Healthy Markets Releases Comprehensive ATS Risk Assessment

Healthy Markets Association today announces the release of its groundbreaking 2016 ATS Risk Assessment covering 18 of the leading US equity alternative trading systems (ATSs). Collectively, these ATSs comprise 88% of ATS trading. This 173 page Report, which is the first of its kind, answers key questions for investors and routing brokers about how leading ATSs operate and the risks they pose.

In the Report, Healthy Markets examined four key risk categories:

  •     Conflicts of interest risks;
  •     Information leakage and counterparty risks;
  •     Technology risks; and
  •     Enforcement risks.

Firms were scored in each category, and rated as posing low, medium, or high risk. Some ATSs that declined to provide information to Healthy Markets were scored as having provided insufficient information. ATSs were then assigned Overall scores based on the scores of each category using the same grading system.

In addition to these risk comparisons, Healthy Markets’ report also provides quantitative comparisons of different ATSs across several measures of interest to investors and routing brokers, such as percentage of trades executed at the midpoint. Lastly, the report takes deep dives into the operations and risks of each of the 18 ATSs examined.

Information used to complete this Report was obtained from public sources, such as ATS websites, FAQs, Forms ATS, and regulators’ websites. It also includes ATSs’ responses to Healthy Markets’ ATS Questionnaire, which includes dozens of detailed technical questions about items ranging from information-leaking order types to smart-order routing preferences.

“Investors and routing brokers are increasingly focused on understanding and assessing the risks posed by the venues on which they trade, and this Report is designed to help them do that,” said Tyler Gellasch, Executive Director of Healthy Markets. “We found some significant differences between ATSs, which we think may impact investors’ decisions on where to trade.”

“In March, we released the ATS Transparency Index™ to help identify areas where they may need to ask more questions from their trading venues,” said Healthy Markets Chairman, Dave Lauer. “The 2016 ATS Risk Assessment goes quite a bit further in that it tells investors how these venues work, compares them to their peers, and highlights areas of risk.”

While the full Report is only available to Healthy Markets’ Buyside Members, excerpts of it, including an overall summary, are available to the public on the Association’s website.

Healthy Markets is an investor-focused not-for-profit coalition looking to educate market participants and promote data-driven reforms to market structure challenges. Our members, who range from a few billion to hundreds of billions of dollars in AUM, have come together behind one basic principle: Informed investors and policymakers are essential for healthy capital markets.

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