US Equity Market Structure: ATS Matching Logic

Staying up to speed with the matching logics being employed is no easy feat. The velocity of change is increasing and innovation is very much a matter of the devil in the details. While keeping up with the changes would be easier if ATS operational filings were made public, our goal in this report is to create a level playing field of understanding among industry participants.

ATSs matching logics today seek best execution with an emphasis on one or more of the following qualities: liquidity, size, counterparty priority and access. In essence, dark ATSs synthesize the kind of interactions that have always occurred on a trading floor, in an electronic and rule-based format.

Thus, the richness of matching logics should not necessarily be interpreted as needless complexity, but rather a move toward creating an electronic and automated market that is as flexible and nuanced as any other human interaction. What drives changes in the matching logics, order parameters and order types among ATSs is the constant customization of order interaction for different types of market participants.

In this report we explain the rise in ATS registrations and why TABB believes we will see the first net decline since the approval of Reg ATS; detail the major types of matching logics, the nuances within each and how market participants use them to achieve their goals; uncover the latest trends in matching logics, including segregated pools and private sessions under a single ATS.

At the foundation of our report are conversations with firms holding 35 ATS registrations, of which 30 have allowed us to publish attributed information about the following: matching logics, counterparty blocking, price improvement, locked markets, minimum fills, conditional orders, cancel/replace, segregated pools/private sessions, Indications of Interest, odd lots, and pre- and post-open. In addition, the report details technology characteristics of each ATS, including: order routing protocols, source of NBBO, average turnaround time, matching engine location and cross-connects.