May 19 (Bloomberg) — The Financial Industry Regulatory Authority, Wall Street's self-regulator, is changing the design of a trading-surveillance system that has drawn opposition from brokers, Chief Executive Officer Rick Ketchum said in a speech.
Smaller brokers that don't use clearing firms will have more flexibility to send trade and commission data directly or to use a service bureau, Ketchum said today at Finra's annual conference in Washington. Trade information about products not held by clearing brokers, such as variable annuities and direct mutual funds, won't have to be submitted in the early stages of the project, he said.
Finra advised brokers in December that the system, known as Cards, would help it automate its analysis of suspicious activity including overcharging and sales of unsuitable investments. The brokerage data would lessen Finra's reliance on in-person exams that can miss some regulatory violations.
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"We are aggressively engaged in meeting with firms to understand the costs and benefits of Cards," Ketchum said today. "These meetings have already led to changes from our original concept that will help balance the impact on market participants while maintaining the benefits."
The Securities Industry and Financial Markets Association has rebelled against Finra's initial proposal, saying it would raise privacy and data-security risks for investors and brokers, and could involve large compliance costs.
Complaint Response
The regulator is responding to those complaints by permitting some variability in data reporting and introducing requirements in stages, Ketchum said today.
"With the technologies that are now available to us, we can do things to transform our exam program in ways that haven't been available to us before," he said.
Reporting data to Finra will involve "short-term pain" for the industry but will improve the view regulators have of the market, said Hardeep Walia, CEO of Motif Investing Inc., an online broker based in Rancho Cordova, California, that offers pre-built portfolios to investors.
"It's a lot of cost in transitioning the existing system," Walia told the conference. "It's one of those things where we are betting on the long term. It's a very visionary move."
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