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”).

Regulation ATS, adopted in 1998, established a regulatory framework intended to incentivize market modernization, while simultaneously carrying out the chief mandate of the SEC: protecting investors. Regulation ATS gave securities market participants the option to register as a national securities exchange or to operate as an alternative trading system. Highlights of the new amendments to Regulation ATS, impacting NMS Stock ATSs, include:

• Certain ATSs will be required to file detailed public disclosures on new Form ATS-N, which will allow market participants to assess potential conflicts of interest and learn how ATSs operate, including reviewing disclosed order types and market data used on the ATS.
• A process was created for the SEC to review Form ATS-N filings and, after notice and opportunity for hearing and upon requisite findings, declare a Form ATS-N ineffective.
• All ATSs will be required to have written safeguards and procedures to protect subscribers’ confidential trading information.
• Form ATS-N will require an NMS Stock ATS to publicly disclose information about its manner of operations and the ATS-related activities of the broker-dealer that operates the ATS and its affiliates, including types of subscribers, fees, arrangements with any subscriber or the broker-dealer operator to provide liquidity and procedures regarding trade reporting, clearance and settlement.

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. T[his] recommendation is the result of such attention to market developments and needs.” Clayton is correct as the aforementioned amendments, prompted by the inconsistent information available to market participants about NMS Stock ATS’s manner of operations and the relationship between NMS Stock ATSs and the other business interests of their broker-dealer operators, will allow for more complete information to be digested by market participants prior to market participation.

The amendments will be published on the SEC’s website and in the Federal Register and will become effective 60 days from the date of publication in the Federal Register. An existing NMS Stock ATS will be required to file a Form ATS-N no earlier than January 7, 2019 and no later than February 8, 2019. A new entity seeking to operate as an NMS Stock ATS will be required to file a Form ATS-N starting January 7, 2019.