FINRA Board Approves Series of Equity Trading and Fixed Income Rulemaking Items (with Lofchie Comment)
The FINRA Board approved a number of proposed rule changes and regulatory notices regarding high-speed and algorithmic trading, as well as initiatives to enhance transparency and execution quality in fixed income markets.
While descriptions of the relevant items were posted on the FINRA website, the actual rule change proposals and notices were not. In the absence of the rule text, we leave interested persons to review the brief summary of each rule provided on the FINRA website. Any FINRA rule change or major interpretation must be approved by the SEC.
The Board actions relate to the following areas: Measures Relating to Personnel Involved in Algorithmic Trading
- Registration of Associated Persons Involved in the Preparation of Algorithmic Strategies;
- Supervision of Algorithmic Trading Strategies.
Measures Relating to Equity Trade Execution and Trade Reporting
- ATS Order Book Information;
- Trade Sequencing;
- Expansion of ATS Transparency;
- Clock Synchronization;
- OATS non-Member Reporting.
Measures Relating to Fixed Income Pricing Transparency
- Fixed Income Pricing Disclosure;
- Fixed Income Quotation Information;
- Identification of Transactions with Affiliates in TRACE.
Proposed Disclosure to Customers on Transferring Sales Representatives
- Recruitment Practices.
New Registration Categories
- Securities Trader and Securities Trader Principal Registration Categories [this would apply across all markets, and would replace the current registration requirement, which is limited to equities traders].
Fees
- Gross Income Assessment Methodology.
Lofchie Comment: There may be good reason for new registration categories relating to algorithmic trading. However, the notion that the technology used for trading must be perfect; and if it is not then the offending firm (and not perhaps the offending individuals) must be punished, deserves reconsideration by the regulators. See, e.g., SEC Chair White and Commissioner Gallagher Discuss Technology Failures and Self-Regulatory Organizations (with Lofchie Comment). Frequent news items remind us that technology does not function perfectly, and that both the government and the private sector have experienced well-publicized failures. The notion that we can regulate away, by imposition of sanctions, a particular type of technological imperfection is misguided. Further, a punitive regulatory approach to technology failure is often coals-to-Newcastle as the market itself is fairly harsh on a firm whose technology fails.
See: List of Rulemaking Items Approved by the FINRA Board; FINRA News Release.