From the Regulators

Rules aim to reduce the occurrence of technology issues and improve the U.S. securities industry’s resilience

By James Langton |

In a bid to step up efforts to prevent technology failures in U.S. securities markets, regulators are moving ahead with new rules designed to strengthen the technology infrastructure.

The U.S. Securities and Exchange Commission (SEC) has voted to adopt rules that impose requirements on certain market participants that aim to reduce the occurrence of technology issues, and improve the industry's resilience when these sorts of problems do occur.

Under the new rules, known as Regulation Systems Compliance and Integrity (Regulation SCI), self-regulatory organizations, certain alternative trading systems (ATSs), plan processors, and certain exempt clearing agencies will be required to have comprehensive policies and procedures in place for their technological systems. The rules also provide a framework for these entities to take corrective action when systems issues do occur; provide notifications and reports to the SEC regarding systems problems and changes; inform the market about systems issues; conduct business continuity testing; and conduct annual reviews of their automated systems.

"The rules adopted today mark an historic shift in the commission's regulation of the U.S. 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," she noted.

Industry lobby group, the U.S. Securities and Financial Markets Association (SIFMA), issued a statement supporting the SEC's move. "SIFMA supports Regulation SCI's goal of market resiliency, which is a critical responsibility that all market participants share. Regulation SCI is a meaningful step forward to help ensure that the financial industry's critical infrastructure can support robust market activity and avoid disruptions that could undermine investor confidence in the markets," said Randy Snook, SIFMA's executive vice president, business policies and practices.

"While we will need to review the scope and details of this rule with our members, we are encouraged by the SEC's focus on critical market participants," he added.

The new rules become effective in 60 days. Entities that are subject to Regulation SCI generally have to comply with the new requirements nine months after that. Although, they will have 21 months from the effective date to comply with industry- or sector-wide coordinated testing requirements. And, when an ATS first meets the volume thresholds in the rules, it will have an additional six months to comply.