17 CFR § 242 301 Requirements for alternative trading systems. Electronic Code of Federal Regulations e-CFR LII Legal Information Institute

An exchange-run system must deal with multiple buyers and sellers in contrast to systems operated by a single dealer who acts as a counterparty to all trades. Similarly, systems that do not provide for order interaction, such as those that route orders to order-execution facilities, will not qualify as exchanges. In addition, exchanges must use “established, non-discretionary methods” for order interaction. In 1990, the SEC excluded PTSs from exchange treatment in its Delta release. In 1995, the SEC adopted rule 17a-23, which treated these systems as broker dealers and imposed certain recordkeeping and notice obligations on PTSs.

Emerging developments in securities law, white-collar criminal defense, and regulatory compliance and enforcement in the asset management industry. The NYSE had been insulated for a time by Rule 390, but in 1999, losing market share and under heavy pressure from the SEC, it repealed the Rule with “a tremendous amount of cajoling,” as Annette Nazareth, then Senior Counsel to Chairman Arthur Levitt, put it. 43 By the time of Reg ATS, the NASDAQ was emerging from a period of vulnerability and was able to more effectively compete in the new institutional and regulatory landscape. Both sets of rules were launched during highly-favorable market conditions. As an independent regulatory agency, the Commission is not
subject to the Order. As an independent regulatory agency, the Commission is not
subject to the Act.

These late 1990s regulatory changes did encourage the proliferation of these alternative trading venues. By 2009, the number of active dark pools had grown to 32 and accounted for 8% of the shares traded. Over the past several years, both the number of active dark pools and the percentage of shares traded in dark pools has increased.

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Sidley provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers. Sidley and Sidley Austin refer to Sidley Austin LLP and affiliated partnerships as explained at /disclaimer. (B) At the price of the highest priced buy order or lowest priced sell order displayed for the lesser of the cumulative size of such priced orders entered therein at such price, or the size of the execution sought by such broker-dealer.

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  • ATS platforms allow investors to trade with anonymity, and without other restrictions imposed by national security exchanges.

In this lesson, we’ll review these alternative trading systems and discuss how the SEC regulates them. Alternative trading systems (ATS) are electronic trading systems operated by broker-dealers, which match buyers and sellers directly without the use of an intermediary party. ATS platforms allow investors to trade with anonymity, and without other restrictions imposed by national security exchanges. The new scheme requires an ATS either to register as a national securities exchange or as a broker dealer and comply with new requirements under Regulation ATS. Today, the number of active dark pools has increased over 25 percent, and now accounts for over 15% of the total shares traded in U.S. markets. It is currently estimated that over 200 billion shares of NMS stocks are traded on nearly 40 of these private trading venues representing over $10 trillion in securities transactions each year.

Regulation of Alternative Trading Systems

There are many types of ATSs, and they facilitate the purchase and sale of all types of securities ranging from equities to corporate bonds to Treasuries, and more. Unlike an exchange, which must disclose publicly quotes and prices at which securities transactions occur, an ATS can operate in the dark with only limited information about its operations. Today [November 18, 2015], the Commission meets to consider a proposal to increase the transparency of alternative trading systems (ATS). To most people, dark pools are a little bit of a mystery, and that’s because they often function in great secrecy. This optional tool is provided to assist member firms in fulfilling their regulatory obligations. This tool is provided as a starting point, and you must tailor this tool to reflect the size and needs of the applicant.

Regulation of Alternative Trading Systems

Most importantly, the amended Regulation ATS established a formal process the SEC will use to review and approve/reject submitted ATS-N forms. Form ATS-N has been made publicly available by the SEC and can be accessed using its EDGAR system. In 1998, Regulation ATS was adopted by the Securities and Exchange Commission. Its purpose was to provide a framework for ATS platforms and provide basic investor protections.

Regulation ATS was originally adopted in 1998 by the SEC to provide an ATS framework and basic investor protections. Its purpose was to provide more operational transparency of ATS platforms and regulatory oversights. Following the approved amendment, broker-dealers are required to file form ATS-N to register as an ATS, to file a notice of changes, and to notify SEC of an ATS closure. This amendment was a monumental change from the original Regulation ATS, which only required broker-dealers to register and be approved as an ATS by the SEC. Following the adoption of the amendment, broker-dealers are still required to file form ATS-N to register as an ATS, however, now it is also used to report any changes to an ATS business, and make the SEC aware of an ATS business closure.

Regulation of Alternative Trading Systems

Beginning in the 1990s, broker-dealers started using emerging electronic communications networks to reimagine the capital markets. One of the first ATSs was launched in 1996 and competed directly with exchanges through an entirely electronic platform. These trading venues were also a place for larger-sized or “block” trades. Relatively quickly, alternative trading systems started handling a significant amount of securities order volume. Dark pools were in many ways replacing the traditional “upstairs” market, while also providing services conventionally provided only by registered exchanges.

This is lower than the 5% threshold that was proposed under the 2020 proposal. (B) During at least 4 of the preceding 6 calendar months, had an average daily trading volume of 5 percent or more of the aggregate average daily share volume for such NMS stock as reported by an effective transaction reporting plan. Alternative trading systems make money by charging fees and commissions for transactions. The more trades a trader makes, the more cost to them and more sales revenue for the ATS. The new Form ATS-N would also require additional disclosure as to how the ATS operates. Trading systems created in the future will need to determine if they qualify as exchanges, and if so, these must comply with the new regulations, and must determine which regulatory status best suits their operations.

These methods include rules governing trading conduct and trading facilities that standardize the manner of order interaction, such as computer algorithms. Most importantly, the system operator cannot exercise discretion in working orders. The new interpretation is intended to capture systems that centralize orders, either by the display or the processing and execution of orders. Orders include “any firm indication of a willingness to buy or sell a security, as either principal or agent, including any bid or offer quotation, market order, limit order, or other priced order,” and are executable without further meaningful negotiation. (2) Uses established, non-discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade.” Over the past 30 years, the SEC has examined how to apply the term “exchange” to systems that have been variously called proprietary trading systems (PTSs), broker-dealer trading systems, and most recently, ATSs.

Our account funding and transfer supervision services offer meticulous oversight, striving to align every transaction with regulatory standards and secure client assets. At InnReg, we understand the distinct compliance challenges ATS platforms face. Deploying digital trading technology and gaining approvals from multiple regulators is just the start. Our comprehensive experience with ATS equips us to navigate the multifaceted regulatory landscape of technology-based trading. Dark pools are another type of Alternative Trading Systems that are considered controversial since the trades are done out of the public eye, clouding the transactions.

(ii) The alternative trading system shall file an amendment on Form ATS at least 20 calendar days prior to implementing a material change to the operation of the alternative trading system. For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information.


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