The Securities and Exchange Commission has proposed rules intended to enhance the transparency and regulatory oversight of alternative trading systems that, because of their off-exchange equity deals, are often described as “dark pools.”

An ATS is an electronic order matching system for buyers and sellers operated by a broker-dealer. In 1998, the Commission adopted Regulation ATS, which created a new regulatory framework for these electronic trading venues, rather than regulating them as national securities exchanges. Unlike an exchange, which must publicly disclose quotes and prices, alternative trading systems often operate with little such transparency. Technological advances, including the rise of high-frequency trading, have increased the prominence and volume of ATSs that trade stocks listed on a national securities exchange (NMS).

That increasing prominence has been accompanied by an uptick in related enforcement actions, including cases where operators falsely claimed that no proprietary trading took place in their dark pool, the use of insider information to front-run subscribers’ trades, and secretly offering high speed traders special order types that gave them an unfair advantage over other subscribers.

The proposed rules, unanimously approved by the Commission on Wednesday, would require ATSs to file detailed disclosures, on a new Form ATS-N, about operations and the activities of its broker-dealer operator and affiliates. Form ATS-N disclosures would be made publicly available on the Commission’s website.

Specifically, Form ATS-N would require an NMS Stock ATS to disclose information regarding: fees; trading services; use of market data; fair access standards; algorithms used to send or receive orders; types of subscribers, how orders and executions are handled; the fees charged by the ATS; market data used; safeguards and procedures to protect confidential trading information; and potential conflicts of

The proposal would amend Regulation ATS to require all ATSs to maintain written safeguards and procedures to protect the confidential trading information of their subscribers, and written procedures to ensure that those safeguards and procedures are followed.

Absent an effective Form ATS-N, the ATS would not be permitted to operate without registering as a national securities exchange, a significant change from the current “notice” filing that an ATS provides to the Commission.  The Commission would also review and, if necessary, halt material changes to the operation of the ATS platform, and could, after notice and opportunity for a hearing, suspend, limit, or revoke an ATS’ exemption from operating as an exchange if warranted.

“Among other challenges, it can be almost impossible for an investor to assess adequately the conflicts of interest that can arise for a broker-dealer operating an ATS,” SEC Chairman Mary Jo While said. “In addition to running the ATS, the broker-dealer may conduct a wide range of brokerage, dealing, and other activities that raise potential conflicts, including customer services such as algorithmic trading software, agency sales desk support, automated smart order routing services, and OTC market making.”

The proposed rules do not extend to platforms that trade fixed income securities. The SEC will evaluate each segment of the fixed income markets before deciding upon additional regulations.

The SEC is seeking public comment on the proposal (and more than 550 questions detailed within it) for 60 days following publication in the Federal Register.