FINRA Files Algorithmic Trading Plan With SEC

The Financial Industry Regulatory Authority (FINRA) filed a proposed rule with the Securities & Exchange Commission (SEC) that would require algorithmic trading developers to register as securities traders.

The proposed rule would require individuals who design, develop, or modify algorithmic strategies (as well as supervisors) to adhere to the same standards applied to other FINRA-registered securities traders. The rule defines “algorithmic trading strategy” as any automated system that generates or routes orders, any strategy that creates or liquidates baskets of securities, or any program that divides larger orders into smaller ones less likely to impact the market.

According to FINRA, the proposed rule has been put forward because traders increasingly rely on algorithmic strategies as a part of their investment portfolio. Accordingly, these people should have a minimum standard of knowledge regarding securities rules and regulations.

If the new rule were to take effect, algorithmic trading system developers would have to pass an exam to qualify and register as a securities trader. FINRA believes this will weed out problematic conduct, such as faulty risk management. Only those primarily responsible would be required to take the test, and the decision of who is primarily responsible would be up to the firm to decide.

Opponents of the rule feel it places an unnecessary burden on developers and could have the effect of discouraging well-qualified developers from taking on such a task.

Call a Los Angeles Securities Attorney Today

If you have questions about how these programs work, or suffered an investment loss based on a faulty automated investment program, you may have certain legal rights that require your immediate attention. Contact an experienced Los Angeles securities attorney for a consultation today.