NEW YORK, Sept 24 Technical glitches and other
operational errors at U.S. exchanges cannot be tolerated, given
the high-speed, interconnected nature of the markets, the head
of the U.S. Securities and Exchange Commission said on Tuesday.
A number of recent high-profile glitches at exchanges and
trading firms have roiled markets and shaken investor
confidence, prompting the SEC to increase its focus on
"The key is a zero tolerance objective," SEC Chair Mary Jo
White said at the Bloomberg Markets 50 Summit in New York. "We
obviously know that in any system you are going to have issues,
and you also need to have a very robust way to respond, a very
quick way to respond, a good way to communicate when you
actually do have an incident."
White, who is scheduled to address traders next week at the
Security Traders Association's conference in Washington D.C.,
also said fines and other enforcement actions could be used in
the future to deal with such cases.
Under White's predecessor, the SEC leveled a penalty of $10
million against Nasdaq OMX Group Inc in May as a result
of technical problems and other mistakes related to Facebook
Inc's initial public offering a year earlier.
At a meeting on Sept. 12, White asked the heads of the
exchanges to come up with "a very robust action plan" to prevent
and address technical problems in the wake of a three-hour
trading outage in Nasdaq-listed stocks.
The Aug. 22 outage was caused by a software bug. That same
week, a technical error at Goldman Sachs Group Inc led to
a flood of options orders accidentally flooding the markets, and
then less than four weeks later, a software bug connected to a
unit of NYSE Euronext was at the root of a brief halt
across U.S. options markets.
The SEC proposed reforms in March, called Regulation Systems
Compliance and Integrity (SCI), to strengthen the robustness of
the technology of the exchanges and large alternative trading
The proposal, which has met some resistance from the
industry, was fast tracked after Knight Capital Group, now
called KCG Holdings Inc, nearly collapsed after a
software error led to a $461 million trading loss.
The exchanges, along with the Financial Industry Regulatory
Authority, wrote a letter to the SEC in July saying that, while
they support the main objectives of the regulation, they have
concerns its obligations would result in a "significant cost
burden" on the exchanges.
"SCI is a proposal ... What we've asked of all market
participants, including the exchanges, is that they engage
constructively with us on ... having a very robust set of rules
that are workable," White told Reuters on the sidelines of the