Goldman Sachs & Co. LLC ( GSCO )

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1 Goldman Sachs & Co. LLC ( GSCO ) A set of frequently asked questions ( FAQs ) about Sigma X2 is available on the Goldman Sachs Electronic Trading ( GSET ) website. Sigma X2, which also may be known as or referred to as X 2, is owned and operated by GSCO. Please note you should periodically review the GSET website at for updates that may be posted to these FAQs. A. Sigma X2 Participants 1. Describe the types of participants that use Sigma X2. The Sigma X2 participant base consists primarily of institutional customers and broker-dealers, including equity and options market makers and specialists, and introducing brokers. These clients, along with GSCO (on behalf of itself as principal or its customers as agent) and GSCO affiliates are collectively referred to herein as Participants. As noted below, broker-dealer clients may access Sigma X2 directly or indirectly. Broker-dealer clients accessing Sigma X2 via direct connection are referred to as Subscribers. 2. Do GSCO affiliates use Sigma X2? GSCO affiliates may send orders to GSCO for execution in Sigma X2. Sigma X2 executes such affiliates orders using the same matching logic that it applies to any other Participant s order, including with respect to price/broker/time priority. Additionally, personnel of GSCO s affiliates have no visibility into Sigma X2 s order book, which is non-displayed. 3. What are the standards for onboarding Participants? Participants are subject to the GSCO onboarding process applicable to all GSCO clients. Once the general GSCO onboarding process is complete, GSCO clients have access to a variety of products and services offered by GSCO including, but not limited to, Sigma X2. During the GSCO onboarding process, a variety of criteria are taken into account for establishing new client relationships and providing clients with access. For example, Goldman Sachs has onboarding policies, procedures, and internal processes designed to prevent and detect money laundering. Other factors in assessing and onboarding clients include financial and credit standing. However, these factors are not conclusive in all instances. As noted in FAQ A1 above, Participants with direct connections to Sigma X2 are referred to as Subscribers. 1 In addition to other onboarding requirements, a Subscriber must execute a subscriber agreement or another form of agreement governing and specifying the nature of the relationship between GSCO and the Participant. 4. What are the fee arrangements with Participants of Sigma X2? Participants are not charged a fee for accessing Sigma X2 (e.g., a flat fee for sending orders to the ATS). 1 Currently, only broker-dealer clients are permitted to route orders to Sigma X2 via direct connection. 1

2 Rather, a Participant is charged a negotiated commission rate based on the GSCO products and services the Participant elects, i.e., based on the Participant s overall relationship with GSCO. B. Accessing Sigma X2 1. How can Sigma X2 be accessed? Sigma X2 may be accessed via two channels: (a) direct connection to Sigma X2, or (b) indirectly, i.e., through GSCO systems, which may include (i) order handling by GSCO s algorithms or GSCO s smart order router, or (ii) directed orders submitted to GSCO systems. Order handling by GSCO s algorithms may result in the generation of child orders that are, in turn, handled by GSCO s smart order router. Participants may utilize the smart order router of an unaffiliated Participant to access Sigma X2 directly or indirectly. 2. What protocol is used for sending orders to Sigma X2? Orders sent to Sigma X2, both via direct connection and indirectly, must be transmitted via the Financial Information exchange ( FIX ) protocol. C. Order Types, Messaging, and Assigned Limit Price 1. What order types are offered to Sigma X2 Participants? Each order has an Assigned Limit Price. The Assigned Limit Price is the price at which an order may be executed at or within the National Best Bid and Offer ( NBBO ) at any given moment. Assigned Limit Prices will be updated as necessary with each change in the NBBO. Sigma X2 accepts Limit, Mid Peg, Market Peg, and Primary Peg order types: Limit Orders. Limit orders posted to the Sigma X2 order book are posted at their Assigned Limit Price with the following constraints: Orders with prices outside of the NBBO, i.e., at prices more aggressive (higher for buy orders, lower for sell orders) than the NBBO, are given an Assigned Limit Price at or within the NBBO. For example, where the NBBO is $10.00 x $10.02, a buy order with a limit price of $10.03 will have an Assigned Limit Price of $ Orders with a price increment lower than the minimum quotation increment are rejected, i.e., for orders at or above $1.00, the minimum increment is $0.01 (unless the symbol is part of the Tick Size Pilot). For orders below $1.00, the minimum increment is $ Orders for tick size pilot securities trading in $0.05 increments will be rejected if a limit is specified at a sub-nickel increment. Peg Orders. Sigma X2 supports three peg types. o Mid Peg orders are pegged to the midpoint of the NBBO. o Market Peg orders are pegged to the far side of the NBBO (e.g., best offer for buy order). o Primary Peg orders are pegged to the near side of the NBBO (best bid for a buy order). Sigma X2 only will accept a peg order with a limit price. 2

3 o A peg order with a limit within the NBBO will have an Assigned Limit Price most favorable to the Participant sending the order. For example, where the NBBO is $10.00 x $10.02, a Mid Peg sell order with a limit price of $10.00 will have an Assigned Limit Price of $ Securities priced under $1.00. o o Where the Assigned Limit Price of an order would be the midpoint of the NBBO and the midpoint price extends to five decimal places, Sigma X2 will apply conservative rounding to four decimal places i.e., the price of a sell order will be rounded up, and the price of a buy order will be rounded down. Accordingly, where the Assigned Limit Price of a midpoint peg sell order and a midpoint peg buy order would be the midpoint of the NBBO, which for example is $ , the Assigned Limit Price of the sell order will be $0.6005, and the Assigned Limit Price of the buy order will be $ Below are examples of the Assigned Limit Price logic for buy and sell orders. Assigned Limit Price Logic for Buy Orders Order Type Market Condition Assigned Limit Price Limit order Limit >= Best Offer Best Offer Limit order Limit < Best Offer Order Limit Mid peg with limit price Limit >= MID MID 2 Mid peg with limit price Limit < MID Order Limit Market peg with limit price Limit >= Best Offer Best Offer Market peg with limit price Limit < Best Offer Order Limit Primary peg with limit price Limit >= Best Bid Best Bid Primary peg with limit price Limit < Best Bid Order Limit Assigned Limit Price Logic for Sell Orders Order Type Market Condition Assigned Limit Price Limit order Limit <= Best Bid Best Bid Limit order Limit > Best Bid Order Limit Mid peg with limit price Limit <= MID MID 3 Mid peg with limit price Limit > MID Order Limit Market peg with limit price Limit <= Best Bid Best Bid Market peg with limit price Limit > Best Bid Order Limit 2 If the midpoint price extends to five decimal places, the Assigned Limit Price will be conservatively rounded down to four decimal places. 3 If the midpoint price extends to five decimal places, the Assigned Limit Price will be conservatively rounded up to four decimal places. 3

4 Order Type Market Condition Assigned Limit Price Primary peg with limit price Limit <= Best Offer Best Offer Primary peg with limit price Limit > Best Offer Order Limit Sigma X2 accepts time in force designations of immediate-or-cancel ( IOC ) and Day: IOC Orders. IOC orders will match immediately with eligible resting contra-side orders and cancel back the balance. Day Orders. The Day orders will remain in Sigma X2 s order book until cancelled, the full quantity is executed, or the market closes. 2. Are orders routed from Sigma X2 or does Sigma X2 send IOIs? No, Sigma X2 does not route orders, nor does it send IOIs. 3. What types of conditions can Participants designate to be applied to their orders? Generally, orders submitted to Sigma X2 are eligible for execution based on price/broker/time priority, but if conditions exist on either side of a potential match that would prohibit the match, that potential match is bypassed. Conditions available to Sigma X2 Participants include: Minimum Executable Quantity ( MinQty ) allows Participants to specify a minimum quantity for execution against any single contra order; Self-Match Prevention allows Participants to block a match with themselves as well as an affiliated Participant (e.g., prevents wash trades); and Post-Only allows Participants to submit orders that will only be deemed liquidity-providing orders, i.e., the order may only be matched with a liquidity-taking order. Counterparty Classification allows liquidity-providing Participants (described at FAQ D3, below) to designate the category or categories of liquidity-taking orders with which they may interact (See FAQ C6, below). 4. Can Participants specify that an order may be executed on Sigma X2 during locked markets? No. Sigma X2 will not effect any executions during locked markets (nor will it effect executions during crossed markets). 5. Do you aggregate orders to fulfill the minimum executable quantity, as opposed to fulfilling minimum executable quantity with a single contra-side order? No. Sigma X2 does not aggregate contra-side orders to meet the minimum executable quantity. The 4

5 MinQty specified on an order can only be filled by a single contra-side order. To illustrate, if a Participant s order has a MinQty of 300 shares, that order can be filled only against a single contra-side order of at least 300 shares, not by multiple contra-side orders totaling 300 shares. 6. How can Participants limit the counterparty categories interacting with their orders? Sigma X2 offers liquidity-providing Participants the ability to restrict their interaction with specified order flow, a framework called Counterparty Classification. Order flow for liquidity-taking Participants is mapped into three Taker Categories (i.e., a, b, and c ) based on an objective post-trade markout analysis performed by GSCO. A GSCO mark-out is an assessment of the short-term price moves associated with a particular combination of indicators associated with liquidity-taking order flow. Senders of liquidity-providing orders have the ability to restrict interaction with certain Taker Categories by specifying a Contra Category. GSCO performs and refreshes the mark-out analysis routinely. Similarly, to maintain the integrity of the Counterparty Categorization Framework, GSCO may periodically reassess and modify the factors used to determine the various Taker Categories. The following illustrates the Counterparty Categorization framework: Contra Category Selected Taker Category = a (least probability of incurring a negative mark-out) Taker Category = b (greater probability of incurring a negative mark-out) Taker Category = c (highest probability of incurring a negative mark-out) a Match No Match No Match b Match Match No Match c Match Match Match When a sender of a liquidity-providing order selects Contra Category a, the sender s order will only interact with Taker Category a orders. In contrast, if the sender of a liquidity-providing order selects Contra Category c, the sender s order may potentially interact with Taker Category a, b, or c orders. For Participants that submit liquidity-providing orders to GSCO systems without specifying a Contra Category, the GSCO systems will determine the Contra Category based on relevant factors including trading objective and order characteristics. Subscribers that route liquidity-providing orders and have not selected a Contra Category will be defaulted to Contra Category c. 7. How does GSCO implement participant limitations on counterparty categories? A Subscribers sending liquidity-taking orders under one or more market participant identification number ( MPID ) 4 may elect to further segment their order flow by attaching an indicator, i.e., a Taker Token, to each order. 5 As described further below, where it has sufficient data, GSCO will conduct its own mark-out analysis of a Subscriber s Taker Token executions, on an individual or 4 5 Subscribers sending liquidity-taking orders may segment their orders by utilizing multiple MPIDs. GSCO, as a Subscriber, may elect to segment its order flow by attaching a Taker Token to each order it routes to Sigma X2, including orders handled by GSCO s algorithms or GSCO s smart order router. 5

6 aggregated basis, to determine the appropriate Taker Category. 6 As noted, GSCO performs and refreshes the mark-out analysis routinely. Any new Taker Token used after GSCO performs the markout analysis will be defaulted to a Taker Category, as described below, until GSCO performs the next mark-out analysis. A Subscriber must have sufficient transaction history associated with an individual Taker Token 7 for GSCO to perform a mark-out analysis of orders associated with that Taker Token. If the executions for the specific Taker Token reach the threshold established by GSCO ( Individual Execution Threshold ), GSCO will conduct such an analysis and will assign orders associated with that Taker Token to the corresponding Taker Category (i.e., a, b, or c ). If an individual Taker Token does not reach the Individual Execution Threshold and GSCO cannot conduct a mark-out analysis of that Taker Token ( Insufficient Taker Token ), GSCO will next calculate the Subscriber s aggregate executions. If the aggregate executions, inclusive of all Taker Tokens, reach the threshold established by GSCO ( Aggregate Execution Threshold ), GSCO will perform the mark-out analysis of the aggregate executions and will default the Insufficient Taker Token orders to the appropriate Taker Category. 8 Finally, if the Subscriber does not have any additional executions, or if the Subscriber does not reach the Aggregate Execution Threshold, GSCO will assign Taker Category b to the Insufficient Taker Token orders as a default. The Taker Token execution thresholds necessary for a mark-out analysis, whether on an individual or aggregated basis, are subject to GSCO s discretion and may change from time-to-time. The following are examples of the mark-out categorizations discussed above. For the purposes of the examples, assume an Individual Execution Threshold of 200 executions and an Aggregate Execution Threshold of 600 executions. Example A Subscriber XYZ utilizes one Taker Token with 550 executions. The Subscriber s executions exceed the Individual Execution Threshold. Therefore, GSCO will conduct a mark-out analysis and map the Taker Token orders to the appropriate Taker Category. Example B Subscriber XYZ utilizes one Taker Token with 30 executions. The Subscriber s executions fall 6 When conducting its mark-out analysis, GSCO will not aggregate trading activity across MPIDs utilized by a particular Subscriber. Rather, GSCO will conduct its mark-out analysis by MPID. 7 To perform the mark-out analysis on a particular Taker Token, the number of executions effected by a Subscriber under that Taker Token must equal or exceed an amount GSCO deems sufficient. 8 If the executions associated with an Insufficient Taker Token reach or exceed the Individual Execution Threshold, GSCO will analyze and map the individual Taker Token at the next scheduled mark-out analysis. 6

7 below the Individual Execution Threshold, i.e., is an Insufficient Taker Token. If the Subscriber does not have any additional executions that can be aggregated, GSCO will default the Taker Token orders to Taker Category b. Example C Subscriber XYZ utilizes two Taker Tokens. Taker Token 1 has 550 executions, which exceed the Individual Execution Threshold. GSCO will conduct a mark-out analysis and map Taker Token 1 orders to the appropriate Taker Category. The Subscriber s Taker Token 2 has 30 executions, which fall below the Individual Execution Threshold, i.e., Taker Token 2 is an Insufficient Taker Token. GSCO will aggregate Taker Token 2 executions with the Subscriber s other Taker Token executions (in this example, with Taker Token 1 executions). Subscriber s total executions fall below the Aggregate Execution Threshold ( = 580). Therefore, GSCO will default Taker Token 2 orders to Taker Category b. Example D Subscriber XYZ utilizes two Taker Tokens. Taker Token 1 has 550 executions, which exceed the Individual Execution Threshold. GSCO will conduct a mark-out analysis and map Taker Token 1 to the appropriate Taker Category. The Subscriber s Taker Token 2 has 130 executions, which fall below the Individual Execution Threshold, i.e., Taker Token 2 is an Insufficient Taker Token. GSCO will aggregate Taker Token 2 executions with the Subscriber s other Taker Token executions (in this example, with Taker Token 1 executions). Subscriber s total executions exceed the Aggregate Execution Threshold ( = 680). GSCO will conduct a mark-out analysis and map Taker Token 2 orders to the appropriate Taker Category. D. Sigma X2 s Matching Engine 1. Where is Sigma X2 s matching engine physically located? Sigma X2 s matching engine is physically located in the Equinix NY4 data center in Secaucus, NJ. 2. Does Sigma X2 offer co-location? While GSCO does not offer co-location services, there is no prohibition against Participants co-locating their systems in the data center used for the Sigma X2 matching engine. 3. What is the execution priority in Sigma X2? Sigma X2 s matching logic is based on price/broker/time priority and the Counterparty Classification Framework described above (See FAQ C6). Assuming that two orders are eligible to match under the Counterparty Classification Framework, this logic grants a broker-dealer who currently has resting orders in Sigma X2 priority to execute with offsetting orders that the same broker-dealer has submitted. Therefore, if two orders submitted by the same executing broker-dealer are eligible to execute at the same Assigned Limit Price, the two orders will have priority to match, even if orders submitted by another Participant were resting first-in-time. For purposes of determining priority, broker status is 7

8 identified by Sigma X2 at the entity-level. Therefore, order flow routed from customers, businesses, or desks within the same broker-dealer entity could potentially cross in Sigma X2 (unless the broker-dealer has elected to use Sigma X2 s self-trade prevention (discussed below)). Here is a simple example: Broker B has a resting order at Assigned Limit Price X Broker A submits a resting order at Assigned Limit Price X (submitted after Broker B s resting order) Broker A submits an order to take at Assigned Limit Price X Broker A s orders are matched and executed. Also, orders in Sigma X2 are treated as liquidity-taking or liquidity-providing orders based on their time of order arrival. Whether an order takes or provides liquidity is based on the order receipt time. When the ATS assesses two orders for a potential match, the liquidity-providing order is the order that was first-intime, and the liquidity-taking order is the order that was second-in-time. 9 Thus, if a liquidity-providing order is eligible to interact with the Taker Category or Categories of particular liquidity-taking orders, Sigma X2 will effect a match based on price/broker/time priority. 4. At execution, how does Sigma X2 s matching logic work? Sigma X2 is programmed to match all orders at or within the NBBO, which is constructed from market data feeds (as described in FAQ E.3, below). Typically, a resting Day order in Sigma X2 will execute against an incoming IOC order and Sigma X2 will classify the resting Day order as liquidity-providing and the IOC order as liquidity-taking. Please refer to the Matching Scenarios grid below for examples. Buy Sigma X2 Matching Scenarios Examples (assumes orders with marketable limit prices) Resting ("Liquidity- Providing") Primary Peg Day Mid Peg Day Market Peg Day Primary Peg IOC Primary Peg IOC Mid Peg IOC Sell Incoming ("Liquidity-Taking") Market Peg IOC Primary Peg Day Mid Peg Day Market Peg Day No match No match Bid No match No match Bid No match Mid Mid No match Mid Mid Offer Mid Mid Offer Mid Mid 9 Orders subject to the Post-Only condition, which are always liquidity-providing orders, are only assessed for potential matching with orders that were received by the ATS later-in-time. 8

9 Mid Peg IOC Market Peg IOC Sigma X2 does not classify IOC orders as liquidity-providing" 5. How does Sigma X2 determine the execution price? The execution price will be the price closest to the midpoint of the NBBO. Hence, if the Assigned Limit Price of the two matching orders sit on or straddle the mid, the execution price is the mid. Otherwise, the execution price is the Assigned Limit Price of the two orders that is closest to midpoint of the NBBO. However, with regard to securities priced under $1.00, for execution prices that would extend to five decimal places, Sigma X2 will apply rounding to four decimal places, in favor of the liquidity-taking order. Accordingly, where the execution price would be the midpoint of the NBBO, which for example is $ , the execution price will be rounded to $ if the liquidity-taking order is the buy order, and rounded to $ if the liquidity-taking order is the sell order. 6. How does Sigma X2 determine price improvement? Execution price will be the price closest to the midpoint of the NBBO. Either the provider or taker of liquidity, or both, can receive price improvement. The following chart illustrates price improvement in Sigma X2: 10 Assume that the National Best Bid = $20.00; the National Best Offer = $20.10; National Best Mid = $20.05 Buy Order Sell Order Execution Price $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ How does canceling/replacing an order change order priority, when there is: a change in price (regardless of whether there is a change in size)? an increase or decrease in size but no change in price? a change in some other parameter (e.g., minimum executable quantity) without changing price or quantity? As noted above, the matching priority logic of Sigma X2 is based on price/broker/time priority. Any change to an order by a Participant will reset its time priority, with the exception of a size reduction or 10 The above example is specific to limit orders (not pegged orders), i.e., the prices listed in the Buy Order and Sell Order columns of the chart are limit prices. 9

10 short sale state change (e.g., short sell order changed to long sell order). However, system updates to the Assigned Limit Price of an order will not change time priority. E. Sigma X2 Operations 1. What symbols are eligible to be traded in Sigma X2? All NMS stocks (as defined in Rule 600(b)(47) of Regulation NMS) are eligible for trading in Sigma X2. 2. What are the hours of operation for Sigma X2? Sigma X2 operates from 8:00 a.m. to 4:00 p.m. Eastern Standard Time ( EST ). Sigma X2 accepts orders beginning at 8:00 a.m. EST, but matching only occurs during normal market hours 9:30 a.m. to 4:00 p.m. EST. 3. What is the source of market data used in Sigma X2? Sigma X2 executes orders using an NBBO constructed by Operations and Compliance Network, LLC ( Ocean ), a third party technology provider for Sigma X2. Ocean constructs the NBBO using a combination of direct market data feeds and market data disseminated by the Securities Information Processors ( SIPs ) (a Constructed NBBO ). If there is an issue with the Constructed NBBO, transactions in Sigma X2 will be priced solely using the NBBO disseminated by the SIPs. Accordingly, all executions in Sigma X2 are programmed to match at or within the Constructed NBBO or the SIP NBBO. 4. What unit of time does Sigma X2 provide on executions? Sigma X2 provides millisecond time units on executions to its Participants. 5. Are any of Sigma X2 s functions outsourced? GSCO has entered into an agreement with Ocean pursuant to which Ocean hosts, operates and supports the technology platform for the ATS subject to the oversight of GSCO as the sponsoring broker-dealer. Pursuant to this agreement, Ocean also provides certain support services related to GSCO s compliance, surveillance, supervisory, recordkeeping and reporting obligations as the sponsor of the ATS. Pursuant to the agreement with Ocean, certain aspects of the services provided by Ocean to the ATS utilize infrastructure and support services shared by Ocean and its affiliates. Ocean and its affiliates are subject to procedures for ensuring the confidential treatment of trading and other information related to the ATS. As the sponsoring broker-dealer for the ATS, GSCO is responsible for the operation of the ATS in compliance with the federal securities laws. 6. Are any functions outsourced to GSCO affiliates? No. 7. Under what circumstances may Sigma X2 suspend matching functionality? GSCO may suspend Sigma X2 s matching functionality for regulatory compliance reasons or due to technology-related circumstances. 10

11 8. Does GSCO advertise executions? GSCO advertises symbol-specific execution volumes via third-party vendor systems. F. Sigma X2 Regulatory Compliance 1. How does Sigma X2 treat short sale orders subject to Rule 201 under Regulation SHO? For short sale orders subject to Rule 201 under Regulation SHO that are not permissibly priced for execution (i.e., not priced above the Constructed NBB or SIP NBB, as the case may be), the Assigned Limit Price will be the lowest permissible price in compliance with Rule 201 (including in sub-penny increments for orders that may be priced in sub-pennies pursuant to Rule 612 under Regulation NMS). Such orders are executed at the Assigned Limit Price if there is an available contra-side order or, if not, they are held for execution at the new Assigned Limit Price or better. As quoted prices change, the Assigned Limit Price is updated to the lowest permissible price for execution under Rule 201 down to an order s original limit price. An order that is re-priced in this manner under Rule 201 does not have its original priority changed. Instead, the priority of such an order is established based on its original Assigned Limit Price. 2. How does Sigma X2 s matching functionality handle regulatory conditions such as trading halts? Sigma X2 will suspend matching functionality in specific symbols under the following conditions: a symbol is subject to a regulatory trading halt or trading pause; a symbol is currently quoted in a Limit Up/Limit Down straddle state; or when Sigma X2 s market data is believed to be delayed or incorrect. 3. How does GSCO monitor for market data latency in Sigma X2? In compliance with Regulation NMS, market data performance (including latency, staleness, and connectivity issues) is monitored in real time, and issues are escalated to and addressed by GSCO in real time. This process includes monitoring of the time interval between the time stamps on market data transmitted from the respective feeds and the time of receipt by the Sigma X2 matching engine. If this process identifies a latency greater than a defined threshold, trading in the relevant security will be suspended. 4. How are Sigma X2 orders and trades reported? GSCO reports all trades to the FINRA Trade Reporting Facility and all reportable order events to the Order Audit Trail System ( OATS ) as required under the respective rules. The ISO MIC code for Sigma X2 is SGMT. 5. What type of surveillance is employed by Sigma X2? GSCO monitors patterns of trading activities in Sigma X2 to surveil for compliance with regulatory requirements. 6. How will Sigma X2 comply with the Tick Size Pilot? The U.S. Securities and Exchange Commission formally approved a Tick Size Pilot establishing specific trading and quoting requirements for certain Test Groups of securities included in the Pilot. These trading and quoting rules became effective on October 3, 2016 (see also FINRA Rule 6191). In order to comply with the Tick Size Pilot framework and related regulatory requirements, Sigma X2 has implemented the following practices as of October 3,

12 Pilot Securities Group Restrictions Order Acceptance Impact Trade Execution Impact Control Group No restrictions. No change from current practice. No change from current practice Test Group 1 Must be quoted in $0.05 increments and orders cannot have explicit price terms in increments other than $0.05, but can be traded in increments permitted under existing rules. All orders with prices in nonnickel increments will be rejected. No change from current practice. Test Group 2 Must be quoted in $0.05 increments and orders cannot have explicit price terms in increments other than $0.05. Must be traded in $0.05 increments unless an exemption applies. All orders with prices in nonnickel increments will be rejected. All trades will occur at the bid, offer, midpoint or a permissible nickel increment within the spread where applicable. Test Group 3 Must be quoted in $0.05 increments and orders cannot have explicit price terms in increments other than $0.05. Must be traded in $0.05 increments unless an exemption applies, and cannot print at the NBBO absent an exemption. All orders with prices in nonnickel increments will be rejected. Since Sigma X2 will not be leveraging trade-at exemptions, peg primary orders will be accepted but will not match because Sigma X2 is prohibited from executing at the NBBO absent an exemption in Test Group 3 securities. All trades will occur at the midpoint or a permissible nickel increment within the spread where applicable. No executions will occur at the bid or offer. Securities not part of the three Test Groups identified above will continue to trade in Sigma X2 without change from current practice. If you have any questions, please contact your Goldman Sachs Electronic Trading representative. G. Confidentiality and Visibility 1. Who has access to Sigma X2 s order book? Only employees in GSCO who have responsibilities as the Operational Liaison and the Supervisor of the ATS have access to Sigma X2 s order book. In addition, Ocean employees require visibility to carry out their operational responsibilities. 2. Who has access to Participants pre-trade information? Participants have the ability to see their own pre-trade information. 12

13 GSET sales coverage representatives also have access to the Participants pre-trade information for the purpose of providing sales and execution services. The ability of these GSET employees to see Participant pre-trade information is no different than their limited ability to see orders in similar circumstances that are routed to another market venue. Compliance personnel also have access to the Participants pre-trade information for the purpose of carrying out their responsibilities. 3. Who has access to Participants post-trade information? GSET employees whose responsibilities include execution quality and mark-out profile analysis have access to post-trade information in order to fulfill these duties. In addition, Ocean personnel as well as GSCO control side personnel (e.g., Compliance, Legal and Operations), Technology and certain employees with management oversight responsibilities have access to post-trade information. 4. How are the limitations on access to Participants information enforced? At GSCO, access to Participants information is generally governed by Goldman Sachs need to know policy, which is applicable to all personnel and states that only those employees who have a need to know the information to perform their duties and carry out the purpose(s) for which the information was provided may have access to Participants information. Participants information is collected and maintained in databases, access to which is controlled by entitlement systems within GSCO. Ocean and its affiliates have separate procedures for ensuring the confidential treatment of trading and other information relating to Sigma X2. 5. Does GSCO communicate Participants pre-trade or post-trade information to third parties? As a registered broker-dealer, GSCO is required by various regulations to maintain pre-trade and posttrade information as part of GSCO s books and records. In this regard, for the purpose of complying with rules such as Rules 601, 605, 606 and 611 under Regulation NMS and the OATS reporting rules, GSCO may send such information to Ocean and a small number of vendors. GSCO may also provide such information in connection with judicial, administrative or legal proceedings or to a regulatory authority, whether pursuant to an inquiry, examination, request, audit or routine supervisory oversight or as otherwise required by law. 6. Does GSCO communicate Participants pre-trade or post-trade information to its affiliates? No. As noted above, in FAQ. A.2, GSCO affiliates may act as Participants in Sigma X2 and would have access to their own information. GSCO does not communicate pre-trade or post-trade information specific to a Participant to its affiliates. 7. What information related to SIGMA X2 does GSCO communicate to others? GSCO may periodically disseminate aggregated and anonymous SIGMA X2 execution metrics to Participants and others. 11 Such metrics may include, for example, percentages of liquidity-providing 11 Participants also may request this information from their GSET representative. 13

14 and/or liquidity-taking executions relative to the NBBO; percentages of shares executed by sector (e.g., ETF, information technology, health care), percentage of shares executed by trade size and/or market capitalization; block trade metrics and average daily shares executed by month. Aggregated metrics also may include data on average daily shares, notional amounts and average daily trades by Contra Category. The categories of aggregated and anonymous SIGMA X2 execution metrics provided to Subscribers may vary from those provided to other Participants that access SIGMA X2 through the GSCO systems. H. Risk Controls 1. Describe GSCO s framework for financial and market risk controls. GSCO is subject to the SEC s Market Access Rule, Rule 15c3-5 under the Securities Exchange Act of 1934, which requires that GSCO have risk management controls and supervisory procedures reasonably designed to (1) systematically limit the financial exposure that could arise as a result of market access, and (2) ensure compliance with all regulatory requirements that are applicable in connection with market access. Examples of GSCO s checks are: Order quantity checks Credit checks Price checks 2. Describe GSCO s internal and external audit framework. The Goldman Sachs Group, Inc. ( GS Group ) has an independent internal audit department ( Internal Audit ) that reports directly to the Chairman of the Audit Committee with an administrative reporting line to the GS Group s General Counsel. Internal Audit follows a risk-based approach in its audit planning and execution activities. The risk assessment is updated at least quarterly as part of Internal Audit's continuous monitoring process and where appropriate the audit plan is flexed to take account of the changing environment and its impact on risk. Additionally, GSCO s systems and processes are reviewed regularly by the Compliance Testing Group, as well as by PricewaterhouseCoopers, GSCO s independent auditors. GSCO also is subject to regulatory oversight by several federal and regional regulatory authorities, including but not limited to the Securities and Exchange Commission, the Financial Industry Regulatory Authority ( FINRA ), the Federal Reserve Board, and the New York State Banking Department. I. Business Continuity Information 1. Describe GSCO s contingency planning program. Information regarding GSCO s Business Continuity Planning can be found at: 14

15 J. Public Information 1. Does Sigma X2 report trade volume information? Pursuant to FINRA Rule 6110, FINRA publishes on its public website the number of shares and trades by security executed by each ATS, including Sigma X2. In addition, monthly metrics on Sigma X2 can be found on the GSET website at Additionally, GSCO advertises executed symbol-specific volumes via third-party vendor systems. 2. Are these FAQs publicly available? Yes, as noted above, as of February 2017, the FAQs became available to the public on the GSET website. 3. Is the Form ATS for Sigma X2 publicly available? As of February 2017, the current Form ATS for Sigma X2 became available to the public. 15