After spending the last nine years in the sun and enjoying much popularity, alternative trading systems may have finally seen their day fade.
So much so, that market consultancy TABB Group estimates that current registrations have reached their near-term peak and that three ATS will disappear or cease to operate under their current aegis this year.
Say it isn’t so, Joe.
Yep. That’s the conclusion reached in a new research report, “U.S. Equity Market Structure: ATS Matching Logic,” by senior research analyst Sayena Mostowfi. In the report, she examines the major types of matching logics, including nuances within each and how market participants use them to achieve their goals. The report also looked at the latest trends in matching logics and details technologycharacteristics of each ATS, including: order routing protocols; source of NBBO; average turnaround time; matching engine location; and cross-connects.
Mostowfi found that given the pace of technological change and trying to keep pace is proving more and more difficult, noting the differences in respective ATS matching logic is now found in the minute details and that innovation will be much harder to come by.
Also, TABB sees the decline in ATS as a result of the new FINRA ATS reporting requirements, adopted May 12, coupled with more ATSs creating segregated pools of liquidity under a single ATS. This would market the first time the industry will see a net decline in ATS registration since approval of Reg ATS in 2000.
“While keeping up with the changes would be easier if ATS operational filings were made public, our goal in this report is to create a level playing field of understanding among industry participants,” Mostowfi wrote. “As such, TABB is a strong advocate for further ATS transparency.”
The reports research comes directly from the ATS’ themselves, with 30 of the 35 registered ATSs participating and allowing TABB to print information about them. The 30 TAS shared such data as: matching logics; counterparty blocking; price improvement; locked markets; minimum fills; conditional orders; cancel/replace; segregated pools/private sessions; Indications of Interest (IOIs); odd lots, and pre- and post-open.
A few of the report highlights are that among the ATSs that participated in the study are that there are significant levels of support for conditional order types, segregated pools and private sessions under a single registered ATS. TABB expects that the number of ATSs that support these functionalities will continue to grow this year.
Also, broker-dealers who traditionally control buy side order routing via their own dark pools have received competition from both technology providers and other ATSs wanting to share in the execution/routing responsibilities. In turn buy side firms have become more in tune to venue matching logics and selection.
A third trend to note is that a growing number of ATSs have developed segregated pools of liquidity within the same ATS. The different streams of liquidity can be dedicated to internal liquidity only, execution at certain benchmarks (i.e. VWAP, Closing Cross), exhaust flow and/or outsourced equity matching engines (i.e. for equity portion of derivative trades).