The SEC Expects the Best from the Market Fix-It Brigade

Stock Market


On the morning of August 22, the Nasdaq OMX Group (NASDAQ:NDAQ), which operates the eponymous tech-heavy exchange, reported that it was having problems managing quotes for stocks listed on multiple exchanges. Trading on the Nasdaq was halted for about three hours, and shares of the exchange operator closed the day down 3.4 percent.

Immediately following the glitch — just one of several to occur over the past few years, both at the Nasdaq and at the NYSE Euronext (NYSE:NYX) — Securities and Exchange Commissioner Mary Jo White called for a meeting with the leaders of the exchanges and the leaders of self-regulatory organizations such as FINRA (Financial Industry Regulator Authority), DTCC (Depository Trust & Clearing House Corporation), and the Options Clearing Corp. Together, these organizations (SROs) form the architecture of the financial markets.

The meeting was held on September 12, and White asked the SROs to submit assessments of market infrastructure as well as “concrete measures designed to address specific areas where the robustness and resilience of market systems can be improved.”

She continued: “The investing public deserves no less.” She gave the SROs 60 days to respond.

On Tuesday, NYSE Euronext and the other self-regulatory agencies called on by White reported that they had been hard at work over the past month “on their collective plans to strengthen the resilience, performance, disaster recovery capability and governance of the critical infrastructure of the US capital markets.” Including, of course, the specific issues that played a role in the August Nasdaq interruption.

“The SROs have come to general agreement on certain recommendations and preliminary implementation timetables,” they wrote on Tuesday. The details of the proposals should be opened for public comment soon.

Bloomberg Television asked White about her expectations for the SRO responses. “What I’m expecting to receive are very concrete suggestions with timelines within the five issues we outlined,” she said. Those issues, as outlined by the SEC, are:

    • Provide comprehensive action plans that address the standards necessary to establish highly resilient and robust systems for the securities information processors (SIPs) including testing standards and disclosure protocols.
    • Identify and provide assessments of the robustness and resilience of other critical infrastructure systems.
    • Provide SIP plan and/or rule amendments addressing the issuance, effectiveness, and communication of regulatory halts.
    • Review rules relating to the trade break process and procedures to reopen trading following a trading halt and provide amendments to those rules as necessary.
    • Provide rule amendments to implement “kill switches” that would allow exchanges to shut down trading in the event of technological failures, and review and consider other potential risk mitigation mechanisms.

Here’s how the major U.S. indexes traded on Wednesday:

Dow Jones Industrial Average Index Chart - Yahoo! Finance

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