Federal Register, Volume 75, Number 219, November 15, 2010, Pages 69571-69850 Page: 69,825
viii, 69849, iii p. ; 28 cm.View a full description of this periodical.
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Federal Register/Vol. 75, No. 219/Monday, November 15, 2010 /Rules and Regulations
documented. The broker or dealer will
be required to preserve a copy of such
written procedures, and documentation
of each such review, as part of its books
and records in a manner consistent with
Rule 17a-4(e)(7) under the Exchange
Act, and Rule 17a-4(b) under the
Exchange Act, respectively.
In addition, the Chief Executive
Officer (or equivalent officer) will be
required to certify annually that the
broker or dealer's risk management
controls and supervisory procedures
comply with the proposed rule, and that
the broker-dealer conducted such
review. Such certifications will be
required to be preserved by the broker
or dealer as part of its books and records
in a manner consistent with Rule 17a-
4(b) under the Exchange Act. Most small
brokers or dealers currently should
already have supervisory procedures
and record retention systems in place.
The Rule will require small brokers or
dealers to update their procedures and
perform additional internal compliance
functions. Based on discussions with
industry participants and the
Commission's prior experience with
broker-dealers, the Commission
estimates that implementation of a
regular review, modification of
applicable compliance policies and
procedures, and preservation of such
records would require, on average, 60
hours of compliance staff time for
brokers or dealers depending on their
business model.282 The Commission
believes that the business models of
small brokers or dealers would
necessitate less than the average of 60
hours.
E. Agency Action To Minimize Effects
on Small Entities
Pursuant to Section 3(a) of the
Regulatory Flexibility Act,283 the
Commission must consider certain types
of alternatives, including: (1) The
establishment of differing compliance or
recording requirements or timetables
that take into account the resources
available to small entities; (2) the
clarification, consolidation, or
simplification of compliance and
reporting requirements under the rule
for small entities; (3) the use of
performance rather than design
standards; and (4) an exemption from
coverage of the rule, or any part of the
rule, for small entities.
The Commission considered whether
it would be necessary or appropriate to
establish different compliance or
reporting requirements or timetables; or
to clarify, consolidate, or simplify282 See supra Section III.D.2.
283 5 U.S.C. 603(c).compliance and reporting requirements
under the Rule for small entities.
Because the Rule is designed to
mitigate, as discussed in detail
throughout this release, significant
financial and regulatory risks, the
Commission believes that small entities
should be covered by the Rule. The
proposed rule includes performance
standards. The Commission also
believes that the Rule is flexible enough
for small broker-dealers to comply with
the Rule without the need for the
establishment of differing compliance or
reporting requirements for small
entities, or exempting them from the
Rule's requirements.
VII. Statutory Authority
Pursuant to the Exchange Act and
particularly, Sections 2, 3(b), 11A, 15,
17(a) and (b), and 23(a) thereof, 15
U.S.C. 78b, 78c(b), 78k-1, 78o, 78q(a)
and (b), and 78w(a), the Commission
adopts Rule 15c3-5 under the Exchange
Act that would require broker-dealers
with market access, or that provide a
customer or any other person with
market access through use of its market
participant identifier or otherwise, to
establish appropriate risk management
controls and supervisory systems.
Text of Rule 15c3-5
List of Subjects in 17 CFR Part 240
Brokers, Reporting and recordkeeping
requirements, Securities.
a For the reasons set out in the
preamble, 17 CFR part 240 is amended
as follows.
PART 240-GENERAL RULES AND
REGULATIONS, SECURITIES
EXCHANGE ACT OF 1934
S1. The authority citation for part 240
continues to read in part as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn,
77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j,
78j-1, 78k, 78k-1, 781, 78m, 78n, 78o, 78p,
78q, 78s, 78u-5, 78w, 78x, 7811, 78mm, 80a-
20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4,
80b-11, and 7201 et seq.; and 18 U.S.C. 1350,
unless otherwise noted.
* * * * *
a 2. Section 240.15c3-5 is added to read
as follows:
240.15c3-5 Risk management controls
for brokers or dealers with market access.
(a) For the purpose of this section:
(1) The term market access shall
mean:
(i) Access to trading in securities on
an exchange or alternative trading
system as a result of being a member or
subscriber of the exchange or alternativetrading system, respectively; or
(ii) Access to trading in securities on
an alternative trading system provided
by a broker-dealer operator of an
alternative trading system to a non-
broker-dealer.
(2) The term regulatory requirements
shall mean all federal securities laws,
rules and regulations, and rules of self-
regulatory organizations, that are
applicable in connection with market
access.
(b) A broker or dealer with market
access, or that provides a customer or
any other person with access to an
exchange or alternative trading system
through use of its market participant
identifier or otherwise, shall establish,
document, and maintain a system of risk
management controls and supervisory
procedures reasonably designed to
manage the financial, regulatory, and
other risks of this business activity.
Such broker or dealer shall preserve a
copy of its supervisory procedures and
a written description of its risk
management controls as part of its books
and records in a manner consistent with
240.17a-4(e)(7). A broker-dealer that
routes orders on behalf of an exchange
or alternative trading system for the
purpose of accessing other trading
centers with protected quotations in
compliance with Rule 611 of Regulation
NMS ( 242.611) for NMS stocks, or in
compliance with a national market
system plan for listed options, shall not
be required to comply with this rule
with regard to such routing services,
except with regard to paragraph (c)(1)(ii)
of this section.
(c) The risk management controls and
supervisory procedures required by
paragraph (b) of this section shall
include the following elements:
(1) Financial risk management
controls and supervisory procedures.
The risk management controls and
supervisory procedures shall be
reasonably designed to systematically
limit the financial exposure of the
broker or dealer that could arise as a
result of market access, including being
reasonably designed to:
(i) Prevent the entry of orders that
exceed appropriate pre-set credit or
capital thresholds in the aggregate for
each customer and the broker or dealer
and, where appropriate, more finely-
tuned by sector, security, or otherwise
by rejecting orders if such orders would
exceed the applicable credit or capital
thresholds; and
(ii) Prevent the entry of erroneous
orders, by rejecting orders that exceed
appropriate price or size parameters, on
an order-by-order basis or over a short
period of time, or that indicateduplicative orders.
69825
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United States. Office of the Federal Register. Federal Register, Volume 75, Number 219, November 15, 2010, Pages 69571-69850, periodical, November 15, 2010; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc52800/m1/261/: accessed April 19, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.