If you decide to invest in a publicly owned organization, you could turn to one of several public markets and buy a certain number of shares.
Or, you could buy those shares through an alternative trading system (ATS). This non-exchange trading platform operates under the auspices of the Securities and Exchange Commission (SEC).
Like a public stock exchange, an ATS matches buyer-seller orders for public securities that trade on the NYSE or Nasdaq. But unlike those public stock exchanges, an ATS is an “alternative.” ATS platforms aren’t public. Instead, they’re operated by FINRA-registered broker-dealers who electronically match buyers and sellers directly.
Despite being less formal and transparent than their public counterparts, ATSs operate under the SEC's Regulation ATS. This helps ensure fair practices and transparency.
Some ATS examples include:
The most widely used ATS are computerized, automated networks that allow professional traders and brokerage houses to buy and sell without an intermediary involved. Trades can occur 24/7, 365 days a year, from anywhere worldwide. This system also automatically matches buy and sell orders at specified prices.
ECNs offer privacy to investors. ECNs also allow investors to react to after-hours news when deciding to make a trade rather than having them wait until morning to place their orders.
Dark pools allow investors to place institutional orders for publicly traded securities or unlisted stocks on private exchanges. The transaction information remains confidential until the trade is executed and reported. Investors interested in placing large orders or buying large security blocks without alerting the public use dark pools. Dark pool examples include broker-owned or dealer-owned exchanges or private exchange markets operated by public exchanges. One example is Euronext, the NYSE once operated.
Call markets (sometimes known as call auctions) are electronic trading platforms that group multiple orders. Once a certain number of orders is reached, the transaction is executed. Because of this, order placements occur at predetermined times. The main focus of call markets is auctioneers, who are responsible for determining bid/ask and supply/demand before settling on a clearing price. The orders are then executed at that price.
ATS provides an example of the complexity of today’s U.S. securities market. As such, before becoming involved with ATS trades, seek professional advice from a broker-dealer or other expert.