MFA Blog

SEC Regulation SCI Could Push Trading Costs Higher

Posted on September 16, 2014

A new Securities and Exchange Commission (SEC) rule, SEC Regulation Systems Compliance and Integrity (Reg SCI) could mean higher trading fees for money managers and lead to curtailing operations or shutting down some smaller equity trading venues, Pensions & Investments reports. The rule would require all trading venues – exchanges, automated trading systems and dark pools – to submit alternative plans for operations in the event of a system breakdown and require regular testing by the venues to ensure those alternative plans would work. In its initial proposal, the SEC said the estimated initial cost for organizations subject to the regulation would be up to a collective of $242 million with another $191 million in annual costs.

Christopher Nagy, founder and CEO of market structure research firm KQR group, LLC told P&I, “The exchanges will have to pay for the testing, and that will be passed on to execution firms, the brokers. And there will be significant costs. It’ll raise the bar for cost to entry, and certainly could and likely will reduce the number of automated trading systems and smaller brokerage firms. More ATS will have much more trouble from a cost perspective”.  Others agree that, while Reg SCI could push trading costs higher, the cost of compliance is also increasing.

Read more from Pensions & Investments here.