Alternative Trading System (ATS)

An alternative trading system (ATS) is a private electronic trading platform that allows investors to trade stocks, bonds, and other securities outside of the traditional stock exchanges. ATSs are often used by institutional investors and high-frequency traders who are looking for more liquidity and flexibility than they can find on the major exchanges.

ATSs are not subject to the same regulations as the major exchanges, which gives them some advantages over their traditional counterparts. For example, ATSs can operate more quickly and efficiently, and they can offer a wider range of trading products. However, ATSs also have some disadvantages, such as the lack of transparency and the potential for fraud.

The Securities and Exchange Commission (SEC) regulates ATSs under the Securities Exchange Act of 1934. ATSs must register with the SEC and comply with the same anti-fraud and anti-manipulation rules as the major exchanges. However, ATSs are not subject to the same trading rules and regulations as the major exchanges. For example, ATSs are not required to provide real-time quotes or to trade on an open outcry basis.

ATSs have become increasingly popular in recent years. In 2019, the volume of trading on ATSs exceeded the volume of trading on the New York Stock Exchange for the first time. The growth of ATSs is due to a number of factors, including the rise of electronic trading, the increased demand for liquidity and flexibility, and the regulatory advantages that ATSs offer.

The growth of ATSs has raised concerns about the potential for market fragmentation and the lack of transparency in the trading process. However, ATSs also offer a number of benefits to investors, such as increased liquidity and flexibility. The SEC is currently considering ways to regulate ATSs in a way that balances the need for investor protection with the benefits of ATSs.

In addition to the traditional ATSs, there are also a number of new types of ATSs that are emerging, such as dark pools, block trading systems, and algorithmic trading systems. These new ATSs offer a variety of features and benefits that traditional ATSs do not, and they are becoming increasingly popular with investors.

The growth of ATSs is a significant development in the financial markets. ATSs offer a number of advantages over traditional exchanges, but they also raise some concerns about market fragmentation and the lack of transparency. The SEC is currently considering ways to regulate ATSs in a way that balances the need for investor protection with the benefits of ATSs.