Sponsored Access and Co-Location:

Sponsored Access and Co-Location: What's Next?

More Regulatory Scrutiny Expected in 2010

The hot-button trading strategies of sponsored access and co-location will continue to evolve in 2010, as institutions, hedge funds and high-frequency traders position themselves for the quickest and most seamless execution. Regulators are sure to weigh in regarding if and how sponsored access and co-location needs to be monitored or reined in.

In the most recent regulatory salvo, the U.S. Securities and Exchange Commission on Jan. 13 proposed banning so-called ‘naked' sponsored access, in which a broker-dealer allows a customer to use its market participation identification (MPID) to access an exchange directly, bypassing the trading controls and risk management systems of the broker-dealer.

Salient quotes from the full story include:

The new proposal would “require that if a broker-dealer is going to loan his keys, he not only must remain in the car, but he must also see to it that the person driving observes the rules.” —Mary Schapiro, SEC chairman

“There's been an ongoing concern over ‘naked' access but there is a lot of complexity involved from an implementation perspective.” —Sang Lee, managing partner, Aite Group

“A lot of this fight is a business-model fight.” —Joe Gawronski, president and chief operating officer, Rosenblatt Securities

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Posted on March 29, 2009