An alternative trading system (ATS) is a non-exchange 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.
There are predominantly two types of ATS: a) matching systems; and b) crossing networks. An ATS can be started by a proprietary firm or even an exchange. For example, the London Stock Exchange has plans to introduce an ATS of its own called Baikal.
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.