Where are stocks traded? | Nasdaq

Macro view of a trading terminal screen with an abstract financial chart and numbers @ istockphoto.com / Igor Kutyaev

When you enter an order to buy or sell a stock, what happens next? Put simply, your broker needs to decide where to go to find someone who wants to sell their shares (if you want to buy) or buy your shares (if you want to sell). This decision is called the “routing” of your order, and the place where the transaction actually takes place is called the “place of execution”.

The most common type of venue is a traditional stock exchange, such as the New York Stock Exchange or the Nasdaq Stock Market. However, other execution venues including Alternative Trading Systems (ATS), Single Trading Platforms (SDP) and Wholesalers have grown in popularity in recent years. So what’s the difference between these places? Read on to find out more.


Stock exchanges are defined by the Securities Exchange Act of 1934 and typically include places that bring together multiple buyers and sellers. Although established differently from FINRA, national stock exchanges are also categorized as self-regulatory organizations (SROs), meaning they have rules of conduct that apply to their members. National exchanges must be registered with the United States Securities and Exchange Commission (SEC), and the SEC maintains a list of currently registered national exchanges.

Stock exchanges are also where companies go to “list” their stocks, a process often referred to as an “IPO”. This means that when you see a reference to a “listed” stock, that company has passed the standards set by the stock exchange.

Transactions executed on stock exchanges are reported and published on the consolidated tape. Exchanges are also considered “light” markets, which means that pre-trade listing data – which shows whether there is interest in buying or selling stocks, and at what price – is also published on the consolidated tape so that everyone can see them.

Alternative Trading Systems (ATS)

An Alternative Trading System (ATS) is an electronic execution venue that acts much like a stock exchange but is not an SRO. This means that ATS, like exchanges, bring together multiple buyers and sellers. But unlike stock exchanges, ATSs have no members (an ATS has “subscribers”) and do not assume regulatory responsibilities. An ATS can trade in listed stocks, like a stock exchange, but an ATS can also trade in unlisted stocks (often called over-the-counter equity securities) or fixed income securities, such as bonds, unlike a stock exchange.

Although they are not SROs themselves, ATSs are regulated by the SEC under ATS Regulation. Under these regulations, an ATS must be operated by a FINRA member broker. Therefore, SNPs are also subject to applicable securities laws and regulations, including, for example, rules on disruptive or manipulative listing and trading activities, and supervision by FINRA.

ATS regulations also impose additional requirements on ATS, including rules for the protection of confidential trading information, and, for ATS that trade large volumes of securities, fair access and systems requirements. Listed shares of ATS are subject to increased disclosure requirements, and the SEC publishes such disclosures, submitted on Form ATS-N, on its website.

“Dark pool” is an unofficial term often used to refer to an ATS that is not lit, meaning it does not publicly display pre-trade quote data like the exchanges do. While dark pools are not required to publish quotes on their platforms, all ATSs, including dark pools, have a regulatory obligation to report information about trades that occur on their platforms.

All trade data for listed stock transactions occurring on ATS, including dark pools, must be submitted to a FINRA Trade Reporting Facility (TRF), and it is published on the consolidated band with transactions occurring on stock exchanges. . Transactions in unlisted securities must also be reported to FINRA. Companies must report transactions in unlisted shares to the FINRA OTC Reporting Facility (ORF) or transactions in fixed income securities to the FINRA Trade Reporting and Compliance Engine (TRACE).

The SEC maintains a list of TTYs, which changes over time and is regularly updated.

Unique Reseller Platforms (SDP) and Wholesalers

Instead of routing your order to an exchange, your broker can execute your order themselves or can route your order to an execution venue that is not registered as an exchange or ATS. But all OTC and ATS activities must take place with a registered broker, so they are still subject to SEC and FINRA oversight. And while these platforms can be considered “obscure,” all transactions must be reported to the appropriate transaction reporting service for the type of security being traded, just like transactions made on an ATS.

These off-exchange and non-ATS execution venues include:

  • Unique Dealer Platforms: An SDP is an electronic trading platform operated by a brokerage where the company itself acts as the primary counterparty for each transaction. Unlike an ATS, where the buy and sell orders of subscribers are matched to each other by the ATS, on an SDP, the broker who manages the SDP is always the counterparty to any transaction that occurs on the SDP. .
  • Wholesalers: A wholesaler is a broker who acts as a market scorer, a company that actively quotes two-way markets in a particular title, for other brokers. Some broker-dealers, particularly retail broker-dealers, route all or a significant portion of their orders to one or more wholesalers. The activity of a wholesaler is to fulfill these orders, which may involve fulfilling the orders itself or subsequent routing to other sites.

The bottom line

The US stock markets have become more complex over the years. But while there are differences between the types of execution venues, they all have an obligation to report post-trade data. All client transactions, regardless of where they are executed, are subject to SEC and FINRA rules and regulations designed to protect investors, including best execution and more. FINRA manages dozens of complex supervisory models to detect a wide variety of compliance and suspicious conduct issues in order to protect investors and maintain the integrity of U.S. financial markets.

FINRA also publishes share volume data on its website, which currently includes information on share volume and number of trades for over-the-counter transactions in listed shares and over-the-counter equity securities, as well as information on block transactions. Learn more about OTC transparency data.

Subscribe to FINRA’s Investor Insights newsletter for more information on saving and investing.

FINRA is dedicated to investor protection and market integrity. It regulates an essential part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, reviews and enforces compliance with FINRA rules and federal securities laws, registers and provides education and training for brokerage staff, and informs the investing public . In addition, FINRA provides oversight and other regulatory services for the equity and options markets, as well as transaction reports and other industry utilities. FINRA also operates a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.

Photo credit: @ istockphoto.com / Igor Kutyaev

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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