The Commission adopted the proprietary trading exemption under Rule 15b9-1 so that an
The SEC amended Rule 15b9-1 to close a regulatory loophole that allowed proprietary trading firms to avoid FINRA membership and Treasury transaction reporting by exploiting an outdated exemption meant for limited floor trading, thereby enhancing oversight without alleging fraud.
The U.S. Securities and Exchange Commission amended Rule 15b9-1 to narrow the exemption that allowed SEC-registered proprietary trading firms to avoid FINRA membership despite engaging in significant off-exchange, algorithmic trading. These firms, while exchange members with no customer accounts, had bypassed FINRA’s supervisory authority and reporting requirements—including U.S. Treasury transaction reporting via TRACE—creating regulatory gaps. The revised rule now requires such firms to join FINRA unless their off-exchange trades are strictly ancillary, such as those routed under Rule 611 of Regulation NMS or solely to execute the stock leg of a stock-option order.
The U.S. Securities and Exchange Commission amended Rule 15b9-1 to address a regulatory loophole that permitted proprietary trading firms to avoid FINRA membership by relying on an exemption originally designed for limited floor-based trading decades ago. Over time, firms emerged that engaged in high-volume, algorithmic securities trading across multiple exchange and off-exchange venues, yet remained exempt from FINRA oversight simply because they were exchange members with no customer accounts. As a result, these firms were not required to report their U.S. Treasury transactions to FINRA’s Trade Reporting and Compliance Engine (TRACE), undermining market transparency and regulatory consistency. The new rule narrows the exemption, mandating FINRA membership for any registered broker-dealer that conducts off-exchange proprietary trading unless the trades are strictly ancillary—such as those routed by an exchange to comply with Rule 611 of Regulation NMS or solely to execute the stock leg of a stock-option order. The amendment aims to ensure that significant proprietary trading activity, regardless of venue, is subject to FINRA’s supervisory and reporting framework. The rule amendments became effective 60 days after publication in the Federal Register, with a compliance deadline one year later. No individual or firm is accused of fraud; this is a proactive regulatory update to modernize oversight in response to market evolution.
Extracted insights
- person compliance date
- agency Finra
- Commission adopted proprietary trading exemption under Rule 15b9-1
- Rule 15b9-1 has remained static
- FINRA does not have direct membership-based jurisdiction over these firms
- SEC adopted amendments to exemption from Section 15(b)(8) of the Securities Exchange Act of 1934
- Broker or dealer must join FINRA pursuant to Section 15(b)(8) if it effects securities transactions other than on an exchange where it is a member
- Rule amendments will become effective 60 days after the date of publication of the adopting release in the Federal Register
- Compliance date will be 365 days from the date of publication of the adopting release in the Federal Register
Warning: TT: undefined function: 32 FACT SHEET Exemption from National Securities Association Membership U.S. SECURITIES AND EXCHANGE COMMISSION PAGE 1 OF 2 Why This Matters The Commission adopted the proprietary trading exemption under Rule 15b9-1 so that an exchange member’s limited off-member-exchange proprietary trading activity ancillary to its exchange activity – which, at that time, typically was a floor business conducted on a single national securities exchange – would not necessitate association membership in addition to exchange membership. In the decades since that adoption, the securities markets have undergone a substantial transformation. Proprietary trading broker-dealer firms have emerged that engage in significant, computer-based or algorithmic securities trading activity for their own account across the full range of exchange and off-exchange venues, often at lightning speeds. Rule 15b9-1 has remained static, however, as these types of firms have emerged and off- member-exchange securities trading has proliferated. Several of these firms are exchange members but are not FINRA members, presumably in reliance on Rule 15b9-1. FINRA does not have direct membership-based jurisdiction over these firms. This provides for a less stable and consistent regulatory regime for covered off -member-exchange securities trading activity. Further, since these firms are not FINRA members, they are not required to report their U.S. Treasury securities transactions to FINRA’s Trade Reporting and Compliance Engine. The Securities and Exchange Commission adopted amendments to an exemption from Section 15(b)(8) of the Securities Exchange Act of 1934 (“Exchange Act”). Section 15(b)(8) requires any broker or dealer registered with the Commission to become a member of a national securities association unless the broker or dealer effects transactions in securities solely on an exchange of which it is a member. The Financial Industry Regulatory Authority, Inc. (“FINRA”) currently is the only registered national securities association. Exchange Act Rule 15b9-1 provides an exemption from Section 15(b)(8) to certain proprietary trading dealers that effect securities transactions other than on an exchange where they are members. The amendments to Rule 15b9-1 set forth narrower exemptions to enhance FINRA oversight of firms that trade securities proprietarily across markets. FACT SHEET | Exemption from National Securities Association Membership U.S. SECURITIES AND EXCHANGE COMMISSION PAGE 2 of 2 How This Rule Applies As a result of these rule amendments, a Commission-registered broker or dealer will be required to join FINRA pursuant to Section 15(b)(8) if it effects securities transactions other than on an exchange where it is a member, unless: • It is a member of a national securities exchange; • It carries no customer accounts; and • Such transactions (i) result solely from orders that are routed by a national securities exchange of which the broker or dealer is a member to comply with Rule 611 of Regulation NMS or the Options Order Protection and Locked/Crossed Market Plan; or (ii) are solely for the purpose of executing the stock leg of a stock-option order. What’s Next The rule amendments will become effective 60 days after the date of publication of the adopting release in the Federal Register. The compliance date will be 365 days from the date of publication of the adopting release in the Federal Register.
FACT SHEET Exemption from National Securities Association Membership U.S. SECURITIES AND EXCHANGE COMMISSION PAGE 1 OF 2 Why This Matters The Commission adopted the proprietary trading exemption under Rule 15b9-1 so that an exchange member’s limited off-member-exchange proprietary trading activity ancillary to its exchange activity – which, at that time, typically was a floor business conducted on a single national securities exchange – would not necessitate association membership in addition to exchange membership. In the decades since that adoption, the securities markets have undergone a substantial transformation. Proprietary trading broker-dealer firms have emerged that engage in significant, computer-based or algorithmic securities trading activity for their own account across the full range of exchange and off-exchange venues, often at lightning speeds. Rule 15b9-1 has remained static, however, as these types of firms have emerged and off- member-exchange securities trading has proliferated. Several of these firms are exchange members but are not FINRA members, presumably in reliance on Rule 15b9-1. FINRA does not have direct membership-based jurisdiction over these firms. This provides for a less stable and consistent regulatory regime for covered off-member-exchange securities trading activity. Further, since these firms are not FINRA members, they are not required to report their U.S. Treasury securities transactions to FINRA’s Trade Reporting and Compliance Engine. The Securities and Exchange Commission adopted amendments to an exemption from Section 15(b)(8) of the Securities Exchange Act of 1934 (“Exchange Act”). Section 15(b)(8) requires any broker or dealer registered with the Commission to become a member of a national securities association unless the broker or dealer effects transactions in securities solely on an exchange of which it is a member. The Financial Industry Regulatory Authority, Inc. (“FINRA”) currently is the only registered national securities association. Exchange Act Rule 15b9-1 provides an exemption from Section 15(b)(8) to certain proprietary trading dealers that effect securities transactions other than on an exchange where they are members. The amendments to Rule 15b9-1 set forth narrower exemptions to enhance FINRA oversight of firms that trade securities proprietarily across markets. FACT SHEET | Exemption from National Securities Association Membership U.S. SECURITIES AND EXCHANGE COMMISSION PAGE 2 of 2 How This Rule Applies As a result of these rule amendments, a Commission-registered broker or dealer will be required to join FINRA pursuant to Section 15(b)(8) if it effects securities transactions other than on an exchange where it is a member, unless: • It is a member of a national securities exchange; • It carries no customer accounts; and • Such transactions (i) result solely from orders that are routed by a national securities exchange of which the broker or dealer is a member to comply with Rule 611 of Regulation NMS or the Options Order Protection and Locked/Crossed Market Plan; or (ii) are solely for the purpose of executing the stock leg of a stock-option order. What’s Next The rule amendments will become effective 60 days after the date of publication of the adopting release in the Federal Register. The compliance date will be 365 days from the date of publication of the adopting release in the Federal Register. Why This Matters How This Rule Applies