SEC Proposes Registration for Proprietary Trading Firms
The SEC has proposed limiting the exemption that allows proprietary trading firms to operate without registering as a broker-dealer and coming under FINRA’s regulatory jurisdiction. Proprietary trading firms generally have relied on Rule 15b9-1 which includes a broad proprietary trading exemption originally intended for floor brokers engaging in hedging transactions. The proposal would limit the Rule to its original intent, thereby forcing proprietary trading firms to register and become subject to FINRA’s rules. According to the SEC, proprietary and high frequency trading firms now account for a substantial portion of off-exchange trading.
OUR TAKE: This may be the beginning of the end for high frequency trading firms, as the increased regulatory burden could substantially slow their market advantages.