Compliance

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Ivy Schmerken
Ivy Schmerken
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Tweaking Reg SCI, 5 Points of Contention

The SEC’s proposed Regulation SCI is intended to protect market technology from outages and technical glitches. But industry commentators contend the rule doesn’t include all market participants and underestimates the implementation costs. Here are five areas that market participants would like to change.
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The SEC has proposed Regulation SCI (Systems Compliance and Integrity) to combat the string of technical glitches that have plagued US stock and options markets. Reg SCI would require key market participants to have comprehensive policies and procedures to ensure their systems operate in the manner intended. While Reg SCI would apply to national securities exchanges, significant alternative trading systems (ATSs), clearing agencies and plan processors, it skips brokers not operating ATSs. One of the major objections from the comment letters is that Reg SCI would not have prevented Knight Capital's software induced trading loss that spewed erroneous orders for 45 minutes. And Reg SCI doesn't require that firms have kill switches.

Definition

Some commentators argue that Reg SCI is too broad and that the scope of "SCI events" needs to be narrowed. An SCI event includes disruptions, compliance issues and intrusions. Some commentators argued that systems disruptions events should be limited to those with a "material impact on the market," according to a summary by attorneys with WilmerHale LLP. Some events captured by the current definition, such as smooth rollover to a backup system or queuing of data or message in a system, wouldn't merit reporting.

 

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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