An automated trading system (ATS) is a computerised system for matching orders in securities. The main function of an ATS is to accept orders and match these according to the trading rules. Trading rules vary between exchanges, and even more between countries.
This means that an ATS typically has to:
- Accept orders of whatever types are allowed.
- Reject orders that are not allowed.
- Match orders according to quite complex rules.
- Determine the prices at which certain orders match (for example, if a limit buy at 100p matches a limit sell at 90p) according to trading rules.
- Expire orders that reach built-in time limits.
- Pass details of trades to clearing and settlement systems.
- Provide market information.
- Provide information and tools to market regulators.
- Enforce automatic trading halts and other restrictions.
The replacement of trading floors with electronic systems has hugely lowered trading prices. It has had few real drawbacks.
Not all ATSs are operated by stock exchanges. Some are operated by inter-dealer brokers and similar financial institutions.
Some ATSs are developed internally by stock exchanges. Others are available from a number of software vendors.