WASHINGTON—The Securities and Exchange Commission voted on Wednesday to bar brokers from granting high-frequency traders unfiltered access to an exchange, a move aimed at imposing safeguards meant to prevent bad trades from disrupting the markets.
"Naked access" lets high-speed traders and others buy and sell stocks on exchanges using a broker's computer code without requiring them to filter through the broker's systems or undergo any pretrade checks.
Such trading arrangements have exploded with the growth of high-frequency trading firms, which rely on trading speed to make their money and don't want to be bogged down by a broker's controls. In some cases, brokers rely on assurances from traders that they have their own controls in place. Roughly 30% of market activity is currently conducted through naked access, said John Jacobs, director of operations at Lime Brokerage.
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