SEC Enhances Oversight with Broker-Dealer Rule Amendments

SEC Enhances Oversight with Broker-Dealer Rule Amendments

The Securities and Exchange Commission (SEC) is taking a bold step forward, adopting rule amendments targeting broker-dealers. Gary Gensler, SEC Chair, stated,

 “Some broker-dealers rely on outdated exemptions, creating a regulatory gap.” 

Consequently, there’s been a surge in firms with monthly trading volumes in the hundreds of billions, exempted from proper oversight. However, these new amendments will change that.

Under the old Exchange Act Rule 15b9-1, specific dealers could conduct unlimited proprietary trading without joining a national securities association. With the new changes, exemptions have become stricter. Hence, unless they are members of a securities exchange and don’t carry customer accounts, brokers or dealers need to become associations like FINRA. 

Additionally, they can only bypass this rule under compliance with order protection regulatory requirements and executing stock legs of stock-option orders. The rule’s adoption is implemented 60 days after publication, with a compliance date set a year from that.

SEC’s Greater Transparency in the Private Fund Sector

Besides the broker-dealer amendments, the SEC’s focus on the private investment fund sector is noteworthy. On Wednesday, the primary regulatory body for Wall Street unveiled a set of transparency rules for the $20-trillion industry. This development has predictably sparked various responses, with industry experts raising objections.

However, the SEC’s concern is understandable since, over the past decade, the private asset management sector has more than doubled. Moreover, heightened oversight seems imperative, with millions of retirement savers’ funds at stake and retail investors flocking to private credit funds.

In 2022, the SEC proposed changes for private fund advisers, requiring them to provide quarterly statements on performance and fees and undergo annual audits. Furthermore, charging fees for unrendered services would be prohibited. The final proposal, yet to be released, underwent extensive review. With a Democratic majority in the commission, the proposal’s passing seems imminent.

Differing Opinions and Ongoing Debates

Financial reform advocates and Democratic lawmakers back these changes. They believe these reforms will provide better protection to investors. However, industry organizations claim the SEC is overstepping its legal boundaries. 

Pointing to a 2022 Supreme Court ruling on climate regulations, they challenge the SEC’s authority. The Securities Industry and Financial Markets Association stated, “Congress didn’t intend to give the Commission unbridled power over private fund advisers.”

Another proposal from 2015 also resurfaces, which could see dozens more broker-dealers registering with FINRA. SEC officials believe the exemption these dealers enjoy has grown obsolete. Given the securities market’s growth, these exemptions now appear protective shields, leaving some investment firms beyond regulatory reach.

As the SEC tightens its grip, broker-dealers and private fund advisers should brace for change. The drive for transparency and tighter regulations signifies a turning point in the securities market’s oversight.

Kelvin is a distinguished writer specializing in crypto and finance, backed by a Bachelor’s in Actuarial Science. Recognized for incisive analysis and insightful content, he has an adept command of English and excels at thorough research and timely delivery.

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.


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