Solutions to sponsored access problem?

We've noted that the combination of high frequency trading and sponsored access--in particular, naked access--could prove to be a volatile mix. If rogue trades or mistaken trades enter the system en masse, we'd be in uncharted territory. Lime Brokerage has certainly done its part to raise awareness. So there's a broad movement afoot to come up with some solutions. It's no secret that the SEC is taking a look at the practice.

Mary Schapiro has renewed her concerns. The SEC may well decide to set some rules even as it probes a longer-term fix. The IT consequences are something of a wildcard. Would a mandate to monitor all trades pre-trade require a massive IT shift? All the way back in January, the Nasdaq OMX has suggested some pre-trade constraints, which are now getting lots of publicity. In addition, a post-trade idea has circulated in the industry.

The Depository Trust & Clearing Corp, which clears the majority of stock trades in the U.S. has been approached by several firms who are interested in a private system that would enforce position limits on all market participants. The plan reportedly would aggregate trades from more than 40 market centers, and make it all instantly in real time. If possible, anyway. This is a fruitful approach. It's always better for the industry to develop solutions to regulatory problems. 

For more:
- here's a Reuters article

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