Will HFT Firms Have to Register with FINRA?

We are getting closer— and while it may not yet be a done deal, the Securities and Exchange Commission’s desire to make high frequency traders register with FINRA, an industry-funded regulator of brokers that is overseen by the SEC, is getting nearer to becoming a reality. The SEC proposal still needs another vote, but this measure is an important one that could ultimately boost regulators’ ability to monitor markets for potential fraud and abuse.

A quick scan of the news this morning showed that this action did not go unnoticed. Among the media, like CNBC and even Fox News, The Wall Street Journal was on it, writing that, “The regulatory shift could boost regulators’ ability to monitor markets for potential fraud and abuse, SEC officials said. It would affect about 125 firms, many of them high-frequency traders such as Hudson River Trading, Jump Trading LLC and others. The SEC will collect comment on the measure and would have to vote on it again before it could go into effect.”

The regulatory action is important because this measure would significantly strengthen regulatory oversight over active proprietary trading firms and the strategies they regularly use. From a proactive move, this is a great step forward and a big plus for FINRA to continue, and increase their regulatory oversight within the industry.

Of note, is that SEC Chairman Mary Jo White continues to demonstrate that she is a “bull” in the regulatory arena and wants to carry out an aggressive bold  strategy – even last year she had  high speed trading concerns in her sights.​

While it would be nearly impossible to put a deadline on when all this could be finalized, the wheels are turning for further oversight on high frequency trading firms.  We can’t help but agree that this move is important, and would improve the integrity of the market place. While this has been a debated topic for a number of years, the SEC vote and push demonstrated the need to have a self-regulatory organization (SRO) like FINRA maintain oversight. FINRA has the knowledge and resources to be able to devote to the HFT market.

This latest push from the SEC is very timely, and works well into the new regulatory landscape that has been created since the 2008 financial crisis. The focus as of late on the Dodd Frank Whistleblowing rules enforced by the SEC has strengthened the heightened supervision both internally at the firm level, as well as externally by the regulators, by rewarding certain individuals if they have information that they feel compromises the market place. All these efforts together should encourage a better regulated, transparent marketplace.

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