SEC proposes rules for technological systems

By Staff | March 8, 2013 | Last updated on March 8, 2013
2 min read

The Securities and Exchange Commission (SEC) has proposed new rules for market participants that will require them to put in place comprehensive policies and procedures with regards to their technological systems.

According to an SEC release, the proposal, called Regulation SCI, would replace the current voluntary compliance program with enforceable rules designed to better insulate the markets from vulnerabilities posed by systems technology issues.

“While it’s not possible to prevent every technological error that market participants may commit, we must ensure that our regulations are designed to minimize their impact on our markets and ultimately investors,” says SEC Chairman Elisse B. Walter. “Reg SCI would provide more explicit technology and control standards to help ensure that our markets remain resilient against technological vulnerabilities.”

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The proposed rules mandate ensuring core technology meets certain standards, conduct business continuity testing, and provide certain notifications in the event of systems disruptions and other events.

“Self-regulatory organizations, certain alternative trading systems, plan processors, and certain exempt clearing agencies would be required to carefully design, develop, test, maintain, and surveil systems that are integral to their operations,” says the release.

Today’s securities markets rely extensively on technology more than ever before. As with any industry, the consequences can be significant when technology goes awry.

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The high-speed automated trading has heightened the potential for technological issues that broadly impact the market.

A series of measures were adopted in the wake of the May 2010 flash crash to limit the damage caused by technological errors. One such measure introduced by the SEC includes rules to halt trading when a stock price falls too far, too fast.

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The staff of have been covering news for financial advisors since 1998.