United States: SEC Proposes Significant Regulatory Changes For Alternative Trading Systems

Summary: The Securities and Exchange Commission recently proposed significant changes to the regulatory requirements applicable to dark pools and other alternative trading systems that trade national market system stocks. The proposed changes would require detailed public disclosure about the operation of the trading systems, as well as their owners and operators.

On November 18, 2015, the Securities and Exchange Commission ("SEC" or "Commission") proposed significant changes to the regulatory requirements applicable to dark pools and other alternative trading systems ("ATSs") that trade national market system stocks ("NMS Stock ATSs"). As a general matter, the proposed changes to Regulation ATS ("Reg ATS"), promulgated under the Securities Exchange Act of 1934 ("Exchange Act"), are designed to: (1) provide detailed public information to market participants about the potential conflicts of interest and operations of NMS Stock ATSs, their broker-dealer operators and the affiliates of their broker-dealer operators to allow such market participants to better determine where to send their orders; (2) provide more information to the SEC so it may more effectively regulate NMS Stock ATSs; and (3) adjust the regulatory obligations applicable to competing ATSs and national securities exchanges.

As the SEC noted in the Proposing Release, in the 17 years since the adoption of Reg ATS, the equity market structure and the role of ATSs have evolved significantly. The number of NMS Stock ATSs (now 46), as well as the trading volume on those ATSs (now 15% of total share trading volume) has increased greatly. NMS Stock ATSs increasingly are operated by multi-service broker-dealers engaged in significant brokerage and dealer activities in addition to the operation of their NMS Stock ATSs. This has led to NMS Stock ATSs becoming increasingly intertwined with the other activities of their operating broker-dealers and their affiliates, giving rise to potential conflicts of interest among the various business interests of each entity. NMS Stock ATSs also have grown increasingly complex in terms of the services and functionalities they offer subscribers (e.g., order types, means of access such as via smart order routers ("SORs") and algorithms, customized trading parameters). The SEC is concerned that despite NMS Stock ATSs acting as a significant source of liquidity in today's markets, there is limited information available to market participants about the operations of ATSs and the activities of their broker-dealer operators and their affiliates. As a result, the SEC proposes to:

  • Adopt Form ATS-N, which would require an NMS Stock ATS to provide, among other things, detailed information about the: (1) manner of operation of the NMS Stock ATS; and (2) broker-dealer operator of the NMS Stock ATS and the activities of such broker-dealer operator and its affiliates in connection with the NMS Stock ATS;
  • Make Form ATS-N publicly available on the websites of the SEC and the NMS Stock ATS;
  • Adopt new Rule 304 of Reg ATS, which would provide a process for the SEC to determine whether an entity qualifies for the exemption from the definition of "exchange" pursuant to Exchange Act Rule 3a1-1(a)(2) regarding NMS stocks and declare an NMS Stock ATS's Form ATS-N either effective or, after notice and opportunity for hearing, ineffective; and
  • Amend Exchange Act Rule 301(b)(10) of Reg ATS to require that all ATSs (not just NMS Stock ATSs) put their safeguards and procedures for protecting subscribers' confidential trading information in writing.

The SEC believes that the proposed enhanced transparency requirements would benefit a wide range of market participants that rely on NMS Stock ATSs for their trading needs. For example, the proposal would aid broker-dealer subscribers that route customer orders to NMS Stock ATSs in meeting their best execution obligations to their customers as they will be able to better assess the trading venues to which they route orders. Similarly, institutional investors that route orders to an NMS Stock ATS directly or via their brokers would have more information regarding the operation of an NMS Stock ATS and its competitors, including how customer orders are matched and executed. Nevertheless, the regulatory framework proposed by the Commission warrants close scrutiny by all market participants, including the following:

  • ATSs/Broker-Dealer Operators. ATSs and their broker-dealer operators will want to review the proposals to weigh the costs and benefits as applied to them. Among other things, such entities will have to carefully assess whether the enhanced disclosures and oversight, and the associated regulatory and business costs, are consistent with their business models.
  • Exchanges. The SEC's proposal attempts to level the playing field between exchanges and ATSs, at least in part. Exchanges will need to evaluate whether the Commission's approach achieves an appropriate level of parity.
  • Institutional Investors. Institutional investors and other users of ATSs will need to evaluate whether ATSs will still be able to meet their business needs in an environment of enhanced disclosure and oversight.

A detailed description of key aspects of the SEC's proposal is provided below. The SEC requested comment on the proposal by February 26, 2016.


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions