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U.S. SEC enacts rules to protect exchanges, dark pools from glitches

11/19/2014 | 11:40am EDT

WASHINGTON (Reuters) - U.S. regulators adopted a new rule Wednesday that requires stock exchanges and some larger trading platforms to take steps to protect against market disruptions such as technology glitches or natural disasters.

The Securities and Exchange Commission's rule, approved in a unanimous vote, was sparked by a series of major blunders over the past several years, from Nasdaq OMX's botched handling of Facebook's initial public offering to the shutdown of the stock market during Hurricane Sandy.

The SEC's rule replaces the current regulatory model in which exchanges rely on voluntary guidance to address security and stability issues with their systems.

It requires exchanges, some large alternative trading platforms and several self-regulatory groups to establish and enforce policies to ensure their systems are resilient and secure.

The rule is expected to impact about a dozen large equities trading platforms run by companies such as Goldman Sachs and Credit Suisse. The SEC decided to exclude fixed income platforms, as those markets are less liquid or automated in general.

The rule will also require exchanges and trading platforms to conduct annual compliance reviews and submit them to senior management for feedback.

The rule was first proposed in early 2013, but efforts to complete it were dogged by disagreements on Wall Street and at the SEC over its scope and some of its provisions.

Stock exchanges and some SEC commissioners were upset that the initial plan did not capture more large broker dealers who match investors' orders internally.

They pointed to the near-collapse of Knight Capital, a brokerage that experienced a technological glitch and suffered a $461 million (294 million pound) loss, as an example for why more firms should be covered by the rule. Knight was later rescued by Getco, and is now known as KCG Holdings

In addition, SEC Democratic Commissioner Luis Aguilar had previously raised concerns about whether the rule had enough teeth and went far enough toward holding exchanges and their top executives accountable.

Aguilar said Wednesday he believes the final rule has been improved to address some of his concerns. The other SEC commissioners also said they were generally comfortable with way the final rule turned out.

SEC Chair Mary Jo White said the agency's work in this area is not done, and that the staff will develop similar rules for other types of firms including brokers and transfer agents.

(Reporting by Sarah N. Lynch; Editing by Meredith Mazzilli)

By Sarah N. Lynch


© Reuters 2014
Stocks mentioned in the article
ChangeLast1st jan.
COMPLETE FINANCIAL SOLUTIONS, INC. -20.00% 0.008 Delayed Quote.60.00%
EXCHANGE BANKSHARES, INC. -2.11% 44.6 Delayed Quote.-1.11%
META PLATFORMS, INC. 0.40% 139.39 Delayed Quote.-58.68%
NASDAQ 0.25% 59.84 Delayed Quote.-14.69%
OMX NORDIC 40 -0.12% 1984.15 Real-time Quote.-18.98%
THE GOLDMAN SACHS GROUP, INC. -1.17% 305.33 Delayed Quote.-17.69%
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