The SEC proposed rule amendments to Rule 15b9-1.
“This proposal embodies a simple but powerful principle of the federal securities laws – the protection of investors and the stability of our markets require that trading is overseen by both the Commission and a strong self-regulatory organization,” said SEC Chair Mary Jo White. “Today’s proposed rules would close a regulatory gap by extending oversight to a significant portion of off-exchange trading.”
Highlights of the Proposed Amendments
The proposed amendments would:
- Narrow an exemption that currently allows certain broker-dealers to engage in significant off-exchange proprietary trading without becoming members of a national securities association.
- Target the exemption to broker-dealers for which it was originally designed – those with a business focused on an exchange floor.
- Update the exemption that permits off-exchange transactions necessary to comply with the regulatory requirements preventing trade-throughs.
Under the proposal, a broker-dealer would be exempt from having to become a member of a national securities association if it is a member of a national securities exchange, carries no customer accounts, and trades solely on an exchange of which it is a member (subject to the following exceptions).
The proposal would provide for two narrow exceptions to the requirement that a broker-dealer trade solely on an exchange of which it is a member:
- A dealer that conducts business on the floor of a national securities exchange could effect transactions off the exchange, for the dealer’s own account with or through another registered broker-dealer, that are solely for the purpose of hedging the risks of its floor-based activities.
- A dealer seeking to rely on this exception must establish, maintain and enforce written policies and procedures reasonably designed to ensure and demonstrate that such hedging transactions reduce or otherwise mitigate the risks of the financial exposure the dealer incurs as a result of its floor-based activity.
- A dealer must preserve a copy of its policies and procedures for three years after the date the policies and procedures are replaced with updated policies and procedures.
- A broker-dealer could effect transactions off the exchange that result from orders that are routed by the national securities exchange of which it is a member, to prevent trade-throughs on that national securities exchange consistent with the provisions of Rule 611 Regulation NMS."