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Overview
Each alternative automated trading system (ATS) is required to provide an initial operation specification, by filling the Form ATS, as required by Securities and Exchange Commission.
Examples:
The U.S. Securities and Exchange Commission (SEC) presents a list of automated trading systems with Form ATS as of March 3, 2017. - here
Financial Industry Regulation Authority (FINRA) - presents a list of equity ATS firms - here. FINRA also discloses which stocks are traded on which alternative trading system ATS - here.
Goldman Sachs's list of ECN-s (electronic communication networks) and ATS-s, or similar trading systems / venues - here
Definition
An alternative trading system (ATS) is a trading venue approved by regulatory authorities like the Securities and Exchange Commission (SEC) and Financial Services Authority (FSA). In the broadest sense, an ATS is an alternative venue - usually an electronic system - where buyers and sellers can execute trades in existing financial instruments. Instruments may include shares, bonds and derivatives. An ATS provides an additional pool of liquidity to trade in existing instruments. No new securities can be listed on an ATS.
Recently fined notable automated trading systems
December 2016 - Deutsche Bank pays $37M to settle US dark pools probe
December 2016 - FINRA fines Deutsche Bank $3.25M over dark pool info
January 2016 - Barklays and Credit Suisse Charged With Dark Pool Violations
January 2015 - UBS unit to pay more than $14.4 million for U.S. violations
July 2014 - Goldman Sachs fined over trade rule violations in dark pool
February 2016 - U.S. stock regulator expects more 'dark pool' fines this year
An overview of ATS's fined recently, Boston University - Rise in SEC Dark Pool Fines
In general this has always been a problem:
"For example, consider the ‘glitch’ that caused BATS to fail during its own IPO several years ago. BATS has a considerable share of the overall market and, in many ways, represents industry best practices. In the words of the exchange’s CEO, the glitch resulted from “[a] combination [that] hadn't been seen in the hundreds of tests we'd run before this”. As an industry, we must recognize that the currently employed approaches to system testing are insufficient."
(taken from the Aesthetic Integration's public comments to regulatory proposals by the CFTC, here)
For a better insight about formal verification in finance using techniques of automated reasoning, you may want to check the video:
Towards Imandra Contracts: Formal verification for Ethereum, by Grant Passmore (of Aesthetic Integration)
There are predominantly two types of ATS: matching systems and crossing networks.
An ATS can be started by a proprietary firm or even an exchange.
Alternative Trading Systems are examples of dark pools i.e. private markets where the trading of securities is not visible to the public eye. These systems are popular among large, institutional buyers, such as hedge funds, because it allows them to purchase or liquidate large portfolios without others becoming aware of this and front-running their trades. Trades executed in dark pools do not report data back to the market and therefore do not affect prices listed on exchanges.
Source: wikinvest.com
Somewhat related patents:
System and method for modelling and verifying financial trading platforms → here
Intelligent order matching platform for anonymously negotiating and trading financial instruments → here
Decentralized exchange projects
BARTERDEX
https://barterdex.supernet.org -- BarterDEX is the best cryptocurrency trading platform allowing the decentralized exchange of a variety of altcoins and digital currency (https://komodoplatform.com/en/technology/barterdex).
ETHERDELTA
http://etherdelta.com -- EtherDelta is a decentralized trading platform that lets you trade Ether and Ethereum-based tokens directly with other users.
0X
https://0xproject.com -- 0x is an open, permissionless protocol allowing for ERC20 tokens to be traded on the Ethereum blockchain
Language: OCaml
Year 2015.
Otherwise slides are here.
IEX, the investors exchange
Another phenomenon that breaks the fair play in trading on (mostly public) exchanges, is the so-called "racing". Namely when an order placed by a regular investor is raced over by technology companies, using the unfair advantage of knowing the order details in advance before it is executed in its entirety. A predefined strategy using the unfair input information, is executed in a fraction of a second. There is more to be said about this, but leave it at this for now.
The solution that IEX presented, and that so far works, is the "speed bump", a simple hardware solution implementing the delay of orders at the entrance by 350 microseconds. This was approved by the SEC and later some other exchanges adopted a related approach, but in the case of some of them it didn't work out very well. See for example the software speed bump implemented by the CHX, the Chicago Stock Exchange, which at first was not approved by the SEC (but later became approved) → here and here
What IEX is doing is at some level related to what Aesthetic Integration does, in the sense that both are working towards a systematic solution / approach to have fair and safe markets by design.
A summary (by the SEC) regarding IEX's application to become registered as a national securities exchange → here
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