SEC Seeks Comment on FINRA Proposal to Require Registration of Algorithmic Traders (Fed. Reg.)

The SEC requested comment on a FINRA proposal requiring the associated persons ("APs") of a broker-dealer to register as "Securities Traders" if those persons are primarily responsible for (i) the "design, development or significant modification of algorithmic trading strategies" or (ii) the day-to-day supervision or direction of such activities. The SEC request for comment was published in the Federal Register.

If the proposed classification is implemented, then such APs will be subject to the qualification examination and continuing education requirements that are applicable to "Securities Traders." FINRA stated that the "desired end" in creating the proposal was to address certain problematic conduct arising in algorithmic trading strategies "such as failure to check for order accuracy, inappropriate levels of messaging traffic, wash sales, failure to mark orders as 'short' or perform proper short sale 'locates,' and inadequate risk management controls."

This rulemaking is part of a series of FINRA initiatives to address "high-frequency trading" and "equity-market transparency." FINRA submitted a previous version of the proposal for public comment in Regulatory Notice 15-06.

Comments on the latest version of FINRA's proposal must be submitted by March 16, 2016.