Changes to SEC exam priorities highlight trends in US equities markets

The SEC Division of Examinations recently published its annual updated statement of priorities for the program of examinations it runs for accredited capital markets professionals.

This statement provides an interesting insight into the current trends affecting the US capital markets, particularly in section III, which deals with the changes to broker-dealer examinations. Three important market trends emerge.

Trend 1: Extended hours trading and market impact

The SEC says, “Areas of review will include broker-dealer trading practices associated with extended hours trading …”

Over the last 12 months, momentum has continued to build behind extended hours trading. New trading venues (Alternative Trading Systems and exchanges) and established exchanges are moving forward with trading sessions outside of traditional market hours.

Vendors and infrastructure providers are working to support this trend. In May, the Operating Committees of the Securities Information Processors (known as Processors or SIPs) announced that they intend to submit a Plan Amendment to the SEC to extend their operating hours.

The SEC’s priorities make clear that accredited broker-dealers need to understand the operational challenges that 24-hour trading brings.

Other regulatory bodies are also focused on these developments. For example, in January 2025 FINRA highlighted concerns, including the potential for inadequate supervision and reporting failures during extended hours trading.

Trend 2: Routing, execution, and Regulation NMS updates

The SEC says it will “review broker-dealers’ routing and execution of orders. These reviews will include: (1) best execution; (2) the pricing and valuation of illiquid instruments such as variable rate demand obligations, other municipal securities, and non-traded REITs; and (3) disclosures regarding order routing and order execution information, including as required by Rule 605 under Regulation NMS”.

Changes to SEC Rule 605 are due to be introduced in August 2026. These will extend best execution obligations to include broker-dealers, as well as market centers. They also extend what data needs to be disclosed, and how disclosure should take place.

The SEC clearly wants to ensure that prospective broker-dealers understand their responsibilities for achieving and disclosing best execution. But these changes will generate operational overhead for broker firms, from deploying and testing software changes, and from updating internal workflows and processes.

Along with the uncertain outlook for Rule 611, changes to Regulation NMS seem likely to dominate the regulatory landscape for US firms in 2026.

Trend 3: Bona-fide market making and Regulation SHO

The SEC also focuses on how short-selling regulations are applied: “With respect to Regulation SHO, the Division will review whether broker-dealers are appropriately relying on the bona fide market making exception, including whether quoting activity is away from the inside bid/offer.”

The bona-fide market making (BFMM) exception allows firms to ignore the short selling and close-out requirements of Regulation SHO when carrying out market-making activities. However, there are concerns that this exception is being applied too widely.

FINRA recently highlighted that other proprietary trading activities may be incorrectly included under the exception. For example, quoting at or near the inside bid/offer, and displaying quotations or IOIs only to a subset of clients.

The SEC’s examination priorities indicate that they too are concerned to ensure that broker-dealers understand exactly when and how the BFMM can be applied.

Preparing for broker-dealer compliance in 2026

The Examinations Division’s statement on its priorities for 2026 is not only of interest to prospective brokers preparing for their exams. Their employers will also appreciate this snapshot of regulators’ concerns at a critical time for US markets.

Extended market hours are becoming increasingly normalized, and both new and established venues are continuing to innovate. As the landscape evolves, it’s clear that the SEC is keen to ensure that the twin pillars of the US regulatory establishment (Regulation NMS and Regulation SHO) remain fit for purpose.

For broker-dealer firms, it’s key to invest in ensuring that systems and processes are in place to meet the ever-changing competitive and compliance requirements of 2026.