008-15869 

000008209 

06/30/1970 

MSTX 

Business units of the Broker-Dealer Operator are permitted to enter orders into Morgan Stanley algorithms, certain of which generate conditional indications (as described in Part III, Item 9(a)) in ATS-1 on behalf of such business units. Those conditional indications may receive firm-up requests which may, in turn, result in orders (as described in Part III, Item 7(a)) entered into ATS-1.
The following business units of the Broker-Dealer Operator can enter orders in Morgan Stanley algorithms, which in turn can result in conditional indications and/or orders being placed in ATS-1 on behalf of such business units on an agency, principal, or riskless principal basis. All business units of MS&Co use the MSCO MPID. Business units are described below and reflect the desk trading and managing risk for such product.
- Core (Cash) Products (trading and market making related to domestic and international equities)
- ETF (trading of domestic and international exchange traded funds and underlying equities)
- Morgan Stanley Electronic Trading (electronic trading of equities, options, and futures)
- Portfolio Products/Program Trading (trading of customer single orders and program orders; executing guaranteed benchmark trades and blind principal risk transactions)
- Automated Marking Making (listed equity options market making and related hedging)
- Convertible Products (trading of convertible bonds, convertible preferred equities, and equity warrants)
- Corporate Equity Products (handling of corporate repurchases)
- Exotic Products (trading of structured notes, complex OTC equity derivatives products, single name volatility/variance swaps, and dispersion)
- Index Products (trading of listed and OTC broad- and narrow-based index options, ETF options, ETN options, volatility index options, depository receipt options, volatility/variance swaps, equity structured products (OTC), and volatility index futures)
- Single Name Products (trading of listed and OTC equity options, equity sector index options, ETF options, depository receipt options, ETN options, volatility/variance swaps, and dividend swaps)
- Core Prime Brokerage (trading of equities, equity options, and other equity-related instruments to manage stock lending risk)
- Delta One Structured Products (engaging in financing transactions in a variety of equity and equity-related instruments by providing long and short equity linked exposure both with clients and swap market participants; structuring of customized financing, yield enhancement and hedging transactions for clients and Morgan Stanley)
- Credit Corporates (trading of corporate bonds, CDS, credit indices, corporate loans, and other fixed income instruments; may use various equity products for hedging purposes including but not limited to single name stocks, ETFs, equity options and equity futures)
- Municipal Securities (trading of municipal securities, tender option bonds, variable rate demand notes, rate locks, MCDX, and other fixed income instruments; may use various equity products for hedging purposes including but not limited to ETFs and equity futures). 

MS&Co has over 700 affiliates, including investment advisers, investment companies, U.S. broker-dealers, foreign broker dealers or equivalent entities; non broker-dealers; and bank regulated entities. Any such affiliate can enter orders on an agency, principal, or riskless principal basis into Morgan Stanley algorithms, certain of which algorithms generate conditional indications (as described in Part III, Item 9(a)) in such capacity in ATS-1 on behalf of such affiliates or affiliate's clients. Those conditional indications may receive firm-up requests which may, in turn, result in orders (as described in Part III, Item 7(a)) entered into ATS-1.
During the prior quarter, the following affiliates executed in ATS-1:
- Morgan Stanley Canada Limited (foreign)
- Morgan Stanley Capital Services LLC (non BD)
- Morgan Stanley & Co. International plc (foreign)
- Morgan Stanley Hedging Co., Ltd. (non BD)
- Morgan Stanley Smith Barney LLC (MPID: MSSB)
- Morgan Stanley Strategic Investments, Inc (non-BD)
- Morgan Stanley Uruguay Ltda. (foreign)
- Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (foreign)
- Mitsubishi UFJ Morgan Stanley PB Securities Co., Ltd. (foreign)

With the exception of Morgan Stanley Smith Barney LLC, the affiliates listed above are either non broker-dealers (notated with "non BD") or foreign-broker dealers (notated with "foreign") and as such do not have their own MPID. 

A Subscriber can opt out of interacting with conditional indications of the Broker-Dealer Operator or an affiliate that are deemed principal by Morgan Stanley, as described in Part III, Item 11(a). (See Part III, Item 14 for additional information about the opt-out process). This opt-out can be configured on a Subscriber basis (for all of the Subscriber's order flow) by communicating the request to account coverage or on a conditional indication-by-conditional indication basis (for conditional indications identified by the Subscriber) via FIX tag.
As described in Part III, Item 7(a), orders are entered in ATS-1 only in response to firm-up requests. Thus, an order deemed principal can only result from a conditional indication deemed principal and a Subscriber that opts out of interacting with a conditional indication deemed principal would not receive a firm-up request to interact with an order deemed principal. 

As indicated in Part II, Item 3(a), a Subscriber can opt out of interacting with conditional indications of the Broker-Dealer Operator or an affiliate that are deemed principal by ATS-1, as described in Part III, Item 11(a). This opt-out can be configured on a Subscriber basis (for all of the Subscriber's order flow) or on a conditional indication-by-conditional indication basis (for conditional indications identified by the Subscriber). 

As a full-service broker-dealer, MS&Co provides Subscribers and the Broker-Dealer Operator (Participants) with access to a number of products including algorithmic trading products, smart order routing technology, connectivity with third-party order entry systems via FIX, and Morgan Stanley proprietary order entry systems.
Subscribers (including affiliates of the Broker-Dealer Operator) and the Broker-Dealer Operator cannot access ATS-1 directly. ATS-1 can only be accessed indirectly through certain Morgan Stanley algorithms that generate conditional indications for entry in ATS-1 and potentially generate orders with respect to those conditional indications following a firm-up request. There are no specific terms and conditions for use of the Morgan Stanley algorithms that can access ATS-1. 

The Broker-Dealer Operator does not run ATS-1 as a separate business, but rather operates it as one trading product or venue within the full service broker-dealer. There are no employees exclusively dedicated to ATS-1.
MS&Co considers confidential trading information of ATS-1 to be (1) conditional indication related information received by ATS-1 from Morgan Stanley algorithms; (2) firm-up request related information transmitted by ATS-1 to the Morgan Stanley algorithm that sent the corresponding conditional indication; (3) order-related information received by ATS-1 from a Morgan Stanley algorithm in response to a firm-up request; (4) execution-related information in ATS-1 (including identities of contra-parties to an execution); and (5) data and analytics related solely to the activity of ATS-1 (with the exception of information made publicly available pursuant to reporting rules and regulations).
Listed below are the shared employees (which include employees and personnel such as consultants, temporary workers, and contingent workers of Morgan Stanley Services Group, Inc. (MSSG), an affiliated service entity that provides MS&Co and affiliates with certain inter-company services including, infrastructure group support, information processing, communications and occupancy, and equipment) that service both ATS-1 and MS&Co or an MS&Co affiliate and have access to confidential trading information of ATS-1, along with the basis for such access.
- Information Technology and Operations employees: Various technology groups of MSSG and MS&Co are responsible for developing, monitoring, and testing and otherwise supporting various systems within MS&Co's trading infrastructure. Employees within these groups include developers, systems engineers, or network engineers for MS&Co systems, including ATS-1. They are responsible for reviewing and testing the coding, systems infrastructure, and network infrastructure that supports the MS&Co trading infrastructure including ATS-1 to ensure stability and continued functionality and are also responsible for developing, testing, and implementing additional functionalities for ATS-1 as needed. Certain of these technology-related employees have access to the real-time production environment for ATS-1. As a result and in order to support the operation and infrastructure of ATS-1, these technology-related employees are able to access databases containing conditional indication-related, firm-up related, order-related and execution-related information and other confidential trading information of ATS-1. Similarly, certain Operations employees support the clearance and settlement of transactions effected through MS&Co including transactions effected on ATS-1. Those employees require access to confidential information of the Broker-Dealer Operator including confidential trading information of ATS-1, such as execution-related information and allocation information on order records, to assist in issues relating to clearance and settlement of such transactions.

- Sales and Trading employees: Sales and trading employees, including account coverage, handle orders on behalf of clients. This could involve providing trading discretion to determine when and how to handle an order, including routing an order to a Morgan Stanley algorithm that could generate a conditional indication in ATS-1, receive a firm-up request with respect to that conditional indication, and enter an order in ATS-1 in response to that firm-up request. Account representatives assigned to clients whose orders may be entered in an Morgan Stanley algorithm that may take such actions with respect to ATS-1 have access, with respect to each applicable client, to the order information entered into the Morgan Stanley algorithm and prior to any information being entered into ATS-1 and as a result of servicing such client, to execution-related information, including the fact that such client's order entered in a Morgan Stanley algorithm was matched in ATS-1 on a bilateral basis with trading interest from another Participant in ATS-1. Such sales and trading employees have access to their client information prior to entry and after execution in ATS-1. Account representatives have system entitlements only for the clients they cover and only have visibility into where an order was ultimately routed and/or executed, whether to/in ATS-1 or any other market center.

- Risk Management personnel: MS&Co has employees that perform business unit risk management functions including market risk, non-market risk, credit risk, and technology risk with respect to the businesses of the Broker-Dealer Operator including ATS-1. In performing these functions, these employees have access to conditional indication, order, and execution information and other confidential information relating to Morgan Stanley business activities, including confidential trading information of ATS-1, such as conditional-indication related information, firm-up related information, order-related information, execution-related information, and Morgan Stanley algorithm related trading activity.

- Supervisory and Oversight employees: Employees acting in a supervisory or oversight capacity (including employees performing reviews at the direction of such employees) have access to confidential information relating to Morgan Stanley business activities, including confidential trading information of ATS-1. Certain of these employees, among other responsibilities, have supervisory responsibilities reasonably designed to ensure that ATS-1 operates as intended. They are also responsible for evaluating activity in ATS-1 in connection with regulatory obligations and conducting analyses in connection with such activity. In furtherance of these responsibilities, these employees have access to confidential trading information of ATS-1.

- Legal, Compliance and other Guardianship functions: Employees in the Legal and Compliance Departments and others involved in complying with regulatory requirements support, with respect to such requirements, the businesses of MS&Co, including the business of ATS-1. These employees provide such support by, among other functions, responding to regulatory inquiries, conducting compliance and other reviews, performing internal audits of the trading infrastructure of the Broker-Dealer Operator (including the trading infrastructure supporting ATS-1), all with respect to activity within ATS-1. In the course of performing such functions and generally providing support to ATS-1, those employees have access, on an as-needed basis, to confidential trading information of ATS-1, such as conditional-indication information, firm-up related information, order-related information, and execution-related information in ATS-1. 

As indicated in the response to Item 6(a), MS&Co has an agreement with an affiliated service entity, MSSG, in which MSSG agrees to provide MS&Co with certain inter-company services including operations, technology, legal, compliance, and other infrastructure group support. MSSG provides inter-company services to the businesses of the Broker-Dealer Operator, including ATS-1.
In addition, Equinix, Inc. operates the NY5 data center that hosts the servers that operate ATS-1. Equinix is not authorized to access confidential trading information of ATS-1. 

As MSSG is an affiliate of the Broker-Dealer Operator, affiliates of the Broker-Dealer Operator are also affiliates of MSSG. Thus, affiliates of the Broker-Dealer Operator whose conditional indications are entered indirectly in ATS-1 identified in response to Part II, Item 2 are also affiliates of the service provider MSSG for purposes of this Item 6(c). 

MS&Co maintains restrictions (including permissioned access) and policies and procedures designed to safeguard the confidential trading information of ATS-1.
Access to confidential trading information of ATS-1 is limited to the shared employees described in Part II, Item 6(a) (that is, information technology and operations employees; sales and trading employees; risk management employees; supervisory and oversight employees; and legal, compliance, and other with guardianship functions), to the systems that support ATS-1, and to those Morgan Stanley algorithms that can generate conditional indications for entry in ATS-1 and potentially can generate orders with respect to those conditional indications following a firm-up request. A description of applicable safeguards and oversight procedures is provided below.
- Systems with Access to Order and Execution-Related Information: The order and execution management systems used by the sales and trading employees (including account representatives) described in response to Part II, Item 6(a), can route an order to a Morgan Stanley algorithm that can generate a conditional indication in ATS-1, among other trading interest to other destinations. Similarly, those Morgan Stanley algorithms (among activity in other destinations) can generate a conditional indication in ATS-1, receive firm-up requests with respect to those conditional indications, and enter orders in ATS-1 in response to such firm-up requests. These algorithms receive information regarding where such conditional indications were routed and/or any corresponding orders were executed, which could be ATS-1 or could be any other market center. These algorithms also receive firm-up requests which indicate that there is potential contra-side interest in ATS-1. MS&Co maintains a database containing trading information of its NMS Stock ATSs. Authorized employees (generally, authorized information technology and operations employees and certain authorized sales and trading employees, as needed, all as described in Part II, Item 6(a)) have access to the database in order to run queries and generate reports of trading activity within ATS-1. Examples of such reports are volume reports and cross price validation reports.
- Use of System Entitlements: MS&Co assigns permissioned logins to access ATS-1 and other aspects of MS&Co's trading infrastructure. These permissioned logins serve as controls to protect confidential trading information, including confidential trading information of ATS-1. Relevant supervisors must approve all employee access to ATS-1 as well as other MS&Co systems with access to order and execution information. Access privileges are aligned to business function and designated reviewers evaluate access based upon the employee's current role. Access is revoked when no longer required or upon an employee's termination. An employee that previously had access to confidential trading information of ATS-1 will no longer have access to such information upon revocation. Additionally, pursuant to written supervisory procedures governing access to MS&Co NMS Stock ATSs, a supervisor conducts a quarterly review of access and entitlements relating to ATS-1. This review is designed to confirm that those with access should continue to have access and also addresses whether any individual has transferred roles such that he or she should no longer require access.
- Application of Global Cyber Security Program: Morgan Stanley's global cyber security program, including measures designed to detect and prevent unauthorized intrusions to Morgan Stanley systems, apply to MS&Co's trading infrastructure, including ATS-1.
- Use of Information Barriers: MS&Co maintains information barriers to separate employees and systems with access to confidential trading information of its NMS Stock ATSs from those not permitted to access such information. These information barriers serve as controls to protect confidential trading information, including confidential trading information of ATS-1. Morgan Stanley maintains a network firewall and customer gateways that surround its trading infrastructure, including ATS-1, for security purposes. The firewall and customer gateways seek to protect access to confidential information of Morgan Stanley, including confidential trading information of ATS-1.
- Personal Trading Policy and Restrictions: MS&Co prohibits all employees, including those with access to confidential trading information of ATS-1, from trading based on non-public or other confidential information, which would include confidential information of clients and, more specifically, confidential trading information in ATS-1. Pursuant to the Morgan Stanley Global Employee Trading, Investing, and Outside Business Activities Policy and a supplement to that policy governing the Global Sales and Trading Divisions including the Institutional Equity Division of MS&Co, employees (unless an exception is granted) must effect personal transactions in Employee Securities Account maintained at Morgan Stanley. Further, the Morgan Stanley Global Employee Trading Policy requires employees to seek pre-approval for purchases and sales of securities (unless the Global Employee Trading Policy or applicable supplement provides an exemption for a specific type of security, such as an ETF). In addition, employees generally must hold securities purchased in their Employee Securities Accounts for a minimum of 30 calendar days (or obtain pre-approval for such sale prior to 30 calendar days under exceptional circumstances.) Employees are prohibited from effecting transactions that raise an actual or apparent conflict of interest with MS&Co or its clients or in securities on Morgan Stanley's Restricted List. Pursuant to applicable written policies and procedures, compliance and supervisory personnel, as applicable, review employee personal trading activity. Such reviews are designed to confirm compliance with MS&Co's policies regarding pre-approval, holding period, conflicts of interest (including trading based upon confidential trading information), and Restricted List compliance.
- Morgan Stanley Code of Conduct: Morgan Stanley requires all employees to be bound by and observe its Code of Conduct, including provisions that address the handling of client information and impose a duty of confidentiality. 

If a Subscriber requests and instructs the Broker-Dealer Operator to provide its confidential trading information to another Person that the Subscriber identifies (for example, to provide a third party clearing firm with a drop copy of that Subscriber's executions in ATS-1), MS&Co will comply with that request. A Subscriber can make such a request on a one-time basis, on a longer-term basis (i.e., as a default), or on a case-by-case-basis. Any such request is made expressly at the Subscriber's instruction, communicated verbally to MS&Co account coverage or in writing. 

As described in Item 7(b), MS&Co will provide confidential trading information of a Subscriber to another Person upon the Subscriber's request. The Subscriber can cancel that request at any time. 

The shared employees described in response to Part II, Item 6(a) are the only Persons who have access to confidential trading information of ATS-1. 

Affiliates of the Broker-Dealer Operator 

ATS-1 cannot be accessed directly and can only be accessed indirectly via certain Morgan Stanley algorithms. Thus, if a Person meets the credit and counterparty risk and other onboarding standards and documentation applicable for clients and for access to such algorithms, it can access ATS-1 indirectly through such algorithms. Morgan Stanley's smart order routing technology does not access ATS-1. 

While it is possible to exclude a Subscriber from ATS-1, the Broker-Dealer Operator generally does not exclude any Subscriber specifically or exclusively from the services of ATS-1. Rather, MS&Co may determine not to maintain a client relationship with a Subscriber for reputational, regulatory, credit, conduct, or other similar reasons, which would have the effect of excluding such Subscriber from the services of the ATS-1. An example of one such reason is a Subscriber under regulatory scrutiny based upon its conduct in the market generally. Thus, it is possible to exclude a Subscriber specifically from ATS-1 or more generally from services of the Broker-Dealer Operator, including based on such Subscriber's activity in ATS-1. 

ATS-1 operates on regular business days during normal trading hours (9:30 a.m. to 4:00 p.m. eastern time, unless delayed, shortened, or otherwise modified by an exchange), but does not initiate a crossing round in an NMS stock until there is an execution for that NMS stock on the primary exchange. As an exception to this practice, the Broker-Dealer Operator may choose to operate ATS-1 during normal trading hours when the primary exchange is not operating if the Broker-Dealer Operator deems there to be sufficient liquidity in the marketplace in the applicable NMS stock. The Broker-Dealer Operator may suspend matching in ATS-1 during market hours under anomalous conditions. Examples of such conditions include market data issues, technology issues, or reporting issues, all with respect to either the Broker-Dealer Operator or the market generally. 

Conditional indications (and any orders resulting from such conditional indications) only enter ATS-1 indirectly from certain Morgan Stanley algorithms. There are no other means for entering conditional indications or any orders resulting from such conditional indications. The terms and conditions for such entry are described in response to Part III, Item 9(a) (for conditional indications) and Item 7(a) (for orders resulting from conditional indications). Morgan Stanley algorithms that access ATS-1 communicate with ATS-1 via FIX connection. All Morgan Stanley algorithms access ATS-1 via the same FIX protocol.
The Morgan Stanley algorithms that can enter conditional indications and resulting orders in ATS-1 are configured to do so by default setting. A client, business unit, or affiliate of the Broker-Dealer Operator can change this default setting with respect to its orders to be handled by such Morgan Stanley algorithm. That is, Participants can designate orders to be handled by Morgan Stanley algorithms not to interact with ATS-1. Such designation can be made on an order-by-order basis (for such orders to be handled by such algorithms), either by the Participant or by the Broker-Dealer Operator in response to a Participant's request, via FIX tag or as a default setting for that Participant set by the Broker-Dealer Operator at the Participant's request. Designations made on an order-by-order basis (for orders to be handled by such algorithms) are effective immediately with respect to that order to be handled by such algorithm if the Participant makes the designation. If the designation is made either on an order-by-order basis by the Broker-Dealer Operator in response to a Participant's request or as a default setting for that Participant, such designation will become effective once the requisite change can be made, which can vary in time. 

ATS-1 initially pairs conditional indications. For context, please see the response to Part III, Item 9(a), which provides information regarding conditional indications, the operation of ATS-1, and the manner in which a conditional indication could result in an order in ATS-1.
Orders can be entered in ATS-1 only in response to a firm-up request, which is issued for a specific buy and for a specific sell conditional indication only after those specific conditional indications have been paired. The process for pairing conditional indications (including relevant priority rules) is described more fully in the response to Part III, Item 11(a). Orders can be matched in ATS-1 only after their corresponding conditional indications have already been paired. Priority (including time priority) is therefore relevant only to conditional indications and not relevant to orders.
As described in Part III, Item 9(a), each conditional indication expires when ATS-1 sends the firm-up request to the Morgan Stanley algorithm(s) for each side of the bilateral pairing. If the Morgan Stanley algorithm or algorithms that entered both conditional indications that are the subject of a bilateral pairing do not respond to the firm-up request with a firm order, both conditional indications in the bilateral pairing will already have expired once the corresponding firm-up request was sent by ATS-1 and therefore will no longer exist for any subsequent pairing.
Executions in ATS-1 are effected at a volume weighted average price (VWAP) over a designated time interval based upon reported trades and not at any price related to the best bid and offer, as described in response to Part III, Item 11(a). Thus, a change in the best bid and offer does not affect the interaction of orders that may be entered into ATS-1 in response to a firm-up request.
One or more bilateral matches can conclude before the scheduled end time of that crossing round under certain circumstances, as described in response to Part III, Item 11(a).
Orders entered into ATS-1 in response to a firm-up request are market or limit day orders.
ATS-1 does not route to other Trading Centers.
Orders entered into ATS-1 in response to a firm-up request can be cancelled prior to execution. An order receives a new time stamp when it is entered into ATS-1 in response to a firm-up request. 

As indicated above, certain Morgan Stanley algorithms initially enter conditional indications and only enter orders in response to a firm-up request. ATS-1 does not accept odd lot or mixed lot conditional indications or orders. As a result, the minimum size is a round lot.
In addition, MS&Co has procedures reasonably designed to prevent the entry of orders that exceed pre-set credit or capital thresholds and the entry of erroneous orders by rejecting orders that exceed appropriate size parameters on an order-by-order basis or over a short period of time, as required by Rule 15c3-5 under the Securities Exchange Act of 1934, as amended, commonly known as the Market Access Rule. 

Limits pursuant to the Market Access Rule are set with respect to each Participant in accordance with MS&Co's Market Access Rule policies and procedures. 

ATS-1 accepts conditional indications from certain Morgan Stanley algorithms. Before explaining the use of conditional indications, it is necessary to provide background on the interaction between those algorithms and ATS-1 and on the operation and structure of ATS-1.
ATS-1 is a dark pool designed to provide matches over time intervals for orders that certain Morgan Stanley algorithms handle. ATS-1 executes at VWAP over the relevant time interval, as described in response to Part III, Item 11(a).
For context, Morgan Stanley offers certain algorithms that allow users to target certain trading benchmarks and other trading objectives. Those algorithms do so by generating a trading trajectory, which is a plan to trade certain amounts of a security over certain periods of time.
The algorithm may then seek to trade all or a portion of the trading trajectory's planned trades in ATS-1. To do so, the algorithm will create a trajectory it is willing to enter in ATS-1 in the near term (up to ten minutes) and will communicate information relating to that near-term trajectory to ATS-1 in the form of a conditional indication. ATS-1 determines potential pairings of such conditional indications as described in further detail below and in response to Part III, Item 11(a). Note that the applicable algorithms determine the trading trajectory independent of ATS-1 and that ATS-1 does not alter any trading trajectory created by such algorithms.
ATS-1 accepts conditional indications from certain Morgan Stanley algorithms that represent a non-firm willingness to trade. Each conditional indication indicates the number of shares willing to buy or sell over certain future time intervals that comprise potential durations of a crossing round. Specifically, a conditional indication will indicate the number of shares willing to buy (or sell) if a crossing round lasts one minute, the number of shares if a crossing round lasts two minutes, and so on, up to if a crossing round lasts ten minutes. Conditional indications (including buy, sell, sell short, and sell short exempt conditional indications) can be at the market or designated with a limit price.
ATS-1 evaluates, for conditional indications on each side of the market, the number of shares willing to be paired in a crossing round of various potential durations and seeks to pair them on a bilateral basis. The primary consideration for the duration of a crossing round is determining the longest period of time for which the greatest number of shares per minute can be paired. There can be at most one crossing round per security at any given point in time. The duration of a crossing round may vary from crossing round to crossing round and, regardless of duration, a crossing round will not exceed the end of regular trading hours. The duration of a crossing round is not security specific and will vary for each crossing round and each security, based upon the terms of the conditional indications to be paired, as described above.
Upon selecting a crossing round duration, ATS-1 pairs conditional indications for such duration and then generates a bilateral firm-up request for each side of each pair to the Morgan Stanley algorithms that entered the paired conditional indications. Those algorithms can then send corresponding orders to ATS-1 that are firm. Each firm-up request contains ID numbers for each bilateral pairing, the size on which each conditional indication is being requested to firm-up, and the duration of the crossing round that will occur following the entry of firm orders in response to the firm-up request. Each conditional indication expires when ATS-1 sends the firm-up request to the Morgan Stanley algorithm(s) for each side of the bilateral pairing. Firm-up requests must be responded to within one second. ATS-1 may send multiple firm-up requests for an individual conditional indication as one message; however, each resulting order will correspond to a distinct contra-side pairing. Orders resulting from paired conditional indications are matched in ATS-1 at a price equal to the interval VWAP over the crossing round, as described more fully in response to Part III, Item 11(a). If the Morgan Stanley algorithm or algorithms that entered both conditional indications that are the subject of a bilateral pairing do not respond to the firm-up request with a firm order, both conditional indications in the bilateral pairing will already have expired once the corresponding firm-up request was sent by ATS-1 and therefore will no longer exist for any subsequent pairing.
A conditional indication entered in ATS-1 during an ongoing crossing round is eligible to participate in the next crossing round. 

ATS-1 accepts conditional indications pre-open as a technical matter, but pairing does not occur until ATS-1 has received conditional indications to buy and to sell that can be paired and there has been an execution for the subject NMS stock on the primary exchange. ATS-1 will not execute a transaction in an NMS stock unless there has been a sufficient number of transactions reported to the consolidated tape in the subject NMS stock for the Broker-Dealer Operator to calculate a price that it determines is sufficiently representative of interval VWAP. ATS-1 generally does not receive pre-open conditional indications, as the Morgan Stanley algorithms that send conditional indications are designed not to send conditional indications to ATS-1 pre-open. ATS-1 does not execute pre-open. 

Conditional indications and orders in ATS-1 have a Time in Force of Day and do not carry over to a subsequent day. As a result, there are no unexecuted conditional indications or orders resulting from such conditional indications at the start of regular trading hours. In addition, ATS-1 will cancel any unexecuted orders resulting from a conditional indication upon a stoppage of trading in a NMS stock during regular trading hours. Unpaired conditional indications will remain in ATS-1 and will remain eligible for pairing once trading resumes.
ATS-1 does not support opening or re-opening conditional indications or order types. 

ATS-1 is a dark pool designed to provide matches over time intervals for orders that certain Morgan Stanley algorithms handle. ATS-1 executes at VWAP over a relevant time interval. ATS-1 enables the Broker-Dealer Operator to match client, affiliate, and principal orders for NMS stocks with other client, affiliate, and principal orders.
ATS-1 receives conditional indications from certain Morgan Stanley algorithms, as described in response to Part III, Item 9(a). ATS-1 seeks to pair on a bilateral basis conditional indications to buy with conditional indications to sell. Once two or more conditional indications are paired, ATS-1 will initiate a crossing round.
ATS-1 employs capacity/size/time matching priority when seeking to pair conditional indications on a bilateral basis. A conditional indication that ATS-1 receives for an account of an affiliate of the Broker-Dealer Operator on behalf of that affiliate's client(s) is classified as an agency conditional indication. A conditional indication that ATS-1 receives for an account of an affiliate trading for the affiliate's own account for the affiliate's client facilitation/market making activity (which the Broker-Dealer Operator handles as agent for its affiliate) yields priority to other agency conditional indications (and is classified as an agency conditional indication for counterparty selection/opt-out purposes as described in response to Part II, Item 3). A conditional indication that ATS-1 receives for an account of an affiliate and for that affiliate's own account other than for the affiliate's client facilitation/market making activity is deemed a principal conditional indication for priority and for counterparty selection/opt-out purposes, notwithstanding that the Broker-Dealer Operator's capacity otherwise would be as agent for its affiliate.
Each conditional indication indicates the number of shares willing to buy or sell over certain future time intervals that comprise potential durations of a crossing round. Specifically, a conditional indication will indicate the number of shares willing to buy (or sell) if a crossing round lasts one minute, the number of shares if a crossing round lasts two minutes, and so on, up to if a crossing round lasts ten minutes. ATS-1 evaluates, for conditional indications on each side of the market, the number of shares willing to be paired in a crossing round of various potential durations and seeks to pair them on a bilateral basis. The primary consideration for choosing the duration of a crossing round is determining the longest period of time for which the greatest number of shares per minute can be paired. There can be at most one crossing round per security at any given point in time. The duration of a crossing round may vary from crossing round to crossing round and, regardless of duration, a crossing round will not exceed the end of regular trading hours. The duration of a crossing round is not security specific and will vary for each crossing round and each security, based upon the terms of the conditional indications to be paired, as described above.
Upon selecting a crossing round duration, ATS-1 pairs conditional indications for such duration and issues firm-up requests to the Morgan Stanley algorithms that entered those conditional indications. ATS-1 matches on a bilateral basis orders entered in response to such firm-up requests for the duration of the crossing round. Such match occurs at the interval VWAP over the crossing round, as described in more detail below.
One or more bilateral matches can conclude before the scheduled end time of that crossing round under certain circumstances. For example, if an order is cancelled during the crossing round, that may result in a partial match or no match for that pairing. Also, ATS-1 evaluates the marketability of limit orders with respect to the price quoted for the security in the consolidated quotation system and a limit order received following a firm-up request that is the subject of a pairing could become non-marketable during a crossing round, resulting in a partial match or no match for the pairing.
Given the forward-looking nature of the crossing rounds, ATS-1 makes certain assumptions regarding forward-looking volume and price when determining quantity eligible for pairing for each crossing round. As a result, conditional indications (or portions thereof) that may otherwise be eligible to be paired in ATS-1 may not be paired in a crossing round. For example, where a conditional indication with a limit order is priced close to the then-current market for the subject NMS stock (such that, for example, the limit order could become non-marketable during the forward looking crossing round), ATS-1 may not consider all or a portion of the conditional indication as eligible for the crossing round. This applies without regard to the capacity of the conditional indication.
Executions in ATS-1 occur at an interval VWAP calculated by ATS-1 based on the average price for each NMS stock weighted by the volume of shares executed in that NMS stock that were reported to the consolidated tape during the crossing round (or such shorter period for an early termination). Such calculation is subject to certain conditions designed to avoid calculating prices that may be less representative of interval VWAP. 

ATS-1 operates pursuant to the process described in response to Part III, Item 11(a), with interaction subject to the priority rules described in that response and the handling of conditional indications as described in response to Part III, Item 9(a). Orders and conditional indications are also subject to the Counter-Party Selection procedures described in response to Part III, Item 14(a) and Part II, Item 3. As described in those sections, ATS-1 permits the users of the Morgan Stanley algorithms that can indirectly enter conditional indications and resulting orders in ATS-1 to opt out of interacting with conditional indications deemed principal conditional indications in ATS-1, as described in Part III, Item 11(a). By opting out of interacting with principal conditional indications, a Participant inherently opts out of interacting with principal orders.
ATS-1 accepts short sale conditional indications and short sale exempt conditional indications and the Broker-Dealer Operator handles any orders resulting from such conditional indications following a firm-up request pursuant to the policies and procedures adopted pursuant to Rule 201(b) of Regulation SHO.
ATS-1 executes at the interval VWAP over the duration of the crossing round and not at a price determined with respect to the best bid and offer for an NMS stock. As a result, ATS-1 will continue to execute in a locked or crossed market.
In the event of an error of ATS-1 or of the Broker-Dealer Operator, the Broker-Dealer Operator will bust the trade or handle the liquidation or covering of the error position in a Morgan Stanley error account.
A conditional indication and an order each receives a new time stamp when it enters ATS-1. Conditional indications can be amended and will retain their time priority. Amending an order has the same effect as cancelling the order. Conditional indications and orders (and executions of such orders) are timestamped with millisecond granularity. 

ATS-1 permits the users of the Morgan Stanley algorithms that can indirectly enter conditional indications and resulting orders in ATS-1 to opt out of interacting with conditional indications deemed principal conditional indications in ATS-1, as described in Part III, Item 11(a). By opting out of interacting with principal conditional indications, a Participant inherently opts out of interacting with principal orders.
In addition, conditional indications may be designated (i) not to interact with certain conditional indications to comply with regulatory requirements (such as requirements under ERISA for applicable accounts relating to principal and agency crosses) and (ii) not to pair with conditional indications from the same Participant (where crossing may otherwise be permitted). Such designations can be made on an individual conditional indication basis for conditional indications identified by the Participant or as a default setting for all conditional indications of that Participant set by the Broker-Dealer Operator at the Participant's request. There is no need to opt out of interacting with orders, as order matching occurs only as a consequence of conditional indication pairing and such pairing will be subject to the opt out provisions for conditional indications. Designations that a Participant makes on an individual conditional indication basis are effective immediately with respect to that conditional indication. Designations to change a default setting become effective once the requisite change can be made, which can vary in time. 

Each conditional indication that is the subject of a bilateral pairing will generate a firm-up request to the Morgan Stanley algorithm or algorithms that generated the conditional indications. While again not a display for purposes of the display requirement of Rule 301(b)(3) of Regulation ATS, this firm-up request will "make known to" the algorithm that generated the conditional indication the fact that there is potential contra-side interest in ATS-1 and the size on which the algorithm is being requested to firm up. The firm-up request is sent only to the Morgan Stanley algorithm that generated the conditional indication resulting in the bilateral conditional pairing. 

As indicated above, the firm-up request is sent only to the Morgan Stanley algorithm that generated the conditional indication resulting in the bilateral conditional pairing. 

The Broker-Dealer Operator does not operate ATS-1 as a stand-alone NMS Stock ATS, and there is no standard fee schedule for ATS-1. There is no explicit transaction fee for executions in ATS-1. 

The Broker-Dealer Operator negotiates commission rates (and, where applicable, financing rates) with clients that cover all of the broker-dealer services provided to that client, which could include access to ATS-1. Such services may include high-touch trading services, low-touch trading services, financing services, and access to research. The negotiation process is the same even when the only services the client seeks to access are certain Morgan Stanley algorithms that could access ATS-1. Commission rates range from zero cents per share to 5% of the value of the transaction in ATS-1, although commission amounts have exceeded such rates under very limited circumstances based on the nature of the transaction. In addition, certain clients may negotiate a commission rate under which the client agrees to pay the fees and receive the rebates of venues to which the client's orders were routed and that result from removing or providing liquidity on those venues. At times, the amount of rebates that a client receives may exceed the amount charged, which could result a net rebate to such client irrespective of the negotiated commission rate. 

As indicated in response to Item 19(a), certain clients may negotiate a commission rate under which the client agrees to pay the fees and receive the rebates of venues to which the client's orders were routed and that result from removing or providing liquidity on those venues. At times, the amount of rebates that a client receives may exceed the amount charged, which could result a net rebate to such client irrespective of the negotiated commission rate. 

The Broker-Dealer Operator may suspend matching in ATS-1, including matching in any individual NMS stock, during market hours under anomalous conditions. ATS-1 will end the crossing round and cancel any orders to be executed over that crossing round upon the suspension of matching in ATS-1. Unpaired conditional indications will remain in ATS-1 and will remain eligible for pairing once the suspension is lifted.
The Broker-Dealer Operator will endeavor to communicate to Participants through coverage personnel with respect to suspensions that are expected to have a material impact on such Participants. The nature and/or fact of such communication will vary based upon the nature and/or anticipated duration of the suspension or halt.
The Broker-Dealer Operator will suspend the pairing of conditional indications (which will prevent the entry of an order, as no order can result without a paired conditional indication) for NMS stocks that have been suspended for purposes of the 5% volume threshold of Regulation ATS and for NMS stocks that are not eligible for trading pursuant to Morgan Stanley's restricted list. 

All reportable transactions effected in ATS-1 are over-the-counter or OTC transactions that are trade-reportable pursuant to applicable trade reporting requirements. Transactions effected by ATS-1 are (i) reported with the weighted-average price/special pricing formula (.W) trade modifier; and (ii) reported to the FINRA/Nasdaq (Carteret) trade reporting facility. The possible exception to clause (ii) is that the Broker-Dealer Operator may choose instead to report a small number of transactions to the FINRA/NYSE trade reporting facility to maintain connectivity to the FINRA/NYSE trade reporting facility as a ready and viable backup. Where appropriate, matches between two internal business units or trading desks of the Broker-Dealer Operator or of an affiliate are treated as journal entries (internal movements of positions and monies) and therefore are not trade reported. 

MS&Co is a member of the National Securities Clearing Corporation ("NSCC") and the Depository Trust Company ("DTC"). MS&Co clears and settles securities transactions through established clearance and settlement protocols. If the transaction is with a client that custodies its assets at MS&Co, MS&Co will clear and settle the transaction in that client's account. If the transaction is with a client that clears and settles on a delivery-versus-payment/receive-versus-payment (DVP/RVP) basis through a third-party custodian, MS&Co will clear and settle the transaction with the third-party custodian on a DVP/RVP basis. If the transaction is with a broker-dealer, the transaction will clear through NSCC and settle through DTC on a broker-to-broker basis. If the match is between two internal business units or trading desks of MS&Co or between two internal business units or trading desks of an affiliate, there is no change of beneficial ownership and therefore no transaction to clear or settle. As indicated in Part III, Item 22(b) and Part III, Item 21(a), such matches are treated as journal entries.

There are no procedures or material arrangements specific to ATS-1 (as compared to the procedures or arrangements generally of the Broker-Dealer Operator described above) to facilitate the clearance and settlement of transactions.

The Broker-Dealer Operator is the counterparty to all trades effected in ATS-1. The Broker-Dealer Operator is a self-clearing broker and has not entered into any arrangements for clearance and settlement other than those arrangements customary for self-clearing brokers (e.g., DTC membership) and broker-to-broker settlement. 

As indicated in the response to Part III, Item 22(a), settlement practices vary based upon whether a client custodies its assets at the Broker-Dealer Operator; whether the client settles on a DVP/RVP basis through a third-party custodian; and whether the client is a broker-dealer. In addition, as indicated in the response to Part III, Item 21(a), where appropriate, matches between two internal business units or trading desks of the Broker-Dealer Operator or of an affiliate are treated as journal entries (internal movements of positions and monies), do not result in a change in beneficial ownership, and therefore are not trade reported. As indicated in Part III, Item 22(a), such journal entries do not require clearance and settlement. 

As described in response to Part III, Item 11(a), ATS-1 executes at an interval VWAP price calculated by ATS-1 based upon executions reported to the consolidated tape. Accordingly, ATS-1 uses SIP feeds.
ATS-1 uses such SIP feeds to determine executions reported to the consolidated tape, to determine marketability of limit orders against the quotations in the consolidated quotation system, and for regulatory purposes (e.g., to determine whether a market is open or closed; whether a security is subject to a trading halt; and whether short sale restrictions or are in effect).