Question & AnswerQ&A (SEC Notice)
An ATS is any organization, association, person, group of persons, or system that operates an electronic marketplace or facility to bring together buyers and sellers of securities of SEC-registered enterprises, performing functions commonly executed by a recognized exchange or clearing house, but it does not set conduct rules for subscribers beyond their trading on the system nor discipline subscribers other than by exclusion from trading.
The applicant must be registered as a broker-dealer, submit ATS Form 1 with certified documents including acceptance procedures, trading and business conduct rules, risk disclosure statement, business plan, descriptions of software and hardware systems, organizational resolutions, personnel CVs, agreements relating to operations, and an undertaking of board involvement in risk management. Publication of the filing notice in a newspaper and submission of clearing/settlement procedures are also required.
Subscribers are any persons, organizations, or associations (apart from recognized exchange companies or clearing houses) that have contractual agreements with an ATS to access it for effecting securities transactions or submitting, disseminating, or displaying orders, including customers, members, users, or participants.
These include establishing fair access standards, ensuring capacity, integrity, and security of its automated systems with periodic stress testing and independent audits, providing full disclosure of product-related information, permitting examinations and inspections, safeguarding confidential trading information, and refraining from using the term 'exchange' in its name.
Only securities that are duly registered with the Securities and Exchange Commission may be offered or traded on an ATS, unless exempt under the Securities Regulation Code and its implementing rules, following the Commission's registration procedures.
The ATS must codify and have approved procedures for the initial offering and secondary trading of securities that conform to generally accepted procedures and standards. Also, brokers and dealers must be duly licensed, and the 'Customer First Policy' must be observed.
It is unlawful to act as an ATS or enter transactions through one without proper SEC authorization, establish business offices for ATS operations without registration, falsely represent oneself as an ATS operator or affiliate, or receive checks on behalf of clients improperly.
An ATS must provide a risk disclosure statement detailing the process of risk identification, description of risks involved, ways to assess and value risks, and the risk management system, including an independent risk control unit and senior management commitment.
The ATS must maintain records of subscribers, daily trading summaries with detailed order information, and file various reports like Operational Reports (Form 2), Annual Reports with audited statements (Form 3), and reports on system errors or upgrades (Form 6). Records must be preserved for at least five years and produced upon SEC request.
Penalties include fines ranging from P10,000 for late filing plus daily penalties, escalating fines for repeated violations from P50,000 to P200,000 per violation, and possible cancellation of registration. Transactions through unlicensed ATS are null and void.
The SEC may suspend or revoke an ATS license if registration information is false, misleading, or incomplete, or to prevent fraud, following an investigation and hearing. Suspension orders prohibit further transactions until lifted and can be confidential. The SEC may also impose actions to maintain orderly trading or liquidation.
Clearing and settlement procedures must be submitted for SEC approval, obligations arising from trading must be guaranteed by the issuer, securities must be dematerialized and digitized, and an independent custodian and registrar free of conflicts of interest must be appointed.
An ATS must have written standards for granting or denying access, must not unreasonably or discriminatorily prohibit or limit access, and must keep records of access grants or denials including reasons. Exceptions exist if certain conditions about order matching and public price dissemination are met.
Only qualified investors, as defined under the Securities Regulation Code and its Implementing Rules, may be allowed to trade in an ATS. The ATS must submit a screening mechanism approved by the SEC and comply with the Know Your Customer Rule and Anti-Money Laundering laws.