What is an ATS?
An alternative trading system is a trading venue that matches buyers and sellers of securities but is not registered as a national securities exchange. Instead, ATS platforms are operated by broker-dealers registered with the SEC and FINRA, and they file a Form ATS (or Form ATS-N for ATS that trade NMS stocks) with the SEC.
The concept was formalized by Regulation ATS, adopted by the SEC in 1998, to address the growing role of electronic trading systems that were functioning like exchanges but were not subject to exchange-level regulation. Before Regulation ATS, these systems existed in a regulatory gray area — they matched orders like exchanges but had no formal obligations around fair access, transparency, or market integrity.
Today, ATS platforms range from large dark pools handling billions of dollars of daily equity volume to specialized platforms facilitating secondary trading of private company shares, Regulation A securities, and other illiquid instruments.
Source: SEC — Regulation ATS; Exchange Act Rule 3b-16.
Regulatory framework
The regulatory framework for ATS platforms has several layers:
Exchange Act Rule 3b-16
This rule defines what constitutes an "exchange" under federal law. Any organization that provides a marketplace for bringing together buyers and sellers of securities and uses established, non-discretionary methods for matching orders is functionally an exchange — and must either register as one or comply with Regulation ATS.
Form ATS registration
An ATS must file Form ATS with the SEC at least 20 days before commencing operations. This form describes the ATS's operations, the types of securities traded, the subscribers who will have access, and the procedures for matching orders. Amendments must be filed for material changes.
For ATS platforms trading NMS stocks (National Market System stocks — essentially publicly listed equities), the SEC requires the more detailed Form ATS-N, which includes information about the ATS's relationship with its broker-dealer operator and potential conflicts of interest.
FINRA membership
Because ATS platforms are operated by broker-dealers, the operating entity must be a FINRA member. This subjects the ATS to FINRA's rules on conduct, record-keeping, reporting, and examination. FINRA conducts regular examinations of ATS operations.
Fair access
ATS platforms that exceed certain volume thresholds (5% of trading volume in any NMS security) must provide fair access — meaning they cannot unreasonably restrict who can use the system. Below that threshold, ATS operators have more discretion over who they allow to trade.
Source: 17 CFR 242.300–242.303 (Regulation ATS); SEC — Form ATS-N.
Types of ATS
Dark pools
Dark pools are ATS platforms that do not display order information publicly before execution. They were originally designed to let institutional investors trade large blocks of stock without moving the market — if a pension fund wants to sell 5 million shares, displaying that order on a public exchange could cause the price to drop before the order is filled. Dark pools allow these trades to execute at or near the prevailing market price without pre-trade transparency.
Electronic Communication Networks (ECNs)
ECNs automatically match buy and sell orders and display the best bid and ask prices. Unlike dark pools, ECNs provide pre-trade transparency. Many ECNs emerged in the late 1990s as alternatives to exchange market makers, offering tighter spreads and faster execution.
Crossing networks
Crossing networks match buy and sell orders at a predetermined price — typically the midpoint of the national best bid and offer (NBBO). They execute at scheduled intervals rather than continuously, which can reduce market impact for large orders.
Private securities platforms
A growing category of ATS specializes in secondary trading of private company securities — pre-IPO shares, Reg A securities, revenue participation agreements, and other instruments that don't trade on public exchanges. These platforms handle the unique complexities of private securities, including transfer restrictions, accreditation verification, and issuer approval requirements.
ATS for private securities
Trading private securities is fundamentally different from trading public stocks. Several factors make it more complex:
- Transfer restrictions: Many private securities have contractual transfer restrictions — right of first refusal, board approval requirements, or limitations on who can hold the securities (e.g., accredited investors only for Reg D securities).
- Verification requirements: The ATS must verify that each buyer meets any applicable investor qualification requirements and that the transfer complies with applicable securities laws and the instrument's transfer restrictions.
- Thin markets: Private securities have far fewer potential buyers and sellers than public stocks, which can result in wide bid-ask spreads and limited price discovery.
- Non-standardization: Unlike public stocks, private securities may have unique terms — different share classes with different rights, or instruments like RPAs with varying revenue-share percentages and return caps. This makes comparison and pricing harder.
Despite these challenges, the market for private secondary trading has grown substantially. Platforms like Forge, EquityZen, and others have built infrastructure to handle these complexities, creating meaningful secondary liquidity for certain high-profile private companies.
Regulation A securities have a structural advantage here — they are generally freely transferable from issuance, which removes many of the transfer-restriction complications that affect Reg D and other private securities.
Pricing mechanisms
How prices are determined on an ATS depends on the platform and the type of security:
Order books
Some ATS platforms maintain a limit order book, similar to a traditional exchange. Buyers post bids (prices they're willing to pay) and sellers post asks (prices they're willing to accept). Trades execute when a bid and ask cross. This works well for securities with enough interest to maintain a two-sided market.
Auction models
Periodic auctions collect bids and offers over a window of time, then match them at a single clearing price. This model can work better for illiquid securities because it concentrates liquidity at a single point in time rather than spreading it across continuous trading.
Negotiated trades
For highly illiquid or bespoke instruments, the ATS may facilitate bilateral negotiations between a specific buyer and seller, with the platform providing the infrastructure for settlement, transfer verification, and compliance checks. This is more like a broker matching counterparties than a market in the traditional sense.
Pricing non-standardized instruments
For instruments like RPAs, where each position may have different terms (revenue-share percentage, return cap, remaining balance), pricing requires a yield-to-completion or risk-adjusted return framework rather than simple price-per-share. This is closer to how bonds are priced (based on yield) than how stocks are priced (based on multiples or growth expectations). Understanding these pricing mechanics is important for evaluating whether a secondary-market price represents good value.
Benefits and risks
Benefits
- Liquidity for illiquid assets: The primary value of an ATS for private securities is creating a way to exit an investment without waiting for an IPO or acquisition.
- Price discovery: Secondary trading provides market-based pricing information, which helps investors and issuers understand the current value of a security.
- Regulatory oversight: ATS platforms are registered with the SEC and operated by FINRA-member broker-dealers, providing a layer of regulatory protection.
- Reduced counterparty risk: Trades through an ATS typically settle through established clearing and custody infrastructure, reducing the risk of settlement failure.
Risks
- Thin liquidity: Many private securities have very few potential buyers. You may not be able to sell when you want to, or may need to accept a significant discount to find a buyer.
- Wide spreads: With few participants, the difference between what buyers are willing to pay and what sellers are asking can be large — meaning significant transaction costs.
- Limited price transparency: Unlike public markets where prices are continuously quoted, private securities on ATS platforms may have infrequent price updates and limited trade history.
- Platform risk: The ATS itself could shut down, change its rules, or face regulatory issues — and there's no guarantee another venue will support your security.
The future of secondary markets
Several trends are shaping how secondary trading of private securities may evolve:
- Digital securities: Tokenized representations of traditional securities, recorded on distributed ledgers, could streamline transfer, settlement, and compliance verification. The SEC has indicated openness to exploring how blockchain technology can modernize securities infrastructure.
- Fractional ownership: Technology is enabling the subdivision of larger positions into smaller, more accessible units — making it easier for retail investors to participate in secondary markets for private securities.
- Regulatory evolution: The SEC has been updating Regulation ATS and related rules to address the growing role of ATS in both public and private markets, with a focus on transparency and investor protection.
- Interoperability: As more ATS platforms emerge for private securities, the ability to aggregate liquidity across platforms could significantly improve price discovery and reduce spreads.
Frequently asked questions
An ATS is an SEC-regulated trading venue that matches buyers and sellers of securities outside of a national securities exchange. ATS platforms are registered with the SEC and operated by FINRA-member broker-dealers. They provide secondary market liquidity for securities that may not be listed on exchanges.
A national exchange (like NYSE or Nasdaq) is a self-regulatory organization with listing standards, market surveillance, and the obligation to maintain fair and orderly markets. An ATS is not an SRO — it has lighter regulatory obligations, cannot set rules for subscriber conduct outside the system, and is not required to maintain listing standards.
Yes. ATS platforms are one of the primary venues for secondary trading of private securities, including Regulation A securities, pre-IPO shares, and other private placements. The ATS must verify that each trade complies with applicable transfer restrictions and securities laws.
ATS platforms are regulated by the SEC and operated by FINRA-member broker-dealers, which provides meaningful oversight. However, the securities traded on an ATS may still be illiquid, thinly traded, and subject to significant price volatility. Regulatory oversight of the platform does not eliminate investment risk in the securities themselves.