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November 10, 2009

SEC Plans Concept Release

By Nina Mehta

The Securities and Exchange Commission plans to issue a concept release this fall to explore recent developments in the marketplace against the backdrop of an increasingly technology-dominated trading environment.

The concept release is expected to be broad in scope, and may raise questions about fundamental rules in Regulations ATS and NMS. It is likely to follow several specific rule proposals focused on dark pools.

At an Investment Company Institute conference in September, James Brigagliano, co-acting director of the SEC's Division of Trading and Markets, said one issue the SEC is concerned about is "DMA practices," in which a firm uses a broker-dealer's membership to access the markets.

A form of DMA, called sponsored access, has given rise to some firms securing unfiltered access (which some call "naked access") to the markets. This poses a serious risk to the markets, according to the Securities Industry and Financial Markets Association and others. Issues related to this practice may be broached in the concept release.

In August, in an interview on FOX Business News, SEC Chairman Mary Schapiro said the concept release would address big market structure developments. "Just in the last couple of years, we see enormous advances in technology, high frequency trading, and a wide variety of issues associated with that," she said. "So we are planning to do sort of a big concept release, ask a lot of questions about market structure: Have the rules and regulations kept up? What should we be focused on? How do we ensure a level playing field for investors? How do we deal with some of the information asymmetries that exist in the market today? How do we keep abreast of the technology?"



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