SEC adopts new Form ATS-N and amendments to Regulation ATS to increase transparency and oversight of alternative trading systems

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Previously, the agency relied on the definition in the Securities Exchange Act of 1934 to identify those entities subject to exchange regulation. Our specialized services can help simplify compliance for your advanced trading system. (iv) The alternative trading system shall promptly file an amendment on Form ATS correcting information previously reported on Form ATS after discovery that any information filed under paragraphs (b)(2)(i), (ii) or (iii) of this section was inaccurate when filed.

In this event, these exchanges should take note of the regulatory requirements and concerns related to such registration to decide which option fits best with their current and proposed business model. The new clarity created by Reg ATS, combined with continued competition, spurred a series of strategic moves by the ECNs and exchanges. In the early 2000s, a number of ECNs followed Island’s lead and sought registration as exchanges. By the early 2000s, both the NYSE and NASDAQ were in need of financing with which to compete. Cryptocurrency, blockchain tokens, securities, commodities, derivatives, and many other items of value are traded on “exchanges.”  Large exchanges are regulated by governmental bodies, such as the SEC, CFTC, FINRA, and the like. Alternative Trading Systems “ATS” offer greater flexibility with less regulation.

(v) The alternative trading system shall promptly file a cessation of operations report on Form ATS in accordance with the instructions therein upon ceasing to operate as an alternative trading system. Regulators have stepped up enforcement actions against ATSs for infractions such as trading against customer order flow or making use of confidential customer trading information. These violations may be more common in ATSs than in national exchanges because ATSs face fewer regulations.

On July 18, 2018, the Securities and Exchange Commission (“SEC”) voted to adopt amendments to Regulation ATS that impose additional public disclosure requirements on, and enhance the SEC’s oversight of alternative trading systems (“ATSs”) that facilitate transactions in National Market System stocks (“NMS Stock ATSs”). MTF operators allow for trading of a wide variety of equity and non-equity securities, including shares, warrants, options, derivatives, futures, CFDs, fund units and crypto assets. Contracts between buyers and sellers are formed according to a set of transparent rules that do not discriminate between members or their clients (non-discretionary basis). The process to register as a new BD is well worn and relatively straight forward. Firms applying to register as a BD will need to submit online through Form BD online and then submit a New Membership Application (“NMA”) to FINRA. The NMA requires the firm to describe their business and compliance policies and controls in detail.

alternative trading system registration

Most importantly, the system operator cannot exercise discretion in working orders. In 1995, the SEC adopted rule 17a-23, which treated these systems as broker dealers and imposed certain recordkeeping and notice obligations on PTSs. Since 2013, InnReg has been providing compliance consulting and outsourcing services to fintechs worldwide, including alternative trading systems. Deploying digital trading technology and gaining approvals from multiple regulators is just the start. Our comprehensive experience with ATS equips us to navigate the multifaceted regulatory landscape of technology-based trading.

In general a platform designed for trading of private placements (in a kind of closed system for accredited investors) would likely take anywhere from 6-12 months to become fully licensed after submitting the Form NMA. Technically, FINRA is required to review and process a substantially complete NMA within 180 calendar days after receiving it. Actually, there are three components of capital – base capital, risk-based capital and expense-based capital.

alternative trading system registration

After the DAO report, there have been a number of recent comments from SEC officials regarding digital assets and trading platforms that show the need for the cryptocurrency industry to quickly begin the process of integrating into the traditional securities regulatory landscape. We believe that the ATS structure will become the predominant structure for digital asset exchanges in the future. We also believe that over the next months, as regulators flesh out various issues, the process will become more streamlined and well worn.

A passporting regime exists in this case, where the fund manager can register for a passport for the fund to be marketed in the UAE and the ADGM. We recommend that you contact us for more details on the application process and capital calculations. This rises to $500,000 for a Category 3 firm, $2 million for a Category 2 firm and $10m for a Category 1 firm.

alternative trading system registration

Using this tool does not guarantee compliance with or create any safe harbor with respect to FINRA rules, the federal securities laws or state laws, or other applicable federal or state regulatory requirements. This tool does not create any new legal or regulatory obligations for firms or other entities. Our blog, Global Regulation Tomorrow offers a convenient resource for those keeping track of the evolving and increasingly complex global financial services regulatory environment.

alternative trading system registration

DIFC is one of the world’s top eight onshore financial centers and offers a secure and efficient platform for businesses and financial institutions to reach into and out of the emerging markets of the region. The quality and independence of DIFC’s regulator, the prevailing common law framework, excellent infrastructure and tax efficiencies make it the perfect base to take advantage of the rapidly growing demand for financial and business services in the MENASA region. There are a number of use cases and comments that explain, limit, and expand upon ATS registration requirements and exemptions. However, it is an analysis that is both necessary for any ATS, but also a sound investment of time, money, and energy; when compared to compliance requirements. Trading systems created in the future will need to determine if they qualify as exchanges, and if so, these must comply with the new regulations, and must determine which regulatory status best suits their operations. Over the past 30 years, the SEC has examined how to apply the term “exchange” to systems that have been variously called proprietary trading systems (PTSs), broker-dealer trading systems, and most recently, ATSs.

In line with the SEC’s recent barrage of enforcement actions targeting the crypto industry, the reopening validated concerns voiced in comments to the initial proposal. The reopening is primarily intended to address the significant comments received by the SEC in response to the initial proposal, many of which questioned the proposal’s application to trading systems that enable trading of crypto asset securities. The reopening comment period will end 30 days after its publication in the Federal Register or June 13, 2023, whichever is later. KSTechLaw assists clients with obtaining federal and state registration to operate as an Alternative Trading System (ATS). While ATS is so far the best suited model for creating a marketplace for digital assets in the US, registration and operation of ATSs trading digital assets involves novel issues and challenges.

  • The DIFC application process commences with formal introductions to the DIFC and the DFSA.
  • The alternative trading system shall register as a broker-dealer under section 15 of the Act, (15 U.S.C. 78o).
  • An ATS cannot unreasonably deny or limit access to its platform by, for example, applying minimum capital or credit requirements in a discriminatory manner.
  • In addition, the SEC recently announced that it had voted to adopt amendments to Regulation ATS to require, among other things, stringent public disclosures of an ATS’ conflict of interests, risk of leakage of sensible information, procedures and operations, as well as additional safeguards dealing with confidential information.
  • (2) Uses established, non-discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade.”

Our team will prepare the owners and management team of the broker-dealer for the required FINRA membership interview(s) and will attend the membership interview meeting(s) with FINRA staff. While the process of registering an ATS is complex and challenging, it is achievable with proper planning, structuring and communicating with the US regulators, generally within 6-12 months. A hedge fund interested in building a large position in a company may use an ATS to prevent other investors from buying in advance. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader.

The DFSA expects that the ATS Operator have transparent and non-discriminatory rules and procedures to ensure fair and orderly trading of investments, and objective criteria governing access to its facility. The regulator also requires the ATS operator to have objective and transparent criteria for admitting securities that will be traded on the platform, adequate technology resources and procedures for proper market conduct. The new scheme requires an ATS either to register as a national securities exchange or as a broker dealer and comply with new requirements under Regulation ATS. ATSs account for much of the liquidity found in publicly traded issues worldwide. They are known as multilateral trading facilities in Europe, ECNs, cross networks, and call networks. Most ATSs are registered as broker-dealers rather than exchanges and focus on finding counterparties for transactions.

SEC Chairman Jay Clayton went on record stating “one of my guiding principles is that because markets are constantly changing, we must continually evaluate our approach to regulation. If a firm is already a broker-dealer (or has a broker dealer affiliate) but is not an ATS, the firm will need to submit a Continuing Membership Application (“Form CMA”) to FINRA. For groups registering Alltoscan Worth Ats Price as a de novo BD, the firm should describe those parts of its business that will include the ATS function. As with a de novo BD, an existing BD must demonstrate to FINRA staff how the ATS technology operates. While the funding portal does not need to register as a broker-dealer, it remains subject to FINRA’s and the SEC’s examination, enforcement and rulemaking authority.

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