The U.S. Securities and Exchange Commission is introducing a new rule to curb firms providing their clients with unfiltered market access.

The SEC Wednesday voted unanimously to adopt a new rule to require brokers and dealers to have risk controls in place before providing their customers with access to the market. The rule prohibits broker-dealers from providing customers with ‘unfiltered’ or ‘naked’ access to an exchange or alternative trading system. The rule requires brokers with market access to adopt risk management controls and supervisory procedures to help prevent erroneous orders, ensure compliance with regulatory requirements, and enforce credit or capital thresholds.

The regulator says it is worried that by providing direct market access, financial, regulatory and other risks may not be appropriately managed. In some cases, brokers may simply be relying on assurances from their customers that the appropriate risk controls are in place.

“I have previously likened unfiltered access to giving your car keys to a friend who doesn’t have a license and letting him drive unaccompanied,” says SEC chairman, Mary Schapiro.

“This rule requires that broker-dealers not only remain in the car, but also maintain control of it so we can all be assured the rules of the road will be observed before the car is ever put into drive.”

The new rule will be effective 60 days from the date of its publication, and broker-dealers will have six months to comply with the requirements.

IE