The staff of the U.S. Securities and Exchange Commission’s Division of Trading and Markets has issued a statement seeking public input on affiliations between national securities exchanges and entities conducting broker-dealer activities on those exchanges. The review covers both fully registered and notice-registered exchanges, with a focus on affiliates that introduce customers, provide custody or margin, or trade as principal. It comes amid growing interest in listing novel products and the SEC’s receipt of four notice-registration filings for security futures product exchanges. Each of the four registrants disclosed an affiliated futures commission merchant that would perform introducing broker functions, extend margin, hold customer funds and property, and participate as an exchange member. None disclosed an affiliate that would trade security futures as principal, while some have proposed margin and listing standards. The staff highlighted potential conflicts where an exchange’s commercial interests could affect its self-regulatory oversight or give an affiliate preferential access to information, execution speed or operational capabilities. It also asked whether an affiliated introducing broker should be treated as a facility of the exchange. The statement creates no new obligations.
U.S. Securities and Exchange Commission staff seeks input on exchange affiliations with broker-dealers amid novel product listings
U.S. Securities and Exchange Commission staff is seeking input on affiliations between national securities exchanges and broker-dealers that introduce customers, provide custody or margin, or trade as principal. The review follows four notice-registration filings for security futures exchanges and focuses on conflicts arising from preferential treatment and exchanges’ oversight of affiliates.