The Securities and Exchange Commission (SEC) will focus on algorithmic trading strategies and how broker-dealers interact with alternative trading systems (ATS) amongst a list of 2014 priorities, it has said.
The regulator will ensure buy-side firms in particular have sufficient controls around algorithmic trading and investment strategies including adequate maintenance to ensure they comply with SEC rules.
In a statement, the SEC said it would focus on whether firms using quantitative models for trading or investment were using them to manipulate markets and had maintained proper documentation and records regarding such models.
For broker-dealers, the Commission will focus on controls around market access, in particular, “erroneous orders; the use of technology with a focus on algorithmic and high-frequency trading; information leakage and cyber security,” it said, adding that it would look specifically to manipulative trading strategies such as marking the close and quote spoofing.
Under its broker-dealer oversight programme, the SEC will also examine whether sell-side firms are abusing the market making exemption to recent short selling regulation (Reg SHO) and relationships with ATSs.
The SEC will also “examine whether firms are appropriately applying the Market Access Rule to their proprietary trading, as well as the adequacy of books and records maintained by broker-dealers that provide market access through master/subaccount arrangements,” it said in the priorities document, released on Thursday.
For fixed income trading, the Commission will examine the effect of market structure on execution quality for fixed income ATSs in determining what changes should occur within the market, it said.
Other priorities include reviewing exchanges going through changes in ownership, such as NYSE Euronext, which last year was acquired by US derivatives market operator Intercontinental Exchange, and a tie-up announced late last year between equities exchanges operated by Direct Edge and BATS Global Markets.