The Future of Brokers: ATS

As technology evolves, so does the real estate industry. Most people see a broker as someone who sits at a desk all day doing paperwork and assisting customers with purchasing or selling real estate. However, things are changing and technology plays a more significant role than ever in the real estate sector. Learn what an ATS is, how it works, and why you should consider using one for your investments.

What is ATS?

An Alternative Trading System (ATS) is a privately held computer network that connects buyers and sellers of securities and conducts deals without using conventional exchanges or brokers.

In the United States and Canada,  such a trading facility is called an alternative trading system. In Europe and other parts of the globe, it is known as a “multilateral trading facility”. An alternative trading system (ATS) is a system that matches orders from buyers and sellers of securities using preset and established techniques or principles. Alternative trading systems operate concurrently with and in opposition to conventional exchanges.

Unlike normal stock markets, an ATS is regulated by a broker-dealer rather than an exchange. This sort of trading venue must get approval from the U.S. Securities and Exchange Commission (SEC) before it can begin matching buyers and sellers of securities.

ATSs are increasingly used also in real estate and investors are able to trade real estate securities without the need for a traditional stock exchange. ATSs are typically used by large institutional investors and real estate investment trusts (REITs) but are also increasingly being used by smaller real estate companies and individual investors. Generally speaking, real estate ATSs often have shorter settlement times than traditional stock exchanges.

To learn more about how ATS works and how it can benefit you, call us today. We’d be happy to answer any of your questions.

How Does an ATS Work?

An ATS is essentially an online marketplace that connects investors. An ATS may provide the ability to trade new types of securities (e.g., real estate investments) as well as greater trading hours and alternatives than the listed exchange and more trading alternatives than the listed exchange. Alternative trading systems are transforming the way traders purchase and sell assets such as stocks and real estate.

One of the main benefits of using an ATS is that it gives investors access to a wider range of properties than they would find through a traditional broker. In addition, traders can often get better prices on properties by dealing directly with other investors. 

Many consider alternative trading systems as dark pools. Dark pools are private stock exchanges where trades are conducted off-exchange, away from the eyes of the public markets. Dark pools were created for institutional investors, such as mutual funds and hedge funds, to allow them to buy and sell large blocks of shares without affecting the market price. Because these transactions are not publicly reported, they can be used to execute large trades without disrupting the market price.

However, in recent years, dark pools have become increasingly popular with retail investors as well. While dark pools offer some advantages, such as anonymity and reduced transaction costs, they also carry some risks. For example, because dark pool trading is not subject to the same transparency and regulatory requirements as public exchanges, there is potential for abuse by insiders. As a result, investors should do their homework before deciding whether to trade in a dark pool.

Related: Dark Pools: Overview, How It Works, Pros and Cons

Examples of ATS

ATS is used for all kinds of stocks and securities.

Here are a few examples of alternative trading systems:

  • Call markets – A call market is a type of securities market in which participants trade calls, or contracts to buy securities at a set price within a specified time frame. Call markets are typically used by institutional investors, such as hedge funds and large banks, to trade large blocks of securities.
  • Crossover networks – Crossover networks are a type of trading system that enables brokers to trade securities with each other without going through an exchange. In addition, crossover networks can provide anonymity for both buyers and sellers, which can be important when trading certain types of securities.
  • Dark pools – A dark pool is a type of trading venue that does not publicly display bids and offers. Dark pools are used by large institutional investors, such as hedge funds and investment banks, to trade large blocks of shares without impacting the market.
  • Electronic Communication Networks – In the modern world, electronic communication networks (ECNs) are playing an increasingly important role in trading. ECNs are computer-based systems that allow traders to buy and sell securities without going through a traditional exchange. This means that traders can trade directly with one another, rather than having to go through a middleman

Benefits of an ATS

Retail traders may use an ATS to sell private real estate assets or institutional buyers to place a massive block sell order. ATSs can improve access to private investment opportunities and facilitate private security transactions.

One of the benefits of an alternative trading system over a traditional stock exchange is that anonymous pricing does not affect the market price when massive quantities are traded.

In addition, ATSs sometimes eliminate intermediaries, such as financial institutions and stock brokers, which may dramatically reduce trading costs and give traders more accurate pricing and market data.

This has helped to increase liquidity and make real estate investing more accessible to a wider range of people. Additional benefits include lower costs, embracing technology, transparency, and the ability to trade more types of assets.

What are Some Concerns about ATS?

Competition between alternative trading systems and established markets may lower the cost of trading over the long term. However, the expansion of these systems raises questions about market regulation.

In accordance with U.S. securities legislation, conventional stock exchanges such as the NYSE serve as both a trading mechanism and a regulator. If an exchange is registered with the SEC, it must establish and implement standards to prevent market manipulation and fraud, operate in the public interest, and treat all participants equally. Alternative trading systems don’t need to register as exchanges, but they do need to register as ATS with FINRA/SEC, and they operate as digital broker-dealers.

As a result, there have been concerns about potential flaws in market stability and integrity, investor protection, and the absence of regulatory safeguards for potential problems in ATS trading.

Due to regulatory pressure, the SEC modified the regulation controlling ATSs on July 18, 2018to increase ATS transparency and supervision. It also established a new form, Form ATS-N, which increased regulatory reporting.

Since the ATS regulation took effect in 2000, equity markets have changed dramatically. Some platforms provide characteristics akin to authorized national securities exchanges, such as the NASDAQ stock market, which must be more transparent. ATS operators will shape innovation and market structure with the SEC’s current emphasis on competition.

Case Study: SecondRE – An ATS for Real Estate Liquidity

SecondRE’s marketplace allows investors to purchase and sell fractions of cash-generating residential and commercial real estate assets with the sponsors’ approval.

SecondRE is registered with FINRA and SEC as an ATS (1 of about a mere 4 real estate ATSs). It is therefore subject to the applicable rules governing Alternative Trading Systems.

With SecondRE, there are four steps to execute a real estate transaction:

  1. SecondRE collaborates with sponsors to choose qualifying assets. Asset and performance data are easily accessible on the SecondRE Marketplace.
  2. Existing investors offer their assets for sale on the marketplace at a price they choose.
  3. Accredited investors then bid on investment opportunities. If a match is found, the sponsor will receive the details and can authorize the swap transaction.
  4. Investors get regular updates and payouts from cash-generating transactions. They can sell their holdings at any moment (if there’s a willing buyer) and get above-average liquidity.

Like ATSs, SecondRE is innovating the U.S. equity markets by opening up trade in secondary real estate investments. As a result, they play a significant role in making the U.S. real estate market more open, efficient, and competitive.

Related: Why Do Sponsors Want to Provide Liquidity?

ATS and the Future

If you’re looking for an alternative to the stock market or want to broaden your investment portfolio, ATSs may be a good choice. If you’re thinking of using an ATS to invest in real estate, it’s essential to do your research and understand how they work.

Our team can help you make the most informed decision possible and give you the guidance you need. Give us a call today!

Related: Real Estate Investment: What’s the Difference Between Primary and Secondary Markets?

SecondRE - Liquidity for Real Estate

We’re SecondRE

SecondRE partners with sponsors to enable liquidity for their investors.

SecondRE Marketplace enables investors to buy and sell holdings in residential and commercial real estate properties, with the sponsors’ blessing.

By enabling liquidity, sponsors find it easier to attract new investors.

SecondRE Inc. is an American company led by seasoned technology and real-estate entrepreneurs, who have scaled operations all the way to NASDAQ

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