James Dolan, Chief Compliance Officer at Luminex Trading & Analytics LLC

This piece originally appeared in TABBForum on July 21, 2020. You can find the original post here.

Before I go into the substance of this piece, I’d like to express my condolences to all friends, family and colleagues of Tom Gira of FINRA, who passed away much too young late last month.  I’ve never seen a regulator who was as loved and respected inside and outside of the business as Tom, and that love and respect was well-deserved. He was a terrific boss and an outstanding regulator.  Protecting investors and helping ensure the integrity of U.S. securities markets were in his DNA, it seemed, and we’re all going to miss his presence. Thankfully, Tom had an extraordinary influence on those colleagues he left behind, and I know they will carry on Tom’s work just the way he would want them to. 


Sometimes disruption is something you do and other times disruption is thrust upon you.

In the case of COVID-19 and the financial services industry, it’s a combination of both. While the day-to-day changes and challenges are innumerable, we’ve all spent months talking about some of the biggest ones: for example, working from home was a rarity for our industry until March 2020 but continues to be the default as I write this in July. But less remarked on are the changes that the pandemic has brought to compliance. They are substantial, and are worth taking a closer look at.

In June, the SEC’s Division of Trading and Markets extended the relief it granted several months ago that allowed, for the first time, the electronic filing and submission of Forms ATS and ATS-R, and waiving the notarization requirement.

ATSs that trade NMS securities had already been submitting Form ATS-N and related amendments electronically for more than a year through the SEC’s EDGAR system. Now, I won’t pretend that EDGAR is without its faults, but it is light-years ahead (from an ease-of-filing standpoint) of its manually filed Forms ATS and ATS-R cousins. Extending that relief is significant, and was not a foregone conclusion before COVID.

Jim – what are Form ATS and Form ATS-R?

That is a very insightful question! A Form ATS is the form that is required to be submitted by all SEC-registered Alternative Trading Systems (ATSs) that trade anything other than NMS stocks, including (among other things) OTC equities or various types of fixed income securities. Essentially, Form ATS is a non-public filing that describes to the SEC how these ATSs operate.

ATS-Rs are quarterly filings that ATSs submit to the SEC that include aggregated trading volumes for the most recent quarter, as well as some subscriber-related information. These filings are also non-public.

What’s changed?

As noted above, prior to spring 2020, Form ATS and ATS-R submissions had to be (snail-)mailed, couriered or otherwise manually delivered in hard copy to the SEC; electronic submissions, without the required manual submissions, were not allowed. And not only were these manual copies required to be filed, they were also required to be notarized.

It’s not hard to imagine the difficulties in pulling off the manual filing and notarization in the midst of the COVID pandemic. By mid-March, the relevant staff that had put together these filings earlier in the year had dispersed from their offices to locations all over the map. The idea of walking to someone’s office to get a document notarized now seems quaint, like sealing a personal letter with a wax stamp.

In April and again in June, the SEC issued guidance permitting impacted firms to electronically file forms such as the ATS and ATS-R with the SEC and established a secure email transmission protocol for firms like mine to use in submitting these filings. Because it was new, there were a couple of wrinkles to iron out, but it worked! Now to be honest, I kind of miss being able to use my notary stamp, but whatever – I’ll adjust and take one for the team.

What is likely to change going forward?

Going back to the manual submission days would be anachronistic now that we’ve set foot in the electronic filing world. Until such time as non-NMS stock ATSs are required to file ATS-equivalent forms via EDGAR like NMS stock ATSs do, the SEC should continue to allow these firms to submit their Form ATS amendments via secure email. There will come a day when getting a document notarized is less of a hassle, but paying a carrier to deliver paper forms to the SEC, when you can instead push a button and send it electronically, immediately and for free, just doesn’t seem like a way to go back to.

What else should change?

Is Form ATS-R necessary in the first place? The trading data that is published by FINRA on its OTC Transparency website obviate the need for many ATSs to make ATS-R filings with the SEC. The SEC can more immediately get a view into the trading volumes of these ATSs via FINRA’s website, as can the public, and the data is in a much more useful format. The equity groupings called for in the current ATS-R filing process are severely outdated, asking ATSs to report total unit volume and dollar volume in such categories as “Listed Equity Securities,” “Nasdaq National Market Securities,” and “Nasdaq SmallCap Market Securities.” In reality, Nasdaq has been a “listed” exchange for years now and hasn’t operated “National Market” and “SmallCap” designations in a very long time.

For firms that have their trading data published on FINRA’s website, the filing of the ATS-Rs with the SEC simply doesn’t provide the SEC with any trading data that they cannot already get on the FINRA site.  True, ATSs are also required to file information about their subscribers on the ATS-Rs. But Luminex already publishes a list of its subscribers on our public website, again obviating the need to file this information with the SEC on a quarterly basis.

Opportune Time

Looked at this more broadly, we are also in an opportune time for a more comprehensive review of the SEC’s rules for our industry. The FINRA360 initiative provides a good roadmap. When Robert Cook was hired at FINRA, he did what a lot of new executives do, embarking on a “listening tour” to hear what his employees and his constituency (FINRA members) thought of his organization, and what they would like to see changed. But he did something more: he opened up the FINRA rulebook to the public and FINRA members, asking us all which rules still worked, which ones didn’t work at all, and which ones might need a tweak.

The SEC should seize the moment and do something just like this. What other rules are out there, like the one requiring hard copy submissions of anachronistic data, that we’ve learned to do without since March? The SEC did something similar in the mid-1990s, and it led to its landmark Market 2000 report. The Advisory Committees that it sponsors are also a terrific way for the SEC to examine specific regulatory issues pertaining to, among other things, equity markets and fixed income markets, but much more can be done.

What other filings are required to be made manually that should be permitted to be filed electronically?  What current filings are required that are duplicative or unnecessary given other available information or more efficient technology? What Commission proceedings were allowed to take place over videoconferencing systems temporarily due to COVID that should permanently be allowed, for the convenience of the parties involved? I don’t know how much longer Jay Clayton will be the Chairman of the SEC, but kickstarting an SEC rules review could be his crowning achievement and leave a lasting legacy for years to come.

Seize the Opportunity

Sometimes we make disruption happen and sometimes circumstances cause it. It behooves us all to seize this opportunity to modernize outdated SEC rules and move outdated processes more permanently into the electronic realm that COVID has currently permitted.

To their credit, both the SEC and FINRA have issued guidance on the rules of engagement during the current pandemic. (More information on COVID-related regulatory guidance can be found on the SEC’s COVID page here and on FINRA’s COVID page here.) This guidance has been a terrific acknowledgment of the different world we’re operating in today, so let’s use this as the starting point for both agencies to continue to modernize their rules. It makes sense as remote work continues to be the norm, and it will make sense in the post-COVID world we are all looking forward to.


James Dolan
Chief Compliance Officer
Luminex Trading & Analytics LLC