Abstract
This chapter focuses on alternative trading systems (ATSs) in the United States. It begins by describing the basic architecture of the US equity market, organized around the types of trading venues; and then analyses some of the criticisms that politicians, media commentators, and scholars have made of ATSs. The chapter then argues that ATSs have stronger incentives to innovate than exchanges. Beyond batched auctions, ATSs have introduced multiple other innovations, including different ranking systems for executing orders beyond exchanges' price, display, and time priority rules; order-initiated auctions; and innovative order types, including ones that allow execution instructions across multiple securities, such as aggregate limits on transactions across many securities. Finally, the chapter discusses the welfare implications of the different innovation incentives of ATSs and exchanges.
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