US regulator the Securities and Exchange Commission (SEC) has outlined proposals to increase regulatory oversight of high-frequency traders (HFT).
A suggested amendment to existing SEC rules would require broker-dealers trading in off-exchange venues to be registered with the Financial Industry Regulatory Authority (FINRA).
The rule would require HFT firms to become members of FINRA unless they limit their trading activity to a single venue.
“This proposal embodies a simple but powerful principle of the federal securities laws – the protection of investors and the stability of our markets require that trading is overseen by both the Commission and a strong self-regulatory organisation,” said SEC Chair, Mary Jo White.
“Today’s proposed rules would close a regulatory gap by extending oversight to a significant portion of off-exchange trading.”
Currently, many HFT firms are exempt from rules requiring broker-dealers to be members of a national securities association because their income is derived from proprietary trading conducted through another broker-dealer, meaning they fall below a threshold of $1,000 of income derived directly from securities trading.
The exemption had been designed to accommodate certain floor members that conducted limited hedging activity or other business off-exchange.
The SEC wants to replace the existing exemption with one that is more focused on the firms it was intended for.
A public comment period of 60 days has begun enabling firms to submit feedback on the new rule.