Market Access Risk Assessments
The SEC’s Market Access Rule 15c3-5 requires that brokers or dealers with market access establish, document, and maintain a system of risk management controls and supervisory procedures.
An annual review of these risk controls not only verifies compliance with regulatory requirements, but can also identify supervisory gaps, which helps prevent costly financial and reputational issues, as well as disciplinary charges. FINRA field examiners are currently performing compliance audits with a focus on the following areas:
- Pre-trade and post-trade surveillance monitoring
- Regular review of risk management controls and supervisory procedures
- Annual certification of sufficient 15c3-5 controls by a firm’s CEO
Jordan & Jordan leverages knowledge gained from working with regulators to shape the practical requirements of the Market Access Rule and from our experience assisting broker-dealers with their implementations. Jordan & Jordan can assist in structuring your firm’s program to comply with evolving interpretations of 15c3-5 best practices based on sweeps by regulators. Here are the areas where our experience and knowledge of best practices can help:
- Implementation of pre-trade risk controls such as firm & client trading limits, individual order limits, and erroneous order controls
- Governance in setting and changing credit or trading limits
- Capabilities for monitoring internal and external (client) trading behavior, recognition of trading patterns and exceptions, setting alert mechanisms
- Escalation procedures and remediation methods, review process and timing for halting trading, systemic and human governance of a “kill switch”
- Procedures related to new software upgrades, e.g. release cycle, testing environment and roll-back strategies
- Standardization and consistency of change control processes and procedures in their application across the organization
- Examination of third party systems at the point of market access, including vendor due diligence to ensure that broker dealers providing sponsored access maintain direct and exclusive control of the risk control mechanisms.
Benefit from Jordan & Jordan’s Subject Matter Expertise (SME) with our Compliance Assessment Services:
- Gap Analysis: identify business lines that need overhaul to comply with 15c3-5. As companies merge or business units and systems are consolidated, we have found that needed changes in compliance processes and procedures are often overlooked.
- Annual Review Process: test and measure the effectiveness of your risk control policies and supervisory procedures. The regulatory examiners will be looking for documentation of annual audits, test results, remediation plans, and closed items.
- Risk Controls Assessment: verify that procedures are properly aimed at systemically limiting financial exposure caused by market access. An independent assessment demonstrates to regulators that your firm is proactive about risk management and compliance.
- Jordan & Jordan assisted numerous clients to prepare for 15c3-5, providing subject matter expertise and project management services, performing impact analysis, identifying remediation activities and drafting policies and procedures. Many clients have asked us to conduct annual assessments of their 15c3-5 implementations; testing effectiveness of their policies and procedures as well as reviewing financial and regulatory controls that are in place.