SEC Adopts Amendments to Exemption From National Securities Association Membership

Following a public consultation in July 2022 on modifications to 17 CFR Part 240, § 240.15b9-1 under the Securities Exchange Act of 1934 on registration requirements of broker-dealers with the Financial Industry Regulatory Authority (FINRA) and exemption therefrom, the U.S. Securities and Exchange Commission (SEC) has now published its final rule in this context. Therein, the SEC briefly summarizes the responses it has received to its consultation and outlines the final rule changes as they will be implemented 60 days following the publication in the Federal Register (FR).
#### Background
In an effort to bring more broker-dealers under direct supervision of FINRA so as to enhance investor protection and financial market participant oversight, the SEC proposed to narrow the proprietary trading exemption for U.S. brokers and dealers to only grant such exemption to firms that are members of a national securities exchange, carry no customer accounts, and perform transactions only that
– „result solely from orders that are routed by a national securities exchange of which the broker or dealer is a member to comply with Rule 611 of Regulation NMS or the Options Order Protection and Locked/Crossed Market Plan or
– are solely for the purpose of executing the stock leg of a stock-option order.“
#### Comments received and the SEC’s way forward
Although many firms and persons were supportive of the proposed limited scope of registration exemption, there were others arguing against it primarily on the basis of increased costs that would be incurred by broker-dealers for their membership with FINRA.
Having reviewed the responses received and considering the fact that many firms engaged in Treasury security trading are currently not under supervision of FINRA and thus direct U.S. regulatory oversight (e.g. for transaction monitoring purposes in the secondary market), the SEC will go ahead as proposed and will require ALL broker-dealers engaged in proprietary trading to register with FINRA unless the above noted conditions are met.
To allow firms to meet their registration requirements in the future, the corresponding rule changes will apply one year after the publication of the final rule in the FR.