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Red Oak Blog

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Tuesday, February 23 2016

Algorithmic Trading Developers May Be Required to Register

FINRA has filed a proposed rule to require algorithmic trading developers to register as Securities Traders.  The proposal would require individuals who design, develop or modify algorithmic trading strategies to comply with the same rules as other Securities Traders registered with FINRA.  This rule also applies to individuals who are responsible for the supervision of algorithm development.

This rule will not apply to everyone involved in the design of a trading system, just the ones primarily responsible for the design. This means that developers primarily responsible for the design of algorithmic trading systems would have to pass an exam and register as a Securities Trader.  The rule defines “algorithmic trading strategy” as any automated system that generates or routes orders, including hedging strategies, strategies that create or liquidate baskets of securities, and programs that divide large orders into smaller ones.

This rule is meant to ensure that developers are educated in securities regulations in order to prevent issues with orders and risk. 

The SEC is reviewing FINRA’s proposal and are soliciting comments on the proposal.  To read the complete rule proposal, please click here.