Helping Clients Navigate Through ATS Registration Requirements and Challenges
Digital asset platforms, which are considered trading securities in the US, are subject to securities laws requiring such platforms to be registered as a national securities exchange (NSE) or fall within an exemption from an NSE registration. One exemption from registration as an NSE allows a company to conduct a digital asset platform business if such company is registered as an ATS.
A lot of platforms providing a marketplace for digital tokens fall squarely within the definition of an ATS. Every ATS must still be registered with the SEC, provide multiple disclosures, implement security measures and comply with the federal reporting requirements, as well as state laws in each state where the ATS operates.
Specifically, Regulation ATS requires that every ATS must (i) register with the SEC as a broker-dealer, (ii) become a member of a self-regulatory organization (SRO), such as FINRA, (iii) file an extensive initial operating report (Form ATS) and (iv) have an ongoing compliance program to maintain the ATS and broker-dealer operations.
ATS registration process includes voluminous submissions to the SEC, including information about the traded securities, subscribers, operating procedures, etc. After registration, the ATS will have to comply with ongoing reporting requirements and other obligations, such as file quarterly transaction summaries and permit examination and inspection of the site, systems, and records by the SEC and FINRA in case of inspection or investigation. Also, as broker-dealers and FINRA members, ATSs are subject to strict standards of due diligence.
In addition, the SEC recently announced that it had voted to adopt amendments to Regulation ATS to require, among other things, stringent public disclosures of an ATS’ conflict of interests, risk of leakage of sensible information, procedures and operations, as well as additional safeguards dealing with confidential information. The amendments are supposed to take effect in 2019.
Guiding Clients Through Each Step of ATS Registration
One of the challenges for registering an ATS is that the SEC and FINRA currently lack sufficient experience and technical understanding of the digital assets and trading platforms, which requires back-to-back communication and meetings with FINRA throughout the registration process.
Having experience in digital assets, including security tokens, and traditional securities, we represent our clients before the SEC and FINRA throughout the whole ATS registration process to achieve the result. Our partners are in the constant process of communicating with the SEC and FINRA representatives regarding the most efficient ways of registering and operating an ATS.
Our services throughout ATS registration process (with the concurrent FINRA and broker-dealer registration) include:
- Preparation of FINRA New Member Application (Form NMA);
- Preparation of Form ATS for submission to the SEC and FINRA;
- Preparation a detailed business plan and other required operational and financial disclosures and procedures;
- Preparation of AML policies and procedures;
- Training or procurement of a chief compliant officer (COO);
- Preparation to and attending with client the pre-membership interview with FINRA;
- Communications with the SEC;
- Structuring relations with banks and clearing agents;
- Preparation of alternative self-clearing ATS operational structures;
- State registration and filings in all 50 states plus US territories;
- Preparation of other forms, filings, disclosures and procedures to register an operational ATS.
While the process of registering an ATS is complex and challenging, it is achievable with proper planning, structuring and communicating with the US regulators, generally within 6-12 months.
Resources for Registering/Operating ATS:
- List of active Alternative Trading Systems
- Summary of the Rules that SEC Adopted to Enhance Oversight of Alternative Trading Systems
- Regulation of NMS Stock Alternative Trading Systems
- Requirements for Alternative Trading Systems
- Form ATS
- SEC’s Warning About Online Platforms for Trading Digital Assets