On the Road to Reg ATS: A Critical History of the Regulation of Automated Trading Systems.

Automation of the trade execution process transforms the industrial structure of the trading services industry, changing the context within which trade execution services are regulated. We provide a short history of the US equity market experience as a case study of regulatory reaction and accommodation to new trading technology. Past and current approaches to the regulation of automated trading systems are described. Issues are identified that are common to a variety of international jurisdictions and to trading in financial instruments other than common stocks. The analysis emphasizes the use of the definition of an "exchange" for the purpose of classification and regulation of automated trading systems. The main theme, however, is regulation of market structure, defined as comprising the rules and institutions that determine competition between trading platforms. Copyright 2001 by Blackwell Publishers Ltd.