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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Risk Management Controls for Brokers or Dealers With Market Access


Commissioner Kathleen L. Casey

U.S. Securities and Exchange Commission

SEC Open Meeting
Washington, D.C.
November 3, 2010

Thank you Chairman Schapiro. I first would like to join you in thanking the staff for their impressive work on this release. This release represents a careful and considered response to the discrete risks that sponsored access arrangements may pose to our markets.

In particular, today's release will ensure that broker dealers with access to trading securities on an exchange or ATS establish, document and maintain a system of risk management controls and supervisory controls which are reasonably designed to systematically limit the financial exposure of the broker or dealer that could arise as a result of the market access and which will ensure compliance with regulatory requirements.

Moreover, we have carefully considered the comments, and made practical modifications, such as the allowance, with appropriate safeguards, for the reasonable allocation of regulatory functions between multiple broker dealers, and the exception for routing brokers. These changes will guarantee the protections of the rule while enabling the markets to function more efficiently.

As I stated at the time I voted with the Commission to approve the proposing release, I continue to believe that it is absolutely necessary that the Commission first develop a deeper understanding of the whole range of U.S. equity market structure issues before we consider adopting any final rule amendments in the market structure space. Since we put the release out for comment, we have worked hard to do just that.

The market structure concept release, the market structure roundtable, and the analysis of the events of May 6 have all worked to deepen our understanding of how the modern markets have developed, but tellingly they have also raised many new questions about how our equity markets work and how market participants have organized their activities in response to the regulatory regime we have put in place.

While I applaud the efforts to date, I believe that we need to continue our analysis of how our markets are functioning today, and that we need to be extremely circumspect in our consideration of fundamental structural changes to our markets. Importantly, we need to appreciate the second and third order effects of any structural changes we may contemplate, so that we do not impair the quality of our markets in the haste to make changes.

Our markets are highly competitive and dynamic, and market participants respond quickly to regulatory change. We may very well create new problems if we don't fully understand the consequences of changes we consider.

In the end, I am very comfortable that the rule we are considering adopting today addresses an important issue, that the approach we are taking is reasonable and appropriate and will firm up a potential vulnerability in our markets, and that the potential consequences of this rule change to the operations of our markets are thoroughly understood and appreciated. For these reasons I am very pleased to support the rule today.


Modified: 01/11/2010