Saturday, September 23, 2023
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Broker-Dealers to Limit|Customer E-Trade Risks

WASHINGTON (CN) - Securities brokers and dealers who provide their customers with access to electronic trading must record their activity and implement procedures to limit the risks associated with their access, according to a new rule issued by the Securities and Exchange Commission.

Rule 15c3-5 requires broker-dealers to adopt and record procedures that would limit the financial exposure of the broker or dealer from a customer's trade, and that would ensure compliance with all regulatory requirements related to market access.

Specifically, the controls and procedures must prevent the entry of orders that exceed appropriate pre-set credit or capital thresholds, that fail to comply with any regulatory requirements that must be satisfied on a pre-order entry basis or that the broker-dealer or customer is restricted from trading.

In addition, the policies must restrict market access technology and systems to authorized persons, and assure that appropriate surveillance personnel receive immediate post-trade execution reports.

Broker-dealers sometimes give their customers access to electronic markets through "direct market access" or "sponsored access" arrangements, using the broker-dealer's market participant identifier. With "direct market access," the customer's orders flow through the broker-dealer's systems before passing into the markets. In "sponsored access" arrangements the customer's orders flow directly into the markets without first passing through the broker-dealer's systems. In either case, the broker-dealer is responsible for all trading activity that occurs under its market participant identifier.

The commission was concerned that these arrangements did not provide sufficient protection against illegal activity, accidental trades and breaches of credit or capital limits, and that these risks are a threat to the stability of securities markets.

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