Alternative Trading System (ATS)

Alternative Trading System (ATS)Alternative trading systems denote one more stage in the development of electronic trading means in the US and Canadian stock markets. Such a system is not regulated as an exchange but is a broker-dealer to match the buy and sell orders of its subscribers. However, in some cases, an ATS can also be regulated as a securities exchange.

What Is an Alternative Trading System (ATS)?

it is an organization, association, group of individuals, or system that is a venue for either carrying out market trading or bringing together buyers and sellers of securities.

An alternative trading system does not establish any rules to determine the behavior of its subscribers that are not related to their trading activities through this system. Neither does it apply any punishments to subscribers other than denying access to trading. A subscriber is any person who has entered into an agreement with an ATS to gain access to this system for the purpose of conducting securities transactions or issuing orders. National stock exchanges or associations cannot be subscribers.


In the United States, the national stock market system was built according to the principles of centralization, liquidity, and competition. For a long time, alternative trading systems remained outside the national market system and were not controlled by the regulatory authorities. This created discriminatory conditions for ordinary investors and contributed to abuse, fraud, and price manipulation. At the same time, ATS became serious competitors of national markets, and the SEC decided to fill the gap in the legislation. One of the main changes introduced in April 1999 affected the definition of the concept "stock exchange" and allowed ATS to choose between registering either as an exchange or as a broker-dealer.

According to the new rules, alternative trading systems are now excluded from the "stock exchange" definition because it carries out the traditional functions of broker-dealers. The first definition is "systems that redirect orders to be executed by other systems". The second one is "Systems that allow individual investors to execute orders against the demand and supply of one dealer, provided that the buy and sell orders are not available to the entire market (i.e. are visible only to one dealer)".


There are three levels of regulation for alternative trading systems that are functioning as broker-dealers.

Level 1: Low-Volume

An ATS that is registered as a broker-dealer, should:

  1. Become a member of NASD.

  2. Maintain an established set of records, including transaction audit.

  3. Regularly notify the SEC about its activities.

  4. Establish the necessary measures to protect the confidentiality of information about transactions of system subscribers, including restriction of access to confidential information, implementation of trade control standards, and the introduction of appropriate control procedures.

  5. Not use the words "stock exchange", "stock market", etc. in its name.

Level 2: ATS with Trading Volume over 5%

If the ATS's volume of trading is greater than or equal to 5%, then it should display its best orders in the Consolidated Quotation System (CQS). It should also give SRO members of this market access to its orders on terms similar to those provided to subscribers.

Level 3: ATS with Trading Volume over 20%

If the volume of trading through an ATS is greater than or equal to 20%, then it must set standards for accessing the trading system, such as minimum capital or credit requirements. It must also annually conduct an independent audit of the system.

Stock Exchange

High-volume ATSs can optionally register as exchanges. To do that, they must comply with the following requirements:

  • Obey federal laws.

  • Provide public information about their governing bodies and ensure the reliability of this information.

  • Restrict the direct membership of registered broker-dealers.

  • Trade only registered securities.

  • Be a member of various plans of the national market system.

  • Comply with the SEC procedures for the ATS SRO, including all reviews conducted by the SEC.

Despite the optional nature of registering as a stock exchange, in some cases the SEC may require such registration when the ATS's trading volumes exceed certain limits.