Dodd-Frank Redo Would Limit SEC Access to Source Code

This article originally appeared on Bloomberg BNA

The SEC couldnt gain nearly unrestricted access to trading systems computer software under a new Republican proposal to overhaul the Dodd-Frank Act.

House Financial Services Chairman Jeb Hensarling (R-Texas) would require the SEC to obtain a subpoena before getting access to source code, according to a committee memo laying out changes to his Financial Choice Act.

The proposal comes as the Commodity Futures Trading Commission is considering a rule that would establish a lower threshold for access to proprietary codes from high-speed trading firms. The proposed CFTC rule would allow access by vote of the commission rather than a subpoena approved by a judge.

The SEC generally currently needs a subpoena for the data, but opponents of the CFTCs proposal have expressed concern that other government agencies could follow the commodities regulators lead and lower the threshold in the future.

Our government shouldnt be able to take any intellectual property without due process, William Harts, chief executive officer of Modern Markets Initiative, an industry association representing electronic and high-frequency trading firms, told Bloomberg BNA on April 12.

Duffys Amendment

Hensarlings Choice 2.0 legislation would be consistent with Rep. Sean Duffys (R-Wis.) subpoena amendment to the Commodity End-User Relief Act, which passed the House in January, according to the memo. The provision would bar the CFTC from compelling firms to hand over algorithmic trading source code without a subpoena.

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