ECNs/Alternative Trading Systems
Electronic Communications Networks, or ECNs, as defined in Rule 600(b)(23) of Regulation NMS, are electronic trading systems that automatically match buy and sell orders at specified prices. ECNs register with the SEC as broker-dealers and are subject to Regulation ATS. Subscribers, which are typically institutional investors, broker-dealers, and market-makers can place trades directly with an ECN. Individual investors must currently have an account with a broker-dealer subscriber before their orders can be routed to an ECN for execution. When seeking to buy or sell securities, ECN subscribers typically use limit orders. ECNs post orders on their systems for other subscribers to view. The ECN will then automatically match orders for execution. An ECN may choose to facilitate compliance by a market-maker with its obligations under the Commission's Quote Rule by transmitting the ECN's best bid/offer to a national securities exchange or registered securities association for public display.
For background on the adoption of ECNs, see Exchange Act Release No. 37619A, http://www.sec.gov/rules/final/37619a.txt. For recent amendments relating to ECNs, see the adopting release to Regulation NMS, Exchange Act Release No. 51808, http://www.sec.gov/rules/final/34-51808.pdf.