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Regulators To Monitor Brokerages' Trade Internalization

This article appears courtesy of Money Management Letter

The Securities and Exchange Commission and the National Association of Securities Dealers will begin to closely monitor internal trade crossing at brokerages next year to ensure that all traders have fair access to the quotes. Trade internalization is expected to grow 20-30% over the next year and the SEC has been hot on making internal crossing more transparent under Reg. NMS so that traders can seek out the best price. "If you cross on an agency basis, you will have to get your system approved by Oct. 1, like the exchanges. We will then monitor whether you have reasonable policies and procedures," said David Shillman, associate director in the division of market regulation at the SEC, speaking at last month's Securities Industry Association conference. Under the new rule, the brokerages will have to register these systems as trading centers, and will have to publish their best bid and offer prior to execution; currently, they publish trade data only after the execution. Several brokerage and ATS executives said they plan to be in compliance by October, but a lot of work remains to be done.

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