The SEC temporarily is exempting the floor broker operations of broker-dealers with market access that handle orders on a manual basis (“Floor Brokers”) from the automated controls requirement of Rules 15c3-5(c)(1)(ii) and (c)(2) until 11/30/11. 

Rule 15c3-5, Adopted 11/3/10.   Among its requirements, Rule 15c3-5 obligates each B/D with access to trading securities directly on an exchange or ATS to establish, document, and maintain a system of risk management controls and supervisory procedures that is reasonably designed to:  (i) systematically limit the financial exposure of the B/D that could arise as a result of market access; and (ii) ensure compliance with all regulatory requirements that are applicable in connection with market access.  The rule impacts those B/D's:

• providing sponsored or direct market access to customers or other persons;
• operating an ATS that provides access to trading securities directly on its ATS to a person other than a B/D.

The Rule further requires that financial risk management controls and supervisory procedures be reasonably designed to prevent the entry of orders that exceed appropriate pre-set credit or capital thresholds, or that appear to be erroneous.  The regulatory risk management controls and supervisory procedures also must be reasonably designed to:

• prevent the entry of orders unless there has been compliance with all regulatory requirements that must be satisfied on a pre-order entry basis;
• prevent the entry of orders that the B/D or customer is restricted from trading;
• restrict market access technology and systems to authorized persons;  and,
• assure appropriate surveillance personnel receive immediate post-trade execution reports.

The SEC issued Monday's exemption after receiving a request from NYSE Amex LLC, NYSE Arca, Inc. and the NYSE to extend the compliance date.   For further details, go to:   [SEC Exemptive Order Release 34-65132, 8/15/11] .