Proposed SEC Dealer Expansion: What You Need to Know

The Securities and Exchange Commission (SEC) recently proposed new rules that would expand the definition of who qualifies as a "dealer." The proposed qualitative standards would require certain market participants (excluding persons who have or control less than $50 million, and companies registered under the Investment Company Act of 1940) to register with the SEC, become a member of a self-regulatory organization and comply with federal securities laws and regulations if they meet any of the following:

• Routinely make roughly comparable purchases and sales of the same or substantially similar securities in a day
• Routinely express trading interests that are at or near the best available prices and that are communicated and represented in a way that makes them accessible to other market participants
• Earn revenue primarily from capturing bid-ask spreads, or from capturing any incentives offered by trading venues to liquidity-supplying trading interests

Additionally, a market participant who buys and sells more than $25 billion of trading volume in government securities in each of four of the previous six calendar months would be considered to have satisfied the standards, regardless of whether any of the other qualitative standards are met.

Comments to the SEC in response to this proposal noted the overlap with other rules (such as Consolidated Audit Trail and the Trade Reporting and Compliance Engine), the effect on the private fund market, the potential for broad interpretation of the standards, and whether the proposal oversteps the bounds of authority. The proposal is not yet finalized, and it's not clear how much of the commentary the Commission will take into account. However, some version of the proposal will almost certainly become enacted.

Firms need the right set of tools to respond to these new requirements. Look for a tool that can aggregate portfolios across business lines, understand securities and associated volumes on a daily basis, portfolio trading for multiple month periods in a rolling format, and the ability to capture and submit transaction data to TRACE and/or CAT.

To find out more about the SEC proposal, and how SS&C can help you prepare, download our latest whitepaper.

Alternative Investments, Wealth Management

SEC , broker-dealer , dealer