We've suggested before that sponsored access is a huge issue that seems to have been shunted off to the periphery of the high-frequency trading discussion. Lime Brokerage put the issue on the map a bit more prominently with its much-discussed comments to the SEC, and the issue seems to be drawing a bit more attention. 

Advanced Trading notes that sponsored access has "been around for seven years," but it is drawing lots of new scrutiny because of the potentially lethal combination of sponsored access and high-frequency trading. What if a hi-fi buys-die outfit, operating under the ID of its hi-fi friendly broker-dealer, submits a blizzard of faulty or even fraudulent orders directly into a market center's systems. It could really wreak havoc. Especially in light of the fact that canceling or undoing those trades is very difficult, if not impossible in a short amount of time. 

So the issue of whether there ought to be some pre-trade control that is the responsibility of the sponsoring broker-dealer is critical. Lime Brokerage uses the term Naked Access to refer to sponsored access with no pre-trade risk controls. It's unclear how widespread this practice is. But it may be at uncomfortable levels already. 

The good news is that we're sponsoring a free editorial webinar on hi-fi trading, which will offer a good chance to learn much more about the state of affairs. We'll feature two leading lights in the field: Kevin McPartland, of the Tabb Group, whose reports on this and related topics are really must-reads, and George Hessler, executive vice president of Lime Brokerage, a pioneering firm in this field. He'll address some of the regulatory implications. The free event will be held at 2 PM on Sept. 10. - Jim