Quick Answer
An alternative trading system (ATS) matches orders of multiple buyers and sellers by non-discretionary methods and disciplines subscribers only by exclusion from trading. Regulation ATS adds duties at volume thresholds. The alternative display facility (ADF) is an elective facility for quoting and trading away from an exchange. Outside curb trading hours, Cboe opens options series through a trading rotation.
From the venue holding an order to the auction opening an options series.
Which One-Liners Win Points?
- ATS versus exchange: both match orders; an ATS sets no conduct rules beyond trading on it and disciplines subscribers only by exclusion from trading.
- Order display needs both triggers: displaying subscriber orders to anyone other than ATS employees, and 5% or more of a national market system (NMS) stock's volume in at least 4 of the preceding 6 calendar months. The best bid and offer displayed to more than one person in the ATS then go into the public quote, with equivalent execution access.
- Fair access and systems duties fall away only when the venue matches customer orders with customer orders, undisplayed beyond employees, at a price a transaction reporting plan disseminates or derived from those prices.
- Locked versus crossed: an equal price locks; a price through the other side crosses. Members must reasonably avoid, and not make a pattern or practice of, locking or crossing a protected quotation.
- Fast market: any two Floor Officials may declare one, then use any combination of rotations, a firm quote suspension as the firm quote rule permits, and other necessary actions; closing exchange facilities is an emergency power of the Chief Executive Officer, President, or a senior-level designee.
Which Numbers Matter Most?
| Item | Value |
|---|---|
| Form ATS initial operation report | At least 20 days before operating |
| Quarterly Form ATS-R | Within 30 calendar days after quarter end |
| Order display and fair access | 5% or more, in at least 4 of the preceding 6 calendar months |
| Capacity, integrity and security | 20% or more, in at least 4 of the preceding 6 calendar months, municipal and corporate debt securities only |
| Written notice to FINRA Market Operations before denying a registered broker-dealer direct electronic access | At least 14 calendar days, from the first business day Market Operations has receipt |
| ADF outages | 3 unexcused in 5 business days: may be suspended 20 business days |
| ADF hours | Open as of 9:30 a.m., close no earlier than 4:00 p.m. Eastern Time |
How Does an Options Series Open?
- Queue. Immediate-or-cancel and fill-or-kill orders are rejected; all-or-none, stop and stop-limit orders are accepted but sit out.
- Trigger. Equity options in regular hours: the earlier of two minutes, or a shorter exchange-set time, after the first primary-market transaction or quote after 9:30 a.m., or seeing both.
- Width check. A crossed or missing composite market is ineligible and keeps queuing; a wide one is still eligible if no aggressive non-market-maker orders and no marketable interest exist.
- Price. Volume-maximizing, then imbalance-minimizing, not outside the opening collar, or no trade.
- After. Leftovers enter the book in time sequence; at-the-open orders are cancelled.
Which Gotchas Trip Students Up?
- An outage appeal operates as a stay; an access complaint determination remains in effect during any appeal.
- An outage suspension is discretionary, and the firm must prove an outage should be excused.
- The two sweep-order exceptions to locking or crossing need a simultaneous sweep; the manual-quotation repair needs only a prompt one.
- A forced opening never produces a trade.
- An ATS displaying orders in the ADF counts as a registered reporting ADF electronic communications network.
- A limit up-limit down state at the rotation's start cancels or rejects market orders only; one beginning mid-rotation changes nothing.
One-Breath Recap
An alternative trading system matches multiple buyers' and sellers' orders by non-discretionary methods, sets no conduct rules beyond trading, disciplines subscribers only by exclusion, and registers as a broker-dealer unless an exclusion applies. Fair access attaches at 5% of a named category's volume, systems capacity at 20% in municipal securities or corporate debt, each in at least 4 of the preceding 6 calendar months. Alternative display facility trading centers post only automated quotations, give FINRA Market Operations at least fourteen calendar days' written notice before denying a registered broker-dealer direct access, and may be suspended after three unexcused outages in five business days. Outside curb trading hours, a queued Cboe options series passing a width check opens at a volume-maximizing price within the opening collar or without a trade; a forced opening never produces one.
Need more than the recap? Read the full Display, Execution and Trading Systems unit.