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One of the most notable trends shaping the equity market in recent years is the continued growth of Alternative Trading Systems (ATS), including dark pools. These privately operated platforms facilitate the buying and selling of securities outside traditional public exchanges, offering advantages like greater anonymity and the ability to execute large trades with minimal market impact.
The surge of ATS platforms can be traced back to the implementation of Regulation NMS (National Market System) in 2007, which sought to improve fairness in U.S. equity markets. Regulation NMS mandated that orders be executed at the best available price across all market venues, paving the way for ATS as alternatives to traditional exchanges. By offering additional venues for executing trades, these platforms helped improve market liquidity.
Drivers of ATS and Dark Pool Growth
Several factors are fueling the expansion of ATS platforms and dark pools. Brian Hyndman, CEO of Blue Ocean Technologies, pointed to better liquidity and more favorable execution prices during core market hours. He also highlighted the growing popularity of the overnight session, as traders can manage their risk in real-time, rather than waiting for the market to open at 9:30 AM.
“There is also a big segment of retail customers in APAC that want to be able to trade US stocks during their daytime hours,” Hyndman told Traders Magazine.
Steve Miele, CEO of Kezar Markets, added that technological innovation has been a major driver of ATS development. “In recent years, we’ve seen many new products come to market that enhance execution quality,” he said.
Likewise, Khody Azmoon, CEOand co-founder, Head of Business Development & Product Strategy, BLOX Markets, noted the rise of advanced trading mechanisms like speed bumps and trajectory-based crossing to improve execution flexibility and efficiency.
The Regulatory Landscape: Scrutiny and Compliance
Despite their rapid growth, dark pools and ATS platforms are under increasing scrutiny from regulators. The U.S. Securities and Exchange Commission (SEC) has raised concerns about the lack of transparency on these platforms, particularly regarding price discovery and potential disadvantages to retail investors.
Hyndman emphasized that ATS platforms are regulated entities that must comply with SEC and FINRA (Financial Industry Regulatory Authority) rules. “As volume grows, ATS platforms will need to adhere to Fair Access standards and even Reg SCI (Systems Compliance and Integrity) standards,” he explained.
Azmoon also noted that U.S. equities ATSs and dark pools face growing regulatory pressure around risk controls and oversight. In particular, FINRA has indicated increased focus on extended and overnight trading in 2025, raising compliance concerns for platforms operating in these hours.
One area of concern is the rise of private rooms (also known as hosted pools), according to Azmoon. He explained that these rooms, initially created as efficient solutions for brokers managing internalized orders, are now being used in ways that raise regulatory questions. Brokers sponsoring private rooms through ATSs, creating “dark pools within dark pools,” could compromise transparency.
Furthermore, broker-owned ATSs have faced scrutiny due to potential conflicts of interest, particularly when managing retail order flow. Azmoon noted that this has led to a trend toward independent ATS launches, allowing brokers to reduce their regulatory exposure.
Technological Advancements
The rise of high-frequency trading (HFT) and algorithmic trading has played a key role in the growth of ATS platforms. These technologies, designed to execute trades at lightning-fast speeds, are particularly suited for dark pools and other ATS venues that prioritize minimal slippage and low-latency execution.
Miele highlighted the contribution of these technologies in shaping a more efficient marketplace. “The advancements in trading technology have improved transparency and made the market safer and more reliable for investors,” he said.
As technology continues to evolve, the demand for faster, more efficient trading platforms has only increased, further boosting the popularity of ATS and dark pools.
Technological innovations have significantly reduced operational costs, improved execution speed, and enhanced the reliability of ATS platforms. According to Azmoon, launching a fully functional ATS is now possible for under a million dollars, although regulatory and operational expenses remain substantial.
“Modern technology stacks now achieve round-trip processing times of 50 microseconds or less, compared to legacy systems operating at 100 microseconds,” he noted. Additionally, next-generation platforms now offer superior redundancy solutions, ensuring system resilience by virtually eliminating data loss through real-time failover configurations.
Market Fragmentation and Liquidity Challenges
Since the implementation of Regulation NMS in 2007, the U.S. equity market structure has become more fragmented, with over 20 exchanges and nearly 30 ATSs operating today. This fragmentation continues to grow as more liquidity shifts toward dark pools and ATS platforms, raising concerns about price discovery and the accessibility of best execution.
Despite these concerns, Miele argued that the robust routing technology in place today enhances market accessibility. “Modern routing systems allow market participants to access deeper pools of liquidity across various platforms,” he said, countering the argument that fragmentation harms price discovery.
Azmoon, however, emphasized that liquidity fragmentation remains an issue, with off-exchange trading volumes surpassing those on public exchanges. “We anticipate greater fragmentation and increased off-exchange liquidity over time,” he warns.
The SEC is aware of the fragmentation issue and has been taking steps to address it through amendments to equity market structure rules, particularly regarding Tick Sizes, Access Fees, and Transparency of Better-Priced Orders. These changes aim to shift liquidity back onto exchanges and promote a more balanced and accessible market structure.
As Miele argued, the U.S. market is designed to be fragmented. With nearly 20 exchanges and 30 ATSs, “there are rules in place to ensure customers receive the best execution,” he stated, emphasizing the technology that consolidates and distributes market data so that traders can access the best prices.
A Fragmented Yet Efficient Market
The growth of ATS platforms and dark pools has dramatically reshaped the U.S. equities market, introducing both opportunities and challenges. While regulatory scrutiny and concerns over liquidity fragmentation remain, technological advancements continue to enhance the efficiency and reliability of these platforms. With a strong regulatory framework in place, the market will likely continue to evolve, becoming even more fragmented, but also more accessible for participants seeking deeper liquidity pools and improved execution.
As the market structure continues to evolve, traders and regulators alike will need to navigate the balance between innovation, competition, and transparency to ensure the continued growth of the ATS landscape.
