Alternative Trading System (ATS)

What Is an Alternative Trading System (ATS)?

An alternative trading system (ATS) is a trading scene that is more inexactly regulated than a exchange. ATS platforms are in many cases used to match large buy and sell orders among its supporters. The most widely involved type of ATS in the United States are electronic communication networks (ECNs) — modernized systems that automatically match buy and sell orders for securities in the market.

Figuring out an Alternative Trading System (ATS)

ATS represent a large part of the liquidity found in publicly traded issues worldwide. They are known as multilateral trading facilities in Europe, ECNs, cross organizations, and call organizations. Most ATS are registered as broker-dealers as opposed to exchanges and spotlight on finding counterparties for transactions.

Alternative trading system (ATS) is the wording utilized in the U.S. also, Canada. In Europe, they are known as multilateral trading facilities.

Not at all like a few national exchanges, ATS don't set rules overseeing the conduct of endorsers or discipline supporters, by some other means than excluding them from trading. They are important in giving alternative means to access liquidity.

Institutional investors may involve an ATS to track down counterparties for transactions, rather than trading large blocks of shares on national stock exchanges. These actions might be intended to hide trading from public view since ATS transactions don't show up on national exchange order books. The benefit of utilizing an ATS to execute such orders is that it decreases the cascading type of influence that large trades could have on the price of an equity.

Somewhere in the range of 2013 and 2015, ATS represented roughly 18% of all stock trading, as per the Securities and Exchange Commission (SEC). That figure addressed an increase of multiple times from 2005.

Reactions of Alternative Trading Systems (ATS)

These trading scenes must be approved by the SEC. In recent years, regulators have moved forward enforcement actions against ATS for infractions, for example, trading against customer order flow or utilizing confidential customer trading information. These infringement might be more normal in ATS than national exchanges since ATS face less regulations.

Dark Pools

A hedge fund interested in building a large position in an equity might utilize an ATS to keep different investors from buying in advance. ATS utilized for these reasons might be alluded to as dark pools.

Dark pools involve trading on ATS by institutional orders executed on private exchanges. Information about these transactions is for the most part inaccessible to the public, which is the reason they are called "dark." The bulk of dark pool liquidity is made by block trades worked with away from the central stock market exchanges and conducted by institutional investors (fundamentally investment banks).

In spite of the fact that they are legal, dark pools operate with little transparency. Accordingly, dark pools, alongside high-frequency trading (HFT), are frequently scrutinized by those in the finance business; a few traders accept that these components pass an unfair advantage on to certain players in the stock market.

Regulation of Alternative Trading Systems (ATS)

SEC Regulation ATS laid out a regulatory system for ATS. An ATS meets the definition of an exchange under federal securities laws however isn't required to register as a national securities exchange in the event that the ATS operates under the exemption gave under Exchange Act Rule 3a1-1(a). To operate under this exemption, an ATS must agree with the requirements in Rules 300-303 of Regulation ATS.

To consent to Regulation ATS, an ATS must register as a broker-dealer and file an initial operation report with the Commission on Form ATS before beginning operations. An ATS must file amendments to Form ATS to give notice of any changes to its operations, and must file a suspension of operation report on Form ATS in the event that it closes. The requirements for filing reports utilizing Form ATS is in Rule 301(b)(2) of Regulation ATS. These requirements incorporate commanded reporting of books and records.

In recent times, there have been moves to make ATS more transparent. For instance, the SEC amended Regulation ATS to improve "operational transparency" for such systems in 2018. In addition to other things, this involves filing itemized public divulgences to inform the overall population about potential [conflicts of interest](/irreconcilable circumstance) and risks of information leakage. ATS are likewise required to have written shields and procedures to safeguard supporters' trading information.

The SEC formally characterizes an alternative trading system as "any organization, association, person, group of persons, or systems (1) that is, keeps up with, or gives a market place or facilities for uniting buyers and sellers of securities or for in any case performing with respect to securities the capabilities commonly performed by a stock exchange inside the significance of Rule 3b-16 under the Exchange Act; and (2) that doesn't (I) set rules overseeing the conduct of endorsers other than the conduct of such supporters' trading on such organization, association, person, group of persons, or system, or (ii) discipline endorsers by some other means than exclusion from trading."

Highlights

• They are not generally so highly regulated as exchanges.
• Instances of ATS incorporate dark pools and ECNs.
• Alternative trading systems (ATS) are settings for matching large buy and sell transactions.
• SEC Regulation ATS lays out a regulatory structure for these trading scenes.