Alternative trading systems are becoming increasingly popular around the world and account for much of the liquidity found in publicly traded issues. Also known as a multilateral trading facility in Europe, electronic communication networks ECNs , cross networks, and call networks, depending on the situation. Most alternative trading systems — or ATS — are registered as broker-dealers rather than exchanges and focus on finding counterparties for transactions.
Unlike some national exchanges, alternative trading systems do not set rules governing the conduct of subscribers or discipline subscribers in any way other than excluding them from trading. These trading systems play an important role in providing alternative means for accessing liquidity. Often times, institutional investors use an ATS to find counterparties for transactions instead of trading large blocks of shares on national stock exchanges.
For example, a hedge fund interested in building a large position in an equity may use an ATS to prevent other investors from buying in advance. ATSs used for these purposes may also be referred to as dark pools. In recent years, these regulators have stepped up enforcement actions against alternative trading systems for infractions like trading against customer order flow or making use of confidential customer trading information.
These violations may be more common in alternative trading systems than national exchanges given that they face fewer regulations. The Securities and Exchange Commission introduced Regulation ATS in to protect investors and resolve any concerns arising from alternative trading systems.
Alternative trading systems are those that are not regulated as an exchange, but still match buyers and sellers within their own subscriber base. Dictionary Term Of The Day. A conflict of interest inherent in any relationship where one party is expected to Broker Reviews Find the best broker for your trading or investing needs See Reviews. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education.
A celebration of the most influential advisors and their contributions to critical conversations on finance. Become a day trader. The Bottom Line Alternative trading systems are those that are not regulated as an exchange, but still match buyers and sellers within their own subscriber base.
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