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SEC says bolstering market technology standards a priority
NEW YORK |
NEW YORK (Reuters) - With high-profile technical glitches costing U.S. exchanges and trading firms hundreds of millions of dollars in recent months, U.S. regulators are taking a deeper look at creating enforceable technology review standards for exchanges and market participants.
"If there is a technology glitch things can get real bad real fast, so market participants need to reassess their controls over technology," David Shillman, associate director for the U.S. Securities and Exchange Commission's Division of Trading and Markets said on Thursday.
The SEC has scheduled a roundtable discussion for October 2 with industry experts on the prevention of technological errors and ways to address them when they do occur.
One expected topic of discussion is whether to make the SEC's voluntary automation review policies, or ARP, into enforceable rules that are expanded to cover more areas and include more market participants, Shillman said at an equity options conference in New York.
SEC Chairman Mary Schapiro said that when she announced the technology roundtable she had asked SEC staff to speed up efforts to propose a rule that would set industry-wide standards "to ensure the capacity and integrity" of market systems. She first brought up the idea of making ARP mandatory more than a year ago.
ARP originated after the market crash of 1987. While it has evolved over the years as markets have become more automated, there are plenty of areas where it could be broadened, Shillman said.
"It focused on trading systems, which of course are key to the markets, but I think we recognize that other technologies are important to the markets as well, such as market data, routing services, issuer services and the like."
The program today applies to exchanges, some alternative trading systems and clearing agencies, but the SEC is also looking at bringing large broker-dealers, advisers, and dark pools into the framework, Shillman said.
The SEC roundtable on how "appropriate controls" for implementing technology rules could support a reliable market, was announced in August, two days after a software error cost Knight Capital Group $440 million in trading losses and nearly bankrupted the firm.
The SEC is also investigating Nasdaq OMX Group for its handling of Facebook Inc's botched May 18 initial public offering, which led to hundreds of millions of dollars in losses among market-making firms and brokerages.
In March, BATS Global Markets, the No. 3 U.S. equities exchange, took the extremely rare step of withdrawing its IPO due to technical glitches on its own platform.
(Editing by Eric Meijer)
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