Statement on Re-Proposed Amendments Regarding Exemption from National Securities Association Membership
July 29, 2022
Today, the Commission unanimously voted to re-propose amendments to Rule 15b9-1 regarding when broker-dealers are required to register with the Financial Industry Regulatory Authority (FINRA). These amendments would cause some of the most active participants in our equity and fixed-income markets to be required to register with FINRA. I was pleased to support these amendments because, if adopted, they would modernize and improve market oversight for regulators.
Rule 15b9-1 was first put in place in 1965 and expanded in 1976, 46 years ago. The rule set forth an exemption designed for certain exchange floor members and other regional, specialized broker-dealers, allowing them not to register with the National Association of Stock Dealers (NASD), the predecessor to FINRA. The exemption applied to broker-dealers who typically were registered with the single exchange where they operated and met certain other criteria.
Nearly half a century later, our markets have drastically changed. The floor-based trading environment that existed when this exemption was adopted has given way to complex, high-volume, and cross-exchange electronic trading. Yet such complex and often high-frequency activity, made possible by highly-sophisticated technology, is regulated by a rule nearly as old as the first-ever cell phone. Several currently-exempt firms have monthly trading volume valued in the tens of billions of dollars that is not subject to direct FINRA oversight. Thus, today’s proposal updates and narrows the circumstances in which broker-dealers do not need to register with FINRA.
Currently, many broker-dealers conduct significant cross-exchange or off-exchange activity using the latest technology. Compared with the oversight that individual exchanges conduct on their own members, FINRA has the expertise for cross-market oversight. Thus, required FINRA membership for many of these currently-exempt firms would help enhance robust and consistent oversight. Furthermore, requiring firms to join FINRA helps to ensure that these firms report their activities in U.S. treasury markets.
In 2015, the Commission proposed changes to Rule 15b9-1. Informed by public comment, and in light of current markets, we have updated and re-proposed these amendments.
By extending FINRA oversight to potentially dozens of broker-dealers, the proposed amendments would strengthen oversight of firms trading securities across several markets, helping to protect investors and maintain fair, orderly, and efficient markets.
I’d like to thank the staff for their diligent work in preparing these amendments, including:
- Michael Bradley, Haoxiang Zhu, David Saltiel, Andrea Orr, David Shillman, Eric Juzenas, Meredith Macvicar, David Michehl, Vince Vuong, Roni Bergoffen, Nicholas Shwayri, Mark Sater, and Marilyn Parker in the Division of Trading and Markets;
- Cuyler Strong, Laura Tuttle, Jessica Wachter, Amy Edwards, Patti Vegella, Lauren Moore, Charles Woodworth, and Amy Edwards in the Division of Economic and Risk Analysis;
- Ronesha Butler, Cynthia Ginsberg, Maureen Johansen, Dan Berkovitz, Meridith Mitchell, Malou Huth, and Robert Teply in the Office of the General Counsel.
- Connie Kiggins and Carrie O’Brien from the Division of Examinations; and
- Kristin Pauley and Armita Cohen from the Division of Enforcement.
 See Exemption for Certain Exchange Members, Securities Exchange Act Release No. 34-95388 (July 29, 2022) (e.g., pp. 26-27) (“For example, of the estimated 66 broker-dealers that were exchange members but not FINRA members as of the end of 2021, 47 initiated orders in listed equities in September 2021 that were executed on or off an exchange. These firms’ September 2021 off-exchange listed equities dollar volume executed was approximately $789 billion, which was approximately 9.8% of total off-exchange volume of listed equities executed that month. Moreover, these firms’ September 2021 listed equities dollar volume executed on exchanges of which they are not a member was approximately $592 billion.”), available at https://www.sec.gov/rules/proposed/2022/34-95388.pdf.