Regulation ATS 17 CFR 242 300 Securities Lawyer’s Deskbook

(vi) Every notice or amendment filed pursuant to this paragraph (b)(2) shall constitute a “report” within the meaning of sections 11A, 17(a), 18(a), and 32(a), (15 U.S.C. 78k-1, 78q(a), 78r(a), and 78ff(a)), and any other applicable provisions of the Act. Notably, the activity of affiliated ATSs would not be aggregated for purposes of meeting the SCI volume thresholds alternative trading systems examples as they would for purposes of the Fair Access Rule. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance.

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For example, a pension fund investor seeking to promote a one-billion-dollar block of stock will face issues making an attempt to sell on an trade. Using this method, the figure shows that the share of on-exchange volume is similar across the three markets, between 48%-52% of all trading volume, https://www.xcritical.com/ but considerably lower than in Figure 4.6. This also includes on exchange off-order book trading and hidden orders on exchanges, which are both classified as dark volume. The US Securities and Exchange Commission (SEC) has proposed a sweeping expansion in how it defines securities exchanges to capture digital asset platforms, request-for-quote platforms, indication-of-interest platforms (IOI), and other messaging platforms. Alternative trading systems (ATSs) facilitate large buy and sell orders between parties, usually institutional investors, which helps keep such trades private and limits the impact that such large orders would have on the price of a security in the open, public markets.

Expanded Definition of “Exchange” and SEC Regulation of Crypto Platforms

Every alternative trading system subject to this Regulation ATS, pursuant to paragraph (a) of this section, shall comply with the requirements in this paragraph (b). Dilendorf Law Firm assists clients with obtaining federal and state registration to operate as an Alternative Trading System (ATS) for issuing and trading tokenized securities on a blockchain. As part of the 654-page proposal, the SEC proffered 224 questions to the public for which it would like feedback.

Crypto Regulation by any Other Name

The proposal would also extend Regulation SCI to Government Securities ATS that meet specified volume thresholds.[3] Regulation SCI currently applies to NMS stocks and supersedes certain system integrity provisions that exist within Regulation ATS for non-NMS Stock ATSs. Regulation SCI compliance will be an additional heavy-up for any Government Securities ATSs that hit the 5% SCI Entity threshold. 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. 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.

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Comments are due 30 days after the proposal is published in the Federal Register, meaning the comment period could expire in early March. Given the sweeping changes proposed, it is likely the SEC will receive significant public feedback. We will continue to monitor any developments in this area, including potential final adoption.

SEC Brings Charges against Blockchain-Based Trading Platform over Alleged Violations of Disclosure Rules

• In addition, exchanges must use “established, non-discretionary methods” for order interaction.
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• The reopening is primarily intended to address the significant comments received by the SEC in response to the initial proposal, many of which questioned the proposal’s application to trading systems that enable trading of crypto asset securities.
• TZERO failed to maintain written supervisory procedures (“WSPs”) establishing its fair access obligations and did not update its WSPs to establish fair-access standards until June 2020, after Enforcement staff requested its standards.
• The US Regulation National Market System (Regulation NMS) adopted in 2005 is a collection of existing and new rules issued by the US Securities and Exchange Commission (US SEC).
• On the other hand, there is a significant portion of dark trading on regulated exchanges, which is estimated to be 9% of total trading volume.
• 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.

In particular, commenters noted that broadening the “exchange” definition could have a widespread impact on an unknown number of market participants that could find that they are captured by the new definition. To that end, the SEC is seeking additional comment from interested parties beyond just the crypto industry. Assuming the SEC views such token holders as a “group of persons,” who should register as the exchange or seek ATS registration? In the SEC’s view, that is a problem for the “group of persons” to figure out, and if they fail to do so, then the whole group can be liable for acting as an unregistered exchange.

Types of Assets on the Securities and Exchange Commission (SEC) Form ATS-R

(j) Commercial paper shall mean any note, draft, or bill of exchange which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited. (3) In the case of a partnership, has contributed, or has the right to receive upon dissolution, 25 percent or more of the capital of the broker-dealer of the alternative trading system. 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. Registered representatives can fulfill Continuing Education requirements, view their industry CRD record and perform other compliance tasks.

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(v) The alternative trading system shall promptly file a cessation of operations report on Form ATS in accordance with the instructions therein upon ceasing to operate as an alternative trading system. (iv) The alternative trading system shall promptly file an amendment on Form ATS correcting information previously reported on Form ATS after discovery that any information filed under paragraphs (b)(2)(i), (ii) or (iii) of this section was inaccurate when filed. Treasury Securities — Government Securities ATSs would become subject to the Fair Access Rule requiring that the ATS not unreasonably prohibit or limit access to the ATS if during four of the preceding six months the ATS accounted for 3% or more of the average weekly dollar volume traded in the United States. Better Markets supports the SEC’s proposed rule to expand Regulation ATS to Government Securities ATSs and update its rule on the definition of an exchange to keep pace with rapidly evolving technology. The ATS rules will greatly expand the transparency of orders in the marketplace, and will, for the first time, require the public display of institutional orders that are displayed in the largest ATSs.

Guidance for Alternative Trading Systems

Setting the legal theory aside, consider how, or if, this “group” would choose to defend itself or settle an enforcement action when it does not even view itself as a “group” who agreed to establish an exchange in the first place, and the group members likely do not even know the other persons in the group. (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.” In 1995, the SEC adopted rule 17a-23, which treated these systems as broker dealers and imposed certain recordkeeping and notice obligations on PTSs.

The proposal would also require ATSs to file both Form ATS and ATS-R electronically via EDGAR. While ATS-N filings are made via EDGAR today, this is a curious perpetuation of use of what is objectively viewed as an antiquated, clunky, and difficult-to-navigate 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. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the “My Account” dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

(2) Uses Makes available established, non-discretionary methods (whether by providing a trading facility or communication protocols or by setting rules) under which such orders buyers and sellers can interact with each other, and the buyers and sellers entering such orders and agree to the terms of a trade. The new clarity created by Reg ATS, combined with continued competition, spurred a series of strategic moves by the ECNs and exchanges. In the early 2000s, a number of ECNs followed Island’s lead and sought registration as exchanges. By the early 2000s, both the NYSE and NASDAQ were in need of financing with which to compete. One of the challenges for registering an ATS is that the SEC and FINRA currently lack sufficient experience and technical understanding of the digital assets and trading platforms, which requires back-to-back communication and meetings with FINRA throughout the registration process.

Institutional investors may use an ATS to find counterparties for transactions, instead of trading large blocks of shares on national stock exchanges. These actions may be designed to conceal trading from public view since ATS transactions do not appear on national exchange order books. The benefit of using an ATS to execute such orders is that it reduces the domino effect that large trades might have on the price of an equity. They are known as multilateral trading facilities in Europe, ECNs, cross networks, and call networks. Most ATSs are registered as broker-dealers rather than exchanges and focus on finding counterparties for transactions.

As mentioned above, the fragmentation of buying and selling into multiple venues has been accompanied by an increase in darkish buying and selling within the final decade. With respect to the second dimension of fragmentation, Figure 4.5 clearly shows that the demarcation line for fragmentation between dark and lit trading is not necessarily between exchange and off-exchange trading. The reason is that ATS venues can indeed be lit, for example, in the form of an ECN venue while part of the exchange trading is actually dark.8 However, ATSs in the form of lit ECNs play an insignificant role in terms of total trading today. On the other hand, there is a significant portion of dark trading on regulated exchanges, which is estimated to be 9% of total trading volume.

Interested parties should consider whether the SEC’s interpretation of “group of persons” is consistent with the intent of the Exchange Act, and the ambiguities that the SEC staff’s related explanatory statements in the release create. For instance, should two or more independent governance token holders who amass sufficient holdings to effectively control decisions of a decentralized autonomous organization (“DAO”) be viewed as a “group of persons” if they independently choose to vote in the same manner on a proposal for the DAO? What if 100 or more token holders voting together on a proposal for the DAO decide to vote in the same direction on the proposal? Moreover, the reopening economic analysis suggests that even validators and miners using the consensus mechanism to verify transactions on a blockchain could be roped in by the expanded “exchange” definition.

While Alternative Trading Systems offer myriad benefits, they also pose significant risk management and compliance challenges. Operational risks such as system glitches and cyber threats loom large, necessitating robust risk mitigation strategies and cybersecurity protocols. Compliance with regulatory requirements remains paramount, as ATS operators navigate a complex regulatory landscape characterized by evolving standards and enforcement actions. Failure to adhere to regulatory mandates can result in severe penalties and reputational damage, underscoring the importance of proactive compliance measures. The Commission stated the final rule contains threecollections of information, including one new collection. The Commissionsolicited comments on the new proposed collection in the proposed rule andsubmitted the collection to the Office of Management and Budget for approval.