Industry insiders and regulators debate whether pre-trade risk management is needed to monitor high-frequency buy-side traders that currently are enjoying unfettered access to markets.
As Wall Street continues to rebuild from the ashes of the credit crisis and reassess its risk controls, broker-sponsored access to exchanges is the latest practice to come under scrutiny. With sponsored access, executing broker-dealers offer their market participant identifiers — or MPIDs — to their clients to access exchanges or ECNs directly, without going through the brokers’ trading systems. Industry participants have raised concerns that by giving high- frequency trading firms unfiltered access to market centers without monitoring these orders pre-trade, brokers may be putting the financial system at serious risk. And the issue has gotten the attention of regulators.