Lime Brokerage emerged recently as one of the most forceful critics of so-called naked access (naked access news), which lets some brokers offer big clients direct access with few pre-trade risk and regulatory checks to market centers. The practice has exploded in recent years, and Lime warned memorably that the "next Long-Term Capital meltdown will happen in a five-minute time period." 

One reason the company took such a forceful position has now become clear: The company just announced its LimeInside product, which it bills as the "industry's fastest and most comprehensive solution for high-performance, exchange co-located sponsored access." The new product essentially promises sponsoring brokers a turnkey-like solution that would allow them to easily vet high-frequency trades (high-frequency trading news) before they are sent to the top exchanges for risk and compliance issues. 

Some of the checks include: 

• Pre-trade order validation, as mandated by Nasdaq and proposed SEC regulations,
• Verification that prevents order submission if trading limits are exceeded,
• Checks on "fat finger" order entry mistakes,
• Protection against hidden information leakage attacks,
• And checks on short sales, stock availability and margin calculations.

The news comes on the heels of the Securities and Exchange Commission's (SEC news) ban on naked access; the comment period on the proposal will end soon. The firm would certainly like to see its new product as the end of naked access as we know it--if only the industry would make it a de facto standard. One issue is the extent to which the use of the product can make compliance all but automatic. The new final rule that would ban naked access would likely have some surprises that hopefully could be easily addressed. 

In any case, it would appear that Lime Brokerage is ahead of the pack and certainly enjoys some marketing advantages owing to sheer timeliness. 

The solution is designed for firms that collocate at or near an exchange's data center, something necessary perhaps to reduce latency to acceptable levels for high frequency trading firms. Co-location of course has emerged as a hot trend as of late. 

The firm says LimeInside is currently available for select firms who want sponsored access (sponsored access news) to NASDAQ, NYSE Arca and BATS; additional markets, likely to include Direct Edge and the NYSE, could be added later based upon customer demand and availability of co-location facilities. Stay tuned. - Jim