The US Securities and Exchange Commission (SEC) has voted to adopt new rules on technology infrastructure for key market participants and operators.
Regulation Systems Compliance and Integrity (RegSCI), requires affected firms to reduce the occurrence of system issues and become more resilient when problems occur.
The introduction of RegSCI follows a spate of market glitches, such as the botched listing of Facebook on Nasdaq in May 2012. The launch of the IPO was delayed due to technical problems on the exchange and led to widespread confusion over whether orders has been sent and filled, ultimately resulting in Nasdaq offering US$40 million to affected firms.
Other technology glitches have hit Nasdaq and other exchanges in both equities and derivatives, often resulting in suspensions of trading, in some cases for several hours.
Regulators have become concerned that, as markets become more complex and increasingly rely entirely on automated systems, that technology issues can cause significant disruption and, as such, should face tighter regulation.
The SEC said the new rules will help provide better protection for investors and improve the effective operation of US markets.
“The rules adopted today mark an historic shift in the Commission’s regulation of the US securities markets that will better protect investors by requiring comprehensive new controls for the technological systems that form the core of our current markets,” said SEC chair, Mary Jo White.
“The rules provide greater accountability for those responsible for our critical market systems, helping ensure that such systems operate effectively and that any issues are promptly corrected and communicated to market participants and the Commission.”
Under the rules, self-regulatory organisations, alternative trading systems (ATS), plan processors and some clearing agencies, will need to put in place policies and procedures for their technology systems.
Firms will need to ensure they take appropriate steps to prevent glitches where possible and to adequately respond when glitches occur to ensure disruption is minimised. They will also be required to provider details of any problems to the SEC, their members and market participants.
The industry as a whole will also be required to carry out coordinated testing to see how markets react to possible glitches and whether their technology infrastructure can cope with unexpected market shocks.
The rules will become effective within 60 days and firms will have nine months to comply with the requirements after this date. Co-ordinated testing is expected to be completed with 21 months.