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What is an alternative trading system (ATS)?

An Alternative Trading System (ATS) is a trading platform or venue that operates outside of traditional stock exchanges. It provides an alternative means for buyers and sellers to trade financial securities such as stocks, bonds, or derivatives. ATSs are also referred to as dark pools or off-exchange trading platforms.

ATSs were initially established to cater to institutional investors who wanted to execute large trades without significantly impacting the market price. These platforms offer increased privacy and reduced market impact by matching buy and sell orders anonymously.

Here are some key features of Alternative Trading Systems:

1. Non-Exchange Venue: ATSs are separate from traditional stock exchanges like the New York Stock Exchange (NYSE) or NASDAQ. They provide an alternative marketplace for securities trading.

2. Electronic Trading: ATSs operate through electronic systems where buyers and sellers can submit orders electronically. These systems automatically match orders based on predetermined criteria.

3. Reduced Market Impact: Institutional investors can use ATSs to execute large trades without revealing their intentions to the broader market. This helps prevent price movements caused by the size of the trade itself.

4. Anonymity: ATSs typically offer anonymity to participants by concealing the identity of buyers and sellers during the trading process. This can attract traders who value confidentiality.

5. Regulatory Oversight: ATSs are subject to regulatory oversight to ensure fairness, transparency, and investor protection. Regulatory bodies, such as the Securities and Exchange Commission (SEC) in the United States, enforce rules governing ATS operations.

It’s important to note that the regulations surrounding ATSs can vary by country, and the specific features and requirements may differ accordingly. Additionally, ATSs are primarily used by institutional investors and may not be accessible to individual retail investors.