Guidance for Alternative Trading Systems

Interested parties should consider whether the SEC’s interpretation of “group of persons” is consistent with the intent of the Exchange Act, and the ambiguities that the SEC staff’s related explanatory statements in the release create. For instance, should two or more independent governance token holders who amass sufficient holdings to effectively control decisions of a decentralized autonomous organization (“DAO”) be viewed as a “group of persons” if they independently choose to vote in the same manner on a proposal for the DAO? What if 100 or more token holders voting together on a proposal for the DAO decide to vote in the same direction on the proposal? Moreover, the reopening economic analysis suggests that even validators and miners using the consensus mechanism to verify transactions on a blockchain could be roped in by the expanded “exchange” definition. So, if a Crypto Trader or firm wishes to invest in a large amount of the blockchain token, the transactions during that period of time could trigger the “Fair Access” rule. These methods include rules governing trading conduct and trading facilities that standardize the manner of order interaction, such as computer algorithms.

The JOBS Act exempts certain intermediaries who operate “funding portals” from the requirement to register with the SEC as a broker-dealer. The SEC has been the subject of much criticism for its regulation by enforcement and regulation by staff interpretation approaches to the crypto industry, and rightfully so. However, the reopening release provides interested parties with some opportunity to directly address the SEC and seek regulatory clarity for the crypto industry in the US. The reopening also offers market participants a second bite at the apple on other areas that previously drew significant comment. While the focus of the reopening is on the crypto industry, the proposal drew significant comment on the expanded definition generally.

In consideration of these recent events and pronouncements, other digital asset exchanges should take note of the regulatory concerns and exemptions related to their operations. While it appears that Coinbase’s determination is related to its intention to broaden its offering beyond traditional cryptocurrency, the SEC’s statement regarding the trading of digital assets leaves little doubt that, in its view, most ICOs will constitute a securities offering. This client alert provides a brief overview of the registration options available to digital asset platforms and the benefits and restrictions of registration as a national securities exchange, a broker-dealer operating an alternative trading system (ATS) or a funding portal. Coinbase, one of the largest cryptocurrency exchanges, recently approached the U.S.

The regulator maintains communication with the applicant at all times during the review, reverting with an initial review 2 weeks into the application, and then follow-up reviews thereafter. The DFSA also meets Alltoscan Worth Ats Price with the SEO, FO, Technology Head and CO/MLRO designates, and conducts a detailed interview with them. There may be additional rules to follow, for instance, when actively marketing funds from the DIFC.

The DFSA recognizes two types of ATS platforms – Multilateral Trading Facilities that operate on non-discretionary rules, and Organised Trading Facilities that operate on discretionary rules. InnReg offers outsourced FINOP services, providing experienced professionals to support your financial operations, compliance, and risk management. (ii) The alternative trading system shall adopt and implement adequate written oversight procedures to ensure that the written safeguards and procedures established pursuant to paragraph (b)(10)(i) of this section are followed. (C) Such orders are executed at a price for such security disseminated by an effective transaction reporting plan, or derived from such prices.

alternative trading system registration

Similarly, systems that do not provide for order interaction, such as those that route orders to order-execution facilities, will not qualify as exchanges. In addition, exchanges must use “established, non-discretionary methods” for order interaction. The new interpretation is intended to capture systems that centralize orders, either by the display or the processing and execution of orders. Orders include “any firm indication of a willingness to buy or sell a security, as either principal or agent, including any bid or offer quotation, market order, limit order, or other priced order,” and are executable without further meaningful negotiation. InnReg offers global fintech compliance and operations consulting and outsourcing services focused on mitigating regulatory risk while partnering with clients to launch innovative fintech products and services.

In this regard, the DEX generally takes a passive role in facilitating the ability for tokenholders to connect with other tokenholders to exchange crypto assets for other crypto assets. Moreover, different types of DEXs may involve other market participants or technology that may provide order books, utilize automated market maker algorithms, and liquidity providers. The alternative trading system shall not charge any fee to broker-dealers that access the alternative trading system through a national securities exchange or national securities association, that is inconsistent with equivalent access to the alternative trading system required by paragraph (b)(3)(iii) of this section. In 1998, the SEC adopted Regulation ATS to create an exemption from registration as a “national securities exchange” for any organization, association, or group of persons that operated as an ATS and complies with Regulation ATS, which, among other things, requires that the ATS register with the SEC as a broker-dealer. The SEC concurrently adopted Rule 3b-16 under the Exchange Act to define certain terms used in the statutory definition of “exchange” in Section 3(a)(1) and similarly relied upon to define an ATS in Rule 300 of Regulation ATS. Rule 301(b)(5) requires an ATS with at least 5% of the average daily volume for a security in at least four of the previous six months to comply with “fair access” requirements, including establishing written standards for granting access to the ATS.

The amendments will be published on the SEC’s website and in the Federal Register and will become effective 60 days from the date of publication in the Federal Register. An existing NMS Stock ATS will be required to file a Form ATS-N no earlier than January 7, 2019 and no later than February 8, 2019. A new entity seeking to operate as an NMS Stock ATS will be required to file a Form ATS-N starting January 7, 2019. From inital consultations, to assistance in authorisations, to assistance in preparation of the legal documentation, 10 Leaves helps you navigate the DFSA Rulebook and submit an application that is comprehensive, complete and compliant.

alternative trading system registration

Digital asset platforms, which are considered trading securities in the US, are subject to securities laws requiring such platforms to be registered as a national securities exchange (NSE) or fall within an exemption from an NSE registration. One exemption from registration as an NSE allows a company to conduct a digital asset platform business if such company is registered as an ATS. Having experience in digital assets, including security tokens, and traditional securities, we represent our clients before the SEC and FINRA throughout the whole ATS registration process to achieve the result. Our partners are in the constant process of communicating with the SEC and FINRA representatives regarding the most efficient ways of registering and operating an ATS.

Our account funding and transfer supervision services offer meticulous oversight, striving to align every transaction with regulatory standards and secure client assets. (B) With respect to corporate debt securities, 20 percent or more of the average daily volume traded in the United States. (D) With respect to corporate debt securities, 5 percent or more of the average daily volume traded in the United States. The CAT Technical Specifications for Industry Members require Industry Members operating ATSs (“Industry Member ATSs”) to populate the atsOrderType field on CAT Equity New Order and Order Accepted events. CAT will provide an ATS Order Type Entry Screen on the CAT Reporter Portal that will enable Industry Member ATSs to register ATS Order Types with CAT. Industry Member ATSs are required to register these ATS Order Types with CAT at least 20 days prior to the Order Type becoming effective.

  • Every alternative trading system subject to this Regulation ATS, pursuant to paragraph (a) of this section, shall comply with the requirements in this paragraph (b).
  • Dark pools entail trading on an ATS by institutional orders executed on private exchanges.
  • To comply with Regulation ATS, an ATS must register as a broker-dealer and file an initial operation report with the Commission on Form ATS before beginning operations.
  • The agency has revised its interpretation of the term exchange to apply to ATSs through new rule 3b-16.

Form ATS is the official SEC notification and must be submitted at least 20 days before the firm begins to operate its platform. Nonetheless, the SEC waited only a weekend before bringing a new enforcement action against a centralized crypto exchange for acting as an unregistered exchange, broker-dealer, and clearing agency. Further, the reopening comes on the heels of an announcement that the SEC issued a Wells Notice to one of the world’s largest centralized crypto exchanges covering a wide array of potential violations that also could implicate unregistered “exchange” activity. Earlier, only persons who met certain criteria were allowed access to DFSA-regulated exchanges, clearing houses and ATS platforms.

alternative trading system registration

Word leaks out, and those who wish to profit by the transaction before it is completed negatively impact the process, thus ATS “dark pools” using block trades are utilized. The ATS rules will greatly expand the transparency of orders in the marketplace, and will, for the first time, require the public display of institutional orders that are displayed in the largest ATSs. Thus, the SEC’s dedication to transparency, that drove the order handling rules, has taken a significant step further. For another, they may want to avoid being governed by an unrelated SRO, which may, incidentally, operate a competing system. (2) Uses established, non-discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade.” The agency has revised its interpretation of the term exchange to apply to ATSs through new rule 3b-16.

Our competitive advantage and unique experience enable us to manage complex projects on behalf of clients operating in gray and rapidly evolving areas for both regulators and businesses. With a specialized team of over 30 compliance and consulting professionals, we have successfully partnered with various Alternative Trading Systems. Our regulatory expertise has been crucial in helping these clients thrive in the intricate landscape of US and global financial markets. Managing an ATS demands a keen understanding of both technological and regulatory nuances, as well as meeting stringent compliance, operational, and risk management requirements. Our cybersecurity program development service equips your firm with the tools and knowledge to navigate digital threats and regulatory requirements. Dilendorf Law Firm assists clients with obtaining federal and state registration to operate as an Alternative Trading System (ATS) for issuing and trading tokenized securities on a blockchain.

alternative trading system registration

Rule 301(b)(2) of Regulation ATS requires an ATS to file information with the Commission about its operations, such as its order entry procedures, how it displays orders and quotes, and the role of any entity involved in its operations, and to maintain the accuracy of those disclosures. Starting in October 2019, tZERO operated a separate ATS for NMS stock trading after regular market hours, while continuing to offer trading in digital securities during regular market hours through its original ATS. Under the terms of the Order, tZERO was censured and required to pay an $800,000 penalty.

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