SEC Final Rule: Risk Management Controls for Brokers or Dealers with Market Access

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Dodd-Frank Timeline, Risk Management Controls for Brokers or Dealers with Market Access, SEC
Final Rule Issue Effective Date Compliance Date
November 15, 2010 June 30, 2011 November 30, 2011

On November 3, 2010, the SEC held an open meeting introducing new regulation 15c 3-5, which requires, among other things, the implementation of risk management controls and supervisory procedures for those with direct trading access and prohibiting "unfiltered" or "naked" sponsored access to exchanges or alternative trading systems (ATSs).[1] Final rules were added to the Federal Register on November 15, 2010.

On June 27, 2011, the SEC extended the compliance date for regulation regarding risk management controls for brokers or dealers with market access under Dodd-Frank from July 14, 2011 to November 30, 2011.[2]

Final Rules

Broker-dealers who are members of an exchange or subscribe to an ATS, or broker-dealer operators of an ATS that provide access to trading securities directly on their ATS to a person other than a broker or dealer" are required to:

  1. "create financial risk management controls reasonably designed to prevent the entry of orders that exceed appropriate pre-set credit or capital thresholds, or that appear to be erroneous;
  2. create regulatory risk management controls reasonably designed to ensure compliance with all regulatory requirements applicable in connection with market access;
  3. have certain financial and regulatory risk management controls applied automatically on a pre-trade basis before orders route to an exchange or ATS;
  4. maintain risk management controls and supervisory procedures under the direct and exclusive control of the broker-dealer with market access. There would however be limited exceptions, as specified in the rule, to permit a broker or dealer to reasonably allocate certain controls and procedures to another registered broker or dealer that, based on its position in the transaction and its relationship with the ultimate customer, can more effectively implement them; and
  5. establish, document and maintain a system for regularly reviewing the effectiveness of its risk management controls and for promptly addressing any issues.

Related Documents: Final Rule as Entered in the Federal Register; Compliance Date Extension

References

  1. Press Release - SEC Adopts New Rule Preventing Unfiltered Market Access. SEC. Retrieved on November 3, 2010.
  2. Risk Management Controls for Brokers or Dealers with Market Access. SEC. Retrieved on June 27, 2011.

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