New SEC Regulations Limit Broker-Dealer Exemptions For Increased Accountability

Key Points:

• SEC Regulations have updated amendments that limit exemptions from SEC registration.
• The amendments aim to enhance oversight and accountability in the securities industry.
• Some broker-dealers with high trading volumes were previously exempt from oversight, but will now need to register with a national securities association.

SEC Regulations have adopted amendments that limit exemptions from SEC registration, enhancing oversight and accountability in the securities industry.

The Securities and Exchange Commission (SEC) has recently adopted rule amendments that narrow the exemption, which requires any broker or dealer registered with the Commission to become a member of a national securities association unless the broker or dealer effects transactions in securities solely on an exchange of which it is a member. The Financial Industry Regulatory Authority Inc. (FINRA) is the only registered national securities association.

SEC Chair Gary Gensler noted that some broker-dealers continue to rely on an exemption from National Securities Association registration older than the cell phone era. He says this has led to a regulatory gap where some firms with cross-market, monthly trading volume valued in the hundreds of billions of dollars are exempt from National Securities Association oversight.

The rule amendments aim to narrow the circumstances in which broker-dealers do not need to register with a national securities association. National Securities Association membership will help enhance robust and consistent oversight, particularly about cross-market and off-exchange oversight.

Exchange under which certain Commission-registered dealers may engage in unlimited proprietary trading of securities on any national securities exchange of which they are not a member or in off-exchange market without triggering national securities association membership requirement.

The final rule will become effective 60 days after the date of publication of the adoption release in the Federal Register. The compliance date will be 365 days from the publication date of the adoption release in the Federal Register.

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