WASHINGTON The U.S. Securities and Exchange Commission is working toward strengthening oversight of algorithmic trading, with the regulator's staff currently developing a recommendation for a record keeping-related rule, a member of its trading division said on Friday.
Some time this year, the staff will recommend the commission consider a rule that "would improve regulatory oversight over algorithmic trading by enhancements of record keeping of broker-dealers," said John Roeser, associate director in the trading and markets division.
The form of fast-paced automatic trading relies on complicated mathematical formulas, with little to no human intervention on decisions to buy or sell. The electronic automation has made trading cheaper and more efficient, but the high speed can cause glitches to cascade quickly through the market.
Regulators in the United States and around the world are working to better understand and contain the risks that algorithmic trading can pose to financial markets, making traders worried they will have to publicly share their closely guarded formulas.
In November the Commodity Futures Trading Commission proposed new rules to limit disruptions in the futures market by imposing risk controls and safeguards around the use of trading algorithms. The proposed rules, which would affect trading firms, clearing members and exchanges, are now open for a 90-day public comment period.
Speaking at a meeting of securities lawyers in Washington, Roeser said the SEC would be sensitive to the proprietary nature of the firms' information, but that the regulator also wants to ensure "complete, accurate useful records are kept."
"I think it is essential those records be available to the commission to inform market oversight," he said, adding that the records would also help it conduct investigations.
Also speaking at the meeting, Stephen Luparello, director of the SEC's Division of Trading and Markets, said that better record keeping could also help a company "adequately supervise its business."
(Reporting by Lisa Lambert; Additional reporting by John McCrank in New York; Editing by Cynthia Osterman)