SEC Votes to Adopt 'Naked Access' Rule

“This rule requires that broker-dealers not only remain in the car, but also maintain control of it so we can all be assured the rules of the road will be observed before the car is ever put into drive,” she said in a statement.

The SEC is particularly concerned that the risk controls BDs put in place will be ineffective, or will rely on a customer's promise that controls are in place.

The new rule will be effective 60 days from the date of its publication in the Federal Register, according to the SEC, and BDs will have six months to comply.

The rule will apply to broker-dealers who are members of an exchange or subscribe to an ATS, as well as to BD operators that provide access to trading securities on their ATS to someone other than a BD.

As part of the rule, broker-dealers would be required to:

• Create financial risk management controls reasonably designed to prevent the entry of orders that exceed appropriate pre-set credit or capital thresholds, or that appear to be erroneous.
• Create regulatory risk management controls reasonably designed to ensure compliance with all regulatory requirements applicable in connection with market access.
• Have certain financial and regulatory risk management controls applied automatically on a pre-trade basis before orders route to an exchange or ATS
• Maintain risk management controls and supervisory procedures under the direct and exclusive control of the broker-dealer with market access. There would, however, be limited exceptions, as specified in the rule, to permit a broker or dealer to reasonably allocate certain controls and procedures to another registered broker or dealer that, based on its position in the transaction and its relationship with the ultimate customer, can more effectively implement them.
• Establish, document and maintain a system for regularly reviewing the effectiveness of its risk management controls and for promptly addressing any issues.