Co-authored by Avi Badash.
The Securities and Exchange Commission has adopted Rule 15c3-5 to require broker-dealers with access or that provide access to trading securities directly on an exchange or alternative trading system to establish, document and maintain a system of risk management controls and supervisory procedures that are reasonably designed to: i) systematically limit the financial exposure of the broker-dealer that could arise as a result of market access and ii) ensure compliance with all regulatory requirements that are applicable in connection with market access. Rule 15c3-5 requires that the financial risk management controls and supervisory procedures established are reasonably designed to: i) prevent the entry of orders that exceed appropriate pre-set credit or capital thresholds, or that appear to be erroneous; ii) prevent the entry of orders unless there has been compliance with all regulatory requirements that must be satisfied on a pre-order entry basis; iii) prevent the entry of orders that the broker or dealer or customer is restricted from trading; iv) restrict market access technology and systems to authorized persons; and v) assure appropriate surveillance personnel receive immediate post-trade execution reports.
Click here to read Release No. 34-63241.