U.S. SEC promises upgrades after critical report

WASHINGTON, Dec 17 (Reuters) - The U.S. Securities and Exchange Commission pledged on Monday to do a better job at inspecting the work of lower-level regulators that police brokerages and stock exchanges, including the New York Stock Exchange (NYX.N) (NYX.PA) and Nasdaq (NDAQ.O).

Responding to a critical report from the investigative arm of Congress, the SEC also promised to upgrade its computer systems to make more use of referrals and advisories that it gets from the markets on possible insider trading problems.

SEC Chairman Christopher Cox said the investor protection agency agrees with some suggestions made by the Government Accountability Office (GAO) in the new report.

"It made a handful of recommendations with which we strongly concur and we are already in the process of implementing them," Cox told reporters after an SEC meeting.

The GAO's report came amid an upsurge in insider trading cases, as well as dramatic structural changes among the organizations that police brokerages and exchanges.

Known as self-regulatory organizations, or SROs, these groups include the Financial Industry Regulatory Authority (FINRA), formerly known as NASD, and the Big Board's in-house trading floor oversight unit, NYSE Regulation.

Both units conduct internal audits of themselves, but the GAO said the SEC has made inadequate use of these audits and should use them more. The SEC said that it would.

In addition, the SROs send referrals and advisories to the SEC on problems they spot in the markets, including possible insider trading and other potential misconduct.

The GAO said the computer system at the SEC's enforcement division needs to be improved to allow lawyers to search such data better in making decisions on cases.

"With respect to a searchable database, we already have access to the information and we use it in our investigations," Cox said.

"But it is an improvement to put it on investigators'" computers, Cox said. "We will do that in 2008."

The GAO report was requested a year ago by Iowa Republican Sen. Charles Grassley. In a Dec. 13 letter to Cox, Grassley asked for "an explanation of why the SEC has been so slow to act" on the SRO internal audits issue. Grassley said the GAO four years ago urged the SEC to make more use of the audits. (Reporting by Kevin Drawbaugh and Rachelle Younglai, editing by Gerald E. McCormick)