On June 5, 2014, the Chair of the Securities and Exchange Commission (SEC) Mary Jo White, outlined a broad proposal to address market structure issues in light of the increase in electronic and off-exchange trading in recent years. Among the initiatives outlined in the Market Structure Speech, Chair White indicated that she has asked the SEC staff to prepare a recommendation to the SEC for a rule to clarify that high-frequency traders come within the meaning of the term “dealer” and have to register as such with the SEC.
Although the SEC has yet to formally propose rules in this area as of the date of this article, in clarifying that high-frequency traders are “dealers”, the SEC will have to address the “dealer-trader distinction”, a decades-old interpretive framework under which persons who trade for their own accounts with some frequency are not considered “dealers”. Depending on the interpretive framework that the SEC uses to bring high-frequency traders within the dealer definition, the implications to other market participants could be far reaching and could unintentionally eliminate use of the dealer-trader distinction for market participants who are not high-frequency traders. This paper provides an overview of the dealer-trader distinction as well as some of the issues that the SEC will have to consider when bringing high-frequency traders within its regulatory umbrella.