NEW YORK, July 18 U.S. regulators are taking a
deep look at automated trading firms to determine whether
adequate risk controls are in place to prevent major technology
glitches or at least minimize their impact.
The Financial Industry Regulatory Authority said on Thursday
it sent out targeted examination letters to 10 high-frequency
trading firms this week asking for detailed information on the
testing and supervision of trading algorithms and other
FINRA also asked the firms to describe any instances in
which they had a malfunction with an algorithm or trading engine
that had a major financial impact to the firm or caused a market
"This sweep is part of our effort to take a deeper dive into
the area of technology controls given the increased reliance on
technology," said FINRA spokeswoman Nancy Condon.
FINRA said in January that it planned to take a closer look
at high-frequency trading practices this year following a
software glitch at automated trading firm Knight Capital Group
The glitch caused thousands of unintended trades, rattling
the stock markets, costing Knight $461 million, and leading to
the firm's sale to rival Getco LLC for $1.4 billion. The
combined company is now called KCG Holdings Inc.
The incident was one of several high-profile technology
problems that jolted the securities industry last year. Others
included the failed initial public offering of stock exchange
BATS Global Markets, and Nasdaq OMX Group's botching of
Facebook's market debut.
The U.S. Securities and Exchange Commission announced a
technology roundtable just two days after the Knight glitch, and
former Chairman Mary Schapiro 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.
New rules were proposed in March.