New Rules by SEC to Avoid Technical Problems

New Rules by SEC to Avoid Technical Problems

The U.S. Securities and Exchange Commission (SEC) on Wednesday adopted new rules requiring several market players to protect themselves against disruptive events such as computer failures or natural disasters.

The stock exchanges are now “dependent on sophisticated technology, operating at high speed, complex and interconnected” which “increases the risk of operational problems that can have a significant impact on the markets and its participants,” said the SEC in a statement.

As was also observed, “for more than twenty years’ supervision by the Commission of the technological infrastructure of the US equity markets obeyed the principles, developed in the late 1980s and in the 1990s” and based “on the voluntary participation” of most actors on the market.

The new rules aim to avoid duplication of technical problems such as flash crash of Wall Street in May 2010, the day of the failed IPO of Facebook in May 2012 or the termination of any activity for more than three hours like that of Nasdaq in August 2013.

The objective is that market participants are better prepared to cope with external special events, such as Hurricane Sandy that in October 2012 had forced Wall Street to close for two days, a terrorist attack or hacking.

These rules apply to multiple platforms of exchanges including the New York Stock Exchange or Nasdaq, clearinghouses, several regulators and some alternative brokerage platforms, or “dark pools.”

These entities will be required to, among other regularly conduct stress tests, to establish a plan for recovery from a disaster or immediately notify the SEC of any incident.

“The failures must be minimized and, when they occur, must be resolved as quickly as possible and promptly reported to the Commission,” said SEC Chairman Mary Jo White.

However, several commissioners of the SEC expressed concern that the new rules could not apply to brokers or brokerage companies, using HFT for their own account.

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