On November 18, 2015, the Securities and Exchange Commission
(SEC) proposed a number of rules designed to enhance the operational transparency
and regulatory oversight of alternative trading systems (ATSs) that trade
national market system (NMS) stocks listed on national securities exchanges.
“Investors and other market participants need more and
better information about how alternative trading systems work,” SEC Chair Mary
Jo White said in the news release. “The proposed changes would represent a
critical step forward in delivering greater transparency to investors and
enhancing equity market structure.”
ATSs have been labelled ‘dark pools’ since information on
prices and volume are not made public. NMS securities are exchange-listed
equity securities and standardized options. A ‘national securities exchange’ is
a securities exchange that has registered with the SEC under Section 6 of the
Securities Exchange Act of 1934. At present, there are at least 30 exchanges
registered as national securities exchanges with the SEC.
National securities exchanges are subject to several
mandates. They must, for example, make price and volume information public.
They also set rules governing the conduct of their members and perform
self-regulation. ATSs, on the other hand, are regulated as broker-dealers and
so escape the strict guidelines set for exchanges. Recent scandals involving
ATSs have highlighted the need for greater transparency. The New York State
Attorney General has accused Barclays of misleading investors in the operation
of its ATS. And in January of this year, the SEC fined UBS $14.4 million for
allowing orders priced in thousandths of a dollar in its dark pool and
circulating this information to a select group of clients who used this pricing
to jump the queue in order fulfillment.
The SEC proposal would require an ATS that trades NMS stocks
to file detailed disclosures on the newly proposed Form ATS-N about its
operations and the activities of its broker-dealer operator and its affiliates.
It would also make Form ATS-N disclosures publicly available on the
Commission’s website.
The comment period for the newly proposed rules will be 60 days
after publication in the Federal Register.
For more information visit www.sec.gov
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