Proprietary Trading Firm Failed to Register as Broker-Dealer
The SEC censured and fined a proprietary trading firm for failing to register as a broker-dealer. The firm offered $5000 memberships to individual traders who could use a limited amount of firm capital and also had access to firm research, training, software, and execution services. The SEC maintains that the firm’s principals benefitted through access to better execution resulting from higher trading volumes. The SEC charges violations of Section 15(a) of the Exchange Act for effecting transactions in securities without registering as a broker-dealer.
OUR TAKE: It is unclear why the firm could not rely on Rule 15b9-1, the exemption generally utilized by proprietary trading firms. In fact, two years ago, the SEC proposed to close the exemption but never followed through with a final rule. Maybe, the SEC intends to take a narrow reading of the rule in enforcement cases rather than change the rule.