Form ATS-Ns Shed Growing Light on Dark Pools


Although 31 alternative trading systems serve the US equities markets, only recently have more than a third of them have posted their Form ATS-Ns to the US Securities and Exchange Commission’s website.

Brett Redfearn, SEC

“There are 12 Form ATS-Ns that are up, and I encourage people to look at them,” said Brett Redfearn, the director of the SEC’s Division of Trading & Markets during SIFMA’s annual Market Structure Conference in Midtown Manhattan. “I’m not saying they are the easiest to read, but there is a lot of information, and we hope people will engage with that material.”

The regulator enacted the change to Regulation ATS in July 2018 to bring more transparency to the operation of alternative trading systems, including details regarding ownership, mechanics, and operation of the platforms.

“There a number of reasons that dark pools are dark, but there is no reason why people who are participating in those markets should not understand how they operate,” he said. “I think that is a way that we go about facilitating best execution.”

Redfearn noted that the SEC rules are slightly different from the rules that the industry has seen coming out of the European Union.

“There might have been a greater explicit intent to do that,” he said. “I don’t think that is the case here. The question of best execution and how people engage with the non-displayed market in pursuit of best execution is a very important thing to do.”

Expanding on how firms can demonstrate the best execution, Redfearn suggested that asset managers know how their brokers’ order routers and trading algorithms operate as well the transaction data they provide.

For retail transactions, it might be going over the transaction cost analysis as well as the Rule 605 and 606 reports while institutional transactions may rely on additional metrics.

“Ultimately, it is looking at the data and to the extent that it matches up with the story or narrative about how things work is probably a relevant thing to do,” said Redfearn.

However, the most important thing to understand is the bottom line, he added. “I have spoken to people who look at all of the micro-issues and the details of this and that, but ultimately they focus on slippage and shortfall. There are a lot of metrics in terms of parent orders for institutions. It is still the bottom line numbers that are the most weighty ones.”

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