A crossing network is a system that allows buyers and sellers to transfer publicly traded securities without using a public market. The primary purpose of these trades is to move large amounts of a specific type of security without impacting the price through the large sale. A crossing network is a form of alternative trading system (ATS), meaning it is a method of bypassing the normal securities channels that have been approved by the Securities Exchange Commission (SEC).
Alternative trading systems are a very closely regulated trading system. Since these trades happen outside of public scrutiny, it is easier to violate rules and laws than on normal trading platforms. As a result, the SEC sets formal rules on what exactly an ATS is and is not allowed to do. These rules keep the ATSs in check and provide a common platform for legal trading.
The main purpose of a crossing network is allowing people to buy and sell outside public channels and possibly anonymously. In most cases, a crossing network has a set membership. These members sell back and forth to one another without involving outside groups. When a particular security is put up for sale, the seller may allow any member to purchase it or he may restrict it to a particular subgroup within the crossing network.
In addition to determining the potential buyers, the seller can choose to hide his identity. In this case, the identity is hidden for selling purposes only; the crossing network keeps close records on who is buying and selling over their platform. This allows anonymity for the seller, but protects the network should the SEC ask to see the sales information for the transaction.
By bypassing public channels, sales that happen over the crossing network don’t affect the price of the security. On a public system, when a large quantity of stock is sold, it will cause the price to drop. Conversely, when a large quantity is purchased, it will cause the price to rise. This can have a very noticeable impact on the value of the security and, therefore, the value of the associated company or commodity.
In some cases, a seller wants to avoid changing the price of a particular security. For instance, the SEC has specific laws regarding internal buying and selling of a company’s stock. While selling stock internally is not illegal, doing so to increase or decrease the value of the company can be. In order to avoid gray areas such as this, large stock sales are done through a crossing network to avoid influencing the public market.