Does Rule 15c3-5 Go Far Enough?

Rob Daly, Sell-Side Technology

I recently spoke to Adam Honoré, research director at industry analyst firm Aite Group, about his research note on the impact of the US Securities and Exchange Commission's (SEC's) Rule 15c3-5, the pre-trade risk-check rule. I am torn on how beneficial this rule will be for the US markets.

Making sure that clients trade within their risk profiles would seem to be a no-brainer for firms operating as broker-dealers. I guess there is a reason for the "no running with scissors" signs posted in schools—some people simply need to have these commonsense edicts in writing.

The biggest challenge for the firms will be aggregating pre-trade risk checks across the various business lines rather than each desk running its own checks. The problem is that it really only affects the markets that are regulated by the SEC—the US Commodity Futures Trading Commission (CFTC) did not participate in crafting the rule or develop a similar one for the markets it regulates.

In other words, will Rule 15c3-5 cover half the US markets? Given that most buy-side clients are trading multi-asset strategies rather than staying in a specific asset class, will these pre-trade checks provide a true risk profile for a client or one that skews toward SEC-regulated markets? If so, is a skewed profile better than no risk profile?

According to Honoré's analysis, banks will meet the rule's Nov. 30 deadline, but "barely." Integrating the pre-trade risk platforms for equities, fixed income and foreign exchange (FX) in order to have an aggregated risk view has not been done before on a wide scale. These first offerings are likely to have all the polish and finesse of a shotgun wedding.

One thing is for sure: The industry is not spending that much money on preparations for this rule. Honoré estimates $83 million will be spent this year to address compliance, a figure he predicts will increase to $109 million by 2013.

To get the most out of this regulation, the CFTC needs to step up and issue a similar mandate, but considering everything it has on its plate, this is unlikely to happen any time soon.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact or view our subscription options here:

You are currently unable to copy this content. Please contact to find out more.

Refinitiv’s PermIDs: Converting needs into opportunity

Refinitiv’s PermID framework was conceived as a proprietary tool to address an internal challenge around identifying objects in the firm’s information model. Once it had proved its worth, it was rolled out to the firm’s clients to significant success.

You need to sign in to use this feature. If you don’t have a WatersTechnology account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here