Wednesday, January 13, 2010

Risk Management Applications Win on SEC Vote to Propose a Ban on Naked Sponsored Access

Today the SEC votes on publishing a 'concept release' on high-frequency trading, dark pools and the structure of markets. The concept release document lists the SEC's concerns, and proposals on how to remedy them.

In a previous posting I wrote about the business of sponsored access, and the SEC's and Congress' concerns around 'naked' sponsored access. The SEC is officially proposing today that brokers would be required to implement "risk management controls" before trades are made and design them to ensure orders to not exceed a "pre-set credit or capital threshold." This positions NYSE Euronext's division, NYSE Technologies, perfectly as they've built out a hosted solution that provides risk management controls for anyone trading on a number of different markets not just the ones they own (NYSE, Arca, Euronext, but Nasdaq, Bats, and others.).

This concept release document is basically a feeler to see how the industry reacts, solicit and review feedback from industry experts, and refine the proposed new rules before finally approving them. In the meantime, there's no question that the SEC plans on instituting new rules that tackle the concerns around credit or capital thresholds for brokers' sponsored clients. With that truth well understood in the minds of all market traders, NYSE Technologies and other risk management developers like them are going to be in huge demand. Their customer base has now expanded beyond just high-frequency traders, but to anyone trading on any US market through sponsored access.

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