Naked access is offered to high-frequency traders by some major firms. Traders are interested in this to avoid being slowed by a broker's risk controls and to help mask their strategy from other brokers, The Wall Street Journal explains. But the SEC wants brokers to check trades before they go to the exchange and are executed, not after.
The regulatory body is considering other changes concerning flash orders and dark pools, some of which were considered even before the May 6 "flash crash." Because the brokerages that maintain these private electronic transaction networks keep information on orders largely to themselves, they've drawn criticism that they limit market transparency.
While already several brokerages have agreed to give regulators a daily count of the trades in the dark pools, the SEC wants more transparency and to ban flash orders that exchanges show to some traders before disclosing them to rest of the market, according to Reuters. Further, brokerages would have to administer controls to prevent orders that are erroneous or that exceed credit and capital thresholds.
The SEC also will vote on a proposed ban on fraud and manipulation in the over-the-counter derivatives market, implementing another requirement of the Dodd-Frank financial overhaul.