The Securities and Exchange Commission (SEC) adopted amendments last week that narrow the exemption from a law that requires broker-dealers to become a member of a national securities association.
Specifically, the Exchange Act Rule 15b9-1 provides an exemption from Section 15(b)(8) under which certain commission-registered dealers may engage in unlimited proprietary trading of securities on any national securities exchange of which they are not a member without triggering Section 15(b)(8)’s national securities association membership requirement.
The Financial Industry Regulatory Authority (FINRA) is currently the only registered national securities association, and these amendments are designed to enhance FINRA oversight of firms that trade securities proprietarily across markets.
The new rule amendments narrow the exemptions from the national securities association membership requirement. The exemptions apply when a broker or dealer that does not carry customer accounts and is a member of at least one exchange effects off-member-exchange securities transactions that: (1) result solely from orders that are routed by a national securities exchange of which it is a member to comply with order protection regulatory requirements, or (2) are solely for the purpose of executing the stock leg of a stock-option order.
“Some of today’s broker-dealers continue to rely on an exemption from national securities association registration that’s older than the cell phone era,” SEC Chair Gary Gensler said. “This has led to a regulatory gap whereby a number of firms that have cross-market, monthly trading volume valued in the hundreds of billions of dollars are exempt from national securities association oversight. These amendments update and narrow the circumstances in which broker-dealers do not need to register with a national securities association. National securities association membership will help enhance robust and consistent oversight, particularly with regard to cross-market and off-exchange oversight.”
The final rule will become effective 60 days after the release is published in the Federal Register. The compliance date will be 365 days from the date of publication of the release in the Federal Register.