By Rachelle Younglai and Jonathan Spicer
WASHINGTON/NEW YORK, Jan 13 (Reuters) – U.S. securities regulators proposed rules on Wednesday that would require more supervision of unlicensed high-frequency traders who gain unfettered, or “naked,” access to public markets.
The Securities and Exchange Commission voted for a proposal that would require brokerages that rent out their access to the markets to have rules in place to protect against potential mishaps from unlicensed traders.
In the practice known as “sponsored” access, brokerages that have been approved to trade on an exchange rent their access to traders, who are then able to shave milliseconds from the time it takes to access the markets.
In “naked sponsored” access, also called “unfiltered” access, the brokers do not screen orders en route to markets, making electronic trading even faster.
“We are concerned that order entry errors in this setting could suddenly and significantly make a broker dealer or other market participants financially vulnerable within mere minutes or seconds,” said SEC Chairman Mary Schapiro.