risk management controls

8/6/2019 Risk Management Controls

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69792 Federal Register / Vol. 75, No. 219 / Monday, November 15, 2010/ Rules and Regulations

1See Securities Exchange Act Release No. 61379(January 19, 2010), 75 FR 4007 (January 26, 2010)(File No. S70310) (Proposing Release).

2Copies of comments received on the proposalare available on the Commissions Internet Website, located at http://www.sec.gov/comments/s7-03-10/s70310.shtml,and in the Commissions PublicReference Room at its Washington, DCheadquarters.

SECURITIES AND EXCHANGECOMMISSION

17 CFR Part 240

[Release No. 3463241; File No. S70310]

RIN 3235AK53

Risk Management Controls for Brokers

or Dealers With Market AccessAGENCY: Securities and ExchangeCommission.

ACTION: Final rule.

SUMMARY: The Securities and ExchangeCommission (Commission or SEC) isadopting new Rule 15c35 under theSecurities Exchange Act of 1934(Exchange Act). Rule 15c35 willrequire brokers or dealers with access totrading securities directly on anexchange or alternative trading system(ATS), including those providingsponsored or direct market access to

customers or other persons, and broker-dealer operators of an ATS that provideaccess to trading securities directly ontheir ATS to a person other than a

broker or dealer, to establish, document,and maintain a system of riskmanagement controls and supervisoryprocedures that, among other things, arereasonably designed to systematicallylimit the financial exposure of the

broker or dealer that could arise as aresult of market access, and ensurecompliance with all regulatoryrequirements that are applicable inconnection with market access. The

required financial risk managementcontrols and supervisory proceduresmust be reasonably designed to preventthe entry of orders that exceedappropriate pre-set credit or capitalthresholds, or that appear to beerroneous. The regulatory riskmanagement controls and supervisoryprocedures must also be reasonablydesigned to prevent the entry of ordersunless there has been compliance withall regulatory requirements that must besatisfied on a pre-order entry basis,prevent the entry of orders that the

broker or dealer or customer is restricted

from trading, restrict market accesstechnology and systems to authorizedpersons, and assure appropriatesurveillance personnel receiveimmediate post-trade execution reports.

The financial and regulatory riskmanagement controls and supervisoryprocedures required by Rule 15c35must be under the direct and exclusivecontrol of the broker or dealer withmarket access, with limited exceptionsspecified in the Rule that permitreasonable allocation of certain controlsand procedures to another registered

broker or dealer that, based on itsposition in the transaction andrelationship with the ultimate customer,can more effectively implement them. Inaddition, a broker or dealer with marketaccess will be required to establish,document, and maintain a system forregularly reviewing the effectiveness ofthe risk management controls and

supervisory procedures and forpromptly addressing any issues. Amongother things, the broker or dealer will berequired to review, no less frequentlythan annually, the business activity ofthe broker or dealer in connection withmarket access to assure the overalleffectiveness of such risk managementcontrols and supervisory proceduresand document that review. The reviewwill be required to be conducted inaccordance with written procedures andwill be required to be documented. Inaddition, the Chief Executive Officer (orequivalent officer) of the broker or

dealer will be required, on an annualbasis, to certify that the riskmanagement controls and supervisoryprocedures comply with Rule 15c35,and that the regular review describedabove has been conducted.

DATES: Effective Date:January 14, 2011.Compliance Date:July 14, 2011.

FOR FURTHER INFORMATION CONTACT:Marc F. McKayle, Special Counsel, at(202) 5515633; Theodore S. Venuti,Special Counsel, at (202) 5515658; andDaniel Gien, Attorney, at (202) 5515747, Division of Trading and Markets,Securities and Exchange Commission,

100 F Street, NE., Washington, DC205497010.SUPPLEMENTARY INFORMATION:

Table of Contents

I. BackgroundII. Rule 15c35III. Paperwork Reduction ActIV. Consideration of Costs and BenefitsV. Consideration of Burden on Competition,

and Promotion of Efficiency,Competition and Capital Formation

VI. Final Regulatory Flexibility AnalysisVII. Statutory AuthorityText of Rule 15c35

I. Background

Given the increased automation oftrading on securities exchanges andATSs today, and the growing popularityof sponsored or direct market accessarrangements where broker-dealersallow customers to trade in thosemarkets electronically using the broker-dealers market participant identifiers(MPID), the Commission is concernedthat the various financial and regulatoryrisks that arise in connection with suchaccess may not be appropriately andeffectively controlled by all broker-

dealers. New Rule 15c35 is designed toensure that broker-dealers appropriatelycontrol the risks associated with marketaccess, so as not to jeopardize their ownfinancial condition, that of other marketparticipants, the integrity of trading onthe securities markets, and the stabilityof the financial system.

On January 26, 2010, Proposed Rule

15c35 was published for publiccomment in the Federal Register.1 TheCommission received 47 commentletters on Proposed Rule 15c35 from

broker-dealers, markets, institutionaland individual investors, technologyproviders, and other marketparticipants.2 Nearly all of thecommenters supported the overarchinggoal of the proposed rulemakingtoassure that broker-dealers with marketaccess have effective controls andprocedures reasonably designed tomanage the financial, regulatory, andother risks of that activity. As further

discussed below, however, severalcommenters recommended that theproposal be amended or clarified incertain respects. As a result, theCommission is adopting Rule 15c35substantially as proposed, but withcertain narrow modifications asdiscussed below. As proposed, Rule15c35 would require brokers or dealerswith access to trading directly on anexchange or ATS, including thoseproviding sponsored or direct marketaccess to customers or other persons, toimplement risk management controlsand supervisory procedures reasonablydesigned to manage the financial,regulatory, and other risks of this

business activity.The development and growth of

automated electronic trading haveallowed ever increasing volumes ofsecurities transactions across themultitude of trading systems thatconstitute the U.S. national marketsystem. In fact, much of the order flowin todays marketplace is typified byhigh-speed, high-volume, automatedalgorithmic trading, and orders arerouted for execution in milliseconds oreven microseconds. Over the past year,the Commission has taken a broad and

critical look at market structurepractices in light of the rapiddevelopment in trading technology andstrategies. The Commission hasproposed several rulemakings,

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69793Federal Register / Vol. 75, No. 219 / Monday, November 15, 2010/ Rules and Regulations

3See, e.g., Securities Exchange Act Release Nos.60684 (September 18, 2009), 74 FR 48632(September 23, 2009) (Proposal to Eliminate FlashOrder Exception from Rule 602 of Regulation NMS)(File No. S72109); 60997 (November 13, 2009), 74FR 61208 (November 23, 2009) (Proposal toRegulate Non-Public Trading Interest) (File No. S72709); 61908 (April 14, 2010), 75 FR 21456 (April23, 2010) (Proposed Large Trader Reporting System)(File No. S71010); and 62174 (May 26, 2010), 75FR 32556 (June 8, 2010) (Proposed ConsolidatedAudit Trail) (File No. S71110).

4See Securities Exchange Act Release No. 61358(January 14, 2010), 75 FR 3594 (January 21, 2010)(File No. S70210) (Concept Release).

5The Commission notes that high frequencytrading has been estimated to account for more than50 percent of the U.S. equities market volume. See

Concept Release, 75 FR at 3606.6 It has been reported that sponsored accesstrading volume accounts for 50 percent of overallaverage daily trading volume in the U.S. equitiesmarket. See, e.g., Carol E. Curtis, Aite: MoreOversight Inevitable for Sponsored Access,Securities Industry News, December 14, 2009(citing a report by Aite Group). In addition,sponsored access has been reported to account for15 percent of Nasdaq volume. See, e.g., Nina Mehta,Sponsored Access Comes of Age, Traders Magazine,February 11, 2009 (quoting Brian Hyndman, SeniorVice President for Transaction Services, NasdaqOMX Group, Inc. [direct sponsored access tocustomers is] a small percentage of our overallcustomer base, but it could be in excess of 15percent of our overall volume.).

7See, e.g., Nasdaq Rule 4611(d)(1)(A). TheCommission notes that Rule 15c35 will effectivelyprohibit any access to trading on an exchange orATS, whether sponsored or otherwise, where pre-trade controls are not applied.

8See, e.g., NYSE IM896 (January 25, 1989); andSecurities Exchange Act Release No. 40354 (August24, 1998), 63 FR 46264 (August 31, 1998) (NASDNTM- 9866). The Commission notes that brokers-dealers typically access exchanges and ATSsthrough the use of unique MPIDs or otheridentifiers, which are assigned by the market.

9Highly automated trading systems deliverextremely high-speed, or low latency orderresponses and executions in some cases measuredin times of less than 1 millisecond.

10For example, broker-dealers may receivemarket access from other broker-dealers to anexchange where they do not pay to maintain amembership.

11The Commission notes that exchanges offervarious discounts on transaction fees that are basedon the volume of transactions by a member firm.See, e.g., Nasdaq Rule 7018 and NYSE Arca, Inc.(NYSE Arca) Fee Schedule. Exchange membersmay use access arrangements as a means toaggregate order flow from multiple marketparticipants under one MPID to achieve higher

transaction volume and thereby qualify for morefavorable pricing tiers.

12See Proposing Release, 75 FR at 40104011and 40294031 for a more detailed description ofprevious SRO guidance and rules. The SROs have,over time, issued a variety of guidance and rulesthat, among other things, address proper riskcontrols by broker-dealers providing electronicaccess to the securities markets. In addition, thispast January, the Commission approved a newNasdaq rule that requires broker-dealers offeringdirect market access or sponsored access to Nasdaqto establish controls regarding the associatedfinancial and regulatory risks, and to obtain avariety of contractual commitments from sponsored

access customers. See Securities Exchange ActRelease No. 61345 (January 13, 2010) (SRNASDAQ2008104) (Nasdaq Market AccessApproval Order), discussed in greater detail in theAppendix to the Proposing Release. Nasdaq hasdelayed the implementation of this rule until 360days after its approval. See Securities Exchange ActRelease Nos. 61770 (March 24, 2010), 75 FR 16224(March 31, 2010) (SRNASDAQ2010039); and62491 (July 13, 2010), 75 FR 41918 (July 19, 2010)(SRNASDAQ2010086).

13 It has been reported that unfiltered accessaccounts for an estimated 38 percent of the averagedaily volume of the U.S. stock market. See, e.g.,Scott Patterson, Big Slice of Market Is GoingNaked, Wall Street Journal, December 14, 2009(citing a report by Aite Group).

including this rulemaking, to addressspecific vulnerabilities in the currentmarket structure.3 In addition, this past

January, the Commission published aconcept release on equity marketstructure designed to further theCommissions broad review of marketstructure to assess whether its ruleshave kept pace with, among other

things, changes in trading technologyand practices.4

The recent proliferation ofsophisticated, high-speed tradingtechnology has changed the way broker-dealers trade for their own accounts andas agents for their customers.5 Inaddition, customersparticularlysophisticated institutionshavethemselves begun using technologicaltools to place orders and trade onmarkets with little or no substantiveintermediation by their broker-dealers.This, in turn, has given rise to theincreased use and reliance on direct

market access

orsponsored access

arrangements.6Under these arrangements, the broker-

dealer allows its customerwhether aninstitution such as a hedge fund, mutualfund, bank or insurance company, anindividual, or another broker-dealertouse the broker-dealers MPID or othermechanism or mnemonic used toidentify a market participant for thepurposes of electronically accessing anexchange or ATS. Generally, directmarket access refers to an arrangementwhereby a broker-dealer permitscustomers to enter orders into a trading

center but such orders flow through thebroker-dealers trading systems prior toreaching the trading center. In contrast,sponsored access generally refers to anarrangement whereby a broker-dealerpermits customers to enter orders into atrading center that bypass the broker-dealers trading system and are routeddirectly to a trading center, in some

cases supported by a service bureau orother third party technology provider.7Unfiltered or naked access isgenerally understood to be a subset ofsponsored access, where pre-trade filtersor controls are not applied to orders

before such orders are submitted to anexchange or ATS. In all cases, however,whether the broker-dealer is trading forits own account, is trading for customersthrough more traditionallyintermediated brokerage arrangements,or is allowing customers direct marketaccess or sponsored access, the broker-dealer with market access is legally

responsible for all trading activity thatoccurs under its MPID.8

Certain market participants may findthe wide range of access arrangements

beneficial. For instance, facilitatingelectronic access to markets can provide

broker-dealers, as well as exchanges andATSs, opportunities to compete forgreater volumes and a wider variety oforder flow. For a broker-dealerscustomers, which could include hedgefunds, institutional investors, individualinvestors, and other broker-dealers, sucharrangements may reduce latencies andfacilitate more rapid trading,9 help

preserve the confidentiality ofsophisticated, proprietary tradingstrategies, and reduce trading costs bylowering operational costs,10commissions, and exchange fees.11

Current self-regulatory organization(SRO) rules and interpretationsgoverning electronic access to marketshave sought to address the risks of thisactivity.12 However, the Commission

believes that more comprehensive andeffective standards that applyconsistently across the markets areneeded to effectively manage the

financial, regulatory, and other risks,such as legal and operational risks,associated with market access. Theseriskswhether they involve thepotential breach of a credit or capitallimit, the submission of erroneousorders as a result of computermalfunction or human error, the failureto comply with SEC or exchange tradingrules, the failure to detect illegalconduct, or otherwiseare presentwhenever a broker-dealer trades as amember of an exchange or subscriber toan ATS, whether for its own proprietaryaccount or as agent for its customers,

including traditional agency brokerageand through direct market access orsponsored access arrangements.

The Commission is particularlyconcerned about the quality of broker-dealer risk controls in sponsored accessarrangements, where the customer orderflow does not pass through the broker-dealers systems prior to entry on anexchange or ATS. The Commissionunderstands that, in some cases, the

broker-dealer providing sponsoredaccess may not utilize any pre-trade riskmanagement controls (i.e. unfiltered ornaked access),13 and thus could beunaware of the trading activity

occurring under its market identifierand have no mechanism to control it.



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14See letter to Elizabeth M. Murphy, Secretary,Commission, from John Jacobs, Director ofOperations, Lime Brokerage LLC, March 29, 2010(Lime Letter) at 1 ([T]he potential for systemicrisk posed by unregulated entities accessing thepublic markets directly and without anysupervision is an issue too large to ignore, withestimates that naked access may account forsomewhere between 10%38% of all US equitymarket trading activity, and most likely a much

greater participation percentage for orders placed.);See also letter to Elizabeth M. Murphy, Secretary,

Commission, from Jose Marques, ManagingDirector, Global Head of Electronic Equity Trading,Deutsche Bank Securities Inc., March 31, 2010(Deutsche Bank Letter) at 2 ([W]e are cognizantof the market and systemic risks that regulatorsperceive in unchecked market access, and agree thatuniform guidance from the SEC as to theresponsibilities of market access is needed.).

15See letter to Elizabeth M. Murphy, Secretary,Commission, from John Jacobs, Director ofOperations, Lime Brokerage LLC, February 17, 2009(commenting on a proposed rule change filed byThe NASDAQ Stock Market LLC to adopt amodified sponsored access rule (File No. SRNASDAQ2008104)).

16

Proposing Release, 75 FR at 4009. For example,it was reported that, on September 30, 2008, sharesof Google fell as much as 93% in value due to aninflux of erroneous orders onto an exchange froma single market participant. See Ben Rooney, GooglePrice Corrected After Trading Snafu,CNNMoney.com, September 30, 2008, http://money.cnn.com/2008/09/30/news/companies/google_nasdaq/?postversion=2008093019(GoogleTrading Incident). In addition, it was reported that,in September 2009, Southwest Securitiesannounced a $6.3 million quarterly loss resultingfrom deficient market access controls with respectto one of its correspondent brokers that vastlyexceeded its credit limits. John Hintze, RiskRevealed in Post-Trade Monitoring, SecuritiesIndustry News, September 8, 2009 (SWS TradingIncident). Another recent example occurred onJanuary 4, 2010, when it was reported that shares

of Rambus, Inc. suffered an intra-day price drop ofapproximately thirty-five percent due to erroneoustrades causing stock and options exchanges to breaktrades. See Whitney Kisling and Ian King, RambusTrades Cancelled by Exchanges on Error Rule,BusinessWeek, January 4, 2010, http://www.businessweek.com/news/2010-01-04/rambus-trading-under-investigation-as-potential-error-update1-.html(stating [a] series of Rambus Inc.trades that were executed about $5 below todaysaverage price were canceled under rules that governstock transactions that are determined to be clearlyerroneous. ) (Rambus Trading Incident). Morerecently, single stock circuit breakers have beentriggered for trading in shares of The WashingtonPost Company (WPO) and Progress Energy, Inc.(PGN) on June 16, 2010 and on September 27, 2010,respectively, due to severe price movements causedby order entry errors. In addition, certain exchanges

provide a searchable history of erroneous tradecancellations on their website, which indicate thaterroneous trades occur with some regularity. Seehttp://www.nasdaqtrader.com/Trader.aspx?id=MarketSystemStatusSearch.

17See Findings Regarding the Market Events ofMay 6, 2010, Report of the Staffs of the CFTC andSEC to the Joint Advisory Committee on EmergingRegulatory Issues at http://www.sec.gov/news/studies/2010/marketevents-report.pdf. See alsoPreliminary Findings Regarding the Market Eventsof May 6, 2010, Report of the Staffs of the CFTCand SEC to the Joint Advisory Committee onEmerging Regulatory Issues at http://www.sec.gov/sec-cftc-prelimreport.pdf.The Commission hastaken steps to address the market vulnerabilitiesevidenced by the events of May 6th such as by

working with the exchanges and FINRA toimplement coordinated circuit breakers forindividual stocks and to clarify the process for

breaking erroneous trades. See Securities ExchangeAct Release Nos. 62283 (September 10, 2010), 75 FR56608 (September 16, 2010); 62884 (September 10,2010), 75 FR 56618 (September 16, 2010); 62251(June 10, 2010), 75 FR 34183 (June 16, 2010); and62252 (June 10, 2010), 75 FR 34186 (June 16, 2010);see also Securities Exchange Act Release Nos.62885 (September 10, 2010), 75 FR 56641(September 16, 2010); and 62886 (September 10,2010), 75 FR 56613 (September 16, 2010). TheCommission will continue to explore additionalways in which these vulnerabilities can beaddressed.

18See Proposing Release, Appendix, 75 FR at40294031 (noting current SRO guidance withregard to internal procedures and controls tomanage the financial and regulatory risks associated

The Commission also understands thatsome broker-dealers providingsponsored access may simply rely onassurances from their customers thatappropriate risk controls are in place.

Appropriate controls to managefinancial and regulatory risk for allforms of market access are essential toassure the integrity of the broker-dealer,

the markets, and the financial system.The Commission believes that riskmanagement controls and supervisoryprocedures that are not applied on apre-trade basis or that, with certainlimited exceptions, are not under theexclusive control of the broker-dealer,are inadequate to effectively address therisks of market access arrangements, andpose a particularly significantvulnerability in the U.S. national marketsystem.

Market participants recognize therisks associated with naked sponsoredaccess, with one commenter noting, forexample, that the potential systemic riskis now too large to ignore. 14 Today,order placement rates can exceed 1,000orders per second with the use of high-speed, automated algorithms.15 If, forexample, an algorithm such as thismalfunctioned and placed repetitiveorders with an average size of 300shares and an average price of $20, atwo-minute delay in the detection of theproblem could result in the entry of, forexample, 120,000 orders valued at $720million. In sponsored accessarrangements, as well as other accessarrangements, appropriate pre-trade riskcontrols could prevent this outcome

from occurring by blocking unintendedorders from being routed to an exchangeor ATS.

As noted in the Proposing Release,while incidents involving algorithmic orother trading errors in connection with

market access occur with someregularity,16 the Commission also isconcerned about preventing other,potentially severe, widespread incidentsthat could arise as a result of inadequaterisk controls on market access. Astrading in the U.S. securities marketshas become more automated and high-speed trading more prevalent, the

potential impact of a trading error or arapid series of errors, caused by acomputer or human error, or a maliciousact, has become more severe. Inaddition, the inter-connectedness of thefinancial markets can exacerbate marketmovements, whether they are inresponse to actual market sentiment ortrading errors.

For instance, on May 6, 2010, thefinancial markets experienced a brief

but severe drop in prices, falling morethan 5% in a matter of minutes, only torecover a short time later.17 This

incident provides a striking example ofjust how quickly and severely todaysfinancial markets can move across awide range of securities and futuresproducts. If a price shock in one or moresecurities were to occur as a result ofcomputer or human error, for example,it could spread rapidly across thefinancial markets, potentially with

systemic implications. To address theserisks, the Commission believes broker-dealers, as the entities through whichaccess to markets is obtained, shouldimplement effective controls reasonablydesigned to prevent errors or otherinappropriate conduct from potentiallycausing a significant disruption to themarkets.

The Commission believes that Rule15c35 should reduce the risks faced by

broker-dealers, as well as the marketsand the financial system as a whole, asa result of various market accessarrangements, by requiring effective

financial and regulatory riskmanagement controls reasonablydesigned to limit financial exposure andensure compliance with applicableregulatory requirements to beimplemented on a market-wide basis.As described below, these financial andregulatory risk management controlsshould reduce risks associated withmarket access and thereby enhancemarket integrity and investor protectionin the securities markets. For example,a system-driven, pre-trade controldesigned to reject orders that are notreasonably related to the quoted price of

the security would prevent erroneouslyentered orders from reaching thesecurities markets, which should lead tofewer broken trades and therebyenhance the integrity of trading on thesecurities markets.

Rule 15c35 is intended tocomplement and bolster existing rulesand guidance issued by the exchangesand the Financial Industry RegulatoryAuthority (FINRA) with respect tomarket access.18 Moreover, by

http://money.cnn.com/2008/09/30/news/companies/google_nasdaq/?postversion=2008093019http://money.cnn.com/2008/09/30/news/companies/google_nasdaq/?postversion=2008093019http://money.cnn.com/2008/09/30/news/companies/google_nasdaq/?postversion=2008093019http://money.cnn.com/2008/09/30/news/companies/google_nasdaq/?postversion=2008093019http://money.cnn.com/2008/09/30/news/companies/google_nasdaq/?postversion=2008093019http://www.nasdaqtrader.com/Trader.aspx?id=MarketSystemStatusSearchhttp://www.nasdaqtrader.com/Trader.aspx?id=MarketSystemStatusSearchhttp://www.sec.gov/news/studies/2010/marketevents-report.pdfhttp://www.sec.gov/news/studies/2010/marketevents-report.pdfhttp://www.sec.gov/sec-cftc-prelimreport.pdfhttp://www.sec.gov/sec-cftc-prelimreport.pdfhttp://www.sec.gov/sec-cftc-prelimreport.pdfhttp://www.sec.gov/sec-cftc-prelimreport.pdfhttp://www.sec.gov/news/studies/2010/marketevents-report.pdfhttp://www.sec.gov/news/studies/2010/marketevents-report.pdfhttp://www.nasdaqtrader.com/Trader.aspx?id=MarketSystemStatusSearchhttp://www.nasdaqtrader.com/Trader.aspx?id=MarketSystemStatusSearchhttp://money.cnn.com/2008/09/30/news/companies/google_nasdaq/?postversion=2008093019http://money.cnn.com/2008/09/30/news/companies/google_nasdaq/?postversion=2008093019http://money.cnn.com/2008/09/30/news/companies/google_nasdaq/?postversion=2008093019


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with market access for members that providemarket access to customers).

19See, e.g., letters to Elizabeth M. Murphy,Secretary, Commission, from Manisha Kimmel,Executive Director, Financial Information Forum,February 19, 2009 (The [Nasdaq] proposal toestablish a well-defined set of rules governingsponsored access is a positive step towards

addressing consistency in sponsored accessrequirements.); and Ted Myerson, President,FTEN, Inc., February 19, 2009 ([I]t is imperativethat Congress and regulators, together with theprivate sector, work together to encourage effectivereal-time, pre-trade, market-wide systemic risksolutions that help prevent [sponsored access]errors from occurring in the first place. ).

20Under Section 763 of the Dodd-Frank WallStreet Reform and Customer Protection Act (Dodd-Frank Act), the Commission has new authorityover security-based swap execution facilities. TheCommission will consider possible application ofrisk management controls and supervisoryprocedures to trading on security-based swapexecution facilities and other venues that facilitatethe trading of such products.

21The Dodd-Frank Act, in Section 761, amendedthe definition of security to include security-basedswaps. As such, the Commission notes that Rule15c35 will apply to a broker or dealer with accessto trading security-based swaps on a nationalsecurities exchange that makes security-basedswaps available to trade.

22The Commission notes that the termregulatory requirements references existingregulatory requirements applicable to broker-dealers in connection with market access, and is notintended to substantively expand upon them. Thespecific content of the regulatory requirementswould, of course, adjust over time as laws, rules,and regulations are modified.

establishing a single set of broker-dealerobligations with respect to marketaccess risk management controls acrossmarkets, Rule 15c35 will provideuniform standards that will beinterpreted and enforced in a consistentmanner and, as a result, reduce thepotential for regulatory arbitrage.19

II. Rule 15c35The Commission is adopting Rule

15c35Risk Management Controls forBrokers or Dealers with MarketAccessto reduce the risks faced by

broker-dealers, as well as the marketsand the financial system as a whole, asa result of various market accessarrangements, by requiring effectivefinancial and regulatory riskmanagement controls reasonablydesigned to limit financial exposure andensure compliance with applicableregulatory requirements to beimplemented on a market-wide basis.These financial and regulatory riskmanagement controls should reducerisks associated with market access andthereby enhance market integrity andinvestor protection in the securitiesmarkets. Rule 15c35 is intended tostrengthen the controls with respect tomarket access and, because it will applyto trading on all exchanges and ATSs,reduce regulatory inconsistency and thepotential for regulatory arbitrage. Rule15c35 will require a broker or dealerwith market access, or that provides acustomer or any other person withaccess to an exchange or ATS throughuse of its MPID or otherwise, to

establish, document, and maintain asystem of risk management controls andsupervisory procedures reasonablydesigned to manage the financial,regulatory, and other risks, such as legaland operational risks, related to marketaccess. The Rule will apply to trading inall securities on an exchange or ATS,20

including equities, options, exchange-traded funds, debt securities, andsecurity-based swaps.21 Further, it willrequire that the broker or dealer withmarket access have direct and exclusivecontrol of the risk management controlsand supervisory procedures, whilepermitting the reasonable andappropriate allocation of specific risk

management controls and supervisoryprocedures to a customer that is aregistered broker-dealer so long as the

broker-dealer providing market accesshas a reasonable basis for determiningthat such customer, based on itsposition in the transaction andrelationship with the ultimate customer,can more effectively implement them.Finally, and importantly, Rule 15c35will require those controls to beimplemented on a pre-trade basis,which will necessarily eliminate thepractice of broker-dealers providingunfiltered or naked access to any

exchange or ATS. As a result, theCommission believes Rule 15c35should substantially mitigate aparticularly serious vulnerability of theU.S. securities markets.

After careful review andconsideration of the comment letters,the Commission has determined toadopt Rule 15c35 substantially asproposed, but with certain narrowmodifications made in response toconcerns expressed by commenters asdiscussed below. Consistent with theProposing Release, Rule 15c35 isorganized as follows: (1) Relevantdefinitions, as set forth in Rule 15c3

5(a); (2) the general requirement tomaintain risk management controls andsupervisory procedures in connectionwith market access, as set forth in Rule15c35(b); (3) the more specificrequirements to maintain certainfinancial and regulatory riskmanagement controls and supervisoryprocedures, as set forth in Rule 15c35(c); (4) the mandate that those controlsand supervisory procedures, withcertain limited exceptions, be under thedirect and exclusive control of the

broker-dealer with market access, as setforth in Rule 15c35(d); and (5) the

requirement that the broker-dealerregularly review the effectiveness of therisk management controls andsupervisory procedures, as set forth inRule 15c35(e). This release first givesa general description of Rule 15c35 asadopted and then, in turn, discusses the

specific provisions of Proposed Rule15c35, the comments received on eachprovision, and any modifications to theprovision from the Proposing Release.

A. Summary of Rule 15c35

Rule 15c35 will require a broker ordealer that has market access, or thatprovides a customer or any other person

with access to an exchange or ATSthrough use of its MPID or otherwise, toestablish, document, and maintain asystem of risk management controls andsupervisory procedures reasonablydesigned to manage the financial,regulatory, and other risks, such as legaland operational risks, related to suchmarket access. Specifically, the Rulewill require that broker-dealers withaccess to trading securities on anexchange or ATS, as a result of being amember or subscriber thereof, and

broker-dealer operators of an ATS thatprovide access to their ATS to a non-

broker-dealer, establish, document, andmaintain a system of risk managementcontrols and supervisory proceduresthat, among other things, are reasonablydesigned to (1) systematically limit thefinancial exposure of the broker ordealer that could arise as a result ofmarket access, and (2) ensurecompliance with all regulatoryrequirements that are applicable inconnection with market access.22Broker-dealers that provide outboundrouting services to an exchange or ATSin order for those trading centers tomeet the requirements of Rule 611 ofRegulation NMS will not be required tocomply with the Rule with respect tosuch routing services, except withregard to paragraph (c)(1)(ii) of the Rule(regarding prevention of erroneousorders).

The required financial riskmanagement controls and supervisoryprocedures must be reasonably designedto prevent the entry of orders thatexceed appropriate pre-set credit orcapital thresholds, or that appear to beerroneous. The regulatory riskmanagement controls and supervisoryprocedures must be reasonably designedto prevent the entry of orders unless

there has been compliance with allregulatory requirements that must besatisfied on a pre-order entry basis,prevent the entry of orders that the

broker-dealer or customer is restrictedfrom trading, restrict market access



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23See 17 CFR 240.17a4(e)(7). Pursuant to Rule17a4(e)(7), every broker or dealer subject to Rule17a3 is required to maintain and preserve in aneasily accessible place each compliance,supervisory, and procedures manual, including anyupdates, modifications, and revisions to themanual, describing the policies and practices of thebroker or dealer with respect to compliance withapplicable laws and rules, and supervision of theactivities of each natural person associated with thebroker or dealer until three years after thetermination of the use of the manual.

24 Id.25See 17 CFR 240.17a4(b). Pursuant to Rule

17a4(b), every broker or dealer subject to Rule17a3 is required to preserve for a period of not lessthan three years, the first two years in an easilyaccessible place, certain records of the broker ordealer.

26 Id.27Proposed Rule 15c35(a)(1).28See Proposing Release, 75 FR at 4012 n. 35

(stating that Proposed Rule 15c35 would notapply to non-broker-dealers, including non-broker-dealers that are subscribers of an ATS.).

29See 15 U.S.C. 78f(c)(1) (A national securitiesexchange shall deny membership to (A) any person,other than a natural person, which is not aregistered broker or dealer or (B) any natural personwho is not, or is not associated with, a registeredbroker or dealer.).

30See 17 CFR 242.300(b).31See letters to Elizabeth M. Murphy, Secretary,

Commission, from Marcia E. Asquith, Senior VicePresident and Corporate Secretary, FINRA, March25, 2010 (FINRA Letter); Christopher Lee, GlobalHead of Market Access, and Paul Willis, GlobalCompliance Officer, Fortis Bank Global ClearingN.V. London Branch, March 26, 2010 (FortisLetter); J. Ronald Morgan, Managing Director,Goldman, Sachs & Co., and Timothy T. Furey,Managing Director, Goldman Sachs Execution &

Clearing, L.P., March 20, 2010 (Goldman Letter

);Timothy J. Mahoney, Chief Executive Officer,

Marybeth Shay, Senior Managing Director Sales andMarketing, and Vivian A. Maese, General Counseland Corporate Secretary, BIDS Trading, March 29,2010 (BIDS Letter); P. Mats Goebels, ManagingDirector and General Counsel, InvestmentTechnology Group, Inc., March 29, 2010 (ITGLetter); Peter Kovac, Chief Operating Officer andFinancial and Operations Principal, EWT LLC,March 29, 2010 (EWT Letter); John A. McCarthy,General Counsel, GETCO, April 1, 2010 (GETCOLetter); Jeffery S. Davis, Vice President and DeputyGeneral Counsel, The Nasdaq OMX Group ( NasdaqLetter); Ann Vlcek, Managing Director andAssociate General Counsel, SIFMA, April 16, 2010(SIFMA Letter).

technology and systems to authorizedpersons, and assure appropriatesurveillance personnel receiveimmediate post-trade execution reports.Each such broker-dealer will be requiredto preserve a copy of its supervisoryprocedures and a written description ofits risk management controls as part ofits books and records in a manner

consistent with Rule 17a4(e)(7) underthe Exchange Act.23

The financial and regulatory riskmanagement controls and supervisoryprocedures required by Rule 15c35must be under the direct and exclusivecontrol of the broker-dealer with marketaccess, with certain limited exceptionspermitting allocation to a customer thatis a registered broker-dealer of specifiedfunctions that, based on its position inthe transaction and relationship withthe ultimate customer, it can moreeffectively implement. In addition, a

broker-dealer with market access will be

required to establish, document, andmaintain a system for regularlyreviewing the effectiveness of the riskmanagement controls and supervisoryprocedures and for promptly addressingany issues. Among other things, the

broker-dealer will be required to review,no less frequently than annually, the

business activity of the broker-dealer inconnection with market access to assurethe overall effectiveness of its riskmanagement controls and supervisoryprocedures. Such review will berequired to be conducted in accordancewith written procedures and will berequired to be documented. The broker-dealer will be required to preserve acopy of its written procedures, anddocumentation of each review, as part ofits books and records in a mannerconsistent with Rule 17a4(e)(7) underthe Exchange Act,24 and Rule 17a4(b)under the Exchange Act, respectively.25

In addition, the Chief ExecutiveOfficer (or equivalent officer) of the

broker-dealer will be required, on anannual basis, to certify that the riskmanagement controls and supervisory

procedures comply with Rule 15c35,and that the regular review describedabove has been conducted. Suchcertifications will be required to bepreserved by the broker-dealer as part ofits books and records in a mannerconsistent with Rule 17a4(b) under theExchange Act.26

B. DefinitionsAs proposed, Rule 15c35 sets forth

two defined terms: market access andregulatory requirements. The termmarket access is central to ProposedRule 15c35, as it determines which

broker-dealers are subject to Rule andthe scope of the required financial andregulatory risk management controlsand supervisory procedures. In theProposing Release, the Commissionproposed to define the term marketaccess as access to trading in securitieson an exchange or ATS as a result of

being a member or subscriber of the

exchange or ATS, respectively.27 In theProposing Release, the Commissionexplained that market access isintentionally defined broadly so as toinclude not only direct market access orsponsored access services offered tocustomers of broker-dealers, but alsoaccess to trading for the proprietaryaccount of the broker-dealer and formore traditional agency activities. Inaddition, the proposed definition wouldencompass trading in all securities onan exchange or ATS, including equities,options, exchange-traded funds, debtsecurities, and security-based swaps.

1. Non-Broker-Dealer ATS Subscribers

By its terms, the proposed rule wouldnot have applied to non-broker-dealermarket participants, including non-

broker-dealer subscribers to ATSs.28 Inaddition, as proposed, the definition ofmarket access was limited by thephrase as a result of being a member orsubscriber of the exchange or ATS,respectively. Accordingly, a broker-dealer that operates an ATS andprovides non-broker-dealer marketparticipants access to its ATS would nothave been included within the proposed

definition of market access, becausesuch access would not result from that

broker-dealer being a subscriber to theATS, but rather from its being the ATSoperator.

With regard to exchanges, theExchange Act requires members to be

registered broker-dealers.29Accordingly, the proposed rule wasintended to ensure that all orderssubmitted to an exchange would flowthrough broker-dealer systems subject toRule 15c35 prior to such ordersentering an exchange. While themajority of ATS subscribers are broker-dealers, the current ATS regulatoryregime does not require a subscriber to

be a broker-dealer.30 As proposed, sincea non-broker-dealer subscriber to anATS would not have been subject to theproposed rule, orders it submits directlyto an ATS to which it subscribes wouldnot have flowed through a broker-dealersystem subject to Proposed Rule 15c35 before entering the ATS.

In the Proposing Release, theCommission requested comment onwhether the broker-dealer operator of anATS should be required to implementrisk management controls and

supervisory procedures with regard to anon-broker-dealer subscribers access toits ATS. Nine commenters specificallyaddressed non-broker-dealer access totrading in securities on ATSs inresponse to this request.31 Generally,these commenters believed that allorders entered on an exchange or ATSshould be subject to equivalentregulatory treatment, and urged theCommission to address this issue. Forexample, FINRA noted that the sameregulatory and financial risks associatedwith broker-dealer access arrangementsare present when a non-broker-dealer



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32See FINRA Letter at 34.33See FINRA Letter at 34; Fortis Letter at 5;

Goldman Letter at 1 n. 3; BIDS Letter at 4; ITGLetter at 9; SIFMA Letter at 7.

34See ITG Letter at 9.35See FINRA Letter at 34.36See Fortis Letter at 5; BIDS Letter at 4.37See EWT Letter at 2.38See GETCO Letter at 7.39See Nasdaq Letter at 2.

40As discussed in greater detail, infra, a broker-dealer subscriber of an ATS will be able to utilizethe risk management tools and software providedby the ATS to fulfill the requirements of the Rule.

41See Proposing Release, 75 FR at 4012.42These comments are addressed in Section II.E.

below.43SIFMA Letter at 6; letter to Elizabeth M.

Murphy, Secretary, Commission, from Joseph M.Velli, Chairman and Chief Executive Officer,ConvergEx Group, April 9, 2010 (ConvergExLetter) at 6.

subscriber enters orders and accesses anATS.32

Six commenters recommended thatthe broker-dealer operator of the ATSshould be required to implement therequired risk management controls andsupervisory procedures with regard toorder flow from non-broker-dealersubscribers.33 In general, these

commenters believed that the broker-dealer operator of an ATS is bestpositioned to implement the riskmanagement controls and supervisoryprocedures required under the proposedrule for order flow entered into its ATS

by non-broker-dealer subscribers. Forexample, one commenter noted that,when receiving orders from non-broker-dealer subscribers, the ATSs sponsoring

broker-dealer is the only broker-dealerin the chain of order flow from thesubscriber to the ATS.34 Similarly,FINRA believed that, because ATSsthemselves have regulatory obligations

as registered broker-dealers and FINRAmembers, it is appropriate to imposerisk management obligations on ATSs tothe extent that non-registered entitiesare permitted to access its ATS.35 Twoother commenters agreed that an ATSshould be required to implement riskmanagement controls and supervisoryprocedures with regard to order flowfrom non-broker-dealer subscribers, butthey believed this obligation stems fromits status as a market center rather thanas a broker-dealer.36

Several commenters put forthadditional ideas as to how to addressnon-broker-dealer subscriber access to

an ATS. One commenter suggested thatthe broker-dealer that clears the tradesthat occur on an ATS for a non-broker-dealer subscriber should be required toimplement the risk controls with regardto such orders.37 Another commenterproposed that the Commission amendthe ATS regulatory structure to requireATS subscribers to be broker-dealers.38Yet another commenter suggested thatthe Commission directly subject thenon-broker-dealer subscribers to theproposed rule.39 The Commissionreceived no comments suggesting thatnon-broker-dealer subscriber access to

an ATS should be outside the scope ofthe proposed rule.The Commission agrees that similar

regulatory and financial risks are

present when a non-broker-dealersubscriber directly accesses an ATS aswhen a broker-dealer accesses anexchange or ATS. Accordingly, theCommission believes that such accessshould be subject to the requirements ofthe proposed rule to ensure that allorders that enter an ATS are subject toeffective risk management controls and

supervisory procedures reasonablydesigned to limit financial exposure andensure compliance with applicableregulatory requirements. Specifically,the Commission believes that the

broker-dealer operator of an ATS shouldbe required to implement the financialand regulatory risk managementcontrols and supervisory proceduresrequired by the Rule with regard toaccess by non-broker-dealer subscribersto its ATS.

As noted above, because Rule 15c35 will not apply to non-broker-dealersubscribers, several commenters

suggested alternative ways to subjectnon-broker-dealer ATS subscribers tothe proposed rule. The Commission

believes, however, that the broker-dealeroperator of an ATS is the bestpositioned broker-dealer to implementthe risk management controls,particularly the pre-trade controls,required under the proposed rule. Inaddition, the Commission believes the

broker-dealer operator of an ATS caneffectively achieve the purposes of theRule. Requiring the broker-dealeroperator of an ATS to implement therisk management controls and

supervisory procedures required by theproposed rule with respect to non-

broker-dealer subscribers should ensurethat all order flow entered on an ATS issubject to the Rules financial andregulatory risk management controlsand supervisory procedures.40

Accordingly, the term market accessin Rule 15c35(a)(1), as adopted, isdefined to include access to trading insecurities on an alternative tradingsystem provided by a broker-dealeroperator of an alternative trading systemto a non-broker-dealer. A broker-dealeroperator of an ATS, therefore, would

have market access if it provides non-broker-dealer subscribers access to itsATS. Such a broker-dealer ATS operatorwould be subject to Rule 15c35 andwould be required, among other things,to establish, document, and maintain asystem of risk management controls andsupervisory procedures reasonablydesigned to manage the financial,

regulatory, and other risks of thisbusiness activity.

The Commission believes any broker-dealer with direct access to trading onan exchange or ATS, or that providesother market participants access totrading on an exchange or ATS, shouldestablish effective risk managementcontrols reasonably designed to prevent

breaches of credit or capital limits,erroneous trades, violations of SEC orexchange trading rules, and the like.These risk management controls shouldreduce risks associated with marketaccess and thereby enhance marketintegrity and investor protection in thesecurities markets.

2. Regulatory Requirements

Under Proposed Rule 15c35(a)(2),the term regulatory requirements wasdefined to include all federal securitieslaws, rules and regulations, and rules ofSROs, that are applicable in connectionwith market access. In the ProposingRelease, the Commission stated that itintends this definition to encompass allof a broker-dealers regulatoryrequirements that arise in connectionwith its market access.41 Regulatoryrequirements is a key term that controlsthe scope of the regulatory riskmanagement controls and supervisoryprocedures required by Proposed Rule15c35(c)(2). While several commentersaddressed the scope of the termregulatory requirements in the contextof the proposal to require riskmanagement controls and supervisorysystems,42 a few commenters expressed

concern regarding the specific definitionofregulatory requirements. Twocommenters requested that theCommission clarify that the definitiondoes not expand or alter the currentobligations of broker-dealers withmarket access or that provide othermarket participants with access totrading on an exchange or ATS.43 TheCommission emphasizes that the termregulatory requirements referencesexisting regulatory requirementsapplicable to broker-dealers inconnection with market access, and isnot intended to substantively expand

upon them (a concern noted by somecommenters). As discussed below inSection II.E, these regulatoryrequirements would include, forexample, pre-trade requirements such asexchange trading rules relating to



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44See 17 CFR 240.17a4(e)(7).45See, e.g., EWT Letter at 4; SIFMA Letter at 2;

letters to Elizabeth M. Murphy, Secretary,Commission, from Jeffrey W. Rubin, Chair,Committee on Federal Regulation of Securities,American Bar Association, April 5, 2010 ( ABALetter) at 5; Edward J. Joyce, President and ChiefOperating Officer, Chicago Board OptionsExchange, Incorporated (CBOE Letter) at 3.

46 In agreeing with the approach of the proposedrule, one commenter noted that [a]n effective riskmanagement system should be tailored to thebusiness of the broker-dealer, taking into account acomprehensive view of the firms activities,including the individual circumstances of variouscustomers and clients, and a quantitative analysisof the trading goals and strategies employed acrossall asset classes for each entity placing orders. SeeEWT Letter at 4.

47ABA Letter at 5 (requesting that theCommission clearly state that the proposedreasonably designed standard is not meant to bea one-size-fits-all test that would unreasonablyburden smaller broker-dealers). See also letter toElizabeth M. Murphy, Secretary, Commission, fromEdward Wedbush, President, and Jeff Bell,Executive Vice President, Wedbush Securities Inc.,March 31, 2010 (Wedbush Letter) at 1 (stating thatthe requirements of the Proposed Rule should notbe applied on a one size fits all basis. ).

48The Commission agrees with a commenter thatnoted that [r]isk controls must be tailored to theparticular nature of the market access, thearrangements between the market participants andthe market venue, and the clients trading strategy.Goldman Letter at 2.

49Proposed Rule 15c35 would not apply to non-broker-dealers, including non-broker-dealers thatare subscribers of an ATS.

50See, e.g., ABA Letter at 23; CBOE Letter at 1;letter to Elizabeth M. Murphy, Secretary,Commission, from Kimberly Unger, ExecutiveDirector, The Securities Traders Association of NewYork, Inc., March 29, 2010 (STANY Letter) at 2.

51STANY Letter at 2.

52CBOE Letter at 2.53Fortis Letter at 4.54Letter to Elizabeth M. Murphy, Secretary,

Commission, from Stuart J. Kaswell, Executive VicePresident and Managing Director, General Counsel,Managed Funds Association (MFA), March 29,2010 (MFA Letter) at 2. MFA recognized thatdifferent types of filters and control settings forproprietary orders and customer orders may bewarranted due to the different types of riskspresented by such orders. Id. See also WedbushLetter at 4 (Certain pre-trade risk filters should beapplied to all orders whether sponsored or not,thereby eliminating the performance or speeddifferential, and effectively encouraging firms toutilize these controls.).

55GETCO Letter at 2.

special order types, trading halts, odd-lot orders, and SEC rules underRegulation SHO and Regulation NMS,as well as post-trade obligations tomonitor for manipulation and otherillegal activity. The specific content ofthe regulatory requirements would, ofcourse, adjust over time as laws, rulesand regulations are modified.

C. Requirement to Maintain RiskManagement Controls and SupervisoryProcedures

Proposed Rule 15c35(b) sets forth thegeneral requirement that any broker-dealer with access to trading on anexchange or ATS must establish riskmanagement controls and supervisoryprocedures reasonably designed tomanage the associated risks.Specifically, Proposed Rule 15c35(b)provides that a broker-dealer withmarket access, or that provides acustomer or any other person with

access to an exchange or ATS throughuse of its MPID or otherwise, shallestablish, document, and maintain asystem of risk management controls andsupervisory procedures reasonablydesigned to manage the financial,regulatory, and other risks, such as legaland operational risks, of this businessactivity. Proposed Rule 15c35(b)requires the controls and procedures to

be documented in writing, and requiresthe broker-dealer to preserve a copy ofits supervisory procedures and a writtendescription of its risk managementcontrols as part of its books and recordsin a manner consistent with Rule 17a4(e)(7) under the Exchange Act.44

1. Reasonably Designed Controls andProcedures

Proposed Rule 15c35(b) requires thatthe risk management controls andsupervisory procedures of a broker-dealer subject to the rule be reasonablydesigned to manage the risks associatedwith market access. Commentersgenerally supported the proposedreasonably designed standard in therule.45 In the Proposing Release, theCommission noted that the proposedrule allows flexibility for the details of

the controls and procedures to varyfrom broker-dealer to broker-dealer,depending on the nature of the businessand customer base, so long as they arereasonably designed to achieve the goals

articulated in the proposed rule.46Accordingly, Rule 15c35 does notemploy a one-size-fits-all standard fordetermining compliance with the rule.47For example, a broker-dealer that onlyhandles order flow from retail clientsmay very well develop different riskmanagement controls and supervisoryprocedures than a broker-dealer that

mostly services order flow fromsophisticated high frequency traders.48

2. Application to Traditional AgencyBrokerage and Proprietary Trading

As noted above, the Commissionexpressed the view in the ProposingRelease that the financial and regulatoryrisk management controls andsupervisory procedures described in theproposed rule should apply broadly toall forms of market access by broker-dealers that are exchange members orATS subscribers, including sponsoredaccess, direct market access, and moretraditional agency brokeragearrangements with customers, as well asproprietary trading.49 Accordingly, theproposed term market access includesall such activities.

Certain commenters suggested thatthe scope of the proposed rule is too far-reaching in that it encompasses broker-dealer activities that do not raise risksas significant as those that occur inunfiltered sponsored accessarrangements.50 One commenter

believed that the proposed rule wouldlead to duplicative, unnecessary, andcostly regulation.51 Another commenter,

while acknowledging the risks posed byunfiltered sponsored accessarrangements, questioned the need forthe rule to cover other market accessarrangements.52 In contrast, onecommenter stated that Rule 15c35should apply equally to customer andproprietary trading activity, and shouldnot just be applicable to those members

offering third party access. 53 Anothercommenter similarly noted that uniformprinciples with respect to market accessare warranted, and that any final rule onmarket access should not advantage a

broker-dealers proprietary businessover its customer business.54 Yetanother commenter noted thatsubjecting proprietary trading of broker-dealers to Rule 15c35 would createcommon expectations for all firms topolice themselves in order to limitpotential market impacting events. 55

The Commission continues to believethat the risks associated with market

accesswhether they involve thepotential breach of a credit or capitallimit, the submission of erroneousorders as a result of computermalfunction or human error, the failureto comply with SEC or exchange tradingrules, the failure to detect illegalconduct, or otherwiseare presentwhenever a broker-dealer trades as amember of an exchange or subscriber toan ATS, whether for its own proprietaryaccount or as agent for its customers,including traditional agency brokerageand through direct market access orsponsored access arrangements. The

Commission believes that to effectivelyaddress these risks, Rule 15c35 mustapply broadly to all access to trading onan exchange or ATS.

In addition, the Commission,consistent with our understanding ofcurrent broker-dealer best practices,continues to believe that, in many cases,particularly with respect to proprietarytrading and more traditional agency

brokerage activities, that Rule 15c35should be substantially satisfied byexisting risk management controls andsupervisory procedures already



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56See Proposing Release, Appendix, 75 FR at40294031 (noting current SRO guidance withregard to internal procedures and controls tomanage the financial and regulatory risks associatedwith market access for members that providemarket access to customers).

57 Id.58See Wedbush Letter at 4; Fortis Letter at 2;

SIFMA Letter at 6; CBOE Letter at 4; GoldmanLetter at 7; GETCO Letter at 6; ITG Letter at 34;Lime Letter at 6; Deutsche Bank Letter at 56; lettersto Elizabeth M. Murphy, Secretary, Commission,from Richard D. Berliand, Managing Director andHead of Prime Services and Market Structure

Group, and John J. Hogan, Managing Director andChief Risk Officer, Investment Bank, J.P. MorganSecurities Inc., April 26, 2010 ( JP Morgan Letter)at 23; Jesse Lawrence, Director and ManagingCounsel, Pershing LLC, March 24, 2010 (PershingLetter) at 34; Nicole Harner Williams, VicePresident and Associate General Counsel, PensonWorldwide, Inc., March 29, 2010 (Penson Letter)at 3; Gary DeWaal, Senior Managing Director andGroup General Counsel, Newedge USA, LLC, March29, 2010 (Newedge Letter) at 2, 4; John M.Damgard, President, Futures Industry Association,May 6, 2010, (FIA Letter) at 2.

59See, e.g., Pershing Letter at 3; Penson Letter at3; Deutsche Bank Letter at 5; Goldman Letter at 7;ITG Letter at 3; Lime Letter at 6; JP Morgan Letterat 2.

60See, e.g., Deutsche Bank Letter at 2; Lime Letterat 6; Wedbush Letter at 4; Pershing Letter at 3.

61See, e.g., Newedge Letter at 2.62See, e.g., Wedbush Letter at 4. See also NYSE

Letter at 3; BATS Letter at 2; BIDS Letter at 2.63See Nasdaq Letter at 4; CBOE Letter at 3; EWT

Letter at 4; ConvergEx Letter at 5; GETCO Letter at5; letters to Elizabeth M. Murphy, Secretary,Commission, from Eric W. Hess, General Counsel,Direct Edge Holdings, LLC, March 26, 2010 (DirectEdge Letter) at 13; Eric J. Swanson, Senior VicePresident and General Counsel, BATS Exchange,Inc., March 21, 2010 (BATS Letter) at 34; JanetM. Kissane, Senior Vice PresidentLegal andCorporate Secretary, Office of the General Counsel,NYSE Euronext, March 29, 2010 (NYSE Letter) at45.

64See, e.g., GETCO Letter at 5; CBOE Letter at 3.

65See 17 CFR 242.611. Pursuant to Rule 611 ofRegulation NMS, exchanges and ATSs are requiredto, among other things, establish, maintain, andenforce written policies and procedures that arereasonably designed to prevent trade-throughs onsuch exchange or ATS of protected quotations in

NMS stocks. Exchanges and ATSs generally complywith this requirement, in part, by employing anaffiliated or unaffiliated broker-dealer to routeorders received by the exchange or ATS to othertrading centers displaying protected quotations.

66The Options Linkage Plan is a Commission-approved national market system plan. SecuritiesExchange Act Release No. 60405 (July 30, 2009), 74FR 39362 (August 6, 2009) (Order Approving theNational Market System Plan Relating to OptionsOrder Protection and Locked/Crossed MarketsSubmitted by the Chicago Board Options Exchange,Incorporated, International Securities Exchange,LLC, The NASDAQ Stock Market LLC, NASDAQOMX BX, Inc., NASDAQ OMX PHLX, Inc., NYSEAmex LLC, and NYSE Arca, Inc.) (Options LinkagePlan).

67See, e.g., Direct Edge Letter at 2; Nasdaq Letterat 4; NYSE Letter at 4.

68See, e.g., The NASDAQ Stock Exchange LLCRule 4758(b); BATS Exchange, Inc. Rule 2.11(a);and New York Stock Exchange, Inc. Rule 13.Several commenters noted that exchange routingbrokers operate as facilities of exchanges. SeeNasdaq Letter at 4; NYSE Letter at 4; Direct EdgeLetter at 1. Nasdaq stated that exchange-operatedbroker-dealers are already heavily regulated asexchange facilities, including rule strictly limitingthem to a single client, the exchange itself.

69See Nasdaq Letter at 4; NYSE Letter at 5; BATSLetter at 4; Direct Edge Letter at 23; CBOE Letterat 3; GETCO Letter at 5.

70See Direct Edge Letter at 2; ConvergEx Letterat 5; GETCO Letter at 5; BATS Letter at 4; EWTLetter at 4.

implemented by broker-dealers.56 Forthese broker-dealers, Rule 15c35should have a minimal impact oncurrent business practices and,therefore, should not impose significantadditional costs on those broker-dealersthat currently employ a prudentapproach to risk management.57 Rule15c35 will assure that broker-dealer

controls and procedures areappropriately strengthened, asnecessary, so that consistent standardsare applied for all types of marketaccess. By requiring all forms of marketaccess by broker-dealers to meet certain

baseline standards for financial andregulatory risk management controls,Rule 15c35 should reduce risks to

broker-dealers, the markets, and thefinancial system, and thereby enhancemarket integrity and investor protection.

3. Risk Management Controls Providedby Exchanges and ATSs

Several commenters addressed therole of market centersexchanges andATSsin connection with theestablishment of risk managementcontrols.58 Some commenters suggestedthat market centers, rather than broker-dealers with market access, should beresponsible for implementing certainpre-trade risk management controls.These commenters generally argued thatthe market center is best positioned toimplement pre-trade risk managementcontrols such as those designed toprevent erroneous orders and assurecompliance with SRO rules relating totrading halts and special order types.59

Some commenters argued that applyingpre-trade risk controls at the marketcenter level would provide for uniform

treatment of all orders entered on thatmarket center,60 and would moreequitably allocate risk managementobligations among those that benefitfrom trading.61 In this regard,commenters noted that certainexchanges currently provide users withan array of pre-trade risk controls, andurged the Commission to allow broker-

dealers to rely on these exchangecontrols to comply with the Rule.62 TheCommission believes that market center-provided pre-trade risk controls can beuseful risk management tools. TheCommission continues to believe,however, that broker-dealers withmarket access should be responsible inthe first instance for establishing andmaintaining appropriate riskmanagement controls under the Rule.The Commission notes, as discussed inSection F. below, that broker-dealersmay be able to use market center-provided pre-trade risk controls as part

of an overall plan to comply with theRule. In addition, the Commission notesthat market centers may independentlyimplement pre-trade risk managementcontrols to supplement those applied by

broker-dealers.

4. Routing Brokers

In the Proposing Release, theCommission requested comment onwhether any particular market accessarrangement warranted differenttreatment under the proposed rule. Inresponse, eight commenters expressedconcern with the application of theproposed rule to broker-dealers that

provide outbound order routing servicesto exchanges.63 In addition, two of thesecommenters noted the same concernswith respect to broker-dealers thatprovide outbound order routing servicesto ATSs.64 As proposed, Rule 15c35would have applied to routing brokers

because they have market access, asdefined in Rule 15c35(a)(1).

Exchanges and ATSs use outboundorder routing services provided by

broker-dealers to, among other things,comply with the trade-through

provisions of Rule 611 of RegulationNMS 65 for NMS stocks, and the trade-through provisions of Options LinkagePlan 66 for listed options, by routingorders to better-priced quotes at awaymarkets. Some exchanges and ATSs useaffiliated broker-dealers to perform thisfunction, and others contract with anunaffiliated broker-dealer to do so.67 In

general, the outbound order routingservice provided to exchanges by

broker-dealers is regulated as a facilityof the exchange, and therefore is subjectto direct Commission oversight.68

Commenters noted that, under theproposal, orders submitted to anexchange would first have to flowthrough broker-dealer systems that aresubject to the financial and regulatoryrisk controls required by proposed Rule15c35, and suggested that requiringrouting brokers to perform the same riskchecks immediately thereafter would beduplicative.69 These commenters

suggested that subjecting routingbrokers to proposed Rule 15c35 wouldimpose unnecessary costs andinefficiencies without anycorresponding benefits. In addition,some commenters argued that routing

brokers would not necessarily have therequisite knowledge to effectivelyimplement the required pre-trade riskchecks.70



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71The Commission notes that, as adopted, Rule15c35 requires a broker-dealer operator of an ATSto implement the financial and regulatory riskmanagement controls required by the rule withregard to non-broker-dealer subscribers access to itsATS. As discussed above, with this change, Rule15c35 requires all orders that enter an ATS (i.e.orders entered by broker-dealer subscribers andnon-broker-dealer subscribers) to flow throughbroker-dealer risk management controls subject tothe proposed rule.

72See, e.g., Wedbush Letter at 4 (Pre-trade filtersbenefit the entire industry by helping to preventcomputerized trading malfunctions * * *.); LimeLetter at 5 (Real-time pre-trade, order-placementcontrols are certainly a critical component tomitigate many of the risks associated with marketaccess.), SIFMA Letter at 2 (SIFMA supports thegeneral principle underlying the Proposal that pre-trade and post-trade controls and procedures areappropriate in sponsored access arrangements.), JPMorgan Letter at 2 (We agree with the Commissionthat pre-trade controls need to be applied to allorders sent under a broker-dealers MPID to anexchange or ATS.).

73See, e.g., BIDS Letter at 3; SIFMA Letter at 8;ConvergEx Letter at 5.

74BIDS Letter at 3 (suggesting that it would bea reasonable procedure for a broker-dealer to setthresholds with reference to the aggregate tradingpotential of such customer that is known to the firmon a per market basis).

75See, e.g., ITG Letter at 8; Deutsche Bank Letterat 3.

The Commission is adopting Rule15c35 to include an exception for

broker-dealers that provide outboundrouting services to an exchange or ATSfor the sole purpose of accessing othertrading centers with protectedquotations on behalf the exchange orATS in order to comply with Rule 611of Regulation NMS, or a national market

system plan for listed options. UnderRule 15c35, orders sent to an exchangeor ATS for execution on that exchangeor ATS are required to be subject to

broker-dealer risk management controlsimmediately before submission to theexchange or ATS.71 When providingoutbound routing services to anexchange or ATS for the sole purpose ofaccessing other trading centers withprotected quotations on behalf theexchange or ATS in order to complywith Rule 611 of Regulation NMS, or anational market system plan for listedoptions, routing brokers necessarily

would only handle orders that have justpassed through broker-dealer riskmanagement controls subject toProposed Rule 15c35. Accordingly, theCommission believes that exceptingrouting brokers employed by exchangesand ATSs to comply with Rule 611ofRegulation NMS, or a national marketsystem plan for listed options, from therequirements of Rule 15c35 shouldserve to encourage efficient routingservices for the purpose of RegulationNMS compliance without increasing therisks associated with market access. TheCommission notes, however, thatrouting brokers will not be exempt from

the requirement in Rule 15c35(c)(1)(ii)to prevent the entry of erroneous orders,

by rejecting orders that exceedappropriate price or size parameters, onan order-by-order basis or over a shortperiod of time, or that indicateduplicative orders. The Commission

believes that requiring routing brokersto have controls reasonably designed toprevent the entry of erroneous orduplicative orders should help ensurethat order handling by an exchange orATS routing broker would not increaserisk.

The Commission notes that the

exception applies only to the extent arouting broker is providing services toan exchange or ATS for the purpose offulfilling the compliance obligations of

the exchange or ATS under Rule 611 ofRegulation NMS, or a national marketsystem plan for listed options. Routingservices of an exchange or ATS routing

broker that are not limited tocompliance with Rule 611 of RegulationNMS may include a more complex orderrouting process involving new decision-making by the routing broker that

warrant imposition of the full range ofmarket access risk controls.Accordingly, the Commission believesthat in these circumstances theexchange or ATS routing broker should

be fully subject to Rule 15c35. Theexception would not apply, for example,to a broker-dealer when it providesother routing services for the exchangeor ATS, such as directed routing forexchange or ATS customers. Inaddition, the Commission emphasizesthat this exception only applies to therequirements of Rule 15c35.Accordingly, this exception would not

relieve a routing broker that is a memberof an exchange of its obligation tocomply with the rules of that exchange.

D. Financial Risk Management Controlsand Supervisory Procedures

Proposed Rule 15c35(c) would haverequired a broker-dealers riskmanagement controls and supervisoryprocedures to include certain elements.Proposed Rule 15c35(c)(1) wasintended to address financial risks, andwould have required that the riskmanagement controls and supervisoryprocedures be reasonably designed to

systematically limit the financialexposure of the broker-dealer that couldarise as a result of market access.Among other things, the controls andprocedures must be reasonably designedto: (1) Prevent the entry of orders thatexceed appropriate pre-set credit orcapital thresholds in the aggregate foreach customer and the broker-dealer,and where appropriate more finely-tuned by sector, security, or otherwise,

by rejecting orders if such orders exceedthe applicable credit or capitalthresholds; and (2) prevent the entry oferroneous orders, by rejecting orders

that exceed appropriate price or sizeparameters, on an order-by-order basisor over a short period of time, or thatindicate duplicative orders.

1. Individual Trading Center CreditLimits

Commenters generally agreed thatsystematic, pre-set credit or capitalthresholds applied on a pre-trade basisare reasonable and appropriate financialrisk management controls that should bein place for market access

arrangements.72 Some commenters,however, suggested that theCommission clarify how a broker-dealercould reasonably set credit and capitalthresholds under the proposed rule.73 Inparticular, one commenter thought

broker-dealers should have theflexibility to set credit limits forcustomers on a market-by-market

basis.74 The Commission believes that abroker-dealer that sets a reasonableaggregate credit limit for each customercould satisfy Rule 15c35(c)(1)(i) if the

broker-dealer imposes that credit limitby setting sub-limits applied at eachexchange or ATS to which the broker-dealer provides access that, when addedtogether, equal the aggregate creditlimit. This approach, however, wouldnecessarily require that, when assessingthe customers credit exposure at onemarket center, the broker-dealer assumethat the maximum credit limit has beenreached by the customer at all other

exchanges and ATSs to which itprovides access. For example, if areasonable aggregate credit limit for acustomer is $1,000,000 and the broker-dealer provides it access to fiveexchanges or ATSs, the broker-dealermay set individual market center creditlimits of $200,000 to be applied at themarket center level, but that limit couldnot be increased to reflect any unusedportion of the credit limits at othermarket centers.

2. More Finely-Tuned Credit Limits

A few commenters argued that the

requirement to set finely-tuned credit orcapital thresholds, where appropriate, isunclear, and the Commission shouldprovide more detail or eliminate therequirement.75 One commenter believedthe requirement was vague, andexpressed concern that a broker-dealercould be found to have violated theproposed rule if it did not finely-tune its



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76Deutsche Bank Letter at 3.77 ITG Letter at 8.78Goldman Letter at 6.79See ABA Letter at 5 (requesting that the

Commission clearly state that the proposedreasonably designed standard is not meant to bea one-size-fits-all test that would unreasonablyburden smaller broker-dealers).

80Goldman Letter at 6.81Deutsche Bank Letter at 3 (suggesting that the

Commission replace the pre-trade credit thresholdwith a threshold based on the total dollar value ofopen orders placed by a customer); STANY Letterat 56; letter to Elizabeth M. Murphy, Secretary,Commission, from Ted Myerson, Chief ExecutiveOfficer, Doug Kittelsen, Chief Technology Officer,and M. Gary LaFever, General Counsel, FTEN, Inc.,March 29, 2010 (FTEN Letter) at 4.

82STANY Letter at 56; FTEN Letter at 4.83FTEN Letter at 4. See also STANY Letter at 5

(stating that an analysis of the likelihood of aninfraction occurring within the overall setting of theorders, executions and cancellation rates * * *would result in desired improvements in systemicrisk controls without adversely impacting liquidityin the marketplace.).

84Proposing Release, 75 FR at 4013.

85NYSE Letter at 2.86SIFMA Letter at 9.87For example, a reasonably designed risk control

to prevent the entry of duplicative orders for a highfrequency trader may very well be differentinparticular, more tolerantthan controls designed toperform the same function for individual investorsat a retail brokerage firm.

credit or capital thresholds.76 Anothercommenter thought the requirement isunclear, and questioned the need for itin light of an aggregate credit or capitalthreshold.77 In contrast, one commenteragreed with the proposed rule that anaggregate exposure threshold should berequired for each account and, whereappropriate, for specific industry sectors

and/or securities. 78 Rule 15c35(c)(1)(i), the provision addressing morefinely-tuned credit or capital thresholds,where appropriate, is intended toprovide a broker-dealer flexibility insetting its credit and capital thresholdconsistent with the broker-dealers

business model and the goals of theRule. A broker-dealer should assess its

business and its customers to determineif it is appropriate to establish moretailored credit or capital limits bysector, security, or otherwise. Thisunderscores the reasonable policies andprocedures approach of the Rule and the

Commissions recognition that aone-size-fits-all model for risk management

controls and supervisory procedures inconnection with market access is notappropriate.79

3. Reasonable Models for Credit orCapital Exposure of Outstanding Orders

Several commenters suggested moreflexibility with respect to the proposedpre-order entry financial riskmanagement controls in paragraph(c)(1)(i) of the Rule. One commentersuggested that the controls be appliedon a rolling intra-day or post-close basis,with compliance being calculated based

on executed orders rather than ordersrouted but not yet executed.80 In otherwords, a broker-dealers controls would

block the routing of additional ordersand cancel any open orders only afterthe execution of orders exceeding theapplicable credit or capital limit hadoccurred. Other commenters suggestedadditional variations on the proposedapproach to compliance with credit andcapital thresholds so as to reduce thepotential impact on liquidity.81 Forexample, commenters suggested that an

algorithmic approach to determining thecredit and capital threshold would bepreferable.82 One commenter suggestedthat the Commission should requirereal-time trade flow controls whichincorporate an algorithmic approach toresting orders, executions andcancellation rates in order toaccomplish desired improvements in

systemic risk management withoutadversely impacting liquidity in themarketplace. 83

In the Proposing Release, theCommission stated that becausefinancial exposure through rapid orderentry can be incurred very quickly intodays fast electronic markets, controlsshould measure compliance withappropriate credit or capital thresholdson the basis of orders entered ratherthan executions obtained. 84 TheCommission continues to believe that

broker-dealers should monitorcompliance with applicable credit orcapital thresholds based on ordersentered, including the potentialfinancial exposure resulting from openorders not yet executed. TheCommission recognizes, however, thatsome active trading strategiespredictably result in executions for onlya small percentage of orders entered,and that requiring broker-dealers toassume that every order entered will beexecuted will, in some cases,significantly overestimate actual creditor capital exposures. Accordingly, theCommission believes that, while thereasonably designed risk management

controls contemplated by Rule 15c35should measure compliance based onorders entered, the credit or capitalexposure assigned to those orders may

be discounted, where appropriate, toaccount for the likelihood of actualexecution as demonstrated byreasonable risk management models.Any broker-dealer relying on riskmanagement models to discount theexposure of outstanding orders shouldmonitor the accuracy of its models onan ongoing basis and make appropriateadjustments to its method of calculatingcredit or capital exposures as warranted.

Broker-dealers providing market accessalso may wish to establish earlywarning mechanisms to alert themwhen the applicable credit or capitalthreshold is being approached, so that

additional steps may be taken to assurethe threshold is not breached.

4. Duplicative Orders

A few commenters expressed concernregarding the requirement in ProposedRule 15c35(c)(1)(ii) that a broker-dealerhave controls and proceduresreasonably designed to prevent the entry

of orders that indicate duplicativeorders. One commenter noted that thisaspect of the proposal could createoperational difficulties in determininghow to set the risk managementparameters, and requested that theCommission either eliminate thisrequirement from the rule or clarify thata broker-dealer could apply reasonablestandards to detect duplicative orders

based on the activity of its customers.85Another commenter noted thedifficulties in setting parameters todetect duplicative orders and suggestedthe Commission allow for flexibility in

setting parameters so as not todisadvantage clients by rejecting ordersthat are not in fact duplicative.86 TheCommission emphasizes that thecontrols and procedures must bereasonably designed to prevent theentry of erroneous orders, includingduplicative orders, which allows broker-dealers some flexibility in crafting them,so long as they are reasonably designedto achieve the stated goal. Among otherthings, the Commission believes broker-dealers should take into account thetype of customer as well as thecustomers trading patterns and orderentry history in determining how to set

such parameters.87

5. Rule 15c35(c)(1)

The Commission is adopting Rule15c35(c)(1) as proposed. TheCommission believes that, in todaysfast electronic markets, effectivecontrols with respect to financial riskincurred on exchanges and ATSs must

be automated and applied on a pre-tradebasis. These pre-trade controls shouldprotect broker-dealers providing marketaccess, as well as their customers andother market participants, by blockingorders that do not comply with

applicable risk management controlsfrom being routed to a securities market.As noted above, there is flexibility forthe specific parameters of the controlsand procedures to vary from broker-dealer to broker-dealer, depending on



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88The broker-dealer providing market access mayalso wish to supplement the overall credit limit i tplaces on the activity of its broker-dealer customerswith assurances from those broker-dealer customersthat they have implemented controls reasonablydesigned to assure that trading by their individualcustomers remains within appropriate pre-set creditthresholds.

89 In this regard, the Commission notes that somemarkets provide price collars for market orders tohelp ensure that executions are reasonably relatedto the quoted price. See e.g. NYSE Arca Rule 7.31(a)and Nasdaq Rule 4751.

90ConvergEx Letter at 6; SIFMA Letter at 6; ITGLetter at 4.

the nature of the business and customerbase, so long as they are reasonablydesigned to achieve the goals articulatedin the Rule. In many cases, particularlywith respect to proprietary trading andmore traditional agency brokerageactivities, the Rule may be substantiallysatisfied by existing financial riskmanagement controls and supervisory

procedures already implemented bybroker-dealers. However, theCommission believes that the Ruleshould help to assure that a consistentstandard applies to all broker-dealersproviding any type of market accessand, importantly, will address theserious gap that exists with those

broker-dealers that today offerunfiltered sponsored access.

Under Rule 15c35(c)(1)(i), thebroker-dealers controls and proceduresmust be reasonably designed to preventthe entry of orders that exceedappropriate pre-set credit or capital

thresholds in the aggregate for eachcustomer and the broker-dealer, andwhere appropriate more finely-tuned bysector, security, or otherwise, byrejecting orders if such orders exceedthe applicable credit or capitalthresholds. Under this provision, a

broker-dealer will be required to setappropriate credit thresholds for eachcustomer for which it provides marketaccess, including broker-dealercustomers,88 and appropriate capitalthresholds for proprietary trading by the

broker-dealer itself. The Commissionexpects broker-dealers will make suchdeterminations based on appropriatedue diligence as to the customers

business, financial condition, tradingpatterns, and other matters, anddocument that decision. In addition, theCommission expects the broker-dealerwill monitor on an ongoing basiswhether the credit thresholds remainappropriate, and promptly makeadjustments to them, and its controlsand procedures, as warranted.

In addition, because the controls andprocedures must be reasonably designedto prevent the entry of orders thatexceed the applicable credit or capitalthresholds by rejecting them, the broker-

dealers controls must be applied on anautomated, pre-trade basis, before ordersare routed to the exchange or ATS.Furthermore, because the riskmanagement controls and supervisoryprocedures should be designed such

that rejection must occur if such orderswould exceed the applicable credit orcapital thresholds, the broker-dealermust assess compliance with theapplicable threshold on the basis ofexposure from orders entered on anexchange or ATS, rather than relying ona post-execution, after-the-factdetermination. Because financial

exposure through rapid order entry canbe incurred very quickly in todays fastelectronic markets, controls shouldmeasure compliance with appropriatecredit or capital thresholds on the basisof orders entered rather than executionsobtained. As noted above, however, inappropriate cases reasonable riskmanagement models may be used todiscount the credit or capital exposuregenerated by outstanding butunexecuted orders.

Under Rule 15c35(c)(1)(ii), thebroker-dealers controls and proceduresmust be reasonably designed to preventthe entry of erroneous orders, byrejecting orders that exceed appropriateprice or size parameters, on an order-by-order basis or over a short period oftime, or that indicate duplicative orders.Given the prevalence today of high-speed automated trading algorithms andother technology, and the fact thatmalfunctions periodically occur withthose systems, the Commission believesthat broker-dealer risk managementcontrols should be reasonably designedto detect malfunctions and preventorders from erroneously being enteredas a result, and that identifying and

blocking erroneously entered orders onan order-by-order basis or over a shortperiod of time would accomplish this.These controls also should bereasonably designed to prevent ordersfrom being entered erroneously as aresult of manual errors (e.g., erroneouslyentering a buy order of 2,000 shares at$2.00 as a buy order of 2 shares at$2,000.00). For

risk management controls

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