Alternative Trading System
An alternative trading system (ATS) is an SEC-regulated trading venue that matches buyers and sellers of securities but is not registered as a national securities exchange, operating under a lighter regulatory framework that allows greater flexibility in access policies, anonymity, and trading protocols than traditional exchanges.
Alternative trading systems emerged in the United States following the SEC's adoption of Regulation ATS in 1998, which created a formal regulatory category for trading venues that fell outside the national securities exchange registration framework. Prior to Regulation ATS, SEC-regulated broker-dealers operating electronic matching systems existed in a regulatory grey area. Regulation ATS gave these systems a clear legal status, defined operating requirements, and allowed them to compete openly with registered exchanges.
The most prominent type of ATS in U.S. equity markets is the dark pool — a private trading venue that does not display quotes to the public market. Dark pools allow institutional investors to trade large blocks of shares anonymously without revealing their order size or direction to the lit market in advance, reducing market impact and information leakage. Major U.S. dark pools include those operated by large investment banks (Goldman Sachs Sigma X, Morgan Stanley MS Pool, JPMorgan JPM-X) and by independent operators like Liquidnet and BIDS Trading.
Regulation ATS imposes tiered obligations based on trading volume. ATSs that trade above specified volume thresholds in NMS stocks must file a detailed Form ATS-N public disclosure document with the SEC, submit to fair access obligations that prevent arbitrary denial of access to qualified market participants, and operate systems with sufficient capacity and security. Below those thresholds, the requirements are lighter, reflecting the lower systemic importance of very small venues.
ATSs do not have SRO status. Their member broker-dealers remain subject to FINRA regulation, and the ATS itself is regulated by the SEC through the broker-dealer framework. This means ATSs do not write conduct rules for their users the way exchanges do — they are simply platforms through which regulated broker-dealers trade.
The competitive relationship between ATSs and registered exchanges has shaped the current fragmented U.S. equity market structure. Roughly one-third of U.S. equity volume executes in ATSs, primarily dark pools, rather than on lit exchanges. This fragmentation has generated substantial debate about whether dark pool volume impairs price discovery by diverting order flow away from the transparent, quote-driven markets where the NBBO is formed.