Alternative Trading System (ATS)

A trading venue that matches buyers and sellers for transactions

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What is an Alternative Trading System?

An Alternative Trading System (ATS) is a trading venue that matches buyers and sellers for transactions. What is unique about it is that it is not regulated as an exchange like traditional stock exchanges, but is registered as a broker-dealer, focusing on finding counterparties (buyers and sellers) for security transactions.

It should be noted that ATS is a North American term; in Europe, it is known as a Multilateral Trading Facility (MTF).

Alternative Trading System


  • Alternative Trading Systems (ATS) are a trading venue that matches buyers and sellers for transactions.
  • ATS face less regulation compared to traditional stock exchanges and primarily focus on finding buyers and sellers of securities.
  • Trading conducted on ATS is not publicly available, which is especially popular for traders, such as institutional investors who wish to trade large amounts of securities altogether.

What Do Alternative Trading Systems Do?

Alternative Trading Systems play an important role in public markets as an alternative to traditional stock exchanges to access market liquidity or how quickly an asset can be sold for goods or services.

An ATS is particularly useful for those who are conducting large quantities of trading, such as investors and professional traders, since the skewing of the market price can be avoided as with regular stock exchanges. It is because trading conducted on ATS is not publicly available and does not appear on national exchange order books. There are also fewer rules involved, other than those governing conduct.

Alternative Trading Systems – Examples

Some examples of ATS include electronic communication networks, dark pools, crossing networks, and call markets.

1. Electronic Communication Networks

Electronic Communication Networks (ECN) are a type of ATS that enables major brokerages and individual traders to trade securities directly without going through a middleman. Thus, traders from different geographical areas of the world can conduct trades easily.

The system allows trades to happen outside the traditional trading hours associated with stock exchanges, which means that traders can make trades based on after-hours news. An ECN makes money by charging a fee for each transaction through access fees and commissions, which is a downside for traders since per-transaction charges quickly add up.

2. Dark Pools

Dark pools are another type of Alternative Trading Systems that are considered controversial since the trades are done out of the public eye, clouding the transactions.

Trading that is done through the private exchanges often involves a large volume of securities conducted through block trades by institutional investors (organizations that invest money on behalf of others), such as mutual funds, pension funds, and insurance companies. Sometimes, such investors are known as the “Whales on Wall Street.”

3. Crossing Networks

Similar to dark pools, crossing networks allow trades to happen outside of the public eye. Since the details of the trade are not relayed through public channels, the security price is not affected and does not appear on order books.

Often, the accounts in which the trades are conducted can be anonymous, which is highly advantageous for traders. It should be noted that dark pools and crossing networks are legal, although they’ve undergone scrutiny by the financial press and news outlets in recent years.

4. Call Markets

Call markets are a subset of ATS that group together orders until a specific number is reached before conducting the transaction. As such, trades are done at predetermined time intervals. A call market, therefore, determines the market-clearing price (the equilibrium value of a traded security) based on the number of securities offered and bid on by the sellers and buyers, respectively.

A key component of call markets are auctioneers, who are responsible for matching the supply and demand for a traded security before arriving at an equilibrium clearing price, which is the price at which market orders are traded.

In contrast to call markets are auction markets, which conduct trades as soon as a buyer and a seller are found who agree upon a specified price for the security.

Alternative Trading Systems - Examples

Regulators and Alternative Trading Systems

All Alternative Trading Systems need to obtain the approval of the U.S. Securities and Exchange Commission (SEC), the federal agency responsible for facilitating the operations of the securities market to protect investors and ensure the fairness of transactions.

Since an ATS is governed by fewer regulations than stock exchanges, they are more susceptible to allegations of rules violations and subsequent enforcement action by regulators. Examples of infractions in Alternative Trading Systems include trading against customer order flow or making use of confidential customer trading information.

Lack of transparency is a common issue with ATS, especially when dealing with dark pools. Common allegations against dark pools include illegal front-running, which occurs when institutional traders place orders in front of a customer’s order to capitalize on the uptick in share prices.

More Resources

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

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