Securities Litigation

The Securities and Exchange Commission announced on March 25, 2015 a proposal to amend Rule 15b9-1 under the Exchange Act to require broker-dealers who trade in off-exchange venues to become members of a national securities association. According to the SEC's press release, "the amendments would enhance regulatory oversight of active proprietary trading firms, such as high frequency traders." Under this proposal, such broker-dealers would be regulated not only by the SEC, but also the industry's self-regulatory agency, the Financial Industry Regulatory Authority ("FINRA"). The SEC is allowing 60 days for public comment prior to finalizing the rule afterwards. Under the current Rule 15b9-1, certain members are exempted from membership in a national securities association if they 1) are a member of a national securities exchange, 2) carry no customer accounts and 3) have an annual gross income derived from purchases and sales of securities otherwise than on a national securities exchange of which it is a member in an amount no greater than $1,000. Income from proprietary trading from the dealer's own account or through another broker dealer does not apply towards the $1,000 limit under the existing rule. The SEC noted that many high frequency trading firms have relied upon the current exemptions and are not members of FINRA. Under the proposed amended Rule 15b9-1, the existing proprietary trading exemption would be eliminated and replaced with a narrower exemption allowing floor-based dealers to engage in off-exchange hedging transactions without having to become a member of the FINRA. The SEC's March 25, 2015 Press Release is here.