OPINION: Form ATS-N’s Likely Redux


For something as potentially game-changing as the U.S. Securities and Exchange Commission’s Regulation NMS Stock Alternative Trading System, which would shine light on dark liquidity pools, there seems to be little interest from participants in wholesale capital markets.

When the the proposed rule’s comment period ended late last week, the regulator had only 19 comment letters. By comparison, when the SEC proposed its small-cap tick pilot, Regulation Systems Compliance and Integrity, and large-trader reporting system, it received 34, 60 and 104 comment letters respectively.

Of the letters submitted to the Commission regarding Reg NMS Stock ATS, approximately half were from various industry bodies and trade associations. Only three asset managers, Fidelity, State Street Global Advisors, and T. Rowe Price, shared their thoughts directly with the regulators.

More surprisingly is the conspicuous absence of comments from some marquee ATS operators. Only BIDs, Liquidnet, MarketAxess, Luminex Trading and Analytics as well as PDQ ATS decided to share their thoughts on the proposed regulation.

If the Commission decides to incorporate most of the buy side’s advice, the final version of Form ATS-N, in which ATS operators describe the operations and activities of their platforms and affiliates for public dissemination, will be far more detailed and quantifiable than the original proposal.

In a joint letter penned by T. Rowe’s head of global equity trading Clive Williams and head of global fixed income trading Thea Williams, they suggested to the Commission that Form ATS-N should also include the percentage of volume executed in block and demi-block sizes, percentage of volume executed relative to the national best bid and offer, trade size, and market-capitalization distribution  as well as aggregate statistics regarding counterparties.

“The data currently distributed by the Financial Industry Regulation Authority regarding ATSs has been beneficial in terms of standardizing certain information made available to market participants,” they wrote. “However, we believe the additional data items… will help market participants further understand the composition of each ATS and all for more informed best execution decisions when selecting the venue to be utilized for particular transactions.”

Philip Gillespie, general counsel and executive vice president at State Street, noted in his submission that too much data actually could hamper a buy-side organization’s due diligence process.

Since much of Form ATS-N’s data is relative for a regulator, but extraneous to ATS users, the Commission might “consider and approach of limited public disclosure of Form ATS-N, where the full Form ATS-N would be submitted to the Commission, but only a selected sub-set of fields would be required to be publicly disclosed,” he wrote. “Further, we would suggest that all public disclosers be submitted in a uniform format allowing users of ATSs to more easily compare responses from various ATSs.”

One subject that divided respondents was whether the Commission should extend its proposed rule to include ATS platforms that handle fixed-income trades, such as Tradeweb, Bloomberg and MarketAxess.

Writing on the behalf of the Managed Fund Association and the Alternate Investment Management Association, Stuart Kaswell, executive vice president and managing director, general counsel at the MFA, and Jiří Krόl, deputy CEO global head of government affairs at the AIMA, proposed that the Commission include fixed-income ATS platforms under Form ATS-N’s umbrella.

“Doing so would greatly enhance transparency and provide important disclosures to market participants, regulators, and the public about the increasing important venue of corporate-bond trading and cash trading in U.S. government securities,” they wrote.

David Blass, general counsel for the Investment Company Institute, took a qualified opposing view. The Commission should “require only NMS Stock ATS to file form ATS-N at this time and to permit other types of ATSs to continue to operate pursuant to their current Form ATS,” he wrote.

Although many ATS operators may bristle at the buy side’s suggestions, the pendulum definitely is swinging towards greater disclosure.

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