Are You Ready for 15c3-5?

By: Anya Kezervashilli

The practice of brokers granting unsupervised direct market access to markets to their clients developed to accommodate ultra high-speed trading technologies and increasingly complex algorithms. The Flash Crash of May 6, 2010, however, put a spotlight on the dangers of such arrangement. The Rule 15c3-5 now requires all broker-dealers with the ability to trade directly on an exchange and alternative trading system (ATS) to have a broad range of risk management controls in place. The intention is to limit broker-dealers' potential financial exposure in connection with direct trading on the markets.

As with many regulations, there are some gray areas. For example, if a broker-dealer does not technically accesses markets directly and instead routes orders through a clearing broker or broker-provided algorithms, does the firm still have to be 15c3-5 compliant? Some broker-dealers as well as OMS providers simply drew a line in the sand and said "no". However, clearing brokers and algorithm-providers might not be prepared or willing to unilaterally carry the burden of responsibility since, they might argue, they do not have the knowledge of the aggregated customer exposure as stipulated by the Rule 15c3-5. No one disputes, though, that risk management controls are important. Thus, this is a good time to review what risk management features your current trading systems have in place – and whether that would satisfy the Rule 15c3-5 requirements if need comes.

SS&C MarketTrader OEMS offers a broad range of risk management controls required by the Rule 15c3-5. You can prevent entry of erroneous orders by establishing order size threshold for each destination ("fat-finger" control) and by specifying a maximum order limit delta. Integrated market data feed ensures that market value based thresholds reflect the actual state of the market. The system also enables you to drill deeper and to establish limits by security on a user, desk, firm, or customer level. Would you like to learn more about these and other features of SS&C MarketTrader OEMS? Email us at