Keep those letters coming. That, apparently, is the Securities and Exchange Commission’s outlook regarding its sponsored access proposal, a rule that the regulator believes would help safeguard market integrity from bad trades and accounts.
Although the comment period for the SEC’s proposal that would put more risk checks into the trading process ended March 29, letters on the topic have continued to stream in–some three weeks after the deadline.
The SEC issued its sponsored access proposal on Jan. 13. During the 11-week comment period, 29 letters were filed. After the comment period ended, another 10 letters arrived at the SEC through Tuesday, or roughly 25 percent of all the comments.
The proposal would change how broker-dealers allow their clients to access the exchanges. It focuses primarily on quashing unfiltered–or "naked"–sponsored access, which is the process of providing broker-dealer customer orders low-latency access to the exchanges without first performing pre-trade risk checks on them.
Those who took the time to write the letters on the subject needn’t worry, though. The SEC will likely peruse each of them. Submitting letters after the comment period deadline is not unusual, according to SEC spokesman John Heine. Those letters submitted during the comment period are guaranteed to be read and considered. But those that come after aren’t thrown out, he added.
"We’re looking for good ideas," Heine said. "If good ideas come in after the comment period, that’s to the good."
At some point, though, the SEC staff must stop reading and start writing. And no one is sure exactly when that’s going to happen, Heine said. It is the SEC staff that reviews the comment letters and makes suggestions to the commissioners regarding new rules, said Stephen Nelson, an attorney with the Nelson Law Firm, in White Plains, N.Y. The commissioners consider the staff summaries and then write the rules.
In fact, even after the comment period is closed, the SEC will review comments it receives up until the time the rule is released, Nelson added. And with the industry’s larger issues, such as sponsored access, the SEC takes its time.
Nelson said he thought the SEC drew "a lot of comment letters" on the sponsored access proposal. He expects that the SEC will take its time coming up with a final rule. "I wouldn’t expect to see a rule right away," Nelson said. "They don’t seem to be in any great hurry. They’ll continue to read comments up until pretty much the last minute."
Representatives of firms such as Goldman Sachs, Wedbush Securities, Deutsche Bank, Getco and ConvergEx submitted letters after the comment period ended. So did a member of the general counsel for the Securities Industry and Financial Markets Association.
Sponsored access affects a large swathe of the markets. By one industry estimate, orders that reach the markets through sponsored access accounts for half of all order flow.
Even so, it is more important for some, than for others, to be heard. The giant clearing firm Wedbush stands as one of the largest suppliers of unfiltered sponsored access. The rule as written would hurt the firm’s business.
The SEC wants broker-dealers and their clearing firms each to perform pre-trade risk checks. Wedbush has argued that its broker-dealer clients already perform them, and a second set of these checks is unnecessary. Clearly, the fact that the deadline had passed was not an issue that would have stymied Wedbush from voicing its opinion on a rule that could negatively affect its business.
