Securities Lawyer's Deskbook                          published by The University of Cincinnati College of Law

Rule 3a1-1 -- Exemption from the Definition of "Exchange" Under Section 3(a)(1) of the Act

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1. An organization, association, or group of persons shall be exempt from the definition of the term "exchange" under section 3(a)(1) of the Act, if such organization, association, or group of persons:
   
   
   1. Is operated by a national securities association;
      
      
   2. Is in compliance with Regulation ATS, Rule 300 through Rule 303; or
      
      
   3. Pursuant to paragraph (a) of Rule 301 of Regulation ATS, Rule 301(a), is not required to comply with Regulation ATS, Rule 300 through Rule 303.
      
      
2. Notwithstanding paragraph (a) of this section, an organization, association, or group of persons shall not be exempt under this section from the definition of "exchange," if:
   
   
   1. During three of the preceding four calendar quarters such organization, association, or group of persons had:
      
      
      1. Fifty percent or more of the average daily dollar trading volume in any security and five percent or more of the average daily dollar trading volume in any class of securities; or
         
         
      2. Forty percent or more of the average daily dollar trading volume in any class of securities; and
         
         
   2. The Commission determines, after notice to the organization, association, or group of persons, and an opportunity for such organization, association, or group of persons to respond, that such an exemption would not be necessary or appropriate in the public interest or consistent with the protection of investors taking into account the requirements for exchange registration under section 6 of the Act, and the objectives of the national market system under section 11A of the Act.
      
      
   3. For purposes of paragraph (b) of this section, each of the following shall be considered a "class of securities":
      
      
      1. Equity securities, which shall have the same meaning as in Rule 3a11-1;
         
         
      2. Listed options, which shall mean any options traded on a national securities exchange or automated facility of a national securities exchange;
         
         
      3. Unlisted options, which shall mean any options other than those traded on a national securities exchange or automated facility of a national securities association;
         
         
      4. Municipal securities, which shall have the same meaning as in section 3(a)(29) of the Act;
         
         
      5. Investment grade corporate debt securities, which shall mean any security that:
         
         
         1. Evidences a liability of the issuer of such security;
            
            
         2. Has a fixed maturity date that is at least one year following the date of issuance;
            
            
         3. Is rated in one of the four highest ratings categories by at least one Nationally Recognized Statistical Ratings Organization; and
            
            
         4. Is not an exempted security, as defined in section 3(a)(12) of the Act;
            
            
      6. Non-investment grade corporate debt securities, which shall mean any security that:
         
         
         1. Evidences a liability of the issuer of such security;
            
            
         2. Has a fixed maturity date that is at least one year following the date of issuance;
            
            
         3. Is not rated in one of the four highest ratings categories by at least one Nationally Recognized Statistical Ratings Organization; and
            
            
         4. Is not an exempted security, as defined in section 3(a)(12) of the Act;
            
            
      7. Foreign corporate debt securities, which shall mean any security that:
         
         
         1. Evidences a liability of the issuer of such debt security;
            
            
         2. Is issued by a corporation or other organization incorporated or organized under the laws of any foreign country; and
            
            
         3. Has a fixed maturity date that is at least one year following the date of issuance; and
            
            
      8. Foreign sovereign debt securities, which shall mean any security that:
         
         
         1. Evidences a liability of the issuer of such debt security;
            
            
         2. Is issued or guaranteed by the government of a foreign country, any political subdivision of a foreign country, or any supranational entity; and
            
            
         3. Does not have a maturity date of a year or less following the date of issuance.
            
            

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