SEC Bans Naked Access

The SEC announced yesterday its ban on broker-dealers providing “naked access” to traders, most notably referring to some of the smaller High Frequency Trading operations that do not have their own direct access.  According to published reports, more than 30% of the trading in U.S. markets is conducted through naked access.

It’s hard to argue with the SEC’s decision.  While I am not personally one who likes too many controls and oversights into business, this decision seems to be consistent with public sentiment — both business and investor — to add more transparency, accountability and proper risk controls into the market.  After the dramatic events of the Flash Crash in May 2010, the SEC is addressing market participant concerns that unmanaged market access can cause unforeseen events, and helps investors gain confidence to re-enter the U.S. equity markets.

Firm58 is a proponent of sponsored market access.  These services offer great benefits to the U.S. markets by way of greater deal flow and liquidity, but with the proper safeguards around risk and accountability for the individuals using such access.  Recently, we announced a relationship with LightSpeed Financial who, among many other things, provides sponsored access to its clients.  Firm58 will be providing core middle- and back-office solutions to help LightSpeed Financial manage this activity and provide greater transparency in the process.

It’s great to see the SEC realize the benefits of proper sponsored access and continue to support that business model, while addressing the greater market and investor concerns of naked access. Firm58 is well-positioned to help capital markets firms reap the benefits, transparency, and accountability of such controls while improving operational efficiencies and protecting revenue.

    Nick Fera

    About the Author - Nick is chief cook at Firm58. In addition to leading our company, Nick enjoys cheering on the White Sox in the Summer and rooting for the Chicago Blackhawks in the Winter.