The Securities and Exchange Commission is proposing to amend Rule 15b9-1 under the Securities Exchange Act of 1934, as amended, to require broker-dealers that engage in off-exchange proprietary trading to become members of a registered national securities association such as the Financial Industry Regulatory Authority. Under the proposed amendment, an affected broker-dealer will have 360 days after the publication of the final rule in the Federal Register to become a member of FINRA. The proposed amendment would narrow the exemption from membership in a national securities association for certain broker-dealers. The SEC’s proposal would narrow the exemption so that firms that are not focused on trading on an exchange and are responsible for a substantial percentage of trading volume in the off-exchange market may no longer be exempt.

The proposed amendment, if adopted, would also create a new limited exemption for hedging. This proposed exemption recognizes that dealers trading mainly on one exchange may have a need to hedge their exposure. Dealers must prove that their hedging transactions are legitimate hedges to qualify for this exemption. The 60-day comment period will commence upon publication of the rule proposal in the Federal Register.

A more detailed analysis of this proposed amendment will be provided in a separate client advisory to be posted on Katten’s website.

The SEC’s proposed amendment to Rule 15b9-1 is available here.