SEC poised to ban brokers from permitting unsupervised trades
The U.S. Securities and Exchange Commission is poised to ban brokers from letting clients make unsupervised trades on stock exchanges, as it grows increasingly concerned that a rogue transaction could roil markets
The U.S. Securities and Exchange Commission is poised to ban brokers from letting clients make unsupervised trades on stock exchanges, as it grows increasingly concerned that a rogue transaction could roil markets.
SEC commissioners will vote Nov. 3 on a rule that would require brokerages to implement risk controls to monitor client trades, the agency said today in a statement on its website. SEC officials first proposed the regulation in January, saying they were concerned that a computer malfunction or human error might trigger an order that could erode a firm’s capital.
The SEC is cracking down on computerized trading after lawmakers such as Senator Ted Kaufman, a Delaware Democrat, questioned the agency’s oversight of stock markets increasingly dominated by electronic trading. The May 6 crash, which erased $862 billion of value from equities in 20 minutes, has prompted the SEC to examine high-frequency trading and the fragmentation of transactions across 50 different venues.
The proposed rule would “effectively prohibit broker dealers from providing” so-called naked-sponsored access, in which a customer bypasses pre-trade risk controls, according to the agency’s statement. Naked access accounts for about 38 percent of U.S. equities trading, according to a December study by Aite Group LLC.
Commissioners will also vote next week on a proposal to expand the SEC’s ability to reward whistleblowers who provide tips on fraud.
DODD-FRANK
The proposal stems from a provision of the Dodd-Frank regulatory overhaul that gave the SEC authority to award tipsters in any case that triggers a sanction exceeding $1 million. The law also stipulated that the agency could give claimants as much as 30 percent of all the money it collects when imposing fines or recouping ill-gotten profits.
Currently, the SEC only has authority to give tipsters 10 percent of any penalty and awards are restricted to insider- trading investigations.
The SEC will vote on a separate proposal triggered by Dodd- Frank that requires the agency to prohibit fraud, manipulation or deception in derivatives transactions. Congress took aim at the $615 trillion over-the-counter swaps market after soured trades on mortgage and credit derivatives tipped the U.S. economy into the worst recession since the 1930s.
Derivatives, including swaps, are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates.
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