SEC Adopts Rules to Enhance Transparency and Oversight of Alternative Trading Systems

On July 18th, the SEC announced it will adopt amendments to Regulation ATS to enhance operational transparency and regulatory oversight of alternative trading systems (ATSs). This pertains to such systems that trade stocks listed on a national securities exchange (NMS Stock ATSs).

On the new Form ATS-N, certain ATSs will be required to file detailed public disclosures. These disclosures are designed to allow market participants to assess potential conflicts of interest and risks of information leakage arising from the ATS-related activities of the ATS’ broker-dealer operator and its affiliates. Such information will aid in understanding how ATS orders will interact, match, and execute in the ATS exchange.

In addition, the information on Form ATS-N will also inform investors about how the ATS operates by providing related data, such as its order types and other market data used on the ATS itself. Other information on the new form includes fees, the ATS’ execution and priority procedures, and procedures to segment orders on the ATS. This information should aid market participants in comparing ATS stock to other trading venues and determine if an NMS Stock ATS is an appropriate venue for their orders.

The amendments also provide a process for the SEC to review Form ATS-N filings and declare a Form ATS-N ineffective if need be after notice and based upon certain findings. All ATSs are required to have written safeguards and procedures in place to protect subscribers’ confidential information.

Form ATS-N will become publicly available through the EDGAR system. These amendments will be published in the Federal Register and will become effective 60 days from the date of that publication. An ATS that lists on a national securities exchange that is operating pursuant to an initial operation report on Form ATS as of January 7th, 2019 will be required to file Form ATS-N no earlier than January 7th, 2019 and no later than February 8th, 2019. As of January 7th, 2019, an entity seeking to operate as an NMS stock ATS will be required to file Form ATS-N.

Click here to download a free fact sheet for Form ATS-N

Sources:

SEC Adopts Rules to Enhance Transparency and Oversight of Alternative Trading Systems (www.sec.gov)
SEC Release No. 34-83663: Regulation of NMS Stock Alternative Trading Systems (www.sec.gov)