would not be required to complete those
items of the form. We note that the NMS Stock ATS Adopting Release (and the 2018
PRA Submission for Rule 304) stated that the Commission estimated that Form ATS-N
would add an additional 107.4 hours to the baseline for each ATS. See NMS Stock ATS
Adopting Release, supra note 2, at 38881, n.1228 and accompanying text. However, the
actual total of the estimated burden hours of the items in Form ATS-N in the NMS Stock
ATS Adopting Release is 108.4 (not 107.4). See id. at 38868–81.
11

Currently, there are 35 NMS Stock ATSs that have Form ATS-N on file with the
Commission. Based on the number of NMS Stock ATSs that filed initial Form ATS-N
with the Commission on 2020 and 2021, we estimate that there will be 3 new NMS Stock
ATSs each year. We therefore estimate that 9 entities would be required to complete
initial Form ATS-N over the next three year. The annual one-time burden is annualized
over a three-year period for an annual per-ATS burden of 42.8 hours and an industrywide aggregate burden of 385.2 burden hours.

12

See NMS Stock ATS Adopting Release, supra note 2, at Section IX.D.2.b.ii.B.

13

As discussed above, there are currently 35 NMS Stock ATSs that have Form ATS-N on
file with the Commission. We estimate that there will be 3 new NMS Stock ATSs each
year, and that 3 respondents will file a cessation of operation report on Form ATS-N each
year. See infra Section A.12.c. Accordingly, we estimate that 35 entities would be
required to Form ATS-N amendments.

14

In the fiscal year of 2020, NMS Stock ATSs filed 185 Form ATS-N amendments, or an
average of 5 amendments per ATS.

15

35 respondents x 5 Form ATS-N amendments per year = 175 Form ATS-N amendments

6

We estimate that the current hour burden related to an amendment to Form ATS-N is
approximately 9.4 hours per amendment.16 This would result in an aggregate annual burden for all
NMS Stock ATSs of approximately 1,645 hours.17
c. Notice of Cessation on Form ATS-N
From April 2019 through June 2021, there have been an average of 3 NMS Stock ATSs that
ceased operations each year. Although it is unclear how many NMS Stock ATSs might cease
operations each year going forward, for purposes of providing a PRA burden estimate, we are
estimating that this average would generally remain the same for NMS Stock ATSs as economic
conditions, business reasons, and other factors may cause some NMS Stock ATSs to cease
operations. Accordingly, we estimate that 3 respondents may file a cessation of operation report on
Form ATS-N each year.
For Form ATS-N, the requirement is to check the appropriate box indicating that the ATS is
ceasing operations and to provide the date the ATS expects to cease operating. We estimate that the
average compliance burden for each respondent will be approximately 2 hours. 18 This will result in
a total annual burden of approximately 6 hours for all NMS Stock ATSs that choose to cease
operations and submit a cessation of operation report on Form ATS-N.19
d. Public Posting on NMS Stock ATS’s Website
Rule 304(b)(3) will require each NMS Stock ATS to make public via posting on the
NMS Stock ATS’s website, a direct URL hyperlink to the Commission’s website that contains
the documents enumerated in Rule 304(b)(2). We estimate that each new NMS Stock ATS will
incur an initial, one-time burden to program and configure its website to post the required direct
URL hyperlink pursuant to Rule 304(b)(3). We estimate that this initial, one-time burden would
be approximately 2 hours for each new NMS Stock ATS or approximately 0.67 hours per new
NMS Stock ATS when annualized over three years, in part because many broker-dealer
operators currently maintain a website for their NMS Stock ATSs. 20 We estimate that nine new
NMS Stock ATSs over three years would incur this initial, one-time burden each year for a total
initial one-time burden of approximately 18 hours or 6 hours per year when annualized over three

16

per year.
Attorney at 5.5 hours + Compliance Manager at 2 hours + Compliance Clerk at 1.9 hours
= 9.4 burden hours. These burden hours include a burden of 0.4 hours to provide a brief
summary of the changes on the cover page of Form ATS-N and prepare as Exhibit 3 one
redline that indicates changes to “yes” or “no” answers or additions to or deletions to Parts I,
II, and III. See NMS Stock ATS Adopting Release, supra note 2, at 38881-82.

17

175 amendments per year x 9.4 hours = 1,645 aggregate burden hours.

18

Attorney at 1.5 hours + Compliance Clerk at 0.5 hours = 2 burden hours.

19

2 burden hours x 3 NMS Stock ATSs = 6 aggregate annual burden hours.

20

Senior Systems Analyst at 2 burden hours.

7

years. 21
e. Aggregate Respondent Reporting Burdens
The estimated average annual aggregate burden for alternative trading systems to comply
with Rule 304 would be approximately 2,042 hours. This estimate is broken down as follows:
Initial
Burden
per
Entity

Initial
Burden
Annualized
per Entity

Ongoing
Burden
per
Entity

Annual
Burden
Per
Entity
per
Response

Total
Annual
Burden
Per
Entity

Total
Annual
Industry
Burden

Name of
Information
Collection

Type of
Burden

# Entities
Impacted

Annual
Responses
per Entity

Form ATS-N
Initial
Operation
Report (Rule
304)

Reporting

9

1

128.40

42.80

0.00

42.80

42.80

385

Form ATS-N
Amendments
(Rule 304)

Reporting

35

5

0.00

0.00

47.00

9.40

47.00

1,645

Form ATS-N
Cessation of
Operations
Report (Rule
304)

Reporting

3

1

0.00

0.00

2.00

2.00

2.00

6

Public
Posting on
NMS Stock
ATS’s
Website
(Rule 304)

Reporting

9

1

2.00

0.67

0.00

0.67

0.67

6

TOTAL HOURLY BURDEN FOR ALL RESPONDENTS

92.47

2,042

13.

Costs to Respondents

Not applicable. We do not anticipate that respondents will have to incur any capital or startup costs, nor any additional operational or maintenance costs (other than as provided in Item 12), to
comply with the collection of information requirements associated with Rule 304 and Form ATS-N.
14.

Cost to Federal Government

Not applicable. The amendments to Regulation ATS as well as Rule 304 and Form ATSN will not result in any costs to the federal government beyond normal full-time employee labor
21

Senior Systems Analyst at 2 hours x 3 new NMS Stock ATSs x 3 years = 18 burden
hours. This burden is annualized over a three-year period for an annual burden of 2
burden hours per ATS, and an aggregate industry-wide burden of 6 burden hours.
8

costs, nor does the rule require the Commission to hire any new employees or reallocate existing
employees to ensure compliance with the rule.
15.

Changes in Burden

The estimated hour burden associated with the filing of amendments to Form ATS-N
increased because the estimated number of amendments per respondent increased but the total
estimated annual time burden associated with Rule 304 decreased from approximately 2,942 hours
to approximately 2,042 hours primarily because the 2018 estimate included a one-time filing burden
for 41 existing NMS Stock ATSs to file a Form ATS-N. These one-time burdens have been
satisfied.
16.

Information Collection Planned for Statistical Purposes

Not applicable. The information collections above are not planned for statistical purposes.
17.

OMB Expiration Date Display Approval

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.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
This collection does not involve statistical methods.

9