Friday, February 11. 2022
SEC Proposes Rule Amendments for Investor Protections in Communication Protocol Systems and ATSs
On January 26th, the SEC proposed rules to enhance investor protections and improve cybersecurity by bringing more Alternative Trading Systems (ATS) that trade treasuries and other government securities under the regulatory heading. This proposal builds upon the September 2020 proposal for ATSs and feedback received in response to that proposal. The SEC is also re-proposing amendments to Registration Systems Compliance and Integrity (Regulation SCI) to apply it to ATSs that meet certain volume thresholds in US Treasury Securities or Agency Securities.
The SEC’s rule proposal to include treasury markets platforms within regulation ATS would: (1) expand Regulation ATS for alternative trading systems (ATS) that trade government securities, NMS stock, and other securities; (2) extend Regulation SCI to ATSs that trade government securities, and (3) update the SEC rule regarding the definition of an “exchange” to address a regulatory gap.
The proposed amendments would also provide new requirements for these entities:
- Communication Protocol Systems must register as an exchange or operate under the ATS exemption, which includes: (a) registering as a broker-dealer; (b) becoming a member of a Self-Regulatory Organization, and (c) complying with Regulation ATS.
- Government Securities ATSs must file a public Form ATS-N via EDGAR that would disclose information about their processes and the ATS-related activities of the registered broker-dealer or government securities broker or dealer that operates the ATS and its affiliates. For those currently operating under the exemption for certain government securities ATSs, compliance with the other applicable provisions of Regulation ATS is required.
- Existing NMS Stock ATSs must file an amendment to their existing disclosures in accordance with an updated Form ATS-N, which includes questions about the ATS’s interaction with related markets, liquidity providers, and activities the ATS undertakes to follow and monitor its market. NMS Stock ATSs must report changes to fee disclosures on Form ATS-N on or before the date a fee change is made.
- ATSs that trade all types of securities must update both Form ATS and ATS-R and electronically file them with the SEC via EDGAR. If subject to the Fair Access Rule, ATSs must be sure they meet the minimum requirements met for the reasonable written standards for granting, limiting, and denying access to ATS services that must be established and applied. Also required is justification for the reason each standard is fair and not unreasonably discriminatory.
Further information on the proposed rule amendments is available in the Investor Protections in Communication Protocol Systems and ATSs Fact Sheet on sec.gov. For general queries pertaining to Regulation ATS, contact Tyler Raimo (Assistant Director, Division of Trading and Markets) at (202) 551-6227. For questions related to Regulation SCI, contact David Liu (Special Counsel, Division of Trading and Markets) at (312) 353-6265.
The public may submit feedback during the comment period which will remain open for 30 days after publication in the Federal Register. For information on how to submit comments, see the Proposed Rule on sec.gov. The proposal will be published on the SEC’s website and in the Federal Register.
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