The New York Stock Exchange, Nasdaq, Bats and DirectEdge are asking the Securities and Exchange Commission to delay implementation of the new market access rule until the end of November, arguing more time is needed to develop and implement compliance controls.
According to a letter to the SEC obtained by Traders Magazine, the exchanges want the compliance date for ending so-called "naked access" to be moved back from July 14 to Nov. 30. They said there are a number of interpretive issues arising from the rule that should be resolved before new regulations take effect.
SEC Rule 15c3-5 will end the practice of brokers offering unfiltered or "naked" access to exchanges and alternative trading systems. Currently, broker dealers providing naked access will only monitor their clients’ trades after the fact, or sometimes not at all.
The exchanges are raising a number of questions concerning the function that routing brokers perform as compared to other broker dealers subject to the rule. Currently, exchange rules allow their routing brokers only to route orders to other market centers and report the resulting executions back to the exchange.
Because routing brokers do not have the discretion to reject orders, they have not put in place the controls necessary to comply with the new market access rule, the exchanges said. Having to start from scratch in implementing those controls would cost routing brokers far more than the SEC originally anticipated, the letter argued.
"After dedicating a significant amount of time and effort, including several productive communications with the Commission staff, we believe an extension of time is necessary to complete the development and implementation of the compliance controls for Rule 15c3-5 that will be appropriately tailored to routing broker-dealers," the letter said.
The exchanges said routing broker-dealers will file proposed rule changes with the SEC, including a clarification of their authority to reject orders in certain cases.
Both the Financial Information Forum and the Securities Industry and Financial Markets Association have already asked the SEC to consider a phased-in implementation of the market access rule, delaying portions until November 30, though other parts would still go into effect on July 14. The Commission is currently considering the request.
