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Alternative trading system

Some bonds, stocks, commodities, and derivatives trading systems can be dealt via computer. There are three types of such systems: conventional stock exchange system, electronic exchanges, and alternative trading systems. The electronic exchange users and members can propose the orders and fulfill them without any attachment to the market makers or specialists by using the electronic network provided by ATS (Alternative Trading System). So, the market information, more current and complete, is provided for the members without any fee. ATS has to do with internal trading systems of brokers or dealers. ECNs are one of the widest spread ATSs. There are some ECNs still being developed whether eight of them, such as Instinet, Island, and Strike already work. The ECN's members have developed them in order to facilitate trading among themselves. Each ECN is based on certain protocols and terminals under these circumstances. ECN have their profit by taking a fee out of each transaction based on its volume.

One of the advantages of communication technologies, easy cross-border transactions, is widely used in alternative trading systems. Users can have an access to their orders and the execution of the latter domestically as well as from any foreign jurisdiction by using terminals or proprietary software through online connections.

ECNs (Electronic Communication Networks) make investors anonymous and free of high transaction prices as well as place together the best offer and bid prices by using trade-matching systems.

The Commission has requested in its proposing release on the regulation of markets of April 1998 that all ATSs should have a choice whether to be registered as a broker-dealer or as an exchange like a separate market in order to participate in the market.

Choosing to register as a Broker-Dealer

The size of most of the operating ATSs is fairly small. Their regulatory requirements do not change considerably from their current situation if they are registered as broker-dealers. They are still left under the self-regulatory organizations oversight being registered as broker-dealers. Due to the limited volume of the alternative trading system it only has to hand in the notice with the Commission containing its operating description and reports made quarterly as well as maintain an audit trail.