Alternative Trading System (ATS)

In finance, the term "alternative trading system" (ATS) refers to trading systems which operate alongside the regulated stock market. Transactions are carried out in much the same way as stock market trades, but trades are carried out primarily via the internet.

Dark pools are one example of an alternative trading system. Typically an ATS is multilateral, matching trading partners through supply and demand.

The significance of ATS’s is on the rise, and these trading systems now compete directly with conventional securities trading. Participation in alternative trading systems offers a number of advantages over trading through the regulated and overwhelmingly static stock market. Investors participate in innovative investment opportunities directly and can perform transactions from anywhere in the world. Trading in real time allows investors to react to developments in a flash without having to perform transactions through a broker, which also reduces the cost of transactions.

Attempts to establish trading platforms outside of stock exchanges were made in the United States as far back as the 1970s. BATS Exchange Inc., founded in Kansas City in 2005, pioneered alternative trading systems in the U.S. market. The firm’s name is the abbreviated form of "Better Alternative Trading System".

Chi-X Europe Limited, headquartered in London, began facilitating stock-market-free trading in 2007. BATS Exchange Inc. announced a takeover of Chi-X Europe in early 2011, and the resulting firm now operates as BATS Chi-X Europe.

Chi-X Global is operated by a subsidiary of Instinet, which itself is a subsidiary of Japanese bank group Nomura Holdings.

Currently, multiple players including Bank of America, GETCO, Goldman Sachs and UBS own shares in Chi-X Global.

A much larger alternative trading platform is operated by Turquoise Services Limited. The firm was established in London in 2008 by multiple investment banks including Citigroup, Credit Suisse and Deutsche Bank. In late 2009, the Turquoise trading system was acquired by the London Stock Exchange Group.

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Expert Benjamin Manz
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