ATS Transparency Index™

The ATS Transparency Index™ was developed to help traders with three basic questions:

  • How can you make informed order routing decisions if ATSs fail to disclose critical details about their core functionality?
  • How can you know that you are fulfilling your Best Execution obligations without insight into the venues your orders are routed to?
  • Are you sufficiently incorporating qualitative and quantitative data in your order routing decisions and execution quality analysis?

To help give traders this basic information, data from ATSs have been collected by scouring publicly available information and by distributing a comprehensive ATS questionnaire to ATSs with significant volume. The Healthy ATS questionnaire is freely available to aid firms in their reviews.

The ATS Transparency Index™ does not pass judgment on ATSs substantive operations.  Rather, its focus is on ATSs' disclosures about how they operate.  For example, some ATSs with pegged order types may use direct feeds to price the NBBO while others may use the SIP.  As long as the method of pricing is accurately disclosed, then the score should be the same.  This is intended to inform traders making order routing decisions with a more complete picture of the capabilities and operations of each ATS, which should be essential to meeting their Best Execution obligations.

The table below shows each ATS, their Composite score across all disclosure categories (as explained below), and a Green-Yellow-Red indication for each category.

ATS Transparency Index™ (as of March 2016):

The Transparency Index was updated in March of 2016. The notable changes since the original publication in May 2015 are:

  • Overall tightening of composite scores. Previous range was 2.2 to -1.3. Now it is 1.48 to -1.68. This indicates that overall transparency has increased across the board.
  • Fewer firms receive negative scores. Previously 10 ATSs were negative, now the number is 7 (just barely).
  • UBS moved from 6th to 3rd, becoming the most transparent bulge bracket ATS, with Deutsche Bank close behind. Goldman Sachs moved from 11th to 6th.

Our Methodology
The ATS Transparency Index™ is limited to only significant-volume ATSs. We have separated scoring into two broad categories: Questionnaire Responses and Quantitative Disclosures. We have also given firms credit for publicly available information, regardless of whether they responded to our questionnaire or not. The categories and individual questions were formulated based on discrete issues that are critical to analyzing equity market structure, execution quality, and order routing decisions.

ATSs were scored on the following categories:

  • Questionnaire Responses
    • Form ATS available
    • Statistics on trading activity and execution quality available
    • Order type guid available
    • Fee disclosures
    • Technology (17 questions, including market data, colocation and disaster recovery)
    • Order Flow and Client Characteristics (31 questions, including information-leaking orders, client segmentation, natural-to-natural trading and Min Qty functionality)
    • Conflicts of Interest: General (24 questions, including information sharing and matching priority)
    • Conflicts of Interest: Broker-Owned Dark Pools (7 questions, including trading in own pool, terms of such trading, SOR preferencing of ATS)
  • Quantitative Disclosures
    • Midpoint execution rate
    • Price improvement rate
    • Block order characteristics
    • Block trade characteristics
    • Overall order distribution
    • Overall trade distribution
    • ADV by market cap

Because different buy-side firms and brokers may take different views on the value of specific areas, each question is equally weighted. For the Questionnaire Responses, an ATS receives either 1 (adequate disclosure) point, 2 points (incomplete disclosure) or 3 points (inadequate or no disclosure) for each question. The total number of points acts as a golf score - the lower the better. A perfect score is 74, the worst possible score is 222. For Quantitative Disclosures, there are 7 disclosures, and ATSs are given a point for each one. We weigh Questionnaire Responses at 75% of the composite score and Quantitative Disclosures at 25% of the composite score.

Each ATS is then assigned a Green-Yellow-Red for each category based on the distribution of responses, with a subjective attempt to fairly reward ATSs that disclose more relative to others that do not. While that leads to the colors in the chart above, it does not affect the Composite score that ultimately ranks ATSs.

We take all of the point scores above and normalize them on a scale from 0 to 1. We weight them as indicated, and then re-normalize based on the average and standard deviation of the scores. This gives us our composite score that we have used to rank ATSs.

The overall technique is similar to the Linaburg Maduell Transparency Index, the Open Budget Index, the JLL Global Real Estate Transparency Index and many other measures of transparency in different industries. Some of these indices apply subjective, rather than equal weighting, and that is a modification we may consider in the future.

Scores above 0 indicate that an ATS is transparent relative to its peers. Scores below 0 indicate that an ATS is not disclosing enough about its operations to allow traders to make informed routing decisions.