SEC's Aguilar urges swift action to avoid trading glitches

WASHINGTON Fri Feb 22, 2013 11:49am EST

WASHINGTON Feb 22 (Reuters) - U.S. securities regulators should move quickly to adopt rules aimed at preventing technology errors from sending the markets into a tailspin, Securities and Exchange Commission member Luis Aguilar said on Friday.

Pointing to a string of glitches, from the May 6, 2010, "flash crash" to the technology debacles last year at Nasdaq OMX and Knight Capital, Aguilar called the failures unacceptable.

"The commission needs to do much more to update our regulatory framework and ensure that our capital markets develop and maintain systems with sufficient capacity, integrity, resiliency, availability, and security," said Aguilar, a Democrat, in a speech at the Practising Law Institute's "The SEC Speaks" conference.

The SEC has been reviewing whether to update market structure rules for the past several years. But it accelerated efforts last year after high-profile incidents, including Nasdaq's botched handling of Facebook Inc's initial public offering and Knight Capital's software problems which led the brokerage nearly to go bankrupt amid a $440 million trading loss.

One area under consideration by exchanges, brokerages and regulators is whether to deploy a "kill switch" mechanism that could be used to halt trading before errors get out of control.

Aguilar endorsed the idea in his speech, saying the SEC needs to press ahead and develop it into a workable policy.

"A multi-layered approach to market structure with multiple, independent, coordinated, and overlapping risk checks are critically important," he said. "A kill switch would be one such important safeguard."

Another regulatory proposal that is forthcoming by the SEC would require exchanges, trading platforms and brokerages to conduct business continuity testing, provide notifications of disruptions and meet certain technological standards.

SEC Chairman Elisse Walter told reporters earlier this week that the proposal, which will eventually establish enforceable rules to replace a voluntary standard, is a top priority on the agency's rulewriting agenda.

Aguilar said he believes the rules are very important, noting that shortfalls in business continuity planning were evident during Hurricane Sandy last year when the public markets shut down for two days.

"I hope that we soon act on the proposal," he said. "The many malfunctions have amply demonstrated that a voluntary environment is not acceptable."

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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