Proposed FINRA Rule Would Require Associated Persons Who Develop Algorithmic Trading Strategies To Register As Equity Traders

In the latest regulatory action addressing high frequency and other algorithmic trading, a recent FINRA Regulatory Notice seeks comment on a proposed rule change under which persons associated with a member firm would be required to register as Equity Traders under Rule 1032(f) if they are primarily responsible for the design, development or significant modification of an algorithmic trading strategy that generates orders routed to an exchange or traded over the counter. Persons responsible for supervising this type of activity must also register.

The proposed rule change addresses FINRA's stated concern that persons responsible for developing or modifying trading algorithms may lack adequate knowledge of the securities rules and regulations and that this lack of knowledge could result in trading algorithms that do not comply with applicable rules. The Regulatory Notice states, for example, that FINRA has observed algorithmic trading strategies that generated trading