FINRA Reminds Alternative Trading Systems of Supervisory Obligations

FINRA reminded Alternative Trading Systems ("ATSs") to assess their existing systems to verify that they are sufficient to meet supervisory obligations.

FINRA stated that in addition to obligations delineated in Regulation ATS, an ATS must meet all other filing and conduct obligations applicable to SEC-registered broker-dealers and FINRA members. These other obligations include, inter alia:

• compliance with Regulation SHO, Regulation NMS and the SEC's Market Access Rule;
• new and continuing membership and registration, financial condition and business continuity plan requirements;
• reporting rules for trades, quotations and orders; and
• rules against non-bona fide trading and other disruptive activity.

FINRA recognized that ATSs do not exercise self-regulatory authority, but emphasized that ATSs may still establish rules to supervise and govern subscriber conduct on their trading systems. FINRA made clear that it expects an ATS's supervisory system to be reasonably designed to identify "red flags," including potentially manipulative trading that occurs on or through its trading systems. Accordingly, FINRA reminded ATSs that they must assess supervisory systems on an ongoing basis.