ATS-N/UA 0000950123-20-000564 LIVE 0000068136 XXXXXXXX 013-00117 false false MS POOL ATS-4 N This Updating Amendment revises Part II, Item 2(a) and Part III, Items 11(a), 11(c), and 20(a). The changes relate to (1) adding affiliates that have traded in ATS-4; (2) changing the description of when securities may be suspended from trading in the ATS; and (3) revising the granularity of timestamps to microsecond. The changes in Part II, Item 2(a) related to the additional affiliates applies only to the operations of the Broker-Dealer Operator. The changes in Part III, Items 11(a), 11(c), and 20(a) apply the same to all subscribers and the Broker-Dealer Operator. Y MORGAN STANLEY & CO. LLC 008-15869 000008209 FINRA 06/30/1970 MSPL http://www.morganstanley.com/disclosures/morgan-stanley-dark-pools 800 Secaucus Road Secaucus 07094 US-NJ true true Any sales or trading business unit in the Institutional Equity Division (IED) or Fixed Income Division (FID) of MS&Co can enter an order in ATS-4 on an agency, principal, and/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) - Macro Products - (1) FXEM (trading of currency products such as spot FX, FX options, forwards, NDFs and related FX derivatives; emerging markets credit securities and related derivatives); and (2) Interest Rate Products (trading of interest rate products such as US Treasury securities, interest rate derivatives and structured notes) - Credit Products - (1) Credit Corporates (trading of credit corporate products including corporate bonds, CDS, credit indices, corporate loans or other credit derivatives; (2) Municipal Securities (trading of municipal securities and related derivatives); (3) Securitized Products Group (trading of securitized products including ABS, CMBS, RMBS, CLOs, CDOs, CDS, credit indices, agency debt securities, and whole loans) - Commodities (trading of commodities including but not limited to oil, metals, power and natural gas) Y N N MS&Co has 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 an order in ATS-4, either for that affiliate's own account or as agent or riskless principal on behalf of the affiliate's client(s). Such orders are classified either as agency or principal on the books and records of the Broker-Dealer Operator, as described in the response to Part III, Item 7(a) and subject to the priority rules described in response to Part III, Items 7(a) and 11(a) and the counter-party selection/opt-out processes described in response to Part II, Item 3. Since the effective date of the initial Form ATS-N for ATS-4, the following affiliates have executed orders in ATS-4: - Morgan Stanley Canada Limited (foreign) - Morgan Stanley Capital Products LLC (non BD) - Morgan Stanley Capital Services LLC (non BD) - Morgan Stanley & Co. International plc (foreign) - 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) - Caieiras Fundo De Investimento Multimercado - Investmento No Exterior (non BD) - Morgan Stanley France S.A. (foreign) - Morgan Stanley Fixed Income Ventures Inc. (non BD) 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. As indicated, the above is a list of affiliates that have historically executed orders in ATS-4. The Broker-Dealer Operator will update this list to add any affiliate that subsequently executes orders in ATS-4 and to remove any entity that ceases to be an affiliate of the Broker-Dealer Operator. Y N N A Subscriber can opt out of interacting with orders (either of the Broker-Dealer Operator or an affiliate) that are deemed principal by Morgan Stanley, as described in Part III, Item 7(a). (See Part III, Item 13 and 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 an order-by-order basis (for orders identified by the Subscriber) via FIX tag. As indicated in Part II, Item 3(a) above, a Subscriber can opt out of interacting with orders (either of the Broker-Dealer Operator or an affiliate) that are deemed principal by Morgan Stanley, as described in Part III, Item 7(a). (See Part III, Item 13 and 14.) 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 an order-by-order basis (for orders identified by the Subscriber) via FIX tag. Y MS&Co has entered into mutual access agreements with certain other broker-dealers that are broker-dealer operators of each such broker-dealer's NMS Stock ATS. Such agreements permit the other broker-dealer operator to access ATS-4 and permit MS&Co to access the NMS Stock ATS operated by the other broker-dealer. These agreements do not create any obligation on either party to enter orders or trading interest on any NMS Stock ATS. MS&Co has entered into such agreements with the following broker-dealer operators of an NMS Stock ATS: Barclays Capital Inc.; Deutsche Bank Securities; Fidelity Capital Markets; Goldman Sachs & Co.; JP Morgan Securities; and UBS Securities. In addition, certain broker-dealers are Subscribers to ATS-4 and may have entered into electronic trading agreements relating to the entry of orders with the Broker-Dealer Operator (which may include, but is not limited to, access to ATS-4). These agreements, however, do not create any obligation for such broker-dealers to enter orders in ATS-4 and such broker-dealers access ATS-4 on the same terms as other Subscribers. N 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. Any of these products can be used to enter orders that can access ATS-4 directly or indirectly (such as via algorithmic trading products or smart order routing technology). (See Part III, Item 5.) There are no specific terms and conditions for use of these products to access ATS-4. Y N The Broker-Dealer Operator does not run ATS-4 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-4. MS&Co considers confidential trading information of ATS-4 to be (1) order-related information received by ATS-4; (2) execution-related information in ATS-4 (including identities of contra-parties to an execution); and (3) data and analytics related solely to the activity of ATS-4 (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-4 and MS&Co or an MS&Co affiliate and have access to confidential trading information of ATS-4, 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-4. They are responsible for reviewing and testing the coding, systems infrastructure, and network infrastructure that supports the MS&Co trading infrastructure including ATS-4 to ensure stability and continued functionality and are also responsible for developing, testing, and implementing additional functionalities for ATS-4 as needed. Certain of these technology-related employees have access to the real-time production environment for ATS-4. As a result and in order to support the operation and infrastructure of ATS-4, these technology-related employees are able to access databases containing order-related and execution-related information and other confidential trading information of ATS-4. Similarly, certain Operations employees support the clearance and settlement of transactions effected through MS&Co including transactions effected on ATS-4. Those employees require access to confidential information of the Broker-Dealer Operator including confidential trading information of ATS-4, 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 directly or indirectly to ATS-4 among other market centers. Account representatives assigned to clients whose orders may be entered in ATS-4 (among other market centers) have access, with respect to each applicable client, to the order information prior to such information being entered into ATS-4 and, as a result of servicing such client, have access to execution-related information, including the fact that such client's order was matched in ATS-4 with an order from another Participant in ATS-4. Such sales and trading employees have access to their client information prior to entry and after execution in ATS-4. 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-4 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-4. In performing these functions, these employees have access to order and execution information and other confidential information relating to Morgan Stanley business activities, including confidential trading information of ATS-4, such as order-related information, execution-related information, and client or desk 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-4. Certain of these employees, among other responsibilities, have supervisory responsibilities reasonably designed to ensure that ATS-4 operates as intended. They are also responsible for evaluating and reviewing Participant performance, assessing Participant trading activity in connection with classification as a Professional Trader or not as a Professional Trader (See Part III, Item 13), reviewing market developments to adhere to regulatory obligations, and conducting analyses in connection with the foregoing. In furtherance of these responsibilities, these employees have access to confidential trading information of ATS-4. - 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-4. 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-4), all with respect to activity within ATS-4. In the course of performing such functions and generally providing support to ATS-4, those employees have access, on an as-needed basis, to confidential trading information of ATS-4, such as order-related and execution-related information in ATS-4. Certain personnel from the groups listed above participate in the meetings described in Part III, Item 13(a) to classify a Participant as a professional trader or not a professional trader. As such, those personnel have access to confidential trading information of ATS-4 but may only use the information obtained in or through such meetings for the purpose of such meetings and may not use such information for any unauthorized purpose. 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. In addition, Equinix, Inc. operates the NY5 data center that hosts the servers that operate ATS-4 and provides the connectivity services described in Part III, Item 6 (Connectivity and Co-location). Equinix is not authorized to access confidential trading information of ATS-4. 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 that can enter orders in ATS-4 identified in response to Part II, Item 2 are also affiliates of the service provider MSSG for purposes of this Item 6(c). Y MS&Co maintains restrictions (including permissioned access) and policies and procedures designed to safeguard the confidential trading information of ATS-4. Access to confidential trading information of ATS-4 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-4, and smart order routing technology of MS&Co. 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 orders to ATS-4, among other destinations. Similarly, smart order routing technology and algorithmic trading products of MS&Co can route orders to ATS-4 among other destinations. These systems receive information regarding where such orders were routed and/or executed, which could be ATS-4 or could be any other market center. In addition, the smart order routing technology of the Broker-Dealer Operator has access to the full order book of ATS-4 on a continuous basis. 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-4. Examples of such reports are volume reports, order-to-fill ratio reports, message count reports, and monthly statistics of ATS-4 activity which are made publicly available. (See Part III, Item 26.) - Use of System Entitlements: MS&Co assigns permissioned logins to access ATS-4 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-4. Relevant supervisors must approve all employee access to ATS-4 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-4 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-4. 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-4. - 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-4. Morgan Stanley maintains a network firewall and customer gateways that surround its trading infrastructure, including ATS-4, for security purposes. Subscribers (excluding Subscribers affiliated with the Broker-Dealer Operator) connect from outside that firewall and those customer gateways. The firewall and customer gateways seek to protect access to confidential information of Morgan Stanley, including confidential trading information of ATS-4. - Personal Trading Policy and Restrictions: MS&Co prohibits all employees, including those with access to confidential trading information of ATS-4, 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-4. 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-4), 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-4. As described in Part II, Item 7(a), the smart order routing technology of the Broker-Dealer Operator has access to the full order book of ATS-4 on a continuous basis and that information remains in the smart order routing technology. Investment Companies Retail Investors Issuers Brokers NMS Stock ATSs Asset Managers Principal Trading Firms Hedge Funds Market Makers Banks Dealers Other Affiliates of the Broker-Dealer Operator N Any client of MS&Co is eligible to access ATS-4's services. Thus, if a Person meets the credit and counterparty risk and other onboarding standards and documentation applicable for clients of the Broker-Dealer Operator, it can access ATS-4's services. The same process applies to a Person seeking to access ATS-4's services directly. See Part III, Item 5, for the ways in which a Subscriber can access ATS-4's services, both directly and indirectly. Y N While it is possible to exclude a Subscriber from ATS-4, the Broker-Dealer Operator generally does not exclude any Subscriber specifically or exclusively from the services of ATS-4. 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 ATS-4. Examples of such reasons include a Subscriber engaging in a pattern of sending repeated orders of short duration that function effectively as immediate-or-cancel orders (which are not permitted) or a Subscriber under regulatory scrutiny based upon its conduct in the market generally. Thus, it is possible to exclude a Subscriber specifically from ATS-4 or more generally from services of the Broker-Dealer Operator, including based on such Subscriber's activity in ATS-4. Y ATS-4 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 trade an NMS stock until there is an execution for that NMS stock on the primary exchange. ATS-4 accepts orders beginning at 8:00 a.m. As an exception to this practice, the Broker-Dealer Operator may choose to operate ATS-4 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 crossing in ATS-4 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. Y Participants can enter orders via FIX directly into the trading infrastructure of the Broker-Dealer Operator and such orders are converted to an MS&Co proprietary binary protocol prior to being entered into ATS-4. Participants cannot enter orders via binary. The standard version of FIX offered is FIX 4.2, although the Broker-Dealer Operator continues to support legacy FIX 4.0 and 4.1 sessions. Smart order routing technology (that is, the technology that makes decisions regarding where to route orders among various sources of internal and external liquidity, including ATS-4) and algorithmic trading products of the Broker-Dealer Operator, which are available for use by clients, traders, and sales traders, can enter orders into ATS-4 either via binary or FIX protocol. Orders entered via FIX protocol are converted to the same binary protocol referenced above. The FIX protocol available to the Broker-Dealer Operator and affiliates is more extensive than the FIX protocol offered to non-affiliate Subscribers. The FIX protocol offered to the Broker-Dealer Operator and affiliates has additional FIX tags relevant to the nature of this order flow (e.g., tags relating to affiliate status to address self-trading or restrict other interactions). Participants can enter orders in ATS-4 via a number of front-end order management systems (OMSs), including third-party OMSs, an OMS of the Broker-Dealer Operator available to internal sales traders and traders, and an OMS provided by the Broker-Dealer Operator to Subscribers. Participants can enter orders in ATS-4 (i) directly (as described in Part III, Item 5(a)); (ii) via smart order routing technology of the Broker-Dealer Operator that can enter orders into ATS-4 (including with an instruction to route any such order only to ATS-4); or (iii) via algorithmic trading products provided by the Broker-Dealer Operator that can enter orders directly into ATS-4 or via smart order routing technology. Such technology or products may be customized by the Broker-Dealer Operator for a particular Subscriber based upon trading strategies contemplated by that Subscriber for routing to trading centers, one of which can be ATS-4. Y The Broker-Dealer Operator permits Participants to cross-connect directly to a FIX gateway for the trading infrastructure, which includes ATS-4, from servers located in the same data center as ATS-4. Such cross connect is provided by Equinix, Inc., the operator of the data center. A Participant's connection from its servers in the data center to the FIX gateway for ATS-4 can be via copper or fiber, and speed can range from 1 Gb to 10 Gb, with the 10 Gb connection having lower latency than the 1 Gb connection. The Broker-Dealer Operator and certain of its affiliates connect to ATS-4 from within the network firewall and customer gateways that surround its trading infrastructure, including ATS-4, for security purposes, and Subscribers (excluding the affiliated Subscribers referenced above) connect from outside that firewall and customer gateways. The Broker-Dealer Operator and those affiliates that connect from within the firewall and customer gateways will be able to access ATS-4 faster as a result of not having to cross the firewall and pass through the customer gateways. N N The response to Part III, Item 11(a) provides additional information regarding the manner in which orders interact in ATS-4 and it may be helpful to review that Item first for applicable background. ATS-4 accepts market and limit orders (including buy, sell, sell short, and sell short exempt orders), which, in each case, may also be designated with a peg instruction. ATS-4 accepts Day orders and IOC orders (as Time in Force attributes), although only smart order routing technology of the Broker-Dealer Operator is permitted to send IOC orders to ATS-4 to seek an immediate match. If liquidity is available in ATS-4 at a price that is at or within the best bid and best offer from markets that display protected quotations as defined in Regulation NMS (the best bid and offer), the Broker-Dealer Operator's smart order routing technology, based on its view of liquidity in ATS-4 (i.e., the full order book), may access such liquidity by sending an IOC order to ATS-4. Subscribers and the Broker-Dealer Operator accessing ATS-4 directly are permitted to enter day orders, but not IOC orders. Participants and the Broker-Dealer Operator's smart order routing technology and algorithmic trading products can designate an order sent to ATS-4 with a minimum fill quantity instruction. ATS-4 does not aggregate multiple contra-side orders to satisfy a minimum fill quantity on a single order. The minimum fill quantity constraint applies to every execution in ATS-4, except where the unexecuted portion of an order is less than the minimum fill quantity, in which case ATS-4 will not cancel the unexecuted quantity and such quantity will remain in ATS-4 for execution. ATS-4 does not support post-only orders. ATS-4 does not route orders to other Trading Centers. ATS-4 employs price/capacity/size/time matching priority, which encourages size and deemphasizes speed (rather than prioritizing time over size). Orders from Participants not classified as professional traders are given priority over both principal orders (as defined below in this section) and orders from Participants classified as professional traders. The price used for determining order priority is the price at or closest to the midpoint at which the order can be executed. An order may be designated with an instruction to be pegged to the near side of the best bid and offer or the midpoint of the best bid and offer. Because orders in ATS-4 cannot be executed at a price higher than the best offer or lower than the best bid, all orders in ATS-4 without a peg instruction are treated as if they were pegged to the far side of the best bid or offer, subject to any applicable limit price. An order pegged to the near side of the best bid and offer that has ever been repriced to a peg price other than its limit price yields time priority to other orders with the same price, capacity, and size. An order that ATS-4 receives from an affiliate of the Broker-Dealer Operator on behalf of that affiliate's client(s) is classified as an agency order. An order that ATS-4 receives from 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 orders (and is classified as an agency order for counterparty selection/opt-out purposes as described in Part II, Item 3). An order that ATS-4 receives from an affiliate for the affiliate's own account other than for the affiliate's client facilitation/market making activity is deemed a principal order by Morgan Stanley 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. An order could lose execution priority to a later arriving order at the same price if the later arriving order ranks higher with respect to other priority factors such as size or capacity. This is because ATS-4 prioritizes size over time and capacity over both size and time. In addition, as described above, an order pegged to the near side of the best bid and offer that has ever been repriced to a peg price other than its limit price yields time priority to other orders with the same price, capacity, and size. An order receives a new time stamp when it enters ATS-4 and when any term of the order is subsequently amended by the party entering it, other than a decrease in quantity/size. Y The minimum order size for orders in ATS-4 is a round lot, and ATS-4 rejects odd lot orders. ATS-4 will also cancel the odd lot portion of any mixed lot order after the round lot portion is fully executed. Although not required, a Participant can choose to provide a minimum fill quantity for an order, as described in Part III, Item 7(a). 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. N ATS-4 will accept a mixed lot order, but will cancel the odd lot portion of any mixed lot order after the round lot portion is fully executed. Y N ATS-4 organizes buy day orders by priority then sell day orders by priority, after which orders may be matched. The price/capacity/size/time priority rules are described in response to Part III, Item 11(a). The Broker-Dealer Operator's smart order routing technology does not send IOC orders until trading has opened (or re-opened) on ATS-4. For opening in a subject NMS stock, trading on ATS-4 begins once there is an execution in that NMS stock on its primary exchange. As an exception to this practice, the Broker-Dealer Operator may choose to operate ATS-4 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. For re-opening, trading is triggered by the primary exchange providing notification of its trading status. For both opening and re-opening, the Broker-Dealer Operator may also (for example, in exceptional market conditions such as periods of volatility) issue an administrative command not to initiate trading on ATS-4. Y Unexecuted day orders remain in ATS-4 and are handled as described in the response to Item 10(a) both at the start of regular trading hours and following a stoppage of trading in a security during regular trading hours. For clarity, an unexecuted day order remains in ATS-4 during normal trading hours, is not cancelled upon a stoppage of trading, and will expire by its terms at the end of a trading day. ATS-4 does not support opening or re-opening order types. Y N ATS-4 is a real-time continuous match dark pool. ATS-4 tracks on a real-time basis, for each NMS stock eligible to be matched through it, the best bid and offer. The Broker-Dealer Operator lists on the website provided in response to Part I, Item 6 and otherwise provides monthly notice of those NMS stocks not eligible to be matched in ATS-4. Generally, the NMS stocks not eligible for matching in ATS-4 are securities with a regulatory or practical limitation on matching, such as securities on Morgan Stanley's restricted list, securities for which Morgan Stanley is the issuer, securities for which ATS-4 is approaching the 5% volume threshold under Regulation ATS, or the volume/notional thresholds under Regulation SCI, or securities with anomalous characteristics. This could result in the suspension of matching in individual securities, including those with high volumes, to stay under such thresholds. Orders matched by ATS-4 are matched initially at the midpoint of the best bid and offer to the extent such a match is possible. To the extent that there are remaining unmatched orders after the midpoint match, such orders will be matched at a price that is at or within the best bid and offer (the matching range). In general, ATS-4 attempts to match buy and sell orders at the midpoint of the best bid and offer. If orders remain after midpoint matching (for example, a buy order and a sell order each with limit prices below the midpoint), ATS-4 will run the matching algorithm again, starting at a matching price closest to the midpoint. This process will repeat to seek to match orders at other prices within the appropriate matching range, incrementally moving away from the midpoint. To illustrate, consider the following. The best bid and offer is $50.00 - $50.10. ATS-4 would match a limit order to buy at $50.08 with a market order to sell at the midpoint match price, $50.05. Assume that after the midpoint match, there remains a limit order to buy at $50.04 and a limit order to sell at $50.02. ATS-4 will match these orders (which could not have matched at the midpoint of $50.05) at $50.04, the next match price closest to the midpoint match price. ATS-4 employs price/capacity/size/time matching priority, which encourages size and deemphasizes speed (rather than prioritizing time over size). As described in response to Part III, Item 13, a Participant can be classified as a professional trader or not classified as a professional trader. The term "capacity" refers to whether a Participant is classified as a professional trader, is not classified as a professional trader, is entering an order deemed principal by Morgan Stanley, or is entering an order deemed agent by Morgan Stanley, as described in Part III, Item 7(a). Orders from Participants not classified as professional traders are given priority with respect to capacity over both principal orders (as defined in response to Part III, Item 7(a)) and orders from Participants classified as professional traders. The price used for determining order priority is the price at or closest to the midpoint at which the order can be executed. An order deemed agent can be for a Participant classified as a professional trader or for a Participant not classified as a professional trader. Similarly, an order deemed principal can be for a Participant classified as a professional trader or for a Participant not classified as a professional trader. Y ATS-4 operates pursuant to the matching process described in response to Part III, Item 11(a), with order interaction subject to the priority rules described in response to Part III, Items 7(a) and 11(a) and the Counter-Party Selection procedures described in response to Part III, Item 14(a) and Part II, Item 3. As described in those sections, the Broker-Dealer Operator permits (i) Participants not classified as professional traders to opt out of interacting with Participants classified as professional traders in ATS-4 and (ii) Participants to opt out of interacting with orders deemed principal orders in ATS-4 by Morgan Stanley, as described in Part III, Item 7(a). For clarity, a Participant classified as a professional trader cannot opt out of interacting with other Participants classified as professional traders. ATS-4 accepts short sale orders and short sale exempt orders and the Broker-Dealer Operator handles such orders pursuant to the policies and procedures adopted pursuant to Rule 201(b) of Regulation SHO. ATS-4 does not execute transactions in NMS stocks that are the subject of a locked or crossed market. An order that ATS-4 receives from an affiliate for the affiliate's own account other than for the affiliate's client facilitation/market making activity is deemed a principal order by Morgan Stanley 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. In the event of an error of ATS-4 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. An order receives a new time stamp when it enters ATS-4 and when any term of the order is subsequently amended by the party entering it, other than a decrease in quantity/size. Orders and executions are timestamped with microsecond granularity. Y N The Broker-Dealer Operator can classify a Participant in ATS-4 as a professional trader based on the nature and frequency of that Participant's activities (or, for a new Participant, its anticipated activities) in ATS-4. The Broker-Dealer Operator evaluates the nature and frequency of a Participant's activities based upon average daily message count and number of shares executed per order. Such classifications are made on a monthly basis, but can be made intra-month if there is an extraordinary change in a Participant's activities during that month. Principal orders for the Broker-Dealer Operator and principal orders for an affiliate of the Broker-Dealer Operator are deemed principal orders in ATS-4, as described in Part III, Item 7(a). It is possible for one or more trading desks or business units of the Broker-Dealer Operator or an affiliate of the Broker-Dealer Operator to be classified as a professional trader if it meets the criteria for such classification. Segmentation can affect order interaction in the following manner. An order from a Participant not classified as a professional trader is given priority over both orders deemed principal orders in ATS-4 and orders from Participants classified as professional traders. In addition, the Broker-Dealer Operator permits (i) Participants not classified as professional traders to opt out of interacting with Participants classified as professional traders in ATS-4 and (ii) Participants to opt out of interacting with orders deemed principal orders in ATS-4, as described in Part III, Item 7(a). For clarity, a Participant classified as a professional trader cannot opt out of interacting with other Participants classified as professional traders. Y The Broker-Dealer Operator will inform a Participant both when the Participant has been classified as a professional trader and when (and if) the Participant is no longer classified as a professional trader, in each case so that the Participant knows of its priority and any applicable opt-out functionality. Such communication is provided by personnel of the Broker-Dealer Operator that cover that Participant. The Broker-Dealer Operator communicates to its internal Participants (e.g., internal trading desks of the Broker-Dealer Operator) that their orders deemed principal will be treated as principal. Finally, the personnel identified in response to Part II, Item 6(a) have access, as needed, to participant classification information. Classification status is reviewed and changes are made on a monthly basis. Y Y As described in response to Item 13(a), the Broker-Dealer Operator permits (i) Participants not classified as professional traders to opt out of interacting with Participants classified as professional traders in ATS-4 and (ii) Participants to opt out of interacting with orders deemed principal in ATS-4, also as described in Part II, Item 3. For clarity, a Participant classified as a professional trader cannot opt out of interacting with other Participants classified as professional traders. In addition, orders may be designated (a) not to interact with certain orders to comply with regulatory requirements (such as requirements under ERISA for applicable accounts relating to principal and agency crosses); (b) not to cross with orders from the same Participant (where crossing may otherwise be permitted); and (c) to execute in an amount not less than a minimum quantity indicated as described in Part III, Item 7(a). Such designations can be made on an order-by-order basis by the Participant or as a default setting for that Participant set by the Broker-Dealer Operator at the Participant's request. Designations that a Participant makes on an order-by-order basis are effective immediately with respect to that order. Designations to change a default setting become effective once the requisite change can be made, which can vary in time. The procedures for counterparty selection are the same for all Subscribers and the Broker-Dealer Operator, except as follows: First, a Participant that is classified as a professional trader cannot opt out of interacting in ATS-4 with other Participants classified as professional traders, while a Participant that is not classified as a professional trader can opt out of interacting with participants classified as professional traders. Second, a Participant generally can elect not to cross with other orders entered by the same Participant. An exception to this general practice is where the Broker-Dealer Operator has determined that a Subscriber trades solely as principal and does not have any underlying customers. In that circumstance, the Broker-Dealer Operator will require the Subscriber to be configured not to cross with its own orders and the Subscriber will not be able to voluntarily elect otherwise. N While ATS-4 does not display orders to any Person(s) for purposes of the display requirement of Rule 301(b)(3) of Regulation ATS, certain information in ATS-4 is "made known to" the Broker-Dealer Operator's smart order routing technology through its view of the liquidity in ATS-4 (i.e., the full order book on a continuous basis), as described in Part III, Item 7(a). Authorized personnel of the Broker-Dealer Operator that support the Broker-Dealer Operator's smart order routing technology have access to such information as necessary to support the operation of such technology. In addition, when smart order routing technology of the Broker-Dealer Operator routes an order to ATS-4, such smart order routing technology necessarily knows that such order was routed to ATS-4. As indicated above, the information is made known only to the Broker-Dealer Operator's smart order routing technology, as described in Part III, Item 7(a). N N Y N The Broker-Dealer Operator does not operate ATS-4 as a stand-alone NMS Stock ATS and there is no standard fee schedule for ATS-4. There is no explicit transaction fee for executions in ATS-4. 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-4. 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 service the client seeks to access is ATS-4. Commission rates range from zero cents per share to 5% of the value of the transaction in ATS-4, 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, in its sole discretion, elect to suspend crossing in ATS-4, including crossing in any individual NMS stock, such as for example, during market hours under anomalous conditions. ATS-4 will accept orders for NMS stocks that are halted and will resume crossing in such NMS stocks once such halt is lifted. During a halt, a Participant can cancel or modify an order. If the Broker-Dealer Operator suspends crossing in ATS-4, it may continue to accept orders in the affected NMS stock(s), based upon the circumstances giving rise to the suspension. Such decisions will be made on a case-by-case basis, in consultation with Legal, Compliance, and Business Unit Risk Management. 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 Participant(s). 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 reject orders for NMS stocks that have been suspended for purposes of the 5% volume threshold of Regulation ATS, Regulation SCI volume/notional thresholds and for NMS stocks that are not eligible for trading pursuant to Morgan Stanley's restricted list. This could result in the suspension of matching in individual securities, including those with high volumes, to stay under such thresholds. Y All reportable transactions effected in ATS-4 are over-the-counter or OTC transactions that are trade-reportable pursuant to applicable trade reporting requirements. Transactions effected by ATS-4 are reported to the FINRA/Nasdaq (Carteret) trade reporting facility. The possible exception to this practice 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. Y 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-4 (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-4. 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. ATS-4 uses direct exchange market data feeds (or the SIP feed for any exchange that does not make available a direct exchange market data feed) to determine the best bid and offer from all markets that display protected quotations as defined in Regulation NMS. The best bid and offer is used, in turn, to determine the midpoint or other relevant price for execution in ATS-4. ATS-4 also uses the SIP feed 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 are in effect) and for backup purposes. The Broker-Dealer Operator uses the SIP feed as a backup when there is an issue or the perception of an issue with a market's direct feed or with the Broker-Dealer Operator's ability to receive and process the data from such market's feed. The Broker-Dealer Operator makes such determinations on a market-by-market basis. Y N N true true