A proposal to step up oversight of prop traders is a positive for the U.S. brokerage industry, says Moody’s Investors Service.
Last week the U.S. Securities and Exchange Commission (SEC) proposed to narrow the existing exemption from belonging to U.S. self-regulatory organization the Financial Industry Regulatory Authority Inc. (FINRA) for firms engaged in off-exchange proprietary trading.
In a new report, the rating agency said the SEC’s proposal is a positive for broker-dealers that are already FINRA members “because it would raise barriers to entry through increased oversight and regulatory requirements for broker-dealers active in off-exchange markets.”
While the firms that would be affected by the change are only a small minority within the U.S. brokerage sector, they currently account for a significant share of off-exchange trading in equities and U.S. Treasuries, it noted.
The affected firms would face higher compliance costs, with “the potential to adversely affect market liquidity should firms not registered with FINRA reduce their activity in U.S. capital markets,” Moody’s said.