Word of the Week
“sponsored naked access”
The Securities and Exchange Commission has been busy recently looking into all sorts of sneaky-sounding market practices that may be giving some traders unfair advantages over others. This week, SEC Commissioner Elisse Walter told Reuters that she’s increasingly concerned about "sponsored naked access."
What’s that? It’s a practice in which brokerages that are certified to trade on an exchange, such as the Nasdaq, rent their access to that exchange to high-speed traders. While trading directly on the exchange is desirable because it’s faster and more competitive, the SEC is concerned that the practice introduces too much risk. According to the Wall Street Journal, one worry is “that a trading outfit could suffer a massive loss through a computer glitch that threatens the financial stability of the sponsoring broker, or triggers a sudden and unexplained decline in the broader market.” Recently, SEC Chairman Mary Schapiro offered a helpful analogy to describe the situation. She said, "I liken it to giving your car keys to a friend who doesn't have a license and letting him drive unaccompanied."
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