The Securities and Exchange Commission is to publish new rules relating to electronic stock trading, and will release its proposals for public comment before making them law. Under the proposed laws, companies operating broker-dealer systems with high transaction volumes will have to follow rules requiring them to link with registered exchanges. They will also have to publicly display all orders placed with them, enabling traditional exchange members to execute the orders. According to the SEC, the low cost of technology has enabled broker-dealer operations to set up markets in competition with traditional exchanges such as Nasdaq. These systems account for 20% of the transactions in Nasdaq securities. The SEC has set out to update its regulatory framework, as online trading booms in conjunction with the growth of the internet. The SEC is concerned that the existing framework does not take into account alternative trading systems dealing with a significant volume of transactions, which means investors are not given access to the best prices, do not provide a complete audit trail and leaves the way open to disrupt markets when systems fail. It will publish its proposed plans this week, and receive comments from interested parties over the next 90 days. Under the plans, the SEC has proposed that a new system registered as a broker-dealer, but with low trading volumes, will have to file quarterly reports, maintain and audit trail and disclose how it is operated to the SEC, but it will be covered by oversight of an existing self regulating authority, such as the National Association of Securities Dealers, NASD which runs Nasdaq. But systems with a high trading volume will have to be linked to NASD or a registered exchange, and provide public access to all orders.
