An alternative trading system (ATS) is basically a trading platform that has fewer regulations compared to traditional exchanges. These ATS platforms are commonly used to connect big buy and sell orders from their users. In the U.S., the most popular kind of ATS is the electronic communication network (ECN), which is a tech-driven system that automatically pairs up buy and sell orders for securities in the market.
Learn more about Alternative Trading System
ATSs play a big role in the liquidity of publicly traded securities around the globe. In Europe, they’re often referred to as multilateral trading facilities, while in other places, you might hear them called ECNs, cross networks, or call networks. Most of these systems are registered as broker-dealers instead of exchanges, and their main job is to connect buyers and sellers for transactions.
Unlike some national exchanges, ATSs don’t impose rules on how subscribers should behave or discipline them, except for kicking them out of trading if necessary. They’re crucial for offering alternative ways to tap into liquidity.
Institutional investors might turn to an ATS to find trading partners instead of dumping large amounts of shares on national stock exchanges. This approach can help keep their trades under the radar since ATS transactions don’t show up on the order books of national exchanges. The upside of using an ATS for these trades is that it helps prevent large trades from causing a ripple effect on stock prices.
Difference Between OTC and ATS
OTC securities are those that you won’t find listed on any exchange. Instead, they’re traded directly between parties. Most of these transactions happen on alternative trading systems (ATS), which display quotes from broker-dealers for these securities. There are two main interdealer quotation systems: Global OTC ATS and OTC Link ATS.
Conclusion
Alternative trading systems (ATSs) allow big buy and sell orders to happen between parties, mainly institutional investors. This keeps those trades under wraps and minimizes the effect that large orders would have on a security’s price in the public markets.