The NYSE and Amex reminds its members about new market access requirements under SEC Rule 15c3-5  - they're scheduled to go into effect on 7/14/11.  Failure to establish and enforce the SEC-required risk management controls and supervisory procedures may also violate Exchange Rules - and thus lead to further fines and sanctions. 

    New SEC Rule 15c3-5.   Adopted in November 2010, new SEC Rule 15c3-5 targets broker-dealers with direct trading or “market” access to an exchange or alternative trading system (“ATS”), or that provide a customer or any other person with access to an exchange or ATS through use of its market participant identifier or otherwise. 

These firms will be required to ... establish, document, and maintain a system of risk management controls and supervisory procedures reasonably designed to manage the financial, regulatory, and other risks of its market access business.  The Rule applies to transactions by all B/D's with market access, and does not distinguish between transactions for a B/D's own prop account - including market making activities - and traditional agency transactions.

SEC Rule 15c3-5 applies to any type of arrangement for “market access,” ...  which is defined in Rule 15c3-5 as:

• “(i) access to trading in securities on an exchange or alternative trading system as a result of being a member or subscriber of the exchange or alternative trading system, respectively; or
• (ii) access to trading in securities on an alternative trading system provided by a broker-dealer operator of an alternative trading system to a non-broker-dealer.”
• By virtue of the Rule’s requirements, unfiltered, or “naked,” market access will no longer be permitted.

Information Memo 11-13, 5/16/11 issued by NYSE-Regulation ...  addresses, among other things, how member firms must account for financial and regulatory risks, with appropriate management controls and supervisory procedures.  Consult the pronouncement for further details.

    NYSE-Regulation Staff Contacts.   VP Clare Saperstein, 212.656.2355;  Chief Counsel David De Gregorio, 212.656.4166.

    FINRA Staff Contacts.   Sue Lui Facendola, VP-Member Trading, 917.281.3085;  Peter Stoehr, VP - TMMS Admin., 212.858.4722.