House Passes Bill Requiring SEC Subpoenas for Trading Codes

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By Andrew Ramonas

The SEC would need a subpoena before obtaining proprietary algorithmic source code used by high-frequency traders under legislation passed by the House Feb. 14.

The provision was tucked into the TRID Improvement Act ( H.R. 3978), which passed the House on a 271-145 vote. The subpoena requirement came from the Protection of Source Code Act ( H.R. 3948), sponsored by Rep. Sean Duffy (R-Wis.)

The Securities and Exchange Commission usually needs a subpoena for the data from investment companies and advisers. A Commodity Futures Trading Commission proposal to create a lower threshold to get the code drew worries that the SEC may have similar intentions, however.

The TRID Improvement Act also incorporates Rep. Ed Royce’s (R-Calif.) National Securities Exchange Regulatory Parity Act ( H.R. 4546), which would exempt from state blue-sky laws any stocks qualified to trade in the national market system. Only securities listed or eligible for listing on the New York Stock Exchange, NYSE American, or Nasdaq get the exemption now.

H.R. 3978 has language that would reduce the amount the SEC can put in its reserve fund to $48 million this fiscal year in another provision. The commission each year can put up to $50 million into the fund, which the Trump administration has pushed to eliminate. The SEC has said it uses the fund for technology initiatives.

The fund, created under the Dodd-Frank Act, represents “an extension of the agency’s regular appropriation rather than the emergency reserve it was intended to be,” according to the White House Feb. 12 budget request.

Support, Opposition

The legislation, which also includes provisions on mortgage disclosures and loan officers, would “cut through layers of red tape and help level the playing field,” House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said on the House floor.

Rep. Maxine Waters of California, the House Financial Services Committee’s top Democrat, said on the House floor the measure could “significantly undermine market stability and gut investor and consumer protections.”

“H.R. 3978 has been dramatically expanded without input from Democrats to include several highly problematic and damaging bills,” she said.

The bill has support from the U.S. Chamber of Commerce, but is opposed by advocacy groups the Consumer Federation of America and Americans for Financial Reform.

The Senate has shown interest in at least some of the legislation. The bipartisan Economic Growth, Regulatory Relief, and Consumer Protection Act ( S. 2155) from Senate Banking Committee Chairman Mike Crapo (R-Idaho) includes a provision that mirrors the National Securities Exchange Regulatory Parity Act.

To contact the reporter on this story: Andrew Ramonas in Washington at

To contact the editor responsible for this story: Seth Stern at

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