LegiStorm

Summary:
Highlights


GAO reviewed the Securities and Exchange Commission's (Commission) new rule on regulation of NMS stock alternative trading systems. GAO found that the final rule (a) amends regulatory requirements in Regulation ATS applicable to alternative trading systems (ATS) that trade National Market System (NMS) stocks (hereinafter NMS Stock ATSs) including so called "dark pools;" (b) adopts new Form ATS-N; (c) requires public posting of certain Form ATS-N filings on the Commission's website; (d) provides a process for the Commission to review Form ATS-N and, after notice and opportunity for hearing, declare an NMS Stock ATS-N ineffective; and (e) requires all ATSs subject to the regulations to place in writing its safeguards and procedures to protect subscribers' confidential trading information.

Enclosed is our assessment of the Commission's compliance with the procedural steps required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule. If you have any questions about this report or wish to contact GAO officials responsible for the evaluation work relating to the subject matter of the rule, please contact Shirley A. Jones, Assistant General Counsel, at (202) 512-8156.





View Decision




B-330281





August 17, 2018



The Honorable Mike Crapo
Chairman
The Honorable Sherrod Brown
Ranking Member
Committee on Banking, Housing, and Urban Affairs
United States Senate

The Honorable Jeb Hensarling
Chairman
The Honorable Maxine Waters
Ranking Member
Committee on Financial Services
House of Representatives



Subject: Securities
and Exchange Commission: Regulation of NMS Stock Alternative Trading Systems



Pursuant to section 801(a)(2)(A) of title 5, United States
Code, this is our report on a major rule promulgated by the Securities and
Exchange Commission (Commission) entitled ?Regulation of NMS Stock Alternative
Trading Systems? (RIN: 3235-AL66).  We received the rule on July 24, 2018.  It
was published in the Federal Register as a final rule on August 7, 2018. 
83 Fed. Reg. 38,768.  The effective date of the final rule is October 9,
2018.



The final rule amends regulatory requirements in Regulation
ATS applicable to alternative trading systems (ATS) that trade National Market
System (NMS) stocks (hereinafter NMS Stock ATSs) including so called ?dark
pools.?  First, the rule adopts new Form ATS-N, which will require NMS Stock
ATSs to disclose information about their manner of operations, the
broker-dealer that operates the ATS (broker-dealer operator), and the
ATS-related activities of the broker-dealer operator and its affiliates.  Second,
the rule requires public posting of certain Form ATS-N filings on the Commission?s
website, which will be accomplished through the Commission?s Electronic Data
Gathering, Analysis, and Retrieval system and require each NMS Stock ATS that
has a website to post a direct URL hyperlink to the Commission?s website.  Third,
the rule provides a process for the Commission to review Form ATS-N and, after
notice and opportunity for hearing, declare an NMS Stock ATS-N ineffective.  Fourth,
the rule requires all ATSs subject to the regulations to place in writing its safeguards
and procedures to protect subscribers? confidential trading information.



Enclosed is our assessment of the Commission?s compliance
with the procedural steps required by section 801(a)(1)(B)(i) through (iv) of
title 5 with respect to the rule.  If you have any questions about this report
or wish to contact GAO officials responsible for the evaluation work relating
to the subject matter of the rule, please contact Shirley A. Jones, Assistant
General Counsel, at (202) 512-8156.







  signed



Robert J. Cramer
Managing Associate General Counsel



Enclosure



cc: Brent J.
Fields
Secretary
Securities and Exchange Commission



ENCLOSURE



REPORT UNDER 5 U.S.C.
§ 801(a)(2)(A) ON A MAJOR RULE
ISSUED BY THE
SECURITIES AND EXCHANGE COMMISSION
ENTITLED
?REGULATION OF NMS STOCK ALTERNATIVE
TRADING SYSTEMS?
(RIN: 3235-AL66)





(i) Cost-benefit analysis



The Securities and Exchange Commission (Commission)
estimated that the rule?s aggregate quantifiable costs to alternative trading
systems (ATS) that trade National Market System (NMS) stocks (hereinafter NMS
Stock ATSs) will be $2,206,525.40 initially and $427,774.20 on an annual
ongoing basis.  Additionally, the Commission estimated the aggregate,
quantifiable costs to all ATSs associated with revisions to Rule 310(b)(10) and
Rule 303 to be $253,170 initially and $82,476 annually.  The Commission also
stated NMS Stock ATSs face potential costs because disclosure of previous
non-public information could lead market participants to direct order flow away
from the ATS if the participant discovers their orders would have a greater
likelihood of receiving lower execution quality on the NMS Stock ATS relative
to other trading centers.  The Commission also stated market participants also
faced potential costs due to increased trading costs if some of the NMS Stock
ATSs cease operating as ATSs or there is a reduced entry of new NMS Stock ATSs.



The Commission also stated market participants could receive
potential benefits from more information on the operation of ATSs that would be
standardized, reducing search costs.  The Commission further stated
broker-dealers could face potential benefits due to increased competition
leading to innovation which could attract more trading volume.



(ii) Agency actions relevant to the Regulatory
Flexibility Act (RFA), 5 U.S.C. §§ 603-605, 607, and 609



The Commission certified the rule would not have a
significant economic impact on a substantial number of small entities.



(iii) Agency actions relevant to sections 202-205 of the
Unfunded Mandates Reform Act of 1995, 2 U.S.C. §§ 1532-1535



As an independent regulatory agency, the Commission is not
subject to the Act.



(iv) Other relevant information or requirements under
acts and executive orders



Administrative Procedure Act, 5 U.S.C. §§ 551et seq.



The Commission published a Notice of Proposed Rulemaking on December
28, 2015.  80 Fed. Reg. 80,908.  The Commission received 32 comment letters
from a variety of interested persons, including ATSs, a national securities
exchange, broker-dealers, institutional investors, industry trade groups, the
Commission?s Investor Advocate, and the Attorney General of the State of New
York.  The comments were addressed in the final rule.



Paperwork Reduction Act (PRA), 44 U.S.C. §§ 3501-3520



The Commission stated the final rule contains three
collections of information, including one new collection.  The Commission
solicited comments on the new proposed collection in the proposed rule and
submitted the collection to the Office of Management and Budget for approval.  The
Commission estimated the aggregate initial, one-time burden on all ATSs would be
120 hours; it also estimated the total aggregate, ongoing burden per year for
all ATSs would be 348 hours.



Statutory authorization for the rule



The Commission promulgated the rule under 15 U.S.C. §§ 78c,
78k-1, 78o, 78q(a), 78q(b), 78w(a), and 78mm.



Executive Order No. 12,866 (Regulatory Planning and Review)



As an independent regulatory agency, the Commission is not
subject to the Order.



Executive Order No. 13,132 (Federalism)



As an independent regulatory agency, the Commission is not
subject to the Order.







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