Definition: Alternative trading systems are designed to help investors buy and sell securities that are not readily available through traditional public exchanges. The ATS operates completely outside of these regulatory gates. In effect, investors can purchase companies, products, services, and commodities from individuals or legal entities with little or no screening by traditional financial institutions.
The ATS market offers transparency, arbitrage opportunities, and better liquidity than existing markets. Unlike exchanges, which handle millions of transactions each day and freeze out low-cost providers from the market,
In contrast to ATSs built for primary/institutional investors, alternative trading systems are designed for individual investors. Brokers who utilize alternative trading systems can accomplish many things, including eliminating human involvement in the day-to-day activities of trading while increasing the speed at which orders can be filled.
This technology provides a secure and efficient way to purchase and sell securities, such as stocks, bonds, derivatives, options, and currencies. The primary function of an ATS is to match buyers and sellers so that matches take place quickly and efficiently across a market without human intervention. Generally, the computer software matches orders from multiple clients automatically.
ATS allows access to a diverse, disciplined peer group while providing liquidity for investors looking to move their funds into certain products without restricting their choices. In addition, there are avenues for investing outside of government-backed markets such as foreign exchange and venture capital where traditional banks struggle to compete.
The ATS offers real-time market data streaming and allows subscribers to instantly buy and sell stocks with automated trades that occur in real-time. These features may attract new users, particularly those who rely on data and not just investing expertise. The ATS also allows subscribers to interact with each other more personally, unlike other exchanges, allowing them to exchange ideas and tips on technical strategy instead of just being told what to buy or sell.
From the trader’s perspective, ATS offers many advantages over other markets, including greater liquidity, less traffic, and higher profit margins.
ATS is not managed or supervised by any government or central bank. Unlike banks, ATS does not lend money. Rather than seeking interest or profits, they buy securities and lend them at face value. Members may sell securities backed by one or more underlying assets (such as government securities, equities, or commodities). The interest rate paid by ATS is set by market forces and is set at roughly the same rate that commercial lenders pay for commercial loans. Unlike commercial lenders, ATS does not appear to be motivated by profits and may pursue loss-leaders.
Dark pool is an alternative trading system launched in early 2016 and made available for trading on centralized exchanges in January 2017. It operates on the principle of making it easy for traders to buy and sell securities that are normally only accessible through centralized exchanges, thus eliminating the need for human intervention in the market. In addition, the ATS utilizes blockchain technology to ensure security and transparency in the marketplace.
To conclude, The alternative trading system (ATS) is a virtual trading platform that provides quick, convenient, and standardized access to multiple stock exchange markets and is regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). The ATS operates an alert service that enables market participants to instantly receive public information on adverse developments affecting their specific investment portfolio through a centralized portal. In addition, the ATS provides for the quick execution of securities transactions utilizing readily available pools of capital on trust and securitized infrastructure.