SEC Proposes Rule to Require Broker-Dealers Active in Off-Exchange Market to Become Members of National Securities Association

The United States Securities and Exchange Commission ("SEC") announced on March 25, 2015 a proposal to amend Rule 15b9-1 under the Exchange Act to require broker-dealers who trade in off-exchange venues to become members of a national securities association. The amendments would enhance regulatory oversight of active proprietary trading firms, such as high frequency traders. Under the proposal, these broker-dealers would be regulated by the SEC as well as the Financial Industry Regulatory Authority ("FINRA"). The proposed amendments to Rule 15b9-1 would narrow an exemption that currently exempts certain broker-dealers from membership in a national securities association if they are: a member of a national securities exchange; carry no customer accounts; and have annual gross income of no more than $1,000 that is derived from securities transactions effected otherwise than on a national securities exchange of which they are a member.

The SEC noted that many high frequency trading firms rely upon the current exemptions and are not members of FINRA. With the proposed amended Rule 15b9-1, the existing proprietary trading exemption would be eliminated and replaced with a narrower exemption allowing floor-based dealers to engage in off-exchange hedging transactions without having to become a member of FINRA. The SEC is allowing 60 days for public comment prior to finalizing the rule afterwards.

It is imperative that broker-dealers carefully evaluate their compliance programs and regulatory response functions in order to be ready for FINRA oversight. If you have additional questions, please reach out to your Sadis & Goldberg contact for further clarification.


Cheryl Spratt