Broker-Dealer / ATS

In the US, a broker-dealer is a firm registered with FINRA and the SEC to buy and sell securities for its own account or on behalf of customers. An Alternative Trading System (ATS) is an SEC-registered electronic marketplace that matches buyers and sellers, operating under FINRA oversight. Most major pre-IPO secondary platforms (Forge, Hiive, EquityZen) operate as or through registered broker-dealers and/or ATSs.

The regulatory structure matters for investors because registered broker-dealers have specific obligations: best execution duties, disclosure requirements, and financial responsibility rules. Trading through an ATS provides more investor protections than informal over-the-counter transactions.

Illustrative example: a secondary platform registers as a FINRA broker-dealer. When it matches an employee selling 100,000 shares with a fund buying 100,000 shares, it earns a fee and owes fiduciary and disclosure obligations to both parties. The ATS maintains an order book, records all transactions, and reports to regulators.

The gotcha: not all pre-IPO transaction facilitators are registered as broker-dealers. Some intermediaries operate in gray areas, connecting buyers and sellers without a license. Transactions conducted through unregistered intermediaries carry regulatory risk for both parties. Always verify the regulatory status of any platform or intermediary before transacting.