Proposed New Rules for Alternative Trading Systems: SEC Proposes New Rules for the Registration of Alternative Trading Systems Transacting in National Market System Stocks

Sullivan & Cromwell LLP - December 31, 2015

The SEC has proposed amendments to Regulation ATS that would require alternative trading systems that transact in National Market System stocks, including “dark pools,” to file a new Form ATS-N disclosing detailed information about:

  • the broker-dealer that operates the NMS Stock ATS;
  • the activities of such broker-dealer operator and its affiliates in connection with the NMS Stock ATS; and
  • the manner of operation of the NMS Stock ATS.

Filings on Form ATS-N would be publicly available on the SEC’s website.
The SEC’s proposed rules would also amend Regulation ATS to:
  • provide for a process by which the SEC will determine whether an entity qualifies for an exemption from the definition of “exchange” and declare a Form ATS-N effective or, after notice and an opportunity for a hearing, ineffective;
  • provide for a process by which the SEC can suspend, limit or revoke an entity’s exemption from the definition of “exchange” after notice and an opportunity for a hearing; and
  • require that each ATS’s safeguards and procedures to protect subscribers’ confidential information be in written form.

An ATS could operate as an NMS Stock ATS only if the SEC declares its Form ATS-N effective. 

In addition to requiring substantially more information about an NMS Stock ATS, the proposal would modify the current regime for NMS Stock ATSs in several respects. In particular, current Form ATS is a confidential filing (the SEC makes available only a list of ATSs that have filed the form); and current Form ATS is a notice filing that is not subject to being declared effective.

Comments on the Proposed Rules are due on or before February 26, 2016.