Concannon questions foreign access to U.S. markets

NEW YORK (Reuters) - Foreign entities that can directly access U.S. equity markets should fall under U.S. regulatory jurisdiction, a senior partner at electronic market making firm Virtu Financial said on Monday.

The U.S. Securities and Exchange Commission in January proposed new rules for how traders can directly access an exchange or alternative trading system without going through a broker or dealer, a practice known as "naked sponsored access."

The SEC is concerned about unfettered access to exchanges or other trading sites without appropriate safeguards and has asked broker-dealers to control the risks related to market access.

Whether a foreign hedge fund or other entity can directly access U.S. markets needs to be addressed, Chris Concannon, a senior partner at Virtu Financial and a former SEC lawyer in the market regulation division, said at the Reuters Global Exchanges and Trading Summit in New York.

"Personally, we feel like the market deserves to be regulated more," he said. "Naked sponsored access to me is somewhat troubling."

Concannon said he did not share fears that unfettered access might cause damaging disruption to markets, which is a thrust of the SEC's proposed rules for risk management controls for brokers and dealers with direct market access.

However, he said he was concerned about firms that can readily access U.S. markets without falling under the SEC's jurisdiction, especially since his firm, when it goes abroad, is often forced to fall under foreign jurisdiction.

"Naked sponsored access would allow a hedge fund abroad to put its boxes inside a data center and trade directly on our markets in the same way a market maker would trade," he said.

"Yet our U.S. government doesn't really have jurisdiction over that entity. That I kind of question. Because when we go abroad and perform that same behavior, we're deemed a market marker and trigger registration requirements in some jurisdictions abroad.

"So it's ironic that the U.S. securities regulation is actually not as tight as other markets in this area."

(Reporting by Herbert Lash; additional reporting by Rachelle Younglai; editing by John Wallace)