By Rachelle Younglai
WASHINGTON, Jan 12 (Reuters) – U.S. securities regulators are mulling a proposal that would require more supervision of unlicensed traders who gain unfettered access to public markets, two people familiar with the plan said on Tuesday.
Regulators are considering a proposal that would require brokerages that rent out their access to the markets to have rules in place to protect the markets against potential mishaps from unlicensed traders, the two people said.
The practice known as “naked” access or “sponsored” access, is when 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.
It has some lawmakers and U.S. Securities and Exchange Commission officials concerned. SEC Chairman Mary Schapiro has likened it to “giving your car keys to a friend who doesn’t have a license and letting him drive unaccompanied.”
The SEC meets on Wednesday to decide on a plan to increase oversight of naked access and figure out whether new rules are needed to curb recent market developments like high-frequency trading.
