Alternative Trading Systems

An alternative to stock exchanges

Serious Information

Trivia

Alternative trading system (ATS) Proprietary electronic trading facilities for securities traded principally on securities exchanges or other organised markets. Some ATSs have price discovery functions while others serve as matching systems or crossing systems using prices already established

.Alternative Trading Systems (ATS) are SEC approved non-exchange trading venues. They play an important role in public markets for allowing alternative means of accessing liquidity. Most popular among varieties of ATS are ECNs and Crossing Networks. An example of an ECN is Bloomberg's TradeBook. Examples of crossing networks are Liquidnet, Pipeline, or Posit.

Types of AST - Crossing network, Electronic Communication Networks, Call Markets ( auction market where orders grouped until they reach a certain amount, and then executed together at a predetermined time.), Matching Systems.

crossing network an electronic financial network for matching orders for execution without routing the order to an exchange or market center (ATS, ECN, etc) where the order would be accessible for public viewing. The advantage of a crossing network is an ability to execute an order without impacting public quote. However, since the crossing network executes without displaying information to the market, the network can only take available pricing. Some try to minimize the amount of stoke traded so that no one is alerted to any movement in the stocks that might ruin a long term trade strategy.

In 2006 Credit Suisse applied to register its internal crossing network as an alternative trading system in an effort to grow liquidity, boost transparency and bring in SEC oversight. The Credit Suisse CrossFinder network is currently used internally to match small blocks of bargains transacted automatically from the bank's algorithmic trading flows. The network currently transacts about 30 million shares daily, on a par with independent third party operators such as Liquidnet. The prospect that the network might be opened up to public inspection as an ATS was mooted publicly by Guy Cirillo, global channel manager for Advanced Execution Services at Credit Suisse, at a financial markets conference. Such a move would save the firm large exchange fees on the proprietary book. Similar initiatives are being pondered by investment banks worldwide as regulators introduce new transparency rules. Citibank recently moved to acquire e-trading network OnTrade from NexTrade Holdings, while Merrill Lynch last week bought Archipelago e-brokerage subsidiary Wave Securities.

There is talk that New York Stock Exchange member firms would like to see the Big Board develop a crossing network as part of its new Hybrid system. One sell-side executive sees the potential for an NYSE crossing network as a reaction to the changing market structure, and the desire to reverse the average trade size (now 400 shares) and the decrease in block trading taking place on the NYSE. "Everyone wants to be in the crossing space because institutions want to cross bigger blocks of stocks," says Joe Gawronski, COO at Rosenblatt Securities, an institutional agency brokerage firm that is a member of the NYSE. The Hybrid system has reserve and price discretion features of the broker-interest file - features in NYFIX, POSIT and Liquidnet, Gawronski notes. "If you have these features, that can possibly lead to a crossing network," he says. But, Gawronski stresses, though certain NYSE members have started talking about the possibility, nothing is set in stone yet.

An Electronic Communication Network (ECN) is a computer system facilitating trading of financial products outside stock exchanges. The primary products traded on ECNs are currencies and stocks. ECN's came into existence in 98 when the SEC authorized their creation. Electronic Communications Networks (ECNs) represent orders in Nasdaq stocks; they internally match Buy and Sell orders or represent the highest Bid prices and lowest Ask prices on the Open market. ECNs were created out of the Nasdaq Market Makers Antitrust Litigation led by lawyer William Lerach. The litigation alleged collusion between Wall Street traders, and was proven in 98, leading to a $1 billion settlement from Wall Street firms.

Since 98, banks have been developing proprietary systems for customers to trade foreign exchange and access research material over the net. To trade with multiple banks online, customers therefore need to use a variety of authentication methods, websites and price request methods. Multi-bank platforms have evolved to allow customers a single website to request prices simultaneously from multiple banks and view research material online. One of the largest ECNs, Instinet Corp., initially established its market niche in the 1970s by providing after-hours services to institutional and professional traders. ECNs have sought an increasing role in after-hours trading by retail investors. In 2001 Instinet, the electronic stock trading network was floated by Reuters Group.

Matching Systems

While accuracy and business value will be the primary factors in selecting a matching system, they are not the only factors. Some buyers reject reference-based systems because they require off-site processing and ongoing service relationships. Some focus on processing speed, computer resource consumption or the staff effort required. Some care deeply about the quality of reports, options to review and the override of questionable matches, or control over matching rules and reference tables. Some need to handle international data or perform complex transformations. Nearly every decision is affected by salesmanship, customer service and vendor background.

The Matching Systems Engine is an ideal runtime vehicle for detecting fraud. Known behaviour patterns, both fraudulent and benign, make up the set of advertisements that are held in the Matching Systems Engine. These can be simple static patterns against which a target customer behaviour will be matched. The resulting matching environment can then be embedded in an existing java application, or made available as a Web Service to multiple systems. It will automatically find known behaviour patterns that match a given target customer behaviour. Scoring algorithms can be applied to those that have matched to rank them in order of proximity.

In 1997 Ian Grigg of software house Systemics suggested an interesting idea. Why not have independent issuing houses whose reputations and thus business prospects would stand or fall on their track record? They would issue clients with digital stock certificates which could, when the markets became sufficiently liquid, be traded on any of a number of competing Internet based stock exchanges. As it is assumed that these exchanges would be automated price/time order matching systems, there would be no role for brokers. However, there would be a role for independent market makers to quote a bid/ask spread on illiquid stocks and also for the usual gamut of would-be gurus peddling their charts and analyses of prospects. It quickly becomes apparent that we don't really need all these expensively paid brokers with their marble halls and $1m bonuses or any of the mutual funds with their thousands of door-stepping salesmen. If an investor wants to track the market, he can download a routine to build the appropriate index.

Trivia

ECN is a common acronym for many groups such as 1)EUROPEAN COMPOST NETWORK, 2)The Environmental Change Network (ECN) is the UK's long-term environmental monitoring programme. 3)European Chemical News,

In 2000 the London stock exchange went off for half a day. The exchange says technicians who worked through the night discovered that an error between two computer programs had resulted in the system transmitting share prices before they had been updated.

Electronic Communication Network

government_bond information

Other Lonympics sites